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UKRAINE


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 49,537 41,380 37,600 55
         
GNI per capita
 US $ 970 770 720 137
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 318 - (28/06/07)

Looming elections could resolve the crisis 
For three months Ukraine has been without a proper government. It has been rocked by a power struggle between pro-Western President Viktor Yushchenko, who has pledged to bring the country EU and NATO membership, and Prime Minister Viktor Yanukovych, who returned to politics last year, after his party won the majority of seats in parliament forming the ruling coalition. Yushchenko is the hero of the Orange Revolution of late 2004, a pro-Westerner to his fingertips. Yakunovich tilts to Russia, or rather has so far, with an intriguing twist towards the West of late.

Yushchenko and his arch rival Yanukovych agreed on May 27th to hold snap elections in a bid to end the protracted political crisis. It began after inconclusive March elections on April 2nd, when President Yushchenko dissolved Ukraine's parliament, or Rada, and called for new early elections. He accused his old rival of engineering a creeping coup by coaxing legislators to defect from other parties to give Mr. Yanukovich the votes he needs to change the constitution and emasculate his powers. 

After a long struggle for power in which Yushchenko fired three judges, Prime Minister Yanukovich agreed to new elections. The two men left it to parliament to negotiate a date, and it is going to be September 30th.

Opinion polls suggest the Party of the Regions will get the most votes, as it did last year, around 40%. Yet Yushchenko's tough action in dissolving parliament and seizing back power is expected to bring some disillusioned Orange voters back to the fold, making the contest tight.

Orange Revolution partners trade allegations 
But this requires his former Orange Revolution partners to compose their differences promptly or lose heavily to the Party of the Regions, which is more united. The three estranged parties that had led the 2004 Orange Revolution against election fraud had been engaged in difficult talks to reunite, but their negotiations fell apart in mid-June. They traded allegations of betrayal on June 20th, blaming each other during an open parliament session for the failure to form a working government after 82 days of coalition talks. 

President Viktor Yushchenko's Our Ukraine party initially blamed the collapse on a disagreement with the Socialists over the parliamentary speaker's job, but later said the main disagreements were over policy, such as Ukraine's pro-Western ambitions. 

"We had not a single dispute left," countered former Prime Minister Yulia Tymoshenko, who was slated to return to her former job if the Orange coalition reformed. "Why then have they started to talk about principles? ... They did not want to create this coalition, they wanted to spoil the process." 

Our Ukraine has said it is time to widen talks to include other parties, which could pave the way for an awkward alliance with Yushchenko's 2004 presidential election rival, Viktor Yanukovych, whose pro-Russian Party of Regions won the most votes in the March election. Tymoshenko's bloc came in second, winning more than Yushchenko's party and the Socialists combined. 

Yanukovych's pro-Russian party said it was ready to hold talks with all the parties, and Our Ukraine appeared eager to start. The bitter falling-out between Yushchenko and Tymoshenko last year poisoned relations between their parties, and many analysts have said Yushchenko sees Yanukovych as a more reliable partner than Tymoshenko. "Today we have a simple choice: either a coalition or an election mess," said Our Ukraine's Roman Bezsmertny. "We are for a coalition." 

Yanukovych, whose party dominates in Ukraine's Russian-speaking east and south, told journalists that the aim should be a coalition that can unite the country. He added that the party that won the most votes should be able to name the prime minister, but he did not answer whether he would insist on the job for himself. 

Uniting with Yanukovych could prove politically damaging for Yushchenko, whose party campaigned on the slogan "Independence Square was not in vain," a reference to the mass protests they led against Yanukovych's ballot-stuffing attempt to win the 2004 presidency. 

"To form a coalition with the Socialists and Tymoshenko's bloc might mean that some politician would lose, but to form a coalition with the Party of Regions would mean that our national interests lose," said Our Ukraine's Mykola Katerynchuk, signaling a division within the president's party. 

Tymoshenko appealed to Yushchenko to intervene. "With a word the president can stop all the insinuation and all the misunderstanding," she said. "We won't leave the negotiations. We will try to create this natural coalition till the end." In a last-minute bid to overcome the differences, Socialist Party leader Oleksandr Moroz said he would surrender his demand to become parliamentary speaker. But he added that he would only do this if all presidential appointees were named in the coalition agreement. 

Our Ukraine's Petro Poroshenko responded that he thought the proposal was "positive," but added that the premiership should not go to Tymoshenko - a suggestion she would never accept. "Now all that's left is for Yulia Volodymyrivna to give up the ambition to be prime minister."

Putin regrets Ukraine situation, hopes crisis ends soon - extended
Russia's president said on June 22nd that he regrets the current political crisis in Ukraine and hopes the Ukrainian authorities will resolve the situation soon. "We hope our main partner in the former USSR and our major economic and political partner in the world will overcome these problems as soon as possible," Vladimir Putin said, while opening a meeting with Prime Minister Yanukovych.

The Russian-Ukrainian interstate commission led by the two countries' presidents will meet in Russia in August, Ukraine's prime minister said at a bilateral economic meeting. "We consider today's meeting a preparatory stage for a session of the Putin-Yushchenko commission to be held in Russia in August," Viktor Yanukovych said.

Yanukovych said bilateral cooperation in the defence sector was a priority for discussion between the two countries. "We have agreed to outline joint projects and certain programs in third countries," the Ukrainian premier said. Yanukovych said Ukraine also had concerns over the suspension of joint monitoring of agricultural firms, which he said "damaged agricultural producers in both countries." 

The Ukrainian official said that efforts aimed at boosting economic cooperation had been "fruitful," with trade increasing by almost 38% in the first four months of 2007. In the first ten months of 2006, bilateral trade between the two countries hit $20 billion, up 19% against the same period last year. Fuel and energy remains a key sphere for economic cooperation. For Russia Ukraine is a key country for oil and gas transits to Europe. Russia pumps 15% of its oil exports and over 80% of gas through Ukraine. Yanukovych said aircraft building, research centres, hi-tech products, and the space industry were yet to be addressed.

Yushchenko's Social Initiatives at the National University of "Ostrog Academy"
Yushchenko knows that he has his work cut out to win public support. He announced new social initiatives at the National University of Ogrog Academy in late June.

According to the President, social standards in Ukraine must be revised. He said Ukraine has every possibility to do so, as its economy has been growing during the recent seven years and today's GDP is 8% up on last year. 

Still, he said referring to the international statistical data, upon the UN human development scale Ukraine is only 77th. In terms of salaries Ukraine is on the third place from the end among European countries, just above Moldova and Albania. 

Mr Yushchenko also noted such directions of his social agenda as raising minimal wages, improving budgetary salaries, supporting teachers, doctors and other professionals living in rural areas and encouraging university graduates to work in the villages. At the same time it is necessary to increase financing of the military, to raise pensions, to increase financial aid to mothers having their second child to UAH 15,000 and child aid by 50%, to support many-children families, to improve maintenance of orphaned children and to improve rural medicine. 

The President said his programme could be implemented by the social bloc in the programme of the future Government; however, he would not like his ideas "to be perceived as having any political implication," a disingenuous statement at such a critical moment.

A split nation
This nation of 48 million is split by history and language, and remains divided over whether to embrace the West or Russia. Ukraine is key to the energy security of the EU's US$15 trillion economy. Moscow, increasingly authoritarian at home and assertive with its neighbours, sees Ukraine as vital to its own security, economic interests and regional influence.

Historically, eastern Ukraine -- Yanukovich's power base -- is closely linked to Russia, and most people in the region are native Russian speakers. President Yushchenko is stronger in predominantly Ukrainian-speaking central and western Ukraine, which tilts toward Western Europe. 

The comeback kid
But Yanukovich is likely to prevail. He has undergone one of the most extreme makeovers in global politics. 

Just two years ago, the Russian-backed machine politician was a pariah in the West after he claimed victory in the 2004 presidential elections, which were marred by fraud and a brutal poisoning that left his opponent disfigured. Only the subsequent mass street protests of the so-called Orange Revolution forced him to accept a rerun of the vote, which he lost.

Today, Yanukovich is locked once more in a struggle for supremacy with the pro-Western Orange leader who beat him. But this time, the thousands of protesters occupying Kiev's Independence Square for the past month flew not orange, but the blue colours of Yanukovich's Party of the Regions, and the red and hot pink of his allies, the Communists and Socialists. They dispersed only when Yanukovich defused the crisis by agreeing to hold new elections -- for the second time in as many years -- after his rival dissolved parliament.

With backing from a billionaire metals baron and political coaching from US Sen. Bob Dole's former campaign strategist, Yanukovich was re-elected as prime minister last year. He has positioned himself as a champion of rule of law and democratic values, a visitor to Washington, Brussels and Davos, as well as Moscow.

Yanukovich's comeback is further evidence -- on top of the Gaza Strip, Iraq and Kyrgyzstan -- that the free elections encouraged by the U.S. do not guarantee winners who favour US goals, or even Western-style democracy. Ukraine is adding a fresh twist to the lesson, as Yanukovich adopts the language and institutions of democracy to shed the anti-Western and antidemocratic image that cost him the election 2 years ago.

Gone is Yanukovich's bouffant hairdo, a favourite of Soviet apparatchiks. So too are the Russian advisers and televised meetings with President Vladimir Putin that characterized his 2004 election campaign, though the Russian lower house of parliament, or Duma, has issued two statements supporting him in the current power struggle. He says he wants to be the Ukrainian leader who starts membership talks with the European Union. He even polished his Ukrainian, which he now speaks in public instead of his first language, Russian.

"Time changes people, even Viktor Feodorovich Yanukovich," said Mr. Yushchenko, who is 53, three years younger than his opponent, in an interview. "But the test is in his decisions and actions," he added, accusing Yanukovich of trying to "usurp" power.
How far his makeover goes has implications far beyond Ukraine.

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BONDS

Odessa to place debut Eurobond issue in June

Odessa, the third largest city in Ukraine, plans to issue a debut Eurobond issue amounting to 335 million hryvnias (about US$66 million) at the end of June, Gennady Nechaevsky, head of the securities department at the Odessa City Council, said at a press conference on May 30th, Interfax News Agency reported.
"All the Finance Ministry permissions have been received and talks are underway with interested banking structures. I would like to believe that by the end of June we will have international borrowing. The restrictions put in place by the finance ministry are that the interest rate should not exceed 9.5 per cent, the amount should be up to 335 million hryvnias in a first category currency and the tenor - up to five years," he said. The Eurobonds are to be issued in euros or dollars. "Everything will depend on the interest rate and on the conditions. At the moment it could be either Euro or dollars," he said.

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ENERGY

Ukrtransnafta oil transit via pipelines increases 29%

Ukrainian gas transport monopoly, Ukrtransnafta, increased oil transit via pipelines on Ukrainian territory by 29.1 per cent to 17.337 million tonnes in January-May 2007 compared to the same period of 2006, the company said in a press release, New Europe reported.
Ukrtransnafta increased oil transit 19.8 per cent to 22.317 million tonnes in the first five months of 2007 compared to January-May 2006. Transportation through the Druzhba pipeline system amounted to 11.014 million tonnes, and through the Pridneprovsky pipelines - 11.303 million tonnes. The company transported 4.98 million tonnes of oil to Ukrainian refineries in January-May.

Naftogaz, Marathon to prospect for oil, gas

Ukraine's Naftogaz and Marathon International Petroleum have signed a deal on joint prospecting in the northwest Dnipr-Donets basin. The companies will spend three years assessing the investment potential of a 30,000-square kilometre area and identifying potential hydrocarbons sections, Naftogaz CEO, Evhen Bakulin, said at the signing ceremony, New Europe reported.
The property contains a forecast 200 billion cubic metres gas, 46 million tonnes of condensate and 130 million tonnes of oil, Bakulin said. He said the companies would prospect new viable areas, which Naftogaz has not yet been able to work at due to complex geology. "Signing this agreement with one of the world petroleum industry leaders will enable us to bolster our resource potential in the next few years," Bakulin said.

Boyko sees more gas transit from Caspian pipeline 

The construction of a Caspian pipeline could increase annual natural gas transit through Ukraine by 20-30 billion cubic metres, Ukrainian Fuel and Energy Minister, Yuriy Boyko, in an interview on May 21st, Profile weekly.
"The construction of a Caspian pipeline and increased gas output in Turkmenistan will bring an extra 20-30 billion cubic metres up to the Ukrainian border. That would bring up the issue of the Novopskov-Uzhgorod pipeline and lead to an increase in annual gas transit through our territory by 20-30 billion cubic metres," he said.
The gas transportation network of Ukraine "is running at nearly top capacity, 120 billion cubic metres per year, which amounts to 80 per cent of Russian gas exports," he said.
The construction of the Bogorodchany-Uzhgorod trunk pipeline, a strand of the Novopskov-Uzhgorod pipeline, will be beneficial to Ukraine and Russia, Boyko said. "This project will supply gas to two idle pipelines (Torzhok-Dolina and Ivatsevichi-Dolina) in Ukraine, while Russia will boost its gas export potential by an annual 19 billion cubic metres, with minimum investment and within a very short period," he said.
Natural gas transit to Europe via Ukraine dropped 6.4 per cent to 113.7 billion cubic metres in 2006 because of the abnormally warm weather. Gas transit to CIS countries dropped by 1.3 per cent to 14.7 billion cubic metres over the same period.

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FOOD & DRINK

PepsiCo to buy 80% of top juice manufacturer 

The US-headquartered soft drink giant PepsiCo announced plans to take over Ukraine's largest juice manufacturer, the Interfax News Agency reported on June 7th. 
PepsiCo will pay US$542 million for an 80 per cent stake in the Mykolaev-based Sandora company, a beverage manufacturer controlling close to half of Ukraine's soft drink market. 
PepsiCo has an option of buying the remaining 20 per cent of Sandora in November, according to the report. PepsiCo's worldwide opponent CocaCola has manufactured drinks in Ukraine side the late 1990s. The Sandora purchase by PepsiCo, once complete, will become the largest ever single-shot foreign investment in Ukraine's food and drink industry. 
Sandora will reportedly receive assistance in management from the international trading firm PepsiAmericas, and marketing assistance from PepsiCo itself. Sandora fruit drinks are among the country's best-known and most widely-distributed brands, with packets of Sandora fruit juice widely available even the smallest stores, in Ukraine's poorest and remote villages. 
The company operates four processing plants, two in the Mykolaev region, one in the Kherson region, and one in the Crimean region - all provinces considered in Ukraine to be particularly sunny, and good for growing fruit.

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FOREIGN LOANS

EBRD providing Furshet with US$90m loan

The European Bank for Reconstruction and Development (EBRD) is providing a US$90 million long-term loan to Ukraine's Furshet, the owner of a supermarket chain, for development in Ukraine and in Moldova, Interfax News Agency reported. 
The company will also use the resources to refinance short-term and long-term debt, Aton Usov, press secretary for the EBRD representation in Kiev, told Interfax. The EBRD board of directors approved the loan on May 14th.

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MINERALS & METALS

Metinvest holding to borrow US$1.5bn

The Metinvest holding, which combines the mining and metals assets of Ukraine's System Capital Management (SCM), plans to borrow US$1.5 billion, Metinvest financial director, Sergei Novikov, said at a press conference on June 6th. "We will soon complete the signing of contracts with a number of banks," he said, adding that secured loans would make up two-thirds of this amount, New Europe reported.
The loans will be used primarily to refinance earlier high-interest bank loans, he said. Previously loans were raised at 11-12 per cent annual interest, but now the company can borrow at seven per cent.
Metinvest's net debt now stands at US$800-850 million, and the company could raise US$ seven-eight billion of credit financing if it wanted to, Novikov said, adding that the company could also carry out an initial public offering if it did not have sufficient resources for development. "Whether or not there will be an IPO is up to shareholders, but we must be prepared for this," he said. Metinvest Holding general director Igor Syry said that the company has invested US$1.3 billion in its enterprises in the past two years.

Istil Ukraine steel plant sees losses grow 20% in Q1

The Istil Ukraine mini steel mill posted a pre-tax loss of 23.2 million hryvnias in the first quarter of 2007, up from a loss of 19.31 million hryvnias in the same period last year, Interfax reported. The plant's production grew 95 per cent year-on-year to 563.52 million hryvnias, a source said, Interfax News Agency reported.
Net revenue rose 92 per cent to 554.78 billion hryvnias, with revenue from exports jumping 110 per cent to 454.4 million hryvnias. The plant's operating margin increased to a negative 0.38 percent in the quarter from a negative 5.5 per cent in the first quarter of 2006. The company's receivables increased 32 per cent to 380.32 million hryvnias, while payables jumped 68 per cent to 319.07 million hryvnias.

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