Books on Ukraine
Update No: 294 - (28/06/05)
Revolutions are very exciting. But then come the practical
problems. What next?
That is where Ukraine is after its Orange Revolution late last year. The new
regime has been beset by enormous difficulties especially in the sphere of
energy. The Russians are proving to be difficult negotiating partners, as if to
punish the Ukrainians for voting the wrong way in December. The
recently-announced project to build a gas pipeline from Northern Russia to
Germany under the Baltic Sea, by-passing Ukraine, hitherto its main route to the
west, is another such snub and a costly one to Ukraine who lose the potential
Ukraine, Turkmenistan probe gas deal
But, if Russia can diversify its energy options, so can Ukraine! Energy issues
were the forefront of discussion during late March trip talks between Ukrainian
President Viktor Yushchenko and his Turkmen counterpart Saparmurat Niyazov in
Ashgabat, otherwise two rather unlikely bedfellows. The visit, indeed, ended
without an agreement on a gas deal. At the same time, both leaders sent signals
that they would like to escape from under Russia's energy dominance.
Yushchenko pressed for a 15-year deal under which resource-rich Turkmenistan
would supply Ukraine with nearly all of its gas needs. The Western-oriented
Yushchenko administration is keen to achieve energy-import diversification so as
to decrease its economic dependence on Russia, overwhelmingly its main supplier
hitherto. Doing so would weaken Moscow's political leverage over Kiev.
The mercurial Niyazov, who has built a far-reaching personality cult during his
nearly 15 years in power of independent Turkmenistan, rejected Yushchenko's
proposal. At the same time, the self-proclaimed Turkmenbashi, or father of all
Turkmen, held out the possibility that a deal could be struck down the road.
Niyazov's interest in continuing negotiations with Kiev seems driven by a desire
to open energy export routes that bypass Russia.
Despite the lack of agreement, Yushchenko sounded upbeat at the joint news
conference that concluded his Ashgabat visit. "Our countries and our people
have good traditions and we maintain unique political and economic relations,
which we will raise to a higher level," Yushchenko said during a news
conference broadcast by Turkmen state television. "We will act in the most
rational way and with success."
Ukrainian political analysts noted that Yushchenko, the leader of Ukraine's
Orange Revolution, and Niyazov, Central Asia's foremost tyrant, are political
opposites and, thus, would seem to make awkward negotiating partners. Energy,
however, is responsible for making these political opposites attract.
Though having divergent political systems, Ukraine and Turkmenistan are
generally regarded as sceptics within the Commonwealth of Independent States
grouping of post-Soviet nations. Accordingly, both have expressed an increasing
preference in recent years to pursue their strategic interests through
bilateral, rather than multilateral initiatives.
Ukrainian-Turkmen cooperation in the energy sphere is a central element to both
nations' economic policies. Turkmenistan is the second largest exporter of
natural gas in the CIS after Russia, and Niyazov is extremely interested in
expanding his country's export possibilities. In its turn, Ukraine, under the
terms of gas delivery agreement covering 2002-2006, buys annually 36 billion
cubic meters of Turkmen gas. This makes Turkmenistan the largest gas supplier to
Ukraine. The rest of the country's demand is met by Russia's state-controlled
gas giant Gazprom and other Russian suppliers, as well as by limited domestic
gas extraction. The trade volume between Ukraine and Turkmenistan is second only
to Kiev's trade relations with Moscow.
Beginning in January 2007, however, most Turkmen gas will go to Russia's Gazprom.
In April 2003, Russian President Vladimir Putin and Niyazov signed a 25-year
energy agreement, under which Russia gained the right to purchase the majority
of Turkmenistan's gas production. The deal has the ability to make Ukraine more
dependent than ever on Russia for energy supplies. As one commentary published
in the Vremya Novostei daily suggested, the long-term Russian-Turkmen contract
means that "very soon" Gazprom could become Ukraine's major supplier
of gas - a situation that would carry with it unpleasant geopolitical
implications for Kiev.
Ukraine has developed a three-pronged strategy to prevent this scenario from
happening. First, Kiev seeks to secure the steady supplies of non-Russian gas,
namely from Turkmenistan. An indicator of Kiev's eagerness to cut a deal with
Ashgabat was evident in January, when Niyazov hiked the price of gas deliveries
to Ukraine by 32 percent and Ukrainian officials immediately agreed to pay.
Gazprom, meanwhile, declined to pay the higher price.
During the Ashgabat talks, Niyazov reportedly assured Yushchenko that "in
principle" Turkmenistan could meet its supply obligations to Gazprom --
roughly 60-70 billion cubic meters of gas annually -- and deliver approximately
the same amount of energy to Ukraine. To make it happen, Niyazov suggested, a
Caspian littoral pipeline needed to be built, which raises major geopolitical
questions about this route and the finance involved.
Yushchenko quickly endorsed the concept. But a number of Russian and Ukrainian
experts are wary about whether such a plan is feasible. Many believe that
Turkmenistan is incapable of making such a dramatic increase in production,
noting Turkmenistan's current extracts amount to around 55 billion cubic meters
of gas annually. Given the doubts about Turkmenistan's future production
capacity, Oleksiy Volovych, director of the Odessa branch of Ukraine's National
Institute of Strategic Studies, warned in an interview with the Novye Izvestiya
newspaper that "today Ukraine runs the risk of finding itself on the
periphery of global struggle between the world giants over the diminishing
supply of energy resources."
In general, Ukrainian analysts are cautious on whether a Ukrainian-Turkmen gas
deal will ever be reached, and then adhered to. Niyazov, they note, has a
history of not honouring contracts. Turkmenistan's January gas price hike from
$44 to $58 per 1,000 cubic meters is but one example of Ashgabat's capricious
behaviour. Turkmenistan also has proven a difficult negotiating partner in the
five-nation Caspian Sea talks.
Yushchenko came under some criticism at home for his willingness to engage
Niyazov. Political analyst Vitaly Portnikov said Niyazov used Yushchenko as a
prop to enhance the Turkmen leader's personality cult, when the two presidents
had a stroll - hand in hand -- amid the posh Ashgabat palaces in front of the TV
cameras. "Such a Yushchenko his voters haven't seen yet," Portnikov
wrote in a commentary posted on the Politcom.ru website.
Some Ukrainian analysts believe Niyazov may be trying to use Ukraine in order to
get Russia to pay a higher price for Ashgabat's gas. But even if his desire to
work out a deal with Kiev is genuine, many Ukrainian analysts believe that
Russia will work hard to scuttle any possibility of a bargain. Andriy Yermolayev,
director of the Kiev-based Centre of Social Research "Sophia," said
Russia isn't interested in Ukraine's "independent game" in
Turkmenistan. That's why Yushchenko's attempts at "establishing direct ties
with alternative energy sources and bypassing Russia are unlikely to
succeed," Yermolayev was quoted as saying by the Novosti-Ukrayina news
On to the EU
The second main element of Kiev's gas strategy is an attempt to exploit the
European Union (EU)'s interest in diversifying its own energy supplies. Some
Brussels strategists argue that the EU is potentially vulnerable to price
fluctuations due to an existing over dependence on Russian natural gas supplies.
In this area, Yushchenko has managed to score a couple of important points. The
Ukrainian government has unveiled a proposal to create a Ukrainian-German-Polish
consortium that would sell non-Russian gas to the EU. The group will pursue
possible deals involving Turkmen and Kazakh gas, which would then be resold to
EU countries. The biggest obstacle in this scheme is the lack of a reliable
An upgraded Caspian littoral pipeline could address the export route shortage.
To enhance the prospects of a deal getting done, Yushchenko and Niyazov said
that Kazakhstan and Russia should be invited to participate in the project. Its
technical and commercial details were discussed by Niyazov and the head of
Gazprom, Alexei Miller, when the latter visits Ashgabat in mid-April. The logic
of Kazakstan is obvious, but how good a partner would Russia be if the project
was primarily aimed at challenging their monopoly of supply? Without Russia -
what will be this geopolitical note? It's not obvious.
New regime is gas transit
The third piece of Ukraine's energy strategy consists of an effort to expand
the number of participants in the consortium that manages Ukraine's gas transit
network. At present, Ukraine and Russia each hold 50 percent stakes in the
network. The new head of Ukraine's oil and gas monopoly Naftohaz Ukrayiny,
Oleksiy Ivchenko, recently urged the expansion of the consortium's membership to
include EU members, as well as Turkmenistan and Kazakhstan. "We're trying
to maximally expand the number of participants in the gas transit consortium,
taking into account the geopolitics of this project," Ivchenko told the
Kyiv-based weekly Zerkalo Tyzhnya.
Odessa-Brody pipeline interests Kazakstan
Kazakstan and Ukraine launched negotiations recently to cooperate in the
development of infrastructure for Ukraine which included Kazakstan's
participation in the development of Ukrainian oil infrastructure, Kazak
President Nursultan Nazarbayev said at a press conference in Ukraine. He
remarked that Kazakstan is interested in the continuation of the Odessa-Brody
oil pipeline to Polotsk and then further to Gdansk.
"The Odessa-Brody section is significant. Kazakstan is ready to take part
in the oil pipeline construction to own a share of stock," he added.
"We also listened to the appeal of the Ukrainian party to construct an
additional 52km of Dnepropetrovsk oil pipeline. We are ready to finance and to
build this section that will be the property of Kazakstan or a joint
venture," Nazarbayev concluded.
VW opens Bentley dealership in Ukraine
Germany's Volkswagen Group recently opened the dealership of an ultra-luxury
British car brand Bentley in Ukraine. This is the group's first venture in the
former Soviet republic, New Europe reported.
The Kiev-based car dealer, Vipkar, got the dealership rights from Bentley and
opened the showroom in the Ukrainian capital's plush Arena shopping mall. The
latest model of 2005 Bentley Continental Flying Spur was displayed with a
144,000 Euro price tag during the opening ceremony. According to Bentley's
regional Director for Europe, Geoff Dowding, two cars were sold at the same time
and there was an order for six more cars. He added that the Russia-based
dealership sold around 70 cars last year. He is very hopeful that its sales in
Ukraine will also improve substantially.
Iran mulls joint production of Ukraine passenger jet
Iran is considering joint production of a Ukraine-designed passenger jet,
Interfax News Agency reported recently.
Abbas Fallakh, director of the Iranian government aerospace company NESA, made
the announcement during a visit to the Ukrainian city Kharkiv. The twin-engine
Antonov-148, a short-range aircraft designed for fuel economy and low-cost
operation, is a good fit for Iran's aerospace industry, Fallakh said. Iran
already manufactures under licence the twin-engine turboprop An-140 wholly
designed by Antonov. "We are very much looking forward to this new
airplane," Fallakh said. "We would very much like to make it in
Iran." Antonov's manufacturing headquarters, and the centre of Ukraine's
aircraft-building industry, are in Kharkiv. The An-148 is a leading-edge
technology airplane aimed at the international market. The plane at US$17m a
copy will be 25 to 30% cheaper to operate than competing aircraft currently
produced, its designers claim. Ukrainian Antonov is heading up the An-148
project, with more than 200 subcontractors including companies in Russia, the
US, Germany, and France providing parts and operating systems. The first serial
production An-148 is planned for 2006.
Moody's gives Aval Bank B2 rating
Moody's Investors Service has assigned Ukraine's Aval Bank a B2 long-term and
Not-Prime short-term foreign currency deposit ratings and a D- Financial
Strength Rating (FSR), and all ratings carry stable outlooks, New Europe
"The bank's foreign currency deposit ratings are currently constrained by
Ukraine's country ceiling for such ratings and are likely to follow any upward
movement in the country ceiling up to the level commensurate with the bank's
fundamental credit strength," a Moody's press release said. "The
bank's D- Financial Strength Rating (FSR) takes into account the bank's strong
market position as the second largest bank by total assets in Ukraine with
significant market shares of loans and deposits, its high name recognition in
the local market and its positive image as a market-oriented bank independent of
any major financial or industrial groups, its good asset quality and the
higher-than-average granularity of the loan portfolio, and the bank's
experienced management with a strong focus on the upgrading of IT systems to
handle increasing business volumes," the release read.
S&P raises Kiev rating to B+
Standard & Poor's Ratings Services said recently that it raised its
long-term issuer credit rating on the Ukrainian City of Kiev to B+ from B,
following the upgrade on Ukraine (now rated foreign currency BB-/Stable/B; local
currency BB/Stable/B), Interfax News Agency reported.
The outlook on Kiev remains positive, the agency said in a statement.
"Ukraine's improved economic policy environment, strong growth potential,
and incipient reform of the economy will have a beneficial effect on Kiev, the
capital and largest city of Ukraine," said Standard & Poor's credit
analyst Boris Kopeykin. Further strengths are the city's strong financial
performance and high liquidity. The rating remains constrained, however, by
Kiev's growing foreign exchange debt, limited fiscal flexibility due to the
central government's control of major revenues, and evolving inter-budgetary
relations. The rating on the city also reflects significant infrastructure
financing needs and the need to improve management sophistication and
transparency. Standard & Poor's expects that the growing economy and
investments will lead to significant growth in the city's budget revenues.
Future positive rating actions will depend on the city's ability to keep debt
growth in line with or below revenue growth, with stabilisation of debt at less
than 60-70% of revenues. Rating actions will also depend on the improvement of
the balance after capital expenditure from 2006, together with further
improvement in transparency and management sophistication, the statement said.
Power-sharing deal struck in Crimea
A power-sharing agreement for Ukraine's restive Crimean peninsula was signed
recently ending months of political chaos over rights for the region's ethnic
Tartar minority, Deutsche-Presse-Agentur (dpa) reported.
The next executive government of the semi-autonomous region will include a quota
of 3 cabinet posts to be filled exclusively by Tartars, said Mustafa Dzhemilyev,
the group's leader.
Although previous Crimean legislatures in both pre- and post-Soviet Ukraine had
from time to time included Tartar representatives, they were never as a result
of a quota set by negotiations between Tartar and ethnic Slav political leaders.
The predominantly Muslim Tartars will receive 2 ministry portfolios and the post
of deputy prime minister, Dzhemilyev said according to a Black Sea television
The deal came after days of intense talks between Dzhemilyev and Crimean prime
Minister Anatoly Matviyenko, an appointee of Ukrainian President Viktor Yushenko.
Crimea's parliament approved the terms of the Dzhemilyev-Matviyenko deal
recently with a strong 74 out of 90 present majority, the Interfax News Agency
The quota was "the best compromise possible under the circumstances,"
Dzhemilyev said. The agreement ended nearly 4 months of administrative chaos in
the multinational Crimean peninsula.
Crimea's legislature had been due to name a new government last January, in the
wake of Ukraine's Orange Revolution which saw Yushchenko appointed president.
Tartar MPs however over the next 4 months boycotted the local parliament's
sessions, preventing the formation of a quorum needed to pass laws.
The Tartar boycott was imposed to receive guarantees from the ethnic Slav
majority for "Tartar" executive branch posts in the new government.
The deadlock threw the Crimea's already-poor public services into chaos by
effectively cutting off legislative funding for the regional government.
Crimea's previous regional chairman, Communist Leonid Hrach, refused to deal
with the Tartars, saying he "would not submit to political blackmail."
Yushchenko eventually forced Hrach out of office and replaced him with
Matviyenko. "This leaves me very vulnerable," Black Sea TV reported
Matviyenko as answering, when asked how the terms of the deal with the Tartars
would affect his political pull with the region's ethnic Russo-Ukrainian
majority. During the Orange Revolution Ukrainian Tartars almost without
exception supported the Europe-leaning Yushchenko. Most ethnic Slavs living in
Crimea however supported Yushchenko's opponent Viktor Yanukovich, who favoured
closer relations between Ukraine and Russia.
Roughly 20% of Crimea's population is ethnic Tartar. Soviet dictator Josef
Stalin exiled the Tartars, who trace their lineage back to the Mongolian Golden
Horde, from Crimea in 1944. More than 300,000 have returned to the region since
the collapse of the Soviet Union.
Conflicts over land ownership- as recently as last summer pitting entire
villages against one another in mass fist fights - are endemic between Crimean
Tartars and ethnic Ukrainians and Russians, who descendants settled the region
during the Tartars' absence.
The most valuable Crimean land, the tourist-frequented Black Sea shore, is owned
almost without exception by ethnic Ukrainians or Russians. The presence of
Russian troops in the region exacerbates tensions. Many ethnic Slavs living in
modern Crimea believe Russia, not Ukraine, should own the region.
Ukraine to buy 2m tonnes of oil per year from Libya
Ukrainian national oil company Naftogaz Ukrainy plans to annually acquire 2m
tonnes of oil from Libya in excess of the volumes that the company will receive
under production sharing agreements signed earlier, company CEO Alexei Ivchenko
told journalists in Kharkov recently, New Europe reported.
He said that Naftogaz Ukrainy plans to supply this oil to Italy and other
markets in Europe and receive Russian oil and gas under a swap scheme.
Commenting on Naftogaz Ukrainy activity to produce oil and gas abroad, Ivchenko
said that he would travel to Kazakstan with Ukrainian President Viktor
Yushchenko to sign a memorandum for joint production of oil and gas.
World Bank to revamp Ukrainian power plant
Serhy Tytenko, the deputy energy minister and head of the agency for Ukrainian
hydropower plant restructuring, said recently that the World Bank will lend
US$100m to revamp Ukrhydroenergo, New Europe reported.
The minister said the agreement has been worked out and will be signed shortly.
Tytenko said the loan will be provided for the period of 14 years for the
renovation of large Ukrainian hydropower plants. Libor+1% will be the interest
on loan and in 2007 the principal debt repayment scheduled will be started.
Ukraine, India vow to boost space research cooperation
Ukraine and India will boost bilateral ties and cooperate in space research,
President Viktor Yushchenko and his Indian counterpart, Abdul Kalam, said at a
joint press conference in Kiev on June 2nd, New Europe reported.
To improve the trade relations between the two countries the talks were held on
issues from international politics to science and technology. India with its
candidature to United Nations Security Council, also seeks support from Ukraine
which is an influential CIS country. Ukraine said it supports the idea of making
India a permanent member of the UN Security Council, Yushchenko said.
The two leaders also discussed UN reform. "To my mind, the UN is one of the
most authoritative organisations in the world. Its role is growing year to year,
and a reform is quite natural," Yushchenko said.
UN reform may include increasing the number of UN Security Council permanent
members. India, Brazil, Germany and Japan are candidates for permanent
membership on the council. During his four-day stay, the Indian president was
also expected to visit a missile factory.
Ukrsotsbank seeks US$75m syndicated loan in 2005
The Kiev-based financial institution Ukrsotsbank plans to raise a syndicated
loan of US$75-80m this year, a bank press statement said recently, New Europe
With the bank striving for deposits in the national currency hryvnia and to
receive loans in US dollars, raising syndicated loans can be taken as a way to
address the problem of filling its out forex resources, CEO Boris Timonkin said
in the statement. One important way to do this is issuing Eurobonds, he
explained. Founded in 1990, Ukrsotsbank is one of Ukraine's biggest banks, with
507 sub-divisions in its branch network.
MINERALS & METALS
Ukraine increases 4-mo aluminium output
Zaporizhiya Aluminium Combine (ZalK), Ukraine's only aluminium smelter,
increased primary aluminium output 3.4% year-on-year to 36,782 tonnes in the
first 4 months of 2005, Interfax news agency reported recently. ZalK, which is
controlled by Russia's SUAL aluminium group, said in a statement that it raised
alumina production 2.1% year-on-year to 87,350 tonnes and that ferrosilicon
output jumped 20.9% to 8,720 tonnes. Production of technical silicon rose 0.9%
to 2,674 tonnes. In April alone, aluminium production rose 5.2% year-on-year to
9,275 tonnes, alumina production rose 2.3% to 21,900 tonnes, ferrosilicon grew
5.1% to 2,011 tonnes and technical silicon soared 24.5% to 707 tonnes. Aluminium
output grew 1.2% to 108,763 tonnes in 2004. Alumina output grew 1.2% to 707
tonnes. Meanwhile, Ukraine's Nikolayev (Mikolayiv) Alumina Plant (NGZ), the
FSU's biggest alumina producer, raised output 1.8% year-on-year to 447,400
tonnes of alumina in the first 4 months of 2005, the company said. April output
was 105,600 tonnes. Alumina production grew 8.7% to 1.302m tonnes in 2004.
Russian aluminium giant RusAl controls NGZ.
Mobile phone use rocketing in Ukraine
Ukrainian cell phone use is rocketing and shows no sign of slowing down,
Deutsche-Presse-Agentur (dpa) reported recently, citing local data.
The number of cellular phone users in the country currently stands at some
16.8m, roughly a third of Ukraine's entire population, a government report said.
Mobile phone penetration in the country was less than 10% 5 years ago.
Subscribers under contract with one of the country's operators has increased by
36% since April 2004, according to a report from the Kiev-based Dragon Capital
investment house. Aggressive campaigns to sign up new customers by the 2 top
players in Ukraine's mobile phone market and rising real income for most
Ukrainians are the main reasons for the increases, the report said. Ukrainian
Kyivstar and the European-Ukrainian joint venture UMC control over 96% of the
country's mobile phone market, according to a ministry of communications
statement. Real incomes for Ukrainians have increased by as much as 40% since
the beginning of the year. At present growth rates mobile phone penetration into
the Ukrainian market could be as high as 54% or 26m users by the end of the
year, the Dragon Capital report predicted.