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UKRAINE


 

 

In-depth Business Intelligence

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)

Books on Ukraine

REPUBLICAN REFERENCE

Area (sq.km) 
603,700 

Population 
47,732,079

Principal 
ethnic groups 
Ukrainians 72.7%
Russians 22.1%
Jews 0.9%. 

Capital 
Kiev

Currency 
Hryvnya

President 
Viktor Yushchenko




Update No: 298 - (27/10/05)

Timoshenko down but not out
The implications of the recent change of government in Ukraine are beginning to become clear. 
Julia Timoshenko, the premier dismissed by President Viktor Yushchenko, who was swept to power in the so-called Orange Revolution in November and December of last year after street protests forced a rerun of the presidential election, was not very tactful in her comments about the revolution when she said that she was the only 'man' in the affair capable of giving a lead. As Yushchenko was incapacitated at the time after receiving a near-lethal dose of poisoning from the KGB on September 9th, this was not very politic of her.
She also claimed to be wanting to cleanse the Augean stables of murky businesses in the country. She had herself benefited from shady deals in the 1990s, but who in the top ranks of the oligarchy had not? As Boris Berezovsky, a close ally of hers as it so happens, the probable source of most of her election funds, according to the new opposition, has memorably admitted of the Russian oligarchs, including himself: "No-one could make a large fortune in Russia in the 1990s without doing illegal deals." He was already out of the country and the reach of the Moscow prosecutors when he said it.
He is said to be crestfallen by her downfall and in a state of shock. But at 41 she is still very young politically and has vowed to stand against Yushchenko in the next presidential elections four years away, while she and her allies will be contesting coming parliamentary elections.
She will in effect be standing as a would-be poacher-turned-gamekeeper, perhaps the one maverick among the rich and powerful who knows the tricks to confound and expose the others for the crooks they are.
Except, Yushchenko's reasons for firing her, it seems, stemmed from further allegations of corruption!

New course by new government
The new Ukrainian Prime Minister Yuri Yekhanuro, who took office in mid-September, is a very different type, one of former president Kuchma's old cronies. One can be sure he is not wanting to open the can of worms that is the record of the 1990s deals that sold off state assets for a song. For he designed Ukraine's asset-sale programme himself in the mid-1990s after the country won independence from the Soviet Union He was head of the State Property Fund, responsible for selling state assets between 1994 and 1997. 
Indeed, the new government is cosying up to big business anew. He said in mid-October that he favours selling assets at tenders open to domestic and foreign investors. He added that preparations for the sale of phone company VAT Ukrtelecom will begin next year as the cabinet counts on state-asset sales to help the economy regain momentum. 
The US$65 billion economy may grow between 6 per cent and 7 per cent in 2006 from between 2 per cent and 4 per cent forecast for this year, he said. The economy shrank in August for the first time since 1999 and grew an annual 2.8 per cent in the eight months through August, compared with 14 per cent in the same period of 2004. 
"There is a significant slowdown in the economy and that's because business had no confidence'' in the previous government of Timoshenko, Yekhanurov said in an interview at the Ukrainian embassy in Brussels on Oct. 7. "In the first quarter we will take energetic actions related to the privatisation of Ukrtelecom.'' Back to business as usual.
But in the somewhat surreal world of post-Soviet politics that is not of course the way the matter is being put. Indeed, quite to the contrary, Yushchenko fired Timoshenko's cabinet on Sept. 8 amid corruption allegations. Yushchenko has pledged to raise living standards, forge closer ties with the European Union, sell off state assets and review earlier asset sales. 
"There will be stability in Ukraine,'' Yekhanurov said. "We are in a dialogue with businessmen and we will discuss our decisions with them.'' Indeed.
To lure investment and raise money to exploit new technologies and upgrade production facilities, Ukraine will sell the biggest state-controlled companies, he said. 
The sale of Kiev-based Ukrtelecom has been delayed since 1997. The government sought to raise between US$600 million and US$1 billion for a 43 per cent stake last year. That sale was stopped by lawmakers in Yushchenko's party amid concern it might have been sold to friends of Kuchma at a knock-down price.

A scapegoat is needed 
"We have to clean up all that mess,'' Yekhanurov said. He needs to be seen to be doing something against the oligarchs. As it so happens there is an ideal fall-guy.
He said the cabinet won't negotiate with Viktor Pinchuk, Kuchma's son-in-law, who bought Ukraine's biggest metals companies at discount prices during Kuchma's rule. The government will re-sell steelmaker VAT Kryvorizhstal in an Oct. 24 tender after regaining control over the company that Pinchuk bought in 2004 for US$800 million. 
The government will also seek to take back control of ferroalloy producer VAT Nikopolskiy Zavod Ferrosplaviv, in which Pinchuk bought a 51 per cent stake for US$80 million in 2003. 
"We should first see to whom the shares belong,'' Yekhanurov said. "And that will be decided by a court.'' 

Economic Targets 
The government needs to do something about the faltering economy, if its supporters are to prevail in parliament and at the hustings. It will seek to contain annual inflation below 10 per cent in December 2006 from an estimated 15 per cent at end-2005. The budget deficit will be below 3 per cent of gross domestic product this year and next, in line with EU limits, Yekhanurov said. The deficit will be contained with the proceeds of assets sales and the government may sell more Eurobonds as early as next year, he said. 
The country aims to win more foreign direct investment and join the World Trade Organization by year-end to help revive economic growth. 
Ukraine is yet to win approval for its bid to join the WTO from the U.S., China and Australia, Yekhanurov said, declining to comment on when those bilateral agreements may be signed. 
"The hardest partner'' in Ukraine's talks over joining the organization as early as December "is our parliament,'' he said. "There are 14 changes to the laws that are yet to be approved'' to harmonized Ukraine's legislation with that of existing members. 

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ENERGY

NAK forges JV with Polish utility 


Naftogaz Ukrainy (NAK) and Polskie Gornictwo Naftowe i Gazownictwo S.A. (PGNiG) plan to set up a joint venture to sell natural gas in Poland, Naftogaz Ukrainy CEO, Oleksiy Ivchenko, said in the Polish city of Hrubieszow recently, Interfax News Agency reported. 
An agreement on this issue was reached during recent talks between Ivchenko and PGNiG CEO, Marek Kossowski. The founders of the new enterprise will be the PGNiG subsidiary Karpacka Spolka Gazownictwa, which sells gas in southeast Poland, and one of Naftogaz Ukrainy's subsidiaries that has yet to be named. The joint venture is expected to be registered by the end of 2006. Naftogaz Ukrainy and PGNiG recently held a ceremony to mark the completion of construction on the Ustyluh-Hrubieszow gas pipeline.

Electricity exports rise 90% 

Ukraine increased electricity exports 90 per cent year-on-year to 6.291 billion kilowatt-hours in January-August 2005, a source in the fuel and energy ministry said, Interfax News Agency reported.
The sharp growth is due to the start of electricity exports to the Russian national electric generating company Energoatom in December 2004. Electricity exports to Energoatom were stopped temporary on July 1, 2005. Ukraine exported 489.9 million kilowatt-hours of electricity in August 2005, up 5.8 per cent from 27 million kilowatt-hours in August 2004.

Ukraine to integrate into EU energy system, says Todiychuk 

A memorandum of understanding on cooperation in the field of energy between Ukraine and the EU that is expected to be signed on December 1 will help Ukraine integrate into the European energy system, Alexander Todiychuk said, New Europe reported. 
The chairman of Ukrtransnafta was one of the leading business and political leaders that attended the conference "Ukraine Facing the Future. On the Road of Reform" in Brussels on October 6. 
The European Commission transferred the MoU on October 3 to the delegation of the EU in Kiev which in turn passed it on to the Ukrainian government for review. The Commission service confirmed "discussions have been very positive. There is development and it's going very well. We hope to have a paper signed on December 1 at the Ukraine-EU summit."
Ukraine and the EU will create roadmaps for the safety of operating Ukrainian NPPs, the integration of electricity and gas markets, and enhancing the security of energy supplies and the transit of hydrocarbons, as well as enhancing the effectiveness, safety and environmental standards of the coal sector.
Todiychuk noted that "along with the actual memorandum to be signed on December 1 there are also a number of other interesting directions of cooperation between Ukraine and the EU in this area. This includes projects to create oil reservoirs in order to balance fluctuations in demand and supply during the different seasons, projects to finance adherence to the EU quality standards for oil and refinery products as well as safety and other procedures."
Alexander Chaly, former Ukrainian minister of European integration, told New Europe at the sidelines of the conference that the MoU "is a very important political instrument which fixes Ukraine as a strategic partner of the EU in the energy sector so to my mind it will be a good message and a good instrument to promote the Odessa-Brody-Plock project."
Ukraine and the EU are already cooperating in extending the Odessa-Brody pipeline to Plock in Poland to transport Caspian oil to Europe. Todiychuk explained that this is made possible "thanks to the Commission financing the feasibility study of the Odessa-Brody pipeline, which we are now completing and laying the groundwork for the use of the pipeline in a westbound direction."
"One distinctive feature of this study is that it does not only look at the economic rationale behind the project but it also explores the possibility how the pipeline can fit in the overall energy security strategy of the EU. That's why it has an additional value for Ukraine as it really helps integrate Ukraine with Europe in energy."
EU Energy Commissioner, Adris Piebalgs, told Ukrainian Minister of Fuel and Energy, Ivan Plachkov, during a phone conversation that the Odessa-Brody pipeline is a priority for the EU, said Viacheslav Kniahnytskyi, counsellor of the Mission of Ukraine to the EU.
Todiychuk said a decision by the government before the Orange Revolution to use the pipeline in reverse direction to carry Russian oil from Brody to Odessa didn't make sense economically. He said his company is now in the process of restoring the contracts with its partners in the west in order for the pipeline to be used in its westbound direction. The US$200-million Odessa-Brody pipeline was completed in 2003. 
"Unlike one-and-a-half years ago when the pipeline was free and we could use it in the westbound direction, now the pipeline is used by TNK-BP to pump oil to the south in the reverse direction. Now we have a new situation facing us where we have to first offer the Russians a better alternative route of transporting oil - not through this pipeline - in order to have the pipeline free again to be used in its direct mode to Europe," Todiychuk said. "There was a lot of propaganda that the Odessa-Brody pipeline was idle, which was not true, in order to justify the reverse use of the pipeline. We lost money but also Russian companies lost profits because Ukrtransnafta was able to offer them US$3 less in tariffs on another route but they did not use it not for economic but for political reasons. In fact the reverse route is the most expensive of all the other routes for Russia. It doesn't have any future," he opined.
Ukrtransnafta is now working closely with countries that are suppliers of oil and energy sources as well as consumers of oil in Europe. A memorandum is expected to be signed between Poland, Ukraine and Kazakstan, he said, adding that Ukraine is also working closely with Azerbaijan and Turkmenistan.
"The idea is of course to provide a link between consumers in Europe and the oil and gas producing countries in Central Asia and Caucasus. However, unlike the situation a-year-and-a-half ago, we have now succeeded in putting these projects on a more fundamental basis," Todiychuk said, citing the creation of a Polish-Ukrainian joint venture to transport oil to the west as an example.
The Ukrtransnafta chairman noted that Ukraine is now preparing a similar cooperation agreement with Kazakstan. Ambassador, Konstantin V. Zhigalov, head of the mission of Kazakstan to the EC, told New Europe that "the Odessa-Brody pipeline has received a breath of life under the umbrella of the European Union."
The ambassador said Kazakstan is holding very close negotiations with Ukraine and Poland, but at the same time Astana has adopted a wait-and-see attitude regarding this project. "I think at the moment, we have several options for the transportation of our oil to the world markets. We have the CPC (Caspian Pipeline consortium) pipeline and by the end of this year we will finish the first stage of a pipeline to China. Also Kazakstan is very close to joining the Aktau-Baku-Ceyhan pipeline to the Mediterranean and Odessa-Brody-Plock is under consideration. Everything will depend on the profitability of this project."

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FOREIGN LOANS

Euratom, EBRD to provide loans to Ukraine 

Ukrainian President, Viktor Yuschenko, has signed laws ratifying two guaranteed agreements to provide national nuclear power company Energoatom with loans for improved safety of nuclear power reactors in Ukraine, the president's press service said on September 20th, New Europe reported.
The Ukrainian parliament on September 7th ratified a guaranteed agreement between Ukraine and the European Atomic Energy Community for a Euro loan equivalent to US$83 million for Energoatom to improve safety at the Khmelnitsky 2 and Rivno 4 reactors.
On the same day an agreement between Ukraine and the European Bank for Reconstruction and Development was ratified as the EBRD agreed to allocate another US$42 million for the same purpose. Energoatom signed the loan agreements with Euratom and the EBRD at the end of July 2004. In accordance with EBRD requirements, experts from Energoatom worked with nuclear power stations and the State Nuclear Power Regulation Committee to develop 147 measures to improve reactor safety. Some measures were implemented before the launch of the reactors. 

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