Books on Ukraine
Update No: 306 - (29/06/06)
"Orange Revolution" allies finally club together
again to form new coalition
A compromise was finally sorted out in Ukraine on June 22nd, just five days
before a June 27th deadline to form a new government. This came three months
after the elections, which saw a comeback for the pro-Russian Party of the
Regions, led by former premier, Vladimir Yakunovich. But he and his party are
not the beneficiaries.
After months of bitter wrangling over government posts, Ukraine's pro-Western
parties have formed a ruling coalition, sidelining Yakunovich's party, which
came in first in the March parliamentary election.
The coalition includes three parties, which jointly staged the "Orange
Revolution" against the allegedly falsified victory of the Moscow-backed
Prime Minister, Victor Yanukovich, in the country's presidential poll in late
2004, but later split over power ambitions of their leaders. Under the coalition
deal signed on June 22nd, the office of Prime Minister will go to Yulia
Timoshenko, whose bloc came in second in the March poll. She held the post after
the Orange Revolution, but was sacked by President Victor Yushchenko last
August. The President's Our Ukraine bloc, the third runner-up, will get the post
of Parliament Speaker.
The third coalition member is a small Socialist Party, whose support was crucial
in giving the "Orange coalition" a majority of 239 seats in the
450-member Verhovna Rada legislature. Mr. Yanukovich's opposition Regions Party
and its allies the Communists will hold 207 seats.
Perils of new government
As coalition talks dragged on and neared a constitutional deadline,
Yanukovich's party, with 186 seats, lobbied to join a broad coalition with
Yushchenko's supporters, one that would have divided the "Orange"
allies. Some of Yushchenko's allies, including the acting prime minister, Yury
Yekhanurov, expressed support for a broader coalition.
Yanukovich, in televised remarks, predicted the failure of the new coalition
even before its final completion. He suggested that a government led by
Tymoshenko might not win a majority of votes. "An attempt to form an
artificial Orange coalition will fail," he said.
If finalized, the agreement would evidently return Yulia Tymoshenko as the
country's prime minister nearly a year after Yushchenko dismissed her from the
post. It would also recreate the political and ideological rivalries that have
weakened Yushchenko from the start of his presidency, leaving competing centres
The new government, whatever its final form, faces enormous problems in the
months ahead, including rising costs of natural gas supplies from Russia.
In her first stint as prime minister, Tymoshenko also proved divisive, pushing
through increases in pensions and salaries, capping prices on gasoline and meat
and challenging questionable privatisations of state properties.
With the country deeply divided among those eager to move closer to Europe and
those hoping to retain close ties with Russia, conflicts over these policies are
certain to resurface.
"The road to forming it was difficult," Vitaly Chepeneg, Tymoshenko's
spokesman, said of the coalition in a telephone interview from Kiev. "And
its work is not going to be easy."
The formation of the "Orange coalition" is feared to aggravate the
split in Ukraine between pro-Europe Western provinces and pro-Russian Eastern
and Southern regions. It is also likely to further strain Ukraine's already
tense relations with Russia.
Haggling with Russia over gas
Speaking after announcing the coalition deal, Ms. Timoshenko called for a
review of a controversial natural gas deal with Russia.
Under the deal signed in January after Russia cut off all gas supplies to
Ukraine for three days, Kiev agreed to nearly double its payments to Moscow.
Russia's state-controlled gas monopoly Gazprom is strongly opposed to any
revision of the deal.
Gazprom also said that as per the January deal, it intends to renegotiate
upwards its gas prices for Ukraine after July 1st.
"If Timoshenko reconsiders the gas agreements with Russia, this is likely
to trigger off a large-scale gas war that will hit the whole of Europe,"
Krelmin-linked political analyst Sergei Markov told the Interfax news agency on
June 22nd. Russia meets about a quarter of Europe's gas needs.
Ukraine made US$680m in arms sales in 2005
Ukraine's exports of arms, military and dual-purpose services in 2005 amounted
to about US$680 million, up five per cent as compared with 2004, said Valentin
Badrak, director of the Ukrainian Centre for Army, Conversion and Disarmament
Studies, New Europe reported.
Quoting his centre's estimates, he said at a news conference in Kiev that the
share of Ukrspetsexport, the government-owned arms trader, exceeded 80 per cent.
Badrak said that aircraft and armoured vehicles and components, as well as air
defence systems, constituted the bulk of exports in 2005. Aircraft repair and
upgrading services, including space services, constituted at least 20 per cent,
and exports from army stocks, no less than 10 per cent, Badrak said. Like in
2004, Southeast Asia was the biggest market for Ukraine.
Ukrainian, Azeri experts to offer joint energy projects
A Ukrainian-Azeri group of experts will develop and propose energy projects to
the two countries' governments, Ukrainian President, Viktor Yushchenko, said
after talks with Azeri President, Ilham Aliyev, in Kiev recently, New Europe
Yushchenko said that the talks had dealt with the economy, trade and energy.
"The goal of our discussions was to assess our opportunities in these
sectors," he said.
Yushchenko also said that he had voiced Ukraine's readiness to propose joint
projects to Azerbaijan near Odesa, as well as projects involving the Odesa-Brody
oil terminal, and deep refining of Kazak oil in Brody (in Lviv region).
In addition, prospects for the implementation of the Brody-Gdansk oil pipeline
project were discussed, the European Union and European lending organisation's
readiness to finance the project was assessed and an agreement was reached to
continue the dialogue on its implementation. "We talked about a plan to
organise a chain of gas filling stations in Ukraine, where the interests of
Azeri producers would be represented. Aliyev said, "Cooperation in energy
and in the oil and gas sector is being clearly outlined." "Supplying
Ukraine with our oil is quite feasible and we are studying the option. The
moment experts finish their work we'll be able to start working in this
area," the Azeri president said.
Ukraine will be backed by US in revising gas deal
Ukraine can count on support from the US if it wishes to reconsider its gas
agreements with Russia, US Ambassador to Ukraine, John Herbst, said, Interfax
News Agency reported.
Herbst said in an interview to Den (Day) daily that, if the Ukrainian government
comes to a conclusion that the gas agreements with Russia should be
reconsidered, it can expect support from the US, which has pointed to certain
problems in this issue since the very beginning of the gas price dispute with
Russia. At the same time, Herbst did not specify what support Ukraine could
expect and suggested that Ukraine should find where it stands on this issue
itself. Herbst also said he believes Ukraine's convergence with NATO should not
worsen Kiev's relations with Moscow or any other country.
The ambassador described current relations between Ukraine and the US as very
good. Among the steps that confirm this, he mentioned the renewal of the
Generalised System of Preferences, bilateral agreements on the World Trade
Organisation membership, the granting of market economy status to Ukraine, and
the lifting of the Jackson-Vanik Amendment in relation to Ukraine. All these
steps signal progress that Ukraine has made in its reforms, he said. Herbst will
finish his diplomatic mission in Ukraine in May.
Ukrgas-Energo seeks US$1.2 billion loan
The Kiev-based joint venture UkrGas-Energo intends to seek a syndicated loan of
US$1.2 billion by August 1, 2006, to fill Ukrainian underground storage
facilities with 12 billion cubic metres of natural gas, UkrGas-Energo Chairman,
Ihor Voronin, said at a press conference in London, New Europe reported.
"The loan will be secured by the gas in the underground storage facilities
to be used for the autumn and winter heating season," Voronin said, adding
that the company is not planning to export the gas. UkrGas-Energo expects to
obtain a five-year loan and is in negotiations with three major international
banks to this end, Voronin said. These negotiations are "at different
stages," but the company is optimistic about their outcome, he said.
EBRD investment could exceed 550m Euro in 2006
European Bank for Reconstruction and Development (EBRD) investment in the
Ukrainian economy could exceed 550 million Euro in 2006, Kamen Zakhariev, EBRD
director in Kiev, said, Interfax News Agency reported.
"We are expanding our activities. If everything works out, the bank's new
investment could reach 550-600 million Euro," he said. Ukraine was second,
after Russia, in EBRD investment in 2005, Zakhariev said. "For Ukraine,
this means that it is becoming one of the key players for bank investment,"
The EBRD plans to open a credit line for US$100 million this year for Ukrainian
banks that will provide loans to energy sale projects, Zakhariev said. The EBRD
is making slow progress in preparing municipal projects for heating and water
supply because of imperfect legislation, he said. "We don't always want to
see higher prices. But prices should be self-supporting in the long-term or it
won't be possible to invest in that sector and that would be bad for
Ukraine," Zakhariev said.
An agreement could be signed this year to finance a metallurgical project for
100 million-150 million Euro, he said. The EBRD is also discussing lending
support to Naftogaz Ukrayiny's investment programme. A decision is expected this
year on joint financing by the EBRD and the European Investment Bank to finish
work on the section of the M06 Kiev-Chop highway from Kiev to Brody for a total
of about 300 million Euro. The EBRD could enter the capital of small Ukrainian
banks in 2006, Zakhariev said. "We have a framework program for entering
the capital of mid-sized and regional banks. This is a more difficult market
segment, therefore projects move more slowly," he said. Zakhariev said the
EBRD will mainly concentrate on implementing energy projects in Ukraine in 2007.
Ukreximbank to raise US$150m from World Bank
The State Export and Import Bank of Ukraine (Ukreximbank) plans to sign an
agreement with the World Bank to raise a US$150 million loan, Viktor Kapustin,
the bank's CEO, said at a meeting of the Ukrainian Industrial and Entrepreneurs
Union in Kiev. "We will sign an agreement to raise a loan from the World
Bank. It will be long-term and relatively cheap and it will be used to finance
export operations for US$150 million," Kapustin said. The borrowed
resources will be used relatively quickly, he said. The bank will set up a
system of investment funds with the participation of Ukrainian, US, British,
Asian and Russian investment companies, he said. "The first fund has
already been set up and will literally start working immediately. Other funds
will be set up in June, July and August," Kapustin said. Ukreximbank was
established in 1992. The government owns all of its shares.