N°41 - September 27 2007 Published every two weeks/International Edition CONTENTS ELECTION P. 1-2 Politics & Government c ELECTION On the Eve of the Battle c On the Eve of the Battle With only a few days to go before the snap legislative election on September 30, tension is mount- INTERVIEW ing in . ’s three main political protagonists – , Viktor Yanukovich c Roman Zvarych : «Let’s govern with Timoshenko» and Yulia Timoshenko – are getting ready for the fray, and pretending to ignore the agitation in their respective camps, brought on by the uncertainty of the vote. The Prime Minister, who is now devoting himself full-time to the campaign, is trying to regain the upper hand, after a summer’s P. 3-4 Business & Networks end dominated by the president, who was frequently in the press, and systematically countered FOCUS any government initiative (UI n°39 of August 30 3007). Viktor Yanukovich, on visit in Crimea on c Media, Politics and Money September 21, set the tone when he warned the president against any electoral or post electoral ALERT c Commerzbank Gains manipulation. Otherwise, he saw fit to add, “Some people may not have time to leave the country”. Foothold in Ukraine Two days earlier, the Party of Regions had published a communiqué warning that it could boycott REGIONS the vote if its opponents continued with their “cynical provocations”. The party also brandished c Odessa, the New Epicenter the threat of impeaching Viktor Yushchenko if he opposes a referendum on the status of the Russ- of the Power Struggle bet- ian language and on Ukraine’s neutrality. Meanwhile, Interior Minister Vasily Tsushko, who drew ween the Two Viktors attention to himself, at the height of the political crisis in May, when he “took” the General Pros- BEHIND THE SCENES ecutor’s office, compared People’s Union Our Ukraine to the “Sicilian mafia of the 1970s”. c Aeronautics: New Projects with Russia The “Oranges” were not to be outdone in this unfortunate free-for-all, which has been on display in Ukraine for many months now. Yulia Timoshenko, speaking in Belaya Tserkov on Sep- tember 12, accused the current government of “covering up drug trafficking”. She followed this with a long article in the Kyiv post entitled “Taking Back Rinat Akhmetov’s Companies”. As for READ ALSO… Viktor Yushchenko, he continues imposing himself by force, using, it sometimes seems, his Russ- ian counterpart as an example. Anxious to recreate a type of “verticality of power”, the President In “Russia Intelligence” endorsed three bills, prepared by his staff, aimed at reducing the autonomy of local and regional Last Issue authorities. KREMLIN c The game of liars’ poker The final period of the election campaign was also marked by a return to the poisoning inci- continues dent that Viktor Yushchenko was victim to in September 2004. The Ukrainian president once again GOVERNMENT deplored the lack of cooperation on the part of the Russian judicial system and, in veiled terms, c Change everything pointed to the Kremlin as being behind the operation. We can expect that the next Yushchenko- to change nothing Putin meeting, scheduled for October in Moscow, may not be the friendliest. ENERGY c E.On breaks into its Coming after the presidential election of late 2004 and the legislatives of March 2006, the Sep- piggybank to break into the tember 30 vote is the third time the two Viktors will be confronting each other in an election. Both Russian electricity market the protagonists themselves as well as Moscow, Brussels and Washington, strongly believe that CASPIAN PIPELINE the results of this election will influence developments within Ukraine, as well as its strategic po- c The final victory of Semyon Vaynshtok sition in the world, for many years to come. The post-electoral risks are in proportion to the issues at stake. One of the more alarming points that have cropped up in recent days is that the protag- RUSSNEFT c Deripaska moves his chips onists are prepared to contest the election results if they are not in their interest. Viktor Yanukovich has already announced that there will be mass demonstrations if any evidence of fraud was found, INTERVIEW c Jean Radvanyi and, as we go to press, the Party of Regions had begun a “preventive” rally in Kyiv’s famous Inde- pendence Square. Validating the results will be all the more tricky in that the Central Electoral Commission, which is far from being the impartial body it should be, was divided up amongst the SUBSCRIPTION various political forces according to regional affiliation. Exit polls will be taken by three Ukrain- Print Edition ian research centers (including the Razumkov center, directed between 1999 and 2004 by the De- (23 issues, airmailed overseas) fense Minister, Anatoly Gritsenko). These centers are financed by the embassies of the United €385 TTC States, the Netherlands, Denmark and Norway – four countries which are campaigning actively for Ukraine’s membership to NATO – a fact that will undoubtedly lead Party of Regions leaders Electronic Edition and supporters to suspect bias. (Print Edition + PDF + archives acess) €440 TTC The election on September 30 may be aimed at clarifying the political situation, but it may, on the contrary, open up a new chapter in the Ukrainian crisis. d

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INTERVIEWcc c Roman Zvarych : «Let’s govern with Timoshenko» What is your outlook on the outcome of Parliamentary resolved by the elections. What can be done immediately elections, given that the presidential bloc “Our Ukraine” to lessen the risk of a renewed political crisis? appears quite weak? Nothing can be done immediately. And even if (changes) could I still feel sure now that – I don’t know if the public opinion be accomplished quickly, I would caution everyone concerned polls indicate that – that we can overcome this 2 or 3 per cent from doing it quickly: the constitution is not simply a legal doc- difference (with the regions’ Party) and which would put us in ument; it is the result of a social contract, to use Rousseau’s term. a position together with Byut to create a coalition, and of course My proposal is that all parties concerned draft a new constitu- to form a government on the base of this coalition. tion – that this draft should be the product of initial political It is public knowledge, though, that there are many fig- compromise of all the political forces concerned. That it should ures inside “Our Ukraine” that were not in favor of a coali- go through the treadmill of public debate, and then finally when tion with , has this changed? all parties feel that the process has reached a point of fruition I’m one of them! I’m also very realistic, very much pragmatic to hold an all-national referendum, and give power to the peo- as most of my colleagues are, and I realize that despite the fact ple to choose their constitutional order. that this may not be to our liking, this would probably be the best Check and balances exist under different regimes, a course for us to take, and, so far, the optimum means of secur- presidential regime like in the United States, or mixed… ing Ukraine’s further development, specifically in the areas of Our assumption is that a mixed presidential parliamentary democratic institutions and economic reform. Some of Byut’s form of government is not necessarily effective, specifically in problematic positions do not necessarily find support in our bloc. this country. We would like to see a government based on parlia- Also, some of her – I’m trying to put this mildly – adventurous mentary approval, without any intrusion on the part of the pres- initiatives do not fit well with our more balanced, tempered ap- ident – I will be very frank about that. But with the president proach to handling political problems. It’s not just a difference having very clear powers regarding certain key areas of govern- in substance in some key areas; it’s also a difference in style. ment policies and his directives become obligatory for the gov- She’s a much more radical politician. ernment. So where does the compromise lie? These areas would be… At one government meeting she accused me of being a die- Foreign policy, and national security. hard liberal. But there can’t be full acquiescence between two The gas problem and Russia… political forces, otherwise, why would you need two? At face value This is a question that tormented of course, our government, if you take our program and the Regions party program you would the Tymoshenko government – we signed agreements with the find much more similarities. On the other hand there is very lit- Russian Federation, which the Russian Federation simply has tle ground to believe that (the Regions’ Party) are committed to ignored. We had no other choice than to agree to the prices that following their own programmatic axioms. (Yulia Tymoshenko) were shoved down our throats at the beginning of January (2006 sees herself as a left of center politician and yet there is so much 2006), we also have commitments towards the countries of West- more that unites us : commitment to Ukraine’s further demo- ern Europe for allowing the transit of gas, through our territory cratic development. You have to remember that we spent about – taking all of that into account we reached that agreement. The two months following the 2006 elections negotiating a coalition Regions party promised they would reduce the prices for gas…well, with Yulia, it consisted of nearly 1000 pages of text. gas prices have been hiked by almost 50%. According to your agreement from nine months ago with So you think it’s a price issue? Byut, in the event of a coalition between the two of you, No! it’s about power talk on the part of Russia, nothing else… the electoral bloc receiving most votes would chose the There are two general areas that need to be addressed very prime minister. If opinion polls are anything to go by, Byut’s quickly. The first being diversification, we have the ability at this better score would make her Prime minister. point, technologically to diversify our energy supplies, specifi- And that remains in force. Yes, of course, if the she gets most cally from the near East. That will require investment, a high de- votes – she’s Prime Minister. We’ll split the ministerial positions gree of economic diplomacy with countries like Turkey, Iraq, or accordingly. Iran. And what I think is probably more feasible in the short- Are there any circumstances under which you would be term is decreasing Ukraine’s energy (consumption). We are by ready to go for a coalition with the Regions’ party? far the highest per capita gas consumer in the world. We have None. Not only personally, but also politically. This is my party’s an umbilical cord relationship with Russia, the umbilical cord is position, this is the position of the bloc, as far as I can under- the gas pipeline that they can cut off, at any time they want to. stand the situation, this is also the President’s position. Under This is a very threatening situation from the national security no circumstances whatsoever, I will say it very openly at this point of view. I think that I would like to see a very strong part- point, if a decision is made – I don’t care at which level- to vote nership relationship with the Russian Federation, but at least for a coalition with the Regions, I will not be voting for this coali- on some semblance of equal footing. d tion, I know this is the position of the majority of the candidates from our bloc. And to speak of even the possibility of a coalition with the regions is simply nonsense; it’s a non-existent issue. I Roman ZVARYCH, 54 yrs, former Justice minister in the Yu- said I spent time in that government, and if had objections to lia Tymoshenko government and briefly in the Viktor Yanukovich the style of leadership that was demonstrated by Ms Tymoshenko, government. He is a long-time ally of Viktor Yushchenko’s. then my objections to the style of leadership of Mr Yanukovich Born in the United States in a Ukrainian diaspora family, he were multiplied ten-fold if not more. You know this was not sim- moved to Ukraine in 1991 and took on Ukrainian citizenship. ply a manager, this was basically a tyrant. You couldn’t say any- After the March 2006 elections, Zvarych was the head negotiator from the thing regarding his position, his word was final. presidential side in consultations and negotiations to form a formal coalition 2 However, the institutional crisis will not necessarily be first with Byut and then with the Regions’ Party, both eventually failing. Ukraine Intelligence N°41 j September 27 2007 www.ukraine-intelligence.fr UKRAINE INTELLIGENCE Business & Networks

FOCUScc c Media, Politics and Money Takeovers and the formation of holding companies are on paign any more transparent. An estimated $40 million goes the rise in Ukraine’s media industry, a sector with a growth into hidden advertising, concealed in talk show appearances rate estimated at 25-30% for 2007. But, with the campaign for and reports – a sum that represents two thirds of the official the September 30 snap parliamentary election in full swing, “campaign budget”. It is reported that 1+1 has even set up a the media is more interested in money than politics. For me- special service to handle the flow of commissioned reports - dia bosses, the press, especially television, is not so much a to the great displeasure of “serious” journalists. And, accord- propaganda tool, than a source of revenue. ing to some reports circulating in the Ukrainian capital, In- ter is offering all political camps yearly subscriptions for “flat- The Oligarchs Reshuffle the Deck. The trend started tering coverage”! when Inter, the country’s number one channel in terms of viewership, bought K1, K2 and Megasport from Dmitry Fir- This relative neutrality - the result of a subtle balancing tash, the main Ukrainian shareholder of RosUkrEnergo. For act rather than any newfound code of ethics – applies mainly the record, Inter is controlled by Valery Khoroshkovsky, for- to the State channels, “1+1” and “Inter”. The list of “non- mer deputy to Vitaly Gayduk at the National Security and aligned” media also includes the State channel UTB, Viktor Defense Council and the former vice President of Evraz-Hold- Pinchuk’s channels, the business dailies Kommersant ing. He officially owns 61% of the group (the rest of its capi- (Alisher Usmanov) and Delo (Handelsblatt) as well as the tal is shared between the widow of Inter’s founder, Igor Pluzh- group KP Media (Jed Sunden) and its flagship weekly “Ko- nikov, and the Russian State television channel ORT). rrespondent”. Khoroshkovsky categorically denies persistent rumors that Inter was in fact sold to Firtash and Vitaly Gaiduk. It is worth But the prevailing neutrality has not spread to the entire noting that the latter has spent two years developing his own media. The party of Regions can still count on the tottering group – “Evolution Media” – which produces several economic NTN channel as well as on “Ukraina” and the daily Segodnya publications both for the Internet and for the written press. (250,000 copies). It should also be noted that Eduard Prut- nik, the head of the Committee on Television and Radio, has Other developments concern Orange oligarch Alexandre a fair amount of influence on the regional State channels. Tretyakov (see interview in UI n°34 of May 16 2007), who an- nounced the creation of a holding company grouping together As for the “Oranges”, they can theoretically count on – informally for the time being – the UNIAN press agency, Tretyakov’s “Glavred-Media” holding, on Poroshenko’s Chan- the Glavred weekly and web sites, Telekritika and the tele- nel five, as well as on the media companies owned by Igor vision channel CITY. Tretyakov is working together with Pri- Kolomoysky (besides the TET channel, these include “Kom- vat Group boss Igor Kolomoysky on this project. Kolomoysky, somolskaya Pravda” with 400,000 copies, and the weekly “Fo- who recently bought into 1+1 (UI n°40 of September 13 2007) cus”). The daily Ukraina Moloda (144,000 copies) is directed has reportedly bought channel TET from Grigory Surkis, the by Mikhail Doroshenko and reportedly financed by Syrian head of the Ukrainian Football Federation and former part- businessman Yussef Hares. Both men have close ties to Pres- ner of Viktor Medvedchuk. ident Viktor Yushchenko. The Our Ukraine list can count on the daily “Silski Vesti” (430,000 copies), a long time sup- It is worth noting that Viktor Pinchuk, who has drawn no- porter of the Socialist party whose editor-in-chief, Ivan Spo- ticeably closer to Rinat Akhmetov recently, remains a ma- darenko, has followed Yuri Lutsenko. They can also count, jor player in the Ukrainian media scene. His group controls albeit to a more limited extent, on the TONIS channel and several channels (Novy Kanal, ICTV, STB, M1) through the the daily “Gazeta24”, acquisitions of Vladimir Kosterin Cypriot company “Venus Bay Holdings”. (Green Party). d

The big losers are, in fact, the channels that have been more politically oriented over the past years. Ever since Ed- ALERT uard Prutnik was sidelined, his channel, NTN, which was a traditional mouthpiece of the Party of Regions until 2006, has 3 Commerzbank Gains Foothold been floundering. The editorial staff transferred en masse in Ukraine to1+1 and a sale of the channel is being considered. And now After Unicredit (UI n°38 July 12 2007), Société Générale (UI that Our Ukraine has sidelined Pyotr Poroshenko, a similar n°36 June 14 2007), BNP Paribas and Raiffaisen International, fate may await Channel Five, the channel that backed Vik- it was the turn of Germany’s Commerzbank to announce the tor Yushchenko at the time of the “”. purchase of a Ukrainian bank. According to reports in Kyiv, the The insatiable Igor Kolomoysky is said to have his eye on German group reached a deal with majority investor Leonid the station. Yurushev to buy 60%+1 share of Forum, Ukraine’s 11th ranking bank in terms of assets, for $600 million. According to the A Lucrative Election Campaign. After the pro-Kuchma agreement, Commerzbank also has the option of buying an hype that lasted till 2004, followed by a period of freedom al- additional 25% of the shares at the end of 2010. Leonid lowed by frightened oligarchs in the wake of the “Orange Rev- Yurushev, 60, a businessman of Greek origin with double olution”, private television stations have entered a new era. nationality, had at first conducted negotiations with various Media group owners now find it more profitable – and wiser Athenian banks, including EFG Eurobank and Piraeus, – to maintain an equal distance from all the major political amongst others. d forces in the country. That does not, however, make the cam- 3 Ukraine Intelligence N°41 j September 27 2007 www.ukraine-intelligence.fr UKRAINE INTELLIGENCE Business & Networks

cc REGIONS BEHIND THE SCENE Odessa, the New Epicenter of the Power Aeronautics: Struggle between the Two Viktors New Projects with Russia In its March 2, 2007 issue, Ukraine Intelligence examined the fierce power strug- Several signs that the Russian and gle for control of the port of Odessa, and the rather agitated political atmosphere Ukrainian aeronautics industries were reigning in this large city in southwestern Ukraine. The least that can be said is that drawing closer followed on the heels of the things have not calmed down. With the September 30 snap election only days away, meeting between Viktor Yanukovich and the President’s office and the government embarked on a trial of strength over two Vladimir Putin at the MAKS-2007 air show. major economic issues concerning Odessa. According to some reports in Kyiv, the The first dispute revolves around the privatization of the Odessa port plant (OPZ), Russian aircraft manufacturer OAK and its one of Ukraine’s main chemical sector companies, which employs nearly 4,000 peo- counterpart, Aviation of Ukraine, have ple and exports nearly 90% of its production (mainly fertilizer and ammonia). Accord- agreed to develop a new medium range ing to bill n°2550, passed by parliament on December 6, 2006, the port plant of Odessa twin-engine plane with a 300-350-seat was to be privatized during the course of 2007 (UI n°25 of December 15 2006). In Au- capacity. Antonov Director General Dmitry gust, Viktor Yanukovich’s government ratified the terms of the procedure and passed Kiva said, in private, that the plane, which is the case on to the State Property Fund. The head of the Fund, Valentina Semenyuk, mainly targeted to the Asian market, could announced in early September that eight candidates had sent in their applications, be ready in four to five years. The project including Russia’s Sibur (a subsidiary of Gazprom) and Renova, owned by Viktor Vek- makes sense, since China has approached selberg. The upset price was set at 2.5 billion hryvnias (about $500) for 99.2% of OPZ’s both Ilyushin and Antonov in recent capital. However, on September 12, President Yushchenko signed a decree suspend- months concerning development of this type ing the privatization. This decision is in line with his previous interventions in the de- of plane. The bilateral project is in an fense and nuclear industries (UI n°39 of August 30 2007) aimed at stalling for time advantageous position on the memorandum before the election and at avoiding the sort of abuses seen this spring with the priva- of bilateral cooperation that OAK and tization of Luganskteplovoz (UI n°31 of March 30 2007). Aviation of Ukraine signed at the end of Another sensitive issue at the moment concerns the Yuzhny terminal. For several August. months, Ukraine’s highly controversial Transport Minister, Nikolay Rudkovsky, has There are several other cases that been trying to take control of the country’s main ports, especially Yuzhny. He ap- illustrate improved relations between pointed a close ally, Alexandre Gonza, as head of the port in the autumn of 2006. But Moscow and Kyiv in the aeronautics field. some members of Yuzhny’s administration responded to the appointment with re- Russian and Ukrainian officials have, for sentment, denouncing it as being forced upon them. Things took a new turn in mid- example, recently confirmed that production September. Ukrmorport - a State structure set up in June on the initiative by Deputy of the “Ruslan” An-124 heavy transport Prime Minister Andrey Klyuev - which oversees the country’s 19 commercial ports aircraft will resume. Also, some forty AN-74 (UI n°37 of June 28 2007), appointed Vladimir Vassilev as the port’s new director. aircraft assembled at the Kharkov plant and Gonza and his allies, backed by Rudkovsky, did not see things quite this way, but had outfitted in Omsk in Siberia are soon to be to confront 3,000 demonstrators who prevented the minister from entering the site exported to Venezuela by Rosoboronexport. on September 11. Faced with these disturbances, President Yushchenko decided to Finally, mass production of the AN-148 refer the matter to the General Prosecutor’s Office and the SBU. As far as one can regional transport plane, which incorporates tell, the incidents around the Yuzhny terminal are linked to a rather discreet plan to some elements manufactured in Russia, will privatize wharfs numbers 5 and 6 to the benefit of Gazmetall boss, Alisher Usmanov, be launched at the end of the year. Forty-five who is backed by Nikolay Rudkovsky. But this project goes against the interests of An- firm orders have already been received for drey Klyuev, who therefore decided to change the head of Yuzhny’s administration. the 75-seat aircraft, including 34 from Russian Such incidents have apparently not discouraged Russian businessmen from in- companies. vesting in the Odessa region. As a matter of fact, TransIvestService (TIS), a trans- Despite the failed tie-up between Motor- port service controlled by Alexey Fedorychev, has just announced it is building a new Sych and Oboronprom, aircraft freight terminal in Yuzhny for a total of $103 million. United Rusal boss, Oleg Deri- manufacturers in both countries are “mature” paska, who was one of the first Russian oligarchs to gain a foothold in Ukraine when enough for a strategic partnership, according he took control of the Nikolaev aluminum plant in 2000, is planning to buy the Odessa to Oleg Shevchenko, the head of Aviation of airport and invest $200 million in it. This project is linked to the organization of Euro Ukraine. It remains however that the 2012 since several games are going to take place in Odessa. For the record, Base El- developments in this sector – as those ement, Oleg Deripaska’s holding, also controls several airports in southern Russia, concerning privatizations and the gas issue – including Sochi. d are directly dependent on the results of the legislative election of September 30. d

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