N°59 - July 3 2008 Published every two weeks/International Edition CONTENTS DIPLOMACY P. 1-2 Politics & Government c Will place its bets on Yulia Timoshenko? DIPLOMACY cWill Russia place its bets on What’s to be done? The famous question posed in his time by Lenin is back on the agenda and, Yulia Timoshenko? with regard to , will become increasingly acute in . Ukraine is once again the Kremlin’s ALERTS main diplomatic concern. The expansion of NATO to the East, the future of the Black Sea fleet and cViktor Chernomyrdin gets Sebastopol, and, of course, the gas question count among the most sensitive issues seen from Moscow. Af- ready to leave. ter having got its fingers burnt during the “” at the end of 2004, Russia carefully kept out FOCUS of Ukraine’s political jousting including during the political crisis in in May 2007 and during the early cThe Supreme Court, the new general election of 30 September last year. The approaching presidential election (expected at the end of theatre of the Confrontation 2009 or beginning of 2010) and the geopolitical stakes affecting Ukraine being considered in Moscow as between matters of the country’s vital interests, it is very likely that Russia is once again seeking to influence the and Yulia Timoshenko destiny of its neighbour.

P. 3-4 Business & Networks In this context, the visit of the Ukrainian prime minister to Moscow on 28 June and her talks with her FOCUS opposite number , were awaited with interest. It is well known that until now Russia had c The Vanco affair constantly snubbed Yulia Timoshenko, considering her as not very dependable and out of control, and de- ALERTS spite the ideological chasm separating the Ukrainian president and his Russian opposite numbers, had pre- c Towards a re-launch of ferred to deal with Viktor Yushchenko. This paradoxical approach by Moscow was noted during the gas production of the An-124? talks (Ukraine Intelligence n° 53 of march 27 2008). c Energoatom: Nedashkovsk’s surprise come-back It is obviously too early to say whether a change on the Ukraine question is taking place in Moscow, but c Odessa-Brody oil pipeline: it is evident that the tone of the public exchanges between Vladimir Putin and Yulia Timoshenko on 28 June Igor Kolomoysky in a pole position were incomparably warmer than those, for example, in February 2005. The Ukrainian prime minister dwelt heavily on the fact that her government would respect scrupulously the bilateral agreements concerning the Russian fleet in the Black Sea. With regard to NATO, Yulia Timoshenko reiterated that it would be the READ ALSO… Ukrainian people who would have the final word in a referendum. And Vladimir Putin showed himself to In “Russia Intelligence” be conciliatory on the gas question. The Russian prime minister came out in favor of a progressive price in- Last Issue crease whilst at the same time pointing out that the central Asian gas suppliers were seeking to establish ECONOMY world prices from 1 January (for Ukraine this would mean gas at $400/1,000– compared to $179.50 now). c Private and public capita- He also congratulated the present Ukrainian government for having paid off the gas debt and called Yulia lists in search of new rules Timoshenko an “efficient and popular” leader. However there is no indication of the atmosphere at the talks of the game between the two heads of government that lasted twice as long as expected and took place without aides FOCUS or advisors. Objectively, several factors should lead Moscow to adopt a more open attitude towards Yulia c TNK-BP affair: an embarass- Timoshenko. The pragmatic and even opportunistic prime minister, who comes from Dnepropetrovsk and ment for who learnt Ukrainian after the fall of the , unlike Viktor Yushchenko does not see the eradica- ENERGY tion of the “Russian reality” in Ukraine as a mission. In the light of the persistent unpopularity of NATO in c RZhD breaks into the elec- the country, it is unlikely that Yulia Timoshenko will make it her battle horse even if she is surrounded by tricity sector convinced atlanticists like deputy prime minister Grigory Nemyria. cBTS-2 oil pipeline : Tokarev leads the dance From her perspective, if she wants to win the next presidential election Yulia Timoshenko desperately FOCUS needs a sign from Moscow on the gas question. Moreover, she will probably be tempted to let Viktor Yushchenko c : 50 billion dollars take on the euro-Atlantic mantle that seems to be quite far removed from the aims fixed in 2005 (the Ger- in profits in 2009 ? man ambassador to Kyiv thus has just confirmed that no change should be expected on the MAP question during the meeting of NATO foreign ministers in December and it now appears obvious that no partnership SUBSCRIPTION agreements will be signed at the next Ukraine/ summit meeting in Evian on 9 September Print Edition next). (23 issues, airmailed overseas) €385 TTC It may be seen that there is no lack of reasons for closer relations between Moscow and Yulia Timo- shenko. The experience of 1994 (when the Kremlin backed the “pro-Russian” , who did not Electronic Edition honor his commitments) and of 2004 nonetheless risk moderating Russian fervor. Sociology may also have (Print Edition + PDF + archives acess) a word to say: the latest opinion polls emanating from the highly serious Kyiv International Institute (KMIS) €440 TTC indicate a very big lead for Viktor Yanukovich against Yulia Timoshenko in the second round of the presi- dential election.d

www.ukraine-intelligence.fr UKRAINE INTELLIGENCE Politics & Government

ALERTS cc FOCUS 3 Kyiv City Hall : a most The Supreme Court becomes the new theatre timely fire While Leonid Chernovetsky, newly elected of the Confrontation between the President to head the Kyiv City Council to the great and the Prime minister displeasure of Yulia Timoshenko (Ukraine Intelligence No. 57 of 30 May 2008), once Hardly a day passes and another front opens in the merciless struggle waged over again showed his acumen as a tactician in the last few months between the Ukrainian president and prime minister. The most obtaining from the council – where theoreti- recent took place in the legal arena. The dispute was over a parliamentary bill pre- cally he does not hold a majority – the reap- sented by Viktor Yushchenko and supported by the Party of Regions that would radi- pointment of his right-hand man Oles cally modify the functioning of the Supreme Court. Dovgy as Chief Executive of the local admin- istration, a very curious incident occurred The choice of this “target” owes nothing to chance. In its edition of 13 October 2006, in the main offices of the public works de- Ukraine Intelligence informed its readers of the nomination of Vasily Onopenko at partment. Several offices located on the the head of the Supreme Court. A former minister of justice between 1991 and 1995, Khreshchatik in the city centre caught fire a former member of the United Social Democratic Party – from which he was later on Tuesday 24 June. As we write, the origin chased out by – in 2002 and 2006 Vasily Onopenko was elected a of the fire is not known but, for Ukraine In- deputy of the Rada on the lists of Yulia Timoshenko. Since his elevation to the presi- telligence sources in Kyiv, chance is not an dency of the Supreme Court, little has been heard of him. The second reading of the element with regard to the nature of the parliamentary bill due to be debated in the Rada has nevertheless brought him out of documents that went up in flames (including his silence - first, in an open letter to Viktor Yushchenko and then at a press confer- driving licences) . It is known that one of the ence on 23 June. “You are asking the Rada to debate this bill without delay and you most sensitive aspects of Leonid Chernovet- indicate that you support the proposed approach to reform the legal system, review sky’s administration since 2006 involves the the Supreme Court’s prerogatives and reduce the number of its members . . . It is dif- attribution of property and land to ficult to understand your motivations when signing such a letter but, whether it be “friendly”organizations (Ukraine Intelli- from the legal, political, social or moral viewpoint, your position nevertheless cre- gence n°42 of october 11 2007). In August ates shockwaves”. Vasily Onopenko then accuses Viktor Yushchenko of “being inco- 2007 two armed men broke into the herent in implementation the reform of the legal system” and points to the (Presi- Bezradichi town hall and took away thou- dent’s) “collaboration with those working for the destruction of the legal system”. sands of property deeds and legal docu- ments concerning hundreds of hectares of This latter point is directed at the chairman of the Laws Committee of the Rada, building land near Kyiv. Sergey Kivalov of the Party of Regions, who was at the head of the central electoral commission during the autumn 2004 presidential election and had validated the re- 3 Viktor Chernomyrdin sults of the run-off that gave victory to Viktor Yanukovich. Basically Vasily Onopenko gets ready to leave contests the nomination – in conformity with the law – of court presidents by the Head Indeed, it is not the first time that it has of State and the announced marginalization of the Supreme Court in favor of four spe- been reported that Russia’s ambassador to cial jurisdictions (the Supreme Court of Conciliation, the Supreme Criminal Court, the Kyiv was ready to pack his bags. This was Supreme Civil Court and the Supreme Administrative Court). In the light of the Pres- especially the case after the “orange revo- ident’s recent nominations to the Constitutional Court, it may be imagined that the lution”. But this time, information circulat- aim of the reform initiated by Viktor Yushchenko is to establish a legal system under ing in Moscow in this matter is more cred- orders to watch over elections (For the record it is an opinion of the Supreme Court ible. Viktor Chernomyrdin, aged 70, delivered on 4 December 2004 that compelled the holding of a third round of the pres- appointed as ambassador by Vladimir idential election and countered the obstacle of the Kuchma/Yanukovich tandem. The Putin in 2001, is expected soon to take up response of the President’s office to Vasily Onopenko’s statement was immediate. Im- a deserved retirement. The relative failure plicitly accusing the latter of corruption, Igor Pukshin, the Head of Legal Affairs at of the ceremonies to commemorate the the President’s office – let slip that , “at the present time there is no Supreme Court 225th anniversary of the Black Sea fleet in Ukraine”. (the Russian units were not able to freely parade in Sebastopol) as well as the Considering the parliamentary bill on the Supreme Court as a causus belli, mem- absence of most Ukrainian official at the bers of Yulia Timoshenko’s circle rapidly fired back. Several deputies thus asked the reception given in honour of Russia’s Prosecutor’s Office, the National Inspection Office and the Minister of the Interior to national day on 12 June, irritated the inquire on the conditions of use of governmental flights by Viktor Yushchenko’s right- Kremlin. However, two factors could hold hand man Viktor Baloga, his friends and members of his family (including Igor Puk- back this process. Firstly, the return of the shin). This involves several dozen flights between Kyiv and the Transcarpathia region gas question to the agenda of the Russo- where the Head of the President’s Office likes to receive guests at his residence near Ukrainian bilateral meeting this autumn. Mukachevo at the weekend. Very few people – including at Gazprom - have such a memory or mastery of the As it may be seen, the trench war continues between the two former leaders of the issue in this matter. The other problem “orange revolution”. However, according to the latest information, it would seem that will of course be to find somebody to suc- the President’s Office and the prime minister have decided not to clash and thus avoid ceed him (a problem that also needs to be the holding of an early general election. An agreement along these lines was sealed resolved for Russia’s embassy in Paris during talks between Viktor Baloga and Yulia Timoshenko on 20 June. The reliability after the departure of Alexandre and the respect for pledges given not being the highest quality of either of them, it may 2 Avdeev).d be wagered that a sudden revival of the controversy is likely to occur soon in Kyiv.d Ukraine Intelligence N°59 j July 3 2008 www.ukraine-intelligence.fr UKRAINE INTELLIGENCE Business & Networks

cc FOCUS ALERTS The Vanco affair: Viktor Yushchenko ups the 3 Igor Kolomoysky ready to do battle Alexey Mordashov stakes against Yulia Timoshenko It will be in the United States that the Russian steelmaker Severstal and the exec- It is something that has become a major classic of Ukraine’s political life. utives of the Privat group, Igor Whether it be political or economic, every time the prime minister Yulia Timo- Kolomoysky and Gennady Bogolyubov, shenko takes a decision on an important issue, president Viktor Yushchenko will obtain an explanation in the next few seeks to put a spanner in the works. Over the last few months Ukraine Intelli- weeks. Several WCI Steel minority share- gence has reported regularly on this trench war that is particularly bitter on the holders in fact are calling into question the issues of gas and privatisation. The dispute currently at the forefront of the two recent decision of the company’s board in heads of the Ukrainian executive concerns Vanco. favour of selling it to Alexey Mordashov’s group for $140 million. They consider that a In our edition of may 30 2008, we related the undulating itinerary of the li- competing offer from Optima cence granted in autumn 2007 by the Yanukovich government to the small Texan International of Miami, controlled by oil company for the exploration/production of a huge offshore sector off the Kerch Privat, was better in terms of finance. Igor Strait. Considering illegal the transfer of the rights of Vanco International to Kolomoysky, who is used to this kind of Vanco Prikerchenska Ltd – a company registered in the Virgin Islands and in- procedure in Ukraine, will therefore be able cluding among its shareholders a subsidiary of SKM, Rinat Akhmetov’s holding to gauge the skill of his lawyers in a less company, on 21 May Yulia Timoshenko signed an edict that cancelled the pro- “pliable” environment than that in Ukraine. duction sharing agreement linking Ukraine and Vanco. For the record, at the time the US authorities, and especially William Taylor, the US ambassador to Kyiv, 3 Titanium : Firtash concerned reacted strongly to the affair. For its part, Vanco Prikerchenska announced it was Keeping a low profile since the winter, the lodging proceedings at the Stockholm arbitration court and indicated a claim of main Ukrainian shareholder of 200 billion dollars in damages and interest. According to representatives of the RosUkrEnergo appears to be the subject of group, this sum is the equivalent of losses for the life of the concession. Looking further hostile manoeuvres by the govern- at these figures, it was easy for the entourage of the president to stress the irre- ment of Yulia Timoshenko. OstChem sponsible character of Yulia Timoshenko and the negative repercussions on the Holding, the subsidiary in charge of country in the eyes of foreign investors. Dmitry Firtash’s activities in the chemical sector, has announced the suspension of Important developments have intervened in the matter over the last few days. building work of the Mezhrechenskoe On 18 June, Viktor Yushchenko signed a decree annulling government edict No enrichment complex in the Zhitomir region, 740 of 21 May on the cancellation of the production sharing agreement. The Pres- a unit that was expected to supply ident’s office considers that the decision of the Timoshenko cabinet would not Krymsky Titan and Sumykhimprom, enable the State to fully assume one of its major functions, that is, of Ukraine’s belonging to Dmitry Firtash. This decision is economic security. Viktor Yushchenko therefore followed the recommendations connected to the refusal of the ministry of of the National Council for Security and Defense that had discussed the Vanco industry to authorise an extension of the affair on 30 May. As a matter of interest, since the end of December this body has building work. Sources close to Yulia been headed by Raisa Bogatyryova, a close collaborator of Rinat Akhmetov, Timoshenko moreover indicated to Ukraine who, as has been seen, cannot really be considered as totally neutral and disin- Intelligence that investigations were under- terested in the Vanco affair. way to throw light on the possible implica- tion of Dmitry Firtash in Intergrum As this issue goes to press, the status quo ante has been formerly restored. Technologies Ltd, the mysterious Austrian Theoretically, Vanco Prikerchenska Ltd may continue its business and suspend company involved in the Vanco affair . its legal proceedings against the State of Ukraine. Things however are a bit more complicated. According to information gathered by Ukraine Intelligence in Kyiv, 3 Gdansk naval shipyards : Yulia Timoshenko does not intend to leave things as they stand in this matter. Sergey Taruta in difficulty Sources close to the prime minister indicated to us last week that positive ap- ISD Polska, the Polish subsidiary of the proaches had been undertaken in Washington with a view to correct the disas- Industrial Union of Donbass, might have to trous impression left by the decision – admittedly announced in a very abrupt reimburse about $300 million to the Polish way – regarding Vanco. Yulia Timoshenko’s lobbyists particularly emphasized the government following a subsidy granted in paradox that the State Department might have had in defending an offshore com- 2004 to the Gdansk naval shipyards that pany in which Rinat Akhmetov is a shareholder, but also perhaps Dmitry Firtash since have been purchased by the group and the Klyuev brothers (According to information gathered by Ukraine Intel- headed by Sergey Taruta (Ul No.46 of 6 ligence, this latter point is the subject of active research by the Ukrainian and December 2007). The European US secret services). Commission, that took the issue in hand and finally discussed it at the end of May The Ukrainian prime minister in any case intends to make the Vanco affair – an infringement of competition rules sees and, by extension, the question of concessions granted for offshore oil exploration in the matter. In order to exert pressure, at in the Black Sea – a symbol of the fight against corruption that she wants to carry the end of June ISD Polska brought hun- out. Two other western groups with not very transparent involvement in Ukraine, dreds of its employees to Brussels for a CBM Oil of the UK and Shelton of Canada, are likely to see their agreements demonstration outside the Commission’s with the public group Chernomorneftegaz questioned.d headquarters.d 3 Ukraine Intelligence N°59 j July 3 2008 www.ukraine-intelligence.fr UKRAINE INTELLIGENCE Business & Networks

ALERTS c Towards a re-launch of production of the An-124 super jumbo “Ruslan”?

Regularly brought up in the Russo-Ukrainian vanov, the Russian ministry of defence and able to carry 150 tonnes of freight over more talks (notably by Viktor Yanukovich during freight operators would need at least 71 copies than 3,000km. Until 1995 its modern versions, the MAK-2007 air show in Moscow, last Au- by 2030. A meeting with potential clients is to the An-124-100 and An-124-100M-150, were gust), the possible future re-launch of produc- take place soon. An investment of around 100 produced in plants at Kyiv and Ulyanovsk. A to- tion of the Antonov 124 appears to be an in- million euros would be necessary to re-launch tal of 56 copies were produced with about one- creasingly credible possibility – for Russia. production at the Aviastar facility at half operated by the Russian ministry of de- OAK, the Russian United Aircraft Corporation, Ulyanovsk. Sources in Moscow agree that the fence and the rest by Antonov Airlines and by and Ernst & Young, have just finished drafting Vneshtorgbank would provide the financing. the Russian companies, Polet and Volga a business plan in this direction. Firm orders Conceived at the beginning of the 1980s by Dniepr (Russia Intelligence n°54 of april 27 for 40 aircraft would be sufficient to start the Antonov’s design office in Kyiv, the An-124 2007). The unit purchase price of the future process, the document indicates. Yet, according “Ruslan” is a 69-metre long aircraft with a 73- An-124-200 is estimated at about 100 million to OAK head of transport aircraft Viktor Li- metre wingspan powered by four engines and euros.d

c Energoatom: Yuri Nedashkovsk’s surprise come-back

An unexpected event has occurred at the Viktor Yushchenko and two of the President’s teriorate for Yuri Kovrizhkin after the Inspec- head of Energoatom, the public company colleagues, Ivan Plachkov the former energy tion Committee revealed over-invoicing for that operates Ukraine’s four nuclear power minister at the time of the famous gas agree- the delivery of equipment to the Rivre nu- stations. Yuri Kovrizhkin, appointed chair- ments of 4 January 2006 and Nikolay Mar- clear power station. With Yulia Timoshenko man of the group by Yulia Timoshenko in tynenko, chairman of the Rada’s energy not really having any nuclear specialists in January, was dismissed from his post and re- committee. her entourage, she finally accepted to nomi- placed by Yuri Nedashkovsky on 18 June. At In fact, it would appear that Yuri Kovrizhkin nate Yuri Nedashkovsky, who headed Ener- first sight there is nothing political in the disappointed his “protectors” to whom it goatom after the “orange revolution” and un- prime minister’s action. On the contrary, Yuri seems he did not really return the favor. til the return to office of Viktor Yanukovich Kovrizhkin was considered close to Alexan- Rather than using suppliers close to the in autumn 2006. According to our informa- dre Dubov, a member of parliament in Yulia prime minister, the ex-boss of Energoatom tion, on the other hand the prime minister is Timoshenko’s bloc (ByuT) and a member of preferred calling upon companies such as expected to appoint “reliable” people to En- the Rada’s energy committee. His successor, ASS-Alliance or VTF-ASS, controlled by his ergoatom’s financial department and in this Yuri Nedashkovsky, is known to be close to own son, Andrey. The situation began to de- way seek to control the group’s activity.d

c Odessa-Brody oil pipeline: Igor Kolomoysky in a pole position

Usually well-informed sources in Kyiv report Kazakhstan). In this perspective, it would ap- who, in the State apparatus, are involved in that the head of the Privat group appears pear that Igor Kolomoysky’s services trans- the Odessa-Brody oil pipeline, favor Privat”. working hard behind the scenes to take con- mitted to the President’s office a draft decree As a matter of interest, Privat for many years trol, when the moment comes, of the oil flows granting Milbert Ventures Inc. – an offshore has controlled , the public oil com- to be transported to central Europe through company based in the Virgin islands and con- pany although it holds only 43% of the capital the Odessa-Brody oil pipeline. For the record, nected to Privat – the exclusive management of (Ukraine Intelligence No.24 of 1 December President Yushchenko confirmed at the end of oil flows between Odessa and Brody. Bogdan 2006). Igor Kolomoysky’s group also owns two May that the pipeline, inaugurated in 2001, Sokolovsky, the Ukrainian President’s repre- small refineries in the west of Ukraine close to would soon begin functioning from south to sentative in charge of international energy co- the path of the Odessa-Brody oil pipeline and North (for several years now, it has been oper- operation, has refused to make any comment since the autumn has been manoeuvring to ated by Transneft in order to export Russian on this matter, but other government officials take control of that located at Kremenchug oil via Odessa because of the lack of availabil- have not been so coy. Burzu Aliev, a deputy (Ukraine Intelligence No.44 of 8 November ity of crude oil volumes from Azerbaijan and minister of Energy recently said that “all those 2007).d

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