IN THE SPOTLIGHT ISSUE 31 (150) 09/30/2013

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2 CONTENT 1. Top news Case of jailed Ukrainian ex-premier to be decided after report of European Parliament's mission, says president page 4. Ukrainian constitutional court authorizes appointment of judges for life, top prosecutor indefinitely page 4. Ukraine expects to receive 14bn dollars from IMF page International politics Ukraine-EU EU decides on temporary implementation of association deal with Ukraine page 4. Europe expects progress from Ukrainian president on path towards association deal page 5. European Parliament to decide on association deal with Ukraine on 18 November page 5. Ukraine achieves progress in all criteria of «Fule list», says country's EU envoy page 5. EU unhappy about Ukrainian MPs stripped of seats page 5. Ukraine-Russia Russia may introduce trade restrictions with Ukraine, says premier page 5. President says Russia-led regional bloc to benefit from Ukraine's ties with Eu page 6. Ukraine may join 70 agreements of Russia-led regional bloc page 6. Ukrainian president may strike deal with Russia before Vilnius summit mass media page 7. Ukraine-USA Ukrainian president delivers address at UN General Assembly page 7. USA to continue pressure on Ukrainian government to release jailed ex-premier page Domestic politics Ukrainian government Ukrainian constitutional court authorizes appointment of judges for life, of top prosecutor indefinitely page 8. Ukrainian president signs law on repeat elections in five problematic districts page 8. Ukrainian opposition Yanukovych: Tymoshenko's problem to be settled after EP mission report page 8. Council of Europe urges Ukraine to guarantee execution of ECHR's judgment in Tymoshenko's case page 9. Criminal cases being cooked against Tymoshenko's lawyers Vlasenko page 10. 2

3 Tymoshenko's defence finds reasons for closing down case on United Energy Systems of Ukraine page 10. Deputy prosecutor-general talks about 24 criminal cases against Tymoshenko page 10. Members of Front for Change setting up new party mass media page Human rights Regional councillor intimidating journalist with threats against daughter page Economics Ukraine poised to raise 14bn dollars from IMF page 11. Public debt grows by 4bn dollars in 8 months page 11. Moody's assigns Ukraine worst rating in Eurasia page 11. Ukrainian companies incur 700m dollars net loss page 12. Wage arrears grow to 123m dollars page 12. Russia partially refuses to buy Ukrainian railway cars page 12. Ukraine expecting record grain harvest page 12. China to gain control of 3m hectares of land in Ukraine media page Energy Azarov: Ukraine can refuse from purchasing Russian gas page 13. Ukraine looking for alternative fuel page 13. Construction of LNG terminal to start in 2014 page 14. Naftohaz announces terms of mothballing gas transport system page 14. Ukraine increases Russian gas transit to Eu page 14. Three new suppliers to import gas to Ukraine page 14. Gazprom's partner to audit Ukrainian gas pipelines page 14. Energy Ministry orders shutting down Coal of Ukraine page 15. Ukraine signs deal with ExxonMobil, Shell, Petrom page 15. Ukraine moves deadline on signing agreement with Chevron until 24 November page 15. 3

4 TOP NEWS Case of jailed Ukrainian ex-premier to be decided after report of European Parliament's mission, says president A mission of the European Parliament has made the Ukrainian government a few proposals to resolve the case of jailed former Ukrainian Prime Minister Yuliya Tymoshenko, and it is currently waiting for the decision of Ukrainian President Viktor Yanukovych. You can find more details in the section DOMESTIC POLITICS. Ukrainian opposition. Ukrainian constitutional court authorizes appointment of judges for life, top prosecutor indefinitely The Constitutional Court of Ukraine has ruled that the draft law «On strengthening the guarantees of judicial independence» is in line with the constitution. You can find more details in the section DOMESTIC POLITICS. Ukrainian government. Ukraine expects to receive 14bn dollars from IMF Ukraine has satisfied all the IMF requirements, except for raising household gas tariffs. You can find more details in the section ECONOMY. INTERNATIONAL POLITICS UKRAINE-EU EU decides on temporary implementation of association deal with Ukraine The EU has determined the scope of the temporary implementation of the association agreement with Ukraine right after the signing of the document and without its ratification. Lithuanian Foreign Minister Linas Linkevicius said that right after the signing of the association agreement, it would be possible to temporarily enact its provisions nearly 90 percent from the part on a free trade area and over 50 percent from the political section. According to the Ukrainian news agency UNIAN, the 10 percent of the requirements for free trade with the EU that would not be temporarily implemented after the signing of the agreement are issues of an energy bloc and intellectual property. 4

5 Europe expects progress from Ukrainian president on path towards association deal In a joint statement, the president of the EU Commission, Jose Manuel Barroso, as well as the president of the European Council, Herman Van Rompuy, have urged Ukrainian President Viktor Yanukovych to demonstrate progress in reforms, including in what they see as the issue of selective justice in Ukraine, in order to sign the association agreement with Kiev during a summit in Vilnius. European Parliament to decide on association deal with Ukraine on 18 November On 15 November 2013, the European Parliament will hear a report of its monitoring commission headed by former Polish President Aleksander Kwasniewski and former EP President Pat Cox. And on 18 November, it will take a decision regarding the signing of the association agreement with Ukraine, a Polish member of the European Parliament, Pawel Zalewski, has said. Ukraine achieves progress in all criteria of «Fule list», says country's EU envoy Ukraine has achieved progress in all the 11 criteria of the so called «Fule list», which are required for signing the association agreement with the EU, Ukrainian ambassador to the EU Kostyantyn Yeliseyev told the influential Ukrainian business daily Kommersant Ukraina. EU unhappy about Ukrainian MPs stripped of seats The EU is concerned over the process of stripping Ukrainians MPs of their seats through court, the EU ambassador to Ukraine, Jan Tombinski, was quoted by the LB.ua news and analysis website as saying on 23 September. He added that voters needed to be sure that after an election campaign was over, politicians chosen by them would not face any extraparliamentary actions to strip them of their mandates. We shall remind you that the Supreme Administrative Court ruled to strip the following MPs of their seats: Ihor Markov, Oleksandr Dombrovskyy, Pavlo Baloha, Serhiy Vlasenko and Andriy Verevskyy. UKRAINE-RUSSIA Russia may introduce trade restrictions with Ukraine, says premier Ukraine will lose trade preferences with Russia after signing the association agreement with the EU, Russian Prime Minister Dmitriy Medvedev said on 23. In his opinion, Ukraine will repeat the example of Greece or Cyprus after signing the document. 5

6 In response, the Ukrainian Foreign Ministry said that Ukraine was ready to discuss with Russia the issues arising in connection with the signing of the association agreement with the EU, including in a trilateral format, with the engagement of the EU. The EU ambassador to Ukraine, Jan Tombinski, said that forecasts of a possible collapse of the Ukrainian economy and the country's default resulting from the signing of the association agreement with the EU were very much exaggerated and offered by people who feared success in the process of Ukraine's association with the EU. The editor in chief of the LB.ua news and analysis website, Sonya Koshkina, wrote in her article that in the best traditions of the Kremlin PR, Russia has been conducting an active anti-european campaign in Ukraine for a long time. It is especially successful because neither the EU nor Ukraine counteract it in any way. Earlier, on 22 September, a report on the Russian state-run TV Rossiya compared Ukraine's European integration to euthanasia, while trying to portray Moscow as Kiev's rescuer from an unavoidable death. President says Russia-led regional bloc to benefit from Ukraine's ties with EU Ukrainian President Viktor Yanukovych believes that pressure in the energy sector has always been Ukraine's main problem in relations with Russia. He voiced this opinion in an interview with Bloomberg. The president added that Ukraine would like to find a possibility to develop its relations with the Russia-led Customs Union after it signed the association agreement with the EU. Ukraine may join 70 agreements of Russia-led regional bloc Ukraine might join nearly 70 agreements which are implemented in the Customs Union of Belarus, Kazakhstan and Russia, Ukrainian Prime Minister Mykola Azarov has said. In Azarov's opinion, rules of the WTO might resolve all the issues which concern Russia given Ukraine's possible signing of the association agreement with the EU. Russian Prime Minister Dmitriy Medvedev said that Ukraine's possible joining of the 70 agreements which are enacted in the Customs Union would mean the country's full membership in the regional bloc, to which Brussels might object. At the same time, the prime minister added, after Ukraine signs the association agreement with the EU, it will be able to retain its observer status in the Customs Union, but will lose the ability to become its full member. 6

7 Ukrainian president may strike deal with Russia before Vilnius summit mass media On 18 September, an influential Russian businessman, Vladimir Yevtushenkov, whom the mass media considers to be close to Ukrainian President Viktor Yanukovych, paid an unofficial visit to Ukraine, the Ukrainian weekly Zerkalo Nedeli reported, citing its own sources. According to the information at the newspaper's disposal, Yevtushenkov held meetings with Yanukovych, speaker Volodymyr Rybak and businessman Rinat Akhmetov. They discussed Russian loans to Ukraine, reducing the price of Russian gas and oil, an increase in Russian investments and guaranteed personal protection for the Ukrainian president. In the opinion of the weekly, such a visit could be viewed as a Russian attempt to try to swap a policy of sticks to a policy of carrots. UKRAINE-USA Ukrainian president delivers address at UN General Assembly On 23-25, Ukrainian President Viktor Yanukovych paid a working visit to the USA in order to take part in the 68th session of the UN General Assembly. During his address in New York, the head of state said that Ukraine would initiate the organization of a conference on issues of nuclear arms nonproliferation. He also expressed hope that Ukraine would be selected as a temporary member of the UN Security Council in USA to continue pressure on Ukrainian government to release jailed ex-premier The USA is interested in the development of democracy in Ukraine and it will continue supporting its civil society and its efforts to release jailed former Ukrainian Prime Minister Yuliya Tymoshenko, US ambassador to Ukraine Geoffrey Pyatt has said in an interview with the Ukrainian news and analysis website Ukrayinska Pravda. He also stated that Washington supported the EU stance on the unacceptability of Russia's pressure on Ukraine in relation to Kiev's planned signing of the association agreement with the EU. 7

8 DOMESTIC POLITICS UKRAINIAN GOVERNMENT Ukrainian constitutional court authorizes appointment of judges for life, of top prosecutor indefinitely The Ukrainian Constitutional Court has ruled that the draft law which proposed to appoint judges for life and the prosecutor-general indefinitely is in line with the constitution. The verdict was handed down on 19. The draft law «On strengthening the guarantees of judicial independence», which was introduced by Ukrainian President Viktor Yanukovych, is part of the European integration package. Ukrainian parliamentary speaker Volodymyr Rybak said that final amendments to the constitution regarding the independence of judges might be adopted right after the Vilnius summit. The Venice Commission gave a positive assessment to the draft law, its President Gianni Buquicchio said in an interview with the Zakon i Biznes newspaper on 24 September. An MP of the Ukrainian opposition party UDAR, Valeriy Karpuntsov, told the LB.ua news and analysis website that such constitutional amendments would only strengthen the dependence of judges on President Yanukovych. Ukrainian president signs law on repeat elections in five problematic districts Ukrainian President Viktor Yanukovych has signed a law on the holding of repeat elections of members of parliament in five first-past-the-post constituencies on 15 December Earlier, the opposition said that it would nominate the candidates who had run in the mentioned constituencies in October In the opinion of the head of the Committee of Voters of Ukraine, Oleksandr Chernenko, the opposition will have a hard time winning the elections in the five problematic constituencies because the authorities will resort to more sophisticated strategies. UKRAINIAN OPPOSITION Yanukovych: Tymoshenko's problem to be settled after EP mission report The problem of former Prime Minister Yuliya Tymoshenko will be settled after the Cox-Kwasniewski mission delivers its report, Ukrainian 8

9 President Viktor Yanukovych has said during a working visit to the USA. The president said that Ukraine's position on the Tymoshenko case remained unchanged. He also said that the Ukrainian law does not allow Tymoshenko to be released or sent to Germany for treatment. In his words, the problem is very complicated and the ex-prime minister would help a lot if she attended court hearings. European Parliament member Pawel Kowal has said that the longer the Ukrainian authorities delay the settlement of the situation with Tymoshenko, the fewer hopes remain in the EU that the association agreement will be signed. Jacek Saryusz Wolski, vice-president of the European People's Party, said in an interview for the BBC that the association agreement would not be signed if Tymoshenko was not released. Pat Cox, a former chairman of the European Parliament (EP), said that the EP mission made several suggestions to the Ukrainian authorities how to settle the Tymoshenko case and was now awaiting President Yanukovych's decision. According to the Zerkalo Nedeli weekly, the Cox-Kwasniewski mission may include information about Yanukovych's preparedness to meet the EU requirements and Tymoshenko's refusal from treatment in Germany. Council of Europe urges Ukraine to guarantee execution of ECHR's judgment in Tymoshenko's case On 26, the Committee of Ministers of the Council of Europe issued a decision assessing the execution of the European Court of Human Rights' (ECHR) resolution in the case of former Prime Minister Yuliya Tymoshenko by Ukraine. On 30 April, the ECHR ruled that Tymoshenko's arrest within the framework of the so-called gas case was unlawful. The Committee of Ministers called on Kiev to provide information on further possibilities which could be explored to ensure that the Ukrainian authorities respect the European Convention on Human Rights. Tymoshenko's former defence counsel at the ECHR, Valentyna Telychenko, said that by not executing the court's resolution on Tymoshenko, Ukraine is showing disrespect for European values and may be slapped with sanctions. In her opinion, the Ukrainian government itself should initiate the revision of the verdict in the Tymoshenko case. 9

10 Criminal cases being cooked against Tymoshenko's lawyers Vlasenko On 24, ex-prime Minister Yuliya Tymoshenko's defence counsel, Serhiy Vlasenko, said that the Security Service of Ukraine had been instructed to find grounds for criminal proceedings against Tymoshenko's lawyers. Vlasenko suggested that it was the personal initiative of President Viktor Yanukovych to put pressure on Tymoshenko's lawyers to deprive her of legal protection. Tymoshenko's lawyer Oleksandr Plakhotnyuk said that he and other defence counsels of the ex-prime minister were under surveillance and their phone communications were wiretapped. The Security Service of Ukraine said that it had no cases concerning Vlasenko or lawyers of Tymoshenko. Tymoshenko's defence finds reasons for closing down case on United Energy Systems of Ukraine Ex-Prime Minister Yuliya Tymoshenko's defence team will apply for closing down criminal proceedings in the case of government guarantees under the United Energy Systems of Ukraine's liabilities. The lawyers said that the case must be closed because the letter from former Ukrainian Prime Minister Pavlo Lazarenko to his former Russian counterpart Viktor Chernomyrdin regarding the government guarantee was missing from the State Archive. Tymoshenko's defence counsel made a statement to this effect to InterfaxUkraine on 24. On 23 September, a court postponed until 25 October the hearing in the criminal case over Tymoshenko's abuse of office at the post of the United Energy Systems of Ukraine head. The court said that the case could not be considered in the absence of the defendant. Deputy prosecutor-general talks about 24 criminal cases against Tymoshenko Twenty-four criminal cases have been opened against former Prime Minister Yuliya Tymoshenko since 1995, Deputy Prosecutor-General Renat Kuzmin said in an interview for the Voice of Capital radio. In Kuzmin's words, some of these cases were closed because parliament had earlier decriminalized the relevant articles, while others are at hand, some of them ready to be referred to court. Members of Front for Change setting up new party mass media 10 On 23, the Forbes magazine quoted its sources as saying that a new party was being set up on the basis of the disbanded opposition Front for Change party. The sources in the faction named Andriy Pavelko as its potential leader. Pavelko neither confirmed nor denied this information.

11 Front for Change and Reforms and Order parties merged with the Fatherland party at the unification congress of the opposition on 15 March. HUMAN RIGHTS Regional councillor intimidating journalist with threats against daughter A Party of Regions member of the Luhansk regional council, Arsen Klinchayev, threatened the editor in chief of the 0642.ua website, Yana Osadcha, with taking action against her child and "putting a curse" on her if she does not remove the article which he did not like from her website, the Ostrov website has said. According to Osadcha, the councillor said that she had 24 hours to remove the article. The journalist reported his threats to the prosecutor's office. ECONOMICS Ukraine poised to raise 14bn dollars from IMF Ukraine hopes to receive about 14.3bn dollars under a new loan programme with the International Monetary Fund (IMF), President Viktor Yanukovych said in an interview with Bloomberg. According to Yanukovych, Ukraine has fulfilled all the terms set forth by the IMF, except for one condition, particularly raising natural gas prices for households. We are willing to substitute this condition with some other and are ready to discuss it, the president said. Gerry Rice, Director of the IMF's Communications Department, confirmed the Fund's plans to hold negotiations with Ukraine on resuming the cooperation and signing a new lending programme worth about 15bn dollars by the end of this autumn. Prime Minister Mykola Azarov said that if Ukraine fails to reach agreement with the IMF, the government will raise funds, if necessary, from other sources. Public debt grows by 4bn dollars in 8 months Ukraine's public and publicly guaranteed debt in January-August 2013 increased by 3,857bn dollars or 5.98 percent as compared to the beginning of the year, the Finance Ministry has said. Moody's assigns Ukraine worst rating in Eurasia Moody's Investors Service downgraded Ukraine's Eurobonds to the pre- 11

12 default level of Caa1 and placed the rating on review for further downgrade. According to the Kommersant Ukraina business daily, Ukraine now has the lowest rating among Eurasian countries. Moody's has also lowered the ratings of 11 Ukrainian banks and six of Ukraine's largest holding companies. Ukrainian companies incur 700m dollars net loss Net loss of large and medium-sized enterprises in Ukraine in January-June 2013 grew to 5,781bn hryvnyas (706m dollars) against a net profit of 3.207bn hryvnyas (392m dollars) received in January-June 2012, according to the State Statistics Service. Wage arrears grow to 123m dollars Wage arrears in Ukraine as of 1 totaled 982.9m hryvnyas (123m dollar), as reported by the State Statistics Service. Since the year's beginning, wage arrears grew by 10.0 percent. Russia partially refuses to buy Ukrainian railway cars A Russian government agency named Register of Certification on 25 suspended 13 certificates for freight cars manufactured by Kryukiv Railway Carriage Plant (Ukraine). In late August the Federal Agency for Transport Supervision banned the use in Russia of 292 railway cars manufactured by the Kryukiv plant. As it was announced on 27 September, President Viktor Yanukovych has instructed Prime Minister Mykola Azarov to buy two inter-regional electric trains from the Kryukiv plant. Ukraine expecting record grain harvest Prime Minister Mykola Azarov said on 26 that, according to preliminary estimates, this year Ukraine will gather a record harvest of grain crops over the years of independence about 60m tonnes. He also instructed the ministries to start work on the project for creating a grain pool of Ukraine, Kazakhstan and Russia. China to gain control of 3m hectares of land in Ukraine media Chinese company Xinjiang Production and Construction Corps will receive 100,000 hectares of farmland from Ukrainian holding company KSG Agro, South China Morning Post reported on 23. In a long term, according to the newspaper, China does not rule out gaining control over 3m hectares of farmland in Ukraine. 12

13 At the same time, Board Chairman of KSG Agro Serhiy Kasyanov denied the sale or sublease of land to the Chinese counterparty, noting that the matter concerns only a joint project in agriculture. According to Zerkalo Nedeli weekly, during a visit to Beijing on September, the Ukrainian government delegation headed by the first deputy premier primarily discussed a contract for supply of Ukrainian agricultural products to China to the tune of 8bn dollars. ENERGY Azarov: Ukraine can refuse from purchasing Russian gas Ukraine will have to stop to buy nearly any Russian gas due to its high price, Ukrainian Prime Minister Mykola Azarov said in an interview for the Russian TV channel Rossiya 24. He said on Facebook that the terms of Gazprom's contract "leave almost no opportunity to Ukraine" to have it revised. According to a supervisory board member of the Institute of Energy Strategies, Yuriy Korolchuk, Ukraine cutting down on gas purchase in 2013 may prompt Gazprom to issue a new fine of up to 12bn dollars. He made this statement at a round table organized by the Gorshenin Institute on 26 September. Ukraine looking for alternative fuel President Viktor Yanukovych has said that Ukraine is looking for alternative sources of fuel. In his words, Ukraine wants to increase gas production from the current 21bn cu.m. to 30bn cu.m. in 2017, which would satisfy the country's domestic demand. Prime Minister Mykola Azarov said that Ukraine had enough shale gas for years. He specified there was 4,500bn cu.m. in stock. Oleksiy Leshchenko, vice-president at the Gorshenin Institute, said in an exclusive commentary for Gorshenin Weekly: "Although European countries are dependent on the import of gas, including from Russia, they have [access to] alternative supplies of this fuel, whereas Ukraine has no options". Italy is 90 percent dependent on gas supplies. Germany, which consumes 82bn cu.m. a year, imports 86 percent of gas. Spain imports 100 percent of gas, France, over 80 percent, and Belgium, 90 percent," the expert said. According to Leshchenko, 66 percent of gas consumed by Ukraine comes from Russia. This is comparable with Germany. In his opinion, if the domestic gas market in Ukraine was organized in accordance with the requirements and standards of the Second and Third Energy Packages, we would not be talking about the contracts we have at the moment. "For example, the market in Germany is organized so that its players 13

14 and the state have leverage on contracts. So they can, for example, refuse from Gazprom's gas and switch to the Algerian one at the LNG also in Germany," he continued. "Ukraine and Gazprom can be on good terms if there is a transparent domestic market," he concluded. Construction of LNG terminal to start in 2014 Ukraine will launch the first stage of the LNG terminal project together with its partners Excelerate Energy and others in mid-2014, which would allow it to sell up to 5bn cu.m. of gas a year, President Viktor Yanukovych has said in New York. Naftohaz announces terms of mothballing gas transport system Ukraine may mothball part of its gas transport system if it pumps less than 3537bn cu.m. a year, the deputy board chairman of the national oil and gas company Naftohaz Ukrayiny, Vadym Chuprun, has said. Ukraine increases Russian gas transit to EU From 1 January to 25, the transit of Russian gas across Ukrainian territory towards the EU increased by 0.4 percent to 59.7bn cu.m., Ukrtranshaz has said. Three new suppliers to import gas to Ukraine Three new suppliers Enerhokapital Group, the Kievhazenerho trading house and the Irida energy company will now import gas to Ukraine. According to the Insider website's source in the Ministry of Revenues andlevies, all three buy their gas from the Romanian Global NRG Rom S.R.L. Until now, there have been four known importers: Naftohaz Ukrayiny importing gas from Russia and Germany via Poland; Dmytro Firtash's Ostchem buying gas from Russia; Rinat Akhmetov's DTEK and Serhiy Kurchenko's VETEK both importing from Hungary. Gazprom's partner to audit Ukrainian gas pipelines The Ukrtranshaz has signed a number of contracts worth 12m dollars to have its main gas pipelines checked from the inside in According to the State Procurement Bulletin, the inspection will be carried out by Russia's Spetsneftegaz and LIN SCAN Advanced Pipeline and Tank Services from the UAE. Spetsneftegaz, which mass media describe as a business partner of Gazprom, will be paid 9.97m dollars for the job. 14

15 Energy Ministry orders shutting down Coal of Ukraine Energy Minister Eduard Stavytskyy has signed a decree to dissolve the stateowned company Coal of Ukraine in December According to media reports, banks took Coal of Ukraine to court demanding the urgent payoff of loans worth at least 0.5bn hryvnyas (61m dollars). Ukraine signs deal with ExxonMobil, Shell, Petrom On 25, the government signed a production sharing agreement for the Skifske hydrocarbon deposit on the Black Sea shelf with ExxonMobil, Shell and OMV Petrom. According to the contract, they will develop two wells expected to produce 810bn cu.m. of gas a year. Ukraine moves deadline on signing agreement with Chevron until 24 November The Cabinet of Ministers has agreed moving the deadline on signing a hydrocarbon production sharing agreement for the Oleske area (IvanoFrankivsk and Lviv regions) until 24 November Founded in July 2010, Gorshenin Weekly is a weekly digest of expert analysis covering the most important political, social and economic events in Ukraine. It is the key source of information about opinion polls carried out by the Gorshenin Institute as well as the best professional commentaries on recent developments. Gorshenin Weekly is available in Russian and English. Gorshenin Weekly has over 700 subscribers in the EU, the USA, Russia, Ukraine and other countries. Its regular customers are representatives of the embassies, the European Commission, the European Parliament, the US Department of State, leading international analytical centres, Ukrainian and international mass media. If you wish to subscribe to Gorshenin Weekly please send your request to the following address: weekly@gorshenin.eu. Our contact information: 18b Mala Zhytomyrska st., Kiev 01001, Ukraine f kipu@kipu.com.ua For more information please visit our website 15