2. He added that Western banking groups eyeing the Ukrainian market are sometimes also remiss
in scrutinizing the Ukrainian banking sector, thus causing their own problems.
“Before entering Ukraine, every foreign bank mainly looks at the number of branches that a bank
has in Ukraine and, sometimes, that’s the only figure they consider,” Mezentsev said.
“A lot of them simply do not perform the necessary due diligence. Often, they first buy banks
and only then pay close attention and, sometimes, they become surprised when they find out that
one of the functions, such as risk management, is simply absent.
Despite the problems, Mezentsev said that dynamic growth in Ukraine’s banking sector will
continue, both in terms of foreign players acquiring more Ukrainian banks, as well as niches
within Ukrainian banking, such as the mortgage and consumer loan segments of the business.
Dirk Haboeck, the general manager of ProCreditBank, said that the lack of transparency was an
ongoing problem in the Ukrainian banking sector that needed to be resolved if the sector is to
develop along Western standards.
“We are convinced that social responsibility for the development that banks have should be at
the very top [of the banking sector’s agenda], especially in countries with transitional economies,
such as Ukraine,” Haboeck said.
“It’s really important in the context of Ukraine – especially considering the recent big changes in
the financial sector – that banks’ management switch from trying to make profits, no matter
what, to working ethically,” he added.
Haboeck said that the dearth of such social responsibility can be seen in the consumer loan
segment of the sector.
“Looking at consumer crediting, for example, I would say there’s little responsibility for a
number of reasons,” he said. “Actual [interest] rates are much different from those that are
announced and advertised.”
“We think it’s more important to grow organically and provide high-quality services, rather than
expand for the sake of expansion and growth,” he said.
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4. in the next several years, adding, however, that the office sector has shown the most growth to
date.
“Investors that have come to the market have eyed Kyiv’s central business district. Sooner or
later, there won’t be any land plots left, and that’s when developers will start looking at plots
available for constructing business parks,” he said.
According to Oleksenko, real estate construction, leasing and sales companies continue to
concentrate their efforts in Kyiv, where construction costs for building an office center, for
example, are around the same as in the rest of the country, but lease and sale prices are higher,
while the time it takes for a tenant or buyer to occupy the space made available is shorter.
“So, net income is always higher in Kyiv,” he said.
With respect to the retail end of the market, Oleksenko said that sector is hampered by unclear
zoning regulations in Kyiv, with plots that can either be used to construct low-lying malls, or
multi-storey housing.
“Apartment building will always be more profitable than a two-storey mall,” he said.
“People won’t see much quality retail space until there are more strategic regulations from the
side of the city administration,” he added.
“Retailers have a greater interest in expanding to markets in other regions, and that’s why we can
see and will see a lot of activity in this regard in the nearest future.”
As for industrial real estate, Oleksenko said it is the least profitable of the three fastest
developing commercial real estate sub-sectors on the market.
“As a result, this segment will get more attention only when it gets too tight in the other sectors,”
he said, adding that the industrial real estate sector may present development opportunities for
foreign investors that specialize in that area.
Lack of quality space
According to Yuriy Nartov, the managing director of the Kyiv-based operations of Colliers
International, a global real estate consultancy, the current situation on Ukraine’s commercial real
estate market is repeating itself this year, and is characterized by a lack of quality space.
“And this relates to all the segments of commercial real estate,” Nartov said.
“Companies that plan to enter the market or improve their space face real difficulties, as there’s
very little stock available to satisfy their requirements,” Nartov said.
“As a result, companies have to choose between staying [where they are], not being able to
expand, or finding a solution, such as moving out of the city center.”
He said that while many real estate projects are currently in the pipeline, their completion still
won’t be enough to satisfy demand.
“Also, completion takes much longer than expected for a number of projects,” Nartov said.
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5. He added that among the biggest problems contributing to the protracted completion and low
supply of commercial office space on the market is the process of procuring land plots, as well as
recently introduced regulations that have made developing real estate even more complicated
than before.
“There’s no lack of capital,” Nartov said. “A lot of Western players want to enter the market.”
Partnering up
However, while foreign companies may prefer leasing or buying ready-made commercial real
estate in order to avoid bureaucratic permit-issuing complications, unlike DEOL Partners’
Oleksenko, Colliers’ Nartov said that such companies may actually be better off trying to
develop real estate projects from scratch.
“That’s where a lot of companies consider possible partnership relations with some local players
that have more access to land plots and possess some other strengths, such as the ability to solve
administrative issues, obtaining permits, and so on,” Nartov said.
He said that real changes will begin to occur on Ukraine’s commercial real estate market in the
next several years, as institutional investors have only begun to study and research the country’s
real estate market.
“It’s not enough for serious players to have one or two projects. They want to have a portfolio of
projects,” he said.
Arthur Ohanesyan, the managing director of Parker & Obolensky, a Kyiv-based real estate
agency, agrees with Nartov that most foreign companies that want to start and complete real
estate projects in Ukraine find partners among local companies to meet their goals.
“There are no other options,” Ohanesyan said.
“There are quite a number of examples of foreign companies that tried to do something on their
own and failed,” he said, adding, “The state is taking all possible steps to defend the interests of
national companies, hurting the interests of consumers.”
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7. Changing market conditions
According to Vakht, Ukraine’s maturing business environment, including its increasingly active
securities market, has given rise to tougher regulatory requirements for auditing firms over the
last year that Vakht said is part of a trend in the sector which is set to continue.
“Regulators, such as stock exchanges and commissions, both foreign and domestic, have
toughened their requirements,” Vakht said.
“All the companies of the Big Four went through what is called the PCAOB [Public Company
Accounting Oversight Board] examination last year,” he said.
The PCAOB is a private sector non-profit corporation created in 2002 by U.S. federal law that
oversees the auditors of public companies to protect the interests of investors.
“All these examinations resulted in reports with comments and remarks concerning auditing
firms’ activities,” he added.
However, while trading activity on Ukraine’s securities market has been steadily on the rise, and
a number of Ukrainian companies have floated initial public offerings (IPOs) on international
stock exchanges in the last year, Vakht said that the number of Ukrainian businesses able to trade
their securities outside Ukraine will likely remain low for the next year or so.
“Even though a few Ukrainian companies entered international stock exchanges in the last
couple years, which also increases demand for audit and accounting services, there’s no real
[IPO] activity in Ukraine at the scale comparable to Russia,” said Vakht.
“I’m a bit skeptical about all the announcements that come from various companies, since we
know how complicated the way to international exchanges is,” he added. “Placing shares on the
London Stock Exchange is somewhat different from placing them on the one Warsaw, for
example.”
“Tens of Ukrainian companies announced their intensions to list their shares through IPOs.
However, I think very few will be able to make the placements next year,” Vakht said.
“I’d say I see three companies at most entering international exchange platforms that are
considered to be most liquid and attractive [the London and New York Stock Exchanges] next
year.”
According to Kredisov, many Ukrainian companies have gone through auditing processes in
their quest to become more transparent and attractive to investors through IPO issues. He said
that Ernst & Young is currently working with around five companies that are preparing to list
their shares on international exchanges through IPOs.
“Even though it’s difficult to say when this is going to happen, we think it’s realistic for around
five companies to enter international stock exchanges,” he said.
The growing market for audit and accounting services in Ukraine has also seen firms in the
sector developing business advisory services in other areas, according to industry experts.
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8. “Auditing services comprise about 50 percent of our business in Ukraine,” Vakht said. “The
other 50 percent are advisory services of all kinds [law, tax, management, IT and strategic].”
“Our business, just as other companies’ business, started with providing auditing services,” said
Kredisov, adding that Ernst & Young’s first major clients in Ukraine were international
companies and large banks entering the Ukrainian market starting in 1991. Ernst & Young later
began adding Ukrainian businesses to its client portfolio, resulting in continued growth and the
first Big Four accounting firm office in the industrial city of Donetsk last year, according to
Kredisov.
“Now our company is entering a phase where not only auditing, but also advisory services are
gaining increasingly in importance,” he said.
“A couple of years ago, auditing services accounted for 80 to 85 percent of our business. Now it
accounts for 60 to 65 percent,” he added. “Demand for advisory services is growing faster than
demand for auditing services.”
HR challenge
The boom on Ukraine’s auditing services market has resulted in greater competition among
accounting firms for the best professionals in the field in Ukraine.
“Our main challenge, at the moment, is to find and school the right people,” Vakht said. “The
demand for our services is growing faster than supply, driven by the increasing trust of investors
in the Ukrainian market.”
“Our firm, in the region, [Byelorussia and Ukraine] currently employs 400 people, which is
almost two times more than last year. And this growth has been taking place for about five years
already, doubling every year,” Vakht added.
Kredisov described auditing firms’ ongoing search for professional talent in Ukraine as among
the main trends currently characterizing the sector. He said Ernst & Young in Ukraine hired
around 100 professionals last year.
“Quite a number of companies try to get our talented people. The owners and management of
midsize and large Ukrainian businesses now increasingly understand that talented people are the
key driver behind business success,” Kredisov said.
“It’s one of the trends that is good for the national economy, and this is inherent to the business
of the Big Four. Some people decide to leave the firm to work for other companies,” he added.
“Sometimes we even refuse to provide services just because we don’t have enough capacity.”
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9. Radio station alters ownership to dodge law
by Igor Eros, Kyiv Post Staff Writer
Nov 30 2006, 19:07
An American expatriate who owns a leading Ukrainian radio station claims that a new law on
media ownership is driving him into the shadows.
The deputy chairman of the National Television and Radio Broadcasting Council, Yuriy
Storozhuk, told journalists on Nov. 22 that American-owned Gala Radio had recently registered
changes in its ownership.
Joseph Lemire, a United States national with a majority stake in Gala, told the Post on Nov. 28
that his radio station is now officially in the name of another owner, as a cosmetic solution to
restrictive legislation passed earlier this year.
Lemire, who has a history of conflict with Ukrainian regulators, said he didn’t sell his control
over Gala, but simply changed the license to counter official pressure directed at him personally.
“The regulation was designed specifically for Gala Radio,” Lemire told the Post on Nov. 28.
The legislation in question, which came into force in March this year, makes it illegal for the
foreign founder of a Ukrainian radio station to own more than 30 percent of the station.
“They’ve officially said I was a founder of the company, when I never founded Gala Radio, but
bought it years ago,” said Lemire.
The American media entrepreneur said the regulators are promoting the interests of a pro-
presidential lawmaker with broadcast media interests at the expense of Gala, which boasts top-
five ratings in Kyiv.
Lemire said he used to own 99 percent of Gala, but that now his license shows only a 29.5
percent stake.
“This law does not allow non-residents of Ukraine to own 100 percent of radio companies’
shares,” Lemire said, adding, however, that “the real ownership [in Gala] has not been affected
in any way by these changes.”
Lemire said he continues “receiving proposals from people who want to get a piece of the
company.”
Bohdan Balkhovetsky, the general director of another leading Ukrainian radio station under
foreign ownership, said he has been unaffected by the new legislation.
Nashe Radio, which was acquired by a Dublin-based media company called Communicorp
Group at the end of 2005, is apparently not vulnerable to the 30 percent restriction.
Communicorp, which is owned by Irish billionaire Denis O’Brien, acquired nationwide Nashe
Radio from Alfa Bank, which is controlled by the Moscow-based Alfa Group.
Around the same time, Communicorp bought Kyiv-based Apelsin from the Cartel Publishing
Group, which is based in Ukraine.
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10. “The law does not place any restrictions on ownership of existing companies, but does not allow
foreigners to be founders of radio companies in Ukraine and own more than 30 percent of a radio
company simultaneously,” Balkhovetsky told the Post.
He said because his company was not foreign-founded, it did not face any difficulties with
regulators.
Gala, founded in 1995, operates in 12 Ukrainian cities.
According to Lemire, Ukrainian officials have hampered his radio station’s expansion since day
one, refusing his applications for licenses and subjecting it to tax checks.
In a 2005 interview with the Kyiv Post, Lemire said that during his 10 years with Gala, he’d
gone through everything from beatings by off-duty police officers to having his station taken
over when he was out of the country.
There are 1,268 licensed TV and radio companies operating in Ukraine, 35 percent of which are
city owned, 3 percent state-owned, and 62 percent private, according to the National Television
and Radio Broadcasting Council.
The All-Ukrainian Ad Coalition estimates that in 2005 the combined ad revenues on radio
stations in Ukraine totaled $20 million, up 54 percent over 2004. The coalition forecasts $26.5
million in market growth, or a 33 percent increase, by the end of 2006.
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11. World Bank blasts government’s grain quotas
by Igor Eros, Kyiv Post Staff Writer
Dec 13 2006, 22:12
The World Bank (WB) has joined grain traders and Western diplomats in sharply criticizing
Ukraine’s controversial quotas on grain exports, which the government of Prime Minister Viktor
Yanukovych unexpectedly imposed in October.
In a report compiled jointly with the German Advisory Group, a Kyiv-based think tank financed
by the Ukrainian and German governments, the WB called the introduction of the quotas “not
justified” and the administration of the quota system “highly non-transparent.”
According to the WB report, which was released on Dec. 7, “Ukrainian food consumers gain
very little from the quota,” while grain exporters are subject to “large losses.”
Kyiv has argued that the quotas were introduced to keep the country’s grain from being sold out
on the international market, where prices skyrocketed this year after poor harvests in some parts
of the world.
“Domestic grain supply is amply adequate to cover all domestic needs and allow considerably
higher grain exports than estimated by the government,” reads the WB report.
“This year’s grain production is well above the average of the last 10 years.”
Prices for bread, as well as meat and dairy products, are only marginally determined by wheat
prices, the WB said.
Poverty “may actually increase,” as a result of the quotas, as a large percentage of poor
Ukrainians are engaged in agriculture, according to the report.
The quotas are intended to help the government increase stockpiles at state reserves. But analysts
have sharply criticized the move, arguing that the quotas do not only hurt large international
grain trading corporations. Most susceptible are Ukraine’s cash-strapped farmers who are
prevented from selling crop at market prices.
The WB estimated total lost export revenues by the end of this year at $300 million, raising the
specter of smuggling and insider deals.
“Companies able to secure an export quota can presently cash in,” the report reads.
“The negative impact of the quota on grain producers and traders and the risks of corruption
negatively affect Ukraine’s investment reputation,” the report concludes.
During a news conference last month, the German, Dutch and United States ambassadors to
Ukraine warned that the quotas could damage Kyiv’s WTO prospects and damage the country’s
food sector.
“It is regrettable that the government of Ukraine decided to interfere with the grain market rather
than making extra efforts to work with the firms in the sector to address any potential supply
problems,” reads a joint statement released to the media by German Ambassador Reinhard
Schafers, Dutch Ambassador Ron Keller and U.S. Ambassador William Taylor.
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12. We are also concerned that the government’s decisions on how to allocate the quotas among
traders did not proceed in a fair and transparent manner.”
The leading grain traders active in Ukraine include Germany’s Toepfer, US-based Cargill and
Bunge, and Rotterdam-based Glencore Grain B.V.
The Yanukovych governing coalition first announced in September that traders would have to
obtain licenses to export their grain. A few weeks later, the Cabinet replaced this measure with a
system of quotas that limit exports of wheat, barley, corn and rye to just over 1 million tons until
the end of the year.
The Ukrainian grain association responded by suing the government, alleging that both the
licenses and the quotas were illegal. The association is a national, nonprofit organization that
unites 52 Ukrainian and international companies involved in the trade of grain, feed products,
herbicides and fuel.
The government said earlier this fall that it had imposed the administrative measures to avoid
being forced to pay grain prices “two times higher than what we sell it for,” Yanukovych told
journalists in Kyiv on Oct. 16.
The important thing, according to the premier, was not to “end up without wheat,” due to rising
prices, and thus, demand on world markets.
“As soon as we solve these issues, the measures will be canceled,” he promised.
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13. Rada goes forward on WTO bid
by Igor Eros, Kyiv Post Staff Writer
Nov 16 2006, 18:03
In a rare display of support for the pro-Western policy goals of President Viktor Yushchenko, the
leftist-laden parliamentary coalition has taken serious, if tentative steps toward joining the World
Trade Organization.
The embattled Ukrainian head of state has made WTO entry a priority, seeking to receive
billions of dollars in net annual gains from the country’s improved access to foreign markets.
Weeks ago, Yushchenko expressed hope that Ukraine could join the trade organization by the
end of this year, but he conceded recently that membership would only be possible by early next
year as the governing coalition of Viktor Yanukovych has been slow in pushing legislation
through the parliament.
The list of signed bilateral protocols with current WTO members is all but complete, shifting the
focus of the fight for entry into Ukraine’s cantankerous parliament, which has begun moving
legislation along in recent weeks.
Parliament on Nov. 14 passed legislation in the first reading, affecting import onto the sensitive
sugar market. Ukraine’s low-yield sugar beet producers are vulnerable to high-yield sugar cane
imports.
A wide majority of lawmakers also adopted bills affecting pesticides and decreased scrap metal
export tariffs. Ukraine’s steel industry depends on cheap scrap to feed its furnaces. Ukraine’s
vast agricultural business is a key market for world pesticide producers.
Earlier this month, legislators passed other key laws required for WTO membership.
Yushchenko has been locked in a power struggle with the parliament, led by his political
nemesis, Yanukovych.
The president has recently expressed his concern over the fate of his country’s WTO chances,
which he hopes a WTO working group will secure on Dec. 21.
“I am convinced that if Ukraine doesn’t use its chance now, and that chance exists exclusively
until December of this year, then it will get bogged down in this process,” he said on Nov. 15.
“We will lose bad and for a long time,” he added.
The president said that everything depended on parliament.
Borys Bespaliy, a lawmaker in the president’s Our Ukraine faction, expects more required
legislation to be passed this month through a compromise deal between the president and the
parliament over the budget for next year, also a source of discord.
“There’s a sort of trade off that is going on between the president and the government. The
ruling coalition will take the necessary steps for Ukraine to enter the WTO this winter in
exchange for the president’s signature on the state budget plan,” he told the Post on Nov. 15.
“It is realistic to assume that Ukraine will enter the WTO this winter,” he said.
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14. WTO Director General Pascal Lamy said earlier in October that Ukraine was unlikely to join by
the end of the year.
Meanwhile, market analysts are hopeful that Ukraine will become a member by early next year.
“The government’s target entry date of February is beginning to look realistic,” said Tom
Warner, an analyst for Kyiv-based investment bank Concorde Capital.
Andriy Honcharuk, an adviser to Yanukovych, said Ukraine should become some 10 percent
richer if it joins the WTO.
In a Nov. 9 interview with Ukrainian broadsheet Den, Honcharuk said that although Ukraine’s
agriculture’s industry will initially lose, the country’s export-oriented metals industry will win
big.
“There are currently 24 anti-dumping sanctions operating in 11 countries in relation to
[Ukrainian steel.] We will receive the possibility to defend the interests of our metallurgists more
effectively,” Honcharuk said.
“Domestic agriculture will be the most vulnerable in the new liberal conditions,” he added.
“After all, WTO membership requires that full market reform of the agrarian sector is carried out
and access to the agricultural produce market liberalized. An unfavorable factor here will also be
that the agricultural sector, which provides about 16 percent of jobs and 14.5 percent of the
country’s gross domestic product, is insufficiently reformed at the same time. And therefore
global interventions in its work may be very painful at first. Internal pricing support should be
reduced over a period of five years by 20 percent in comparison with the base period.”
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15. Parliament opening up bank sector
by Igor Eros, Kyiv Post Staff Writer
Nov 22 2006, 22:26
Ukraine appears ready to open its doors a bit wider to foreign banks eager to capitalize on its
consumer lending spree.
Following in the wake of a string of purchases of top 10 Ukrainian banks by European financial
groups, the parliament has begun pushing through a bill allowing foreign banks to open branch
offices in the country.
Part of President Viktor Yushchenko’s drive to enter the World Trade Organization by early next
year, the legislation nevertheless has some domestic banks concerned.
A wide majority of lawmakers approved the first reading of the bill on Nov. 16, following its
introduction by Yushchenko. Three successful readings of a bill are required before the president
can sign it into law.
In a statement released the same day, Association of Ukrainian Banks President Oleksandr
Suhonyako harshly criticized the bill.
“As a consequence of the unchecked entry of foreign banks’ branch offices onto the Ukrainian
financial market, the majority of banking operations will soon be concentrated in their hands,” he
said.
According to Suhonyako, “Access of the branch offices to cheaper and longer-term foreign
credit will make them more profitable than domestic Ukrainian banks.” “Under such conditions,
Ukraine will undoubtedly and completely lose control over its financial system and economy,”
he added.
According to the bill, any bank with a statutory fund of no less than $180 million, and with
assets of at least $12 million, can open a branch in Ukraine.
Another qualifying criterion is that the foreign bank must be based in a country that cooperates
with the Financial Action Task Force on Money Laundering, an intergovernmental body
developing and promoting policies to combat money laundering and terrorist financing.
Yevhen Zinovyev, an analyst at Hungary’s OTP Bank, which recently bought a Ukrainian
subsidiary of a major European bank, is positive about the bill.
“We expect deposit rates to decrease as foreign banks substitute expensive Ukrainian resources
with cheaper foreign resources,” he told the Post.
“Apart from deposit rates, credit rates are not supposed to decrease substantially. Also, we
expect some liquidity growth of the banking system as foreign banks bring financial resources to
Ukraine.”
“Competition in the banking market will grow, which will stimulate improvement of banking
services and product line expansion. Growing competition will also cause a series of mergers and
acquisitions, as small banks will not be able to compete with huge foreign banking groups,” he
added.
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16. “In general, we expect the banking system to become more stable.”
Having recently completed its purchase of Raiffeisenbank Ukraine, Hungary’s OTP Bank plans
to expand its network to 200 branches within the next two years, according to Zinovyev.
Oleksandr Slobodyanyk, strategic management and corporate development chief at Ukrainian
Top 10 Bank Nadra, said the arrival of large foreign financial groups in Ukraine was
“sufficiently predictable.”
According to Slobodyanyk, their opening of branch offices “will increase already tough
competition on the Ukrainian banking market.”
But, he added, the sector shouldn’t undergo any “cardinal changes.”
Foreign capital has been pouring into Ukraine’s banking sector, with smaller bank purchases
following hot on the heels of landmark deals that saw major Ukrainian bank assets sold for
billions of dollars to foreign buyers within the last year.
Starting last fall, cumulative purchases of Ukrainian banks by foreign buyers have resulted in
foreign capital occupying nearly a quarter of the total capital in Ukraine’s banking sector to date.
Ukraine has more than 150 banks, though the top 10 control nearly half of the country’s
traditional banking market. The rest largely serve as so-called pocket banks for Ukrainian
business groups, though they have in recent years attempted to diversify their clientele base in an
effort to transform themselves into stable, Western-style banking operations.
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17. Investment flows into auto business amid growth
by Igor Eros, Kyiv Post Staff Writer
Nov 09 2006, 00:47
Better access to loans and other factors have continued driving up new car sales this year, while
Ukraine’s automobile manufacturers are increasingly tapping into Western capital markets to
fund bold expansion efforts.
According to Kyiv-based auto industry consultancy Auto-Consulting, 272,000 new cars were
sold in the first nine months of this year, a 42 percent increase year-on-year.
The rising demand for new cars has Ukraine’s leading automobile manufacturers, which mainly
assemble cars from imported kits, seeking ways to boost production in Ukraine. They are also
seeking opportunities to capture market share abroad by exporting cars or by launching
production on foreign turf.
Take, for example, Eurocar, which assembles German Volkswagens and Czech Skodas from
imported car kits at a facility in Transcarpathia Region. The company announced Oct. 23 that it
had inked a $28 million syndicated loan with a maturity of seven years. The loan was provided
by three banks with German roots: HVB Munich, HVB Ukraine and DEG.
“The loan will be poured into the construction of new plant facilities, the acquisition of new
equipment and to develop infrastructure,” Eurocar said in a statement.
Eurocar, which posted a turnover of $262 million last year, assembled 16,521 cars in the first 10
months of this year, about 5,000 more than in 2005. The company assembled 14,921 Czech
Skodas, 1,066 German Volkswagens and 64 Italian Siats.
Eurocar launched auto assembly operations in late 2001 at a $19 million facility at Solomonovo,
a small town on Ukraine’s border with Hungary and Slovakia.
The facility currently assembles using ready-made car kits. The process involves installation of
tires, engines, seats and other parts, allowing the company to sell cars at prices lower than
imports by avoiding a large share of duties slapped onto finished cars upon import.
Bold expansion plans are also underway at Ukraine’s other two auto producers, Zaporizhya-
based ZAZ, which specializes in assembling Korean Daewoo cars, and Bogdan Corporation,
which produces Russian Ladas and buses from imported Asian parts.
Both have expressed interest in raising hundreds of millions of dollars on international markets
through various financial instruments to fund expansion of production.
As part of an effort to streamline its operations, Bogdan relocated its passenger car
manufacturing from Lutsk Region to a site in Cherkassy Region, where its buses were produced
earlier. Meanwhile, bus manufacturing has been relocated to Lutsk.
Bogdan’s spokesperson Serhiy Krasulya said the relocation strategy at his company is intended
to “improve overall logistics” and should fully be completed by 2008.
What’s more, Bogdan and ZAZ are reported to be holding talks on joint participation on the
construction of a $300 million production facility in Russia.
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18. ZAZ expects to boost automobile production this year to 190,000 from 148,160 churned out last
year and 125,970 produced in 2004.
In the first half of this year, Bogdan’s subsidiaries increased production of passenger cars by
86.84 percent year-on-year to 22,097 and buses by 64.92 percent to 1,199.
The WTO factor
Ukraine’s auto manufacturers are currently in a transitional phase, seeking to expand operations
at their Ukrainian facilities and to adapt to changes expected in line with Ukraine’s plans to join
the World Trade Organization – a move which will require the lifting of import duties on cars.
Eurocar plans on expanding its production facility in Ukraine, enabling it to take more of a role
as a manufacturer of cars rather than just an assembler. Lower labor and energy costs in Ukraine
are seen as cost-cutting advantages to producing cars in Central and Western Europe. These
advantages could open the prospects for assembling cars for European markets in Ukraine, said
Eurocar Spokesperson Olena Havinska.
“All cars [produced by Eurocar] are being sold exclusively in Ukraine currently, but Eurocar has
set a goal to start exporting cars,” she added.
Havinska said that Eurocar hopes to use funds from foreign borrowings to increase its role in the
auto manufacturing process to 50 percent by the end of 2007.
Bogdan’s Krasulya, however, expressed concern about the consequences Ukraine’s auto industry
will face if the country completely lifts import duties on finished cars in connection with plans to
join the WTO. Lobbying efforts against the lifting of protection barriers in parliament by the
auto industry have played a major role in delaying the passage of legislation required for
Ukraine’s WTO membership aspirations.
“It’s possible that neither Bogdan Corporation nor Eurocar will receive their return on
investment [on these bold expansion projects] if Ukraine enters the WTO without leaving
legislation in place to protect national automobile producers,” Krasulya said.
“Ukraine’s automobile market has shown an approximate annual growth of 30 percent during the
last three years. But if the world’s giant automobile producers enter the market [en masse] any
time soon [by launching their own production facilities or flooding Ukraine with imports,] the
country’s manufacturers will have no choice but to leave the market,” Krasulya added.
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20. Yaliy Kostyantyn, the head of Boryspil’s legal department, told the Post that neither he nor
anyone else from Boryspil has had a chance to familiarize themselves with the recent Supreme
Court decision.
“We have not seen the details of the court’s statement yet, and thus cannot make any decisions or
agree on any proposals coming from Aerosvit,” he said Oct. 10.
But Yaliy sees Aerosvit’s project as a threat to Boryspil’s development plans.
“There’s some pressure coming from the Japanese investors, because one of the points of our
agreement was that Boryspil shouldn’t allow a decline in its economic competitiveness,” he said.
“Aerosvit could, in fact, become a second airport right next to Boryspil airport, and it’s not
something we should let happen,” he added.
Valeriy Polishchuk, Boryspil’s first deputy director, told the Post earlier this year that Boryspil
had already started receiving the Japanese money, which is being used to design the airport’s
terminal, adding that the work had been contracted to Japan Airport Consultants, Inc., an airport
systems and terminal management consulting company.
The design work was to be completed this year, while construction of the new terminal was
scheduled for 2007 through 2009, he said. The total cost of the project is estimated at $236
million.
According to statements made by Polishchuk in early 2005, the 2003 purchase-leasing deal was
pushed through because the now former governor of Kyiv Region, Anatoliy Zasukha, put
pressure on the airport’s director at the time, Mykola Shmatko, to approve the transaction.
Polishchuk said that at the request of former President Leonid Kuchma, the government lobbied
the interests of Kuchma’s son in law, Viktor Pinchuk.
According to Aerosvit’s supervisory board co-chairman Hryhoriy Hurtovy, at the time, Pinchuk
was linked to one of the airline’s shareholders.
Aerosvit reported a turnover of $264 million in 2005, as compared with $196 million in 2004
and $116 million in 2003.
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22. “In the criminal case file, there is not even the smallest piece of information that people’s
deputies were involved,” Medvedko said.
Lutsenko’s response to Medvedko’s comments was immediate, warning at his own press
conference the same day that the investigation had reached an impasse and was in danger of
falling apart.
“All this time, the prosecutor’s office, having taken the case away from us, has from the very
start passed it from regional prosecutors to the city, then to the PGO’s office, but it has not
undertaken any investigations.”
Lutsenko said that PGO investigators have not even bothered to question the prime suspect in the
murder, Klikovskiy, who is currently in custody. Lutsenko said that, instead, the PGO has called
in Lutsenko’s own investigators for questioning.
“I think that all this points to attempts to drag out this case, and possibly, to conceal the truth.
The investigation into this matter is obviously under threat,” he said.
Lutsenko is among a handful of ministers appointed under Prime Minister Yulia Tymoshenko in
2005 following the Orange Revolution, who have retained their posts under the new government
recently formed by Prime Minister Viktor Yanukovych, leader of the Donetsk-based Regions
Party, which heads a pro-Russian majority coalition in parliament.
Prior to his reappointment as interior minister under the new government, Lutsenko, a Socialist
Party member, had said that he would resign from the post if Yanukovych, the Orange
Revolution’s arch enemy during his fraud-filled grab for the presidency in 2004, became prime
minister.
Lutsenko left the Socialist Party after its leader, Oleksandr Moroz, abandoned the pro-
presidential Orange Coalition in parliament in early July and used his party to form the new
majority coalition with the Regions, acquiring the parliamentary speaker’s seat for himself as
part of the deal.
When Yanukovych was confirmed premier on Aug. 4, Lutsenko was in hospital with
hypertension, but accepted the post of interior minister under Yanukovych just days later.
In addition to raising the question of how effectively Lutsenko and his ministry can work under
the current Donetsk-dominated government, Yerokhin’s murder also raises the issue of stripping
lawmakers’ immunity and sanctioning their arrest for committing crimes.
To date, Pavlo Lazarenko, who served as premier in 1996-1997, is the only senior Ukrainian
official to have been tried and sentenced, albeit abroad. He is also the only MP to have been
stripped of immunity.
“I think enough proof has been gathered to confirm our main theory [of Yerokhin’s murder], but
the grounds are not sufficient to charge a citizen who holds a high position,” Lutsenko told
Dzerkalo Tyzhnya.
He said that in addition to Yerokhin, Donetsk tax police chief Mikhail Serbin, who was fired
from his post in the spate of recent sackings carried out on the basis of political affiliation, had
also been investigating financial institutions in Donetsk.
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23. “According to the information which he [Serbin] presented, financial abuses resulted in losses
that ran into many millions,” Lutsenko said.
Opinions divided
Taras Chornovil, an MP of the ruling Regions party, told the Post Sept. 6 that Lutsenko’s
statements should not be taken seriously.
“I’ve stopped commenting on Lutsenko’s statements a long time ago. He constantly makes
unfounded statements,” he said.
“When making those [statements] he did not refer to any document or factual events. It was
something more personal,” he added.
Regarding the similarity of this case to the high profile murder of journalist Georgiy Gongadze
in 2000, or the investigation into the 1999 death of his dissident father, Vyacheslav Chornovil,
Chornovil said “Lutsenko’s statement on the investigation into my father’s death seemed much
more reasonable than the ones he made on the Yerokhin case to me. At that time, he supported it
with evidence - documents and facts,” Chornovil said.
Parliamentary deputy Andriy Shevchenko of the opposition Yulia Tymoshenko Bloc is also
hesitant to acknowledge that one of his colleagues in parliament has any involvement in the
murder: “the theories that come up are very different.”
However, Shevchenko said that he would support a move to strip a criminal parliamentary
deputy of immunity regardless of party affiliation.
“For me, the party that a criminal belongs to does not matter. I will vote in favor of his immunity
being taken away in order for justice to be served,” he said.
Shevchenko also said he would support the creation of a parliamentary ad-hoc commission to
investigate the Yerokhin murder, adding, however, that he doesn’t “see this killing as being at all
similar to the Gongadze case.”
However, Boris Penchuk, the chief of the Anticorruption Fund and a Donetsk businessman, sees
a political angle to the Yerokhin case.
Penchuk, who fought Boris Kolesnikov, an ally of Regions money bags Rinat Akhmetov, over
ownership of a shopping center in Donetsk, said that everything surrounding the Yerokhin case
is an attempt to discredit Lutsenko. The aim, said Penchuk, is to pay back Lutsenko for putting
Kolesnikov, then the head of the Donetsk regional council, into jail for four months in 2005 for
alleged wrongdoing involving ownership of the shopping center.
Pinchuk told the Post Sept. 12 that “Yerokhin’s death was convenient for the people who were
repressed some six to 18 months ago [during the two Orange Cabinets]. It served to discredit
Lutsenko and lead him out of the game.”
Penchuk added that “Yerokhin was possibly kidnapped in order to get information that would
discredit Lutsenko. It’s probable that he was a Trojan horse in Lutsenko’s entourage. There is a
real war going on between the [Cabinet] representatives of Akhmetov and President [Viktor]
Yushchenko. Somebody simply wants to crush Lutsenko.”
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