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UKRAINE BUSINESS NEWS - TEN ARTICLES

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1.   UKRAINE NEEDS THE WEST'S SUPPORT
A European democracy sits uncomfortably close to Russia.
Opinion: By Matthew Kaminski, Kiev, Ukraine
Member, The Wall Street Journal's editorial board.
The Wall Street Journal, New York, NY, Wed, Jan 27, 2010

2.  UKRAINE-NORTH DAKOTA FARM CONNECTION WILL BECOME CLOSER
A North Dakota model farm will be established about 50 miles southeast of Kiev.
Ken Rogers Column, The Bismarck Tribune, Bismarck, N.D., Sat, Jan 23, 2010
 
3 LETTER TO THE EDITOR OF THE WALL STREET JOURNAL 
Ukraine cannot possibly face “financial ruin.”
Letter to The Editor of The Wall Street Journal
From: Anders Åslund, Peterson Institute for International Economics
Washington, D.C., Monday, January 18, 2010 

4 EBRD IN LOAN TO UKRAINIAN HOUSEHOLD GOODS PRODUCER ERGOPACK 
Ergopack majority owned by Emerging Europe Growth Fund (EEGF), one of three funds managed
by Horizon Capital. $7.9 million facility to expand product range, improve domestic competition.
EBRD, London, UK, Monday, December 21, 2009

5 EBRD SUPPORTS LEADING UKRAINIAN BREWER 
$50 million credit to Obolon to improve financial position, boost energy efficiency
EBRD, London, UK, Tuesday, 22 December 2009

6 UKRAINE: IMPROVING KIEV'S PUBLIC TRANSPORT
By Marjola Xhunga, EBRD Communications Adviser
EBRD, London, UK, Wednesday, January 13, 2010

7.  ROMAN KUPCHINSKY, LONG-TIME ACTIVIST, WRITER, DIES OF CANCER
Kyiv Post Staff, Kyiv, Ukraine, Friday, January 22, 2010

8 UKRAINE'S ELECTION: FIVE YEARS ON IN KIEV
The presidential election shows that the orange revolution is out of puff, no matter who eventually wins
The Economist print edition, London, UK, Thu, Jan 21, 2010

9 CHADBOURNE HELPS OPIC RETURN TO UKRAINE
Chadbourne & Parke, Kyiv, Ukraine, Wed, Jan 20, 2010

10.  NEW APPROACH OF THE UKRAINIAN TAX AUTHORITIES TO
TAXATION OF FOREIGN INDIVIDUALS IN UKRAINE
News Flash, KPMG Ukraine, Kyiv, Ukraine, Tue, January 12, 2010 
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1.  UKRAINE NEEDS THE WEST'S SUPPORT
A European democracy sits uncomfortably close to Russia.

Opinion: By Matthew Kaminski, Kiev, Ukraine
Member, The Wall Street Journal's editorial board.
The Wall Street Journal, New York, NY, Wed, Jan 27, 2010

When Ukraine captured the world's imagination in 2004, waves of orange-clad protestors shook off Soviet cobwebs and ushered in democracy. From afar, the first presidential election since those dramatic events looks like a sorry epilogue.

President Viktor Yushchenko, who survived near fatal poisoning to lead what became the Orange Revolution, was humiliated in last week's first round of voting. His 5.5% tally was "kefir-like," went a joke, meaning that it was around the fat content of the local yogurt.

To add insult, the leading vote-getter was the loser in 2004, Viktor Yanukovych. The so-called pro-Moscow candidate who tried to steal that vote with help from Russia's Vladimir Putin is the favorite in the runoff a fortnight away.

As the election shows, Ukrainians are fed up with shambolic Orange leadership, economic hardship (GDP fell 15% last year), and entrenched corruption. As deep, and more dangerous, may be the disillusionment in the West. Washington and Brussels suffer from what officials in both places call "Ukraine fatigue."

Before anyone rushes to declare the Orange Revolution dead and Kiev destined to return to Moscow's embrace, a distinction needs to be made.

Disappointment with politicians doesn't mean Ukrainians have soured on political freedom. Look closer at this sprawling (the size of Germany and Britain, combined) country of 46 million to behold a genuine, if still shallow, democracy.

This is a minor miracle. Twenty years after the fall of the Berlin Wall, a new divide sunders Europe. On one side are free nations safely behind the walls of the West's elite clubs, the European Union and NATO, or about to hop over. To the east, from Belarus to the Caucasus and Central Asia, stretches an authoritarian wilderness. In this inhospitable terrain sits Ukraine.

It remains strategically critical. A stable, prosperous and free Ukraine ensures Russia can't rebuild its regional empire; it'd also be a teachable counterexample to the deadening hand of Putinism for their Slavic cousins up north. The press is free and diverse and political parties vibrant. At all times of the year, protestors hurl abuse at their ministers or parliamentarians along Kiev's central Hrushevsky Street. Try to find such scenes on Red Square.

Russian oligarchic elites who handpick their leaders hate the Ukrainian, and across the Black Sea the Georgian, experiments with free elections for good reason.

The first round was the cleanest vote to date in Ukraine, with no significant fraud. In contrast with 2004, no one tried—so far—to murder any candidate. No one knows for sure—a marvel for this region—who'll win the Feb. 7 runoff. Mr. Yanukovych leads Prime Minister Yulia Tymoshenko, a former Orange leader famous for that braid of blonde hair, but her charisma and campaigning mojo could yet close the gap.

Concerns about democratic backsliding here overlook the ability of people to change. As a society, Ukrainians have picked up the habit of chucking the bums out. Its elites, meanwhile, have also learned that elections aren't life or death contests that inevitably lead to the widescale redistribution of property.
Monosyllabic and gruff, Mr. Yanukovych comes from the Sovietized industrial east—or, as in Ms. Tymoshenko's colorful barb, "the Stone Age"—and plays the part.

Yet he looks like a different candidate than in 2004, more polished and confident. He tells Western ambassadors he used to be too afraid to meet that he won't sell out his country to Moscow and that he needs their support as leverage against a pushy Russia. For that matter, Ms. Tymoshenko also surprised the world. Before turning heroine to Ukraine's nationalist west, she was a shady, Russian-speaking gas baroness who made billions in the early post-Soviet years.

So full of contradictions, Ukraine eludes easy tags. Former President Leonid Kuchma wrote a book titled, "Ukraine Is Not Russia." Ukraine also isn't Poland, the other former sovereign in these lands. For centuries though, Poland was the bridge to the West, helping explain why Ukraine's political culture resembles Europe more than Eurasia, inclined to compromise and defend its freedoms.

Even the frequently mentioned divisions between Russian-speaking eastern and nationalist western Ukraine—which led the CIA in 1992 to predict civil war—are a source of unrecognized strength. Power and wealth are dispersed too widely for any would-be czar or commissar to grab Ukraine by the throat. The next generation of politicians who emerged with this election has been able, in the meantime, to appeal in all regions.

In the short run, Ukraine needs to get through the vote without fraud or chaos. Some 20,000 Yanukovych supporters are camped down in Kiev in case the vote doesn't go their man's way and he calls them to the streets. Ms. Tymoshenko has teams of lawyers ready to challenge the result in courts, the weakest institutional link in Ukraine. Best case scenario is a clear outcome, the process the victor.

Once in power, either of these candidates could be tempted to try to quash the press and freedoms in the name of "stability." This worst case scenario is hard, as parliament remains strong and voters assertive, but not impossible to imagine.

This should be the cue for the West. Today Ukraine, still the biggest piece of the puzzle in the ex-U.S.S.R., is out of fashion in Washington and Brussels. The well-worn path taken westward by its Central European neighbors isn't considered right for it.

On taking office, Barack Obama outsourced relations with Ukraine and Georgia to Joe Biden, refusing to pay either a visit. NATO is off the table. The EU suffers from an acute case of strategic myopia, seizing on any excuse—and Ukrainians provide all too many—to slam the door shut.

Better ideas are heard from diplomats who want to "press the reset button" here, as the U.S. so grandly did on Russia. The message of this election is that Ukrainians—like their immediate western neighbors before them—want their politicians to stop their bickering and build a properly functioning democratic state integrated with the West. We should be there to help them.

NOTE: Mr. Kaminski is a member of the Journal's editorial board.

LINK: http://online.wsj.com/article/SB100014240527487043756045 75023194030600562.html?mod=googlenews_wsj
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2.  UKRAINE-NORTH DAKOTA FARM CONNECTION WILL BECOME CLOSER
A North Dakota model farm will be established about 50 miles southeast of Kiev.

Ken Rogers Column, The Bismarck Tribune, Bismarck, N.D., Sat, Jan 23, 2010
   
BISMARK, North Dakota - Wheat grows well in the Ukraine. It's the bread basket of Europe, like North Dakota and its sister states on the northern Great Plains make up the American bread basket. As one might expect, North Dakota and the Ukraine have the same kinds of soils and climate.

But farming in the Ukraine isn't like farming in North Dakota.

Unfortunately for the Ukraine, it was part of the old Union of Soviet Socialist Republics until the USSR collapsed in 1991. We're talking huge collective farms, 5-year plans set down by the central government in Moscow and a failed economic system. It left farmers this bread basket on the other side of the globe with ineffective, inadequate and out-dated farm equipment and other resources. Agribusiness in the old USSR wasn't a going business.

What North Dakota has in the Ukraine is a market for the improvements in farming that have been researched and developed in this state. The North Dakota Trade Office has been courting business in the Ukraine for years. Farmers from the former member of the USSR often come to Big Iron show in Fargo to gaze covetously at the high-tech goliath-like tractors and other state-of-the-art farm equipment.

It has meant trade -- economic development.

North Dakota Lt. Gov. Jack Dalrymple has been state government's point man on trade and has taken part in most of the recent trade missions abroad.

Now the Ukraine-North Dakota farm connection will become closer. A North Dakota model farm will be established about 50 miles southeast of Kiev. The idea is to "showcase and demonstrate new and used farm machinery including tractors, combines, chemical applicators, tillage equipment, grain storage equipment and grain-handling equipment.

North Dakota agribusiness types are partnering up with the Ukrainian Agriculture AB, one of the country's leading agribusinesses, which will also buy and sell crops seed from North Dakota.

What a great vehicle for developing a more lucrative market for the state's agribusiness interests.

UAAB's investors are from the United States and Sweden. The corporation farms more than 100,000 acres. Participants in the model farm from North Dakota are Brandt Holdings, Inc., Fargo; Summers Mfg, Devils Lake; Seeds 2000, Wahpeton; S-M International, Inc., Moorhead; and Unity Seed, Casselton.
It's a flat world, Mr. Freidman.

I like that the North Dakota model farm is a physical presence in the Ukraine. Unlike the state's trade delegations which have brief contact, by establishing a physical toe-hold in the Ukraine, the model farm can have a long-term impact.

The model farm is a lot like the two North Dakota Farmers Union restaurants in the Washington, D.C., area. They represent farmers from the northern Great Plains physically reaching into the nation's urban capital, connecting the realities of farm and food for city dwellers. The Founding Farmer, which opened last year, is located blocks from the White House, and the Farmers & Fishers, formerly the Agraria, is in Georgetown.

The newer Founding Farmers (what a great name) has been profitable in its short life, while Farmers and Fishers struggles, but with new management in place, the expectation is that will change.  The restaurants' menus feature food stocks that come directly from farms. They teach the importance, for urbanites, of knowing where your food comes from. And it teaches Plains people the importance of understanding the complete business cycle of feeding people from field to plate.

The model farm and the NDFU restaurants represent hand-on experiences for North Dakotans in dealing with markets at home and abroad. Others in the state should be looking for similar opportunities. Recently livestock producers from Kazakhstan visited the state. Like the farmers from the Ukraine, these ranchers recognize the success North Dakota producers who face with similar land and weather conditions.

What? A model North Dakota ranch in Kazakhstan? Maybe we could export rodeos to them?

NOTE: Ken Rogers' column appears each Saturday. Contact him at ken.rogers@bismarcktribune.com

LINK: http://www.tradingmarkets.com/news/stock-alert/gpln_the-bismarck-tribune-n-d-ken-rogers-column-728483.html
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3.  LETTER TO THE EDITOR OF THE WALL STREET JOURNAL 
Ukraine cannot possibly face “financial ruin.”

Letter to The Editor of The Wall Street Journal
From: Anders Åslund, Peterson Institute for International Economics
Washington, D.C., Monday, January 18, 2010 

RE: WSJ Commentary by Christopher Granville, "Ukraine is headed for national bankruptcy."

Dear Sir:
 
Christopher Granville has presented an uncommonly poorly-informed judgment on Ukraine (“Ukraine is headed for national bankruptcy,” WSJ, January 18, 2010). He seems unaware that Ukraine has gone through an impressive austerity policy and that its economy returned to growth in November.

Ukraine’s budget deficit for 2009 was not 12 percent of GDP, as Granville claims without any source. Its consolidated state budget deficit probably ended at 4.7 percent of GDP and the general government deficit, including also bank recapitalization, was 8.5 percent of GDP, according to excellent Dragon Capital in Kiev.

Ukraine’s public debt is only one-third of GDP, which would be the envy of most European nations. The budget tightening is set to improve in 2010 regardless of winner in the presidential election.

Ukraine cannot possibly face “financial ruin.” Its cupboard is not “bare” as Granville claims, again without evidence. Its end-2009 international reserves amounted to $27 billion, almost one quarter of its GDP, and it has stored up enough gas not to import any during the first half of this year.

Thanks to rigorous austerity and a sensible deprecation of its currency, the Ukrainian government managed to reduce the current account deficit to just over 1 percent of GDP last year. More than 80 percent of Ukraine’s private debt service was refinanced in 2009, because of Ukraine’s deep integration with the European banking system.

It is true that Ukraine needs constitutional reform, but the two leading presidential candidates agree on that.
 
Anders Åslund
Peterson Institute for International Economics, Washington, D.C.

NOTE:  Anders Aslund has served as a Senior Advisor to the U.S.-Ukraine Business Council (USUBC) for several years.
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4.  EBRD IN LOAN TO UKRAINIAN HOUSEHOLD GOODS PRODUCER ERGOPACK 
Ergopack majority owned by Emerging Europe Growth Fund (EEGF), one of three funds managed
by Horizon Capital. $7.9 million facility to expand product range, improve domestic competition.

EBRD, London, UK, Monday, December 21, 2009

LONDON - The European Bank for Reconstruction and Development [EBRD] is providing a $7.9 million debt facility to LLC Ergopack, one of Ukraine’s largest producers and distributors of household disposable consumer products. Ergopack is majority owned by Emerging Europe Growth Fund (EEGF), one of three funds managed by Horizon Capital.

Investment proceeds will be used to expand the company’s product assortment, which currently includes plastic trash bags, sponges, and other household disposable goods, enlarge export operations in Russia, and increase recycling capacities. This is the first local large scale household goods producer in Ukraine supported by the EBRD and it will promote competition in the domestic market by supporting strong local market players.

Commenting on the agreement, Oksana Strashna, Partner at Horizon Capital, said: “We are delighted to partner with EBRD again. Given the complex environment, we see this transaction as evidence of the strength of Ergopack’s financial results and market leadership. Supporting our portfolio companies in raising additional capital is just one of the many ways Horizon Capital adds value as a shareholder.”

Andriy Osypov, CEO of Ergopack, said: “Over the last year we have taken strategic measures to ensure our continued market leadership and reliability. These steps have paid off and we are now in a position to expand in the market. To increase the profitability, we continue to look at cutting the costs, so we are particularly pleased some of the funds will be used to improve our recycling facilities.”

By providing this mezzanine debt, the Bank is promoting an innovative financial product for Ukraine. It allows a bullet point repayment at maturity without amortisation. This may be particularly important for dynamic growth of local companies because it reduces their debt service requirements.

The European Bank for Reconstruction and Development is the biggest financial investor in Ukraine. As of 1 November 2009, it had committed €4.2 billion through 194 projects.

HORIZON CAPITAL
Horizon Capital (www.horizoncapital.com.ua) is a private equity fund manager that originates and manages investments in mid-cap companies with outstanding growth and profit potential in Ukraine, Moldova and the region. Currently, Horizon Capital manages three funds, Emerging Europe Growth Fund II (EEGF II), Emerging Europe Growth Fund (EEGF) and Western NIS Enterprise Fund (WNISEF), with over $600 million under management.

ERGOPACK
Ergopack (www.ergopack.com.ua) is the leading household disposable goods producer in Ukraine. It produces the goods under the trademarks “Kopeyka”, “Melochi Zhizni” and “Domi”.

LINK:  http://www.ebrd.com/new/pressrel/2009/091121d.htm

NOTE:  Horizon Capital is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.  
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5.  EBRD SUPPORTS LEADING UKRAINIAN BREWER 
$50 million credit to Obolon to improve financial position, boost energy efficiency

EBRD, London, UK, Tue, 22 December 2009

LONDON - The European Bank for Reconstruction and Development is lending up to $50 million to a leading Ukrainian brewery, Obolon. The loan proceeds will be used to restructure Obolon’s balance sheet as well as to finance energy efficiency investments in its production facilities.

The project envisages special arrangements between the EBRD and a group of commercial banks, including ING Bank Ukraine, UniCredit Bank Ukraine, and Raiffeisen Bank Aval.

According to the arrangements, EBRD’s funds will form the largest part of a financing package of $123 million and will be used for partial repayment of Obolon’s short-term loan portfolio and its restructuring through extension of tenors and maturities tailored to its cash flow. In particular the Bank will be providing a seven-year facility, whereas commercial banks will extend their facilities to three years.

EBRD Director for Agribusiness Gilles Mettetal said: “This project is especially relevant in current difficult times and is part of the Bank’s crisis response in the agribusiness sector in Ukraine. Obolon is one of the Bank’s longest-standing clients in this country – a company we have worked with since 1997. Our strategy in these challenging circumstances is to help the best industry players in key sectors of the Ukrainian economy, like agribusiness.”

The loan will also finance various energy efficiency improvements, which will help lower production costs, improve competitiveness and raise the ecological standards of Obolon’s operations. The energy savings will be achieved mainly through heat energy recuperation of brewing equipment, an upgrade of the electricity distribution system and optimisation of the production processes.

In the agribusiness sector alone, the EBRD has directly committed more than €5 billion in over 330 projects across Central and Eastern Europe and the Commonwealth of Independent States since 1991.The European Bank for Reconstruction and Development is the biggest financial investor in Ukraine. As of 1 November 2009, it had committed €4.2 billion through 194 projects.

LINK: http://www.ebrd.com/new/pressrel/2009/091222c.htm
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6.  UKRAINE: IMPROVING KIEV'S PUBLIC TRANSPORT

By Marjola Xhunga, EBRD Communications Adviser
EBRD, London, UK, Wednesday, January 13, 2010

LONDON - The EBRD [European Bank for Reconstruction and Development] is financing several ambitious projects to improve the city’s public transport. Over €100 million has been invested to replace old trains and buses but managing a chaotic traffic remains a challenge in this city of 2.6 million people.

Matthew Jordan-Tank, the EBRD’s Principal Urban Transport Specialist, Jack Chen, the Taiwanese Senior Consultant in charge of EBRD-Taiwan Business Development and Maxim Yakover, Kiev Metro’s Chief of IT and Telecommunications Department, explain how a blend of finance and knowledge will make change happen.

[Question] How is the Bank helping Kiev to improve the public transport and better manage the traffic?

Matthew Jordan-Tank: In keeping with the complexity of Kiev’s urban transport system, where traffic congestion is chronic and overcrowding is common on the public transport networks, the EBRD recognises that investments in isolation in this situation are not enough. For example, one needs to think of the complex interactions between car traffic, public transport quality and reliability, parking, pricing of services and regulatory aspects.

While the Bank has committed over €100 million for the modernisation of public transport, it is also investing €15 million towards the establishment of a modern, computerised management system to improve traffic flow in Kiev.

Modern traffic management goes well beyond the traditional installation of traffic signals. Today, through the use of telematics and other IT innovations, the ability to regulate traffic flow in real time in response to changing traffic levels throughout the day is possible and cost-effective.

Elements such as area-wide traffic control systems that receive traffic data and adjust the length of time traffic lights stay green during rush hour; CCTV monitoring to allow for real-time emergency response to accidents; and variable electronic signage to alert road users to traffic conditions as they occur are all common today.

When combined effectively, advanced traffic management systems of this nature can lower congestion levels by over 20 per cent. In a large city like Kiev, with over 500,000 cars in circulation daily, this adds up to significant productivity gains, not to mention a reduced carbon footprint for the city, and improved road safety as well.

As part of the investment, the Bank is also offering training to Kiev transport officials. Thanks to generous Taiwanese funding, in November 2009, we managed to bring seven Kiev public transport managers to Taipei to learn about the Taiwanese public transport model and how that can be replicated in Kiev.

[Question] Why Taipei?

Jack Chen: Because Taipei has one of the most impressive public transport systems in the world. It is operated by the Easycard Corporation, a company founded in 2000 and which has acquired a reputation for its reliable, home-grown IC-AFC (Integrated Circuit - Automatic Fare Collection) system and gained experience in integrating different public transport service providers under one system. This successful model has been emulated by other countries around the world.

Ambassador Siao-Yue Chang of the Taipei Representative Office in the UK has given her full support to the EBRD investment in Kiev transport, believing that the Taiwanese public transport model is an ideal showcase for Kiev and other EBRD countries of operations. This is why the Office has encouraged and funded training for Kiev’s public transport officials and will continue to put forward technical cooperation funding and IT expertise to support EBRD investments.

[Question] What was the training about?

Matthew Jordan-Tank: Representatives of Kiev transport companies were exposed to the full array of Taipei’s transport system, which is impressive from many angles. Firstly, residents there benefit from the use of an electronic smart card, called the EasyCard, that can be used seamlessly in the metro, all bus routes, automated parking garages and even for small purchases at convenience stores. The level of IT-integration achieved is inspiring.

The participants also visited the traffic management company and electronic toll collection concessionaire companies, which are running world-class systems. The site visits provoked intense discussion among the Kiev participants on how to plan the next round of modernisation – a key objective of the whole trip.

I hope this first experience can be replicated elsewhere because Taiwanese experts have a different and valuable experience to share with our clients, especially in the area of IT applications for public transport and traffic management integration.

Maxim Yakover: We wanted to understand the city government’s public transport policy as well as how they implement information technologies in public transport systems. We wanted to learn from our Taiwanese colleagues how to build a company that can give Kiev one card for all public transport services.

This has helped Taipei to solve the problem of traffic jams and increase the use of public transport and I hope we can apply the Taiwanese model in Kiev.

[Question] Are you optimistic after the training? Do you think that the Kiev metro will one day operate as smoothly as the Taipei metro?

Maxim Yakover: I am troubled by the current state of public transport in Kiev. Taipei has a similar population size and transport system to Kiev’s but the level of technology in Kiev is very poor. However I am optimistic that we can make it better.

[Question] Will it take more knowledge or more money to make improvements?

Maxim Yakover: We need more money combined with experienced consultants such as the colleagues we met in Taipei.

LINK: http://www.ebrd.com/new/stories/2010/100113.htm
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7.  ROMAN KUPCHINSKY, LONG-TIME ACTIVIST, WRITER, DIES OF CANCER

Kyiv Post Staff, Kyiv, Ukraine, Friday, January 22, 2010

KYIV - Roman Kupchinsky, who founded and headed Radio Free Europe/Radio Liberty’s Ukrainian bureau in Kyiv and became an expert on corruption and energy issues in the former Soviet Union, died on Jan. 19 after battling cancer. He was 65.

Kupchinsky was born in Vienna, Austria and immigrated to the United States in 1949. He graduated with a degree in Political Science from Long Island University and was decorated with a Purple Heart for his service in the U.S. Army as a rifle platoon leader in Vietnam. From 1978-88, Kupchinsky was President of Prolog Research Corp., a Ukrainian language publishing house and research company.

Kupchinsky over the years wrote extensively about corruption in Ukraine, authoring numerous investigative articles during the late 1990s and early 2000s about government shenanigans, shady natural gas deals and illegal arms sales.

One of his most famous investigations was titled “The Tractor Driver of the State – the Case of Pavlo Lazarenko,” a 3-part investigation chronicling how former Prime Minister Pavlo Lazarenko siphoned billions of dollars out of Ukraine into offshore accounts in the late 1990s before fleeing abroad.

From 1990-2002, Kupchinsky was the director of Ukrainian service of RFE/RL. Summing up his stay in Ukraine before relocating to RFE/RL’s Prague headquarters in 1998, Kupchinsky said then that he had concluded that Ukraine is “a country where the unwilling are led by the incompetent to do the unnecessary.” “Hopefully this will change,” he added.

Kupchinsky worked as a senior analyst at RFE/RL in Prague until 2008, specializing in Ukrainian affairs, Russian energy and international politics, editing RFE’s Organized Crime and Corruption Watch as well as two collections of articles, “The Nationality Problem in the USSR” and “Pogrom in Ukraine.”

More recently, the Arlington Virginia based writer served as a partner for AZEast Group, a consultant on Eurasian issues, contributing articles to a variety of publications, including the Kyiv Post. One of his last articles appeared Jan. 4 on the Jamestown Foundation’s Eurasia Monitor web site.

“Roman Kupchinsky devoted virtually his entire life to the cause of Ukraine’s independence and democracy,” Adrian Karatnycky, senior fellow for the U.S.-based Atlantic Council and former head of Freedom House. “After serving in the U.S. Army in Vietnam in the late 1960s, he returned to the United States and energetically engaged himself in the cause of Ukraine’s freedom.”

“Roman Kupchinsky is no more … but his contribution to the rebirth of a movement for Ukrainian statehood remains a lasting legacy,” he added.

In the 1970s, Kupchinsky was an active leader of the Committee for the Defense of Soviet Political Prisoners, mobilizing eminent Americans and Europeans on behalf of Ukrainian, Baltic, Jewish and Russian dissidents serving long terms in forced labor camps for their defense of human rights.

In the 1970s and 1980s, the Committee was the key liaison with the Ukrainian Helsinki Monitoring Group. Kupchinsky worked closely with Tatyana Yankelevych, step daughter of the late Russian dissident, Andrei Sakharov, and his widow, Elena Bonner, among other democratic activists.

Colleagues have praised Kupchinsky for his strong dedication and the impact his work brought. They also said he will be remembered and dearly missed for his sense of humor. Upon learning of his terminal disease, Kupchinsky said he was not certain where he was heading, but promised to make contact, letting friends know where he ended up.

Kupchinsky is survived by a son, Markian Kupchinsky. Funeral services are pending [see information below]. Burial will take place at Arlington National Cemetery with military honors.

LINK: http://www.kyivpost.com/news/nation/detail/57714/

USUBC FOOTNOTE: A public viewing and funeral service for Roman Kupchinsky will be held on Thursday, February 11, 2010.  The public viewing is from 6:00 p.m. to 9:00 p.m. and at 7:30 p.m. Parastas (Ukrainian religious ceremony) at the Arlington Funeral Home, 3901 Fairfax Drive, Arlington, VA 22203-1697.

The interment will be on Friday, February 12, 2010, 9:00 a.m. sharp, Arlington National Cemetery, Arlington, VA. Mourners must be at the Cemetery Administration Building 30 minutes before the service and will be escorted together to the grave site. The interment will be in strict conformance with Standard Honor Grave Funerals – Army.
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8.  UKRAINE'S ELECTION: FIVE YEARS ON IN KIEV
The presidential election shows that the orange revolution is out of puff, no matter who eventually wins

The Economist print edition, London, UK, Thu, Jan 21, 2010

KIEV AND KOLOMIYA - ON DECEMBER 3rd 2004 jubilant crowds flowed into a snowbound Kiev’s Independence Square, waving their orange flags, to celebrate a court decision to annul Ukraine’s rigged presidential election two weeks earlier. They cried and they danced—and the world was gripped by the sight of a sleepy Ukrainian people waking up to defend their freedom.

Days later, their hero, Viktor Yushchenko, his face disfigured by a mysterious poisoning, promised change. “Everything will change in Ukraine from today. We were independent for 14 years but we were not free…We should roll up our sleeves and work honestly from morning till night for this country.”

He promised that bandits would go to jail, honest types would replace corrupt officials and judges would no longer take bribes—and that in five years’ time Ukrainians would be proud of their achievements. For a time Ukraine became fashionable the world over.

All that enthusiasm has now turned to fatigue. Ukraine’s under-reformed economy teeters on the edge of national bankruptcy, the rule of law is elusive, courts remain corrupt and the parliament resembles a trading platform for business tycoons in which deals are made and seats bought and sold.

In April 2005 some 53% of Ukrainians said their country was on the right track. Now 81% believe it is heading in the wrong direction. Ukraine lies 17th from bottom in the latest global index of economic freedom, below Russia and Belarus.

It is to the credit of the voters that the failure of Mr Yushchenko and his team has not discredited the very concept of democracy, as happened in Russia in the 1990s. In the election Mr Yushchenko was unceremoniously booted out, gaining just over 5% of the vote.

Viktor Yanukovich, the bad guy in 2004, got 35%, against 25% for Yulia Tymoshenko, the prime minister, who energised the crowds in 2004 but has since fallen out bitterly with Mr Yushchenko. The two front-runners will now face each other in a second round on February 7th.

Ukraine is as divided as ever, with the industrialised, Russian-speaking east and south backing Mr Yanukovich and the centre and west supporting Ms Tymoshenko. The only politician who did well all over the country was Serhiy Tyhypko, a former banker who ran and then quit Mr Yanukovich’s campaign in 2004. He fought the best campaign and took 13% of the vote despite, or more likely because of, being absent from politics in the past five years.

That an unpopular incumbent can be peacefully removed is an achievement of the orange revolution. Yet Ukraine’s free (and frequent) elections are providing neither good governance nor stability, which may explain the voters’ gloomy mood. “There was little room for hope, faith, love, hatred, commitment or passion in this election. These emotions were replaced by pity, inertia, tiredness, indifference and depression,” lamented Zerkalo Nedeli, a Ukrainian weekly.

After the drama of the orange revolution, disappointment was perhaps inevitable. But the orange camp’s failure to honour its promises has been breathtaking. It is often blamed on a trap set in 2004 by Mr Yushchenko’s foes, who pushed through a constitutional change to split executive power between the president and parliament. Yet that did not come into force until 15 months later. At the start of 2005 Mr Yushchenko had a free hand and a soaring approval rating. “He could have made any reforms: we would have supported him. But he wasted an opportunity,” laments a truck driver in western Ukraine.

Even Mr Yushchenko’s fans now say he was weak and had neither a plan of action nor strong advisers to push through reforms. He destroyed the bureaucratic machine of his predecessor, Leonid Kuchma, but put nothing in its place. Bandits went unpunished; business friends were rewarded with lucrative deals. After making Ms Tymoshenko prime minister, he promptly set about undermining her. In 2006, when Russia cut off the gas, he accepted a shady gas-trading scheme designed by his predecessors.

On the edge
The roots of Ukraine’s ills stretch far beyond Mr Yushchenko’s weakness or Ms Tymoshenko’s populism. The country lacks a strong elite or any experience of sovereignty. Apart from a brief period just after the Bolshevik Revolution, Ukraine has never been an independent country in modern times. It has spent most of its history under Russian, Polish or Austro-Hungarian rule.

Its independence in 1991 only came out of the Soviet Union’s collapse. In his book “Unexpected Nation”, Andrew Wilson, a historian and analyst at the European Council on Foreign Relations, argues that it “arrived as much by accident as design.” And as in other parts of the former Soviet Union, independence initially brought neither economic liberalisation nor much change at the top.

In the late Soviet era, aspirations for Ukrainian independence were confined to a group of dissident writers and intellectuals. The popular appeal was weaker than the force of the KGB: as many as half of all political prisoners in the Soviet Union were from Ukraine.

When the nationalist movement was allowed to resurface in the late 1980s, it was as much concerned with the revival of Ukrainian culture and language as with democracy or market reforms. Nationalists in effect struck a deal, under which the Communists conceded independence but were allowed to keep their power and assets.

Leonid Kravchuk, the last Communist boss, became Ukraine’s first national president in 1991 with no idea how to run an economy. “Ukraine fed the entire Soviet Union, and we thought that if we were on our own we would be rich. Nobody understood the market economy here,” he says. By 1993 hyperinflation had set in, and Ukraine suffered one of the sharpest drops in GDP of any country in peacetime.

Unlike Russia and Poland, Ukraine did not have liberal economists in charge, but “a shifting kaleidoscope of clans, shadowy business and old nomenklatura interests,” says Mr Wilson. America and the West focused on ridding Ukraine of nuclear weapons and paid little attention to the economy. Left to their own devices, politicians built a rent-seeking, corporatist state.

Mr Kuchma, who was elected in 1994, at least managed to stabilise the economy. With Mr Yushchenko, first as head of the central bank and later as prime minister, he launched a currency in 1996 and set about privatisation. But reforms stalled and Ukraine slipped into a semi-authoritarian state. Mr Kuchma then overplayed his hand by trying to anoint Mr Yanukovich as his successor.

The orange revolution was not aimed personally at Mr Yanukovich but against the idea of transferring power like this. It was also a revolution against a kleptocratic system that held the country back, bullied opponents and had journalists killed. The Ukrainian middle class, tired of muddling through, trusted Mr Yushchenko to smash that system. But the “first real Ukrainian president”, as Mr Yushchenko called himself, was too backward-looking.

Instead of governing, he tried to boost national consciousness by promoting the Ukrainian language and trying to revise history. This did little for the Russian-speaking east, not to mention Crimea, which still has not been fully integrated into Ukraine (and which includes Sebastopol, host to Russia’s Black Sea Fleet until its lease runs out in 2017).

Mr Yushchenko objected to Russia’s version of history, but he too was ideological. He insisted on calling the famine of 1932-33, a deliberate and horrendous extermination of peasants by Stalin, an act of genocide, when it affected the entire Soviet Union.

He said little of the dark pages in Ukraine’s own history, including collaboration with Nazi Germany and the role of the Ukrainian Auxiliary Police in administering the Holocaust. For instance, in Ivano Frankivsk, where some 100,000 Jews were killed, the authorities have put up a monument to 27 Ukrainian insurgents who were killed by the Nazis, but not even a plaque on the site of Jewish mass graves.

Anti-Semitism is no longer rampant, but it is partly a failure to teach history that allows Nadia Mateiko, an art student in Kolomiya, to say of Ms Tymoshenko: “I don’t want this Jew to be the president of my country. It is not their land.” (Ms Tymoshenko is not even Jewish.)

History is of little comfort to poor people in western Ukraine, where remittances from illegal workers abroad are often a main source of income. Five years after the orange revolution, hopes for a dynamic and modern Ukraine remain just that.

Some may now be invested in Mr Tyhypko, who refuses to back either front-runner. Ukrainians have to pick one of two familiar faces: Mr Yanukovich or Ms Tymoshenko. It is like a choice “between the plague and AIDS”, says Yulia Mostovaya, editor of Zerkalo Nedeli.

Mr Yanukovich has the flesh and blood of the clan system. Born into a poor working-class family in Donetsk, a coal-mining centre, he lost his parents early.

By the age of 20 he had two convictions for violent crime. In the late 1990s he became governor of Donetsk and befriended Rinat Akhmetov, now Ukraine’s richest steel magnate. When the orange revolution began, Mr Yanukovich and his supporters brought in nasty-looking toughs from Donetsk to balance the orange crowd.

In the 2004 election Mr Yanukovich had the backing of Russia’s then president, Vladimir Putin, who rushed to congratulate him. The Kremlin might have expected a brutal dispersal of the crowd, but Mr Kuchma would not sanction the use of force.

Even today Mr Yanukovich is unrepentant: “The rigging has not been proved. What happened in Ukraine would not have happened in any civilised country. It was not an election—it was a coup,” he complains. Despite a makeover by American political consultants, Mr Yanukovich has not shaken off his image of a thuggish, inarticulate man.

Yet his “pro-Russian candidate” label is misleading. He represents the Russian-speaking east, but has done little to advance Russia’s interests, instead jealously guarding those of such tycoons as Mr Akhmetov. What Mr Akhmetov wants is a politically and economically stable Ukraine. Yet some of Mr Yanukovich’s team do not inspire confidence.

They include a former finance minister, Mykola Azarov, architect of the repressive tax inspectorate, as well as the creators of the opaque gas-trading scheme with Russia. Mr Yanukovich wants to renegotiate today’s gas agreement, which excludes shady intermediaries.

The gas princess
Even so, many businessmen worry more about the populist Ms Tymoshenko. In her early days she was known as the “gas princess”, having made money as boss of United Energy System, a gas intermediary that won lucrative contracts from Pavlo Lazarenko, a former prime minister who partly owned the company and was arrested and jailed in America in 1999 for money-laundering and fraud.

But Ms Tymoshenko was not implicated and, as deputy prime minister in 1999, she used her knowledge to clean up the energy business. (For her pains, she was even put in prison for a few months.)

In 2004 her charisma and energy electrified the orange revolution, but as prime minister in 2005 she revealed a worrying populism, trying to regulate meat and petrol prices and advocating state control of the commanding heights of the economy. She also rattled some oligarchs by reversing the dodgy privatisation of a vast steel factory and reselling it for six times as much. But when she was fired, the orange coalition fell apart.

Power-hungry princess
Two years later, she came back as prime minister and managed to scrap RosUkrEnergo, the biggest and shadiest of the country’s gas intermediaries. But her government made little progress with other reforms. For this she blamed Mr Yushchenko, who vetoed many of her decisions. She then managed the feat of winning an IMF bail-out without fulfilling the fund’s demands to raise gas prices and cut public spending.

Viktor Pynzenyk, who resigned as finance minister last year after failing to stop a deliberately unrealistic budget, says that “the IMF money was not the cure but the hair of the dog.” In 2009, when the economy shrank by 15%, budgeted spending rose by 35%, he says. “The crisis gave us a chance to reform the economy and we wasted it.” Yet, by juggling figures and budgets, Ms Tymoshenko has managed to sustain much of her political support.

There are at least two reasons why she may win on February 7th despite lagging behind in the opinion polls. First, she is a much cleverer and more appealing politician than the inarticulate and slow-thinking Mr Yanukovich. (“Her profession is to speak and to lie beautifully and I can’t do it like her,” Mr Yanukovich admits.) Second, she seems more desperate for power than Mr Yanukovich, who enjoys hunting and tennis as much as politics. “Tymoshenko’s priority is to be in power at any cost. Principles are secondary,” says Mr Pynzenyk.

But that may also make her a riskier choice. She campaigned on the slogan of bashing the oligarchs and will have to make an example of some. But she has also been trying to reassure and pull to her side people like Mr Akhmetov and Viktor Pinchuk, another magnate. They may not want to jeopardise their wealth and safety by opposing her. The danger is that she will seek to maximise her power rather than push through reforms and strengthen the institutions that would then keep her ambitions in check.

She has certainly found a common language with Mr Putin, now Russia’s prime minister, who has said he could work with her. Her final three-hour long televised press conference before the election had a Putinesque tone. It is not hard to imagine her doing dodgy deals with Mr Putin in exchange for Russian help to keep her in power. Nor does she have many scruples about her allies.

One is said to be Viktor Medvedchuk, Mr Kuchma’s notorious chief of staff, who is accused of harassing the media and bullying businessmen. Mr Medvedchuk, who asked Mr Putin to be a godfather to his child, is a welcome guest in the Kremlin.

Yet Ukraine is not Russia—and Ms Tymoshenko is not Mr Putin. She does not have a background in the security services. She faces regional divisions that make centralisation of power hard in Ukraine. Democratic forces are stronger and criticism from the West has more weight than in Russia. Moreover, low credit from the voters and the dire state of public finances mean that whoever wins the election will be constrained in what they can do.

Ukraine’s economy has been kept afloat by IMF money. But late last year the IMF suspended its programme because of ballooning public spending. Ukraine’s budget deficit stands at 12% of GDP and the country has no real way of financing it. Ukraine’s sovereign international debt is manageable, but its domestic obligations are not. Mr Pynzynek estimates that, by the spring, Ukraine will run out of cash to pay pensions and salaries. This may at last force squabbling politicians to act.

The winner on February 7th will need to raise heavily subsidised gas prices and cut public spending with a vengeance. He or she must trim red tape and hope that Ukrainian business pulls the country out of its hole. Ukraine may be tempted to ask Russia for help—and Russia may be tempted to grant it in order to secure more influence. After 18 years of independence the biggest threat to Ukraine is its inability to govern itself. The election is tight, and the country can ill afford another deadlock.

LINK: http://www.economist.com/world/europe/displaystory. cfm?story_id=15330489
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9.  CHADBOURNE HELPS OPIC RETURN TO UKRAINE

Chadbourne & Parke, Kyiv, Ukraine, Wed, Jan 20, 2010

KYIV - Chadbourne & Parke LLP assisted the Overseas Private Investment Corporation (OPIC) in the resolution of its long-standing dispute with the Government of Ukraine.
 
The original dispute involved OPIC payment in 1999 of a political risk insurance claim to Alliant Techsystems, Inc., a sponsor of a project in Ukraine.  The Kyiv office of Chadbourne & Parke LLP advised OPIC on the settlement of the dispute, which was signed on December 16, 2009.  Now, OPIC has restored it programs in Ukraine and will be able to provide financing and political risk insurance to American companies investing in Ukraine.
 
“We are proud to have assisted in OPIC in resolving this major obstacle and to bring about improved business relations between the United States and Ukraine,” said Jaroslawa Johnson, Managing Partner of Chadbourne’s Kyiv office.
 
OPIC was established as an agency of the U.S. government in 1971.  It helps U.S. businesses invest overseas, fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S. foreign policy.
 
This transaction was led by the international partner Oleg Mazur and counsel Olena Repkina, assisted by associates Tetyana Dovgan and Roman Shulyar, with the support of partner Kenneth Hansen from the Firm's Washington office.
 
About Chadbourne & Parke LLP
Chadbourne & Parke LLP, a global law firm headquartered in New York City, provides a full range of legal services, including mergers and acquisitions, securities, project finance, private funds, corporate finance, energy, communications and technology, commercial and products liability litigation, securities litigation and regulatory enforcement, special investigations and litigation, intellectual property, antitrust, domestic and international tax, insurance and reinsurance, environmental, real estate, bankruptcy and financial restructuring, employment law and ERISA, trusts and estates and government contract matters. 

Major geographical areas of concentration include Central and Eastern Europe, Russia, the Middle East and Latin America.  The Firm has offices in New York, Washington, DC, Los Angeles, Mexico City, London (an affiliated partnership), Moscow, St. Petersburg, Warsaw (a Polish partnership), Kyiv, Almaty, Dubai and Beijing. For further information, please visit: www.chadbourne.com.

NOTE: Chadbourne & Parke LLP is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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10.  NEW APPROACH OF THE UKRAINIAN TAX AUTHORITIES
TO TAXATION OF FOREIGN INDIVIDUALS IN UKRAINE

News Flash, KPMG Ukraine, Kyiv, Ukraine, Tue, January 12, 2010 
 
KYIV - At the end of December 2009, the Ukrainian tax authorities released their new technical interpretation of certain issues related to taxation of foreign individuals in Ukraine (i.e., the Letter of the State Tax Administration of Ukraine No. 28593/7/17-0717 (“the Letter”)). 

Based on the Letter, the Ukrainian tax authorities are now of the view that the 15% personal income tax rate (“PIT”) should apply to salaries payable to foreign employees through the Ukrainian payroll ONLY starting from the month in which the foreign individual receive the Ukrainian tax residency certificate (“the Certificate”) for the particular tax year.
 
In the absence of a valid Certificate, the Ukrainian tax authorities seek to apply the 30% non-resident personal income tax to employment remuneration paid to foreign nationals through a Ukrainian payroll. As a result, if a Ukrainian employer applies the 15% PIT to such remuneration, the Ukrainian tax authorities may seek to assess an additional 15%personal income tax, and also apply a tax penalty of 200% of the underpaid taxes.
 
The legal validity of these changes remains questionable.  However, to mitigate potential tax risks, it is advisable to receive the Certificates for 2010 as soon as possible for all foreign nationals who work for your organization in Ukraine and expect to be tax resident in Ukraine in 2010. 
 
Although it generally should not be a significant issue to obtain such Certificates for those foreign individuals who hold permanent or temporary residency permits for Ukraine, based on the Letter, it appears that the foreign individuals without such permits would be able to apply for and receive their Certificates only after their presence in Ukraine in the reporting year exceeds 183 calendar days, which implies that their remuneration would be taxed at the 30% PIT rate during the months before the 183- days criterion is met by such individuals.
 
Should your organization have concerns or experience difficulties with these issues, we are available to assist and would welcome being contacted.
 
Other recent changes in legislation
The minimal share capital of a Ukrainian limited liability company has been decreased from the former 100 minimal salaries to 1 minimal salary (i.e., currently approximately USD 109);
 
Starting 1 January 2010, the rate of the charge payable to the Pension Fund of Ukraine for the purchase and sale of foreign currency has been increased from 0.2% to 0.5%.
 
KPMG Contacts: Rob Shantz, Partner, Tax and Legal, Tel. +38(044) 490 55 07, Fax. +38(044) 492 82 98, RShantz@kpmg.ua. Sergey Popov, Partner, Tax and Legal, Tel. +38(044) 490 55 07, Fax. +38(044) 492 96 81, SPopov@kpmg.ua. KPMG in Ukraine: Kyiv, 11, Mykhailivska St., 01001, Kyiv, Ukraine, Tel. +38(044) 490 55 07; Fax. +38(044) 490 55 08. e-mail: info@kpmg.ua. Donetsk, 2a, Pushkina blvd., 83001, Donetsk, Ukraine, Tel. +38 (062) 341 46 80, Fax. +38 (062) 341 46 81, email: donetsk@kpmg.ua.

KPMG-Ukraine Ltd., a company incorporated under the Laws of Ukraine and a Ukrainian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss cooperative.

NOTE: KPMG-Ukraine Ltd. is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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U.S.-Ukraine Business Council (USUBC): http://www.usubc.org
Promoting U.S.-Ukraine business relations & investment since 1995.