#43|Oct22|2010 by Kyiv Post

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vol. 15, issue 43

October 22, 2010

Disasters Waiting To Happen B Y M A R K R AC H KEVYC H RACHKEVYCH@KYIVPOST.COM

The toxic sludge that has killed nine and injured 120 in Hungary and left large-scale environmental damage in its wake has reached the Danube River delta in Ukraine’s Odesa Oblast. The good news for Ukraine is that Hungary appears to have contained the harm of the orange-red alkaline spill before it reached far down the waterway. But the devastation left by the industrial pollution comes as a stark warning that Ukraine is home to dozens of potentially larger ecological disasters, many of which have not been properly addressed. “A hazardous situation could erupt in just about any Æ8

A rescue team searches for missing bodies possibly washed away by a flood of toxic chemicals near the village of Kolontar, Hungary, on Oct. 7. The flooding was caused by the rupture of a red sludge reservoir at a metals factory in western Hungary and affected seven towns near Ajkai, 160 kilometers southwest of Budapest. The flood of toxic mud killed nine and injured more than 100 people. (AP)

Fugitive ex-minister Will Ukrainians, English-speaking for Tymoshenko held soccer fans find common language? in Czech Republic ÆCops, doctors, others BY SV ITL A NA TUCH Y NSKA TUCHYNSKA@KYIPOST.COM

BY Y U R I Y O N YS H K I V ONYSHKIV@KYIVPOST.COM

Prosecutors are pushing for the extradition of a former economy minister detained in the Czech Republic, as Ukrainian authorities again use corruption allegations to put pressure on political enemies of President Viktor Yanukovych.

Inside: 234-6500: Kyiv Post main number

Bohdan Danylyshyn, who served in ex-Prime Minister Yulia Tymoshenko’s government, was detained in Prague on Oct. 18, two months after an international warrant for his arrest was first issued. Prosecutors accuse Danylyshyn of causing the state Hr 14 milion in losses as a result of state purchases he oversaw while in office. Æ12

The rush is on to make Ukraine more of an English-speaking nation ahead of the Euro 2012 football championship. Failing that, visitors will probably settle for a few more cops and doctors who are at least a little more conversant in the international language that most Ukrainians struggle with.

taking English courses

The idea of the European Unionfunded program is to make Ukraine more accommodating for the thousands of English-speaking tourists who will descend on the nation for the soccer matches in 2012.

News Æ 2, 8 – 10 – 13, 16 Opinion Æ 4, 5, 14, 15, 16 Employment/Real Estate/ Classifieds Æ 30, 31 Business Æ 6, 7 Lifestyle Æ 17 – 27, 32

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Thousands of police officers, emergency and customs workers, doctors and border and security guards are already attending classes – or will start soon. They are trying to train themselves to respond to likely Æ10

OCTOBER 22, 2010 Vol. 15, Issue 43 Copyright © 2010 by Kyiv Post The material published in the Kyiv Post may not be reproduced without the written consent of the publisher. All material in the Kyiv Post is protected by Ukrainian and international laws. The views expressed in the Kyiv Post are not necessarily the views of the publisher nor does the publisher carry any responsibility for those views. Газета “Kyiv Post” видається ТОВ “ПаблікМедіа”. Щотижневий наклад 25,000 прим. Ціна за домовленістю. Матерiали, надрукованi в газетi “Kyiv Post” є власнiстю видавництва, захищенi мiжнародним та українським законодавством i не можуть бути вiдтворенi у будь(якiй формi без письмового дозволу Видавця. Думки, висловленi у дописах не завжди збiгаються з поглядами видавця, який не бере на себе вiдповiдальнiсть за наслiдки публiкацiй. Засновник ТОВ “Паблік-Медіа” Адреса видавця та засновника співпадають: Україна, м. Київ, 01034, вул. Прорізна, 22Б Реєстрацiйне свiдоцтво Кв № 15261(3833ПР від 19.06.09. Надруковано ТОВ «Новий друк», 02660, Київ, вулиця Магнітогорська, 1, тел.: 559-9147 Замовлення № 10-6320 Аудиторське обслуговування ТОВ АФ “ОЛГА Аудит” Mailing address: 01034, Kyiv, 22B Prorizna Street Kyiv Post main number: 234-6500 Advertising: 234-6503 Subscriptions: 234-6503 Newsroom: 234-6300, 234-6310 Fax/Tel.: 234-3062 http://www.kyivpost.com Editorial queries: news@kyivpost.com letters@kyivpost.com Subscription queries: subscribe@kyivpost.com Advertising queries: advertising@kyivpost.com З приводу розмiщення реклами звертайтесь 234-6503 Відповідальність за зміст реклами несе замовник

2 News

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October 22, 2010

Tomorrow’s News Canadian Prime Minister Stephen Harper waves at journalists after a meeting with French President Nicolas Sarkozy on June 4 at the Elysee Palace in Paris. (AFP)

European Union to discuss Ukraine, dangle prospect of visa-free travel European Union foreign ministers are to meet in Brussels and are expected to adopt an action plan for Ukraine, which contains a roadmap that needs to be implemented in order for Ukraine to receive visa-free travel, according to the European Union representative office in Kyiv. If adopted, the plan would formally be presented at an EU-Ukraine summit in the EU capital on Nov. 22. The European Commission meeting coincides with Foreign Minister

Kostyantyn Gryshchenko’s trip to Brussels. He’s scheduled to meet with Catherine Ashton, the European Union’s foreign minister and members of the European Parliament. He will also give a lecture at the Centre for European Policy studies, a foreign ministry spokesman said. “Gryshchenko’s visit to Brussels doesn’t correlate with the European Commission meeting,” Ukraine’s foreign ministry spokesperson said.

Oct. 25-26 Canada's Harper to visit Kyiv, Lviv to promote democracy Canada’s Prime Minister Stephen Harper will conduct a two-day official working visit to Ukraine at the invitation of President Viktor Yanukovych. Harper is scheduled to visit Kyiv and Lviv, the cultural capital in western Ukraine. The purpose of his visit is to promote democratic values and Euro-Atlantic integration, according to the Ukrainian Canadian Congress. “I look forward to my meetings with President Yanukovych and others, and to gaining a better understanding of Ukraine, the ancestral

homeland of so many Canadians, with its unique society and culture,” Harper said through his official government website. There are 1.2 million ethnic Ukrainians residing in Canada out of a total population of around 34 million. The last visit by a Canadian prime minister was in 1999 by Jean Chretien and the most recent visit by Canada’s governor general, the representative of Canada’s head of state, was Michaelle Jean’s visit in April 2009.

Oct. 25 Ukrainian Foreign Minister Kostyantyn Hryshchenko (Yaroslav Debelyi) Compiled by Mark Rachkevych

Putin visit raises speculation about gas deal to merge Gazprom, Naftogaz BY J O H N M A R ON E MARONE@KYIVPOST.COM

Russian Prime Minister Vladimir Putin is coming to Kyiv, and once again he’s got gas on his mind. Russia’s most powerful man will meet his Ukrainian counterpart, Mykola Azarov, during the seventh session of the Ukrainian-Russian intergovernmental committee on economic cooperation on Oct. 27. And although the official visit has received hardly any hype, the last time the two men met, during the sixth session of the same committee in Sochi, Russia, last April, Putin shocked financial markets and foreign governments alike by proposing a merger of the countries’ state oil and natural gas companies. This time, one of the subjects of talks will also be gas – in particular, changes to bilateral gas agreements, Russian Ambassador to Ukraine Mikhail Zurabov told journalists. Shortly after Azarov’s boss, the Moscow-friendly Ukrainian President Viktor Yanukovych, came to power in February, Kyiv extended the Russian navy’s presence in Ukraine’s autonomous region of Crimea for another 25 years in exchange for a cheaper gas price, which nevertheless continues to climb. Then Putin began proposing all kinds of far-reaching integration projects such as the unification of the two countries’ nuclear industries, aviation sectors and, most importantly, their state gas companies – Gazprom and Naftogaz Ukraine. More recently, Azarov has publicly complained that Ukraine needs an

even lower gas price from Gazprom, leading to speculation as to what Kyiv would offer Moscow in return next. Ukraine depends on the Russian state-controlled gas giant Gazprom for the majority of the gas used by its export-oriented industry, some of which directly competes with Russian companies. Since Putin came to power in Russia, first as president in 2000 and now as premier, the Kremlin has done little to conceal its use of gas and oil exports to control former satellite countries and influence individual governments of the European Union. Despite fears that Gazprom, which accounted for 17 percent of world gas production in 2008, would swallow up its much smaller Ukrainian counterpart Naftogaz, officials in Kyiv have denied any intention of allowing this to happen. Instead, most of the statements coming out of Kyiv since Putin’s April proposal have suggested the creation of an “international” consortium to manage and invest in Ukraine’s international pipeline, which delivers about 80 percent of Russian gas exports to Europe. When asked for more details about Putin’s Oct. 26 visit to Kyiv, Naftogaz spokesperson Olena Yurieva said she could neither confirm nor deny whether any agreements were to be signed. A top official at Ukraine’s Energy Ministry, speaking on condition of anonymity, said no new gas deal would be announced. However, more than one Kyiv-based gas analyst told the Kyiv Post that Putin was not coming to Ukraine for nothing. Volodymyr Omelchenko, a gas

analyst at the Kyiv-based think tank Razumkov Center, said there is a 50 percent chance that Putin and Azarov will announce some kind of a deal. “The most realistic scenario is some kind of a joint venture to control Ukraine’s pipelines,” he said. Some kind of European entity would likely be involved to deflect criticism of a Russian takeover, he added. But the current authorities in Kyiv are divided in their attitudes toward greater Russian involvement in Ukraine’s gas sector. “If Azarov had his way, a merger deal would have already been signed,” Omelchenko said. But there are also the industrialists like [billionaire Rinat] Akhmetov and others who don’t want the Kremlin monopolizing pricing, and the gas-sector wing like [businessman Dmytro] Firtash and [Energy Ministry Yuriy] Boyko, who want to maintain control over sales and distribution,” Omelchenko said. Mykhailo Gonchar, a Ukrainian gas analyst, said more likely is a protocol of some kind being signed: “It wouldn’t have any legal force but it would be one step further than the unilateral declaration made following the last session in April.” As evidence that something is brewing, Gonchar noted that Gazprom has been on the prowl for a public relations company in Kyiv to promote the impending deal. “The Ukrainian public still feels negative about the idea of Gazprom controlling its gas pipelines, so the idea is to soften this position through PR,” he said. Serhiy Pashinsky, an opposition lawmaker who sits on parliament’s fuel

Ukrainian Prime Minister Mykola Azarov (R) and his Russian counterpart, Vladimir Putin, in Kyiv on April 26. (AFP)

Oct. 27

Putin to visit as Azarov seeks cheaper natural gas imports Russian Prime Minister Vladimir Putin is scheduled to visit Kyiv on Oct. 27 to take part in the seventh session of the Ukrainian-Russian intergovernmental committee on economic cooperation. During the visit, Putin is scheduled to meet with his Ukrainian counterpart, Mykola Azarov, to discuss changes to bilateral gas agreements and other issues. Putin last visited Ukraine on July 24 when he commemorated Russia’s Navy Day in Crimea by taking part in a motorcycle rally. Moscow and Kyiv signed an agreement to extend the Russian lease of its navy base in Crimea by at least another 25 years, to 2042, in their initial gas deal.

and energy committee, said he doesn’t expect anything on Oct. 27 except more hype: “I think what we’re going to see is another witch-doctor dance by Putin

intended to dispel all the evil spirits from Ukrainian-Russian relations.” Kyiv Post staff writer John Marone can be reached at marone@kyivpost.com

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October 22, 2010 Advertisement

European Business Association News

,EADERS 4ALK Leaders Talk: Andriy Pavlyk Knauf Insulation

NAUF )NSULATION IS A PART OF FAM ILY OWNED +NAUF 'ROUP FOUNDED IN THAT IS SPECIALIZED ON PRODUCTION AND MARKETING OF INSULA TION AND GYPSUM BASED BUILDING MATE RIALS 7ITH YEARS OF EXPERIENCE IN THE INSULATION INDUSTRY +NAUF )NSULATION REPRESENTS ONE OF THE FASTEST GROWING AND MOST RESPECTED NAMES IN INSULATION WORLDWIDE 4HIS WEEK THE %"! SPOKE TO !NDRIY 0AVLYK 'ENERAL -ANAGER OF +NAUF )NSULATION 5KRAINE

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THAT 5KRAINIAN OFFICE HAS BECOME ONE OF THE PIONEERS IN THIS DIRECTION %"! (OW DO COMPANIES HERE IN 5KRAINE APPROACH THE ISSUE OF ENERGY EFFICIENCY -ANY LEADING 5KRAINIAN COMPANIES HAVE ALREADY REALIZED WHAT ENERGY EFFICIENCY IS ABOUT AND WHAT BENEFITS ENERGY EFFICIENT TECHNOLOGIES BRING #OMPANIES WITH FOREIGN INVESTORS OR PARTNERS ARE MOST ACTIVE IN THIS DIRECTION 4HESE BUSINESSES ARE DEVELOPING #ORPORATE 3OCIAL 2ESPONSIBILITY PROGRAMS THAT INTEGRATE PROVISIONS FOR EFFICIENT ENERGY CONSUMPTION AT THE ENTERPRISE LEVEL 3UCH PROVISIONS MAY INCLUDE MEASURES ON MANY DIFFERENT LEVELS STARTING FROM INSTALLATION OF NEW LAMPS OR BUILDING RENOVATION TO THE COMPLETE REPLACEMENT OF OUTDATED EQUIP MENT FOR MODERN AND EFFICIENT MANUFACTUR ING UNITS -OTIVATING POSITIVE CHANGES IN RESIDENTIAL AREAS WILL BE IMPORTANT AS BUILD INGS ARE THE MAIN USERS OF ENERGY AND HEAT LOSSES ON THE CONSUMER SIDE ARE EXTREMELY HIGH (ERE WE BELIEVE THAT BUSINESS CAN PLAY A LEADING ROLE IN RAISING AWARENESS AMONGST STAKEHOLDERS AND THEY CAN SUPPORT DEVELOP MENT BY OFFERING THE BEST ENERGY EFFICIENT SOLUTIONS

OF THE WORLD S ENERGY IS USED IN BUILDINGS AND INSULATION HAS BEEN PROVEN TIME AND TIME AGAIN AS THE MOST EFFECTIVE METHOD BOTH PRACTICALLY AND ECONOMI %"! 4HE %5 HAS PLEDGED TO SIGNIFICANT CALLY THAT CAN SUBSTANTIALLY REDUCE THIS LY CUT ITS CARBON EMISSIONS BY (AS ENERGY USE 5KRAINE MADE ANY SUCH COMMITMENTS )NSULATION IS ONE OF THE EASIEST AND !S FAR AS WE KNOW 5KRAINE HAS NOT MADE MOST COST EFFECTIVE WAYS TO REDUCE ENERGY ANY SUCH COMMITMENTS AT THE STATE LEVEL DEMAND AND GREENHOUSE GAS EMISSIONS (OWEVER ONE OF THE KEY %UROPEAN INITIA FROM BUILDINGS /UR INSULATION SOLUTIONS TIVES THE #OVENANT OF -AYORS IS WIDELY SUP ARE OUR MOST IMPORTANT CONTRIBUTION TO PORTED AT THE MUNICIPAL LEVEL 4HE #OVENANT SUSTAINABLE DEVELOPMENT AND ENERGY EFFI OF -AYORS IS A COMMITMENT BY SIGNATORY CIENCY IMPROVEMENT TOWNS AND CITIES TO GO BEYOND THE OBJECTIVES %"! (OW DOES YOUR COMPANY OF %5 ENERGY POLICY IN TERMS OF REDUCTION APPROACH ENVIRONMENTAL ISSUES INTER IN #/ EMISSIONS THROUGH ENHANCED ENERGY NALLY WITHIN THE COMPANY EFFICIENCY AND CLEANER ENERGY PRODUCTION 3USTAINABILITY IS DRIVING OUR BUSINESS AND AND USE !S OF TODAY 5KRAINIAN CITIES THIS CAN BE SEEN IN +NAUF )NSULATIONlS NEW HAVE OFFICIALLY JOINED AND CITIES HAVE PLANT IN ,ANNEMEZAN &RANCE 4HE PLANT DECLARED THEIR COMMITMENT TO JOIN !S A ITSELF HAS PHOTOVOLTAIC ROOFS AN OXY GAS RESULT THESE CITIES ARE ACTIVELY IMPLEMENTING OVEN DOUBLE FILTERING SYSTEMS WATER RECY ENERGY AUDITS MONITORING AND PLANNING AND CLING SYSTEM AND A HIGHER INPUT OF RECYCLED TARGETING INFORMATION THROUGH THE USE OF CONTENT IN THE MANUFACTURING PROCESS $ISPLAY AND OTHER PROMOTIONAL CAMPAIGNS 4HE VISUAL ASPECTS OF THE SITE WERE KEPT IN )N ADDITION THERE ARE A NUMBER OF ONGO MIND AND AS SUCH IT WAS CONSTRUCTED WITH ING PROJECTS AIMED AT THE IMPROVEMENT OF MINIMUM VISUAL IMPACT INCORPORATING ENERGY EFFICIENCY AND TO ENCOURAGE THE RURAL FEATURES SUCH GREEN OPEN SPACES AND USE OF RENEWABLE ENERGY SOURCES 4HESE OVER DIFFERENT VARIETIES OF TREES !LL ARE MAINLY BEING FINANCED BY )NTERNATIONAL COMPANY OFFICES WILL SOON JOIN k4HE 'REEN &INANCIAL )NSTITUTIONS )&) SUCH AS 7" /FFICEl INITIATIVE )T HAS TO BE MENTIONED %"2$ 53!)$ .%&#/ AND OTHERS

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he EBA are pleased to announce the launch of a brand new Public-Private Partnership and its first project to develop sports grounds in Kiev and around Ukraine. The â&#x20AC;&#x2DC;Health of the Nationâ&#x20AC;&#x2122; initiative has been developed with the support of the Ministry of Sports Youth and family and supported by the President of Ukraine. It offers EBA member companies the chance to sponsor the development of a wide range of sports facilities and development projects. By supporting Health of the Nation, EBA members have the opportunity to provide financial support to the development of facilities in return for advertising and promotional space. We are delighted that a number of EBA member companies have already agreed to participate in the project and we hope that, with the support of many more businesses we will be able to contribute to the development of the city and to bring a much wider range of facilities to citizens. Anna Derevyanko, EBA Executive Director

"For the Association it is essential both to help our member-companies to implement the component of social corporate responsibility and to contribute to the ANNA Derevyanko efforts of government to improving the health of people living around the country. Investors are ready to commit provided that this is a two way traffic and the state will also do its best to improve the investment climate in Ukraine."

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Luhansk International Investment Forum will be held on 18-19 of November LIIF is to be held for the presentation of investment potential of the Luhansk region, one of the most advanced industrial regions of Ukraine. During forum major investment projects will be presented, conditions and prospects for investors will be discussed. Luhansk regional authorities created unprecedented conditions for the arrival of investors: â&#x20AC;˘ rental deposits for 50 years; â&#x20AC;˘ infrastructure for new businesses; â&#x20AC;˘ exemption from fees for permits and licenses; â&#x20AC;˘ investments from the budget to 20% of project cost; â&#x20AC;˘ tax benefits; â&#x20AC;˘ prospect of establishing a free economic zone To participate in the First Luhansk International Investment Forum are invited: major foreign and Ukrainian industrial enterprises, investment and venture funds, foreign and

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/FXT GSPN #SVTTFMT During the official visit of Ukrainian delegation to Brussels, on October 13-14, there was the Conference â&#x20AC;&#x153;UKRAINE: FROM CRISIS TO GROWTH. ECONOMY, INVESTMENTS, MARKETSâ&#x20AC;? held where Mr. Azarov was the keynote speaker. Within his speech at the Conference Mr.Azarov underlined the key directions of investment climate improvement, such as political and financial stability in the country, and for sure economic reforms. Ukrainian Government works on establishment of attractive for business tax system that is extremely necessary for the stabilisation and further economic development. Predictable external policy, without â&#x20AC;&#x153;goodâ&#x20AC;? and â&#x20AC;&#x153;badâ&#x20AC;? neighbours is very important for growth of investments. Other key areas for the improvement are modernisation and technical development in compliance with European standards. Regarding FTA negotiation the Prime Minister said that the conclusion of an agreement on the free trade zone with the European Union needs more time and it is too early to talk about a concrete signing. Still the Government is open for dialog with business and the â&#x20AC;&#x153;Council of Investorsâ&#x20AC;? will be established soon. European Commissioner for Enlargement and Neighborhood Policy, Mr. Stefan Fule remarked within his report on the interface between the EU and Ukraine in the area of economic reform. He highlighted that Ukraine has enormous economic potential and business climate in Ukraine is very closely linked to growth, thus it deserves more attention. But at the same time there is still strong criticism of Ukraine by business and investors. Concerns include: the taxation system in particular as regards VAT; agricultural exports; customs procedures; non- respect of court decisions; slow progress in the fight against corruption; and a lack of transparency in the area of privatization. All of these factors contribute to a loss of confidence among the business community, and and drop in investments in Ukraine. He recommended to Ukrainian authorities to continue the dialogue with business about the regulatory environment, administrative procedures, the practical realities of import and export and about the labour market.

Ukrainian banks, central and local governments, embassies, international trade and economic missions. Rich and convenient format of the forum includes: plenary sessions, reports, round tables, a zone of exposure of investment opportunities presented by companies, the possibility of holding talks, informal chatting during breaks. All these will allow you to receive full information about the prospects of development in the region. Roundtables will focus on the features of work in the Luhansk region in 5 key areas: â&#x20AC;˘ extraction and processing of minerals; â&#x20AC;˘ engineering, chemical and light industry; â&#x20AC;˘ public utilities: water supply, power system, energy saving; â&#x20AC;˘ Agriculture; â&#x20AC;˘ Logistics. The event starts on 18 November, 2010, at 13:00 Detailed information on the website of the event http://www.invest-in-ukraine.net/

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4 Opinion Editorials

Socialist tycoons

“I wonder who folded my parachute…”

Earlier this month, the oligarch-dominated Party of Regions backing President Viktor Yanukovych raised eyebrows by inking a strategic cooperation agreement with the Party of European Socialists, the second-largest political grouping in the European Parliament. It is far from a match made in heaven. As one European Union official asked anonymously: “Is the Party of European Socialists so blind not to see” that the Yanukovych party’s main backers, who include billionaires Dmitry Firtash and Rinat Akhmetov, “are not socialists by nature?” This week, it became clear why the party of constitution-trampling Yanukovych rushed to form the odd alliance: They needed quick political support to prevent sharp criticism in Europe over their recent Kremlin-styled power grabs, media muzzling and democracy squashing – especially in the run-up to the local elections taking place on Oct. 31nationwide. Europe’s socialists proved successful counter-balancing strong backing that the Batkivshchyna Party of Yanukovych’s enemy, Yulia Tymoshenko, has received in recent years as a member of Europe’s largest cross-border party, the European People’s Party. Yanukovych's alliance paid off at crucial EU parliament talks on Ukraine held this week. Discussions focused on whether to issue a strong statement, warning Ukraine’s leadership about the consequences they could face by rolling back on democratic gains. The alternative is to give Yanukovych yet another benefit of doubt. On Oct. 21, lawmakers from the Tymoshenko-backing European People’s Party called for a strongly-worded statement slamming Yanukovych. Europe’s socialists were apologetic, insisting Yanukovych has brought stability and argued that a resolution should come after Ukraine’s elections. On Oct. 22, EU lawmakers decided to put off adoption of a resolution. European decision-makers fear that crticizing Yanukovych could push him further towards Russia. Thus, it’s understandable why a middle-ground position was expressed by the European Commission. In a carefully worded statement, commission leaders encouraged Yanukovych to focus on delivering economic reforms to bring Kyiv closer to free trade and “EU association” agreements. But they followed up saying that the “pace and depth of our rapprochement” will be determined by “respect” for human rights, democratic principles and the rule of law … principles that cannot be compromised.” If such basic principles are at jeopardy, and they clearly are, then a strong pre-election statement is due. The position of Europe’s Socialists is nothing more than unprincipled, empty partisanship. Yanukovych’s oligarch backers have demonstrated that their pockets are deep enough to buy the best law firms and lobbyists. Have they also bought cheap political capital from Europe’s socialists? European socialists to visit Ukraine and assess what is happening. While on the plane, they should study the annual press freedom index released this week by Paris-based Reporters Without Borders. Ukraine dropped 42 places to 131st, nine spots above Yanukovych’s strongest regionally ally, Vladimir Putin’s Russia.

Kings & peasants A popular saying goes that in Russia there are two problems: fools and roads. In Kyiv, the fools are those at the summit of power who think it’s OK for the presidential motorcade to clog up the capital’s roads almost every morning. President Viktor Yanukovych races from his suburban mansion to the center of Kyiv along a nearly 20-kilometer route. Cops stop traffic, leaving thousands of cars standing still up to 15 minutes waiting for the commander-in-chief to whizz by in his high-security convoy. The episode repeats nearly each morning as motorists struggle to make it to work on time. Presidential motorcades are permanent fixtures of any country’s traffic routine. But they happen on a less-than-regular basis abroad because presidents tend to live at their workplace. In many nations, the state’s money is spent on improving roads, rather than making sure the boss and his cronies live in luxury. Yanukovych, however, prefers to relax in his opulent out-of-town surroundings. While relaxing there, does he ever wonder about those that suffer from his motorcade, including a taxi driver that was killed earlier this year in an accident caused by it? Hanna Herman, the president’s deputy aid, said her boss may get a helicopter. There’s no rush, however. The new Gavansky Bridge connecting Obolon with central Kyiv is used exclusively by Yanukovych. Before it opens officially, other drivers have to go around it covering and extra five kilometers and getting more impatient in the jams. The problem goes beyond delays and inconveniences. It is rooted in the disregard for others, the division of Ukrainians into the haves and have-nots, the cans and can’ts, them and us. To Yanukovych, it seems, other drivers are only subjects. So until he finds enough money in the bare state coffers for a chopper, or to move downtown, his motorcade will send out the same message morning after morning: Out of the way, peasant, the king is coming!

Mohammad Zahoor, Publisher Jim Phillipoff, Chief Executive Officer Brian Bonner, Chief Editor Deputy Chief Editors: Katya Gorchinskaya, Roman Olearchyk Editors: Alexey Bondarev, Valeriya Kolisnyk, James Marson, Yuliya Popova Staff Writers: Tetyana Boychenko, Peter Byrne, Oksana Faryna, Natalia A. Feduschak, Olga Gnativ, Kateryna Grushenko, Nataliya Horban, John Marone, Olesia Oleshko, Yura Onyshkiv, Iryna Prymachyk, Mark Rachkevych, Nataliya Solovonyuk, Maria Shamota, Svitlana Tuchynska Photographer: Oleksiy Boyko. Photo Editor: Yaroslav Debelyi Chief Designer: Vladyslav Zakharenko. Designer: Angela Palchevskaya Marketing: Iuliia Lysa Web Project: Nikolay Polovinkin, Yuri Voronkov Sales department: Yuriy Timonin, Yulia Kovalenko, Maria Kozachenko, Ilya Lvov, Elena Symonenko, Olga Ryazanova, Sergiy Volobayev Nataliia Protasova, Subscription Manager Svitlana Kolesnykova, Newsroom Manager Anastasia Forina, Ofﬁce Manager

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October 22, 2010

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“I wonder why I forgot Kim Jong-il. He would be good company.”

NEWS ITEM: During his visit to Ukraine on Oct. 18-19, Venezuelan President Hugo Chavez offered to go parachuting with President Viktor Yanukovych by jumping out of a Ukrainian-made Ruslan cargo plane. Yanukovych suggested that Russian President Dmitry Medvedev, Prime Minister Vladimir Putin, Belarussian President Alexander Lukasheko and Iranian President Mahmoud Ahmadinejad should go with them as well. Critics immediately took to the idea, intrigued by the possibility that – should North Korean leader Kim Jong-il join them – many of the world’s dictators would be falling out of the same airplane together. (Drawing by Anatoliy Petrovich Vasilenko)

Ukraine’s rising radical right spells trouble for nation's democratic aims A ND REA S UML A ND

The year 2010 has seen a number of new, disturbing political developments in Ukraine. If these trends continue, they many undermine Ukraine’s international image as the only solidly pro-democratic oriented country in the former Soviet space. All major institutions and structures that make up a functioning democracy have suffered from worrying interventions by the new Ukrainian leadership: parliamentary procedures, the rule of law, mass media, civil society and even higher education. They have been widely reported in both the Ukrainian and international press. Another emerging problem for Ukraine’s future international reputation has, at the same time, remained largely ignored by most observers: the recent rise of the right-wing All-Ukrainian Association “Svoboda” (Freedom) of Oleh Tiahnybok, a physician and lawyer from western Ukraine’s largest city, Lviv. His ultra-nationalist party grew out of the clearly fascist Social-National Party of Ukraine (SNPU) found-

ed in 1991 in Lviv. The SNPU’s name deliberately sounds like Hitler's Nazi-inspired National-Socialist German Workers Party. Its symbol was the so-called Wolfsangel once used by the SS Division “Das Reich,” and today popular among various European neo-Nazi groups. In 2004, the Social-National Party renamed itself into Svoboda and abandoned the Wolfsangel. While Svoboda remained explicitly nationalistic, it has toned down its revolutionary rhetoric in recent years. It also embraced, in its front-stage statements, a nationaldemocratic discourse, and proclaims its adherence to the Ukrainian Constitution. Its leadership includes a number of articulate intellectuals such as Iryna Farion, a senior lecturer in Ukrainian philology at Lviv’s Polytechnical Institute, and Andriy Illyenko, son of the legendary nationalist film director Yuriy Illyenko (1936-2010) and a political science researcher at Kyiv’s Shevchenko University. They and, above all, Tiahnybok himself have recently become regular guests on Ukrainian TV shows, and soughtafter interviewees or authors of many Kyiv periodicals. As a result, Svoboda’s popularity has, especially in Western Ukraine, been constantly growing during the last year. It has also made inroads into the less nationalistic regions of central Ukraine. As Ukraine has a proportional electoral system with a relatively low 3 percent barrier for an entry into Æ16

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October 22, 2010

Undemocratic movements TOMA S VA L A S E K

In February, Ukrainians elected Viktor Yanukovych as the country’s new president. In his first month in office, Yanukovych declared that his country no longer wanted to join the NATO military alliance. Then, in April, he signed a deal with Moscow to allow Russia’s Black Sea Fleet to stay in the Crimean port of Sevastopol until 2042. The president’s first steps alarmed those who wish to see Ukraine move closer to the European Union. They seemed to suggest that Kyiv was returning to Moscow’s sphere of influence, or at least acquiescing in Russia’s attempts to draw it in. Ukraine is very important to the EU’s eastern policy; with a population of 46 million it is the second-largest country in Eastern Europe. Is it now becoming a Russian satellite? No. The new government in Kyiv is less beholden to Russia than its early decisions indicate. While Ukraine will be friendly to Moscow, it will also struggle with the Kremlin over control of key industries in Ukraine. Kyiv’s cooperation with the EU will stagnate but for reasons that have little to do with Russia: key EU capitals have lost appetite for further EU enlargement while European integration is not a priority for Yanukovych. The president is far more focused on reviving Ukraine’s economy and consolidating power. His early steps also suggest that he may be building a one-party state. This, rather than Ukraine’s Russia policy, should be the focus of EU capitals and institutions. They should use their influence to preserve democracy in Ukraine while supporting Yanukovych’s economic reforms.

Deficits, disagreements Yanukovych has inherited a country with deepseated problems. Ukraine’s economy remains highly dependent on exports of steel. In 2009, the country’s gross domestic product shrank by 15 percent, chiefly because steel prices collapsed. The government came close to defaulting, partly because of the economic contraction but also because of the country’s ruinous gas subsidies. Ukraine’s gas monopoly, Naftogaz, buys from Russia at close to West European average prices but, until recently, resold to companies and households at a heavy discount. The government, in turn, spends nearly 2 percent of gross domestic product annually subsidizing Naftogaz. Former President Viktor Yushchenko and former Prime Minister Yulia Tymoshenko made things worse by publicly disagreeing on how to respond to the global economic crisis. This unnerved investors and prompted the International Monetary Fund to suspend lending. Despite the slump in economic activity and tax revenue, Ukraine increased social benefits in 2009. The combination of lower receipts and higher outlays nearly broke the treasury. The budget deficit ballooned to nearly 9 percent of gross domestic product in 2009, and Ukraine only met its debt obligations thanks to the $11 billion of loans disbursed by the IMF before it suspended aid later in the year. The country’s domestic woes extend beyond the economy. The judiciary is weak and discredited. Ukraine’s highest court, the Constitutional Court, has been known to reverse its judgments depending on the direction of the political winds. Petty corruption at the lower echelons of government irritates ordinary Ukrainians. The administration excels at creating arbitrary administrative problems which magically disappear once cash changes hands. Ukrainians steer clear of state authorities, including the tax office: Yanukovych’s economic czar, Iryna Akimova, estimates the size of the informal economy at 50 percent of Ukraine’s gross domestic product. Top-level corruption and red tape deter foreign investors. Ukraine has promising gas reserves under the Black Sea and under land (in shale, a type of organic rock) but foreign oil executives think the government too corrupt and unpredictable to invest in their exploration.

Opinion 5 VOX populi WITH SVITLANA KOLESNYKOVA

What’s the last book you have read? Dmytro Ocheretian, student at a technical university “ ‘Trohy Pitmy’ by Lyubko Deresh, a new Ukrainian author. It’s about one man’s journey and his encounters with youth subcultures – Punks, Goths, etc. It’s not fiction, quite specific literature, interesting, and I would advise you to read it.” Oleksandr Magirev, medical student “ ‘The Vampire Diaries’, by Lisa Smith, a fantasy story. I just came across this book by chance, opened it, read a couple of lines – and liked it. Generally speaking, fantasy is something I prefer – Tolkien, for instance.”

Russian President Dmitry Medvedev (R) and Ukrainian President Viktor Yanukovych shake hands, during their meeting in Gelendzhik, the Russian resort town on the Black Sea on Oct. 4. They reportedly discussed the possibility for energy and high-tech cooperation. (AP)

The country has recently failed the IKEA test: the furniture company, famous for its willingness to invest in newly emerging and risky markets, has stopped building new shops in Ukraine and sold its local factories. Officially, IKEA says this is because the downturn made economic prospects too bleak. But Ukrainian observers say that the company found the business environment too unfriendly. Ukrainians have come to abhor this mess, and they have elected Yanukovych to sort it out. While he is partly responsible for the state of affairs – he twice served as prime minister in the 2000s, and as opposition leader he proposed the disastrous legislation in 2009 that increased social benefits. Yanukovych won the presidential election by promising voters to pay more attention to the daily business of running the government than Yushchenko did. He has also vowed to spend less time on lofty and seemingly unattainable goals like EU membership, which has resonated with the population.

Æ Ukraine is neither turning toward Russia nor the West. It is turning inward and becoming increasingly authoritarian. Spring clean-up Yanukovych devoted the early months of his administration almost entirely to domestic policy. He browbeat lawmakers into ousting Tymoshenko as prime minister and replacing her with Mykola Azarov, one of his longstanding allies. For the first time since the heady days of the Orange Revolution, Ukraine has a president and prime minister of the same party and similar political philosophy, and the government enjoys a large majority in the parliament.

Yanukovych moved quickly to reform the economy. The government increased taxes on gasoline, tobacco and alcohol. It has raised the retirement age for women (male life expectancy is only a little higher than the official retirement age) and promised further gradual increases. Yanukovych has even trodden where the previous Orange government never dared to: it hiked gas prices in order to reduce the country’s budget deficit. Tymoshenko promised the EU to do so in 2009 but did not, fearing voter backlash. In July 2010, the Rada (parliament) also passed a law that would gradually break up Naftogaz, which the EU had been urging Ukraine to do. Even though the break-up remains in the planning stage, the EU has accepted Ukraine into its ‘energy community’. There have been missteps: the proposal for a new tax code won so little support in parliament that the government had to rewrite it. Yanukovych postponed many of the most difficult reforms, such as the introduction of a new pension system and measures to slim down the government, until 2011. There is a risk that they may never come to pass: Ukraine holds regional elections in late October and if voters reject the austerity measures implemented so far, Yanukovych may rethink future ones. In other ways, Yanukovych has disappointed: the new president has shown a worrying authoritarian streak. He has begun suppressing alternative views: journalists at TV stations in Ukraine complain that stories critical of the government are being withdrawn. Two outspoken TV stations have had their allocated frequencies revoked on a technicality. Yanukovych’s Party of Regions forced key legislation – such as the 2010 budget or the deal extending the Russian fleet’s lease – through the parliament without allowing for a debate. The country’s secret police have harassed foreign foundations and universities. The authorities have opened criminal proceedings against seven senior figures from the previous administration, including Tymoshenko. Yanukovych is right to suspect corruption in the highest circles of government. But corrupt figures close to the president appear to enjoy protection. The president seems to be using the anti-corruption drive as cover for a political witch hunt. Even more worryingly, in July, parliament passed a new law on local elections, which effectively prevents the Bloc of Yulia Tymoshenko, Ukraine’s largest opposition entity, from fielding candidates under the BYuT label. And in October the Constitutional Court, which Yanukovych has stacked with allies since coming to power, ruled to change Ukraine’s constitution towards a presidential-style system; this means Æ14

Dmytro Rudkovsky, accountant “Exactly a month ago, I was re-reading War and Peace by Lev Tolstoy … with my nephew. The book is a part of his curriculum. I like to read various books that I come across, random books during journeys, etc. Mostly detective stories, investigations, TV novels." Oksana Yazova, cook “I’ve read a lot of books lately. My last book was “Eat, Pray, Love,” the life story of American journalist Elizabeth Gilbert. I haven’t watched the film yet, but want to. I finally bought the book because I was searching for it in our office for 2 months. I started reading and understood that the story is very similar to my story. I haven’t finished it yet, but I enjoy it.” Yevhen Shpakovsky, retired “Dostoevsky’s ‘Idiot.‘ I was a young boy when I read it first. But while reading it again, a lot reminded me of recent passions, idiocies and the like. Most often I read newspapers, or take Agatha Christie from my wife. I sometimes read Dontsova, Ustinova, Marinina.”

6 Business

www.kyivpost.com

October 22, 2010

Top economist latest to tell Kyiv how to fix economy

Yanukovych opens road connecting Ukraine with Europe

Nouriel Roubini (right), a world-famous economist, speaks with television presenter Andriy Kulykov (left), as Petro Poroshenko, a businessman and head of the national bankâ&#x20AC;&#x2122;s council, looks on at a Kyiv conference on Oct. 19 organized by Investment Capital Ukraine. The American professor of economics, one of the few to warn of the mortgage bubble building up before the financial crisis, told a packed audience that he expected a slow, U-shaped recovery in the world economy. Ukraineâ&#x20AC;&#x2122;s recovery from the crisis, he said, depends on global economic conditions as well as the governmentâ&#x20AC;&#x2122;s economic and financial policies. Roubini recommended that the government reduce the budget to prevent a fiscal crisis, clean up its banks, improve the business climate to attract foreign investment and push through structural reforms to the tax system and public administration. (UNIAN)

Ukrainian President Viktor Yanukovych opens a renovated 200-kilometer stretch of highway from Kyiv to Chop, a town on the border with Hungary, on Oct. 19. The highway is the main route from the capital to the west of the country and which leads into the European Union. The improvements are part of the preparations for the Euro 2012 soccer tournament. The road connects Kyiv with Lviv, the largest city in western Ukraine and a tournament host city, as well as Poland, which will host games. Volodymyr Demyshkan, head of Ukravtodor, the state road service, said 1,000 kilometers of roads would be renovated in 2011. The European Bank of Reconstruction and Development said it expects by the end of the year to agree on a loan of 450 million euros to Ukravtodor to finance the renovation of roads approaching Kyiv. (Andriy Mosienko)

Ă&#x2020;On the move ANNA SHARYKINA has joined the international arbitration practice of Kyiv-based law firm AstapovLawyers as an associate. In her new post, Sharykina will lead the international arbitration and litigation department in Kyiv, the firmâ&#x20AC;&#x2122;s head office. AstapovLawyers also has offices in Odesa and Moscow. Prior to joining AstapovLawyers, Sharykina worked as in-house counsel to the Kharkov State Aircraft Manufacturing Company. She also gained legal experience during an internship at the Ministry of Foreign Affairs. Sharykina holds a masterâ&#x20AC;&#x2122;s with honors in law from Yaroslav the Wise National Law Academy of Ukraine and a Master of Law, specializing in international commercial law, from the University of Hertfordshire in the United Kingdom.

Send On the Move news to gnativ@kyivpost.com, or contact Olga Gnativ at 234-6500. Send business photos and press releases to: news@kyivpost.com, or contact the newsroom at 234-6310.

MICHAEL BEDWELL has

NATALIA BULBUK was

become a teacher at Kyiv-based Key Language School (KLS). Bedwell possesses extensive experience in preparing students to take the Graduate Management Admission Test (GMAT). He holds a masterâ&#x20AC;&#x2122;s in mechanical sciences from the University of Cambridge and a masterâ&#x20AC;&#x2122;s in decision analysis from London Guildhall University. He has also obtained a Teaching English to Students of other Languages Certificate (TESOL) from Trinity College. Bedwell has been a tutor in statistics and management science at the International Christian University and Wisconsin International University in Kyiv. He taught classes at City University in Bratislava and at the Anglo-American College in Prague. He is listed as an occasional teacher with the British Council, the Business English Company, and the European University in Kyiv.

UWE KLENK-ZILLI has

appointed general director of media agency MPG Ukraine, part of the ADV Group Ukraine, an advertising company. Bulbuk is a manager with 10 years of experience leading local and international companiesâ&#x20AC;&#x2122; media communications and advertising campaigns. She began her career in the media in 2001 as a media analyst at Linea 12/McCannErickson. Then she worked purchasing television advertising at ZenithMedia and as media manager and strategic planning director at media agency IPY Ukraine. Bulbukâ&#x20AC;&#x2122;s clients have included Exxon Mobil, Nestle and Kyivstar. Bulbuk graduated from Kyiv National Economic University and Kyiv Technical University in 2001. She also holds a Master of Business Administration from Vienna University of Economics and Business Administration, obtained in 2005.

become chief executive officer in Ukraine for the retail division of Foxtrot Home Appliances. Prior to joining Foxtrot, Klenk-Zilli, an Austrian citizen, led UK&Partners, a global management consulting company. He remains a co-owner of the group. Klenk-Zilli has 25 years of consulting experience, working with retailers and fast-moving consumer goods customers around the globe. He has managed mergers and acquisitions, startups and international expansion, as well as provided support in human resource management. Uweâ&#x20AC;&#x2122;s clients have included Walmart, the global retail giant, food-processing company Zentis International and Daimler Chrysler Austria.

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Business 7

October 22, 2010 Advertisement

Business Sense

Editorâ&#x20AC;&#x2122;s Note: Business Sense is a feature in which experts explain Ukraineâ&#x20AC;&#x2122;s place in the world economy and provide insight into doing business in the country. To contribute, contact chief editor Brian Bonner at bonner@kyivpost.com

WITH DARIO MARCHETTI DARIO.MARCHETTI@DANONE.COM

Helping milk-producing â&#x20AC;&#x2DC;babushkasâ&#x20AC;&#x2122; organize Historically, the majority of milk in Ukraine has been produced by private producers that we endearingly call â&#x20AC;&#x153;babushkas,â&#x20AC;? grannies who own fewer than three cows. These small dairy producers are not only part of the nationâ&#x20AC;&#x2122;s business and economy, they are also an element of Ukraineâ&#x20AC;&#x2122;s culture. If small villages were deprived of their private farms, they might simply disappear. Research shows that more than 80 percent of Ukraineâ&#x20AC;&#x2122;s milk is produced on these private farms by families whose income is among the lowest in Ukraine â&#x20AC;&#x201C; about 60 percent of the income of the average individual worker. Much of Ukraineâ&#x20AC;&#x2122;s milk doesnâ&#x20AC;&#x2122;t meet todayâ&#x20AC;&#x2122;s quality standards because it is being produced and handled using yesteryearâ&#x20AC;&#x2122;s methods. Milking by hand can result in bacterial infection, as can udders that have not been properly sanitized. Milk that has been placed in buckets or cisterns without proper cooling, or that has been transported in unrefrigerated vehicles also carries a high risk of infection. The key to obtaining the quantity and quality of milk that the dairyproducts industry needs in order to develop is through supporting these small agricultural producers as well as big farms. Two strategies need to work in tandem: investing in the development of private producers with two or three cows and in commercial dairies with herds of 4,000 or more cows. Both of these sources â&#x20AC;&#x201C; big and small â&#x20AC;&#x201C; provide us the amount of milk needed and deserve support. It is clear that new kinds of relationships need to be built, reinforced and strengthened by the actions of private companies, state bodies and producers themselves not only in order to develop the industry, but also to help ensure that the private farm way of life remains a part of the Ukrainian culture for generations to come. Organizing cooperatives for small private producers can benefit the producers themselves and the industry as a whole. Danone, for example, has embarked on an initiative that aims to unite more than 1,000 private farmers in five regions by establishing 20 nonprofit agricultural service cooperatives. Each will involve more than 50 fami-

A farmer milks a cow in Kharkiv Oblast. (UNIAN)

lies, and will receive institutional support and equipment, including large refrigerator baths, and milk quality analyzers. Modern milking units provided to 250 families will enable them to make milking quicker, easier and provide higher-quality milk. Training in animal care, organic agriculture and the fundamentals of business planning will help to further improve quality and quantity on the producersâ&#x20AC;&#x2122; side in the future, which is good for everyone. The project, which costs more than 1 million euros, is implemented in cooperation with Heifer Project International, a charitable foundation and assistance from regional governments. There are two major risks to projects such as this one. The first risk is peopleâ&#x20AC;&#x2122;s mentality in the beginning. Imagine asking for a business plan or even asking that an individual invest in buying iodine so that utters can be disinfected producing higher quality milk and hence fetching a higher price. This requires

continual and constant conversation. But time and experience can convince producers that this is the right path. The second risk is government policy. Today through value-added tax the government indirectly helps such individuals through a small subsidy. The new tax code as well as government policy states that this will disappear from Jan. 1 next year. This would be a great pity for Ukraine. The government needs to play its part. The situation for babushkas and their small farms has been very difficult. In Russia they use the term â&#x20AC;&#x153;the lost generationâ&#x20AC;? for this layer of society. Improving their lot is a great challenge for our society, and can only be achieved by coordinated efforts from businesses, the government and producers themselves. If all those ingredients come together, itâ&#x20AC;&#x2122;s a win-win for everyone. Dario Marchetti is chief executive officer of Danone Ukraine. He can be reached at dario.marchetti@danone.com.

In case you missed them, read the last five Business Sense columns by experts online at kyivpost.com Oct. 1 with Leonid Antonenko and Nikolai Sorochinskiy, senior associate and an associate with Asters: â&#x20AC;&#x153;Judicial overhaul: Good news for investors or not?â&#x20AC;?

Oct. 15 with Nataliya Mykolska, senior associate at Kyivbased law firm Vasil Kisil and Partners: â&#x20AC;&#x153;Businesses should be more proactive to benefit from WTOâ&#x20AC;?

Oct. 8 with Michael Willard, chairman of Willard, a public relations and advertising company: â&#x20AC;&#x153;Paying for news only feeds corruptionâ&#x20AC;?

Sept. 17 with Natalia Pakhomovska, senior associate at the Kyiv office of DLA Piper: â&#x20AC;&#x153;Revised permit law could help business, but needs more workâ&#x20AC;?

Sept. 10 with Volodymyr Vorobey, partner at CSR Ukraine Community: â&#x20AC;&#x153;Companies catching on to corporate responsibilityâ&#x20AC;?

#64*/&44"%7*4&3 NEW LAWS PUT A SPOTLIGHT ON TAX COMPLIANCE IN PERSONNEL MATTERS What recent changes in tax laws are of particular importance for employers? 2010 so far saw a number of changes in taxation which will have profound effect on employment relations in the country. The Law of 16 June 2010 authorized the tax authorities to ARMEN audit compliance not only with tax but also with employment KHACHATURYAN laws. The Single Social Insurance Contribution Law of 8 July senior partner, Asters 2010 envisages a simplified, although not necessarily less fiscally burdensome, system of administering payroll-related contribution to the mandatory social insurance funds. The Law Introducing Amendments to State Budget and Pension Insurance Contributions, which was also adopted on 8 July 2010, definitively required the payers of the single tax to also make contributions to the Pension Fund. Finally, the draft Tax Code, which is likely to take effect on 1 January 2011, would also seriously limit the use of the simplified single tax system in many key sectors. Employee taxation and payroll taxes are one of the most dynamic areas of tax law today. The consequences of these changes will be quite negative for many employers, not least those who use private entrepreneurs in their tax planning strategies. Even those employers which do not engage in various efforts at payroll tax optimization may face heightened scrutiny of their employment policies from the tax authorities. What causes these changes? It is quite clear that the serious deficit of the Pension Fund and the growing inability of the government to fund the countryâ&#x20AC;&#x2122;s pension and other social security commitments are behind these changes. The fact that such fundamental factors drive these changes means that these changes are here to stay. They will not be easily undone and businesses should prepare themselves for the governmentâ&#x20AC;&#x2122;s likely effort to vigorously enforce the new, tougher, laws. Will employment matters be subject to heightened tax scrutiny under new laws? Yes, this risk is quite clear. The 16 June 2010 Law on Amendments to Certain Legislative Acts authorized tax inspectorates to audit employers' compliance with employment laws, the competence previously exercised almost exclusively by the special inspectorate of the Ministry of Labour. Now a more efficient tax service is authorized and encouraged by the new amendments to thoroughly look into employment matters. This new function of the tax administration is further reinforced by the new powers granted to the tax police to conduct unannounced inspections of the premises and documents of the employer if "information that the particular employer is engaged in tax evasion becomes available to the authorities". Authorities are not required to disclose the source of such information and to notify the employer about the date of the audit. What business practices are at risk? The Law of 16 June 2010 points at a specific situation in which these extraordinary powers can be used, which is tax avoidance resulting from employers' failure to enter into a formal employment agreement with the employee. Apparently the new law targets those employers who receive services from individuals without formally hiring them as employees. These norms can have an impact not only on those employers who fail to have any record of employment but also those who classify individuals working for them as civil law contractors rather than as hired employees under labour law. Currently many employers use the labor of individuals registered as private entrepreneurs and thus benefiting from the simplified tax system that used to allow employers to cap their tax burden at UAH 200 of a monthly payment per each such quasi-employee. Now, such individuals would not only have to pay a mandatory contribution to the Pension Fund under the Law of 8 July 2010 (and, from the 1 January 2011, continue to pay the new single social insurance contribution) but may also be subject to greater scrutiny by tax authorities as to whether they are genuine independent contractors as opposed to employees. In the past many individuals registered as private entrepreneurs and paying the single tax used to be treated as employees for all practical purposes: they were subject to the fixed workday requirements, were entitled to regular annual leaves, and received a fixed monthly fee rather than fee depended on the quantity and quality of services performed. Because of these similarities with hired employees, the tax authorities may now take the view that such private entrepreneurs are in fact hired employees without a formal employment agreement rather than independent contractors under civil law and assess additional payroll taxes. Add to this the elimination of the single tax system in many sectors under the draft Tax Code and it becomes clear that the tried and true practice of tax optimization through private entrepreneurs is coming under intense pressure. What to expect from the new Tax Code for self-employed individuals paying single tax? Besides raising the single tax itself and besides adding the requirement to pay the single social insurance contribution on top and in addition to the single tax, the new Tax Code is likely to eliminate the simplified single tax system for private entrepreneurs in many sectors. Under the draft Tax Code approved by the Parliament in first reading in October 2010 the single tax system would not apply to many business sectors, including, to name just a few important examples: t SFBM FTUBUF USBOTBDUJPOT t XIPMFTBMF PQFSBUJPOT t JOUFSOBUJPOBM USBEF DSPTT CPSEFS PQFSBUJPOT FYDFQU GPS TPGUXBSF EFWFMPQNFOU BOE TPNF *5 TFSWJDFT t QSJWBUF TFDVSJUZ t BEWFSUJTJOH t TUBGG SFDSVJUNFOU TFSWJDFT t SFUBJM TBMFT PG TFDPOE IBOE HPPET t SFUBJM TBMFT PO UIF XFC t SFUBJM TBMFT UISPVHI WFOEJOH NBDIJOFT t MFHBM TFSWJDFT BVEJU BDDPVOUJOH TFSWJDFT NBOBHFNFOU DPOTVMUJOH How can employers adapt to these changes? Given these major changes, all employers will have to look closely at their personnel policies to check whether they comply with tax laws. The new laws have the potential to dramatically change the level of attention which employment law issues receive and deserve to receive from employers and their legal advisers.

ASTERS Leonardo Business Center, 19-21 Bohdana Khmelnytskogo Str., Kyiv, 01030 Ń&#x201A;el. + 380 44 230 6000, fax + 380 44 230 6001 info@asterslaw.com, www.asterslaw.com

8 News Potential Ukrainian environmental disasters in waiting Name

Description

Mykolayiv Alumina Plant

Twenty million cubic meters of aluminum byproduct is being stored and should an accident happen, it could end up in the Black Sea via the Buh River.

Zaporizhya Aluminum Plant

Has 5-6 million cubic meters of waste in a frozen sludge depository. A pipeline that pumps sludge burst in 2008 flooding four city streets. The plant is near the Dnipro River, Ukraine’s largest.

Stebnytsky Potassium Plant

The potassium salt plant isn’t in operation because of an environmental disaster in 1983 when a dam burst at the reservoir emitting more than 5 million cubic meters of salt solution into the Dnister River, Ukraine’s second largest.

Kalush Potassium Salt Mine

Potassium salt and mineral fertilizer production factory has three mines, located in the vicinity of Kalush, a mine pit, two tailings dams and a mining waste dump, all of which negatively impacts the environment and which are hazardous facilities.

Sites with tailing ponds containing industrial or hazardous waste Located in Kalush, Ivano-Frankivsk Oblast, this giant 40-year-old potassium salt mining and mineral fertilizer factory has posed a serious environmental trans-boundary danger to the region as it may cause the subsidence of ground, sinkholes, landslides, water and ground contamination. Kyiv finally shut down the salt mine in 2001 and has started removing 11,000 tons of a hazardous chemical from the factory’s waste dump this year. One thousand three hundred houses in five villages are immediately threatened by the open mine fields. (Ukrinform)

Environmental disasters may strike Ukraine Æ1 oblast,” said Dmytro Skrylnikov of the Bureau of Environmental Investigation, a Lviv-based nongovernmental organization. The Hungarian disaster erupted on Oct. 4 when 757 million liters of sludge burst through a crack in the wall of a 10-hectare storage reservoir at an aluminum plant 160 kilometers southwest of Hungary’s capital of Budapest. This is the same amount of crude oil that spilled into the Gulf of Mexico during the British Petroleum crisis that lasted four months until it was capped on July 15. The caustic mass – an aluminum production by-product – in Hungary has coated 50 square kilometers in red slurry wiping out fish, microorganisms and wildlife along its path, and also destroying 300 homes and properties. Crop production for human con-

sumption will not be seen for quite a while. The spill, described by officials as a man-made accident triggered by negligence, is now considered Hungary’s worst-ever environmental disaster. But experts say the challenges facing Hungary with this accident are miniscule compared to the scale, risks and aftermath Ukraine would face in dozens of potential environmental tragedies.

Toxic dumping ground The accident is a wake-up call about the region’s legacy of crumbling Sovietera heavy industry. In Ukraine’s case, it’s also a reminder about the nation having been the toxic dumping ground of the Soviet Union. Though Ukraine’s surface area made up 3 percent of the total area of the former Soviet Union, it possessed 25

Potential radioactive hotspots in Ukraine Name of site

Description

Pripyat River flood plain within the Chornobyl Exclusion Zone

The hottest spot in the Chornobyl-affected area along the Pripyat River is the contaminated flood plain upstream from the Chornobyl nuclear power plant that exploded in 1986.

Chornobyl cooling pond

Covering an area of 23 square kilometers, a potential breach of the pond as a result of erosion could send the contaminated water into the Pripyat River.

Chornobyl shelter in the event of its collapse

Built hastily in 1986 to prevent further escape of radioactivity, it is not considered acceptable as a permanent solution to the problem of containing the residual fuel.

Chornobyl Exclusion Zone Radionuclide concentration in some water bodies exceeds the maximum permissible levels. Closed lakes and ponds outside the CEZ

202 bodies of water in Kyiv, Zhytomyr, Rivne and Volyn Oblasts have elevated levels of contamination.

Sites in Ukraine where uranium was processed

Estimates of waste generated from these activities vary because of the mixing of radioactive and non-radioactive waste.

Radioactive waste storage/disposal facilities.

Rivne nuclear power plant, Khmenytsky nuclear power plant, Zaporizhya nuclear power plant, South Ukraine nuclear power plant; Prydniprovsky chemical plant at Dniprodzerzhinsk shut down in 1991 and the hydrometallurgical plant at Zhovti Vody.

Source: International Atomic Energy Agency 2006 Report “Radiological Conditions in the Dnipro River Basin”

percent of its industrial potential and, therefore, a quarter of its industrial pollution, according to the Environment and Security Initiative, a joint effort of international organizations. Under the Soviet system, the economy of Ukraine used 1.3-1.5 billion tons of raw materials every year. Most of which returned into the environment as waste. By 1991, 17 billion tons of waste had accumulated in Ukraine on a surface area of 53,000 hectares, according to the Environment and Security Initiative. A study conducted by the World Health Organization released in 2007 rated Ukraine 47 out of 53 European countries in the number of deaths caused by environmental factors – 155,000 deaths per year. Ukraine placed ahead of Belarus and Russia in the study, the latter having placed last. According to the environmental protection ministry, more than 2.6 billion tons of hazardous waste was present in Ukraine in 2009. Approximately 35 billion tons of accumulated waste occupies 165,000 hectares of land. The majority of hazardous waste is located in three oblasts: Donetsk, Dnipropetrovsk and Zaporizhya all of which have behemoth, Soviet-era heavy industrial plants and factories. As of Jan. 1, there was approximately 20,500 tons of pesticides requiring disposal. The environmental ministry said this was an approximate figure since there could be other unknown pesticide storage sites. By comparison, Hungary generated a little over 1 million tons of hazardous waste in 2007, whereas Ukraine generated more than 2.5 million tons of hazardous waste. Skrylnikov from the Bureau of Environmental Investigation warned that significant dangers exist across the country. “This is because proper control isn’t exercised over the outer parts of reservoirs and equipment, negligence in assessing the impact of new Æ9

Name

Waste, byproducts

Ilyich Iron and Steel Works of Mariupol

Salts, organic matter

Zaporizhstal and Zaporizhya Coke Plant

Share a joint tailing pond located in the Kapustyany Gorge that seven other companies use (Dniprospetstal, Zaporizhya Titanium-Magnesium Plant, Zaporizhya Aluminum Making Plant, Kremniypolimer, and others).

Seven tailing ponds containing industrial and radioactive waste in an area of 2.43 million square Prydniprovsky Chemical meters. All seven of the ponds are considered to Plant (Dniprodzerzhynsk) be in unsatisfactory condition based on safety standards and Ukrainian legislation. Lviv Experimental Lubricant Factory

Acidic sludge has been seeping into local water reservoirs for 30 years just 10 kilometers outside Lviv.

Azovstal

Salts, organic matter

Lenin Donetsk Metallurgical Plant

Residual tailing and by-products.

Petrovsky Dnipro Metallurgical Plant