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September 8, 2006

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Reference ID Created Released Classification Origin
06KIEV3463 2006-09-08 15:37 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv
DE RUEHKV #3463/01 2511537
P 081537Z SEP 06


C O N F I D E N T I A L SECTION 01 OF 03 KIEV 003463 



E.O. 12958: DECL: 09/08/2016 

Classified By: Ambassador, reason 1.4 (b,d) 

1. (C) Summary:  Assistant Secretary Fried highlighted USG 
willingness to work with PM Yanukovych's government and our 
belief that Ukraine needed to move at a speed it sets towards 
NATO membership.  Fried also stressed the importance of 
Ukraine developing as an open, democratic, prosperous 
society.  He urged that Ukraine not feel the need to choose 
between Russia and the West in its foreign policy. 
Yanukovych expressed appreciation for Fried's approach and 
raised possible joint defense manufacturing projects as a 
vehicle to build support in Ukraine for NATO.  The PM also 
described Ukraine's ideas to reinvigorate the Odesa-Brody 
pipeline, which he discussed with Polish PM Kaczynski during 
his September 6 visit to Warsaw, and also the state of play 
in gas talks with Russia and Turkmenistan.  He touted plans 
for Ukraine to invest in gas fields in Kazakhstan and in the 
Astrakhan region of Russia as a way to meet gas needs. 
Yanukovych argued that his government's reinvigoration of 
bilateral commissions with Russia was removing festering 
problems in the relationship.  The PM professed to support 
completing WTO accession soon, with the proviso that 
Ukrainian manufacturers' interests needed to be considered. 
He said he would be interested in a visit to Washington after 
our elections.  In a separate conversation, ultimate insider 
journalist Yuliya Mostova gave hints on dealing with 
Yanukovych and on his psychological make-up.  End Summary. 

2. (C) A/S Fried and the Ambassador's September 7 meeting 
with Prime Minister Viktor Yanukovych went for almost two 
hours.  (Note: Although Yanukovych started with a lengthy 
monologue (a summary in para 8) on some key economic and 
foreign policy issues where he seemed nervous and a bit 
defensive, he seemed to warm up and relax considerably once 
A/S Fried made his points on NATO.) 


3. (C) A/S Fried congratulated Yanukovych, passed Secretary 
Rice's greetings, and noted the U.S. wanted to work together 
with his government as a friend and partner.  On Russia, he 
noted we expect that Ukraine will have close ties with Russia 
as long as Ukrainian sovereignty was respected; there was no 
reason Ukraine should feel it needed to choose between good 
relations with Russia or good relations with the U.S. and 


4. (C) A/S Fried stressed that the U.S. did not want to force 
Ukraine into NATO.  We understood there was not yet a 
consensus in Ukrainian society on NATO membership, and the 
U.S. wanted Ukraine to go as far as they wanted to go with 
NATO membership and at the pace with which they were 
comfortable.  He hoped Yanukovych would not feel under 
pressure to announce Ukraine's ambitions for fast track NATO 
membership during his September 14 visit to Brussels and told 
the PM that if he presented Ukraine's perspective on how it 
wanted to cooperate with NATO, then that would be well 
received.  It would be better, Fried said, to develop 
relations with NATO and NATO countries, and let the consensus 
in Ukraine develop naturally for membership.  His view was it 
would be better if Ukraine entered more slowly but based on a 
solid national consensus, rather than quickly but divisively. 

5. (C) Yanukovych expressed his thanks for these comments and 
attributed the drop in public approval for NATO membership in 
Ukraine to a sense that membership was being accelerated 
because the GOU was under pressure to join.  Fried reiterated 
Ukraine should join when it wanted to, but should not feel 
pressure - NATO was not the Warsaw Pact.  In the meantime, 
Fried said, Ukraine had an important foreign policy role to 
play:  working with Georgia, Azerbaijan and Moldova was 
useful while trying to improve relations with Russia.  The 
U.S., he stressed, did not want to place Ukraine in a 
difficult position. 


6. (C) Fried continued that the key was for Ukraine to 
develop into a sovereign, prosperous, democratic, open 
society.  If this happened, he felt, many of the other 
problems like NATO or foreign policy orientation would take 
care of themselves.  Domestic success in bringing this 
transformation was critical - a Ukraine that was open, 
eliminated corruption, and rationalized its energy use would 
be attractive to investors.  Fried noted that Ukraine had 

KIEV 00003463  002 OF 003 

lost a major investment by Dell Computer to Poland within the 
past year.  When Yanukovych eagerly asked if we could bring 
Dell back to Ukraine, Fried rejoined it was too late for 
that, but promised that the Ambassador would bring the next 
investor to the PM. 


7. (C) Yanukovych said he hoped to visit Washington soon, but 
understood it would be easier after our elections.  Fried 
responded he looked forward to seeing the PM in Washington, 
and would report back to the Secretary on his mission, as 
well as to the Vice President and his staff, who were good 
friends of Ukraine.  Yanukovych invited Fried to return and 
meet more of the government. 


8. (C)  Yanukovych made a number of other points in his 
lengthy monologue, which he stated represented only the 
highest priority issues: 

-- Yanukovych suggested that cooperation with NATO on 
concrete manufacturing projects would be an excellent way to 
build political arguments for NATO with the Ukrainian 
population.  He mentioned both the AN-70 transport aircraft 
and a possible jointly-produced armored personnel carrier as 
possible projects.  Yanukovych had raised the AN-70 with 
Polish PM Kaczynski, and felt the project would have strong 
commercial viability. 

-- Yanukovych had extensive discussions with PM Kaczynski on 
the Odesa-Brody-Plock pipeline proposal.  The Ukrainians are 
interesting in setting up an interim supply agreement with 
the refinery at Kralupy for 7 million tons/year that they 
hope will give the Poles confidence to go forward with the 
Plock extension and also motivate Kazakhstan and Azerbaijan 
to join the project. 

-- Yanukovych noted that gas negotiations with Russia 
continued.  He stated the Russians had agreed the GOU would 
sign all agreements with Gazprom alone and that Gazprom would 
be responsible for supplying the balance of gas to Ukraine. 
Prices would not go up this year, but probably would be a 
"slight' increase in 2007, "according to world prices." 

-- The PM said the climate for gas negotiations with 
Turkmenistan had improved now that Ukraine was clearing up 
its debts. 

-- Ukraine was looking at gas production projects in 
Kazakhstan and near Astrakhan in Russia, which could add 
substantial volumes (c. 30 bcm) to Ukraine.  He said the 
Russians were interested in the Astrakhan project, which 
included a new pipeline.  Ukraine would increase the capacity 
of its gas transit pipelines. 

-- Ukraine and Russia had reinvigorated their structure of 
bilateral commissions, and Yanukovych felt this could resolve 
some festering problems.  He predicted the Russian bans on 
dairy and meat products from Ukraine would be resolved by 
year's end.  Talks were also underway to resolve the 
bilateral meat dispute with Poland. 

-- On WTO, he reiterated the hope to have the accession 
completed by the end of the year, but cautioned they might 
have to take into account the interests of Ukrainian 
manufacturers.  He said the GOU would like to discuss these 
problems separately with the USG and added we were the only 
country that could resolve this - the problem centered on 
some commitments for zero rates. 

-- Yanukovych several times highlighted that his government 
is seeking advice on economic reforms from well-known 
consultants McKinsey and Company. 

-- On politics, he claimed that he had good working relations 
with President Yushchenko.  However, he noted the Cabinet of 
Ministers no longer felt obligated to respond to instructions 
from the Presidential Secretariat. 

-- Yanukovych also raised hardy perennial issues like the 
lack of contracts for Ukrainian companies in Iraqi 
reconstruction and the unresolved issue of solid rocket fuel 
elimination.  On the former, Fried suggested that the GOU 
look at participating in the Compact for Iraq. 


KIEV 00003463  003 OF 003 

9. (C) Note: Yuliya Mostova, Ukraine's leading journalist and 
political commentator for the last decade, offered her 
suggestions before A/S Fried's meeting on how best to engage 
Yanukovych: don't corner him or shun him like a second class 
leader, as happened with Kuchma after 2000. Yanukovych craved 
respect and options for positive engagement; treat him 
seriously, but make clear he had to deliver on serious 
commitments.  Yanukovych generally ascribed to the gangster 
rule of keeping his word; while his word was not 
automatically a guarantee, it would not be an empty promise, 
and he usually delivered. 

10. (C) Talk about values would get nowhere for someone 
without a strategy or principles; Yanukovych would respond 
best to tangibles, not for himself, but what Ukraine would 
get out of a certain situation, decision, or action, which he 
could then use when engaging his more skeptical party members 
and support base.  Of all the Regions' figures moving back 
into power, business/profit motives were secondary rather 
than primary for Yanukovych; he was more focused on politics 
and policy. 


11. (C) Mostova added that Yanukovych benefited from a shrewd 
animal-like intuition which led him to try to win over 
skeptical interlocutors by sharing frank stories from his 
deprived childhood and criminal past, creating a type of 
Stockholm syndrome psychological dynamic: how he, growing up 
poor without a father, had to steal food and other items to 
survive; how, when he was in prison, he and fellow inmates 
placed a troublesome convict in a wardrobe and tossed him out 
a second story window; how he, after surviving an 
assassination attempt which killed his driver and bodyguard 
and left him shot in the shoulder, tracked down the father of 
a girl who had been raped earlier by the pair who had ordered 
the shooting, gave the father a machine gun, after which the 
latter killed the two brothers and turned himself into the 
police.  Mostova said Yanukovych reminded her of former PM 
Lazarenko: both could sing a song one moment and knife 
someone the next, though Yanukovych was more straightforward 
and less devious than Lazarenko (note: convicted of money 
laundering in the U.S. and just sentenced to nine years in 

12. (U) A/S Fried has cleared this cable. 

13. (U) Visit Embassy Kiev's classified website at: 





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