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October 10, 2006

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Reference ID Created Released Classification Origin
06KIEV3905 2006-10-10 16:11 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

DE RUEHKV #3905/01 2831611
P 101611Z OCT 06

C O N F I D E N T I A L SECTION 01 OF 03 KIEV 003905 
E.O. 12958: DECL: 10/10/2016 
REF: A. KIEV 3873 
     B. KIEV 3862 
Classified By: Ambassador for reasons 1.4 (b,d). 
1. (C) Summary: Prime Minister Viktor Yanukovych assured EUR 
DAS Kramer and Ambassador October 4 that he would continue to 
make progress on WTO membership and European and 
Euro-Atlantic integration.  Funding for a NATO information 
campaign was part of the 2007 draft budget.  With the support 
of the pro-presidential Our Ukraine bloc and the opposition 
Bloc Yuliya Tymoshenko (BYuT), Yanukovych was confident of 
securing passage of WTO-related legislation before year's 
end, although he also recognized that unforeseen problems 
could also arise.  The Vanco production sharing agreement was 
under discussion and should also be finalized by year's end. 
Yanukovych said he was working to improve the financial 
viability of the Odesa-Brody pipeline and moving toward 
market pricing of natural gas in a way that would minimize 
economic shocks.  Yanukovych listened to Kramer's points on 
Transnistria, but did not respond beyond nodding agreement 
with Kramer that the policy would not change, and urged 
Washington to schedule his visit in November, rather than 
December.  End summary. 
Being a "Predictable Partner" 
2. (U) EUR DAS David Kramer and the Ambassador met with Prime 
Minister Viktor Yanukovych October 4 in a 2 1/2-hour meeting 
that was supposed to be just one hour.  PM Foreign Policy 
Adviser Anatoliy Orel, MFA DFM Andriy Veselovsky, and PM 
Chief of Staff Serhiy Lovochkin also joined the meeting. 
This report covers Yanukovych's comments on economic and 
bilateral issues; reftel reported his comments on domestic 
3. (U) After a lengthy initial presentation, PM Yanukovych 
wrapped up by stressing that he wished to be a predictable 
partner who was known for always telling the truth.  He was 
anxious to settle political uncertainties so that he could 
move Ukraine in a direction that included positive efforts to 
combat corruption, which he called a serious disease, and 
continue to make progress on WTO membership and European and 
Euro-Atlantic integration.  He hoped that, by the time of his 
visit to the U.S., the coalition building process would have 
been forgotten and he could engage his U.S. interlocutors on 
a broad range of topics. 
NATO Information Campaign 
4. (SBU) Kramer congratulated Yanukovych for the peaceful and 
democratic process that resulted in his selection as prime 
minister.  The Ukrainian government's unity in implementing 
policy was in the interest not just of Ukraine but also 
Ukraine's partners, including the U.S., the EU, and Russia. 
The U.S. had no business making recommendations on forming a 
coalition or running a government, but it did want to help on 
a number of issues.  Kramer said he was particularly 
interested in an update on the Ukrainian government's NATO 
information campaign and plans to pass WTO-related 
5. (U) Yanukovych said, when he had discussed the next annual 
budget with the Minister of Finance, he had requested that 
funding for a NATO information campaign be included.  This 
funding was now part of the 2007 budget.  (Note:  The current 
2006 budget already included funding for MFA to carry out a 
NATO information campaign.  Yanukovych did not say whether 
the next year's funding represented an increase or funded 
broader participation by other ministries and agencies.) 
WTO-related Legislation 
6. (SBU) On WTO-related legislation, Yanukovych continued, 
Minister of Economy Volodymyr Makukha was responsible for 
carrying out the government's plan for reviewing the relevant 
bills.  The draft bills were being reviewed prior to being 
submitted to the Rada.  In parallel with this review, the 
government was preparing measures to protect the Ukrainian 
market and domestic manufacturers from the negative impacts 
of WTO membership and identifying the most vulnerable sectors 
and products.  Yanukovych did not foresee a problem getting 
KIEV 00003905  002 OF 003 
the bills passed.  Since Our Ukraine and BYuT supported WTO 
membership, Party of Regions could get the bills enacted even 
without the votes of coalition partners Socialist and 
Communist Parties.  In response to Kramer's question, 
Yanukovych said he was "99 percent" certain that the 
legislation would be passed by the end of 2006, although he 
noted unforeseen problems could also arise. 
Energy - Vanco 
6. (SBU) Responding to Kramer's question on the status of 
U.S. oil-and-gas company Vanco's Kerch Block production 
sharing agreement (PSA), Yanukovych said the Ministry of Fuel 
and Energy had provided a written commitment and awarded 
exploration rights to the company.  The draft PSA was being 
reviewed and should be finalized by December. 
Energy - Caspian Oil 
7. (C) Kramer noted that, during their meeting in July, 
Yanukovych had stated the three elements undergirding his 
approach on energy issues -- diversification, transparency, 
and elimination of middlemen.  Was this still Yanukovych's 
approach?  Yanukovych replied in the affirmative, but then 
focused his remarks on diversification, thus sidestepping 
issues of transparency and the status of middlemen like 
8. (C) Yanukovych said he had discussed the option of 
reversing the flow of the Odesa-Brody pipeline with Polish 
officials at the September 6-8 Economic Forum in Krynica, 
Poland, since there had been almost no progress in developing 
a Polish market for the pipeline.  He had agreed with Polish 
Prime Minister Jaroslaw Kacynski to form a working group on 
the issue. 
9. (C) Yanukovych said Ukraine and Poland planned to meet 
with counterparts from Azerbaijan and Kazakhstan to consider 
various options to fully utilize Odesa-Brody.  If the working 
group succeeded in bringing together crude oil producers with 
oil refineries in Poland, this could stimulate further 
progress on the oil pipeline and potentially bring an 
additional 7 million tons of Caspian oil to Europe. 
Yanukovych said Russian companies were interested in 
participating.  An analysis of a combination of Caspian and 
Russian oil had established that both could be used together 
in Polish refineries.  This was essential, since Caspian 
producers alone could not provide sufficient volumes.  The 
Russian Minister of Energy and Russian oil company Transnafta 
were interested in the project.  If shipment of this volume 
of oil to Poland could be realized, then extension of 
Odesa-Brody to Plock and onward to Gdansk would be feasible. 
(Yanukovych also referred to the possibility that light 
Caspian crude could be shipped to the Polish PKN Orlen 
refinery in Kralupy, Czech Republic.) 
10. (C) Yanukovych said Ukraine was also considering a North 
Sea export option that appeared attractive and could involve 
a U.S. company working in partnership with a German one.  The 
German port of Wilhelmshaven, Yanukovych said, had water deep 
enough to locate a large terminal from which oil could be 
shipped to the U.S. 
Energy - Natural Gas 
11. (C) Yanukovych said the Ukrainian government was working 
on obtaining natural gas supplies from Kazakhstan and Russia. 
 Ukrainian companies were interested in investing in the 
exploration and development of natural gas fields with 
Russian partners and with Russian GazProm. 
12. (U) Yanukovych said whether Ukraine is able to survive a 
natural gas price of $135 per thousand cubic meters would 
depend largely on Ukraine.  Ukraine had to reach market 
prices for gas in a short period of time, but, to do so, it 
had to eliminate government subsidies while simultaneously 
implementing energy conservation measures and protecting 
low-income families.  The government was working to install 
energy efficient systems and technologies in factories and 
homes.  Increases in gas prices would also force greater 
economies in gas usage.  Another tactic would be to 
substitute the use of coal for natural gas in electricity 
KIEV 00003905  003 OF 003 
production.  This could allow for lower electricity tariffs, 
since the price of coal was three times lower than for 
natural gas. 
13. (U) As the meeting drew to a close, Kramer said he wanted 
to raise two final issues -- Transnistria and the timing of 
Yanukovych's visit to Washington.  He said he hoped Ukraine 
would remain committed to its customs agreement with Moldova 
and its support for the EU Border Assistance Mission.  The 
U.S. strongly supports Ukraine's actions, which was the right 
approach for Ukraine in both areas.  Yanukovych nodded, but 
offered no comment. 
Washington Visit 
14. (C) Kramer continued that the Secretary had recently said 
she wanted Yanukovych to visit Washington sooner rather than 
later.  As a practical matter, however, the visit could not 
happen before the U.S. Congressional elections in November. 
While Washington wanted the visit to take place before the 
end of the year, December looked to be more of a possibility 
than November.  Yanukovych responded that, while he would 
accept any timing, he would prefer that a visit take place 
sometime in the last ten days of November.  December was 
always a busy time, with finalizing the government budget and 
the government plan of action.  He would also probably be 
busy shepherding WTO-related legislation through parliament. 
15. (U) Visit Embassy Kiev's classified website: 




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