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January 11, 2008

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Reference ID Created Released Classification Origin
08KYIV34 2008-01-11 12:06 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

DE RUEHKV #0034/01 0111206
P 111206Z JAN 08

C O N F I D E N T I A L SECTION 01 OF 04 KYIV 000034 
E.O. 12958: DECL: 01/11/2017 
REF: A. KYIV 03058 
     B. KYIV 3071 
     C. KYIV 03154 
Classified By: Ambassador for reasons 1.4(b,d). 
1. (C)  Summary.  At a time when most of Kyiv slows down for 
the holidays, Prime Minister Tymoshenko has pushed full-steam 
ahead in her first month in office to get Ukraine's financial 
house in order, fulfill key election promises, and get her 
team on the ground and working.  Tymoshenko was confirmed by 
the Rada December 18, and got a budget pushed through its 
final reading within 10 days.  She has moved quickly to 
finish drafting her government program, fill key positions in 
the executive branch, investigate problems in the gas and 
coal sectors, and make progress on her pledge to repay lost 
savings from the Soviet Sberbank.  In contrast to her 
previous tenure in the PM's office, she has been more 
cautious and conciliatory toward President Yushchenko, 
probably in recognition of the thin three-vote majority she 
controls.  In addition, she has made smart tactical moves to 
cooperate with the Lytvyn Bloc and the Communists to get the 
budget done, and reached out to Yanukovych in a bid to get 
Regions to be a constructive opposition. 
2. (C) Comment. It is too early to comment on the quality of 
Tymoshenko's policies, but she is wasting no time in trying 
to be seen as effective.  As she told the Ambassador on 
December 20, the presidential campaign will begin in six 
months.  Given this timeframe, it is to her benefit to move 
quickly and to try to keep the peace with Yushchenko and 
Yanukovych.  End summary and comment. 
Budget Is First Victory 
3. (C) On December 20, Tymoshenko told the Ambassador that 
she would have a budget to the Rada within 2 working days. 
The budget was then worked through the committee, with 
negotiations ongoing between Rada and Cabinet, and put up for 
a vote on December 28 -- the last working day before the end 
of the year deadline of December 31 -- where it passed with 
235 votes.  Tymoshenko demonstrated her political pragmatism 
in cutting a deal with the Lytvyn Bloc, which chairs the 
Budget Committee, to allow language continuing the land 
moratorium until other needed legislation is passed on the 
land market and on a land registrar.  Lytvyn had asked for a 
2-year extension of the moratorium, but Tymoshenko's 
compromise in effect keeps the moratorium in place, which is 
what he wanted.  She also made an agreement that this was an 
interim budget, which will be amended in the next Rada 
session, which is probably what avoided most of the fighting 
over budget allocations and got her eight Communist votes. 
Getting Down to Work 
4. (C) Tymoshenko has wasted no time in pursuing key goals, 
focusing especially on righting social issues and uncovering 
corruption.  Tymoshenko and Yushchenko both have moved 
quickly to order an audit of state gas and oil company 
NaftoHaz Ukrainy, reportedly revealing an enterprise on the 
verge of bankruptcy (ref A).  She obtained Rada approval for 
a guarantee to cover NaftoHaz's debts with $2.4 billion in 
budget money if necessary, a move demanded by NaftoHaz's 
Eurobond creditors.  In the press, Tymoshenko has described 
NaftoHaz's current financial crisis as a mechanism for other 
interested parties to potentially gain control of Ukraine's 
valuable gas transit system.  Newly-appointed NaftoHaz CEO 
Oleh Dubyna stated the company had lost $1 billion in 2007. 
5. (C) Tymoshenko has also moved quickly in response to the 
November tragedy at Zasyadko coal mine that left over 100 
miners dead (ref B).  Tymoshenko has said that the current 
lease of the mine to Regions MP Yukhim Zvyahilskiy should be 
canceled, and that mine management should provide additional 
compensation to families of the deceased and injured. 
Tymoshenko has also demanded that, within a week, the wage 
system at Zasyadko be changed so that miners are paid by the 
hour rather than by the amount of coal mined.  (Note: Labor 
safety experts believe that the current system promotes 
unsafe work conditions, as miners are given an incentive to 
ignore safety rules.  End Note.)  Tymoshenko said her 
government would then introduce legislation to extend this 
reform, if proven successful, to all Ukrainian coal mines. 
Tymoshenko also announced her government would audit the coal 
mining sector, which she accused of rampant money-laundering. 
 (Note.  Incidentally, this also gives her an opportunity to 
investigate other members of Regions, including Rinat 
Akhmetov, who control the coal industry.  End Note.)  In a 
similar vein, Tymoshenko ordered the Justice Ministry to 
KYIV 00000034  002 OF 004 
review all CabMin resolutions issued by the Yanukovych 
government to check for corruption. 
6. (C) Although many thought Tymoshenko's promise to repay 
all lost savings in the Soviet-era Sberbank, which 
collapsed in 1992, was impractical,
 she has moved resolutely 
to implement the restitution.  (Note:  Ukrainians' accounts 
at Sberbank were effectively frozen in 1992 when the central 
savings bank in Moscow did not repatriate funds withdrawn 
from republican banks at the end of 1991.  When the accounts 
were re-opened in the mid-1990s, their value had been 
completely eroded by hyperinflation.  End note.)  The GOU has 
offered 1000 UAH ($200) to each 
depositor in cash once they register their deposits and plans 
to allow depositors to use additional amounts from their lost 
savings to offset debts in utilities payments and for 
education.  An estimated 10 million Ukrainians may be 
eligible for restitution, and the registering of claims will 
take some time.  On January 9, long-lines of often elderly 
depositors formed at branches of Oshchadbank (Sberbank's 
successor) across the country, surprising many Oshchadbank 
branches.  Tymoshenko immediately got on national television 
to reassure depositors they need not hurry to register, 
adding, "We pay your money back -- period."  Tymoshenko has 
at the same time talked tough about reining in inflation, 
perhaps a signal that she understands this policy will be 
7. (C) There is also seemingly a general change in work 
ethic.  Several new ministers made jokes in the press the day 
after the new Cabinet was confirmed about who got to work 
when because Tymoshenko had announced her day would begin at 
6:30 am.  (Embassy note.  This is nearly revolutionary in a 
country where work routinely begins after 9 or even at 10 am. 
 Meetings before 10 am are still uncommon.  End note.) 
According to the U.S. Treasury Department adviser in Kyiv 
(protect), there is a noticeably different vibe in the 
economic ministries -- her new contacts are working until 
midnight and on weekends and are much more receptive to and 
interested in western advice.  Tymoshenko told the Ambassador 
that her other key priorities included foreign investment -- 
doubling FDI and making someone in the Cabinet responsible 
for relations with foreign investors -- energy 
diversification, and softening the impact of increasing gas 
prices on household consumers. 
Government Program 
8. (C) Deputy PM Nemyria told the Ambassador December 20 that 
Tymoshenko gave Finance Minister Pynzenyk the task of writing 
the government program within a week.  Although he did not 
quite meet the deadline, the program was approved by the 
Cabinet on January 9 and is supposed to go to the Rada soon 
for a vote.  The constitution states that if the Rada 
approves the program, then it cannot consider a no-confidence 
vote in the Cabinet for a year.  Given that the President no 
longer has the power to dismiss the PM and he cannot dissolve 
the Rada until a year after the previous pre-term elections, 
the Tymoshenko government should be safe until at least 
October 2008 unless she should choose to resign or the 
coalition collapses entirely.  The program is based on the 
campaign platforms of the two coalition parties -- thus its 
name is Ukrainian Breakthrough for the People not 
Politicians, the combined names of the BYuT and OU-PSD 
platforms -- as well as on the coalition agreement and 
another presidential program called "10 steps toward the 
Trying to Play Nice with Yushchenko 
9. (C) Perhaps having learned a lesson from the collapse of 
her last government in 2005, Tymoshenko has refrained for the 
most part from publicly challenging Yushchenko.  With the 
exception of giving a New Year's address that competed with 
the President's, she has not pushed back on some of his 
announcements that seemed designed to irritate her or to 
exert control over her.  For example, she has not responded 
at all for his demands that her government program take into 
account the policy priorities he will lay out in his annual 
address to the Rada, which is likely to take place in early 
February.  Nor did she comment publicly on the suggestion by 
Foreign Minister Ohryzko, a presidential appointee, to 
Yushchenko that ministries' and executive bodies' 
international activities be governed by presidential 
directive.  Her comments on the appointment of Regions leader 
Raisa Bohatyreva as Secretary of the National Security and 
Defense Council were very neutral, in spite of rumors that 
she had not known about the appointment in advance and 
despite press speculation that Bohatyreva was put there in 
KYIV 00000034  003 OF 004 
part to counterbalance Tymoshenko.  In addition, Tymoshenko, 
Yushchenko, and Rada Speaker Yatsenyuk have established 
weekly meetings to set goals and discuss priorities, 
potentially increasing cooperation between the government and 
10. (C) Comment.  Tymoshenko's new found caution in this 
regard may be acknowledgment of how narrow the coalition is; 
with just two votes to spare, she needs Yushchenko's blessing 
for everything.  She delayed her PM vote for several days 
while she waited for Yushchenko and OU-PSD to approve final 
Cabinet appointments, to ensure she had enough votes for her 
own confirmation.  In addition, if Tymoshenko is still trying 
to decide whether she wants to run for President or back 
Yushchenko, it is to her benefit to retain cordial relations 
with the President, even if she decides to run since she 
might then need to convince him to back her in the potential 
scenario of a run-off between herself and a candidate from 
Regions.  How long she can hold her tongue, however, remains 
to be seen -- if Yushchenko pushes his advantage too 
strongly, given her competitive nature, she may feel 
compelled to respond.  End comment. 
Reaching Out to Yanukovych 
11. (SBU) Tymoshenko has also made an effort to reach out to 
opposition leader Yanukovych.  The two met December 25 in a 
well publicized meeting and discussed ways to strengthen the 
opposition and to cooperate (ref C).  They agreed to form a 
working group to improve the law on opposition.  Tymoshenko 
also offered to let the opposition decide the Rada's agenda 
once a month and to give it the right to report jointly with 
the government on important issues such as the budget -- both 
ideas are also in the January 2007 draft opposition law. 
Tymoshenko also suggested that they adopt a law on temporary 
investigative commissions and amend the law on the Accounting 
Chamber (which controls privatization revenues and reports to 
the Rada on management of budget funds) to allow the 
opposition to run it and to empower the Chamber with the 
right to take violating officials to court rather than simply 
presenting information to the Rada; both proposals would be 
mechanisms for the opposition to exert oversight.  There is 
little information on how many of Tymoshenko's offers 
Yanukovych agreed to, although Regions declined her offer to 
let Regions have deputy ministers in all ministries with 
responsibility for oversight. 

Loyalists Put into Key Appointments 
12. (C) Tymoshenko has been quick to get her people into 
other executive branch positions, especially ones that deal 
with money.  She has BYuT financial backer and well-known 
banker Serhiy Buryak, one of the richest members of her Rada 
faction, running the State Tax Administration, and loyal BYuT 
MP Mykola Syvulskiy in charge of the Control and Audit 
Directorate, which is like the U.S. GAO.  She named former 
Economy Minister Valeriy Khoroshkovskiy to head the Customs 
Service -- he has a decent reputation, an independently 
wealthy businessman with substantial media holdings, who 
served as deputy secretary of the NSDC in 2006-2007, but quit 
just after then Secretary Vitaliy Haiduk's resignation amid 
accusations that the Presidential Secretariat was trying to 
politicize the NSDC.  He similarly resigned his position as 
Minister of Economy in 2004 in protest of Deputy PM Azarov's 
anti-WTO views.  Tymoshenko named as head of NaftoHaz Ukrainy 
Oleh Dubyna, who also has ties to Haiduk from his years as a 
manager of several key Industrial Union Donbas metallurgical 
enterprises.  News website Ukrainska Pravda reported rumors 
on December 11 that Tymoshenko had invited Haiduk himself to 
come back to the government as Deputy Prime Minister for 
energy issues.  (Note.  Haiduk and his Industrial Union 
Donbas partner Serhiy Taruta have been strong backers of 
Tymoshenko since early 2007. End note.) 
13. (C) Comment.  Although we are pleased to see the high 
level of enthusiasm and activity in the Cabinet and PM's 
office, we will watch their progress cautiously.  Some of 
Tymoshenko's plans, especially the Sberbank repayment program 
and pension and wage increases, could increase inflation. 
Moreover, although there should be investigations of some in 
the Yanukovych administration who did engage in shady 
practices, Tymoshenko's fixation on proving their corruption 
writ large, such as by going through every resolution issued 
by Yanukovych's Cabinet, and her focus on Akhmetov -- 
directly on his questionable purchase of Dniproenergo and 
indirectly on his interests in the coal sector -- could 
distract her government from more pressing matters and could 
backfire if not handled carefully.  Similar fierce corruption 
investigations of those tied to Yanukovych in 2005 turned up 
KYIV 00000034  004 OF 004 
few convictions but deepened tensions between political 
forces.  At a time when all political forces are calculating 
alliances for the presidential election in 2009/2010, 
aggressive attacks against Regions and Akhmetov could lead 
Akhmetov's team to increase efforts to woo Yushchenko into an 
14. (U) Visit Embassy Kyiv's classified website: 




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