election campaign season, and this fact gave strong political coloring to

many Presidential decrees and resolutions of the Cabinet of Ministers.

No laws have been adopted since the Parliament has been dissolved. 

The more notable legislative acts are included in this update.

[1] BANKING -----
NBU Decided to Postpone Decreasing Limits on the Banks' Maximum US
Dollar Borrowing Rate

On October12 the National Bank of Ukraine (NBU) adopted resolution No.
350, which became effective on October 22, postponing the decrease in
maximum borrowing rates for cross-border loans.

Previously, NBU Resolution No. 235 (which was supposed to become
effective on October 19) imposed a maximum limit equal to the average
weighted interest rate of the outstanding Ukrainian government bonds
plus two percent.

The resolution was severally criticized because it would have cut out
borrowing by any Ukrainian banks that would have been unable to borrow at
the rates below the maximum.  Western banks providing loans to  Ukrainian
banks would also have been affected by the proposed regulations.

The adopted Resolution 350 postponed the effective date of the maximum
interest rates to January 1, 2008, meanwhile providing that maximum
borrowing rates would be "based on the value of government obligations."

The NBU explained that "at the time of determining such rates, the National
bank takes into account interest rates of the Ukrainian bonds issued by the
Ministry of Finance of Ukraine taking into account average spread
(difference between interest rates) between sovereign obligations and those
of the subjects of economic activities [companies], as well as the rating of
the subjects of the economic activities [companies] established by the
international rating agencies."

In a nutshell, the NBU, instead of binding itself into a concrete formula,
adopted a "wait-and-see" approach leaving itself the freedom (and
responsibility) to impose the maximum rate based on the market.  It remains
to be seen whether NBU's judgment of the market and its financial wisdom
will be effective.
[2] NATURAL RESOURCES
The President Suspends Resolution of the Cabinet of Ministers Establishing
Procedures for Auctions of the Special Subsurface Permits

On September 7, 2007 President Yuschenko signed decree No. 829/2007
suspending the April 4, 2007 resolution of the Cabinet of Ministers No. 611
which established procedures for issuance of special subsurface permits
(mineral, oil and gas deposits; medicinal sources).

Resolution No. 611, in part, provided that special permits be awarded
through an auction to the highest bidder.  That bidder was required to pay
for the permit within 30 days of winning the auction.  If the highest bidder
fails to pay, the second highest bidder would become the winner.

 In his decree suspending the resolution, the President explained that the
auction procedure could lead to abuses.  For example, if two or more bidders
collude with the intention to acquire the permit at a low price and the
highest bidder would fail to pay, the permit would have to be issued at a
lower bidding price.

The President also asked the Constitutional Court of Ukraine to decide
whether Resolution No. 611 complies with the Constitution of Ukraine.

Currently it is unclear which if any procedures are effective in the
issuance of the subsurface permits.  Normally the Cabinet of Ministers would
issue procedural guidelines to be effective for the current year.  However,
given the Presidential decree at issue, no procedures  arguably exist at
present.
[3] IMPORT/EXPORT
The Ministry of Economics of Ukraine Imposes Additional Re-export
Permit Requirements

In an apparent move to further regulate import and export to avoid
increasing inflation, on September 17, 2007, the Ministry of Economics
According issued Order No. 309 on September 17, 2007, requiring permits
for re-export of: (i) oil or oil products from bituminous materials of
foreign origin; (ii) natural gas of foreign origin; (iii) cattle and sheep as well
as their leather of Ukrainian origin.

Prior to this Order the re-export of oil or oil products from bituminous
materials and natural gas of foreign origin already required a permit.
While the new procedures add additional categories to the list of
commodities requiring permits, it somewhat clarifies the procedures for the
issuance of the permits.
[4] INTERNATIONAL TREATIES
Ukraine Accedes to the June 3, 1999 Protocol to the International Rail
Transport Convention

The Ministry of Foreign Affairs announced that the June 3, 1999 Protocol
amending the International Rail Transport Convention will be effective as to
Ukraine as of November 1, 2007.
[5] TAXATION
State Tax Administration Requires Banks to Collect Taxes on Uncollected
Secured Loans

In its letter No. 8465/6/17-0716, dated September 4, 2007, the State Tax
Administration (STA) instructed the banks to act as tax agents for
defaulting secured loans.

If an individual borrower defaults on a secured obligation including a
mortgage, the unpaid loan amount is deemed to be the personal income
of the individual.

If the collateral is sold or the bank obtains the ownership of the
collateral, the bank is required to withhold and pay to the treasury the
borrower's income tax and to file a tax return with the authorities.

Under the Ukrainian tax regime, payors act as tax withholding agents for
individual taxpayers in an attempt to limit the ability of individual
taxpayers to evade taxes.  Accordingly, the letter does not impose new
obligations on the banks but rather clarifies the withholding procedure.
-----------------------------------------------------------------------------------------
NOTE: This legislative news update has been prepared solely as a
service to business and investment community and does not constitute
legal advice. Gene M. Burd is a member in the law firm Marks Sokolov
and Burd, LLC and the head of it representative office in Kyiv.  He was
born in Ukraine and was educated in the United States where he also
practices law.

Marks & Sokolov, LLC (operating in Ukraine as Marks Sokolov and
Burd, LLC) is a boutique law firm known for its ability to handle
complex litigation and commercial work in countries around the world
including the U.S., Russia and Ukraine. The firm has offices in
Philadelphia, Moscow, and Kiev. [www.marks-sokolov.com]
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9.  U.S. FEDERAL RESERVE BOARD APPROVES STATE EXPORT-
IMPORT BANK OF UKRAINE TO SET UP REP OFFICE IN NY

Federal Reserve Board, Washington, D.C., Friday, August 17, 2007

WASHINGTON - The Federal Reserve Board on Friday announced the
approval of an application by The State Export-Import Bank of Ukraine,
Kiev, Ukraine, to establish a representative office in New York, New York.

Attached is the Order relating to this action. Attachment (27 KB PDF):
http://www.federalreserve.gov/BoardDocs/Press/orders/2007/20070817/attachment.pdf
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http://www.federalreserve.gov/BoardDocs/Press/orders/2007/20070817/default.htm
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FOOTNOTE:  The State Export-Import Bank of Ukraine, with total
consolidated assets of approximately $3.7 billion, is the sixth largest
commercial bank in Ukraine and provides wholesale and retail banking
services through a network of domestic branches. The bank is wholly
owned by the government of Ukraine and operates as a commercial bank
in addition to promoting trade by and with Ukrainian companies.
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10.  THE STATE EXPORT-IMPORT BANK OF UKRAINE, U.S. REP
OFFICE, JOINS THE U.S.-UKRAINE BUSINESS COUNCIL (USUBC)

U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, October 26, 2007

WASHINGTON - The Executive Committee of the U.S.-Ukraine
Business Council (USUBC) has just approved The State Export-
Import Bank of Ukraine, U.S. representative office, as the forty-eighth
member of the USUBC according to Morgan Williams, SigmaBleyzer,
president of the USUBC.

The State Export-Import Bank of Ukraine (JSC Ukreximbank) was
approved in August of 2007, by the U.S. Federal Reserve Board, to
establish a representative office in New York. Victor Kapustin serves
as Chairman of the Board of the bank.

The USUBC met recently in New York with Igor Obozintsev,
Advisor to the Chairman of the Board, The State Export-Import Bank
of Ukraine, who will be operating the New York representative office.

Nickolay N. Oudovichenko, Deputy Chairman of the Board, met
with USUBC members last week in Washington. He was a member of
Ukraine's economic and business team attending the meetings of the
World Bank and the IMF.

Joint-stock company "The State Export-Import Bank of Ukraine" is
the state-owned bank with the Cabinet of Ministers of Ukraine owning
100% of its shares, thus being its sole founder and shareholder.

In treating shareholders' rights and issues of control, transparency and
enhanced efficiency, the bank adheres to the corporate governance
principles.

Adherence to the above principles enables the bank management, its
Supervisory Council and the Cabinet of Ministers of Ukraine to jointly
define and tackle the pressing tasks in ensuring dynamic development
of the bank as well as in enhancing its significance as one of the key
forces supporting foreign trade activities of the Ukrainian industries.
Today JSC "The State Export-Import Bank of Ukraine" is:
1] a bank with 100% state-owned shares, one of the major and most
     profitable operators in the Ukrainian banking market;
[2] a financial institution servicing a considerable proportion of export
     and import activities effected by Ukrainian enterprises;
[3] the sole agent of the Government of Ukraine in handling
     intergovernment credit lines;
[4] a partner of the World Bank under the largest Export Development
     Project in Ukraine and a partner of KfW under Small and Medium
     Enterprises Program;
[5] a bank recognised by about 30 primary Export Credit Agencies as
     a direct borrower/guarantor on medium and long term financing;
[6] a bank with the widest amidst the Ukrainian banks foreign network
     of correspondent and counterpart banks;
[7] a bank possessing the most long-standing experience in the Ukrainian
     market in documentary business and trade finance, having about 80
     clear credit lines available from major foreign banks;
[8] a bank with a well developed branch network embracing all main
     regions and industrial centers of Ukraine;
[9] recognized by JP Morgan Chase bank for the fifth consecutive year as
     one of the best amongst its correspondent banks worldwide in quality
     of the USD settlements in 2004, and acknowledged respectively by
     Deutsche Bank AG with regard to EURO-denominated settlements in
     Ukraine;
[10] a clearing bank for the MASTER CARD INTERNATIONAL INC.
     payment system in Ukraine;
[11] the first Ukrainian bank to have performed successfully in the
international syndicated loan market since 1997.

The bank can work with U.S. companies operating in Ukraine in terms
of trade finance, loans and equity investments.  For further information
check: http://www.eximb.com.
26TH NEW MEMBER FOR THE USUBC IN 2007
The State Export-Import Bank of Ukraine is the 26th new member for the
U.S.-Ukraine Business Council (USUBC) in the last ten months and
brings the Council's total membership to forty-eight.   
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http://www.sigmableyzer.com/index.php?action=publications 
========================================================

15.  ROSNEFT & SHELL PREPARE FOR SIGNING OF NEW AGREEMENT

Kommersant, Kyiv, Ukraine, October 22, 2007

KYIV - Rosneft and Shell are preparing to sign a new agreement. It will
outline cooperation in the framework of the agreement on strategic
partnership signed by the companies in July in detail, reports a source
close to one of the companies.

Several sources acquainted with the course of negotiations confirm this
information. According to one of them, the relevant documents may be

signed this week.

The source explain that the agreement deals with a possibility of
cooperation of the companies in geological exploration and production of

oil onshore in Russia. The agreement will be of a framework type and will

not include a list of certain fields.

First of all, Rosneft is interested in the technologies of Shell. A week
ago, Vice President of Rosneft Mikhail Stavsky said that Rosneft was
studying the possibility of using the technologies of Shell and
ConocoPhillips for production of heavy oil at the Severo-Komsomolskoe

field with reserves of 30 million tons.

In their agreement signed in July, Rosneft and Shell speak about the
possibility of joint participation in projects for oil exploration,
production and refining, as well as in marketing of petroleum products in
Russia and outside of it.

The agreement makes provisions for signing additional agreements dealing
with each segment. Representatives of Rosneft and Shell refuse to comment

on signing the new agreement.
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16.  SALANS ADVISES FRENCH COMPANY AXA IN ACQUISITION
OF MAJORITY STAKE IN THE SHARE CAPITAL OF VESKO

Salans, Kyiv, Ukraine, August 9, 2007

KYIV - Salans has recently advised AXA, a French based international
insurance group, in the acquisition of the majority stake in the share
capital of Vesko.

AXA, which is one of the largest insurance groups in the world, and its
partner in this transaction UkrSibBank, the Ukrainian banking subsidiary of
BNP Paribas, have reached end of July an agreement to acquire 99% of the
share capital of Vesko.

The transaction, which is still subject to regulatory approvals, is expected
to be completed by the end of 2007.

Vesko is the 6th largest P&C insurer in Ukraine.  Following acquisition of
Ukrainian Insurance Alliance and Vesko, AXA will be one of the key players
on the insurance market in Ukraine.

A team of lawyers in various Salans offices led by Igor Mehedynyuk and

NATIONAL SECURITY & ACHIEVE ENERGY INDEPENDENCE

Ukrainian-American Environmental Association (UAEA)
Rivne, Ukraine/Washington, D.C., Thursday, October 25, 2007

 

RIVNE, Ukraine/WASHINGTON, DC - In a letter delivered today to

the leaders of the five political parties expected to constitute the next
Ukrainian Parliament, the Ukrainian-American Environmental Association
(UAEA) urged that "energy security and sustainable energy development
[be made] top priorities."

UAEA suggested that "it is technically and economically feasible for
Ukraine to achieve independence from energy imports within a timeframe
far shorter than that envisioned by [Ukraine's] National Energy
Strategy.  [In fact,] if Ukraine brought its levels of energy
consumption per unit of GDP just down to the world average, it could
eliminate most and possibly all of its energy imports."

The letter further noted that "Ukraine could be meeting a significant
share of its supply needs in the relatively near future from the mix of
renewable energy technologies.  Ukraine may have the best biomass
resources in all of Europe as well as one of the best offshore wind
regimes on the continent.  It also has significant, but largely
untapped, geothermal and small hydropower resources as well as

modest solar energy potential."

The letter concluded that "a national energy strategy based on vastly
improved energy efficiency, substantial increases in renewable energy
development, and a shift to domestic supplies of fossil fuels could
make Ukraine energy self-sufficient in a relatively short time.

Moreover, such an approach would enable Ukraine to re-evaluate its
current emphasis on nuclear power expansion, which we believe to be an
unnecessarily expensive and environmentally dangerous course of
action." The complete text of the letter follows:

October 25, 2007
Leader - Block of Yulia Timoshenko, Y. V. Timoshenko
Leader - Block of Peoples Self-Defense, Y. V. Lytsenko
Leader - Party of Regions, Prime Minister of Ukraine V. F. Yanukovich
Leader - Block of Lytvyn, V. M. Lytvyn
Leader - Communist Party of Ukraine, P. M. Symonenko

Dear Sirs/Madam:

As you prepare to convene the newly-reconstituted Rada and government,
we are writing to urge that you stress energy security and sustainable
energy development as top priorities.  The importance of these issues
was once again made apparent by Gazprom's threat to reduce natural gas
supplies the day after Ukraine's elections.

We believe that it is technically and economically feasible for Ukraine
to achieve independence from energy imports within a timeframe far
shorter than that envisioned by the National Energy Strategy.  And we
believe that a national energy program that emphasizes improved energy
efficiency and renewable energy development could yield major economic
as well as national security benefits for Ukraine.

Inasmuch as the Ukrainian economy is among the most energy-intensive -
but also the most energy wasteful - in the world, we believe that a far
more aggressive campaign to improve energy efficiency in industry,
transportation, agriculture, buildings, and government should be the
top priority. 

 

In theory, at least, if Ukraine brought its levels of energy consumption

per unit of GDP just down to the world average, it could eliminate most

and possibly all of its energy imports.  If Ukraine further improved its

energy efficiency to the levels of either the United States or the European

Union, it could actually become a net energy producer.

We also believe that Ukraine could be meeting a significant share of
its supply needs in the relatively near future from the mix of
renewable energy technologies.  Ukraine may have the best biomass
resources in all of Europe as well as one of the best offshore wind
regimes on the continent. 

 

It also has significant, but largely untapped, geothermal and small

hydropower resources as well as modest solar energy potential.  The

European Union is striving to meet 20 percent of its energy needs

from renewables by 2020; there is no reason why Ukraine could not

be striving for a comparable goal rather than be satisfied with the 2-3

percent it now derives from these sources.

Finally, we believe that supply needs that cannot be offset by energy
efficiency improvements or met with renewable energy sources can be
largely satisfied by increased domestic production of natural gas, oil,
and coal.  While concerns about climate change and greenhouse gas
emissions from fossil fuels suggest that total energy consumption from
these sources should be reduced from current levels, it is possible to
displace natural gas and oil imports with domestic sources to meet
legitimate needs.

In total, a national energy strategy based on vastly improved energy
efficiency, substantial increases in renewable energy development, and
a shift to domestic supplies of fossil fuels could make Ukraine energy
self-sufficient in a relatively short time.  Moreover, such an approach
would enable Ukraine to re-evaluate its current emphasis on nuclear
power expansion, which we believe to be an unnecessarily expensive and
environmentally dangerous course of action.

During the coming year, the Ukrainian-American Environmental
Association is planning to issue a series of a dozen or more short
studies (perhaps one per month beginning in early 2008) that will
assess the status and potential of energy efficiency and renewable
energy options in Ukraine.  The papers will also draw upon the
experience of the United States and the European Union for particularly
effective policy strategies that may be transferable to Ukraine.

We will be happy to share these materials with you and work with you to
develop effective policies to promote a sustainable energy future for
Ukraine and to meet its energy, environmental, economic, and national
security needs.

Sincerely, Taras Lychuk, Ken Bossong
Co-Directors, Ukrainian-American Environmental Association
--------------------------------------------------------------------------------------------
NOTE: The Ukrainian-American Environmental Association is a private,
non-governmental organization founded in 2004 and chartered in both the
United States and Ukraine.  

--------------------------------------------------------------------------------------------
UKRAINIAN-AMERICAN  ENVIRONMENTAL  ASSOCIATION
Ukraine Address: 11 Strutynska Street, #18; Rivne, Ukraine 33003;

+38 068 569-5137; U.S.A. Address: 8606 Greenwood Avenue, #2;

Takoma Park, MD 20912; +1 (301) 588-4741
e-mail:  ua_ea@yahoo.com; URL:  http://www.ua-ea.org
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22.  PHILLY LAW FIRM LAUNCHES BRANCH OFFICE IN UKRAINE

By Dariya Orlova, Kyiv Post, Kyiv, Ukraine, Thu, Oct 25 2007

The Philadelphia-based law firm of Marks & Sokolov has teamed with a
Ukrainian-born US lawyer to open an office in Kyiv. Marks, Sokolov &

Burd is the firm's second foreign office following one in Moscow. The

firm began working with Ukrainian clients in 2004.

"We have represented Ukrainian interests in purchasing major metal plants in
the US, and Western companies, in substantial, worldwide litigation arising
from their Ukrainian business dealings. We look forward to doing more," said
Bruce Marks, the firm's founder and managing director, who has also served
as a Republican state senator from Pennsylvania.

"With the economic growth and political changes in Ukraine, we just felt
it's quite appropriate for us to extend to Ukraine as well," said Ukrainian-born,
US-trained attorney Gene M. Burd, managing director of the Kyiv office.

"We are distinct from many law firms that work here in that one of our
specialties is international litigation and arbitration. Our firm has been
involved in major litigation relating to privatization and shareholder
conflicts both in Russia and Ukraine," Burd said.

"There are views that the Ukrainian legal market is saturated, but when you
come here and start speaking with people, potential clients, you find that
many of them are unsatisfied with the services lawyers provide," explained
Burd. The lawyer noted that many local companies lack client-handling
skills, while services of Western firms are frequently overpriced.
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LINK: http://www.kyivpost.com/business/general/27660/
------------------------------------------------------------------------------------------------

 

The Eurasia Foundation is a member of the U.S.-Ukraine Business
Council (USUBC).  Softline is a software development company

whose controlling interest is owned by one of the private equity

investment funds managed by SigmaBleyzer, also a member of the

U.S.-Ukraine Business Council (USUBC).
------------------------------------------------------------------------------------------
For more information, please visit www.csrukraine.org.ua.
Eurasia Foundation Kyiv Regional Office
55 Velyka Vasylkivska, 3rd floor Kyiv, 03150 Ukraine
Phones: +380 (44) 200-38-24; +380 (44) 200-38-25
+380 (44) 200-38-26; +380 (44) 200-38-27
LINK: www.eurasia.kiev.ua
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26.  EURASIA FOUNDATION AND OSCE INVEST IN SIX NEW
RURAL ECONOMIC DEVELOPMENT PROJECTS IN UKRAINE

Eurasia Foundation, Kyiv, Ukraine, Friday, September 28, 2007

KYIV, Ukraine - The Eurasia Foundation (EF) and the Organization for
Security and Cooperation in Europe (OSCE) in Ukraine awarded six new
projects to support small and medium enterprise growth in Poltava, Odesa