UKRAINE: INVESTORS CAUTIOUSLY OPTIMISTIC
By Zenon Zawada, Kyiv Post Chief Editor
Kyiv Post, Kyiv, Ukraine, Thursday, Jan 31 2008

Prime Minister Yulia Tymoshenko consults with Vice Prime Minister for
Euro-Integration Hryhoriy Nemyria at a Jan. 24 conference. The increasingly
influential Nemyria has served as a point man for investors and diplomats.

As more wide scale business reforms are unveiled by Prime Minister Yulia
Tymoshenko with every passing day, investors are both hopeful for
improvement and concerned about radical steps.

More than 350 businessmen filled the Cabinet of Ministers Club on Jan. 24 to
get a direct impression of Tymoshenko's business agenda, including vows to
improve rule of law, combat corruption, and create more favorable investment conditions.

"We have the intention to truly change everything," Tymoshenko said.
"Whoever doubts whether we can change everything, I again want to remind
you that most people in the country and beyond didn't believe in pre-term
elections, didn't believe in the democratic coalition's creation and didn't
believe in the new government's formation, but this all happened."

While businessmen and lawyers were largely hopeful of such change, some
recoiled at the more radical measures, particularly an initiative to allow
government officials to ignore what she deemed illegal court rulings that
would undermine that very goal.

Kyiv lawyer Oleh Makarov of Vasil Kisil & Partners asked Tymoshenko to
clarify her Cabinet's Jan. 23 decree allowing tax and customs officials to
countermand, or simply ignore, court decisions which, according to the
measure, "gives the freedom and right to deliberately not execute criminal
court verdicts on the Constitution's basis."

Finance Minister Viktor Pynzenyk cited egregiously corrupt court rulings
that gave businessmen, their affiliates, and even any future related
businesses full immunity from taxes and customs.

"I think it would be very interesting for you as a lawyer to examine these
exotic verdicts, and it would be interesting for me to look at these judges
who do this and what methods they use to reach these decisions," said
Tymoshenko, chuckling.

She assured the assembled investors she would act "exclusively within the
limits of the legislation of Ukraine's Constitution." Judges found liable
for corrupt decisions will be dismissed, Tymoshenko said.

In discussing the decree on Jan. 23, Tymoshenko said her Cabinet will
compile a list of "illegal verdicts" and submit them to the Ministry of
Justice.

Ukraine's Supreme Court will also review the cases and draw conclusions,
she said.

Yet lawyers and businessmen wanted more details.

"Unless the government provides substantial clarifications as to how its
idea will work, it risks sending the wrong signals to the investment
community and electorate alike," said Geoffrey Smith of the Renaissance
Capital investment bank in a report.

Another declared initiative to double or triple tax revenue drew concern
from investors because such measures "typically mean tax authorities
pressuring and harassing," said Morgan Williams, president of the US-
Ukraine Business Council.

"The big concern is that you can't just wave a magic wand at some of these
issues and tell tax authorities to double or triple tax income," Williams
said.

To demonstrate her commitment to fighting corruption, Tymoshenko
announced she adopted the European Business Association's (EBA)
"Barriers to Investment in Ukraine" as her framework.

She pledged her government will work to combat each of the report's
identified problems and implement its proposed solution one-by-one.

Among the most discussed new programs was the Tymoshenko
Transparency Initiative (TTI), which the prime minister said would
introduce a three-level court system, election of judges, and
accountability for corrupt verdicts.

Transparent privatization, land sales, license issuances, simplified and
shorter tax procedures, and introduction of a single-import declaration
are also addressed in the TTI.

In the spirit of her proposals to create citizens' councils to advise the
government, Tymoshenko suggested the creation of an investors' council
to consult the government.

The proposal seemed serious. Throughout the Jan. 24 question-and-answer
session, Tymoshenko urged investors to exchange contact information with
top officials in her government, particularly Economics Minister Bohdan
Danylyshyn.

Value-added tax (VAT) returns were also addressed.

Williams asked Tymoshenko whether US agricultural multinationals Cargill
Corp. and Bunge would get back more than $250 million in VAT taxes
owed them by the Ukrainian government.

"This puts Ukraine as the worst country in the world in terms of the size of
the VAT tax arrears, and the length of time it takes to get them back,"
Williams said. "Some of these are more than a year old. They're loaning
$250 million to you with no interest. This is not fiscally responsible."

Incidentally, the government of former Prime Minister Viktor Yanukovych
efficiently compensated VAT taxes last year to businesses based in Donetsk,
his hometown and main base of support. Donetsk is also the hometown of
Rinat Akhmetov, the main financier of Yanukovych's Party of Regions of
Ukraine.

Finance Minister Viktor Pynzenyk told investors he was aiming for
value-added taxes to be returned within a day, "without delay."

A week later, Williams said the two companies received between 15
and 20 percent of their VAT refunds.

"It's the first payments of that size in a long time," he said. "It's a step
forward. I think there's much more hope at this point, that (Viktor)
Pynzenyk and (Vice Prime Minister Hryhoriy) Nemyria will make a
difference."

LINK: http://www.kyivpost.com/nation/28278/