UKRAINE: A/S FRIED AND PM YANUKOVYCH DISCUSS NATO,

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

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/08/2016
TAGS: PREL ECON ENRG PGOV NATO UP
SUBJECT: UKRAINE: A/S FRIED AND PM YANUKOVYCH DISCUSS NATO,
ENERGY

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.)

U.S. WANTS TO WORK WITH YOU
--------------


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
Europe.

NATO: GO ONLY AS FAST AS YOU WANT TO
--------------


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.

GET THE DOMESTIC SIDE RIGHT
--------------


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

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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.

WANTS TO VISIT WASHINGTON AFTER ELECTIONS
--------------


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.

DEFENSE COOPERATION, ENERGY, RUSSIA, WTO
--------------


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.

MOSTOVA'S ADVICE ON HOW TO ENGAGE YANUKOVYCH
--------------

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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.

YANUKOVYCH ON THE COUCH?
--------------


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
prison).


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


13. (U) Visit Embassy Kiev's classified website at:
www.state.sgov.gov/p/eur/kiev.
Taylor