UKRAINE: MYKOLAYIV -- RUNNING ON ISSUES BUT

C O N F I D E N T I A L SECTION 01 OF 05 KYIV 002496

SIPDIS

SIPDIS

DEPT ALSO FOR EUR/UMB AND EUR/PRA

E.O. 12958: DECL: 09/28/2017
TAGS: PGOV EIND EINV PREL RS UP
SUBJECT: UKRAINE: MYKOLAYIV -- RUNNING ON ISSUES BUT
FEARFUL OF FRAUD

REF: A. KYIV 2428

B. KYIV 2409

C. KYIV 2402

Classified By: Political Counselor Kent Logsdon for reasons 1.4(b,d)


1. (SBU) Summary: The southern industrial city of Mykolayiv
wrestles with a number of local issues revolving around the
question of who will control the city's economic assets.
Controversy centers in particular on ownership of the Black
Sea Shipyard, currently in the hands of Russian businessmen,
the Churkin brothers, and one of the three shipyards that
make Mykolayiv Ukraine's shipbuilding center. (Russian
businessman Oleg Derepaska also owns Mykolayiv Alumina Works,
which produces 80% of Ukraine's alumina output.) In the
run-up to the September 30 parliamentary elections, however,
Bloc Yuliya Tymoshenko's local campaign head hopes to narrow
Party of Regions' commanding lead by stressing Regions'
failure to raise the local standard of living and, in
conversations with us, ominously hinted that Regions was in
collusion with Ukrainian and Russian oligarchs to ensure
their economic dominance in the district. For its part,
Regions will stress its record while in power, especially
efforts at the national level to alleviate the impact of
natural disasters (a severe drought, floods, a hail storm,
and landslide). In contrast to our soundings in other
regional centers (reftels),both political groupings stressed
their concerns regarding the potential for election fraud (an
Embassy observer team will be deployed to the oblast). The
Committee of Voters of Ukraine's representative cited
examples of party operatives' attempts to bribe officials and
voters or otherwise manipulate results. Opinions differed on
the reasons why President Yushchenko recently reappointed a
previous governor, Oleksiy Harkusha, a member of the Lytvyn
Bloc and widely suspected of committing wide-scale fraud
during the 2004 presidential election, with no one offering a
conclusive rationale for the move. End summary.


2. (U) We visited Mykolayiv (often also transcribed as
"Nikolaev" from the Russian spelling) September 12 to gauge
political attitudes and preparations for the September 30
parliamentary elections. We met with Committee of Voters of
Ukraine (CVU) District head Tymur Mykhailovsky; and, from the
Party of Regions, Parliament (Verkhovna Rada) Deputy
Volodymyr Falko, district (oblast) branch deputy chairman
Vyacheslav Rukomanov, and Oblast Council member Oleksandr
Smirnov; and Bloc Yuliya Tymoshenko (BYuT) Verkhovna Rada
Deputy Roman Zabzalyuk. Both Regions and BYuT seemed
well-funded in Mykolayiv, with the BYuT party branch
occupying a separate, two-story building with a good-sized
conference room and Regions in several sizable offices in a
larger office building.

A Ship-building Center
--------------


3. (U) Mykolayiv Oblast is sandwiched between Odesa and
Kherson on the Black Sea coast between the Crimean Peninsula
and Romania. Mykolayiv city lies 85 miles from Odesa (two
hours by car) and 40 miles from Kherson, the nearest large
cities. Mykolayiv Oblast has 1.3 million people, with a half
million resident in Mykolayiv city. The city, founded in
1789 as a Russian shipyard and naval base, continues to be an
important shipbuilding center, producing half of Ukraine's
shipbuilding output, and, like neighboring Sevastopol, was a
militarily sensitive, "closed" city until independence.
Although a major Black Sea port, perhaps second to Odesa in
importance, the city lies 40 miles from the Black Sea, along
the estuary of the Southern Buh river. Mykolayiv city has
three major shipbuilders: the Black Sea Shipyard
("Chornomorsky"),61 Komunars Shipyard, and "Damen Shipyards
Okean," in which Dutch firm Damen Shipyards Group has a 78%
stake. (The only Russian Navy aircraft carrier currently in
commission, the Admiral Kuznetsov, was built in Mykolayiv.)
Firms located in the oblast also produce 90% of Ukraine's gas
turbines and Mykolayiv Alumina Works (owned by Russian
businessman Oleg Derepaska) produces 80% of its alumina, the
basic feedstock for aluminum production. Zoria and
Mashproekt manufacture multipurpose gas turbines to power
maritime vessels, pressurize natural gas pipelines, and for
electric power generation. Pervomaisky Works and Dizelmash
produce diesel engines and generators. The Shiroky Lan
military base is also located in the oblast.


4. (U) Western-oriented guide books, often dismissive of
Ukraine's Soviet-era industrial cities, treat Mykolayiv
harshly. The Lonely Planet guide completely ignores the
city, while the more comprehensive Bradt travel guide begins
its entry with the observation, "Over half a million people

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call the city . . . home, and if you come this way, you'll
wonder why." It adds, "Now Mykolayiv holds the title for
Ukraine's hard-drug capital and all the problems that go with
it." Our Consular Section observes that the city ranks among
the top sources of "mail-order" brides in Ukraine, along with
neighboring Odesa and Kherson, suggesting that young women in
Mykolayiv find the outlook for a future in the oblast to be
bleak. In our brief visit, however, we found that Mykolayiv
city presented an attractive, well-kempt appearance, lying
among rolling hills along the Southern Buh and Inhul rivers.
Moreover, an English-language teacher at the local university
said her students were studying English with the hope of
working in the mail-order bride business as translators and
guides, but, with close family ties, were themselves
uninterested in using their qualifications to seek employment
in Kyiv or finding a foreign husband.

A Regions Stronghold
--------------


5. (U) The Party of Regions enjoys a commanding position in
the oblast and city, a fact that our contacts of all
political stripes acknowledged. The issue for the elections
was not whether Regions would take the majority of votes, but
who would be in second and third place and by what percentage
of the vote. (In the 2006 parliamentary elections, Regions
garnered 50.34% of the vote, BYuT had 11.89%, and Our
Ukraine, 5.59%, in Mykolayiv oblast.)

The 120 seats of the oblast council are divided as follows
(with percentage of votes received in the elections in
parentheses following):

Regions: 53 seats (32%)
BYuT: 18 seats (11%)
Vitrenko bloc: 14 seats (8%)
Lytvyn bloc: 11 seats (6%)
CPU: 7 seats (4%)
Our Ukraine: 6 seats (4%)
SPU: 6 seats (4%)
Green Party: 5 seats (3%)

Regions hold half of the 90 seats in the city council:

Regions: 45 seats
BYuT: 11
Vitrenko bloc: 8
Green Party: 6
"Mykolayiv People for (Mayor) Volodymyr Chaika": 6
CPU: 5
"Liberal-Socialist Mykolayiv": 5
Independent: 4


6. (U) BYuT's Zabzalyuk said some polling results indicated
that nationally, Regions would get 33-35%, BYuT would get
17-20%, and OU-PSD would get up to 15%. While Lytvyn Bloc
would not make the 3% threshold needed to get into the Rada,
Communist Party support could increase and rise to 7-8%. He
opined that Socialist Party voters were as likely to switch
to OU-PSD or BYuT as Regions, due to Regions' failure to live
up to its campaign promises. The more objective Mykhailovsky
from CVU, however, painted a different picture. Party of
Regions could repeat its 2006 record by garnering at least
50%, and perhaps 60%, of the vote. Regions itself was aiming
for 75%. Mykhailovsky suggested BYuT would get only 5-10% in
the oblast; the Communists, 5%; OU-PSD, 3-4%; and Socialists,
2-3%. He opined that, if there were no fraud, Lytvyn Bloc
could get 4%. Surprisingly, Regions' Falko admitted that
BYuT had been running hard in the oblast and could increase
its presence somewhat.

The Governor's Role
--------------


7. (SBU) A major issue on the local level, President
Yushchenko issued two decrees July 10 to transfer then
Mykolayiv governor Oleksandr Sadykov to the position of
National Security and Defense Council Deputy Secretary and
replace him with Oleksiy Harkusha as acting governor, who had
previously been Mykolayiv governor from 1998 to the start of

2005. Mysteriously, Harkusha at the time of his appointment
was an oblast deputy from the Lytvyn Bloc and, during the
2004 presidential election, was strongly suspected of
manipulating the voting to favor Yanukovych's presidential
candidacy. BYuT's Zabzalyuk highlighted Harkusha's misuse of
local police forces to detain at least 30 political opponents
daily. Local observers allege that Harkusha abused his
previous position as governor to direct business to
Agro-Export, the oblast's largest grain trader. Due to past

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actions against them, Harkusha also was unlikely to get along
with Oblast Council Chairman Tetyana Demchenko and the
well-regarded Mykolayiv Mayor Volodymyr Chaika. Although the
Cabinet of Ministers refused to confirm his appointment,
Harkusha subsequently attempted to relieve the current deputy
governors, appointing a police general who headed the
Ministry of Interior oblast office in 2001-2005 as First
Deputy Governor, and to remove eight of the 19 district
(rayon) heads.


8. (C) BYuT's Zabzalyuk said Harkusha was a vestige of the
old system, noting that Harkusha had been a Communist Party
sub-district head during Soviet times, and argued that a new
generation of politicians, born in the 1960s and later,
needed to take control to bring Ukraine fully into Europe.
At the same time, Harkusha was an experienced and cautious
politician, who was unlikely to repeat the excesses of the
2004 presidential election. Zabzalyuk said Yuliya Tymoshenko
had written a letter to President Yushchenko, requesting that
he not make appointments of similar officials with an
unsavory past to other governorships before the parliamentary
elections. Regions' Falko said some of Harkusha's decisions
indicated that he was trying to erode support for the Party
of Regions, which had been more than 50% in the last
election, but he did not focus on the governor's role. CVU's
Mykhailovsky said Harkusha was using "administrative
resources" to influence voters, such as telling local media
what events to cover or not cover, but offered the
interesting speculation that Harkusha (number 4 on the Lytvyn
Bloc's parliamentary list) had been brought back as governor
primarily to prevent Bloc Yuliya Tymoshenko from making
inroads at OU-PSD's expense. (Note. Some political analysts
in Kyiv saw Harkushka's nomination as Yushchenko signaling
Lytvyn that he would like the former Rada Speaker to join a
coalition with OU-PSD should the Lytvyn Bloc win seats in the
new Rada. End note.)

Russian Influence
--------------


9. (U) A second major local controversy was the ownership of
the Black Sea Shipyard. In September 2003, Russian
businessmen and brothers Igor and Oleg Churkin, through their
ownership of the Mykolayiv Small-Tonnage Shipyard, were the
winning bidders, with an offer of US $24.3 million, for a
90.25% stake in the Black Sea Shipyard. On July 26, the
State Property Fund of Ukraine won a ruling in the Kyiv
Economic Court in favor of its petition to invalidate the
sale on the basis of violations that took place during the
privatization process. The Churkin brothers immediately
appealed the ruling. According to press reports, Mykolayiv
Small-Tonnage Shipyard subsequently sold 60.14% of shares in
the Black Sea Shipyard to Shipping Technology Limited
(Canada) in January 2007. Further muddying the waters,
Syrian businessman Hares Youssef, formerly an advisor to
President Yushchenko, claimed that he owned a 25% stake in
the shipyard, with his partners controlling another 12.5%
share. He told the media that the Churkin brothers had
reneged on an offer to sell him additional shares. In
2005-2006, the Black Sea Shipyard failed to build any ships.


10. (U) On August 3, a group of unidentified armed men
occupied the grounds of the Black Sea Shipyard and reinstated
former Chairman of the Board Oleksandr Sahaidakov. Press
reports alleged that another Russian businessman, Vadim
Novinsky, was behind the forcible attempt to gain control of
the shipyard and was in cahoots with Petro Poroshenko in the
confiscation of the shipyard. (Note: Novinskiy this week
has been in the news, as his Smart Group announced a merger
of his iron ore and steel assets with those of Ukrainian
oligarch Rinat Akhmetov.) Oblast governor Harkusha announced
that Sahaidakov's reinstatement was the first move in
returning the shipyard to state ownership.


11. (U) Although the latest census recorded that ethnic
Ukrainians made up 74% of the oblast's population and
Russians 19%, BYuT's Zabzalyuk claimed that the oblast had a
significant segment of voters who had resettled in Mykolayiv
from the Urals and central Russia regions to work in the
shipyards, including 94,000 pensioners of the Black Sea
Shipyard. While not impressed by the power struggle over
ownership of the Black Sea Shipyard, these voters would
respond favorably to Regions' attempt to bring back Ukraine's
multi-vector foreign policy and to strengthen ties with
Russia. In fact, however, Zabzalyuk accused Regions of
seeking only to facilitate cooperation between Russian and
Ukrainian oligarchs, who held their business interests, and
not the national interests of either country, paramount.
CVU's Mykhailovsky disputed the accuracy of the census

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statistics on ethnic composition. He said that, as the son
of a military officer, he had been born in Ukraine and
recorded as a Ukrainian, while his two brothers were listed
as Russian, although his entire family was ethnic Russian.
He also noted that the census results were based on
self-reporting of ethnic origin. Despite this, Mykhailovsky
said every 3rd or 4th resident of Mykolayiv had relatives in
Russia.

Running on the Issues
--------------


12. (U) Despite his fears of election fraud, Zabzalyuk said
BYuT planned to highlight Regions' failure to fulfill its
pledge to raise living standards immediately. He said
Regions' attempts to establish a NATO referendum was an
effort to focus on a side issue to distract voters from
Regions' failure to deliver on the pledge. BYuT would work
to keep voters focused on the immediate economic issues and
stress that closer relations with Western Europe was the key
to greater economic development.


13. (U) Without knowing the specifics of our conversation but
evidently aware of Zabzalyuk's platform, Regions' Falko
spiritedly presented his counter-arguments. His party was
well organized in the oblast, with branches in all districts
and its representatives on all District Election Commissions.
Although Regions did not agree with how the parliamentary
elections had been brought about, Regions was prepared to
run. Regions' political opponents tried to blame the party
for everything, including defacement of campaign posters with
paint, a charge that Falko ridiculed as out of keeping with
Regions' sense of professionalism.


14. (U) Falko continued that Regions' platform addressed the
core needs of the electorate -- higher salaries, quality
education for each child, and above all fears about efforts
to tear the country apart. Regions was also responding to
concerns about the language issue and veterans' concerns
about NATO. Rukomanov chimed in that its record since 2006
had demonstrated that Regions was a capable force with the
potential to fulfill its promises. During campaign stops in
the villages, voters expressed their disappointment with the
"radical positions" of the opposition BYuT and OU-PSD. They
frequently asked why Regions' leadership had agreed to the
elections. Regions' representatives found it difficult to
answer, but explained that the decision to hold elections had
been a political agreement among leaders to prevent further
clashes between Orange and Blue forces.


15. (U) Smirnov said voter apathy was a problem, with the
possibility that the new requirement of a 50% voter turn-out
(nationally and not just in the oblast) might not be reached.
Local voters were more concerned about natural disasters
that had occurred in the oblast, particularly the drought
that led to a poor harvest, and so were relatively
uninterested in the elections. (Rukomanov noted that the 47%
of voters located in rural districts had been hard hit by
natural disasters and described some of the steps Regions had
taken to alleviate their impact. The disasters included
floods, hail, and a landslide.) Secondly, local voters were
upset by the process that had led to scheduling of the
elections, which they felt devalued the choices they had made
in 2006. Thirdly, Smirnov argued that opposing political
parties would try to lower turn-out to give them a basis to
invalidate the elections; Rukomanov noted that the Socialist
Party and Nataliya Vitrenko's Progressive Socialists had
issued calls for election boycotts.

Fears of Election Fraud
--------------


16. (U) Politicians of all stripes and CVU's representatives
emphasized their fears concerning the possibility of election
fraud and called on the international community to send the
maximum number of observers to Mykolayiv. Zabzalyuk claimed
Regions financier Rinat Akhmetov had allocated U.S. $2,000
for each polling station to bribe polling station staff. He
said the only way to counter the bribery would be to replace
all polling station commission members just before the
election. Falko said Regions would run a fair campaign, but
he expected its opposition to play dirty in order then to
file suits to overturn election results.


17. (U) CVU's Mykhailovsky spent most of our meeting
detailing the various indicators and ways that fraud could
take place. First, ambiguities in the electoral law created
potential loopholes that could be exploited. In addition, he
said Party of Regions and BYuT had formed special units of

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hooligans to disrupt the voting process. He had seen BYuT's
unit in action when it deployed to provide security for
Tymoshenko's visit to the oblast. Third, electoral
commission members could be bribed to falsify the vote count,
when electoral fraud was easiest to commit. Mykhailovsky
also cited instances when political parties sought to "bribe"
voters. When we countered that distribution of free gifts or
services did not constitute bribery unless provided in
exchange for a particular vote, Mykhailovsky said the
Socialist Party had given voters 25 hryvnia (about $5) for
signing a "contract" to vote in a certain way. (We have
heard of similar incidents elsewhere.) Finally, he said
local governments appeared to be using administrative
resources to disadvantage some parties, and noted that
Harkusha's shady past lent credence to these reports.


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