UKRAINE: PARLIAMENT HALTS SALE OF TRADE UNION'S

UNCLAS SECTION 01 OF 03 KYIV 000645 SIPDIS SENSITIVE SIPDIS STATE FOR EUR/UMB AND DRL/ILCSR DOL FOR SMARLER BERLIN FOR RSHAGEN GENEVA FOR JCHAMBERLIN MUMBAI FOR WKLEIN E.O.: 12958: N/A TAGS: ELAB PGOV UP SUBJECT: UKRAINE: PARLIAMENT HALTS SALE OF TRADE UNION'S SOVIET-ERA ASSETS REF: A. 2004 KIEV 4739 ¶B. 2003 KIEV 4751 KYIV 00000645 001.2 OF 003 SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET PUBLICATION ¶1. (SBU) Summary: The Ukrainian Parliament has established a moratorium on the sale of property by the Federation of Trade Unions (FPU),the successor to Ukraine's Soviet-era trade union. The move marks a surprising turn of events in an ongoing conflict between the FPU, which controls all union property inherited from the Soviet era, and the independent trade unions that seek a fair distribution of the assets. The Rada will concurrently conduct an investigation into the property issue, which could lead to other measures in addition to the moratorium. In the longer term, a resolution to this issue could induce the Federation to reform and concentrate on the needs of its members, rather than on its property holdings. End Summary. Rada Halts Property Sale -------------- ¶2. (U) Ukraine's Rada (parliament) passed a law on February 22 establishing a moratorium on the sale of property by the Federation of Trade Unions (FPU),the country's largest trade union organization and successor to the Soviet-era All-Union Central Council of Trade Unions. The law calls for the establishment of a special commission to conduct an inventory of the FPU's property and to investigate past property sales. After vetoing a previous version, and insisting that it require the investigation to be completed by January 1, 2008, President Yushchenko signed the bill into law on March 14. Background on Property Issue -------------- ¶3. (U) The FPU-owned property in question includes prime real estate in the country's largest cities, as well as valuable and highly sought-after vacation complexes in the Crimea. Media reports estimate the total value of the inherited property at USD 2.5-3.8 billion, although it is likely that only USD 200-600 million worth of property has not already been sold. The FPU gained control of this property in the legal vacuum accompanying the collapse of the Soviet Union. Competing trade unions such as the Confederation of Free Trade Unions (CFTU) and the All Ukrainian Union of Workers' Solidarity (VOST) have long argued they should receive a share of the spoils. CFTU head AND Rada MP Mykhailo Volynets told Econoff on March 15 that his main objective is to obtain a share of the inherited office space, while the more profitable vacation complexes should be managed by some kind of social fund rather than the unions themselves. ¶4. (SBU) The FPU has operated as a holding company for several property management, construction, and supply firms. Critics note that the Federation survives financially on income from these firms, and through rent paid on its real estate, rather than the membership dues that drive more typical trade unions. FPU deputy chairman Grygoriy Osovyy admitted to Econoff in September 2006 that the FPU's claim of 11 million members may be misleading. He estimated that only 75% of alleged members even belong to functioning unions, and that substantially fewer pay dues to the FPU. Fire Sale -------------- ¶5. (SBU) The FPU has steadily sold off a sizeable portion of the property over the years to finance its operations and, almost certainly, to line the pockets of its leadership. As talk of renationalizing the property emerged, FPU leadership quickened the pace, fearful that what was not sold could be lost. The Ukrainian weekly journal "Business" reported in October 2006 that, between KYIV 00000645 002.2 OF 003 2005 and mid-2006, the Federation sold no less than 34 property assets for about USD 1.7 billion, primarily through its daughter companies "Ukrprofzdravnica," which owns health resorts and medical facilities, and "Ukrpoftur," which owns tourist facilities. "Business" also reported that "Ukrprofzdravnica" sold shares in the company worth USD 25.5 million during this period, using the proceeds for salaries of FPU officers and other FPU expenses. Attempts at Resolution -------------- ¶6. (SBU) As part of negotiations to join the primary international trade union confederation (formally ICFTU, now ITUC),the Federation had agreed to work towards a fair resolution with competitor unions CFTU and VOST, which were already recognized members of the international body (ref B). The FPU had offered to share some small office space with other unions, but remained adamant on retaining the more valuable of the assets. With the ICFTU/ITUC focused on its own reorganization, and with FPU's Russian allies lobbying on the Federation's behalf within international institutions, no substantial international pressure was brought to bear on FPU to compromise. ¶7. (SBU) Progress looked possible following the resignation of former FPU boss Oleksandr Stoyan in 2004, when it emerged that he had urged the use force against protesters during the Orange Revolution (ref A). The "orange" governments of 2004-2005 failed in their efforts to get the Rada to move against the FPU, however. CFTU head Volynets told Econoff that he blamed this failure on obstruction by the State Property Fund, which he accused of being in cahoots with FPU leadership. No Longer Orange vs. Blue -------------- ¶8. (SBU) FPU and Stoyan's successor, Oleksandr Yurkin, have remained closely aligned to the Party of Regions and current Prime Minister Viktor Yanukovych. This move by the Regions-dominated Rada, then, came as a surprise. ILO Technical Advisor and trade union insider Stanislaw Cheniuch in January described a kind of "unholy" alliance that had formed to push through the moratorium bill. Included in this alliance are Volynets, who is a perennial FPU opponent as chairman of the CFTU and a Yulia Tymoshenko Bloc MP, former FPU head Stoyan, who is apparently out for revenge after his unseating, and Regions MPs such as Yaroslav Sukhiy (sponsor of the moratorium bill),who want to see the valuable property returned to state coffers. Minister of Labor Mykhailo Papiyev has also supported distributing the Soviet-era assets, and during a meeting with Ambassador in October 2006 he criticized the FPU for surviving "at the expense of these assets." Comment: Catalyst for FPU Reform? -------------- ¶9. (SBU) Like its contemporaries throughout the former Soviet Union, the FPU has been slow to reform and adapt to free market conditions and democratic political institutions. Its massive property inheritance has only slowed this process, creating incentives for corruption among FPU leadership and allowing the Federation to survive without developing a dues-paying membership. In 2001, for example, former FPU head Stoyan actually opposed labor protests over low wages on the grounds that protests directed at the government could threaten the security of the FPU's real estate holdings. This Rada investigation and moratorium, if it ultimately deprives the FPU of its property-generated income, could help push the Federation to reform itself more along the lines of a western-style trade union that is first and foremost responsive to its members. Such reform cannot occur instantaneously, but a resolution of the property issue could trigger serious change. KYIV 00000645 003.2 OF 003 TAYLOR