UKRAINE: PARLIAMENT HALTS SALE OF TRADE UNION'S

UNCLAS SECTION 01 OF 03 KYIV 000645

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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

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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

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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.

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