Whoever Shows Initiative Can Fold It Up

The American side could determine that Kharkiv oblast is unprepared for investment projects unless the US initiative is met halfway, a news conference was told by Inna Bohoslovska, deputy chairperson of the Verkhovna Rada budget committee. She further pointed out that the Kharkiv Initiative Program is actually in danger; it could be terminated. She stressed that American investors face serious problems connected with the fact that in Kharkiv “some structures and persons are trying to get money exclusively for themselves.”

The problem has its background, of course. It all started with Ukraine refusing to supply turbines for the Bushehr nuclear power plant in Iran. Now the construction project is handled by Russia. Kharkiv’s Turboatom alone lost tens of millions of dollars under the terminated contract. And it had to say no because of the US initiative, after State Secretary Madeleine Albright reminded Hennady Udovenko, the then Foreign Minister, that Ukraine was under the obligation not to disseminate dual-purpose technologies, specifically those that could be used in the development of nuclear arms. The American side regarded Turboatom’s participation in the Bushehr project as precisely such transfer of such dual-purpose technology. (Incidentally, addressing an Iranian-American audience in Washington on March 17, Mrs. Albright made a step toward Iran when, among other things, she suggested that the sanctions on imported Iranian luxury goods be lifted.) By way of compensation, the American side came up with yet another initiative: creation of a special investment climate in the east of Ukraine, so that territory would be open for a powerful influx of US capital. This was the Kharkiv Initiative of the US government.

In the over year and a half of its implementation no special changes have been registered in local business. If one were to disregard the ceremonies of signing documents and a couple of good standup buffet receptions, the actual deeds along these lines should include the reception of humanitarian aid for Kharkiv health care. True, it was quite sizable, two huge cargo planes and a convoy of trucks packed with medical equipment and medicines supplied from US military bases being closed in Germany.

Turboatom received no orders, just as nothing in terms of US capital increment in area small and medium businesses was observed, contrary to what is laid down in a whole chapter of the program. And what People’s Deputy Iryna Bohoslovska actually have in mind? Even prior to the Kharkiv Initiative, the US Motorola Corporation and Komunar Production Association started to negotiate a joint venture. At one time our association, intending to establish such a venture with America’s Federal System Group Co., lost $2 million. The US government acknowledged the American side was guilty and instructed Motorola to continue negotiations. And when some progress was made, both the Ukrainian and US bureaucrats hurried to declare this as the first tangible attainment in the Initiatives. Last spring, Kharkiv hosted a Ukrainian-US conference on the power industry and it was announced that the US Defense Department had issued a grant worth $300,000 to set up a joint venture supposed to manufacture online communications equipment for law enforcement, secret police, and other government security and military agencies, fire brigades, quick deployment forces, border guard troops, rescue teams, and so on. Motorola products had their well-deserved reputation, the company being the US Army’s official supplier.

In a word, the course events actually took left no doubt that Motorola and Komunar would indeed establish their joint venture. Basic instruments and technical documentation relating to future products were forwarded to Ukraine’s Ministry of Industrial Policy, which then exercised jurisdiction over Komunar. And then suddenly the Cabinet (under Valery Pustovoitenko) passed a rather confidential resolution reading that the Ministry had render assistance to Zaporizhzhia’s Radioprylad Equipment Works in establishing a joint venture involving the France’s Matra Nortel firm to put out similar radio stations. For a long time nothing was known about this document. Work to inform the joint venture Motorola-Komunar continued. Yet, as the Good Book says, “Nothing is secret, that shall not be made manifest.” This September, the Cabinet received a letter from US Charge d’Affaires David Hess to the effect that Motorola saw no reasons for continuing cooperation with the Ukrainian side. Mr. Hess further voiced his surprise at watching what he called non-market methods being applied by the Cabinet of Ministers of Ukraine, adding that it would benefit Ukraine to hold a tender. A similar message was forwarded to the Cabinet by the US Defense Department. Perhaps if a tender had been organized, Motorola would have wound up the successful bidder. Now, however, any such tandem is out of the question. The Americans feel offended. So Motorola quit the Ukrainian market again, also offended. And then the Cabinet canceled that resolution, but the Americans were left with an unpleasant taste in their mouths. Meanwhile, Kharkiv is already subject to special investment procedures. At least two local pharmaceutical companies have received equipment from abroad under preferential import tax conditions. Every project falling under these special investment procedures is handled by a special economic council under the city executive committee, which is a volunteer organization. This is probably what Ms. Bohoslovska had in mind, speaking about the need to have a “citizens’ council” in control. However, the most interesting thing is that such special investment procedures instituted in the city constitute the most important clause put forth by the American side with its Kharkiv Initiative. So what is there to prevent US business from thriving?

COMMENTARY

Volodymyr STRELIUK, head of the department for investment and interregional contacts, economy and property directorate, Kharkiv oblast state administration, believes that there is no cause to administer the Last Rites. He told The Day that “Inna Bohoslovska’s statement about the decline of the Kharkiv Initiative is her own opinion as a politician, but not objective reality. Work to carry out the project is still underway. At the end of March, officials from the oblast state administration and city business circles visited the US Embassy in Kyiv and submitted a new package of investment proposals. The Komunar Works is indeed conducting business negotiations with Motorola — more precisely one of its subsidiaries — and these negotiations are quite effective. A contract is sure to be signed,” Mr. Streliuk emphasized, adding that the oblast state administration knows of no specific cases of corruption in conjunction with the Kharkiv Initiative.