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Rada Elections 2006 Comment Eng

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5 pages
ˆˆˆˆˆRADA ELECTIONS 2006 EI SPECIAL COMMENT 2/12, Andriivska str., Kyiv 04070 Ukraine phone.: (044) 2304890, fax: (044) 2304898 th http://www.ukrsibbank.com March 29 2006 SUMMARY The parliamentary elections in Ukraine could be considered as realized and their main sequence is primarily the fact that unlike presidential elections these ones have passed in quiet atmosphere and have not led to growth of social intensity. The main surprising fact appeared to be a fascinating voting outcome of Yuliya Timoshenko’s Bloc being significantly ahead of “Our Ukraine”. The future parliamentary majority will be obviously generated by merger of two parties out of three winners that is the “Party of Regions”, BYT and “Our Ukraine” while Socialist Party and Communist party will carry out the role of satellites. We are apt to consider that merger of "Our Ukraine” and BYT is still likely to be more probable than any other configuration of the majority. In spite of the fact that Yuliya Timoshenko's government was dismissed by Victor Yushchenko in September 2005, their mutual experience of collaboration shows a hefty reformatory potential of such a coalition. The merger of “Our Ukraine” and “Party of Regions” is plausible as well, though at ...
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2/12, Andriivska str., Kyiv 04070 Ukraine
phone.: (044) 2304890, fax: (044) 2304898
http://www.ukrsibbank.com
March 29
th
2006
UKRSIBBANK INVESTMENT BANKING
PHONE: +38 (044) 230-48-54, 201-22-74, 201-22-54
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SUMMARY
ˆ
The parliamentary elections in Ukraine could be considered as realized and their main sequence is primarily the fact
that unlike presidential elections these ones have passed in quiet atmosphere and have not led to growth of social
intensity. The main surprising fact appeared to be a fascinating voting outcome of Yuliya Timoshenko’s Bloc being
significantly ahead of “Our Ukraine”.
ˆ
The future parliamentary majority will be obviously generated by merger of two parties out of three winners that is the
“Party of Regions”, BYT and “Our Ukraine” while Socialist Party and Communist party will carry out the role of
satellites. We are apt to consider that merger of "Our Ukraine” and BYT is still likely to be more probable than any
other configuration of the majority. In spite of the fact that Yuliya Timoshenko's government was dismissed by Victor
Yushchenko in September 2005, their mutual experience of collaboration shows a hefty reformatory potential of such
a coalition.
ˆ
The merger of “Our Ukraine” and “Party of Regions” is plausible as well, though at this time it could occur only in case
of failure of coalition negotiations between “Our Ukraine” and BYT. At the same time, we consider partnership
between these parties as strategically inevitable for the country and see the possibility of appropriate coalition
formation few months later.
ˆ
The lack of qualified officials in the list of BYT will let some of the current minister save their chairs. Representatives
of Party of regions may also appear in the new Government.
ˆ
We maintain our forecast regarding parameters of economic growth, inflation and exchange rate for 2006 and do not
expect fundamental changes in the state budget, also budget deficit increase is still possible due to gas prices
increase.
Pavlo Mishustin
p_mishustin@ukrsibbank.com
RADA ELECTIONS 2006
ELECTIONS OUTCOME
Thus, the parliamentary elections in Ukraine could be
considered as realized and their main sequence is primarily
the fact that unlike presidential elections these ones have
passed in quiet atmosphere and have not led to growth of
social intensity.
The main surprising fact appeared to be a fascinating voting
outcome of Yuliya Timoshenko’s Bloc being significantly
ahead of “Our Ukraine”. According to results of processing
of 93.7% ballots BYT managed to garner 22.46% of votes
while “Our Ukraine” obtained 14.45%. The leading position
of the Party of Regions has not been doubtful for experts as
far back as couple of weeks before elections and we believe
that 31.00% of votes will generally correspond to official
election returns persuant to the data of exit-poll
.
Hence, we still consider the generation of the “orange”
coalition as the most plausible though it would take, in our
opinion, a certain time-period and wouldn’t most likely take
place before official election returns promulgation.
BYT with
the greatest credibility (in case of the revival of the "orange
coalition" but within a new parliamentary majority) becomes
the defining force for not only the structure of basic part of
the future Cabinet of Ministers but also likely overall
economic and budget policy of Ukraine.
Preliminary election returns according to
the data
of 93.70 % ballots processed VS. exit-poll
data
3%
5%
24%
16%
31%
3,63%
5,87%
22,46%
14,45%
31,33%
0%
5%
10%
15%
20%
25%
30%
35%
Communis ts
Soc ialis ts
BY T
Our Ukraine
Party of Regions
Exit-poll
Prelim inary data (93.7% ballots )
Source: CEC, independent exit-polls
In our opinion, the main reason of sensational achievement
by BYT is the gain of sympathies of a significant part of
electorate of the western areas of Ukraine originally leaning
to Our Ukraine and being uncertain in the final choice till the
last moment of elections (according to the data of public
opinion poll the share of the undefined voters with their
choice accounted for about 15%). Another
factor of the loss
of "Our Ukraine" turned out the impossibility of direct
participation in the parliamentary race of the leaders. Victor
Yushchenko's forced turn down, who is the actual leader of
"Our Ukraine", from active election campaign for his political
force and performance of prime minister responsibilities by
its formal leader - Yury Yekhanurov have not allowed the
main "orange" force to carry on the most efficient work with
the population by personal meetings with voters in regions.
Given the current situation that Ukrainian people still
associate a political party with its leaders, Yuliya
Timoshenko being free from parliamentary and general
state activity has managed to demonstrate the best result
and approached to the moment of parliamentary majority
generation in the role of the leader of the future coalition.
Distribution of benches in Verkhovna Rada according to
expected final elections outcome
Party of
regions; 181
Our Ukraine;
84
BY T; 130
Communists;
21
Socialists; 34
Calculations: UkrSibbank
Prior to the beginning of elections we assumed some
variants of configuration of the future parliamentary majority
(for details please see “
Strategy Ukraine 2006
” review
published on March 7
th
2006). Due to elections outcome the
quantity of possible participants reduced from 6 to 5 and the
probability of the coalition generation by opposition parties
on their own has actually appeared unrealizable. Thus,
there are three suggested variants of creation of the future
parliamentary majority in Rada.
Possible majority configurations
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
Party of regoins + Our
Ukraine
BYT + Party of Regions +
Communists
BYT + Our Ukraine +
Socialists
Party of regions
Our Ukraine
BYT
Socialists
Communists
Calculations: UkrSibbank
RADA ELECTIONS 2006
NEW PARLIAMENT AND PROBABLE CONFIGURATIONS OF PARLIAMENTARY MAJORITY
The future parliamentary majority will be obviously
generated by merger of two parties out of three winners that
is the “Party of Regions”, BYT and “Our Ukraine” while
Socialist Party and Communist party will carry out the role of
satellites. Simultaneous presence of several alternative
variants of the parliamentary coalition is the positive
moment and we rule out probability of parliament dissolution
due to absence of the generated parliamentary majority and
new government within the terms set by the Political Reform
(for details please see our “
Ordeal by gas
” review, published
on January 14
th
2006)..
We are apt to consider that merger of "Our Ukraine” and
BYT is still likely to be more probable than any other
configuration of the majority. In spite of the fact that Yuliya
Timoshenko's government was dismissed by Victor
Yushchenko in September 2005, their mutual experience of
collaboration shows a hefty reformatory potential of such a
coalition.
The key driver will be represented by readiness of BYT and
personally of Yuliya Timoshenko to stand in line with the
reforms stipulated by the presidential program and also by
rejection of radical economic initiatives (suchlike as
reprivatization) and portion of her personal ambitions.
Besides, such a format of the coalition retains an existing
alignment of forces in the Parliament, i.e. the “Party of
Regions” remains in opposition. We assume Victor
Yushchenko to display the preference for parliamentary
opposition in favour of relatively nonpublic and politically
low-active “Party of Regions” instead of radically inclined
BYT. Such alignment of forces will also allow to supervise
the activity of new government being most likely generated
on the basis of BYT representatives and to use votes of the
"Party of Regions" in case of occurrence of explicit
confrontation between the President and the Government.
Additional argument in favour of "Our Ukraine" and BYT
merger is absence of disagreements in foreign policy.
The merger of “Our Ukraine” and “Party of Regions” is
plausible as well, though it could occur only in case of failure
of coalition negotiations between “Our Ukraine” and BYT.
Despite a number of foreign experts are willing to consider
such merger initially stronger and such as to incite the
elimination of differences having arisen out for the last year
between the authority and large businesses, we believe that
the government created by these forces will not be
considered legitimate at this time and, thus, strategically
unfavourable for the President and "Our Ukraine", trust
rating of which will aspire in that case to zero.
At the same time, the President requires support of large
businesses inherent to core industries of economy such as
metallurgy and mining (concentrated in the Eastern region
of the country), therefore we are apt to consider more
probable variant of mutual relations development to be
represented by occurrence in commanding political heights
of the "Party of Regions" representatives. This will form the
basement for the future coalition, which is likely to be
formed later. It’s still possible that the “orange” coalition will
be “technically” resurrected in order to avoid the Rada
dismissal and thus the scenario of 2005 will be partially
played again: Timoshenko’s cabinet will be ruling the
country for the few months and later will get dismissed by
the joined vote of “Our Ukraine” and Party of regions. By
that time these parties may erase the current factions and
be ready to cooperate strategically, while the electorate of
one may get more tolerant to the one of the opposite party.
The merger of BYT and the "Party of Regions" at this time is
also improbable as these parties constantly declared mutual
hostility and impossibility of cooperation. Economic program
of BYT is based in many respects on violent redistribution of
incomes of large businesses against social needs and
resulting in automatic impossibility of cooperation of these
forces in the parliament concerning economic issues.
Despite the given forces showed a permissibility of
situational joining up while voting for resignation of Yuriy
Yekhanurov’s government in January 2006 their merger into
parliamentary majority won’t occur.
In case of merger of "Our Ukraine" and BYT the nomination
of Aleksandr Moroz (the leader of the Socialist Party) for the
post of the Rada speaker could be forecasted. An
alternative post for the leader of socialists could be the post
of secretary of NSDC (the National Security and Defense
Council) - this time the socialists are most likely not to
receive other ministerial portfolios. The informal post of the
coordinator of the parliamentary majority could be assigned
to Yury Yekhanurov (holding the first position in the list of
"Our Ukraine") who previously refused to work in Yuliya
Timoshenko’s government.
RADA ELECTIONS 2006
THE NEW GOVERNMENT AND FUTURE ECONOMIC POLICY
Formation of the parliamentary majority by deputies of BYT
and "Our Ukraine" allows to forecast confidently Yuliya
Timoshenko's returning to the post of the Prime Minister and
also taking by representatives of her bloc of a part of
ministerial posts of economic (in particular - post for the
minister of fuel and energy) and power bloc.
At the same time it is possible to ascertain that BYT faces
grave problems with personnel resources as its list of
candidates practically contains no people with an
operational experience in machinery of State in general and
in real sector of the state economy in particular.
Such situation will most likely result in that the part of
ministers of the present structure of the government will
retain their portfolios. In particular, we forecast the
preservation of the post of the Minister of Finance by Victor
Pinzenik having already worked in the Government of Yuliya
Timoshenko. Also, it is not ruled out the occurrence in new
government of representatives of the "Party of Regions" (in
particular, on the post of the minister of industrial policy)
under the informal initiative of the President though such
initiatives will inevitably face significant resistance from BYT.
We maintain our forecast regarding parameters of economic
growth, inflation and exchange rate for 2006 (for details
please see our "
Strategy Ukraine 2006
" published on March
7
th
2006). Expecting the preservation of UAH/USD rate
stability, we, at the same time, do not rule out the
replacement of the head of the National bank as skills of
crisis management of Vladimir Stelmakh will no longer be
demanded and we expect a younger and more liberally
inclined head to get into the chair.
The settlement of “gas issue” evokes certain apprehension
(for details please see our “
Ordeal by gas
” review, published
on January 14
th
2006) as Yuliya Timoshenko repeatedly
declared her position towards fundamental reconsideration
of agreements with Russia related to natural gas supply and
its transit including arraignment of officials accounted for
such agreements execution. We believe, that the given
declarations were a part of pre-election polemic of BYT and
will not be realized in reality - the further growth of cost for
imported gas will have extremely adverse impact on
Ukrainian economy. In addition, probably there will be
attempts
of
replacement
of
company-intermediary
“RosUkrEnergo” by the other intermediary - the company
"Itera" being continually associated by experts with Yuliya
Timoshenko. We don’t rule out that the election of gas
intermediary constitutes the relevant part of coalition
negotiations, however, we think that while settling “gas
issue” and approving final terms of the agreement with
“Gazprom” its role won’t be the key driver. At the same time,
it is possible to forecast the activization of projects directed
at strengthening of power safety of Ukraine, in particular,
growth of internal extraction of power resources,
construction of alternative gas pipelines, state petroleum
refineries, etc.
If effective interaction between the President, the
government and the parliament will be revived within the
first weeks of work of Rada of new convocation it is possible
to expect the laws, necessary for Ukraine to join WTO, to be
passed in accordance with the schedule earlier promulgated
by the President, i.e. till summer.
At the same time we expect that the majority of the bills
approved by Rada on the eve of elections (in particular,
those provided redistribution of proceeds into the budget
from sale of metallurgical company "Krivorozhstal") will not
be approved by the president.
It is obvious, that Yuliya Timoshenko should refuse from the
“spotted management” of economy having occurred during
her tenure in the chair of the prime minister, boom of social
payments, and also from the idea of carrying out the further
reprivatization. At the same time, we expect the
macroeconomic data for the upcoming 6 months to show
the continuing “minor fevering”: GDP growth will be dancing
around 0, but due to the lower base of 2005 positive figures
are more likely.
We do not expect fundamental changes in the state budget
for 2006 (in case of preservation of present prices for
natural gas up to the end of 2006), however we continue to
observe the development of a situation regarding "Neftegaz
of Ukraine". Necessity of increase of tariffs for population
and enterprises pro rata to increase in price for imported
gas with aim to maintain the level of incomes of the
company is caused by budget-formation role of "Neftegaz"
as well as by necessity to retain its credit status. We do not
rule out the introduction of tax preferences for companies (in
particular, concerning VAT payment) that will actually mean
increase in the state budget deficit (additional deficit amount
may reach UAH4 bn. according to our estimations).
RADA ELECTIONS 2006
CONTACTS
JSIB “UkrSibbank”
2/12, Andriivska st., Kiev, 04070 Ukraine
tel.: +380 44 201 22 54/74,
+380 44 537 49 17,
tel./fax: +380 44 537 50 27
http://www.ukrsibbank.com
CAPITAL MARKETS
Deputy Chairman
Alexander Sulyayev
(044) 230 48 74
as@ukrsibbank.com
INVESTMENT BANKING
Head of Investment Banking
Deputy Head of Investment Banking
Denis Mikhov
Sergiy Vedrinsky
(044) 201 22 54
d_mikhov@ukrsibbank.com
(044) 230 48 54
sergeyved@ukrsibbank.com
Corporate Finance
Head of Corporate Finance
Debt Origination
Head of Debt origination
Equity and Industry Research
Head of Equity and Industry Research
Sector Analyst
Sector Analyst
Debt Markets Research
Debt Market Analyst
Ruslan Kilmukhametov
Oksana Shveda
Pavlo Mishustin
Dmitriy Romanovich
Sergiy Fursa
Maria Majboroda
(044) 537 49 17
rk@ukrsibbank.com
(044) 537 49 25
o_shveda@ukrsibbank.com
(044) 537 49 17
p_mishustin@ukrsibbank.com
(044) 537 49 17
d_romanovich@ukrsibbank.com
(044) 537 49 17
s_fursa@ukrsibbank.com
(044) 537 49 17
m_majboroda@ukrsibbank.com
Trading Transactions
Head of Trading Transactions
Brokerage
Sales
OTC
Andrey Muzychko
Anatoliy Zub
Dmitriy Shevchuk
Viktor Revkov
(044) 201 22 74
muzychko@ukrsibbank.com
(044) 201 22 74
a_zub@ukrsibbank.com
(044) 201 22 74
d_shevchuk@ukrsibbank.com
(044) 230 48 54
wik@ukrsibbank.com
No part of this report may be reproduced or distributed in any manner without permission of JSIB UkrSibbank
This research is made for information purposes only. Any information in this report is based on the data obtained from sources considered to
be reliable, but no guarantees are made by JSIB UkrSibbank with regard to the accuracy and completeness of the data. Opinions and
estimates contained in this report is the point of view of the bank’s analysts and should not be construed as a recommendation, offer or
solicitation to acquire or dispose any of the securities mentioned in this report. JSIB UkrSibbank accepts no responsibility or liability
whatsoever for any expense, loss or damages arising out of or in any way connected with the use of all or any part of this report.
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