Rada Elections 2006 Comment Eng

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ˆˆˆˆˆRADA ELECTIONS 2006 EI SPECIAL COMMENT 2/12, Andriivska str., Kyiv 04070 Ukraine phone.: [phone], fax: [phone] 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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• Publié par: Udru
• Nombre de lectures: 34
• Langue: English

Extrait

2/12, Andriivska str., Kyiv 04070 Ukraine

phone.: [phone], fax: [phone]

http://www.ukrsibbank.com

March 29

th

2006

UKRSIBBANK INVESTMENT BANKING

PHONE: [phone]

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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

[e-mail]

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”

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tel.: [phone],

[phone],

tel./fax: [phone]

http://www.ukrsibbank.com

CAPITAL MARKETS

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Sector Analyst

Sector Analyst

Debt Markets Research

Debt Market Analyst

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Oksana Shveda

Pavlo Mishustin

Dmitriy Romanovich

Sergiy Fursa

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OTC

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