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R 211133Z MAR 07
FM AMEMBASSY KYIV
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RUEHBI/AMCONSUL MUMBAI 0003
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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