VZCZCXRO9130
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKV #1184/01 1380511
ZNR UUUUU ZZH
P 180511Z MAY 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 2347
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUCNCIS/CIS COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUEHBI/AMCONSUL MUMBAI 0037

UNCLAS SECTION 01 OF 02 KYIV 001184 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/UMB 
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK 
MUMBAI FOR WKLEIN 
 
E.O.: 12958: N/A 
TAGS: ECON PGOV EAID UP
SUBJECT: UKRAINE'S KREMENCHUK: NOT YOUR TYPICAL POST- 
SOVIET, INDUSTRIAL EYESORE 
 
KYIV 00001184  001.2 OF 002 
 
 
¶1. Summary:  Kremenchuk, an industrial city of 232,000 in 
central Ukraine, is home to several thriving enterprises. 
A visit to a local meat plant revealed a company 
transforming itself from a post-Soviet mess to a modern, 
competitive facility.  The city administration is focused 
on a series of major infrastructure projects, and 
desperately wants to build a new bridge to link the city's 
two parts.  The city also boasts an active civil society; 
we were particularly impressed with a local youth group. 
Econoff found that Kremenchuk, whose economy is growing 
thanks to a diverse group of medium-sized enterprises, was 
a counterpoint to the negative stereotypes of Ukraine's 
industrial regions.  End Summary. 
 
¶2. Econ Officer and Assistant visited the city of 
Kremenchuk April 26-27 to attend the tenth annual trade 
show "Chumatskiy Shliakh," the city's largest showcase of 
local producers.  The annual event is organized by an NGO 
headed by a recent participant in an International Visitors 
Program focusing on investment promotion. 
 
Kremenchuk Background 
--------------------- 
 
¶3. Kremenchuk, located in central Ukraine on the banks of 
the Dnieper River, is a city of only 232,000 inhabitants, 
but is nonetheless the industrial center of Poltava Oblast. 
The city dates to 1571, when Polish King Sigismund II 
decided to build a fortress at the site to protect the 
region from Cossack and Tatar intrusion.  Over time, 
Kremenchuk developed as a commercial center thanks to its 
location at the crossroads of two trade routes.  Today the 
city is home to a number of successful enterprises, 
including the Ukrtatnafta oil refinery and the large truck 
producer AutoKrAZ.  The stock of foreign direct investment 
(FDI) into Kremenchuk stood at USD 148 million as of 
January 1, with 72 percent coming from Russia and 17.4 
percent from the Netherlands. 
 
Thriving Medium-Sized Enterprises 
--------------------------------- 
 
¶4. Atypical for an industrial city in Ukraine, Kremenchuk 
boasts an attractive, green center.  Kremenchuk also 
differs from the norm in that it is no longer a "company 
town" with a single firm dominating the local economy, 
although the refinery now owned by Ukrtatnafta may have at 
one time played that role.  The local service sector 
appears to have taken off, and a number of successful, 
medium-seized enterprises, active in a diverse range of 
economic activities, are driving the city's economic 
growth. 
 
¶5.  The Ukrtatnafta oil refinery, one of the country's 
largest, is nonetheless still central to the local economy. 
It combines oil extraction, processing, and retail sales 
under one roof.  The refinery has not operated at full 
capacity since the early 1990s, however.  Part of the 
refinery's problems probably lie in the overcapacity and 
market conditions that hamper all Ukraine's refineries, but 
local observers noted this may be abetted in Kremenchuk's 
case due to an ongoing dispute among its owners: the 
government of Ukraine, the government of Tatarstan in 
Russia, and private investors.  (Note: Company infighting 
continues despite press reports back in 2004 that the 
dispute had been resolved.  Ukrtatnafta management declined 
Econoff's request for a meeting to discuss the current 
situation.  End Note.) 
 
¶6. Local meat producer Kremenchukmiaso in many ways 
symbolizes the city's successful economic transition. 
Kremenchukmiaso struggled to survive the national economic 
collapse of the 1990s, but a bankruptcy ruling in 1998, 
followed by an injection of financing from a Kyiv bank, 
paved the way for the company's rehabilitation.  It now 
produces nearly 200 different meat products, and, largely 
thanks to the successful branding of its popular "Doctor" 
sausages, has captured 5 percent of Ukraine's market for 
meats.  The company also exports to Georgia and Russia. 
During a tour of the facility, Econoff found the top two 
floors of the main plant facility impeccably clean and 
modern, complete with German-produced equipment.  The 
ground floor, meanwhile, with crumbling flooring and blood- 
stained walls, looked like something from Upton Sinclair. 
Irina Drozdova, Deputy Director of Kremenchukmiaso, told us 
 
KYIV 00001184  002.2 OF 002 
 
 
that the company had so far managed to renovate and upgrade 
70 percent of the plant.  The physical plant, therefore, 
served as a visual metaphor for the firm's progress to 
date, and its potential for growth. 
 
City Priority #1 - A New Bridge 
------------------------------- 
 
¶7. Deputy Mayor Volodymyr Onyschenko and other city 
officials briefed foreign businessmen and diplomats on the 
city's economic development.  The city, he said, was 
seeking financing for a series of major infrastructure 
projects, from a waste management facility to a new, 
environmentally-friendly city district.  All city officials 
agreed, however, that most important for Kremenchuk was the 
construction of a new bridge over the Dnieper river to link 
the city's left and right banks.  The current bridge was 
frequently unusable due to structural deficiencies, slowing 
transportation between the two halves of the city and 
creating uncertainty for local businesses.  A group of 
Slovak investors present at the conference expressed 
interest in the project.  Econoff noted that the Millennium 
Challenge Corporation's (MCC) compact program could be used 
for infrastructure projects that would alleviate poverty 
through economic growth.  He encouraged Kremenchuk to 
contact Ukraine's MCC points of contact to discuss the 
city's priorities. 
 
Active Youth NGO 
---------------- 
 
¶8. Local government officials boasted of the city's active 
civil society and included representatives of youth 
organizations in their briefing.  Econoff met both with 
Maksim Levchuk, a graduate student who doubles as a member 
of the oblast council, and with a group of about 20 members 
of the Kremenchuk Youth Parliament.  The young men and 
women, including high school seniors and college students, 
displayed an impressive degree of community engagement. 
The group is active in areas as diverse as protecting the 
environment, aiding the local prison population, and 
promoting women's rights (by founding a local soccer team 
for women, who are often denied a chance to play given 
Ukraine's patriarchal view of the sporting world). 
 
Comment: A Different View of the Regions 
---------------------------------------- 
 
¶9. The attractive and relatively prosperous city of 
Kremenchuk offers an interesting look into the economy of 
one of Ukraine's regions, which outsiders usually view 
through the prism of preconceived notions of East vs. West, 
or industrial vs. agricultural.  Kremenchuk is benefiting 
from a diversified economy, with medium-sized enterprises 
leading the way, and an apparently healthy civil society. 
The city is still poor by European standards, of course, 
but from what we saw in our visit, appears to be headed in 
the right direction. 
 
TAYLOR