VZCZCXRO6725
PP RUEHDBU RUEHIK RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHKV #0337/01 0501144
ZNR UUUUU ZZH
P 191144Z FEB 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 7315
INFO RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

UNCLAS SECTION 01 OF 03 KYIV 000337 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL UP
SUBJECT: KHARKIV'S LESSON FOR KYIV: STOP BICKERING, START 
WORKING TOGETHER 
 
SUMMARY: 
--------- 
 
¶1. (SBU) In the face of the mounting economic crisis, Kharkiv 
Oblast political leaders have set aside long-running 
political rivalries and started to work together.  The 
cooperation spans the political spectrum and has provided 
political cover for such unpopular measures as tranport fare 
increases.  Preparations for the Euro 2012 European soccer 
championships jointly hosted by Ukraine and Poland represent 
a key area of cooperation.  The economic situation in Kharkiv 
is deteriorating, but the city's major industries are not yet 
laying off workers. The rise in natural gas prices is 
straining local budgets and forcing tough decisions on 
funding for social programs.  END SUMMARY. 
 
 
CRISIS BRINGS POLITICAL COOPERATION 
----------------------------------- 
 
¶2. (SBU)  During the Ambassador's February 3-4 trip to 
Kharkiv Oblast, Governor Arsen Avakov told him that the 
economic crisis has pushed Kharkiv's political leaders to 
find common ground and work to stabilize the economic 
situation in the region.  Avakov, a Yushchenko appointee, 
explained that he, the Oblast Council controlled by Prime 
Minister Tymoshenko's bloc, and Party of Regions Kharkiv 
Mayor Mykhailo Dobkin have spent the last three years 
fighting each other.  Avakov said that just as everyone had 
grown tired of the conflict, a new enemy appeared, the 
economic crisis.  He said the continuous bickering of the 
national government provided a powerful negative example to 
Kharkiv.  Avakov said that he has reached a compromise with 
Dobkin and the oblast council to put aside controversial 
issues, such as Russian language, and focus on economic and 
social issues that they can all agree on.  He said that Kyiv 
is so focused on political infighting, the oblasts have been 
left to fend for themselves. 
 
¶3. (SBU) The Executive Director of the Association of 
Ukrainian Cities, Myroslav Pitsyk, described the 
transformation in Kharkiv politics as "remarkable," but not 
an isolated event.  He told us that in the last six months 
most of the regions where there was significant conflict 
between the oblast and municipal leadership have found a way 
to work together.  He said that the one exception was in 
Transcarpathia Oblast.  Mayors and Governors feel abandoned 
by Kyiv and are increasingly cooperating to deal with the 
economic crisis, according to Pitsyk.  He said there is 
significantly more cooperation between all major parties at 
the oblast and city level than at the national level. 
 
 
MAKING TOUGH CHOICES JOINTLY 
----------------------------- 
 
¶4. (SBU) Mayor Dobkin told the Ambassador that Kharkiv could 
no longer afford to continue the political fighting of six 
months ago.  He said that Kyiv has abandoned the oblasts and 
cities, "so we have to find our own solutions."  Dobkin 
emphasized that he and Avakov realized that only by 
cooperating could they hope to address the economic crisis. 
He said that an example of their cooperation could be seen in 
the recent doubling of fares for public transportation. 
Fares had not been raised since 2001 and needed to be raised 
in accordance with the rise in fuel prices and inflation. 
Ordinarily, Dobkin explained, his decision would have been 
subject to intense criticism by Avakov and the oblast council 
and used as political leverage against him.  He noted that a 
similar rise in fares in Kyiv resulted in a conflict between 
Kyiv Mayor Chernovetsky, President Yushchenko and Prime 
Minister Tymoshenko.  Dobkin told the Ambassador that he, 
Avakov and the oblast council reached a compromise agreement 
to unanimously back the fare rise prior to the public 
announcement.  He said he could not have imagined this six 
months ago. 
 
 
PREPARING TO PICK UP UKRAINE'S EURO 2012 SLACK 
--------------------------------------------- - 
 
¶5. (SBU) Avakov and Dobkin cited Kharkiv's preparation for 
the Euro 2012 championship soccer tournament as an important 
area of cooperation.  Dobkin told the Ambassador that, 
because Kharkiv is a reserve city, it has to be better 
prepared than other cities in order to have part of the 
competition moved there.  He said that delayed construction 
and difficulty in financing projects in Lviv and 
Dnipropetrovsk boosted Kharkiv's chances of hosting some of 
the tournament.  He said that the city and oblast had divided 
 
KYIV 00000337  002 OF 003 
 
 
responsibility between them, so that each could focus on its 
own projects.  The city is focusing on a new airport 
terminal, stadium, and hotels, while the oblast is working on 
roads and a new airport runway.  Dobkin said that he was 
proud of the role private firms were playing in the city's 
Euro 2012 preparations. 
 
 
OLIGARCH INVOLVEMENT 
-------------------- 
 
¶6.  (SBU) Ukrainian oligarch and owner of Development 
Construction Holding Company (DCH) Aleksandr Yaroslavsky told 
the Ambassador that his firm is Kharkiv's major private 
partner in Euro 2012 projects.  He said that DCH recently 
reached a deal with Kharkiv on a forty-nine year lease for 
the city's airport in return for major renovations to the 
existing terminal and the construction of a new terminal. 
Yaroslavsky said he is nearly finished with a major 
renovation of the Kharkiv soccer stadium, where his team 
Metallist plays, in return for partial ownership of the 
stadium.  He said that the Union of European Football 
Associations (UEFA) had inspected the nearly complete stadium 
earlier that day and said that it met their standards for the 
Euro 2012 tournament.  Yaroslavsky said that with a completed 
stadium and fully funded airport project, Kharkiv is well 
placed to take over for other Ukrainian cities that will not 
be ready in time for 2012. 
 
 
WORSENING ECONOMY, BUT NOT YET DIRE 
----------------------------------- 
 
¶7. (SBU)  Avakov described the economic situation in Kharkiv 
as "worsening, but not yet dire" and that Kharkiv benefits 
from not having major chemical or metallurgical plants.  The 
three main industries in Kharkiv are machine tools, power 
generation equipment, and education.  Avakov said that 
TurboAtom, a turbine manufacturer and Kharkiv's largest 
single employer, had long term contracts with Russia, Mexico, 
China and India that would keep manufacturing going in the 
near future.  He said the city has not been hit with large 
layoffs. Most of the economic pain is currently confined to 
the retail sector as worried people cut back on spending. 
Avakov and Dobkin both explained that they were only 
receiving eighty percent of their approved budget from Kyiv. 
This was forcing them to cut social programs and trim 
administrative costs.  Avakov said that he has cut forty 
percent from his office's budget and cut oblast projects from 
116 to four.  Only the most fundamental programs will remain, 
such as providing insulin to pensioners and heating the homes 
of the rural poor.  Dobkin said that Kharkiv is getting by 
right now, but the city's situation could rapidly deteriorate 
without a nation-wide plan for economic recovery from Kyiv. 
 
 
HIGHER GAS PRICES STRAINING BUDGETS 
----------------------------------- 
 
¶8. (SBU)  Dobkin told the Ambassador that this year's rise in 
Russian gas prices was a looming threat to cities across 
Ukraine.  Cities buy gas from regional gas suppliers at the 
new higher price, but cannot pass along the increased cost to 
residential users.  Kyiv heavily subsidizes gas for 
residential users, but the subsidies remain pegged to last 
year's gas price, leaving municipal budgets to absorb the 
shortfall.  Kyiv will not allow them to raise prices for 
residents to cover the gap in subsidies.  Avakov said that 
the rise in gas prices is also forcing the oblast to find 
alternative ways to provide heat to homes and businesses 
because increased gas prices have left a forty percent hole 
in the oblast budget.  The oblast is running pilot projects 
using wood waste, sunflower husks and electricity to power 
municipal centralized heating systems.  The oblast is also 
experimenting with modernizing some municipal systems. 
Avakov said Kharkiv oblast replaced the entire municipal 
heating system in Chervonoarmeisk and it now provides better, 
more reliable heat while using eighty percent less natural 
gas.  Avakov said that the gas price increase would mean a 
fifteen to twenty percent increase in the prices of milk, 
bread and meat in the oblast.  This will come as people's 
incomes stagnate or drop and could lead to social unrest. 
 
 
COMMENT: 
-------- 
 
¶9. (SBU)  Kharkiv seems to have been spared the worst of 
Ukraine's economic downturn so far, although empty billboards 
and vacant storefronts in the city's main shopping district 
 
KYIV 00000337  003 OF 003 
 
 
testify to the pain in Kharkiv's retail sector as people cut 
back on discretionary spending.  The newfound political 
cooperation among Kharkiv's political leaders in the face of 
the economic crisis is an example Kyiv would be wise to 
follow. 
TAYLOR