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FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9180
INFO RHMFISS/DEPT OF ENERGY WASHINGTON DC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 03 KYIV 000107 
 
SIPDIS 
 
DEPT FOR EUR, EUR/UMB 
 
E.O. 12958: DECL: 01/21/2020 
TAGS: EFIN ETRD PGOV PINR PREL UP XH EREL
SUBJECT: POSSIBLE NEW UKRAINIAN PM TIHIPKO CASTS SELF AS 
 
REFORMER 
 
Classified By: Ambassador John F. Tefft for Reasons 1.4 (b) and (d) 
 
¶1.  (C) Summary.  Serhiy Tihipko may accept the position of 
Prime Minister of Ukraine, but only if he is guaranteed 
support from the new President and the Rada (parliament) to 
tackle economic and administrative reforms, and only after 
the presidential race concludes.  Having just finished third 
in Ukraine's January 17 first round presidential election, 
Tihipko told the Ambassador that he would support neither 
Yulia Tymoshenko nor Viktor Yanukovych prior to the February 
7 second round vote.  Tihipko said he had been underestimated 
and unsupported by elites in Ukraine and abroad, but his lack 
of political debts now provided him leverage and 
independence, especially in ongoing negotiations with 
Ukraine's major faction leaders and in his upcoming trip to 
Moscow.  End summary. 
 
PRESIDENTIAL ELECTION SECOND ROUND 
---------------------------------- 
 
¶2.  (C) Millionaire businessman and former Deputy Prime 
Minister and National Bank Governor Serhiy Tihipko, who 
placed third in Ukraine's January 17 first round presidential 
election, told the Ambassador on January 21 that he would 
"stay away from the fight" between Yanukovych and Tymoshenko 
before the second round.  Tihipko's primary rationale was 
that he did not want to take responsibility for what either 
candidate would say on the campaign trail.  He noted that 
both were "bad alternatives" for Ukraine, since neither alone 
would make the "democratic changes and economic 
modernizations" the country needed.  Tihipko commented that 
each had served as Prime Minister twice and had already 
received plentiful chances.  Voters were now faced with a 
choice of the "lesser evil." 
 
¶3.  (C) Tihipko said there was a danger the second round 
election results could be delayed due to litigation, and he 
feared the courts would be unable to resolve the situation. 
Tihipko said any extended delay or cancellation of the 
election would be "bad for Ukraine but good for me."   He 
reasoned that if second round election results were cancelled 
because of Party of Regions-BYuT fighting in the courts, 
Ukrainians would vote in droves against both candidates in a 
new election.  Tihipko confidently projected that, in such an 
instance, he would become Ukraine's next President, since the 
country's population had learned that a vote cast for Tihipko 
would not be wasted. 
 
¶4.  (C) Tihipko told the Ambassador that he had talked to 
incumbent President Yushchenko earlier in the day about the 
possibility of a declaration of emergency.  Tihipko said he 
would back Yushchenko if extreme post-election stasis 
prevented an announcement of the second round results. 
Noting that both he and the President "knew what to do and 
where to support each other," Tihipko described Yushchenko as 
a "democrat" who had retained enough support from the 
population to make such a bold decision. 
 
PRIME MINISTER JOB ON THE TABLE 
------------------------------- 
 
¶5.  (C) Although he would not endorse Tymoshenko or 
Yanukovych or accept either's offer to become Prime Minister 
prior to the second round, Tihipko said he would continue to 
"conduct all political negotiations."  After the presidential 
election, Tihipko said it was "possible" he could agree to 
become Prime Minister, but only under very clear conditions. 
He would need an 18-month "guarantee of support from the 
President through the Rada" to allow him to undertake 
"difficult steps." 
 
¶6.  (C) Tihipko reasoned that if Yanukovych won the 
presidency, the Party of Regions would be able to construct a 
coalition and remove Tymoshenko as Prime Minister. 
Yanukovych would not need to call early elections to 
accomplish this, since the Lytvyn and Our Ukraine blocs would 
migrate to the new power center.  Tihipko noted that talks in 
the Rada were already underway, and that forming a new 
coalition without pre-term parliamentary elections would be 
"very easy to do," implying that this could result in his 
premiership.  Tihipko said a decision to hold pre-term Rada 
elections would also work in his favor, since he expected to 
gain about 15% of the seats in parliament in a snap vote. 
 
LOOKING AHEAD, LOOKING BACK 
--------------------------- 
 
KYIV 00000107  002 OF 003 
 
 
 
¶7.  (C) As an alternative to the post of Prime Minister, 
Tihipko said he had entertained the idea of running for Kyiv 
mayor in the May 2010 municipal elections, while working at 
the same time to build his political party.  This would 
enable him to run again for President in five years with a 
strong party infrastructure in place throughout the country. 
 
¶8.  (C) Tihipko thought Ukraine's oligarchs would now fully 
support him, since they trusted he could prevent a calamitous 
two or three-fold fall in assets prices that would result 
from ongoing political instability.  Above all else, Tihipko 
believed Ukraine's elites respected him because he owed 
favors to no one.  Gesturing with his thumb and forefinger 
together, Tihipko emphasized he had taken "zero, not one 
kopek" from others and had funded his campaign entirely with 
his own money.  It was the best possible position for a 
politician emerging onto the national stage. 
 
¶9.  (C) Tihipko said that he had approached the campaign like 
a business proposition.  He had laid out a strategy to target 
voters, cultivated a message, and delivered a product.  He 
told the Ambassador he had sought to attract young, well 
educated, urban entrepreneurs and government workers by 
staying away from populism.  This strategy had been developed 
in consultation with French advisors in charge of political 
party building, along with American experts from a U.S.-based 
"democratic institute."  Tihipko acknowledged that 
American-style campaigns were the "future" of politics in 
Ukraine, since Americans tended to take a more business-like 
approach, though he admitted that the lack of a party 
infrastructure and support network in the regions had hurt 
his presidential campaign. 
 
TOP REFORM PRIORITIES 
--------------------- 
 
¶10.  (C) Tihipko said he desired to be featured in Ukrainian 
history as a reformer and that "he would not lose this 
chance."  His top priorities were the economic policy changes 
the country needed to exit the crisis.  Tihipko pledged to 
balance the budget and get right with the IMF.  Both steps 
would be taken immediately, Tihipko said, sending prompt 
signals to investors and foreign partners.  Next, Tihipko 
would focus on deregulation and tax reform to bring small and 
medium firms "out of the shadows," where he said 40% of 
business activity in Ukraine now resided.  He would roll back 
intrusive state inspections and streamline taxation to combat 
corruption and bolster budget revenues. 
 
¶11.  (C) Tihipko also cited the need for energy, 
agricultural, and transportation reforms.  He told the 
Ambassador he would immediately raise gas prices to levels 
sufficient for cost recovery.  It would not be necessary for 
the next Prime Minister to "sell" such increases to the 
public; the government "just needs to do it," while targeting 
support for the most vulnerable populations.  If people were 
spoken to in an honest manner, Tihipko felt, there would be 
no political backlash. 
 
¶12.  (C) Tihipko addressed the necessity to reform Naftohaz, 
the state energy monopoly.  He proposed first splitting the 
company into two separate units, coinciding with its gas 
transit and production functions.  Then, Tihipko said, 
Naftohaz should be turned into a joint stock company, with 
Ukraine controlling 50%, and the remaining shares divided 
evenly between the European Union (24.99%) and Russia 
(24.99%).  This would cause both East and West to take a 
stake in the company's future, as well as diminish the demand 
for alternative transit routes via the Nord and South Stream 
pipelines.  Tihipko proposed to use revenues from Naftohaz's 
stock sale to modernize Ukraine's gas transit infrastructure, 
as well as to pay off Naftohaz's mounting debts. 
 
¶13.  (C) Tihipko agreed with the Ambassador that Ukraine 
could learn from steps Georgian President Saakashvili had 
taken to lower corruption aQ reform Georgia's economy.  Upon 
hearing that Saakashvili still enjoyed an approval rating of 
over 70%, Tihipko noted that Georgia's economy now ranked 
among the world's most investor friendly.  Tihipko added that 
he was scheduled to meet with the Georgian ambassador later 
in the day and was contemplating a visit to Georgia. 
 
RELATIONS WITH MOSCOW 
--------------------- 
 
 
KYIV 00000107  003 OF 003 
 
 
¶14.  (C) Tihipko told the Ambassador that he planned to 
travel to Russia in the coming days.  He could "feel the 
interest" of Moscow in his emergence as a leading politician. 
 Tihipko stated twice that he expected to be received "at the 
highest level," noting that it was now easy for him to have 
such consultations.  Moscow had been even more skeptical than 
Washington about his candidacy and had avoided engagement 
until after the first round presidential election.  Because 
nobody had believed in him or helped his campaign (in Ukraine 
or abroad), Tihipko said he could operate more independently 
while holding talks with the Kremlin. 
 
¶15.  (C) Tihipko said Ukraine needed to improve relations 
with Russia, but he felt "Russia always wanted to dominate." 
Winning against Moscow meant being more competitive and 
attractive to outsiders and having a better democracy and a 
more open market economy.  Tihipko was "afraid" both 
Yanukovych and Tymoshenko misunderstand this and ultimately 
would give into Russia.  Such a conciliatory stance would 
hurt both Ukraine and Russia, Tihipko felt, since Moscow was 
prone to overplaying its hand.  A Russian strategy of 
domination would provoke a reaction "throughout all parts" of 
Ukraine.  If Russia did not follow a predictable, pragmatic 
policy in the shared interests of Ukraine, there would be a 
"second Maidan" -- a reference to Kyiv's Independence Square 
and the 2004 Orange Revolution. 
 
EURO-ATLANTIC INTEGRATION 
------------------------- 
 
¶16.  (C) Ukraine's "Europe-oriented vector" would remain in 
place, despite Russian attempts to constrain Kyiv, and 
further EU integration was "priority number one" for the new 
government, Tihipko said.  NATO expansion needed to wait 
until relations between Washington and Moscow improved.  In 
any case, Tihipko could not imagine NATO expansion under 
current Russian leadership, saying it would cause the Kremlin 
to unleash a fifth column to destabilize Ukraine.  Tihipko 
would maintain cooperation with NATO to build Ukraine's 
military to NATO standards.  Any government public relations 
campaign on NATO should focus less on membership accession 
and more on military reform. 
 
RELATIONS WITH WASHINGTON 
------------------------- 
 
¶17.  (C) Tihipko noted that he had enjoyed his recent 
consultations in the U.S.  He commented specifically about 
his longstanding friendship with White House economic advisor 
David Lipton, whom Tihipko said still served as a mentor and 
sounding board.  Tihipko mentioned that U.S. interlocutors 
(specifically "former Ambassadors") had underestimated his 
chances, but Moscow had underestimated him even more.  He 
said he hoped to visit the U.S. again soon to continue his 
conversations. 
 
BIOGRAPHICAL OBSERVATIONS 
------------------------- 
 
¶18.  (C) Tihipko spoke in fluent, flawless Ukrainian with the 
Ambassador, a language he has increasingly used in media 
appearances during and since the presidential campaign.  In 
prior meetings with embassy officials and in speeches at 
economic conferences, Tihipko had interacted solely in 
Russian. 
 
¶19.  (C) Leaning forward and communicating earnestly, Tihipko 
engaged the Ambassador throughout the conversation, 
responding succinctly to questions.  His style of speech was 
direct and without any unnecessary flourishes, except at the 
outset when he went out of his way to praise the assistance 
of U.S. government officials during Ukraine's economic 
crises. 
 
COMMENT 
------- 
 
¶20.  (C) Tihipko was in full command of his political 
strategy, as well as his priority reform items, revealing how 
his background as a banker and business leader would inform 
his approach to the post of Prime Minister.  While he 
appeared to take satisfaction in his new found popularity, 
his attacks on both Tymoshenko and Yanukovych showed that any 
compromise with either could be fraught with tensions. 
 
TEFFT