[Congressional Record Volume 142, Number 38 (Tuesday, March 19, 1996)]
[Extensions of Remarks]
[Pages E377-E378]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          UKRAINE'S COMMITMENTS TO REFORM IN THE ENERGY SECTOR

                                 ______


                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                        Tuesday, March 19, 1996

  Mr. HAMILTON. I would like to bring to my colleagues' attention a 
letter I received from the administration concerning a commitment by 
Ukraine to reform its energy sector in return for United States 
assistance in the form of a USAID/Eximbank credit facility. In a series 
of communications with Mr. Richard Morningstar, special adviser to the 
President and Secretary of State for United States Assistance to the 
NIS, I expressed my concern that United States provision of a USAID/
Eximbank facility be conditioned upon Ukrainian agreement to specific 
reforms.
  In return for a $175 million credit facility, Ukrainian Deputy 
Finance Minister Shpek committed to restructure the power market. He 
specifically agreed to break up the power market by taking four 
distinct steps, as itemized in the following letter from the Department 
of State. The reforms agreed to by Mr. Shpek are above and beyond any 
existing IMF or World Bank conditionality. In my judgment, the 
conditions attached to this credit facility will enhance reform in the 
Ukraine.
  The text of the letter follows:

                                     U.S. Department of State,

                                Washington, DC, February 22, 1996.
     Hon. Lee Hamilton,
     House of Representatives.
       Dear Mr. Hamilton: During your meeting last fall with Mr. 
     Richard Morningstar, Special Advisor to the President and 
     Secretary of State for U.S. Assistance to the NIS, you 
     expressed interest in the Administration's program of 
     encouraging reform in Ukraine's energy sector and the AID/
     Eximbank facility. We wanted to take the opportunity to 
     describe the energy sector reforms to which the Government of 
     Ukraine has committed as a condition of approval of the 
     facility.
       In two face-to-face official meetings, Mr. Morningstar has 
     made clear to Ukrainian Deputy Prime Minister Shpek that 
     commitment to restructure the power market is an essential 
     condition under which we could implement the $175 million 
     facility. Deputy Prime Minister Shpek understood and accepted 
     that condition and has committed to break up the state-owned 
     power monopoly into the following parts:
       Four already established, competing electricity generating 
     companies that will be privatized; a national electricity 
     transmission company; twenty-seven independent, joint stock 
     local electric companies; and a competitive market for power 
     by the end of March 1996 in which the generation companies 
     bid to supply the local distribution companies with 
     electricity at the lowest price.
       This commitment is above and beyond any IMF conditions and 
     any condition for any existing World Bank loan. Creation of 
     the power market will become part of the negotiations for an 
     upcoming World Bank loan. The AID/Eximbank credit will give 
     the Government of Ukraine short-term funding flexibility to 
     implement the energy market structure and will help to 
     leverage the World Bank financing.
       The AID/Eximbank facility is a special export credit 
     insurance facility for U.S. exporters of agricultural-related 
     goods and services to Ukraine. The purchase of refined fuel 
     agricultural inputs--up to $100 million of the $175 million 
     facility and of critical importance to the Government of 
     Ukraine--would qualify for coverage under the program; 
     however, the facility may not be used for broader, untied 
     fuel purchases. We strongly believe that the commitment to 
     the reforms outlined above justifies the inclusion of refined 
     fuel products in the agriculture credit facility. The 
     facility will operate according to ExIm's regulations and 
     Eximbank will recommend whether to extend insurance coverage 
     on a case-by-case basis. We assure you that any agricultural 
     fuel inputs will be closely monitored and traced to 
     agricultural use. As we go forward with this program we will 
     be sure that it remains consistent with our broader efforts 
     to promoting reform in Ukraine.

[[Page E378]]

       Please let me know if we can be of further assistance on 
     this or any other issue.
           Sincerely,

                                             Wendy R. Sherman,

                                              Assistant Secretary,
     Legislative Affairs.

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