Concorde Capital, Ukraine -

The president's suggestion on Wednesday, October 3 that Ukraine form a three-party coalition is likely to drag out coalition negotiations, but our talks with representatives from the big three parties lead us to believe it's just a matter of time before the sitting of a new Orange coalition government.

With Yulia Tymoshenko back at the helm as premier, the privatizations of Ukrtelecom and Odesa Portside are likely to move forward. There may also be conflict on the horizon for utility Dniproenergo - which was controversially bought by billionaire and longtime rival Rinat Akhmetov - and RosUkrenergo, the murky gas trader part-owned by Gazprom.

Tymoshenko set to return as PM

With vote tallying all but complete, the Yulia Tymoshenko Bloc and Our Ukraine look poised to create the coalition that slipped through their fingers in March of 2006. A combined Tymoshenko Bloc-Our Ukraine account for 44.9% of the vote, or 228 seats in Ukraine's 450-seat parliament where 226 votes are required to form a coalition. This is a slight majority over a Regions-Communist-Lytvyn coalition (43.7%, or 222 seats). With the Socialists failing to get over the 3% barrier to enter the Rada, there is no possibility for a coalition to be formed that does not include either Tymoshenko or Our Ukraine. This is one of the key factors that differentiate these elections from those in March 2006 when the Socialist defection from the Orange camp gave Regions the ability to form the government with the Communists and Socialists in tow.

President throws monkey-wrench in coalition talks?

In a televised address Wednesday, President Yushchenko called on all parties to form a "broad coalition" in an effort to unify the country. A suggestion the Party of Regions readily accepted, but was flatly refused by the Tymoshenko Bloc. It has been widely suggested that the President was trying to force his party to backtrack on a previous coalition agreement with Tymoshenko and form a new government with Regions.

Why the next coalition will be Orange

Though the president's remarks have certainly come as a surprise, we believe it is still unlikely that Our Ukraine will agree to form a coalition with Regions. After their failure in the last elections and the departure of one of the major business wings of the bloc, the upper echelons of Our Ukraine were restocked with younger, more ideological people rather than the business-oriented leaders. These new leaders are young career politicians with very limited business interests and it is unlikely they will follow what increasingly looks like a one-term president to their political death. The head of Our Ukraine recently stated that should Our Ukraine form a coalition with Regions, he would quit the party. Additionally, none but the president's closest supporters have come out in favour of the suggestion.

Several Ukrainian politicians and insiders have suggested that the announcement was used by Yushchenko to reassert himself as a father figure in the Ukrainian political arena as he eyes the next presidential election in 2009. In any case, it looks unlikely that Yushchenko by himself would be able to get his party to form a government with Regions.

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