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Monday, January 18

Epicenter K Taps Dutch Bank to Help with $1.2 billion Investment…Shopping Mall Traffic Down, Retail Sales Up…After Delays, Corruption Charges, Gov’t Contracts UK’s Crown Agents to Buy Covid Vaccines…Russia Restarts Nord Stream 2…Ukraine Orders 8 New Transport Jets, First From Kharkiv Factory since 2014
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Epicenter K, Ukraine’s largest retailer, plans to invest $1.2 billion through the end of next year, Petro Mykhailyshyn, Director General of the group, said Thursday at a press conference at Interfax-Ukraine. To help finance the investment, more than triple the amount invested in 2019, the company plans to raise a loan from ING, the Dutch bank. Some of the loan would be used to buy equipment from Vanderlande, the Dutch logistics automation company. Atradius, the Dutch trade insurance company, would provide cover.

Epicenter, Ukraine’s version of Home Depot, has 62 hypermarkets with a total area of ​​over 1 million square meters nationwide. Recently, the company has invested in farming and logistics. Mykhailyshyn told reporters: “We hope and intend this year to make an unprecedented investment in the development of all segments of our company, all businesses, and this is construction activities, the agricultural sector, the production of ceramic tiles and other building materials, as well as the development of logistics fulfillment centers.”

To reach Ukraine’s smaller cities, Epicenter is building up to 100 smaller format stores – retail spaces with 4-6,000 square meters, Mikhailishin told Interfax-Ukraine in an interview. Aiming at the hundreds of small cities with 10-15,000 inhabitants, Mikhailishin said: “We are developing an online system with a large logistics infrastructure, which will provide residents not only of regional centers, but also villages.”

Although attendance at shopping malls dropped by 26% yoy last year, overall retail sales were up 7.6% for the first 11 months of 2020, reports NAI Ukraine, the commercial real estate consulting company. Alarmed by the coronavirus quarantine controls, many shopping center developers pushed off openings to 2021:  stage two of the Blockbuster Mall – 55,000 square meters; Ocean Mall – 99,000; the stage two of April – 47,000; and White Lines – 21,000. With these four expansions alone – 222,000 square meters – rents will remain soft and the retail vacancy rate is expected to rise above its current level of 10%, NAI predicts in its study.

Online orders through OLX Delivery, one of Ukraine’s largest internet shopping platforms, jumped for the for the period Dec. 9 to Jan 13, compared to last year, the company’s analytical service reported Friday. Orders for men’s clothing doubled, while the check remained about the same — $20. Orders for men’s shoes were up 94%, for electronic components up 74%, and for smartphones up 63%.

Starting this week, service personnel in all stores, restaurants, cafes, pharmacies, and gas stations, must first address customers in Ukrainian. Customers are not obligated to use Ukrainian and can communicate in any language they want, including Russian or English. If a business repeatedly refuses to greet customers in Ukrainian, it will be subject to a $200 fine.

Facing complaints about coronavirus vaccine profiteering and delays, Ukraine’s Health Ministry signed a contract last week with Crown Agents, a British international development company, to buy the Chinese Sinovac Biotech vaccine. Health Minister Maksym Stepanov said that vaccinations will start in the middle of February, two months after the US and UK. The first 350,000 to be vaccinated will be: doctors and nurses working with Covid patients, ATO soldiers and workers at elderly homes.

In March, the mass vaccination of 2.5 million Ukrainians is to start. Later in the spring, people will be able to buy vaccinations – a window for foreigners to get vaccinated here. Minister Stepanov tells Ukraina 24 TV that people who are vaccinated will get ‘passports’ – certificates to facilitate foreign travel. Currently, about 7,000 new Covid cases are reported daily in Ukraine, about half the level of six weeks ago. The currently heightened level of quarantine is to ease this Sunday at midnight.

Starting tomorrow, all airline passengers traveling to the US, including US citizens, must provide a negative COVID-19 test taken within three days of travel or documentation of recovery from COVID-19. Airlines must deny boarding to passengers who do not meet these requirements. Details can be found on this US Centers for Disease Control and Prevention web page.

Russia’s Gazprom resumes construction of Nord Stream 2 this week, aiming to complete work in Danish waters by the end of May and in Germany waters by the end of June, reported Bloomberg, citing an official work schedule seen by a Bloomberg reporter. Russia’s pipe laying vessel, the Fortuna, is already in the Baltic, off Rostock, reported shipfinder.com. Germany’s Federal Maritime and Hydrographic Agency has extended the permit for laying the gas pipe on the Baltic sea bed.

Zurich Insurance Group AG has become the latest European company to pull out of the controversial Russia-Germany pipeline project, bowing to US sanctions, reports Bloomberg in a separate story. Presumably a Russian company will pick up the construction insurance that was provided by Zurich. In face of stepped-up US sanctions, Norway’s Det Norske Veritas Holding AS, a certification company, and Denmark’s engineering firm Rambøll cut ties with the project.

Foreign holdings of Ukrainian bonds ticked up 3.8% in the first two auctions of 2021, hitting UAH 87.6 billion, or $3.1 billion. Foreigners now hold 8.75% of the Ukrainian government bond market, according to Central Bank figures. The growth comes after a gradual 27.1% fall during the first 11 months of 2020. By contrast in 2019, foreign investment in the bonds increased 18-fold, ending the year at UAH 115.8 billion.

Air traffic in and out of Kharkiv, Ukraine’s second largest city, dropped by 51% last year, slightly better than the nationwide drop of 64%, reported the Center for Transportation Strategies. Worldwide, passenger traffic dropped by 60%, hitting the level of 2003, International Civil Aviation Organization reports in a study headlined: “2020 passenger totals drop 60 percent as COVID-19 assault on international mobility continues.” For Ukrainian travel agencies, sales volumes fell by 70%, Pavel Grigorash, executive director of the national Association of Travel Agencies, tells Economic Truth website.

Ukraine’s Armed Forces plan to order up to eight new An-74 multipurpose transport jets to start replacing its aging An-26 fleet, Minister for Strategic Industries Oleh Uruskiy writes on Facebook. The orders would go to Kharkiv State Aircraft Production Enterprise, a manufacturer that has not completed a plane since 2014. However, the factory has six An-74s on its assembly lines, about 70-90% complete, reports Defence Blog. Four planes would go to Ukraine’s Air Force for transport and four would to the Navy for maritime patrol. Between 1985 and 2004, the factory made 62 An-74s. The need to upgrade Ukraine’s military transport became clear last September when a 43-year-old An-26 crashed near Kharkiv, killing 26 Air Force cadets and instructors.

Editor’s Note I love antiques, but going up 1,000 meters in an antique airplane – no thanks! Ukraine has 53 An-26 transport planes in use, about half in civil cargo aviation. According to a survey by the Center for Transportation Strategies, the age range for this fleet is from 35 to 49 years. Instead of flying these planes until they crash, it’s time to invest in renewing the fleet. With Best Regards, Jim Brooke

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Friday, January 15

Government Jawbones IMF on Gas Price Controls…Gazprom Keeps its Word and Pays Ukraine $2 billion…US Spooks EU Companies out of Nord Stream 2…Kolomoisky Pulls Plug on Canadian Solar Plant…Sun Sets on Coal
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

The government’s plan to cut gas prices by one third is sparking a flurry of meetings between the IMF representative and government ministers. “We had a constructive meeting with the IMF on gas prices,” Prime Minister Shmygal wrote yesterday evening on Telegram. “Our Government’s position: the gas market in Ukraine must work. Unfortunately, some market players continue to abuse the position that Ukrainians suffer from.”

Aware of the IMF’s core attachment to market prices for gas, acting Energy Minister Yuriy Vitrenko and Finance Minister Serhiy Marchenko also explained the government’s position to IMF representatives. “They are concerned that we are revising some of our earlier commitments,” Marchenko told NV Radio yesterday, referring to the IMF. There are no grounds, he added, “to say that we have already done something very bad.”

From London, Timothy Ash stressed the importance of market prices for a major source of Ukraine’s heat and electricity: “The move to market-based gas pricing in Ukraine has produced huge wins in recent years – it’s helped slash gas consumption from plus 70 bcm to less than 30 bcm, cutting the energy import bill from $12bn per annum, to perhaps $2-3bn, and also cut the quasi-fiscal deficit by 4-5% of GDP, given the huge subsidies previously given to Naftogaz. That has also cut a huge amount of graft from the system. Estimates had suggested that Ukrainian elites were perhaps creaming off $3bn annually from the gas business.”

Spawning street protests in at least eight regional capitals, the spike in Ukraine’s gas prices stems from: cold weather, high prices in Europe, and a poorly implemented market opening that allows price gouging by suppliers. Ash again: “The Zelenskiy team will argue that this is not aimed as a major reversal in market-based energy pricing, but is a reaction to oligopoly pricing by a few bad actors in the industry. Essentially Naftogaz seems to be selling gas to consumers at UAH7 per kWh, whereas other operators are selling at prices nearer to UAH11-12 per kWh. Naftogaz can do this as it bought gas into storage cheaply and is trying to take market share.”

At stake is $2.9 billion of low interest loans remaining to be disbursed from the IMF’s $5 billion Stand-By Arrangement of last summer. The agreement is widely seen as a seal of approval for Ukraine’s economic policies, an approval that lowers Eurobond rates for Ukrainian borrowers and, ideally, gives a green light to foreign brick and mortar investors. While discussions behind closed doors in Kyiv have been heated, in Washington, IMF Spokesman Jerry Rice merely told reporters yesterday: “The first review of the Stand-By agreement continues.”

One year after the last-minute renegotiation of Ukraine’s gas transit deal with Gazprom, Naftogaz reports that the Russian state company paid its 2020 bill in full — $2.1 billion. Gazprom paid for shipping the total booked amount – 65 billion cubic meters. By year’s end, Gazprom had shipped only 86% of that amount — 55.8 bcm.  This year through 2024, Gazprom is contracted to ship 40 bcm a year through Ukraine’s pipelines.

Today, the US State Department is expected to issue a report listing which European companies working on Nord Stream 2 will be subject to US sanctions, Reuters reports from Washington. In advance, Rambøll, Danish, a consulting engineering company, dropped out of the $11 billion Russia-Germany gas line project this week. The company had done environmental impact studies, reports Politiken, the Copenhagen newspaper. A few days earlier, Norway’s Det Norske Veritas GL, which was to certify the1,230 km pipeline upon completion, also dropped out of Nord Stream 2.

TIU Canada of Calgary is suing Nikopol Ferroalloy Plant for disconnecting the Canadians’ 10.5 MW solar plant last March, ostensibly because the Ferroalloy Plant did not want to pay green power rates. The trial started Wednesday in Kyiv Commercial Court with TIU charging that the shutdown has cost them €1.5 million over the last 10 months. The solar plant connects to a substation on the grounds of the Ferroalloy Plant, which is owned by Igor Kolomoisky, Gennadiy Bogolyubov, and Viktor Pinchuk. TIU maintains that under Ukrainian law, only electricity producers can disconnect a plant from the national power grid.

Ukraine’s coal production fell by 7% last year, hitting 29 million tons, near the level of 1916, reports the Energy Ministry. Employment in coal mines is about 30,000 today – 6% the level of the end of the Soviet period. In the last 15 years, government subsidies to coal mines have been cut from $8 billion a year to less than $500 million a year today.

Western Ukraine Coal Construction, Ukraine’s last state company devoted to building coal mines, goes up for auction in 10 days, reports the State Property Fund. The company has 15,700 square meters at its headquarters in Chervonograd, Lviv region and nine hectares at a miners’ resort in Volyn’s lake region. Bids start at $400,000.

The State Property Fund plans to sell 500 state properties this year to private owners, Dmytro Sennychenko, the head of the Fund, wrote on Facebook. “Privatization grows jobs, improves the socio-economic state of the regions, and the state ceases to spend taxpayers’ funds on damages,” he wrote. Obstacles include: the need to follow 70 procedures for each property sale, “sabotage by enterprise management or its ′shadow ′ executives,” and the lack of final Rada approval to lift last year’s suspension of big sales.

Regional airports are primed for a post pandemic takeoff. UkSATSE traffic numbers for 2020 confirmed the dominance of Kyiv’s two big airports – Boryspil (47,524 flights) and Sikorsky (12,805). The air traffic control agency’s graphic on Facebook shows a second layer that is catching up with Sikorsky: Lviv (9,850), Odesa (9,282), and Kharkiv (7,576). A third layer shows potential: Dnipro (4,174), Poltava (4,119) and Zaporizhia (4,087). This winter, Dnipro starts a 3-year, $100 million rebuild of its runway and terminal. Last spring, Zaporizhia inaugurated its new terminal. And Poltava’s air traffic is entirely charter aircraft. Scheduled flights are expected to follow — once EU travel restrictions lift.

The EBRD is working with the Infrastructure Ministry to create dedicated funds to develop Ukraine’s airports and railway infrastructure, Minister Vladyslav Krykliy said yesterday on the ministry website. In an attempt to emulate the Road Fund, “the EBRD has already allocated funding and selected consultants to analyze international experience, develop a concept and write relevant legislation,” Krikliy said. The EBRD also gave the Minister a report yesterday assessing the ministry’s capacity to execute public partnerships with private companies.

Editor’s Note For two years, Michael Yurkovich was the energizer bunny from Calgary. The TIU Canada CEO ceaselessly proselytised for foreign investment in Ukraine – from that freezing day in January 2018 when we met at the inauguration of his solar plant in Nikopol, to warmer days in Davos when he preached before audiences at Ukraine House. Now, this Ukrainian-Canadian wears his bitterness on his sleeve. Messrs. Koloimoisky et al may think they are clever pulling the plug on his solar plant. But Yurkovich is a fighter and knows how to use an international megaphone. And, as Ukraine’s debt to solar and wind producers approaches $1 billion, Yurkovich is not alone. Yesterday, I wrote an item about the Cabinet of Ministers fast tracking immigration permits for investors who put $100,000 into a Ukrainian company. At 7:12 am, I got this zinger email from an American wind power investor: “Foreigners who invest over $100k in Ukraine are more likely to want an emigration permit when they’re done!” With Best Regards, Jim Brooke

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Thursday, January 14

Defying IMF, Price Controls Return to Gas…16 Foreign Companies Show Interest in Buying State Titanium Complex…Big Mac Index: Hryvnia 61% Undervalued…Dnipro River Shipping Down Slightly…Kyiv in the Big Leagues – for Traffic Jams
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

With European natural gas prices rising to the highest level in two years, Ukraine will cut and cap gas prices from Feb. 1 until the end of the heating season, usually early April. With prices expected to be cut by about 30%, President Zelenskiy said on his website: “Market prices are too high today, especially given the pandemic.”

The price freeze reverses a gas market liberalization process long advocated by the IMF. Coming as the IMF is conducting a remote review of Ukraine, this measure is expected to delay any agreement on a new tranche. Timothy Ash writes from London: “[I] cannot see the IMF buying this…I think Ukraine’s old corrupt elites are once again using the gas price card to scupper the IMF program.”

In another cloud over the IMF deal, Dmytro Sologub, a 5-year veteran member of the board of the National Bank of Ukraine, tells Bloomberg that summer’s shakeup of the central bank leadership may delay the next tranche from last June’s $5 billion IMF loan to Ukraine. In an interview headlined, “Ukrainian Central Banker Warns Revamp Risks ‘Substantial’ Damage,” Sologub says: “Cracks in the bank’s collegial decision-making system and, honestly, a lack of professionalism in some positions, may lead to substantial problems a few years down the road.”

The Finance Ministry kept interest rates unchanged at Tuesday’s weekly auction, selling $319 million worth of bonds, almost the same amount as the prior week. Of the total $48 million of 1-year dollar bonds carried a yield of 3.8%, the Ministry reported on Facebook. Of the 7.5 billion worth of hryvnia debt, 93% were for securities with maturities one year or less.

Dragon writes: “State-owned banks likely remained the major buyers of domestic bonds…With the 2021 budget deficit target set at 5.5% of GDP, the government’s borrowing needs will remain high this year, keeping it reliant on cooperation with the IMF.”

Sixteen foreign companies have registered interest in Ukraine’s first big privatization of this year – the sale of a state company that mines and enriches titanium ore in Zhytomyr and Dnipropetrovsk regions. Scheduled to take place by the end of March, the online auction of United Mining and Chemical Company is expected to draw bids of at least $150 million, State Property Fund officials told reporters yesterday. The company produces ilmenite, the main source of titanium dioxide, which is used in paints, printing inks, fabrics, plastics, paper, sunscreen, food, and cosmetics.

Increasing the company’s attractiveness, new management increased profits six-fold last year to $21 million and announced last month a doubling of reserves of titanium-bearing ore sands at the Vilnohirsk Plant, in Dnipropetrovsk. Decreasing attractiveness, men opposed to privatization have burned a company manager’s car, conducted ‘searches’ of company offices, and opened 10 hopper cars filled with ilmenite concentrate, destined for the US company Chemours, a DuPont spinoff.

Whittling away at Ukraine’s state property mountain, 1,899 privatization auctions were held in 2020, yielding $107 million for the budget, Dmitro Sennychenko, executive chairman of the State Property Fund, reported yesterday. With this month’s end of the suspension of ‘big’ privatizations, the Fund expect to present to investors for sale this year the Odesa Port Plant and six regional power companies. Through the end of 2023, investors have the right to contracts drawn up under English law.

Foreigners who invest over $100,000 in companies they set up in Ukraine will be able to apply for an immigration permit, according to a resolution approved yesterday at the Cabinet of Ministers. Investments will have to be documented by bank transfers.

The dollar remains king in Ukraine, with the hryvnia 61% undervalued against the US currency, The Economist reports in its annual Big Mac index. In Ukraine, a Big Mac costs UAH 62, or $2.21. In the US the same hamburger goes for $5.66. Using this index, Ukraine has the world’s fifth most undervalued currency. The cheaper currencies are: South African rand – 61.9%; Turkish lira – 64.5%; Russian ruble – 68%; and Lebanese pound – 68.7%.

The ‘Karta Polaka’ or ‘Polish Card’ was granted to 7,094 Ukrainians last year, Poland’s Foreign Ministry told Ukrinform. Started in 2008 for people of Polish heritage who are not allowed to have two passports, the card facilitates residency and work in Poland. To date, about 130,000 Ukrainians have received the card.

Bills on ‘virtual assets,’ on cloud storage and on creating Diya.City, a virtual free economic zone for IT companies, are legislative priorities this year for the Ministry of Digital Transformation. Minister Mikhail Fedorov wrote on Telegram that another bill will allow people to change their place of registration with “a few clicks.” Referring to this hangover from Soviet days, he called for “unlinking registration from many situations in life (where it is really not needed).”

The Dnipro shipping season ends tomorrow, just ahead of this weekend’s freezing temperatures. Although shipping companies got an extra month – December – 2020 cargo was down 5% yoy, to 11.25 million tons. Construction materials – largely sand and gravel – were up 7% to almost 6 million tons; grain was down 27%, to 3.5 million tons; and metals were up 7%, to almost 2 million tons. In 2019, 11.8 million tons were transported on the Dnipro, 19% more than in 2018.

Turkish Airlines displaced Ukraine International Airlines as the top carrier in Ukraine last year, UkSATSE, the air traffic control agency, writes on Facebook. Turkish carried out 14,623 Ukraine flights. UIA carried out 14,406. The other leaders were: Belavia (Belarus) -10,644 flights; Wizz Air – 9,151; Windrose (Ukraine) – 8,511; SkyUp (Ukraine) – 8,434; LOT Polish- 6,260; and Ryanair – 5,965.

Just in time for this afternoon’s snow, Kyiv ranks 7th in a ranking of 416 world cities for traffic congestion, reports TomTom, the Netherlands-based provide to satellite navigation devices. Sandwiching Kyiv between Bangalore and New Delhi, TomTom gives Ukraine’s capital a traffic congestion level last year of 51%.

Drivers spent an unnecessary 207 hours in rush hour traffic last year, TomTom reports, detailing Kyiv’s traffic patterns. Congestion adds an extra 25 minutes to morning commutes and an extra 29 minutes to evening commutes. Last year, December was the most congested month and Friday, Dec. 18 was the worst day of the year to be behind the wheel. Of no surprise to drivers, the satellites report the worst times to drive in Kyiv are at 8 am and 6 pm. The easiest time during the day is between 10 am and 4 pm.

Odesa region plans to build 400 km of bicycle paths in coming years, Ukravtodor writes on Telegram. Two priority sections are along the Black Sea: from Chernomorsk to Sanzhiika and from Shabo to Kurortne. The state highway agency writes: “In the Odessa region, bike paths can be an additional incentive for tourism development.”

Editor’s Note “Built for Ukrainian roads” is a marketing slogan that carries a snarky undertone. But JCB, the English manufacturer of construction equipment, is selling a $200,000 piece of equipment that should melt the toughest Ukravtodor road engineer. Called Pothole PRO, this new machine “cuts, crops, cleans…in only 8 minutes!” Moving from pothole to pothole at 40 mph, a Pothole PRO helped repair 51 potholes in 20 days in an English road test. JCB Chairman Lord Anthony Bamford announces proudly: “The JCB solution is simple and cost-effective, it fixes potholes the first time and forever. Once the machine is done, the contractor only needs to add tar.” Watch the video, complete with stirring victory music. With Best Regards, Jim Brooke

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Wednesday, January 13

China Outstrips Russia as Ukraine’s Top Trading Partner…Betting on Chinese Trains Crossing Ukraine, a Big Container Hub Goes up Near Hungary-Ukraine Border…Chinese Covid Vaccines Rise to 5 million…Metro and Air Traffic Down Drastically in 2020…
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

China far outstripped Russia last year as Ukraine’s largest single nation trading partner, racking up $15.4 billion in two-way trade, more than double’s Russia’s $7.3 billion. Globally, Ukraine’s exports of goods were down only 1.7% yoy, to $9.2 billion, reports the State Customs Service. Ukraine’s imports of good were down 10.3%, to $54.2 billion. Two-way trade in good totaled $103.4 billion, a drop of 6%. Trade in services is not included.

In a bold bid for China’s container trade, private investors have started building a €61 million road and rail terminal in Fényeslitke, Hungary, 25 km south of Ukraine’s border crossing in Chop, Zakarpattia. Scheduled to open this time next year, the 125-hectare intermodal terminal will have its own 5G network and will be capable of handling 1 million TEU containers a year. Called East-West Gate, the terminal will use massive, computerized cranes to shift containers to trucks or EU gauge trains from the broad-gauge trains that carry Chinese cargo across the former Soviet Union. The site is 50 km north of Hungary’s new M3 motorway to Budapest and 14 km south of a junction of two dual gauge rail lines, from Mukachevo and Uzhgorod.

Promoted as “the Western gateway of the New Silk Road,” the terminal will depend on Chinese cargo rolling across Ukraine and will compete directly with the booming northern route – through Belarus to Poland. Last year, the number of Chinese containers crossing from Belarus to Poland jumped by 60%, to 555,000, reports Belarusian Railway. With freight trains delayed at Brest by the need to shift wheels from broad gauge to EU gauge, the Belarus Railway is investing in two new border crossings with Poland, at Bruzgi and Svislač. Ukrzaliznytsia is promoting Ukraine as alternate corridor for Chinese goods to the EU.

Kharkiv drug manufacturer Lekhim will supply Ukraine with 5 million doses of the Chinese COVID-19 vaccine, more than double the 1.9 million announced earlier, the company said in a press release. This would be enough to vaccinated 2.5 million people. Covax has promised to give 8 million doses to Ukraine, enough to vaccinated 4 million people. Health Minister Maksym Stepanov says Ukraine must vaccinate at least 10 million people – or one quarter of the population — to develop herd immunity.

Patients of Ukraine, a clean government organization, accuses Minister Stepanov of handpicking Lekhim to distribute the Chinese vaccine, bypassing competitive procedures established by the state procurement agency, Medical Purchases of Ukraine. Other producers are “being blocked personally by Minister Stepanov,” Patients of Ukraine tells life.pravda.com.ua news site. Valeriy Pechayev, head of the Lekhim’s supervisory board, is a “close ally” of Raisa Bohatyriova, a former health minister, under former president Viktor Yanukovych, reports babel.ua news site.

Concord Capital’s Zenon Zawada writes: “It was inevitable under the Zelenskiy administration that well-connected people would earn business from the COVID-19 disease, particular those with ties to the Yanukovych administration.”

President Zelenskiy asked the EU yesterday for more help in procuring coronavirus vaccines after his government rejected Russian offers of help, reported Reuters. “For all countries of the Eastern Partnership initiative, in particular Ukraine and Moldova, the issue of obtaining vaccines is important,” Zelenskiy said while hosting Moldovan President Maia Sandu in Kyiv. The Eastern Partnership is an EU initiative to work with six post-Soviet states: Ukraine, Armenia, Azerbaijan, Belarus, Georgia and Moldova. “The countries of the Eastern Partnership should be given increased attention by the EU states in matters of joint procurement procedures and accelerating the supply of vaccines.”

To ease Moldova-Ukraine interchanges, the drive time between Kyiv and Chisinau is to be cut to five hours, from six hours today, according to a memorandum signed yesterday in Kyiv by Moldova’s new President Maia Sandu and President Zelenskiy. About two thirds of this road improvements will be provided by the internationally funded rebuilding of the Kyiv-Odesa highway, the M-05. Chisinau is only 150 km west of this highway. The two leaders also agreed to advance a longstanding plan to build the second road bridge over the Dnestr, linking Yampil, Vinnytsia region and Cosăuți, northern Moldova. Currently, the two cities are linked by a ferry.

Last weekend, the first weekend of the ‘enhanced lockdown,’ restaurant revenues were down 58%, compared to the same Jan. 8-10 period in 2020. By contrast, coffee shops suffered only a 12% drop in revenue, Poster reports on Telegram. Businesses focused only on takeout and delivery one year ago, reported that their sales last weekend were up 5% yoy. Poster surveyed about 2,000 establishments.

Ukraine’s car production fell by one third in 2020, to 4,202 cars, reported Ukrautoprom. This is 1% of Ukraine’s peak production, of 424,000 cars in 2008, and 1% of the 438,900 cars imported last year. In the Soviet era, Ukraine was the second largest car producing republic, after Russia. Two years ago, efforts to attract a major German car manufacturer failed after the sudden shift to electric car production turned the industry upside down.

Ridership on the Kyiv metro fell last year by 44%, to 279.5 million passengers, Viktor Braginsky, head of the subway system reported yesterday. The loss of 215.8 million passengers means a loss of $61 million in fares. As usual, the busiest line was the east-west Red line, which carried almost 114 million people. The Blue line came in second with 98 million riders. The Green line came in third with 68 million riders.

Rail passengers can now use multilingual chat bots in Viber and Telegram to buy tickets and meals on the high speed Intercity+ trains. The bots, which speak English, Ukrainian and Russian, also allow passenger to check timetables, fare, availability, and, in the case of Kyiv, platform number. The system was announced yesterday by Ukrzaliznytsia in partnership with Visa payment system and Middleware Inc, an American IT company. In 2019, Ukrainians bought 57% of their rail tickets – 30 million – online.

Kyiv Boryspil ended 2020 with passenger traffic down by two thirds, compared to 2019. Last year Ukraine’s largest airport, handled 5.1 million passengers, down from 15.3 million in 2019. And traffic did not improve in December, normally a busy travel month. Passengers on charter flights were down 53%, passengers on scheduled flights were down 74%, and transit passengers were down by 91%.

UkSATSE, the air traffic control agency, handled last year only 42% of the 2019 volume of planes flying through Ukrainian air space. The drop was brutal. In February flights were up 10%. In April and May, flights were down 90%. The agency is funded largely through overflight fees.

Editor’s Note Chinese trade, Chinese trains, Chinese vaccines. It is crystal clear who will be a big player for Ukraine in the 2020s. Judging by what I saw in Central Asia in the 2010s, China will not offer much geopolitical relief to Ukraine. In the five former Soviet republics, Russia provides security and China provides the goods. About 150 years after Czarist Russia’s conquest of Central Asia, modern Russia plays the role of mall cop for a big Chinese shopping mall. With Best Regards, Jim Brooke

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Tuesday, January 12

Steel Grew in 2020…GDP Growth Pushed Off To Spring…Chinese Vaccines for 2.5% of Ukraine’s Population by June 1…Ukraine Will Spend $20 billion to Service Debt This Year…Ukroboronprom Puts Up For Lease 5 Parus…US Treasury Sanctions 7 Ukrainians…Nearly Half a Million ‘New’ Cars Flood Urkaine
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Despite the global recession, Ukraine’s steel companies increased rolled steel production by almost 1% yoy, to 18.3 million tons. Steel smelting decreased by 1.4% to 20.5 million tons. But pig iron production increased by 1.5% to 20.4 million tons, according to Ukrmetalurgprom, the industry association. Metals are one of Ukraine’s top four exports, a group that includes food, IT, and migrant labor.

Consumer prices grew 5% last year, inside the government’s inflation target range and slightly higher than in 2019, the State Statistics Service reported yesterday. Previous annual inflation rates were: 2019 – 4.1%; 2018 – 9.8%; 2017 – 13.7%; 2016 – 12.4%; 2015 – 43.3%. Oleksiy Blinov, Alfa-Bank Ukraine’s head of research, predicts on Facebook that Ukraine’s annual inflation rate will rise to 6% this month and 7% in February.

Ukraine’s economic recovery will be slower than expected, coming in the spring, the Economy Ministry predicted yesterday. Reversing an earlier prediction of economic growth in the first quarter of 2021, the Ministry now forecasts GDP shrinkage by as much as 3% yoy in the January-March period. The Ministry blamed “declining strength of most foreign trade (especially services) [and] constant fluctuations and changes in working conditions in 2020, continued restrictions associated in the fight to control the coronavirus pandemic.” According to the Ministry, Ukraine’s GDP contracted by 4.8% last year.

The first 700,000 coronavirus vaccines could arrive in Ukraine by the end of February, Valeriy Pechayev, CEO of the importing company, Lekhim, told reporters yesterday. Contracted to import 1.9 million doses from China’s Sinovac Biotech, Pechayev predicted that the second batch, 1.2 million will arrive in May. Given that the vaccine has to be administered twice, this contract would cover vaccinating 2.5% of Ukraine’s population. “We have invested €10 million in organizing the production of the vaccine at our plant in Kharkiv,” he said. “In 2022, we plan to start the production of the finished form of this vaccine.”

During the first weekend of the ‘enhanced quarantine’ the National Police issued fines to 1,658 violators – 1,314 shops, 264 restaurants, 40 shopping centers and 22 fitness centers. In addition, 3,658 people were fined for violating rules mandating masks in enclosed public spaces. This level of quarantine runs through Sunday night Jan. 24.

After a 3-week break for the holidays, the IMF’s Europe Office resumed video talks yesterday with Ukraine’s government to revive the Stand-By Arrangement signed last June. The program revision was to take place last July, but was put on hold after President Zelenskiy purged the central bank. Ukrainian officials say talks now are on track, and they hope to get a second $700 million tranche by March. Prime Minister Shmygal wrote yesterday on Facebook that the talks “will open opportunities for Ukraine to receive the next tranche.”

Ukraine will spend $20 billion this year to repay principal and pay interest on its public debt, according to Finance Ministry figures. About 72% will go to repay domestic debt and 28% to repay foreign debt. Peak payment months are: March — $2.5 billion; June — $2.7 billion; and September — $3.6 billion. About 25% will go for interest payments, and 75% for repaying principal, the Ministry posted two weeks ago on Facebook.

Ukroboronprom, the state arms production conglomerate, and ProZorro.Sale, the online auction platform, signed an agreement yesterday to put up for auction leases on 250 properties around the nation with a total floor space of 380,000 square meters, Mustafa Nayem, assets director of the conglomerate, wrote on Facebook. For comparison, this unused, non-manufacturing space is five times larger than the total office space of Kyiv’s Parus office building. Looking ahead, Nayem told reporters at press briefing: “Currently, it is almost 2 million square meters that can theoretically be leased.”

Details of the properties are posted on the Ukroboronprom site under Assets- Investment Property for Rent. These details, plus the mechanics of the auctions, also will be posted on the site of Prozorro.Sale. Yuriy Gusev, Ukroboronprom’s new CEO, said State Watch, an NGO, found that the holding company loses $130,000 a month due to under market rents set 15 years ago by three Kyiv companies – Artem, Mayak, and Radar.

Looking at Ukroboronprom’s 137 enterprises, Gusev writes: “Some will go for privatization, because they produce non-military products, and some will cease to exist.” Of the 137, only 28 –or 20% — make money, he writes on his Ekonomichna Pravda blog. In a major mismatch, Ukroboronprom meets only 36% of the armaments needs of Ukraine’s military and 70% of the conglomerate’s revenue comes from exports. One candidate company for closing – or a major turnaround — produces components for Soviet submarines. Ukraine’s only submarine, the Foxtrot class Zaporizhia, was seized by the Russian Navy in Sebastopol in 2014.

In the first six months of a government-mandated program of online leasing of state and city properties, more than 5,000 auctions have been held, Svitlana Panaiotidi, deputy economy minister, told reporters yesterday. So far, 400 government entities, included the State Property Fund, have joined the system. Although some auctions have failed, one easily understandable success stands out: an auction for 10 square meters of retail space at Boryspil Airport. Bidding for monthly rent started at $183. It ended at $2,917.

The US has added seven Ukrainians and four media sites to the Specially Designated Nationals and Blocked Persons List for attempting to interfere in the 2020 presidential election, the US Treasury Department announced yesterday. The list includes Oleksandr Dubinsky, Rada member from President Zelenskiy’s Servant of the People party, who previously worked as a host on 1+1 TV, owned by Ihor Kolomoisky. Others include former chief prosecutor Konstantin Kulyk, former diplomat Andriy Telizhenko. They “were part of a Russia-linked foreign intelligence network associated with Andriy Derkach,” Secretary of State Michael Pompeo said yesterday. He said Derkach, a Rada member, “has been an active Russian agent for more than a decade.” People on the sanctioned list cannot do business with Americans or American businesses and their properties in the US are blocked.

Imported used cars accounted for 80% of the 438,900 first time car registrations in Ukraine last year, reports Ukrautoprom, the vehicle industry association. Last month, about 40,000 used cars were registered, the highest monthly number in almost two years and 31% more than in Dec. 2019. In 2020, 353,400 used cars were registered for the first time, down 13% from the 2019 level. In 2019, a tax amnesty for illegally imported cars provoked a one-time surge of registrations.

Traffic congestion increased in Kyiv last year by about 5%, reports the Center for Transportation Strategies, citing the City’s Traffic Center. Traffic on Kreshchatyk increased by 5-10%. Traffic Brovarskyi Avenue, a major east-west artery connecting east bank residential high rises with the city center increased by 17 to 24%. Slowing driving speeds are attributed to: more cars, reluctance to use buses and the Metro during the coronavirus pandemic, and poor traffic management by the City.

Editor’s Note: Kyiv’s iron fisted mayor is surprisingly limp wristed when confronting traffic jams. Every day at rush hour, drivers inch into intersections as lights turn yellow. They do not block traffic lanes because they are inherently evil. They do it because they know they will get away with it. The other day in Manhattan, my 30-year-old son James sailed through a red light on a bicycle. A New York City policeman immediately collared him and issued a $100 fine. Much bigger fines await drivers who “block the box” – get caught in an intersection after a traffic light changes. It is odd that Mayor Klitschko, who lived in Germany during his boxing days, is so laissez faire about Kyiv’s worsening rush hour traffic chaos. With Best Regards, Jim Brooke

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Monday, January 11

Gazprom Works to Finish Nord Stream by Summer…Ukraine Zero Foreign Investment  in 2020…DTEK Opens London ‘Investment Hub’…Turkey-Ukraine: 30 Military Production Projects… Ryanair Cuts 70% of Flights out of Kyiv Until April
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Gazprom re-starts construction of Nord Stream 2 on Friday, using a flotilla of three Russian boats capable of finishing the Russia to Germany gas line by May, The Financial Times reports from Moscow and Berlin. Denmark’s energy agency states it received the necessary documents for pipe laying to resume Jan. 15. A German Foreign Ministry official tells the FT: “According to our information, the construction permits necessary for laying the pipeline have been issued.” Worked stopped one year ago, in face of new US sanctions. A second layer of sanctions were approved by the US Congress 10 days ago.

“The US sanctions will delay the launch of the project, but will not stop its completion,” predicts Naz Masraff, Europe director at Eurasia Group. “Ultimately, Moscow, with the help of Berlin, will find ways to bypass the sanctions.” Looking ahead to the inauguration of Joe Biden next week at US president, she told the FT: “[US] sanctions will likely be used as leverage to co-operate with the German government on restrictions to make the pipeline operational while also paying attention to Washington’s concerns over Ukraine.”

With Russian gas transit across Ukraine only guaranteed through 2024, Ukraine’s pipeline operator is negotiating alternatives: storage of gas from new LNG terminals in the Baltic and Adriatic, and transmission of ‘non-carbonized’ gases, such hydrogen and bio-methane. Olga Bielkova, international affairs director for Ukraine’s gas transportation system, writes in an Atlantic Council Ukraine Alert blog that Ukraine and Romania are increasing their cross-border pipelines from one to four, Ukraine is negotiating with Hungary access to gas from Croatia’s new LNG terminal, and is offering Polish gas traders storage capacity in western Ukraine, near the border.

Pro-Russian politicians promoting Russia’s coronavirus vaccine are making advances as the West delays sending its own vaccines to Ukraine, The New York Times reports in a story headlined: “In Vaccine Geopolitics, a Great Game Played With Ukrainians’ Health.” The article reports that the first Covax-supplied vaccines are to arrive in March, and commercial purchases of Western vaccines are only to start at the end of this year. In a New Year message, President Zelenskiy complained that “the richest countries” will get the vaccine first.

Alfa-Bank Ukraine forecasts the 2020 year-end foreign direct investment figure will be $0.00 billion. By contrast, net FDI inflow was $5.2 billion in 2019 and $4.5 billion in 2018.

Lack of rule of law, unpaid debts to solar and wind investors, and last year’s purge of internationally-known reformers from government make for bleak prospects for inbound investment this year, Anders Aslund predicts in an Atlantic Council Ukraine blog: “What is Ukraine’s Economic Outlook for 2021?” “Looking ahead, Ukraine’s worst economic problem remains the absence of property rights, which continues to hinder investment of any kind,” the Swedish-American economist writes from Washington. “Without judicial reform or an increase in investment, there is little reason to expect any economic growth beyond the gains arising from the anticipated post-coronavirus rebound.”

By the end of next year, Ukrhydroenergo plans to put into operation at its hydro plants energy storage systems with capacity of 212 MW and solar power plants with a capacity of 65 MW, says Ihor Syrota, CEO of the state hydroelectric power generating company. Without citing numbers, he said the World Bank and the European Investment Bank are ready to lend to the project, reports Expro Consulting.

DTEK is opening “an investment hub” in London to attract investments for renewable energy projects in the Ukraine and in the EU, the company reports. “We created a hub to attract investment in new energy projects in Ukraine,” says company CEO Maxim Timchenko. “This primarily concerns renewable energy sources, energy storage systems and hydrogen energy projects.”

Turkey and Ukraine are working on “more than 30 joint projects” for production of military equipment, Ukraine’s Ambassador to Turkey Andrii Sybiha says in a lengthy written said interview with Defensehere.com, a Turkish defense industry news site. Rather than trading military goods across the Black Sea, the countries are focusing on “joint research, joint-ventures and establishing joint production,” he says. This decades, he predicts, will see Ukrainian Antonov planes built in Turkey and Turkish drones produced in Ukraine. Turning to space, he said both countries are working for joint development of “satellite technologies, space launch systems and infrastructure.”

A Turkey-Ukraine-Poland container route is in the pipeline for 2021 as Ukrferry and Ferrplus have signed an agreement with Ukrzaliznytsia’s Lisky terminal in Kyiv. In a multimodal route, containers will cross the Black Sea by ferry, largely to Odesa, then continue by rail to Kyiv and then to Gdansk, Poland’s port on the Baltic, reports Railfreight.com. Separately, Edvīns Bērziņš, the new Latvian director of UZ’s freight terminal at Lisky, is negotiating with PKP Cargo Connect to transport goods between Ukraine and Poland; with BTLC Germany to expand container trains between Europe and China; and with DHL will allow to organize container transportation around Ukraine.

On the first anniversary of the shootdown of the UIA passenger jet over Tehran, Ukraine joined Afghanistan, Canada, Sweden the UK in stating: “Our countries will hold Iran to account to deliver justice and make sure Iran makes full reparations to the families of the [176] victims and affected countries.” UIA pilots and air crews and families of the deceased laid flowers Friday a memorial stone in Willow Grove Square on the left bank of the Dnipro.

Ryanair is suspending about 70% of its flights out of Kyiv Borsypil until April, according to an analysis of the discount airline’s booking system by avianews.com. Until spring, only three out of the 30 routes from Kyiv will operate unchanged. Flights from Kharkiv and Kherson are suspended and traffic from Lviv is limited to a lone flight to London. The EU and UK have largely banned non-essential visits by Ukrainians. Flights are largely limited to people with work permits, study visas, in transit, or nationals of the destination country. Most countries require a certificate attesting to the negative result of a coronavirus test conducted within the previous 48 hours.

Editor’s Note: Zero foreign investment last year. That should be an alarm bell for a major reset by the Zelenskiy Administration. Otherwise, it will simply tread water through 2024. An outgoing Italian diplomat, before driving home to Rome last week, left me with these sobering numbers for Italian investment in 2018: Africa: + €18 billion; Ukraine: negative €200 million. With Best Regards, Jim Brooke

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Friday, January 8

Corona Controls Start Today…EU Wine Comes in Duty Free…Putin’s Banker Buys Massandra, the Crimea Winery…But Crimea Runs Out of Water
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Today Ukraine starts a 17-day, nationwide Covid lockdown, about half as strong as the one last spring. In advance of Monday’s return to work, companies and government agencies have been asked to shift as much as possible to remote work.

Closed will be: restaurants, cafes, schools (except for kindergartens), gyms, cinemas, theaters, stores that don’t sell food and shopping centers, with the exception of food stores.

Open will be: airports, trains, all mass transit in Kyiv (including the Metro), food stores, pharmacies, gas stations, hospitals, hotels, banks, post offices, car repair shops and hairdressers (upon appointment). Stores will be allowed to sell alcohol, cigarettes, pet food and fertilizers.

Coronavirus infections are common in Ukraine. Yesterday morning, nearly 9,000 new cases were reported, including 731 new cases in Kyiv. Health Minister Maksym Stepanov told reporters Wednesday:We really need a lockdown from Jan. 8 to 24 in order to curb the wave and to get through until April-May, without the introduction of new severe quarantine measures, which could damage our economy.”

One year after Iran’s military mistakenly shot down UIA Flight PS752 with two surface-to-air missiles, Iran is offering $150,000 payments to families of each of the 176 victims. While Iran’s report on the shootdown near Tehran has yet to be made public, an AP report cites of host of irregularities around the shootdown. Contrary to international treaties, the crash site was bulldozed and many personal effects were looted. Not only were wallets returned empty but cell phones were returned without memory cards. An official Canadian report says this raised questions “about whether Iran had found evidence that passengers recorded videos or tried to call those on the ground in their final moments.”

Families of victims have been harassed in Iran, but also in Canada, home to 57 of the passengers. Hamed Esmaeilion, Toronto-based spokesman of the victims’ family association, told AP “a dozen relatives across Canada reported harassment, ranging from hateful messages and threatening phone calls to suspicious cars tailing them at vigils or parking in front of their homes at night.”

The shootdown was a tragedy of errors. Tehran’s international airport should have been closed at a time of razor-sharp tension with the US. The commanding officers of the anti-aircraft unit did not answer a pre-dawn call for permission to fire. But, an interim report last July blaming a poorly calibrated radar did not convince experts interviewed by the AP’s Isabel Debre. Justin Bronk, air power research fellow at the Royal United Services Institute for Defense and Security Studies, said: “The level of incompetence required for someone to shoot down that plane is actually beyond belief.”

This spring, the Kyiv School of Economics launches two new think tanks — on Corporate Governance and Government Relations, KSE President Tymofiy Milovanov, writes on Facebook. Looking back on 2020, he writes that the school recruited a record number of new students – 140 – for its MBA program; a total of 250 students for all master’s programs, and 1,300 students for classes. Looking ahead, he writes: “We have a plan to almost double these figures in 2021.” Dragon Capital is investing $5 million to renovate a 4,500 square meter office building on Mykoly Shapka 3, in western Kyiv, near the US Embassy. KSE predicts the eight-story building will have space for 600 students.

One week ago, EU wines started to enter Ukraine duty free, a boon for European exporters and a challenge for Ukrainian winemakers Even with the duty of 30-40-euro cents a liter, Ukraine was importing 10 times the volume of wines is exports. In 2019, Ukraine imported $147 million worth of wine and exported $12 million.

“We suffer from the dominance and rapid growth of imports of cheap and not always high-quality wines from Europe,” Ihor Radomiselsky, vice-president of the Chateau Chizay wine company, tells Ukrinform. His Berehove, Zakarpattia winery produces about 1.3 million bottles from 272 hectares of vineyards. “Importing wine to Ukraine in recent years has been a very lucrative business. The removal of the duty will make it very profitable. This means that it is European importers, growers and winemakers who will earn additional millions of dollars, which could be earned and invested in the development of Ukrainian wine industry enterprises.”

To help small vineyards, the government is cutting red tape for licenses and is starting to subsidize the purchase of elite seedlings, winemaking equipment and drip irrigation, Ivan Petrov, agrarian policy director for the Odesa Regional Administration, tells Ukrinform. Irrigation is increasingly important with the rising temperatures in southern Ukraine. Ukraine’s largest winemaking region, Odesa produces about 200,000 tons of grapes from 27,000 hectares. A few months ago, winemakers dumped several tons of grapes on an Odesa highway to protest the market opening.

Massandra, in Russia-controlled Crimea, was long Ukraine’s largest vineyard. Founded in 1894, it was spared Soviet Premier Mikhail Gorbachev’s anti-alcohol campaign in the 1980s, a drive that saw many of Crimea’s vineyards uprooted. Three weeks ago, the Massandra vineyard was privatized at an ‘auction’ won by Yury Kovalchuk, often called Putin’s cashier for his former service as chairman of Bank Rossiya. Kovalchuk paid $71 million for Massandra, which includes 4,000 hectares of land and an enoteca of 1 million bottles, one of the world’s largest wine collections. Three years earlier Kovalchuk’s Yuzhny Proekt also bought Novy Svet, a champagne factory near Yalta for $25 million. Ukrainian officials say the sale is null and void due to the illegal occupation of Crimea.

Massandra’s future may be in doubt as Crimea runs out of water. Last week, Crimea had only 31 million cubic meters of water in its reservoirs, one third the 92 million cubic meters of one year ago, reports the Crimean Department of Hydrometeorology and Environmental Monitoring, according to Ukrinform. With the peninsula drying up, water rationing has been imposed in all cities. Irrigated land has been cut from 4,000 square kilometers in 2013, the year before Russia’s occupation to 171 square km today.

In response to Russia’s annexation of Crimea in the spring of 2014, Ukrainian officials blocked the North Crimean Canal. Opened in 1975, this 400 km canal brought water to Crimea from the Dnipro River, at Nova Kakhovka, Kherson Region. Due to poor maintenance, flows had fallen by two thirds by 2013. But it still supplied eight of Crimea’s 23 reservoirs.  Since annexation, the Kremlin has settled 350,000 soldiers and their families on the peninsula, but has failed to invest in desalination plants or a water pipe from Krasnodar, Russia, already a parched region.

Editor’s Note: Over a pre-quarantine lunch yesterday at Khlebniy, the beautiful people restaurant near my office, a British TV reporter, perked up when I casually mentioned the possibility of a ‘water war’ over Crimea. With the Armenia-Azeri war a done deal, Belarus closed to foreign reporters and the Zelenskiy government going sideways, the only hope among hacks is a session of tough love from President Joe Biden. Rational people might ask: why didn’t President Putin see Crimea’s water shortage coming and float in desalination plants? But then again, rational people might ask: why didn’t President Trump see Washington’s violence coming Wednesday and provide enough security to protect the US Congress? With Best Regards, Jim Brooke

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Thursday, January 7

Reserves Hit Highest Level in Eight Years…Corona Lockdown Starts Tomorrow – Two Cities Opt Out…France’s Macron and More European Leaders Expected in Kyiv in 2021…Pivdennyi Displaces Odesa as Pearl of the Black Sea…Road Paving Projects Will Make Driving the Carpathians Fun
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Ukraine ended the year with $29.1 billion in reserves, a 15% yoy increase, the National Bank of Ukraine reported yesterday. The highest level in eight years, today’s reserves are enough to cover five months of imports, an ample cushion over the three-month level seen as adequate.

Alfa-Bank Ukraine’s Oleksiy Blinov wrote: “This strong increase was delivered via massive FX debt placements by the Ministry of Finance. Overall, MinFin borrowed a net of $2.6 billion in December.”

In the first government bond auction of the new year, the Finance Ministry raised the equivalent of $308 million — 37% of the amount raised the week before. Choosing among four hryvnia bonds – 3-months, 1-year, 2-year and 3-years – 90% of buyers opted for 3 months at 10%. Yields were virtually unchanged from last week.

Concorde Capital’s Evgeniya Akhtyrko writes: “The drop in auction receipts after the record-high results of December is not surprising. Nonetheless, UAH 9 billion in receipts is quite a strong result for a ‘typical’ auction. The market’s skew towards bonds with the lowest term of maturity continues to reflect the perception of high risk among bond buyers.”

Dragon Capital writes: “With the 2021 budget’s deficit target set at 5.5% of GDP, government borrowing needs will remain high this year, keeping it reliant on cooperation with the IMF.”

Ukraine’s 16-day lockdown of restaurants and shopping malls starts tomorrow. Confirmed new coronavirus cases totaled 6,911 yesterday morning – one half the daily average of one month ago. In light of the drop, Ternopil City Mayor Serhiy Nadal said yesterday his city of 223,000 people will ignore the lockdown. Anatoliy Bondarenko, mayor of Cherkasy, a slightly larger city, says he will recommend to his City Council to ignore the lockdown. Nationwide, shopping centers will lose $60 million in rent and their stores will lose $400 million in revenue, Maksym Havriushyn, head of the national Council of Shopping Centers, told Interfax-Ukraine.

In face of business pressure to soften or shorten the lockdown, Health Minister Maksym Stepanov told reporters yesterday: “The Health Ministry is against the postponement of the quarantine, against its cancellation.” He said of the 23,000 people hospitalized for Covid, 10% are seriously ill and “about 200 people die from the disease every day.” Stepanov denounced as “political PR” a move by Biolik, a Kharkiv pharmaceutical firm, to register in Ukraine Sputnik V, the Russian vaccine. Stepanov told Reuters: “It would be very mild to say that we are not sure about the Russian vaccine. We do not know how the research was carried out.”

In 2020, 20 Ukrainian films backed by the State Film Agency are now screening in cinemas, and 92 new film projects were launched, Oleksandr Tkachenko, Culture and Information Policy Minister, told reporters last week in an online press conference. All theaters are to close from tomorrow through Jan. 24. During the second half of last year, many cinemas stayed open, selling a maximum of half of tickets in each hall. Attendance was down sharply compared to 2019.

French President Emmanuel Macron is one of a string of Western leaders expected to visit Ukraine this year. Next Tuesday, Moldova’s new, pro-EU President Maia Sandu will visit Kyiv, the first such visit by a Moldovan president in four years. Later this month, Sweden’s Foreign Minister, Ann Linde, visit Ukraine in her new capacity as chair of the OSCE. Macron is expected in the first half of this year, reports DN.ua, citing Ihor Zhovka, Zelenskiy’s deputy chief of staff. Zhovka also said that Italian Prime Minister Giuseppe Conte is expected to visit Kyiv this year.

Odesa region’s Pivdennyi port consolidated its position as Ukraine’s premier sea port last year, increasing cargo by 14.5% yoy, and accounting for 39% for all of Ukraine’s waterborne trade. Ukraine’s five largest ports accounted for 92% of its 159 million tons of water borne cargo, reports the Sea Port Authority. But growth was only at Pivdennyi (formerly Yuzhny), where cargo grew to 62 million tons, and at Mariupol, on the Azov, where cargo was up 8% yoy, to 7 million tons. At Mykolaiv, cargo was down 10%, to 30 million tons. At Odesa region’s two other big ports, cargo was down by 9% at Chornomorsk, to 24 million tons; and by 8% at Odesa, to 23 million tons.

To boost cargo on the Dnipro River, the Infrastructure Ministry plans to introduce a liberalized regime where captains of foreign flag vessels have to simply email an application for a port call to the Maritime Administration within three working days of the intended visit. This will replace the current system of applying for one-time permits, a cumbersome and often costly system that effectively closes the Dnipro to most foreign flag cargo ships.

President Zelenskiy last week signed the law “On Inland Water Transport,” legislation that opens the Dnipro to foreign flag vessels and allows for the creation of a dedicated fund to rebuild the locks and docks. Artem Kovalev, the Rada member who pushed for the law, has warned: “The river infrastructure is 75% worn out.” With the changes, he predicts, river cargo will triple to 30 million tons a year in 2024, the end of the Zelenskiy presidency. He said this cargo level would generation $500 million in taxes, $625 million in economic activity and 10,000 new jobs.

Provided Covid-19 vaccines are distributed extensively, the world economy will rebound this year by 4%, nearly recovering from its 4.3% fall last year, predicts the World Bank’s Global Economic Prospects forecast. According to the World Bank, growth rates in 2021 will be: US – 3.5%; Eurozone – 3.6%; Ukraine – 3%; Japan – 2.5; and China by 7.9%.

Ukrzaliznytsia increased its freight traffic in December by 7.4% yoy, transporting 26.7 million tons of cargo, reports the state railroad’s press service. By another measure, freight turnover was up 4.4% yoy, to 14.4 billion tonnes. A key indicator of economic activity, UZ moves half of Ukraine’s cargo.

As part of the ‘Small Carpathian Circle,’ a mountain driving circuit through Lviv, Ivano-Frankivsk and Zakarpattia regions, Lviv region plans to rebuild 75 km of mountain roads this year, including upgrading 37 bridges over mountain rivers. Lviv is spending $7 million on this project, the same amount as last year. Oleh Bereza, head of Lviv Region’s Road Service, cites the tourism impact, saying: “Thanks to the Small Carpathian Circle project, we will not only connect the three regions of the Western region of Ukraine with good roads, it will also allow us to revive the central part of the Ukrainian Carpathians.” The total project will cost $100 million, estimates Ukravtodor, the national highway agency.

Editor’s Note: For Ukrainians worried that this morning’s TV images from Washington look like RT’s reporting on the Rada, here is my long view. In my wannabe commie days – spring 1971 — I rode a long distance bus from New Hampshire to join the 1 million strong May Day protest in Washington. On the bus, we were instructed to run through lines of traffic on the bridges, pop the backs of VW bugs, yank off distributor caps and throw them into the Potomac. We used the Mall as our toilet, smoked dope where we could, and generally horrified the good matrons of Georgetown. The establishment media refused to talk to us, calling us ‘treasonous’ and ‘insurrectionists.’ We didn’t care. We were fighting for a worthy cause: supporting the democratic popular liberation forces of Vietnam, Laos and Cambodia. Oh, well, 16-year-olds can’t get everything right. Looking ahead, the American republic will survive this one — and probably emerge strengthened. Newsrooms might even break down and hire one — carefully vetted — right winger to talk to today’s angry young men in red. Merry Christmas! With Best Regards, Jim Brooke

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Wednesday, January 6

Ukraine’s Sea Ports Buck World Recession, Retain Cargo Levels…EU Plans to Spend €100 Million to Open Five New Poland-Ukraine Border Crossings…Hryvnia Expected to Strengthen by 2% in H1…2020 Was Kyiv’s Hottest Year Since Record Keeping Started in 1881
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Despite the global recession, the volume of goods going through Ukraine’s seaports was virtually unchanged in 2020 compared to 2019, according to Ukraine’s Sea Ports Authority. Last year, Ukraine’s ports handled 159 million tons of cargo, 0.7% less than in 2019. Grain exports were down 12%, to 48 million tons. Ore exports were up 18.5%, to 44 million tons. Overall exports ended the year up 1.5%, to 123 million tons.  Imports were down 8.6%, to 24 million tons. Transit was down 9%, to 10 million tons. Coastal was up 11%, to 2.4 million tons. And containers were up 4%, to 1 million.

The combination of dropping grain exports and expanded terminal capacity may force down costs in Ukraine’s Black Sea ports, reported AgriCensus in a story headlined: “Ukraine’s terminals compete as grain exports fall short.” This year, poor harvests have contributed to a 15% drop in grain exports. Meanwhile, grain handling capacity has increased by 20% over the last three years in Ukraine’s ports. The London-based news site wrote that this “could drive higher competition between terminals and slash transhipment costs in the Black Sea country, which is one of the world’s biggest exporters of corn and feed wheat.”

Despite Ukraine’s recession, sales of new cars in Ukraine fell by only 3% yoy, to 85,500 in 2020, reports Ukrautoprom, the car industry association. In December was the year’s record month, with Ukrainians buying 9,801 cars. With Ukraine’s lowered import taxes and the EU’s gradual phase out of diesel cars, first time registrations of used imports are about four times registrations of new cars. In 2020, Ukrainians registered about 350,000 imported used cars.

Cracking down on overloaded trucks, Highway Safety inspectors stopped 700,000 vehicles in 2020, fining 14,000 drivers nearly $5 million, reports Infrastructure Minister Vladyslav Krikliy. This year, Krikliy said, the government plans to continue to digitize the work of the Highway Safety agency “to eliminate the human factor” and to triple the number of Weight-in-Motion sensor devices, to almost 120.

The EU plans to invest €100 million in opening five new Ukraine-Poland border check points in Lviv region, according to Maksym Kozytsky, head of Lviv Regional State Administration. To be completed over the next five years, the crossings represent a 50% increase in the checkpoints between Poland and western Ukraine. “These additional checkpoints will link Ukraine with Europe,” Kozytsky said, adding that Ukraine’s government plans to spend $3.5 million on improving access roads.

Passenger traffic through Lviv Airport dropped by 60% yoy in 2020, to 878,000 passengers, Tetyana Romanovska, the airport director, tells Avianews. By promoting Lviv as an air cargo hub, the state-owned airport managed to turn a small profit and to keep all its staff, she said. By comparison, Lviv handled 2.2 million passengers in 2019, making it Ukraine’s third busiest airport, after Kyiv Boryspil and Kyiv Sikorsky.

To revive aircraft production at Antonov, Ukreximbank is loaning $105 million to the state aircraft manufacturer to build three An-178 cargo jets for Ukraine’s Army, Yevhen Metzger, chairman of the state bank, writes on Facebook. Airplane delivery is planned for 2023. Concurrently, Antonov is building an An-178 for Peru’s National Police and is negotiating the sale of a second plane. Airplane building at Kyiv’s Antonov largely stopped in 2014 as the company worked to make or source parts to replace parts from Russia. Company officials say this substitution process is largely complete.

Ukraine’s hryvnia is likely to strengthen in the first half of 2021, thanks to foreign-currency inflows from exports and renewed interest by foreign investors in Ukrainian local bonds, a Reuters monthly poll of 13 analysts indicated yesterday. Last year, foreign investors cut their bond portfolio by almost $2 billion, or 42%.  In the second half of December, foreign investors reversed, buying $368 million worth of bonds. This year, forecasts of continued strong prices for metals and grains coupled with resumed IMF lending make for a median June exchange rate forecast of UAH 27.60/$1, about 2% stronger than the current level. Last year, the hryvnia lost 17% of its value, largely in March.

The analysts also forecast Ukraine’s economy will grow 4% in 2021, after an expected decline by 4.8% in 2020. Inflation will be 6.1%, compared to 5% expected in 2020.

To ease the impact of the coronavirus recession, the government last year loaned $615 million under its program, Affordable loans 5-7-9%”. Of the 7,575 loans, 62% of the money went to refinance existing loans at lower rates.

With reported Covid cases well below the numbers of November, the government is considering softening the lockdown which starts on Friday, reported Strana.ua. Citing ‘a source in the President’s Office,’ The lockdown could be postponed, shortened or simply liberalized. An announcement is expected today.

Ukraine’s average annual air temperature in 2020 exceeded the average long-term level by 2.2 degrees Celsius, or 3.6 F, reaching a record high of 10.7 degrees C, or 51.3 F, Ukraine’s state-run weather forecasting body said yesterday. Average annual rainfall across Ukraine was 8% lower than the norm. The lowest levels were registered in eastern Donetsk, Luhansk and Mykolayiv regions. With harvests dependent on the weather, Ukraine accounted for about 16% of global grain exports in the 2019/20 marketing season.

Last year was Kyiv’s hottest since weather recording keeping started in 1881, reports the Borys Sreznevsky Central Geophysical Observatory. In 2020, the average temperature in Kyiv rose to 10.9°C, or 51.6 F, the hottest on record. Eleven months of the year had average temperatures higher than the climatic norm. Only May was colder.

Half of Ukrainians are optimistic about 2021, according to a nationwide poll completed Monday by Kyiv’s Rating Sociological Group. Of 2,500 people interviewed, 52% expect the new year will be better than 2020, 27% do not expect changes and 18% say it will be worse. Young people, women, residents of Kyiv and of western Ukraine were the biggest optimists.

Tomorrow, Orthodox Christmas, is the favorite winter holiday for Ukrainians, the new Rating poll indicates.  Of the 2,500 people interviewed, 77% said they celebrate Christmas on Jan. 7 and 15% say they celebrate twice, including ‘Catholic Christmas’ on Dec. 25. 5% do not celebrate Christmas at all.

Editor’s Note: Tomorrow and Friday will be banking holidays in Ukraine. With EU, UK and US offices running normally, the Ukraine Business News will appear in email boxes as usual tomorrow and Friday mornings. To our friends in Ukraine, Merry Christmas! With Best Regards, Jim Brooke

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Tuesday, January 5

Covid Recedes…Lockdown Starts Friday Morning…Vaccines Are Coming -- from China, Poland, and COVAX…Ukrainians Flee Cash for Cards…Kyiv Enjoys Crimea Weather
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Official numbers indicate that Ukraine’s coronavirus epidemic has receded according to official numbers. Hospitalizations are down 20% from the early December level of 28,500, Prime Minister Shmyhal said yesterday. Daily new confirmed cases are running between 4,100 and 8,000 – between one quarter and one half of the peak of 16,300 at the end of November. Yesterday morning’s reported level of 4,158 new cases was the lowest in three months, since Oct. 5.

Today, only one third of the nation’s 77,000 Covid beds are occupied, Health Minister Maksym Stepanov reported yesterday. This is a sharp contrast to November when Covid hospitals in Kyiv were full and turned away patients.

Confirmed cases may have dropped because people with mild cases do not want to go through the bother and expense of being tested. In addition, over the last three months, 6% of Ukraine’s population fell ill with traditional influenza and acute respiratory viral infection. Some of these could have been Covid cases. For example, in October, 1,998 people died of influenza and pneumonia in Ukraine, nearly four times the 579 who died one year earlier, reports OpenDataBot, citing State Statistics Service data on cause of death.

“There is a probability that we actually have fewer people now being infected with this coronavirus, and it is possible that the first wave is coming to an end,” Serhiy Komistarenko, a member of Ukraine’s National Academy of Sciences, told RBK Ukraine last week.  “And it would be good if the second wave did not start at all — or began much later.”  To date, 5.6 million PCR tests have been administered, 1.1 million Ukrainians have fallen ill, and almost 19,000 are known to have died.

In face of falling infection numbers, business groups are pressuring the government to soften the lockdown that starts this Friday, the day after Orthodox Christmas, and runs through Sunday January 24.  Last week, the American Chamber of Commerce in Ukraine appealed to lift restriction on supermarkets which will be forced to curtain off non-food items. “From January 8, even in supermarkets it will be forbidden to sell a significant part of everyday goods: household chemicals and tools, clothing, presses, light bulbs, batteries, children’s products for education,” the Chamber said in a statement.

Starting at 12:01 am on Friday, mandatory closures cover: all restaurants, bars, schools, gyms, swimming and non-food stores. Allowed will be: food stores, pharmacies, medical clinics, sales of hygiene products, telephones and animal food; car repairs; gas stations, banks, ATMS, post offices, beauty salons and barbers by appointment and hotels and hostels.

To prepare for economic pain from the coming lockdown, the government has distributed $130 million in grants to almost half a million small business owners and their employees, Prime Minister Shmygal reported yesterday by video link to President Zelenskiy.

The government is heeding Health Minister Stepanov’s call to stick with the Friday shutdown. “Many people ask whether we plan to postpone or cancel the quarantine, as the number of cases has been falling,” he told reporters last week. “With regard to the strict quarantine from January 8 to January 24, we are not going to introduce any changes.” Yesterday, during a video meeting with President Zelenskiy, Stepanov predicted that cases will increase after the holidays.

Ukraine will only start to return to normal this spring, Viktor Lyashko, chief sanitary doctor, predicts in an interview with Ukraina 24 TV. “We will start out a step-by-step return to our usual rhythm of life in April,” predicts Lyashko who is also Deputy Health Minister. “[Until then] We will not completely get rid of anti-epidemic restrictions and such harsh quarantines.”

In coming weeks, Ukraine hopes to receive almost 20 million doses of coronavirus vaccines, enough to vaccinate 10 million people, about one third of the adult population this year. The Health Ministry’s goal is to inoculate at least 50% of Ukraine’s 36.5 million people by the end of 2022. All vaccines require two shots. Here are the numbers:

China’s Sinovac Biotech: Last week Ukraine’s Health Ministry of Health signed a $34 million ProZorro contract for delivery of 1.9 million doses. Health Minister Maksym Stepanov predicts the first vaccines will arrive next month.

COVAX – President Zelenskiy wrote Thursday on Telegram: “We are working to increase supply through COVAX [from 8 million] to 16 million doses.” COVAX is a multinational collaboration organize to ensure equitable distribution around the globe of several coronavirus vaccines.

Poland has offered to transfer 1.5 million vaccine doses to Ukraine, Yevhen Enin, Ukraine’s deputy foreign minister, told Interfax-Ukraine.

Russia’s Sputnik V: Despite an announcement in Moscow that this vaccine will undergo ‘clinical trials’ in Ukraine, officials here say it will not be allowed. Arsen Zhumadilov, Head of Medical Procurement of Ukraine, a state enterprise, wrote on Facebook Sunday: “To rely on a state Russian company during a Russian armed aggression against Ukraine on the question of providing epidemic safety for the country is being ignorant to say the least.”

The Covid economy accelerated Ukrainians’ flight from cash in 2020, indicate figures from PrivatBank, Ukraine’s largest bank. Last year, Ukrainians’ transactions with PrivatBank terminals increased by 31% yoy, to the hryvnia equivalent of $11.5 billion. Spending in pharmacies was up 40%, to almost $1 billion. Spending food stores was up 48%, to almost $6 billion. Spending on clothes and shoes was down 1.6%, to almost $900 million.

Surfing the net during lockdowns, Ukrainians boosted visits to Ukrainian Wikipedia last year by 21% yoy. In 2020, 855.1 million pages were visited, raising Ukrainian Wikipedia to the rank of 17th most popular worldwide, according to the Ukrainian Wikipedia editor’s blog.

The New Year’s holiday temperatures were some of the warmest on record, with the weather comparable to that of a normal mid-October, reported Central Geophysical Observatory. On Thursday and Friday, record highs were set at 8.4C, or 47F, on each day. This follows Kyiv’s warmest autumn since record keeping started in 1881. Because of the warm weather, the Dnipro River season has been extended through January, an unprecedented time expected to be free of major ice.

Editor’s Note: It may be comforting for some Ukrainians to learn that the US has its own fair share of stupid people. Yesterday, I received a UPS package marked ‘Extremely Urgent’ and addressed to “Ukraine S.S.R.” No, it was not 30 years late. It was a replacement for a UPS package that the US-company proved incapable of delivering last month to an office address in Kyiv with a 24-hour reception. Resolutely ignoring all emails from me with mobile numbers and delivery instructions, the US-designed ‘tracking’ system sent me an ominous crescendo of emails: first declaring that the package was ‘abandoned,’ and then, that it was being ‘destroyed.’ There should be an NGO: Morons Without Borders. With Best Regards, Jim Brooke