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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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Monday, December 28

Retail Up, Investments Down…China Aims to Boost Ukraine Trade by 50%...Taxpayers Dwindle to 37% of Workers…Off the Books Economy Could be 50%...Vinnytsia To Become Wizz Air’s Hub for Central Ukraine
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

President Zelenskiy signed on Friday the national budget for 2021.  Expenditures are to be $46.5 billion and revenues are $38.2 billion. The deficit of $8.3 billion is to be 5.5% of GDP, forecast at $150 billion. For the Big Construction roads program, $5.3 billion is to be spent.

The budget is built around these numbers for 2021: GDP growth — 4.6%; inflation — 7.3%, public debt to GDP at 65%; average exchange rate — UAH 29.1 per dollar (versus UAH 28.39 today). Starting Friday, the minimum monthly wage increases to UAH 6,000, or $211. The budget predicts an average monthly salary of $480.

Retail sales for this year through November are up 8% in real terms, compared to the same 11-month period in 2019, reports the State Statistics Service. In November alone, retail sales were up 12.1% yoy in real terms. Analysts say this indicates that merchants were able to work about the three weekends of retail lockdown in November.

Concorde Capital’s Evgeniya Akhtyrko writes: “Retail sales in Ukraine are booming, backed by fast growth of real wages. Strong household consumption is helping the economy to offset falling investments.”

Investments were down 24% in the third quarter, compared to the same July-September period in 2019. The Central Bank attributes this to uncertainty over the Covid-19 pandemic and freezing of solar and wind projects due to unpaid electricity bills by the state.

To mitigate the impact of the upcoming Covid quarantine, the government last week distributed $80 million in aid to 278,000 employees and small business owners, the Digitalization Ministry reports. With all applications coming in through the new Diya, or Action, portal, the government plans to make all payments by this Thursday. Each payment is UAH 8,000, or $283.

Restaurants and bars can stay open until 7 am on New Year’s Day, the Cabinet of Ministers has decreed. The following weekend, on Friday January 8, a 2-week strict lockdown is to be imposed nationwide, closing restaurants, non-grocery stores, fitness centers, shopping malls, hostels, and all schools, but not kindergartens.

China, already Ukraine’s largest trading partner, could increase its two-way trade with Ukraine by 50%, to $20 billion by 2025, Irina Nikorak, executive director of Silk Link, Ukraine’s Silk Road Association, told Xinhua news agency. She said a cooperation plan for joint construction of the Belt and Road Initiative was signed Wednesday at the fourth meeting of the China-Ukraine Inter-government Cooperation Committee, co-chaired via video link by Chinese Vice Premier Liu He and Ukrainian Deputy Prime Minister Olha Stefanishina. Nikorak said Ukraine wants to become a logistics hub connecting Europe and Asia and Ukraine offers joint projects for food processing, industrial parks and IT development zones.

Ukraine is negotiating with a Chinese manufacturer for a supply of vaccines against Covid-19, Ukraine’s Foreign Minister Dmitry Kuleba said Thursday on Ukraine 24 TV channel.

Of the 30 million ‘economically active’ Ukrainians, only 37%, or 10.9 million, pay taxes, Oleksiy Lyubchenko, Head of the State Tax Service, said recently on the Freedom of Speech show of Ukraina TV. Far from getting better, today’s number of taxpayers is about half of the number of 15 years ago, he said. According to 2019 statistics, 11.8 million Ukrainians who are able to work “did not make any money,” Lyubchenko said. To him, this means that most work unofficially.

The top tax dodging regions are largely in the West: Uzhgorod – 63%; Chernivtsi – 53%; Odesa — 48%; and Lviv — 46%. In central Ukraine, rates are better: Kyiv – 30%; Chernihiv and Poltava – 31%.

Off the books transactions account for “somewhere over 50%” of GDP, Danil Getmantsev, ruling party MP and chair of the Rada committee on finance, tax and customs policy, told Radio Liberty. He called it “too optimistic” and Ernst & Young estimated earlier this year 24% of GDP. Even this rate is “terrible” as the government seeks to move Ukraine toward a tax-paying, EU standard economy.

In one step, 100,000 small businesses have downloaded the ‘cash register in a smart phone’ app since its debut August 1, 2020 Getmantsev said. As a result, there have been 100 million sales receipts using this technology. The protests in the last two weeks by small businesses of the Save FOP movement, he charges, are led by people who want to abolish cash registers altogether.

Legalized gambling will bring in $270 million in new tax revenues in 2021, Hetmantsev predicted in the Radio Svoboda interview. Gambling in high-end hotel casinos is to start in Ukraine next year.

Ukrainian Insurance Group, a unit of Vienna Insurance Group, has paid $1.3 million for a cargo of wheat destroyed on August 4 in the massive port explosion in Beirut. The cargo was insured against all risks, the company said.

In 2021, Ukraine’s air travel will only rebound to half the level of 2019, Infrastructure Minister Vladyslav Krikliy estimated in a year end interview with Channel 24. The 2019 level 25 million passengers will only be attained in 2023, he predicts.

Wizz Air plans to fly from Vinnytsia, its sixth Ukrainian city, Vinnytsia Mayor, Serhiy Morgunov, told Avianews. He said: “We are talking about the potential opening of flights from Vinnitsa to Berlin, Budapest, Vienna and Warsaw.” The Budapest-based discount carrier currently flies from Kyiv Sikorsky, Kharkiv, Lviv, Odesa and Zaporizhia.

In 2021, the Infrastructure Ministry plans to spend $21 million to upgrade the runway of Vinnytsia, the nation’s 11th busiest airport.  At the same time, the city is going to upgrade the terminal to simultaneously handle two medium haul jets of the Boeing 737 size. In 2018, the airport handled 60,000 passengers, a recent peak. After losing UIA service to Boryspil that year, the airport reverted to only serving charter flights.

Starting today, Turkey, the top foreign travel destination for Ukrainians, requires a negative result of PCR coronavirus test performed 72 hours before arrival. Egypt, the other leading destination for Ukrainians, adopted a similar requirement earlier this month.

Editor’s Note: It always seemed odd that Ukrainian cities rely on foreign aid to buy buses and trams. But, if no one here pays taxes, why not tap into the foreign taxpayer money of the EBRD, EIB and World Bank? With Best Regards, Jim Brooke

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Friday, December 25

Ukrainians Go on Internet Shopping Spree…Ukraine’s IT Sector Makes the Big Leagues…Foreign Ministry Pulls Out Huawei Equipment…Ukraine Builds Its Longest Highway…No Plans to Cut Flights During the Holidays
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

Internet purchases by Ukrainians grew 41% in 2020, to top $7 billion, estimates a new study by EVO, an umbrella group of online companies. Last year’s growth was only 17%. “One year ago, we forecast e-commerce growth in Ukraine in 2020 at 15%, the pandemic has significantly adjusted it,” EVO reports. For next year, EVO is forecasting growth of 33%. Today, about 9% of all Ukrainian purchases are online.

Sixty-six Ukraine-connected IT firms have made the annual ranking of top 1,000 leading information technology companies worldwide, published by Clutch, a Washington-based matchmaker for IT companies and contractors. The Kyiv Post reviewed the list and determined that almost 7% have strong Ukraine ties. The list includes foreign companies with R&D  centers in Ukraine  – Ciklum, Sigma Software, Daxx, and AltexSoft – and largely Ukrainain firms — Intellias, Digis, OTAKOYI, and Frontmen.

Ukraine’s IT sector grew by 20% last year, fueled by 4,000 IT companies in the market, according to a new report: “Ukraine: The Country that Codes.” The 56-page industry overview prepared by software developer N-iX says the number of IT workers in Ukraine doubled in five years, hitting 200,000 today.

In a rebuff to China, Ukraine’s Foreign Affairs Ministry has decided to remove all Huawei equipment from its buildings. “Several other government agencies have followed this example,” the Foreign Ministry said. Prime Minister Shmygal tweeted that Ukraine is joining the US ‘Clean Network’ initiative, which aims to protect confidential information and intellectual property. He tweeted: “Ukraine supports the principles of The Clean Network and will remain a reliable partner for investments by technology companies from all over the world.” US officials say this move will help Ukraine integrate into NATO and the EU, as most members of these alliances are in The Clean Network.

The US government may help Ukraine pay the price difference between Huawei equipment and comparable equipment provided by Western companies, Keith Krach, US Under Secretary of State for Economic Growth, Energy, and the Environment, told Radio Svoboda on Tuesday. “You may ask yourself: why is China’s offer lower? Why do they provide such cheap services? Because they want your data,” he said. Referring to the U.S. International Development Finance Corporation, he added: “The US government, in particular the DFC, can cover the price difference.” The Kyiv Metro’s new 4G mobile system, completed this week, is built with Huawei equipment.

Ukraine netted $90 million in 419 privatization auctions this year, Economy Minister Ihor Petrashko said on Channel 24 TV, reported the Ministry. By using a transparent internet-based auction system, the State Property Fund managed to push average sales prices up three times over asking prices. Next month, the Rada is to vote on a government bill to sell large state companies. This process could net around $500 million this year, the government estimates.

The latest property of state alcohol producer Ukrspyrt was sold at auction yesterday for $2 million, almost double the asking price, reports the State Property Fund. With almost half of Ukrspyrt’s 41 properties now sold, the Fund calculates that the state will net $70 million from the privatization. Starting next July, the only way a private investor can start new alcohol production in Ukraine is to produce from a property privatized from Ukrspyrt.

In a nation building exercise, President Zelenskiy plans to inaugurate next year a Lviv-to-Luhansk highway, the longest in the nation. Labelled the M-10, this east-west road would run 1,392 km, almost twice the distance of Paris to Marseilles. Without waiting for full completion, Zelenskiy plans to inaugurate the M-10 on August 24, the 30th anniversary of Ukraine’s Independence. Polls indicate road building is the most popular achievement of the Zelenskiy government.

We want to unite the West and the East with a big highway,” Zelenskiy said yesterday, speaking at the inauguration of the first section of Zaporizhia’s bridge over the Dnipro. Providing a new, international standard route to Stryi and the EU, the M-10 is expected to quickly double its traffic, to 40,000 vehicles a day.

With a two-year budget of $500 million, the M-30 saw 580 km restored this year. Another 750 km are to be repaired by the end of next year. For now, the high-speed road will terminate in Pokrovsk, Donetsk. Most of the final 200 km, through Luhansk to the Russian border, are in the Russia-controlled section of the Donbas.

Ukraine’s Cabinet has approved a $20 billion development plan to rebuild the Ukraine-controlled half of the Donbas. Although multilateral institutions, such as the World Bank and the EBRD, are funding infrastructure projects in Ukraine-controlled Donetsk and Luhansk, little private investment has followed.

Concorde Capital’s Zenon Zawada writes: “Such economic development concepts will remain a fantasy for as long as the situation with the war in Donbas remains as it currently is, which is low-level fighting accounting for a handful of injuries and casualties per week.”

The US is preparing new sanctions to block Russia’s Nord Stream 2 gas pipeline, Reuters reports citing three Trump Administration officials. Relying on existing mandates from Congress, the Administration would sanction the dozens of EU companies helping Russia to lay the pipeline under the Baltic Existing sanction have caused the $11.6 billion project to run one year and $1 billion over budget. Although a Gazprom vessel is to resume work in Danish waters on January 15, one US official said of the executive order sanctions: “Now we’re in the process of driving a stake through the project heart.”

Ukraine does not plan to restrict air travel during the holidays. “The government understands that people are in the mood for the holidays and does not plan to impose any restrictions on air traffic,” Foreign Minister Dmytro Kuleba said yesterday in an online briefing.

UIA is ending this year with a passenger count of 1,787,000 – only 22% of the level of 2019. Transit passengers declined with UIA’s hub system, falling to 14% of last year.  The number of flights was 17,000, 28% of last year’s levels. To survive, the airline laid off 1,000 employees last summer.

Seeking to put its airplanes to use, UIA is offering ‘flights to nowhere’ – one-hour sightseeing flights over Kyiv. Passengers are guaranteed to fly above the clouds and to see the sun, a winter rarity. If all 116 seats fill up on the Embraer 195 jet, the price per person will be $75. “A real New Year’s gift – a one-hour flight over Kyiv,” beckons the announcement on the UIA website. The airline also says: “A lottery with valuable aviation prizes will be held for passengers on board.”

Editor’s Note: Ok, it’s not Russia’s Trans-Siberian Railway (9,289 km), the Trans Canada Highway (7,821 km) or the US Transcontinental Railroad (3,077 km), but Zelenskiy’s Lviv-to-Luhansk M-10 (1,392 km) motorway follows the same principle of nation builders from 150 years ago. By building an East-West highway, Ukraine’s government will slash travel times and integrate the nation. Today is ‘Catholic Christmas’ in Ukraine, a banking holiday, but more importantly a time for people of all faiths to reflect and relax. Merry Christmas! With Best Regards, Jim Brooke

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Thursday, December 24

US Aid to Ukraine Under Threat…Ukraine to take $350 million Bridge Loan from Deutsche Bank…Gov’t Wants to Restart Big Privatization…Road Repairs to Increase by 50% Next Year...EIB Approves €270 million loan for Boryspil…Construction Starts Next Year on Ukraine’s Biggest Ski Resort
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

Outgoing US President Donald Trump vetoed yesterday the US defense budget, a document that includes $275 million in military support for Ukraine and tighter sanctions on Western companies involved in Nord Stream 2, the Russia-Germany gas pipeline. Trump returned the budget to the House of Representatives, calling it “a gift for China and Russia.” The House is expected to return Monday to vote on an override. Joe Biden is to be inaugurated President on Jan. 20.

US Aid to Ukraine is coming under threat from a different direction – dissatisfaction over the coronavirus stimulus bill, which would give payments of $600 per person. On Tuesday, President Trump called the checks “ridiculously low,” calling for payments of $2,000. A growing debate focuses US foreign aid, including the $453 million military and civilian aid planned for Ukraine this year. “This is a sensitive area for voters and lawmakers,” writes Newsweek. “Though foreign aid typically makes up around one percent of the entire federal budget, public perception is that the U.S. gives out far more. Polling suggests Americans believe the country spends up to a third of its entire budget on foreign aid.”

Over the next week, Ukraine will attract a 6-month loan from Deutsche Bank of up to $350 million, the Cabinet of Ministers resolved yesterday. The move to take a bridge loan indicates that the government only expects to get a second tranche from last summer’s IMF agreement by the end of May. The IMF tranche is to be for $700 million. The Cabinet’s resolution authorizes a loan at LIBOR + 5.75%, or almost 6%. By contrast, at the Finance Ministry’s weekly auction on Tuesday, investors bought $138.5 million worth of 1-year government dollar bonds at 3.8%.

The Cabinet of Ministers approved yesterday a bill to resume privatization of large state-owned companies, a process suspended last March due to the coronavirus outbreak. With investors now familiar with road shows on Zoom, the government wants the Rada to unfreeze ‘large’ privatizations. Slated to bring almost $500 million to the budget in 2021, the privatization plan calls for selling next year: five thermal power plants, three regional power plants, the former Bolshevik plant, the Odesa port plant, the United Mining and Chemical Company, and Kyiv’s President Hotel.

By Jan. 4, acting Energy Minister Yuriy Vitrenko is to prepare a solution for paying the $921 million solar and wind power debt owed by the government’s Guarantee Buyer. Prime Minister Shmygal set the deadline at yesterday’s Cabinet of Ministers meeting.

Today, the first cars are to roll across the first completed section of Zaporizhzhia’s new road bridge over the Dnipro. Long lampooned as the city’s white elephant, the unfinished bridge saw construction resume last year by a Turkish construction company. The first leg of the completed bridge crosses the ‘Old Dnipro’– the narrower channel that separates Khortytsia Island and the right bank community of Baburka.

The Infrastructure Ministry plans to restore 50% more roads in 2021 than this year, Minister Vladyslav Krikliy told Interfax-Ukraine in a wide-ranging interview. The 2021 goal is now 6,800 km.  “Another three years at this rate, and we have all roads of national importance will be built – international and national roads for sure,” Krikliy said.

Planning to open select highway sections to privately built and operated toll roads, the Cabinet of Ministers yesterday set tolls, measured in Euros. For cars, motorcycles and minibuses up to 10 seats, the toll will be €2.3 for 100 km. For trucks up to 12 tons and buses up to 29 seats, the toll will be €4.5 for 100 km. For big trucks and buses, the toll will be €13.3 for 100 km. For example, to drive a car down one likely stretch – from the Lviv ring road to the Krakovets border crossing – the toll would be €1.38.

Road repair was the most popular phenomenon of 2020, winning the approval of 93% of 2,004 participants in a nationwide poll. The poll was conducted in the first half of December for the Kyiv International Institute of Sociology. The most unpopular phenomena were the war in the Donbas and the coronavirus epidemic, winning negativity ratings of 99.2% and 99.4% respectively.

The Infrastructure Ministry plans to start laying European gauge track in Ukraine next year, Krikliy told Interfax-Ukraine. The priorities are two sections of Ukrzaliznytsia’s track to the Polish border. Construction of 80 km from Lviv west to the border crossing at Mostyska, would create a direct Lviv-EU link capable of generating traffic of 600,000 passengers a year, the railway calculates. Further north, construction of a similar 65 km Euro-gauge line west from Kovel to the Polish border would allow the city to become a major hub for Chinese container traffic bound for the EU. Five rail lines converge on Kovel, a Volyn Oblast city.

By opening Ukraine’s 13 state-owned seaports to private companies through concessions, the government hopes to draw $1.8 billion in private investment through 2038. These concessions – largely renting wharves, land, cranes and warehouses – would generate almost 5,000 new jobs, according to a new Seaports Development Strategy approved yesterday by the Cabinet of Ministers.

The European Investment Bank Board has approved a €270 million loan to upgrade Boryspil Airport, the Bank’s website reports. The money would cover about three quarters of a €351 million Boryspil renewal project. The upgrade will focus largely on the Western runway, a 3,500-meter concrete strip “which has been operating for more than 50 years and is in poor condition,” the Bank says. The loan is covered by EU guarantees, which means the contractor must follow EU procurement rules. Last year, Boryspil handled 62% of Ukraine’s 24 million air passengers.

Construction is to start next summer on a 4-year, $500 million project to build Ukraine’s largest and most modern ski area in Lviv’s Carpathian Mountains. Based in Volosianka, a 3-hour train ride south of Lviv city, the area is to have more than 60 trails. Its technology and design are to be one decade ahead of Bukovel, says the developer, OKKO Group Holding. The prime mover is Vitaliy Antonov, OKKO’s founder and main shareholder. A native of nearby Stryi, Antonov worked for four years after university in mountaineering and mountain rescue. Other investors in OKKO are the EBRD, Goldman Sachs, Horizon Capital and Genesis Asset Managers, LLP.

Editor’s Note: Oleksandr Tupytsky, chairman of the Constitutional Court of Ukraine, enjoys the perks of power – dressing up in silk robes, wearing an impressive medallion on his barrel chest, and presiding over the highest court in the land from a hand-carved wooden throne. But if tape transcripts published by Radio Svoboda’s Schemes investigative unit are to believed, Tupytsky has the mouth of a 1950s American hoodlum. Warning a Donetsk business man who planned to testify in a corruption probe of a fellow judge, Tupytsky allegedly warned: “I just wanted to warn you that you shouldn’t do that shit…It will not lead to anything.” In another tape, he threatens to open a criminal case against business man for “financing terrorism” in Russia-controlled Donbas. Then, he seems to extort money to solve the legal problem: “If you and he deemed it necessary to give me a kopeck for my participation in these matters, I wouldn’t refuse.” Tupytsky also complains of his early career trauma when he served in 2010-2013 as a judge in commercial appeals courts and watched bribes go over his head. Recalling this humiliating experience, Ukraine’s top judge says bitterly: “Nobody even gave me a fucking kopeck — and everything was channeled above.” Mykhailo Zhernakov, board chair of Kyiv’s DEJURE Foundation, says that we should stop being deluded by fancy robes and impressive titles. Writing in the Atlantic Council’s Ukraine blog, he recommends: “It’s time to start treating Ukraine’s corrupt judiciary as a criminal syndicate.” With Best Regards, Jim Brooke

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Wednesday, December 23

Datagoup Buys Volia to Create Ukraine’s Digital Giant…Canada’s Black Iron Gets $100 million Promise for Kryvyi Rih Mine…Dragon Gets OK to buy Novynskyi Bank…Houston Co. Buys Kyiv’s AxDraft…New Jersey Co. Completes Chornobyl Nuclear Storage…DTEK Goes Green…Foreigners Snap Up Hryvnia Bonds
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

Datagroup, Ukraine’s leading fiber infrastructure and digital services provider, has agreed to buy 100% of Volia, Ukraine’s leading cable broadband service provider. Fully backed by Horizon Capital’s EEGF II fund, sole financial investor in Datagroup, the deal “is expected to generate revenues exceeding $130 million and over $50 million in EBITDA,” Mykhailo Shelemba, Datagroup Chief Executive Officer and shareholder, says in a Horizon press release.

Creating synergies, Volia generates 95% of its revenues from consumers, and Datagroup generates 85% of its revenues from businesses. Datagroup’s Shelemba says the company is “a reliable partner for over 50% of the top 200 largest companies in Ukraine and 93% of the country’s banks.” In Ukraine, there are over 5,000 internet service providers. “Scale truly does matter when it comes to infrastructure to meet the demands of increasing digitalization,” says Lenna Koszarny, Horizon Capital’s CEO and Founding Partner. “Ukraine needs significant backbone infrastructure investments to meet the demands of the digital age.”

Canada’s Black Iron mining company has signed a preliminary agreement with an American institutional investor to raise US $100 million to create new iron ore production in Kryvyi Rih, Dnipropetrovsk region. Saying the planned investment “changes the rules of the game for Black Iron,” Black Iron CEO Matt Simpson said it would allow the company to start construction in the second half of the year.

Stalled in the planning stages for a decade, Black Iron gained a new life this year due to three factors: jumping iron prices, China’s drive to diversify raw material imports away from Australia, and the fact that Kryvyi Rih is President Zelenskiy’s home town. At current iron prices, the pay payback period of the US $452 million first phase project is estimated at 2.9 years. Raw material reserves are 411 million tons. The life of the project is 17 years.

Dragon Capital has won approval to buy Kyiv’s Unex Bank from Vadym Novynskyi, reports Ukraine’s Antimonopoly Committee. Neither Dragon nor Novynskyi’s Smart Holding confirmed a sale to Interfax-Ukraine. According to the National Bank of Ukraine, Unex Bank ranked 64th out 74 banks in Ukraine with assets of $28 million. Founded in 1993, the bank originally focused on large industrial corporations in central Ukraine. It now has 22 branches in nine regions.

AxDraft, a fast-growing Kyiv startup that automates the preparation of legal documents, has been acquired by Onit, a Houston-based legal technology company. Founded only three years ago, AxDraft has worked in Ukraine with Carlsberg, Dragon, DTEK, Glovo and OLX. In 2018, AxDraft participated in Y Combinator, the famous U.S. startup accelerator, then, in 2019, it raised $1.2 million from Silicon Valley venture capital investors. “This makes us the first Ukrainian legal technology startup to make a successful exit,” AxDraft founder Yuri Zaremba said in a press release. The purchase price was not revealed, but after last year’s capital raise, the company was valued at $10 million.

New Jersey’s Holtec International has completed the first $70 million stage of a 20-year, $1.3 billion project to build a nuclear spent fuel storage repository near Chornobyl. The site will take waste from three of Ukraine’s four nuclear power plantsKhmelnytskyi, Rivne, South Ukraine. Ukraine’s fourth plant, Zaporizhzhia, has its own onsite, US-designed storage facility. Ukraine’s new central repository, located three km west of the abandoned Chornobyl power station and 150 km north of Kyiv, is to start accepting nuclear waste next June. This step will save Ukraine $200 million a year — a fee currently paid to Russia to reprocess and store Ukraine’s spent nuclear fuel.

Stainless steel nuclear waste canisters, each weighing almost 200 tons, will arrive by rail at the repository site in Yaniv, Kyiv Oblast. Over the next six months, Ukrzaliznytsia crews are to reopen 43 km of track west to Vilkhova, Zhytomyr. This line was abandoned after the 1986 disaster. Energoatom, Ukraine’s state nuclear power operator, will run this line through the Exclusion Zone. After last year’s boom in Chornobyl tourism, Kyiv tour operators are interested in using the restored rail line.

Holtec will supply the first 94 containers — a $300 million contract. Simultaneously, Ukraine is to use Holtec technology to start making its own canisters, for domestic use and export.  Yesterday, UNIAN reviewed the storage project in a 2,000-word analysis. Noting that Holtec is using the same dry storage equipment in Belgium, Sweden, the UK and the US, the news agency concludes that Ukraine’s repository “will be the most modern and safest nuclear fuel storage facility in its class.”

During this decade, Ukraine’s electricity production from nuclear will rise from 53% today, to 57% in 2030. At the same time, the electricity share from coal will drop almost in half, to 12%. These were the predictions made yesterday by Maksym Timchenko, CEO of DTEK, Ukraine’s largest privately owned energy company. Coal-fired power plants increasingly be used as standby sources of electricity, predicted Timchenko, whose company employs thousands of coal miners and operates most of Ukraine’s coal-fired power plants.

In a radical corporate turnaround, DTEK wants to be Ukraine’s leader in decarbonization, Timchenko said during his presentation of DTEK’s strategy to 2030. “We want to change, we want to move from a high-carbon business to a green, efficient one,” he said. “We declare DTEK’s carbon neutrality by 2040…Both the entire business structure and the investments that we will make in the coming years will allow us to fulfill this commitment.” By 2030, he promised, renewables will account of at least one third of electricity produced by DTEK.

After investing about $1 billion in Ukraine wind and solar projects in the last three years, DTEK now redirects its renewables investments to the EU. “Today our investments in European countries are in a very active development phase,” Timchenko said. “In 2021, we will have the first pilot projects for the construction of wind and solar power generation in the European Union.” Behind the pause in Ukraine investments is the $1 billion overdue power bill that the state-controlled Guaranteed Buyer owes wind and power companies in Ukraine, including DTEK.

Offering government bonds of 10 different tenors and two different currencies, the Finance Ministry raised the equivalent of $782 million yesterday at its weekly bond auction, the Ministry reports on Facebook. Hryvnia bonds started with 10% yields for 3-month bonds and ranged up to 12.25% yields for 5-year bonds. The Ministry sold 1-year dollar bonds with yields of 3.8%, netting $138.5 million. Yesterday’s big bond sale follows the December 15 sale, which netted $1.8 billion – the largest on record, the Ministry reports.

As foreign investors re-enter the government bond market, the hryvnia strengthens, write analysts from Alpari, Dragon and ICU. The dollar now buys 28 hryvnia, a rate little changed in nine months. ICU wrote yesterday: “Foreigners’ activity in the bond market continued to support hryvnia exchange rate. Due to a large supply of hard currency, the hryvnia appreciated during most of last week…Recovery in foreigners’ demand for local-currency debt increased the supply of hard currency, and the [central bank] responded by purchasing hard currency into reserves. In total, the NBU purchased almost US$300m.”

Editor’s Note: DTEK, a power company that some people love to hate, is actually way ahead of the curve on moving toward renewables. For a taste of what is happening outside of Ukraine, check out the headlines in https://ecotown.com.ua/South Korea will increase the capacity of renewable electricity to 78 GW and In 2020, Germany consumed 47% of its electricity from renewable sources. But inside Ukraine, some people think it is fine to stiff investors in renewables. Beyond DTEK, these investors represent a United Nations of 20 different countries. Ukraine’s green rates are ‘high’ – because no one factors in the massive cost of one day dismantling the nation’s 15 nuclear reactors, most built in the 1980s. This year, the $1 billion owed to wind and solar investors is freezing investment in the sector. Now, it is forcing DTEK and other companies to channel investment into projects outside of Ukraine. Hopefully, Yuriy Vitrenko, the new (acting) Energy Minister, can get this solved, and bring us back…to 2019. With Best Regards, Jim Brooke

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Tuesday, December 22

Vitrenko To Run Energy Ministry…Kovaliv Quits…Kyiv-London Flights Continue - Despite New Virus…Germany, Poland Offer More Jobs, More Flights…China Moves Forward on Kyiv Ring Road…Corona Pushes Kyiv Metro Ridership Down by 40%
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 last night appointed Yuriy Vitrenko, the former Naftogaz executive, as acting Energy Minister and First Deputy Minister of Energy. Vitrenko replaces Olha Buslavets, who ran the Energy Minister since April. A graduate of the INSEAD, the French business university, Vitrenko spearheaded a successful Stockholm arbitration case against Gazprom. Although Gazprom paid Naftogaz $2.9 billion, a contingency fee payout for Vitrenko’s team rankled some. Last week, when his candidacy came up for vote, he won only 82% of the needed Rada votes. In Ukraine, acting ministers often serve for years at a time.

More litigation with Russia and more openness to Western investment may emerge under Vitrenko. Interspersed with stints at Naftogaz, Vitrenko worked for Pricewaterhouse Coopers in Kyiv, Merrill Lynch in London, and Amstar Europe, a private equity fund, affiliated with a Denver group. He is CEO of AYA Capital, a Kyiv-based investment company he founded a decade ago. At Naftogaz, he worked on several large Eurobond placements.

Yulia Kovaliv, a familiar face to foreign investors, resigned yesterday as deputy chief of staff to President Zelenskiy. Kovaliv also headed the Office of the National Investment Council, an organization that promoted dialogue between the government and CEOs of the leading foreign investors in Ukraine.

The government also appointed Vadym Melnyk as head of the State Fiscal Service. The previous fulltime head of the service, Serhiy Verlanov, was dismissed last April.

The Kyiv Economic Court accepted last week a lawsuit alleging that Roman Leshchenko, Ukraine’s newly appointed Agriculture Minister, embezzled $430,000 from a Ukrainian farming company owned by Kurt Jacob Groszhans, a North Dakota farmer. The lawsuit indicates more claims will be filed for misappropriated grain. Before Leshchenko’s Rada confirmation vote Thursday, he reportedly told questioners that he repaid all debts to the American investor. Groszhans is represented by US attorney Bate Toms.

While the US government labors to determine damage done by cyber infiltrators, Ukraine’s government faces almost daily hacker attacks on its government resources and is strengthening its cyber security, Ivan Bakanov, the SBU state security service, wrote Friday on Telegram. “The scale of the infiltration into government information resources is impressive – attacks occur almost daily,” he said. In 2019, a virus downloaded in a tax accounting program caused millions of dollars of damages to companies in Ukraine. Russia is believed to be behind the infiltration in the US and the disruption in Ukraine.

With Ukraine recording its first infection with new highly contagious coronavirus strain, the government decided last night not to suspend flights between Ukraine and Britain. First identified in Britain on December 14, the new strain already has been identified in Australia, Denmark, Italy and the Netherlands. Ukrainian infectious disease specialist Viktor Petrov told Ukraina 24 TV  yesterday that a patient, ‘Mykola’, a labor migrant shuttling between Zakarpattia and the Czech Republic, “had this new variant identified by Britain.”

While France, Germany, Turkey and Poland stop flights from Britain, Ukraine’s Cabinet of Ministers decided not to suspend air traffic with the UK, Infrastructure Minister Vladyslav Krykliy wrote on his Telegram page. He said: “Now flights are operated mainly to return Ukrainians from studies from abroad home for Christmas holidays.” Earlier yesterday, Ukraine’s Embassy in London posted a warning suggesting: “Ukrainian citizens temporarily refrain from traveling to London and the south-east of England.” The UK government posts its latest coronavirus restrictions here.

Today, there is only one flight from Kyiv to Britain: a Wizz Air flight from Sikorsky Airport to London Luton. Last week, UIA inaugurated flights between Boryspil and London Heathrow. At that time, UIA’s holiday schedule called for three flights a week – on Thursdays, Saturdays and Sundays – from Boryspil to Heathrow and to Gatwick, its traditional destination.

With passenger flights unreliable, logistics company Meest China has started weekly cargo flights between Hong Kong and Boryspil. “Regular flights are canceled, delivery times are difficult to predict,” commented Mikhail Lymar, general director of Meest China, a unit of Meest Holding, a Canadian-Ukrainian group. He said the new cargo flights on Airbus 330 jet “will allow us to make delivery from China to Ukraine in 12 hours and not depend on airlines.”

EU job offerings for Ukrainians have grown by 40% since coronavirus travel controls started to lift in June, reports Jooble, the Kyiv-based job search engine that aggregates international job postings. As of Monday, there were 9,631 vacancies targeted for Ukrainians. Top offerings at the top three countries were: Poland – packers, handymen, tailors, drivers, and builders; Germany – caregivers, tilers, plumbers, electricians, and packers; the Czech Republic – maids, welders, electricians, and drivers.

Starting last Thursday, Wizz Air resumed flights from Kharkiv to all its German and Polish destinations. Ukrainian tourists are not allowed to travel to Poland and Germany. With the exception of Ukrainians with valid work permits who are allowed to fly. Wizz Air, the airline with the most destinations from Kharkiv, now flies to six EU cities, down from 10 last spring, before the coronavirus lockdown.

A 150 km ring road around Kyiv and a 1.7 km suspension bridge over the Dnipro at Kremenchuk are to stem from Cabinet of Ministers’ recent approval of an infrastructure agreement with China. “With this agreement, we open the door for Chinese loans to infrastructure,” Viktor Dovhan, international advisor to   Infrastructure Vladyslav Krikliy wrote on his Facebook page. The Kyiv Bypass highway will be U-shaped, providing connections to all main highways, from the M-1 to Chernihiv in the north, to the M-7 to Kovel in the west. Capable of handling 300,000 vehicles a day, this 8-lane, restricted access highway is to be completed by 2030.

Aiming to cut road deaths by 30% by 2024, the government has approved spending $85 million in 2021 on the first year of an international highway safety program. The money will be spent on 400 illuminated pedestrian crossings, 300 dampers to minimize head on collisions, Weight-in-Motion systems to detect overweight trucks, speed cameras in fixed positions and in police cars, and the construction of 20 roundabouts to replace dangerous intersections.

Ridership of the Kyiv Metro is down 40% yoy, to 250 million this year, Kyiv Mayor Vitaliy Klitschko told reporters yesterday. Referring to the 2-month lockdown last spring, he said: “For the first time in 60 years of the existence of the Kiev metro, it did not work.” By the end of this month, all 52 stations of the system are to have 4G mobile internet. By the end of next year, two new stations should open on the Green Line, extending the line 8 km to the northwest, from Syrets to Prospekt Pravdy and Mostytska. The new unified e-transport ticket now is used for 1 million rides a day, he said.

Editor’s Note: It is refreshing to see Zelenskiy return to appointing an A-teamer to his A-team. Ideally, Yuriy Vitrenko can use his political and economic savvy to finally straighten out the $1 billion debt to the solar and wind electricity producers. Why not a Green bond? And Ukraine’s litigation with Gazprom could use leadership, starting with compensation for Black Sea oil platforms stolen by Russia in 2014. Ukraine’s oil and gas scene has been tarred by foreign companies exiting over the last year: Trident, Vermillion and now Nadra. Why not really open up Ukraine to foreign investment – before the sunset of the oil era? With Best Regards, Jim Brooke

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Monday, December 21

€900 million slated to Rebuild Southern Half of Kyiv-Odesa Highway…Germany Gives €255 million for Energy Efficiency, Roads and Vocational Education…Americans Bought Half of $600 million Eurobonds…Central Bank Buys Dollars to Avoid Strong Hryvnia…High Commodity Prices Cancel Impact of Drought
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

European development banks are providing €900 million to rebuild the southern half of the Kyiv-Odesa highway and a 24 km northern bypass around Lviv, reported the Infrastructure Ministry. “This project is the largest in the 10 years of cooperation between Ukravtodor and the EBRD,” Oleksandr Kubrakov, head of the state highway agency, said, referring to the €450 million loan from the European Bank for Reconstruction and Development. This loan is being matched by a second €450 million loan from the European Investment Bank.

Work is to start next year on the projects which are both sections of the Trans-European Transport Network, or TEN-T. Of the money, two thirds goes to rebuilding 275 km of the Kyiv-Odesa highway, and one third to completing the circular bypass around Lviv. “Under the project, the government of Ukraine is committing to enhance Ukravtodor’s procurement system and to strengthen its internal controls, policies and procedures to prevent bribery and corruption, the EBRD says. Both banks issued a joint statement Friday calling reform of Ukravtodor a “litmus test” for anti-corruption work in Ukraine.

Ukraine plans to build by 2022 a EU-standard highway on the 72 km section of the M-10 between Lviv and the closest crossing with Poland, at Krakovets, Ukravtodor’s Kubrakov tells Interfax-Ukraine. This congested highway section tops the list of candidates for public private partnership concessions. From Krakovets, the highway would connect with Poland’s A4, which runs 680 km west to connect with Germany’s autobahn network.

Weekly container trains are to start rolling next year between the Baltic and the Black Seas, Lukasz Greinke, President of Gdansk Port, tells The Maritime Executive, a Florida-based news site. Gdansk is the location of Poland’s largest container terminal and is considered the only Baltic port capable of receiving direct calls from Asia by the largest ships. Greinke said of the Gdansk-Odesa rail corridor: “We are already speaking with Turkish ship owners and freight forwarders about the benefits of the new corridor in terms of speed and efficiency.”

Germany will spend €255 million to help Ukraine improve energy efficiency in schools, rebuild roads, and modernize its vocational education system, the Finance Ministry announces. The money will be a mix: €40 million in outright grants, and €215 million in loans at concessional terms – 30 years at 2% interest. The money will also to go upgrading municipal utilities: water, sewers and heating. German Ambassador Anka Feldhusen, said: “Germany supports Ukrainian decentralization reforms and improvements in the energy industry and education.”

Today, the IMF starts video link talks with Ukraine, reviewing the $5 billion Stand-by Arrangement signed last June. Only one tranche of the 18-month deal has been delivered, also last June. Holding up more money were: last summer’s purge of the Central Bank and last fall’s Constitutional Court rulings to dismantle anti-corruption agencies. Gösta Ljungman, the IMF Resident Representative in Ukraine, said: “Given the COVID pandemic, the mission will hold remote meetings with the Ukrainian authorities to discuss economic developments, and policies and reforms to underpin the completion of the review.” Prime Minister Shmyhal said he doesn’t expect Ukraine to get a second tranche by February or March “if there are no surprises.”

Americans bought half of Ukraine’s $600 million Eurobond placement that settled Friday, reported the Finance Ministry. The breakdown was: US –52%; UK – 37%; and EU – 10%. The breakdown of institutions was: asset management funds – 85%; hedge funds -13%; and pension and insurance funds — 2%. Demand was so strong on December 11 that the Ministry raised the amount offered by 20% and brought the yield down to 6.2%, a record low for Ukraine. Yields for comparable government bonds in US, UK and EU are around 1%.

Foreign holdings of Ukrainian government hryvnia bonds increased by 6.8% last week as foreigners joined the government record auction of $1.8 billion in equivalent of bonds on December 15. After nine months of unbroken decreases, foreign participation reversed with a 2.4% increase in the December 8 auction. Foreigners now hold $2.9 billion the hryvnia bonds, or 8.6% of the total, reported the National Bank of Ukraine.

To keep the hryvnia from gaining value, the Central Bank bought $300 million last week, the largest one-week purchase since June. With travel abroad difficult during the upcoming holiday season, demand is weak for dollars. Today’s exchange rate is 27.83 hryvnia to the dollar – 2.6% revaluation since December 1st 2020. So far, the National Bank of Ukraine has bought net $1.3 billion, largely in an effort to weaken the hryvnia and to avoid abrupt currency fluctuations.

Elena Bilan, Dragon Capital’s Chief Economist noted that the export price for Ukrainian steel has risen by 150% this year, to almost $700/ton. She wrote: “Favorable prices for export goods and foreign investment in government bonds create conditions for strengthening the hryvnia…The terms of trade for Ukraine are currently the best in the last nine years.”

Ukraine is selling less food, but making more money, calculates Alfa-Bank Ukraine. “Decreased crops have been more than compensated by elevated prices for key commodities,” Oleskiy Blinov, Alfa’s head of research, writes in its latest report. Farm output will likely be down 12% yoy, dragged down by a 13% drop in grain and a 17% drop in oilseeds. However, he notes: “Export prices for wheat are now up 22% y-o-y, corn is 33% y-o-y more dear, while sunflower oil enjoys 45% y-o-y growth in price.”

President Zelenskiy promises The New York Times to “reformat” the Constitutional Court as part of “global judicial reform in Ukraine, which we will start implementing next year.” In a video link interview with Andrew Kramer, a Times correspondent in Moscow, Zelenskiy says: “Many laws have already been prepared, the stages of implementation of these reforms have been prepared.” The Times did not use this part of the 5,000 word interview in its story, but the entire interview is on the President’s website in English, Ukrainian and Russian

Sales of electronics and home appliances during last month’s ‘Black Friday’ and ‘Cyber Monday’ were up 28% yoy to $235 million, reports the Ukraine unit of GfK, Germany largest market research institute. Online sales jumped by 73% yoy, partly because online stores offered more discounts. Overall, almost 1 million items were sold during the discount days. The hottest sector was IT, where sales were up 70% yoy in monetary terms.

Ending a 9-month suspension, Qatar Airways resumed flights Friday between Doha and Kyiv Boryspil. Flights will be four times a week on Airbus A320 jets. From Doha, Qatar flies to 100 destinations, said Halyna Durmush, Qatar Airway commercial manager in Ukraine.

Editor’s Note:  A frontal view of a long haul, high torque Scania truck is enough to give any motorist the jitters. But, capturing the mood of the moment, these road monsters are poster boys for billboards popping up around Kyiv. “Scania Ukraine for fair justice,” reads one. Another announces what 100 business surveys already show: “Corrupt decisions of judges kill investors – Scania Ukraine.” With Best Regards, Jim Brooke

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Wednesday, December 16

Finance Ministry Auctions a Record $1.85 billion in Government Bonds…Eyeing IMF, Rada Passes Conservative 2021 and Restores Anti-Corruption Agency Powers…Drought Pushes Down National Grain Harvest by 13%...Small Business Block Central Kyiv, Protesting Corona Lockdown
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

Fueled by foreign investors looking for high yields, the Finance Ministry sold a record $1.85 billion worth of government bonds at auction yesterday. Yields on hryvnia bonds ranged from 10% for 3-month bonds to 12.18% for 5-year bonds, the Ministry reported on Facebook. In addition to offering hryvnia bonds with seven different tenures, the Ministry offered 1-year bonds in dollars and euros. Investors bought $266 million worth of dollar bonds with 3.85% yields and €56.7 million worth of euro bonds with 2.5% yields.

The total amount raised was more than three times the amount raised at last week’s auction. With two more weekly auctions scheduled this month, the Ministry is expected to cover the budget shortfall before the end of the year.

The Rada passed Ukraine’s 2021 budget yesterday. A fiscally conservative document with a deficit of 5.5% of gross domestic product, slightly less than this year. Finance Minister Serhiy Marchenko said the budget is a key step for Ukraine to get back on track with the IMF program agreed last June. He told reporters after the vote by parliament: “The budget is a marker showing that we can fulfill our obligations.”

The budget numbers:

  • 6% GDP growth in 2021 to $158 billion, a reversal of this year’s forecast contraction of 4.8%
  • 2021 tax revenues: $38.3 billion; 2021 expenditures: $47.25 billion.
  • 3% inflation, compared to 4.9% this year
  • Average monthly salary is to increase by 12% in 2021, from the current level of $427
  • Forecast average exchange rate for 2021: 29.1 hryvnia / dollar – from 27.8 today
  • Exports will grow by 3%, recovering halfway from this year’s 8% decline.
  • Imports will rebound by 10.6%, after this year’s forecast 16% decrease.
  • Public debt to GDP ratio: 64.6%.
  • Privatization should bring in $430 million
  • Budget spending in infrastructure: roads – $3.2 billion; Ukrzaliznytsia railroad: $160 million; airports — $85 million

In another move to get back on track with the IMF, the Rada overwhelmingly approved yesterday two bills to restore powers to a key agency of Ukraine’s new Western-designed anti-corruption machinery. Two months, ago the Constitutional Court stuck powers of the National Anti-Corruption Agency, a unit that was investigating at least three judges of the Constitutional Court. Oleksandr Novikov, head of the agency, said after the Rada votes: “The National Anti-Corruption Agency resumes all it operations in all major directions now.”

In Washington, Kurt Volker, former special envoy to Ukraine, warned that the incoming Biden administration will not give a free pass to the Zelenskiy administration due to Ukraine’s strategic value in blocking Russia. “Ukraine has to take responsibility for its own development – only Ukrainians can solve their own internal issues,” he said when asked at the Ukrainian Investment Roadshow if President-elect Biden will use ‘tough love’ to get Ukraine on the reform track. “Why should the IMF or EU would step in to help Ukraine, when Ukraine doesn’t deliver on its own commitments on reform, and the state bureaucracy is so dense that even capital ready to invest gets tangled up?”

Drought pushed down this year’s national grain harvest by 13% yoy, to 65.4 million tons, Igor Petrashko, minister of Economic Development and Trade, announced yesterday. The fall ended two years of record harvests – first 70 million tons in 2018, then 75 million tons in 2019. This year, Ukraine’s top volume crop, corn fell 17% yoy, to 29.8 million tons. Wheat, the second largest crop, fell by 10%, to 25.1 million tons.

Despite the drops, Minister Petrashko said the 2020 harvest is “three times more than the needs of the domestic market, and also allows us to maintain a leading position in the export of agricultural products.” With overnight frosts freezing the ground in some parts of Ukraine, winter sowing has been completed on 8 million hectares.

Thousands of small business owners and workers yesterday protested the impending coronavirus lockdown and end of tax privileges, blocking central Kyiv’s Maidan Square and Kreschatyk Street into the night. Reuters reported that one police officer was knocked unconscious and 40 others received chemical eye burns from gas. “Stop the Lockdown” was the slogan that brought small business people from across the nation to protest the January 8-24 lockdown. The protest is coordinated by ‘Save FOP’ a national movement of autonomous workers who want to forestall a Finance Ministry plan to require digital cash registers and tax receipts.

One quarter of Kyiv restaurants have closed permanently due to coronavirus restrictions this year, estimates a new study, “Consequences of the COVID-19 epidemic and quarantine measures for the leading sectors of the Ukrainian economy.”  “In cities where there is less population, the situation is many times worse,” Marlin Tynny, owner of the Praha and Montecchi Capuleti restaurants, tells researchers. “Millions of people were left without a livelihood.” The 190-page study was prepared by the Center for Applied Research in cooperation with Ekonomichna Pravda and the Konrad Adenauer Foundation.

Kyiv City has the highest coronavirus infection rate of Ukraine, reports the Health Ministry. In the first half of December, Kyiv’s infection rate was 746 per 100,000 people. Close behind were: Cherkasy, Chernihiv, Sumy, Zaporizhia and Kyiv Region.

Almost one third of the Rada’s 424 members have had coronavirus since August, reports Dmytro Razumkov, chairman of Ukraine’s one chamber parliament. Currently, 21 MPs and 55 Rada employees are undergoing treatment, he said.

Editor’s Note: CFOs of Ukraine’s blue chip corporations forecast a U-shaped recovery for Ukraine next year. It will not be a Roaring 20s bounce, but a gradual recovery from a lost year. Every executive said foreign investors always ask if Ukraine will get back on track with the IMF. These are my takeaways from a panel I moderated yesterday afternoon with executives of Kernel, Metinvest, Naftogaz, Ukrzaliznytsia, and Vodaphone for Strategy Council’s annual Ukrainian Investment Roadshow. Straight talk from executives who have successfully navigated the rapids of 2020. With Best Regards, Jim Brooke

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Tuesday, December 15

Foreign Flags on the Dnipro…Ukrainians Buy Apartments in Poland…Low Oil Prices Save Ukraine $3 billion…King Coal Steps Down after a Century on Ukraine’s Throne
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

Foreign shipping companies will be allowed to carry cargo up and down the Dnipro, under legislation approved by the Rada recently with President Zelenskiy’s backing. The goal is to triple annual river cargo to 30 million tons by 2024. “We need to build 250-300 new vessels,” Artem Kovalev, the Rada member who authored the bill, told UNIAN. “It is unrealistic to do this in a short time…so we have agreed to allow vessels flying a foreign flag to operate in our inland waterways.” Rebuilding river locks is to be paid through a new Inland Waterways Fund. This will be funded in part by 3% of customs duties paid by foreign flag ships using Ukrainian ports and by 45% of rent payments paid by hydro dams.

Ukrainians spent about $150 million last year to buy 3,200 apartments in Poland, making Ukrainians the largest foreign investor group in Polish residential real estate. The calculations were made by Gethhome.pl, based on data from Poland’s Interior and Administration Ministry. Ukrainians buy apartments to live in. Germans, the second largest foreign investor nationality, buy apartments as investments, reports PAP, the Polish Press Agency.

Low oil prices have saved Ukraine $3 billion so far this year, reports the State Customs Service. Through November, Ukraine oil import bill is down 36%, while the import volume is down only 5.6%. The top three sources of petroleum products are: Russia — $1.1 billion, or 35.9%; Belarus –$1.09 billion or 35.4%; and Lithuania — $360 million, or 12%.

Ukraine’s power plants reduced their coal consumption by 32% through October and increased their gas use by 31%, reports Expro.com, citing Energy Ministry numbers. Coal consumption fell to 14.1 million tons, while gas consumption rose 3.9 billion cubic meters.

Ukraine is gradually phasing out the use of coal, President Zelenskiy told a UN-sponsored gathering on Saturday, the International Climate Ambition Summit. Promising a “fair transformation of the coal sector,” Zelenskiy said in a recorded statement to the online gathering of Heads of Government that Ukraine will cut greenhouse gas emissions until reaching an ultimate goal of carbon neutrality. He blamed climate change for this year’s droughts that damaged crops across Ukraine and for forest fires in the east and floods in the west.

With demand dropping for coal, Ukraine’s coal mining industry is a shadow of its peak when it employed 500,000 miners, making Ukraine Europe’s third largest coal producer, after Germany and Poland. Last year, Ukraine’s production was 31 million tons – 17% the level of 1989. This year, it could fall to 25 million tons – the level of 1914.

All unprofitable mines will be closed in this decade, Olha Buslavets, first deputy Energy Minister said last week at the First German-Ukrainian Energy Day. “Unprofitable mines will be closed within ten years,” she said. “The minimization of subsidies to the industry from the state budget will take place in the coming years.” Addressing the challenge of retraining and relocating thousands of miners, she said: “Care must be taken so that no one is left behind. This is the motto of a fair transformation of the coal industry, laid down in the European Green Deal. This should happen with us, too.”

The EU is ready to help Ukrainian miners move out of coal, Torsten Wöllert, a European Commission energy official from Brussels, said at the Germany-Ukraine Day. “We are ready from the EU to help in this start together with the EU member states – Germany, Poland.,” he promised. “We will accompany Ukraine in this.”

At the German-sponsored Energy Day, Prime Minister Shmygal thanked Germany for its aid, saying “the project for a fair transformation of coal regions under the new energy partnership will begin this month: work will begin at two selected mines in the East and West of Ukraine.” Reflecting the shift in Ukrainian government attitudes toward coal, he said Ukraine will join a loose international grouping, the Powering Past Coal Alliance.

With the EBRD planning to invest up to $100 billion to help EU coal mining towns shift to new vocations through 2027, the Bank held an online conference Friday to promote a similar shift in Ukraine – the Platform Initiative in Support of Coal Regions in Transition in Western Balkans and Ukraine. “The EBRD confirmed its commitment to providing finance for investments that will support the transition from coal,” a Bank executive said at the meeting, organized with the World Bank, the European Commission and the Polish government. The ‘Just Transition Mechanism’ is designed “to support workers and citizens of regions where high-carbon assets are located.”

Polish tourists traveling to Chervonohrad, a Lviv region border town, will one day visit ‘Nadia,’ a Soviet-era coal mine turned into “industrial museum,” under a plan by Ukraine’s Regional Development Ministry. The project is part of a plan by the Ministry to transform mining towns into industrial parks, research centers, logistics complexes and even tourist attractions. Located one hour north of Lviv, Chervonohrad, population 65,000, has a mining college and nine coal mines. But, with coal prices low and payment of wages erratic, almost one quarter of the population left the city over the last decade — many to jobs 10 km across the border in Poland. In September, 40 miners at Nadia stayed underground for several days to protest non-payment of wages.

The government promises to pay this week $50 million in back wages owed to coal miners across the country, ruling party Rada Member Vasyl Mokan promised yesterday. About one quarter of the debt is owed to miners in Lviv, largely in Chervonohrad, Mykhailo Volynets, chairman of Ukraine’s Independent Trade Union of Miners, wrote Friday on Facebook.

Editor’s Note: Ukraine is embarking on a historic shift away from coal. In 1913, the Donbas produced 87% of the coal of the Russian Empire. A decade later, Soviet posters showed the Donbas as the pulsing red heart of communist industrialization. In modern days, as the experiences of the UK and US show, the shift from coal breaks up communities and leaves behind ghost towns. But, looking at Ukraine’s production figures, much of that transition already has started. For the inevitable transition in the 2020s, German and Polish money, experience and advice are welcome. With Best Regards, Jim Brooke

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Tuesday, December 8

Ukraine’s Economic Recovery to Start in Spring…Infrastructure Investment Saves Construction…More Mortgages, Small Business Loans…Black Week Saved Black Friday…Real Wages Grow…Turkey-Ukraine Talk of Building Rockets
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 prolonged coronavirus pandemic will stretch Ukraine’s economic recession through the winter, Economy Minister Ihor Petrashko predicted yesterday. But after a 3% GDP yoy drop in the first quarter, growth will resume in April, he told the Ukrainian Investment Roadshow. Growth will continue strongly, allowing Ukraine to end 2021 with 4.6% GDP growth, he said. Such a U-shaped economic recovery would cancel out the 5% GDP drop forecast for 2020.

Big government spending on infrastructure is singlehandedly pulling the construction sector into positive territory this year, according to analysis by Alfa-Bank Ukraine. Through October, construction is up by 1.9% yoy. A 10.6% rise in infrastructure investment was enough to offset a 18.7% drop in housing construction. Alfa reports: “Spending on roads more than doubled compared to the previous year.”

Overall, the government’s Big Construction’s share of GDP grew from 2.8% in the first quarter, to 10% in the fourth quarter, Mikhail Kukhar, chief economist of Ukraine Economic Outlook, said last week at a road industry forum. He said: “The decline in our country’s GDP would have been 11% in the fourth quarter, if not for the Big Construction project.” The Q4 decline is expected to be about 3.7%.

By the end of this month, the goals of the Big Construction project should be 95% complete, Kyrylo Tymoshenko, deputy presidential chief of staff, tells Interfax-Ukraine. The completion scorecard is: 200 schools and kindergartens: 93% complete; 4,000 km of state roads: 92% complete: and 100 sports facilities – 87% complete. For schools, the construction means new buildings for 8,338 students and renovated buildings for 55,000 students.

Europe’s biggest floating crane is being towed from Istanbul to Zaporizhia to complete the long-delayed bridge over the Dnipro, reports Ukravtodor. When erect, the crane rises 148 meters — nearly the height of Kyiv’s Parus office tower. The bridge complex is 9 km long. Onur, the Turkish company which is carrying out the $400 million contract to complete the bridge says part of the route will open to vehicles at the end of this month.

Since March $518 million in loans have been extended to small businesses, a factor in mitigating the impact of the coronavirus recession, the Finance Ministry reported yesterday.  Under the ‘5-7-9% Loans’ program, 6,300 loans have been extended to businesses with less than $3.5 million in annual revenue. Of the total, 68% of the loan money has gone to refinance existing debt, the Finance Ministry reported yesterday. There are 23 private and state banks participating in the program.

Home mortgage loans, long a rarity in Ukraine, are up 23% yoy, totalling almost $100 million through October. The average size is for $26,000, and 87% are for second homes, reports the National Bank of Ukraine. The secondary home market is more popular because rates are lower — 14.3% — than for first homes — 17.2%.

By replacing ‘Black Friday’ sales with ‘Black Week’ sales, merchants managed to save what could have been a bleak start to the holiday season, Ukrainian bankers tell Interfax-Ukraine. Charges with Akkord bank cards were up 38% this year, compared to a 47% increased last year. At Kreditvest Bank, Chairman Vasily Nevmerzhitsky said the week over week sales were up only 20-30%. He said: “If we compare sales on Black Friday in 2019 and in Black Week in 2020, the total drop in sales was about 40%.”

By contrast, the MOYO chain of electronics stores says it doubled its sales on Black Friday. Sales were boosted partly by a 16% increase in stores, to 36, and by keeping one store in Kyiv open around the clock. MOYO CEO Valentin Ivakin said: “The number orders and their amount twice exceeded the record of 2019.”

JYSK, which has a chain of 71 furniture stores in Ukraine, recorded a 10% increase in sales in November compared to last year. Evgeniy Ivanitsa, country director of the Danish-based firm, said this increase was reached by stretching the sales over eight days and attracting 1.5 million visits to their online store.

Real wages jumped 11% yoy in October, reports the State Statistics Service. Reflecting the impact of the coronavirus epidemic, the fastest growing wages were in healthcare — up 54%. The worst performing were in hotels and restaurants, where pay was stagnant.

The national monthly average wage is $430. The highest wages are in: Kyiv City — $618; Ukraine-controlled Donetsk — $479; and Kyiv Region — $456. Of the 24 regions, wages grew the fastest in: Chernivtsi and Kherson — 21%;  Rivne and Mykolaiv — 20%; Zakarpatti, Ivano-Frankivsk and Kirovohrad -019%; Ternopil —18%;  Zhytomyr -17%, and Luhansk – 16%.

Concorde Capital’s Evgeniya Akhtyrko attributes “the fast growth of real wages to the minimum wage being hiked to UAH 5,000 a month starting Sept.1, relatively low consumer inflation, and the increased demand for labor amid economic stabilization.

Next year’s planned 30% hike in the minimum wage will be postponed five months, until Dec. 1, Finance Minister Serhiy Marchenko confirms. The increase, to $228 a month, is being delayed to keep down inflation and to reduce the government budget deficit. Many government payments are indexed to the minimum wage.

For the statistics-addicted, the State Statistics Service has launched a mobile application “Statistics in a smartphone.” Oleg Nemchinov, Minister of the Cabinet of Ministers, says the new service offers graphs and numbers for: GDP, population, labor market, prices, industry, agriculture, construction, transport, and trade.

Ukraine is discussing with Turkey the joint creation of launch vehicles for commercial launches of satellites into space, Ukraine’s Strategic Industries Minister Oleg Urusky tells Radio Svoboda. Ukraine’s Yuzhnoye Design Bureau works with Northrop Grumman to  produce expendable rockets for placing satellites in low-Earth orbits. Ukraine and Turkey would need to use a third country cosmodrome, Urusky said. Until 2015, Ukraine had a project with Brazil to launch Ukraine’s Cyclone-4 carrier rockets from Brazil’s Alcântara Launch Center, near the Equator.

Editor’s Note:  A consensus that Ukraine is heading toward a U-shaped recovery next year emerged from the ‘Ukraine Macroeconomic” panel that I moderated yesterday for the Ukrainian Investment Roadshow. Assuming that the coronavirus will come under control during the first half of 2021, renewed growth was the view shared by: Economy Minister Petrashko, Dmytro Sologub, deputy governor of the central bank, Sergiy Nikolaychuk, head of macroeconomics for ICU, and Anders Aslund, economists for the Atlantic Council. Tune in tomorrow for Banking and Wednesday for UK Trade & Investment. With best regards, Jim Brooke