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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

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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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Friday, December 18

Investment Nannies to Discipline Bad Bureaucrats…New Agriculture Minister Wants to Restore Irrigation and Milk Production…Turkey and Ukraine Form Black Sea Alliance Against Russia…Bloomberg Despairs of Zelenskiy…Kyiv to Modernize 5 Regional Airports Next Year
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’s version of Mary Poppins – the ‘investment nannies’ – were voted into existence by the Rada yesterday as part of a wider package of incentives for foreign and domestic investors. The investment nannies – male or female – will be legally empowered to implement incentives on large foreign investments, those over €20 million in five years. Incentives range from discounts on corporate income taxes and import taxes, access to land, and state provision of highway access and heat, gas, water and electricity hookups. These legally empowered fixers will be encouraged to intervene with mayors, governors, ministers and even the President to cut red tape on big projects.

Signaling that Ukraine is open for business, the new law covers a wide range of sectors, including: processing of food and minerals; waste management, transport, logistics, warehouses, package delivery, education, IT, health care, art, culture, tourism and sports. Ineligible for incentives are: alcohol, cigarettes, coal, oil and gas. The new law “allows Ukraine to introduce competitive conditions with neighboring countries to encourage the attraction of both domestic and international investors,” said Yulia Kovaliv, President Zelenskiy’s deputy chief of staff, a prime mover of the new legislation.

With the government planning to recreate an agriculture ministry next month, the Rada approved yesterday Roman Leshchenko as the new minister of Agrarian Policy and Food. Most recently head of the State Land Cadaster, Leshchenko says he favors the limited farm land market that is to start next year. Addressing the Rada yesterday, Leshchenko called for a $2 billion program to restore and expand Soviet-era irrigation systems in southern Ukraine.

Leshchenko, aged 32, pledged to make the national farm land registry more transparent, brining millions of hectares ‘out of the shadows’ into the taxable economy. “Everyone knows that in the Chornobyl zone they are engaged in agricultural production,” he said of clandestine farming in the exclusion zone. Subsidies should be targeted to professional dairy farmers, helping to import ‘high-quality heifers.’ He said national milk production has fallen to the level of 1946.

The Rada also appointed Serhiy Shkarlet as Minister of Education and Science. The ruling party failed to muster enough votes appoint Yuriy Vitrenko, former executive director of Naftogaz, as Energy Minister.

Six months ago, it was called the Ministry of Energy and Coal Mining. But yesterday, Olha Buslavets, first deputy Ministry of Energy, briefed British officials that Ukraine “soon will join the Coalless Alliance.” Started by Britain and formally called the Powering Past Coal Alliance, the group is composed of 34 nations committed to phasing out coal. “We plan to gradually reduce the number of coal mines, and by 2070 to abandon the use of fossil fuels, gaining full climate neutrality,” promised Buslavets. “It is important to accompany the transformation of coal regions by creating new economic incentives, so that new competitive clusters and new innovation and technological industries.”

DTEK rejects as “a politically motivated provocation” a report by the National Anticorruption Bureau (NABU) that the power company sought have Buslavets installed last spring as Minister to derail an investigation into the Rotterdam Plus coal pricing deal. “For almost a year, the Ministry of Energy has not had a fixed minister to lead it,” the privately-owned company complains in a statement. “There are endless discussions concerning the appointments of a minister and his/her deputies, while the industry is becoming virtually unmanageable.”

Concorde Capital’s Alexander Paraschiy writes: “It will be extremely hard to prove wrongdoing in the Rotterdam Plus approach implementation, and even harder to claim repayment for any damages from it…All in all, we remain in our position that there is little risk for DTEK’s fundamentals from NABU’s efforts.”

Today, the foreign ministers and defense ministers of Turkey and Ukraine meet in Kyiv for the first of what are to be regular ‘2+2’ meetings. Today’s meeting comes as both Black Sea nations step a military production partnership undoubtedly seen as threatening by the Kremlin. “Baku’s Success in Using Turkish Drones Raises Question: Could Ukraine Use Them Against Russia in Crimea?” asks the headline on a Jamestown piece by Paul Goble. “Kyiv has absorbed the lessons from the recent fighting in Karabakh and decided to move forward more rapidly on its UAV strategy and defense cooperation with Turkey,” Goble writes, noting that Ukraine has ordered 48 Turkish attack drones. “[This] is likely to set off alarm bells in Russia, whose forces will be the most likely targets of Turkish drones deployed by Ukraine.”

“Ukraine’s Leader Is Being Broken by the System He Vowed to Crush,” headlines a Bloomberg report from Kyiv. “Volodymyr Zelenskiy is flailing as hard-won reforms since the 2014 ouster of the country’s Kremlin-backed leader are being unraveled,” reads the report by two veteran reporters here, Daryna Krasnolutska and Volodymyr Verbyany. No high-ranking officials have been locked up on Zelenskiy’s watch. Market-friendly reformers hired to close the book on Ukraine’s post-Soviet politics were swept aside in a reshuffle, while some Western members of state-owned company boards have been pushed out.”

Bloomberg offered hope that President-elect Biden will work to restore the free market reform momentum in Ukraine. The article cites a recent Razumkov Center survey where 42% of respondents ranked Zelenskiy as political “disappointment of 2020.”  67% of respondents said Ukraine is going in the wrong direction, a reversal from 36% one year ago. Similarly, last week only 20% of respondents said the Zelenskiy government is better than the Poroshenko government; 30% said it is worse; and 41% said there is no difference.

Today an agreement is to be signed allowing construction of Lviv’s Northern Bypass, says Oleksandr Kubrakov, head of Ukravtodor. Completing the missing link on Lviv’s ring road, the new highway will connect the M-06 Kyiv-Chop highway with three roads leading from Lviv to Poland. Speaking in Lviv, Kubrakov praised the Big Construction program in Lviv Region this year:  278 km of national roads repaired for $78 million.

Ukraine’s air passenger traffic should return next year to 50% the level of 2019, Infrastructure Minister Vladyslav Krikliy predicted yesterday at a press conference in Kyiv. This year, he said, air passenger traffic is only 28% the level of 2019.

Following a strategy of modernizing five regional airports a year, the government has budgeted $85 million to renovate in 2021 the airports of Dnipro, Kherson, Rivne, Vinnytsia and Odesa. Almost 60% of the money will go Dnipro. Over three years, $220 million is to be spent in Dnipro, rebuilding the runway and building a new, privately owned terminal capable of handling 1,000 passengers an hour. In 2022, the Ministry plans to renovate the airports of Cherkasy, Chernivtsi, Poltava, and Sumy and to start building a new airport in Zakarpattia.

Editor’s Note: Not since the days of Catherine the Great have the north and south shores of the Black Sea been on the same page. The emerging Turkey-Ukraine partnership – none dare call it an alliance – is worth watching. How far it will go and how long it will last remain to be seen. But, while geopolitical analysts ululate that Putin is playing ‘3D Chess’ (whatever that is), it is clear that Russia’s Czar has made some bad moves. With Best Regards, Jim Brooke

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Thursday, December 3

Weekend Shopping Ban Lifted…Ukraine to go to Eurobond Market for $1 billion…FDI Drops Sharply...Ship Cargo Holds Steady
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

Ukrainians can look forward to a normal shopping this weekend and, probably through Friday December 25, Catholic Christmas. Prime Minister Shmygal said November’s weekend shopping bans had cut the spread of the coronavirus.

Yesterday morning, 13,141 new cases were announced, down from a daily average of 16,500 late last week. However, in Kyiv Mayor Klitschko said yesterday that a record 1,735 new coronavirus cases had been confirmed. Eight months after the first cases were confirmed in Ukraine, “about 3% of Ukraine’s population of Ukraine have already had COVID-19,” Deputy Health Minister Iryna Mykychak tells Telegraf media outlet.

With a big budget funding gap looming, Ukraine may tap the international Eurobond market for up $1 billion in short term financing, Prime Minister Shmygal told the  Korrespondent news site. He asserts the IMF will announce the date of its review mission in coming days. This would indicate that the $5 billion Stand By Agreement signed six months ago is back on track. Shmygal also said the government could sell $2 billion worth of Hryvnia bonds in coming weeks. On Tuesday, the government sold $93 million worth of Hryvnia bonds.

Timothy Ash writes from London: “Surprised it took them so long given the strength of global beta which has seen Ukraine’s borrowing costs in the Eurobond market crash 200bps lower over the past month or so. The appetite for yield is so strong post US elections that people are willing to look beyond challenges in individual country stories – and in Ukraine’s case — challenges to the anti corruption agenda, which is stalling IMF lending…Markets may not be so forgiving in 2021, so they really need to use the window being provided by cheap global financing conditions to crack on with those much needed reforms. Not entirely sure why you would only do a six month issue – market feels open to 5Y or 10y deal, and not sure that six months down the line pricing will be much cheaper.”

Through October, Ukraine has attracted $221 million in new direct foreign investment — 5% of the $4.5 billion attracted during the first 10 months of last year, the National Bank of Ukraine reported yesterday. Similarly, reinvestment by foreigners also fell sharply during the same period: to $639 million, from $2.9 billion this time last year. The Central Bank reported that Foreign loans also plummeted to $219 million, from $640 million last year. Analysts put the blame on the coronavirus recession and on the stalling of Ukraine’s movement to clean up the judiciary and implement free market changes.

Corporate raiding — stealing companies through forgeries or force — is up slightly this year compared to last year, reports Ukrinform, citing data from Opendatabot, an  online registry. Through October, 751 corporate raids were recorded in Ukraine, almost the same number as for all of last year. Three quarters were attempted through forged documents. This year 45% of cases go to court.

Ukrzaliznytsia plans to spend almost $1 billion next year on repairing locomotives, cars, and track — almost three times the money spent this year. As posted on the state railroad’s site, financing would be: 55% from UZ’s funds; 31% from bond sales; and 14% from the state budget.  According to Vladimir Zhmak, UZ’s new CEO, the railroad will probably end this year with a $500 million loss, largely due to lost passenger ticket sales. Last year, the railroad recorded a profit of $110 million.

Despite the corona recession, cargo handled by Ukraine’s seaports is up by 1% yoy. Through November, the ports handled 146 million tons. Confirming Ukraine’s reliance on exports of raw materials, grain and ore exports accounted for 58% of all cargo moving through the ports.

Kyiv’s autumn (September-November) was the warmest since local record keeping started in 1881, reports Ukrinform. “The calendar autumn is over but the meteorological winter has not come yet,” reports the Borys Sreznevskyi from the  Central Geophysical Observatory which is  located in southern Kyiv. “It will begin when the average daily air temperature starts steadily dropping below 0 °C.” Without any sharp freeze forecast, authorities have extended the Dnipro River shipping season for an unprecedented extra month, to Dec. 31.

Editor’s Note:  Phew, that was a close call! National Anti-Corruption Bureau detectives were all set yesterday to arrest Oleg Tatarov, deputy chief of presidential staff, on bribery charges, when President Zelenskiy’s hand-picked Prosecutor General Iryna Venediktova swooped in and took four prosecutors off the case. That is the version presented last night by censor.net, the Kyiv Post and other news sites around town. Gosh, I hope that no one in the IMF office in Kyiv reads Ukrainian or English. With best regards, Jim Brooke

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Monday, November 23

US-Trained Economists Return to Zelenskiy Government...Canada’s Poster Boy for Ukraine Investment Accuses Kolomoisky of Trying to Steal His Solar Plant...Corona Infections Double in a Month...Kyiv Now is in ‘Uncontrolled Outbreak’
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 clouds hanging over Ukraine’s deal with the IMF, President Zelenskiy is bringing back into his government two US-trained economists he let go last March – his former Finance Minister and his former Economy Minister.

Oksana Markarova, the former Finance Minister, has been nominated to serve as Ukraine’s next Ambassador to the United States. Trained in public finance at Indiana University, Markarova worked in the Finance Ministry for five years until she was let go in the mass cabinet shakeup of March 4. As Finance Minister for two years, she saw interest rates on foreign currency bonds fall to record lows for Ukraine — 2.22% in euros and 3.4% in dollars. Last January, Ukraine borrowed €1.25 billion for 10 years with a 4.73% interest rate, once again a record low rate.

A fluent English speaker, Markarova has participated in numerous negotiations with the IMF, World Bank and other foreign financial institutions. Foreign Minister Dmytro Kuleba reacted to press speculation that she was chosen to go to Washington to deal with the IMF, writing on Facebook: “The idea that Markarova is sent only to extort money from the IMF is a delusion.”

Tymofiy Mylovanov, the former Economy Minister, has been appointed as a “non-staff” adviser to Andriy Yermak, Zelensky’s chief of staff. After resigning from the Cabinet in March, Mylovanov has served as president of the Kyiv School of Economics and a Professor at the University of Pittsburgh.

Mylovanov, a University of Wisconsin-Madison graduate, is known for advocating forceful, generally free market policies. Two weeks ago on the Svoboda Slova program he advocated a hard lockdown to slow down coronavirus epidemic, saying: “We should close businesses and provide them with financing. But we don’t have enough funding now. So in essence, we need to print money.” Yermak, who is recovering from coronavirus, is seen as behind the purge of pro-Western reformers since March.

In another personnel change, the Cabinet fired on Friday Olha Buslavets, the acting Energy Minister, replacing her with Yuriy Boyko, her deputy at the Ministry. Buslavets had served as acting minister for the last seven months as the government did not have the votes to win parliamentary approval. Some media outlets and some Rada members accused her of acting in favor of Rinat Akhmetov, owner of several coal mines and electricity generation companies. Boyko, a longterm state employee previously was deputy director of Energorynok, the state-owned company that intermediated between energy producers and energy distributing companies, or oblenergos.

In a black eye for Ukraine’s investment image, a pioneer Canadian renewables investor is accusing Igor Kolomoisky and his business partners of trying steal a 10.5 MW solar plant. Built by Calgary’s TIU Canada, the plant was inaugurated in January 2018  and hailed as the first investment under the new Canada Ukraine Free Trade Agreement. Built largely to feed Kolomoisky’s Nikopol Ferroalloy Plant, the solar plant’s substation is on the Ferroalloy plant grounds. The Ferroalloy plant controls road access to the solar plant.

In the summer of 2019, Kolomoisky stopped paying the green tariff for solar and wind electricity nationwide. On March 1st, the Ferroalloy plant cut off TIU Canada from the substation. Later, in face to face talks with TIU Canada, Kolomoisky offered to buy the plant he had closed.  CEO Michael Yurkovich says in a press release sent Thursday’s to Canada’s financial press: “This is a clear case of oligarchs pressuring a foreign investor and trying to steal assets.” Noting that the cutoff has cost his company €1.5 million since March, he said: “We are mustering our resources and will fight this case in Ukraine, Canada, or any jurisdiction needed to win.”

The TIU Canada plant in Nikopol is one of several completed solar plants around Ukraine that are not functioning because of problems connecting with power grids, Artem Semenyshyn, Executive Director of the Solar Energy Association of Ukraine, told Interfax Ukraine Friday. He said: “It is very bad when we lose the already built “green” generation facilities, which are now idle and do not increase the share of clean electricity.” If the government does not work to hook up these completed plants, the portion of solar power in the nation’s energy mix could start to fall, he warned.

TIU Canada’s Vita Solar is one of several dozen small renewable companies that are suing for nearly $18 million from the Guaranteed Buyer, the state company that is obliged to buy power from renewable developers. By the end of next year, the Guaranteed Buyer is to pay almost $1 billion in overdue electricity bills. Two weeks ago the Rada passed at first reading a bill to extend state guarantees to ‘green bonds’ that the government would launch to cover the debt.

President-elect Biden will be well-positioned to help President Zelenskiy fight against corruption in Ukraine, The Washington Post wrote last week in an editorial titled: “Ukraine’s anti-corruption push is stalled. Biden can help get it going again.” “Mr. Biden…has been one of Ukraine’s best American friends, visiting the country five times while Vice President and strongly supporting its battles against Russian aggression and domestic corruption,” writes the Post. “A Biden Justice Department could also renew efforts to pursue criminal corruption cases against key Ukrainian oligarchs, including Dmytro Firtash and Ihor Kolomoisky, who have been instrumental in blocking reforms and in promoting Russian interests in Ukraine.”

Ukraine averaged 14,500 new coronavirus infections on Friday and Saturday – double the level of one month earlier. Starting Saturday, police have the right to fine people not wearing masks in public places – mass transit, underground passageways, stores, and public buildings. The fines range from $6 to $9. On sidewalks, masks are encouraged, but not obligatory.

Under the current regime of weekend quarantines, 17,000 to 33,000 people could die of coronavirus in Ukraine over the next five weeks, according to a forecast by the Kyiv School of Economics. As of yesterday morning, 10,951 deaths in Ukraine are attributed to coronavirus this year.

Nationwide Ukraine, an average of 27% of PCR tests for Covid are showing positive results. “Uncontrolled outbreak” is how Pavlo Kovtonyuk, head of the School’s Center for Health Economics, described the situation in Kyiv City and nine regions: Zaporizhia, Sumy, Kyiv, Volyn, Rivne, Ivano-Frankivsk, Zhytomyr, Khmelnytsky, and Chernivtsi. In, Kyiv Mayor Klitschko reported a record 1,213 new cases on Saturday morning.

Editor’s Note: In farming countries, like Brazil and Argentina, they say economies grow at night –because crops grow while politicians sleep. If you want to connect with the real producers in Ukraine, turn in this afternoon to the Ukrainian Agribusiness Webinar: “Adapting market strategies to uncertainty.” Presented by the Strategy Council and moderated by Larysa Bondarieva of Credit Agricole, the webinar will feature such agro experts as: Alex Lissitsa, CEO, IMC; Kateryna Rybachenko, CEO, Agro Region; Olena Vorona, CFO, Agrotrade; Volodymyr Bondarenko, CFO, CYGNET Agrocompany; Taras Vysotskyi, Deputy Minister of Economic Development, Trade & Agriculture; and Vladyslava Magaletska, head of the State Service for Food Safety & Consumer Protection. Register here for the 4 pm Kyiv time start. With Best Regards, Jim Brooke