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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 7

Rada Passes Compromise Anti-Corruption Bill…Ukraine Bonds Perform Well on World Markets…Russia Restarts Nord Stream 2…China Expands Trade and Tech…Ukraine Modernizes Planes, Trains and Trucks
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

In a bid to unlock billions of dollars in low interest IMF loans, the Rada restored accountability for false asset declarations, albeit a watered down version. Approved Friday, the new bill raised the limit for ‘forgetting’ an asset 9-fold, essentially from a car to a house. Officials who are not caught in two years, get off free. Fines range from $1,500 to $3,000. The possibility of imprisonment is lifted.

Anti-corruption groups have protested. President Zelenskiy wrote on Facebook: “It is a pity that the responsibility is still not as tough as we would like.” But he made clear he would sign the compromise bill. There was no comment from the IMF.

Ukrainian bonds are among the best performing in emerging markets in the post-US-election rallyreports Tellimer Research. “Sovereign bonds lead the way, tightening 100-150bps in November and outperforming EM indices, despite uncertainty over IMF funding and the devastating effect of coronavirus on the Ukrainian economy,” writes analyst Kiti Pantskhava. Among the corporates, Kernel and Metinvest are the best performers.

Russia restarted construction of the Nord Stream 2 gas pipeline on Saturday, Ukraine’s Hromadske television channel reports, citing a document from the Germany’s Federal Maritime and Hydrographic Agency. Work on the Russia-Germany trans-Baltic line stopped almost one year ago due to US sanctions. To get around sanctions, the pipelines company is using Russian ships in an effort to finish the 1,222 km pipeline, which is 90% complete.

Germany’s government sees US sanctions against Nord Stream 2 as illegal and does not predict any change under a Biden administration, German Foreign Minister Heiko Maas tells Der Spiegel. “”We have no illusions. There are almost no differences between Republicans and Democrats on this issue,” he said. He attributed US opposition to the pipeline to US interest in selling liquefied natural gas to the EU. A direct Russia-Germany pipeline would render the existing pipeline across Ukraine redundant, depriving Ukraine of $2-3 billion in annual transit fees.

With Britain apparently heading toward a ‘hard Brexit’ three weeks from now, Ukraine is asking the UK to negotiate a bilateral trade deal to lower tariffs.  On Friday, Prime Minister Shmygal asked UK Ambassador Melinda Simmons to start trade talks this month, even before the new bilateral trade treaty is ratified by the Rada. Signed in October by President Zelenskiy, the new trade treaty essentially continues on a bilateral level the trade rules that already exist for the UK as part of the EU.

Representatives of over 100 Ukrainian companies took part remotely in a China-Ukraine investment fair, hosted in Beijing, reports china.org.cnnews site With almost 300 Chinese and Ukrainian business and government officials participating, the annual conference took on new importance this year with the emergence of China as Ukraine’s top trading partner. At the conference, the China-Ukraine Bilateral Entrepreneurs Council announced the establishment of a liaison office in Harbin, capital of northeast China’s Heilongjiang province. Harbin mayor Sun Zhe said his city has worked well with Ukraine in such fields as aerospace, new materials and modern agriculture.

Huawei Ukraine is helping the Digital Transformation Ministry open a center “for students and future entrepreneurs” at Kyiv’s Taras Shevchenko National University. “This initiative opens up new opportunities for the development of talent in the digital world,” said Ding Ning, Huawei’s deputy director of supply and service. Last July, Ding signed an agreement with Kyiv Polytechnic Institute to open an “Academy of Information and Web Technologies.” KPI wrote on its Facebook page: “The University will become a platform for promoting Huawei technologies and ideas on the Ukrainian market. Huawei company cooperates with more than 900 universities overseas on opening ICT academies authorised by Huawei.”

For the first time since Independence, Ukraine’s Defense Ministry is about to order new planes from Antonov, Strategic Industries Minister Oleh Urusky tells Radio Svoboda. “A contract will be signed between the Ministry of Defense and the Antonov State Enterprise for three An-178 aircraft, which will be the first time in Ukraine since independence,” he says. “We have never ordered new planes.” An-178 is a Ukrainian medium-haul transport jet with a range of 3,680 km, cargo load of 18 tons,  and capacity to carry 90 soldiers. Turkey and Antonov are negotiating joint production of the An-178. During the summer of 2014, at the height of the Ukraine-Russia air war over the Donbas, three Ukrainian Air Force transport planes were shot down — an Antonov An-26, an Antonov An-30 and an Ilyushin Il-76.

Calling  the condition of the state railroad’s freight wagons “catastrophic”, the Cabinet of Ministers has adopted a “program of radical renewal” — replacing all 63,000 in the state fleet over this decade, reports the Ministry of Economic Development, Trade and Agriculture. With some wagons dating back to the 1960s, more than 90% of the wagons are past their service life. Noting that 24,000 used wagons have been imported in recent years from Russia, the Ministry warns that Ukraine risks “becoming a place for railway scrap written off by neighboring countries where operating restrictions apply.”

A total renewal of the wagon fleet will generate “billions of Hryvnia of government orders for Ukrainian manufacturers, hundreds of thousands of jobs, additional GDP growth of 2% per year,” the ministry predicts. Separately, private logistics operators in Ukraine own another 50,000 wagons. Private companies complain that when Ukrzaliznytsia locomotives bring their wagons into UZ workshops, they are often cannibalised for parts, usually brake pads. Last week, UZ signed the first contract with a private company — Lviv-based Ukrainian Locomotive Company — to haul cargo on UZ tracks.

Cracking down on overloaded trucks, the National Police checked 75,000 trucks last month, almost four times the number of checks performed in November of last year. So far this year, police have 665,000 trucks, almost double last year. With about 2% of trucks fined for violating weight restrictions, fines this year have totalled $4.5 million. By this time next year, there are to be 150 ‘Weight-in-Motion’ devices installed on Ukraine’s highways.

Air cargo through Kyiv-Boryspil is down by only 10% through November, compared to the first 11 months of last year. Air cargo dropped to 33,400 tons, Anton Borisyuk, the airport’s strategic development director said Thursday. By contrast, through October, passenger traffic was down by two thirds, hitting 4.5 million. Transfer passengers were down by 85%, passengers on regularly scheduled flights were down by 78%, and charter passengers were down by 40%.

Editor’s Note:  “It’s time to start treating Ukraine’s corrupt judiciary as a criminal syndicate,” reads a straight talking essay that pops the balloon of any happy talk that the Zelenskiy government is cleaning up the courts. “Bribery is routine,” Mykhailo Zhernakov writes in an Atlantic Council Ukraine Alert. “The Ukrainian authorities should not pretend that the country’s judicial system is in any sense capable of cleansing itself. Instead, we should treat it as a criminal syndicate controlled by the enemy.” Hardly an outsider, Zhernakov is a former judge. Today, he chairs the DEJURE Foundation, a group dedicated to giving Ukraine EU-standard courts. Until that happens, Ukrainians will continue to park their money in Cyprus and foreign investors will continue to watch from the sidelines. With best regards, Jim Brooke