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Tuesday, January 19

Price Controls Slapped on Gas…2020 Vision: Farm Production Fell by 11.5%...UZ Moves Half of the Nation’s Cargo…Chinese Demand Pushes up Steel Prices, Production…Gangsters Try to Sabotage Sale of State Titanium Co…Flood of Square Meters Could Depress Office Rents in Kyiv…Failure to Procreate: Two Ukrainians Die for Each Baby Born
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 gas prices spiking during frigid weather in Europe, Ukraine is cutting household gas prices by 30% and capping them until the end of March, according to a decision posted yesterday on the Cabinet of Minister portal. The decision came after scattered protests across the nation.

This reintroduction of price controls is expected to rule out Ukraine receiving an IMF aid tranche during the first quarter. Timothy Ash writes: “Hard to see the IMF lending while this cap remains in place.”

Corporate farms suffered a 14% yoy drop in crop harvests in 2020, the State Statistics Service reported yesterday. While this export-oriented sector was hardest hit, Ukraine’s overall agricultural production fell by 11.5% last year. This includes: crops, animals, family farms and company farms. Northern regions had the smallest declines: Rivne minus 3%; Sumy minus 4%; and Chernihiv minus 5%. Due to drought, the biggest drops were in south and central Ukraine: Cherkasy minus 24%; Kirovograd minus 32%; and Odesa minus 38%.

Ukrzaliznytsia trains carried 61% of the Ukraine’s grain for export last year, the railroad reports. Overall, UZ moved 35.2 million tons of train last year – 87% for export. Grain accounted for 11.5% of the railroad’s cargo tonnage last year.

Ukrzaliznytsia, the workhorse of Ukrainian logistics, carried 40 million tons of cargo between Ukraine and the EU last year, the state railroad reports. One quarter of that traffic was with Poland. Exports to the EU accounted for 28 million tons, imports 4 million tons, and transit 7.5 million tons. Other than to say that cargo between Romania and Ukraine increased by 21%, to 4 million tons, the railroad did not give comparative figures for 2019. The other three big destinations last year were: Slovakia, Czech Republic, and Italy.

Rail container traffic grew by 11%, to 425,000 TEUs in 2020, Ukrzaliznytsia reports. The portion of traffic carried in dedicated container trains jumped by 41%, to 230,000 TEUs. Direct container trains from China to Kyiv started June 8 and rose to the frequency of almost once a week. Next month, Chinese railway operator East Line starts sending container trains to Kyiv from two logistics centers in eastern China: Nanchang, and,1,000 km to the north, Jinan.

Chinese trains passing across Ukraine to the EU “significantly increased,” UZ said. Seeking to develop Ukraine as a transportation corridor, UZ is developing new EU routes with DHL Global Forwarding and with Ukrainian companies for a multimodal ferry-train route – Turkey-Ukraine-Poland.

Fueled partly by Chinese demand, Metinvest, Ukraine’s largest private company, rode strong steel prices to report steel output growth by 9% yoy last year, to 8.3 million tons. Its Inhulets mining and processing plant in Kryvy Rih, reported a 8% yoy growth in production of iron ore concentrate, to almost 12 million tons. Mariupol Illich Iron and Steel Works, in Donetsk region, increased production of rolled steel products, by 12.4% yoy, to 3.7 million tons.

Looking ahead, Concorde Capital’s Dmytro Khoroshun writes: “We expect Metinvest to continue producing steel at daily rates of at least 23-24 kt in January-February in order to make the most of the recently skyrocketed prices.”

Ukraine’ pig iron exports increased by 20% yoy last year to 3.1 million metric tons, reported Steelorbis news site. In value terms, exports rose 15% to $992 million. The biggest buyers were: US – 58.5%; China -22%; and Turkey – 6%.

Interpipe Steel said that it is the Ukraine’s first steel company to meet European Green Deal targets for 2050: its emissions do not exceed 250 kg of CO2 per ton of steel produced. This producer of steel pipes and railroad wheels in Dnipropetrovsk was built from scratch nine years ago involving $1 billion investments. Founded and owned by Viktor Pinchuk, the company made these announcements on the occasion of the arrival of the company’s new CEO, Artem Polyakov.

“Law enforcement agencies, former shadow owners and oligarchic groups” and attempting “to stop and roll back the privatization” of United Mining and Chemical Company, Ukraine’s state-owned titanium producer, the State Property Fund charged yesterday. If such attacks are not repelled, Ukraine could lose $430 million in budget revenues through aborted privatizations, says Dmytro Sennychenko, director of the Fund. Due to such resistance to privatization, Ukraine has about 3,000 state companies almost 30 years after the fall of communism. In the case of the mining company, 16 investors – national and foreign – have registered for a privatization auction, tentatively set for this spring.

Kyiv’s office vacancy rate grew to 12.5% in 2020, up from 9% in 2019, reports NAI Ukraine, the commercial real estate consultancy. At the same time, rents dropped by an average of 20%: to $20-30 per square meter in class A offices and to $12-23 per square meter in class B offices. In addition to the recession, the market took two hits: the addition of 80,000 new square meters and a massive shift to remote working. Largely fueled by IT companies, the volume of gross absorption – or total amount of office space leased in Kyiv — amounted to 85,000 square meters.

This year could be good for renters and tough for landlords. Plans call for developers to unleash 370,000 square meters of new space on the market – almost five times the 2020 amount. At the same time, coronavirus remains a factor. “In 2021, the remote work is likely to continue to prevail: this is fully true for the first half of the year, and from the second half of the year there is a high probability of a gradual return to work in offices,” writes NAI Ukraine. “This is a question of the speed and efficiency of vaccinations and quarantine measures. Nevertheless, experience of effective work online will bring changes to the organization of office spaces forever.”

The enhanced coronavirus quarantine – or lockdown – will not be extended after Sunday night, Prime Minister Shmygal told Interfax-Ukraine yesterday. On Monday, Ukraine returns to the milder ‘adaptive’ quarantine, a set of rules that will be in place until the end of March, he predicted. Noting high levels infection in the EU, he said: “So there is no reason to lift [Ukraine’s] quarantine. There is no need to prematurely indulge ourselves in illusions. I am sure that the quarantine will last a very long time this year.”

The government is negotiating with six vaccine manufacturers with the goal of starting vaccinations one month from now, Shmygal said. Separately, UIA has said it has prepared two Boeings to transport vaccines as cargo. Yesterday morning, 3,034 new coronavirus cases were registered, the lowest level since September. Since March, 20,869 Ukrainians have died of the virus.

In November, the pandemic’s peak in Ukraine, the number of people who died in Ukraine was up 35% yoy, to 63,440. In October, the deaths were up 17.5% reports the Civil Service. During the first 11 months of 2020, two Ukrainians died for every baby born. Deaths totaled 549,170, Births totaled 268,900.

Editor’s Note One more weekend of lockdown. Restaurants closed. Shopping centers closed. Movie theaters closed. Watched all the good movies on Netflix. What’s a young couple to do? (Fingers tap on coffee table). Why not, um, do your civic duty and procreate? With Best Regards, Jim Brooke (father of four)

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Monday, January 11

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

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

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

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

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

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

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

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

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

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

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

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

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

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