President Zelenskiy said he is ‘confident’ that Ukraine will get IMF funds by the end of this year. If a deal cannot be reached on the remaining $2.9 billion, “there is plan B, plan C,” he told reporters yesterday at the Ukraine 30. Infrastructure Forum. He blamed the pause in talks declared by the IMF 10 days ago on “a lot of lobbyists who are individually working with the IMF and telling them what’s going on in Ukraine. They say: ‘Oh, things are so horrible here! If only we were (in power), we would have done better’.”

From London, Timothy Ash speculates that delays in receiving tranches from the $5 billion program could be because Ukraine’s government knows it can borrow at low rates in international markets while it gambles that the Biden administration will eventually lean on the IMF to soften its conditions. Key conditions for a resumption of IMF disbursements are purges of the Higher Court of Judges and the Constitutional Court, steps seen as essential for building a judicial system that investors would trust.

“Zelenskiy needs to understand that the Fund is in the end a creditor,” writes Ash, senior emerging market strategist at BlueBay Asset Management. “It sets the terms, as it is lending the money at a discount interest rate…With yields on Ukrainian Eurobonds already 60-70 bps higher over the past few weeks, maybe it would be opportune for the Ministry of Finance to return to market sooner, rather than later.”

With the first 500,000 coronavirus vaccines expected to arrive in Ukraine from India this weekend, Health Minister Maksym Stepanov sketched out yesterday the latest information on future deliveries:

Ukraine’s goal is to vaccinate half of the adult population – about 15 million people – by the end of this year. Ukraine’s EU land neighbors – Poland, Slovakia, Hungary and Romania — have already vaccinated 7% of their populations.

Construction starts this year on the first leg of a planned network of high speed, European gauge tracks across Ukraine, Infrastructure Minister Vladyslav Krikliy told a national infrastructure conference yesterday. At buildout of the 2,000 km network, it will be possible to travel from Lviv to Kharkiv at speeds up to 250 km an hour, completing the trip in “3-4 hours” promised President Zelenskiy. Currently, this 1,000 km trip takes 14 hours by car or by InterCity fast trains.

The first step will be to start building this year of 80 km of EU gauge tracks from the Polish border to western Lviv’s Sknilov station, near Lviv airport. This would allow travel from Poland to Lviv without delays associated with the gauge change at the border. As outlined yesterday, Ukraine’s high speed rail network would radiate out of the capital: Kyiv-Lviv-Polish border; Kyiv-Odesa; Kyiv-Kharkiv; and Kyiv-Dnipro-Zaporozhia. By the end of this decade, the network is to have 39 trains carrying 5 million passengers a year.

South Korea’s Hyundai Corp. is ready to start negotiating with South Korea’s government and multilateral lenders to win financing for a major part of track construction and for 10 high speed trains, Eun Soo Choi, Hyundai’s vice president for commercial transport, told the Infrastructure forum. “We are ready to provide financing for several projects,” he said in a video address. He said that Hyundai will spend $2 million for a pre-feasability study for the high speed rail network. Next month, Ukrzaliznytsia and Infrastructure Ministry officials are to travel to South Korea to advance discussions.

Ukraine plans to launch a state-owned national airline by the end of this year, Kyrylo Tymoshenko, deputy presidential chief of staff, told reporters yesterday at the infrastructure forum. “We have an ambitious goal of creating a state air carrier,” he said.  “Ukraine will receive an understandable state national air carrier that can solve not only tourism issues, but also state issues.”

For domestic flights, the airline would use Antonov jets, which are not accepted in the EU. To promote, regional air travel Tymoshenko vowed to follow through on the government’s promise to abolish the VAT tax on tickets for domestic flights.

The location of a new airport for Ukraine-controlled Donbas is to be decided this year, President Zelenskiy said yesterday. After seven years of war, the government wants to return air travel to the region. “We could open the Mariupol airport, restore and renovate it, but today the military say that it is dangerous,” Zelensky told reporters. Berdyansk and Zaporizhia airports are too far from the Donbas. Other options would be to upgrade Kramatorsk airport in Donetsk or Severodonetsk airports in Luhansk. Both airports are only used by the military and may be considered too close to the front lines for civil aviation.

Zakarpattia’s new airport will probably be in Seredenje, a farming town of 4,000 people, midway between the region’s two most populous cities, Uzhgorod, the capital, and Mukachevo. Uzhgorod’s airport borders on Slovakia, creating air traffic control problems. Mukachevo has an abandoned Soviet-era air strip. The Seredenje compromise means that about 250,000 people would be within a 45-minute drive of the regional airport.

An international brand hotel will soon replace the long-shuttered hotel Odesa at the city’s cruise passenger terminal, Tymoshenko, the deputy presidential chief of staff, said yesterday. Opened in 2001, the 158-room hotel on a wharf jetting into the Black Sea was first run by the Kempinski Hotel Group. It closed in 2014 with the suspension of cruise ship port calls to Odesa. Tymoshenko said: “There is already an investor. The final stage is underway.”

UAE companies “are talking about a big project – the construction of a large marina in Odesa and a large separate port,” President Zelenskiy said yesterday, fresh from a 2-day working visit to the United Arab Emirates. One company comes to Ukraine this week to talk about investing in river ports, he said. Last summer, Dubai’s DP World bought a 51% stake in the TIS Container Terminal in Ukraine’s biggest port, Yuzhne, 40 km east of Odesa city.

A recently agreed $1 billion “linked loan” from China “is not a victory,” Oksana Markarova, Ukraine’s former Finance Minister and future Ambassador to the US, wrote in her blog for Ekonomichna Pravda. Noting that the money will be used to fund the Kyiv Ring Road and for Kremenchuk’s new bridge over the Dnipro.  She says this kind of loan may require Chinese workers, materials, technology and construction companies. Markarova warned, “The process and results of Ukraine’s use of the tied loan from China are expected to be in line with the creditor’s vision and the approaches of China and the Chinese Communist Party.”

In advance of the January 20, 2021 inauguration of President-elect Joe Biden, Washington-based Radio Svoboda continues to investigate Ihor Kolomoisky’s investments in the US with a story headlined: “Ukrainian Tycoons Selling U.S. Property Amid Foreclosure Proceedings, Court Documents Show.” According to court documents filed Christmas eve, Optima Ventures, the U.S. real-estate holding company owned by Kolomoisky and Hennadiy Boholyubov wants to sell an office building and a stake in a hotel in Cleveland. Reporter Todd Prince writes: “Separately, the Justice Department is seeking the forfeiture of two commercial buildings owned by Optima Ventures in Louisville, Kentucky, and Dallas, Texas.”

President Zelenskiy yesterday suspended the Chief Justice of the Constitutional Court through February after he failed to appear Monday at police inquiry into a bribery charge. The Justice, Oleksandr Tupytsky, is seen as the organizer of court decisions two months ago to dismantle anti-corruption agencies in Ukraine.

Concorde Capital’s Zenon Zawada writes: “On the surface, it’s impressive that the Prosecutor General’s Office is pursuing this criminal case against Tupitskiy…We are confident that Tupitskiy won’t be prosecuted for any alleged crimes because of the “krysha” [political cover] that he enjoys, which likely extends into the Prosecutor General’s Office. Any measures it takes against him are merely for show.”

Signaling a revival of Ukraine’s aircraft building industry, the Defense Ministry has ordered three An-178-100R military transport jets from Antonov, the first such order since Independence in 1991. Powered by two domestic turbojet engines, this version of the An-178 can carry 18 tons of cargo, cruise at 825 km/h, and fly a maximum of 5,000 km. For comparison, the flight distance between Uzhgorod and Kharkiv is about 1,000 km.

Next year, Ukraine will establish a state airline based on a fleet of Antonov regional jets, President Zelenskiy promised yesterday at the military cargo jet signing ceremony. Yuri Guzev, the new general director of UkrOboronProm said: “We expect to sign new government contracts for the manufacture of An-178 aircraft from 2021.” Last month, the Cabinet of Ministers signed off on a 10-year, $1.4 billion program to develop and modernize Ukraine’s aviation industry.

The Dnipro shipping season is being extended to Jan. 15, an unprecedented extension into mid-winter. Studying long term weather forecasts, the Maritime and River Transport Service on Monday made its third shipping season extension since November 11. With the latest extension, shippers will get two extra months of use of the river’s six locks. Closing the river involves pulling out hundreds of buoys.

The Finance Ministry made another high volume government bond sale yesterday — $874 million in equivalent. With this auction, the Ministry has raised nearly $3.5 billion in the last three weeks – more than the $2.9 billion in the first 11 months of this year.

For the eight different hryvnia bonds offered, yields have changed little since last week, ranging from 10% for 3-month bonds, to 12.25% for 5-year bonds. With 3-month bonds in dollars offering a 2.9% yield, investors snapped up $323 million worth – 37% of yesterday’s total sale.

Interpipe, Ukraine’s top producer of steel pipes and railroad wheels, is buying back $75 million worth of its 2024 Eurobonds, the company reported. CEO Fadi Hraibe told investors “Various instruments are also being considered for attracting financing for Capex: issuing Eurobonds, attracting project financing and attracting bank financing.” He later clarified that Interpipe does not have immediate plans to issue a new Eurobond. Located in Dnepropetrovsk, the mines-to-metals company employs about 11,000 workers.

Ukraine’s international reserves are “over $28.5 billion,” the highest level in eight years, Bohdan Danylyshyn, head of the Council of the National Bank of Ukraine, wrote on his Facebook page. This would be $3.2 billion higher than at the start of 2020, or a 13% increase. He wrote that during this year of the Covid shock, Ukraine’s Central Bank spent up a net $1.1 billion to defend the hryvnia.

In a televised briefing, the Economy Minister Petrashko said that Ukraine’s GDP probably shrank in the fourth quarter by 3% yoy. This represents a stabilization from the cataclysmic 11.4% yoy drop in the second quarter. The third quarter drop was 3.5% yoy, says the State Statistics Service. For all of 2020, Petrashko predicts a GDP shrinkage of 4.8%. Looking ahead, he predicts this will be largely cancelled out by 4.6% growth in 2021. He said this is the consensus of five forecasts for 2021 – from the IMF predicting 3.4% growth to the EBRD predicting 5.6%.

Bucking the Covid recession, the number of IT companies and IT workers in Lviv increased by 7% in 2020, compared to the previous year, according IT Research 5.0, a study conducted by Fama research agency for Lviv’s IT Cluster. There are now 492 IT companies in Lviv, employing 26,500 people. The average monthly salary of an IT specialist in Lviv is $2,080, about four times Ukraine’s average salary for all sectors. During last spring’s lockdown, all IT companies surveyed switched to remote work — 22% partially and 78% fully.

Ukraine is preparing to negotiate Free Trade Agreements in 2021 with China, Vietnam, Indonesia, Egypt and Jordan, said Ihor Petrashko, Minister of Economic Development and Trade.  “These are important markets for Ukrainian products as part of expanding our export opportunities.”

Tripling Vietnam-Ukraine trade to $1 billion by 2023 and forging a bilateral free trade pact were two goals set at a meeting Monday in Kviv between Nguyen Hong Thach, Vietnam’s ambassador to Ukraine, and Taras Kachka, Ukraine’s Deputy Minister for Economic Development and Trade. Both officials agreed to expand air links and to speed up establishment of a Vietnam House in Kyiv and of a Ukraine House in Hanoi, reports Vietnam News Agency. By contrast, China-Ukraine trade is believed to have hit $14 billion this year.

Forty Belarusian tech companies and 2,000 IT workers have moved to Ukraine in the four months since protests erupted after Alexander Lukashenko claimed to have won the Presidential Election. The Belarusian service of Radio Svoboda reports from Kyiv on Ukraine’s effort to recruit Belarusian IT workers and companies, detailing salaries, taxes and work permits.

Turkey’s top military procurement official Ismail Demir has signed agreements in Kyiv for the technology transfer and joint production of attack drones and corvette warships, Ukraine’s Defense Ministry announced Monday. The small warships would be used by both countries for coastal patrols in the Black Sea. Following Demir’s visit, Serdar Huseyin Yildirim, Head of the Turkish Space Agency, announced a Turkey-Ukraine agreement for joint production of satellites and rockets, reported DefenseNews, a Washington-based news site.

Separately, Al-Monitor, another US-based new site, reported that in the second half of November Ukrainian forces tested Turkish-made Bayraktar TB2 combat drones over the Sea of Azov and around Kramatorsk, Donetsk region. Last month, Ruslan Khomchak, Commander-in-Chief of Ukraine’s Armed Forces, announced that Kyiv is considering buying five of the drones. At the same time, UkrOboronProm and Turkey’s Baykar Makina, manufacturer of the Bayraktar drones, decided to form a joint venture for Ukraine to domestically produce 48 TB2 drones. Military analysts say these drones helped Azerbaijan win last month’s war between Armenia and Azerbaijan.

The new UK-Ukraine trade agreement has been ratified by both countries’ parliaments and will take effect on January 1, 2021 Taras Kachka, Ukraine’s Trade Representative, wrote on Facebook. The new pact allows for free trade in farm products not subject to quotas. Seen as a stopgap measure to put in place before Brexit takes effect two weeks from now, the new deal is already slated for renegotiation in 2021.

Former US Envoy to Ukraine Kurt Volker is spearheading an ambitious project to open next September at the American University in Kyiv. Announced this week, the new University aims to enroll 3,900 students and bring in $26 million in tuition fees by 2026. Offering US-standard education in Ukraine, the new university is being developed with Arizona State University and Cintana Education, a public benefit corporation that works with ASU on international education. According to a recent survey by Ernst & Young, 87% of Ukraine’s employers do not believe that higher education meets current needs, and 91% of Ukrainian students said they would study in English at a Ukrainian-American university in Ukraine.

Betting on the revival of river cargo, the KPS Group is drawing up plans for a 5-year, $75 million project to build a multimodal port capable of doubling Kyiv’s river cargo volumes by 2027. With rail and highway access, the site would be on 16 hectares of industrial land in Telychka, immediately south of Pivdennyi Bridge, Kyiv’s southernmost bridge. KPS Group has a lease on the land, is drawing up feasibility studies and is talking with potential foreign investors, Serhiy Ovchinnikov, the company project manager, told the Center for Transportation Studies.

“Only 1 in 10 CEOs expect the investment climate to improve in 2021,” is the bleak headline on a survey of 101 managers in Ukraine conducted for European Business Association by Vasil Kisil & Partners law firm. Ukraine’s ‘investment attractiveness index’ has fallen to 2.4 points out of a possible five, the lowest level since 2013, reported the EBA. Two thirds of executives polled said Ukraine’s investment climate worsened in the second half of 2020, compared to the first half. Looking ahead, 45% predicted the climate will get worse in 2021, 45% said it will not change, and 10% said it will get better.

A dysfunctional judicial system and government corruption were cited as the top two investor turnoffs. “94% of respondents believe that a weak judicial system is one of the reasons for Ukraine′s low investment attractiveness,” said Andriy Stelmashchuk, managing partner of Vasil Kisil. Anna Derevyanko, the EBA’s executive director since 2003, said: “Enough time has been wasted, so now the country needs proper decisive actions to improve the business climate and economic development.”

Investment company Quarter Partners has launched an IT venture fund, promising to invest $100 million in Ukrainian startups or international ones with Ukrainian ties. Acting as an ‘angel investor,’ the fund provides funding from the pre-seed round to Round B, when a company expands its market “with maximum value and a sustainable business model,” Denis Valvachev, CEO and Managing Partner of the fund, QPDigital, said in a press release. Focusing on IT-logistics, digital healthcare, game development, blockchain and artificial intelligence, QPDigital already has invested $2.6 millions into six startups.

Kyiv deepfake startup RefaceAI has raised $5.5 million from Silicon Valley investors, Roman Mogylnyi, a co-founder, wrote on Facebook. Since launch last January, the face-swapping app has been downloaded 70 million times. Entertaining for the coronavirus shut in generation, Reface now ranks among the top apps on the AppStore and Google Play. Mogylnyi believes the technology will open up a new era of ‘gamification’ of movies and sports.

NASA has signed a $9.8 million contract with a Ukrainian-American aerospace company to launch small satellites for space research, reports the U.S. space agency. Firefly Black, a unit of Max Polyakov’s Firefly Aerospace, would launch the miniature satellites into low earth orbits for research.  With its workforce of 310 divided between Texas and Polyakov’s native Dnipro, Firefly Aerospace is also developing a robotic moon lander for NASA’s Moon Payload Program. Next year, Firefly plans to test launch from California its Alpha rocket, a two-stage missile capable of placing a 1-ton payload into low earth orbit.

Antonov Airlines has carried its largest satellite to date – a 55-ton Space X communications satellite — from Toulouse, France to Titusville, Florida, home of the commercial airport serving the Kennedy Space Center. Ukraine’s preeminent air cargo company used an An-124 Ruslan to fly the satellite 7,300 km, near the upper flight range for that size payload.

China’s Sinohydro Corporation Limited intends to file an international arbitration claim for Ukravtodor’s termination two weeks ago of its contract for construction of a bypass highway around Zhytomyr. Sinohydro was five months overdue on the project, delays the company blamed Covid disruptions and the tardy transfer of a key land plot by Ukraine’s state highway agency. The Chinese say that in September, a Dispute Resolution Council give them an extra three months to complete work by the end of this year. Sinohydro says Ukravtodor ignored a Dispute Council Nov. 2 back to work order. Instead, they say, Ukravtodor took possession of €8.5 million worth of bank guarantees and transferred the construction site to the regional highway authority.

Coming as Ukraine seeks public-private partnerships with foreign road construction companies, Sinohydro says its treatment should serve as a warning. “It is difficult for the company to understand why, over and over again, Ukravtodor similarly terminates agreements with contractors, including with other foreign companies,” the Chinese company said yesterday. “Sinohydro believes such actions of Ukravtodor will significantly weaken the desire of foreign contractors to participate in the construction projects of the state agency.”

The recent decision by Ukraine’s Constitutional Court to dismantle anti-corruption legislation is the biggest impediment to a restoration of IMF loans flows to Ukraine, Kyrylo Shevchenko, governor of the National Bank of Ukraine, told Voice of America in Washington after meeting with the IMF and World Bank. Other issues are: the mounting budget deficit and the work of the central bank after the summer changeover of leadership.

Concorde Capital’s Alexander Paraschiy reads between the lines of this “sobering statement” and concludes: “No IMF tranche in 2020, meaning IMF-related financing of Ukraine’s 2020 budget deficit (from the Fund, the EU and the World Bank) for a total amount of up to $2.5 billion won’t arrive this year. Therefore, the only viable way for Ukraine to try to fill its budget gap without such money is a massive issue of international Eurobonds. As soon as it becomes apparent to the government that no IMF-related money will come soon, it will be high time for Ukraine to prepare for the new bond issue.”

In London, Timothy Ash polled his Twitter followers about Ukraine’s IMF prospects. He posted on @tashecon this breakdown of the 260 replies: IMF money this year – 15%; IMF money in Q1 – 27%; IMF money in Q2 – 15%; unclear as major problems – 43%.

Covid accomplishes what Zelenskiy cannot. Covid has paralyzed the Constitutional Court, with the majority of the 15-member court “either sick or awaiting test results because they have symptoms of coronavirus,” a ‘source’ tells Interfax-Ukraine. One judge, Ihor Slidenko, tells the news agency: “I am reliably aware of two cases of COVID-19 among judges of the Constitutional Court.”

Zelenskiy and his chief of staff, Andriy Yermak, are being treated for Covid at Feofania Clinic, the southern Kyiv hospital reserved for high level officials. Two ministers reported this week that they also have Covid: Finance Minister Serhiy Marchenko and Defense Minister Andriy Taran. Three presidential aides reportedly have recovered from Covid: Yulia Kovaliva, Roman Mashovets, and Serhiy Shefir.

With the nationwide ‘weekend lockdown’ starting after midnight tonight, there is scattered resistance. The leaders of Lviv, Rivne and Sloviansk say they will not follow the rules. Epicenter, one of the nation’s largest retailers, announced it is declaring a 72-hour Friday. Yesterday, Health Minister Maksym Stepanov announced a new peak of 11,057 new Covid cases – double the daily average of one month ago. Stepanov told reporters that Covid is spreading in Ukraine at a “hurricane rate.”

Upside of global warming: the shipping season on the Dnipro will be extended by two weeks this year, to Dec. 1, reports the State Maritime and River Transport Service. The four northernmost locks — Kyiv, Kaniv, Kremenchuk and Kamianske – had been scheduled to start closing Sunday. Closing the river involves pulling out hundreds of buoys in a north-south sequence. But Kyiv is not forecast to see prolonged cold weather until mid-December. Last winter, serious ice only formed in January. Infrastructure Minister Vladyslav Krikliy said last week: “Our plans are to navigate the Dnipro throughout the year, if weather conditions are favorable.”

Ukraine will invest $70 million next year to revive regular production of aircraft at Antonov and to “master the full production of helicopters,” Prime Minister Shmyhal told the Cabinet Tuesday. The money is to be part of a decade long, $1.4 billion investment to revive the portions of Ukraine’s aircraft industry seen as most profitable. Emerging from an import substitution phase prompted by the 2014 break with Russia, Antonov now is building an An-178 military cargo jet for Peru’s National Police. It also is negotiating a joint production venture with Turkey. Last week, Sergiy Bychkov took over as acting general director of Antonov, succeeding Oleksandr Los, who resigned after four months in the post.

Russia has decided to its close trade missions in two of its Western neighbors, Ukraine and Lithuania, and to open a mission in Syria. Russia-Ukraine trade steadily dropped after 2014, the year Russia annexed Crimea and moved troops into Ukraine’s Donbass. Last year, China displaced Russia as Ukraine’s largest single nation trading partner. Through October, Ukraine’s trade with the EU this year was three times its trade with the Moscow-led Commonwealth of Independent States, according to figure released Tuesday by the State Customs Service.

Russia’s last trade office in the Baltics was in Lithuania. Trade during the first half of this year dropped by almost one third, compared to the first half of 2019. An official note accompanying the decree by Russian Prime Minister Mikhail Mishustin complains: “The foreign economic policy pursued by the leadership of the Republic of Lithuania does not contribute to building up trade relations with Russia.”

Wind and solar investments account for one quarter of the €49 billion of foreign direct investment in Ukraine since Independence in 1991. However, €660 million in unpaid electricity bills is forcing foreign investors to renegotiate bank loans, mull bankruptcy and to pursue international litigation against Ukraine, participants told an Energy Talk webinar organized last week by the European Business Association.

Carl Sturen, the Swedish managing director of wind power developer Vindkraft, said: “We are lagging behind on our payments and we definitely can’t wait.” Sergii Shakalov, CEO of Kness Group, a solar panel production plant launched in 2019 in Vinnytsia, says he has already lost $10 million due to non-payments. “One of the biggest problems of Ukraine is that it doesn’t comprehend that agreements should be fulfilled in any situation,” complained Shakalov, reports the Kyiv Post, a co-sponsor of the webinar.

The Government’s Guaranteed Buyer says it has paid all for renewable energy generated in August and for 93% of power produced in September. The press service of the Ministry of Energy reports that the green tariff reductions negotiated with renewable companies in July has saved consumers $53 million.