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Friday, September 6

Farmland Bill: E-Auctions, Limits on Size of Holdings, Restricted to Ukrainians and Ukrainian Cos...Central Bank Cuts Prime for Third Time in Four Months...Anti-Corruption Court Opens...Kernel and Louis Dreyfus Investing $250 million in Black Sea Ports, Rail Wagons
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 three weeks to go for the Rada to receive a farmland market bill, posts what it calls the agreed-upon legislative draft. The parameters are: only Ukrainians and Ukrainian companies are to buy farmland; all sales are to be through e-auctions, and sales prices must be made public. Caps on ownership by a person, entity or related parties would be: 35% of farmland in a local community, 15% in a province, and 0.5% on a national level. Since Ukraine has a total agricultural land area of 41.5 million hectares, this last cap would limit one company’s ownership nationwide at 207,000. This would mean that Kernel could only own 39% of the land it currently operates.

Dragon Capital writes: “The disclosed farmland market model is quite liberal, making the prospective market accessible for both small and large farmers as well as foreign investors through locally set-up legal entities. Mandating sales through electronic auctions with mandatory price registration would help the market’s transparency…If properly implemented, land reform would attract sizable capital inflows and boost GDP growth via higher private consumption and increased agricultural sector productivity.”

The World Bank says $500 million will be needed to help 2,200 small and medium farmers buy the land they currently lease. Satu Kahkonen, the Bank’s regional director, says the government should set up a Partial Credit Guarantee Agency to help farmers make the transition from leaseholders to landowners. As used in countries like Colombia and Mexico, the Fund guarantees up to 50% of a loan, often up to seven years. Under discussion in Kyiv for over a year, the concept has the support of the Finance Ministry and the National Bank of Ukraine.

    Citing slowing inflation, the central bank cut its key interest rate for the third time this year. Effective today, the rate is 16.5%, down from 17%. Ukraine started the year with the rate at 18%. Cuts were made on April 26 and on July 19. One or two more cuts are expected before the end of this year. “The National Bank continues the cycle of easing monetary policy, as it expects inflation to slow to the target of 5%,” the central bank said Thursday. The bank has promised to reduce the interest rate to 9% by the end of the next year 2020.

    The central bank should speed up the rate cuts in order to meet the new government’s goal of 40% GDP growth by 2024, Bogdan Danylyshyn, council chairman of the National Bank of Ukraine, writes on Facebook. “This is a continuation of the half-measures policy that the NBU has been adhering to for a long time,” the bank advisor complains. To justify faster easing, he cites three factors: the 10% rise of the hryvnia against the dollar this year, low gas import prices and reasonable prices for Ukraine’s commodity exports, and another bumper grain harvest this year.

    The central bank warns of “psychological and physical pressure” against its former governor, Valeria Gontareva. The bank cites a hit and run accident in central London last week that hospitalized Gontareva and the Wednesday night firebombing in Kyiv of a car registered in her daughter-in-law’s name, also Valeria Gontareva. The bank calls on authorities “to safeguard the life and health” of Gontareva, adding that it sees “a real threat to the personal safety of those NBU officials who have implemented and continue to implement financial sector reforms.” In the past, Gontareva, now a research fellow at the London School of Economics, has accused Ihor Kolomoisky of waging a vendetta against her for leading the nationalization of his bankrupt bank, PrivatBank, in 2016.

    The Deposit Guarantee Fund has completed the liquidation of another bankrupt bank, Axio. Still cleaning up after the 2014-2015 banking crisis, the Fund plans to complete the elimination of 83 banks by the end of next year. In the crisis, 96 out of 182 Ukrainian banks failed.

    Opening a new front in the war on corruption, President Zelenskiy opened the Supreme Anticorruption Court Thursday saying its goal is to punish corrupt officials and to “return of the feeling and belief that there is justice in Ukraine.” He added:The task of the Supreme Anticorruption Court is very simple: the corrupt official is punished, while the state, society and investor are protected.”

    Last week, Zelenskiy submitted to the Rada a bill to clarify the court’s jurisdiction so it does not get sabotaged with thousands of minor cases. “Someone really wanted you to consider cases when the village head did not spend several hundred hryvnias in a proper way. This was done to keep the resounding cases of corrupt officials in the shadows,” he said at the new court, on Peremohy Avenue.  Addressing the new judges, he said: “You expect more than 200 big cases of plundering, shameful actions of corrupt officials – top officials. And we will help you consider these cases freely so that all these people are punished.”

    Kernel, the world’s largest producer and exporter of sunflower oil, and a syndicate of European banks agreed Wednesday to extend a $290 million credit line by one year and to add another line, for $100 million, maturing Aug. 31, 2021. Traded on the Warsaw Stock Exchange since 2007 as KSE, Kernel has a land bank in Ukraine of 550,000 hectares.

    In a big signing timed for the new government, Kernel committed Wednesday to invest $120 million to build a new grain terminal in Chornomorsk. In return, the Ukrainian Sea Ports Authority commits to spending $10 million to dredge deep access channels to the terminal. Kernel CEO Yevgeny Osipov, said: “Our strategic goal by 2020 is to increase grain exports to 8.8 million tons by launching a new terminal at the port of Chornomorsk.” This volume is 18% of Ukraine’s forecast exports through June – 50 million tons.

    To feed the port, Kernel is working with Ukrzaliznytsia to increase the handling rail wagons by 50%, to over 1,000 a day. During the first eight months of this year, Chonomorsk railway station handled 106,959 freight cars, up 16% y-o-y. With the railroad struggling to cope, truck traffic to the port shot up 73% during the same period. Of the 81,385 trucks so far this year, 78% carried grain, reports the Center for Transportation Strategies.

    The EBRD is loaning up to $35 million to global grain trader Louis Dreyfus Company to buy up to 1,000 rail grain hopper wagons. Headquartered in Rotterdam, Louis Dreyfus plans to start its own rail logistics business in Ukraine. With Brooklyn-Kyiv LLC, the company is building a $100 million grain transshipment complex at Odesa Port with an annual capacity of 4.5 million tons.

    From the Editor:   Next month, on Oct. 16, UBN is a media sponsor for the 0100 Conference in Prague, a meeting of investors and venture capitalists from Central and Eastern Europe. Tickets at the Early Bird price are available until Oct 4. For more information, please visit the conference website. Best Regards, Jim Brooke