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Wednesday, January 6

Ukraine’s Sea Ports Buck World Recession, Retain Cargo Levels…EU Plans to Spend €100 Million to Open Five New Poland-Ukraine Border Crossings…Hryvnia Expected to Strengthen by 2% in H1…2020 Was Kyiv’s Hottest Year Since Record Keeping Started in 1881
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

Despite the global recession, the volume of goods going through Ukraine’s seaports was virtually unchanged in 2020 compared to 2019, according to Ukraine’s Sea Ports Authority. Last year, Ukraine’s ports handled 159 million tons of cargo, 0.7% less than in 2019. Grain exports were down 12%, to 48 million tons. Ore exports were up 18.5%, to 44 million tons. Overall exports ended the year up 1.5%, to 123 million tons.  Imports were down 8.6%, to 24 million tons. Transit was down 9%, to 10 million tons. Coastal was up 11%, to 2.4 million tons. And containers were up 4%, to 1 million.

The combination of dropping grain exports and expanded terminal capacity may force down costs in Ukraine’s Black Sea ports, reported AgriCensus in a story headlined: “Ukraine’s terminals compete as grain exports fall short.” This year, poor harvests have contributed to a 15% drop in grain exports. Meanwhile, grain handling capacity has increased by 20% over the last three years in Ukraine’s ports. The London-based news site wrote that this “could drive higher competition between terminals and slash transhipment costs in the Black Sea country, which is one of the world’s biggest exporters of corn and feed wheat.”

Despite Ukraine’s recession, sales of new cars in Ukraine fell by only 3% yoy, to 85,500 in 2020, reports Ukrautoprom, the car industry association. In December was the year’s record month, with Ukrainians buying 9,801 cars. With Ukraine’s lowered import taxes and the EU’s gradual phase out of diesel cars, first time registrations of used imports are about four times registrations of new cars. In 2020, Ukrainians registered about 350,000 imported used cars.

Cracking down on overloaded trucks, Highway Safety inspectors stopped 700,000 vehicles in 2020, fining 14,000 drivers nearly $5 million, reports Infrastructure Minister Vladyslav Krikliy. This year, Krikliy said, the government plans to continue to digitize the work of the Highway Safety agency “to eliminate the human factor” and to triple the number of Weight-in-Motion sensor devices, to almost 120.

The EU plans to invest €100 million in opening five new Ukraine-Poland border check points in Lviv region, according to Maksym Kozytsky, head of Lviv Regional State Administration. To be completed over the next five years, the crossings represent a 50% increase in the checkpoints between Poland and western Ukraine. “These additional checkpoints will link Ukraine with Europe,” Kozytsky said, adding that Ukraine’s government plans to spend $3.5 million on improving access roads.

Passenger traffic through Lviv Airport dropped by 60% yoy in 2020, to 878,000 passengers, Tetyana Romanovska, the airport director, tells Avianews. By promoting Lviv as an air cargo hub, the state-owned airport managed to turn a small profit and to keep all its staff, she said. By comparison, Lviv handled 2.2 million passengers in 2019, making it Ukraine’s third busiest airport, after Kyiv Boryspil and Kyiv Sikorsky.

To revive aircraft production at Antonov, Ukreximbank is loaning $105 million to the state aircraft manufacturer to build three An-178 cargo jets for Ukraine’s Army, Yevhen Metzger, chairman of the state bank, writes on Facebook. Airplane delivery is planned for 2023. Concurrently, Antonov is building an An-178 for Peru’s National Police and is negotiating the sale of a second plane. Airplane building at Kyiv’s Antonov largely stopped in 2014 as the company worked to make or source parts to replace parts from Russia. Company officials say this substitution process is largely complete.

Ukraine’s hryvnia is likely to strengthen in the first half of 2021, thanks to foreign-currency inflows from exports and renewed interest by foreign investors in Ukrainian local bonds, a Reuters monthly poll of 13 analysts indicated yesterday. Last year, foreign investors cut their bond portfolio by almost $2 billion, or 42%.  In the second half of December, foreign investors reversed, buying $368 million worth of bonds. This year, forecasts of continued strong prices for metals and grains coupled with resumed IMF lending make for a median June exchange rate forecast of UAH 27.60/$1, about 2% stronger than the current level. Last year, the hryvnia lost 17% of its value, largely in March.

The analysts also forecast Ukraine’s economy will grow 4% in 2021, after an expected decline by 4.8% in 2020. Inflation will be 6.1%, compared to 5% expected in 2020.

To ease the impact of the coronavirus recession, the government last year loaned $615 million under its program, Affordable loans 5-7-9%”. Of the 7,575 loans, 62% of the money went to refinance existing loans at lower rates.

With reported Covid cases well below the numbers of November, the government is considering softening the lockdown which starts on Friday, reported Citing ‘a source in the President’s Office,’ The lockdown could be postponed, shortened or simply liberalized. An announcement is expected today.

Ukraine’s average annual air temperature in 2020 exceeded the average long-term level by 2.2 degrees Celsius, or 3.6 F, reaching a record high of 10.7 degrees C, or 51.3 F, Ukraine’s state-run weather forecasting body said yesterday. Average annual rainfall across Ukraine was 8% lower than the norm. The lowest levels were registered in eastern Donetsk, Luhansk and Mykolayiv regions. With harvests dependent on the weather, Ukraine accounted for about 16% of global grain exports in the 2019/20 marketing season.

Last year was Kyiv’s hottest since weather recording keeping started in 1881, reports the Borys Sreznevsky Central Geophysical Observatory. In 2020, the average temperature in Kyiv rose to 10.9°C, or 51.6 F, the hottest on record. Eleven months of the year had average temperatures higher than the climatic norm. Only May was colder.

Half of Ukrainians are optimistic about 2021, according to a nationwide poll completed Monday by Kyiv’s Rating Sociological Group. Of 2,500 people interviewed, 52% expect the new year will be better than 2020, 27% do not expect changes and 18% say it will be worse. Young people, women, residents of Kyiv and of western Ukraine were the biggest optimists.

Tomorrow, Orthodox Christmas, is the favorite winter holiday for Ukrainians, the new Rating poll indicates.  Of the 2,500 people interviewed, 77% said they celebrate Christmas on Jan. 7 and 15% say they celebrate twice, including ‘Catholic Christmas’ on Dec. 25. 5% do not celebrate Christmas at all.

Editor’s Note: Tomorrow and Friday will be banking holidays in Ukraine. With EU, UK and US offices running normally, the Ukraine Business News will appear in email boxes as usual tomorrow and Friday mornings. To our friends in Ukraine, Merry Christmas! With Best Regards, Jim Brooke

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Wednesday, December 30

Gov’t Sells $3.5 billion of Bonds in 3 Weeks…GDP Shrinkage Stabilized in H2…Bucking Recession, Lviv IT Grows 7%...Ukraine to Start Negotiating Free Trade With China, Vietnam…Kolomoisky Liquidating US Investments Before Biden Presidency?...Antonov Starts Building Jets Again…Dnipro’s Future: Ice Free?
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 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.

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.

Editor’s Note: Thanks to global warming, will the Dnipro soon be navigable year round? Maybe not this year, but ice free may be in the cards for Ukraine’s mighty river. Twenty years ago, when I covered Canada and the Arctic for The New York Times, I saw the trend at the Port of Churchill, on the west coast of the Hudson Bay. At the wind battered office of the harbor master, a bronze plaque records every year ‘The First Ship.’ Dates trend earlier and earlier for arrivals of ice class bulk wheat carriers from such distant, exotic ports as Gdansk, Poland. Fast forward to last week. The same New York Times ran a thought-provoking piece: “How Russia Wins the Climate Crisis.” With Best Regards, Jim Brooke

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Friday, November 13

Wind, Solar Investors Are Up Against the Wall...China’s Sinohydro Pushes Back on Highway Contract...IMF In No Rush to Resume Aid to Ukraine...Covid Paralyzes Rogue Court...Antonov Starts Building Planes Again...Warm Weather Stretches Dnipro Shipping Season
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

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.

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.”

Editor’s Note: Walking down Kyiv’s Volodomyrska Street yesterday, I spotted the Iranian Ambassador’s car parked on the sidewalk. Then the smiling Iranian Ambassador slipped inside the opened door of the Armenian Embassy. Diplomats are digesting what some US analysts are calling a “Russian victory.”  Victory? The Russians were late, their client lost the war and the land, and Russia now has 2,000 peacekeeping troops tied up for five years patrolling a desolate piece of real estate. (I have driven that mountain road from Armenia proper to Nagorno-Karabakh). “Russia’s influence in the post-Soviet space has suffered a blow,” Leonid Bershidsky writes from Berlin for Bloomberg. “Georgians, Ukrainians and Moldovans may also decide that returning territory ripped from their countries by now-frozen conflicts is merely a matter of waiting for an opportune moment.”  In Nagorno-Karabakh, Turkey egged on the Azeris and supplied the drones that turned the tide on the battlefield. Once again, it is clear that Erdogan is willing to use military might to confront Russia in the region. With Turkey increasingly flexing its muscles, the fast-growing Turkey-Ukraine military alliance may soon alter Black Sea geopolitical realities. With Best Regards, Jim Brooke