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Monday, August 25 – IMF Review Date Is Not Set

IMF Review Date Is Not Set…Reserves Hit New High.Miracle for Mykolaiv?....Ukraine’s G.I. Business Program…IKEA Boosts Goods…New Car Imports Down….No Combat Losses for 29 Days...
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 IMF has yet to set a date for the review of the Standby Agreement, a review that was to be in September. IMF Ukraine representative Goesta Ljungman tells Hromadske that while “discussions on the implementation of the parameters and indicators of the liquidity program are ongoing, the The IMF has yet to set a date for the review of the Standby Agreement, a review that was to be in September. IMF Ukraine representative Goesta Ljungman tells Hromadske that while “discussions on the implementation of the parameters and indicators of the liquidity program are ongoing, the date of the IMF mission on the first revision of the program has not yet been determined.”

Ukraine received in June a first $2.1 billion tranche of what is to be a $5 billion loan program.

Prime Minister Shmygal says he expects Ukraine will receive the second tranche by the end of this year. Some economic analysts say the IMF switched to observation mode after President Zelenskiy unexpectedly switched the central bank leadership within a month of getting the first IMF tranche.

International reserves reached a new high this month at $28.8 billion, according to the National Bank of Ukraine. Boosted by the IMF tranche, this is the highest level in eight years.

Mykolaiv’s shipbuilding industry is to be revived with a government program designed to create 25,000 new jobs, President Zelenskiy and David Arakhamia, leader of the Servant of the People Rada, promised on a visit Friday to a city that was the Soviet center for shipbuilding in the Black Sea. “We want to restore the former glory of the city of shipbuilders,” Arakhamia said, referring to Mykolaiv whose modern history dates back to the creation of a Russian Navy shipyard in 1789.

The government promises “a national program to support shipbuilding, cheaper credit resources,” Arakhamia said. Later on Friday, Oleh Uruskyi, Minister for Strategic Industries visited the Okean shipyard in Mykolaiv, reported the company website.

Business education for combat veterans and soft loans for veteran-owned startups are government priorities, President Zelenskiy said during an International Volunteer and Veterans Forum in Kyiv. “It’s both military skills and the rules by which all successful companies exist,” he said. “One cannot ignore the experience of other countries, where many veterans are the founders of large, serious, powerful, well-known companies.”

With the minimum monthly wage set to rise to $182 (UAH 5,000) next Tuesday, Zelenskiy says the budget can “definitely support” the hike. On July 1, the minimum wage is to increase by 30%, to UAH 6,500, currently $237. Ukraine’s median monthly wage is $768.

Grain sales were down 18% yoy in July, reports UNIAN citing the Ministry of Economic Development, Trade and Agriculture. Due to bad weather, much of the harvest is late.

Steelmaker ArcelorMittal has transferred 50 million tons of slag to the government for the national road construction program, reports Interfax-Ukraine, citing the company. Earlier this year, Arcelor pushed the government to change regulations to allow construction of concrete roads with slag. Increasingly common across Europe, the use of crushed slag for road construction helps companies cut disposal costs. In turn it cuts costs for building concrete roads. So far this year, 100,000 cubic meters have been used to build roads in Donetsk, Dnipropetrovsk, Kharkiv and Zaporizhia regions. The goal is to use almost 500,000 tons this year for roadbuilding.

Interpipe, Ukraine’s largest pipe and wheel producer, will redeem at par 97 million of its 2024 notes this week, according to the company.

IKEA Ukraine plans to offer 5,000 items in its first physical store in Kyiv, says Florian Melle, Ukraine director of Ikea. He said: “A city-format store will open in Kyiv without a food department and restaurant, but we strive to launch them as soon as possible.” Earlier this year, IKEA started operating an online store that proved so successful that the company struggled to keep up with orders. Ikea’s first physical store in Ukraine is to open in Kyiv’s Blockbuster Mall by the end of this year.

Energy traders imported 345,000 megawatts of electricity in the first quarter of 2020, reports NERC. The imported electricity was from Slovakia, Hungary, Romania and Belarus.

New car imports are down 36% y-o-y, reports Ukrinform citing Ukravtoprom. The average value of an imported new car is $19,300. Japanese vehicles are the most popular.

Passenger transport is down 56.2% y-o-y, reports the State Statistics Service. Rail was down 58.2%. Motor transport was down by 44.3%.

There have been no combat losses in the eastern regions for the past 29 days,  Zelenskiy said  during his Independence Day speech. “A year ago, I talked about how every morning starts with an SMS message from the General Staff of Ukraine. SMS about the number of wounded and dead for the past day on the front line. The numbers are different, but only one message makes the morning good: wounded – zero, dead – zero. Today, for the 29th day in a row, is a really good morning for me and our whole Ukraine. Yes, we face many new challenges. But today is 29 days since we have no combat losses in the east of Ukraine.”

From the Editor – After Monday’s Independence Day holiday, the Rada – and the Ukraine Business News — are back today. One example of constructive work the Rada can do is the simple legislation passed earlier this year authorizing the use of metallurgical slag for road building. An increasingly common practice in countries with steel industries, this recycling will cut into Ukraine’s slag mountains and help provide the nation with decent roads. Writing tonight from western Turkey, I see clearly how Turkey’s good roads generate economic development. With Best Regards, Jim Brooke

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Friday, August 21 – Qatar’s QTerminals signed the concession for the Olvia port

Qatar’s QTerminals Signs Concession to Run Ukrainian Port…Ukraine Pivots to Asia…Banking Changes…Naftogaz in Egypt….Kharkiv Tries Poaching IT Talent…Agriculture and Employment down...
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

Qatar’s QTerminals yesterday signed the concession agreement for the Olvia port in Mykolaiv region, reports Interfax Ukraine. Infrastructure Minister Vladislav Krykliy announced: “QTerminals is to invest about [$124 million] in the development of Olvia port and preserve jobs.  The $3 million annual concession payment will be 16 times the port’s profit last year. .” QTerminals operates Hamad, the largest commercial port of Qatar, valued at $7 billion.

“The successful signing of pilot concessions for the ports of Olvia and Kherson proved that the public-private partnership model can effectively attract private investment in Ukrainian infrastructure,” commented IFC Ukraine chief Jason Pellmar. “Both projects will serve as models for future concessions in various sectors of the Ukrainian economy. This work is fully consistent with our key mission – improve the competitiveness of Ukraine and accelerate its economic growth.”

China strengthens its position as Ukraine’s top trading partner, with $6.6 billion in bilateral trade in the first half of 2020, according to the State Statistics Service. For perspective, bilateral trade between Ukraine and the United States amounted to just $382 million during the same period. China, Russia and Poland are Ukraine’s main export destinations. Ukraine’s top sources of imports are China, Germany and Russia.

Ukraine’s exports to South Korea grew by 89% to $252 million in the first half of 2020, reports the State Statistics Service.

The Cabinet of Ministers canceled a 1992 agreement with the Russia regarding mutual trade representatives, according to the government. “To stop the agreement between the government of Ukraine and the government of the Russian Federation on the mutual establishment of trade missions, concluded in Moscow on October 22, 1992,” the website says.

Ukraine’s central bank has established “flexible” guidelines for the restructuring of debt assumed by green energy producers. The National Bank of Ukraine website writes: “The NBU has provided for a possibility for the banks to apply restructuring instruments irrespective of the status of the borrower’s existing leverage.” Kyrylo Shevchenko, the new central bank governor, previously ran UkrGasBank, the nation’s largest lender to solar and wind projects.

The central bank simplifies the banking charter process. The NBU website: “The regulator has reduced the number of documents that must be submitted by banks for approval by managers. Now the process of preparing the appropriate package of documents will be easier and will save time that banks spend on the approval of managers.”

Monetary policy targets an annual inflation rate of 5%, reports Ukrinform, citing the NBU.

Oschadbank plans to auction off non-performing loan portfolios starting in autumn 2020, reports Interfax Ukraine. In the first half of this year this state bank wrote off $800 million in non performing loans. This reduced the non-performing loans in its credit portolio from 55% of total assets at the start of the year, to 48% today.  The bank’s NPL targest are: 37% in 2021; 11% in 2022; 7% in 2023.

Naftogaz will develop its assets in Egypt instead of selling them, reports the company’s press service. Last December, , the state company  announced plans to sell off two oil and gas fields near  Alam El Shawish to raise  $100 million. Naftogaz Chief Andrei Kobolyev said the SBU opposed the deal.  Sergiy Pereloma, first deputy head of Naftogaz “The Management Board and Supervisory Board of Naftogaz have set a clear task for us – the development of assets in Egypt.”

NV magazine publishes its top 100 “most influential” people in Ukraine. The top 5 in chronological order are: President Volodymyr Zelenskiy, tycoon Rinat Akhmetov, Interior Minister Arsen Avakov, Presidential Head Andriy Yermak, pro-Russian politician Viktor Medvedchuk.

Kharkiv tries to poach IT specialists from Belarus by offering relocation perks, reports Interfax-Ukraine. “Kharkiv IT-community sincerely empathizes with Belarussian colleagues who are forced to be in unstable conditions and psychological pressure. Kharkiv IT-Cluster understands that in such conditions it is difficult not only for IT-business to maintain stability, but also to live and work,” the  organization said.

Epicenter K, a local home improvement chain, is introducing a new browsing format for shoppers. “It is sometimes difficult for a buyer to imagine a complete picture of the future interior according to a single sample, therefore we present expositions in the Ceramics Center “in almost the same way as at international exhibitions,” said Julia Korsun, head of the Ceramic Tile department at Epicenter K.

Unemployment is up 67% y-o-y since the beginning of quarantine measures, reports UNIAN citing the State Employment Service. Between March and August 2020, about 432,000 more Ukrainians were officially registered as unemployed. Given the large size of Ukraine’s shadow economy, the real number is likely to be higher.

Agricultural production in the first half of 2020 dipped 11.2% y-o-y, according to the State Statistics Service. Production by industrial scale-enterprises was down by 15.3% while small-scale producers by 4.2%.

The World Bank praised Ukraine’s coronavirus response, says Deputy Health Minister Svitlana Shatalova. “On August 17, during a meeting between Health Minister Maksym Stepanov and World Bank Country Director for Belarus, Moldova, and Ukraine Arup Banerji, the World Bank highly appreciated the work of the Health Ministry of Ukraine in the very difficult conditions of the pandemic and in the conditions of extremely tight deadlines,” Shatalova said.

From the Editor: Please forward UBN news to  your friends and co-workers. You can read the news in 5 languages: RUSSIAN, UKRAINIAN, ENGLISH, GERMAN and FRENCH at Dear readers enjoy your long weekend. With Best Regards, Jim Brooke

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Wednesday, August 19 – Ferrexpo Poltava Mining marked half a billion tons of iron ore concentrate

Poltava Mines Enough Iron Ore to Build 100 Egyptian Pyramids...Cargill Loans €250 Million to Ukraine...Ad Agencies Expand...Kyiv’s Cautious Corona Curbs
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

Ferrexpo Poltava Mining marked this month half a billion tons of iron ore concentrate produced since the mine opened 50 years ago. “The first ton of concentrate was produced in 1970, and after 50 years of operation, PGOK produced the 500-millionth one,” said Viktor Lotous, Board Chairman of Poltava GOK. Over the last 20 years, $3 billion has been invested in Poltava Mining, he said. With demand high in China,  the mine and processing plant shipped a record 1.1 million tons of iron ore pellets in March. For comparison, 500 million tons is 93 times the weight of Egypt’s largest pyramid, the Great Pyramid of Giza, according to The Heaviest Objects in the World.

Ukraine is to raise up to €250m in two loans from Cargill Financial Services, the Cabinet of Ministers reported Monday. The loans are to be: three years at 5.95% and five years at 6.85%. One year ago, the Finance Ministry conducted a similar operation, borrowing from Cargill at slightly lower rates:  €100 million for two years at 5.15% and €150 for five years at 6.25%.

Concorde Capital’s Alexander Paraschiy writes of the new loans: “The conditions under Cargill’s private loan look close to market rates, taking into account that Ukraine’s public six-year debt (EUR-denominated Eurobond maturing in June 2026) trades currently at 6.61% YTM. The loan will allow Ukraine to partially compensate the large foreign currency debt outlays of August-September, which amount to about $3 billion.”

The Finance Ministry raised the equivalent of $91 million in its weekly government bond auction yesterday – one quarter the $366 million raised one week earlier. Highlights were: 6-month hryvnia bonds placed at 7.82%; 2-year hryvnia bonds placed at 10.14%; and 8-month dollar bonds placed at 3.39%.

Due to the corona-recession, state budget revenues are $1.4 billion below plan for the first half of this year, Valery Patskan, chairman of the Accounting Chamber, writes on Facebook. About 37% of the drop is due to a fall in customs duties due a 20% drop in imports during the first half.

Watching “the sharp aggravation of the situation in the Republic of Belarus,” President Zelenskiy said after a security council meeting Monday night: “The events in this country could significantly affect Ukraine.” But hours earlier, as labor slowdowns spread through Belarus’ two oil refineries, the Cabinet of Ministers reintroduced special duties on imports from Russia of: liquefied gas (3%), diesel (4%), and most types of coal (65%).  The duties expire Dec. 31.

Pre-election populism at the Rada. President Zelenskiy vetoed a bill that would extend through the end of next year the moratorium on foreclosures for foreign currency mortgage loans. Why? The way the Rada sponsors worded the bill last month, it would have banned foreclosures under any loan agreement. As written, the bill would have brought “chaos into Ukraine’s entire financial system,” writes Concorde’s Paraschiy.

Banda, a leading Ukrainian ad agency, is opening an office in California, its first office outside of Kyiv. Yaroslav Serdyuk, the agency’s co-founder and strategy director, writes on Facebook from California: “We already have four ongoing projects in the U.S.: designing a brand identity for a promotional campaign of a Hollywood film, brand creation for two investment funds, and we are also preparing to launch a new campaign for a cannabis brand.”

France’s MSL public relations company is opening an office in Kyiv, strengthening parent company Publicis Groupe’s presence in Ukraine. The new office will be led by Olena Sukhanova, a 9-year veteran of Ukrainian marketing agency Tabasco.  Last year, MSLGROUP was the only European company in the top10 of the Holmes Report 250 Global Ranking of PR Firms.

The founders of Nova Poshta are investing in Fedoriv Agency’s Kooperativ co-working space at 23 Sichovykh Striltsiv, Kyiv. The investors, Viacheslav Klimov and Volodymyr Popereshniuk, plan to convert the ad agency’s existing space in Arena City into a working hub with places for 100 people.

With Ukraine reporting record levels of new Covid-19 infections – about 1,600 a day for the last week – Kyiv is mildly tightening restrictions this week. Everyone is to carry an ID on the street. Masks are to be worn in ‘indoor public spaces’ and on all public transport. Trams, trolleybuses, buses and minibuses carry only seated passengers. But the metro allows standees. Kyiv tightened restrictions after Covid-19 cases occupied 52% of reserved hospital beds. In the five months of the virus, 2,116 Ukrainians have died of the disease, including 155 in Kyiv.

Schools will open as scheduled Sept. 1, Health Minister Maksym Stepanov promises. Online learning will be mandatory only in the nation’s ‘Red Zones.’ Currently these are three towns and five districts – less than 1% of Ukraine’s 37 million people. In one ‘Red Zone’ city, Lviv region’s Sambir, the town council refused to tighten restrictions after local business owners protested outside the council building.

With local elections coming in two months, politicians have no appetite for a return to the severe lockdown of last spring. Concorde Capital’s Zenon Zawada writes: “The Zelenskiy administration has largely remained silent on the surge in infections. Moreover, no significant quarantine and lockdown restrictions have been introduced. Only in Kyiv and two regions are hospital bed occupancy rates exceeding 50%, indicating that the situation is relatively stable despite the surge.”

Orthodox Jewish pilgrims are asked to refrain from visiting Uman next month to celebrate Rosh Hashanah, “due to the threatening epidemiological situation,” according to a joint statement by Israel and Ukraine. In a normal year, 30,000-50,000 Orthodox make the pilgrimage. This year, it would be Sept. 18-20.  Interior Minister Arsen Avakov said that last month the government reached a similar agreement with Ukraine’s Orthodox churches to refrain from the traditional July 28 mass processions celebrating the Christianization of Kyivan Rus.

Returning to the air after coronavirus travel curbs, UIA had to “start practically from scratch,” to rebuild business, airline president Yevgeny Dykhne writes on Facebook. From mid-June to mid-August, Ukraine’s flag carrier carried 113,345 passengers on 1,238 flights. Last year, the airline carried 4 million passengers.

Marta Kolomayets, American director of the Fulbright Program in Ukraine for seven years, died Sunday at the age of 61 after a long illness. As the local head of Fulbright, she helped more than 300 Ukrainians pursue Masters and Doctorate degrees at US universities. The daughter of Ukrainian emigres, Kolomayets first visited the Ukrainian SSR in 1985, but was kicked out for filming interviews with Soviet dissidents. She returned in 1990s, opening the Kyiv bureau of the Ukrainian Weekly, the first foreign media bureau in modern Ukraine.

From the Editor – During the first half of this month, 74,000 Ukrainians vacationed in Antalya, the resort city on Turkey’s ‘Turquoise Coast.’ Ukrainians almost outnumbered Brits and Germans combined. This morning, I do my bit for Turkish tourism, flying with my family to Bodrum, on the Aegean. Thanks to help from the UBN research assistant in Kyiv, this email will not skip a beat during my one-week vacation. With Best Regards, Jim Brooke

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Tuesday, August 18 – the biggest impact of strikes spreading across Belarus

Belarus Strikes May Starve Ukraine’s Roadbuilders of Asphalt...Belarus Eurobonds: Worst Performers of Emerging Markets...Ukraine’s Garage Sale: Government to Auction Leases for 4,262 Empty Buildings...A Rebound Coming? Ukraine Buys Back GDP Warrants...
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

For Ukraine, the biggest impact of strikes spreading across Belarus may be a shortage of asphalt for President Zelenskiy’s $3 billion drive to pave 4,000 km of highways this year. Ukraine imports half of its asphalt in heated, liquid form from Belarus. “Objectively, there is nothing to replace Belarusian volumes — and this is half of the market,” Serhiy Kuyun, director of the A-95 Consulting Group, writes on his Facebook page. “Russian supplies are closed, and Ukrainian traders are just mastering imports by sea.”

Ukraine also gets about one third of its diesel and gasoline from Belarus. But the strikes and slowdowns will only result in a ‘hiccup’ for Ukrainian prices, Kuyun predicts. “First, we have been living with a huge surplus of diesel fuel and gasoline for half a year. Traders sell it to zero at best, the market is so overwhelmed. Second, the Ukrainian market is open for supplies from all sides.”

Most of Ukraine’s imports of Belarus petroleum products come from the Belarus’ largest refinery, in Mazyr, on the Pripyat River, 250 km north of Kyiv. According to Argus Media, it appears that Mazyr workers will be on a 3-hour lunchtime strike this week. At Naftan refinery, near Belarus’ northern border with Lithuania, workers are on strike. The refinery which is owned by Belneftekhim, was already shut down for scheduled maintenance.

On the IT front, Ukrainian IT companies are “already accepting individual divisions of IT companies in Belarus as guests,” Olha Kunichak, manager of the European Business Association’s IT Committee tells Interfax-Ukraine. “Ukrainian IT companies are ready to cooperate and help our northern neighbors.” To restrict protesters, the Belarus government has been shutting off the Internet. Ukraine started this summer a fast track program to grant work permits to foreign IT specialists. According to Ukraine’s Ministry of Digital Transformation, Ukrainian universities only graduate 15-17,000 IT specialists annually, while the fast-growing sector needs 40,000 a year.

Belarus Eurobonds handed investors a loss of 5.1% this month, the worst performance in emerging markets, according to a Bloomberg Barclays index. Since the 2031 bonds were issued on June 25, the yield is up by one percentage point.

Ukraine is recalling its ambassador from Belarus to protest Lukashenko’s “repeated and groundless” statements against Ukraine, Ukraine Foreign Minister Dmytro Kuleba said yesterday. President Lukashenko’s return to of Russia mercenaries who had fought on the separatist side in the Donbas war, “derailed the trust between our nations and inflicted a heavy blow upon our bilateral relations,” Kuleba said.

Leases for 4,262 empty buildings totaling 2.5 million square meters – or 10 times New York’s Empire State Building – will go up for electronic auction this fall under streamlined rules approved last week by the Cabinet of Ministers, announces Leonid Antonenko of the privatization department of the State Property Fund. The full of list of leases to auctioned by ProZorro.Sales includes: 1,070 offices, 837 warehouses, 566 factories, 61 spaces at airports, and six sites for renewable energy plants at Chornobyl. While much of the vacant space is in the big five cities, there are thousands of square meters up for lease in Cherkasy, Kropyvnytskyi, Mykolaiv, Rivne and Zaporizhia.

Ukraine ranks first in a ranking of 39 Eastern European and developing countries for public procurement transparency. Following 64 indicators for the Transparency Rating, the authors placed Ukraine at the top with a score of 97% and Tajikistan at the bottom with a score of 38%. Poland got  74%, Hungary 67% and the Czech Republic 65%. Russia and Belarus were not studied by the group, the Soros-funded Institute for the Development of Freedom of Information. For the last four years, all government purchases of goods worth more than $7,300 have to go through the ProZorro on line tendering system.

Ukraine’s Finance Ministry has repurchased about 10% of outstanding GDP-linked securities, the Finance Ministry announced Friday on the Irish Stock Exchange. Known as GDP warrants, the securities have payouts triggered by two consecutive years of GDP growth. By spending up to $300 million to quietly buy back these securities, the government may be expecting a post-Coronavirus growth bounce next year. After Ukraine’s economy GDP fell 11.4% in Q2, the central bank predicts that economy will shrink by 6% this year, and rebound by 4% next year.

Concorde Capital’s Alexander Paraschiy calculates that the purchase was at 90% of par and writes: “This is also a good signal for the holders of GDP warrants, as it indicates MinFin is anticipating large payments under the warrants in the mid-term.”

Timothy Ash writes: “Now most official forecasts have a 4% plus growth for 2021.With the changes at the [central bank], the Zelenskiy administration is going for a pro-growth agenda, which might mean lower rates, cheaper currency, perhaps looser fiscal – note minimum wage hikes.

In a sign the Corona-recession has eased, Ukraine’s electricity consumption in July was only 0.7% below last year’s level, according to Ukrenergo, the nation’s state power transmission company.  Industrial consumption was down 3.2% yoy, but household consumption was up 4.7% and consumption by chemical industries was up 15%.

The central bank expects to receive the second tranche from the IMF by the end of this year, Kyrylo Shevchenko, the new governor of the National Bank of Ukraine, says in an interview with RBK-Ukraina. The IMF approved the 18-month, $5 billion program on June 9, and the first tranche — $2.1 billion — was disbursed three days later. Release of the remaining $2.9 billion depends on four reviews. However, Shevchenko’s predecessor, Yakiv Smoliy quit on July 1, citing pressure from President Zelenskiy. Since then, talk of a September review has faded.

Last week, the central bank bought $223 million, strengthening the hryvnia mildly to UAH 27.3/$1. So far this year, the National Bank of Ukraine has bought $1 billion more than it sold, latest data show. Demand for dollars this summer has been weak as vacationers are largely bottled up inside the country, unable to take advantage of visa-free access to the EU.

Last year, Ukrainians made 26 million trips out of the country, while foreigners made 15 million trips here, according to the State Statistics Service. Tourism accounts for only 1.5% of Ukraine’s GDP, well below Belarus – 6.4% — and Georgia – 26.3%. To generate more inbound tourism, Ukraine has dropped visa requirements for Chinese tourists and allowed Indians, South Africans and Filipinos to apply for visas on line. “Simple arithmetic shows the advantages of visa liberalization: the average check of one Chinese tourist in Ukraine is about $950,” says SkyUp, Ukraine’s discount airline. After coronavirus and visa barriers drop, SkyUp mulls launching flights to: China, India, Bahrain Saudi Arabia, Kuwait, Oman, UAE, Qatar, Egypt, Lebanon, and Tunisia.

Reminder: UIA is offering two direct Kyiv-New York-Kyiv flights – next Monday Aug. 24, and the following Monday, Aug. 31. No additional New York flights are scheduled. Tickets only are available through the UIA site:

From the Editor : In October 1991, I interviewed Stanislav Shushkevich, Belarus’ first president, who was then one month into the job. A smart man, Shushkevich has a doctorate in physics and was, oddly, chosen by authorities in Minsk to teach Russian to the American defector, Lee Harvey Oswald. Reporting for The New York Times, I asked Shushkevich a question of interest to my readers: “How many nuclear bombs do you have?” He responded: “I have no idea. Ask the Red Army.” Then, as in now, the biggest questions in Minsk are often answered 700 km to the east, in Moscow. This week, we may see whether Moscow props up Lukashenko for a few more years, or eases him into a sunny retirement at his hillside chalet above Sochi. With Best Regards Jim Brooke

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Monday, August 17 – “This will be the beginning of your end…” – Belarus President Aleksandr Lukashenko

Belarus Bends, Ukraine Watches...Ukraine Invites Belarus IT Workers to Move Here...Exports to China Double...Chinese State Co. Wants to Build Deepwater Port in Ochakiv, a Historic Chokehold on the Dnipro...Kharkiv’s Yaroslavsky Offers to Raise $1 billion to Revive City’s Aircraft Plant...Kolomoisky’s Airplane Shell Game?
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

“This will be the beginning of your end, you will go down on your knees like in Ukraine,” Belarus President Aleksandr Lukashenko warned 40,000 supporters in Minsk Sunday, rebutting calls for his resignation. A few hours later, participants at mass opposition rally of 220,000 chanted for Lukashenko to go. After a week of violent police attacks on protesters, policing was light. Workers at key state factories walked out on Friday. Today, state television workers threaten to strike, demanding an end to censorship.

On Saturday, Lukashenko asked President Putin for Russia to intervene militarily. But, according to the Kremlin readout of the call, Putin only promised to keep talking to the besieged 65-year-old leader. In Belarus, protesters do not call for withdrawal from two Moscow-led organizations – the Eurasian Economic Union and the Collective Security Treaty Organization. Without an anti-Moscow slant to the Belarus protest, some analysts drew parallels last night to the 2018 revolution in Armenia. They predict the Kremlin will work with a Belarus democracy movement that does not take aim at Russia.

“Why Vladimir Putin Is Unlikely to Invade Belarus,” headlines an Atlantic Council piece by Anders Aslund, a veteran observer of the region. “While it is impossible to rule out a Russian military intervention, there are numerous good reasons to presume that it will not take place,” Aslund, a Swedish-American economist, writes Sunday from Washington. He cites: Putin’s dislike for the Belarusian leader; Lukashenko’s loss of popular support, and, possibly, security forces support; and “so far, no slogans against Putin or Russia have emerged.” He concludes: “The Kremlin should be able to live with that.”

Belarus is Ukraine’s fourth largest trading partner, largely a transit country for goods restricted by the Russia-Ukraine trade war. Despite this close economic relationship, President Zelenskiy probably will not travel to Grodno, Belarus on Oct. 8-9, for an annual bilateral trade and investment conference. Ukraine’s Foreign Minister Dmytro Kuleba told UA: Ukrainian Radio on Friday: “Until the situation in Belarus stabilizes, it would be reckless to announce any visit or initiative.”

Eying Belarus’ dynamic IT industry, Ukraine’s Digital Transformation Minister posted an appeal to Belarus IT companies and specialists to relocate south of the border — to Ukraine. “Belarus has been going through one of the deepest political crises in its history,” Mikhalo Fedorov posts on his Facebook page. He says that, under a new recruitment program, foreign IT specialists can get their Ukraine work permits in 5-7 days – “that’s all.” Noting that this year’s quota is 5,000 “highly qualified IT specialists,” he says the national distribution is: Dnipropetrovsk, Odesa and Lviv regions – 600;  Kharkiv – 700; and Kyiv – 2,500.

A near doubling of exports to China reduced Ukraine’s trade deficit to $1.3 billion for the first half of this year, the lowest level in recent years. The State Statistics Service reports exports to China rose 93%yoy to $3 billion, to Poland dropped 14%, to $1.5 billion; and to Russia dropped 17%, to $1.3 billion. Overall, Ukraine exported $22.9 billion worth of goods and imported $24.2 billion. For imports, Ukraine’s imports from China dropped 7%, to $3.6 billion; from Germany dropped 17%, to $2.5 billion; and from Russia dropped 43%, to $2.2 billion.

China’s purchase of ship parts and R&D services for aircraft engines made it the largest buyer of military equipment from UkrOboronProm during the first half of this year. Of $145 million in sales, the biggest buyers from the state defense conglomerate were: China, Turkey, Pakistan, India, Jordan, Vietnam, Azerbaijan, Algeria, Morocco, and Ethiopia. Of all deliveries, 56% went to Asia-Pacific.

China Railway Construction Corporation is talking with Vadym Novinsky’s Smart Holding about building a deep water port at Ochakiv, a Black Sea port 60 km south of Mykolaiv city. A strategic chokepoint controlled by at least 10 different peoples over the last 2,500 years, Ochakiv is 3.6 km across from the Kinburn Spit, a position that controls shipping to the mouth of the Dnipro. Smart Holding reports the Chinese are discussing doubling the depth of the harbor, to 15-18 meters, building a 70 km rail spur to Mykolaiv, and building port terminals for grain and iron ore, two products that dominate Ukraine’s trade with China, now its largest trading partner.

Given Ochakiv’s strategic location, facing Crimea 100 km to the south, US Navy Seabees built last year a $700,000 operations center at Ochakiv for Ukrainian Navy. When construction was announced, Vladimir Zhirinovsky, the Russian nationalist politician, announced: “This is Russian land – Ochakiv.” Next year, several US-supplied Mark VI fast patrol boats are to be based at Ochakiv.

Last month, CRCC, China’s second largest state-owned construction company, signed a memorandum of understanding with Ukraine’s Infrastucture Ministry about modernizing Ukraine’s inland waterways. These are the Dnipro, which flows through Kherson, and the Southern Bug, Ukraine’s second longest navigable river, which passes through Mykolaiv. For both projects, the Chinese team was led by Li Junqiang, executive director of CRCC’s subsidiary CRCC14 Overseas Construction and Development Co Ltd., and Wang Chuang, deputy general director of CRCC’s 14th Bureau Group.

Nibulon, the largest shipper on the Dnipro, is building a Black Sea port complex in Ochakiv and restoring the fish canning factory. To supply the cannery with fish, crustaceans and mollusks from the Dnipro-Buzky estuary, Nibulon’s CEO Oleksiy Vadatursky writes on his Facebook page that he is considering building shallow water fishing vessels at Nibulon’s shipyard in Mykolaiv.

Fresh from announcing a deal with Chinese investors to take over Motor Sich, Ukraine’s jet engine factory, Alekander Yaroslavsky offers to raise $1 billion to revive the aviation plant in his home city of Kharkiv. Earlier, Yaroslavsky’s DCH group rebuilt the terminal of Kharkiv airport and revived production at the Kharkiv Tractor Plant. Kharkiv Aircraft Plant has not made a plane since 2014. It largely survives by making spare parts and performing maintenance. It owes $8 million in back salaries. On Friday, Yaroslavsky offered to raise: $100 million to pay off debts; $500 million to complete airplanes on the production line and to start new ones; and $400 million for design development.

Today, flights resume between Kyiv and Yerevan, Armenia and between Kyiv and Almaty, Kazakhstan. Air service to the two countries was suspended five months ago as part of the coronavirus travel restrictions.

Do the math: Ihor Kolomoisky’s Windrose airline is receiving its 14th aircraft, a leased ATR-72-600. Within a year, Windrose is to receive another five of these regional turboprops, bringing its fleet to 19. At the same time, Kolomoisky’s UIA is cancelling leases and cancelling orders. Currently. UIA’s fleet is down 33, with 14 in storage. In 2013, Kolomoisky’s airline Aerosvit filed for bankruptcy and several jets were transferred to UIA.

From the Editor: What looks like the end game of Belarus’s Lukachenko promises to be entertaining to watch this week.  But in the slow days of August, take a step back for a long look at Ochakiv and who has controlled that narrow entrance to Ukraine’s hinterland. Recorded history starts around 6th Century BC with the Thracians and Scythians. Then came Pontic Greeks, Imperial Romans, Mongol Hordes, Moldavian Kings, Genoese merchants, Crimean Tatars, the Ottoman Empire, a Wallachian Prince, and, in 1788, the Czarist Russians, with an American naval officer, John Paul Jones, commanding the Russian fleet. In the Crimean War, an Anglo-French fleet took command of both sides of the strait in 1855. From 1941-1944, Romanians again occupied Ochakiv. Given the China’s proposal to double navigable depths and build modern terminals in a city with a population of 14,000, one wonders if they are playing the long game in a city that some dismiss as a backwater. With Best Regards Jim Brooke

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Friday, August 14 – Nationwide Safety Checks Start on Ammonium Nitrate Fertilizer

Nationwide Safety Checks Start on Ammonium Nitrate Fertilizer...Behind the Blast: Russian Businessman Abandoned Ship, Cargo, and Ukrainian Crew in Beirut...Avangard May Close Egg Farms in Coming Weeks...Ukraine to Create Domestic Airline Based on Antonov Regional Jets...US Threatens to Stop Sending Oil to Belarus Through Odesa..
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

By Sept. 15, all of Ukraine’s ports are to complete “extraordinary measures for government supervision” of the import, handling and storage of ammonium nitrate, Prime Minister Shmygal has ordered. The explosion of 2,750 tons of ammonium nitrate in Beirut’s port killed 171 people, wounded 6,500, left 250,000 homeless and cause $15 billion to the port alone.

Ukraine, Europe’s largest food exporter, is a major importer of ammonium nitrate, a key component of fertilizers. Last year, Ukraine imported 716,000 tons, at least seven times the volume of 2016, according to the State Statistics Service. Coming from Georgia, Bulgaria, Turkey and Romania, the chemical compound enters through a dozen ports – from Izmail to Mariupol. Inside the country, there are more than 600 warehouses for ammonium nitrate, Andriy Miselyuk, director of Dialogue Institute for Socio-Political Design, writes on his Facebook page.

At Pivdennyi, Ukraine’s busiest port, 9,600 tons of ammonium nitrate are stored “in accordance with all norms and standards,” the seaport administration says in a statement. The compound is “packed in big bags” at berths No. 1 and 2. “In this case, it is not explosive,” the port asserts, that bulk handling of the compound is dangerous. During the first six months of production, the chances of explosion are low. Ukraine consumes 1.5-2 million tons a year, an amount that makes for a steady rotation of stock. The Beirut stockpile, entirely in bags, was seven years old when it blew up.

Behind the devastating Beirut port explosion was a Russian business man who abandoned his ship, his 8-man Ukrainian crew and his cargo of ammonium nitrate in Beirut in 2013, according to a Reuters story, reported by 12 journalists in 11 cities, from Moscow to Panama City. Police questioned the de facto owner, Igor Grechushkin, aged 43, at his home in Cyprus about the cargo. The ship’s captain Boris Prokoshev, told Reuters from his home in Sochi that he sees Grechushkin and the ship’s charterer, Teto Shipping Ltd, as the same entity. Based in the Marshall Islands, Teto was dissolved in 2014.

Flying the flag of Moldova, a landlocked nation, the ship, the Rhosus, was loaded in Sept. 2013 with 2,750 tons of ammonium nitrate produced by Rustavi Azot, a nitrogen producer in Georgia. The cargo was destined for a commercial explosives factory in Mozambique. En route, it developed a leak and docked in Beirut. Four months earlier, safety inspectors in Seville, Spain detained the Rhosus for a series of safety violations, including a corroded deck. In Beirut, Grechushkin ordered the captain to load heavy road building equipment on the deck, reports according to

With the Rhosus disabled by the leak, Grechushkin abandoned the ship and the crew, both news agencies report. Four crew members were forced by Lebanese officials to stay on the ship for 11 months to prevent it from sinking. After a sailors aid group flew them home to Ukraine, the ship sank. According to Prokoshev, the captain, Grechushkin owes at least $150,000 in unpaid salaries. According to 112.ia, Grechushkin lives in Cyprus with his wife Irina, and their son, a student  at a private university in Scotland. Although Cyprus is a 45-minute flight or a 2-hour ferry ride from Beirut, the captain said Grechushkin never came to Beirut to check on the boat. The blast was so massive it was heard — and felt — in Cyprus, 200 km across the Mediterranean.

IFC is supplying a $35 million loan to help Galnaftogaz to improve its supply of fertilizer and fuels to small farmers. The Lviv-based company has pioneered allowing farmers to buy fertilizer and seeds in the spring, paying forward with ‘crop receipts,’ or liens on fall harvests. Galnaftogaz, with 357 OKKO-branded filling stations, is Ukraine’s largest fuel retailer. The loan from IFC, a World Bank unit, will also finance installation of fast-charging stations for electric vehicles.

After good weather in eastern and central Ukraine, the USDA has raised its Ukraine harvest forecasts to: 27 million tons of wheat, and 39.5 million tons of corn. “Yields are expected to be the second highest on record, with a previous record of 7.84 tons per hectare in 2018,” writes the US Department of Agriculture.

Ukraine’s Avangard, Europe’s largest egg producer, may close six of its 20 farms, cutting production by 20% by mid-October, reports Poultry World. UkrLandFarming, Avangard’s parent company, may have to lay off 2,500 employees. Avangard owner Oleg Bakhmatyuk says that due to ongoing court cases against him, he is unable to get bank loans. In 2010, Avangard raised $187.5 million in an IPO on the London Stock Exchange. But Russia’s 2014 annexation of Crimea and occupation of half of Ukraine’s Donbas resulted in Avangard losing valuable properties. Although Avangard produced 2.6 billion eggs in 2018, its debt is estimated at $2 billion.

Next year, Ukraine will create a domestic airline based on a fleet of regional jets produced by Kyiv’s Antonov, Infrastructure Minister Vladyslav Krykliy said yesterday on a visit to Kharkiv State Aircraft Manufacturing Company. “Aircraft manufactured by Antonov will be used for regional transportation,” he said. To boost domestic air travel, Ukraine is abolishing the 20% VAT tax on domestic tickets. Last year, 16 of Ukraine’s 54 civilian airports carried passengers — on scheduled or charter flights. About 5 million people flew out of regional airports.

Betting that corona travel restrictions will ease, SkyUp announces seven new international routes for its winter schedule. Starting Oct. 25, Ukraine’s discount carrier will fly from Kyiv Boryspil to Amman, Belgrade, Bratislava, Belgrade, and Stockholm. It will also start Kharkiv-Dubai and Lviv-Dubai. On Sept. 26, it will start Kyiv-Dubai, a route that is to become five times a week.

Starting today, Ukraine’s new electronic visa platform launches at this address: Citizens of India, the Philippines and South Africa will be able to get electronic visas for travel to Ukraine for business, tourism, medical treatment, culture, science, education, sports, and journalism. The e-visa should be printed out to show at border control.

After Belarus President Aleksandr Lukashenko cracked down violently in the wake Sunday’s presidential election, U.S. Secretary of State Mike Pompeo said Washington is considering ending oil shipments to Belarus. Most come through Klaipėda, Lithuania, to the Naftan refinery, in northeast Belarus. Several shipments of US oil have come this year through Odesa to Belarus’ southern refinery, in Mazyr, 50 km north of Ukraine. So far this year, Odesa has handled six tanker loads of oil for Belarus, largely from Azerbaijan.

From the Editor: One month ago, I ruffled feathers with news items gathered under the headline: “Will Russia Launch a Military Attack on Ukraine in August?” Now it seems my premonition of a Russian August surprise was off — by a couple of degrees. In Belarus, yesterday’s walkouts from big state-owned companies strengthen calls for a national strike. That could be Lukashenko’s endgame. With the White House distracted in the 81-day runup to the US presidential vote, Moscow could easily pull a Prague 1968 – roll in tanks to restore ‘order.’ Timothy Ash writes: “The Ukrainians are very concerned. They think the Russians’ game plan is take over Belarus, roll tanks up to the border with Ukraine, and then max pressure on Ukraine from the North and East.” Also from London, Keir Giles, writes a Chatham House essay: Watching Belarus Means Watching Russia Too. In Russian intervenes militarily in Belarus, “Ukraine would be forced to rapidly re-orient its defense posture to face a new threat from the north.” With Best Regards Jim Brooke

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Thursday, August 13 – Cabinet of Ministers of Ukraine: 200 More State Companies to be Privatized

200 More State Companies to be Privatized...Plans for a $3 billion, 150 km Kyiv Ring Road...Ze Signs Derivatives Law...Flights Leave Kyiv Sikorsky Half Full...
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

About 200 more state companies will be transferred to the State Property Fund for privatization, the Cabinet of Ministers decided yesterday. The companies are either unprofitable or are used “for various shady schemes,” Economy Minister Ihor Petrashko told reporters after the meeting. At the same time, the government is cutting by one third – to 200 – the proposed list of state companies exempted from privatization, Prime Minister Shmygal said during the Cabinet Meeting.

Until the coronavirus pandemic started, several foreign investor groups had planned to come to Ukraine this summer to study state companies scheduled for sale. Dmytro Sennychenko, head of the Property Fund, estimates that about half of Ukraine’s 3,000 state companies are bankrupt and will be liquidated. The others will be sold at public, electronic auctions, largely as is. To help foreign investors, the Fund has set up a bilingual Ukrainian-English website with ‘data rooms’ on each property up for sale. To speed the sale of distilleries from Ukrspirt, the state alcohol producer, the Cabinet of Ministers yesterday passed a key package of regulations setting sale conditions.

Ukravtodor presented yesterday a project to build $3 billion, 150km, three quarter circle Kyiv ring road. Designed to intercept traffic about 40 km outside capital, the bypass would link all major international highways that converge on Kyiv – from Kovel, Lviv, Odesa, Boryspil, Kharkiv and Chernihiv. Designed to carry 300,000 cars a day, the bypass road would include a new, 6 km bridge over the Dnipro, to be built south of Pivdenniy (South) Bridge. At the presentation, the national highway agency announced a tender for the first of six sections: a 35 km stretch between the Kyiv-Lviv and Kyiv-Odesa highways. If full financing can be arranged, the new ring road could be completed by 2030.

A US company is negotiating with Mykolaiv regional authorities to build a $250 million waste recycling plant for the entire region, Alexander Stadnik, regional head, tells NikVesti, a local news site.  For convenience, the plant would be located in Nova Odesa district, in the center of Mykolaiv oblast, reports Stadnik did not identify the company, but said it is ready to start investing.

Fighting to preserve a joint venture with a Chinese company to control Ukraine’s aircraft engine maker, Ukraine’s DCH conglomerate told Reuters and NV business news site yesterday that it has signed an agreement to buy “more that 25% of shares” in the company, Motor Sich.  Addressing fears that design and production would move to China, DCH, a Kharkiv-based group, told NV: “DCH will have the right to veto key business decisions.” NV speculated that joint venture idea was developed last November during a meeting in Kharkiv between Oleksandr Yaroslavsky, owner of DCH, and Jack Ma, founder of China’s Alibaba Group. DCH says Ukraine Antimonopoly Committee should decide on the case by the end of this year.

President Zelenskiy signed a law creating the legal and regulatory framework for derivatives – the financial instrument that helps to provide hedging opportunities against prices, interest rates or currency rate movements. Scheduled to go into effect next July 1, the law would allow such derivatives as swaps, which will allow Ukrainian banks, farmers and manufacturers, to hedge their foreign exchange exposures. Required under the IMF’s current standby agreement with Ukraine, the law was drawn up by the National Securities and Stock Market Commission working with experts from the EBRD.

Timur Khromaev, head of the Commission, said of the derivatives law: “It represents a big step forward in creating the conditions in which our economy can move to a more sophisticated stage of development.” Matteo Patrone, EBRD’s regional Managing Director said: “The new law will contribute to the establishment of a derivatives market in Ukraine. This is a major step forward to putting Ukraine on investors’ radar screens.”

The day after President Zelenkiy signed the law legalizing gambling, Parimatch, the largest betting company in Ukraine, announced that it will bid for hotel casino licenses in Ukraine. Founded in Kyiv in 1994, Parimatch has moves largely online, accepting bets on sporting events, e-sports, elections, show business, Eurovision and the Nobel Prize. With 1,600 employees, the company largely operates in Ukraine, Belarus, Kazakhstan, Russia and Cyprus, where it has its headquarters.

The Finance Ministry raised the equivalent of $366 million in its weekly government bond auction Tuesday – virtually the same amount as one week earlier. To keep, hryvnia rates from rising, the Ministry rejected the equivalent of $75 million worth of bids. Interest rates were little changed with 4-month bonds going for 7% and 2-year bonds going for 10%. By contrast, the Ministry satisfied 26 of 27 bidders for 1.5 month USD-denominated bonds at 3.6%.

Concorde Capital’s Evgeniya Akhtyrko concludes: “There is no improvement in the sentiments of the broader circle of market players regarding the risk level of UAH debt at the moment.”

Planes left Kyiv Sikorsky Airport half full last month. In July, Kyiv’s right bank airport handled 1,314 flights — 48% the number of flights of one year earlier. But the number of passengers was only 52,400 – 20% the level of one year earlier. The most popular international destinations were: Warsaw; Tivat, Montenegro; London Luton; Minsk; Dalaman, Turkey; Wroclaw, Poland; Bodrum. Turkey; and Tirana, Albania.

SkyUp Airlines returned in July to 50% of its pre-coronavirus traffic levels. Operating 704 domestic and international flights from Kyiv Boryspil, the low cost airline carried 96,407 passengers in July.  Of its regularly scheduled foreign destinations, Albania was more popular than Bulgaria. For charters, Turkey was more popular than Egypt.

Air Astana resumes flights between Almaty and Kyiv Boryspil next Wednesday. From Almaty, the Kazakh national carrier flies to 26 destinations, including Beijing and Delhi. Air Astana suspended flights to Ukraine five months ago.

The day after President Zelenskiy signed a law giving tax breaks to foreign film productions, Kyiv City officials announced a list of streets to be closed Aug. 12-25 for the filming of a Jean-Claude Van Damme film — ‘The Last Mercenary.’ Since most of this Netflix ‘comedy action movie’ takes place in France, it appears that Kyiv will be dressed up to look like a French city. Van Damme, a Belgian, is known to American fans as ‘The Muscles from Brussels.’

From the Editor: The attitude at the Kyiv headquarters of the State Property Fund is to move state companies out the door. Fund Head Sennychenko is frank that he has neither the time nor the resources to clean up 3,000 companies before sale. For Eastern Europe, this will be the region’s last big privatization sale (assuming Tyrannosaurus Rex prevails in Belarus). For investors in Ukraine, all Sennychenko can promise is transparent presentations and honest auctions. Properties will be presented as is, poison pills and all. Compared to the Wild East, shoot ‘em up days of Russia’s privatizations in the early 1990s, Kyiv-in-the-time-of-corona is mildly inconvenient, but not a physical risk. With Best Regards Jim Brooke

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Wednesday, August 12 – President Zelenskiy signed the gambling law

Gambling Legalized in Ukraine...Foreign Film Production to be Tax-Free...Three Chinese Container Trains in Three Days...EasyJet May Start Flying to Ukraine This Fall...Odesa Opens a (Back) Door to the EU...
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

Wednesday, August 12

President Zelenskiy signed the gambling law yesterday, ending Ukraine’s decade-long ban on casinos and slot machines. The law restricts casinos to five-star hotels in Kyiv, and to four- and five-star hotels outside of Kyiv. Slot machines will be allowed in three-, four-, and five-star hotels. Billboard advertising is banned. Only people aged 21 or over are allowed to gamble. A portion of house winnings from gambling operations go to a new health, sports and culture fund.

Two days after the Rada passed the gambling law, on July 14, a nationwide poll found that 61% of the 2,000 respondents opposed legalizing gambling. Across the political spectrum, there was more support for legalized gambling among younger voters and among supporters of Golos, European Solidarity and Zelenskiy’s Servant of the People parties.

President Zelenskiy has signed a law dropping Ukraine’s 20% VAT from the production of videos, films, TV programs, cartoons and commercials for export. Zelenskiy, who owns his own production company, predicts foreign productions will boost hotels, restaurants, transport companies and law firms. He says: “It will also have a positive effect on the popularization and improvement of Ukraine’s image in the world, in particular, to improve its investment attractiveness in other sectors of the economy.”

Twelve distilleries of Ukrspirt, the state alcohol producer, may be next in line for privatization, Dmytro Sennychenko, chairman of the State Property Fund, said yesterday at the opening in Kyiv of AgroExpo 2020. Until the state monopoly on alcohol production was abolished earlier this year, Ukraine’s production of ‘cooking’ alcohol had quadrupled during the 2010s. For the Ukrspirt privatization to be successful the government must first approve the Alcohol Reform and Development Program, regulations which will provide for the procedure and conditions of sale.

Uniper, the Dusseldorf-based energy giant, says it may have to impair a loan to Nord Stream 2 if US sanctions kill the Russia to Germany Baltic gas pipeline. “The worst case would be, of course, if (Nord Stream 2) would never be finished and then, of course, the question is: can we get our money back or not?” Chief Executive Andreas Schierenbeck said on an analyst call yesterday, according to Reuters. Uniper has committed to fund up to €950 million, or 10% of the €9.5 billion project. Schierenbeck did not say how large the threatened loan is. A loan is considered ‘impaired’ if it is probable that an institution will be unable to collect all amounts due, according to the original terms of the loan agreement.

Today, the third Chinese container train in three days is to arrive at Kyiv’s left bank Liski train depot. The trains take 15 days to travel 9,000 km from China, through Kazakhstan or Mongolia and Russia, to Ukraine. Noting growing interest from Ukrainian companies exporting to China, Ivan Yuryk, acting CEO of Ukrzaliznytsia said: “A significant number of importers and exporters have become interested in the availability of this service.”

A record 1,232 China-Europe trains rolled in July, a 68% yoy jump, reports Xinhua from Beijing, citing China State Railway Group. With 40 trains plying the route daily, cargo was up 73% yoy, to 113,000 containers. Of the trains 724 went from China to Europe, up 74%. And 508 went from Europe to China, up 60%. Despite the coronavirus pandemic, this traffic has grown by double digits for every month since March.

Poland issued 44% fewer visas to Ukrainians during the first half of the this year, compared to the same January-June period last year, reports the Warsaw Business Journal. The drop to 270,000 visas is not as dramatic as it seems because Poland suspended residency rules during the epidemic, meaning that “a large part of Ukrainians simply did not leave Poland.” Krzysztof Inglot, head of Personnel Service, a Polish employment agency, says: “Those who were already in our country had the opportunity to extend their stay…There is [now] an influx of new employees from the East, who are ready to undergo a two-week quarantine in order to work in our country.”

This fall, Ryanair plans to launch two more Poland-Ukraine flights: from Lviv to Poznan and from Kharkiv to Warsaw. Ryanair, Europe’s largest carrier, also plans to increase frequencies out of Kyiv Boryspil to the seven Polish cities it served before the quarantine restrictions of last spring.

Germany’s FlixBus, the Europe’s bus transport operator, is opening its fourth Ukraine-Poland route: Kyiv-Warsaw, with stops in Zhytomyr, Rivne and Radom (Poland). Aimed at low budget tourists and migrant workers, FlixBus also offers three buses from Ukraine to Germany.

Britain’s EasyJet, one of Europe’s largest low-cost airlines, may start flights between Italy and Ukraine by October. In late July, shortly, after Italy and Ukraine fully liberalized air traffic, ENAC, Italy’s Civil Aviation Authority, authorized the Austrian unit of easyJet to operate 12 weekly flights to Ukraine. EasyJet’s Italy bases are in Naples, Milan Malpensa and Venice Marco Polo.

Ernest Airlines is to be reborn this fall as a regional Italian carrier. Until the Milan-based airline went bankrupt last January, it operated 13 routes between Italian and Ukrainian cities. Ukraine’s travel press is welcoming the news that the discount carrier is to emerge from bankruptcy. Italy’s Naviganti site notes that the fleet of the new Ernest will be 16 Franco-Italian-made turboprops. These regional planes seat 70 and have a range of 1,500 km. The flight distance from Milan to Kyiv is 1,700 km.

Austria, Georgia, Lithuania, Slovakia, and Canada have returned to Ukraine Health Ministry’s “Green” list. Travelers arriving from these countries do not take Covid-19 tests or self-isolate. Most countries in the world – 105 – are on Ukraine’s “Red” list. This includes: US, Cyprus, Israel, Spain, Poland Romania, Bulgaria, Greece, Estonia and the Netherlands. A 1,300-word article in the Kyiv Post outlines protocols for entering Ukraine.

Through Aug. 30, Ukraine has closed its two road checkpoints for entry into Russia-controlled Crimea, purportedly to control coronavirus. Only Crimean residents with Ukrainian passports are allowed to enter Crimea. Ukrainians who live on the mainland can return home. Although Russia’s annexation of the peninsula in 2014 radically cut Ukrainian tourism to Crimea, several hundred thousand Ukrainians travel to Crimea every summer, largely to visit friends and family and to check on their properties. There are no flights, ferries or trains between Ukraine and Crimea.

The cross-Danube ferry linking Orlivka, Odesa oblast, and Isaccea, Romania started service this week. Operating hourly, from 8 am to 8 pm, the ferry now carries only trucks. Passenger cars should start at the end of August, Yuri Dimchoglo, a co-investor in the project tells the Center for Transportation Strategies. Fares are: passenger – €1; motorcycle – €2; car – €15; minibus €25; big truck – €50. The ferry cuts out a 2-hour, 100 km drive with two border crossings – Moldova and Romania. With passport control stations on both banks of the Danube, the ferry is Odesa’s first border crossing with the EU.

From the Editor: On one hand, it’s nice to see transportation companies looking beyond Covid to forge new ties between Ukraine and the EU. But, only the naïve think that Ukrainians go to Poznan or Radom for fun and leisure. The corona crisis was a wakeup call for the vibrant economies of Eastern Europe as to how much they depend on Ukrainian workers. As long as Ukraine’s political elite follow business as usual and mid-level bureaucrat slow walk reforms, workers will vote with their feet – westward. As they said in Rio during one of Brazil’s perennial crises of the 1990s– o último a sair, apague as luzes do aeroporto! – the last one out, turn out the lights at the airport!   –With Best Regards Jim Brooke

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Tuesday, August 11 – Ukrtelecom plans to invest $110 million

$500 Million Planned Investments in High Speed Internet...Tax Breaks for Investment in Government-Controlled Donbas...China Gladiates for Zaporizhia Jet Engine Maker...Iran Says European Insurance Cos. Should Pay for Plane it Shot Down...
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

Ukrtelecom, the nation’s largest Internet service provider, plans to invest $110 million to lay 50,000 km of fiber optic cable to bring broad band to 2.6 million rural Ukrainians by the end of 2022. The drive is part of a $200 million effort by Ministry of Digital Transformation to increase rural broadband connectivity from 65% today to 95% in 2024. Yuri Kurmaz, Ukrtelecom’s CEO, says 8,000 rural clinics and 16,000 schools do not have broadband connections, reports Broadband World News.

Vodafone Ukraine says that within two years its LTE 4G network should reach 90% of Ukraine’s population. By the summer of 2024 Vodaphone high speed network should cover “roads of international and national importance.”

Kyivstar, plans to invest $180 million over the next two years to expand its 4G mobile Internet service to reach 90% of Ukraine’s population, says Kyivstar President Oleksandr Komarov. In the last six week, Kyivstar has connected 765 settlements in western Ukraine, bringing 4G  Internet to 400,000 people.

To promote the economic revival of government-controlled Donetsk and Luhansk, the government is drawing up plans for a special status zone that would include major tax breaks and international arbitration for legal disputes. Prime Minister Shmygal tells RFE/RL the biggest incentives would be reserved for the “20-kilometer zone” to the west of the demarcation line. This line runs roughly 400 km northeast arc, from near Mariupol on the Sea of Azov, to the Luhansk border with Russia.

A “Donbas Economic Development Road Map” is to be submitted next month  to the Cabinet of Ministers, according to Oleksii Reznikov is deputy Prime Minister for the Reintegration of Temporarily Occupied Territories.  In a recent Atlantic Council Ukraine Alert Blog, he wrote  “Our objective is to create a special investment regime in the Ukrainian-controlled part of the Donbas.”“We see the extension of international commercial arbitration rules to the region as an integral part of these plans. Additionally, the Ukrainian state should assume at least some of the insurance burden against the kind of political and military risks that are hard for investors to predict.”

According to Oleg Ustenko, Presidential Advisor for economic issues,  the cost to rebuild the Donbas under Russian control would be $10 billion. Speaking to  Radio Donbas.Realii, an RFE/RL unit, he said that this would include donor money. The UN has fell far short in recent years in its campaigns for humanitarian aid to both sides of the line. Increasingly, Western donors funnel money into government controlled Donbas: a €64 million French loan for clean drinking water for Mariupol; a €25 million contract with Germany’s KfW development bank for displaced people housing, and a €100 million World Bank credit to rebuild  infrastructure and revive farming in Luhansk oblast.

As rail freight volumes recover, Ukrzaliznytsia carried 25.2 million tons in July, only 3% less than the tonnage carried in July 2019, reports Rail.Insider news site. Volumes have increased steadily since May, the month when cargo hit “bottom,” says Ivan Yuryk, acting CEO of the state railroad.

Ukrainian farmers have harvested 33 million tons of grain and legumes, one third of this year’s forecast crop. Farmers have threshed 23 million tons of wheat, 87% of the forecast crop, and 8 million tons of barley, 90% of the forecast crop.

Ukraine’s forecast bumper crop for corn may run into geopolitical barriers as the US makes record corn sales – totaling 3.7 million tons — to China, warns AgWeek, the Fargo, North Dakota-based news site. China made the record buys of US corn to comply with a Trump Administration drive for more balanced US-China trade. Although Ukraine traditionally ships 3.8 million tons of corn to China every year, “that might not be the case this year,” warns AgWeek. China already has purchased enough corn to cover 80% of this year’s needs.

Charges of “high treason” and a Presidential investigation surround a Chinese company’s attempt to assert 75% ownership of a Ukrainian company that once was the largest manufacturer of airplane engines in the Soviet Union. Triggering the controversy, Beijing’s Skyrizon announced last week that it has entered into a joint venture DCH Group, a powerful economic holding based Eastern Ukraine, to control Motor Sich. With the US government opposed to the Chinese purchase, Ukraine’s Antimonopoly Committee has started what could be a 4-month review.

In a double barreled response, Wang Jing, Board Chairman of Skyrizon, and Alexander Yaroslavsky, the owner president of DCH, issued statements denouncing the government interference in the transaction.

We are partners and strive to keep Motor Sich on Ukrainian soil,” wrote Wang, whose company is based in Beijing. “It is Chinese investment that sustains the company’s prosperity, saving thousands of jobs in the historic city…We are very sorry that, after five years, we have experienced only confusion and disappointment.” Adding that “DCH will own more than 25% of the company’s shares, which gives them the right to participate in the management of the Company and maintain its Ukrainian characteristics,” he says: “We have an ambitious plan to achieve our long-term goal, which includes the infusion of significant investments into the Motor Sich company on the territory of Ukraine, in Zaporizhia, to maintain and increase the production capacity of the plant.”

For his part, Yaroslavsky denounces as “state raiding” the government pressure on the investors in Motor Sich. From his base in Kharkiv, Yaroslavsky refutes press reports that key parts of the factory would be moved to China: “DCH Group is ready to use its experience and knowledge to ensure that Motor Sich develops and works for the benefit of Ukraine.”  He warns that if the government stymies the joint venture, the future would be “filing of multimillion-dollar lawsuits by the Chinese side in international courts and a significant cooling of bilateral relations with China as Ukraine’s main trading partner.”

Iran will not compensate UIA for its jet Tehran shot down Jan. 8 because the Boeing 737-800 was insured by European firms, the head of Iran’s Central Insurance Organisation said Monday, Reuters reports from Tehran. “The Ukrainian plane is insured by European companies in Ukraine and not by Iranian companies,” said Gholamreza Soleimani, according to the Young Journalists Club news website affiliated with state TV. “Therefore, compensation should be paid by those European companies.” A new Boeing 737-800 costs about $100 million. Separately, Iran is negotiating to pay compensation for the 176 passengers killed when an Iranian Revolutionary Guards air defense unit hit the civilian jet with two Russian-made surface-to-air missiles.

From the Editor: The foreign aid now channeled into Ukraine-controlled Donbas is praiseworthy. Ideally, it will be followed by private investment, most likely farmers reclaiming their fields. Gradually, good roads, decent salaries, modern shopping and fast mobile internet will make the case for Ukraine. Think West Germany-East Germany, South Korea-North Korea. But why should international donors fix Russia-controlled Donbas? When did the West ever give development aid to Moscow’s Frankenstein creations? As Colin Powell would say: ‘You broke it – you fix it.” With Best Regards Jim Brooke

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Monday, August 10 – US criminal charges against Ihor Kolomoisky

Kolomoisky: US Criminal Charges to Follow Civil?...New Governor Wins Control of Central Bank Board...Ukraine Moves Rapidly from Cash to Cards...Ukraine to Tap Green Financing...Next April: UIA To Restart Regular Service to US, Canada and India...
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

US criminal charges against Ihor Kolomoisky could follow last week’s civil forfeiture complaints by the US Department of Justice, speculate Concorde Capital and the Kyiv Post. “Given that they [Kolomoisky and Gennadiy Bogolyubov] have already been accused by the U.S. Justice Department of money laundering and embezzlement (among other crimes), criminal charges are likely in the pipeline,” writes Concorde’s Zenon Zawada. “Though Kolomoisky can fight the forfeitures without being in court, criminal charges will likely require that he appear. That would lead to the U.S. seeking Kolomoisky’s extradition, since we don’t expect him to go to the U.S. on his own will.”

Igor Kolomoisky rejects US Justice Department allegations that he and his partners bought office buildings and steel mills in the US property as part of a “conspiracy to launder money embezzled and fraudulently obtained” from PrivatBank, reports the Financial Times. “All investments in the USA were made from personal funds received in 2007-2008” from the sale of Ukraine-based steel industry assets and “from the income of other businesses” with accounts at PrivatBank, he tells the FT. “Everything else is categorically rejected.” He made similar comments Friday to news site.

The US moves seem to come partly in response to last month’s purge of bank reformers from the National Bank of Ukraine. In 2016, faced with a $5.5 billion hole at Kolomoisky’s bank, PrivatBank, the Central Bank nationalized the bank.

Zawada writes: “These accusations offer added insurance that Kolomoisky will not regain control over Privatbank. We believe they mark the peak of Kolomoisky’s influence in Ukraine, which will wane once criminal charges are filed in the U.S.”

Timothy Ash writes from London: “With recent moves against the reform team at the NBU, the US Government might have reached the conclusion that if they don’t move now, then the risk is the whole domestically driven legal push on Privatbank collapses, and with it I guess hopes for sustaining the 2015-17 bank reforms and bank clean up program…things are now moving so fast in Ukraine from the forces acting against banking reform et al, that the US decided that it might be game over by the time Biden assumes the presidency in February.”

Oleksiy Shaban has been named a Deputy Governor of the National Bank of Ukraine, giving Kyrylo Shevchenko, the new Governor, a majority on the central bank board. Shaban worked as director of the bank’s payment systems department.

Timothy Ash writes from London: “The new Governor Shevchenko is now fully in charge at the NBU…The IMF is signaling they will want to take some time to assess the changes at the NBU and give Shevchenko some time to prove himself…This likely means delay to IMF reviews and also IMF disbursements…I struggle to see further IMF credit disbursements this year.”

The use of payment cards jumped 17% yoy during the first half of this year in Ukraine, to 2.74 billion transactions, reports the National Bank of Ukraine. The size of the average transaction edged up 7%, to $15.

As Ukrainians shifted rapidly to cashless transactions, the number of cash transactions with cards – largely withdrawals from ATM machines – dropped by 12% during the first half of this year.

During the first half, the number of point of sale terminal increased by 5%. The number of issued cards also increased by 5%, to 71.7 million, or two for every Ukrainian.

Increasingly popular are contactless and tokenized cards. In June, almost 10 million contactless cards were used, up 25.6% since January. In June, 2.7 million tokenized cards were in use, up 22.5% from January.

Ukraine is moving to introduce green finance standards in the country, with a focus on green bonds. The World Bank’s IFC signed a cooperation agreement on green finance Friday with Ukraine’s National Securities and Stock Market Commission. Timur Khromaev, the Commission Chairman, said: “The Ukrainian capital market should become part of the global capital markets and our work aims to help develop this potential. Together with our international partners, we will work on policies to introduce green finance standards in Ukraine, mainly through green bonds.”

Jason Pellmar, IFC’s Regional Manager, said: “IFC’s extensive global experience has proven that investments providing environmental benefits are not only more ecologically sustainable but also more commercially sound. The development of green finance is gaining momentum throughout the world.”

Ukraine’s Commission recently joined the Sustainable Banking Network — a group of regulatory agencies and banking associations from 40 emerging markets committed to advancing sustainable finance. The Network represents 40 countries and $43 trillion, or 86% of total banking assets in emerging markets. With Ukraine owing almost $1 billion in unpaid electricity fees to solar and wind producers, green bonds increasingly are seen as a way out.

UIA only plans to return to regularly scheduled flights to New York, Toronto and Delhi in April, according to Evgeny Dykhne, president of Ukraine’s largest airline. He says: “As governmental restrictions begin to ease, UIA plans to return to the hub model in April 2021 and restore the route network by at least 80% and will include long-haul flights to New York, Toronto and Delhi.” UIA has Kyiv Boryspil-Toronto flights scheduled for Aug. 15 and 29, and Kyiv-New York flights for Aug. 24 and 31. “UIA’s move makes sense,” writes Simple Flying website. “It is already August. There are few chances of the situation in the United States improving.”

Kyiv Boryspil passenger traffic was down 80% yoy in July, to 328,667, from 1.6 million in July 2019. Hubbing, a key component of UIA’s model, was wiped out. Last month, the airport recorded 3,146 transfer passengers, less than 1% of the 358,746 passengers handled in July 2019. Thanks to a strong first quarter, Boryspil’s air traffic is down by only two thirds for the January-July, to 2.85 million people. Until anti-virus restrictions were imposed worldwide in mid-March, Boryspil was handling about 1 million passengers a month.

Ukrzaliznytsia is doubling the frequency of Kyiv’s ‘train-to-the-plane’, the Boryspil Express. The train now travels 12 times a day between central Kyiv and Ukraine’s largest airport. The ride takes 40 minutes, with stops at Darnytsia, the left bank commuter rail station, and Vydubychi, the new right bank connection to the Green Line and buses to Odesa. Under the new schedule, trains leave Kyiv-Passenger station at 00:04, 03:00, 05:43, 06:30, 08:23, 10:00, 12:00, 14:00, 16:56, 17: 50, 20:14 and 22:01. As of last night, the website posted the old schedule.

From the Editor: “Tony Soprano would be impressed,” writes New York’s Daily News in a big stretch to get Americans interested in “Ukrainian billionaires [who] bought [US] properties with dirty money.” While Igor Kolomoisky is known for his humor and showmanship, the News sets a high bar by comparing him to the Italian-American don who fascinated American HBO viewers for six seasons in the 2000s. With The Godfather film trilogy entertaining an earlier generation, audiences around the world love Italian-American mobsters. But Jewish-Ukrainian gangsters with hard to pronounce names – try Bogolyubov – promise a tough box office sell. Today, few people know of Meyer Lansky and the Jewish mob that ran Havana’s casinos and racetracks in the 1950s. But, fair or not, the rebels who drove them out of Cuba are world media icons: Fidel Castro and CheGuevara. With Best Regards Jim Brooke