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Tuesday, January 19

Price Controls Slapped on Gas…2020 Vision: Farm Production Fell by 11.5%...UZ Moves Half of the Nation’s Cargo…Chinese Demand Pushes up Steel Prices, Production…Gangsters Try to Sabotage Sale of State Titanium Co…Flood of Square Meters Could Depress Office Rents in Kyiv…Failure to Procreate: Two Ukrainians Die for Each Baby Born
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

With gas prices spiking during frigid weather in Europe, Ukraine is cutting household gas prices by 30% and capping them until the end of March, according to a decision posted yesterday on the Cabinet of Minister portal. The decision came after scattered protests across the nation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Wednesday, January 13

China Outstrips Russia as Ukraine’s Top Trading Partner…Betting on Chinese Trains Crossing Ukraine, a Big Container Hub Goes up Near Hungary-Ukraine Border…Chinese Covid Vaccines Rise to 5 million…Metro and Air Traffic Down Drastically in 2020…
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

China far outstripped Russia last year as Ukraine’s largest single nation trading partner, racking up $15.4 billion in two-way trade, more than double’s Russia’s $7.3 billion. Globally, Ukraine’s exports of goods were down only 1.7% yoy, to $9.2 billion, reports the State Customs Service. Ukraine’s imports of good were down 10.3%, to $54.2 billion. Two-way trade in good totaled $103.4 billion, a drop of 6%. Trade in services is not included.

In a bold bid for China’s container trade, private investors have started building a €61 million road and rail terminal in Fényeslitke, Hungary, 25 km south of Ukraine’s border crossing in Chop, Zakarpattia. Scheduled to open this time next year, the 125-hectare intermodal terminal will have its own 5G network and will be capable of handling 1 million TEU containers a year. Called East-West Gate, the terminal will use massive, computerized cranes to shift containers to trucks or EU gauge trains from the broad-gauge trains that carry Chinese cargo across the former Soviet Union. The site is 50 km north of Hungary’s new M3 motorway to Budapest and 14 km south of a junction of two dual gauge rail lines, from Mukachevo and Uzhgorod.

Promoted as “the Western gateway of the New Silk Road,” the terminal will depend on Chinese cargo rolling across Ukraine and will compete directly with the booming northern route – through Belarus to Poland. Last year, the number of Chinese containers crossing from Belarus to Poland jumped by 60%, to 555,000, reports Belarusian Railway. With freight trains delayed at Brest by the need to shift wheels from broad gauge to EU gauge, the Belarus Railway is investing in two new border crossings with Poland, at Bruzgi and Svislač. Ukrzaliznytsia is promoting Ukraine as alternate corridor for Chinese goods to the EU.

Kharkiv drug manufacturer Lekhim will supply Ukraine with 5 million doses of the Chinese COVID-19 vaccine, more than double the 1.9 million announced earlier, the company said in a press release. This would be enough to vaccinated 2.5 million people. Covax has promised to give 8 million doses to Ukraine, enough to vaccinated 4 million people. Health Minister Maksym Stepanov says Ukraine must vaccinate at least 10 million people – or one quarter of the population — to develop herd immunity.

Patients of Ukraine, a clean government organization, accuses Minister Stepanov of handpicking Lekhim to distribute the Chinese vaccine, bypassing competitive procedures established by the state procurement agency, Medical Purchases of Ukraine. Other producers are “being blocked personally by Minister Stepanov,” Patients of Ukraine tells news site. Valeriy Pechayev, head of the Lekhim’s supervisory board, is a “close ally” of Raisa Bohatyriova, a former health minister, under former president Viktor Yanukovych, reports news site.

Concord Capital’s Zenon Zawada writes: “It was inevitable under the Zelenskiy administration that well-connected people would earn business from the COVID-19 disease, particular those with ties to the Yanukovych administration.”

President Zelenskiy asked the EU yesterday for more help in procuring coronavirus vaccines after his government rejected Russian offers of help, reported Reuters. “For all countries of the Eastern Partnership initiative, in particular Ukraine and Moldova, the issue of obtaining vaccines is important,” Zelenskiy said while hosting Moldovan President Maia Sandu in Kyiv. The Eastern Partnership is an EU initiative to work with six post-Soviet states: Ukraine, Armenia, Azerbaijan, Belarus, Georgia and Moldova. “The countries of the Eastern Partnership should be given increased attention by the EU states in matters of joint procurement procedures and accelerating the supply of vaccines.”

To ease Moldova-Ukraine interchanges, the drive time between Kyiv and Chisinau is to be cut to five hours, from six hours today, according to a memorandum signed yesterday in Kyiv by Moldova’s new President Maia Sandu and President Zelenskiy. About two thirds of this road improvements will be provided by the internationally funded rebuilding of the Kyiv-Odesa highway, the M-05. Chisinau is only 150 km west of this highway. The two leaders also agreed to advance a longstanding plan to build the second road bridge over the Dnestr, linking Yampil, Vinnytsia region and Cosăuți, northern Moldova. Currently, the two cities are linked by a ferry.

Last weekend, the first weekend of the ‘enhanced lockdown,’ restaurant revenues were down 58%, compared to the same Jan. 8-10 period in 2020. By contrast, coffee shops suffered only a 12% drop in revenue, Poster reports on Telegram. Businesses focused only on takeout and delivery one year ago, reported that their sales last weekend were up 5% yoy. Poster surveyed about 2,000 establishments.

Ukraine’s car production fell by one third in 2020, to 4,202 cars, reported Ukrautoprom. This is 1% of Ukraine’s peak production, of 424,000 cars in 2008, and 1% of the 438,900 cars imported last year. In the Soviet era, Ukraine was the second largest car producing republic, after Russia. Two years ago, efforts to attract a major German car manufacturer failed after the sudden shift to electric car production turned the industry upside down.

Ridership on the Kyiv metro fell last year by 44%, to 279.5 million passengers, Viktor Braginsky, head of the subway system reported yesterday. The loss of 215.8 million passengers means a loss of $61 million in fares. As usual, the busiest line was the east-west Red line, which carried almost 114 million people. The Blue line came in second with 98 million riders. The Green line came in third with 68 million riders.

Rail passengers can now use multilingual chat bots in Viber and Telegram to buy tickets and meals on the high speed Intercity+ trains. The bots, which speak English, Ukrainian and Russian, also allow passenger to check timetables, fare, availability, and, in the case of Kyiv, platform number. The system was announced yesterday by Ukrzaliznytsia in partnership with Visa payment system and Middleware Inc, an American IT company. In 2019, Ukrainians bought 57% of their rail tickets – 30 million – online.

Kyiv Boryspil ended 2020 with passenger traffic down by two thirds, compared to 2019. Last year Ukraine’s largest airport, handled 5.1 million passengers, down from 15.3 million in 2019. And traffic did not improve in December, normally a busy travel month. Passengers on charter flights were down 53%, passengers on scheduled flights were down 74%, and transit passengers were down by 91%.

UkSATSE, the air traffic control agency, handled last year only 42% of the 2019 volume of planes flying through Ukrainian air space. The drop was brutal. In February flights were up 10%. In April and May, flights were down 90%. The agency is funded largely through overflight fees.

Editor’s Note Chinese trade, Chinese trains, Chinese vaccines. It is crystal clear who will be a big player for Ukraine in the 2020s. Judging by what I saw in Central Asia in the 2010s, China will not offer much geopolitical relief to Ukraine. In the five former Soviet republics, Russia provides security and China provides the goods. About 150 years after Czarist Russia’s conquest of Central Asia, modern Russia plays the role of mall cop for a big Chinese shopping mall. With Best Regards, Jim Brooke

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Tuesday, October 27

Poor Election Showing Could Prompt Zelenskiy to Fire Economic Ministers...Government Predicts IMF Mission Will Come After US Vote...China-Ukraine Sign 5-Year Deal on Space Research...More Chinese Trains Roll to EU...Kyiv Metro Has Not Recovered from Covid Shutdown
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

Exit polls indicate that President Zelenskiy’s ruling Servant of the People Party did not win mayoral races Sunday in any of Ukraine’s 10 most populous cities, including Zelenskiy’s home town, Kryvyi Rih. Although no national party did well in a day dominated by local politicians, Sunday’s election spells hard times ahead for the neophyte president who was overwhelmingly elected 18 months ago.

“Less than a year and a half since his inauguration, the Zelenskiy presidency appears to be in grave trouble…Zelenskiy’s Servant of the People party looks to be in terminal decline,” Anders Åslund, the Swedish economist, writes in an Atlantic Council blog.  “These local election results appear to have confirmed that Ukraine no longer has the basis for a functioning parliamentary majority. Indeed, in the months ahead, it may even prove problematic to form coalitions of convenience for specific pieces of legislation.”

With a budget debate looming next week in the Rada, Zelenskiy may reshuffle the cabinet again, writes Timothy Ash. “Zelenskiy probably won’t be able to help himself, but will likely respond with a far reaching cabinet reshuffle,” he writes from London. “Likely we will see the minister of economy changed again, and likely also the minister of finance.”

Dragon Capital emailed clients yesterday that the weak showing “could precipitate potentially significant changes on the central government level, such as a reconfiguration of the parliamentary majority and/or a cabinet shuffle.”

The low turnout – 37% — and the failure of national parties to dominate regional strongholds means that no national political leader of party can claim victory. However, the poor showing of the Servant of the People party is expected to erode its once solid majority.

Voters were skeptical of the only economic proposal on Zelenskiy’s nonbinding referendum of five questions. Asked about a free trade zone for Kyiv-controlled Donbas, only 45% supported the idea, well below the 70% favoring legalizing cannabis for medical purposes. Final vote results are expected by the end of this year.

Ukraine expects an IMF review mission to come to Kyiv in mid-November, Yulia Kovaliv, Zelenskiy’s deputy chief of staff, tells Bloomberg. Approval by the team would lead to the release of a $700 million tranche, a move that would trigger the release of an additional $1 billion in EU and World Bank aid, says Kovaliv, who is in charge of cooperation with foreign donors. After Naftogaz pulled its $500 million Eurobond placement last week, Kovaliv said Ukraine will only return to the Eurobond market with an IMF program on track.

Two issues cloud a resumption of IMF disbursements for Ukraine: the budget deficit and central bank independence.

Through September, Ukraine’s budget deficit is $2.9 billion – four times greater that it was for the first nine months of last year, according to the State Treasure Service.  About 80% of the deficit stems from the creation last April of a special fund to fight Covid. About half of this money ended up being spent on road construction.

Central bank independence returned yesterday to the headlines with angry public statements by two Board members who were reprimanded two weeks ago. Both members, Kateryna Rozhkova and Dmitro Sologub, are the only holdovers from the National Bank of Ukraine Board that carried out the massive bank cleanup of 2015-2017.

Rather than leave quietly, Rozhkova, first deputy governor, posted a blast on her Facebook page yesterday. “Such a decision destroys collegiality and poses threats to the National Bank’s truly impartial decisions,” she said, reacting to last week’s decision to strip her of almost all her power inside the central bank. “This does not comply with the principles of independence that were laid in the basis of the transformation of the National Bank in 2014-2015. I will remind you that this transformation was carried out with the IMF requirements.”

Sologub, also a deputy governor, tweeted that the attempted purge “was done in a murky and non-transparent way.”

China and Ukraine have signed a 5-year space research cooperation deal that encompasses 69 projects. The work is valued at “over 70 million,” reports Ukraine’s signatory, the State Space Agency. SpaceWatch.Global, a news site based in Bern, Switzerland, writes of Thursday’s deal for new information exchanges: “China has been pushing into countries like Ukraine for some time. Ukraine has a lot of technological knowhow that could (presumably) be acquired at relatively low prices, and with relatively less political resistance.” In 2016, an analysis by Kyiv’s Institute of World Policy totaled 21 China-Ukraine space contracts, worth $67 million.

Nippon Express, one of the top five global logistics services providers, plans to double its China-Europe container trains to 5,000 a year, reports Due to Covid restrictions, air freight is now 10 times the cost of rail. Before Covid, it was four times as expensive. With the rail gauge break in Belarus struggling to cope with the surge in traffic, Ukraine hopes to win more and more Chinese freight destined for Central Europe and the Balkans. At Kazakhstan’s main rail crossing point, Dostyk, expansion is underway to handle 1 million containers a year.

More Turkey-Ukraine military joint ventures are under discussion and negotiation. These include: joint production of mobile anti-tank missile systems, joint production of drone and helicopter engines in Turkey, and participation in a possible Turkish advanced combat aircraft. Oleh Urusky, deputy Prime Minister for Strategic Industries, told reporters in Kyiv on Friday that Ukraine’s Defense Ministry also is interested in Turkish corvettes, for production first in Turkey, then in Ukraine.

Five months after the Kyiv metro reopened after the strict coronavirus shutdown, its ridership is only 40% of capacity, Natalia Makogon, deputy head of the underground rail system told an online conference Monday. At peak periods last year, the system carried 90% of its capacity of 2 million daily riders. Last year, the system carried 495 million riders, or 1.35 million a day.

In time for the fall foliage season, the Zhitomir Cardboard Factory, has produced its first paper – 1.5 tons – from fallen tree leaves. “We are currently preparing to convert the paper batch into paper bags, paper dishes and cardboard,” Valentyn Frechka, the inventor, writes on his Facebook page. He posts a video of this new industrial process.

Editor’s Note: The leaders of Ukraine – and every other nation in the world — are handicapping the odds of a Biden presidency and what it would mean for them. In Kyiv, a dangerous line of thinking would be to assume that the Democrats in their eagerness to take a whack at Putin will turn a blind eye to Ukraine backsliding on creating EU-standard institutions. Ukraine should embrace the EU choice with actions over words. If there is to be a post-Trump America next spring, it will be an America with a new caution about spending on foreign aid and foreign military adventures. With Best Regards, Jim Brooke.