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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, January 12

Steel Grew in 2020…GDP Growth Pushed Off To Spring…Chinese Vaccines for 2.5% of Ukraine’s Population by June 1…Ukraine Will Spend $20 billion to Service Debt This Year…Ukroboronprom Puts Up For Lease 5 Parus…US Treasury Sanctions 7 Ukrainians…Nearly Half a Million ‘New’ Cars Flood Urkaine
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Despite the global recession, Ukraine’s steel companies increased rolled steel production by almost 1% yoy, to 18.3 million tons. Steel smelting decreased by 1.4% to 20.5 million tons. But pig iron production increased by 1.5% to 20.4 million tons, according to Ukrmetalurgprom, the industry association. Metals are one of Ukraine’s top four exports, a group that includes food, IT, and migrant labor.

Consumer prices grew 5% last year, inside the government’s inflation target range and slightly higher than in 2019, the State Statistics Service reported yesterday. Previous annual inflation rates were: 2019 – 4.1%; 2018 – 9.8%; 2017 – 13.7%; 2016 – 12.4%; 2015 – 43.3%. Oleksiy Blinov, Alfa-Bank Ukraine’s head of research, predicts on Facebook that Ukraine’s annual inflation rate will rise to 6% this month and 7% in February.

Ukraine’s economic recovery will be slower than expected, coming in the spring, the Economy Ministry predicted yesterday. Reversing an earlier prediction of economic growth in the first quarter of 2021, the Ministry now forecasts GDP shrinkage by as much as 3% yoy in the January-March period. The Ministry blamed “declining strength of most foreign trade (especially services) [and] constant fluctuations and changes in working conditions in 2020, continued restrictions associated in the fight to control the coronavirus pandemic.” According to the Ministry, Ukraine’s GDP contracted by 4.8% last year.

The first 700,000 coronavirus vaccines could arrive in Ukraine by the end of February, Valeriy Pechayev, CEO of the importing company, Lekhim, told reporters yesterday. Contracted to import 1.9 million doses from China’s Sinovac Biotech, Pechayev predicted that the second batch, 1.2 million will arrive in May. Given that the vaccine has to be administered twice, this contract would cover vaccinating 2.5% of Ukraine’s population. “We have invested €10 million in organizing the production of the vaccine at our plant in Kharkiv,” he said. “In 2022, we plan to start the production of the finished form of this vaccine.”

During the first weekend of the ‘enhanced quarantine’ the National Police issued fines to 1,658 violators – 1,314 shops, 264 restaurants, 40 shopping centers and 22 fitness centers. In addition, 3,658 people were fined for violating rules mandating masks in enclosed public spaces. This level of quarantine runs through Sunday night Jan. 24.

After a 3-week break for the holidays, the IMF’s Europe Office resumed video talks yesterday with Ukraine’s government to revive the Stand-By Arrangement signed last June. The program revision was to take place last July, but was put on hold after President Zelenskiy purged the central bank. Ukrainian officials say talks now are on track, and they hope to get a second $700 million tranche by March. Prime Minister Shmygal wrote yesterday on Facebook that the talks “will open opportunities for Ukraine to receive the next tranche.”

Ukraine will spend $20 billion this year to repay principal and pay interest on its public debt, according to Finance Ministry figures. About 72% will go to repay domestic debt and 28% to repay foreign debt. Peak payment months are: March — $2.5 billion; June — $2.7 billion; and September — $3.6 billion. About 25% will go for interest payments, and 75% for repaying principal, the Ministry posted two weeks ago on Facebook.

Ukroboronprom, the state arms production conglomerate, and ProZorro.Sale, the online auction platform, signed an agreement yesterday to put up for auction leases on 250 properties around the nation with a total floor space of 380,000 square meters, Mustafa Nayem, assets director of the conglomerate, wrote on Facebook. For comparison, this unused, non-manufacturing space is five times larger than the total office space of Kyiv’s Parus office building. Looking ahead, Nayem told reporters at press briefing: “Currently, it is almost 2 million square meters that can theoretically be leased.”

Details of the properties are posted on the Ukroboronprom site under Assets- Investment Property for Rent. These details, plus the mechanics of the auctions, also will be posted on the site of Prozorro.Sale. Yuriy Gusev, Ukroboronprom’s new CEO, said State Watch, an NGO, found that the holding company loses $130,000 a month due to under market rents set 15 years ago by three Kyiv companies – Artem, Mayak, and Radar.

Looking at Ukroboronprom’s 137 enterprises, Gusev writes: “Some will go for privatization, because they produce non-military products, and some will cease to exist.” Of the 137, only 28 –or 20% — make money, he writes on his Ekonomichna Pravda blog. In a major mismatch, Ukroboronprom meets only 36% of the armaments needs of Ukraine’s military and 70% of the conglomerate’s revenue comes from exports. One candidate company for closing – or a major turnaround — produces components for Soviet submarines. Ukraine’s only submarine, the Foxtrot class Zaporizhia, was seized by the Russian Navy in Sebastopol in 2014.

In the first six months of a government-mandated program of online leasing of state and city properties, more than 5,000 auctions have been held, Svitlana Panaiotidi, deputy economy minister, told reporters yesterday. So far, 400 government entities, included the State Property Fund, have joined the system. Although some auctions have failed, one easily understandable success stands out: an auction for 10 square meters of retail space at Boryspil Airport. Bidding for monthly rent started at $183. It ended at $2,917.

The US has added seven Ukrainians and four media sites to the Specially Designated Nationals and Blocked Persons List for attempting to interfere in the 2020 presidential election, the US Treasury Department announced yesterday. The list includes Oleksandr Dubinsky, Rada member from President Zelenskiy’s Servant of the People party, who previously worked as a host on 1+1 TV, owned by Ihor Kolomoisky. Others include former chief prosecutor Konstantin Kulyk, former diplomat Andriy Telizhenko. They “were part of a Russia-linked foreign intelligence network associated with Andriy Derkach,” Secretary of State Michael Pompeo said yesterday. He said Derkach, a Rada member, “has been an active Russian agent for more than a decade.” People on the sanctioned list cannot do business with Americans or American businesses and their properties in the US are blocked.

Imported used cars accounted for 80% of the 438,900 first time car registrations in Ukraine last year, reports Ukrautoprom, the vehicle industry association. Last month, about 40,000 used cars were registered, the highest monthly number in almost two years and 31% more than in Dec. 2019. In 2020, 353,400 used cars were registered for the first time, down 13% from the 2019 level. In 2019, a tax amnesty for illegally imported cars provoked a one-time surge of registrations.

Traffic congestion increased in Kyiv last year by about 5%, reports the Center for Transportation Strategies, citing the City’s Traffic Center. Traffic on Kreshchatyk increased by 5-10%. Traffic Brovarskyi Avenue, a major east-west artery connecting east bank residential high rises with the city center increased by 17 to 24%. Slowing driving speeds are attributed to: more cars, reluctance to use buses and the Metro during the coronavirus pandemic, and poor traffic management by the City.

Editor’s Note: Kyiv’s iron fisted mayor is surprisingly limp wristed when confronting traffic jams. Every day at rush hour, drivers inch into intersections as lights turn yellow. They do not block traffic lanes because they are inherently evil. They do it because they know they will get away with it. The other day in Manhattan, my 30-year-old son James sailed through a red light on a bicycle. A New York City policeman immediately collared him and issued a $100 fine. Much bigger fines await drivers who “block the box” – get caught in an intersection after a traffic light changes. It is odd that Mayor Klitschko, who lived in Germany during his boxing days, is so laissez faire about Kyiv’s worsening rush hour traffic chaos. With Best Regards, Jim Brooke