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Wednesday, February 10

GDP Returns to Normal…Steel Could Grow 6%...Vaccine Campaign Faces Delays…Britain’s Crown Agents Returns…Covid Aid Millions Flow From US, Germany and World Bank…DTEK Energy Restructures Debt
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

Ukraine’s economic activity in the fourth quarter of last year was only down 1% yoy, far better than the forecast drop of 3%, Economy Minister Ihor Petrashko told reporters Tuesday at the Ukraine 30 Coronavirus: Challenges and Responses Forum in Kyiv. “Currently, the conditions for economic recovery, in principle, are quite favorable,” he said. “Our forecast for 2021 – an increase of 4.6% – we retain unchanged and [see as] quite likely.”

Ukraine’s steel production could increase by as much as 6% this year, to 21.8 million tons, according to a study prepared by the GMK Center, a metals industry analytical and consulting group: “Forecast of Steel Production in Ukraine in 2021.” By reorienting exports to China, Turkey and Southeast Asia, Ukraine’s steel sector ended 2020 recording a 1% drop in production, but rising from 13th to 11th place in the ranks of world steel producers. “Ukrainian steelmakers begin 2021 with the best conditions in the markets over the past 12 years,” the report says. “Demand for steel in the EU and MENA region has already fully recovered, while China will maintain low export volumes.”

Ukraine’s full bore coronavirus vaccination campaign may be delayed from March to April because of government paper work delays in China and Ukraine, reports Reuters. Last week, Ukraine’s Lekhim asked Ukrainian authorities’ permission to delay to April imports from China of the first shipments of 1.9 million Sinovac vaccines, according to a letter seen by a Reuters reporter in Kyiv.

Vaccinations are scheduled to start Monday, drawing on an expected shipment of 117,000 Pfizer vaccines. President Zelenskiy talked on the phone Monday afternoon with Albert Bourla, CEO of Pfizer Pharmaceutical Corporation, based in New York. “Ensuring vaccination of the population of Ukraine with a safe certified vaccine is one of our priorities,” Zelensky said. The President’s website reported: “The Board Chairman of Pfizer promised to do everything possible to ensure that Ukraine receives the first batches of vaccine under contract as soon as possible.”

All Ukrainians should have access to vaccines by the end of this year, Health Minister Maksym Stepanov told ICTV’s Freedom of Speech program. He vowed: “We want to ensure that 100% of the population have access to a COVID-19 vaccine by the end of 2021.” Separately, President Zelenskiy addressed popular skepticism of the vaccines, saying Monday: “We all need to show vaccination live on TV. There’s no other choice than to lead by example.”

Ukraine’s turn last month to Britain’s Crown Agents to buy coronavirus vaccines illustrates the difficulty in breaking ingrained traditions of drug profiteering at the Health Ministry, Pavlo Kovtoniuk, Head of the Health Economics Center at the Kyiv School of Economics, writes in an Atlantic Council piece: “Ukraine signs vaccine deal, but delays highlight urgent need for healthcare reform.” Noting that Crown Agents temporarily procured drugs for Ukraine 2016-2018, Kovtoniuk, who was Deputy Health Minister at the time,  wrote “For the second time in just over five years, the involvement of international partners was necessary to rescue Ukraine’s medical procurement processes from corruption.”

The vaccination of 10 million Ukrainians at risk – about one third of all adults – is a condition for Ukraine receiving a $30 million World Bank loan this spring under its Covid-19 Emergency Response and Vaccination in Ukraine project, the Finance Ministry reported Tuesday. The money is to be part of a $90 million World Bank loan for Covid testing and vaccinations. Deputy Finance Minister Roman Yermolychev said: “We must understand that these are loans, and therefore their disposal must be reasonable and rational. to fulfill all obligations as much as possible in order to improve the investment microclimate in Ukraine.”

US support to Ukraine for combatting the pandemic totals $48 million over the last year, Kristina A. Kvien, US Chargé d’Affaires, told the Coronavirus Forum on Monday. She said the money has gone to bolstering Ukraine’s health system, supporting small businesses, and countering “COVID-related disinformation that threatens our collective ability to get this pandemic under control.”

Germany is proving Ukraine with a €13.1 million medical care grant that includes supplying equipment for outpatient diagnosis and treatment of coronavirus. This grant, and a second one for €23.5 million are largely focused on Ukraine’s war affected southeast where the money is to go for upgrading hospitals and building housing for internal refugees.

Talks with IMF will be delayed to the spring, making a staff level agreement in May the optimistic scenario, reported in a lengthy story, citing unnamed Rada members and Central Bank officials.

Dragon writes: “The government has sufficient liquidity buffers to proceed without IMF financing until end-May (assuming full rollover of domestic debt), but faces an increase in fiscal funding needs in 2H21, especially in September, the peak of external debt redemptions ($2.2bn), and December, due to seasonal expansion of the budget deficit (at least half of $8.4bn full-year gap). Thus, authorities would need to secure IMF financing by August at the latest in order to facilitate funding from other sources (IFIs, Eurobond market, foreign inflows into UAH bonds).”

The Finance Ministry increased 2.5-fold its sale of bonds yesterday, but kept yields largely unchanged at the weekly auction, according to results posted on Facebook. Of the total $467 million in dollars and hryvnia equivalent sold, the 16-month hryvnia bond was the big seller, accounting for 31% of all sales and going for a weighted average of 11.15%. Of the six bonds sold, interest rates ranged from 9.89% for 6-month bonds to 12.5% for 6-year bonds. In addition, the Ministry raised $207 million through the sale of 14-month dollar bonds for 3.9%.

With snow and sub-freezing temperatures forecast through Friday, restrictions on trucks entering Kyiv are expected to continue off and on. At a peak, 3,000 trucks were stopped outside the capital, with their drivers waiting for roads to clear. At eight entry points to the city, the State Emergency Service pitched warming tents, offering hot tea and biscuits. Last night, after rush hour traffic jams subsided, trucks were allowed into the city, alleviating fears of shortages in supermarkets.

Due to the cold temperatures, coal reserves at thermal power plants fell sharply during the first week in February, hitting 57% of minimum, required volumes, Ukrenergo reported yesterday. To fill the gap, hydro plants on the Dnipro cascade increased output by 27% during the first week. Energoatom is advancing by several days the scheduled relaunching of reactor No. 2 at Khmelnitskiy Nuclear Power Plant.

DTEK Energy has announced a tentative agreement with bond and bank debt holders to restructure much of its $2 billion bond and bank debt. After 10 months of negotiations, the deal’s center piece is exchanging guarantees from DTEK Oil & Gas Receivables for $425 million of new DTEK Oil & Gas notes. Listed on the Irish Stock Exchange, these bonds would pay 6.75% cash interest semiannually and mature Dec. 31, 2026. As part of the deal, DTEK Energy will appoint an independent supervisory board member, from a list of three candidates offered by creditors, who will have a veto right on M&A and excess capital expenditures.

Analysts generally welcomed the proposed exit from a default that rattled investors last March:

Adamant Capital wrote: “The updated terms look significantly better than those disclosed at the end of November…We confirm our ‘Buy’ recommendation.”

Concorde Capital wrote: “The updated DTEK’s offer provides more clarity about minimum payments to bondholders…the updated restructuring terms look balanced.”

Dragon Capital wrote: “The updated restructuring terms mark a significant improvement over the previous version…The new proposed DTEK Energy bond structure is also simpler than the previous variant and likely to have its own dedicated Bloomberg calculator, facilitating bond trading and improving its overall liquidity.”

Editor’s Note: The DTEK Energy default of last March was always a bit of a mystery. Sure, energy prices were low. But the default came days after Rinat Akhmetov, DTEK’s owner and Ukraine’s richest man, paid €200 million for a Riviera mansion built for King Leopold II, owner of the Congo. In late March, as the coronavirus pandemic brewed, an Akhmetov aide confidently predicted to me that a lot of big Ukrainian companies would default. None did. But there was a ruboff effect on other companies in the SCM family — higher bond yields. With the one-year anniversary coming up, it is positive that the ‘auto-default’ will soon recede in investors’ rear view mirrors and memories. With Best Regards Jim Brooke

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Monday, January 11

Gazprom Works to Finish Nord Stream by Summer…Ukraine Zero Foreign Investment  in 2020…DTEK Opens London ‘Investment Hub’…Turkey-Ukraine: 30 Military Production Projects… Ryanair Cuts 70% of Flights out of Kyiv Until April
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

Gazprom re-starts construction of Nord Stream 2 on Friday, using a flotilla of three Russian boats capable of finishing the Russia to Germany gas line by May, The Financial Times reports from Moscow and Berlin. Denmark’s energy agency states it received the necessary documents for pipe laying to resume Jan. 15. A German Foreign Ministry official tells the FT: “According to our information, the construction permits necessary for laying the pipeline have been issued.” Worked stopped one year ago, in face of new US sanctions. A second layer of sanctions were approved by the US Congress 10 days ago.

“The US sanctions will delay the launch of the project, but will not stop its completion,” predicts Naz Masraff, Europe director at Eurasia Group. “Ultimately, Moscow, with the help of Berlin, will find ways to bypass the sanctions.” Looking ahead to the inauguration of Joe Biden next week at US president, she told the FT: “[US] sanctions will likely be used as leverage to co-operate with the German government on restrictions to make the pipeline operational while also paying attention to Washington’s concerns over Ukraine.”

With Russian gas transit across Ukraine only guaranteed through 2024, Ukraine’s pipeline operator is negotiating alternatives: storage of gas from new LNG terminals in the Baltic and Adriatic, and transmission of ‘non-carbonized’ gases, such hydrogen and bio-methane. Olga Bielkova, international affairs director for Ukraine’s gas transportation system, writes in an Atlantic Council Ukraine Alert blog that Ukraine and Romania are increasing their cross-border pipelines from one to four, Ukraine is negotiating with Hungary access to gas from Croatia’s new LNG terminal, and is offering Polish gas traders storage capacity in western Ukraine, near the border.

Pro-Russian politicians promoting Russia’s coronavirus vaccine are making advances as the West delays sending its own vaccines to Ukraine, The New York Times reports in a story headlined: “In Vaccine Geopolitics, a Great Game Played With Ukrainians’ Health.” The article reports that the first Covax-supplied vaccines are to arrive in March, and commercial purchases of Western vaccines are only to start at the end of this year. In a New Year message, President Zelenskiy complained that “the richest countries” will get the vaccine first.

Alfa-Bank Ukraine forecasts the 2020 year-end foreign direct investment figure will be $0.00 billion. By contrast, net FDI inflow was $5.2 billion in 2019 and $4.5 billion in 2018.

Lack of rule of law, unpaid debts to solar and wind investors, and last year’s purge of internationally-known reformers from government make for bleak prospects for inbound investment this year, Anders Aslund predicts in an Atlantic Council Ukraine blog: “What is Ukraine’s Economic Outlook for 2021?” “Looking ahead, Ukraine’s worst economic problem remains the absence of property rights, which continues to hinder investment of any kind,” the Swedish-American economist writes from Washington. “Without judicial reform or an increase in investment, there is little reason to expect any economic growth beyond the gains arising from the anticipated post-coronavirus rebound.”

By the end of next year, Ukrhydroenergo plans to put into operation at its hydro plants energy storage systems with capacity of 212 MW and solar power plants with a capacity of 65 MW, says Ihor Syrota, CEO of the state hydroelectric power generating company. Without citing numbers, he said the World Bank and the European Investment Bank are ready to lend to the project, reports Expro Consulting.

DTEK is opening “an investment hub” in London to attract investments for renewable energy projects in the Ukraine and in the EU, the company reports. “We created a hub to attract investment in new energy projects in Ukraine,” says company CEO Maxim Timchenko. “This primarily concerns renewable energy sources, energy storage systems and hydrogen energy projects.”

Turkey and Ukraine are working on “more than 30 joint projects” for production of military equipment, Ukraine’s Ambassador to Turkey Andrii Sybiha says in a lengthy written said interview with, a Turkish defense industry news site. Rather than trading military goods across the Black Sea, the countries are focusing on “joint research, joint-ventures and establishing joint production,” he says. This decades, he predicts, will see Ukrainian Antonov planes built in Turkey and Turkish drones produced in Ukraine. Turning to space, he said both countries are working for joint development of “satellite technologies, space launch systems and infrastructure.”

A Turkey-Ukraine-Poland container route is in the pipeline for 2021 as Ukrferry and Ferrplus have signed an agreement with Ukrzaliznytsia’s Lisky terminal in Kyiv. In a multimodal route, containers will cross the Black Sea by ferry, largely to Odesa, then continue by rail to Kyiv and then to Gdansk, Poland’s port on the Baltic, reports Separately, Edvīns Bērziņš, the new Latvian director of UZ’s freight terminal at Lisky, is negotiating with PKP Cargo Connect to transport goods between Ukraine and Poland; with BTLC Germany to expand container trains between Europe and China; and with DHL will allow to organize container transportation around Ukraine.

On the first anniversary of the shootdown of the UIA passenger jet over Tehran, Ukraine joined Afghanistan, Canada, Sweden the UK in stating: “Our countries will hold Iran to account to deliver justice and make sure Iran makes full reparations to the families of the [176] victims and affected countries.” UIA pilots and air crews and families of the deceased laid flowers Friday a memorial stone in Willow Grove Square on the left bank of the Dnipro.

Ryanair is suspending about 70% of its flights out of Kyiv Borsypil until April, according to an analysis of the discount airline’s booking system by Until spring, only three out of the 30 routes from Kyiv will operate unchanged. Flights from Kharkiv and Kherson are suspended and traffic from Lviv is limited to a lone flight to London. The EU and UK have largely banned non-essential visits by Ukrainians. Flights are largely limited to people with work permits, study visas, in transit, or nationals of the destination country. Most countries require a certificate attesting to the negative result of a coronavirus test conducted within the previous 48 hours.

Editor’s Note: Zero foreign investment last year. That should be an alarm bell for a major reset by the Zelenskiy Administration. Otherwise, it will simply tread water through 2024. An outgoing Italian diplomat, before driving home to Rome last week, left me with these sobering numbers for Italian investment in 2018: Africa: + €18 billion; Ukraine: negative €200 million. With Best Regards, Jim Brooke