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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 25

China Vacuums Up Ukraine’s Grain…Low Oil Prices Cut Ukraine’s Import Bill by One Third…2020 Was a Lost Year for FDI…Turks Look at Chornomorsk…Covid Falls, Restaurants, Stores and Gyms Reopen Today
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’s imports of Ukrainian grain are soaring during this marketing year, the Ukrainian Grain Association reports, citing figures released Thursday at an Agro meeting at Ukraine’s Embassy in Beijing. In the first seven months of the grain marketing year, China has imported 6.9 million tons from Ukraine – more than the 6.3 million tons imported during the 2019/2020 marketing year. During the 2020 calendar year, China was the largest importer of Ukrainian grain, buying 20% of Ukraine’s total exports of $9.4 billion, said Serhiy Ivashchenko, acting executive director of the Ukrainian Grain Association.

After the United States, Ukraine was the world’s second largest grain exporter in the marketing year that ended June 30, Taras Kachka, Deputy Minister of Agriculture and Economy, told the International Grains Council last week. Citing USDA figures, Kachka said Ukraine ranked 2nd in barley exports, 4th in corn exports and 5th in wheat exports. After a poor harvest this fall, Ukraine may fall behind. During the first seven months of the current marketing year, exports are down by 6.3 million tons, a drop of almost 19% yoy.

DHL and Ukrzaliznytsia plans to develop China-bound trade from UZ’s left bank rail wagon marshalling yard at Liski, Logistics Manager, an Asia-oriented logistics news site, reports in a story headlined: “Full Steam Ahead for Ukraine & China to Drive Rail Connectivity.” Freight from Ukraine’s neighbors can be consolidated in Kyiv for shipping east in container trains. “There is a lot of excitement for those watching trade developments between China and Ukraine,” says Steve Huang, CEO of DHL Global Forwarding Greater China. “Further to China’s newly-established position as Ukraine’s top trading partner, recent reports have revealed Ukraine’s plans to start negotiations on a free trade agreement with China.”

Ukraine saved $3.4 billion last year on oil imports, cutting its import bill by 36% yoy, reports the State Customs Service. In volume terms, Ukraine cut imports by 5%, to 8 million tons. Top suppliers were: Russia – $1.2 billion; Belarus – $1.2 billion; Lithuania — $400 million.

Industrial production dropped last year by 5% yoy, reports the State Statistics Service. Manufacturing was down 7%. Other big drops were: coal mining down 13%; and electricity generation down 6.6%. On the upside, steel was up 6.5% and cement was up 7%. In 2019, industrial production was down 1.8%, cancelling out a 1.1% growth in 2018.

Net foreign direct investment in Ukraine was the worst in 20 years, Lenna Koszarny Founding Partner and CEO of Horizon Capital, said Friday at a discussion of the draft National Economic Strategy 2030. Looking at negative flows for first nine months, she said: “We hope that net FDI will go to zero.” To get Ukraine on a growth track, she said the government’s goal should be: judicial reform, capital market reforms and investment reforms.

Last year’s remittances from Ukrainian workers abroad totaled $12 billion — almost five times the net direct foreign investment of $2.5 million. In 2018, net FDI added up to $2.4 billion. Kyrylo Kryvolap, Executive Director of the Center for Economic Recovery, said that since independence, Ukraine’s economy has attracted $50 billion in FDI, while Poland attracted over the same period $240 billion.

Despite coronavirus travel controls, worker remittances are expected to be near last year’s level. Ukraine’s State Border Guard Service reports that 35% of the 11,250,000 border crossings out of Ukraine last year were to Poland. While Ukrainians were largely barred from visiting the EU for tourism in 2020, travel was permitted for work. Outbound crossings were: Poland – 4 million; Hungary – 1.6 million; Russia – 1 million; Turkey – 965,000; Egypt – 730,000; Romania – 626,000; Belarus – 496,000; Slovakia – 336,000; Moldova – 328,000; Germany – 222,000; and UAE – 100,000. Ukraine received 3.4 million foreigners, 30% of the outbound flow.

The sale of large state companies starts this year and will not be reversed, Prime Minister Shmygal vowed Friday at the meeting to debate the National Economic Strategy through 2030. He added: “Investors have liquidity today. Objects for privatization in Ukraine are extremely interesting.” He said planned companies for sale this year include: three regional power generators, five combined heat and power plants, the Bolshevik plant, the Odessa Port Plant, the United Mining and Chemical Company, and the President Hotel.

To promote investment into Ukraine, UkraineInvest is creating up to 70 information offices in Ukrainian embassies around the world, Serhiy Tsivkach, executive director of the Investment Promotion Agency, said at the National Economic Strategy meeting. The agency is working with the Foreign Ministry and the Ukrainian World Congress. Ukraine has 78 embassies and 45 consulates.

Turkish companies are interested in investing in Chornomorsk container terminal and  railway and ferry complex, Infrastructure Minister Vladyslav Krykliy reports after meeting Thursday with executives of three Turkish companies: Busserk, Çalık Holding, and NIKO Group. One of Ukraine’s busiest black sea ports, Chornomorsk has a car ferry to Derince, near Istanbul.

DTEK Renewables plans to launch solar and wind projects in the EU as early as this year, DTEK Renewables CEO Maris Kunickis tells Bloomberg in an article headlined: “DTEK Looks Abroad After Ukraine Backtracks on Green Support.” Behind DTEK’s drive to diversify, Bloomberg writes: “In 2020, government only paid for 50% of produced energy to renewable producers. The retroactive cut jeopardizes Ukraine’s goal of having a 25% share of renewables in electricity production in 2035.”

Ukrainians bought two thirds of their long-distance train tickets online last year, reports Ukrzaliznytsia. By buying 12.9 million tickets through the Internet, at, travelers had easy access to fares, seat selection and discounts. Two weeks ago, UZ launched ticket sales through Viber and Telegram, facilitated by chatbots. On the first day, 17,000 people took advantage of the new service.

The longest train ride in Ukraine is also one of its five most popular, reports Ukrzaliznytsia. Every day, Train No. 45 sets off from Uzhgorod or Lysychansk, Luhansk, ambling across Ukraine making at least 40 stops and averaging 53 km/hour (33 mph). The train takes 31 hours and 15 minutes to travel 1,653 km, slight longer that the distance from Marseilles to Berlin. Last year, 461,500 people rode the train, most for small segments.

Restaurants, gyms and shopping centers reopen in Ukraine today as the nation emerges from the coronavirus lockdown-imposed Jan. 8. Registered new infections are running at about 5,000 a day, about one third the peak of two months ago. “Epidemiologists record the stabilization of the situation,” Prime Minister Shmygal wrote Saturday on Facebook. “The number of occupied beds has decreased to less than 30%.” Kyiv city has a 32% occupancy rate of coronavirus beds and the nation’s fourth highest infection rate – 297/100,000 people.

Ukraine imported a record amount of wine last year — $180 million. Top supplying countries are: Italy – $ 29 million; France – $ 27.5 million; and Georgia – $26 million. Over the last decade, Ukraine’s wine production dropped in half, partly due to the loss of Crimea, partly to due to red tape blocking small producers, and partly due to imports. EU exports to Ukraine are expected to increase this year after duties dropped to zero on Jan. 1.

Editor’s Note: Ukraine’s two largest renewable investors – DTEK and NBT — plan to make their next investments outside of Ukraine. TIU Canada, once one of the biggest foreign cheerleaders for investing in Ukraine, is suing Ihor Kolomoisky for pulling the plug on its solar plant. Wind and solar — Ukraine’s top bricks and mortar investment story of 2017-2019 – is over. Outside of Ukraine, Bloomberg reports that investors last year spent $291 billion last year to build 205 GW of wind and solar worldwide. It is nice to have meetings in Kyiv to draw up blueprints to double Ukraine’s economy in a decade. But the first step is to get straight with investors who are already here. With Best Regards, Jim Brooke