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Thursday, January 21

EBRD Invests $1 billion in Ukraine…PM Asks for Green Bonds to Settle Solar and Wind Debts…Ukraine Adapts to EU Green Deal…Half of Ukrainians Refuse Covid Vaccine
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 EBRD invested nearly $1 billion in Ukraine last year, making Ukraine the third largest recipient of funds, after Turkey and Egypt. The development bank makes loans in 38 countries. “We are particularly proud to have increased the volume of our investments in the corporate sector to a record level,” said Matteo Patrone, the bank’s Kyiv-based managing director for the region.

Highlights are:

  • €450 million loan to Ukravtodor to build highways and support the anti-corruption and procurement reforms
  • €63 million loan to Ukrposhta for mobile postal vans and ‘green’ sorting hubs
  • Procurement of 400 trolleybuses for 12 cities
  • €25 million loan to UkSATSE to help the air traffic control agency survive the Covid collapse of air travel
  • €93 million to support small and medium-sized enterprises, or SMEs.
  • Loans to a host of Ukrainian companies, including: Novus Group, Fozzy Group, Astarta, Agrofusion, Enzym, Grain Alliance, Kormotech, Nibulon, ArcelorMittal, Galnaftogaz, Scalar, and AllSet.

With unpaid debts to solar and wind power producers tarnishing Ukraine’s investment image, Prime Minister Shmygal yesterday instructed his government to prepare ‘green bonds’ to repay the debt. He told the Cabinet: “I ask the Ministry of Energy together with the Ministry of Finance, the Ministry of Economy with the participation of state banks and international financial organizations to work out the possibility of issuing ‘green’ bonds.” By appealing to state banks, the Prime Minister seemed to be calling for local hryvnia bonds, ruling out Eurobonds. ‘Green bonds’ raise money for climate and environmental projects.

On Monday, energy regulators decided on a 50:50 split on a $360 million loan from state banks to Ukrenergo, the state power transmission operator. Coming from Ukreximbank, Oschadbank and Ukrgasbank, half of the money goes to pay overdue debts to renewable energy producers and half to Energoatom, the state nuclear power plant operator. For renewables, this $186 million only represents 23% of total overdue debt the government is legally committed to repaying by the end of this year. Since August, Ukrenergo’s tariffs almost doubled, allowing the company to stay almost current on new power purchases from solar and wind companies. However, Ukrenergo still faces repaying about $625 million in unpaid debt from 2020.

Europe’s Green Deal is part of a global trend that Ukraine can only ignore at its peril, acting Energy Ministry Yuriy Vitrenko warned in an essay posted on his ministry’s website. If Ukraine drags its feet on joining the trend, he writes, it will lose competitiveness and eventually confront barriers to exports to the EU. The European Green Deal calls for cutting greenhouse gas emissions by 22% during the 2020s and making Europe climate neutral by 2050.

In Washington yesterday evening, President Biden signed an executive order allowing the United States to rejoin the 2016 Paris Agreement. The agreement sets goals to cut greenhouse gas emissions to slow climate change.

President Zelenskiy invited President Biden to Kyiv, a city he visited five times as Vice President. “Watching the inauguration of the new U.S. President,” Ukraine’s President tweeted yesterday. “I will be glad to welcome Joe Biden in well-known Kyiv. I am sure our relationship will be enhanced.”

Ukraine wants to be a major producer and supplier of hydrogen to the EU, largely by using its existing east-west gas pipeline system, Prime Minister Shmygal told an interdepartmental group on coordinating with the European Green Deal.  “We aim to implement the European Green Deal together with the EU,” he said Tuesday. “It is important for us to be early… and to receive support of the economic transformations in Ukraine from the EU.”

Ukraine should adopt fair, free, and clear market rules to take advantage of the growing investment boom in renewables, Maxim Timchenko, CEO of DTEK, wrote Monday in a World Economic Forum essay titled: “Ukraine must work with leading nations to build sustainable energy markets.” Worldwide, annual investments in renewables may triple by 2050, from the current level of $300 billion, writes Timchenko, CEO of a company that has invested $1.5 billion over the last three years in wind and solar in Ukraine.

Ukraine’s February 1 re-imposition of price controls on gas “can be called a big step backwards,” warns Janez Kopač, a Slovenian politician who directs the Energy Community Secretariat, the organization which brings together the EU and its neighbors, to create an integrated energy market. “If this measure continues only to the end of March, everything will be fine,” he said Tuesday at a remote conference organized by Kyiv’s Energy Club. “But if it lasts longer, it will put the gas market in jeopardy.” Adopted in response to this winter’s spike in gas prices, the 30% cut in prices is to last only until March 31.

Gazprom’s Nord Stream 2 Pipeline Faces Fresh Setbacks, headlines Bloomberg. The US placed sanctions Tuesday on the Russian pipeline vessel. At the Senate, Antony Blinken, President Biden’s nominee for secretary of state, said Tuesday at his confirmation hearing that the Biden Administration is “determined to do whatever we can to prevent” completion of the Germany-Russia pipeline.  And Gazprom warned bond investors that political opposition could make “implementation of the project impossible or unfeasible and lead to its suspension or cancellation.”

Ukraine is preparing to introduce ‘passports’ attesting to vaccinations against Covid-19, Viktor Liashko, Ukraine’s chief sanitary doctor, tells Ukraina 24 TV. Everyone who is vaccinated will be registered with Ukraine’s Health Ministry. He said the government’s goal is to give free vaccinations to every Ukrainian over 18 years of age. Yesterday, Ukrainian International Airlines appealed to the Health Ministry to end self-isolation requirements for people with vaccination certificates who fly into Ukraine from ‘red zone’ countries.

About half of Ukrainians say they will not take a coronavirus vaccine even if it is free. Rating polling group found that 52% of 1,600 adults interviewed last week would turn down a free vaccination. Support for free vaccinations fell to 43% last week, from 55% in November. At same time, fear of infection has also dropped to 40% today, from 57% in November. Compared to November, publicly registered infections have dropped by about two thirds, to 4,383 yesterday morning.

Editor’s Note: When vaccinations start next month, there probably will be a public information campaign featuring celebrities and political leaders getting the jab. Then, there may be inducements. In grade school, we got to choose our lollipop. After that phase, if herd immunity has not been attained, the government should start treating adults like…adults. No certificate, no seat in university – only remote learning. No certificate, no seat in airplanes – only a seat in a ‘special’ train wagon. No certificate, no table service in restaurants – only the park bench. Society has to make a rational choice on how much of a scarce resource – health care — should be allocated to irrational people who refuse to be vaccinated. Ukraine’s two tier health system – public and private – could add a third tier – ‘public no frills.’ For US soldiers returning from France in 1918 with the “Spanish” flu, no frills meant a cot in a tent with a nice nurse coming by three times a day with a bowl of hot chicken soup. The mortality rate was not good. 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