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Wednesday, November 25

Reality Check: No IMF Aid This Year...Finance Ministry Raises Interest Rates to Sell Hryvnia Bonds...Capital Investment Drops 29%...Israel-Ukraine Free Trade Pact Starts Jan. 1...Looking Beyond Covid, SkyUp and New Airline Plan New Flights
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 will not receive any additional tranches of IMF low interest loans this year, Tymofiy Mylovanov, former Economy Minister and newly appointed advisor to the President’s office said Monday night on the ICTV’s Svoboda Slova program. Under the $5.5 billion agreement signed last June, Ukraine received an immediate loan of $2.1 billion. By the end of December, it was to receive two more tranches of $700 million apiece.

Last summer’s purge of the Central Bank leadership and the court rulings that undermined Ukraine’s anti-corruption agencies apparently turned off the IMF. Last month, the head of Britain’s M-I6 intelligence agency reportedly warned President Zelenskiy that his chief of staff, Andriy Yermak, is a Russian agent. Last week, the Kyiv Post published an interview with Stanislav Shevchuk, former chairman of the Constitutional Court, who charged that the Court’s “goal is to kill Ukraine’s Euro-Atlantic vector.”

While the IMF awaits a positive resolution of the Constitutional Court standoff, Mylovanov said Ukraine could get an IMF “staff-level agreement.” This could unlock billions in EU and World Bank aid as well as improve access to the international Eurobond market. To facilitate talks with the IMF, Zelenskiy plans to send Oksana Markarova to Washington as Ambassador. A veteran of several IMF negotiations, Markarova served as Finance Minister in early March when Zelenskiy unexpectedly fired her.

Adamant Capital wrote last night: “Key requirements seem to be some kind of progress on resurrecting the [National Anti-Corruption Bureau’s] powers and a balanced 2021 budget (deficit, in all probability, needs to be lower than the current 6% of GDP target). Given that the state is currently in dire need of financing (we estimate that at least $5.5 billion of extra cash will be needed by year end to fulfill expenditure obligations), we expect Zelenskiy to do everything in his power for this scenario to materialize.”

The Finance Ministry jacked up interest rates yesterday and increase its sales of hryvnia bonds 30-fold, compared to the week earlier. By raising yields by one percentage point, to 10%, the Ministry sold $245 million worth of 4-month bonds. By raising the yield by 125 basis points, to 10.25%, the Ministry sold $119 million worth of 6-month bonds. These two sales, accounted for 90% of the hryvnia sales. In addition, the Ministry auctioned off €157.7 million in 1.2 year bonds at 2.45%, up 23 basis points from the last similar auction.

The companies of Serhiy Tigipko’s TAS Group plan to issue about $70 million worth of bonds next year, about 95% in hryvnia, Roman Gorokhovskikh, the Group’s international projects director, told the Ukrainian CFO Forum last week in Kyiv. Bonds will take the same amount of time to prepare as bank loans – 3-4 months — but will offer cheaper money, he said. Rather than offer bonds for the group, TAS will offer bonds for individual companies, offering yields between 3% and 10%, depending on individual company ratings.

Capital investment dropped 29% yoy, to $9.5 billion, for the first three quarters of this year, reports the State Statistics Service. Self-financing by companies accounted for 69% of total capital investment. Other sources were: local budgets – 8.6%; bank loans – 7.5%; state budget – 6%; family savings for residential housing construction – 5.2%; and foreign investors – 0.5%. Last year, capital investment was up 11% over 2018.

The Israel-Ukraine Free Trade Agreement starts Jan.1, President Zelenskiy tweeted yesterday. “The ‘green light’ to the growth of Ukrainian exports, closer cooperation in the fields of high-tech, engineering, investment,” is how Zelenskiy described. Although Zelenskiy signed the agreement in August of last year, Knesset ratification was held up by three parliamentary elections in one year in Israel. Zelenskiy hopes the deal will double bilateral trade from last year’s level of $1 billion.

Ernst & Young, is to prepare a tender for the concession to a private operator of the rail-ferry complex at Chornomorsk port, Infrastructure Minister Vladislav Krykliy announced yesterday. The tender to upgrade and operate the terminal will be held by June and should generate commitments to invest at least $5 million, Krykliy said. Separately, the Ministry plans to put up for tender by December a concession to run the port’s container terminal. The Global Infrastructure Facility, a World Bank partnership with country donors, is advising and partly funding the tender process. Opened in 1962 as Illichivsk, Chornomorsk has ferry service with Poti, Georgia; Karasu, Turkey; and Varna, Bulgaria.

Concession projects also are planned for parts of these ports: Odesa on the Black Sea; Berdyansk and Mariupol on the Sea of Azov; and Izmail and Reni on the Danube. Three small, state-owned ports are to be put up for sale: Bilhorod-Dnistrovs’kyi, Skadovsk and Ust-Dunaisk.

Over the next three years, the government plans to oversee investments in upgrades at 14 regional airports: Cherkasy, Chernivtsi, Dnipro, Ivano-Frankivsk, Kherson, Kryvy Rih, Mykolaiv, Odesa, Poltava, Rivne, Sumy, Vinnytsia,  Zakarpattia, and Zhytomyr. In Zakarpattia, Uzhgorod airport is to be replaced, probably on the site of an old Soviet airbase south of Mukachevo. Due to be carried out with a mix of public and private funds, the 14 airports are on a list of 103 priority investment projects approved last week by the Cabinet of Ministers.

Looking beyond coronavirus, a new Ukrainian airline, Bees Airline, plans to start service next month, offering charter flights between Kyiv Sikorsky and Egypt’s coastal resort cities. Managed by Yevgeny Khainatsky, SkyUp’s former managing director, Bees has leased and painted yellow and black two Boeing 737-800 jets formerly used by UIA. Next spring, Bees plans to add two more Boeings and possibly fly to Georgia.

SkyUp Airlines plans to start flights from Kyiv Boryspil next spring to Berlin Brandenburg Airport. Opened one month ago, this new airport replaces Schönefeld, Tegel and Tempelhorf airports. On Dec. 27, SkyUp inaugurates service to Kayseri, Turkey. Last month, SkyUp launched its ‘City Break’ long weekend option with flights to Dubai.

Poland has agreed to allocate 5,000 additional permits for Ukrainian trucks, Minister Krikliy announced on his Telegram channel. Good through January 31, the offer comes after Ukraine charged that by cutting trucking permits for Ukraine, Poland was violating Ukraine’s liberalized trade agreement with the EU. Poland is short of truck drivers. By squeezing the permits, Poland tries to get Ukrainian drivers to drive for Polish companies.

Editor’s Note: Everyone is so wary of conspiracy theories these days, that they may be missing the big one staring them in the face. If reports filtering out of Britain’s MI-6 are to be believed, the President’s Chief of Staff, Andriy Yermak, is a ‘Russian asset.’ Shortly after Yermak took the post last winter, pro-Western ministers, agency heads and central bank governors were eased out — one by one by one. Then, if the former Chairman of the Constitutional Court is to be believed, the Court’s untouchable judges started a holy war on the main pillars of post-Maidan governments. On Monday afternoon, while watching the geese at the Rivne Zoo, I was reminded of that elementary dictum, valid for all junior detectives: “If it walks like a duck, if it swims like a duck, if it quacks like a duck, then maybe…” With Best Regards, Jim Brooke

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Tuesday, November 17

Ambassadors: Solar and Wind Debts Tarnish Ukraine’s Investment Image...Despite Debt and Rate Cuts, New Solar Projects Start Across the Nation...Ukraine’s GDP Rebounded in Q3...$110 Million for 10 Regional Airports Next Year
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 big debt to foreign investors in wind and solar energy threatens future foreign investment in other areas, the Ambassadors of 11 OECD countries warned Prime Minister Shmyhal in a letter Friday. Saying they represents companies and banks that invested more than €2 billion in renewables in Ukraine, the Ambassadors said the government now is “in breach” of the “voluntary” agreement reached last July with producers.

“To attract investors, and indeed to keep existing investors, Ukraine needs a stable and predictable business climate that builds confidence in Ukraine as an attractive investment destination,” reads the one-page letter signed by the Ambassadors of Britain, Belgium, Canada, Denmark, France, Germany, the Netherlands, Norway, South Korea, Sweden, and Turkey. “The extent to which Ukraine honors its commitments…will be noted by investors far beyond the renewable energy sector.”

With the overdue electricity bill estimated at $800 million, the Ambassadors said the government has not yet moved to use budget money to pay for 20% of the bill and to pay the rest through hryvnia bonds. Under pressure from bankers, about 50 renewable producers have sued to get their money from the Guaranteed Buyer State Enterprise, reports Censor.Net. On Nov. 4, the week after the local elections, the Rada approved on first reading a bill that would give state guarantees to Ukrenergo to allow it sell bonds.

Worldwide, production of electricity from renewable sources is to grow by 7% this year and capacity is to grow by 10% next year, International Energy Agency reports in its new forecast, “Renewables 2020.” “Renewable energy will become the largest source of electricity generation in the world in 2025, ending the dominance of coal as the main source of electricity generation for five decades,” says Fatih Birol, the Turkish economist who is executive director of the Agency.

In Ukraine, a surge of renewable projects pushed production of electricity from solar, wind, biomass up by 120% through August yoy, to 7.7 gigawatts, reports the Energy Ministry. Renewables share of national energy production increased to 8.1%, from 3.4% one year earlier. Electricity from nuclear power plants was unchanged – 53%. But electricity from coal-fired plans dropped to 32.4%, from 37% one year earlier.

Despite the overdue power bill and cuts in solar rates of 10-15%, new solar projects continue to be commissioned across Ukraine:

In Kyiv, DTEK Grids has connected its first industrial size solar plant atop an apartment building. Built by the Avrora Term Company the array atop a building in Troieshchyna has 1,200 solar panels and output of 330kW. Ivan Geliukh, DTEK Grids CEO, says that this year the company is connecting 75 industrial solar power plants for a total capacity of 566 MW.

In Izmail, on the Danube, UDP Renewables puts into operation this month two stages of Gudzovka-Solar, a €21 million, 24.4 MW investment. Mykola Tymoshchuk, CEO of UFuture, investor in UDP, says: “Despite the turbulent period in the industry and in the world at large, UFuture is systematically implementing its strategic plans and investments in Ukraine’s renewable energy.”

In Zhytomyr region, Naftogaz starts producing and selling electricity this month from its new 33.3 MW plant at Chudniv. Implemented by Naftogaz-Energoservice, the project is to be followed by more solar stations next year, says Serhiy Pereloma, first deputy board chairman of Naftogaz.

In Sumy region, Germany’s Nord Areal Energy GmbH has started construction of a 6 MW solar plant in Trostyanets. About 100km to the northwest in Bilopillya, the same German company plans to build a major wind farm, reports Panorama, a Sumy region news site.

Germany is offering to €20 million to a new, international fund to convert six single industry Ukrainian coal mining towns to new uses, Peter Altmaier, Germany’s minister for Economic Affairs and Energy, said last month after talks last month with Olha Buslavets, Ukraine’s minister for Energy and Environmental Protection. Choosing one town in the West and another in the East, planners believe Velykomostivska in Lviv has potential as a tourism center and a Donetsk mine known as “5/6” has potential as a technological cluster.

Ukraine’s economy rebounded in the third quarter, increasing by 8.5% compared to the disastrous second quarter, reports the State Statistics Service. In the second quarter, the economy plunged 11.4%, compared to the same period in 2019. But in July-August-September, the economy was down only 3.5% compared to the same period in 2019. Illustrating the vagaries of forecasts, the National Bank of Ukraine predicted last month that the economy was down by 6.2% in the third quarter.

Adoption of a transparently regulated taxi market in Ukraine would bring the business out of the shadows, allowing companies to help drivers buy or lease better cars, Georgy Sokolyansky, Uber’s development director for Central and Eastern Europe told an online discussion on the taxi market yesterday. Estimating that 90-95% of drivers are in the ‘shadows,’ he said legalization would ultimately create “100,000 jobs in Ukraine.”

Ukraine says Iran is dragging its feet on investigating the downing of the UIA passenger jet last January by not sharing information and not responding to requests for cooperation., Deputy Prosecutor General Gyunduz Mamedov tells Reuters. Iran has also rejected Kyiv’s calls for life sentences for the Revolutionary Guards officers responsible for shooting down the plane, killing 176 people. In advance of talks on Dec. 3, a governing panel at the United Nations’ aviation agency urges Iran to speed up its investigation.

About $110 million will be invested next year in 10 regional airports, largely for runway and navigational improvements, according to Kirill Khomyakov, head of Ukrinfraproekt, the State Agency for Infrastructure Projects. According to an Agency map posted by the Center for Transportation Strategies, the airports are: Kherson, Cherkassy, ​​Rivne, Vinnitsa, Uzhgorod, Ivano-Frankovsk, Chernivtsi, Poltava, Odessa and Dnipro. During the recent local election campaign, President Zelenskiy also promised to rebuild the runway at Sumy’s airport.

Editor’s Note:  For sophisticates who smirk at the sound of ‘Sumy Airport,’ faithful UBN reader Greg Perelman emails me a blast from Ukraine’s aviation past: the summer 1976 schedule for flights to seven cities from Zvenihorodka, Cherkasy region. “The prices were similar to the cost of bus tickets to the same destinations,” recalls Greg, now a Yale MBA living in the San Francisco Bay area. “I believe all of them were on An-2s – the same plane I flew from Korsun to Zhuliany in late ‘60s.” The round, rugged An-2 biplane was nicknamed the ‘kukuruznik’ — corn cob. With Best Regards, Jim Brooke

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Thursday, October 29

France Leads in Race to Supply Electric Locomotives...Ukraine Becomes EU’s Gas Station...PM Meets with IMF Europe Director...UIA Closes Offices...Rising Corona Infections Boost Remote Working...4G Now in Kyiv Metro
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

French Treasury financing may push Alstom over the top in the race to provide Ukrzaliznytsia with 205 electric locomotives for the 2020s, according to reports from a meeting Tuesday in Kyiv between Ukrainian officials and executives of the French rolling stock manufacturer. After meeting with Henri Poupart-Lafarge, CEO of Alstom, Arsen Avakov, Ukraine’s Internal Affairs Minister, said: “We have been working on the details of a common project with the French side for a long time and in the near future we can reach the signing of an intergovernmental agreement that will fully meet the needs of Ukraine.”

Both sides are to meet again next month to discuss what could be a €1 billion contract. President Zelenskiy stressed to the visiting Alstom executives the need to localize in Ukraine some of the locomotive production.

Ukraine starts the winter heating season this week with natural gas reserves at a record 28.4 billion cubic meters. And today’s level is 30% above the level of this time last year, also a record, reports Naftogaz. With a total storage capacity of 31 million BCM, Ukraine’s underground reservoirs are 92% full, also a record. In the seven months since Naftogaz started storing gas last spring, the state company increased stocks by 80%.

Europe’s gas glut this summer benefitted Ukraine as 79 EU traders used Ukraine’s new duty free warehouse regime to store gas in 12 underground reservoirs. This fall, gas stored in this customs regime hit 11 bcm, triple the level of 2017. With the five largest reservoirs within 160 km of  Hungary, Ukraine supplied Hungary with a record 9 bcm  this year. “Thanks to market reform, Ukraine became Europe’s indisputable storage hub in 2020 as markets were facing suppressed demand linked to the pandemic and an underlying supply overhang,” writes Aura Sabadus, a senior energy journalistfor London’s  Independent Commodity Intelligence Services, or ICIS.

Prime Minister Denis Shmygal met yesterday in Kyiv with Alfred Kammer, the IMF’s new European Director. “We are rapidly converging positions with the IMF,” Shmygal wrote on his Telegram channel. “We just had a productive meeting with our international partners from the Fund. Ukraine has made significant progress in fulfilling its obligations. Many thanks to Alfred Kammer and the IMF for the dialogue. Strong partnership with the IMF is a guarantee of Ukraine’s long-term stability.” There was no comment from the IMF side.

In one concession to the IMF, the Cabinet of Ministers yesterday removed restrictions on salaries to government officials and members of supervisory boards. Last April, the government placed a $1,700 a month cap on remuneration. This move prompted some officials to leave public service over the summer and others to seek under the table cash payments from the Presidential Administration.

The online registry of officials’ asset declarations was closed yesterday, due to a Constitutional Court ruling, said the National Agency for Preventing Corruption, the agency that maintained the registry. The Court ruled unconstitutional public access to officials’ declarations and the agency’s authority check officials’ declarations and lifestyle. The ruling also cancels penalties for officials who lie in their asset declarations.

In protest, Oleksandr Novikov, head of the anti-corruption agency, told reporters yesterday: “The Constitutional Court returns Ukraine not even to 2013, but to 1991, when there was no anti-corruption legislation at all…The court has canceled all anti-corruption tools developed since Ukraine became independent.”

In response, President Zelenskiy’s office said: “There are still corrupt politicians who cannot tolerate the fact that their lifestyle, property and income can be under control.”  The president assured: “Relevant tools in Ukrainian legislation will be kept or at least reinstated.”

The EU delegation to Ukraine reminded UNIAN news agency of the “huge EU assistance, including financial, in various fields, respectively is directly related to anti-corruption bodies, which work independently, effectively and free from political or other pressure.” Addressing the ‘unconstitutionality’ of Ukraine’s anti-corruption institutions, the EU Mission said it “will be ready to provide assistance in choosing ways to restore the necessary legal certainty.”

The Rada’s Freedom of Speech Committee was forced yesterday to restore the accreditation of reporters who work with, Anna Babinets, editor-in-chief of the investigative project, writes on Facebook.  Over the last year, the group has produced a series of reports alleging corruption by Rada members, prompting the Committee to pull the press credentials of its reporters. Public outcry forced a reversal by the committee which is chaired by Nestor Shufrych, from the pro-Russian Opposition Platform party.

Two new checkpoints between the Russia-controlled and Ukraine-controlled portions of Luhansk Region will open Nov. 10, according to a decision of the Trilateral Contact Group  — Ukraine, Russsia and the Organization for Security and Co-operation in Europe, or OSCE. For the last six years, there has only been one crossing in Luhansk, at Stanytsia Luhansk. Ukraine banned trade between the two sections of the Donbas in 2017.

UIA is closing its offices in Austria, Germany, Italy, Spain and Switzerland to save money. Last month, the airline, based in Boryspil, closed its offices in Belarus, Turkmenistan and Uzbekistan.

Pavel Ryabkin, general director Boryspil Airport, is to become Ukraine’s third Customs Service director in a year, according to reports from yesterday’s Cabinet of Ministers meeting. Later Finance Minister Sergei Marchenko told Interfax-Ukraine that he expects to quickly raise more money to help cover the government’s budget deficit and to continue the work of his predecessors to transform “Customs into a modern, transparent, efficient European standard service.”

Anatoly Fedorchuk, mayor of Boryspil, the Kyiv Region city that is home to Boryspil International Airport, died from Covid-19 on Wednesday three days after winning re-election. A new election will have to be held. Fedorchuk death came after a record 165 Covid-related deaths were announced for the 24 hour period ending Wednesday morning.

After almost 7,500 new cases were announced Wednesday morning, the Cabinet of Ministers decided to extend until Dec. 31 the emergency regime adopted last March to fight Covid. Prime Minister Shmyhal asked companies to switch to remote work to prevent the spread of the virus. He said: “I call on Ukrainian companies to switch to online meetings as much as possible so that we can create conditions for breaking the epidemiological chain.”

4G mobile service now covers 98% of Kyiv’s metro, according to a press release by the three participating cellphone companies – Kyivstar, Vodaphone Ukraine and lifecell. Yesterday, the fast service was extended to 23 stations. In December, Teremky, the southern Terminus of the Blue line, is to be last of the rail system’s 52 stations to connect to 4G. Already about one third of the system’s 800,000 daily riders are using the service, which averages 40 Mb/s. After starting in March, work is ahead of schedule in part due to the 2-month shutdown of the system last spring in an effort to block the spread of coronavirus.

Editor’s Note:  Turkeys don’t vote for Christmas. It’s entirely understandable why some judges don’t want anti-corruption bodies and some Rada members don’t want investigative reporters allowed into the Rada. But maybe Ukraine has been a little too understanding in recent years. After flying into Kherson Friday night, I was greeted by a large billboard outside the airport: “Work in Poland.” In one generation, Ukraine has lost 28% of its population. At Independence, Ukraine had 52 million people. Today, it has 37.3 million. That is a failing grade for post-Independence political leaders. Maybe it is time to give Ukrainians – and foreign investors — what they want: the rule of law. With Best Regards, Jim Brooke