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Friday, December 4

Dnipro to Once Again Become the Mississippi of Ukraine…China Leads List of Partners for Free Trade Talks…Dragon Buys Site for Industrial Park Near Lviv…November Weekend Shopping Ban Cost Malls $250 million 
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

After 12 years of discussion, the Rada yesterday passed a river development bill designed to triple cargo carried on the Dnipro to 30 million tons by 2025. Ships will pass free through river’s six locks. To modernize the aging river gates, an ‘Inland Waterways Fund’ will be created, funded largely by excise taxes on fuel. During the late Soviet era, 60 million tons of cargo moved annually on the Dnipro.

A revitalised working river will generate an extra $500 million in economic activity, Infrastructure Minister Vladyslav Krikliy said on his Telegram account. He added that for each 1 million tons of cargo carried on the river, Ukraine can save $35 million in road repairs.

“All over the world, river transportation is the cheapest and most environmentally friendly way of delivering goods,” Artem Kovalev, Rada member and chief author of the law, wrote on Facebook. “Ukraine has a huge potential for the development of water transport, but now less than 1% of all goods are transported by the river (in the EU it is 7%). At the same time, the Danube and Dnipro are included in five largest rivers in Europe.”

Renewal of the Dnipro is expected to revive two Soviet era economic activities: shipbuilding and river cruise tourism. Due to global warming, the Dnipro’s ice-free shipping season seems to be expanding — to nine months. President Zelenskiy, a promoter of the bill, said he would sign the legislation soon. 

Ukraine wants to start free trade talks next year with a host of countries, led by its largest trading partner, China, Taras Kachka, Ukraine’s Trade Representative, told Evropeiska Pravda. “Currently, the access of our products to the Chinese market is subject to higher duties than Chinese products to us,” he said, referring to a trade relationship that totalled $9.4 through August. 

Ukraine would like to reopen and liberalise the UK-Ukraine agreement that was signed two months ago in London, a rushed deal designed to beat the December 31 Brexit deadline. Also on the list are countries with major trade deficits with Ukraine due to food exports: Egypt, Indonesia, Jordan, Morocco and Vietnam. The Ukraine-Israel free trade agreement enters into effect on Jan. 1.

Even without a UK-Ukraine trade pact renegotiation, Ukrainian food exporters are showing “great interest” in the expanded duty-free access to the British market, Foreign Minister Dmitry Kuleba told Interfax-Ukraine after a bilateral briefing on trade opportunities. Furniture manufacturers have gone on two trade missions to Britain recently, he said. He added: “ Even Ukrainian manufacturers of Christmas tree decorations are now interested in the British market.”

Helped by cheaper energy import prices, Ukraine’s trade deficit in goods is running at half the level of last year, reported the State Customs Service. Through November, the trade deficit was $3.93 billion, down from $8.15 billion recorded during the first 10 months of last year. Year over year, exports were down 3.5%, while imports were down 10.8%.

Dragon Capital has acquired Lviv Industrial Park located on a 23.5-hectare land plot on the M10 highway, 60 km east of the Polish border. Five years ago, CTP, the largest developer and operator of warehouses and industrial parks in Central and Eastern Europe, bought the site — the Czech company’s first foray into the former Soviet Union. For Dragon, the Lviv site complements their 49-hectare site on the Kyiv-Zhytomyr highway where an industrial park is in the planning stages. “We are ready to start construction of new Class A facilities in our industrial parks in the coming years,” says Dragon CEO Tomas Fiala.

The ban on shopping during three weekends in November cost Ukrainian shopping malls about $250 million, the Ukrainian Council of Shopping Centers told Interfax-Ukraine. The 30-40% drop in weekend sales was partially offset by 10-20% increases on Fridays, Mondays and Tuesdays. Epicenter, one of the nation’s largest retailers, lost 750,000 weekend visits and $35 million in weekend sales, says Vladimir Goncharov, Epicenter’s director of retail trade. The drop in sales will ripple through the economy effecting 5,000 suppliers, largely Ukrainian, and sales tax payments.

“Business without Barriers” is a movement promoted by First Lady Olena Zelenska to reduce the physical and psychological barriers that prevent people with disabilities from participating in the work force and society at large. A declaration of support was signed this week by representatives of: Ukrposhta, Oschadbank, Ukrzaliznytsia, Auchan, 1+1 Media, DTEK, Socar, work.ua, ATB, and Danone. Ukrzaliznytsia said it is making stations, platforms and trains easier for travellers in wheelchairs, the elderly and parents with small children.

DTEK says that almost 3,000 of its 70,000 employees have disabilities, “We are actively introducing the best services for our clients so that our services are as accessible as possible,” says DTEK CEO Maxim Timchenko. Yesterday, DTEK, the largest private investor in Ukraine’s energy sector, became Ukraine’s first company to join ‘The Valuable 500,’ an international movement dedicated to improving the integration of employees and clients with disabilities.

Editor’s Note:  Often shrouded in poetry and romance, the Dnipro also is a working river — Ukraine’s Mississippi. To the envy of Russia, the Mississippi and the Dnipro flow south carrying produce from vast agricultural lands to world markets, through the Gulf of Mexico and the Black Sea. By contrast, Russia’s rivers flow north, generally emptying into the Arctic. The Volga flows into the Caspian — also not very useful. In Ukraine, river infrastructure experts — from the Dutch to the US Army Corps of Engineers — have been standing by for the last decade, waiting for Kyiv to pass the bill that the Rada passed yesterday. A new decade may dawn as Ukrainians rediscover what the Vikings knew 1,000 years ago — the economic utility of the mighty Dnipro. With best regards, Jim Brooke

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Friday, November 20

Ze Promises to Meet IMF Demands...Big Eurobonds by Christmas?...Reform Face Big Setback At State Arms Conglomerate...Turkey Blocks Russia in the Region...Aid for Roads and Rail Will Cut Isolation of Donbas...US Gives Aid to Protect Shipping in the Azov
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 day after speaking with the IMF Managing Director in Washington, President Zelenskiy made a video call to the G-7 ambassadors in Kyiv and promised to deliver on the IMF’s checklist. By the end of December, he promises to restore criminal liability for officials who falsify their asset declarations, to keep Artem Sytnyk as head of the Anti-Graft Bureau, and to “resolve issues of the Constitutional Court.” The Rada returns on December 1st. It is not clear if the President has the votes to pass the necessary bills. IMF MD Kristalina Georgieva tweeted after her talk with Zelenskiy: “Full agreement on actions needed prior to program review.”

The EU is ready to provide €1.2 billion in aid to Ukraine – if Ukraine complies with a list of conditions similar to the IMF’s list. Matti Maasikas, head of the EU delegation to Ukraine, tweeted this message yesterday after meeting with Yuriy Aristov, head of the Rada Budget Committee. Maasikas said: “The fiscal challenges facing Ukraine are huge, and the EU is ready to provide macro-financial assistance under well known conditions.”

Concorde Capital’s Evgeniya Akhtyrko writes of Zelenskiy’s Tuesday night call: “The key question: is what was the purpose of the call? Considering that no IMF tranche will emerge in the nearest couple of months, and amid the high financing needs of Ukraine’s state budget till the end of 2020, we believe this was a cheer up call for Ukraine’s potential external lenders. Namely, we continue to expect the government will try to market a new Eurobond soon.”

Western joint production ventures with UkrOboronProm units will not be possible if the new Ministry of Strategic Industries succeeds in stopping reform of the nation’s arms industry, the UkrOboronProm’s reformist management warned in a public statement yesterday. “The Ministry has been systematically blocking the UkrOboronProm and defense industry reform for three months,” UkrOboronProm’s management wrote of the new Minister, Olehy Uruskiy, a 30-year veteran of Ukraine’s defense industry.

Separately, Mustafa Nayyem, UkrOboronProm’s Deputy Director-General, wrote Wednesday on Facebook of what looks like another counter-revolution for Ukraine. Of the takeover by the new Ministry last summer, he wrote: “We agreed in the hope of finding partners and like-minded reformers. Unfortunately, that was not the case. Instead of partnership, we faced systemic protraction in the development of strategic documents, the blocking of our draft bill and the reform as a whole.”

This critique was echoed by Canadian-American arms expert Lada Roslycky who wrote  on Wednesday in Vox Ukraine that the new Ministry of Strategic Industries is a “communist construct dating back to Soviet times.” With only seven employees, this ‘super ministry’ seems designed to block reform and exploit lucrative opportunities in a notoriously corrupt industry, critics charge.

While Western companies stay on the sidelines, Turkish arms manufacturers build joint ventures with Ukraine for drones, surface-to-air missile systems, military communications, tank protection systems and corvettes, Can Kasapoglu wrote in The Jamestown Foundation a piece titled: “Turkey and Ukraine Boost Mutual Defense Ties.” “Turkish-Ukrainian strategic ties look poised to bring about a new geopolitical reality in the Black Sea region,” Kasapoglu writes from Istanbul where he directs defense programs at the EDAM thinktank. Comparing Ukraine’s cooperation with Turkey to that of Israel and South Korea, he concludes: “Ukraine stands to become another important partner of this type, but with the additional political-military value of helping Turkey counter-balance Russia in the Black Sea.”

Azerbaijan’s victory in the 44-day war with Armenia thrusts Turkey into the spotlight as an increasingly muscular regional player, Taras Kuzio, a Kyiv-Mohyla Academy Professor, writing for the Royal United Services Institute for Defence and Security Studies. “Ukraine and Azerbaijan are longstanding pro-NATO and pro-Western former Soviet states in a contested region which Russia demands the West recognises as its exclusive sphere of influence,” he writes for the venerable London think tank. “While the Azerbaijani–Turkish alliance has passed an important test of endurance, Turkey’s development of a new strategic alliance with Ukraine is in its embryonic days.”

UIA will resume flying to Yerevan, Armenia on December 4th. Flights were suspended two months ago because of the war between Armenia and Azerbaijan over Nagorno-Karabakh, about 250 km to the east of Yerevan. On November 10, a Moscow-brokered ceasefire stopped the fighting. Russian military peacekeepers and Turkish military observers are to monitor the ceasefire.

Rebuilding roads in Ukraine-controlled Donbas is the goal of a two new soft loans totaling €155 million, reported the Infrastructure Ministry. The World Bank is lending $65 million as part of its project: ‘Eastern Ukraine: Reunification, Restoration and Revival.’ The European Investment Bank is lending €100 million also largely for road repair and construction.

To further reduce the isolation of Luhansk and to protect the new roads, the Rada’s Transport Committee endorsed the construction of a rail line that would connect a 250 rail line in eastern Luhansk that is cut off from Ukraine’s rail system. Largely useless today, line runs south from the Russian border, near Lantrativka to Kondrashevskaya-Novaya and on to Russia-controlled Luhansk. Earlier this year, France offered to finance €100 million worth of railroad construction in Ukraine-controlled Luhansk.

The US is giving $4 million in aid to bolster Ukrainian Sea Guard units in Berdyansk and Mariupol. The US Embassy Twitter feed said: “The new equipment will help the Marine Guard deter and respond to aggression in the Sea of Azov around the clock.” The Sea of Azov is a binational body of water. After Russia opened the Kerch Strait Bridge in May 2018, Russian border control forces started stopping and delaying civilian ships going to Ukrainian ports. Last July, Washington approved the sale of up to 16 Mark VI patrol boats to Ukraine. The boats are designed to patrol coastal areas. The Sea Guards are part of Ukraine’s Border Control Service.

Through October, Mariupol port has handled 5.1 million tons of cargo, up by almost 10% over the level for the first 10 months of last year. Taking advantage of rail freight incentives to use the port, shippers sent 26% more ferrous metals and 35% more grain, reported the Sea Port.

Editor’s Note: Three weeks after the head of the IMF clearly asked President Zelenskiy not to touch the National Bank of Ukraine, he purged the central bank. Now, six month later, the president is back, asking the IMF for help. Bulgarians and Ukrainians know each other. There is not a lot of razzle dazzle the 42-year-old performer from Kryvyi Rih can use to impress the stolid, 67-year-old economist from Sofia. (She may listen on the phone, thinking: ‘I’m old enough to be your mother!’) With the IMF apparently in no rush to send more Western taxpayers’ money to Ukraine, the logjam may last until Joe Biden focuses on Ukraine — and unleashes his long-awaited tough love. With Best Regards, Jim Brooke

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Thursday, November 19

Government Bets on Weekend Lockdowns to Stop Rising Corona Rates...IMF Chief and Zelenskiy Talk on Phone, Online Review Mission to Start Next Month...Solid European Support for Ukraine Joining EU...Higher Education: a Growth Export for Ukraine
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

Although Ukraine is recording record corona infections and deaths, the government believes weekend lockdowns will be enough to stop the nation’s rising infection rate. The nation is recording about 12,500 new infections a day. Without the Saturday-Sunday lockdown, the infection rate would jump by 50% to 20,000 new infections a day; Prime Minister Shmyhal told a government meeting yesterday.

With shopping centers closed last weekend, ‘mobility’ dropped by about 25%, said Viktor Lyashko, the deputy Health Minister. He says a well-enforced lockdown this weekend, could cut ‘mobility’ by 50% from normal levels. Even cutting mobility by 25% can cut transmission by two-thirds, Shmyhal said.

Last weekend, a string of big city mayors defied the lockdown. Whilst National Police who work for the Interior Minister,  shut down and fined 2,400 establishments, many of them in cities boycotting the lockdown call. Yesterday, a Rada bill to stop the weekend lockdown failed to get enough votes. Starting this weekend, PM Shmyhal has asked banks to close many of their branches.

Speaking to Reuters yesterday, Health Minister Maksym Stepanov said that he believes Ukraine can get to the Christmas holidays without a total lockdown. However, he warns: “The winter, in my opinion, will be very severe in terms of morbidity and the number of seriously ill.” Due to better treatment, the death rate for Coronavirus patients in Ukraine has fallen to 1.8%, down from 2.9% in the spring.

IMF Managing Director Kristalina Georgieva tweeted yesterday about Ukraine: “Constructive call with President Zelensky on IMF program implementation, Central Bank independence and anti-corruption efforts. Full agreement on actions needed prior to program review.” Ukrainian officials said the upshot of the call would be an online IMF review of Ukraine’s IMF standby agreement next month and disbursement of a second tranche in the first quarter of 2021.

President Zelenskiy said after the Tuesday night call: “To date, all the structural beacons provided for the revision of the IMF program have been fulfilled.” Zelenskiy assured the head of the IMF that his government is countering moves by the Constitutional Court to abolish anti-corruption agencies designed with Western help since 2015. Zelenskiy tweeted: “Our teams enjoy strong trust & work closely to welcome the IMF mission ASAP.”

Deputy Finance Minister Yuriy Draganchuk told Korrespondent.net that there are no “formal preconditions for not giving us a tranche or sending a mission.” However, he added: “They look at the general situation in the country, which is not entirely positive now. The [Constitutional] Court does not represent our country in the best light and, indeed, may send some negative signal to the IMF. I hope that joint efforts will resolve the constitutional crisis.

Veteran British financial observer Timothy Ash was skeptical, emailing clients: “[I] cannot see IMF disbursements until the new US administration takes office and puts new focus on Ukraine.” Predicting that Ukraine could float 10-year Eurobonds at 7% yields, he said: “I assume the Ministry of Finance will use the phone call with the IMF MD to come to market very soon with a new Eurobond deal – and likely before a new IMF mission hits the runway/zoom button.”

Dollar-denominated bonds accounted for 85% of revenue raised on Tuesday at the Finance Ministry’s weekly auction. A total of $76 million 1.2-year dollar bonds went for 3.77%, up 15 basis points from one week earlier, the Ministry posted on Facebook. Yields also rose slightly for the hryvnia bonds, which netted the equivalent of $13.3 million. The 1-year hryvnia bond was the most popular, going for an average yield of 10.5%. Despite the higher yields, the Ministry raised slightly less than one third the amount of the previous week.

The Finance Ministry is not considering issuing hryvnia government loan bonds to help pay off the $800 million debt owed to solar and wind producers of electricity, Deputy Finance Minister Yuriy Draganchuk told Korespondent.net. “There will definitely not be government bonds,” he says of support for Ukrenergo. “There will be either state banks or international donors.” The American Chamber of Commerce in Ukraine supports a bill in the Rada which would allow issuing of additional government bonds by raising the state budget deficit by $700 million. Since July, the EBRD and the European Investment Bank have discussed participating in a settlement. They have not made public any decision.

University education is a major export for Ukraine. Last year, 80,500 foreign students spent $570 million here for tuition alone, reports the Kyiv Post. Adding food, lodging, airfare, and services, this spending could total $1 billion a year. Indian nationals account for almost one quarter of the students. Other major source countries are: Azerbaijan, China, Egypt, Israel, Morocco, Nigeria, Turkey, Turkmenistan and Uzbekistan.

55% of people polled in France, Germany, Italy and Poland support Ukraine joining the European Union, according to an internet-based survey of 4,000 people polled at the end of September for the New Europe Center. The top obstacle to Ukraine joining the EU is corruption, according to 43% of respondents. This was up from 33% five years ago. The portion of respondents who associate Ukraine with war is 12%, down from 49% in 2015. About 38% of interviewees support Ukraine joining NATO.

Due to the Constitutional Court’s October 27 decision that filing fraudulent asset declarations should be punished, the Ukraine’s new High Anti-Corruption Court said Tuesday that it was forced throw out its own conviction of a judge last year. Anti-corruption activists predict that at least four other corruption rulings will be thrown own. Over the last 10 days, the Anti-Corruption Court dropped investigations against two more judges and against the mayor of Odesa, Gennadiy Trukhanov.

Concorde Capital’s Zenon Zawada writes: “This is yet another negative consequence of the scandalous October 27 ruling, which has been quite destructive, not only for Ukraine’s anti-corruption infrastructure but also its image among its Western sponsors… many critical convictions – intended a signal to deter others – will be lost forever.”

The Rada lacks the political will to approve bills that world restore the electronic declarations or deal with the Constitutional Court, a body determined to dismantle much of the Europe-oriented institutions adopted since the 2014 Revolution of Dignity, the parliament’s deputy speaker Olena Kondratiuk told ICTV ‘Freedom of Speech’ program. “Unfortunately, now there is no political will in the parliament to pass any bill concerning both the return to electronic declaration […] and the reconstruction of the Constitutional Court,” she said, predicting that any action will be deferred until Dec. 1.

“Now you’ve got to put people in jail,” Joe Biden recalls in his 2017 memoir saying to Prime Minister Arseniy Yatsenyuk. Then Vice President Biden made the exhortation in a speech to the US-Ukraine Business Forum on July 13, 2015.

Editor’s Note:  A couple of years ago, Krzysztof Siedlecki, the gregarious Polish president of the European Business Association, liked to tell Kyiv audiences that Ukraine’s war on corruption was: ‘Like watching sport fishing on TV.’Pause. ‘Catch and release… Catch and release….’ Har har. Since then, the EBA presidency has rotated. But Ukraine’s sport fishing traditions continue unchanged. With Best Regards, Jim Brooke

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Wednesday, November 18

Western Reformers Purged from Defense Agencies...Hopes Fade for Foreign JVs...Nova Poshta Hires 2,500 for Christmas and Beyond...Road Builders Hit 93% of Target...Open Skies Start Early Next Year...Western Watchers See Ukraine At a Crossroads
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

With the third departure in six weeks, the purge of pro-Western reformers from Ukraine’s defense industry continued with Monday’s abrupt firing of Volodomyr Usov, the head of Ukraine’s Space Agency. On Nov. 4, Oleksandr Los resigned as CEO of Antonov, ending four months on the job. On Oct. 6, Aivaras Abromavičius resigned as director general Ukroboronprom, the defense production conglomerate. All three men advocated ‘corporatization,’ or the creation of smaller, profitable companies to save an industry starved by lack of budget funds.

By creating transparently run companies, the directors hoped to open doors to join ventures with foreign, NATO-standard companies wary of getting tarred by corrupt practices at state defense manufacturers. Usov was fired four days after he signed the Artemis Accords, a US-led alliance of Western space programs which has the goal of landing “the first woman and the next man” on the Moon by 2024. “Congratulations to Ukraine!” the US Embassy tweeted apparently unaware the Usov was about to be fired. “On Nov 12, it became the 9th country to sign the Artemis Accords.” Russia harshly criticizes the program.

Behind the firings is Oleh Uruskiy, a Soviet-trained, three-decade veteran of Ukraine’s defense industry. Appointed First Deputy Prime Minister last summer, Uruskiy is creating a ‘mega-ministry’– the Ministry for Strategic Industries. This ministry is to include Antonov, the space industries and the two rocketry giants, Pivdenne design bureau and Pidvenmash factory.

Critics say modernization is stopping and new structures are opaque. “With the choice of this manager, Volodomyr Zelenskiy really made a mistake,” Ivan Sergienko writes in Lenta.ua. “Uruskiy is not only incapable of dealing with a rocket construction project, but also, in principle, of carrying out elementary things to launch the work of the ministry… of the declared 330 employees of the ministry, at the moment there are only seven people working – the minister, his deputies and advisers…The ministry is needed to block real reforms in the defense industry.”

The Chinese investors in Motor Sich have hired three well known international law firms to pursue their claim against Ukraine for $3.5 billion in compensation for being blocked from taking over the aircraft engine manufacture. As reported by their Ukrainian partner, DCH, the firms are: WilmerHale, DLA Piper and Bird & Bird. Arzinger will act as an advisor on Ukrainian law in international arbitration. DLA Piper was in the headlines last week when it was announced that one of their Washington partners, Doug Emhoff, will leave the firm next month to avoid conflicts of interest. He is the husband of Kamala Harris, who is to be sworn in as Vice President on Jan. 20.

With e-commerce booming, Nova Poshta is hiring 2,500 drivers, couriers and sorters. Although the hiring is for the Christmas rush, Alexander Bulba, CEO of the delivery company, says: “After the high season, new employees can stay on a permanent basis.” So far this year, Nova Poshta has opened 1,300 new offices in Ukraine, increasing its network by 22%, to 7,145.

With the first snow falling yesterday, Ukravtodor announced that it reached 93% of its target of rebuilding 4,200 km of roads during the 2020 highway construction season. Next year, the state highways agency plans to oversee the repair or rebuilding of 6,800 km of roads, almost 75% more than the amount completed this year. Ukravtodor CEO Oleksandr Kubrakov reports three main sources of money for this year’s roadbuilding: $1 billion from the Road Fund; almost $1 billion from the Stockholm arbitration with Gazprom; and $540 million from international organizations, such as the World Bank and the European Investment Bank.

Roads were paved in all 24 regions this year. Six were leaders: Kharkiv — 262 km; Zakarpattia – 248 km; Zaporizhia — 220 km; Sumy -197 km; Khmelnytskyi –194 km; Cherkasy 163 km; and Lviv 155 km. Next year, Ukravtodor plans to rebuild 150 bridges. Two big ticket projects start next year: Kyiv’s $3 billion ring road; and construction of a new $430 million bridge over the Dnipro, in Kremenchuk.

The number of foreigners entering Ukraine has plunged by 75% so far this year. Through September, 2.7 million foreigners visited Ukraine, down from 10.7 million during the first nine months of last year, according to the State Border Guard Service. Spending by foreign tourists is estimated to finish this year at 80% below last year’s level of $1.6 billion, forecasts the National Bank of Ukraine. Spending by Ukrainians for foreign travel is down by 55% yoy, to $3.3 billion through September.

The EU plans to sign an ‘open skies’ agreement with Ukraine in the first quarter of next year,  Katarína Mathernová, the European Commission’s deputy director-general for Neighborhood Policy and Enlargement Negotiations. First initialed in 2013, the deal was held up over the Britain-Spain standoff over Gibraltar airport. After Britain leaves the EU at the end of next month, the agreement can be signed.

Notable and Quotable:

“It’s not a coincidence the Constitutional Court decided to demolish anti-corruption reform right in the middle of an American election,” Daria Kaleniuk, executive director of the Anti-Corruption Action Center, tells Dan Peleschuk for a Slate article, “Don’t Forget About Ukraine.” The goal, she adds, is to “make Ukraine truly look like a failed state.”

“Oligarchs are further coopting Rada members, judges, and others to undermine the President’s agenda,” Kristina A. Kvien, US Embassy Chargé d’Affaires in Kyiv, said at the Ukraine Reform Conference, as reported by UNIAN. “Their primary goal is their own personal enrichment achieved by any means possible, including bribery, coercion, and even joining with outside forces that wish to see Ukraine’s Euro-Atlantic integration fail ultimately.”

“As US vice president, Biden was at the forefront of an anti-corruption reform agenda that aimed to facilitate Ukraine’s integration into the Euro-Atlantic community,” Peter Dickinson writes in an Atlantic Council blog, “What can Ukraine expect from a Biden presidency?.”  “Some hope Biden will now revive these efforts and help undermine an attempted counter-revolution that is currently gaining momentum in Kyiv with support from Ukraine’s pro-Russian political forces and the country’s oligarchs.”

Editor’s Note:  Half a century ago, US Attorney General John N. Mitchell told reporters: “You will be better advised to watch what we do, not what we say.” That advice backfired on Mitchell. He ended up spending 19 months in jail for Watergate crimes, partly unraveled by reporters from The Washington Post. But Mitchell’s advice stands the test of time. Here in Ukraine, President Zelenskiy resolutely faces West, while marching backwards — to the East. Starting with the March 3 Cabinet purge, the President has methodically removed most prominent pro-Western reformers. Last Thursday, the young IT entrepreneur running Ukraine’s Space Agency signed the moon shot alliance of Western space agencies, a project roundly criticized by Russia. On Monday, the space director is fired. Can anyone connect the dots? With Best Regards, Jim Brooke

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Tuesday, September 8

China Discusses Building Mammoth Black Sea Grain Terminal...Ukraine’s Exports Recover, Seaport Cargo Up 5%...First Wheat Shipment to Saudi Arabia...With Gas Glut, EU Traders Stuff Gas into Ukraine Reservoirs...Saakashvili Wants to Become Prime Minister of...Georgia
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

A Chinese state company is discussing building a massive Black Sea grain terminal that could handle 5 million tons a year, the equivalent of 10% of Ukraine’s corn and wheat exports. Yesterday, representatives of China Road Construction Corporation International Investment met with executives of Pivdennyi port, Ukraine’s deepest and busiest port. The project would represent a big expansion for Pivdennyi, located 45 km east of Odesa. Last month, iron ore accounted for 86% of the 1.5 million tons of cargo handled at the port.

Chinese container trains now arrive at Kyiv at the pace of one a week, reports Ukrzaliznytsia. Traveling 9,000 km from Nanchang in 15 days, the latest train arrived Saturday at Kyiv’s left bank Liski freight depot. Its 41 containers carried mineral fertilizers, lamps, bulbs, medical cargo and chemical components for filtering water. With three more container trains due to arrive this month, Ukrzaliznytsia is booking return freight of Ukrainian goods for China.

Ukraine seeks Chinese investment in industrial parks specializing in processing, storing and transshipping food, Olga Stefanishyna, deputy prime minister for European and Euro-Atlantic Integration, yesterday told China’s new ambassador to Ukraine, Fan Xianrong. Ukraine wants to increase food exports to China, and to use Chinese free ports to export to Pacific Basin countries, she said, reports the Cabinet of Ministers website. “To intensify cooperation,” her Ministry is establishing a working group with the Chinese embassy.

Through August, Ukraine’s seaports handled 5% more cargo than during the same period last year, reports the Ukrainian Sea Ports Authority. The 106 million tons of cargo breaks down as follows : exports +5.4%, to 81 million tons; imports +1%, to 16 million tons; transit +4.6%, to 7.3 million tons; cabotage +31%, to 1.6 million tons. The two main export product were nearly even: grain – 30.7 million tons; and metal ore – 30.2 million tons. Pig iron exports jumped 50%, to 2.3 million tons. Containers were up 9.2%, to 690,600.

Ukraine’s top five ports handled 91.5% of the nation’s cargo during the first eight months of this year, reports the Sea Ports Authority. Pivdennyi once again was the most dynamic, with its cargo levels growing by 25% yoy, to handle 42 million tons, or 40% of the nation’s total. This growth was at the expense of Ukraine’s next three busiest ports: Mykolaiv -10%, to 19.2 million tons; Odesa -7%, to 15.6 million tons; and Chornomorsk -1%, to 15.4 million tons. Strong growth was registered at the two Azov ports. Mariupol was up 21%, to 4.6 million tons. Berdyansk was up 33%, to 1.5 million tons.

Ukraine’s exports are recovering from last spring’s corona-recession. August exports were down only 1.6% yoy, “which in the context of a pandemic sounds like fantasy,” Taras Kachka, deputy minister of Economic Development, Trade and Agriculture, writes on Facebook. “International trade is recovering at a much faster pace than after the 2008 crisis.”  For the first eight months of the year, exports are down 6.6%, to $31 billion. With imports down by 12.4%, the trade deficit through August is $1.3 billion, about one third the level of the same period last year.

Ukraine exports of corn, wheat, and barley will drop around 9% yoy, to 51 million tons, in the current marketing season, predicts Grainmart, India’s first Grain Trading B2B online marketplace. Based near New Delhi, Grainmart draws on figures from the Ukrainian Grain Association.

Two years after Saudi investors bought Ukraine’s troubled Mriya Agro Holding, a shipment of 60,000 tons of Ukrainian wheat is on its way to Saudi Arabia. In the first such shipment to Saudi Arabia in 12 years, a Panamax carrying Ukrainian grain from Chornomorsk arrives Sept. 17. In 2018, Saudi Agricultural Investment and Livestock Company, or Salic, bought Mriya and merged it with its existing Ukraine farms under an umbrella company, Ukrainian Continental Farmers Group. Georg von Nolcken, general director of Continental, says: “This is certainly a good indicator and a clear signal of serious investment intentions of Saudi Arabia in Ukraine.”

Poisoned Russian opposition activist Alexei Navalny has improved, doctors treating him in Berlin say. He is out of a medically-induced coma, is being weaned off a ventilator, and “is responding to verbal stimuli,” the doctors say at Charité, the Berlin hospital where he is being treated. Germany’s government has asked Russia’s government to explain why Navalny was poisoned with a military grade poison. Reaffirmed yesterday, Chancellor Angela Merkel’s position is that Kremlin noncompliance with an investigation could force Germany to change its position on the $11 billion Russia-Germany Nord Stream 2 gas line.

Germany May Not Even Need the Nord Stream Pipeline Right Now, headlines a Bloomberg analysis from Berlin. “Europe is flooded with gas and demand is likely to remain stable,” reads the energy market analysis. “With storage sites in Europe almost full, the European benchmark contract has more than halved since its peak in 2018.” With the rise of wind and solar and increasing energy efficiencies, Europe’s gas demand is to remain flat for the next five years, predicts the International Energy Agency. “If Nord Stream 2 is delayed only until the early 2020s, there would be no big impact,” said Katja Yafimava, senior research fellow at The Oxford Institute For Energy Studies.

“Has Vladimir Putin Poisoned His Pet Pipeline Project?” Diane Francis, an opponent of the gas line, asks in an Atlantic Council Ukraine blog.

Ukraine’s natural gas imports jumped 67% yoy in August, as EU gas traders filled Ukraine’s gas storage reservoirs to a record 84% of capacity. Traders store their gas in Ukraine, waiting for the traditional autumn rise in prices as Europe prepares for winter. For its own use, Ukraine’s Naftogaz had 26 billion cubic meters in storage on Saturday, 39% more than one year earlier.

Mikheil Saakashvili was chosen yesterday to lead an 11-party opposition coalition in Georgia’s Oct. 31 parliamentary elections. If the coalition wins, the former Georgian president would become prime minister. If the coalition loses, Saakashvili presumably would return to his Kyiv job: chairman of Ukraine’s National Reform Council. Levan Varshalomidze, former governor of Batumi and a longtime ally of Saakashvili, also took a sabbatical last week from his Ukraine job, board chairman of UkraineInvest.

Traffic at Boryspil was down 60% yoy in August, to 656,029 passengers, reports the Center for Transportation Strategies. Traffic on charter flights was down by only 9%, indicating that Kyiv residents cling to their package tours to Egypt and Turkey. By contrast, traffic on regular flights – largely to the EU and North America – was down by 78%. Traffic is expected to be even worse in September because the government has closed Ukraine to most foreign visitors for the month.

From the Editor: In its usual dispassionate way (no adjectives, please!), Bloomberg picks apart Nord Stream 2 and concludes that there is no economic rationale for doubling the existing Nord Stream gas line,  until 2030, if ever. Donald Trump and Vladimir Putin drive toward the future while resolutely looking in the rearview mirror at yesterday’s fuel sources – coal, oil and gas. Better insight into the world’s energy future comes from checking this website: EcoTown.ua. Quantum leaps in renewable technologies are being followed by quantum leaps in renewable investments. Russia’s $11 billion Nord Stream 2 risks looking like its $50 billion Sochi Olympics – another pyramid built for the Czar. With Best Regards Jim Brooke

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Friday, September 4

German Politicians Oppose Nord Stream II...Kyiv Court Ruling Threatens to Unravel PrivatBank Nationalization...Gov’t Approves Road Map for Cutting State Ownership of Banks...Key Interest Rate to stay at 6% this Year...One Third of Kyiv Metro Riders Stay Above Ground...
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

Political pressure is mounting on German Chancellor Angela Merkel to freeze or drop the Russia-Germany Nord Stream II pipeline project, according to  Bloomberg and The Financial Times reports from Berlin. The game changer was a report by a German military laboratory Tuesday that said Russian opposition leader Alexei Navalny was poisoned Aug. 20 by Novichok, the same restricted use, military-grade nerve agent used by Russian agents in Britain in 2018.

At stake is a $9.5 billion, 1,222 km, trans-Baltic pipeline designed to take gas directly from Russia to Germany. Capable of carrying 55 billion cubic meters of gas a year, this is designed to end Russia’s dependence on Ukraine’s Gas Transportation System. From 2021 to 2024, Gazprom is contracted send 40 bcm year through Ukraine, earning Ukraine about $1.5 billion a year.

With Navalny lying in an induced coma in Berlin’s Charité Hospital, a 10-minute walk from the Bundestag, the mood inside Germany’s parliament building has turned sharply against the Kremlin.

“The EU should jointly decide to stop Nord Stream,” tweeted Norbert Roettgen, Head of the Bundestag’s Foreign Affairs Committee and a candidate to head Merkel’s Christian Democratic party. “The only language that Putin understands is the language of natural gas.”

Nils Schmid, foreign policy spokesman for the SPD, a junior partner in the Merkel coalition, said: “We need to make it clear that all talk of a strategic partnership with Russia is now over.”

Christian Lindner, leader of the liberal FDP party, said: “A regime that organizes murders by poisoning is no partner for big cooperative projects — and that includes pipeline projects.”

Katrin Göring-Eckardt, leader of the Greens in parliament, said: “Nord Stream 2 is no longer something we, together with Russia, can press ahead with.”

While Germans wait for Merkel’s move, Bild, Germany’s best-selling newspaper, calls on the Chancellor to “stop Putin’s pipeline.”

In Ukraine, Germany’s Ambassador Anka Feldhusen joined her G-7 counterparts yesterday to lobby Prime Minister Shmygal to defend PrivatBank against attempts to reverse the 2016 nationalization of the Ukraine’s largest bank. With EU and IMF support, $5.5 billion was injected into the bank in 2017, filling a hole left by what forensic auditors have called an orgy of insider lending and theft.

On Tuesday, a Kyiv court ruled that PrivatBank should pay $350 million – principal and interest – for deposits of six British companies owned by Ihor and Hryhoriy Surkis, two brothers who were business associates of PrivatBank’s former owners, Ihor Kolomoisky and Gennadiy Boholyubov.  PrivatBank lawyers said yesterday they will appeal, arguing that the brothers were related parties to the mismanagement of the bank. The Surkis and other depositors have filed hundreds of lawsuits suing for $1.2 billion.

We will challenge this decision,” Petr Krumphanzl, a Czech banker who is Board Chairman of PrivatBank, told Ukrinform. We will continue to seek justice for PrivatBank and Ukrainian taxpayers who are the bank’s ultimate shareholders.”

“One of the biggest transgressions in the history of the judicial power of Ukraine took place today,” Justice Minister Denis Malyuska wrote on Facebook. Noting that the judge’s name Vovk, also means ‘wolf’, he illustrated his complaint with a cartoon of a gray wolf happily carrying away a big bag of loot.

Alexander Danilyuk, Finance Minister at the time of the nationalization, warned on Facebook yesterday: “This is the beginning of the collapse of the results of the nationalization of PrivatBank.” He warned that if the lawsuits are not stopped, they could cost Ukraine’s government billions of dollars.

The Cabinet of Ministers has approved a strategy for steadily reducing the state share in Ukrainian banking, from 60% today, to below 25% in 2025. By the end of next year, all four state banks are to draw up road maps for the sale of public shares.

  • Ukrgasbank is to reach an agreement with the World Bank’s International Finance Corporation next month about converting last year’s €30 million loan into shares. Ukrgasbank will probably be the first state bank to be privatized.
  • Oschadbank should be privatized by 2025.
  • PrivatBank is to gradually shed government ownership.
  • Ukreximbank is to be matched with a minority investor, chosen by the Finance Ministry, with the long-term goal of privatization.

The Finance Ministry reported that Ukraine’s state-owned banks wrote off $1 billion worth of non-performing loans at the expense of reserves during the first half of this year. For state banks, non-performing loans account for 63% of their loan portfolios. As of July 1, there are 57,000 outstanding claims by state banks in courts to reclaim $1.4 billion in assets.

Almost overlooked in the furor of the Surkis case, Ukraine’s central bank met expectations yesterday and kept the prime lending rate at 6%. Dmitry Sologub, a deputy governor of the National Bank of Ukraine, predicted to reporters yesterday: “We expect the interest rate to remain at 6% by the end of the year.” Two months ago, when President Zelenskiy installed his candidate, Kyrylo Shevchenko, a central bank governor, many analysts thought the shakeup was made to lower interest rates this fall.

Now, Tim Ash and others are having second thoughts. He writes from London: “The reality is dawning that pressure to make management changes at the NBU was never really about monetary and exchange rate policy, but rather the durability of banking reform. The real battleground remains Privatbank. I think we got another hard lesson in that last night with the Surkis ruling.”

The central bank “expects an IMF [review] mission in the near future and plans to receive more money from the IMF by the end of the year,” Shevchenko, the Bank Governor told reporters yesterday. Ash reacted: “Very optimistic in my view given backtracking on banking reform and anti-corruption agenda. I cannot see an IMF mission before local elections in October.”

The Finance Ministry sold the Hryvnia equivalent of $102 million in bonds at this week’s auction – three times the borrowings of last week. The only bill that sold – a 13-month bond – went with a weighted average interest rate of 9.29%.

UIA is scheduling a direct Kyiv Boryspil – New York JFK – Kyiv Boryspil flight next Wednesday. With a one-way fare of $482, the Boeing leaves Kyiv at noon on Sept. 9. After a 2-hour turnaround in New York, the plane takes off again for Ukraine, leaving at 5:45 pm New York time. Tickets can only be bought through the UIA site.

Three months after the end of Kyiv’s full corona lockdown, daily metro ridership is about one million, down by one third from the pre-lockdown volume 1.5 million. Normally, the Kyiv’s subway system earns $10 million a month. Due to the spring lockdown and today’s week ridership, the Metro may run out of money to pay salaries next month, the transit system reports in an appeal to the Kyiv City Council for more money.

From the Editor: Putin may have gone a bridge too far in apparently trying to kill his chief political opponent Alexei Navalny. If today’s mood in Germany’s Bundestag translates into action, underwater archeologists may ponder this mystery a few centuries hence: What ancient civilization built an empty steel pipe running 1,200 km down the Baltic sea bed? Was it a religious totem? An attempt to communicate with extra terrestrial cultures?  With Best Regards Jim Brooke

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Thursday, September 3

Russian Gas Transit Volumes Dwindle...Greece, Romania, Turkey: New Gas Sources for Ukraine...Turkey, Ukraine Create Alliance For Defense Production...Glencore Buys Sunflower Oil Tank Farm and Terminal in Mykolaiv...Hot Weather Makes the Case for Irrigation in Kherson and Odesa...
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

Signaling the end of an era, the volume of Russian gas crossing Ukraine on the Soviet-era pipeline system is down 42% compared to the same January-August period last year. Under the Dec. 30 contract, Russia’s Gazprom committed to shipping 65 billion cubic meters across Ukraine, down from the 2019 level of 89.6 bcm. Gazprom is paying full freight, but it is only shipping 80% of booked capacity. Under the contract, Gazprom will ship even less starting next year — 40 bcm annually through 2014. For the last 30 years, Ukraine’s gas transmission system has been a big money earner – about $3 billion a year in fees.

The biggest drops this year are on Ukraine’s southern route to Moldova and Romania. On this ‘trans-Balkan route,’ gas shipments are down 73%, to 2.3 bcm for the first eight months. The game changer was the Jan. 8 opening of Turkish Stream. This line brings Russian gas up from the south, skirting Ukraine.

As Europe’s pipelines become increasingly inter-connected, ERU Trading, an American company, sent a test gas shipment in July from Revithoussa, Greece’s LNG terminal, on the Aegean Sea, through Romania to Ukraine. Hailing the possibilities of “the new gas transmission corridor Greece-Romania-Ukraine,” Yaroslav Mudryy, managing partner of ERU Trading, said: “Traditionally, gas and oil are exported from the East to the West, but our partners are interested in a new, unconventional approach.”

As part of this newly liberalized market, 72 traders – a mix of European and Ukrainian companies – parked a total of 8.2 bcm of gas in Ukrainian reservoirs this summer, waiting for the annual rise in prices in the fall. With 65% of gas coming into western Ukraine this summer going into storage for further transit, Serhiy Makogon, general director of Ukraine’s Gas Transit System Operator, said: This means that Ukraine is geopolitically and economically an interesting and profitable partner for Europe. Therefore, the GTS Operator will continue to work on the business development of its capabilities, including the direction of creating a European gas hub in Ukraine.”

Well prepared for the winter heating season, Naftogaz has stored 25.6 bcm of its own gas, 39% more than this time last year. By the Nov. 1 start of the heating season, Naftogaz may have a record 28 bcm in storage, 29% more than last year, Nafotgaz CEO Andriy Kobolev said Tuesday on Ukraina 24 TV. In last winter’s 4-month heating season, Ukraine consumed only 6 bcm.

President Zelenskiy has called Turkish President Recep Tayyip Erdogan to congratulate him on the discovery of a large natural gas field in Turkish waters off the Black Sea coast. Erdogan estimates the field at 320 bcm. This is the equivalent of 10 years of Turkey’s gas imports and 30 years of Ukraine’s imports. After the Turkish drilling ship, Fatih, made the discovery last month, Erdogan promised to start developing the field immediately.

Turkey and Ukraine are creating “a strategic alliance” for defense production, Oleh Urusky, Ukraine’s Strategic Industries Minister, tells Ukrinform. In late August, Urusky led a group that toured Turkish defense factories, met with defense industry leaders and met with Turkish President Recep Tayyip Erdogan. “We are actively moving towards a strategic alliance — aircraft construction, armor production, missile construction, electronic warfare, instrument making (opto-electronics) and engine building,” Urusky told Ukraine’s state-owned news agency. One project could be joint development of a strike drone fighter, with a Ukrainian turbojet engine. Turkey, a NATO nation, has a 430-year rivalry with Russia for control of the Black Sea.

Glencore, the agricultural commodities giant, has bought Everi, one of Ukraine’s largest vegetable oil export terminals. Built a decade ago in Mykolaiv, Everi was expanded in 2018 to have tanks capable of holding 160,000 tons  and a pumping capacity of 1.5 million tons of oil into seagoing ships for export. From the Netherlands, Glencore Agriculture Limited CEO David Mattiske said of the purchase from Orexim: “This acquisition reinforces our long term commitment to the agriculture sector in Ukraine.”

Qatar’s sovereign wealth fund, the Qatar Investment Authority is the biggest shareholder in Glencore. Two weeks ago, QTerminals, Qatar’s multinational port operator, signed a concession agreement to run Mykolaiv’s Olvia port, 15 km down river from the Everi terminal. Qatar Investment Authority is not a shareholder in QTerminals.

Dry weather and drought, especially in southern Ukraine, will cut this year’s grain harvest by 7 million tons, or 9% below last year’s bumper harvest of 75 million tons, Prime Minister Shmygal told the Cabinet yesterday. The ongoing corn harvest is coming in 1 million tons short. With corn expected to fall to 35 million tons, the Ukrainian Grain Association forecasts the nation’s total grain and oilseeds harvest will be 95.6 million tons, the second largest in Ukraine’s history. Exports will be 56 million tons.

Next year the government plans to channel “Big Construction” spending into “the creation of irrigation systems in the southern regions of Ukraine,” Prime Minister Shmygal told the Cabinet yesterday. “Such systems should increase yields and protect farmers from adverse weather conditions.” With temperatures rising in southern Ukraine, President Zelenskiy has called for rebuilding Soviet-era irrigation systems and creating new ones. The government estimates the drought cost Odesa farmers $235 million in lost crop receipts.

Starting this month, up to €120 million in loan money for rural infrastructure, including irrigation, is available for small and medium farmers in southern Kherson region. The money is part of a larger, €400 million rural lending facility extended to the area by the European Investment Bank, reports Stefan Rosenow, team leader for the project. Separately, the EBRD is working with the Ministry of Ecology and Natural Resources to modernize irrigation systems of the lower Dniester in Odesa region.

Today, the National Bank of Ukraine is likely to keep the prime interest rate at the current level of 6%, indicate separate polls of economists and bankers by Reuters and Interfax Ukraine. With a 5.9% increase in the minimum wage approved Tuesday by the Rada, analysts predict annual inflation will double, to 4.9% in December. Many forecasts “point to a significant acceleration of inflation over the horizon of 6-9 months,” Oleksiy Blinov of Alfa-Bank Ukraine tells Reuters. “This indicates a high probability of completion of the stage of reducing the discount rate in Ukraine.” From a recent high of 18% in April 2019, the prime rate steadily dropped, hitting 6% last June.

From the Editor: Look up “Russo-Turkish War” in Wikipedia, and you can take your pick between the First (1568-1570) and the Twelfth (World War 1). Obviously, modern relations are more complex. Turkey’s dependence on Russian gas is a restraining factor. But around the old Ottoman Empire, Turkey and Russia find themselves on opposite sides — in the civil wars of Syria and Libya. In the 2020s, it makes geostrategic sense for Ukraine to work closely with its large southern neighbor. Often underestimated, Turkey has twice the population and twice the GNP of the neighbor Ukraine normally uses as a reference point and ally – Poland. With Best Regards Jim Brooke

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Wednesday, August 2

Ryanair Cuts Most Flights Between EU and Ukraine...PM Sees 50% Jump in Ukraine Corona Cases...Antonov-Turkey Talks on JV for Cargo Jet...Pro-Russia MP’s Want Court to Turn Back the Clock...Honcharuk: Washington Think Tanker - Volker: Kyiv Train Engineer...
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

Ryanair, Europe’s largest low cost carrier, has canceled almost all its flights to Ukraine for the second half of September, the airline’s booking system shows, reports Evropeiska Pravda. With 52 routes from Ukraine to EU cities, Ryanair is moving preemptively ahead of EU regulations that require full repayment for tickets for flight cancelled within two weeks of travel dates. Ryanair’s booking system shows only a handful of flights between Kyiv Boryspil and Cyprus, Spain and the UK. There are no flights from the four other Ukrainian cities previously served by Ryanair: Kharkiv, Kherson, Lviv and Odesa.

UIA, Ukraine’s largest carrier, has cancelled or reduced frequencies for a long list of flights. Signaling that it believes that the ban on most foreign visitors will last until the Oct. 25 local elections, UIA is cutting its flight program through Oct. 24. Compared to the planned schedule, UIA seem to cut about half of its seats in and out of Ukraine this fall.

Kyiv hotel owners and tour guides protested last Friday outside the Cabinet of Ministers saying the new one-month ban on most foreigners entering Ukraine is a heavy blow to tourism, an industry which has struggled since the first Covid lockdown in mid-March. One Kyiv hotel owner told the UBN that he knows of three business groups that cancelled their trips to Ukraine this month. Inside the government building, a senior official said that legitimate business people arriving at Boryspil this month will be admitted.

Prime Minister Shmygal expects that within one month Ukraine’s Covid-19 cases will be 50% higher than today. “Today we have from 2,000 to 2,500 new cases of the disease every day,” he told 1+1 television channel yesterday. “By the end of September and early October, this figure will rise to 3,000 patients every day. This will load hospitals by more than 80%.” Government officials are talking about test trials for a vaccine in November and mass vaccinations in March. It is unclear where this vaccine will come from.

Ducking the issue: Ukraine’s Antimonopoly Committee has declined to consider an application by Kharkiv’s DCH Group to purchase Motor Sich shares from China’s Skyrizon to run the Zaporizhia aircraft engine factory as a Chinese-Ukraine joint venture. The decision was made public yesterday, five days after US Secretary of State Michael Pompeo called President Zelenskiy and warned about “malign” Chinese investment. DCH, which also makes tractors, complained that the Committee’s requested information “not related to the core business” of the jet engine maker. DCH asked: Can Motor Sich “potato planters, potato diggers, harrows, plows, cultivators, mounted rotary mowers” be attached to DCH tractors?

Concorde Capital’s Alexander Paraschiy writes: “The Antimonopoly Committee has been trying to avoid any decision on the Skyrizon / Motor Sich deal for about three years, and its latest move indicates it is trying to continue postponing the solution for as long as possible…such uncertainty might be harmful for Motor Sich’s future as a going concern.”

Kyiv’s Antonov is negotiating joint production with Turkey of its short range An-178 military cargo jets, reports Turkey’s Daily Sabah, a pro-government daily. Oleksandr Los, Antonov’s new CEO, visited Turkey last month for talks. Ukraine’s Foreign Minister Dmytro Kuleba tells CNN Türk that both governments “want to start more daring projects. Projects where Turkish and Ukrainian technologies are used together. These will be competitive projects in the global sense.”

Turkey’s new import tariffs on 115 goods are spurring Turkey and Ukraine to restart talks for a Free Trade Agreement. The two economy ministers, Ruhsar Pekcan for Turkey, and Igor Petrashko, for Ukraine talked week. Taras Kachka, deputy economy minister, writes on Facebook that he will travel to Ankara in coming days to advance talks. Two weeks ago, Turkey hiked tariffs by 15 to 20% for the goods that are non-EU.

In a key anti-corruption case watched by the IMF, Artem Sytnyk insists he is still director of the National Anticorruption Bureau, NABU. Last Thursday, days after NABU released audio recordings where judges appeared to discuss corruption plots involving including rulings Constitutional Court rulings, the Court ruled that President Poroshenko violated the Constitution five years ago, when he appointed Sytnyk as NABU director. Although President Zelenskiy now calls Sytnyk ‘acting director,’ legal experts say Sytnyk can only be removed by a Rada vote.

Concorde Capital’s Alexander Paraschiy writes Monday: “It looks like there is a high chance for Sytnyk to remain at his position till the end of his seven-year term, which expires in spring 2022.”

The Constitutional Court acted in response to a petition by 51 MPs, many of the same pro-Kremlin or pro-Kolomoiskiy Rada members, who successfully asked the Court to open five proceedings aimed at Ukrainian anti-corruption legislation, Tetiana Shevchuk, legal counsel at Ukraine’s Anti-Corruption Action Center, writes in a new Atlantic Council essay: “Pro-Kremlin MPs and Oligarchs Wage Lawfare on Ukraine’s Reform Agenda.” She writes of the Court decision on NABU’d director: “Anti-corruption activists fear the decision could now pave the way for a host of similar legal verdicts with the potential to undermine Ukraine’s Euro-Atlantic integration and reverse the progress made since the country’s 2014 Revolution of Dignity.”

Bonanza for TV stations and billboard owners: The Central Election Commission announces that campaigns for mayors and city councils officially start this Saturday. With the coronavirus pandemic ruling out large gatherings, advertising is expected to play a central role in campaigning leading up the Oct. 25 vote.

On the Move:

Former Prime Minister Oleksiy Honcharuk joins the Atlantic Council’s Eurasia Center as a distinguished fellow, the Washington-based organization tweets. The youngest prime minister in Ukraine’s history, Honcharuk, then aged 35, led the government during the first six months of President Zelenskiy’s five-year term. Zelenskiy dropped Honcharuk on March 4 as part of a wider purge of the cabinet.

Kurt Volker, who served until last September as the State Department’s Special Representative for Ukraine Negotiations, joined BGS Rail yesterday as an independent board member of the Kyiv-based car leasing company. Volker also will advise the chairman and board of directors of BGS’ parent company, Avia Solutions Group, a company of Lithuanian origins. In Ukraine, BGS, or Baltic Ground Services, has 3,000 wagons for transporting coal, iron ore and grain. Volker said in an Avia press release: “By working with Avia Solutions Group in its development of BGS Rail, I see an opportunity to strengthen Ukraine’s economy, build world-class services, and create jobs for Ukrainian citizens.”

From the Editor: The UBN is pleased to announce that CMS Cameron McKenna Nabarro Olswang Ukraine has agreed to sponsor the Ukraine Business News. It is great to see such a prestigious international law firm support independent business news in Ukraine, Europe’s next frontier market. With Best Regards Jim Brooke

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Friday, August 28

Belarus Economic Drop Could Hit Ukraine...US Cybersecurity Expert En Route Ukraine Arrested as Spy for Russia...After 100 Days, Saakashvili Quits Reform Council to Go Home to Georgia...Ze Promises Peace by Christmas...Facing Tonight’s Ban on Foreign Travelers, UIA Cuts 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

The standoff between Belarus’ long-running ruler and mass opposition may soon cripple the finances of Ukraine’s northern neighbor and fourth largest trading partner. In the last week, the Belarusian ruble weakened by 8.5%, falling to 2.67 to the dollar. Belarus’ foreign currency reserves are down to $4.3 billion –“sufficient to cover just 1.4 months of imports, while three months is considered the minimum,” economist Anders Aslund writes in a new Atlantic Council piece: “Belarus Crisis: Can Lukashenka Survive a Collapsing Currency?”

Strikes are affecting three of four key state companies — fertilizer makers Belaruskali and Grodno Azot and oil refineries Naftan and Mozyr. They account for two thirds of Belarus’ exports to the West. “A prolonged strike at any of these four state-owned companies would collapse Belarusian export revenues and the Belarusian ruble, bringing Lukashenko to his knees,” writes Aslund, a Swedish-American economist with three decades experience in the ex-USSR. “If the currency collapses, the real strife will start.”

Ukraine is Belarus’ second largest trading partner, after Russia, Dmitry Chervyakov, a consultant with Berlin Economics, tells the Kyiv Post. Last year, Belarus exported $4.1 billion in goods to Ukraine and imported $1.7 billion. Ukraine bought four million tons of diesel and bitumen from Belarus for $2.4 billion and fertilizers for $300 million, largely from Belaruskali, the potash producer. Many of Belarus’ imports from Ukraine are transshipped to Russia to skirt bilateral Russia-Ukraine trade bans.

Lithuania is preparing to route Ukraine-bound trucks through eastern Poland if traffic disruptions start in Belarus, Yaroslav Narkevich, Lithuania’s Minister of Transport and Communications, tells Russian Railways Partner site. “We intend to discuss with Poland the option of returning our carriers through Poland, bypassing Belarus,” he said.  “So far there is no need to redirect the flow of trucks, but we are ready for this.” On Aug. 5, four days before the disputed Belarus presidential election, Ukraine’s Cabinet of Ministers had approved for Rada debate a liberalization law that would abolish the need for international trucking permits for Belarus-Ukraine trade.

Ukraine has “tightened control” at Ukraine-Belarus border crossings in wake of Lukashenko’s charges that Ukraine is trying to destabilize his regime. “We have tightened control at the border with Belarus, since the situation in this country is quite turbulent,” Border Guard spokesman Andriy Demchenko told RBK-Ukraine.

Starting Tuesday, Ukrainians can only enter Belarus with a foreign passport, reminds Ukraine’s Border Guard Service. A similar rule went into effect six months ago for travel to Russia. The government is trying to phase out the domestic passport paper booklets, which are easy to counterfeit.

In an open letter signed by more than 2,500 Belarusian IT CEOs, investors and developers, democratic normalcy is essential for the future of the industry in Belarus. Otherwise, they warn: “In the near future, we will begin to observe a massive outflow of specialists abroad, the opening of offices in neighboring countries, a slowdown in the growth of the IT sector, a decrease in investment in Belarusian IT companies, and a decrease in tax revenues.”

Japanese-owned tech company Rakuten Viber has closed its office last week in Minsk. San Francisco-based Rakuten CEO Djamel Agaoua cited violence against employees in Minsk. Kharkiv and other Ukrainian IT centers are recruiting Belarusian developers to move to Ukraine.

The day before he was to fly to Ukraine, a former US Army Green Beret captain was arrested and accused Friday of spying for Russia for the last 15 years. Peter Rafael Dzibinski Debbins, aged 45, had repeated meeting with Russia’s G.RU., or military intelligence, according to the Alexandria, Virginia grand jury indictment posted by The New York Times. By 2010, the Washington Post reports, Debbins had left the Army and was working for a Ukrainian steel manufacturer in Minnesota. Then his Russian intelligence agents encouraged him to get back into government work.

Last spring, Debbins taught a webinar for Ukrainian-American Concordia University. He was billed as an instructor for Cyber Intelligence Initiative of Washington’s Institute for World Politics. The course was titled: “How to Approach Enterprise Cybersecurity!” In a congratulatory YouTube video, he urges graduates to have “a hacker’s mindset.”

Russia’s Gamaredon hacking group has prepared “a large coordinated attack on government agencies and critical infrastructure” by sending out email attachments infected with malware, Ukraine’s National Security and Defense Council warned last week. The goal may be to disrupt the Oct. 25 local elections. Phony emails were made to look like messages from Ukraine’s State Security Service. Council Secretary Oleksiy Danylov warns: “Cyberthreats from the Russian Federation are extremely dangerous for both Ukraine and European countries.”

So far this year, one million cases of cyber threats — website attacks, DDoS attacks, phishing and malicious software – have been recorded by the National Coordination Center for Cybersecurity, a unit of the Defense Council. To respond to threats and prevent attacks, the Center is stepping up cooperation with private sector companies. Last month, it signed cooperation agreements with three dozen private foreign and Ukrainian companies.

The Zelenskiy government is tripling the number of state companies protected from privatization – to 659. The Cabinet of Ministers approved the new list Wednesday. It will now go to the Rada. Last year, the Rada abolished a similar list of over 1,000 companied exempt from privatization.

Former Georgian President Mikheil Saakashvili, a major free market force in the Zelenskiy government, announced yesterday that he is returning home to Georgia, reports Georgia Online.  “I know that we can live much cooler, much better, and every Georgian can be rich, and we can do it together!” he says in a video. “I’m coming back!”

Appointed three months ago to serve as chairman of Ukraine’s National Reform Council, Saakashvili felt the push of anti-reformers in the Zelenskiy government and the lure of Oct. 31 parliamentary elections in Georgia. Responding to negative reactions, Saakashvili posted on Facebook: “Some of my Ukrainian friends mourn my ‘farewell’ to Ukraine. I want to tell them: heads up! We will fight both in Georgia and in Ukraine! We will win there and there!”

In Tbilisi, Thea Tsulukiani, Georgia’s Justice Minister since 2012, promised to prepare a jail cell for the former president. In 2018, Saakashvili was convicted in absentia in two trials on charges stemming from his decade in office, from 2004 to 2013. The sentences handed down by Tbilisi City Court total nine years. Saakashvili and his supporters say the trials were politically motivated.

President Zelenskiy believes the current one-month-old ceasefire in the Donbas can be extended into a lasting peace by the end of this year. “I want to believe that it will be this year,” he tells Eurovnews’ Sasha Vakulina in a lengthy video interview. “I really want to believe it, and I DO believe, I do.”

Zelenskiy also asks European leaders to spell out the steps for Ukraine to join the EU. “I asked many European leaders this question – what do you want Ukrainians to do, step by step, to become an EU member?” he said in the interview posted Tuesday. Calling on Ukraine to speed up adoption of EU norms, he said: “We just have to become the country that Europe really would want.”

Travel companies plan to protest today the ban on incoming foreign travelers. The 1-month ban goes into effect tonight at midnight. Chornobyl tour operators, organizers of medical tourism, the Business Travel Association and owners foreigner friendly night clubs, such as Skybar, Closer and River Port, plan to gather outside the Cabinet of Ministers. Using the hashtag #OpenUkraineNow to coordinate the protest, the Association of Incoming Tour Operators says that after temperature controls started two months ago at airports, there are no known cases of infected tourists entering Ukraine. The ban is on nationals from all countries, not just the 65 countries deemed ‘red’ by Ukraine’s Health Ministry.

Kyiv Boryspil, Ukraine’s busiest airport, is installing this week a $37,000 temperature screening system that allows border guards to identify passengers with fever systems as they walk past a stationary camera. “It enables instant, non-contact temperature measurement of passengers from a distance,” the State Border Service said of the EU-donated equipment.

Noting that foreigners currently account for 60% of UIA’s passengers, UIA said yesterday it is cancelling flights in September between Kyiv and Athens, Barcelona, Berlina, Chisinau, Delhi, Geneva and Madrid. It will reduce frequencies between Kyiv and Brussels, Dusseldorf, Dubai, Istanbul, Paris and Tel Aviv. UIA CEO Yevhen Dykhne says the government ban “will have a negative impact on the aviation industry of Ukraine, which in the absence of any other state support in the crisis caused by the global pandemic, is economically weakened and is in critical condition.”

From the Editor: Assuming the US grand jury indictment is true, the Kremlin once again is playing a diabolical game. With one hand, Russia launches cyberattacks against Ukraine. With the other, it sends a compromised American to infiltrate Ukraine’s cyber security world.  It all reminds me of the gee whiz stories in the US financial press a decade ago about Eugene Kaspersky. This graduate of a KGB-sponsored technical college, amazingly, had reinvented himself as the CEO of rare Russian multinational. But in 2015, Bloomberg reported “high-level [Kaspersky] managers have left or been fired, their jobs often filled by people with closer ties to Russia’s military or intelligence services.” US government agencies quietly banned the use of Kaspersky cyber security and anti-virus software. With Best Regards, Jim Brooke

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Thursday, August 27 – Ukraine shuts its borders to foreign travelers for one month

Borders Close Tomorrow Night to Incoming Foreigners…Ukrainian Railways gets new CEO….MinFin Keeps Rates Low….More Loan Money for Small Biz….Zelenskiy Pledges help for Yuzhmash….Retail Up...Work Starts News Month on Dnipro Airport...
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 shuts its borders to foreign travelers for one month, starting tomorrow night at midnight. The major exceptions are: foreigners with Ukraine residence permits, diplomats, travelers in transit, students enrolling in universities, truck drivers and airline crews. The ban is designed to slow the spread of coronavirus, Prime Minister Shmyhal said yesterday after the weekly Cabinet of Ministers meeting. Starting Tuesday, the government bans discos, nightclubs and concerts in ‘green’ zones.

Ukraine’s Health Ministry has expanded its list of ‘red zone’ coronavirus countries to 65, adding Albania and Montenegro. Red zone countries have a 14-day infection rate higher than Ukraine’s level of 55/100,000 population. Travelers arriving from a red zone country must have full health insurance and undergo self-isolation until they test negative for the virus. The bilingual list can be found here.

With Ukraine’s schools scheduled to open on Tuesday, President Zelenskiy warned families to take precautions, noting that his 7-year-old son, Kyrylo, was hospitalized last month for coronavirus complications, along with his mother, Olena Zelenska. “No one is afraid of it until it reaches your family,” the president said. “I will speak plainly — this coronavirus is a real plague. There is no other word for it. My wife was affected, and so was my son.”

Law enforcement authorities in Chernivtsi, one of the country’s hardest hit red zones, decide to suspend the operation public transport, according to Ukrinform citing Deputy Mayor of Chernivtsi Dmytro. “Despite the decision taken by the city council, the police stopped and suspended public transport in Chernivtsi.”

Adamant Capital writes: Although Ukraine is currently displaying the highest amount of new cases on record, it seems unlikely that restrictions similar to those that have been introduced at the start of the pandemic are going to be reinstalled any time soon…the 2Q20 real GDP figure (-11.4% YoY) has demonstrated quite clearly the cost of an even relatively light lockdown and suggests that repeating the same scenario may be politically unaffordable unless the health crisis becomes dire.”

Volodymyr Zhmak will be the new CEO of Ukrainian Railways, the nation’s largest employer and a major economic player, the Cabinet of Ministers announced yesterday. Zhmak was previously a member of the Supervisory Board of the Boryspil Airport and has served as Deputy Chairman of the Odessa Regional State Administration. He also worked as an advisor to the president of Kyivstar, the Ukrainian mobile telephone company.

Passenger transport volume was down 41% yoy in July, reports ICU. In cities, transport was at 70-80% of last year’s levels. But rail was 38% of 2019 levels and air was only 18% of July 2019.

Retail turnover was up 8.5% yoy in July. However, wholesale trade fell by 6% yoy after the surge by 12% yoy in June, according to ICU.

Alfa-Bank Ukraine writes: “Retail trade provides a strong positive surprise in July. The sector accelerated to a growth of 8.5% y-o-y, already close to its pre-COVID trajectory. For comparison, we expected acceleration only to 3-4%…most of the unexpected boost was concentrated in the City of Kyiv, while many other regions indeed experienced less striking recovery in July…many residents of the capital stayed at home instead of spending abroad…This speculation is also supported by the fact that Odesa and Mykolaiv regions…were also the ones which experienced significant retail trade acceleration in July.”

The Finance Ministry placed UAH 816 million ($29.8 million) in 3-month local currency bonds at 7% and $31 million in 12-month hard currency bonds at 3.5%.

Concorde Capital’s Evgeniya Akhtyrko writes of Tuesday’s weekly auction: “The local bond market is in its traditional summer vacation lethargy. However, there is no guarantee that the next month will bring much of a revival to the market. The government is likely to have difficulty in its attempts to increase UAH auction receipts while keeping interest rates at the current level, as most market players apparently find them too low.

Prime Minister Denis Shmygal pledges $328 million more for Ukraine’s “5-7-9% affordable loan program” to prop up small businesses, the head of government announced on Facebook. He writes: “Small business owners need affordable resources to support their own business during the crisis. At the same time, there are new opportunities, so UAH 1 billion was spent on investment needs. We expect that this year we will have 7, 9 and even more billion hryvnias issued in the form of affordable loans for Ukrainian entrepreneurs.”

President Zelenskiy pledges support for Yuzhmash, the state-owned machine-building company that manufactures products for defense, aviation, agriculture, thermal power, and space industries. Visiting his native Dnipropetrovsk region, the President said: “We are ready to do everything possible to make Yuzhmash a Ukrainian brand and return the attention of various Western investors interested in its products.”

Construction on Dnipro airport’s new 3,000 meter runway will start next month, President Zelenskiy said yesterday on a visit to the city. Reviewing the tender schedule, he said: “I am sure that by the end of September we will see work on the airport.” Alexander Bondarenko, head of Dnipropetrovsk regional administration, added that DCH, the Kharkiv-based group, also will start work next month at the airport, building a new terminal.

Ukraine pays one of the highest electricity prices in Europe, according to the EU — €46.9  per MWh, while the European average was €33.5 per MWh. Countries paying the most are: Greece at €50 per MWh, Malta at €45 per MWh, Bulgaria €42 per MWh, Romania at €41 per MWh, Hungary and Poland €41 per MWh. The lowest are: Norway at €15 per MWh and Sweden at €17 per MWh.

Industrial output is down 4.8% yoy in July, according to the State Statistics Service. This represents a slight improvement from the 5.6% yoy drop recorded in June.

Food production is up 4.6% yoy in July, according to the State Statistics Service.

NBU board chairman Bohdan Danylyshyn says he thinks the disbursement of two tranches from the IMF in 2020 is unrealistic, Ukrinform reports. “Obviously, the baseline scenario of receiving two tranches by the end of this year – in September and December – is unrealistic. We can most likely expect the receipt of one tranche in the fourth quarter of 2020,” he says.

At the same time, Danylyshyn says “cooperation with the IMF will continue. Support from international partners remains one of the most important factors of macrofinancial stability in Ukraine. The planned revision of the program with the IMF, in my opinion, should be accompanied by a revision of the conceptual framework for cooperation and its focus on support for the national interests of Ukraine, not just international investors.”

Ukrbud’s unfinished construction problems are “basically resolved,” said Interior Minister Arsen Avakov. “The issue of Ukrbud is practically resolved, and I thank the city authorities and our colleagues for that, we worked here, found investors… And the issue of Ukrbud is practically removed from the agenda, and I believe that the last houses will be adopted soon.”

From Editor: I returned yesterday from my first trip to Turkey — a week on Aegean coast, between Bodrum and Ephesus. I come home to Kyiv frankly impressed with Turkey’s level of development. Turkey’s road builders are world famous, but it is a real pleasure to drive the four lane divided highways – and smooth side roads. I may have been on Turkey’s Gold Coast, but the country looks solidly middle class. Over the last decade, Turkey’s GNP per capita rose by 50%, to $15,000 today. By contrast, Ukraine’s official GNP per capita flat lined over the last decade, hovering around $3,300. Even if 40% of Ukraine’s economy is in cash, that would still make Turkey three times richer than Ukraine. Both countries had about the same population in 1990. Today, Turkey, with 84 million is at least twice as large. For linguistic, cultural, historic and religious reasons, Ukrainians naturally focus on Poland and the rest of Europe. But it would be well worthwhile for Ukrainians to study what their southern neighbor has achieved —  going from poverty to middle class in one generation. With Best Regards, Jim Brooke