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Monday, November 23

US-Trained Economists Return to Zelenskiy Government...Canada’s Poster Boy for Ukraine Investment Accuses Kolomoisky of Trying to Steal His Solar Plant...Corona Infections Double in a Month...Kyiv Now is in ‘Uncontrolled Outbreak’
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 clouds hanging over Ukraine’s deal with the IMF, President Zelenskiy is bringing back into his government two US-trained economists he let go last March – his former Finance Minister and his former Economy Minister.

Oksana Markarova, the former Finance Minister, has been nominated to serve as Ukraine’s next Ambassador to the United States. Trained in public finance at Indiana University, Markarova worked in the Finance Ministry for five years until she was let go in the mass cabinet shakeup of March 4. As Finance Minister for two years, she saw interest rates on foreign currency bonds fall to record lows for Ukraine — 2.22% in euros and 3.4% in dollars. Last January, Ukraine borrowed €1.25 billion for 10 years with a 4.73% interest rate, once again a record low rate.

A fluent English speaker, Markarova has participated in numerous negotiations with the IMF, World Bank and other foreign financial institutions. Foreign Minister Dmytro Kuleba reacted to press speculation that she was chosen to go to Washington to deal with the IMF, writing on Facebook: “The idea that Markarova is sent only to extort money from the IMF is a delusion.”

Tymofiy Mylovanov, the former Economy Minister, has been appointed as a “non-staff” adviser to Andriy Yermak, Zelensky’s chief of staff. After resigning from the Cabinet in March, Mylovanov has served as president of the Kyiv School of Economics and a Professor at the University of Pittsburgh.

Mylovanov, a University of Wisconsin-Madison graduate, is known for advocating forceful, generally free market policies. Two weeks ago on the Svoboda Slova program he advocated a hard lockdown to slow down coronavirus epidemic, saying: “We should close businesses and provide them with financing. But we don’t have enough funding now. So in essence, we need to print money.” Yermak, who is recovering from coronavirus, is seen as behind the purge of pro-Western reformers since March.

In another personnel change, the Cabinet fired on Friday Olha Buslavets, the acting Energy Minister, replacing her with Yuriy Boyko, her deputy at the Ministry. Buslavets had served as acting minister for the last seven months as the government did not have the votes to win parliamentary approval. Some media outlets and some Rada members accused her of acting in favor of Rinat Akhmetov, owner of several coal mines and electricity generation companies. Boyko, a longterm state employee previously was deputy director of Energorynok, the state-owned company that intermediated between energy producers and energy distributing companies, or oblenergos.

In a black eye for Ukraine’s investment image, a pioneer Canadian renewables investor is accusing Igor Kolomoisky and his business partners of trying steal a 10.5 MW solar plant. Built by Calgary’s TIU Canada, the plant was inaugurated in January 2018  and hailed as the first investment under the new Canada Ukraine Free Trade Agreement. Built largely to feed Kolomoisky’s Nikopol Ferroalloy Plant, the solar plant’s substation is on the Ferroalloy plant grounds. The Ferroalloy plant controls road access to the solar plant.

In the summer of 2019, Kolomoisky stopped paying the green tariff for solar and wind electricity nationwide. On March 1st, the Ferroalloy plant cut off TIU Canada from the substation. Later, in face to face talks with TIU Canada, Kolomoisky offered to buy the plant he had closed.  CEO Michael Yurkovich says in a press release sent Thursday’s to Canada’s financial press: “This is a clear case of oligarchs pressuring a foreign investor and trying to steal assets.” Noting that the cutoff has cost his company €1.5 million since March, he said: “We are mustering our resources and will fight this case in Ukraine, Canada, or any jurisdiction needed to win.”

The TIU Canada plant in Nikopol is one of several completed solar plants around Ukraine that are not functioning because of problems connecting with power grids, Artem Semenyshyn, Executive Director of the Solar Energy Association of Ukraine, told Interfax Ukraine Friday. He said: “It is very bad when we lose the already built “green” generation facilities, which are now idle and do not increase the share of clean electricity.” If the government does not work to hook up these completed plants, the portion of solar power in the nation’s energy mix could start to fall, he warned.

TIU Canada’s Vita Solar is one of several dozen small renewable companies that are suing for nearly $18 million from the Guaranteed Buyer, the state company that is obliged to buy power from renewable developers. By the end of next year, the Guaranteed Buyer is to pay almost $1 billion in overdue electricity bills. Two weeks ago the Rada passed at first reading a bill to extend state guarantees to ‘green bonds’ that the government would launch to cover the debt.

President-elect Biden will be well-positioned to help President Zelenskiy fight against corruption in Ukraine, The Washington Post wrote last week in an editorial titled: “Ukraine’s anti-corruption push is stalled. Biden can help get it going again.” “Mr. Biden…has been one of Ukraine’s best American friends, visiting the country five times while Vice President and strongly supporting its battles against Russian aggression and domestic corruption,” writes the Post. “A Biden Justice Department could also renew efforts to pursue criminal corruption cases against key Ukrainian oligarchs, including Dmytro Firtash and Ihor Kolomoisky, who have been instrumental in blocking reforms and in promoting Russian interests in Ukraine.”

Ukraine averaged 14,500 new coronavirus infections on Friday and Saturday – double the level of one month earlier. Starting Saturday, police have the right to fine people not wearing masks in public places – mass transit, underground passageways, stores, and public buildings. The fines range from $6 to $9. On sidewalks, masks are encouraged, but not obligatory.

Under the current regime of weekend quarantines, 17,000 to 33,000 people could die of coronavirus in Ukraine over the next five weeks, according to a forecast by the Kyiv School of Economics. As of yesterday morning, 10,951 deaths in Ukraine are attributed to coronavirus this year.

Nationwide Ukraine, an average of 27% of PCR tests for Covid are showing positive results. “Uncontrolled outbreak” is how Pavlo Kovtonyuk, head of the School’s Center for Health Economics, described the situation in Kyiv City and nine regions: Zaporizhia, Sumy, Kyiv, Volyn, Rivne, Ivano-Frankivsk, Zhytomyr, Khmelnytsky, and Chernivtsi. In, Kyiv Mayor Klitschko reported a record 1,213 new cases on Saturday morning.

Editor’s Note: In farming countries, like Brazil and Argentina, they say economies grow at night –because crops grow while politicians sleep. If you want to connect with the real producers in Ukraine, turn in this afternoon to the Ukrainian Agribusiness Webinar: “Adapting market strategies to uncertainty.” Presented by the Strategy Council and moderated by Larysa Bondarieva of Credit Agricole, the webinar will feature such agro experts as: Alex Lissitsa, CEO, IMC; Kateryna Rybachenko, CEO, Agro Region; Olena Vorona, CFO, Agrotrade; Volodymyr Bondarenko, CFO, CYGNET Agrocompany; Taras Vysotskyi, Deputy Minister of Economic Development, Trade & Agriculture; and Vladyslava Magaletska, head of the State Service for Food Safety & Consumer Protection. Register here for the 4 pm Kyiv time start. With Best Regards, Jim Brooke

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Monday, November 16

As EU Seeks Shorter Supply Lines, EBRD to Loan €200 million to Develop Ukraine Mining...Thanks to IT and China, Ukraine Has Trade Surplus...Kyiv Metro Ridership Drops 38%...Police Enforce Weekend Quarantine, Politicians Fight Personal Covid Battles
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

The EBRD is ready to loan Ukraine €200 million to conduct a nationwide inventory of mineral deposits and to prepare promising deposits for mining through transparent auctions of licenses, Prime Minister Shmyhal reports after online talks with Maroš Šefčovič, the European Commission’s vice president for Inter-institutional Relations and Foresight. After the coronavirus pandemic shook confidence in long distance supply chains, the EU launched last month the European Raw Materials Alliance. Last year, Šefčovič, a Slovakian diplomat, helped broker the new gas transit deal between Russia’s Gazprom and Ukraine’s Naftogaz.

As Europe’s largest nation, mineral-rich Ukraine could play a key role in ensuring EU security of supply. Citing the possibility of building a battery plant in Ukraine for electric cars and buses, Shmyhal said: “We are considering opportunities to develop approaches jointly with the EU to use Ukraine’s potential in the extraction industry to help the EU and together build globally competitive value-added production chains in Europe.”

Shmyhal told the Rada on Nov. 6 that proper development of mining could generate $400 billion in economic activity over the next decade. Ukraine has road and rail links with its four EU neighbors – Poland, Slovakia, Hungary and Romania.

Amber, gold, kaolin, and manganese are among the 11 mineral and groundwater deposits that go up for electronic auction Dec. 23, reports the State Service of Geology and Subsoil. The next auction will offer about 50 more sites, according to Roman Opimakh, head of the agency, known as Gosgeonadr. In the first year since electronic auctions became mandatory, the price of licenses increased 15-fold, earning the state about $28 million, Opimakh says.

With imports falling faster than exports, Ukraine recorded a $531 million trade surplus for January-September, compared to a $4.2 billion deficit during the same nine months last year.

For services, IT helped save the day as Ukraine’s balance of trade in this area showed a $4.4 billion surplus, reports the State Statistics Service. Compared to the first three quarters of last year, exports of services dropped by 12% to $8.15 billion, while imports fell by 26.5% to $3.7 billion.

For goods, China saved the day by increasing its purchases of Ukrainian goods by 86%, to $4.8 billion, and cutting its imports by 12%, to $5.8 billion. Overall, Ukraine’s deficit of  foreign trade in goods fell to $2.9 billion, less than half the level for the first three quarters of last year, $ 7.2 billion. So far, Ukraine’s exports of goods are down 5.6%, to $35 billion. Imports of goods are down 14%, to 38 billion.

Alexander Lukashenko, the self-appointed president of Belarus threatened Friday to cut off trade with Ukraine, reports BelTA, the state news agency. “You watch out because we could shut the border for goods coming from the Ukrainian territory,” he said, addressing Ukraine, which counts Belarus as its fourth largest trading partner nation. “And then you won’t be able to supply products to our market, you won’t even be able to process Ukrainian products in Belarus before supplying them to other markets, primarily the Eurasian one,” he said, referring to Ukraine’s transfer trade with Russia. Since declaring himself the winner last August of elections widely dismissed as fraudulent, Lukashenko has kept power through “A Reign of Terror,” The New York Times reported yesterday from Minsk.

In the five months since the Kyiv Metro reopened in late May, ridership is down by 38% yoy, to 132.8 million passengers, the subway system reports. The busiest stations are on the Red Line – Vokzalna and the two terminuses, Lisova and Akademmistechko. The Metro operates normally during the weekend quarantine. Face masks are mandatory.

With Ukraine reporting a record 12,524 new Covid cases Saturday morning, police fanned out across the nation, fining and closing businesses found violating the ‘weekend quarantine.’ By noon yesterday, the National Police reported inspecting over 17,000 businesses and closing 1,355. With only food stores and pharmacies allowed to work on Saturday and Sunday, two thirds of closings were of retail stops. The tally included six shopping malls and 416 cafes and restaurants. Epicenter, one of the nation’s largest retail chains, dropped its threat to remain open during the three weekend quarantines.

Retailers and regional politicians pushed back with at least eight regional capitals – or one third of the total — refusing to participate. In Lviv, Mayor Andriy Sadoviy, who faces a tight runoff vote this Sunday, declared that the city will have no weekends for the rest of November. “It is impossible to introduce weekend quarantine in Lviv, since we do not have days off,” he wrote on his Facebook page of the City Council decision. “If tomorrow someone tries to interfere with your work, show this decision…Our lawyers will help protect your rights.”

“Lviv has always been and is a city of small and medium-sized businesses, and 50,000 Lviv residents and their families can suffer from this decision,” he said, echoing the complaints of other mayors and governors. So far, he said, the pandemic has cost the city $35 million in lost taxes. A nationwide petition to President Zelenskiy demanding cancellation quickly received the needed minimum of 25,000 signatures.

The pushback comes as architects of the limited quarantine now wage their own personal battles with coronavirus. On Saturday, Health Minister Maksym Stepanov announced that he had tested positive for Covid-19. Also under treatment are: President Zelenskiy, his chief of staff, the speaker of the Rada, the first deputy speaker of the Rada, and the Finance Minister. ZN.UA reports that 14 Rada members and 31 Rada staffers now are sick. Since the start of the pandemic, the news site calculates, 75 deputies – or 18% of the total – have been hit by the virus.

In Kyiv, about 1,000 new infections are reported daily by Mayor Klitschko.In the eight months since the first case was recorded in Ukraine, almost 1,000 people have died of coronavirus complications in Kyiv. Klitschko and the mayor of Kharkiv, Gennady Kernes, both were infected before the Oct. 25 local elections. They both won on the first round.

At present, patients occupy about 60% of the 52,000 beds in the nation’s coronavirus wards. Although more beds are being added, only 38% of the 52,000 beds are equipped with oxygen. On Friday, the day before he tested positive, Health Minister Stepanov warned reporters: “If we fail to comply with rules, we may get 100% bed occupancy in a month.”

Editor’s Note: If mayors and governors want to play politics with slowing the spread of Covid, maybe the President should step on their oxygen hoses. No quarantine, no health money. Until mass vaccinations start, the only effective barriers are masks and social distancing. With Best Regards, Jim Brooke

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Wednesday, November 11

UZ To Increase Capital Investment 5-Fold...Rail Container Terminals to Go to Private Concessions... Oil Bill Falls by 37%, Cutting Trade Deficit...China’s Purchases of Ukrainian Goods Jumps 88%...Hard to Park? 281,000 Used Car Imports Hit the Streets This Year...Chornobyl Tourism
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

Ukrzaliznytsia plans to increase five-fold its investments next year in wagons, locomotives and track – to almost $1 billion, Irakli Ezugbaya, the new cargo director for the state railroad, told the Center for Transportation Strategies. Capital investments will stay at that level for 2022. In 2023, investments will make another jump, this time by 50%, to $1.5 billion.

International logistics companies will be able to manage UZ’s container terminals through long term concessions, Ezugbaya said in the same interview. “International logistics operators will be interested in these terminals, and they will help us to containerize cargo much better than Ukrzaliznytsia is doing now,” said Ezugbaya, who ran Georgian Railway LLC before joining UZ in September. “Ukrzaliznytsia, for its part, will provide appropriate platforms and route dispatches for organizing the movement of these containers.” The World Bank’s International Finance Corporation is advising UZ on preparing these public-private partnerships.

German logistics company Hamburger Hafen und Logistik AG, or HHLA, has set up a Ukraine unit to send containers by rail to major cities from Odesa’s Container Terminal. Although container traffic was up by 8.5% last year, to 650,000 units, only 22% of the containers leave the port by rail, less than half the market share of HHLA’s home port, Hamburg. This fall is starting to work with container trains from Odesa to Kharkiv, Ternopil and Zaporizhia. Philip Sweens, managing director of HHLA International, told Container Management news site: “With an efficient train system based on customer-friendly services, transparent prices, simple booking processes and reliable timetables, we want to tap the considerable potential of the Ukrainian intermodal market.”

Through October, Ukraine’s foreign trade was down 9% yoy, to $82.7 billion, reported the State Customs Service. Imports were down 12%, to $43 billion. Exports were down 5%, to $39.6 billion. The trade deficit is down, to $3.4 billion.

Low oil prices have cut 37% off Ukraine’s oil import bill through October, compared to the first 10 months of last year, reported the State Customs Service. Ukraine paid $2.8 billion for oil imports. The top three sources were: Russia – 36%; Belarus – 35%; and Lithuania -12%. Reflecting the current corona recession, the volume of oil imports is down by 7% this year, to 6.5 million tons. Since June, Brent oil has priced around $40 a barrel, down from the low $60 range in last year.

Food exports are down 1.7% through October yoy, to $17.6 billion, reports the Ukrainian Club of Agrarian Business. Trends of major export commodities were: sunflower oil +21%; corn -12%; wheat +6%; soybeans – 48%; canola – 29%; barley + 37%.

Ukraine’s seaports handled 132 million tons of cargo through October, 2% more than during the first 10 months of last year, reports the Ukrainian Sea Ports Authority. Exports were up 4%, to 101 million tons. The top two exports were: grain, 39 million tons; and ore, 37 million tons. Ore exports, largely to China, were up 22% yoy. Imports were down 6%, to 20 million tons. Containers were up 7%, to 870,000 units.

 

China was the fastest growing buyer of Ukraine’s exports, Prime Minister Shmyhal told the Rada Friday. In October, he said that Ukraine’s exports to China were up by 88%, or by $2.6 billion. To attract Chinese investors and shippers, the Ukrainian Sea Ports Authority has launched a version of its website in Mandarin.

 

Odesa region’s Pivdenniy (Yuzhny) handled 18% more cargo through October, growing at the expense of the three other big Black Sea Ports, according to new figures from the Sea Ports Authority. Almost 40% of all of Ukraine’s sea borne trade went through Pivdenniy, Ukraine’s biggest, deepest, and most modern Black Sea port.

 

In contrast, cargo handled by Mykolaiv was down by 8%, to 25 million tons. Odesa region’s other two big ports saw similar drops: Odesa down by 6%, to 19.4 million tons and Chornomorsk down by 8%, to 19.4 million tons. On the Azov, Mariupol saw a rebound with cargo increasing by 11%, to almost 6 million tons.

 

First time registrations of used imported cars were up 50% yoy in October, to 38,800 cars, reports UkrAutoprom, the vehicle industry association. Registrations of new imported cars totaled 8,400 – or 22% of the used car number. So far this year, 281,100 used imports have been registered. With Germany and other EU countries restricting diesel cars, the portion of diesel imports to Ukraine rose to 29% last month. Gasoline accounted for 58%. Electric and hybrids were 3%.

 

The Digital Transformation ministry is launching an English-language version of Diya.Biznes, its online platform for entrepreneurs doing business in Ukraine. Currently in test mode, the platform features a map of the business support infrastructure, including incubators, accelerators, business support centers, foundations and business associations in each region of Ukraine. The platform is currently in test mode, the Ministry reported on Telegram.

 

Qatar Airways intends to resume flights Dec. 18 between Doha and Kyiv Boryspil. For the first two weeks, flights will be three times a week. Last spring, flights were suspended due to the coronavirus pandemic.

 

Chornobyl Exclusion Zone, a major attraction for foreign tourists, received 31,720 tourists through October, down 71% yoy. Due to the fires and the coronavirus lockdown, the area around the ruined nuclear power plant was closed to tourist for almost three months last spring. Last year, foreigners accounted for 80% of visitors.

 

To draw Chornobyl tourists for longer stays, Kyiv-based tour operators plan to offer next summer kayak tours on the Pripyat River and bicycle tours on a new, 45 km trail. The trail follows a loop, passing through four semi-abandoned villages, stretches of deep forest and clearings that offer unexpected views of the abandoned city of Pripyat and the sarcophagus covering the remains of the power plant. The trail takes 4 to 6 hours and guides scheduled breaks every half hour so cyclists do not get winded. The Kyiv Post reports: “The faster a person inhales and exhales, the higher the radiation dose they can receive.”

 

Building on the internationally acclaimed “Chernobyl” HBO series, Ukraine’s Culture Minister Oleksandr Tkachenko seeks UNESCO World Heritage Site status for the Chernobyl Exclusion Zone, reports the New York Post. “This is not only a tourist attraction, but also a place of memory where it is worth coming to understand the truth about the disaster and its ‘final effect,’” Tkachenko told East2West News. In 2019, an average of 2 million Americans watched each of the five episodes of “Chernobyl.” Ukraine currently has seven World Heritage Sites.

 

Editor’s Note: Over lunch last week at the new tapas restaurant on Kyiv’s Yaroslaviv Val, an Argentine friend was so moved by his recent trip to Chornobyl that he recited all of Ozymandias. Percy Shelley’s 1818 sonnet on the impermanence of emperors and empires warns: “My name is Ozymandias, king of kings: Look on my works, ye Mighty, and despair!” While my friend was ruminating on the ruins of a Soviet city frozen in 1986, the poem’s critique could apply to Ukraine today. If the country’s population continues to shrink by 28% once a generation, it does not take a mathematical genius to figure out where the population will be in 2120. Business as usual by the nation’s elites threatens to put Ukraine on the path to demographic extinction. Maybe the Scythians will return to the empty steppe – and find new archeological ruins. “I met a traveler from an antique land, Who said – “Two vast and trunkless legs of stone Stand in the desert…” With Best Regards, Jim Brooke

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Wednesday, September 9

Ukraine May Return to Eurobond Market...$4 Billion in Deals in Last Six Weeks...’Big Construction’ to Start Rebuilding Airport Runways in Mukachevo, Poltava, Sumy, and Zhytomyr
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 may place $1-1.5 billion worth Eurobonds this fall to cover the budget deficit and to buy back more GDP warrants, predicts Bank of America Securities. This would follow July’s successful placement of $2 billion worth of 13-year Eurobonds. That deal, at 7.25%, was three times oversubscribed. Potentially chilling foreign interest, the IMF’s planned September review of the $5 billion Standby Agreement with Ukraine may be delayed, BofA warns.

Facing weak investor demand, the Finance Ministry sold on Tuesday only one third the volume of hryvnia bonds as at last week’s auction, and at slightly higher yields. In yesterday’s auction, the government sold the hryvnia equivalent of $35 million, one third for 1-year bonds and two thirds for 3-year bonds, the Ministry reported on Facebook. The weighted average yield for 1-year bonds was 9.28%, virtually unchanged. For 3-year securities, the yield was 10.46% – 46 basis points above the last auction of 3-years, one month ago.

Fitch, the ratings agency that most closely follows Ukraine, reaffirmed its ‘B’ rating for Ukraine last Friday, with a stable outlook. Japan’s R&I upgraded Ukraine’s sovereign rating last week by one notch, from B to B+, outlook stable. Since March, Standard & Poor’s has given Ukraine a B stable rating. In June, Moody’s brought Ukraine up one notch to B3 stable.

Concorde Capital’s Alexander Paraschiy writes: Looking at the balance of possible positive and negative triggers for Ukraine’s rating, we see a low chance for Ukraine to get any better rating in the next year.

A new Eurobond placement would come on the heels of two large deals:

  • In late August, the Finance Ministry borrowed $329 million from JPMorgan Chase & Co. at 7.75% to buy back about 10% of the $3.2 billion worth Ukraine’s GDP-linked warrants issued as part of the 2015 debt restructuring. It is believed Ukraine bought the bonds back at 90% of par value.
  • On Sept. 1, the Finance Ministry redeemed $1.69 billion worth of Eurobonds issued in 2015 and maturing this year. At the same time, the Ministry paid $400 million in interest payments on Eurobonds maturing in 2020-2027. Looking ahead, the Ministry said on its website: “By the end of the year, the balance of foreign currency payments on the state debt is about $ 1.6 billion.”

Ukraine’s international reserves grew to $29 billion in August, the highest level in eight years, reports the National Bank of Ukraine. Boosting reserves, foreign travel by Ukrainians was down sharply due to the coronavirus restrictions and the nation enjoyed a trade surplus.

Ukraine is on track with the IMF, Finance Minister Serhiy Marchenko said Monday on Inter TV’s Details of the Week program. He said: “We are in a dialogue with the IMF, and  hope to receive the next tranche. We have two more tranches planned by the end of the year for $700 million each, and  in the near future there will be an online conference, that is, it will not be a visit, it will be an online mission of the fund.”

Timothy Ash retorts from London: “The danger with this official line that things are fine on the IMF front is that politicians are lulled into a false sense of security, when the reality is that this Fund program is in serious trouble. Someone needs to read the riot act to the Zelenskiy Administration that unless they address the mounting list of issues related to the National Anti-Corruption Bureau, the anti-corruption agenda more generally, independent supervisory boards at state companies, PrivatBank and the banking reform issue, then there will be no more IMF money from the Fund or other official creditors – and you can only string the market along so long with warm words.”

Domestic air flights were down the least of air travel in August, down only 17% yoy to 2,519, reports UkSATSE, Ukraine’s air traffic control agency. By contrast – international flights to and from Ukraine were down 50%, to 8,249, and transit flights through Ukraine’s air space were down 68%, to 5,922. After last spring’s collapse, air flights in Ukraine have steadily recovered:  2,372 flights in April; 3,237 in May; 4,584 in June; 12,195 in July; and 16,690 in August. Flights are expected to drop again in September as the government has closed Ukraine to most foreign travelers for the month.

By 2023, several key regional airports will be reopened under the ‘Big Construction’ program, President Zelenskiy promised last week on a visit to Poltava airport. “We will add all airports to the program,” he said, referring to second tier airports that have languished since the 1990s. Promising to start rebuilding Poltava’s runway next year, he said: “We will definitely make Poltava Airport part of our ‘Big Construction’ program.”

President Zelenskiy promised yesterday to rebuild the runway of Sumy airport, if the regional government finds an investor to rebuild the terminal. “We are ready to build this strip in Sumy,if you have those who will build the terminal in parallel,” he told Roman Grishchenko, head of the regional administration, on a visit to the airport. Two years ago, the Infrastructure Ministry estimated that it would cost €25 million to rebuild the Soviet-era terminal and the 2,500-meter runway. Without scheduled air service for over a decade,  Sumy residents face 3-hour drives to Kharkiv or Poltava airports or a 4.5-hour drive to Kyiv.

Zakarpattia will get an international standard airport with the construction in coming years of a $145 million airport in Mukachevo, Infrastructure Minister Vladyslav Krikliy promises on Facebook. Last month, the Cabinet of Minister approved spending $1 million to design an airport on the site of an abandoned Soviet-era air base south of the city. Under the plan, a private investor would build the terminal. The Infrastructure Ministry would build a 2,500-meter long runway, capable of handling B737 and A320 passenger jets for flights to the EU and Turkey and Egypt. Zakarpattia’s current airport, in Uzhgorod, has limited capacity due to restrictions imposed by neighboring Slovakia and the EU.

Zhytomyr regional authorities are talking with a private investor to build an air cargo hub at Zhytomyr airport, a 90-minute drive west of the Kyiv’s Ring Road. Vitaly Bunechko, head of the regional government, tells Interfax-Ukraine that the airport first needs $13 million in government aid to expand the runway by 50%, to 2,500 meters. Opened in 1939, the airport provides maintenance for Yanair’s all-Boeing fleet of 737s and offers easy access to Sergei Pavlovich Korolyov Museum of Cosmonautics.

Corona virus infections, hospitalizations and deaths are running at double the levels of one month ago, Ukraine Health Ministry figures show. On Monday morning, Health Minister Maksym Stepanov announced that 57 people died in the last 24 hours. At the same time, 2,411 new cases were announced, and almost 8,000 people are undergoing treatment in Ukrainian hospitals.

From the Editor: You know its election season when politicians tour the country promising to rebuild regional airports. But this time it may happen. President Zelenskiy wants to be remembered as ‘Volodomyr the Builder.’ Of the 50 airports built during the Soviet era, about 15 could support commercial service today. Restoring these airports also would be key to Zelenskiy’s dream of creating a national airline based on a fleet of Kyiv-made Antonov regional jets. To boost domestic air travel, the Rada recently exempted domestic air tickets from VAT. It was odd that Ukraine, a nation larger than mainland France, has stunted domestic air travel. 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