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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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Thursday, December 3

Weekend Shopping Ban Lifted…Ukraine to go to Eurobond Market for $1 billion…FDI Drops Sharply...Ship Cargo Holds Steady
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

Ukrainians can look forward to a normal shopping this weekend and, probably through Friday December 25, Catholic Christmas. Prime Minister Shmygal said November’s weekend shopping bans had cut the spread of the coronavirus.

Yesterday morning, 13,141 new cases were announced, down from a daily average of 16,500 late last week. However, in Kyiv Mayor Klitschko said yesterday that a record 1,735 new coronavirus cases had been confirmed. Eight months after the first cases were confirmed in Ukraine, “about 3% of Ukraine’s population of Ukraine have already had COVID-19,” Deputy Health Minister Iryna Mykychak tells Telegraf media outlet.

With a big budget funding gap looming, Ukraine may tap the international Eurobond market for up $1 billion in short term financing, Prime Minister Shmygal told the  Korrespondent news site. He asserts the IMF will announce the date of its review mission in coming days. This would indicate that the $5 billion Stand By Agreement signed six months ago is back on track. Shmygal also said the government could sell $2 billion worth of Hryvnia bonds in coming weeks. On Tuesday, the government sold $93 million worth of Hryvnia bonds.

Timothy Ash writes from London: “Surprised it took them so long given the strength of global beta which has seen Ukraine’s borrowing costs in the Eurobond market crash 200bps lower over the past month or so. The appetite for yield is so strong post US elections that people are willing to look beyond challenges in individual country stories – and in Ukraine’s case — challenges to the anti corruption agenda, which is stalling IMF lending…Markets may not be so forgiving in 2021, so they really need to use the window being provided by cheap global financing conditions to crack on with those much needed reforms. Not entirely sure why you would only do a six month issue – market feels open to 5Y or 10y deal, and not sure that six months down the line pricing will be much cheaper.”

Through October, Ukraine has attracted $221 million in new direct foreign investment — 5% of the $4.5 billion attracted during the first 10 months of last year, the National Bank of Ukraine reported yesterday. Similarly, reinvestment by foreigners also fell sharply during the same period: to $639 million, from $2.9 billion this time last year. The Central Bank reported that Foreign loans also plummeted to $219 million, from $640 million last year. Analysts put the blame on the coronavirus recession and on the stalling of Ukraine’s movement to clean up the judiciary and implement free market changes.

Corporate raiding — stealing companies through forgeries or force — is up slightly this year compared to last year, reports Ukrinform, citing data from Opendatabot, an  online registry. Through October, 751 corporate raids were recorded in Ukraine, almost the same number as for all of last year. Three quarters were attempted through forged documents. This year 45% of cases go to court.

Ukrzaliznytsia plans to spend almost $1 billion next year on repairing locomotives, cars, and track — almost three times the money spent this year. As posted on the state railroad’s site, financing would be: 55% from UZ’s funds; 31% from bond sales; and 14% from the state budget.  According to Vladimir Zhmak, UZ’s new CEO, the railroad will probably end this year with a $500 million loss, largely due to lost passenger ticket sales. Last year, the railroad recorded a profit of $110 million.

Despite the corona recession, cargo handled by Ukraine’s seaports is up by 1% yoy. Through November, the ports handled 146 million tons. Confirming Ukraine’s reliance on exports of raw materials, grain and ore exports accounted for 58% of all cargo moving through the ports.

Kyiv’s autumn (September-November) was the warmest since local record keeping started in 1881, reports Ukrinform. “The calendar autumn is over but the meteorological winter has not come yet,” reports the Borys Sreznevskyi from the  Central Geophysical Observatory which is  located in southern Kyiv. “It will begin when the average daily air temperature starts steadily dropping below 0 °C.” Without any sharp freeze forecast, authorities have extended the Dnipro River shipping season for an unprecedented extra month, to Dec. 31.

Editor’s Note:  Phew, that was a close call! National Anti-Corruption Bureau detectives were all set yesterday to arrest Oleg Tatarov, deputy chief of presidential staff, on bribery charges, when President Zelenskiy’s hand-picked Prosecutor General Iryna Venediktova swooped in and took four prosecutors off the case. That is the version presented last night by censor.net, the Kyiv Post and other news sites around town. Gosh, I hope that no one in the IMF office in Kyiv reads Ukrainian or English. With best regards, Jim Brooke

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Wednesday, December 2

Ukraine Supplies Half of EU’s Migrant Workers...EU Nations Invest to Upgrade Ukraine’s Border Crossings...Brazil and Ukraine Explore Arms Production Partnerships...Turkey and Ukraine Explore Investments in Ports, Roads and Rail...Foreign Investors Tiptoe Back to Hryvnia Bond Market
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

Highlighting Ukraine’s emerging role as the EU’s reserve labor pool, Ukrainians accounted for 55% of the 1.2 million first time residence permits granted last year to all non-EU citizens for work in the EU, according to a new Eurostat report. Last year, 660,000 Ukrainians received these first time work-related permits, a 19% jump over 2018. This was 13 times greater than the next labor source – India, with 50,000 – and 16 times the third ranked country – Belarus, with 41,000. These numbers do not count Ukrainians who are in the EU on long stay visas or the back and forth flood of informal workers who take advantage of the 90-day visa-free regime.

The bulk of the 756,548 Ukrainians who got first time residency in the EU last year went to Poland – 79%. Spreading into the Baltics and around Central Europe, Ukrainians accounted for the top nationality of foreign workers granted residency in eight EU nations:  Latvia, Lithuania, Estonia, Finland, Poland, Hungary, Slovakia and the Czech Republic. In contrast to the fast growth of Ukrainians, EU ‘initial residence permits’ issued to all nationalities for all reasons increased last year by 6%, to 3 million.

With cross border traffic expected to rebound this spring, assuming vaccines diminish the coronavirus pandemic, EU nations are helping Ukraine upgrade its often outdated border crossings. In coming weeks, EU and Ukrainian experts are to complete a comprehensive survey of Ukraine’s border crossings with its seven land neighbors. Once reforms are adopted the EUwill support their implementation to enable border management agencies to offer better service delivery to people, promote regional cooperation, cross-border trade,” the EU’s mission to Ukraine said yesterday of the 3-year project.

Poland is lending Ukraine €100 million to upgrade the 13 land border crossings between the two nations. The 30-year, low interest loan also will help upgrade Ukraine’s road and rail approaches to the 535 km long joint border. Yesterday, the Rada finally approved enabling legislation for the loan. It was first agreed upon five years ago.

Estonia will help Ukraine install two electronic border crossing systems at two of Ukraine’s busiest land crossings – Chop with Hungary, and Uzhgorod with Slovakia. Using Estonian experience, the goal is to cut lines of cars and pedestrians, according to an agreement signed Friday by Estonia’s Prime Minister, Jüri Ratas, and Ukraine’s Prime Minister, Denys Shmyhal.

Brazil and Ukraine, two of the world’s second tier arms exporters, started discussing possible joint ventures yesterday, the start of a 5-day visit to Ukraine by executives of 13 from Brazil’s top arms producers. Led by Brazil’s Deputy Defense Minister Marcus Dego Rosas Pontis the delegation includes representatives from: Avibrás, Embraer, Imbel, Taurus, Kryptus, Atech, Condor, Nitroquímica, SLO3, Inspirar, Nanonib,  Senai Cimatec, and Akaer. The Brazilians discussed with their Ukrainian counterparts joint production and modernization of battle tanks; missile systems and air defense equipment; cybersecurity, ammunition, small arms, drones, aerospace, radar and satellite systems.

This week’s face to face meetings follow a video conference two months ago with the participation of UkrOboronProm executives and Rosas Pontis, who is Brazil’s director of Secretariat for Defense Products. “It will be a two-way road,” Ukraine’s  Minister of Strategic Industries Oleh Urusky wrote yesterday on Facebook. “Our countries are launching a new area of ​​cooperation that has great prospects.”

Ending a 2-day trip to Turkey yesterday, Prime Minister Shmygal told reporters that his delegation invited Turkish companies to participate in concessions for international highways and for two Black Sea ports. In meetings in Istanbul and Ankara, he invited Turkish investors to build high speed passenger rail lines, housing for Crimean Tatars displaced from Crimea, and modern city hospitals. Ukrinform reports that the highway section that Shmygal pitched to Turkish construction companies is the Brody-Lviv-Krakovets highway, a heavily trafficked, 250 km section of the M10 that now takes four hours.

As Ukraine’s defense partnership with Turkey extends to the air, the air forces of the two nations have discussed the possibility of data exchange “including airspace monitoring” under NATO’s Air Situation Data Exchange program, Ukraine’s Defense Ministry reports. Turkey is a member of NATO.  Both countries plan to develop gas fields in their sectors of the Black Sea. Ukrinform reports: “The parties agreed on possible mutual exchange of technical data for monitoring the airspace of exclusive economic zones, which will allow Ukraine to assess the situation in its own exclusive economic zone, preventing possible threats from the Russian Federation.”

With Turkish investors interested in buying one quarter of shares of jet engine maker Motor Sich, the original Chinese buyers plan to appeal their third rejection by Ukraine’s Antimonopoly Committee. Kharkiv’s DCH Group, minority partners of the Chinese group, say they are appealing the Committee’s latest rejection, saying it was based on ‘formalities.’

Defying the recession, Ukrzaliznytsia, the nation’s main cargo hauler, carried 7% more freight in November than in November of last year. Approaching the railroad’s target of 1 million tons a day, UZ carried 27 million tons during the first 29 days of November, reports the Center for Transportation Strategies. Domestic traffic, largely to the seaports, was up 21%, to 13 million tons. Turnover time for freight cars was cut by one third, to 7.8 days. Freight train speeds increased by 5%, to 35 km/h.

The Finance Ministry sold at auction yesterday the hryvnia equivalent of $93 million in government bonds. The 3-month bond was the most popular, accounting for 74% of sale, the Ministry reported on Facebook. It had a weighted average return of 9.89%. The return on 1-year bonds was 10.93%, up 17 basis points from one week earlier. The volume sold was only 16% of last week’s partly because the Ministry face $350 million worth of redemptions that week.

ICU gives this insight into the Nov. 24 auction: “For the first time since the end of February, foreigners’ portfolios rose during a week, albeit by a small amount. The increase amounted to just UAH182m (US$6m)… It looks like the main reason for such purchases is an increase in global demand for risk-on assets amid relatively moderate hryvnia exchange-rate fluctuations last weeks. This could provide incentive for some foreigners to purchase bills at primary market, given rates started at 10%, in expectation that the hryvnia will not weaken or even appreciate.”

Bolstered by fresh snow, Bukovel, Ukraine’s largest mountain resort, opens this weekend for skiing and snowboarding. “We invite you to the Ukrainian Carpathians,” Bukovel director Oleksandr Shevchenko writes on Facebook. “There is no virus here, just fresh air.” Actually, Ivano-Frankivsk region has recorded 36,434 coronavirus cases since mid-March. It is not known if ski areas will be affected by the general lockdown, forecast for late December.

Editor’s Note: The story behind the story: The outburst by Oleg Tatarov against the National Anti-Corruption Bureau, may have been prompted by a bribery investigation of him by the agency, reports Ukrainska Pravda and the Kyiv Post. Tatarov, a former Interior Ministry official under President Yanukovych launched a verbal tirade against the agency just as President Zelenskiy was telling the IMF and Western ambassadors that the agency hashis administration’s full support. To smooth things over, Zelenskiy’s office hurried out a statement saying that the attacks were Tatarov’s “personal opinion.” Timothy Ash opines from London: “The Zelenskiy team needs to step up big time to unblock IMF financing…it will require a Biden presidency to re-engage with Ukraine for this to happen.”  With best regards, Jim Brooke.

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Tuesday, December 1

China’s Trade With Ukraine Soars to Double Russia’s Trade...US Press Detail Ukraine’s DC Lobby Against Nord Stream 2, Hunt for Mushrooms at Home...Ze’s Deputy Chief of Staff Sings Way Off Key as President Courts IMF...$200 Million Rebuild Moves Ahead for 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

China has roared ahead of Russia to account for twice as much of Ukraine’s trade this year, reports the State Statistics Service. For this year through August, China-Ukraine two-way trade totaled $9.4 billion. Russia trade totaled $4.8 billion. Germany was just behind, with $4.6 billion. The next four were: Poland — $4.5 billion; Turkey — $2.9 billion; Belarus — $2.5 billion; and United States — $2.5 billion.

DHL will create “a powerful logistics center” in Kyiv’s left bank Liski rail hub for container trains going to and from China, Ukrzaliznytsia CEO Volodomyr Zhmak writes of a memorandum of cooperation signed Friday between the state railroad and DHL Global Forwarding. To open up new east-west routes, UZ is finalizing similar agreements with BTLC Germany and Poland’s PKP Cargo Connect. To promote the rail hub near the Darnytsia rail station, Zhmak appointed last month Edvins Berzins, former chairman of Latvian Railways, to be executive director of what is formally called the Liski Transport Service Center. After starting last June, container trains now run almost weekly from China to Liski. Around Ukraine, there are now 36 routes regularly plied by container trains.

In “U.S., Russia Race to Outflank Each Other on Russian Pipeline,” Wall Street Journal reporter Brett Forrest recounts the down to the wire race to stop the Nord Stream 2 trans-Baltic gas pipeline, a line seen as rendering Ukraine defenseless against full-fledged Russian intervention. In the 1,800-word story, one villain emerges: US Treasury Secretary Stephen Mnuchin. Forrest writes: “Mr. Mnuchin, whose department enforces sanctions, was opposed, these former officials said. ‘He was a big hang-up at every turning point,’ said one.” Two Washington lobbyist heroes emerge: Vadym Glamazdin, a government-relations official with Naftogaz, and Oleksandr Kharchenko, an official at Ukraine’s National Security and Defense Council.

A bounty of mushrooms flowed out of Ukraine’s forests this fall, reports The New York Times, citing unusual weather: “a dry summer followed by an unusually warm fall and late first frost.” In “I Have Never Seen So Many Toadstools.’ A Bumper Crop of Mushrooms in Ukraine,” Times reporters interviewed Emilia Koleda, a grandmother selling mushrooms on the Kyiv-Chernihiv highway. Noting that her mushroom sales earned her money for firewood and school supplies for her grandchildren, said says: “Mushrooms saved so many people this year…Nature helped us through the quarantine.” Befitting the secrecy of mushroom hunters, the reporters chose as their dateline a Chernihiv settlement so tiny it does not appear on google maps.

With the Democrats returning to power in the White House, David Arakhamia, head of the Servant of the People Rada faction, hopes that Joe Biden will resume an Obama era practice of extending US guarantees to $1 billion in Ukrainian 5-year Eurobonds. The Obama Administration did this three times at the height of Ukraine’s post-Maidan financial crisis – in May, 2014, in May, 2015 and on Sept. 23, 2016, just before the election that brought in Donald Trump. With the US guarantee, the last bond carried the lowest rate in Ukraine’s history — 1.471%. With Ukraine’s reserves recovering the Trump Administration refused to refinance the first two issues. They were repaid in full.

Ukraine’s faces a bulge in repayments next fall, and Arakhamia tells Interfax-Ukraine that he hopes a Biden Administration will roll over the $1 billion bond coming due in September. “We hope that with the arrival of the new White House administration, we will be able to agree with our strategic partners on refinancing this loan,” Arakhamia tells the news agency. Ukraine’s international reserves are $24.5 billion.

No IMF funding for Ukraine until Zelenskiy earns trust,” headlines a stinging critique of the Zelenskiy government by Anders Aslund, the Swedish-American economist who has been watching Ukraine for 30 years. “If the Ukrainian government does not fundamentally revise its current economic policy and political trajectory, it is unlikely to receive any IMF, World Bank, or European Union funds for as long as Volodymyr Zelenskiy remains president,” Aslund writes in an Atlantic Council Ukraine blog. “Zelenskiy does not appear to grasp that the IMF takes its conditions seriously and does not want to be treated as just a source of cheap credits. Unlike the Ukrainian government, it is focused on structural reforms so that the Ukrainian economy can start growing at five to eight percent a year, rather than at minimal rates.”

The Zelenskiy administration’s effort to get back on track with the IMF hit an unexpected bump when Oleg Tatarov, deputy head of the administration, said Saturday that the National Anti-Corruption Bureau does not serve Ukraine’s interests and that its head Artem Sytnyk doesn’t have “the moral right” to run the agency and should be replaced. The next day, the Zelenskiy administration hurried out a statement saying Tatarov’s statement was: “His personal opinion that does not reflect the administration’s official position.”

The Anti-Corruption Bureau was created with Western advice and financing. Ukrainian officials have repeatedly assured the IMF that it will be retained. Two weeks ago, Zelenskiy met with G7 ambassadors and assured them that Sytnyk would stay on the job. Next week, the Rada is to vote on a bill that would guarantee the Bureau’s survival and Sytnyk’s role as head. In Washington, analysts predict that the Biden administration will use ‘tough love’ on Ukraine — conditioning support on free market, EU-standard reforms.

Ten Turkish and Ukrainian construction companies have applied to take part in the $200 million rebuild of Dnipro airport, reports Kyrill Khomyakov, head of Ukrinfraproekt, the State Agency for Infrastructure Projects. Qualified companies are to take part in a competitive tender. Expected to take several years, the project involves building a new concrete runway, jet taxiing aprons, lighting, navigational aids and a perimeter fence. Next year’s budget has allocated $50 million, or one quarter of the money.

Controlled by the Ihor Kolmoisky group, Dnipro airport has languished, recording Ukraine’s 7th largest volume of passengers last year. In 2019, Dnipro handled 338,888 passengers, sandwiched between Zaporizhia, at 434,000, and Kherson at 154,046. Separately, Infrastructure Minister Vladyslav Krykliy reported Sunday from Istanbul that a Turkish construction company wants to modernize Kherson airport, which is served by Turkish Airlines.

In Switzerland, airplane pilots who are unable to fly during the coronavirus pandemic may soon retrain to become train drivers.  With the support of Aeropers, the nation’s main union for cockpit employees, Swiss Federal Railways and Edelweiss Air are studying a pilot retraining. While dozens of jets are grounded in Switzerland this winter, the state-owned railroad is cancelling trains due to lack of staff. Converting a jet pilot into a locomotive engineer is expected to take less than one year.

In Berlin, DHL has painted its trademark yellow and red colors on 10 idle tour buses and converted them into ‘paketbussen.’ The parcel buses, including six double deckers, will receive and deliver packages to customers standing outside, minimizing contagion. Logistik Watchblog quotes Berlin’s Governing Mayor, Michael Müller, saying: “The parcel business, which will reach a new dimension due to the corona Christmas, is specifically facilitated with the paketbussen. It helps us to further reduce contacts.”

Editor’s Note: Drawing on 10 years covering news in South America, I believe Latins are often better skilled than Ukrainians at conflict avoidance. A South American president would know how to handle a troublemaker like Tatarov. An annoying writer or opposition politician would be called into the Italianate foreign ministry. With grave ceremony, he would be handed freshly penned credentials, appointing him ambassador to…India. Adios! Over the winter holidays, Zelenskiy could create a Ukrainian consulate in Vladivostok, an area once majority Ukrainian. To jazz up the job, it could be called a ‘Consulate General’ — responsible for an area larger than Western Europe, from Sakha to Sakhalin. To get in the mood on the loooong train ride across snowbound Siberia, Tatarov could read Chekhov’s 1893 “Sakhalin Island” — Остров Сахалин — a classic report on exile. With best regards, Jim Brooke.

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Monday, November 30

Corona Lockdown is ‘90%’ Sure for December...Nord Stream 2 Gas Line Work Resumes This Weekend...Canada’s Vermilion Pulls out of JV With Naftogaz...Thanks to Global Warming, Dnipro Shipping Season Gets a One-Month Extension
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

In December, “the probability of a complete coronavirus lockdown is 90%,” David Arakhamia, head of the ruling Servant of the People Party in the Rada, said on Ukraina TV’s Segodnya show Saturday. In contrast to last spring’s general shutdown, this would be a ‘smart’ lockdown he said, intimating that the Kyiv metro and many public services would work until Dec. 25, the western Christmas, now an official holiday in Ukraine.

In preparation for a lockdown, a law to give financial aid to 2 million salaried workers hit by coronavirus controls goes into effect next week, Arakhamia told reporters on Saturday. These one time payments are to go up to $280 per person. The overall budget will be about $500 million, Yulia Kovaliv, the President’s deputy chief of staff said Thursday night on 1+1 TV’s Right to Power show.

About 10% of Ukraine’s small and medium businesses are on the verge of bankruptcy due to corona controls, Dafina Gercheva, resident representative of the United Nations Development Program, estimates in an interview with Interfax-Ukraine. By the end of December, the corona controls and recession will have put more than 9 million people – one quarter of Ukraine’s population — in financial distress, the UNDP predicts.

New coronavirus infections doubled in November, hitting an average of 16,250 a day on Friday and Saturday. In Kyiv, the number of new cases hit a record 1,739, Mayor Klitschko said Saturday. In Lviv, two patients, one aged 61 and the other 66, died Friday after a power outage knocked out their ventilators for one hour. Over the last eight months, 12,093 deaths are attributed to Covid-19. Immunologist Andrii Volyanskyi predicts on Facebook that another 25,000 Ukrainians will die of Covid over the next four months, the traditional peak flu season.

Betting that online sales will keep surging, Allo Group, the consumer electronics retailer, is launching its own nationwide delivery service, Allo Express in Ukraine. Citing “today’s realities,” Allo CEO Maksym Raskin said the company decided to “to invest in the creation of our own postal operator.” The package delivery service will have desks in each of Allo’s 140 stores in Ukraine.

Work on laying Nord Stream 2 gas pipeline could resume this weekend in the Baltic Sea waters of Germany, near the Adlergrund shoal, reports Deutsche Welle. The local Stralsund Waterway Authority is advising ships to be careful when navigating the area starting Saturday. Meanwhile, Nord Stream 2 AG, gas pipeline company, says: “We plan to resume pipe-laying work using a vessel with anchor positioning in the exclusive economic zone (EEZ) of Germany this year.” With the US Congress preparing more sanctions against companies working on the $11 billion project, Norway’s DNV GL announced it will stop verifying services for ships and equipment used to build Nord Stream 2.

Canada’s Vermilion Energy has backed out of two production sharing agreements it won last year with Naftogaz, reports OilPoint, citing Ukraine’s state oil and gas company. The Calgary-based company “has decided not to participate in the projects due to significant reductions in gas and oil prices compared to 2019, the coronavirus pandemic and the global economic downturn,” Naftogaz said referring to the two sites, Balaklia and Ivanovo. Instead, Naftogaz will go it alone, investing $125 over the next five years to conduct 3D seismic tests and to drill 12 exploration wells.

Undeterred by this setback, Naftogaz is open to working with a foreign company, particularly Romanian, to develop the Dolphin block, in the Black Sea near the Danube delta and Romania’s maritime border. Working jointly with Romania to develop the shelf may be “more economically attractive” for Ukraine, and would create better security since Romania is a NATO member, Lana Zerkal, adviser to the Naftogaz CEO, said Friday at an online briefing. However, Exxon Mobil has been mulling selling its 50% stake in Romania’s Neptun Deep offshore project. Since 2008, it has shared this Black Sea block with Romania’s OMV Petrom, which is majority-controlled by Austria’s OMV.

But this year’s slump in oil and gas prices makes Ukraine unattractive to oil and gas producers, say experts interviewed by UNIAN. “I honestly think that the chances of attracting serious Western investors are minimal,” Gennadiy Kobal, founder of EXPRO Consulting, told the news agency Friday. “The record decline in gas prices has led to the fact that oil and gas companies have lost a significant part of their capitalization.”

Regarding the Dolphin block, Vitaly Radchenko, partner at CMS Cameron McKenna, said: “We have talked with many normal real, producing, foreign oil and gas investors. We worked with them to get them interested in the Black Sea shelf. The territory is viewed as controversial and dangerous. None of the real investors will come there to drill, because it could end up in a conflict with Russia. Therefore, giving the shelf for research to the state gas company is a logical decision.”

With winter temperatures increasingly mild, the Dnipro River shipping season is being extended for one extra month – to the end of December. Originally, the river’s six locks were to start closing in a north-south sequence in mid-November. But shippers, notably Nibulon, lobbied for an extended season, noting that last year serious ice did not start forming on the river until January. Under the direction of the State Maritime and River Transport Service, closing the river involves pulling out hundreds of buoys.

The $15 billion Istanbul Canal, an artificial alternative to the Bosporus, has reached the tender stage, Turkish President Recep Tayyip Erdogan said Friday. Expected to take a decade to dig, the 500-meter wide canal would allow liquefied natural gas cargo ships to enter the Black Sea for the first time. Further weakening Russia’s position in the Black Sea, the canal would not be subject to the Montreux Convention. This 1936 agreement places limits on the size and number of non-Black Sea navy ships allow to pass through the Bosporus.

Prime Minister Shmygal started a two-day visit to Turkey yesterday with a meeting with Turkish business executives in Istanbul. Appealing for Turkish investment, he said: “We have ambitious plans to build and renovate our infrastructure, including roads, bridges, energy and medical infrastructure, in other areas – water supply, sewerage, garbage recycling. Turkish companies have successful experience in these areas.” Today, he meets with government leaders in Ankara to discuss military and diplomatic cooperation. Leading a delegation of two ministers and two deputy ministers, Shmygal is flying in a Ukrainian An-148 regional jet. Turkey is interested in producing medium range military transports with Antonov.

Ukraine plans to purchase five more Turkish-made Bayraktar Tactical Block 2 unmanned aerial vehicles next year, Turkish media report. Last month, Azerbaijan used these armed drones in its successful war with Russia-backed Armenia. Signaling a closer partnership with Turkey, Ukraine’s Foreign Minister Dmytro Kuleba told Turkey’s Anadolu Agency Friday: “Ukraine, looks at the Nagorno-Karabakh issue from the perspective of international law. Our position is very clear. We are on the same page with Turkey.” In the second half of December, the foreign ministers and the defense ministers of Turkey and Ukraine are to meet in Kyiv in a ‘2+2 format’ – a sign of close bilateral ties.

Editor’s Note: As readership of the Ukraine Business News grows day by day, we will invest in December to upgrade the UBN website. Searching the archive will be faster and easier. And after English, Ukrainian, Russian, German and French, we will add a mystery sixth language. Stay tuned – and tell your friends to sign up! With Best Regards, Jim Brooke

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Friday, November 27

As Covid Beds Fill Up, Officials Debate December Lockdown...Finance Ministry Says It Agrees with IMF on 2021 Budget...Judges Cost Ukraine Billions in Soft Loans...Europe’s Green Bond Vogue Reaches Ukraine...Mobile Internet Planned for Road and Rail
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 76% of coronavirus unit beds occupied in Ukraine, authorities fear the country cannot make it to the Christmas holidays without imposing a major lockdown. One option would be to impose a lockdown after schools let out in three weeks for the Christmas break, on Friday afternoon Dec. 18. Arsen Avakov, Ukraine’s powerful Interior Minister, argues for an earlier, faster lockdown. “We need to introduce a lockdown as soon as possible, for three to four weeks,” he said on Ukraine 24 TV. “We are talking about really systemic, huge risks to our people’s health.”

Driving the urgency are record numbers. Yesterday, the reported daily toll of new infections hit 15,331 and the daily death toll hit 225. New infections in Kyiv yesterday hit 1,399.  The Health Ministry reports that of the nation’s 57,446 hospital beds for Covid patients, only 13,653, or 24% are free. Last month, President Zelenskiy drew the lockdown red line at 9,500 new cases a day. Days later, he moved the line to 15,000 daily cases. At a minimum, the government is expected to extend the weekend lockdowns. They were to end after this weekend.

The Finance Ministry says it has reached agreement with the IMF on the size of Ukraine’s 2021 budget deficit. By postponing an increase in the minimum wage to the end of next year and taking other measures, the Ministry cut $1 billion off the $47 billion budget, reducing the proposed deficit from 6% to 5.5%. The budget must be approved in December. To restart the IMF agreement, the Rada has to pass laws to restore and protect anti-corruption agencies.

Ukraine has only received half of $6 billion international funding expected for this year, Finance Minister Serhiy Marchenko said last night on the Right to Power talk show. Alluding to foot dragging by the Rada and obstructionism by the Constitutional Court, he blamed “non-adoption of laws in time, and because of decisions of judges.”

President Zelenskiy is about to sign a bill that would provide state guarantees for ‘green bonds’ to help pay Ukrenergo’s overdue debt to solar and wind producers, Acting Energy Minister Yuriy Boyko told reporters yesterday. With the overdue debt approaching $1 billion, the government might launch $400 million worth of green bonds, he said. Later in the day, a Finance Ministry investor relations manager Alla Danylchuk emailed Bloomberg, saying the Finance Ministry has no plans to issue green bonds.

The government plans to close about half of the nation’s 33 state-owned coal mines during this decade, Deputy Energy Minister Maxim Nemchinov said yesterday at the presentation of a presentation of the results of a poll of residents of coal mining towns. The most economically promising mines are around Vuhledar, a Donetsk area which produces both anthracite and bituminous coals. The Ministry is studying British and German experiences with closing mines and retraining and often relocating miners. Last year, the ministry changed its name from Ministry of Energy and Coal Mining to Ministry of Energy and Environmental Protection.

Ukrzaliznytsia has approved a framework agreement to allow private locomotives to operate on UZ tracks. The signing of the first contract with a company, Ukrainian Locomotive Construction Company LLC, should happen “as soon as possible,” Infrastructure Minister Vladyslav Krykliy said yesterday. Based in Lviv, Ukrainian Locomotive plans to haul freight on nine sections of track in Western Ukraine. The Ministry’s press service said: “Interest from the market was significant.” Private freight railroads already operate in all of Ukraine’s EU neighbors – Poland, Slovakia, Hungary, and Romania.

The Digital Transformation Ministry has set these targets for extending high speed mobile internet across the country: accessible to 90% of the population by July 1, 2021; all international highways by Jan. 1, 2023; and all national roads by July 1, 2024. Digital Minister Mikhail Fedorov tells reporters in Kyiv: “Next year we want to focus on the coverage of roads and strategic highways.”

For rail travel, Vodaphone Ukraine is conducting a pilot project with the 35 km Boryspil Airport Express to determine cost for high speed internet coverage on Ukraine’s main rail lines. With about 10,000 km of main lines to cover and 3,000 passenger cars to equip with internet, public investment will have to complement investments by the three mobile operators, Olga Ustinova, general director of Vodafone Ukraine, told reporters Tuesday. For road and rail, she said, Ukraine’s three mobile providers – lifecell, Kyivstar and Vodaphone – plan to finance about one third of the mobile internet cost.

With domestic tourism the trend, Ukrzaliznytsia seeks to win at least half of all tourists, luring them out of cars and buses. To attract riders, the state railroad has reduced prices of first class tickets and created an easier, online system for redeeming tickets before departure dates, Volodomyr Zhmak, UZ’s new CEO, told tour operators yesterday. Aiming at the highest end, the railroad is renovating for public charters the VIP cars that once were the preserve of the Communist Party elite. Through October, the number of train tickets sold in Ukraine dropped by 56% yoy, to 57.5 million.

In a boost for Carpathian tourism, Ukravtodor inaugurates tomorrow 45 km of mountain road to Synevyr National Park. Essentially opening up the west entrance to the park to tourists from Lviv, the rebuilt road crosses two mountain passes and over 19 restored bridges. With a cost of $24 million, the project was carried out by Turkey’s Onur Construction International. The state highway agency reports that 255 km of roads were rebuilt in Zakarpattia this year, one of the regional leaders for road repair this year.

Parkovy, central Kyiv’s largest convention and exhibition center, is now officially owned by Lyubov Efimova, mother of Ukrainian MP Maxim Efimov. Since opening in 2013, Parkovy has become a popular place for conferences. It has 22,000 square meters, a high end restaurant, underground parking and its own diesel power station. In Feb. 2019, the Maxim Yefimov, then an MP with the Petro Poroshenko Bloc, confirmed that that the official owner of the facility was his mother, a US resident. Antimonopoly Committee of Ukraine fine her last week $5,000 for not obtaining permission in advance to own 100% of the complex.

Iran plans to pay €200 million in compensation to families of the 176 victims of the Jan. 8 shootdown of the UIA passenger over Tehran, reports Al-Monitor news site. The money will come from the National Development Fund of Iran, not from the budget of the Iranian Revolutionary Guard Corps. An anti-aircraft unit of the Revolutionary Guards shot down the plane with two land to air missiles.

Betting that vaccines will tame Covid, SkyUp Airlines is planning a summer flight schedule of more than 60 routes from 21 countries. Betting also on the renaissance of Ukraine’s regional airports, half of the flights will be from four airports far from its base at Kyiv Boryspil. From Kharkiv, Lviv, Odesa and Zaporizhia, SkyUp will fly to Georgia, Greece, Czech Republic and Italy. From Boyspil and several of the regional airports, SkyUp will fly to: Italy, France, Greece, Czech Republic, Georgia, Spain, Bulgaria, Armenia, Turkey, Israel, Cyprus, Portugal, Poland, Germany, Denmark, Jordan, Sweden, Serbia, the Netherlands and Slovakia.

Editor’s Note: For Thanksgiving, an American friend and I went yesterday to the matinee showing of Atlantida, Ukraine’s new award-winning movie. Zhovten, my old friend, was scarier than the war movie. The cinema in Kyiv’s crowded Podil neighborhood was offering 17 films. But its empty café looked like an Edward Hopper painting. Soda and snack windows were deserted. Our screening, of an English subtitled version, drew seven moviegoers, each wearing a mask. All but couples sat warily in alternate seats. I hope Zhovten, which was rebuilt after a devastating fire, can survive the nuclear cold of this coming winter. This week, Dmytro Derkach, co-owner of Planeta Kino, assessed the prospects of a coronavirus Christmas and said he will probably close the chain and fire 500 employees. With Best Regards, Jim Brooke

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Thursday, November 26

Naftogaz Wins No Tender Deal to Develop Black Sea Gas Field...Ukraine Now is Key Player in Eastern Europe Gas Market...EU Has Big Hydrogen Plans for Ukraine...Biden Is Expected to Block Nord Stream 2...Millions of Ukrainians Shop Online for ‘Black Friday’
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 government yesterday granted Naftogaz the right to develop a massive Black Sea gas block without a tender. The Dolphin block, near Ukraine’s portion of the Danube river delta, is believed to hold at least 1 trillion cubic meters of gas – more than double the big Black Sea find announced recently by Turkey. “This means the possibility of producing up to 10 billion cubic meters per year,” Ukraine’s state oil and gas company announced on Facebook. In recent years, Ukraine has imported 11 to 14 billion cubic meters a year.

Seismic work could involve $40 million of investments in the first year, Naftogaz said on Facebook. “This means the possibility of attracting international investors, and at the same time – on the best terms for Ukraine,” the company wrote yesterday. Last month, Naftogaz unexpectedly pulled out of a $500 million Eurobond sale despite it being oversubscribed. Yesterday’s no tender decision by the Cabinet of Ministers cuts permitting delays. “The company will be able to start developing the shelf immediately after the adoption of the normative act,” Roman Abramovsky, Minister of Environmental Protection and Natural Resources, said at the Cabinet meeting.

Last year, an American company, Trident Acquisitions, won a competitive tender to develop the offshore block. The incoming Zelenskiy government refused to accept the results of this ‘Poroshenko tender.’ The issue languished for one year. Last night, Ilya Ponomarev, CEO of Trident, emailed the UBN: “This story has ended as we have predicted – no major [foreign energy companies], just no one showed up. So, the government threw our $1 billion offer out of the window. [Now it] will spend taxpayers money in Naftogaz to develop this difficult project in very uncertain times, assuming all risks themselves.”

Ukraine has become a key player in the EU natural gas market, storing 10 billion cubic meters of gas this fall for gas traders. With the European heating starting last month, Ukraine, for the first time in history, started re-exported stored gas to EU countries. “A significant milestone for the gas market is the start of the re-export of gas that was previously imported to Ukraine from the EU,” Sergei Makogon, CEO of the Operator of the Gas Transportation System of Ukraine, writes on Facebook. “Previously, there was only transit and import.” Integrating Ukraine into the regional gas system are: duty free gas storage, duty free short haul gas transportation through Ukraine, and new reverse flow gas pipelines.

The “U” factor: Ukraine’s growing role in Europe’s natural gas market,” headlines a 1,600-word article in S&P Global Platts. This year “access to both Ukrainian storage and inbound transport capacity resulted in large gas flows transiting Slovakia, the Czech Republic and Hungary destined for Ukraine,” reports S&P.  “This in turn created the conditions for the growth of gas hubs in Central and Eastern Europe.”

Europe’s Green Deal commitment to renewables, hydrogen and decarbonizing energy sources “means that between 2030 and 2040, Europe may see a radical drop in demand for natural gas,” Andrian Prokip, wrote in a Kennan Institute essay: “New Era of Gas Wars between Ukraine and Russia? “That would likely mark the end of Russia’s energy expansionism.”

The EU ‘Hydrogen Strategy’ calls for dividing EU hydrogen production between the EU and its eastern neighbors. “This strategy stipulates that ‘the Eastern Neighborhood, in particular Ukraine, and the Southern Neighborhood countries should be priority partners,’” writes Prokip, an energy expert for the Wilson Center. “Ukraine could become a key partner of the EU in the production and export of hydrogen. In light of Ukraine’s current diminished role in natural gas transit…hydrogen export may become the basis for a revitalized, long-term cooperation and part of the real economic integration of Ukraine and the EU.

In reaction, Gazprom and Rosatom, the nuclear corporation, recently signed a deal to hydrogen production in 2024. Uniper, the German energy giant, says Nord Stream 2 could be repurposed to carry a blend of 80% hydrogen and 20% natural gas.

“Joe Biden Is Unlikely to Save Angela Merkel’s Pet Project,” headlines a Bloomberg article yesterday about the $11 billion, 1,239 km Russia-German Baltic Sea gas line. “U.S. opposition is likely to remain under Biden,” Bloomberg writes about Nord Stream 2.  “There’s American cross-aisle agreement” against Nord Stream, Ursula von der Leyen, European Commission President and Angela Merkel’s former defense minister, told Germany’s Die Zeit newspaper earlier this month.

Democrats should not go wobbly on Nord Stream 2, The Wall Street Journal warns in an editorial: “Congress shouldn’t back off Russia sanctions in the annual defense bill.” “The incoming Democratic Administration wants closer cooperation with Western Europe,” wrote the conservative US newspaper. “That shouldn’t come at the cost of increasing NATO vulnerability to Russia. Congress would assist U.S. and European strategic interests if it gets the Nord Stream sanctions over the finish line in the lame duck session.”

The US Congress is targeting insurance companies in the latest strategy to stop the pipeline, Bloomberg reports from Washington. “House and Senate negotiators agreed to target insurers and technical certification companies working on the project in a defense bill that must pass by the end of the year.”

In advance of passage, US officials already are contacting companies to warn they may face sanctions, DPA reports from Washington. “We’re in the process of calling a number of these companies to make them aware that they’re likely engaged in sanctionable activity,” an official reportedly tells the German news agency.

Rozetka.ua, Ukraine’s largest online store is seeing record number of visitors to their site – 5.6 million on Tuesday. With the retailer’s ‘Black Friday’ sales going on all week, Vladyslav Chechotkin, Rozetka owner wrote on Facebook that some items already are running out. “Sales hit records,” he wrote. “We have run out of many products already, despite our large purchases.” The most popular items are: laptops, TV sets, vacuum cleaner robots, electric grills, men’s boots, women’s sneakers, and Lego blocks.

The American Chamber of Commerce in Ukraine has presented its annual Thanksgiving Awards to Mykhailo Fedorov, Digital Transformation Minister, and to Paul Niland, founder of Lifeline Ukraine, a national suicide prevention hotline focused on helping military veterans. Fedorov said of his work to simplify government services: “We have already created a mobile application and portal of electronic services ‘Diia’, introduced the first digital passports in the world, launched registration of a business in 15 minutes.”

Editor’s Note: In honor of Thanksgiving, my own Turkey Award goes to Péter Szijjártó, Foreign Minister of the neighboring republic of Hungary. In mid-October, as Americans were voting for president, Hungary’s top diplomat posted on Facebook a long, slashing video attack on Joe Biden. He charged that Vice President Biden spent more time in Ukraine than in the US outside Washington’s Beltway. After that wrongway bet, Szijjártó now learns that Biden’s Secretary of State will be Antony Blinken. From 1994 to 1996, Antony’s father, Donald Blinken, was US Ambassador to Hungary. The future US Secretary of State may well be hip to Hungary’s tricks. After the US election, Hungary’s hapless Foreign Minister flew to Phnom Penh to bond with a fellow authoritarian, Hun Sen, Cambodia’s Prime Minister for 36 years. But after their embrace, Szijjártó discovered he had Covid-19. The 67-year-old Cambodian dictator retreated into self-isolation for two weeks. Thai authorities cancelled all meetings with Szijjártó and sent him home on the first flight in the direction of Budapest. With Best Regards, Jim Brooke

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Wednesday, November 25

Reality Check: No IMF Aid This Year...Finance Ministry Raises Interest Rates to Sell Hryvnia Bonds...Capital Investment Drops 29%...Israel-Ukraine Free Trade Pact Starts Jan. 1...Looking Beyond Covid, SkyUp and New Airline Plan New Flights
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Ukraine will not receive any additional tranches of IMF low interest loans this year, Tymofiy Mylovanov, former Economy Minister and newly appointed advisor to the President’s office said Monday night on the ICTV’s Svoboda Slova program. Under the $5.5 billion agreement signed last June, Ukraine received an immediate loan of $2.1 billion. By the end of December, it was to receive two more tranches of $700 million apiece.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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