Background Image

Tuesday, August 18 – the biggest impact of strikes spreading across Belarus

Belarus Strikes May Starve Ukraine’s Roadbuilders of Asphalt...Belarus Eurobonds: Worst Performers of Emerging Markets...Ukraine’s Garage Sale: Government to Auction Leases for 4,262 Empty Buildings...A Rebound Coming? Ukraine Buys Back GDP Warrants...
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

For Ukraine, the biggest impact of strikes spreading across Belarus may be a shortage of asphalt for President Zelenskiy’s $3 billion drive to pave 4,000 km of highways this year. Ukraine imports half of its asphalt in heated, liquid form from Belarus. “Objectively, there is nothing to replace Belarusian volumes — and this is half of the market,” Serhiy Kuyun, director of the A-95 Consulting Group, writes on his Facebook page. “Russian supplies are closed, and Ukrainian traders are just mastering imports by sea.”

Ukraine also gets about one third of its diesel and gasoline from Belarus. But the strikes and slowdowns will only result in a ‘hiccup’ for Ukrainian prices, Kuyun predicts. “First, we have been living with a huge surplus of diesel fuel and gasoline for half a year. Traders sell it to zero at best, the market is so overwhelmed. Second, the Ukrainian market is open for supplies from all sides.”

Most of Ukraine’s imports of Belarus petroleum products come from the Belarus’ largest refinery, in Mazyr, on the Pripyat River, 250 km north of Kyiv. According to Argus Media, it appears that Mazyr workers will be on a 3-hour lunchtime strike this week. At Naftan refinery, near Belarus’ northern border with Lithuania, workers are on strike. The refinery which is owned by Belneftekhim, was already shut down for scheduled maintenance.

On the IT front, Ukrainian IT companies are “already accepting individual divisions of IT companies in Belarus as guests,” Olha Kunichak, manager of the European Business Association’s IT Committee tells Interfax-Ukraine. “Ukrainian IT companies are ready to cooperate and help our northern neighbors.” To restrict protesters, the Belarus government has been shutting off the Internet. Ukraine started this summer a fast track program to grant work permits to foreign IT specialists. According to Ukraine’s Ministry of Digital Transformation, Ukrainian universities only graduate 15-17,000 IT specialists annually, while the fast-growing sector needs 40,000 a year.

Belarus Eurobonds handed investors a loss of 5.1% this month, the worst performance in emerging markets, according to a Bloomberg Barclays index. Since the 2031 bonds were issued on June 25, the yield is up by one percentage point.

Ukraine is recalling its ambassador from Belarus to protest Lukashenko’s “repeated and groundless” statements against Ukraine, Ukraine Foreign Minister Dmytro Kuleba said yesterday. President Lukashenko’s return to of Russia mercenaries who had fought on the separatist side in the Donbas war, “derailed the trust between our nations and inflicted a heavy blow upon our bilateral relations,” Kuleba said.

Leases for 4,262 empty buildings totaling 2.5 million square meters – or 10 times New York’s Empire State Building – will go up for electronic auction this fall under streamlined rules approved last week by the Cabinet of Ministers, announces Leonid Antonenko of the privatization department of the State Property Fund. The full of list of leases to auctioned by ProZorro.Sales includes: 1,070 offices, 837 warehouses, 566 factories, 61 spaces at airports, and six sites for renewable energy plants at Chornobyl. While much of the vacant space is in the big five cities, there are thousands of square meters up for lease in Cherkasy, Kropyvnytskyi, Mykolaiv, Rivne and Zaporizhia.

Ukraine ranks first in a ranking of 39 Eastern European and developing countries for public procurement transparency. Following 64 indicators for the Transparency Rating, the authors placed Ukraine at the top with a score of 97% and Tajikistan at the bottom with a score of 38%. Poland got  74%, Hungary 67% and the Czech Republic 65%. Russia and Belarus were not studied by the group, the Soros-funded Institute for the Development of Freedom of Information. For the last four years, all government purchases of goods worth more than $7,300 have to go through the ProZorro on line tendering system.

Ukraine’s Finance Ministry has repurchased about 10% of outstanding GDP-linked securities, the Finance Ministry announced Friday on the Irish Stock Exchange. Known as GDP warrants, the securities have payouts triggered by two consecutive years of GDP growth. By spending up to $300 million to quietly buy back these securities, the government may be expecting a post-Coronavirus growth bounce next year. After Ukraine’s economy GDP fell 11.4% in Q2, the central bank predicts that economy will shrink by 6% this year, and rebound by 4% next year.

Concorde Capital’s Alexander Paraschiy calculates that the purchase was at 90% of par and writes: “This is also a good signal for the holders of GDP warrants, as it indicates MinFin is anticipating large payments under the warrants in the mid-term.”

Timothy Ash writes: “Now most official forecasts have a 4% plus growth for 2021.With the changes at the [central bank], the Zelenskiy administration is going for a pro-growth agenda, which might mean lower rates, cheaper currency, perhaps looser fiscal – note minimum wage hikes.

In a sign the Corona-recession has eased, Ukraine’s electricity consumption in July was only 0.7% below last year’s level, according to Ukrenergo, the nation’s state power transmission company.  Industrial consumption was down 3.2% yoy, but household consumption was up 4.7% and consumption by chemical industries was up 15%.

The central bank expects to receive the second tranche from the IMF by the end of this year, Kyrylo Shevchenko, the new governor of the National Bank of Ukraine, says in an interview with RBK-Ukraina. The IMF approved the 18-month, $5 billion program on June 9, and the first tranche — $2.1 billion — was disbursed three days later. Release of the remaining $2.9 billion depends on four reviews. However, Shevchenko’s predecessor, Yakiv Smoliy quit on July 1, citing pressure from President Zelenskiy. Since then, talk of a September review has faded.

Last week, the central bank bought $223 million, strengthening the hryvnia mildly to UAH 27.3/$1. So far this year, the National Bank of Ukraine has bought $1 billion more than it sold, latest data show. Demand for dollars this summer has been weak as vacationers are largely bottled up inside the country, unable to take advantage of visa-free access to the EU.

Last year, Ukrainians made 26 million trips out of the country, while foreigners made 15 million trips here, according to the State Statistics Service. Tourism accounts for only 1.5% of Ukraine’s GDP, well below Belarus – 6.4% — and Georgia – 26.3%. To generate more inbound tourism, Ukraine has dropped visa requirements for Chinese tourists and allowed Indians, South Africans and Filipinos to apply for visas on line. “Simple arithmetic shows the advantages of visa liberalization: the average check of one Chinese tourist in Ukraine is about $950,” says SkyUp, Ukraine’s discount airline. After coronavirus and visa barriers drop, SkyUp mulls launching flights to: China, India, Bahrain Saudi Arabia, Kuwait, Oman, UAE, Qatar, Egypt, Lebanon, and Tunisia.

Reminder: UIA is offering two direct Kyiv-New York-Kyiv flights – next Monday Aug. 24, and the following Monday, Aug. 31. No additional New York flights are scheduled. Tickets only are available through the UIA site:  https://www.flyuia.com/ua/en/home.

From the Editor : In October 1991, I interviewed Stanislav Shushkevich, Belarus’ first president, who was then one month into the job. A smart man, Shushkevich has a doctorate in physics and was, oddly, chosen by authorities in Minsk to teach Russian to the American defector, Lee Harvey Oswald. Reporting for The New York Times, I asked Shushkevich a question of interest to my readers: “How many nuclear bombs do you have?” He responded: “I have no idea. Ask the Red Army.” Then, as in now, the biggest questions in Minsk are often answered 700 km to the east, in Moscow. This week, we may see whether Moscow props up Lukashenko for a few more years, or eases him into a sunny retirement at his hillside chalet above Sochi. With Best Regards Jim Brooke

Background Image

Monday, February 24

Global Warming Lengthens Road Construction Season...Turks Win Tender to Finish Zaporizhia Bridge...Russia’s ‘Inspections’ On Azov Cost Shippers $45 million...Kyiv Outshops Moscow...Price of Gas Imports to Drop in Half by Summer...Coal Mines to Close in 2020s
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

Thanks to Ukraine’s mild winter, highway workers fired up their bulldozers last week and started work on 34 projects in 14 regions, reports the press service of Ukravtodor. “A record early start was caused by favorable weather conditions,” reports the national highways agency. Working through November, Ukravtodor plans to spend a record $3.5 billion this year to upgrade 4,000 km of national roads and 2,500 km of local roads.

Turkish construction company Onur submitted a winning $488 million bid to complete the long unfinished bridge across the Dnipro at Zaporizhia, Ukravtodor reports on Facebook. The ProZorro tender called for building a 9 km highway with six interchanges and two major bridges — the highway connects Khortytsia island with the right and left banks of the river. The unfinished bridge has been a city landmark since construction first started 16 years ago. The Zelenskiy Administration wants the project completed by the end of 2022.

Turkish construction company Cengiz has signed a memorandum of cooperation to upgrade the M14 road between Mariupol and Nova Kakhkova to the level of an international highway. Planner see upgrading this 350 km east-west route as key to easing the isolation of Berdyansk and Mariupol, Ukraine’s main ports on the Azov.

Russia has detained 2,249 ships since Kerch Strait naval clash of November 2018, Andriy Klimenko, editor in chief of the BlackSeaNews portal. With each detention for ‘inspections’ lasting an average of four days, shippers have lost $45 million, Klymenko told a European Parliamentary delegation last week in Brussels. He said: “More than half of the ships subjected to unreasonable detentions in the Kerch Strait are related to the EU — having a European flag, shipowner, or port of destination.”

Confounding stereotypes, the Kyiv metro area has 50% more ‘high quality retail space’ per capita than the Moscow metro area, according to new statistics by UTG, the Ukraine real estate consultancy. Kyiv’s metro population of 3.7 million people has 1.8 million square meters of shopping space, or two people per square meter. Moscow’s metro population of 12.5 million people has 4 million square meters of shopping space, or three people per square meter.

With Russia’s economy stagnant, the gap may grow.  Without counting 21 Kyiv region malls in ‘concept’ stage, Kyiv is to add 550,000 new square meters – a 30% increase from today’s levels — by the end of next year. This would raise Kyiv’s retail saturation to 1.6 people per square meter, about double Moscow’s.

In Kyiv, 241,000 square meters of new retail space went on the market last year. This is 50% more than the 159,000 square meters of gross leasable area that went on the market in 2018. With the new supply, Kyiv’s overall retail vacancy rate is creeping up, hitting 7.8% in December. For regional malls, the vacancy rate is twice as high – 15.4%, reports UTG.

Ukraine’s retail sales are expected to grow by 10% this year, matching last’s growth. Growing three times as fast as GDP growth, retail is fueled by $1 billion a month in remittances from workers outside the country and the large portion of Ukraine’s economy – as much as 50% — that is off the books.

Supermarket chain Novus plans to open 10 new stores in Kyiv by the end of 2021, Ihor Landa, CEO of BT Invest Ukraine, the company that runs Novus, tells Interfax-Ukraine. He says the chain plans to expand because purchasing power is growing in greater Kyiv, now home to 10% of Ukraine’s population. Novus has 750 unfilled job vacancies.

For the first time, Ukrainian regional real estate projects will have their own stand at MIPIM, the leading European investment exhibition for the international real estate market. On show will be Ivano-Frankivsk’s Promrylad, a $25 million project to convert a Soviet era factory into modern multiuse space, says Anna Nestuly, Ukraine organizer of Ukraine’s delegation to the March 10-13 fair in Cannes. Counting the Kyiv city stand and the Ukraine regions stand, Ukraine’s delegation is to number 100, double the size of 2018. Participants include: Altis Holding, City One Development, DELTA Ukraine, Dragon Capital, Intergal Bud, Invest in Projects, Mandarin Plaza Group, Midland Development, Toronto-Kyiv, TK Property Management and UDP.

Ukraine should aim to triple IT workers, to 650,000, and nearly triple IT export revenue, to $13 billion a year, Kira Rudik, a leader of the Rada’s Digital Transformation Committee, said in Zaporizhia. “The IT industry is growing fast,” said Rudik, former CEO of Ring Ukraine, now owned by Amazon.  “We are an agrarian country. We have every chance to become a technological country. What we need to do to achieve this is increase export revenue to $13 billion a year.”

With talks over the green tariffs adrift for the last six months, Prime Minister Alexei Goncharuk said Friday: “We anticipate serious problems for our energy sector to serve such high obligations…We also do not stand and do not support a retrospective change in the rules.” With investments frozen for many new projects, investors say the government is not showing adequate political will to forge a consensus with industry on tariffs.

Ukraine’s import price of gas may drop in half this summer – to $80 per 1,000 cubic meters – predicts Oleksiy Orzhel, Energy and Environmental Protection Minister. In January, Ukraine’s average price of imported natural gas was $175.26, already a 10-year low. With production sharing agreements coming up for auction in coming months, Orzhel warns ultra-low prices will turn off investment. He said Friday: “It will be very difficult to make decisions to invest in production…many companies have frozen their further extraction investment projects.”

The government plans to close most of Ukraine’s coal mines during this decade, Minister Orzhel said Friday at a presentation of a revised draft Concept for a Green Energy Transition To 2050. The cutoff level for production will be $40 a ton. “Very few facilities will be competitive,” Orzhel said, outlining a policy that he predicts will outlast the five-year Zelenskiy Administration. Referring to the social impact, he said: “It will not be shock therapy, but gradual closures.”

Russian health officials took a Chinese woman with symptoms of a respiratory illness off a Kyiv-Moscow train in Bryansk, Russia. The woman was hospitalized in quarantine. She and five Ukrainian passengers in the rail car later tested negative for coronavirus. The rail car was decoupled from the Ukrzaliznytsia train, sanitized., and isolated.

From the Editor:  With Ukraine’s new public/private concessions to expand from ports to airports, to railroad stations and to toll highways, foreign investor interest will be high next month at the Ukrainian Transport Infrastructure Forum. The Ukraine Business News is proud to be a media sponsor for Forum which the Strategy Council will hold March 31 at Kyiv’s Premier Palace Hotel. The schedule can be found here. With Best Regards, Jim Brooke jbrooke@ubn.news