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Wednesday, February 17

Berlin-Biden Talks on Nord Stream 2…Cold Snap Exposes Ramshackle Power System…Aslund: Don’t Hold Your Breath for IMF Deal…China’s DiDi Taxis Coming…Kyiv Sikorsky Airport to Expand: Bigger Planes = Fewer Planes
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

German and Biden Administration officials are discussing a package of measures that would allow the Russia-German gas line to open, but protect Ukraine’s security concerns, according to a Financial Times story headlined: “Germany aims for new deal with Washington on Nord Stream 2.” One proposal would empower Germany – or a German-American commission — to shut down the Nord Stream 2 pipeline if Russia stopped sending minimum gas flows across Ukraine, increasing risk of an all-out Russian military attack.

“As Berlin seeks solutions, early signs from Washington indicate that the Biden administration is seeking to defuse the Nord Stream 2 debate,” the FT writes. “Two knowledgeable sources said [US Secretary of State Antony] Blinken has demonstrated a willingness to minimize sanctions.” Bloomberg later posted a matching story yesterday, headlined: “Germany Seeks Deal With Biden on Controversial Pipeline.” Bloomberg quotes Mark Helfrich, a Bundestag member from the ruling Christian Democratic Union, saying: “German, EU and U.S. officials are in talks about a package of measures which seeks to enhance Ukrainian stability and European energy sovereignty.”

A cold weather spike in electricity consumption, a lack of coal, and power plant breakdowns are forcing Eastern Ukraine to import electricity from Belarus and Russia and Western Ukraine to import electricity from Slovakia, Romania and Hungary, reports Ukrenergo, the national power distribution company. As of Monday, 19 thermal power plants were offline, pulling 6,270 MW out of the system, Volodymyr Kudrytskyi, Ukrenergo’s chairman told a forum in Kyiv yesterday.

Electricity consumption last week was 6.5% more than forecast. But coal reserves fell to one third of required minimums. Thanks to imports, Kudrytskyi does not predict immediate power shortages.

DTEK Group, Ukraine’s largest private power producer, called on the government yesterday “to abolish price caps, which are an obstacle to the liberalization of the electricity market.” The company cited the example of the EU, where the cost of electricity production during peak loads can increase significantly. DTEK said: “We call on the government to intervene in the situation and immediately hold an anti-crisis headquarters with the participation of the Prime Minister.”

Ukraine’s Energoatom will soon stop sending spent nuclear fuel to Russia for processing and storage, Petro Kotin, the company head, said yesterday. In July, the Centralized Spent Fuel Storage Facility will open, he said. At the same, time, Energoatom is completing a 43 km rail connector to the facility, built by Holtec, a US company, near Chornobyl. Nuclear supplies about half of Ukraine’s electricity.

With demand strong for Ukrainian government bonds, the Finance Ministry depressed yields on all five hryvnia bonds sold at yesterday’s auction, the Ministry reported. With yields dropping from six to 44 basis points, the final range was 9.15% for 3-month bonds to 12.05% for 3-year bonds. The government sold hryvnia bonds for the equivalent of $213 million. Also posting results on Facebook, the Ministry says it sold $42 million worth of 2-year dollar bonds at 3.9% and €70.5 million worth of 1-year euro bonds at 2.5%.

Looking beyond the bland public statements surrounding Ukraine’s recent suspension of talks with the IMF, Anders Aslund, a veteran IMF observer, writes in an Atlantic Council blog: “No agreement was concluded between the IMF and the Ukrainian government recently because they fundamentally disagree about pretty much everything.” Offering the only way forward, Aslund writes that President Zelenskiy “urgently needs to refocus on the anti-corruption messages that enabled him to win landslide election victories in the presidential and parliamentary votes of 2019.” Without real actions, he writes, the IMF “has no compulsion to offer credits to the dishonest.”

DiDi, China’s giant online taxi service, plans to launch this year in Ukraine, reports AIN.ua news site. With 550 million users, tens of millions of users and billions of dollars in revenues, DiDi entered Russia last year, a first step in a plan to expand across Eastern Europe. Last week, DiDi posted on the GRC job search website that is looking for a manager to launch in Ukraine.

DiDi will compete with Bolt, Uber and Uklon for Ukraine’s taxi market, estimated by Uklon at $800 million a year. Uber, the first mover in Ukraine, now operates in seven Ukrainian cities and claims that 4.3 million Ukrainians have downloaded its mobile app. Uklon operates in 19 cities and claims nearly 3 million users. Bolt operates in 10 cities and claims 3 million users.

Taxi services got a boost yesterday when the Rada overwhelmingly approved a bill raising the penalty for drunk driving to $608. For repeat offenders, the fine is doubled to $1,216, licenses are suspended for three years and vehicles can be seized. The Rada also tripled the fine – to $60 – for drivers caught breaking the national speed limit of 50km per hour in populated areas.

McDonald’s Ukraine plans to expand a pilot program of restaurant waste recycling to all 96 restaurants in the country by the end of this year, the company announced yesterday. As part of a worldwide McDonald’s drive to switch from plastics to paper by 2025, the restaurants in Ukraine switched last year to paper cups for drinks and paper boxes for salads.

Kyiv’s 11th Regus office work space opens in Podil next month, reports the parent company, Luxembourg-based IWG Plc. Despite last year’s economic recession, total occupancy of the 10 existing Regus work spaces in Kyiv is 78%, Yulia Lytvynenko, Ukraine director of IWG, tells Interfax-Ukraine. Predicting that several large leases will be signed in coming weeks, she predicts that the overall occupancy will rise “to 83% by March.” The new Regus will occupy three floors of the new Volodymyrsky business center on Poshtova Square, near Poshtova Metro station and the Kyiv Funicular. Lytvynenko says: “The highlight, surely, will be beautiful views of the Dnipro River on the one hand and the [Volodymyrska Hill] park on the other.”

Kyiv’s Sikorsky Airport is to add 500 meters to its runway, allowing Wizz Air, its primary user, to use larger jets. By moving to Airbus 321 jets, Wizz Air says it can reduce frequencies and noise in the capital’s Zhuliany neighborhood. Wizz Air has ordered 190 Airbus 321s, which carry 30% more passengers than the Airbus 320s, currently the workhorse of Wizz Air.

Mayor Klitschko signed an order last week for design work to start on a 5-year upgrade of the airport. By expanding the runway to 2,810 meters, upgrading lights and adding an instrument landing system, the airport is to be certified to land jets in bad weather, avoiding diversions to Boryspil. Ukraine’s second busiest airport, after Boryspil, Sikorsky handled 2.6 million passengers in 2019. The City Council is mulling a second expansion: increasing the airport’s territory by 5%, to 278 hectares.

Editor’s Note: While the Zelenskiy government courts United Arab Emirates investors and investment, it  should take care of the foreign investors and managerial talent already here. In 2017-2018, Simon Cherniavsky, a British-American farm manager, turned around Mriya, an internationally notorious case of fraud. Due to his achievements, Cherniavsky was asked to turn around Ukraine’s State Food and Grain Corporation, a state company notorious for corruption. For his pains, he writes in the Kyiv Post, he now faces “a baseless criminal case…[whose] main purpose is to discredit the initiatives taken by a few reform-oriented managers and politicians who want to see Ukraine’s state-owned enterprises succeed.” His essay is worth reading – and acting upon – by people who want Ukraine to move forward. With Best Regards Jim Brooke

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Monday, February 1

Ze Sides with Biden on Motor Sich, SBU Agents Break up Chinese ‘Shareholders Meeting’…Ukraine’s First IKEA Opens Today in Kyiv…Epicenter, Foxtrot Report Strong Retail Growth…Sheraton Plans to Open in Kyiv By Year End…Kyiv Moves to Lengthen Sikorsky Runway…Russia Shuts Off Donbas, Crossings Down 99% yoy
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

State Security agents yesterday broke up a ‘shareholders meeting’ in Zaporizhia of Chinese and Ukrainian investors claiming ownership of Motor Sich, the helicopter and jet engine giant. On Friday, President Zelenskiy came down decisively on the side of the US, placing 3-year sanctions on four Chinese companies close to the Beijing government and on Wang Jing, the head of Skyrizon Aircraft Holdings, the main Chinese investor company.

Two weeks earlier, Wilbur Ross, then US Commerce Secretary, added Skyrizon to a list of companies classified as prohibited military end-users, saying its activities threaten U.S. national security. Ross said: “Skyrizon — a Chinese state-owned company — and its push to acquire and indigenize foreign military technologies pose a significant threat to U.S. national security and foreign policy interests.”

Before sending agents to break down the doors of the meeting, Ukraine’s State Security agency, or SBU, warned Sunday that it “is documenting the facts of preparation for the destruction of the production facilities of the company.” For three years, the SBU has sought to block the takeover of Motor Sich, noting the China has a military helicopter production contract with Russia, a country that is waging a proxy war against Ukraine.

Ukraine’s “actions are a barbaric robbery and a serious violation of the legal rights and interests of Chinese companies operating abroad, an unprecedented disrespect for the principles and rules of international trade,” Skyrizon warned angrily in a press statement Saturday. “Sanctions against the company are erroneous and stupid actions that can only scare away potential investors from all over the world from Ukraine, finally drive the already dying aviation industry of Ukraine into a desperate situation.”

Skyrizon vowed to proceed with its $3.5 billion suit against Ukraine. China last year became Ukraine’s large trading partner. Ukraine’s two-trade with China through October was $12 billion. By contrast, Ukraine’s trade with Russia and with Germany was $6 billion. After Washington moved against Skyrizon, China’s Ministry of Commerce said the United States was using “all kinds of excuses” to suppress Chinese companies abroad.

Skyrizon’s Ukraine partner, DCH Group of Oleksandr Yaroslavsky, was more cautious, saying yesterday that “leading law firms” had concluded that “the Chinese investors are bona fide buyers and legal owners of the acquired shares in PJSC Motor Sich.” However, the Kharkiv group concluded: “All further actions of DCH will be carried out considering our interest in the development of the Ukrainian aircraft industry and exclusively in the legal field.”

Companies from several NATO countries, including Turkey, have looked at purchasing parts of Motor Sich, a conglomerate that employed 21,000 workers a decade ago. When the war broke out between Ukraine and Russia in 2014, Motor Sich lost its biggest customer and has been struggling ever since. Foreign Minister Dmytro Kuleba said Friday: “I do not see any connection between the situation with Motor Sich and the general investment climate in the country.”

IKEA opens its first bricks and mortar store in Ukraine today, at Kyiv’s Blockbuster Mall, the company announces on Instagram. The store will be the first in SE Europe new ‘city format’ – 5,000 square meters, instead of the usual 30,000 square meters. The Swedish furniture retailer has tried to enter Ukraine for the last 15 years. It was blocked first by corruption then by construction delays at Ocean Mall.  Last May, IKEA started an internet store and was immediately overwhelmed. Since it opened distribution points in three Kyiv shopping centers:  Auchan Rive Gauche, Metro Cash & Carry and Lavina Mall.

French sportswear brand Decathlon opens this spring its third store in two years in Kyiv. With the new store, Decathlon will have 8,500 square meters of retail space in Kyiv – in Prospekt mall, Lavina Mall, and Retail Park.

Last Monday, the first day after the January lockdown, about 300,000 shoppers visited Epicenter shopping centers around Ukraine – up 50% yoy, reports the Epicenter K press service. Best sellers were household chemicals and personal care products – up 170%. “The surge in trade in the first days is quite expected, because during the three weeks of lockdown we constantly received dissatisfied feedback from customers who were not able to buy the necessary goods,” said Vladimir Goncharov, deputy director general of Epicenter K, Ukraine’s largest retailer.

Despite the harsh spring lockdown, Foxtrot achieved a 20% growth in sales of its retail electronics last year, Foxtrot CEO Alexey Zozulya reports. On line sales grew strongly, with 9 million people visiting Foxtrot.ua. Half of online buyers took advantage of the new ‘self-pickup’ service at Foxtrot stores. Sales through all channels registered this growth: smartphones +14%; TVs +28%; computer equipment +67%; and laptops +80%.

Marriott International expects to open its first Sheraton in Ukraine, at Kyiv’s Olympiysky complex, by the end of this year, according to a press release. Delayed for a decade, the hotel project received new impetus last fall when the U.S. International Development Finance Corporation approved a $27 million loan for completing the hotel. The 14-story hotel will have 196 rooms and underground parking for 144 cars. The building stands at Velyka Vaslkyivska 55, between the sports stadium and the Olimpiyska metro on the Blue line. One kilometer to the north is Marriott’s other hotel in Ukraine, Aloft Kyiv, at Esplanadna 17.

The Kyiv City Council has made a preliminary decision to expand Sikorsky’s airport’s lone runway by 22%, to 2,810 meters.  This would allow larger aircraft, such as Airbus A321, to land at Kyiv’s Right Bank airport, historically known as Zhuliany. Potentially, this would mean flights arriving from as far away as Bangkok.

Russia-controlled Donbas has virtually closed itself off from Ukraine-controlled Donbas, according to figures cited by the Kyiv Post. From 250,000 weekly crossings in January, 2020, the number of weekly crossings fell to less than 1,000 last month. Closures that started last March to contain coronavirus have become permanent. Of seven crossing points, five are closed and two, one for Donetsk and one for Luhansk, work shortened hours, only allowing crossings by people with ‘special permits.’ “Bars are open, clubs are open, the border with Russia is open, the only thing closed is the crossing points into Ukraine,” ‘Darya, a young mother, tells Post reporter Oleksiy Sorokin. “Everyone knows (the militants) are just making money on it.”

Editor’s Note: An iron curtain has descended along the 420km line that separates Ukraine-controlled Donbas and Russia-controlled Donbas. As the Kyiv Post reports crossings have plummeted to less than 1% of one year ago. The Trojan Horse was the coronavirus quarantine. This quietly evolved into severe controls, then ‘special permits’ Presto! 2 million people are bottled up on the wrong side of the fence. It should not be a big surprise. Half of the population of Russia-controlled Donbas had already left – a migration that Ukraine’s newly ascendant pro-Russian politicians prefer to ignore. It took East Germany 15 years of population drain before it started building its ‘Anti-Fascist Protection Rampart’ — the Berlin Wall. The price of that delay probably was not lost on one sharp KGB officer who served in East Germany from 1985 to 1990 – Vladimir Putin. For the rest of us, if you sleep through the history of the second half of the 20th century, you snooze, you lose. With Best Regards Jim Brooke

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Wednesday, January 27

IFC Takes Key Step for Privatizing Ukrgasbank…Ukraine Wants to Stretch Out IMF Program…In a World Hungry for Yields, MinFin Lowers Bond Yields…Western Temptresses: German and Polish Railroads Beckon Workers from UZ
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 a symbolic step toward privatizing Ukraine’s state-dominated banking sector, the World Bank’s International Finance Corporation is extending a €30 million euro loan to state-owned Ukrgasbank, which can be converted into the bank’s equity shares. Ukrgasbank is one of four state-controlled banks, a group that has 60% market share in Ukraine. Last September, Ukraine’s government approved a goal of cutting this market share to 25% in 2025. Andrii Kravets, Chairman of Ukrgasbank’s Board said: “This step comes as a key milestone in privatising Ukrgasbank and curtailing the government’s share of the banking sector.”

“Ukrgasbank will be Ukraine’s first state-owned bank to go private,” the National Bank of Ukraine said in a press release. “The new €30mn loan lays the groundwork for the bank’s transformation.” Kyrylo Shevchenko, the current Central Bank
Governor, ran the bank for a decade after its nationalization, building it into Ukraine’s fourth biggest bank, with $5.5 billion assets. “Over the past 10 years, Ukrgasbank has gone from a bank that was saved from bankruptcy in 2009 to an attractive asset for international investors,” Shevchenko said at Monday’s loan signing ceremony. “This partnership between the state and the International Finance Corporation will give customers access to cheaper resources from international capital markets.”

Concorde Capital’s Alexander Paraschiy writes: “Taking into account that Ukrgazbank was best-prepared for an international financial institution entering into its equity, and that the negotiation process with IFC took more than three years and ended up in just a loan, we can conclude that the timing of a privatization, or an IFI entering into another state bank, will be quite long.”

The IMF has raised its world GDP growth forecast to 5.5% for this year, according to its World Economic Outlook Update released yesterday. Growth is predicated on aggressive and successful global vaccination campaigns against coronavirus. Emerging market economies will rebound by 6.3% this year, the IMF predicts. Other IMF GDP growth forecasts are: India – 11.5%; China – 8.1%; Spain – 5.9%; France 5.5%; US – 5.1%; UK – 4.5%; Eurozone – 4.2%; Brazil – 3.6%; Germany – 3.5%, Japan – 3.1%; Italy, Russia and Ukraine – 3%.

Ukraine wants to extend its $5.2 billion IMF loan program by another six months, to June 2022, reports LB.ua. Approved last June, the program was designed to release the money in five tranches through the end of this year. However, after an initial release of $2.1 billion, the program stalled due to the IMF’s perception that the Zelenskiy Administration strayed from the free market guidelines.

Concorde Capital’s Alexander Paraschiy wrote: “The Fund will demand the full restoration of the recently damaged anti-corruption infrastructure. Therefore, the lb.ua allegations are in line with our assessment that the probability of Ukraine of securing next IMF tranche in 1Q21 is below 50%. A likely delay of the next tranche is not a big risk for Ukraine’s public finances as soon as there is still a high chance for renewed cooperation with the IMF in 1H21.”

The Finance Ministry lowered yields on three of four-hryvnia Government Bonds it offered at auction yesterday, the Ministry reported on Facebook. By squeezing the supply of 6-month bonds, it lowered the average yield by 87 basis points to 9.86%. For 1.5-year bonds, the yield dropped seven basis points to 11.68%, and for 2-year bonds, the yield dropped 13 basis points, to 11.81%. For 3-year bond, the yield was unchanged at 12.15%. The Ministry auctioned the equivalent of $268 million, about 60% the volume of the prior week, according to the Ministry’s website.

The Finance Ministry sold last year the equivalent of $13.6 billion worth of bonds, reports the Ministry. About one third of the bonds were in foreign currency — $3.8 billion and €800 million. State banks led the list of top purchasers: Privatbank, Ukrgasbank, Oschadbank, OTP Bank, Ukreximbank, Citibank and Raiffeisen Bank Aval. Top dealers in the secondary market were: Citibank, OTP Bank, Ukrgasbank, FUIB, Raiffeisen Bank Aval, Alfa-Bank, Kredobank and Oschadbank. At the end of December, Ukrainian banks held 52% of the bonds, the central bank held 32.5% and foreigners held 8.5%.

With Argentina and Russia moving next month to curb corn exports, Ukraine is meeting domestic consumers half way, imposing an export quota of 24 million tons, 8% higher than what pig and poultry producers wanted. High world corn prices are pushing producing countries to make they keep enough at home for domestic needs. Halfway through the marketing year, Ukraine has exported about half of its new quota for corn, its largest export crop, reports the Economic Development, Trade and Agriculture Ministry.

Ukraine’s food exports to the EU slipped by 11% last year, to €6.5 billion, the Ukrainian Agribusiness Club reports on Facebook. Ukraine was tied with China as the third largest source of imported food for the EU. In terms of market share, the ranking was: Brazil – 9%; US – 8%; and China and Ukraine – 5%. Last year, Ukraine fully used its quotas for duty-free export to the EU for 11 product foods: honey, sugar, cereals and flour, starch, processed tomatoes, grape and apple juices, eggs, corn, poultry, and processed cereal products.

Poland, Slovakia and Hungary recruit heavily for Ukrzaliznytsia’s railway workers, leading to a growing labor shortage here, reports the Center for Transportation Strategies. “There are a huge number of job advertisements for railway workers in European countries, most of all in neighboring Poland, reports the story headlined: “How Ukrainian Railway Workers Leave the Country.” “The average age of people who quit and went to work abroad is 25-45 years,” a UZ union representative tells reporter Alina Kostyuchenko. Every year, about 5% of UZ’s 260,000 workers leave UZ before retirement.

“Dmitri lokfuhrer,” or Dmitri, the locomotive engineer, is the poster boy for Deutsche Bahn’s new Ukrainian language recruiting advertisement for Ukrainian train drivers. Featuring a video of Dmitri driving a late model DB passenger train, the announcement offers: assistance with relocation to Germany, up to 1 year training in Berlin or Leipzig, a compensation package, and an open-ended full-time employment contract with Deutsche Bahn. Requirements are higher education and B1, or intermediate, spoken German. Train engineer salaries in Germany are €3,500 a month, or five times the level in Ukraine.

Editor’s Note: As Ukraine emerges from its one-month lockdown-holiday break, business is starting up again. Deals are being forged through Zoom calls. Restaurants are filling up. At the Ukraine Business News, our barometer is a steady increase in signups through the website — https://ubn.news/. In the last week, we have had meetings with supporters to work out the addition in February of two additional languages to our existing group on the site: English, Ukrainian, Russian, German, French, Spanish and Polish. Stay tuned. Meanwhile, tell your friends and business partners to sign up for the weekday morning English language email – With Best Regards Jim Brooke

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Friday, January 22

Retail Grew 8.4% Last Year…GDP Contracted by 4.4%, Far Less Than Forecast…Prime Stays Put, Borrowing Costs Drop…Biden Could Re-Start Ukraine’s Free Market Reforms…Turkey Builds Big Bridge Over Dnipro
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

Despite the coronavirus lockdowns, retail trade increased last year by 8.4% yoy in real terms, rep   orts the State Statistics Service. Fastest growth regions were: Kyiv – 19%; Zaporizhia – 16%; and Chernihiv -14%.

Ukraine’s economy contracted by 4.4% in 2020 — far less than the estimates of 6-7% made last May, when the country was still in a severe lockdown, reported the National Bank of Ukraine. Despite a slow start to 2021, the Central Bank forecasts 4.2% growth this year. The current 2.5-week lockdown, which ends Monday morning, is having only a ‘restrained’ impact on the economy, Dmytro Sologub, Deputy Governor of the bank, told reporters yesterday.

The Central Bank board decided yesterday to key Ukraine’s prime interest rate at 6%, the level it reached last June. In the 15 months prior to June 2020, the National Bank of Ukraine cut prime by two thirds, from a recent high of 18%.

Eying inflation, the Central Bank warned that if inflation increases, “the National Bank will raise the discount rate. This will curb the acceleration of inflation in 2021 and return it to 5% in 2022.” The Central Bank forecasts that inflation will rise from last year’s 5% to 7% in 2021. Pushing inflation up during the first half of this year will be: strong consumer demand, higher energy prices, higher wages and carryover food inflation from last year’s worse crop yields.

Average borrowing costs for businesses dropped by 45% over the last year, Kyrylo Shevchenko, Governor of the Central Bank, told reporters yesterday. “As for the cost of loans for businesses in the national currency, the rates decreased from 14.8% in December 2019 to 8.2% in December 2020,” he said. “For example, the cost of mortgage loans decreased from 19.6% in December 2019 to 12.1% in December 2020.”

The contract of Petr Krumphanzl, Chairman and CEO of PrivatBank, expires tomorrow. While the Board looks for a successor, leadership of Ukraine’s largest and most profitable bank will go to Anna Samarina, Deputy Board Chair for Finance. During his three years at the helm of PrivatBank, Krumphanzl, a Czech, increased the bank’s profitability and moved strongly into online banking. He also was the target of harassment – legal and physical – by employees of Ihor Kolomoiskyi, who owned the bank until it was nationalized in Dec. 2016.

President Biden should bolster “US support for Ukraine in order to get the country back on the reform track,” Andy Hunder, president of the American Chamber of Commerce in Ukraine, urges in a new essay for the Washington-based Atlantic Council. “Over the next four years, Biden can play an historic role in helping Ukraine eliminate corruption and free itself once and for all from oligarch control,” Hunder writes. Noting that Biden visited Ukraine six times when he was Vice President, Hunder writes: “Throughout this period, he consistently and outspokenly championed the East European nation’s efforts to reform and eradicate corruption.”

“The top priorities of the Biden administration’s Ukraine policy must be to curtail Russian aggression, reduce corruption, and contain the oligarchs…What Ukraine’s shady oligarchs fear most of all is US Justice,” Hunder writes in the piece headlined: “Why Ukraine’s business community has high hopes for the Biden presidency.” He concludes: “The business community is now pinning its hopes on President Biden to back Ukraine during what promises to be a decisive period in the country’s independent history.”

Turkey’s Doğuş İnşaat ve Ticaret A.Ş submitted a winning $402 million bid to win Ukravtodor’s tender build a 1.7 km cable suspension bridge across the Dnipro at Kremenchuk, Poltava oblast, the state highway agency reports. Designed to be the most modern Dnipro bridge within a 500 km radius, the Kremenchuk bridge will have four lanes and approaches suitable for heavy truck traffic moving from cargo the Left Bank to the Black Sea ports. Construction is to start this year and finish in 2024. The city’s current bridge dates back to the Czarist era and was most recently upgraded in 1949. In the 2000s, Doğuş İnşaat took part in the construction of Kyiv’s New Darnytskyi Bridge and Terminal D at Boryspil Airport.

Qatar’s state-owned power development company, Nebras, is buying control of 214 MW of Ukraine solar and wind plants from Vasyl Khmelnytsky and his partners, according to a filing with Ukraine’s Antimonopoly Committee. The sale of these eight operating plants follows the 2019 sale by Khmelnytsky’s UDP Renewables of three solar plants to a Polish unit of Spain’s Acciona Energia Global.

Germany’s shipping giant Hapag-Lloyd AG is launching three container trains from Odesa – to Dnipro, to Kyiv and to Kharkiv. Each ‘block train’ will leave Odesa three times a week with 30-45 containers. A fast-growing segment, container trains grew by 41% last year in Ukraine. Based in Hamburg, Hapag-Lloyd is the world’s fifth largest container carrier in terms of vessel capacity.

Ukrzaliznytsia carried 16 million passengers on long distance trains last year, 30% of the volume of 2019. About 15% of passengers traveled on the elite Intercity and Intercity + high-speed trains, the state railroad reports. For all long-distance trains, the most popular routes last year were: Kyiv – Kharkiv: 712,700 passengers; Kyiv-Lviv – 652,800; Kyiv-Dnipro – 561,800; Kyiv-Vinnytsia – 472,600; and Kyiv-Odesa – 383,500.

Ukraine cut its coal import bill last year by 40% yoy, to $1.7 billion, reports, the State Customs Service. Ukraine cut its volume of imported coal by 22%, to 17 million tons. In dollar terms, the top three suppliers were: Russia – $1 billion, or 62% of the total; US – $480 million, 28%; and Kazakhstan — $126 million, or 7.5%.

After this week’s cold weather, ice breakers started work yesterday in Ukraine’s four most affected ports: Bilhorod-Dnistrovs’kyi, Kherson, Mykolaiv and Olvia.

Editor’s Note: Andy Hunder hits the nail on the head. The Biden Presidency represents the last best chance for Ukraine to get back on track with EU-style free market changes. Some oligarchs may resist – openly or through surrogates. But I would not be surprised to see interesting extradition requests arriving from the US this year. With Best Regards, Jim Brooke

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Monday, January 18

Epicenter K Taps Dutch Bank to Help with $1.2 billion Investment…Shopping Mall Traffic Down, Retail Sales Up…After Delays, Corruption Charges, Gov’t Contracts UK’s Crown Agents to Buy Covid Vaccines…Russia Restarts Nord Stream 2…Ukraine Orders 8 New Transport Jets, First From Kharkiv Factory since 2014
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

Epicenter K, Ukraine’s largest retailer, plans to invest $1.2 billion through the end of next year, Petro Mykhailyshyn, Director General of the group, said Thursday at a press conference at Interfax-Ukraine. To help finance the investment, more than triple the amount invested in 2019, the company plans to raise a loan from ING, the Dutch bank. Some of the loan would be used to buy equipment from Vanderlande, the Dutch logistics automation company. Atradius, the Dutch trade insurance company, would provide cover.

Epicenter, Ukraine’s version of Home Depot, has 62 hypermarkets with a total area of ​​over 1 million square meters nationwide. Recently, the company has invested in farming and logistics. Mykhailyshyn told reporters: “We hope and intend this year to make an unprecedented investment in the development of all segments of our company, all businesses, and this is construction activities, the agricultural sector, the production of ceramic tiles and other building materials, as well as the development of logistics fulfillment centers.”

To reach Ukraine’s smaller cities, Epicenter is building up to 100 smaller format stores – retail spaces with 4-6,000 square meters, Mikhailishin told Interfax-Ukraine in an interview. Aiming at the hundreds of small cities with 10-15,000 inhabitants, Mikhailishin said: “We are developing an online system with a large logistics infrastructure, which will provide residents not only of regional centers, but also villages.”

Although attendance at shopping malls dropped by 26% yoy last year, overall retail sales were up 7.6% for the first 11 months of 2020, reports NAI Ukraine, the commercial real estate consulting company. Alarmed by the coronavirus quarantine controls, many shopping center developers pushed off openings to 2021:  stage two of the Blockbuster Mall – 55,000 square meters; Ocean Mall – 99,000; the stage two of April – 47,000; and White Lines – 21,000. With these four expansions alone – 222,000 square meters – rents will remain soft and the retail vacancy rate is expected to rise above its current level of 10%, NAI predicts in its study.

Online orders through OLX Delivery, one of Ukraine’s largest internet shopping platforms, jumped for the for the period Dec. 9 to Jan 13, compared to last year, the company’s analytical service reported Friday. Orders for men’s clothing doubled, while the check remained about the same — $20. Orders for men’s shoes were up 94%, for electronic components up 74%, and for smartphones up 63%.

Starting this week, service personnel in all stores, restaurants, cafes, pharmacies, and gas stations, must first address customers in Ukrainian. Customers are not obligated to use Ukrainian and can communicate in any language they want, including Russian or English. If a business repeatedly refuses to greet customers in Ukrainian, it will be subject to a $200 fine.

Facing complaints about coronavirus vaccine profiteering and delays, Ukraine’s Health Ministry signed a contract last week with Crown Agents, a British international development company, to buy the Chinese Sinovac Biotech vaccine. Health Minister Maksym Stepanov said that vaccinations will start in the middle of February, two months after the US and UK. The first 350,000 to be vaccinated will be: doctors and nurses working with Covid patients, ATO soldiers and workers at elderly homes.

In March, the mass vaccination of 2.5 million Ukrainians is to start. Later in the spring, people will be able to buy vaccinations – a window for foreigners to get vaccinated here. Minister Stepanov tells Ukraina 24 TV that people who are vaccinated will get ‘passports’ – certificates to facilitate foreign travel. Currently, about 7,000 new Covid cases are reported daily in Ukraine, about half the level of six weeks ago. The currently heightened level of quarantine is to ease this Sunday at midnight.

Starting tomorrow, all airline passengers traveling to the US, including US citizens, must provide a negative COVID-19 test taken within three days of travel or documentation of recovery from COVID-19. Airlines must deny boarding to passengers who do not meet these requirements. Details can be found on this US Centers for Disease Control and Prevention web page.

Russia’s Gazprom resumes construction of Nord Stream 2 this week, aiming to complete work in Danish waters by the end of May and in Germany waters by the end of June, reported Bloomberg, citing an official work schedule seen by a Bloomberg reporter. Russia’s pipe laying vessel, the Fortuna, is already in the Baltic, off Rostock, reported shipfinder.com. Germany’s Federal Maritime and Hydrographic Agency has extended the permit for laying the gas pipe on the Baltic sea bed.

Zurich Insurance Group AG has become the latest European company to pull out of the controversial Russia-Germany pipeline project, bowing to US sanctions, reports Bloomberg in a separate story. Presumably a Russian company will pick up the construction insurance that was provided by Zurich. In face of stepped-up US sanctions, Norway’s Det Norske Veritas Holding AS, a certification company, and Denmark’s engineering firm Rambøll cut ties with the project.

Foreign holdings of Ukrainian bonds ticked up 3.8% in the first two auctions of 2021, hitting UAH 87.6 billion, or $3.1 billion. Foreigners now hold 8.75% of the Ukrainian government bond market, according to Central Bank figures. The growth comes after a gradual 27.1% fall during the first 11 months of 2020. By contrast in 2019, foreign investment in the bonds increased 18-fold, ending the year at UAH 115.8 billion.

Air traffic in and out of Kharkiv, Ukraine’s second largest city, dropped by 51% last year, slightly better than the nationwide drop of 64%, reported the Center for Transportation Strategies. Worldwide, passenger traffic dropped by 60%, hitting the level of 2003, International Civil Aviation Organization reports in a study headlined: “2020 passenger totals drop 60 percent as COVID-19 assault on international mobility continues.” For Ukrainian travel agencies, sales volumes fell by 70%, Pavel Grigorash, executive director of the national Association of Travel Agencies, tells Economic Truth website.

Ukraine’s Armed Forces plan to order up to eight new An-74 multipurpose transport jets to start replacing its aging An-26 fleet, Minister for Strategic Industries Oleh Uruskiy writes on Facebook. The orders would go to Kharkiv State Aircraft Production Enterprise, a manufacturer that has not completed a plane since 2014. However, the factory has six An-74s on its assembly lines, about 70-90% complete, reports Defence Blog. Four planes would go to Ukraine’s Air Force for transport and four would to the Navy for maritime patrol. Between 1985 and 2004, the factory made 62 An-74s. The need to upgrade Ukraine’s military transport became clear last September when a 43-year-old An-26 crashed near Kharkiv, killing 26 Air Force cadets and instructors.

Editor’s Note I love antiques, but going up 1,000 meters in an antique airplane – no thanks! Ukraine has 53 An-26 transport planes in use, about half in civil cargo aviation. According to a survey by the Center for Transportation Strategies, the age range for this fleet is from 35 to 49 years. Instead of flying these planes until they crash, it’s time to invest in renewing the fleet. With Best Regards, Jim Brooke

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Thursday, January 7

Reserves Hit Highest Level in Eight Years…Corona Lockdown Starts Tomorrow – Two Cities Opt Out…France’s Macron and More European Leaders Expected in Kyiv in 2021…Pivdennyi Displaces Odesa as Pearl of the Black Sea…Road Paving Projects Will Make Driving the Carpathians Fun
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 ended the year with $29.1 billion in reserves, a 15% yoy increase, the National Bank of Ukraine reported yesterday. The highest level in eight years, today’s reserves are enough to cover five months of imports, an ample cushion over the three-month level seen as adequate.

Alfa-Bank Ukraine’s Oleksiy Blinov wrote: “This strong increase was delivered via massive FX debt placements by the Ministry of Finance. Overall, MinFin borrowed a net of $2.6 billion in December.”

In the first government bond auction of the new year, the Finance Ministry raised the equivalent of $308 million — 37% of the amount raised the week before. Choosing among four hryvnia bonds – 3-months, 1-year, 2-year and 3-years – 90% of buyers opted for 3 months at 10%. Yields were virtually unchanged from last week.

Concorde Capital’s Evgeniya Akhtyrko writes: “The drop in auction receipts after the record-high results of December is not surprising. Nonetheless, UAH 9 billion in receipts is quite a strong result for a ‘typical’ auction. The market’s skew towards bonds with the lowest term of maturity continues to reflect the perception of high risk among bond buyers.”

Dragon Capital writes: “With the 2021 budget’s deficit target set at 5.5% of GDP, government borrowing needs will remain high this year, keeping it reliant on cooperation with the IMF.”

Ukraine’s 16-day lockdown of restaurants and shopping malls starts tomorrow. Confirmed new coronavirus cases totaled 6,911 yesterday morning – one half the daily average of one month ago. In light of the drop, Ternopil City Mayor Serhiy Nadal said yesterday his city of 223,000 people will ignore the lockdown. Anatoliy Bondarenko, mayor of Cherkasy, a slightly larger city, says he will recommend to his City Council to ignore the lockdown. Nationwide, shopping centers will lose $60 million in rent and their stores will lose $400 million in revenue, Maksym Havriushyn, head of the national Council of Shopping Centers, told Interfax-Ukraine.

In face of business pressure to soften or shorten the lockdown, Health Minister Maksym Stepanov told reporters yesterday: “The Health Ministry is against the postponement of the quarantine, against its cancellation.” He said of the 23,000 people hospitalized for Covid, 10% are seriously ill and “about 200 people die from the disease every day.” Stepanov denounced as “political PR” a move by Biolik, a Kharkiv pharmaceutical firm, to register in Ukraine Sputnik V, the Russian vaccine. Stepanov told Reuters: “It would be very mild to say that we are not sure about the Russian vaccine. We do not know how the research was carried out.”

In 2020, 20 Ukrainian films backed by the State Film Agency are now screening in cinemas, and 92 new film projects were launched, Oleksandr Tkachenko, Culture and Information Policy Minister, told reporters last week in an online press conference. All theaters are to close from tomorrow through Jan. 24. During the second half of last year, many cinemas stayed open, selling a maximum of half of tickets in each hall. Attendance was down sharply compared to 2019.

French President Emmanuel Macron is one of a string of Western leaders expected to visit Ukraine this year. Next Tuesday, Moldova’s new, pro-EU President Maia Sandu will visit Kyiv, the first such visit by a Moldovan president in four years. Later this month, Sweden’s Foreign Minister, Ann Linde, visit Ukraine in her new capacity as chair of the OSCE. Macron is expected in the first half of this year, reports DN.ua, citing Ihor Zhovka, Zelenskiy’s deputy chief of staff. Zhovka also said that Italian Prime Minister Giuseppe Conte is expected to visit Kyiv this year.

Odesa region’s Pivdennyi port consolidated its position as Ukraine’s premier sea port last year, increasing cargo by 14.5% yoy, and accounting for 39% for all of Ukraine’s waterborne trade. Ukraine’s five largest ports accounted for 92% of its 159 million tons of water borne cargo, reports the Sea Port Authority. But growth was only at Pivdennyi (formerly Yuzhny), where cargo grew to 62 million tons, and at Mariupol, on the Azov, where cargo was up 8% yoy, to 7 million tons. At Mykolaiv, cargo was down 10%, to 30 million tons. At Odesa region’s two other big ports, cargo was down by 9% at Chornomorsk, to 24 million tons; and by 8% at Odesa, to 23 million tons.

To boost cargo on the Dnipro River, the Infrastructure Ministry plans to introduce a liberalized regime where captains of foreign flag vessels have to simply email an application for a port call to the Maritime Administration within three working days of the intended visit. This will replace the current system of applying for one-time permits, a cumbersome and often costly system that effectively closes the Dnipro to most foreign flag cargo ships.

President Zelenskiy last week signed the law “On Inland Water Transport,” legislation that opens the Dnipro to foreign flag vessels and allows for the creation of a dedicated fund to rebuild the locks and docks. Artem Kovalev, the Rada member who pushed for the law, has warned: “The river infrastructure is 75% worn out.” With the changes, he predicts, river cargo will triple to 30 million tons a year in 2024, the end of the Zelenskiy presidency. He said this cargo level would generation $500 million in taxes, $625 million in economic activity and 10,000 new jobs.

Provided Covid-19 vaccines are distributed extensively, the world economy will rebound this year by 4%, nearly recovering from its 4.3% fall last year, predicts the World Bank’s Global Economic Prospects forecast. According to the World Bank, growth rates in 2021 will be: US – 3.5%; Eurozone – 3.6%; Ukraine – 3%; Japan – 2.5; and China by 7.9%.

Ukrzaliznytsia increased its freight traffic in December by 7.4% yoy, transporting 26.7 million tons of cargo, reports the state railroad’s press service. By another measure, freight turnover was up 4.4% yoy, to 14.4 billion tonnes. A key indicator of economic activity, UZ moves half of Ukraine’s cargo.

As part of the ‘Small Carpathian Circle,’ a mountain driving circuit through Lviv, Ivano-Frankivsk and Zakarpattia regions, Lviv region plans to rebuild 75 km of mountain roads this year, including upgrading 37 bridges over mountain rivers. Lviv is spending $7 million on this project, the same amount as last year. Oleh Bereza, head of Lviv Region’s Road Service, cites the tourism impact, saying: “Thanks to the Small Carpathian Circle project, we will not only connect the three regions of the Western region of Ukraine with good roads, it will also allow us to revive the central part of the Ukrainian Carpathians.” The total project will cost $100 million, estimates Ukravtodor, the national highway agency.

Editor’s Note: For Ukrainians worried that this morning’s TV images from Washington look like RT’s reporting on the Rada, here is my long view. In my wannabe commie days – spring 1971 — I rode a long distance bus from New Hampshire to join the 1 million strong May Day protest in Washington. On the bus, we were instructed to run through lines of traffic on the bridges, pop the backs of VW bugs, yank off distributor caps and throw them into the Potomac. We used the Mall as our toilet, smoked dope where we could, and generally horrified the good matrons of Georgetown. The establishment media refused to talk to us, calling us ‘treasonous’ and ‘insurrectionists.’ We didn’t care. We were fighting for a worthy cause: supporting the democratic popular liberation forces of Vietnam, Laos and Cambodia. Oh, well, 16-year-olds can’t get everything right. Looking ahead, the American republic will survive this one — and probably emerge strengthened. Newsrooms might even break down and hire one — carefully vetted — right winger to talk to today’s angry young men in red. Merry Christmas! With Best Regards, Jim Brooke

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Tuesday, December 29

Foreign Debt Payments to Stay High in 2021…Chinese Freight Trains Now Come to Kyiv Weekly…UZ Wants to Lease Out Ukraine’s Busiest Rail Stations: Kyiv, Kharkiv and Dnipro…Fight Over Lithium…Bukovel Packed
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 faces a second year of high foreign debt payments in 2021– $16.1 billion. This is almost double the payments expected for 2022 – $8.6 billion – and $8.9 billion in 2023, the Finance Ministry reported on Facebook. In 2020, through November, Ukraine has paid $16.9 billion for public debt principal and interest. For 2021, Ukraine will have to pay $10.9 billion domestic debt principal and interest. The country will have to pay $5.2 billion in foreign debt principal and interest

AVELLUM law firm is emerging as Ukraine’s leading advisor on Eurobond issuances, advising on $1.2 billion worth of bonds in the second half of 2020. They were: Kernel’s $300 million offering of 2027 notes at 6.75%; the Finance Ministry’s issuance of $600 million Eurobond at 6.20%, the lowest in Ukraine’s history; and Ukreximbank’s cash tender offer of $316 million.

Since freight service started in June 2020, 22 Chinese container trains have arrived at Kyiv-Liski Left Bank station, reports Ukrzaliznytsia. The trains take about two weeks to travel 9,000 km from China to here. UZ is working with Ukrainian exporters to fill trains returning to China. One month ago, UZ and DHL Global Forwarding signed an agreement to develop rail freight between China and Europe, the railroad reports.

Ukrzaliznytsia is forcing the first private freight operator on UZ tracks to charge haulage tariffs seven times those of the state railroad, reported RBK Ukraina. Earlier this month, UZ signed the first contract for private locomotives on public tracks with Lviv’s Ukrainian Locomotive Building Company. “Given the tariffs set for private traders, the pilot project could fail,” writes RBK. With private freight trains running in Poland, Slovakia, Hungary and Romania, admission of private freight trains on UZ tracks is a Ukrainian obligation under the EU Association Agreement.

To take tractor-trailer trucks off the roads, Ukrzaliznytsia plans to offer shippers the option of sending semi-trailers to the EU on flatbed wagons, Volodymyr Zhmak, the railroad’s CEO, tells Mintrans news site. A semi-trailer is a trailer without a front axle and without the tractor. By hauling semi-trailers across borders, Zhmak said the railroad would cut the wear and tear on roads, reduce lines at border posts, and ease the problem of Poland restricting permits for Ukrainian truckers.

Five or six “large domestic and foreign investors are ready to participate” in leasing some of Ukraine’s busiest rail stations, Alexander Pertsovsky, head of UZ’s ‘Passenger Company,’ tells Mintrans. After holding conference calls with investors, UZ is preparing concession agreements, with the advice of the World Bank’s International Finance Corporation. There are seven stations that are to be leased in concession: the main passenger stations of Kyiv, Kharkiv and Dnipro, and Chop, Khmelnytsky, Mykolaiv and Vinnytsia. UZ predicts it will make $2 million a year from concession payments. At smaller stations, rental spaces for ATMs, snack bars and shops are to be leased through ProZorro.Sales, he said.

Thefts of parts from private company wagons in UZ workshops has become so bad that Lemtrans has started painting its removable parts a signature lemon yellow, reported Rail.Insider. Lemtrans, the owner of the largest private fleet of freight wagons in Ukraine, also uses GPS technology to track cars. Through August, thieves hit their wagons more than 400 times. Quadro Center, another major shipper, said thieves have stolen parts from one quarter of the company’s fleet since 2019. Last month alone, UZ reported 1,156 cases of thefts of parts from freight wagons.

VR Capital, the London-based emerging markets hedge fund, is pursuing litigation against Ukrzaliznytsia over a $300 million package of defaulted loans that VR acquired two years ago at auction from Russian lender Prominvestbank, reports Reorg Research, a London financial intelligence provider. The loans had an initial principal of $153 million, but since they matured in 2015 and 2016, the accumulated fees, penalties and interest have risen to an almost equal amount. Reporter Jack Laurenson wrote that UZ has entered into talks with VR and recognizes that VR now holds the debt.

In the first quarter of 2021, DTEK Energy will launch Ukraine’s first industrial-scale energy storage system project, DTEK CEO Maksym Timchenko announced last week. US company Honeywell is building with DTEK a 1 MW energy storage system based on lithium-ion batteries, near DTEK’s Zaporizhia Power Plant. Energy storage is seen as a key to balancing the peaks and low of solar power.

With demand high for lithium for batteries, Gosgeonadr, the state Geology Service, is trying to conduct a public, online auction of two deposits – a 40-hectare site in Donetsk region and a 300-hectare site in Kirovohrad region. “However, there are attempts through the courts to disrupt open electronic bidding,” Roman Opimakh, head of Gosgeonadr, writes on Facebook. “This is in order not to pay a fair price set by open competitive bidding.” Noting that the Donetsk site may have 13.5 million tons of lithium ore, he writes: “There is a significant demand for the ‘metals of the future’ in the world market – and this includes lithium.”

The Prosecutor General’s Office yesterday charged Oleksandr Tupytsky, chairman of the Constitutional Court, with bribing a witness to make him give false testimony. The charge comes one week after Radio Svoboda posted audiotapes in which Tupytsky tried to dissuade a Donetsk businessman from testifying against another controversial judge, Viktor Tatkov.

The Cabinet of Ministers approved yesterday seven production-sharing agreements with private and state companies for the production of oil and gas. Only one foreign company is involved – Houston-based Aspect Energy, a business in partnership with Sigma Bleyzer. A Canadian company, Vermilion Energy, dropped out in November, citing low oil and gas prices. Companies have until January 7 2021 to sign their agreements.

Ukraine’s biggest ski resort Bukovel is fully booked through the New Year’s holidays, Reuters reports from the Carpathians. With EU skis closed or inaccessible to Ukrainian tourists, Bukovel is jammed. The resort, which covers five mountains, usually draws 2 million visitors in the winter. Unlike some other European countries, Ukraine has not imposed any restrictions on travel within the country.

Editor’s Note: It’s Bukovel in a nutshell. If readers wonder why retail sales are up, foreign reserves are up, foreign trade is almost balanced, and the hryvnia is strong, the answer can be seen on the crowded ski slopes of Bukovel. Cooped up because of corona, Ukrainians have a hard time traveling outside the country this winter. So, money that would be spent in the Alps or the Dolomites is rolling through the Carpathians. One legacy of Covid may be more international standard hotels, roads and airports for Ukrainians who want to vacation at home. With Best Regards, Jim Brooke

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Monday, December 28

Retail Up, Investments Down…China Aims to Boost Ukraine Trade by 50%...Taxpayers Dwindle to 37% of Workers…Off the Books Economy Could be 50%...Vinnytsia To Become Wizz Air’s Hub for Central Ukraine
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

President Zelenskiy signed on Friday the national budget for 2021.  Expenditures are to be $46.5 billion and revenues are $38.2 billion. The deficit of $8.3 billion is to be 5.5% of GDP, forecast at $150 billion. For the Big Construction roads program, $5.3 billion is to be spent.

The budget is built around these numbers for 2021: GDP growth — 4.6%; inflation — 7.3%, public debt to GDP at 65%; average exchange rate — UAH 29.1 per dollar (versus UAH 28.39 today). Starting Friday, the minimum monthly wage increases to UAH 6,000, or $211. The budget predicts an average monthly salary of $480.

Retail sales for this year through November are up 8% in real terms, compared to the same 11-month period in 2019, reports the State Statistics Service. In November alone, retail sales were up 12.1% yoy in real terms. Analysts say this indicates that merchants were able to work about the three weekends of retail lockdown in November.

Concorde Capital’s Evgeniya Akhtyrko writes: “Retail sales in Ukraine are booming, backed by fast growth of real wages. Strong household consumption is helping the economy to offset falling investments.”

Investments were down 24% in the third quarter, compared to the same July-September period in 2019. The Central Bank attributes this to uncertainty over the Covid-19 pandemic and freezing of solar and wind projects due to unpaid electricity bills by the state.

To mitigate the impact of the upcoming Covid quarantine, the government last week distributed $80 million in aid to 278,000 employees and small business owners, the Digitalization Ministry reports. With all applications coming in through the new Diya, or Action, portal, the government plans to make all payments by this Thursday. Each payment is UAH 8,000, or $283.

Restaurants and bars can stay open until 7 am on New Year’s Day, the Cabinet of Ministers has decreed. The following weekend, on Friday January 8, a 2-week strict lockdown is to be imposed nationwide, closing restaurants, non-grocery stores, fitness centers, shopping malls, hostels, and all schools, but not kindergartens.

China, already Ukraine’s largest trading partner, could increase its two-way trade with Ukraine by 50%, to $20 billion by 2025, Irina Nikorak, executive director of Silk Link, Ukraine’s Silk Road Association, told Xinhua news agency. She said a cooperation plan for joint construction of the Belt and Road Initiative was signed Wednesday at the fourth meeting of the China-Ukraine Inter-government Cooperation Committee, co-chaired via video link by Chinese Vice Premier Liu He and Ukrainian Deputy Prime Minister Olha Stefanishina. Nikorak said Ukraine wants to become a logistics hub connecting Europe and Asia and Ukraine offers joint projects for food processing, industrial parks and IT development zones.

Ukraine is negotiating with a Chinese manufacturer for a supply of vaccines against Covid-19, Ukraine’s Foreign Minister Dmitry Kuleba said Thursday on Ukraine 24 TV channel.

Of the 30 million ‘economically active’ Ukrainians, only 37%, or 10.9 million, pay taxes, Oleksiy Lyubchenko, Head of the State Tax Service, said recently on the Freedom of Speech show of Ukraina TV. Far from getting better, today’s number of taxpayers is about half of the number of 15 years ago, he said. According to 2019 statistics, 11.8 million Ukrainians who are able to work “did not make any money,” Lyubchenko said. To him, this means that most work unofficially.

The top tax dodging regions are largely in the West: Uzhgorod – 63%; Chernivtsi – 53%; Odesa — 48%; and Lviv — 46%. In central Ukraine, rates are better: Kyiv – 30%; Chernihiv and Poltava – 31%.

Off the books transactions account for “somewhere over 50%” of GDP, Danil Getmantsev, ruling party MP and chair of the Rada committee on finance, tax and customs policy, told Radio Liberty. He called it “too optimistic” and Ernst & Young estimated earlier this year 24% of GDP. Even this rate is “terrible” as the government seeks to move Ukraine toward a tax-paying, EU standard economy.

In one step, 100,000 small businesses have downloaded the ‘cash register in a smart phone’ app since its debut August 1, 2020 Getmantsev said. As a result, there have been 100 million sales receipts using this technology. The protests in the last two weeks by small businesses of the Save FOP movement, he charges, are led by people who want to abolish cash registers altogether.

Legalized gambling will bring in $270 million in new tax revenues in 2021, Hetmantsev predicted in the Radio Svoboda interview. Gambling in high-end hotel casinos is to start in Ukraine next year.

Ukrainian Insurance Group, a unit of Vienna Insurance Group, has paid $1.3 million for a cargo of wheat destroyed on August 4 in the massive port explosion in Beirut. The cargo was insured against all risks, the company said.

In 2021, Ukraine’s air travel will only rebound to half the level of 2019, Infrastructure Minister Vladyslav Krikliy estimated in a year end interview with Channel 24. The 2019 level 25 million passengers will only be attained in 2023, he predicts.

Wizz Air plans to fly from Vinnytsia, its sixth Ukrainian city, Vinnytsia Mayor, Serhiy Morgunov, told Avianews. He said: “We are talking about the potential opening of flights from Vinnitsa to Berlin, Budapest, Vienna and Warsaw.” The Budapest-based discount carrier currently flies from Kyiv Sikorsky, Kharkiv, Lviv, Odesa and Zaporizhia.

In 2021, the Infrastructure Ministry plans to spend $21 million to upgrade the runway of Vinnytsia, the nation’s 11th busiest airport.  At the same time, the city is going to upgrade the terminal to simultaneously handle two medium haul jets of the Boeing 737 size. In 2018, the airport handled 60,000 passengers, a recent peak. After losing UIA service to Boryspil that year, the airport reverted to only serving charter flights.

Starting today, Turkey, the top foreign travel destination for Ukrainians, requires a negative result of PCR coronavirus test performed 72 hours before arrival. Egypt, the other leading destination for Ukrainians, adopted a similar requirement earlier this month.

Editor’s Note: It always seemed odd that Ukrainian cities rely on foreign aid to buy buses and trams. But, if no one here pays taxes, why not tap into the foreign taxpayer money of the EBRD, EIB and World Bank? With Best Regards, Jim Brooke

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Friday, December 25

Ukrainians Go on Internet Shopping Spree…Ukraine’s IT Sector Makes the Big Leagues…Foreign Ministry Pulls Out Huawei Equipment…Ukraine Builds Its Longest Highway…No Plans to Cut Flights During the Holidays
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

Internet purchases by Ukrainians grew 41% in 2020, to top $7 billion, estimates a new study by EVO, an umbrella group of online companies. Last year’s growth was only 17%. “One year ago, we forecast e-commerce growth in Ukraine in 2020 at 15%, the pandemic has significantly adjusted it,” EVO reports. For next year, EVO is forecasting growth of 33%. Today, about 9% of all Ukrainian purchases are online.

Sixty-six Ukraine-connected IT firms have made the annual ranking of top 1,000 leading information technology companies worldwide, published by Clutch, a Washington-based matchmaker for IT companies and contractors. The Kyiv Post reviewed the list and determined that almost 7% have strong Ukraine ties. The list includes foreign companies with R&D  centers in Ukraine  – Ciklum, Sigma Software, Daxx, and AltexSoft – and largely Ukrainain firms — Intellias, Digis, OTAKOYI, and Frontmen.

Ukraine’s IT sector grew by 20% last year, fueled by 4,000 IT companies in the market, according to a new report: “Ukraine: The Country that Codes.” The 56-page industry overview prepared by software developer N-iX says the number of IT workers in Ukraine doubled in five years, hitting 200,000 today.

In a rebuff to China, Ukraine’s Foreign Affairs Ministry has decided to remove all Huawei equipment from its buildings. “Several other government agencies have followed this example,” the Foreign Ministry said. Prime Minister Shmygal tweeted that Ukraine is joining the US ‘Clean Network’ initiative, which aims to protect confidential information and intellectual property. He tweeted: “Ukraine supports the principles of The Clean Network and will remain a reliable partner for investments by technology companies from all over the world.” US officials say this move will help Ukraine integrate into NATO and the EU, as most members of these alliances are in The Clean Network.

The US government may help Ukraine pay the price difference between Huawei equipment and comparable equipment provided by Western companies, Keith Krach, US Under Secretary of State for Economic Growth, Energy, and the Environment, told Radio Svoboda on Tuesday. “You may ask yourself: why is China’s offer lower? Why do they provide such cheap services? Because they want your data,” he said. Referring to the U.S. International Development Finance Corporation, he added: “The US government, in particular the DFC, can cover the price difference.” The Kyiv Metro’s new 4G mobile system, completed this week, is built with Huawei equipment.

Ukraine netted $90 million in 419 privatization auctions this year, Economy Minister Ihor Petrashko said on Channel 24 TV, reported the Ministry. By using a transparent internet-based auction system, the State Property Fund managed to push average sales prices up three times over asking prices. Next month, the Rada is to vote on a government bill to sell large state companies. This process could net around $500 million this year, the government estimates.

The latest property of state alcohol producer Ukrspyrt was sold at auction yesterday for $2 million, almost double the asking price, reports the State Property Fund. With almost half of Ukrspyrt’s 41 properties now sold, the Fund calculates that the state will net $70 million from the privatization. Starting next July, the only way a private investor can start new alcohol production in Ukraine is to produce from a property privatized from Ukrspyrt.

In a nation building exercise, President Zelenskiy plans to inaugurate next year a Lviv-to-Luhansk highway, the longest in the nation. Labelled the M-10, this east-west road would run 1,392 km, almost twice the distance of Paris to Marseilles. Without waiting for full completion, Zelenskiy plans to inaugurate the M-10 on August 24, the 30th anniversary of Ukraine’s Independence. Polls indicate road building is the most popular achievement of the Zelenskiy government.

We want to unite the West and the East with a big highway,” Zelenskiy said yesterday, speaking at the inauguration of the first section of Zaporizhia’s bridge over the Dnipro. Providing a new, international standard route to Stryi and the EU, the M-10 is expected to quickly double its traffic, to 40,000 vehicles a day.

With a two-year budget of $500 million, the M-30 saw 580 km restored this year. Another 750 km are to be repaired by the end of next year. For now, the high-speed road will terminate in Pokrovsk, Donetsk. Most of the final 200 km, through Luhansk to the Russian border, are in the Russia-controlled section of the Donbas.

Ukraine’s Cabinet has approved a $20 billion development plan to rebuild the Ukraine-controlled half of the Donbas. Although multilateral institutions, such as the World Bank and the EBRD, are funding infrastructure projects in Ukraine-controlled Donetsk and Luhansk, little private investment has followed.

Concorde Capital’s Zenon Zawada writes: “Such economic development concepts will remain a fantasy for as long as the situation with the war in Donbas remains as it currently is, which is low-level fighting accounting for a handful of injuries and casualties per week.”

The US is preparing new sanctions to block Russia’s Nord Stream 2 gas pipeline, Reuters reports citing three Trump Administration officials. Relying on existing mandates from Congress, the Administration would sanction the dozens of EU companies helping Russia to lay the pipeline under the Baltic Existing sanction have caused the $11.6 billion project to run one year and $1 billion over budget. Although a Gazprom vessel is to resume work in Danish waters on January 15, one US official said of the executive order sanctions: “Now we’re in the process of driving a stake through the project heart.”

Ukraine does not plan to restrict air travel during the holidays. “The government understands that people are in the mood for the holidays and does not plan to impose any restrictions on air traffic,” Foreign Minister Dmytro Kuleba said yesterday in an online briefing.

UIA is ending this year with a passenger count of 1,787,000 – only 22% of the level of 2019. Transit passengers declined with UIA’s hub system, falling to 14% of last year.  The number of flights was 17,000, 28% of last year’s levels. To survive, the airline laid off 1,000 employees last summer.

Seeking to put its airplanes to use, UIA is offering ‘flights to nowhere’ – one-hour sightseeing flights over Kyiv. Passengers are guaranteed to fly above the clouds and to see the sun, a winter rarity. If all 116 seats fill up on the Embraer 195 jet, the price per person will be $75. “A real New Year’s gift – a one-hour flight over Kyiv,” beckons the announcement on the UIA website. The airline also says: “A lottery with valuable aviation prizes will be held for passengers on board.”

Editor’s Note: Ok, it’s not Russia’s Trans-Siberian Railway (9,289 km), the Trans Canada Highway (7,821 km) or the US Transcontinental Railroad (3,077 km), but Zelenskiy’s Lviv-to-Luhansk M-10 (1,392 km) motorway follows the same principle of nation builders from 150 years ago. By building an East-West highway, Ukraine’s government will slash travel times and integrate the nation. Today is ‘Catholic Christmas’ in Ukraine, a banking holiday, but more importantly a time for people of all faiths to reflect and relax. Merry Christmas! With Best Regards, Jim Brooke

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Thursday, December 24

US Aid to Ukraine Under Threat…Ukraine to take $350 million Bridge Loan from Deutsche Bank…Gov’t Wants to Restart Big Privatization…Road Repairs to Increase by 50% Next Year...EIB Approves €270 million loan for Boryspil…Construction Starts Next Year on Ukraine’s Biggest Ski Resort
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

Outgoing US President Donald Trump vetoed yesterday the US defense budget, a document that includes $275 million in military support for Ukraine and tighter sanctions on Western companies involved in Nord Stream 2, the Russia-Germany gas pipeline. Trump returned the budget to the House of Representatives, calling it “a gift for China and Russia.” The House is expected to return Monday to vote on an override. Joe Biden is to be inaugurated President on Jan. 20.

US Aid to Ukraine is coming under threat from a different direction – dissatisfaction over the coronavirus stimulus bill, which would give payments of $600 per person. On Tuesday, President Trump called the checks “ridiculously low,” calling for payments of $2,000. A growing debate focuses US foreign aid, including the $453 million military and civilian aid planned for Ukraine this year. “This is a sensitive area for voters and lawmakers,” writes Newsweek. “Though foreign aid typically makes up around one percent of the entire federal budget, public perception is that the U.S. gives out far more. Polling suggests Americans believe the country spends up to a third of its entire budget on foreign aid.”

Over the next week, Ukraine will attract a 6-month loan from Deutsche Bank of up to $350 million, the Cabinet of Ministers resolved yesterday. The move to take a bridge loan indicates that the government only expects to get a second tranche from last summer’s IMF agreement by the end of May. The IMF tranche is to be for $700 million. The Cabinet’s resolution authorizes a loan at LIBOR + 5.75%, or almost 6%. By contrast, at the Finance Ministry’s weekly auction on Tuesday, investors bought $138.5 million worth of 1-year government dollar bonds at 3.8%.

The Cabinet of Ministers approved yesterday a bill to resume privatization of large state-owned companies, a process suspended last March due to the coronavirus outbreak. With investors now familiar with road shows on Zoom, the government wants the Rada to unfreeze ‘large’ privatizations. Slated to bring almost $500 million to the budget in 2021, the privatization plan calls for selling next year: five thermal power plants, three regional power plants, the former Bolshevik plant, the Odesa port plant, the United Mining and Chemical Company, and Kyiv’s President Hotel.

By Jan. 4, acting Energy Minister Yuriy Vitrenko is to prepare a solution for paying the $921 million solar and wind power debt owed by the government’s Guarantee Buyer. Prime Minister Shmygal set the deadline at yesterday’s Cabinet of Ministers meeting.

Today, the first cars are to roll across the first completed section of Zaporizhzhia’s new road bridge over the Dnipro. Long lampooned as the city’s white elephant, the unfinished bridge saw construction resume last year by a Turkish construction company. The first leg of the completed bridge crosses the ‘Old Dnipro’– the narrower channel that separates Khortytsia Island and the right bank community of Baburka.

The Infrastructure Ministry plans to restore 50% more roads in 2021 than this year, Minister Vladyslav Krikliy told Interfax-Ukraine in a wide-ranging interview. The 2021 goal is now 6,800 km.  “Another three years at this rate, and we have all roads of national importance will be built – international and national roads for sure,” Krikliy said.

Planning to open select highway sections to privately built and operated toll roads, the Cabinet of Ministers yesterday set tolls, measured in Euros. For cars, motorcycles and minibuses up to 10 seats, the toll will be €2.3 for 100 km. For trucks up to 12 tons and buses up to 29 seats, the toll will be €4.5 for 100 km. For big trucks and buses, the toll will be €13.3 for 100 km. For example, to drive a car down one likely stretch – from the Lviv ring road to the Krakovets border crossing – the toll would be €1.38.

Road repair was the most popular phenomenon of 2020, winning the approval of 93% of 2,004 participants in a nationwide poll. The poll was conducted in the first half of December for the Kyiv International Institute of Sociology. The most unpopular phenomena were the war in the Donbas and the coronavirus epidemic, winning negativity ratings of 99.2% and 99.4% respectively.

The Infrastructure Ministry plans to start laying European gauge track in Ukraine next year, Krikliy told Interfax-Ukraine. The priorities are two sections of Ukrzaliznytsia’s track to the Polish border. Construction of 80 km from Lviv west to the border crossing at Mostyska, would create a direct Lviv-EU link capable of generating traffic of 600,000 passengers a year, the railway calculates. Further north, construction of a similar 65 km Euro-gauge line west from Kovel to the Polish border would allow the city to become a major hub for Chinese container traffic bound for the EU. Five rail lines converge on Kovel, a Volyn Oblast city.

By opening Ukraine’s 13 state-owned seaports to private companies through concessions, the government hopes to draw $1.8 billion in private investment through 2038. These concessions – largely renting wharves, land, cranes and warehouses – would generate almost 5,000 new jobs, according to a new Seaports Development Strategy approved yesterday by the Cabinet of Ministers.

The European Investment Bank Board has approved a €270 million loan to upgrade Boryspil Airport, the Bank’s website reports. The money would cover about three quarters of a €351 million Boryspil renewal project. The upgrade will focus largely on the Western runway, a 3,500-meter concrete strip “which has been operating for more than 50 years and is in poor condition,” the Bank says. The loan is covered by EU guarantees, which means the contractor must follow EU procurement rules. Last year, Boryspil handled 62% of Ukraine’s 24 million air passengers.

Construction is to start next summer on a 4-year, $500 million project to build Ukraine’s largest and most modern ski area in Lviv’s Carpathian Mountains. Based in Volosianka, a 3-hour train ride south of Lviv city, the area is to have more than 60 trails. Its technology and design are to be one decade ahead of Bukovel, says the developer, OKKO Group Holding. The prime mover is Vitaliy Antonov, OKKO’s founder and main shareholder. A native of nearby Stryi, Antonov worked for four years after university in mountaineering and mountain rescue. Other investors in OKKO are the EBRD, Goldman Sachs, Horizon Capital and Genesis Asset Managers, LLP.

Editor’s Note: Oleksandr Tupytsky, chairman of the Constitutional Court of Ukraine, enjoys the perks of power – dressing up in silk robes, wearing an impressive medallion on his barrel chest, and presiding over the highest court in the land from a hand-carved wooden throne. But if tape transcripts published by Radio Svoboda’s Schemes investigative unit are to believed, Tupytsky has the mouth of a 1950s American hoodlum. Warning a Donetsk business man who planned to testify in a corruption probe of a fellow judge, Tupytsky allegedly warned: “I just wanted to warn you that you shouldn’t do that shit…It will not lead to anything.” In another tape, he threatens to open a criminal case against business man for “financing terrorism” in Russia-controlled Donbas. Then, he seems to extort money to solve the legal problem: “If you and he deemed it necessary to give me a kopeck for my participation in these matters, I wouldn’t refuse.” Tupytsky also complains of his early career trauma when he served in 2010-2013 as a judge in commercial appeals courts and watched bribes go over his head. Recalling this humiliating experience, Ukraine’s top judge says bitterly: “Nobody even gave me a fucking kopeck — and everything was channeled above.” Mykhailo Zhernakov, board chair of Kyiv’s DEJURE Foundation, says that we should stop being deluded by fancy robes and impressive titles. Writing in the Atlantic Council’s Ukraine blog, he recommends: “It’s time to start treating Ukraine’s corrupt judiciary as a criminal syndicate.” With Best Regards, Jim Brooke