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Tuesday, November 24

Retail Sales Surge, More than 300 Supermarkets Open...Weekend Quarantine Hits the Retail Brake in November...PM Draws up Plan B: Christmas-New Year’s Lockdown...Zelenskiy Gets Out of Hospital, More Pols Fall Ill...Editor’s Note: Rivne Perks Up
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 spring coronavirus lockdown, retail sales for the first 10 months of this year are up almost 8% yoy in real terms, reports the State Statistics Service. In Kyiv, the nation’s biggest market, January-October sales are up 17% over last year’s level for the same period. Nationwide, sales were hot this fall – up 11.6% in September and up 15.2% in October.

Concorde Capital’s Evgeniya Akhtyrko writes: “Retail sales in Ukraine are surging, backed by fast growth of wages. The strong household consumption is helping the economy to offset the fall in investments. We expect Ukraine’s retail sales to increase 9% yoy in 2020 (vs. 10.3% yoy in 2019).

During the first half of this year, more than 300 new grocery supermarkets opened in Ukraine, a record figure for the last  decade, reports NAI Ukraine, the commercial real estate consulting company. In the fast moving consumer goods segment, the leaders were: ATB network +56; Kolo +47; Delvi +18; Fozzy Group +17; Varus +12; and Novus +8. Forbes Ukraine places  ATB among the top three biggest businesses in the country.

For household goods, Danish chain Jysk opened 13 new stores in the first half. Epicenter opened seven and Leroy Merlin opened two. Chains specializing in cosmetics, electronics and clothing also expanded store networks.

“The opening of new stores is due to the dynamic growth of retail after the lockdown,” NAI tells Interfax Ukraine. “[Because] Ukrainians visited foreign countries less, about $ 3.8 billion remained in the country in the second or third quarters, opening up even greater opportunities for the domestic market.” Profitability of retail real estate development is about 10% per year, with a payback of about nine years, NAI Ukraine said.

The Fora supermarket chain expects to double deliveries in 2021 through delivery services, compared to this year, Yevhen Trishyn, Fora’s digital technologies director, told reporters recently. He said: “According to our vision of the market, the number of purchases with small and medium check will grow especially rapidly.” At several stores in central Kyiv, Glovo deliveries account for 10% of the store’s turnover.

Due to the spring coronavirus lockdown, Glovo grew in Ukraine 40-50% faster than its plan for 2020, says Dmytro Rasnovsky, Ukraine general manager for the delivery service. Known for its trademark yellow boxes, Globo underperformed its financial targets by 20%, largely because it kept prices low to grow the market. Saying the Barcelona-based company is investing “millions of euros” in Ukraine, he said: “We will invest to create a market. Now is not the time to raise rates.”

During the first weekend quarantine of November, sales volumes fell by 45% compared to the previous weekend, Ukrainian Processing Center tells Interfax-Ukraine about use of 7.8 million cards of its 19 client banks. During the weekend of Nov. 14-15, the number of payments through point of sale terminals dropped by 27%, to almost 3 million, and the turnover on these operations fell by 45%. Alexey Puznyak, of Raiffeisen Bank Aval, tells Interfax-Ukraine that on Saturday Nov. 14, the number of transactions with its bank cards through terminals was down 31%. On Sunday Nov. 15, it was down 47%. He said: “If in the segment of supermarkets there was practically no fall, then, for example, in the segment of clothing trade there was a decrease by more than 90%.”

To avoid ‘Black Friday’ shopping mob scenes, many Ukrainian shopping center are opting for social distancing alternatives. Kyiv’s Gulliver shopping center has replaced its planned Friday-Saturday-Sunday sales with sales all this week, Tatiana Atadzhanova, the mall’s PR director tells Interfax-Ukraine. To further spread out shoppers, the mall is closing one hour later than normal — at 23:00. In contrast, Ocean Plaza, Dream Town, and Sky Mall will hold ‘Black Friday,’ keeping stores open until 23:00, one hour before the weekend quarantine starts.

With new infections increasing late last week by 14,500 a day, Ukraine’s government adopted a system of ‘Priority Hours,” for people over 65 years of age to go shopping. The shopping window of 10 am to noon is reserved for this group, which has the highest mortality rate from Covid-19.

While waiting to see if the weekend quarantines brake the infection rate, the government is polling mayors and religious groups for suggestions for tougher quarantine that would cause less economic damage than the one last spring. “This is Plan B — if the weekend quarantine does not work,” Prime Minister Shmyhal wrote Saturday on Facebook. Clearly the government is seeking to build a consensus for a more radical step that might have to be taken in December. “We want our steps to be clear and predictable for people and businesses,” he wrote. “Therefore, this week we met with the city mayors twice.”

Ivano-Frankivsk Mayor Ruslan Martsinkiv said after an online meeting with the Prime Minister on Thursday: “If, God forbid, this lockdown is introduced, it will be a disaster for the economy, especially for small- and medium-sized businesses.” In response, Kyrylo Tymoshenko, deputy chief of staff to President Zelenskiy, told Interfax-Ukraine: “The option of ‘New Year’s lockdown’ is being considered in all countries. We hear this from all European colleagues, but it is too early to talk about it [here.]”

President Zelenskiy and his chief of staff, Andriy Yermak, tested negative for coronavirus yesterday and were released from Kyiv’s elite Feofania Hospital, ending two weeks of treatment. “I finally have a negative coronavirus test result,” Zelenskiy said yesterday. “I’m already at work today. The day will be busy, but I am very happy to dive into the work as usual.”

Coronavirus is cutting deeper into Ukraine’s political elite. The newly elected mayors of three cities – Boryspil, Konotop and Novgorod-Siversky — died from COVID-19 after the Oct. 25 local elections. Currently hospitalized or under treatment at home are: Health Minister Maksym Stepanov; Mykolaiv Mayor Oleksandr Senkevych; Rada Speaker Dmytro Razumkov; former Rada speaker Andriy Parubiy; pro-Russia Rada member Vadym Rabinovich; and Chairman of the Crimean Tatar Mejlis, Refat Chubarov. The Tatar leader wrote on Facebook Monday night: “Against my will, I became a member of COVID-19 club.”

One roadbuilding season made a difference. Ukraine in 2020 climbed 20 notches in “Quality of Roads” Ukravtodor says, citing The Legatum Prosperity Index. Out of 167 countries, Ukraine rose to 126th place this year, from 146th place last year.  This year, the state highway agency has overseen the repairing or rebuilding of 3,900 km of national roads. Under the Zelenskiy administration’s ‘Big Construction’ program this figure is to increase next year to 6,800 km. At its height last summer, road projects employed 21,256 people, Ukravtodor says.

Editor’s Note: Alex Tretyak, a 34-year-old Protestant seminary director elected Mayor of Rivne on Sunday, promises to put a fresh face on this often-overlooked regional capital, halfway on the 7-hour drive from Kyiv to Lviv. Meeting me yesterday in his campaign office, in an architectural studio above a Montessori kindergarten, he and his fellow European Solidarity city council members bubbled with plans to open up their city for foreign investment and engagement. Rivne International Airport, the only working airport between Kyiv and Lviv, should evolve into a regional airport, drawing passengers from across northwest Ukraine and southern Belarus. Looking at IT, they plan to follow the example of Ivano-Frankivsk — recycling old industrial buildings to draw the IT overflow from Kyiv and Lviv. Tretyok, who speaks English and German easily, plans to encourage foreign language study to encourage investment and tourism. Last weekend in Rivne, my family and I checked out these attractions: the Tunnel of Love (ok, the leaves were down); the Amber Museum; the “Leonard Bernstein” street; the Equator shopping mall; the camels at Rivne Zoo; two Italian restaurants owned by Silvio Berlusconi’s former chef; and Ostroh Castle, a clifftop edifice first built in the 1300s featuring Ukraine’s only castle keep. During Tretyok’s five-year term, Rivne promises to become more than a lunch stop on the drive between Kyiv and Lviv. With Best Regards, Jim Brooke

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Friday, October 30

Ze Wakes Up and Fights Back...Foreign Construction Cos. Study Toll Road Plan...Ukravtodor to Fix 30% More Roads Next Summer....New UZ Chief Drops US Locomotive Deal...Kyivstar’s 4G Data Usage Jumps 50%
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

Rada members must prepare new bills marked ‘urgent’ to restore anti-corruption legislation invalidated Tuesday by the Constitutional Court, President Zelenskiy said yesterday in an emergency National Security and Defense Council meeting. “The electronic [asset] declaration system in Ukraine will work,” he said, ordering its restoration. “Draft laws for its renewal should be prepared and sent to the Verkhovna Rada as urgent.” The Rada reconvenes next week. After the ruling party’s poor showing in last Sunday’s local elections, it is not clear if the President still has a working majority.

If the National Security Council identifies the Constitutional Court’s actions as a threat to Ukraine’s security, “Zelenskiy might propose a draft law that would reboot the court and fire all of its 15 judges,” writes the Kyiv Post. Hinting at this, Zelenskiy said yesterday: “The devastating blows inflicted on the country’s achievements in the fight against corruption and in corruption prevention in Ukraine cannot be ignored. The decisions of individuals whose actions are becoming increasingly socially dangerous have to be assessed immediately and rigorously.”

Court actions dismantling anti-corruption bodies drew fire yesterday from the EU and G-7 ambassadors in Kyiv. Analysts say at risk are: visa-free access to the EU and the IMF Stand-by Agreement.

Foreign and national construction companies will be able to participate in up to $2 billion worth of contracts to rebuild 1,500 km of highways in Ukraine through 2023, government officials announced yesterday at a webinar on Public-Private Partnerships in the Road Sector. Tenders are to be drawn up next year for six sections of ‘M’ or international highways, said Infrastructure Minister Vladyslav Krykliy. The six sections are the first phase of a $9 billion, 4,500 km project that is to stretch through the decade.

The first phase focuses on ‘brownfields’ – upgrading existing roads. These highway sections will be become Ukraine’s first toll roads, but will be “installment roads,” Krykliy said. Under this system investors first pay for construction, then recoup their investments through highway infrastructure, largely gas stations, restaurants and billboards. Ukraine is one of a few major countries in the world without toll roads. The online information session drew 310 participants from 43 countries and 38 companies, Krykliy later wrote on his Telegram channel.

Ukraine’s PPP system is being developed with the advice of the World Bank’s IFC Group. Since 2014, IFC has advised governments on 147 public-private partnerships, an effort expected to draw $33 billion in private financing. In Ukraine, IFC advised on the recently completed concession contracts for Kherson and Olvia ports, contracts that are to bring in investments totaling $137 million.  Now, IFC is advising preparation of a tender for the concession of a container terminal in Ukraine’s Chornomorsk port and is analyzing concessions at rail stations. This project that could bring in over $150 million, says Jason Brett Pellmar, the IFC’s regional manager.

Ukravtodor plans to repair 6,800 km of roads next year, almost 30% more than the target for 2020, Alexander Kubrakov, head of the state highway agency, said yesterday at the presentation of the public private partnership plan for roads. Funding sources are: the Road Fund, funds raised under state guarantees, loans from international financials institutions, such as the World Bank, and possibly the first public private partnership.

Two months into the job as head of Ukraine’s state railroad, Volodymyr Zhmak announced yesterday he will drop a $1 billion framework agreement signed in 2018 to buy as many as 200 diesel locomotives from Wabtec Corporation, formerly GE Transportation. “As for cooperation with General Electric, today I do not see the need for further purchase of General Electric locomotives,” he said at a press conference in Kyiv. “Our goal is to switch to electric locomotives, because it is much more economical.” Of Ukrzaliznytsia’s 23,300 km of track, only 44% is electrified.

Through late July, Ukrainian officials repeatedly said they are negotiating to sign a contract by the end of this year to buy another 40 locomotives from Wabtec – a purchase that would carry a $185 million price tag. This would build on an initial purchase of 30 Wabtec diesel locomotives in 2018-2019. Last January, President Zelenskiy told visiting US Secretary of State Mike Pompeo: “The Ministry of Infrastructure and Ukrzaliznytsia are already negotiating the purchase of a new batch of American-made locomotives.”

Most of UZ’s rolling stock have passed their intended life expectancies, Zhmak gave these ‘depreciation rates: UZ’s 958 electric locomotives and 227 diesel locomotives — 96%; 41,138 freight cars – 89%; and 2,040 passenger cars – 88%. To accelerate renewal of the fleet, he said UZ will spend $250 million next year to produce 4,200 new freight cars and to overhaul up to 20,000. The railroad plans to spend $145 to overhaul locomotives. Ukraine has six locomotive repair plants. The nation’s sole locomotive production plant is in the part of Luhansk Region now under Russian control.

Austria’s Rail Cargo Group is launching a new weekly container freight train from central China to Vienna, through Ukraine. Separately, Rail Cargo, a unit of Austrian Federal Railways (ÖBB), recently announced that it is doubling – to twice a week — the frequency of its freight trains from Xian, China to Budapest, also through Ukraine. Previously, some China-Central Europe trains passed through Belarus. The China-Kazakhstan-Russia-Ukraine route provides “the best geopolitically, the fastest and most stable solution for the transportation of small goods between Xi’an and Vienna on a stable rail route,” the Austrian company told Ukraine’s Center for Transportation Strategies.

In the latest move to remove big trucks from Odesa’s residential areas, Euroterminal has started to build a rail spur to the Odesa-Peresyp rail cargo sorting yard, about five kilometers north of the historic port. As present, 80% of containers enter and leave Odesa Port by truck.

4G mobile telephone usage by Kyivstar subscribers was up 50% yoy in the third quarter, reports Ukrinform. The 4G network of Kyivstar, the nation’s largest mobile company, now reaches 84% of Ukraine’s population, the company reports. Of Kyivstar’s 25.8 million sim card holders, 65% use their phones for data. Due to the quarantine, “subscribers are using more digital products,” said Kyivstar President Oleksandr Komarov.

Belarus closed its borders yesterday afternoon with Lithuania, Poland and Ukraine, reported Belarus’ State Border Committee, citing “the existing epidemiological situation in neighboring countries.” Although Russia’s coronavirus infection rate is 50% higher than Belarus, the Russian border was not closed. This leads some analysts to conclude that Alexander Lukashenko, the self-proclaimed president of Belarus, is preparing a crackdown before next Tuesday’s US presidential election. Belarus is not blocking trucks from Ukraine, a major trading partner.

Editor’s Note: I watched the Public-Private Partnership webinar, just after a major foreign investor in wind energy bent my ear at length about the government’s $1 billion overdue electricity debt to renewable investors. Then, I caught up with the news and saw that UZ is backing out of the $1 billion Wabtec (GE) locomotive deal. Oh, yes, these were all Poroshenko deals. But, what if, in 2027, a foreign construction company finds Ukraine’s new government is slashing highway tolls to win votes. Will that next government say: ‘But those were Zelenskiy deals”? With Best Regards, Jim Brooke

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Thursday, August 13 – Cabinet of Ministers of Ukraine: 200 More State Companies to be Privatized

200 More State Companies to be Privatized...Plans for a $3 billion, 150 km Kyiv Ring Road...Ze Signs Derivatives Law...Flights Leave Kyiv Sikorsky Half Full...
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

About 200 more state companies will be transferred to the State Property Fund for privatization, the Cabinet of Ministers decided yesterday. The companies are either unprofitable or are used “for various shady schemes,” Economy Minister Ihor Petrashko told reporters after the meeting. At the same time, the government is cutting by one third – to 200 – the proposed list of state companies exempted from privatization, Prime Minister Shmygal said during the Cabinet Meeting.

Until the coronavirus pandemic started, several foreign investor groups had planned to come to Ukraine this summer to study state companies scheduled for sale. Dmytro Sennychenko, head of the Property Fund, estimates that about half of Ukraine’s 3,000 state companies are bankrupt and will be liquidated. The others will be sold at public, electronic auctions, largely as is. To help foreign investors, the Fund has set up a bilingual Ukrainian-English website with ‘data rooms’ on each property up for sale. To speed the sale of distilleries from Ukrspirt, the state alcohol producer, the Cabinet of Ministers yesterday passed a key package of regulations setting sale conditions.

Ukravtodor presented yesterday a project to build $3 billion, 150km, three quarter circle Kyiv ring road. Designed to intercept traffic about 40 km outside capital, the bypass would link all major international highways that converge on Kyiv – from Kovel, Lviv, Odesa, Boryspil, Kharkiv and Chernihiv. Designed to carry 300,000 cars a day, the bypass road would include a new, 6 km bridge over the Dnipro, to be built south of Pivdenniy (South) Bridge. At the presentation, the national highway agency announced a tender for the first of six sections: a 35 km stretch between the Kyiv-Lviv and Kyiv-Odesa highways. If full financing can be arranged, the new ring road could be completed by 2030.

A US company is negotiating with Mykolaiv regional authorities to build a $250 million waste recycling plant for the entire region, Alexander Stadnik, regional head, tells NikVesti, a local news site.  For convenience, the plant would be located in Nova Odesa district, in the center of Mykolaiv oblast, reports Delo.ua. Stadnik did not identify the company, but said it is ready to start investing.

Fighting to preserve a joint venture with a Chinese company to control Ukraine’s aircraft engine maker, Ukraine’s DCH conglomerate told Reuters and NV business news site yesterday that it has signed an agreement to buy “more that 25% of shares” in the company, Motor Sich.  Addressing fears that design and production would move to China, DCH, a Kharkiv-based group, told NV: “DCH will have the right to veto key business decisions.” NV speculated that joint venture idea was developed last November during a meeting in Kharkiv between Oleksandr Yaroslavsky, owner of DCH, and Jack Ma, founder of China’s Alibaba Group. DCH says Ukraine Antimonopoly Committee should decide on the case by the end of this year.

President Zelenskiy signed a law creating the legal and regulatory framework for derivatives – the financial instrument that helps to provide hedging opportunities against prices, interest rates or currency rate movements. Scheduled to go into effect next July 1, the law would allow such derivatives as swaps, which will allow Ukrainian banks, farmers and manufacturers, to hedge their foreign exchange exposures. Required under the IMF’s current standby agreement with Ukraine, the law was drawn up by the National Securities and Stock Market Commission working with experts from the EBRD.

Timur Khromaev, head of the Commission, said of the derivatives law: “It represents a big step forward in creating the conditions in which our economy can move to a more sophisticated stage of development.” Matteo Patrone, EBRD’s regional Managing Director said: “The new law will contribute to the establishment of a derivatives market in Ukraine. This is a major step forward to putting Ukraine on investors’ radar screens.”

The day after President Zelenkiy signed the law legalizing gambling, Parimatch, the largest betting company in Ukraine, announced that it will bid for hotel casino licenses in Ukraine. Founded in Kyiv in 1994, Parimatch has moves largely online, accepting bets on sporting events, e-sports, elections, show business, Eurovision and the Nobel Prize. With 1,600 employees, the company largely operates in Ukraine, Belarus, Kazakhstan, Russia and Cyprus, where it has its headquarters.

The Finance Ministry raised the equivalent of $366 million in its weekly government bond auction Tuesday – virtually the same amount as one week earlier. To keep, hryvnia rates from rising, the Ministry rejected the equivalent of $75 million worth of bids. Interest rates were little changed with 4-month bonds going for 7% and 2-year bonds going for 10%. By contrast, the Ministry satisfied 26 of 27 bidders for 1.5 month USD-denominated bonds at 3.6%.

Concorde Capital’s Evgeniya Akhtyrko concludes: “There is no improvement in the sentiments of the broader circle of market players regarding the risk level of UAH debt at the moment.”

Planes left Kyiv Sikorsky Airport half full last month. In July, Kyiv’s right bank airport handled 1,314 flights — 48% the number of flights of one year earlier. But the number of passengers was only 52,400 – 20% the level of one year earlier. The most popular international destinations were: Warsaw; Tivat, Montenegro; London Luton; Minsk; Dalaman, Turkey; Wroclaw, Poland; Bodrum. Turkey; and Tirana, Albania.

SkyUp Airlines returned in July to 50% of its pre-coronavirus traffic levels. Operating 704 domestic and international flights from Kyiv Boryspil, the low cost airline carried 96,407 passengers in July.  Of its regularly scheduled foreign destinations, Albania was more popular than Bulgaria. For charters, Turkey was more popular than Egypt.

Air Astana resumes flights between Almaty and Kyiv Boryspil next Wednesday. From Almaty, the Kazakh national carrier flies to 26 destinations, including Beijing and Delhi. Air Astana suspended flights to Ukraine five months ago.

The day after President Zelenskiy signed a law giving tax breaks to foreign film productions, Kyiv City officials announced a list of streets to be closed Aug. 12-25 for the filming of a Jean-Claude Van Damme film — ‘The Last Mercenary.’ Since most of this Netflix ‘comedy action movie’ takes place in France, it appears that Kyiv will be dressed up to look like a French city. Van Damme, a Belgian, is known to American fans as ‘The Muscles from Brussels.’

From the Editor: The attitude at the Kyiv headquarters of the State Property Fund is to move state companies out the door. Fund Head Sennychenko is frank that he has neither the time nor the resources to clean up 3,000 companies before sale. For Eastern Europe, this will be the region’s last big privatization sale (assuming Tyrannosaurus Rex prevails in Belarus). For investors in Ukraine, all Sennychenko can promise is transparent presentations and honest auctions. Properties will be presented as is, poison pills and all. Compared to the Wild East, shoot ‘em up days of Russia’s privatizations in the early 1990s, Kyiv-in-the-time-of-corona is mildly inconvenient, but not a physical risk. With Best Regards Jim Brooke