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Thursday, June 11

Gov’t Cuts Deal with Solar, Wind Power Producers...For Ukraine: Checks in the Mail Total $3 billion...Central Bank Averted Big Devaluation, Run on Banks During Corona-Crisis...Freedom Holding Buys into Ukrainian Exchange.
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

Wind power tariffs would be cut by 7.5%, solar tariffs by 15% under a draft memorandum of understanding approved Wednesday by the Cabinet of Ministers and two industry groups. ‘Green’ tariffs would apply to solar plants completed by July 1 and to wind power plants now under construction. Green tariffs would end at the end of this decade. At the cabinet meeting, acting Energy Minister Olha Buslavets implied the state will pay the $500 million debt run up this spring to green power producers.

The proposed deal comes as about 600 green power producers face defaulting on bank loans or bankruptcy, industry leaders said at a press conference Tuesday. Two industry groups signed the deal: European-Ukrainian Energy Agency and the Ukrainian Wind Energy Association. The third, the Ukrainian Association of Renewable Energy is expected to sign today. It is unclear if the Rada can pass enabling legislation before it takes its summer break in early July.

The compromise comes after nine months of talks that have left many investment projects frozen and investors angry. Ihor Tinniy, a co-founder of the Ukrainian Renewable Energy Association, said Tuesday that a 15 % tariff cut would mean a 50% cut in profits. He calculates such rate cuts would deprive Ukraine of €250-300 million in annual taxes. Alina Sviderska, government relations manager for Norway’s Scatec Solar, says green tariffs are higher in Ukraine than in the EU because of the high cost of borrowing for Ukraine projects and of connecting to the power grid.

    Many investors – foreign and domestic — are talking with law firms about litigation – either through international arbitration or through bilateral investment treaties. “We cannot exclude final conditions will be adverse to investors to such extent so they will be forced to initiate individual or collective (mass) claims via investment arbitration,” Maksym Sysoiev, a lawyer the Kyiv office of Dentons, emailed green energy companies yesterday. “We created our database of investors interested in potential claims against Ukraine.”

    The tariff cuts would save Ukraine €200 million a year, and €2 billion by 2030, Prime Minister Shmygal said. He assured the Cabinet: “Today we are in the final stage of signing an agreement with investors in green energy.”  The road to the deal included months of mediation by the EU’s Energy Community Secretariat in Vienna.

    “Ukraine’s Green Energy Disaster is Sliding Toward a Power Crisis,” headlines a pre-deal story in BNE Intellinews. The article notes high tariffs drew $4.5 billion in investment into renewables since 2018, the only significant investment in Ukraine’s power generation since the Soviet era. “It is pretty much the only sector of the economy that has attracted broad-based foreign investment inflows,” writes Ben Aris, the author. Noting that President Zelenskiy has declined to meet with green power investors, he concludes: “Zelenskiy recently introduced an ‘investment nanny’ program to help ease inbound investors through the traps and tricks of investing in Ukraine, but pointedly the government is ignoring the needs and problems of the few serious foreign investors it already has.”

    “The market is clearly moving in the direction of clean power,” Michael Bloomberg writes in the lead editorial of Bloomberg Green magazine about world trends. “The cost of clean energy has dropped dramatically, which has made wind and solar power two of the fastest-growing job-creating industries. They’re now cheaper than fossil fuels in much of the world—and producing better returns for investors…Business leaders and consumers see value in a greener economy. After all, it saves them money on their power bills, cleans the air in their communities, and reduces the volatility of energy markets.”

    With Ukraine’s IMF deal in place, the money is tumbling in. Yesterday, the EU wired €500 million, the second tranche under a macro financial assistance program. Today, the Finance Ministry is to receive $2.1 billion, the first tranche of a total of $5 billion to be extended to Ukraine over 18 months. Within two weeks, the World Bank is to wire $250 million, Finance Minister Sergei Marchenko told reporters yesterday. President Zelenskiy summarized to reporters: “We expect more than $3 billion in the coming month.”

    These inflows mean “Ukraine can feel quite safe regarding the country’s external financial needs for the remainder of this year,” Anders Åslund, the Swedish-American economist, writes in an Atlantic Council Ukraine Alert blog. “Under these circumstances, Ukraine’s Ministry of Finance would be well advised to take the opportunity to sell a substantial Eurobond to render the state’s finances even more secure as soon as possible while the going is good.”

    Parsing the IMF statement, which three times calls for retaining the independence of the National Bank of Ukraine, Åslund writes: “The IMF could just as well have written: Do not dare touch the NBU!” Noting IMF concern over Zelenskiy’s future economic policies, he writes: “Reading between the lines, the message to the Ukrainian government is clear: you may have fulfilled our conditions, but we still do not trust you.”

    Thanks to the skill of the central bank, the March currency crisis broke with tradition and did not create a big devaluation and a run on the banks, Olena Bilan, Dragon Capital’s chief economist, told a financial conference yesterday. “During the crisis, the dynamics of the exchange rate surprised positively,” she said, noting that many predicted the government lockdown during the coronavirus pandemic would cause the hryvnia to plummet below 30 to the dollar. She added: “For the first time in all crises we had almost no outflow of deposits from the banking system. It was very unexpected.” Noting that about 100 banks were closed during the 2014-2015 crisis, she said: “We now have a crisis of the real sector of the economy. But there is no crisis of the currency, banking, financial system. And this is to the great credit of the central bank.”

    Kazakhstan-based Freedom Holding Corp. has bought a 20% equity stake in the Ukrainian Exchange, one of Ukraine’s two leading securities markets. With its shares traded on New York’s Nasdaq Capital Market, Freedom Holding is a financial services company strong in the former Soviet Union — Kazakhstan, Kyrgyzstan, Russia, Ukraine, and Uzbekistan. With 13 offices in Ukraine, Freedom is a licensed participant on the Exchange, located in Kyiv’s Horizon Office Tower. Freedom recently purchased a 13% interest in the St. Petersburg Stock Exchange.

    From the Editor: Egypt carpets the Sahara with solar panels. Scotland, ‘Europe’s windiest country,’ gets all its electricity from wind turbines. Israeli is mandating rooftop solar panels. All these stories and more are on a fascinating Ukrainian website: EcoTown. While Ukraine plays games with foreign investors in renewables, EcoTown gives a reality check on exciting developments around the world. Some headlines: Finland plans to expand the first offshore “ice” wind farm to 500 MW; The German government has approved a bill to increase wind capacity to 40 GW; A 220 MW wind farm will be built in Serbia; Albania will build the most powerful solar station in the Balkans; The Algerian government plans to launch 4 GW of solar capacity by 2024; Montenegro will build the first solar plant with a capacity of 250 MW;A wind farm is being built in the North Sea that will provide electricity to more than 2 million households. For Ukraine, saddled with aging Soviet-era nuclear and coal plants and largely state-controlled oil and gas production, renewables will be the way out. With Best Regards Jim Brooke jbrooke@ubn.news