Ukraine Business News, Tuesday, October 1
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Tuesday October 1st, 2019 by Thomas Winkelmann
China Tops Russia as Ukraine's No. 1 Trading Partner
Foreign Demand for Hryvnia Bonds Hits Record Levels
China has displaced Russia as Ukraine's largest trading partner, according to new data posted by the National Bank of Ukraine. In the first quarter of this year, China-Ukraine trade hit $2.55 billion, or 10.6% of Ukraine's foreign trade. During the same period, Russia's trade dipped to $2.34 billion, or 9.7% of Ukraine's foreign trade. With new Russian sanctions imposed on Ukraine this summer, China's lead role is expected to become more pronounced. Ukraine's next five trading partners are Poland, Germany, Belarus, Turkey, and the US.
Chinese investors already own 75% of Motor Sich and are obliged by contract to keep production technologies in Ukraine and to provide enough orders to maintain staffing and salary levels at the Zaporizhia factory, according to a local publication, "Voice of Zaporizhia." Rebutting opposition to the sale by Washington, the author writes: "To ensure the smooth operation of the joint-stock company, more than 12 billion hryvnias [$500 million] are needed annually. Ukraine is not able to give so many state orders."
In late August, John Bolton, then US National Security Advisor, visited Kyiv in an attempt to block the sale. Two weeks later, President Trump fired Bolton. Aivaras Abromavičius, director-general of the UkrOboronProm defense industry holding, later told the UBN Motor Sich will not be sold to China. Ukraine's Anti-Monopoly Committee is reviewing the Chinese purchase.
Despite the worries over the IMF, Kolomoisky, and Trump-Biden, foreigners bought $332 million in the equivalent of hryvnia government bonds at last Tuesday's auction, the largest amount in two months. With this auction, foreign holdings of Ukraine's hryvnia T-bills rose by 9% to nearly $4 billion. Foreigners now hold 12% of the market.
Demand was particularly strong because Tuesday's auction included five-year notes, which the Finance Ministry offers only once a month. "This issue set a few new records," writes Taras Kotovych, research director for ICU. There was a record number of bids – 77 – and record demand – 14.6 billion hryvnia, or $600 million.
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Shipping News: South Koreans, Swiss Invest in Black Sea Grain Terminals
Nibulon Launches Ukraine's Largest Ship
Grain, Metals Push Port Cargo Up 19%
River Cargo to Triple by 2022
Ukraine's First Cross-Danube Ferry to Start
South Korea's Posco International inaugurated a major grain exporting in Mykolaiv on Tuesday. Working with Ukraine's Orexim Group, Posco aims to export 3 million tons of grain a year, the equivalent of 6% of Ukraine's total exports last year. The new terminal can store 140,000 tons of grain at one time.
Geneva-based Risoil SA will inaugurate on November 15 a two-thirds expansion of its grain storage and handling capacity at its Chornomorsk terminal. Eight new silos supplied by AGI raise the storage capacity to 257,000 tons.
Denmark's Mærsk A/S will launch a weekly container line between the TIS terminal in Pivdennii (Yuzhne) and Poti, Georgia. Until now, Constanta has handled all Black Sea transshipment of containers for Georgia. In March 2018, Maersk stopped docking in Odesa. Outsiders blamed corruption. In its first year at Pivdennii, Ukraine's busiest port, Maersk docked 52 ships, handling 51,031 containers.
Nibulon commissioned the Nibulon Max, a 140-meter long-grain handling ship, considered to be the longest ship built-in independent Ukraine. Built at Mykolaiv, the Nibulon Max has two Liebherr cranes, each with a 45-ton lifting capacity. Designed to hold 10,000 tons of grain, the Nibulon is to serve as a mother ship, collecting cargos from river ships for transfer to ocean-going vessels. Funded partly by the EBRD, European Investment Bank, and the International Finance Corporation, the Nibulon Max is to double grain transshipments by the Nibulon fleet to 5 million tons per year. Last year, Nibulon moved 2.8 million tons on Ukraine's rivers.
Through August, Ukraine's seaports have handled 100 million tons of cargo, 19% more than in the same period last year. The two leaders are grain – up 39% to 34 million tons; and ore – up 32% to 24 million tons. Containers are up 20% to 104,000. As ever-larger vessels dock in Ukraine, the number of ship calls was up by only 26, to 7,761, reports the Ukrainian Sea Ports Authority.
Four Black Sea ports handled 87% of the nation's sea cargo. They are: Pivdennii – up 28.4% to 33.5 million tons; Mykolaiv – up 24% to 21 million tons; Chornomorsk – up 21.4 % to 16.6 million tons; and Odesa – up 17%, to 16.2 million tons.
Ukraine's new government wants to move ahead with a long term plan to unite waterways from the Black Sea to the Baltic Sea, says Prime Minister Oleksiy Honcharuk. "This is absolutely real," he says of links that go back to the Vikings. "There are 40 waterways that need to be negotiated with Belarus and Poland."
The new government's goal is to triple river cargo to 30 million tons by 2022, says Yuriy Lavrenyuk, deputy Infrastructure Minister. Last year, 10 million tons were carried by the river. Through July of this year, river cargo is up by one third over 2018 levels. Noting that the Rada is to consider an Inland Water Transport bill this fall, he says: "It is necessary to transfer cargo from roads to river transport." In the late Soviet era, 60 million tons of cargo moved up and down the Dnipro.
Last Tuesday, Ukraine's first two-port concession projects, Olbia and Kherson, where presented at a high-level informational meeting in Odesa, organized by SPILNO, the public-private partnership office. Under tenders announced two weeks ago by the Infrastructure Ministry, Olbia concession is for 35 years and requires an early $60 million investment to build a grain terminal capable of handling 2 million tons. The Kherson port concession is for 30 years and requires an early investment of $8 million. Last week, Olvia was toured by two companies: Aras, a Turkish shipbuilder, and Kernel, Ukraine's sunflower oil giant.
The EBRD is loaning almost half of a $390 million syndicated loan to Kernel, the world's largest producer and exporter of sunflower oil. After the EBRD approved its loan in early September, the Black Sea Trade and Development Bank announced it is contributing $15 million toward the syndicated loan.
Ukraine is testing its first cross-Danube ferry this week. The 500-meter crossing linking Orlivka, Odesa region, and Isaccea, Romania will eliminate a 110 km, 2h15 drive through a corner of Moldova, and a ferry crossing in Romania. When regular ferry service starts in the coming weeks, Odesa region gains its first EU point of entry. The drive time from Odesa to Constanta, Romania will be cut to six hours.
'Ukraine Now' PR Dream Becomes Reality for Zelenskiy in NY
Privatization Readied for State Companies
Bank Profits Triple
Car Imports Triple
Money can't buy this publicity. With 'Ukraine' and 'Watergate' increasingly used in the same sentence by Americans, President Zelenskiy is the most sought after interview in New York during this week's UN General Assembly, reports Julia Mendel, presidential spokeswoman.
"We've been contacted by all possible American media outlets," Mendel says in a star-struck video blog from New York. "We're talking about CNN, ABC, Wall Street Journal, Washington Post, New York Times. We even spoke with The New Yorker…An incredible amount of media people….We're talking about Radio Svoboda, BBC, CBS, NBC, VOA… It seems to me that Volodymyr Zelenskiy is the most sought after person in the USA."
To jump-start 'big' privatizations, Timofei Milovanov, the new Economy Minister, has appointed five "privatization advisors" for the first five companies to be sold: Odesa Port Plant, Krasnolimansk Coal Company, Indara, Electrotyazhmash, and United Mining and Chemical Company. After the Rada approves the privatization law this fall, another 21 big companies are to be added to the list. Milovanov said Tuesday: "This is a good opportunity for businesses to take part in this." In addition, his deputy, Pavel Kukhta, is preparing 800 more state-owned companies for sale.
Dmitry Sennichenko is the new head of the State Property Fund, the agency that oversees privatizations. "My task is to make truly honest, open, transparent privatization of those enterprises that will not be defined as strategic," Sennichenko told the Rada Thursday, before winning parliamentary approval. "Of the 3,600 state-owned enterprises, 2,300 are more or less alive. The rest survive only on paper." The 2020 budget allows for $200 million in revenues from state company sales.
The launch of a farm land market will boost Ukraine's GDP growth by 1-2 percentage points in 2021, and by 3-3.5 percentage points each year through the mid-2020s, Economy Minister Milovanov predicts on Savik Shuster's Freedom of Speech program. The Zelenskiy government plans to start the land market after next year's harvest, on Oct. 1, 2020.
More than 1,000 foreign-controlled farming companies already cultivate about 5% of Ukraine's farmland, Economy Minister Milovanov said on Shuster's ICTV program. "The experience of Eastern Europe shows that foreigners do not really come in so quickly and they come in at a very small percentage. We do not expect that there will be an impact," he said, addressing age-old fears that foreigners will grab Ukraine's black earth. "They do not understand us," he said of foreign agricultural investors. "They do not trust us yet. They can go to other countries where there is already infrastructure, roads, courts, etc."
The early frosts that hit much of Ukraine last Monday and Tuesday nights are damaging late vegetable and fruit crops, Tatyana Adamenko, head of farm weather forecasting for Ukraine's Hydrometeorological Center, tells UNIAN. Grapes and "garden crops – tomatoes, cucumbers, those vegetables that are on the surface of the ground," are the most vulnerable, she said. Root crops, such as potatoes, carrots and sugar beets, are not affected.
Fitch Ratings raised the long-term issuer default ratings in foreign currency of seven Ukrainian banks from "B-" to "B", all with positive outlooks. Tuesday's upgrades of Oschadbank, Ukreximbank, PrivatBank, Ukrgasbank, Credit Agricole Bank, Procredit Bank, and Pravex Bank matched the same upgrade Fitch gave the sovereign two weeks earlier. Through August, Ukraine's banks have made $1.8 billion in net profit, more than triple the amount during the same first eight months of last year.
Despite strong dollar purchases by the central bank, the hryvnia strengthened last Tuesday to another three years high – UAH24/$1. Last week, the National Bank of Ukraine bought $270 million on the interbank currency market, 36% more than the previous week. Since the start of the year, the central bank has bought a net $3.8 billion.
Ukraine now has 20 billion cubic meters of gas in storage, one quarter more than this time last year and a record for the decade. By the time 3-way gas transit talks with Russia and the EU resume in late October, Ukraine should have 21 billion cubic meters in storage, more than enough to get through the winter heating season. Dismissing speculation that Russia will prevail in imposing a short term contract, one negotiator, Maroš Šefčovič, vice-president for the Energy Union, said Tuesday: "We are trying to find a long-term solution acceptable to all parties."
President Zelenskiy has signed a law allowing Ukraine to use an EU-wide customs software – the New Computerised Transit System. This will allow Ukraine to apply European transit rules, use a single customs declaration, and cut the cost of moving goods. Maxim Nefyodov, head of the new Customs Service says the law is "a simple, beautiful story of visa-free customs, which will allow Ukrainian players to leave Ukraine and travel to Portugal with one truck with one document, with one guarantee." After one year of using the new system, Ukraine can be invited to join the 35-nation Common Transit Procedure.
Truckers blocked two busy road crossings into Poland, protested at two others and parked three dozen trucks in front of the Cabinet of Ministers building Tuesday to protest Poland's radical cuts in trucker permits. Earlier this year, a bid to get more business for Polish truckers, Poland slashed the highway permits for Ukrainian truckers by nearly 40%, to 160,000 a month. While Polish truckers generally shun driving into Ukraine, Ukrainian truckers camp outside Ukrainian government offices for 3-4 days to get one permit.
Car imports have tripled so far this year, to 341,286 vehicles, for a total value of $2 billion. The numbers are through August, according to Ukravtorprom, the industry association. If a group of Rada members gets their way, excise taxes on imported cars will be dropped completely, pushing imports even higher in the 2020s. Zelenskiy has postponed for three months levying fines on illegally imported cars. Ukraine no longer has a car making industry of any significance.
IMF Program in the Cards
Kolomoisky Cloud Lingers
Citizens Invited to Denounce Corruption
Food Exports to EU up by One Third
Private Locomotives Coming Down the Track
The IMF team left Kyiv. But the resident team will be watching a Kyiv court hearing challenging the nationalization of PrivatBank. Despite the question market hanging over PrivatBank, analysts are optimistic the IMF will support President Zelenskiy's economic liberalization policies and start a new program with Ukraine.
Concorde Capital's Alexander Paraschiy writes: "It is very likely that the IMF will initiate a new EFF program for $5-6 billion with Ukraine this year and will provide the initial tranche under this program in late 2019 or early 2020. At the same time, further tranches are likely to depend much on developments in the gas sector and PrivatBank."
Dragon Capital alludes to the shadow of oligarch Ihor Kolomoisky over the government: "Zelenskiy apparently tried to reassure the IMF that Kolomoisky's influence remains limited and that the red lines such as NBU independence will not be crossed. The visiting IMF mission is expected to wrap up its visit to Ukraine with a statement on progress in talks on a new 3-year EFF program."
The Kyiv Commercial Court considering the claim of Kolomoisky and other PrivatBank shareholders that the Dec. 21, 2016 contract of sale of the bank to the Finance Ministry was invalid. The IMF and Western governments backed the bank seizure. After nationalization, $5.5 billion in public money was pumped into the bank, Ukraine's largest, saving it.
Oleksandr Danylyuk, who supported the nationalization as Economy Minister in 2016, warned on television last weekend: "Any instability around PrivatBank has direct consequences for the stability of the financial system." Now Zelenskiy's Secretary of the National Security and Defense Council, he added: "It is investor confidence, the trust of foreign partners, and trust in the new government."
Financial observers see containing Kolomoisky as Zelenkiy's biggest domestic challenge:
"To be a modernizing reformer, Volodymyr Zelenskiy must distance himself from oligarchs," a Financial Times editorial headlined Monday. "Any settlement over PrivatBank should involve the maximum recovery of assets from its ex-owners and be agreed with the IMF," the London-based daily writes. "Beyond that, the president faces a defining choice…Mr Zelensky must decide if he wants to be a 'servant of the people' — the name of his former TV show and of his party — or a servant of the oligarchs."
Kolomoisky's shadow over the new government "is the biggest negative factor," one that is a magnet for media and investor attention, Tomas Fiala, CEO of Dragon Capital, told a Ukraine economy conference. On the upside, Fiala, who is also president of the European Business Association, noted: "Ukraine continues to move to the West. As for the team that Mr. Zelenskiy leads, I think that it is better than what it has ever been in Ukraine before."
Ukraine is the fastest-growing food exporter to the EU, recording a 34% jump in the 12 months that ended in July, according to a new report by the European Commission. Ukraine has displaced China to now rank third as a source of food for Europe. For the one-year period, the top exporters were: United States – €12.5 billion; Brazil – €11.7 billion; Ukraine – €6.7 billion; and China – €6 billion.
On signing Ukraine's new presidential impeachment law, President Zelenskiy invited all Ukrainians to participate in a 'flash mob' for honesty by calling the National Anti-Corruption Bureau of Ukraine hotline to report specific cases of bribery and corruption. "If they demand a bribe from you, offer a kickback or some other corruption scheme, please do not be silent," he says in a Facebook video clip. "There is no need to write on social networks – everything is lost"… Here is the phone 0 800 503 200. This is the NABU hotline. Call and inform. And law enforcement agencies will respond and punish."
The state railroad is to prepare a plan for private locomotives and freight trains by the end of this year, Zelenskiy ordered in a presidential decree Friday. One year earlier, in December, the old Rada voted to reject a private locomotive bill.
Kovalska, one of the nation's largest building materials manufacturers, plans to buy electric locomotives to speed up deliveries from its quarries. Sergey Pilipenko, the company's general director, said: "Business is not ready to wait for Ukrzaliznytsia to solve its problems. Clients, employees and the economy as a whole suffer from significant delays in deliveries. We are ready to invest in transport on our own, but for this it is necessary to deprive Ukrzaliznytsia of a monopoly on traction." Referring to other companies planning to buy mainline locomotives, he said: "We will be one of the first to replenish our fleet with locomotives."
To protect highways and save lives, President Zelenskiy signed a law Monday that sets stiff fines for overweight trucks. The fines are: 5% overweight – $20,000; 10-20% overweight – $40,000; and more than 20% overweight – $80,000. The new fines come after trucks were involved in three major accidents last weeks – in Kyiv, Odesa and Zhytomyr regions. A total of 21 people were killed and 15 injured. Next year, the government plans to spend more than $1 billion to rebuild highways.
The first two 'weight in motion' highway sensors now work on the Kyiv-Lviv highway. Designed to measure weights and speeds of passing trucks, six sensors are to cover all main highways into Kyiv by the end of this year. "These are only the first complexes," Ukraine's new Infrastructure Minister, Vladislav Krikliy, said. "We expect that about 100 such complexes will be introduced in a year and a half." The pilot project is largely funded by a $5 million EBRD loan. Slawomir Nowak, the outgoing head of the state Highways Agency, says the EBRD and the European Investment Bank are ready to loan €900 million to Ukraine to develop highways in the early 2020s.
Ukraine Open to Buying Gas from Russia, at Market Prices
Green Energy Rules Not to Change
20% More Kyivstar Users Traveled to EU Last Summer
By the end of this year, Ukraine intends to have in place EU-standard legislation that will allow European companies to buy gas from Russia at Ukraine's eastern border. "By the end of this year, all the necessary changes can be made," Naftogaz CEO Andriy Kobolyev told reporters in Brussels, the day after Russia-Ukraine-EU talks were held to renew the gas supply contract. With talks set to resume Oct. 20, Ukraine and the EU are pushing Russia for a 10-year contract with Ukraine's new pipeline company, stipulating a minimum flow of 60 billion cubic meters. Last year, 87 billion cubic meters of Russian gas flowed through Ukrainian pipelines to the EU and Moldova.
Ukraine is open to buying gas directly from Russia if the prices are fair market prices, Ukraine's new Energy Minister Oleskiy Orzhel told reporters in Brussels. Currently, Ukraine uses Russian gas, but buys it from European companies, largely at the Slovakia hub. By the expected mid-October start of the heating season, Ukraine plans to have 21 billion cubic meters in storage.
More coal from Colombia arrived last weekend at Pivdennii (Yuzhne) port. Cut off from coal mines in the Donbas, DTEK is importing coal from Colombia, a one month, 6,500-mile voyage from the Caribbean to the Black Sea. With the latest shipment of 73,000 tons, DTEK has received move than half the 400,000 tons of Colombian coal contracted through October.
Almost one-third of next year's state budget will go for servicing and repaying Ukraine's public debt, Finance Minister Oksana Markarova told the Rada. By the end of 2020, Ukraine's debt to GDP ration is to fall to 46.7%, she said. The draft budget is based on 3.3% GDP growth, slightly higher than the forecast for this year.
After four years and $75 million in investment, Biopharma, a manufacturer of blood preparations, opened Friday a German-designed fractionator plant in Bila Tserkva, 100 km south of Kyiv. Part of Biopharma's ambition to become one of the world's top five blood producers, the EU-equipped plants is capable of processing up to 1 million liters of plasma a year. Investors include Vasily Khmelnitsky, Horizon Capital, and Western NIS.
Installed renewable energy capacity should increase this year by 63%, to 5.4 gigawatts, according to the National Commission for Energy, Housing and Utilities Services Regulation. So far this year, 1.3 gigawatts has already been installed. The cost of green energy this year will be $1.1 billion, according to the Commission.
Solar and wind investors should not fear the Zelenskiy administration will change the rules of the game on green-energy rates, Alain Pilloux, EBRD vice president for banking, told reporters. He said: "We received assurances by the Presidential administration that the legislative regulatory framework will remain stable, which means no reduction in the feed-in tariffs."
Ukraine will reach the world's top ranks for data discovery, or extraction of actionable patterns from data, promises Mykhailo Fedorov, Ukraine's new Minister of Digital Transformation. "More and more businesses are based on open data," Fedorov told the Open Data Forum in Kyiv. "Our goal is to make the data 100% open."
The new State Customs Service will make public all information that does not violate commercial secrets, Maksym Nefyodov, the agency's head told the Open Data Forum. "We are submitting a bill to open anonymized data at the customs. We want to open all the information without violating, of course, commercial secrets." To prepare, he said Customs will complete an IT audit by the end of this year.
Five Ukraine agro-businesses – including Kernel and UkrLandFarming – lease more farmland than the government's planned 0.5% nationwide limit for land ownership, according to the Leibniz Institute of Agricultural Development in Transition Economies. Noting that only 4% of Ukraine's 41.5 million hectares of farmland can now be bought and sold, Leonid Bershidsky writes in Bloomberg of Zelenskiy's draft bill for a land market: "This is Europe's last farmland frontier, and the fight over it is going to be messy." Economy Minister Timofey Milovanov writes on Facebook: "I call on the entire society to watch who will become landowners. That's important: It's not the law that protects, it's a society that protects."
Last summer, 20% more Kyivstar subscribers visited the EU than during June-August 2018. Overall, the number of Kyivstar subscribers using international roaming was up 13% last summer. The most popular countries for Kyivstar subscribers last summer was: Turkey; Poland; Italy; Spain; and Germany.
The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.
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