- Grain Harvest Starts Across Ukraine
- New Silos, River Port, and Black Sea Terminal to Handle Harvest
- IMF to Ukraine: Seize the Day!
- $1 Billion Canadian Iron Mine Advances in Ze’s Hometown
- Canada Opens for Ukrainian Youth Work/Study Visas
- Road Spending to Rise by One Third in 2020
- Bloomberg: Buy Hryvnia Bonds
- One-Quarter Million Used Car Imports Hit Ukraine’s Roads Since Jan. 1
- Railroad Places Eurobonds at Lowest Yields Yet
- Money Could Buy Locomotives
- Yields Also Drop for Hryvnia Bonds
- Tesla to Recharge Ukraine
- Buses-to-Planes Democratize Air Travel
- Raiders Harass SkyUp Startup, Zelenskiy Silent
- New Electricity Market Designed to Unleash $30 Billion Overhaul of Soviet-era Power Sector
- Goal: Integrate with EU Power Grid
- Ukraine Exports Record 50 Million Tons of Grain
- Hryvnia up 5.5% Against Dollar Since Jan. 1
- Seven Oil and Gas Cos. Commit to Invest $460 Million by 2024
- Solar and Wind Investment to Slow in 2020
- Ukraine Is Now the Third Largest Source of Food Imports for EU
- New Ferries from Ukraine: to Bari, Italy and Across the Danube
The early grain harvest has started across Ukraine, with farmers bringing in 6.1 million tons from almost 2 million hectares spread across 20 regions, reports the Agrarian Policy and Food Ministry. Last year, Ukrainian farmers harvested 70 million tons and exported 50 million tons – both records. With a new bumper crop expected this year, World-Grain.com headlines from Kansas City: “Ukraine grain harvest in full swing.”
Facing competition from Poland, Ukrainian farmers will be paying their workers about 25% more in hryvnia this summer than last. Through May, the average monthly salary was UAH 8,000, currently, $307, reports the Agrarian Policy Food Ministry. Inflation over the last year has been 10%. Wages usually rise during the long work days of the harvest season.
Crop receipts – posting future harvests as collateral for bank loans – are catching on in Ukraine, reports the International Finance Corporation, a backer of the financing mechanism. From a pilot in 2015, the project went nationwide last year. To date, 1,600 crop receipts have been issued, raising $452 million in loans for farmers. Sponsored by the IFC, a World Bank unit and Switzerland’s State Secretariat for Economic Affairs, the project attempts to compensate for the inability of farmers to post their land as collateral for loans. President Zelenskiy promises to win Rada approval to start a farm land market in Ukraine next year.
With the opening of a 120,000-ton modern grain elevator in Poltava this week, Astarta completes its five-year, $83 million programs to increase its storage capacity by 50%, to 600,000 tons. Using Astarta’s record 1.1 million-ton grain and oilseed harvest last year, Dragon Capital calculates that the Warsaw-listed company has now reached “55% self-sufficiency in storage facilities.” With the state railroad struggling to keep up with booming farm production, storage can mean the difference between selling grain or letting it rot in the fields.
In time for the harvest, Nibulon opened this week its latest river port, a $23 million silo and pier complex capable of handling 300,000 tons of grain a year. Located on a right bank tributary of the Dnipro, on the border of Zaporizhia and Dnipropetrovsk regions, the port is expected to cut truck traffic to Black Sea ports and to save farmers money. To guarantee safe access for river ships, Nibulon dredged two kilometers of the tributary, the Ploska Osokorivka River, and installed navigational equipment on the 12 km from the Dnipro to the port town, Ternivka.
Ukraine’s newest Black Sea terminal, EuroVneshTorg, is already expanding its grain handling capacity by 50%. From 2 million tons today, it is to reach 3 million tons in September. Located in Olvia, Mykolaiv region, the company, which means ‘Euro Foreign Trade,’ handles grain exports for Dutch Louis Dreyfus, French Soufflet Negoce and American Cargill. Company director Sergei Hunko says: “Today, the terminal is able to handle about 3% of all grain exports in Ukraine. In the future, we plan to increase the capacity to 8% annually.”
Powered by Ukraine’s food sales, Dubai’s non-oil trade with Ukraine nearly doubled since 2016, hitting $571 million last year, a Dubai Chamber of Commerce and Industry representative told an export forum in Kyiv this week, reports WAM, the Emirates News Agency. He invited Ukrainian companies to participate in Arab Health, Gulfood and Gitex Technology Week, three of the Middle East’s largest trade fairs, all held in Dubai.
Beating the Black Sea to Baltic Sea highway project, Ukrazaliznytsia plans to launch “in the future,” an Odesa-Gdansk container train, says Vyacheslav Eremin, the railroad’s operational director. The train would be UZ’s 20th regular container route, one of the fastest growing businesses for the state railroad. This month, an Odesa-Chisinau, Moldova container route is to start. Planned for later this year are Odesa-Belarus-Klaipeda, Lithuania; and Kyiv-Leipzig, eastern Germany.
Ukrzaliznytsia needs to spend almost $3 billion through 2025 to buy new locomotives and modernize existing ones, Anton Sabolevsky, the railroad’s director of strategic development and investment, says on the UZ website. There is also a massive need for new cargo wagons. About one third of this rolling stock, or 64,000 wagons, are over 25 years old. With EBRD loans, UZ is buying 5,000 new gondola cars this year.
With a new President, and soon a new Rada, Ukraine has a unique chance to shift gears and to join the economic growth big leagues, David Lipton, IMF acting managing director, told a Toronto reform conference panel, “Ukraine: Sovereign, Safe and Prosperous.” “If Ukraine wants to grow – not by 3%, but by 5-6% every year and catch up with the world – that’s what it takes: Ukraine needs a new business model,” said Lipton who first worked with Eastern Europe during the early 1990s transition from communism. Recalling his experience in Poland, he said: “There is no reason in the world why Ukraine cannot do it. The business model of Ukraine should be to supply goods, not people, to Europe. This can be achieved by working on creating such an environment in Ukraine where there would be investments, productive workplaces.”
The near doubling of iron ore prices this year is attracting Asian investor interest in Black Iron, a $1 billion mining project billed by the Toronto company as the “Largest Ukraine-Canada Investment.” While talks are underway for big funding for the Shymanivske project, Black Iron reports that two Asian engineerings, procurement, and construction companies “might make a US$45 million equity investment — 10% of the total [phase one] project construction cost — in exchange for being awarded the construction contract.”
Located in President Zelenskiy’s hometown, Kryvyi Rih, the project has been slowed by neighboring mining companies who are not eager to have a massive new competitor. Believing in the future, Black Iron recently renewed its letter of intent with Ukzaliznytsia for a ‘3 billion tons km’ contract – moving 10 million tons of iron ore a year, 300 km from Kryvyi Rih to Pivdenii (Yuzhne) port on the Black Sea.
Concorde Capital’s Dmytro Khoroshun warns about today’s $123 a ton iron ore price: “The currently-high iron ore prices, which Black Iron mentioned in its release as a factor that is attracting potential investors to its project, should also incentivize iron ore development projects worldwide, potentially resulting in overinvestment and supply surplus in a few years.”
Work and study for young Ukrainians in Canada is to be eased by a new, simplified 1-year visa system to be put in place by next spring, President Zelenskiy said Wednesday at a joint press conference in Toronto with Prime Minister Justin Trudeau. Canada also invited Ukraine to join its “Trusted Traveler” program, a system to speed repeat visitors, largely business executives, through passport controls. During Zelenskiy’s three-day visit to Canada, both leaders agreed to expand the two-year-old Canada-Ukraine Free Trade Agreement to cover services and investment. Zelenskiy said: “This means that Ukrainian IT specialists and entrepreneurs from different industries will be able to better cooperate with Canada without leaving Ukraine. This means more jobs.”
Next year, the government plans to increase spending on road works by one third, to almost $3 billion, Prime Minister Groysman said Wednesday while inspecting a Chinese company’s work on the 22 km highway bypass around Zhytomyr. In 2018, Ukraine established the Road Fund, funded by gas and diesel taxes paid at the pump. In 2018, funding was $1.5 billion. This year, it is $2 billion.
Whittling away at Ukraine’s state property mountain, 197 ‘small privatization’ auctions have earned the national treasury $10 million since the start of the year. With online sales now routine, another 104 properties nationwide are to go up for auction on the ProZorro site in coming months. Started one year ago, the program moves ‘economically dead’ state-owned properties – generally real estate – into private hands.
Demand for government hryvnia bonds remains strong. UAH10 billion in bids were placed Tuesday for UAH 8 billion in borrowings. Both were the highest levels in two months. Of sales, 44% were for longer-term bonds: UAH 2.4 billion of 2-year bonds at 17.94% per annum, and UAH 1.1billion of 3-year bonds at 16.93% per annum. The Finance Ministry auction was the first this year that did not offer foreign currency denominated bonds. Flush with cash, the Ministry says it will offer only one foreign currency local bond in July. For foreign investors — about 7% of the market — the year to date rollover rate on hryvnia bonds is 160%, for a net placement of UAH 51 billion, or $1.9 billion.
To double GDP growth rates to 5% and above, Ukraine needs “relentless improvement of the investment climate,” Matteo Patrone, the EBRD’s regional managing director, writes in the Kyiv Post. “The basic preconditions for this to happen are a stable macroeconomic environment, sound institutions that guarantee property rights and provide rule of law and an open competitive economy.” He writes: “Only sound public institutions and professional public administration with high integrity, providing high-quality public services can guarantee private property rights and rule of law. That is why the EU and the EBRD have created the Ukrainian Reform Architecture, a holistic approach to public administration reform.” But, he adds: “The anticorruption legislation is not enforced, anti-corruption institutions are still weak, lack capacity and there are significant efforts to undermine their independence and efficiency.”
First time registrations of imported used cars, hit 250,100 during the first half of this year, six times the number of the first half of last year. Lower import duties and a tax amnesty deadline boosted used car import numbers. But by June, when there was no tax amnesty, 19,200 used imported cars were registered, almost three times the 7,300 new imported cars registered. In June, cars over 10 years old accounted for 35% of the used imports, according to Ukravtoprom, the national car dealer association.
Ukrzaliznytsia has placed a 5-year $500 million Eurobond at 8.25% per annum, the lowest level in the company’s history. By comparison, in 2013 the company issued its first Eurobond at 9.5% and then restructured it into a 2021 amortizing issue at 9.875%. Two weeks ago, Ukraine settled its new 7-year €1 billion Eurobond at 6.75%.
Reflecting strong international demand, the issuance was oversubscribed five times, with bids totaling $2.5 billion. Evhen Kravtsov, CEO of the state railroad, writes on Facebook: “Note that more than 175 investors from the UK, Continental Europe, the United States and Asia have submitted their proposals.” He adds: “The bond coupon is the lowest since 2011 among quasi-sovereign borrowers from Ukraine. Thus, we open the way to other state companies to international markets – Naftogaz of Ukraine.”
Only last November, Naftogaz aborted a road show for a Eurobond with a benchmark of 10.9%. Today, analysts were positive on the Ukraine’s latest Eurobond launch.
Timothy Ash writes from London: “Mid-May, Ukraine 10Y [Eurobond] in dollars was trading at 9.5%, and it’s now down at 7.7% — a massive reduction in Ukraine’s cost of borrowing overseas…appreciation finally of the Ukraine story…optimism over the Zelenskiy presidency, et al.”
Concorde Capital’s Alexander Paraschiy writes: “The placement looks successful, as the rate is closer to the lower end of the range we expected (8% to 9%). Additionally, the bond’s spread to the sovereign is just 155 bps. With $500 million raised by Ukrainian Railway, the company has no more liquidity risk and is set to smoothly repay all its foreign currency obligations due in 2019.”
Volodymyr Kuzyo, the railroad’s former investment director, now at the Center for Economic Strategy, writes on Facebook: “Now the financial burden will not pressure the company and the focus will shift to the key task – preparation for the opening of the traction [locomotive] and competition market, financing of investment projects of development.”
Locomotives top the railroad’s shopping list. General Electric would like to sell Ukrzaliznytsia 40 new Evolution series diesel locomotives for $150 million. In April, GE completed the delivery of 30 locomotives, the first phase of a $1 billion, 15-year contract signed last fall. France’s Alstom, Canada’s Bombardier, and China’s CRRC are competing for a similarly sized contract to deliver electric locomotives.
In hryvnia bonds, the Finance Ministry again squeezed yields at Tuesday’s weekly auction. Filling only 55% of bids, the Ministry pushed cutoff rates down from one week earlier: for four-month hryvnia securities, from 17.75% to 17.44%; for seven-month securities, from 18.25% to 17.94%; and for 1-year securities, from 18.4% to 18.3%. The government sold 3 billion hryvnia worth of bonds, the dollar equivalent of $115 million. No dollar bonds were sold.
To ease foreign investor access hrvynia bonds, the Finance Ministry has come out with an illustrated 12-page booklet, “How to Access UAH Domestic Bonds Market.” Last week, Finance Minister Oksana Markarova predicted that strong investor demand for hryvnia treasuries means that the government will not go back to the Eurobond market this year.
As the electric car boom spreads east, Tesla will set up supercharging stations across Ukraine over the next year, tweets Elon Musk, CEO of Tesla Inc. DTEK has installed four STRUM chargers on the Kyiv-Lviv highway and four more on the Kyiv-Odesa highway, part of a growing nationwide network.
During the first quarter of this year, electric car sales in Ukraine grew 71% q-o-q, to 1,276. This matches a similar 70% electric vehicle sales growth in the EU, hitting 24,000 for April alone. Looking east, Hungary’s oil company MOL is building 700 charging stations across Hungary, Romania, Croatia, Slovenia, Slovakia, and the Czech Republic. Similarly, Germany’s E.ON, Croatia’s HEP, Slovenia’s Petrol, BMW and Nissan’s Hungarian unit are jointly building 252 charging stations in Hungary, Romania, Croatia, Slovenia, and the Czech Republic.
Fighting for regional air travelers, Ukraine International Airlines launched yesterday its first “SkyBus” – from Vinnytsia Airport to Kyiv Boryspil. Painted in the airline’s blue and gold livery colors, the bus takes four hours to make the 250 km route, replacing what had been UIA’s shortest flight, a 35-minute hop. If this “multimodal” experiment proves popular, UIA plans bus routes from other regional capitals within 200 km of Ukraine’s busiest airport: Chernihiv and Zhytomyr. To prevent giving bus rides to passengers on Ryanair and SkyUp, UIA bus tickets sales are tied to purchase of a UIA air ticket. Ryanair plans to carry 1 million passengers in and out of Boryspil this year.
Similarly, Lviv airport is strengthening its position as western Ukraine’s main airport by offering hourly 20 UAH, Lviv’s rail station, and the airport. In the first half of this year, Lviv’s traffic hit 950,000 passengers, a 46% increase compared to the same period last year.
JoinUp, the travel agency parent of SkyUp airlines, runs free buses from 14 cities to its Lviv airport flights. Riding first on buses to Lviv or Kyiv Boryspil, 100,000 Belarussians flew last year from Ukraine last year on package tours to Egypt and Turkey. Referring to buses-to-planes, Oleksandr Alba, sales director of JoinUp and owner of SkyUp, tells UBN: “We have been doing this for six years.”
Legal harassment of SkyUp has prompted Hungary’s Wizz Air to drop plans to open a Ukrainian unit, SkyUp owner Alba tells UBN. Drawing the attention of foreign investors, the month-long, well publicized harassment of SkyUp has not drawn condemnation from President Zelenskiy. Two weeks ago, the new president addressed 500 members of foreign business chambers and promised to end ‘raider attacks’ on businesses.
Countering negative news through emails and an expanded call-in center, SkyUp’s revenue has “fully recovered” and sales are up 20% over pre-attack levels, says Alba. He adds: “After all, black PR is still PR.”
For SkyUp, harassment is the price of success. The one-year-old airline plans to carry 2.8 million Ukrainian passengers this year, triple the level of last year. By next spring, it plans to increase its all-Boeing fleet by 50%, to 12 jets. By the end of next year, SkyUp plans to fly from 12 airports across Ukraine. The only regional airports closed to SkyUp are Dnipro and Ivano-Frankivsk. Both are owned by Igor Kolomoisky, the oligarch TV backer of Zelenskiy. Kolomoisky also owns Ukraine International Airline, the nation’s largest airline.
Ending a 23-year monopoly on power sales to state-owned Energorynok, Ukraine’s new electricity market launched Monday, with 192 buyers and sellers taking part in an electronic auction. The market debut marks the end of the controversial, 3-year-old ‘Rotterdam +’ formula for pricing coal. After the first trading session on the Day Ahead Market, DTEK, the thermal power plant owner, reports the price for its electricity fell to UAH 1.569 per kWh, 12% below the average for the first half of this year.
The electricity market is part of a wider free market package designed to bring $30 billion in investment through 2030 – 11.5 times more than without the changes, writes Andrian Prokip, an energy analyst for the Ukrainian Institute for the Future. Since 1991, Ukraine has largely coasted on its Soviet energy inheritance, Prokip writes in an essay first published by the Wilson Center. He writes: “90% of electricity transmission lines are outdated. The distribution lines have depreciated by 60%, and thermal electrical power stations have depreciated by 80%.”
The rub will be higher household electricity bills. By ending Energorynok’s monopoly on buying and selling electricity on the wholesale market, the new system ends ‘cross-subsidization’ – where high industry rates kept household rates low. The Ukrainian Institute for the Future estimates household rates will increase by 28% this year and by another 84% in 2020. For industrial consumers, tariffs will increase by 45% this year, followed by a slight decrease of 5% in 2020. According to Eurostat, Ukraine has lowest electricity prices in Europe. In the second half of 2018 – Ukrainians paid 4 euro cents the kilowatt hour, compared to 10 in Moldova, 13 in Romania, 14 in Poland, and an average of 21 across the EU-28.
One goal is full integration between Ukraine and ENTSO-E, the EU’s power system. Prokip writes: “Synchronization with ENTSO-E is expected to increase the export of electricity by almost five times, from 5.6 billion kWh in 2017 to 25.0 billion kWh in 2030, resulting in an estimated $6.7 billion in surplus export earnings in 2019–2030.” Without integration and investment, Ukraine will have brownouts in the 2020s and will have to turn to Belarus and Russia to buy electricity.
Ukraine will come out of the process stronger, Ariel Cohen predicts in Forbes. “Synchronization with ENTSO-E will intensify competition in the domestic electricity market as well, forcing monopolists to compete for domestic consumers by offering better prices and service quality,” writes Cohen, an Atlantic Council senior fellow. “Kyiv is moving forward with deep energy sector reforms that will make it more investor-friendly, competitive, and resilient.”
Over the next three years, Ukrenergo is to invest €357 million to synchronize Ukraine’s electricity supply system with ENTSO-E, the European Network of System Operators of Transmission of Electricity. Ivanna Klimpush-Tsintsadze, deputy prime minister for European integration, told a conference last month that 40% of this money is to come from foreign sources: the EU, the US, the World Bank, the European Investment Bank, and KfW, Germany’s development bank. Compliant with the EU’s Third Energy Package, the new energy laws were required by the EU and the IMF for continued soft loans.
In one step toward ‘energy free travel’, Ukraine, an electricity exporter to the EU, is importing electricity for the first time from Slovakia and Hungary. Energy Resources of Ukraine, an American-run, Kyiv-based company, reports “the maximum capacity of ERU’s electricity import is 130 MW,” destined for Ukraine’s Burshtyn ‘energy island’. Located in western Ivano Frankivsk, about 100 km from Slovakia, Burshtyn is fully synchronized with the EU power system and exports electricity to Hungary, Slovakia, and Poland.
Ukraine essentially hit its goal of exporting 50 million tons of grain in this marketing year, exporting 49.7 million tons by Sunday, the end of the sales year, reports the Ministry of Agrarian Policy and Food. Powered by a record-breaking 70-million ton crop, Ukraine’s grain exports grew by 26%, surpassing those of Russia. Ukraine’s corn exports shot up by 62%, hitting 29.8 million tons. Wheat fell by 9%, to 15.6 million tons. Barley fell by 18.6%, to 3.6 million tons.
Ukraine’s food exports increased by 21.4% during the first five months of this year, hitting $9 billion, Olga Trofimtseva, acting agriculture minister, writes on Facebook. Food is Ukraine’s top export, accounting for 43% of sales, she writes. Top buyers were: China – $795 million; India – $741 million; Egypt – $737 million dollars; Turkey – $684 million; and the Netherlands – $641 million.
Ukraine’s hryvnia appreciated 5.5% against the dollar during the first half of this year, according to data from the National Bank of Ukraine. During the same time, the hryvnia appreciated 1.1% against the euro. In June, the hryvnia strengthened against the US dollar by 2.5%.
In the five weeks since Clearstream started handling trades of hryvnia government bonds, foreign investors have pumped an additional $560 million into Ukraine’s treasuries, reports the Finance Ministry. Since May 27, foreign investment in the bonds has risen by 36%, hitting $2.1 billion today.
Effective today, the central bank abolishes several more foreign currency restrictions. The regulator simplifies reinvestment of foreign investor incomes from operations with Ukrainian securities. It also generally expands the list of transactions allowed with foreign currencies in Ukraine. Since February, the central bank has been easing foreign currency rules.
Seven oil and gas companies, including one American and one Canadian, have won production sharing agreements. They will be required to invest a total of $430 million over the next five years in nine blocks, conducting seismic surveys and drilling 39 exploration wells. Roman Opimach, executive director of Ukraine’s Gas Producers Association, writes on Facebook that the winners are: state-owned UkrGazVydobuvannya – 2 blocks; UkrGazVydobuvannya with Canada’s Vermilion Energy – 2 blocks; US Aspect Energy – 1 block. Four private Ukrainian producers – Geo Alliance, Ukrnaftobrureniya, DTEK, and Zakhidnadarservis – each won one block.
During the first half of this year, Ukrainians bought 39,500 new cars – 13% more than during the same period last year, reports Ukravtoprom, the car dealers’ association. But first-time registrations of used imports put an additional quarter million Ukrainians behind the wheel during the first half of this year. Through May, 231,000 of these cars were sold – seven times new car sales for the same period.
Ukraine’s renewable energy boom will slow in 2020 to 540 MW of new capacity, about one quarter of the 2 gigawatts planned for this year, Mykhaylo Blyznyuk, deputy minister of Energy and Coal Industry, told a Ukraine renewables forum last week in London. These volumes – 300 MW for solar, 160 MW for wind and most of the rest for biogas – will have their electricity feed in tariffs set two times a year at ProZorro auctions. This year, investors are racing to get projects completed in time to get Power Purchase Agreements with the current ‘Green Tariffs’ – some of the highest rates in Europe. Because of these tariffs, renewables are a hot sector for foreign investment in Ukraine. Bloomberg New Energy Finance Ltd calculates that foreigners account for 47% of the renewables investment this year.
Ukraine has risen to become the third largest supplier of food to the EU, after the US and Brazil, the European Commission reports. In the year, ending in April, Ukraine’s food exports to the EU rose 14%, an €800 million increase. For the period, the top four suppliers of food to the EU were billions of euros: US – 12.9; Brazil – 11.7; Ukraine – 6.3; and China – 5.9.
An Italian business group comes to Odesa this month to negotiate to open a ferry line between Bari, Italy and Chornmorsk, Victor Dovhan, deputy minister of infrastructure, writes after participating in an Italy-Ukraine forum in Rome. Southern Italy’s main port on the Adriatic, Bari is a major transportation and industrial center. Chornomorsk is Ukraine’s main ferry port for cargo and passengers, with ferries going to Batumi, Georgia, Varna, Bulgaria and Hardarpasa, Turkey. Two months ago, Euro Marine Logistics NV started a twice a month roll on roll off cargo service between Chornomorks and Piraeus, Greece.
Odesa region will gain its first border crossing with the EU when the Orlivka-Isaccea, Romania ferry opens on Sept. 1. Crossing at a narrow, 900-meter wide point of the Danube, the new ferry will replace the current 2-hour, 100 km detour through Moldova’s southern tip. “This will be a round-the-clock, modern, technological, international border crossing point for ferry, sea and river freight and passenger traffic,” Alexander Vlasov, head of Ukraine’s Fiscal Service, tells Interfax-Ukraine. He predicts the new international crossing will handle 200 trucks and 500 passenger cars a day.
The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.