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  • China’s ZTE to Open in Kharkiv IT Park
  • Azeri Socar Wants to Store Oil in Ukraine
  • Ukraine’s Stores Reopened last Weekend
  • Kyiv Metro to Reopen in 10 Days
  • AirBaltic Starts Flying Monday

China’s ZTE Corporation, a major telecom equipment manufacturer, signed an agreement to become the first tenant of Ecopolis KhTZ, the industrial and technology park Alexander Yaroslavsky is developing in part of his Kharkiv Tractor Plant. Speaking by video link from ZTE headquarters in Shenzhen, Vice President Xue Bin said the project “is in tune with the main tasks of ZTE in Ukraine and in the global market.” He did not outline ZTE’s investment plans. With revenue last year of $12.5 billion, ZTE is major manufacturer of 5G telecommunications systems and smartphones. On the R&D side, the company has been one of the top five global leaders for patent applications over the last decade.

Nova Poshta Global made a test shipment by truck last week of AliExpress parcels from Ürümqi, western China to Kyiv. Carrying 7,467 parcels, the truck took eight days to make the 6,000 km drive, traveling via Warsaw. Working with Nova Poshta and Ukrposhta, the state post office, AliExpress sent more than 20 million parcels to Ukraine last year, making it one of the top 10 markets in the world for the China-based online retail service.

With the world awash in oil, Azerbaijan’s Socar would like to store oil in Ukraine for one year, or as long as it takes for prices to revive, says Nikolay Gavrilenko, head of Naftogaz’s oil division. To do this, Ukraine’s Finance Ministry has to create a duty free customs warehouse regime, similar to the one used by gas traders in western Ukraine. Gavrilenko calculates that 2.7 million barrels could be stored in an unused pipeline that runs east from Poltava’s Kremenchuk refinery to Lysychans’k, Luhansk. In addition, 1.2 million barrels could be stored at Ukrtransnafta’s tank farm at Pivdennii, Ukraine’s deepest and busiest Black Sea port.

Olena Zerkal, a former deputy foreign minister, will take over from Yuriy Vitrenko prime responsibility for Naftogaz’ litigation against Russia, reports the state energy company. Zerkal has five years experience negotiating gas transit deals with Gazprom and lobbying the EU against Nord Stream 2. Vitrenko was fired this week. He attributes this in part to his plans to sue Gazprom for up to $17 billion.

After a 1-year suspension, the EU now is prepared to disburse a €500 million aid tranche, Olivér Várhelyi, EU Commissioner for Neighborhood and Enlargement told Ukrainian Foreign Minister Dmytro Kuleba, the ministry reports. Originally scheduled for disbursement in spring 2019, the aid was held up pending Ukraine reaching a deal with the IMF. With the Rada’s approval of the ‘anti-Kolomoisky bill,’ “Ukraine has fulfilled all the conditions for the allocation of further macro-financial assistance to the EU,” the Commissioner reportedly said.


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With the IMF deal on track, one discordant voice popped up: Mikheil Saakashvili, Zelenskiy’s new reform advisor. Speaking on Ihor Kolomoisky’s 1+1 TV, he complained of the IMF: “They give us exactly as much money so that we simply pay off our external debts. And because of this, we are forced to bow constantly. I refused the IMF services in Georgia one time. I think Ukraine is strong enough to refuse this.”

In time for weekend shopping, the Cabinet of Ministers decided to allow non-food stores to reopen, effective today. The government website says: “Non-food markets will operate subject to sanitary and epidemiological safety measures on the principle of operation of food stores.”  Separately, IKEA opened its online furniture and household goods store, capping 15-year effort by the Swedish-founded company to enter Ukraine.

With Kyiv suffering the worst traffic jams in recent memory, Health Minister Maxim Stepanov authorizes re-opening the city’s Metro system on Monday May 25 – if the city follows strict sanitary procedures.  Responding to Mayor Klitchko’s appeal for transit relief, Stepanov’s office said: “The Ministry of Health gives permission – if all epidemiological indicators allow this and all the criteria for this mitigation phase are met.” Responsible for half of the city’s mass transit, the Metro carries about 1.5 million riders every weekday. Massive traffic jams started Tuesday morning as residents of this city of 3.7 million returned to work after the 10-day May holidays and the easing of the quarantine.

AirBaltic resumes flights from Monday from Riga, Vilnius and Talinn. The Latvian carrier will fly directly to 14 destinations: Amsterdam, Stockholm, Brussels, Paris, Copenhagen, Frankfurt, Hamburg, Helsinki, London, Munich, Oslo, Tallinn, Vilnius and Moscow. In June, it plans to resume flights to Kyiv Boryspil and 14 other European cities.

Ukraine’s domestic and international air traffic should resume simultaneously because of the hub and spoke models of UIA and SkyUp, Infrastructure Minister Vladyslav Krikliy said after meeting with airline heads. “We had a great meeting with national airlines,” Krikliy said on ‘Breakfast with 1+1.’ Later, on his Telegram channel, he promised: “We will work with air carriers and the Foreign Affairs Ministry to determine the countries from which the resumption of international flights will begin.” He did not predict when flights will resume.

Ukraine’s air traffic control agency will run out of money in two weeks, the agency, UkSATSE, warns on its Telegram channel. With air traffic and overflights down 90% since mid-March, the agency will need a $37 million loan or budgetary grant to get through the year. Last year, the controllers handled 335,400 flights, an 11.5% increase over 2018. After a normal January and February, air passenger traffic through Ukrainian airports ended up dropping 35.5% y-o-y for the first four months, to 4 million people.

 

  • Rada Votes to Block Return of PrivatBank to Kolomoisky
  • Vote Opens Path to IMF Deal and $10 Billion for Ukraine
  • Naftogaz Number 2 Vitrenko Goes out With a Bang
  • Cars Clog Kyiv, Klitschko Pleads for Metro to Reopen

An informal party coalition approved the ‘anti-Kolomoisky’ banking bill in the Rada yesterday. This clears the way for an IMF deal and $10 billion in aid to Ukraine over the next two years, Prime Minister Shmygal told parliamentarians. Finance Minister Sergey Marchenko predicted Ukraine could receive the first $1.75 billion IMF tranch by the end of this month.

With only 80% of the majority Servant of the People Party voting for the law, Zelenskiy attended the Rada session and helped cobble together an ad hoc coalition, drawing votes from two pro-Western parties – former President Poroshenko’s European Solidarity and Svyatoslav Vakarchuk’s Voice. Opposed were pro-Russian parties, Kolomoisky’s faction inside Servant of the People and former Prime Minister Yulia Tymochenko’s Fatherland party.

The bill blocks owners of about 100 banks that were closed or nationalized in the 2014-2015 banking crisis from regaining ownership. Kolomoisky was part owner of PrivatBank, Ukraine’s largest bank, which was nationalized in 2016 after regulator discovered a $5.5 billion hole in its books. For nine months, the IMF held up a deal with Ukraine, demanding legislation that would prevent a return of the bank.

Tymoshenko, now allied with Kolomoisky, promised to continue to fight the bill. She said in the Rada: “Perhaps the IMF and the puppeteers of the global space do not know that after the adoption of this law it will be repealed in the Constitutional Court, since it is deeply unconstitutional. Our faction will vote against this crime against the sovereignty of Ukraine.”

Western analysts welcomed the news as bolstering Ukraine’s finances and reputation among investors. An IMF deal would unlock about $2 billion in additional aid, largely from the EU and the World Bank.

Anders Åslund writes from the Atlantic Council in Washington: Adoption of the highly significant Banking Law is a major victory for Ukrainian reforms and for the Ukrainian economy as a whole.”

Timothy Ash writes from London: Remember this was promised back last autumn – Ukraine has been through three finance ministers since then!… the problem at present is not the money, it is the perception of the broader policy stance going backwards… Interestingly, Bahrain, which has much more onerous debt ratios and financing challenges, managed to successfully come to market this week and borrowed $2 billion at 6.25-7.375%. With the right messaging about reform, with the IMF program in place, then Ukraine can tap the Eurobond market again.”

Despite Zelenskiy’s purge this spring of pro-Western reformers, both analysts cited the leadership of Ukraine’s central bank for maintain exchange rate stability and confidence in the banking system during the current severe global downturn. Aslund wrote: “During two months of global financial crisis, no single bank in Ukraine has gone under. There have been no lines of panicked customers at ATM machines.”

Yuriy Vitrenko, the number two at Naftogaz, will be let go this summer after disputes with Andriy Kobolev, CEO of the state oil and gas company. In a 3,600-word post Facebook, Vitrenko reviewed the pluses and minuses of his nearly 18-year career at the company, concluding that “the final straw” for his relationship with Kobolev was the work by Vitrenko’s legal team this spring to sue Russia’s Gazprom for a total of $17.3 billion. “It is symbolic that I am going to be fired from Naftogaz in a situation when our team, which I have the honor of leading, showed record profits in 2019,” he said, referring to Gazprom’s December of a Stockholm arbitration award to Naftogaz.

Operators of long-distance bus lines parked buses in Kyiv congesting traffic in a protest against the government’s plan to stretch the suspension of long-distance bus travel to almost three months. The day after the Infrastructure Ministry revealed a tentative plan to extend the ban until June 9, drivers parked buses on European Square. In windshields, signs read: “Open international bus traffic” and “Open the borders for international bus service.”

With private cars congesting Kyiv streets for the second morning in a row, Mayor Vitali Klitschko asked the government to authorize reopening of the metro on Monday May 25, shortly after the quarantine is to end on May 22. Users of the underground rail system should wear masks and limit rides to work and back. The mayor said that restricting metro use to people with special passes is ‘utopian.’ Klitschko said: “When more and more people are returning to work, a collapse is taking place in the capital. We will insist on resuming the work of the metro.” The mayors of Dnipro and Kharkiv also want to re-open their metro lines on May 25.

During the first two months of the quarantine, Kyiv lost $60 million in revenues, Klitschko said. Losses came from rent discounts for city property, and plummeting fees, including the hotel tax.

People can now eat in outdoor restaurants in groups up to four at a table and stroll in parks at groups up to six, the Cabinet of Ministers decided. On the street, everyone is to wear a mask – a request that increasingly is ignored.

Despite a surge in testing, new documented infections are averaging 400 a day, down from an average near 500 a day during the May 3-8 week. Chernivtsi Oblast in western Ukraine remains the largest hotbed of the disease, with 2,444 confirmed cases, followed by the Kyiv City with 1,960. On Tuesday, the European Aviation Safety Agency placed Kyiv and Chernivtsi regions on a list of risky destinations for European airlines due to the spread of COVID-19.

When the quarantine is eased on May 22, many companies will only partly bring their employees back into the office, predicts Anna Derevyanko, executive director of the European Business Association. “Many companies have adapted to the remote mode of operation. Therefore, due to the fact that there are still risks, they will be in such a quarantine mode for a long time,” she told Interfax-Ukraine. “The quarantine showed that it is not necessary for the whole team to be in the office to give a good result. Many companies will seriously review the number of square meters they rent and reduce the rented area.”

 

  • Saakashvili to Focus on Customs, Creating a Ukrainian Batumi
  • Shopping Centers Lose $2 billion in Rents and Sales
  • Government Throws Cold Water on Early Re-Start of Foreign Flights

The Finance Ministry auctioned off $718 million worth of short-term hryvnia bonds, almost twice the volume of last week. Average yield rates were: 11.26% for 77 days; and 11.28% for 196 days. The Ministry did not offer securities denominated in dollars or euros.

Ukraine’s GDP contracted by 1.2% y-o-y in the first quarter of 2020, dragged down by coronavirus curbs on March production, reports the Economy Ministry. Industrial production fell 5.1% in Q1. The National Bank of Ukraine offers these forecasts for the rest of this year: Q2 – down 11.3%; Q3 – down 5.3%; Q4 – down 2.3%; and for all of 2020 – down 5%.

Mikheil Saakashvili’s focus in the government this summer will be to shake up Ukraine’s 6-month-old Customs Service, drawing on his experience reforming Georgia’s customs a decade ago. In addition, President Zelenskiy hopes the former Georgian leader will repeat in Ukraine his success in drawing “some of the biggest international hotel chains” to develop Batumi into a major Black Sea resort city. President Zelenskiy sketched out these tasks in remarks to reporters Saturday that were picked up in an Atlantic Council roundup of reaction to Zelenski’s appointment of Saakashvili to be a presidential reform advisor.

After giving a round of interviews to the foreign press, Saakashvili received in his new office Kristina A. Kvien, the acting US Ambassador to Ukraine. “We discussed the possibility of closer involvement of the United States Agency for International Development (USAID) and the Embassy in the reform program of Ukraine,” Saakashvili wrote of the meeting on Facebook.

The New York-based law firm Skadden, Arps, Slate, Meagher & Flom has paid $11 million or more to avoid a lawsuit by former prime minister Yulia  Tymoshenko, reports The New York Times. She blames the firm for aiding in her political persecution during the Yanukovych presidency. The Times reports that Tymoshenko and her lawyer, Sergiy Vlasenko, each received about $5.5 million from the law firm, which was eager to avoid a trial.

The first two months of quarantine cost Ukraine’s shopping centers $260 million in lost rents and cost their tenants $1.85 billion in lost sales, calculates the Ukrainian Council of Shopping Centers. Supermarkets lost 15% in revenue, Maxim Gavryushin head of the council, tells Interfax-Ukraine. Because most shopping centers stopped charging rents, few stores have closed. However, he estimates that in ‘weak shopping centers’ vacancies will rise up to 20% in the second half of this year.

Arricano Real Estate Plc, owner of five shopping centers in Ukraine, reports that local authorities in Kriviy Rih and Zaporizhia allowed stores to reopen in its local malls. By contrast, Arricano’s three shopping centers in Kyiv remain in quarantine mode, with only supermarket food sales allowed.

UNIAN reports a calendar for restoring passenger transportation, citing a source in the Infrastructure Ministry. The source stresses that the timetable has yet to be approved by the Cabinet of Ministers and is subject to change.

May 22 – city buses
May 29 – 50% elektrichka suburban trains; 42 long distance Intercity trains
May 29 – domestic flights
June 9 – interregional and international buses
June 12 – 100% of suburban trains
After mid-June – international trains and air flights
Last – Kyiv Metro

Airline moves to sell international air tickets starting May 23 “are premature and mislead passengers,” the spokeswoman for Ukraine’s Infrastructure Minister Vladyslav Krikliy tells Hromadske. On the Ukraine side, the Cabinet of Ministers will have approve dropping the ban on foreigners entering Ukraine, said the spokeswoman, Oksana Gerasimova. In the case of the EU, the European Commission has recommended to maintain to mid-June a ban entry of most non-EU citizens.

With airlines on the edge of bankruptcy, UIA, SkyUp, Wizz Air, Lufthansa and Czech Airlines started selling tickets last weekend for travel as early as May 23, the day after the latest end date of the quarantine. But yesterday afternoon, Gerasimova said: “Recommendations regarding the operation of airports are now being prepared, while reopening traffic with other countries depends on decisions of the respective governments.”

The shutdown of Kyiv Boryspil airport is near total. In April, the entire passenger flow was 5,548 people. In April 2019, the airport handled 1,155,000 passengers. In Kharkiv, Ukraine’s second largest city, Vladyslav Ilyin, airport commercial director, tells Ukrinform that resumption of flights depends entirely on government decisions. Last year, the airport handled about 100,000 passengers a month.  Since the pandemic arrived two months ago, Kharkiv has recorded two coronavirus fatalities a week.

Ryanair, Europe’s largest discount carrier, announced that within six weeks it plans to be flying 1,000 flights a day, reaching 80 European airports, 90% of its pre-shutdown route network. The volume of flights by July 1 will be 40% pre-shutdown levels and strict hygienic procedures will be followed, said the Dublin-based airline. Since mid-March, Ryanair has been operating 30 flights a day between Ireland, the UK and the EU.

 

Ukraine’s Post-Lockdown Economy: Low inflation, Fewer restaurants, Lower office rents, and E-commerce in the mainstream.

Low inflation – initially. Due to ‘demand destruction’ and low energy prices, April inflation was only 2.1% y-o-y, reports the State Statistics Service. In April, Ukraine imported gas at $122 per 1,000 cubic meters – 20% below the March average, reports the Economy Ministry. With economists predicting a slow recovery, there will not be a V-shaped return of consumer demand. To stimulate the economy and lessen the pain, the government is doubling the budget deficit. The central bank already warns against printing money to cover the hole. If printing presses speed up in the second half of the year, the hryvnia will lose value and prices will go up.

Many restaurants may never reopen. By the end of April, almost 2/3 of Ukraine’s restaurants were closed. The other one third were making 50% of previous earnings through takeout, according to  Poster, the restaurant automation company.  About 40% of Ukraine’s 30,000 pre-lockdown restaurants will never reopen, Mykyta Poturayev, deputy chair of the Rada’s humanitarian and information policy committee, predicted two weeks ago in an interview with Interfax-Ukraine.

With demand high for cooked meals, Glovo opened last month in Kyiv its first ‘cloud kitchen’ in Ukraine. Under one roof, seven restaurants prepare dishes – Kitaika, 3B Cafe, Torisho, Menya Musashi, Berliner Döner and Foodz Ukraine. The kitchen is closed to walkins, and the cooked food is delivered by Glovo couriers. Since 2018, Glovo has opened ‘cloud kitchens’ in Madrid, Buenos Aires, Lima, Milan and Santiago de Chile.

Prime office rents will decline, CBRE Ukraine predicts. As of the end of March, 44% of companies planned to negotiate rental discounts with their landlords. Only 12.5% planned to continue under the conditions of their current leases.

Remote working will expand. Half of companies surveyed by CBRE Ukraine may expand work from home after the quarantine fully ends. Legal, financial, analytical, marketing, and HR are the departments are more inclined to expand remote working. “There will be an increase in the trend for hot desking,” reports CBRE. Of the companies polled, 35% want to reduce office space by 15-20% and 6% want to cut it by more than 50%.

 

The lockdown introduced millions of Ukrainians to e-commerce.

Silpo, the supermarket chain, is expanding home delivery service this month from Ukraine’s big five cities – Kyiv, Kharkiv, Dnipro, Lviv and Odesa – to 11 new regional capitals: Chernihiv, Chernivtsi, Cherkasy, Ivano-Frankivsk, Kherson, Mykolaiv, Poltava, Sumy, Vinnitsa, Zaporizhia, and Zhytomyr.

Vodaphone Retail, the IT equipment store, reports that sales volumes in Kyiv changed little during the quarantine. But in Kharkiv, Dnipro and Lviv, sales are up 30-40% over pre-quarantine levels. The company reports: “At the same time, in Ternopil, Mykolaiv and Chernivtsi, there is a triple increase in the number of orders via the Internet.”

Nova Poshta Global says its international orders from Zhytomyr Region doubled during the quarantine. Nationwide, the delivery service’s April orders from China’s AliExpress were up 28% y-o-y.

Watsons, Ukraine’s largest chain of beauty and health stores, is launching ‘click & collect’ service at 36 stores, about 10% of its total. Designed to be expanded across the nation, this service offers online ordering and free delivery.

Allo, the mobile phone store, shifting the bulk of its sales online. This month, the company starts courier delivery in Ukraine’s big five cities. The store network will shrink to a few ‘flagship’ stores where customers can test models and get smartphones repaired, Dmitry Derevitsky, head of Allo’s board of directors, tells the European Business Association.

Glovo’s first time users doubled during the quarantine. Orders from supermarkets increased by 40%, from pharmacies by 35%. Cashless payments increased to 55%.

Paying online is going mainstream. The share online payments for heat and hot water in Kyiv jumped from 50% in early March to 65% at the end of April, reports utility company Kyivteploenergo.

OLX, the online classified advertising and shopping site, records a big jump in new users during quarantine, reports AIN.ua. In March, the number of new ads posted daily tripled, to 1,150. During the virus-related lockdown, sales of household cleaning products tripled, health and beauty products tripled, and board games increased 79%. With mass transit shut down, bicycle sales increased 70%. Rozetka.ua, Ukraine’s largest online store, reports similar jumps in sales.

Viber, one of Ukraine’s most popular digital communication platforms, reports users are more comfortable with the platform, using new features. Video messages have tripled during the quarantine. Audio messaging is up 46% and photo messaging up 39%. With more time on their hands, users are talking 35% more than before.

The global lockdown is introducing millions of people around the world to online learning, benefiting Kyiv start up Preply, reports AFP, in an article: “For One Ukrainian Startup, Coronavirus Means Business Is Booming.” Dmytro Voloshyn co-founded the language learning platform which pairs tutors and students. Helped by anti-virus measures, Preply now has a network of 10,000 tutors in 190 countries and “tens of thousands of students,” Voloshyn says.

Reflecting Ukraine’s sclerotic bureaucracy, one month after the government allocated funds to triple the March pay of doctors and nurses working with Covid-19 patients, the payments have been made in only one oblast – Poltava – out of the 24, Health Minister Maksym Stepanov said in online briefing. Last Wednesday, President Zelenskiy threatened to fire regional administrators who do not implement his order for the payments. Frustrated by the delay, medical workers increasingly protest. On Monday, an AP story from a hospital  in Ukraine’s hardest hit region, Chernivtsi, was picked up by dozens of US news sites, including The Washington Post.

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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