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  • Draft Farm Land Bill Allows Foreign-Owned Ukrainian Companies
  • Agro Businesses Outperform Family Farms
  • EBRD ‘Watching Carefully’ PrivatBank

Foreign-owned Ukrainian companies will be able to buy farm land under a land market bill that the government will send next week to the Rada, Prime Minister Oleskiy Honcharuk told an agriculture forum in Kyiv Thursday. Noting that more than 1,000 foreigners already cultivate Ukrainian land, he said: “We have foreign companies that work. Nothing wrong with that.” Otherwise, he said: “It will look like Ukraine is driving foreign investors out. For me personally, this is unacceptable.”

One year from now, on Oct. 1, 2020, Ukraine’s first real farm land since the 1920s is to start. Experts predict that only 3% of the nation’s 40 million hectares will change hands each year. A market for farm land will eventually inject an additional $1 billion a year into the countryside, predicts the World Bank.  The Prime Minister predicts the market will raise Ukraine’s economic growth by two percentage points a year. This year, growth is forecast to be 3%.

Farm land sales to individual foreigners will be banned, President Zelenskiy told the same group. “Horror stories about Arabs, Chinese, or aliens who will take our land by wagons are nonsense,” he said. However, he called for full ownership of land. “Full means the right to own, use and dispose of your land. Otherwise we will have the Soviet Union, he said. The list of countries without a farm land market include: North Korea, Tajikistan, Venezuela, Cuba, Congo and Ukraine.“ He asked the audience: “Which country do we want to be?”

To curb the creation of vast estates, the draft law limits land purchases by one individual to 15% of the farmland in a region and 0.5% at the national level. To promote small and midsized farmers, the Finance Ministry is drawing up a credit program with interest rates limited to 5%. All sales are to be through transparent electronic auctions. Zelenskiy wants the bill passed by Dec. 1.

While cries of ‘Shame!’ greeted some of the Prime Minister’s remarks, polls show that opposition to a farm land market is dropping. In a poll release two weeks ago, one third of respondents said people should not be allowed to sell farm land. In 2011, that group was one half, according to the Ilko Kucheriv Democratic Initiatives Foundation.

Through August, crop production by agro businesses was up by 15% y-o-y, while production from households was down by 2%, reports the State Statistics Service. Similarly, livestock production by agro businesses was up by 7%. By households, it was down 3%.

Through July, Ukraine’s food exports of Ukrainian to the EU were up by 34%, to $4.1 billion, reports Olha Trofimtseva, the former acting Agricultural Policy and Food minister. Last year Ukraine exported $6.3 billion in food to the EU, up 9% over 2017.

Since the July 1 start of the grain marketing year, Ukraine has exported 11.1 million tons of grain, 52% more than during the same period last year. Top grains were: wheat – 6.8 million tons; barley – 2.5 million tons; and corn – 1.9 million tons.

The EBRD, the largest lender to Ukraine, is “watching carefully” efforts by Ihor Kolomoisky to win back control or compensation for the Dec. 2016 nationalization of PrivatBank. “We expect the Ukrainian authorities to do the right thing, which is to go after the money which seems to have been stolen from the bank,” Alain Pilloux, EBRD vice president, told reporters in Kyiv Thursday. “We expect that this bank is not going to be returned to its former shareholders. This is exactly what I heard from President Zelensky at a meeting with him. I have no reason to doubt his readiness to do this.”

Three years ago, the EBRD and the IMF supported the seizure of the bank and the injection of public funds to cover a $5.5 billion hole created by the former owners. Pilloux said if attacks on central bank reformers and on PrivatBank’s current leadership “were to continue, (they) would have the potential to derail part of the president’s reform agenda by undermining investors’ confidence in Ukraine.”

  • Back to the Future: Ukraine to Regain Gas Self Sufficiency of the 1970s
  • Consumer Confidence Spikes 

On Oct. 30, oil and gas licenses for five fields in Eastern Ukraine will be auctioned on the ProZorro.Sales electronic platform, according to the State Service for Geology and Subsoil. Covering a total of 700 square kilometers, the permits are to be valid for 20 years. This will be the fifth electronic auction since the practice started last March.

Ukraine’s sold its first state-owned small hydro plant, auctioning off the 2MW Pervomaisk plant for $4.3 million, reports the State Property Fund. The buyer, EMZA LLC, offered $1.4 million more for the 90-year old plant than the next bidder. Norway’s AICE Hydro A.S. estimates Ukraine has 64 operating small scale hydro plants and 100 more that can be restored.

With demand for government hryvnia bonds up by one third this week, the Finance Ministry auctioned off the same amount as last week – the equivalent of $108 million – but pushed yields down by 20 to 48 basis points. On the most popular paper, the 3-year bonds, the yield at Tuesday’s weekly auction was 15.52% per annum. Concorde Capital’s Evgeniya Akhtyrko writes: “The majority of auction receipts came from the sale of bonds with the highest terms of maturity. Meanwhile, the downward trend of interest rates is continuing.”

Seeking to hold back the strengthening hryvnia, the National Bank of Ukraine purchased $312.5 million in the interbank foreign exchange market in the first two weeks of September, reports the central bank website. Currently, Ukraine’s currency trades at 24.76 to the dollar, a three year high.

Ukraine’s Consumer Confidence Index has jumped 30 points since April, hitting 96 in August, near the record highs of the 2004-07 boom years. Dragon Capital writes: “The sharp improvement in consumer sentiment over the past several months was recorded across virtually all age and income groups and geographical regions…the surge in consumer confidence suggests that household spending will remain on the rise, supporting economic growth.”

  • PM Flip Flops on PrivatBank Talks
  • Chorus of Commentators Criticize

“The banking sector reform has been the most successful reform in Ukraine,” VoxUkraine, an influential free-market economic group, writes in an online petition. “The Privatbank case was the pivotal case of the entire banking sector reform,” Vox said, referring to the Dec. 2016 nationalization of a bank with a $5.5 billion hole in its books left by an ownership group led by Ihor Kolomoisky. “Almost any genuine reform in Ukraine implies stepping on oligarchs’ toes or touching vested interests. The new President and the government have to very clearly show that their primary interest is equal rules for everyone, the well-being of the country and its every citizen, and not of just some influential persons.”

In a display of solidarity, Jeffrey Okamoto, Acting US Deputy Secretary of the Treasury, met Tuesday at the central bank with Gontareva’s successor, bank governor Jacob Smoliy. “The parties consider that the independence of the NBU is extremely important for Ukraine’s financial stability and its attractiveness to foreign investors,” the US Embassy tweeted later.

While protests come from G-7 ambassadors and foreign business chambers, concerns grow that Kolomoisky is fast expanding his influence in the government. Last spring, he was the primary media backer of  Zelenskiy, the candidate. One of his lawyers, Andriy Bohdan now is Zelenskiy’s chief of staff. Three of his former journalists are now members of the Rada. One, Oleksandr Dubinsky, now heads a commission that will control board appointments to state-owned banks, including PrivatBank. Last Tuesday, Kolomoisky went to the presidential office, meeting with Zelenskiy, Bohdan and Prime Minister Oleskiy Honcharuk. The next day, police in Dnipro, Kolomoisky’s home city, raided the national headquarters of Privat Bank.

Over the weekend, Prime Minister Honcharuk told the Financial Times that Kyiv is seeking a “compromise, adding: “Whatever solution we find, we have to find it together with the IMF.”  He said Zelenskiy and Bohdan, both former employees of Kolomoisky, are taking the lead on the PrivatBank issue. On Tuesday, Honcharuk backtracked, saying his words were taken out of context and that the Zelenskiy administration is not negotiating a deal with Kolomoisky. But later, Kolomoisky told Reuters: “Honcharuk is the first smart prime minister in recent times. He understands that there must be a compromise.”

If PrivatBank, the nation’s largest bank, was too big to fail three years ago, the $5.5 billion bailout, 4% of Ukraine’s GDP today, is too big to reverse today. Reuters writes: “The International Monetary Fund may freeze aid if the nationalization is reversed.” In contrast to the mountain of nonperforming loans wracked up by the insider loan practices of the previous owners, the bank reports a net profit of $1 billion for the first eight months of this year, almost three times the level of last year. Petr Krumphanzl, a Czech, has been board chairman since Jan. 2018.

Western press reaction is negative. 

A re-privatization “scenario would risk spooking foreign investors who’ve so far welcomed Zelenskiy’s reformist agenda,” writes Bloomberg. “It could also sink the prospect of a $5 billion loan from the International Monetary Fund, which had pushed for the nationalization.”

“The optics are terrible,” Melinda Haring writes for the Atlantic Council. “Zelenskyy needs to maintain the appearance of fighting the oligarchs…if the new administration wanted to reassure the IMF and the West, this was exactly the wrong way to do it.”

Dragon Capital writes:A scenario has been mooted of offsetting the Privatbank ex-shareholders’ obligations to the state against a possible state compensation. However, any such “compromise” risks undermining cooperation with Ukraine’s western creditors.”

Concorde Capital’s Alexander Paraschiy writes: “The IMF and other partners of Ukraine are unlikely to tolerate other “compromises,” in our view. So far, we do not see a simple solution to the Privatbank case that could satisfy both the former owners and IFIs.”

Ihor Mazepa, the owner of Concorde Capital, tells Bloomberg: “There’s a consensus among investors that the government is doing a lot of good things…But any wrong decisions on Privatbank would erase that positive effect very quickly.”

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Timothy Ash writes from London: “What is there to discuss? The bank was nationalized, and as is right and proper, the National Bank of Ukraine and Ministry of Finance are pursuing former owners for the losses incurred by the state, which were 5% of GDP. How about discussing with foreign partners the attacks and intimidation of proven reformers?”

  • Rebuilding Donbas: Focus of Oct 29 Conference in Mariupol
  • To Encourage Foreign Investment, Big Public Investments are Underway for Port, Roads and Railroad
  • In Time for Conference: New Airport for Zaporizhia and Highway to Mariupol
  • New Getaway Flight: Zapo-Sharjah 

As part of President Zelenskiy’s hearts and minds strategy for the Donbas, the new government will hold an international investment forum on Oct. 29 in Mariupol, the largest sea port and industrial city in the region. Cut off for five years from half of the Donbas industries and mines, Mariupol has languished in every way – but population. Bolstered by Donetsk residents who do not want to live in the Russia-controlled half of the Donetsk, Mariupol’s population is believed to be back to its pre-Independence level of half a million.

A series of infrastructure investments are underway to draw private investment to the largest city on the Sea of Azov.In the 21st century, those who are not afraid to take risks will be successful,” Prime Minister Honcharuk told the Yalta European Strategy, an international gathering in Kyiv.

Mariupol port is seeing the largest dredging work of Ukraine’s top 10 seaports this season. By November, an international fleet of four dredging ships is to remove 2 million cubic meters of sediment from approach channels and the port. “We are doing everything possible to ensure that the ports of Berdyansk and Mariupol remain competitive and can ensure the import and export of goods from the south-east of Ukraine,” Raivis Veckagans, head of Ukraine’s Sea Ports Authority, said the $14 million project.

One goal of this public spending is to lease parts of Mariupol port next year to private investors, Yuriy Laveniuk, Ukraine’s new Deputy Minister of Infrastructure, said last week. In coming days, the Rada is to pass on second reading a concessions bill that would cover port projects.

At the port, a wharf was rebuilt and the Azov’s first major grain handling complex was commissioned this summer. The complex has 10 silos and a German-made NEUERO ship-loading machine capable of loading 1,000 tons of grain an hour. This first phase of the project has an annual throughput of 1.5 million tons of grain.

After taking a hit in 2018 due to Russian harassment of ships, Mariupol’s port cargo has stabilized this year – at the new low level. So far this year, the port has handled 4 million tons of cargo – the same amount as this time last year. At this rate, the port will handle 6 million tons this year – far below the 14.6 million tons handled in 2013, the last pre-war year. To motivate producers to use the port, the Cabinet of Ministers ordered the state railroad to offer 20% rate discounts on grain and metals shipped to Mariupol and Berdyansk. Veckagans, of the Sea Ports Authority, said that, in the face of international pressure, Russia has reduced harassment this year of Ukrainian shipping.

On land, the EU committed last summer to help pay for 72 new trolleybuses for Mariupol and €45 million to rebuild Mariupol’s sewage and lighting systems. In time for next month’s investment conference, the first 15 of 64 MAZ buses from Belarus will ply routes in the city. Adding a modern, colorful touch to a largely drab industrial city, these low-floor, accordion buses are being financed with a low-interest loan from the World Bank’s International Finance Corporation.

Under pressure to reduce Mariupol’s geographical isolation, Ukrzaliznytsia has turned the 6-month-old Kyiv-Mariupol night train into a daily service. The train connects the capital with the Azov in 15 hours, three hours faster than earlier trains. Last month, for the first time in five years, the railroad restored local service along a 150 km north-south regional line that runs close to the front line: Mariupol-Volnovakha-Yuzhnodonbaska.

Rotating paving crews are using road equipment around the clock to finish rebuilding the 210 km highway between Mariupol and Zaporizhia. Due for completion one week before the investment conference, this road will speed conference attendees by bus from Zaporizhia airport to Mariupol in two hours – half the time before the road work. To complete the work by mid-October, Ukravtodor, the national highway agency, released $36 million in emergency spending last month. “This year it is incredibly important for us to build a road to Mariupol – this is task number one,” Oleskiy Honacharuk told reporters Aug. 30, the day after he became prime minister.  “Because it is a Ukrainian city which is now a kind of logistics island. It should not be so.”

Many conference attendees will reach Mariupol by flying from Kyiv to Zaporizhia, an airport that aspires to be the hub for Ukraine’s southeast. In time for the conference, the airport plans to complete a $40 million rebuild – a renovated runway and a new steel and glass terminal. Already the busiest airport in the region, Zaporizhia saw its passengers increase by 28% y-o-y through August, to 330,000. UIA and Motor Sich have flights from Kyiv. On Oct. 28, the day before the Mariupol conference, SkyUp starts service from Kyiv Boryspil to Zaporizhia.

With international flights growing the fastest, Zaporizhia now has direct scheduled flights to Barcelona, Minsk, Tel Aviv, Istanbul, Warsaw and charters to the Egyptian and Turkish resorts. On Oct. 27, SkyUp starts two flights a week between Zaporizhia and Sharjah, United Arab Emirates.

Looking ahead to the international conference in Mariupol, Oleksandr Danylyuk Secretary of National Security and Defense Council, told BBC Ukraine recently: “The purpose of the forum is to draw attention to the development of Donbas and attract investors…It is necessary to attract investments into the region, since roads, ports, infrastructure, schools require money.”

  • Fiscally Conservative Budget for 2020
  • Positive Mood Music on IMF Deal
  • Fitch Upgrades MHP, Naftogaz
  • Ze Pushes for Peace
  • Rada Votes for Bills on Concessions, Whistleblowers, EU Customs Integration and Private Rockets

The Rada starts to review the 2020 state budget. Highlights from the budget as presented Sunday to reporters by Prime Minister Oleksiy Honcharuk and Economy Minister Oksana Markarova.

  • The deficit decreases slightly, to 2.09%, from 2.3%. Overall spending is to be $46.5 billion. The government’s goal is a ‘deficit-free’ budget in 2022-23, Honcharuk said. Defense spending increases by $1 billion to $10 billion. Markarova told reporters: “It’s too much.”
  • The budget provides $4.8 billion for education, $3.8 billion for health care, $2.5 billion for roads, $300 million for culture, and $156 million in agriculture subisidies, largely to small farmers.
  • The government plans to borrow $15 billion in 2020. By the end of 2020, the public debt to GDP ratio should fall to 46.7%, predicts Markarova.
  • Sales of state companies should bring $200 million to the budget in 2020. By contrast, this year, ‘small privatizations’ might bring in only $35 million.
  • The budget is calculated on an average exchange rate of 28.2 hrvnia to the dollar. The current rate is 25 hryvnia to $1.
  • Taxes need to be gradually reduced,” Honcharuk said. “It is wrong when taxes are high, and a small part of the business pays them. This is very unfair.” The government plans an overhaul of the code next spring.

Fitch Ratings has upgraded Naftogaz’s long-term foreign-currency bond default rating to ‘B,’ from ‘B-‘. The outlook is positive. The upgrade equalizes Naftogaz’ rating with those of the sovereign and of Ukrzaliznytsia.“Ukraine Poised to Seal Three-Year IMF Loan of About $5 Billion” Bloomberg reports from Yalta Economic Strategy forum last Saturday. The extended fund facility would be for three years, according to “three people familiar with the matter.” The agreement would be conditioned on: tackling corruption, cutting the budget deficit, and creating a market for farm land. In speeches and bills for the Rada, the government supports all three goals. It is unclear how an IMF pact would be affected by Ihor Kolomoisky’s effort to win compensation for the Dec. 2016 nationalization of his bank, PrivatBank. Although Kolomoisky and the two leaders of the IMF for Ukraine attended the Forum, it is not known if they met.

MHP, the nation’s largest poultry producer, has placed a 10-year, $350 million at 6.25%, reports Bloomberg. Coming as Fitch Ratings upgraded MHP’s issuer default rating to ‘B+’, from ‘B’ the bond has the lowest yield on record for MHP. Dragon Capital notes that the bonds will largely refinance MHP’s short term debt, writing: “We do not expect MHP’s net debt to increase following the new Eurobond sale.”

International Development Finance Corporation, formerly known as OPIC, plans to expand its backing of investments in Ukraine, John Didiuk, the agency’s veteran Ukraine representative, tells the US-Ukraine Business Council. Although often faulted for moving slowly, the Corporation has two benefits for US-related investments in Ukraine: low-interest rates and the aura of US political backing for a project.

An energy exchange based on a modern clearing and trading system in Ukraine is planned for launch by 2021, Timur Khromaev, head of the National Commission for Securities and Stock Market says after signing an agreement with the USAID Energy Security Project. Khromaev writes on Facebook that the move is part of a wider preparation of laws for the development of organized trade in commodity markets in Ukraine.

With wide margins, the Rada voted last last week to approve in the first reading:

§  A law to protect and encourage whistleblowers, people who accurately report specific cases of corruption. Whistleblowers are to be paid 10% of the funds defrauded from the government – up to $1 million.

§  The introduction of a national electronic transit system and a single, EU standard customs declaration. This is to allow the exchange of customs information in real-time with 35 European countries.

§  The abolition of the current list of state companies protected from privatization.

§  The lifting of restrictions on private companies launching rockets into space.

§  A law to speed up the procedures for a second reading.

§  A concessions law for the private operation of such public property as sea and river ports, roads, and airports


The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.