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  • Zelenskyy Outlines Aggressive Libertarian Drive
  • New President to Business: Deregulate, Privatize, Work with IMF
  • Rada Election will be July 21
  • Winter Natural Gas Futures Fall as Gas Transit Fears Ease
  • Grain Exports to Grow 40% by 2023
  • Ukrainian Company Profits Jump
  • Trading Places: Poland Now Imports More from Ukraine than Russia
  • Two US Cos. Bid for Massive Gas Field Off Ukraine’s Danube Delta
  • More FX Freedoms
  • Ryanair Starts Flying from Kharkiv and Odesa
  • One-Third of Ryanair Ukraine Traffic to be with Poland
  • Ukraine Tops Russia As World’s Largest Grain Exporter
  • Logistics: Top Ag Challenge
  • In a First, More Private Freight Rail Cars and State-Owned
  • Needed: Private Locomotives
  • Cement Highway to Link Top Ports
  • EU Energy Cos. Start Storing Gas in Ukraine
  • Construction Starts Double
  • Zelenskyy Wants Farm Land Market in 2020
  • Next Eurobonds: UZ and Naftogaz?
  • Investment Returns to Front Line Zone
  • Chernobyl HBO Series to Boost Foreign Tourism to Kyiv
  • Betting on Italy-Ukraine, Ernest Airlines Triples Investment

In President Zelenskyy’s first substantive meetings with business leaders, the new president came across Thursday as a pro-business libertarian — determined to privatize, to cut red tape, and to lead Ukraine in the 2020s from a ‘poor country to a middle-income country’ during his five-year term.

Here are highlights:

Hailing the central bank’s decision this week to end mandatory sales of foreign exchange earning for hyrvnia, he said: “The National Bank of Ukraine must be thanked for this and more. Thank you. I am sure that this is the result of its independence. I will respect and protect it.”

Saying that Ukraine pays 30% of the budget to service its debt, paying “crazy interest,” he said the way out is to “continue cooperation with the International Monetary Fund, so that for the next five years, it will be possible to significantly reduce and reduce the debt burden on the country.”

“There will be no default,” he said, addressing a worry from the start of his one-month-old presidency. He then repeated the phrase three times.

Zelenskyy promised to give new energy to Ukraine’s flagging deregulation drive. At the start of the meeting with business groups, he announced he had canceled 161 decrees made by past president. These including setting minimum prices for notaries and stipulating that school uniforms be made of Ukrainian cloth. Addressing ‘Soviet-era laws,’ he promised a market for farmland and a liberalized casino regime.

“Here, there should be a line of investors,” he said. “I am convinced that within 3-4 years Ukraine can enter the TOP-10 ranking of the World Bank, Doing Business.” From a position at the bottom of this international list, in position 150 in 2011, Ukraine is now in the middle, ranking 71.

Addressing the 3,000 state companies left over from the Soviet era, Zelenskyy said: “Ukraine as a state needs to get rid of non-core. Therefore, I support large-scale privatization. The state is a service that creates the conditions for your work, not your competitor.”

On the Donbas, he called for $10 billion public and private investment into roads and jobs in areas near the war zone. This would make government-controlled Ukraine an attractive alternative to separatist areas. He said: “We must demonstrate to the people who are forced to stay in temporarily occupied territories the advantages of living in a decent, free and independent Ukraine.”

To reverse capital flight, he promised: “We will hold a tax amnesty on preferential terms. We are well aware that very often Ukrainian businesses withdrawn money from the country, not for good living, but because of corruption pressure and a normal desire to protect their assets.”

“Our short-term priority is the fight against smuggling and raiding,” he said, responding to a question. “I believe that in the coming months you will see a tangible difference, and next year these phenomena will no longer be systemic.”

Raiding by security forces will stop, he promised. “I also support the demilitarization of the tax service and the creation of the State Financial Intelligence Service with an emphasis on analytical work,” he said. “The Service [SBU] must fight spies and saboteurs — and not engage in business.”

On energy, Zelenskyy said the Antimonopoly Committee and the energy regulator should become truly independent. “Over the next five years, we will do everything necessary to become truly energy independent,” he said. “We will unite our power grids with European ones.”

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Early parliamentary elections will take place as planned on July 21. The Constitutional Court rejected an appeal by 62 MPs and ruled Thursday that President Zelensky’s decision to dissolve Rada was constitutional. According to several polls, the new president will win enough seats to form a governing coalition. The latest poll, published on Wednesday by the Rating Group, indicates these preferences: Zelensky’s Servant of the People party – 47%; the pro-Russian Opposition Platform – For Life party – 11%; the Voice party of rockstar Sviatoslav Vakarchuk – 8%; former Prime Minister Yulia Tymoshenko’s Fatherland party — 7.3%; and former President Petro Poroshenko’s European Solidarity – 5%.

With 4,000 IT companies, Ukraine is now the top destination in Europe for IT outsourcing, Taras Kytsmey, president of SoftServe and president of the IT Ukraine Association, told the business meeting. He forecast that today’s level of IT exports — $4.5 billion — will more than double, hitting $10 billion in 2023.

“Investors Dodge Global Worries in Currencies of Egypt, Ukraine”
headlines The Wall Street Journal. Noting that the Griwna has appreciated this year against the dollar by 5%, reporter Ira Iosebashvili writes from Moscow: “Both Egypt and Ukraine also offer double-digit yields on their local currency debt, compared with just above 2% on the U.S. 10-year Treasury note and below zero on many Japanese and European fixed-income investments.” He writes of Ukraine: “Investors are betting that a new presidential administration will continue reforms and fight corruption.”

With Naftogaz and Ukrainian Railways expected to launch their own Eurobonds in coming weeks, analysts are studying who bought Ukraine’s €1 billion sovereign Eurobond last week. According to the Finance Ministry, investor origins were: UK – 32%; US – 27%; Germany – 17%; other EU –13%; Switzerland – 7%; and Asia – 4%. Funds that manage assets, pensions and insurance accounted for 85%. Hedge funds bought 10%; sovereign wealth funds 3%, and banks and individuals – 2%.

Over the next four years, Ukraine will increase its grain exports by 40%, to 70 million tons, Mykola Horbachev, president of the Ukrainian Grain Association, predicts to reporters in Kyiv. During the peak of the current marketing year, Ukraine exported 6 million tons a month. He says this proves that the ports are capable of shipping 70 million tons in one year.

Ukraine’s economy grew by 2.5% during the first quarter, compared to the same January-March period last year. The new number is slightly above the preliminary 2.2% figure released one month ago by the State Statistics Service. In 2018, the economy grew by 3.5% y-o-y.

Ukrainian companies earned 57.5% more last year than in 2017, reports the State Statistics Service. After subtracting losses from profits, the net positive results hit UAH 373 billion, or $14 billion. While the exchange did not change significantly last year, inflation was 10%. Three-quarters of Ukrainian companies reported profits last year. By comparison, the net positive results in 2017 were 237 billion hryvnia, 3.4 times the level of 2016.

Poland has displaced Russia as the largest buyer of Ukraine’s exports, according to Novoe Vremya, citing new trade statistics. During the first quarter of 2019, 7% of Ukraine’s exports went west to Poland. Only 6% went east to Russia, historically Ukraine’s largest trading partner. Five ago, at the start of the war, roles were reversed: 5% to Poland and 18% to Russia. On the push side, Russia blocked many imports from Ukrainian. On the pull side, Poland’s economy is growing by 5% a year, more than double Russia’s rate of 1.5%.

In two blows to DTEK Energy, the electricity monopolist, President Zelenskyy submitted to the Rada on Wednesday a bill to abolish the linking of Ukraine’s coal prices to those in the Netherlands and the Constitutional Court ruled that the 2014 creation of the National Energy Regulatory Commission was unconstitutional. With energy policy in flux, it is likely that the Rada will follow Zelenskyy’s suggestion and delay the July 1 creation of a liberalized electricity market by one year.

Concorde Capital’s Alexander Paraschiy writes of the end of the price linkage: “Parliamentary approval of such legislation presents the worst possible scenario for DTEK Energy… Coal costs that are covered by the thermal power plants’ electricity rates could decrease by about 30% from the current level already by 2H19, and by another 20% in 1H20. Needless to say, such discounts to the current price will be damaging for DTEK Energy’s fundamentals.”

Two American energy companies, one Azeri company and one company owned by oligarch Igor Kolomoisky are bidding for 50-year exploration and production rights to a massive offshore Ukrainian gas field near the Danube river delta. The 10,000 km square Dophin field is believed to hold 286 million tons of oil and gas.

Bidders are: Trident Black Sea of New York; Frontera Resources Corporation, based in Houston and active in Georgia and Moldova; Caspian Drilling International Ltd, owned by SOCAR, Azerbaijan’s state oil and gas company; and Ukrnaftoburiny, a company linked to Igor Kolomoisky that produces in eastern Ukraine.

UkrGazVydobuvannya, the state gas company, won five of five oil and gas exploration and production permits put up for auction Tuesday by ProZorro. In each case, UGV won with bids marginally above the starting prices. Critics say starting prices were set too low for commercial companies. UGV produces about three quarters of the gas produced in Ukraine. Although the prospect of a Russian gas cut off has loomed over Ukraine for at least 15 years, production by the Naftogaz unit has been stagnant.

Starting last week, businesses no longer have to sell 30% of their foreign exchange earnings for hrvynia, the National Bank of Ukraine decided Tuesday. The central bank noted that this measure is the latest of 30 foreign exchange liberalization rules adopted since Feb. 7. The bank says the goal is free movement of capital.

To promote foreign investment in hryvnia government bonds, the central bank now allows foreign companies and banks to take hryvnia loans from Ukrainian banks for bond investments. Loans are limited to 14 business days. “Allowing banks to finance such operations in the hryvnia gives investors the opportunity to better plan their participation in [bond] auctions,” says Oleh Churiy, deputy governor of the National Bank of Ukraine. “This will increase their interest in the Ukrainian market.”

If President Zelenskyy stays on the rule of law, pro-investment track, Dragon Capital can invest $250 million in 10 real estate and private equity deals over the next year, Tomas Fiala, Dragon’s CEO, tells Interfax-Ukraine. “So far, everything that President Zelenskyy and his team are doing does not scare us,” says Fiala who invests with Goldman Sachs and Soros. “After the elections, we and our partners can quietly double, over two or three years, our investments in real estate and private equity,” he says. “With the right government policies, we can invest up to $1 billion.”

Since 2015, Dragon has bought 22 properties with a total area of 620,000 square meters. Half of this portfolio are Kyiv region warehouses and 150,000 square meters are offices. Fiala says: “We had to create a real estate management team from scratch – more than 100 employees.”

Ryanair, Europe’s largest airline, is doubling the number of Ukrainians cities it serves, launching service this week from Kharkiv and Odesa. Today, Ryanair starts flights from Odesa to Kraków. In October, flights start from Odesa to Berlin-Tegel and to four more Polish cities: Gdansk, Katowice, Poznan, and Wroclaw.

Ryanair started flights from Kharkiv to Kraków. In October, the discount airline plans to start Kharkiv flights to Vilnius and Poznan. This spring, Ryanair started flights from Lviv to Krakow, London-Stansted, Warsaw-Modlin, and two German cities Memmingen and Weeze. From Kyiv Boryspil’s newly reopened Terminal F, Ryanair now flies to 17 EU cities. In October this number jumps to 24, with new direct flights to Madrid, Valencia, Katowice and four German airports: Hahn, Karlsruhe/Baden-Baden, Nuremberg and Weeze.

Polish routes will account for more than one-third of the 1.4 million passengers flying Ryanair from Ukraine this year, predicts Michał Kaczmarzyk, CEO of Ryanair Sun, the discount airline’s Warsaw-based subsidiary. Ryanair predicts that 500,000 passengers will fly its 16 Ukraine-Poland routes this year, linking four Ukrainian cities with seven Polish cities.

Almost one third more Ukrainians bought foreign tours last year than in 2017, according to the Economic Development and Trade Ministry. Last year 3.4 million Ukrainians spent $638 million with travel agencies, a 26% increase in spending. Of travel vouchers sold, 97% were for foreign travel. Top agencies were: Join UP! (affiliated with SkyUp airlines) – 902,600 people; ANEX Tour – 515,600; Accord Tour – 279,700; TEZ Tour – 284,900; Coral Travel – 243,700; and TUI Ukraine – 230,400.

Ukraine’s grain exports are up 26% this year, compared to the same point in the last July 1 – June 30 marketing year. With 48.3 million tons exported as of Friday 14th, Ukraine may hit the symbolic goal of 50 million tons at the end of this month. Russia expected to export 46 million tons of grain.

Farmers in southern Ukraine have started the 2019 grain harvest, threshing the first hectares of winter barley. Seeding of other crops has been completed, with the acreage in corn expanding by 2% to 4.8 million hectares. The agriculture ministry predicts that this year’s grain harvest will be 70.8 million tons, 1% bigger than last year’s 70-million ton record crop.

The biggest change in farm exports this year will be a 40% jump – to 3.5 million tons — in sales of rapeseed, used to make canola cooking oil. Minor changes are forecast for other crops surveyed for the September 2019 – August 2020 agricultural year by the U.S. Department of Agriculture.

As world sugar prices recover from last August’s 10-year low, Ukrainian producers exported 30% more sugar in May, compared to April. Ukraine is the world’s 10th largest sugar producer. Last summer’s price of 10 US cents a pound prompted many farmers to cut their sugar beet plantings this year.

Ukrainian farmers signed this spring the first international crop receipts loan, reports the IFC Ukrainian Crop Receipt Project. Unable to mortgage land for credit, farmers can get cash in advance for receipts on future crops. In return for a forward contract, Everwelle, an Estonian grain trader, loaned Salix of Lviv the hryvnia equivalent of $45,000 at 12% per annum – half the domestic loan rate.

Grain delivery to ports remains the main challenge to Ukraine’s farm sector, according to report in World-Grain.com on the recent International Grain Ukraine Conference in Odesa. “The rail fleet is old, with 70% of grain carriers more than 20 years old. There is also a chronic shortage of locomotives,” reports Susan Reidy, a correspondent for the Kansas City-based news site.

Freight car production is up 63%, to 2,297 rail wagons, at Ukraine’s main manufacturer, Kriukiv Railway Car Manufacturing Plant in Kremenchuk. With more orders from Ukrzaliznytsia, production levels are double 2017.

Partly due to purchases from Kriukiv, Ferrexpo is increasing by 35% this year its fleet of rail cars to move iron ore. By the end of this year, the LSE-traded mining company is to have 3,000 gondola cars, Vitaliy Oleinik, logistics manager of Ferrotrans tell the Center for Transportation Strategies.

For the first time in a century, Ukraine has more privately owned rail wagons for grain than state-owned, reports the Center for Transportation Strategies. As shippers build up their fleets, private carriers now have 11,800-grain cars, compared to 11,500 owned by Ukrzaliznytsia, the state railroad. Admitting to a critical lack of working locomotives, Andriy Ryazantsev, the railroad’s new director of business development, says the challenge is to make sure the new cars do not become “warehouses on wheels.”

Due to the state railroad’s lack of locomotives, grain and metals companies miss export contracts and power plants run out of coal, Alexey Chernyavsky, head of the Ukraine Energy Association, writes in Tsenzor.net “Why the power industry needs private traction.” He says almost all of the railroad’s 1,785 locomotives are past their manufacturer retirement dates. Only half – or 945 – actually work. The railroad needs to buy 100 new locomotives a year, but can only afford 50. “The only way to solve the shortage of locomotive traction is to allow private diesel and electric traction on the Ukrzaliznytsia routes,” he writes. Last December, the Rada failed to pass such a law. President Zelenskyy says he hopes the Rada elected July 21 will vote to allow private freight trains.

The government has decided to rebuild with concrete 300 km of the M14 international highway, linking Ukraine’s five largest Black Sea ports: Odesa, Chornomorsk, Pivdennii (Yuzhne), Mykolaiv and Kherson. On summer days, overloaded grain trucks grind up asphalt softened in the heat. This is “the first investment project in Ukraine that provides for the creation of a first-category highway with a length of almost 300 kilometers of cement concrete,” Oleg Varivoda, head of the Odesa region road service, writes on Facebook of the Cabinet of Ministers’ plan for the rebuilt Odesa-Kherson highway.

To speed east-west road traffic between Ukraine and Poland, Ukravtodor is posting a $30 million tender to build a 4-lane, 14 km bypass around Rivne, the western city midway between Kyiv and Lublin. Work would start this fall on the M-06 international highway, reports the state highway agency. On the same highway, China’s Sinohydro is to complete by next summer a 4-lane, 22 km cement bypass around Zhytomyr. This €42 million project is largely financed with loans from the EBRD and European Investment Bank. Ukravtodor also oversees the design and preparation of highway bypasses around Lviv, Ternopil, Odesa, Kremenchuk, and Boryspil city.

Ukrtransgaz invites EU energy companies to store up to 4 billion cubic meters of gas in its 10 underground storage facilities. Since April, Ukrtransgaz offers a ‘customs warehouse’ regime where the gas that is imported for re-export is not taxed during the first three years of storage. In the first two months, 24 foreign companies concluded storage agreements, stocking 515 million cubic meters in the reservoirs, largely empty gas fields in western Ukraine.

“Will Ukraine have the last laugh?” headlines a story on the prospects for President Zelenskyy in fDi Magazine. “The most popular FDI sectors in Ukraine are software and IT services (accounting for 21% of greenfield FDI projects between 2014 and 2018), agribusiness (18%), industrial equipment and renewable energy (both 12%),” according to a fDi Markets study. Another study, by fDi Benchmark, places “Ukraine at number one for attractiveness for IT technical support centres when measured against other central and eastern European locations – ahead of Poland, Romania, and the Czech Republic.”

Construction starts doubled during the first quarter, compared to the same January-March period last year, reports the State Statistics Service. Nationwide, construction starts hit 2.7 million square meters, overwhelmingly residential apartment buildings. Growth champions are these cities: Kyiv up 3.3-fold to 1.1 million square meters; Lviv up 3.2-fold to 378,000 square meters; Odesa up 1.7-fold to 376,400 square meters; and Kharkiv up 1.6-fold to 231.300 square meters.

President Zelenskyy’s party aims to create a private farmland market within “one year,” Dmitriy Razumkov, head of the president’s Servant of the People Party, tells Strana.ua news site. “The land market needs to be open — the moratorium is imposed from year to year because it is profitable,” he said referring to a ‘temporary’ land sale ban that was imposed in 2001. To create a private land market, he said, it is necessary: to win a working majority in the July 21 Rada elections; to draw up law, and to prepare public opinion.

The retail vacancy rate on Kyiv’s Khreschatyk Street fell in May to 6%, reports Colliers International. The highest rent has not changed in two years: $83 per square meter. The mix of retail on Kyiv’s premier street is: clothing – 31%; cafes and restaurants – 27%; and others — banks, pharmacies, jewelry stores, children stores, food and souvenir stores — 36%.

France’s Air Liquide, the world’s largest supplier of industrial gases, signed a $25 million deal with Metinvest Holding on Saturday to build an air separation plant at the Mariupol Metallurgical Combine. The plant is the first phase in a $78 million project that is to create 1,000 jobs. “This is a very important event for Ukraine as a whole,” said President Zelenskyy, who attended the signing ceremony in the Donetsk region port with French ambassador Isabelle Dumont. “It will strengthen the faith of the western market in the stability of the country.”

As investment returns to front line areas, Epicenter K opened on Saturday a two-story, 17,700 square meter shopping center in Kramatorsk, Donetsk region. “Despite the fact that the distance to the so-called ‘delimitation line’ is only 60-70 km, we decided to invest in the construction of a new shopping center in the Donetsk region and thus support the development of the eastern region,” said Peter Mikhailishin, general director of the company, which has 52 shopping centers across Ukraine. “Today, it is the largest shopping center in the frontline zone.”

Holtec International, a New Jersey-based producer of small nuclear reactors, signed a partnership last week with Energoatom and the State Scientific and Technical Center for Nuclear and Radiation Safety to build in Ukraine six SMR-160 small modular reactors for deployment in 2026 at western Ukraine’s Rivne Nuclear Power Plant. Using low-enriched uranium fuel, the reactor’s core and nuclear steam supply system components would be underground. The design includes a passive cooling system that would operate indefinitely after shutdown. In Chernobyl and Fukushima, Japan, electric pump systems failed, leading to nuclear fires.

With travel to Italy growing, Ernest Airlines plans to triple its investments in Ukraine, to €100 million, and to base two jets next year in Ukraine, probably in Lviv and at Kyiv Sikorsky. With 13 Ukraine routes — from Kyiv, Lviv, Kharkiv, and Odesa – the Milan-based discount airline expects to more than double its Ukraine air traffic, to 500,000 this year, reports avianews. From Kyiv, Ernest flies to five Italian cities: Bergamo, Bologna, Genoa, Milan-Malpensa, Naples and Rome-Fiumicino.

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