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  • DTEK Opens Europe’s 2nd Largest Solar Plant
  • Solar, Wind Investors Fight Changing Rules Retroactively
  • China Co. to Build the First Section of ‘Great Ring Road’ Around Kyiv 

DTEK Renewables inaugurated the second-largest solar plant in Europe on Thursday, the 240 MW Pokrovska plant in southern Dnipropetrovsk Oblast. Built-in six months with 840,000 panels supplied by China’s Risen Energy, the plant spreads across 437 hectares of degraded industrial land, the equivalent of 817 football fields. In Europe, the only larger plant is the 300 MW Cestas solar station in western France.

The plant is part of a $1 billion, 1 gigawatt solar and wind crash investment program undertaken this year by DTEK. In February, the company inaugurated a 200 MW plant in Nikopol, 30 km east of Pokrovska. DTEK plans to inaugurate the Prymorska wind power plant, a 200 MW station that rivals DTEK’s existing 200 MW wind plant, Botievska, for the title of a largest wind power plant in Ukraine.

Casting a cloud over renewables, Andriy Gerus, chair of the Rada’s Energy Committee, has won committee approval for a bill that would relieve Ukrenergo of its obligation to buy power from renewable projects over 150 MW. The bill appears to be aimed at DTEK’s mega projects.

Timchenko, DTEK CEO for 14 years, predicts to the UBN the government will realize it will be too costly for Ukraine’s image and investment flows to retroactively change the rules of the game. I am convinced that the President’s goals that were publicly presented, such as 40% GDP growth in the course of the next five years, are not possible to realize without direct foreign investment and investment…I am convinced that Ukraine will fulfill its obligations before investors.”

Foreign investor worries about the bill were clear Tuesday at the Mariupol investment conference. Renewable energy investors said new projects were slowing down or being abandoned.

Michael Yurkovich, president of TIU Canada, told the UBN: “If they change the rules of the game on electricity, what about the oil sector? the pharmaceutical sector? Retroactive cuts, defrauding foreign investors have very serious consequences.” He said government policy switches on ‘green tariffs’ in Spain and Greece triggered “crippling litigations.”

Thorstein Jenssen, Senior VP corporate finance for Norway’s NBT, agreed, saying: “I have spent the better part of the last two years talking to people about investing in Ukraine, building confidence. Any retroactive change will destroy that confidence.” Noting that he works with eight banks to finance a $1 billion wind power plant in Zaporizhia, he said: “Any change to the existing rules would be catastrophic. Already, banks have stopped financing. Investment is at a complete standstill.”

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Prime Minister Oleksiy Honcharuk said that talks will take place “with all the stakeholders.” In response to a question from the UBN, he said: “We are civilized people. We understand how market financial processes work. We cannot change the rules retroactively.”

The EBRD has approved €200 million in new financing for renewable projects in Ukraine. One year ago, the bank had suspended new project loans, pending approval of an auction system to phase out applying ‘green tariffs’ to new projects in the 2020s. Under a law passed last spring, auctions are to start in 2020.

DTEK Energy is completing a restructuring of its bank debt, including conversion of part into 5-year Eurobonds, the company said on the website of the Irish Stock Exchange. The coupon rate for new Eurobonds is 10.75% per annum, reports Interfax-Ukraine. Concorde Capital’s Alexander Parashchiy writes: “After completion of the remaining restructuring, DTEK will complete the debt operation, which began in 2015. This will entail a rating upgrade and, therefore, will become a powerful catalyst for the growth of bond prices. We remain bullish on DTEKUA bonds.”

China’s Poly Changda Engineering signed an agreement Thursday with Ukravtodor, the state highway agency, to start work on the first phase of the ‘Great Ring Road’ around Kyiv. The first section of this high volume, limited access beltway would be a 13 km north-south arc connecting the Kyiv-Lviv highway and the Kyiv-Odesa highway. Infrastructure Minister Vladislav Krikliy said he hopes construction will start next year. “Our goal is to ensure 40% growth of the country’s economy in five years, and for this, we need to ensure large-scale construction throughout the country,” he said at the signing ceremony. “Any infrastructure project gives a return with the greatest multiplier.”

Zhang Feng, the commercial attache at the Chinese embassy, said at the DTEK solar plant opening Thursday: “Almost weekly, we get information about a new Chinese company in Ukraine as a supplier, contractor or investor.”

  • New Concessions for Ports, Airports, Rail Station, and Toll Highways
  • Work Starts on State Railroad IPO
  • Chinese to Help Build the Largest Wind Farm in the Zaporizhie
  • GDP Growth Cooled in Q3

Across the nation, ports, airports, railroad stations and toll highways are to be opened up to foreign and Ukrainian companies to operate as long term concessions, Infrastructure Minister Vladislav Krikliy told the Mariupol Investment Forum.  With billions of dollars worth of contracts at stake for the early 2020s, Prime Minister Honcharuk signed a technical advice agreement on public-private partnerships with Georgina Baker, a regional vice president of the World Bank’s International Finance Corporation.

Ports: Companies from China, Qatar, and Singapore applied for concessions to run parts of Olbia and Kherson ports. A roadshow in Odesa on Oct. 1 drew 46 companies from 11 countries. Dec. 6 is the deadline for bidders applying for the 30-year concession in Kherson. Dec. 16 is the deadlines for the 35-year concession in Olvia, Mykolaiv Oblast. The Infrastructure Ministry is preparing concession tenders for the ports of Odessa, Mariupol, Berdyansk and the ferry complex in the port of Chernomorsk.

Airports: Working with the IFC, the Infrastructure Ministry is preparing tenders for long term concessions to run the airports of Kherson, Chernivtsi, Zaporizhia and the cargo terminal of Bila Tserkva, southern Kyiv Oblast. Currently used by a flying club and an Air Force Unit, Bila Tserkva airport is a one hour drive from Kyiv’s Ring Road.

Toll Roads: The Infrastructure Ministry has started feasibility studies for five privately run toll highways: Kyiv-Bila Tserkva, Kyiv’s Ring Road, Lviv-Krakovets (Polish border) and Lviv-Stryi (on the way to Zakarpattia). Krikliy calculates a toll highway will only make money if 13-15,000 cars travel in each direction every day. With the cuts in import taxes, Ukraine’s car fleet grows by double digits every year.

Rail Stations: About one year from now, Kharkiv, Dnipro, Khmelnytskyi, Mykolaiv and Chop stations could be handed over to private investors on long team leases. For retailers, the big prize would be Kharkiv which handles 5.7 million passengers annually. By contrast, Chop handles 80,000 passengers a year. These five stations could draw $20 million in investments, the Infrastructure ministry calculates. If these pilot projects do well, Ukrzaliznytsia and World Bank experts have drawn up a second-round list: Ivano-Frankivsk, Kyiv Central Station, Vinnytsia, and Zaporizhia.

Engaging in ‘bridge diplomacy,’ Chinese companies backed by soft loans are to build two bridges over the Dnipro – at Kremenchuk, and, 250 km downriver, at Zaporizhia. China has agreed to provide a $340 million to build a bridge across the Dnipro in Kremenchuk.  China Road and Bridge Corp. are to build a cable suspension bridge at Zaporizhia. Further south, China’s Asian rival, Japan, is to help build a bridge in Mykolaiv, over the Southern Bug.

Preparing to build the largest onshore wind farm in Europe on Ukraine’s Azov sea coast, Norway’s NBT and China Electric Power Equipment and Technology Co., Ltd. have signed two design, procurement and construction contracts for the 300 MW and 450 MW Zofiya II and Zofiya III wind farms. NBT has signed preliminary financing agreements for €500 million of senior debt with Industrial Commercial Bank of China, Export-Import Bank of China, and China Construction Bank. Located in Zaporizhia’s Yakimivskyi district, the €1 billion Zophia Wind Park to have an installed capacity of 792.5 MW, enough electricity to power 340,000 households.

Starting today, Ukrainians and foreigners can buy as much foreign currency from banks as they want. And buyers no longer have to submit documents justifying their purchases. The latest in a year-long easing of foreign currency controls, the new rules scrap the old daily limit on foreign currency purchases – $6,000. To justify the liberalization, the National Bank of Ukraine notes that it has brought a net $4 billion this year as foreign buyers flood the Finance Ministry’s weekly bond auctions. At the same reserves are around $21-22 billion, enough to cover three months of imports.

Ukraine’s GDP growth probably cooled to 3.4% in the third quarter, down from 4.6% in the second quarter, estimates ICU investment bank. This would make for a 3.5% y-o-y growth for the first nine months of the year. Growth rates cooled for retail, construction and passenger transport, while industrial production continued its gradual decline. ICU writes: “Despite some slowdown in the real sectors of the economy, consumer confidence in 3Q19 was at the highest level since 2008, which should have boosted the services sector. Hence, we estimate real GDP growth to be close to 3.4% YoY in 3Q19.”

Ukraine’s GDP warrants “could turn out to be a massive financial burden,” if the economy grows as expected in the early 2020s, warns Brian Seel, US Treasury attache in the US Embassy until last year, warns in a Financial Times opinion piece.  “Payments on GDP warrants could derail the public accounts,” headlines the FT. Created during 2015, debt restructuring, the warrants are to start paying out next year, assuming two markers are hit: GDP growth over 3% and GDP over $125 billion. With payouts to run until 2038, “the government’s potential liability is unlimited,” writes Seel, now senior economist at ProMeritum Investment Management. With buybacks or renegotiation as the only way out, he concludes: “Whatever option the Zelensky team decides to pursue, it is going have to accept that it must spend money today to save money tomorrow.”

Work is starting to prepare Ukrazaliznytsia for an IPO, a 3-year process designed to yield $3 billion investment capital for the state railroad. “Ukrzaliznytsyia is the first Ukrainian state-owned company to plan to enter a foreign stock market, thereby raising the country’s investment image,” Infrastructure Minister Vladislav Krikliy said Tuesday at a signing ceremony in Mariupol. The EBRD is to provide technical advice to prepare UZ for the IPO. UZ CEO Yevhen Kravtsov said: “Thanks to the IPO, we plan not only to raise several billion dollars over the next 2-3 years but also to bring Ukrzaliznytsia to first place among the transport companies in the world.” Within two years, UZ is to be divided into three subsidiary companies: freight, passenger and infrastructure.

With Ukraine’s booming IT industry reaching into all corners of the nation for skilled workers, President Zelenskiy inaugurated the latest Beetroot Academy in the new Mariupol Startup Development Center. This Swedish and American-funded NGO is doubling its schools to 22 cities by the end of next year. Offering $500, 4-month courses to train Ukrainians with math and engineering skills to work for Western outsourcing companies, Beetroot also is more than doubling its student body this year, to 1,300, says Andreas Flodström, founding CEOAndriy Kolodiuk, a leading Ukrainian IT venture capital investor, said: “New schools training students for real jobs will be very successful.”

  • Ze Promise: No Return of PrivatBank
  • For the Donbas: More Trains, Planes, Roads, Ports, Cellphones and Digital TV 

Ukraine’s top political leaders said Tuesday PrivatBank will not be returned to its previous owners. “PrivatBank has been nationalized,” President Zelenskiy said in a keynote speech opening an investment conference in Mariupol, Donetsk Oblast. “I will only defend Ukraine’s interests,” he said. “The rumors that me or someone from the presidential office is going to return the bank to its former owners are false.”

The next speaker, Prime Minister Honcharuk, made the same point: “If anyone hears rumors that the presidential team, the government team has the intention to return those banks to previous owners or resolve that the expense of the taxpayers, that is not true. We understand the macro stability of the country depends on that.” Speaking to about 500 foreign and Ukrainian attendees, he also cautioned: “In the case of PrivatBank, it is in the plane of the courts, in the judicial plane…We don’t have a dictatorship. We cannot introduce martial law, and tell every judge what to do.”

Alain Pilloux, a vice president of EBRD, the largest foreign investor in Ukraine, told the forum: “The mixed signals on PrivatBank must stop. We need to see what is Plan B if the courts decide otherwise. We want to hear that the state of Ukraine is supporting the efforts to recover the assets that evaporated from the bank — $5.5 billion – in London, in Europe, in Ukraine.”

Ukraine now is the number one country destination for EBRD loans, Pilloux said. New lending this year should hit €1.2 billion. Pilloux announced a €300 million loan for the development of regional roads across Ukraine. Honcharuk wrote on Facebook: “We start with rebuilding roads in the Kherson region.”

The focus of the forum was to channel investment into the government-controlled half of the Donbas. Held in Mariupol, a port city of 500,000 on the Sea of Azov, the conference took place only 30 km west of front lines where Ukrainian troops face Russian-controlled separatists. Agreements came in steady succession:

To bridge Ukraine’s digital divide, Honcharuk and executives of the nation’s three largest mobile operators signed an agreement to extend high-speed 4G internet to 90% of the nation within two years. Zelenskiy said: “Every corner of our country will finally be covered by mobile communication and the Internet.” This will be eased partly by releasing the 900 MHz band for civilian use. Coverage will not be extended to Crimea and Russia-controlled Donbas, where de facto authorities do not allow Ukrainian coverage.

To bridge the information gap, USAID is helping fund the construction of 11 digital TV transmitters along the control lines of Russia-controlled Crimea and Donbas. This ‘digital carpet’ is designed to give all residents access to Ukrainian TV programming, in Ukrainian, Russian and Crimean Tatar. “By the end of this year, more than 2 million people will get access to Ukrainian content,” reports Ukraine’s Ministry of Information Policy.

To ease Mariupol’s highway isolation, Zelenskiy and Honcharuk inaugurated “the road of life” a new, two-lane, 225 km highway connecting Mariupol with Zaporizhia, a city with a growing international airport. Turkish and Ukrainian companies rebuilt the road in three months, with 1,000 workers using 600 pieces of equipment. Zelenskiy said: “Two hundred kilometers of the road was built from scratch. For steelmakers, ports and the Ukrainian Army, this is perhaps the most important transport artery.”

For rail passengers, Ukrzaliznytsia invested $6 million in renovating sleeper cars and locomotives to add a second Kyiv-Mariupol night train, making it a daily service. In addition, UZ spent $18 million to repair or rebuild almost half of the 312 km line between Mariupol and Zaporizhia. By doubling several sections of track, the railroad eliminated bottlenecks, allowing daily trains to increase from 20 in 2016 to 50 today. UZ CEO Evhen Kravtsov said: “We were able to build a new track in the direction of Mariupol, which is the key to the further successful development of the region.”

For the seaport, China’s COFCO signed an agreement committing to invest $50 million to rebuild two berths, expand the new grain terminal, and build a food transshipment complex. This would increase cargo traffic by 2.3 million tons, a 40% increase over the port’s 2018 cargo level. Despite continued harassment by Russian Coast Guard patrol boats, cargo handled by Mariupol, Ukraine’s largest port in the Azov, was up 2.3% through September, compared to the first nine months of last year.

To improve drinking water, the French government signed a declaration of intent with the European Investment Bank and the Mariupol City Council for a €100 million water supply and treatment project.

To improve air quality, Metinvest, Ukraine’s largest mining and metallurgical holding, signed an agreement to spend $400 million through 2024 to reduce pollution caused by its industries in Mariupol, Kriviy Rih, and Zaporizhia. Residents say Metinvest cut production during the two days of the conference to clean up the air for the foreign  visitors.

To improve air service, Alexander Yaroslavsky, owner of DCH investment group, promised to start building in April a $50 million terminal for Dnipro airport. Yaroslavsky, who built Kharkiv’s new airport terminal, said his Dnipro terminal construction would go in tandem with the government rebuilding the runway, extending it to 3,200 meters. Competing for air travelers from Mariupol, Zaporizhia will get a head start on its rival Dnipro. During the two-year construction period, Dnipro airport will be closed, with flights transferred to Zaporizhia, 80 km to the south.

Challenging Ukraine and Russia to bring peace back to the Donbas, Yaroslavsky offered to rebuild Donetsk airport. “The main issue of this forum is the restoration of Donbas,” he told 112 TV. “While I was traveling here, I had a concrete proposal to the Ukrainian government: I am ready to invest $100 million in the construction of a new airport in Donetsk. If there are all conditions for the construction of the airport, which was almost completely destroyed, I’m ready to start this project.”

  • Naftogaz Jumps Back in Eurobond Market
  • AmCham CEO Survey Picks up Optimism
  • Kyiv’s Dnipro and Ukraina Hotels to be Privatized
  • Back to the 1990s: 10 km line of Trucks to Enter Slovakia

Naftogaz plans to place Eurobonds for $500 million with maturities of five to seven years, Interfax reports. A roadshow organized by Citibank starts tomorrow with investor meetings in London, New York and Boston. In July, the state energy company placed three-year Eurobonds for $335 million and five-year Eurobonds for €600 million. The yield on the dollar issue was 7.375%. The yield on the euro issue was 7.125%.

Interpipe, the international vertically integrated pipe and wheel company, has completed a restructuring with partial cancellation of its debt, including $200 million Eurobonds with a 10.25% coupon. The debt was partially reduced by a new issue of five year Eurobonds of $309 million at 10.25%. Interpipe is one of the world’s 10 largest manufacturers of seamless pipes and is the world’s third-largest producer of seamless-rolled railway wheels.

Over the next two months, the Finance Ministry plans to raise $2 billion – in foreign currency or hryvnia bonds, Finance Minister Oksana Markarova tells LB.ua. Referring to the steady compression of yields at the Ministry’s weekly auctions of hryvnia bonds, she said: “For the last three months, we have been reducing the cost [of borrowing] every Tuesday, and doing it with incremental steps.”

Ukraine ranks as one of the top three countries in the developing world for making progress in data transparency by sovereign bond issuers with international portfolio investors, according to an annual rating by the Institute of International Finance. In particular, the Institute praised the Finance Ministry’s new practice of posting online public debt repayment schedules. The Institute is an association of 450 financial institutions from 70 countries.

Company executives are optimistic about Ukraine during the five-year Zelenskiy government, according to 110 top managers interviewed this month for the American Chamber of Commerce’s annual Ukraine Business Climate Survey. Of the group: 88% forecast an increase in revenues this year; 84% believe Ukraine’s government is committed to further opening Ukraine to foreign investment; 82% plan to expand their business in Ukraine over the next five years; 65% are increasing investments in Ukraine, and 64% see an improving investment climate.

Ukraine’s top three advantages are: skills – 51%; low labor costs – 51%; and access to the EU market – 44%. Ukraine’s most attractive investment sectors are: agriculture – 85%; IT – 73%; and energy & renewables – 45%.

Top obstacle for business are: courts – 74%; tax authorities – 51%; and law enforcement agencies – 48%. “Rule of law is top of the list of areas that requires urgent improvement,” says Chamber President Andy Hunder. “Ukrainian authorities should focus on further boosting IT and renewable energy. There are concerns of new legislation that could hinder further growth in these sectors.”

President Zelenskiy signed on Monday a law abolishing a 20-year-old list of over 1,000 state companies protected from privatization. To jump-start sales, the government plans to start with iconic properties in Kyiv: the Dnipro and Ukraina hotels and the Koncha Zaspa and Pushcha Vodytsya resorts. Yulia Kovaliv, deputy head of the President’s office, told reporters that a prime candidate for sale is Ukrspirt. With 41 distilleries producing 36 million decalitres per year, the state alcohol monopoly producer could sell for $200 million, she estimates.

Kostyantin Zhevago has “temporarily” stepped down as CEO of Ferrexpo, the Ukraine-based iron pellets producer. Traded as FXPO on the London Stock Exchange, Ferrexpo exported 10.6 million tons of pellets last year, making it the world’s third largest exporter to the world steel industry. A Rada member for 21 years, Zhevago lost his reelection bid last July, opening up him to ‘note of suspicion’ earlier this month by the State Bureau of Investigation for possible involvement in the embezzlement of $100 million from his bank, Finance & Credit, in 2015.

A 10-kilometer long line of 450 trucks has backed up at Ukraine’s main highway crossing into Slovakia: Uzhgorod- Vyšné Nemecké. Ukrainian truckers try to take their goods through Slovakia to the EU because Poland cut its quota of Ukrainian trucker permits by one quarter. Ukrainian truckers charge that Poland is trying to force them to emigrate to work for Polish trucking companies, which lack drivers. With exports to the EU threatened, Ukraine tries to negotiate more permits from Poland.

The government will invest $25 million more in expanding and modernizing Zaporizhia airport, Prime Minister Honcharuk said Monday, shortly after landing on the newly resurfaced runway. In December, the airport will open a new terminal capable of handling 400 passengers an hour. With Donetsk airport destroyed and Mariupol too close to the war zone, planners believe that Zaporizhia will be the main airport in the 2020s for Ukraine-controlled Donbas. SkyUp launched flights from Zaporizhia to Sharjah on Sunday and to Kyiv Boryspil on Monday. Wizz Air plans to launch flights in March to six EU cities. 

  • A Flat Tax for Ukraine?
  • Gambling To Boost Tax Revenue
  • UIA Drops Beijing, Adds Flights to Delhi, London and Toronto
  • Scandinavian Airlines Returns to Ukraine 

A flat income tax, possibly of 10%, is under government discussion as part of a wide-ranging tax change package, says a participant in a government working group. Separately, Economy Minister Tymofiy Milovanov proposes a debate on adjusting taxes to “provide incentives for job creation, increase salaries, and reduce unemployment.” Writing on his Facebook page Sunday, Milovanov proposes lowering personal income taxes, raising real estate taxes, and improving VAT collection. Ukraine’s rock bottom real estate taxes explain why many cities are blighted with buildings that stand vacant for years on end.

Russia will allow landlocked Kazakhstan to export 140,000 tons of coal every month to Ukraine by rail. The new quota is 23% lower than the 195,000 tons exported each month from July to September. Over the summer, Russia’s ‘Economic Development’ Ministry rejected 37% of the Ukraine tonnage requested by Kazakh coal companies.

With the Rada reviewing 11 different draft laws for a farmland market, the Ministry of Economic Development, Trade and Agriculture have created a website on this work in progress. In Ukrainian, the site is instantly translated into English by most web browsers. President Zelenskiy has asked the Rada to pass land market legislation by year’s end. The market is to start next fall.

Taxes on gambling could yield the Treasury $200-360 million a year, Finance Minister Oksana Markarova estimates in an interview with lb.ua. A bill to legalize gambling was submitted to the Rada 10 days ago. Finance Ministry economists are calculating tax earnings from the proposed legalization of amber mining.

Alexander Rodnyansky, a Cambridge University economist, will be the government’s chief economic adviser, Reuters reports, citing Volodymyr Bondarenko, state secretary of the cabinet of ministers. “I was told by people working in the president’s office that my surname was a risk factor,” Rodnyansky told Reuters, alluding to his father, also Alexander, who founded 1+1, the TV channel that promoted Zelenskiy. “On the other hand, you can count the number of Ukrainian professors in Western universities on one hand.”

In a major schedule reshuffle starting Nov. 16., UIA will stop flying to Beijing and reduce flights to Bangkok but will increase flights to Delhi, London and Toronto. UIA said the cost of flying around Russia’s air space makes the Far East routes money losers. UIA also will stop flights to Amman, Jordan and to two highly competitive destinations: Minsk and Riga. With British Airways and Brussels Airlines ending their Kyiv flights, UIA will increase its Kyiv-Boryspil flights to Brussels to daily and Kyiv London-Gatwick to twice a day.

UIA flights to Copenhagen, Krakow, Madrid, and Stockholm also will increase to daily. Flights to Toronto will increase to three times a week and to Delhi five times a week. Next summer, Delhi is to be daily. The daily New York to Kyiv flight will once again become an overnight flight, leaving JFK just after midnight and arriving Boryspil at 16:20 Kyiv time. Flights to the US and Canada will be operated on Boeing-777 aircraft. UIA lost $100 million last year. Ihor Kolomoisky said last month he owns 25% of the shares.

SAS, or Scandinavian Airlines, returned to Ukraine Saturday after an eight-year pause, launching a three times a week flight between Oslo and Kyiv Boryspil. With the 2h50 minute flight, Kyiv now has direct flights to the three Scandinavian capitals – Copenhagen, Oslo, and Stockholm. Wizz Air flies from Kyiv Sikorsky to Billund, Denmark and from Kyiv and Lviv to Copenhagen. From Kyiv Boryspil, Ryanair flies to Stockholm-Skavsta, and UIA flies to Copenhagen and to Stockholm-Arland. Between 2012 and 2014, Norwegian flew between Oslo and Kyiv but dropped the flight after the war broke out.

 

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