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Monday, February 4

Oil & Gas Tenders Advance…Central Bank Wants to Cut Inflation in Half This Year…Banker Survey: Loans to Grow…Foreign Trade Hits $100 billion…Food Sales to EU up 50% Since 2016
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Tender terms for Ukraine’s first petroleum sharing agreements since 2012 will be released in two weeks, reports Drilling for the web site. Companies will have until mid-May to submit applications. The 12 PSAs are expected to be valid for 50 years. To stimulate investment, winners will have to spend $16 to $36 million in the first five years on seismic research and exploration wells. Foreign companies are encouraged to bid.

 Separately, the government puts up for auction on March 6, 10 blocks for production under a royalty formula. A second auction, of seven blocks, will be auctioned on April 29. Oleh Kirilyuk, director of Ukraine’s Geological and Mineral Service, described these seven blocks last week in London as “more than 2 thousand square kilometers, {with] the estimated resources of more than 2 billion cubic meters of gas.” By the end of this year, the government plans to auction off rights to 30 onshore blocks. Foreign companies can participate through Ukraine subsidiaries.

 Bulgaria has pledged to build a new €1.4 billion pipeline to pump Russian gas from Turkey to Serbia. Last week, Gazprom, Bulgaria’s Bulgargaz, and Switzerland’s MET signed contracts for the pipeline, a northern extension to TurkStream. TurkStream and Nord Stream 2 are two bypass pipelines built from Russia around Ukraine.

 Russia’s new bypass pipelines will cut gas flows through Ukraine in half, calculates the National Bank of Ukraine. Transit revenues will drop in half, from the 2018 level of $3 billion, says Ekateryna Rozhkova, first deputy governor of the central bank. “A reduction in transit volume of almost half will also reduce these revenues by almost half,” she tells reporters. Nord Stream 2 and TurkStream will have a combined capacity of 86.5 billion cubic meters, virtually the same as the 87 bcm of Russian gas that flowed across Ukraine last year.

 With a discount window closing in three weeks, Ukrainian owners are rushing to legalize their cars imported illegally from the EU. Although the 90-day discount started November 25, owners of the estimated 250,000 cars now realize it ends on Feb. 22. By Friday, the number had spiked up to 65,000 cars, netting $145 million for the national budget, reports the State Fiscal Service. On Thursday alone, 3,400 cars were legalized. To date, 10,008 cars have been legalized in Kyiv. Illegal imports of used cars have depressed new car sales.

Determined to cut inflation in half – to 5% next year – Ukraine’s central bank retained its key interest rate at 18%, the highest level in Eastern Europe. The interest rate was hiked by two percentage points last year, contributing to inflation falling to 9.8% in 2018. Economic growth this year will be 2.5%, down from an estimated 3.3% last year, predicts the National Bank of Ukraine. High-interest rates contribute to a vicious cycle: with interest rates high, local entrepreneurs can only turn to friends and family for business loans; a lack of good paying jobs prompts labor migration; wage remittances – currently $1 billion a month – fuel demand, pushing up inflation.

Loans and deposits will grow in 2019, Ukrainian bankers tell the central bank in a survey of 61 Ukrainian banks, accounting for 96% of all banking assets in the country. Three quarters of banks surveyed predict growth of corporate loans and 62% of respondents predict growth of consumer loans. Two thirds predict growth in deposits from the public and from businesses. “The value of deposits is the highest in the entire history of observations,” the National Bank of Ukraine said, referring to the quarterly survey. The bankers did not predict a change in interest rates this year.

Ukraine’s finance ministry will issue $2 billion worth of Eurobonds this year, Dmitry Sologub, deputy governor of the National Bank of Ukraine tells reporters. Foreign purchases of Ukraine state hryvnia bonds hit $194 million in January, almost five times the level for all of 2018, reports the central bank’s web site.

Ukraine’s foreign trade recovered to $100 billion last year, according to the National Bank of Ukraine. Exports were up 9%, to $43.34 billion, while imports were up by 14%, to $56.3 billion, leaving a trade deficit of $13 billion. For exports, the growth champions in dollars were: grain – up 11%; and metals up 15%. On the import side, the big growth sectors were: energy — up 15%; engineering products –up 18%; food up 18%; and industrial goods – up 21%. With the loss of much of the Donbas industrial area, Ukraine’s foreign trade last year was 28.5% below the 2014 level of $140 billion.

If re-elected this spring, President Poroshenko promises to improve the rule of law, allowing Ukraine to become one of the top 50 countries in the world for investors by 2022. Currently, Ukraine ranks in 71st place, out of 190 countries, in the World Bank’s Ease of Doing Business index. In 2014, at the start of his presidency, Ukraine was in 87th place. In an interview with “Ukraine” TV channel. Poroshenko also promised to make Ukraine self-sufficient in energy. The presidential election vote will be March 31, with a second runoff round on April 21.

France’s AgroGeneration is selling leases to 27% of its land bank, or 28,500 hectares, the company reports. After the sale of its assets in Ternopil and Zhytomyr, AgroGeneration will operate about 80,000 hectares – 10,000 in Lviv and 70,000 in Sumy and Kharkiv. Singapore’s Kusto Agro Pte.Ltd, owner of Kusto Agro in Vinnytsia, reportedly is buying the farms in Zhytomyr.

Ukraine’s food exports to the EU have increased by 50% since 2016, hitting $6.3 billion last year, reports Olha Trofimtseva, Deputy Agriculture Minister for European integration. Last year, the top three products were: grains –$2.2 billion; oilseeds — $1.1 billion; and vegetable oil –$1.1 billion. The top five buyers in the EU were: the Netherlands — $1.2 billion; Spain — $1 billion; Italy — $739 million; Germany –$667 million; and Poland — $657 million.

 With food processing growing, Ukraine is moving from “Europe’s breadbasket” to “supermarket of the world,” Trofimtseva tells EURACTIV.  She calls for more investment in food processing and agro-tech.

The best aid for Ukraine is free trade, argues Ben Aris, editor/founder of bneIntelliNews. “If the West really wants to help Ukraine, it should drop the quotas on imports from Ukraine – or at least greatly expand them,” he writes. “Business would boom and investment should flow behind very quickly.” Noting that Ukraine’s egg and poultry sector “could largely destroy the industry in Western Europe,” he says: “If quotas are to be lifted it would have to be done in steps.” Noting political realities, he adds: “Relaxing the restrictions on Ukrainian exports to Europe would benefit everyone, except the European agricultural lobby.”

 Ukraine’s poultry exports jumped by 30% in dollars last year, hitting $507 million, according to the State Fiscal Service. In volume terms, exports were up 21%, to 329,000 tons. Top buyers were: the Netherlands, Slovakia and Saudi Arabia. Last year, Ukraine rose in the world ranking of chicken exporters to 6th place, overtaking Russia and Canada.