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Thursday, September 12

As IMF Starts Work in Kyiv, Kolomoisky Could Play Spoiler...After Government Pressure, Arcelor Plans to Ship out of Ukraine $433 Million in Dividends...EU Wants Long Term Russia Gas Transit Pact for Ukraine...UZ Places $100 Million Eurobond 100bps Cheaper Than July
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

The IMF mission starts work in Kyiv today, negotiating what the central bank hopes will be a deal to bring Ukraine as much as $10 billion through 2023. Moving to remove one obstacle, the Rada approved on first reading Wednesday a new law against illegal enrichment by government officials. “Ukraine wants to have a new IMF program by the end of the year,” Prime Minister Honcharuk told reporters Wednesday. “This task will be fulfilled. I’m sure neither the issue of Privatbank nor any other issue, will be an obstacle.”

However, as he spoke, police in Dnipro were raiding the national headquarters of PrivatBank. In Dec. 2015, the bank that was nationalized after it was bankrupted by its owners, led by Dnipro oligarch Ihor Kholomoisky. With IMF approval, PrivatBank, the nation’s largest bank, was refloated with an injection of $5 billion in public funds. On Wednesday, PrivatBank protested the forced seizure of several documents involving an unjustified amount of police special forces and unknown persons as pressure and obstructing the normal operation of the office.” Tim Ash writes from London about the raid on PrivatBank: “Worrying….this could scupper any chance of a new agreement with the IMF.”

On Tuesday, President Zelenskiy and Prime Minister Honcharuk met at the president’s office with Kolomoisky, the main media backer of Zelenskiy in last spring’s presidential race. A photo of the meeting posted on the president’s Facebook page shows that also participating in the meeting was Andriy Bohan, a former Kolomoisky lawyer who now is presidential chief of staff. According to the posting, the meeting topic was: “issues of conducting business in Ukraine.”

From London, Valeria Hontareva, the former central bank chief who nationalized PrivatBank, says she is the target of a vendetta by Kolomoisky and may ask for political asylum in Britain. On Aug. 26, a hit and run driver ran over her foot in London, breaking bones. On Aug 27, a Kyiv court granted authorities permission to “forcibly” bring her to Kyiv for questioning. On Sept. 5, arsonists burned up a car belonging to her daughter-in-law, also named Valeria Hontareva. Speaking to Ukraine’s Liga news site on Monday, Hontareva, a research fellow at the London School of Economics and Political Science, said: “If our country is going to treat its own reformer like dirt, to politically and physically persecute, then I’ll have no choice to but to ask for political asylum.”

ArcelorMittal Kryvyi Rih, Ukraine’s largest foreign investor, plans to pay $433 million in dividends to its parent company. A special shareholders meeting will be held Oct. 10 in Kryviy Rih, home to its main steel mill. Since ArcelorMittal Duisburg owns 95% of the company, the outcome of the meeting is not in doubt. At its regular annual meeting, in April, the company’s plan was to reinvest profits. But, since then, the steelmaker, located in President Zelenskiy’s hometown has undergone a major tax audit and has been investigated repeatedly on pollution charges by the State Security Service, an organ now run by a childhood friend of the president.

“The payment of dividends will not affect the implementation of our investment program – in the next five years we plan to allocate another $1.8 billion for the development of production,” states Sergey Plichko, Arcelor’s financial director. He said the company, Europe’s largest steel plant, had not paid dividends since 2009. Arcelor says it has invested $9 billion in the company since buying it in 2005, what is still Ukraine’s biggest privatization to date.

The EU wants the new Russia-Ukraine gas transit pact to be long term, Maroš Šefčovič, the European Commission vice president for energy, writes in letters to Gazprom and Naftogaz. Implicitly rejecting Russia’s offer last summer of a 1-year renewal of the 10-year pact, Šefčovič writes: “Ensuring long-term gas transit through Ukraine is key for European energy security.” With 3-way talks to start in Brussels next Thursday, he adds: “Only a long-term contract would ensure predictability and make it possible to renovate the Ukrainian gas pipeline.”

To comply with EU laws, Ukraine’s new Energy Minister, Oleksiy Orzhel, says the Cabinet of Ministers is preparing to approve a blueprint for ‘unbundling’ – separation of gas transportation from gas productions.  He discussed this on Monday with Šefčovič in Brussels and on Wednesday with Prime Minister Honacharuk and Finance Minister Oksana Markarova in Kyiv. “We are on the right track,” he said. “I even hope that such a decision will be made at the next Cabinet meeting.”

With European gas prices almost two thirds below the peak of one year ago, Ukraine’s household gas prices are not expected to be a debating point with the IMF. With stocks high and production strong, European gas prices could drop another 20% this fall, according to analysts quoted by Bloomberg. As of Wednesday, Ukraine has 19 billion cubic meters in storage, almost enough to get through the winter. Prime Minister Honacharuk confidently told reporters recently: “When a politician starts to interfere with the price, it leads to two things: inefficiency, corruption, and populism. It should not be.”

Priced to sell? Odesa’s downtown stadium goes up for auction on Sept. 26 through the ProZorro electronic platform. Completed in 2011, the stadium can hold 34,000 fans. After four failed auctions, the Deposit Guarantee Fund is slashing the asking price to $29 million – 20% of the initial asking price of $146 million. The organizer of the sale is First Financial Network Ukraine LLC, an offshoot of an Oklahoma firm profiled last week in The Wall Street Journal.

The EBRD is buying $100 million worth of five-year Eurobonds issued by Ukraine Railways (UZ) with an annual yield of 7.29%, reports the new Infrastructure Minister, Vladyslav Krykliy. The placement comes two months after the railroad sold $500 million worth of five-year bonds to commercial investors at 8.25%. Evhen Kravtsov, the railroad’s CEO, says the money will go primarily to upgrade the main lines of the Trans-European Transport System: Now it’s the turn of the railroad tracks. Firstly, it’s safety, secondly, we’ll increase the throughput, and thirdly, it’s the ability to increase speed in separate sections for both freight and passenger trains.”

With rail traffic to the EU booming, the Infrastructure Ministry plans to install an international passport control area in Lviv rail station, the largest station for western Ukraine. In the first two years of visa-free travel, Ukrzaliznytsia has carried 1.6 million passengers to the EU. The railroad now has 21 trains running between Ukraine and the EU.

From the Editor:  This evening and tomorrow, I’ll be at the YES conference, here in Kyiv. This will be my fourth YES. Far and away, it is the most stimulating Ukraine conference of the year. If you’re attending, please come up and introduce yourself. I’m happy to meet UBN readers and to exchange views on where Ukraine is heading. Best regards, Jim Brooke jbrooke@ubn.news