UKRAINEINVEST ISSUES THE BUSINESS WEEK, A FREE ON-LINE PUBLICATION CONTAINING A WEEKLY SUMMARY OF IMPORTANT BUSINESS NEWS IN UKRAINE, FOR 5 MARCH, 2018.
GE Signs $1 billion locomotive deal with Ukraine
In one of the biggest US investments in Ukraine ever, GE Transportation signed a 15-year, $1 billion diesel locomotive supply deal with Ukrzaliznytsya on Friday. To start, GE is to supply 30 locomotives – worth about $140 million -- to Ukraine’s state railways this year. During the contract, GE is to produce up to 225 new diesel locomotives and upgrade 75 older models. The degree of localization in Ukraine is reaching 40%. “Our dynamic talks with GE lasted only five months and led to the signing of this unprecedented agreement,” Prime Minister Volodymyr Groysman said of the deal. “My government is always ready to support innovative investments that result in high value-added products and create new jobs in Ukraine.”
At the signing at Ukrzaliznytsya’s headquarters on Tverska street, Raphael Santana, President and CEO of GE Transportation, noted this is GE’s largest deal in the company’s 80-year history of working in Ukraine.
«Our cooperation can serve as a catalyst for attracting international investment and accelerating Ukraine’s economic growth,» Santana said, noting that the American company also has wind and biogas projects in Ukraine today. “We also are proud to take part in the modernization of Ukraine’s railway infrastructure, thereby helping to move cargo faster and more efficiently. It will strengthen Ukraine’s position as a key European rail hub and operator.”
The deal was facilitated by a performance bond of over $100 million, extended by Citibank to Ukreximbank. It would cover losses if GE does not deliver this year’s locomotives, said Steven A. Fisher, Ukraine country officer for Citigroup.
Marie Yovanovitch, US Ambassador to Ukraine, said: “By modernizing its railroad, this project will bring Ukrainian more product to ports. Ukraine will benefit for decades to come. This agreement sends a very strong message to the world that Ukraine is changing the way it is doing business,” she said, noting that the first group of locomotives will be manufactured in Texas and Pennsylvania.
UkraineInvest, the government’s investment promotion agency, pushed hard last fall to make the GE deal happen. President Poroshenko traced the start of the deal to last July when he visited Washington and met with President Trump. “During my visit to America, we discussed with Trump that our countries’ relations should be practical,” he said Friday at the railway headquarters. “The company was in need of rolling stock, new locomotives. A $1 billion contract was signed very quickly.”
In an interview before the signing, Yevhen Kravtsov, acting CEO of Ukrzaliznytsya, said the average age of the railroad’s 300 diesel locomotives is 30 to 40 years, at or over the end of their expected working lives. Last August, at the start of the peak season for moving grain harvests to the ports, the railroad was short as many as 60 diesel locomotives to move freight, of 20%. An intensive repair effort helped railroad get through the harvest season.
Some of the new, US-made locomotives are to arrive here in time for this year’s harvest. In addition, Ukrzaliznytsya, may lease locomotives from Baltic countries where locomotives are idle due to drops in trade with Russia. Due to the war, Ukrzaliznytsya lost access to Ukraine’s only locomotive manufacturing plant, located in a rebel-controlled portion of Luhansk. Unofficial reports say the plant is damaged beyond repair, with some factory equipment shipped to Russia.
Under the deal with GE, locomotive parts will be made in Ukraine to GE world standards. This way Ukraine will become part of GE’s world supply chain. Some parts are to be made at Kriukiv Railway Car Building Plant in Kremenchuk.
Daniel Bilak, director of Ukraineinvest, said that the arrival of GE Transportation boosts Ukraine’s reputation as a desirable investment destination. “We continue to target global brands for investment, in order to reach the Government’s goal of 5-7% economic growth per year by 2020,” he said.
- Ukrainian corn producers will have an edge for March and April ship loadings due drought in Argentina which is damaging corn quality and delaying harvesting, Platts reports from London.
- Kernel, the world’s largest producer and exporter of sunflower oil, attracted last week a $100 million revolving credit line from a syndicate of European banks. According to a company note on the website of the Warsaw Stock Exchange, the 2.5-year line will be used to replenish working capital in Ukraine for Kernel’s export business. Kernel exports to more than 60 countries.
- Sugar prices will be soft this year on a worldwide oversupply of sugar of nine million tons, Igor Buchatskiy, CEO of ED&F Man Ukraine, tells AgriLand news site. Low prices could push the EU to cut sugar subsidies. ED&F modernized their Zasylsky Sugar Factory with equipment imported from three sugar mills closed in Ireland. Around the plant, near Mykolaiv, ED&F farms 14,000 hectares of sugar beets, with 9,000 under irrigation.
- John Sullivan, US Deputy Secretary of State, said in Kyiv Wednesday that economic development depends on reform. “Deeper reforms are needed to lift the economy over the long-term,” he said in a speech at the Diplomatic Academy. “And comprehensive judicial and law enforcement reform, which Ukraine has embarked on is the key.” He cited the need for an independent Anti-Corruption Court, adding: “The Prime Minister just told me about a package of over 30 new draft laws that he expects will improve the business environment once implemented.”
- Ukraine could become a «European China» for producing electric cars and batteries for the EU, Oleg Boyarin, board chairman of Eurocar, tells Liga. net. Boyarin, whose company makes Skoda cars in Uzhhorod, said he works with the Infrastructure Ministry to work out an electric car strategy for Ukraine. With government support, Ukraine could develop an export-oriented car industry in partnership with American, Chinese or European brands.
- DART Ukrainian Airlines wants to emerge from bankruptcy as Alanna LLC. On Tuesday, Alanna will ask the State Aviation Service permission to resume DART’s routes to Albania, Georgia, Greece, Italy, and Montenegro. It will ask for authority to open new routes to Helsinki, Stockholm and Erbil, Iraqi Kurdistan. With the same CEO as DART, Vyacheslav Lisichonok, Alanna wants to fly from Kyiv, Kharkiv, Lviv, and Odesa.
- A Ryanair corporate jet was spotted Wednesday night at Boryspil, prompting Infrastructure Minister VolodymyrOmelyan to announce Thursday that high level “successful” discussions had taken place with executives of the Dublin-based discount airline. With 421 Boeings serving 205 cities, Ryanair is Europe’s largest airline by scheduled passengers flown. In 2016, it carried more international passengers than any other airline in the world.
Banking & Finance
- Ukrposhta is taking a big step toward becoming a postal bank by partnering with First Ukrainian International Bank to offer financial services at post offices. Igor Smelyanski, acting CEO of the state postal service, says he will concentrate on villages without bank branches. He says 80% of Ukrposhta’s 11,700 post offices are in villages with less than 2,000 people. To start, Ukrposhta will offer rural banking in Dnipropetrovsk, Kharkiv, Khmelnytskiy, Kirovohrad, Lviv, Sumy and Volyn and Kirovohrad regions. The ultimate owner of the bank, known as FUIB, is Rinat Akhmetov.
- First drafts of a free trade agreement between Albania and Ukraine were exchanged Thursday in Kyiv by Ditmir Bushati, Albania’s Foreign Minister, and Pavlo Klimkin, Ukraine’s Foreign Minister. As Ukraine expands trade away from Russia, free trade agreements are to be signed this year with Israel and, possibly, with Turkey. Although bilateral trade is minimal, a Tirana-Kyiv flight is being studied by Ernest Airlines, a Milan based airlines with flights to Albania and Ukraine.
- Ukraine has met its European integration commitments by 41%, Ivanna Klympush-Tsintsadze, Deputy Prime Minister for European and Euro-Atlantic Integration says. After the free trade agreement with the EU went into effect six months ago, Ukraine set the goal of fully harmonizing its laws and regulations with those of the EU. «The Verkhovna Rada Ukraine met its integration obligations by 30%, the Cabinet of Ministers - by 42%, other executive authorities - by 50%,” she said at an EU-Ukraine ‘Future Plans’ conference Friday. At the meeting, EU Ambassador to Ukraine Hugues Mingarelli said that this year Kyiv should prioritize: tax, customs, transport and intellectual property.
- Since annexation, Russia has illegally extracted 7.2 billion cubic meters of natural gas from Crimea and surrounding waters, Svetlana Neshnova, board chair of Chornomornaftogaz, a subsidiary Naftogaz, tells Hromadske TV. About half -- 3.5 billion cubic meters – was from the Odesa gas field. Naftogaz calculates its six subsidiaries lost $5 billion in equipment and resources in the 2014 annexation. Represented by Covington & Burling law firm of New York, Naftogaz expects a decision this year in its suit against Russia in Permanent Court of Arbitration Court, at The Hague, Netherlands.
- The Ecology and Natural Resources Ministry has refused to extend 64 oil and gas drilling permits for lack environmental impact statements. Interfax reports that Ukrnafta lost 27 permits and Ukrgazvydobuvannya lost 37.
- The State Property Fund will auction 25% of PJSC Sumyoblenergo shares on the PFTS stock exchange on March 30, according to Vedomosti. The initial value of the block of shares is $4 million.
- Auctions of the Odessa Port Plant and of Zaporizhia Aluminum Smelter are now to be in May. Two other privatizations have been delayed. Sale of the Kherson CHP will be this month and Rigging will be in October. The government has hoped to radically expand privatization earnings this year, from $7 million last year to $788 million this year.