October 10, 2014
This is bne's Ukraine daily newsletter, a list of the top stories from the country. You
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UBL TOP STORY
1. IMF's Lagarde says additional funding for Ukraine needed
2. Hungary pledges to restart gas supplies to Ukraine as Russia boosts European
storage
3. Ukraine likely to default in 2015 due to Russian 'bailbond', warns Moody's
4. Russia's controversial South Stream pipeline plans hit financial snags
UBL NEWS
5. Putin Huilo song at Belarus, Russia football match
6. Kyiv Orders Local Shops to Stamp Russian Products With Special Markings
7. Political Sustainability
8. Ukraine Close to Humanitarian Catastrophe as Cold Season Nears: Moscow
9. Ukraine Foreign Ministry says 64 Ukrainian soldiers and 36 civilians killed despite
ceasefire
UBL On the site today
10. EU enlargement reports show mixed progress
11. Firtash to take Ukraine to court over gas ban
UBL OTHER NEWS
12. Poroshenko Signs Bill on Vetting of Officials: Press Service
13. Russia's Public Health Watchdog Bans Wood-Based Panels’ Imports From Ukraine
UBL MACRO
14. Ukraine's economy will dive in 2H14-1H15 before bottoming out
15. Ukraine's hryvna to remain under pressure
16. Ukraine economic slide seen accelerating in Q3 to five-year low
UBL TOP STORY
1. IMF's Lagarde says additional funding for Ukraine needed
bne
October 10, 2014
The situation in Ukraine is serious and more funding will be needed, IMF Managing
Director Christine Lagarde said on October 8, reported Bloomberg.
Not all funding will come from the IMF, other lenders will need to participate,
Lagarde said in Washington, without specifying who will lend the money or where it
will come from.
Ukraine currently has a $18bn standby programme that will be distributed over two
years, but this is far short of the $25bn-$35bn estimates made during the
negotiation process last year that the government said it thinks it needs.
Just the debts to Russia will eat up almost the entire IMF payments to date, before a
penny is spent on repairs, restructures or reforms.
The merged third and fourth tranches of the programme in September are worth
$2.8bn, but $1.6bn of that has already been spent on repaying the national gas
company's bond at the start of October.
Russia says it will not turn Ukraine's gas supplies on again - they were cut in June until it settles a $5.3bn gas bill debt. Moreover, analysts say that Ukraine will need
to import another $2bn-odd of gas over this winter if it is not to run out of fuel.
Together these two bills are as much as the entire IMF tranche for this year.
Tim Ash of Standard Bank said in a note:
The programme was always too small - I think everyone knew that at the time. This
was a case of reverse engineering - how much money have we got (international
community) and let's design a programme framework around that.
In the end the original macro assumptions were not realistic from the outset, and
after the annexation of Crimea and the conflict in Donbass, the recession has been
deeper and financing holes much bigger.
What worries me now is that Ukraine is facing a fundamental crisis of confidence and this is reflected in continued pressure on the UAH, and also on banks/bank
deposits. Simply put, the guy on the street does not believe the ceasefire in the east
will hold, that the NBU has enough cash, or the West will stump up more cash to ride
to the rescue.
They are voting with their feet by pulling cash from banks and buying FX. Lacking FX
reserves, the NBU is resorting to capital controls, in effect (export surrender
requirements, restrictions on dividend repatriation).
I understand why the NBU is doing it - they have no other options - but it just
creates other problems, killing trade and economic activity (deeper recession, bigger
budget deficit, re-widening of current account deficit), and perhaps even further
driving capital flight.
I understand that it is now proving difficult to rollover trade credit, so rollover risk is
rising with the $60bn of short-term external debt liabilities. This heaps even more
pressure on the UAH. I now fear systemic economic failure - unless there is a
positive confidence shock.
What was worrying is that the onset of the ceasefire, and then the Naftogas
repayment both good news stories but which have failed to narrow spreads or even
rally the UAH. What they need is for the IMF to come up with some bigger ticket cash
commitment and soon ($10bn+ extra - they need to pull the bazooka out). But
having been in Washington DC I just dont see the impetus - lots of warm words for
Ukraine, but not many greenbacks. Talk is very, very cheap, both in DC and
Brussels.
Poroshenko came to DC a couple of weeks ago and gave the speech of his life and
got $53m, which is small change - that funds the cost of the war in the east for 9
days, albeit I am sure it buys quite a few blankets.
The US is probably spending that on a daily basis now in terms of ordinance used in
Iraq/Syria against ISIS. The IMF is also working too slowly - just focusing on the
next review due in November/December - 2 months is a lifetime currently in Ukraine.
The reality is that even in the best case, combined IMF/EU/US new cash might be
$4-5bn, which is just not enough - it does not really touch the sides. With that in
mind, the Ukrainians might need to look nearer home - I have recommended a
windfall tax on oligarchs (a Maidan Bond/Tax) in exchange for pulling back from a
likely disruptive lustration process - a 10-15% windfall tax on Forbes' wealth, and to
draw a line against future investigations over past illicit gains, and maybe with a
truth/reconciliation committee. By so doing, oligarchs prove their "loyalty/patriotism"
and the Maidan likely cuts the new government some slack to get on with much
needed reform and stabilisation policies.
All told negative energy over re-privatisation is avoided. This could easily raise
$10bn+, and could bolster FX reserves, underpin the UAH/banks and instil
confidence of the population. I think oligarchs' willingness to help would also
encourage the West to further contribute to Ukraine's re-habitation as it would
suggest 'burden-sharing'.
Beyond the elections, and once Poroshenko gets his own government in place assuming his political party wins those elections - the president and his team need to
think big and ambitious, and give the population an ambitious and transformational
reform plan, eg, EU 2025, i.e setting in place reforms which could get Ukraine to EUentry standards in a decade. It is possible, and the population have the desire, drive
and patriotism to buckle down. But Ukraine needs to find a positive confidence
shock, and soon to pull this around.
2. Hungary pledges to restart gas supplies to Ukraine as Russia boosts
European storage
bne
October 9, 2014
Hungary will resume gas supplies to Ukraine in January, Prime Minister Viktor Orban
is reported to have pledged on October 9. Meanwhile, other reports say Russia is
filling Hungarian storage facilities in order to supply European customers through the
winter without relying on Ukrainian transit.
Meeting with German chancellor ahead of an EU summit on employment in Milan,
Orban says he told Angela Merkel Hungary will restart gas deliveries to Ukraine in
the new year, reports MTI. Budapest suspended deliveries to Ukraine on September
25 (http://www.bne.eu/content/story/russia-splits-hungary-it-tries-halt-europeangas-re-exports-ukraine), days after meeting Russian state-controlled gas giant
Gazprom, in a move that raised suspicion Moscow is honing its skills to split off
individual EU states from EU policy to support Ukraine.
Kyiv is locked in negotiations to agree a deal on gas supplies with Russia after being
cut off in June. Pushed by the EU and US, Poland, Slovakia and Hungary have been
pumping gas to Ukraine in a bid to reduce the pressure on Kyiv.
Orban said on October 9 that Hungary will soon rejoin joint that effort, but reiterated
that for now his country must create its own energy stability. Hungary is “now
preoccupied with filling up its own reserves,” he said. However, as of January 1 the
Hungarian-Slovak gas network interconnector will be online in full mode, he noted,
and this will help Hungary to transport “non-Russian gas to Ukraine, if our Ukrainian
friends should wish”.
However, reports in the local press suggest the country's storage facilities are not
only being filled to secure supply to Hungary over the winter. Business daily Napi
Gazdasag reported on October 8 that Gazprom wants to use them to avoid any
interruptions to deliveries to European customers through the Ukrainian transit
system, which carries around 60% of Russian gas exports to the EU.
Russia has reserved storage space in Hungary for 700m cubic metres (cm) of gas for
Europe under an agreement reached between the two countries last month the paper
claims, according to Reuters. Gazprom plans to fill the facilities by the end of this
month, it added, quoting unnamed sources.
Securing space in Hungary appears part of a wider Russian strategy to prevent
disruptions to European supply due to the stand off with Ukraine. Previous
arguments between the pair saw many eastern EU states shivering through the
winter in 2006 and 2009 as gas supplies were cut.
Gazprom is also set to acquire Europe's biggest underground gas storage facility this
autumn, Deutsche Welle reported on October 8. The deal for the plant in the German
town of Rehden, was made under an asset exchange agreement with German
chemical conglomerate BASF. It was signed and approved by the European
Commission last year.
3. Ukraine likely to default in 2015 due to Russian 'bailbond', warns Moody's
bne
October 10, 2014
Ukraine is likely to default in 2015 by breaching the terms of a $3bn eurobond held
by Russia, according to ratings agency Moody's. The two year eurobond sold to
Russian in December 2013, nicknamed a 'bailbond' by market participants due to its
tough terms, was part of a controversial Kremlin bailout of Ukraine.
The eurobond's convenant stipulates that Ukraine's debt-to-GDP ratio not exceed
60%, a threshold most market participants Ukraine has already exceeded. In early
2015, Russia will be able to demand accelerated repayment on Ukraine publishing
official statistics for 2014, which event of itself could trigger cross-default on other
sovereign debt, even if Ukraine were to repay the bond with international help,
according to Moody's.
“An acceleration of payments on this eurobond in turn could in our view trigger a
cross-default event in all other eurobonds,” Moody’s said.
Ukraine's debt-to-GDP ratio is likely to reach at least 66% in 2014, according to
Moody's. "Subject to definite legal interpretation, we see a material risk that Russia
could call the eurobond early, thereby causing a liquidity crisis and ultimately a
payment default," Moody's said. Only Russian acquiescence to a restructuring deal
could certainly prevent a default, Moody warned.
The Kremlin appears to be thinking the same. "Ukraine in the near future will be
unable to independently fulfill its state commitments. In my opinion, the default is
inevitable (…) It will be overwhelming,” Sergei Glazyev, economy adviser to Russian
president Vladimir Putin, told Itar Tass.
Moody's currently rates Ukraine at pre-default Caa3, saying that its statement
October 9 did not mean it was downgrading the rating. But Moody's downgraded
Ukraine's growth forecast for 2015. “Against the background of the continued crisis
with Russia, we have downgraded our 2015 GDP growth forecast to -2% from 1.5%
previously,” the report said.
4. Russia's controversial South Stream pipeline plans hit financial snags
bne
October 10, 2014
With sanctions closing off international capital markets to Russia's oil and gas sector,
Kremlin-owned Gazprom has postponed its attempts to raise project financing for its
controversial South Stream pipeline until first quarter of 2015, a source in the
pipeline construction company told Interfax. At the same time, Gazprom announced
the costs of South Stream will rise 47% to €23.5bn.
"As for the timeframe, to draw project funding by the end of 2014, this is not now
the case. The shareholders have now set the task of arranging funding in the first
quarter of next year," the source in South Stream Transport AG told Interfax October
9. South Stream AG, the company constructing the pipeline, is 50% owned by
Gazprom, with Italy's Eni holding a 20% stake, Germany's Wintershall 15% and
France's EDF 15%.
The South Stream pipeline, planned to cross the bed of the Black Sea from the
Russian coast to the Bulgaria, is a crucial part in the Kremlin's strategy to ship gas
directly to the European Union, circumventing Ukraine, which it regards as an
unreliable transit land. The first part of the plan was the construction of the Nord
Stream pipeline transiting the Baltic Sea from Russia to Germany, which went on
stream in 2011.
Gazprom has not itself been targeted by Western sanctions imposed due to Russian
aggression in Ukraine, due to the strategic importance of the company to Europe.
But restrictions placed on access of other Russian state-owned energy giants and
banks to capital markets are believed to be spilling over to Gazprom. However, the
Interfax source denied that any credit institution had refused to work with the
company.
At the same time, first deputy head of Gazprom's finance department said that the
costs of the pipeline will be 47% higher than originally planned, reaching €23.5bn €14bn for the underground section and € 9.5bn for the overland section transiting
the Balkans to Italy. The cost of the Russian part of the pipeline appears to remain at
Rub739bn.
"If no project financing is attracted, Gazprom’s total financing of the project could
double from the currently assumed $23bn until end of 2018, depending on how
much its partners can, or rather cannot, muster," writes Sberbank's Alex Fak.
"Gazprom could also turn to the Russian government for part of the funding," he
adds.
UBL NEWS
5. Putin Huilo song at Belarus, Russia football match
bne
October 10, 2014
<iframe width="560" height="315" src="//www.youtube.com/embed/XprmKZ6QkLI"
frameborder="0" allowfullscreen></iframe>
The song "Putin huilo," made infamous in Ukraine, which roughly translates to "Putin
is a dick," was chanted by football supporters in Minsk at a game between their
national side and Russia on October 8.
Relations between Russia and Belarus have been strained in the last week as Minsk
ratified the Eurasian Economic Union treaty that is due to come into force at the star
of next year. According to reports Belarus was trying to insert a "get out" clause at
the last minute that would allow it to ignore the demands of the treaty if they clash
with the republic's national interests. The clause has been provoked by a Russian
"tax manoeuvre" that would change the way Russian oil is taxed, some of which is
refined in Belarus that will cost the small republic billions of dollars in de facto
subsidies.
The Belarus parliament went ahead with the ratification on October 8 and it appears
the get out clause was not introduced.
The crowd at the football game seems to have picked up on the bad mood between
the two leaders by singing the song that has swept across eastern Europe as a
popular display of displeasure with Russia. The Belarusian supporters mood was not
improved by losing the game 2-0 to Russia.
6. Kyiv Orders Local Shops to Stamp Russian Products With Special
Markings
The Moscow Times
October 10, 2014
Kyiv's municipal council has ordered stores in the capital to label Russian-imported
goods with additional markings to warn consumers they could be supporting
the "aggressor" by buying the products, media reports said.
According to the ruling approved by the city's legislature, Russian made-goods will
also have to be displayed on separate shelves to Ukrainian goods, the UNIAN news
agency reported Thursday.
The purpose of the move, which comes after similar steps were taken by local
administrations in Lviv, Ivano Frankivsk and Cherkasy, is "so that people don't
support the aggressor," Kyiv lawmaker Ruslan Andriyko was quoted as saying
by RBC-Ukraine.
"Every kopek paid for a product that was manufactured in Russia is also a kopek that
[Russian President Vladimir] Putin uses for weapons, which will be aimed against our
boys, against us, against our state in eastern Ukraine," UNIAN quoted Andriyko as
saying.
Read more here: http://www.themoscowtimes.com/article/508738.html
7. Political Sustainability
Nikolai Holmov OdessaTalk
October 9, 2014
Way back on 1st July, this entry questioned the sustainability of the "People's
Republics" in eastern Ukraine - as well as the prospects of a certain personality at
the time. 17 days later, the predictions for that personality were proven correct.
But what of the prospects of any sustainability regarding the "People's
Republics"? Have they improved or regressed since that entry?
The latest opinion poll from the region states 42% of residents want the region to
remain part of Ukraine with more autonomy. 16% of residents want the region to
join the Russian Federation. Neither percentage therefore supporting the concept of
independent "People's Republics".
The number of polled residents of the region supporting independent "People's
Republics" was 26% - or 1 in 4 for the sake of arguement.
Therefore, whilst there may be clear territory held, there is certainly not sustainable
public support amongst what would be the residents of any such territorial
creation. Any such favourable numbers would have to be concentrated literally in a
single city or several towns to form any sort of majority support on the presumption
rule at gunpoint will eventually be replaced by more civilised governance.
Whilst any such "People's Republics" may have territory, some areas of that territory
may become "Republics" without "People's" - or at least willing people, depending
upon the concentration levels of the 26%.
With the issues of territory and governance, amongst many questions come very
serious issues of economic sustainability and rule of law - issues magnified by such
small public support for any new territory. Thus the current territory controlled by
the "People's Republics" (and Russian military) do not present a sustainable or viable
economic or political future for the "People's Republics" as a stand alone entity.
If we are to accept the genuine local separatists (and their number is extremely hard
to define) will not allow any reintegration with Ukraine, despite 42% of the
population within the "Republics" preferring to take that reintegration route per the
aforementioned poll, and we are to accept that Russia will not annex the region as
16% would wish, for the simple reason that to do so removes any leverage over the
Ukrainian government and rest of Ukraine, thus allowing a move toward Europe,
consolidated democracy, and an "alternative Russia" that would not suit the Kremlin
if it were to become successful for Russia's own domestic reasons, what does that
leave?
Few options remain. One is to continue "as is". To maintain, finance and provide
"security" to the current unstable status quo The Kremlin has created - meaning
anything like a tangible, self-governing, economically plausible, independent
"People's Republic" will not come to pass - let alone one with the support of the
majority of its "citizens". Even maintaining the status quo may not be as simple as it
appears. The in-fighting between various "volunteer" groups continues when not
fighting the Ukrainian forces. Recently some Chechens and Cossacks clashed
resulting in injuries and a few fatalities - despite "being on the same side". Sooner
or later, discipline amongst the various groups and various political and/or criminal
goals within them will need to be "policed" by somebody. That may well end up
having to be the Russian military (either overtly or covertly) as not all "volunteer
groups" adhere to the weak political structures that have been inserted. If/when the
Russian military are forced to police to support these weak political structures, they
themselves then possibly become targets of the "volunteers" in response to either
"heavy-handedness" when setting down some rules and enforcing them, or
scuppering any political and/or criminal goals that the "volunteers" may have for the
region and themselves within it.
The Kremlin could recognise the "Republics" but that leverage is only good as long as
Ukraine wants to keep the region. The moment it decides to head west without the
region if necessary, all leverage is gone and The Kremlin is left with a de facto
protectorate it must subsidise to no advantage. It would also insure the continuation
of sanctions, even if the unity of the Europeans is questionable when it comes to
further expansion of sanctions.
Another option The Kremlin has is to create a stand-alone territory with far more of a
chance of economic plausibility, which means taking the city of Mariupol at a
minimum - with far more overt Russian military action than already witnessed and a
vastly increased number of dissenting citizenry to control/police if successful. That
42% wanting to remain within Ukraine would rise substantially, whilst taking
Mariupol would come at huge military costs.
It should be noted that President Putin will not make his annual economic speech to
the Russian nation this year - an indicator that the economics are not good, will get
worse, are a government and not presidential responsibility - may be - but perhaps
more importantly it is a strong indicator that realpolitik regarding Ukraine remains
far more important to The Kremlin than national economics. Perhaps The Kremlin
believes it can take the pain and wait it out until June 2015 when the EU Members
must once again show unanimity when renewing the current sanctions - with The
Kremlin expecting the EU to fail to find such common ground again.
Not withstanding that even maintaining the current status quo ethically points the
Europeans to extending the sanctions as nothing will have changed, if waiting it out
and suffering sanctions until June 2015 is the Kremlin plan, and a large scale
slackening of sanctions is the expected return through the Europeans failing to
maintain unity - then taking Mariupol and/or going on to create a land corridor to
Crimea whilst at it, is very likely to insure the Europeans rediscover their resolve and
jolt it from any attention deficit disorder, remembering why sanctions were placed in
the first place.
If sanctions are renewed, how close to economic collapse are the Europeans
prepared to let Russia go? Let us not forget the $50 billion plus of Russian majority
State owned assets (less embassies and military equipment that are legally exempt)
that can be seized from mid January relating to the Yukos shareholders
compensation should The Kremlin fail to pay them off. The continued capital flight
and halt of FDI? At what point on its economic slide, would The Kremlin decide to
"go for it" with little else to lose? At what point in the slide will the Europeans begin
to worry that will be the case? Will they hold their nerve if that looks likely? What
does this mean for the "People's Republics" that will be little more than Kremlin
protectorates if they are recgonsied? If not recognised by anybody, then obviously
de jure they don't exist.
There is one other, quite improbable option, and that is for The Kremlin to pull out its
troops and mercenaries from Ukraine, leaving the genuine local separatists to strike
a deal with Kyiv - but whilst that would insure the region remained within Ukraine
and under some Kremlin leverage retained via sustained "contact" with those people
throughout - and after - any political process, those individuals would surely
eventually fail given the lack of local support. Thus The Kremlin cannot leave
without jeopardising its current level of leverage on the ground. With Ukraine being
Kremlin foreign policy priority number 1 - simply because the prevention of a
successful "alternative Russia" next door is domestic policy priority number 1 - this
seems the most unlikely option of all, at least before June 2015 and an answer to
the sanctions extensions - or not - arrives. By this time economics may finally be
vying for an equal footing with politics within The Kremlin once more.
Whatever the case, the prospects of genuinely functioning, successful, economically
viable "People's Republics" still remain as dim as they were when the 1st July entry
was written - expect there is now considerably more severely damaged infrastructure
and far greater humanitarian problems to contend with if they somehow
succeed. The most likely outcome if the "People's Republics" are to exist even quaside jure, remains one of Kremlin recognition, followed by being a failed and dirt poor
Kremlin protectorate as all other Kremlin induced "frozen conflicts" have become,
entirely reliant on Moscow - and it is difficult to see what gains there would be for
The Kremlin in doing so, vis a vis not doing so. Even then the sustainability when
supported by 26% of its current residents within the current controlled territory
would be questionable.
Realistic choices then? The current unstable status quo is maintained on the ground
until The Kremlin "goes for it", taking Mariupol and creating a land bridge to Crimea
whilst it is at it, in which case the "People's Republics" may - or may not - get
recognised as they then become more viable, but The Kremlin suffers large military
and at least another 18 months (if not indefinite) economic costs for doing so - or
The Kremlin doesn't "go for it" and the "People's Republics" never become anything
more than illusionary entities existing only within a few political offices of the selfappointed, and within a few heads of ideologues.
You have to suspect that by next summer, the answer - whatever it may be - will be
become clear. An answer that will be directly related to political sustainability for
anybody other than the "People's Republics" - who will be nothing more than
beneficiaries - or not.
8. Ukraine Close to Humanitarian Catastrophe as Cold Season Nears:
Moscow
Ria Novosti
October 10, 2014
Ukraine is on the verge of a humanitarian catastropheespecially as the cold season
nears, Russian Foreign Ministry spokesman Alexander Lukashevich said Thursday.
“According to our estimates the humanitarian situation in the country is close to
disaster, especially taking into account the upcoming cold season. Such opinions
were voiced not only by Russia, but also by many international organizations,
including the UN,” he said.
Due to the Kyiv's military operation against independence supporters in eastern
Ukraine, Donetsk and Luhansk regions have witnessed a severe humanitarian crisis,
as many citizens have struggled without clean water, electricity, gas and other
essentials.
On Wednesday, the self-proclaimed Donetsk People's Republic estimated the war
damage at about $1bn.
Meanwhile, Ukrainian authorities still fail to agree a deal with Moscow on the renewal
ofgas shipments. In June, Russia's gas giant Gazprom was forced to introduce
aprepayment system for gas deliveries to Ukraine due to Kyiv's massive debt which
is currently estimated at $5.3bn.
Earlier this week, Gazprom CEO Alexey Miller said Ukraine would not be able to fill its
underground gas storage facilities with 18-20bn cubic meters of natural gas
necessary to sustain winter.
9. Ukraine Foreign Ministry says 64 Ukrainian soldiers and 36 civilians killed
despite ceasefire
Interfax
October 9, 2014
The Ukrainian Foreign Ministry has accused the militia of "continuing to breach the
temporary ceasefire" declared in Ukraine's eastern regions.
"The ceasefire has been violated on more than 1,300 occasions since September 5.
Sixty-four Ukrainian servicemen have been killed and another 355 have been
injured. Thirty-six civilians have been killed as well," the ministry said on its Twitter
account on Wednesday evening
Read more here: http://www.interfax.com/newsinf.asp?pg=8&id=542413
UBL On the site today
10. EU enlargement reports show mixed progress
Clare Nuttall in Bucharest
October 9, 2014
The EU enlargement reports showed very mixed progress, with Albania, Kosovo and
Serbia all making breakthroughs towards EU integration in the last year, while
progress has stalled in both Bosnia & Herzegovina and Macedonia.
Across the region, the European Commission's annual reports on Turkey and
six countries from the Western Balkans identify a need for more progress on the rule
of law, in areas including fighting corruption, ensuring freedom of expression and
public administration reform.
"Five years ago, we set out to strengthen the credibility and the transformative
power of enlargement policy. We put a particular emphasis on three pillars: rule of
law in 2012, economic governance in 2013 and this year, we're setting out new
ideas to support public administration reform, and strengthening of democratic
institutions. Today, this approach is bearing fruit," said EU Enlargement
Commissioner Stefan Fule on the launch of the reports on October 8.
The last year has marked a turning point for Serbia on its road towards EU
membership, with the accession negotiations process formally launched in January
2014.
To read the full storyhttp://www.bne.eu/content/story/eu-enlargement-reportsshow-mixed-progress
11. Firtash to take Ukraine to court over gas ban
bne
October 9, 2014
Dmitry Firtash, the Ukrainian gas and chemicals oligarch, is to take Ukraine's
government to court over its decision on September 29 to prohibit his chemical
giants from using gas from underground storage or domestic production during the
winter.
Boris Krasniansky, executive director of Firtash's holding company Group DF,
said the company would win the case, since the government decision "is absolutely
illegal and infringes private ownership". "It's the same as if the government
told you: you can't live in the apartment you own this winter, so if you want to
live in an apartment, buy a new one," he said, as quoted by newswires.
Group DF owns around 4bn cubic meters (bcm) of gas held in Ukraine's vast
underground storage facilities, a quarter of all gas stored, which the government
order prevents him from now using for chemical production during the winter. Firtash
owns four of Ukraine's largest chemical plants, producing mostly fertilisers Stirol, Severodonetsk Azot, Cherkasy Azot and Rivneazot - of which the former two
located in East Ukraine have stopped production because of the war with Russianbacked rebels.
To read the full storyhttp://www.bne.eu/content/story/firtash-take-ukraine-courtover-gas-ban
UBL OTHER NEWS
12. Poroshenko Signs Bill on Vetting of Officials: Press Service
RIA Novosti
October 10, 2014
Ukrainian President Petro Poroshenko signed the bill on vetting of officials,
empowered to perform state or local self-government functions, into law Thursday,
his press service announced.
"Ukrainian President Petro Poroshenko signed the bill "On Vetting," passed by the
Verkhovna Rada on September 16," the press service said in a statement.
Read more here: http://en.ria.ru/world/20141009/193858259/Poroshenko-SignsBill-on-Vetting-Of-Officials-Press-Service.html
13. Russia's Public Health Watchdog Bans Wood-Based Panels’ Imports
From Ukraine
Ria Novosti
October 10, 2014
Russia's public health watchdog Rospotrebnadzor has banned imports of wood-based
panels produced by Krono-Ukraine, stating that those panels contain high levels of
formaldehyde, the watchdog reported Friday on its official website.
"The Federal Service for Surveillance on Consumer Rights Protection and Human
Wellbeing [Rospotrebnadzor] reports that during the federal state sanitary and
epidemiological inspection of the wood-based panels produced by Krono-Ukraine
(Ukraine), the study revealed breaches of the law," the statement reads.
Read more here: http://en.ria.ru/business/20141010/193889933/Russias-PublicHealth-Watchdog-Bans-Wood-Based-Panels-Imports.html
UBL MACRO
14. Ukraine's economy will dive in 2H14-1H15 before bottoming out
SP Advisors
October 10, 2014
This economic crisis will be comparable to the 2008/09 downturn in terms of the
depth of the GDP decline (GDP fell 14.8% yoy in 2009) but it will be longer lasting
and with the prospects for a reversal entirely unclear.
What is clear is that the war zone wasn’t shaped haphazardly – it accurately cuts the
key industrial companies of the region out from Kyiv-governed territory. The
terrorist-controlled region apparently lacks an important element – the Azov
seacoast city of Mariupol with its cargo sea port and two of Ukraine’s top-3
metallurgical plants. The seizure of Mariupol was fortunately prevented by Ukrainian
military forces, which continue to stand ready to defend the city at all costs.
Industrial production in Donetsk Oblast slumped 59% yoy and in Luhansk Oblast by
a whopping 85% in August. By contrast, industry fell 21% yoy overall in Ukraine.
The August industrial production data clearly show where the bottom could be for the
Ukrainian economy – output in key sectors of the economy is unlikely to be much
better than the August data for the next 6-9 months. Monthly production of coal fell
60% yoy, metallurgy cut output 30%, and production in the machinery sector shrank
31%. Retail trade contracted 17% yoy. A part of the decline is due to the inability to
collect statistics in the war zone, but that’s just a small part of the explanation.
The war in the east, combined with banking sector vulnerabilities, and Russia’s
aggressive trade policy trigger more fundamental problems:
- A major deterioration in business sentiment, which has led to a full halt in
investment activities in Ukraine. We expect fixed capital investment will fall 30-35%
yoy in 2014 as companies cut expenses to the bare minimum maintenance CAPEX.
- A worsening of the consumer mood on the back of high inflation and the ongoing
reduction in real incomes. According to GFK, the consumer confidence index fell a
remarkable 10.4 points from July to 54.7 in August.
- Exports are falling as many key exporters from the war zone have scaled down
operations. Russia’s aggressive trade war is another concern as the politically
motivated non-tariff barriers continue to bite. Trade preferences from the EU should
compensate for the loss of the Russian market, but that will require time.
Overall, we see the economic decline deepening substantially in 2H14. GDP growth
numbers will remain deep in the red at least though 1H15 due to a relatively high
comparison base. If no major shocks emerge politically, militarily, or economically
we expect the trend to flatten out only in 3Q15, while any return to growth is
possible no earlier than 4Q15. We project a 9.5% yoy GDP decline for 2014 and a
further 4.3% contraction in 2015.
15. Ukraine's hryvna to remain under pressure
SP Advisors
October 10, 14
The negative market sentiment will keep the local FX market nervous in the coming
months. The NBU has thus far failed to bring the market exchange rate close to the
“indicative” rate of UAH12.95/$ using administrative tools. The equilibrium rate in
the shadow cash market is currently range-bound near UAH14.0-14.5/$.
In our view, it is only a matter of time before the NBU admits the “indicative” dollar
rate is too low and sanctions another wave of official depreciation. At this time we
see the exchange rate appreciating slightly to UAH13.7/$through end-1H15, and
further to UAH13.3/$in 2H15.
16. Ukraine economic slide seen accelerating in Q3 to five-year low
Reuters
October 10, 2014
Ukraine's economy is expected to have shrunk 9.5% year-on-year in the third
quarter of 2014, a Reuters poll showed, suffering its biggest contraction of the past
five years as fighting between government and rebel forces inflicts huge damage on
the industrial east.
Economists in the survey estimated that the slide worsened rapidly in JulySeptember from the first and second quarters, when gross domestic product shrank
by annual rates of 1.1% and 4.7% respectively. The analysts at 12 banks and
brokerages also saw GDP dropping 7.8% this year, according to the median forecast
in the poll, a much more pessimistic assessment than the 5.0% prediction in the
previous survey in a June. President Petro Poroshenko said last week that 50% of
industrial infrastructure in two eastern Ukrainian regions had been destroyed due to
almost daily artillery shelling in Donetsk and Luhansk, where major steel and energy
production is based.
"The performance of industrial production, construction and trade in July and August
was very poor," said Dmitry Sologub of Raiffeisen Bank Aval. "In the third quarter
GDP decline accelerated significantly. I expect further deterioration in the fourth
quarter to up to 13-15% as the situation in these sectors continues to deteriorate."
Read more here: http://uk.reuters.com/article/2014/10/07/ukraine-economyidUKL6N0S119N20141007