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Business news from the Ukrainian League of Industrialists and Entrepreneurs

INTL CONSORTIUM TO MANAGE ENERGOATOM COULD BE CREATED IN MEDIUM TERM – ENERGY MINISTER

KYIV. June 16 (Interfax-Ukraine) – Energy and Coal Industry Minister of Ukraine Volodymyr Demchyshyn has said that an international consortium to manage National Nuclear Generating Company Energoatom, the operator of Ukrainian nuclear power plants, could be created.

“Even Energoatom requires private investment, although control over nuclear security issues with a lot of many specific requirements should be retained during the management. Some shares could be sold to have a new and more effective owner who will help managing the asset. In the medium term outlook an international consortium to manage Energoatom with European and/or U.S. investors could be created,” he said in an interview with Forbes Ukraine.

He said that foreign investors are interested in Ukrainian energy, including electricity generation.

“There is a chance of realizing unique projects in the hydro-power sector… However, this is the prospect of not the coming year. The political situation in the country should stabilize,” he said.

Energoatom is the operator of all four Ukrainian-based operating nuclear power plants, which have 15 VVER reactors with an overall generating capacity of 13.835 gigawatts.

UKRENERGO PLANS CAPITAL INVESTMENT OF UAH 5 BLN FOR 2015 – COMPANY HEAD

KYIV. June 16 (Interfax-Ukraine) – National energy company Ukrenergo plans capital investment of UAH 5 billion for 2015, acting head of Ukrenergo Yuriy Kasich has said.

“Capital investment for this year will total UAH 5 billion [value added tax not included], including UAH 3.7 billion of borrowed funds. The borrowed funds will be sent to build the 750 kV Zaporizhia NPP-Kakhovska substation power line, the 750 kV Kakhovska substation and the 330 kV diversions of the existing circuit. This is UAH 2.2 billion. Another UAH 1.5 billion will be sent to build the 750 kV Rivne NPP-Kyivska substation power line with the expansion of the 750 kV Kyivska substation and two 750 kV and 330 kV diversions of the existing circuit,” he said.

He said that the company’s financial plan for 2015 approved by the Cabinet of Ministers on May 20, 2015 foresees net profit of UAH 35 million. Revenues are planned at UAH 4.245 billion and expenses – at UAH 4.21 billion.

“The sum of expenses mainly depends on the non-operation exchange rate difference, which was calculated using the expected change of the U.S. dollar and euro exchange rate to the hryvnia during the year,” Kasich said.

The company plans to send UAH 109 million in taxes and other mandatory payments to the national and local budgets.

He said that Ukrenergo saw UAH 1.2 billion of net loss with the planned net profit of UAH 1.5 million. Losses attributable to the hryvnia devaluation totaled around UAH 2 billion.

Ukrenergo operates Ukraine’s backbone and interstate transmission lines, as well as supervising the country’s national grid. It is a state-owned company and is controlled by the Ukrainian Energy and Coal Industry Ministry.

FRANCE’S SOUFFLET GROUP PLANS TO INVEST IN DEVELOPMENT OF ILLICHIVSK PORT INFRASTRUCTURE

KYIV. June 16 (Interfax-Ukraine) – The Infrastructure Ministry of Ukraine is to sign a memorandum of intent with a global grain market player, France’s Soufflet Group, on June 19 to invest in the development of Ukrainian port infrastructure.

The ministry’s press service reported that representatives of Soufflet Group expressed their readiness to invest in the development of Illichivsk maritime merchandise port (Odesa region) and by signing the memo the investor would prove its plans to realize an investment project for port in the coming years. The details have not yet been disclosed.

Illichivsk maritime merchant port is a universal international port, one of the biggest on the Black Sea. Its annual handling capacity is upwards of 30 million tonnes of cargo. It has specialized terminals and complexes that handle a wide range of cargo – liquid, bulk, and general. The port’s 29 berths allow ships with a tonnage of up to 100,000 tonnes to be handled. The port’s annual projected capacity exceeds 30 million tonnes.

Soufflet Group is one of the largest malt producers in the world.

APPROACHES TOWARDS PRIVATIZATION SHOULD BE CHANGED

Industrialists and entrepreneurs support effective privatization, bearing in mind that its main goal is not the complete sale of all available facilities to fill the budget, but the correct and substantiated transfer of state-owned property to private hands to attract investment for modernization, to boost the competitiveness of the national product, and accumulate funds for structural reforms. These were the subjects highlighted by President of the Ukrainian League of Industrialists and Entrepreneurs (ULIE) Anatoliy Kinakh at a roundtable talk entitled “Privatization of State Enterprises: What the Budget and Economy of Ukraine Will Get.”

“First of all, the process has to begin to draw up and endorse a state property privatization program. There should be no hurry in the privatization process. After all, these are in fact the least recent assets that the state has got for sale in general. And a risk is high here to quickly slip into raw economy and become the supplier of cheap labor to developed countries,” he said.

The state program on whose basis public facilities will be privatized shall include a feasibility study for each enterprise; a list of strategic enterprises that are not subject to privatization (defense, transport, energy and food security). The program should also provide thorough pre-privatization preparations to increase the value of state-owned assets. If this hasn’t been done, it’s not worth conducting large-scale privatization.

ULIE experts believe that there is an alternative to the privatization of state property, namely strategically important companies – this is to make management of such assets by the state more efficient. The statements that the state cannot be an effective owner are not true. Today, many leading countries demonstrate examples when the state acts as an effective owner, in some cases, with state stakes of between 20% and 40%.

“We are confident that inefficient enterprises, which are not of strategic importance and are not bound by state-related and social liabilities, rather than strategic ones should be sold first. An effective owner should come there, invest funds and make the enterprise succeed. However, strategic companies that are connected with national security have to remain in state ownership,” Kinakh said.

Participants in the roundtable talk at the ULIE stressed that one should not forget about the main strategic goal of privatization – the formation of the effective structure of the Ukrainian economy itself. We should focus on the development of high-tech and technically sophisticated production, identify it as a priority sector for state legislative and financial support; concentrate on raising investment in that area. We cannot accept the tendencies of becoming a third world nation with a resource-based economy and cheap labor.

Transparency, open process and the ability of the public to control how officials manage state property must become an integral part of the privatization, as this is the most effective barrier against corruption and possible abuse and provides the ability of mending previous mistakes in the privatization process, the ULIE said.

UKRAINIAN LAWMAKERS NEED TO CHANGE LEGISLATION TO DEVELOP BIODISEL PRODUCTION

Long ago, industrialized nations started to develop the production of bioethanol and biodiesel as part of natural gas substitution, while Ukraine lags far behind in this industry due to excessive fiscal pressure on producers and overregulation of the sector. This was discussed at a roundtable talk entitled “Condition and Prospects of the Development of Production of Bioethanol, Biodiesel and Mixed Motor Fuel in Ukraine,” organized by the Ukrainian League of Industrialists and Entrepreneurs (ULIE) and the State Agency on Energy Efficiency and Energy Saving of Ukraine. Ukraine has significant potential in developing the production of biofuel. Demand for bioethanol in 2020 is expected at 500,000 tonnes – exactly the same figure as stipulated in the national action plan for renewable energy by 2020.

“These are extremely important subjects for Ukraine, as it can help to solve two problems simultaneously. On the one hand, if we together develop powerful bioethanol production, our independence from fuel suppliers will grow. On the other hand, we can start building and reviving the engineering complex – and these are new jobs and capacities to create production facilities to produce means of production, which will be built in keeping with brand new, modern standards that will immediately improve the quality of production, boost the competitiveness of the Ukrainian product, and ensure better positions for Ukrainian exports,” UUIE First Vice President Serhiy Prokhorov said.

According to Prokhorov, it is important that equipment for biodiesel production is manufactured in Ukraine, as it considerably increases the competitiveness of Ukrainian products and their repair capability, and in particular, safeguards manufacturers against forex fluctuations and external suppliers.

Its turn, Chairman of the State Agency on Energy Efficiency and Energy Saving of Ukraine Serhiy Savchuk said that the question of production of liquid fuel for Ukraine is very urgent because “we are as dependent on imported crude oil, petrol and diesel fuel as on gas.”

“Only one of the six oil refineries is in operation now. Therefore the situation needs to be changed dramatically; we need to adopt the experience of Europe and the United States (the agricultural states of Ohio and Minnesota). What is more, that industry there is not subsidized but it has been developing in the United States at a huge pace. There are examples of setting up new generation bioethanol plants able to process cellulose and bulrush,” Savchuk said.

Participants in the roundtable talk agreed with reasons in favor of the development of the biofuel industry and listed the obstacles to why such a successful foreign industry has not developed in Ukraine. These are double taxation and excessive tax pressure, over-regulated licensing procedures and complicated export and import regulations. The following things will have to be cancelled for the dynamic development of bioethanol production: requirements for licensing of bioethanol, bills for its transportation, and excise on biodiesel. What is more, “bioethanol” should be defined as a separate compound chemical product rather than a type of ethyl alcohol.

The attendees will summarize their proposals regarding removing barriers to the development of the bioethanol industry and will send them to the Verkhovna Rada to amend the legislative base.

ANTONOV SHOULD FOCUS ON NEW MARKETS, NEW PARTNERS – POROSHENKO

KYIV. June 15 (Interfax-Ukraine) – President of Ukraine Petro Poroshenko during a visit to state enterprise Antonov drew attention to the possibility of developing cooperation between the enterprise and foreign partners, NATO member states, the presidential press service said.

“We have something to offer to the world,” Poroshenko stated.

Poroshenko stressed the importance of accelerating the program of import substitution for Antonov aircraft components and the pace of mass aircraft production. The government should provide appropriate conditions for the successful operation of the enterprise and fulfill these tasks “to make the plant operate full out.”

According to the president, focusing on new markets and new partners will help develop the country’s leader in the aviation industry.