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Business news from Ukraine

AVTOKRAZ INCEREASES OUTPUT BY 20% IN FIVE MONTHS

KYIV. June 2 (Interfax-Ukraine) – PJSC AvtoKrAZ (Kremenchuk, Poltava region), the only Ukrainian producer of heavy vehicles, in January-May 2015 increased production by 20% from the same period in 2014, to 452 units.

According to a press release issued by the company, truck sales for the period increased by 16%, to 392 units.

The share of exports of total shipments during this period was 37%, while the domestic market – 63%.

According to the press release, besides basic production – trucks, for five months of this year the company produced and shipped two semi-trailers and eight trailers, while over the same period last year these products were not made.

Truck production in May totaled 96 units, in particular the share of lorries was 95%, chassis – 3%, tractors – 2%.

Last month 96% of manufactured products were for the Ukrainian market, the rest – for exports.

The press service noted that AvtoKrAZ’s production plan for June significantly exceeds the figures of the previous months, however it did not specify the figures.

ELECTRONIC SYSTEM TO SUBMIT DOCUMENTS FOR CONSTRUCTION LICENSES TO BE INTRODUCED IN UKRAINE

KYIV. June 2 (Interfax-Ukraine) – There is a plan to introduce a system to submit applications and documents of companies that want to receive construction licenses in an electronic format on the website of the Electronic Administrative Services of the State Architectural and Construction Inspectorate of Ukraine.
The inspectorate reported on Friday that the draft cabinet resolution was drawn up by itself as the law on licensing types of economic activities will take effect from June 28, 2015, and the draft document has been agreed with the Economic Development and Trade Ministry, Finance Ministry and the State Regulatory Service of Ukraine.
“According to the bill, the construction license will be issued by the licensing agency in the electronic form via an entry on the decision of the licensing agency on the issue of the license to companies in the state register of companies and individuals-businessmen,” reads the report.
The inspectorate believes that the electronic form of submitting documents will reduce errors, which would reduce the number of construction licenses which are refused.

TENDER TO SELECT HEAD OF MEDICINAL SERVICE NOT TRANSPARENT – ASSOCIATION OF DRUG PRODUCERS

KYIV. June 2 (Interfax-Ukraine) – The Association of Drug Producers of Ukraine has said that the selection of a candidate for the post of chairman of the State Service for Medicinal Products and Drugs Control of Ukraine initiated by the Health Ministry of Ukraine was not transparent.
“The Association of Drug Producers of Ukraine has to say that top managers of Health Ministry had a biased approach to the selection of the candidate for the post of chairman of the State Service of Medicinal Products and Drugs Control being formed now,” the association said in a statement.
The association said that after Mykhailo Pasichnyk was dismissed from the post of the head of the State Service for Medicinal Products who headed the service in the past nine months, nongovernmental anticorruption organizations, particularly, the Anticorruption Action Center addressed Health Minister Alexander Kvitashvili in public demanding to hold a public tender to select candidates for the post of the head of the service, which is under the decision of the cabinet is merged with the State Service for Drugs Control.
“Reacting to the calls of the public, Health Ministry announced an open tender to select candidates, but unfortunately, the further process shows that the transparency principles declared by the top managers of the Health Ministry remained declarations in practice,” the association said.
The association said that the association, the European Business Association (EBA) and the American Chamber of Commerce, the total share of the Ukrainian pharmaceutical market is around 80%, presented an initiative to hold a public even on May 26, 2015, and representatives of the professional society, public figures and the health minister were invited to the event. Candidates for the post chairman of the State Service for Medicinal Products and Drugs Control had a chance to present their vision of settling urgent issues in the sector, own concepts of developing the pharmaceutical sector and hold consultations with business and experts.
“Unfortunately, Health Minister Alexander Kvitashvili decided not to join the wide discussion of urgent issues of the sector… The Health Ministry increased the pace of holding interviews with the candidates, paying no more than 10 minutes to each, and the ministry announced as of May 25, 2015 the ministry selected seven candidates and the additional interview for them was scheduled for May 26, 2015, which made impossible the holding of the broad discussion,” the association said.
“The further functioning of the relevant authorized agency is very important for the companies-members of the association and the association plans to apply to the cabinet and prime minister who appoint chairman of the State Service for Medicinal Products and Drugs Control under a proposal of the health minister under Ukrainian law, asking them to attract professional business society to consultations,” the association said.

DE-MONOPOLIZATION MEANS SETTING CLEAR PRINCIPLES, NOT FIGHTING CONCRETE OLIGARCHS – POROSHENKO

KYIV. June 2 (Interfax-Ukraine) – Ukrainian President Petro Poroshenko has said that the country’s economy should be de-monopolized and oligarchs should be barred from influencing power.
“Today we should de-monopolize the Ukrainian economy and ban oligarchs from influencing power via transparent and effective European mechanisms,” Poroshenko said on the “Year of Poroshenko” program to mark the first year of his tenure, which aired on Ukrainian television channels on Thursday evening.
“Would oligarchs quickly retreat? No, they protect themselves and they will protect themselves. First they tried to protect themselves with private armies, [which are] threatening to the Ukrainian authorities, but they got a rap on their knuckles and they will get it more,” he said.
He said oligarchs were previously convinced that they could buy any power they sought.
“What did I start doing in fighting against oligarchs? I am independent from any of them. I financed my election campaign myself and until now no kopeck of so-called “aid to the president and administration” has arrived and [such money] will not arrive,” Poroshenko said.
He added that he believes this is not a fight against what he called concrete oligarchs, but is rather the setting of clear principles.

UKRAINIAN FINANCE MINISTRY: TELEPHONE TALKS WITH CREDITORS COMMITTEE TO BE HELD ON JUNE 5

KYIV. June 2 (Interfax-Ukraine) – The Ukrainian Finance Ministry says progress has been made in negotiations with private creditors on restructuring the country’s foreign debt and an agreement on holding a telephone conversation with the ad hoc committee of international commercial creditors on June 5, following intensive negotiations between advisers slated for next week.
“Following today’s [Friday] call between the principals and advisors of the Ministry of Finance of Ukraine and the ad hoc committee of international commercial creditors, the Ministry is pleased that engagement between both parties on restructuring Ukraine’s sovereign debt is accelerating,” the Finance Ministry said in a statement circulated on Friday evening.
The purpose of the telephone talks scheduled for June 5 is to assess progress in the negotiations, it said.
“We reiterate Ukraine’s commitment to negotiate in a collaborative and good faith manner as per international principles. The Ministry is confident that a mutually beneficial agreement will be reached in accordance with the targets agreed under Ukraine’s IMF program,” it said.
The Ministry of Finance also said it welcomes the statement from German Finance Minister Wolfgang Schauble, noting the G7 Finance Ministers’ support for “a successful resolution of Ukraine’s debt restructuring.”
It was reported earlier that, after the IMF had endorsed a new four-year extended fund facility for Ukraine for $17.5 billion, the Finance Ministry started consultations on debt restructuring with creditors for about $23 billion on March 13 so as to save about $15.3 billion on payments while the program remains in effect.
Ukraine has engaged Lazard Freres SAS as a financial adviser and White&Case as a law adviser. The creditors committee has been formed of five major holders of the Ukrainian debt, advised by Blackstone and Weil Gotshal.
The Ukrainian Finance Ministry has said repeatedly that, to attain the IMF program’s targets, not only should the debt clearance deadlines be extended, but also part of these debts should be written off and the interest lowered, except for the loan participation notes issued by Oschadbank, Ukreximbank, and Ukrzaliznytsia.
However, major holders of Ukrainian bonds are unwilling to agree to the cancellation of the principal debt, arguing that the size of the debt relief proposed is too big. Russia also demands the repayment of its $3 million loan to Ukraine by the end of 2015, refusing to agree to its restructuring.
The creditors committee reported on May 18 that it consisted of funds governed or represented by BTG Pactual Europe LLP, Franklin Advisers Inc., TCW Investment Management Company and T. Rowe Price Associates, Inc. and was maintaining regular contacts with other holders of Ukrainian bonds, which hold in aggregate over $10 billion worth of Ukrainian debt. The creditors once again objected to writing the debt off.
To intensify the negotiations, the Ukrainian government passed a bill through the Verkhovna Rada on May 19 entitling it to suspend payments on debts included in the restructuring perimeter. The president signed the bill into law on May 28, but the document has not yet taken legal effect.

UKRAINIAN BUSINESSES CONSIDER EUROPEAN INTEGRATION NECESSARY

April and May this year have become the period of activity related to European integration and synchronization of watches before a new step towards Ukraine’s rapprochement with Europe – the establishment of a Deep and Comprehensive Free Trade Area (DCFTA) as of January 1, 2016. During this period the Ukrainian League of Industrialists and Entrepreneurs (ULIE) – the country’s most powerful organization of Ukrainian companies – opened its EU-based representative office in Brussels on April 21, its delegations participated in the European Business Summit, including a discussion panel entitled “Trade – Europe in the Global Economy” in Brussels on May 6, and in the 3rd Eastern Partnership Business Forum, which was held as part of the Eastern Partnership summit in Riga on May 21.

We were frank with our European partners and stated that Ukraine appreciates Europe’s assistance and, what is more, it is anticipating its expansion and development. However, Ukraine has to take the first decisive step on its own – introduce global reforms, improve the performance of all branches of the government, and strengthen the role of civil society. This is our own assignment whose completion will help us achieve our European integration goals.

We have to focus on the development of the industrial sphere as well as small- and medium-sized businesses, which are the backbone of the economy, create jobs, and generate tax revenues for the national budget. Financial, taxation, and export policies also need to be improved. It is important to note that Ukrainian enterprises face changes connected to the full implementation of the DCFTA against the backdrop of the economic crisis. Europe should not be disappointed at a lack of results of Ukrainians’ fight against corruption and bureaucratic business environment, which are blocking investments and hindering the development of domestic businesses. It is our internal task to repel the invasion of monopolies and the influence of oligarchs, and make a breakthrough in the sphere of state procurements, etc.

We have also raised several important issues before our European partners regarding the improvement of financial and economic support.

The direct route is always shorter

The EU regularly helps Ukraine to develop entrepreneurship. As part of a EUR 11 billion support package allocated by the European Commission in 2014, around EUR 370 million was designed to bail out Ukrainian small- and medium-sized businesses. Unfortunately, it is a mere 3% of the total disbursement. In 2015, the EU announced the allocation of a further EUR 110 million bailout package for small- and medium-sized businesses. Will the local companies see these funds?

Effectiveness of these programs leaves much to be desired. The first reason for this is the complicated situation in the domestic banking system (when a Ukrainian bank obtains the funds, it can lend them to businesses at local [i.e. higher] interest rates, which are seen by the borrower companies as unacceptable). Secondly, these funds are actually received by foreign financial and consulting institutions, which spend them on consulting and training programs. Without doubt, this is a very useful asset to the businesses, but the latter also need start-up capital and loan funds. We propose that the European financial aid be directly given to enterprises. We think it is not a problem to directly control the use of the funds.

Could a loan be affordable?

In the EU’s newest member states local companies can borrow funds at an interest rate of 3-7%. Meanwhile, interest rates in Ukraine top 30-36% in hryvnias and 13-16% in euros and U.S. dollars. Obviously, there is no ground for fair competition in Ukraine and for Ukraine on the EU market. As a result of the economic crisis and the collapse of the hryvnia (estimated at up to 300% in 2014), many domestic businesses are in need of extra capital investment or credits in order to stay afloat, retain jobs, and ensure loan servicing and payment of taxes.

Ukraine expected that EU programs would stabilize the economic situation. Unfortunately, the allocated funds barely help to resolve its problems. So what is the way out? Credits should become more affordable. European institutions should provide them to borrowers at the rates that are used in the EU. Intermediaries that add extra percent on funds on their way to an enterprise should be eliminated. Let us consider this mechanism as temporary and extraordinary until the Ukrainian banking sector recovers.

We are also asking for help with the creation of a National Development Bank, which could become a platform to accumulate EU assistance with donor aid and credit funds, and ensure financing of capital investment, innovation projects, the creation of high-tech and industrial parks, support for small- and medium-sized businesses, etc.

Do we expect too much?

Look at the issue from a different angle. It was announced at the Eastern Partnership summit in Riga that Ukraine would be given EUR 1.8 billion in macro-financial assistance. It is very important how these funds will be spent. The economy, which is suffering from the crisis, badly needs support, and we hope the assistance will be timely and effective. A company is a major economic agent and it is the company that has to feel it belongs to Europe and the community it is striving to integrate with takes care of it.

New challenges ahead

Our meetings with the European Union member states have confirmed the commitments to introduce the Deep and Comprehensive Free Trade Area with Ukraine as of January 1, 2016. Entrepreneurs and industrialists are well aware of how difficult this task could be for the real sector of economy and local industries. The considerable wear and tear of fixed assets, high energy consumption in Ukraine compared to Europe, low labor efficiency, unfavorable crediting, taxation and industrial policies – this is a short list of the challenges that need to be overcome through modernization, investment and creation of a better business environment. By realizing their responsibility for preparations for the DCFTA, the Ukrainian companies count that their peers and partners from the EU will give them support. The ULIE representative office in Brussels has suggested opening an accredited laboratory in the EU, giving Ukrainian companies more rights of access to bidding in EU state procurement tenders, increase quotas for duty-free farm produce shipments onto the European market, etc.

To sum up, both the Ukrainian participants in the abovementioned events and our European partners believe that the establishment of the free trade area between Ukraine and the EU, coupled with reforms, will help deepen the partners’ economic integration on the EU’s internal market and achieve a qualitative breakthrough on the path of economic development. The fact that Eastern Partnership member states took into consideration and included the recommendations put forth at the business forum in the final declaration of the Riga summit and broadly supported EU cooperation programs for entrepreneurship development in Ukraine inspires hope.

Anatoliy Kinakh,

ULIE President