Business news from Ukraine

CABINET TO APPROVE PRIVATIZATION PLAN FOR FIRST FIVE STATE COMPANIES BY OCT 2015 – MEMO WITH IMF

KYIV. Aug 6 (Interfax-Ukraine) – The Ukrainian government will by the end of September approve a plan for the privatization of the first five state-owned companies, according to the updated memorandum on cooperation between Ukraine and the International Monetary Fund (IMF).

According to the text of the memorandum, by the end of September 2015 the list of state companies will be reviewed to identify non-operating companies for immediate liquidation. The review, prepared in consultation with IMF staff, will outline a timeline for the disposal of each company with the necessary intermediate steps, as well as preliminary estimates of budgetary and other costs stemming from liquidation, with the goal of initiating the first liquidations by late 2015.

Profile ministries will prepare the priority privatization list of ten companies by late July 2015. Companies will be selected based on cost-benefit analyses. Building on this list, a working group, including the State Property Fund (SPF), will be established to develop a privatization action plan. The plan will define the key parameters and conditions of the process, including the timeline for divesting, methods of privatization, and intermediate steps to be taken for each company. The action plans for five of these companies will be approved by an SPF decision by late August 2015.

“Furthermore, we will seek adoption, by cabinet resolution, of the action plan for these five companies by the end of September 2015,” the memorandum said.

EBRD COULD INCLUDE OTP BANK, RAIFFEISEN BANK AVAL IN PROGRAM OF ENERGY EFFICIENCY IN RESIDENTIAL SECTOR

KYIV. Aug 6 (Interfax-Ukraine) – The European Bank for Reconstruction and Development (EBRD) could issue a credit line of up to EUR75 million to Ukrainian banks under the program of financing energy efficiency projects in the residential sector, at the first phase including OTP Bank and Raiffeisen Bank Aval (both based in Kyiv) in the program.

According to the report, the EBRD board plans to approve the relevant projects on September 2, 2015.

It is expected that the EBRD will provide funds to financial institutions, which, in turn, will lend to end borrowers from the housing sector, including individual homeowners, groups of homeowners, housing construction associations, condominiums and cooperatives. These projects should include investment in high technology, energy efficiency, and measures to reduce energy consumption by at least 20%.

The bank documents said that the funds will be complemented by the mobilized hryvnia resources of Ukrainian banks, participating in the program, in the amount of up to EUR65 million.

In addition, the program foresees a promotional material grant of EUR15 million from the Eastern European Energy Efficiency and Environmental Partnership (E5P) and $25 million from the Clean Technology Fund (CTF), which should provide investment incentives for end borrowers, partial hedging of currency risks and cover losses on loans issued to housing construction associations.

POROSHENKO SIGNS LAW TO RATIFY MEMO WITH GERMANY ON EUR 500 MLN LOAN TO REBUILD DONBAS INFRASTRUCTURE

KYIV. Aug 5 (Interfax-Ukraine) – Ukrainian President Petro Poroshenko has signed a law on the ratification of a memorandum of intent by the governments of Ukraine and Germany on an untied commercial loan worth EUR 500 million for infrastructure projects.

The loan agreement was signed in Berlin on April 1, 2015, the presidential press service has reported.

KfW Development Bank signed it on behalf of the German federal government, which has provided a guarantee for the loan funds.

The money will be spent on infrastructure projects and aid for internally displaced persons from Donetsk and Luhansk regions.

The loan is primarily earmarked for modernization in the transport sector, energy sector, heating supply, energy efficiency, water supply and waste water disposal, social infrastructure and housing construction/reconstruction.

The Ukrainian parliament passed the law on July 15, 2015.

TAX CODE AMENDMENTS PROPOSE ELIMINATION OF SPECIAL VAT REGIME FOR AGRICULTURE FROM 2016

KYIV. Aug 5 (Interfax-Ukraine) – The revised Memorandum of Economic and Financial Policies of the Ukrainian authorities, prepared as part of cooperation with the International Monetary Fund, includes a proposal to eliminate the special value-added tax (VAT) regime for agribusinesses in Ukraine as of January 1, 2016.

“We plan to submit to parliament by September, Tax Code amendments, which will introduce the general VAT regime in agriculture effective January 1, 2016. This measure will yield about 0.3% of GDP,” the memorandum said.

The special regime currently allows farmers to keep the sum of VAT charged on the value of supplied goods and services, which should be transferred to the national budget under the general regime. The special regime was stipulated in the coalition agreement which was signed by the leaders of the ruling Ukrainian political parties in November 2014 which will be in effect until 2018.

Large agribusinesses repeatedly criticized the cancellation of VAT benefits, saying that it may trigger a decline in agricultural output and a reduction in payments to the national budget due to a decrease in farm produce exports.

The original wording of the memorandum with the IMF also included the provision to eliminate the special VAT regime.

On July 16, Ukraine’s Verkhovna Rada passed draft law No. 2173a, which suggests a change to the system of electronic administration of VAT and the cancellation of VAT benefits for agrarians. A group of lawmakers headed by Oleksandr Bakumenko from the Petro Poroshenko Bloc blocked the parliament’s rostrum, demanding that the provision cancelling the special regime be deleted from the bill. The group insisted it was needed as the Ukrainian agrarian sector is facing a difficult economic situation.

Ukrainian Prime Minister Arseniy Yatseniuk in turn accused the lawmakers of lobbying for large agricultural holdings’ interests and suggested a compromise when the special regime will remain for small farms whose land bank is up to 3,000 hectares and annual revenue does not exceed UAH 50 million.

Yatseniuk said that such farms account for 98% of all agricultural producers registered in Ukraine.

After the provision was withdrawn from the bill, the document was supported by 233 MPs.

EBRD COULD ISSUE EUR55 MLN TO SOUFFLET TO REPLENISH WORKING CAPITAL

KYIV. Aug 5 (Interfax-Ukraine) – The European Bank for Reconstruction and Development (EBRD) is considering issuing EUR55 million to the subsidiaries of Groupe Soufflet in Ukraine to replenish its working capital related to procurement, production and sale of agricultural products.

According to the bank’s website, the decision will be made on September 2.

Providing seasonal working capital to the subsidiaries of Soufflet Groupe will give the required support to farmers to enable them to invest in seeds, fertilizers, plant protection agents and harvesting.

The debt financing of the working capital of Soufflet will allow the bank to support investment in primary agriculture by supporting small and medium-sized farms.

French group Soufflet owns grain elevators and is engaged in the grains trade. The company owns 42 plants in Europe, Asia and America. Soufflet is one of the world’s major suppliers of malt. The group operates in 17 countries.

In Ukraine, Soufflet Group has invested in malt production, malted barley and wheat storage. Soufflet Group intends to invest almost EUR250 million in the construction of a terminal at Illichivsk seaport.

KYIV PROMISES IMF TO IMPLEMENT SERIES OF ANTI-CORRUPTION MEASURES – UPDATED MEMORANDUM

KYIV. Aug 5 (Interfax-Ukraine) – As part of the program of financial assistance from the International Monetary Fund (IMF), Ukraine has pledged to implement a number of urgent measures for combating corruption.

According to the updated memorandum between Ukraine and the IMF, Kyiv pledges to ensure the activities of the National Anti-Corruption Bureau (NAB), to provide it with timely access to relevant information from other public institutions by end-September 2015.

The Ukrainian government also promised to ensure the transparent elections of the head of the anti-corruption prosecutors on a competition basis. Kyiv also promised not to make any changes to the Law on Prosecutor’s Office concerning the procedure of appointment of without agreeing them with the IMF.

The Ukrainian government will also ensure that the NAB is fully operational by end-January 2016, allocation of necessary infrastructure (e.g., hardware; software; access to administrative, law enforcement, and commercial databases; vehicles; special tools; investigative material), supported by the appropriate budgetary allocation if necessary, operation of a hotline, including back office to identify cases deserving pre-trial investigation.

Kyiv also pledged to implement the anti-money laundering (AML) framework. The NBU will develop risk-based off-site and on-site AML supervisory tools, focusing on risks related to domestic politically exposed persons, by end-December 2015.

Kyiv also plans to implement asset disclosure requirements for high-level officials. By end-December 2015, the Ministry of Justice will ensure that applicants and newly appointed officials to high-level positions under the NAB’s jurisdiction file their asset disclosures electronically.

In line with legislation, all high-level officials will report their assets electronically by end-April 2016. The disclosures will be directly and freely available to the public on a single website shortly after submission.

By end-December 2015, a law will be adopted which strengthens the provisions in the Code of Civil Procedure on order for payment for domestic transactions and on garnishment of bank accounts.

The updated memorandum envisages that as part of education reforms the number of schools will be reduced by 5% after the end of the 2015-2016 academic year. Expected savings will be reinvested in the sector to upgrade the school and class infrastructure and support student transportation.