Welcome to the U.S.-Ukraine Business Council

IMF Agreement with Ukraine; IMF Set to Unlock Loan; Bank Recapitalization; Largest Poultry Producer; Environmental Crisis;
Monday, April 20, 2009

International Monetary Fund (IMF) Press Release No. 09/129,
Washington, D.C. Friday, April 17, 2009

By Roman Olearchyk in Kiev, Financial Times, London, UK, Sat, Apr 18 2009

Interfax-Ukraine, Kyiv, Ukraine, Friday, April 17, 2009

Reuters, Kiev, Ukraine, Thursday, Apr 16, 2009 

FarmingUK, UK, Monday, April 20, 2009

Government officials are aware of lax safety standards and environmental
hazards, but little is done to pursue offending companies
By Kseniya Pasechnik, Journalist in Kyiv
Business Week magazine, New York, NY, Friday, April 17, 2009

International Monetary Fund (IMF) Press Release No. 09/129
Washington, D.C. Friday, April 17, 2009

WASHINGTON, D.C. - A mission of the International Monetary Fund (IMF) led by Ms. Ceyla Pazarbasioglu visited Kyiv during April 8-17 for discussions on the first review under the Stand-By Arrangement (SBA) with Ukraine. At the conclusion of the visit, Ms. Pazarbasioglu issued the following statement today:

“The IMF mission today reached staff-level agreement with the Ukrainian authorities on the conclusion of the first review under the SBA. The authorities’ Letter of Intent and Memorandum of Economic and Financial Policies will now be submitted to IMF Management for approval. The documents and a staff report will then be considered by the IMF Executive Board by mid-May.

"We agreed with the authorities to propose to IMF Management and the Board to disburse the second and third tranches under the SBA in equal installments of SDR1.9 billion (about US$2.8 billion). Payment of the second tranche is conditional on Board completion of this first review, while payment of the third tranche is contingent on the completion of the second review of the authorities’ economic program.

“Ukraine’s economy continues to be severely affected by the global crisis. However, there are a number of encouraging signs that the economy has started to adjust to the large shocks. The exchange rate has undergone sizable adjustment, the current account deficit has narrowed significantly, and inflation has fallen more than expected.

“Against this backdrop, and following extensive and constructive discussions with the authorities, we have reached understandings on outstanding policy issues, including the implementation of fiscal corrective measures and bank recapitalization and strengthening. Progress has already been made on both these fronts and we welcome the authorities’ commitment to implement policies in a determined and timely manner.

“In light of the sharper than expected decline in economic activity, the authorities commit to containing the budget deficit to 4 percent of GDP in 2009, in line with available financing. The recent fiscal measures adopted by the Cabinet of Ministers yield significant additional savings which will help ease the pressure on public finances and achieve this target.

"At the same time, the authorities’ program is mindful of maintaining targeted social safety measures to protect the most vulnerable groups in society. The authorities will also continue their efforts to mobilize additional financing from international financial institutions and bilateral sources to finance part of the budget deficit.

“The authorities are implementing a comprehensive framework for the recapitalization and restructuring of the banking sector. The diagnostic study covering most of the banking system was completed as planned (and is now extended to smaller banks), and recapitalization of capital deficient banks will begin soon.

"The authorities will also shortly strengthen their framework to guide bank resolution. A key element in this framework is depositor protection. The mission firmly believes that the authorities’ comprehensive approach to bank restructuring is appropriate and that it should bolster confidence in the banking sector.

“The flexible exchange rate regime has served Ukraine well and the authorities will retain this arrangement, including by allowing the official exchange rate to follow the market exchange rate.
“Going forward, the global financial and economic crisis poses a challenging environment for Ukraine. We are confident that with these adjustments to the policies that are being supported by the stand-by arrangement, strong political commitment to decisive implementation of these policies, and continued close cooperation with the IMF, the program will pave the way for an early return to sustainable economic growth.”

LINK: http://www.imf.org/external/np/sec/pr/2009/pr09129.htm

By Roman Olearchyk in Kyiv, Financial Times, London, UK, Sat, Apr 18 2009

KIEV - Recession-battered Ukraine received a boost in confidence yesterday as an International Monetary Fund mission said it would advise senior management to unlock a $16.4bn standby loan to the country. The loan was granted last autumn but frozen owing to concerns over fiscal prudence and political stability.

IMF officials said the staff-level agreement with Kiev demonstrated the fund's willingness to adapt to country-specific needs amid deep world recession.
According to the plan, Kiev will use half of a second $2.8bn (Euro2.1bn, £1.9bn) tranche to service its budget deficit. The rest will be directed towards traditional currency stabilisation and balance of payment needs.

"Half could be used to bridge the budget deficit gap . . . to comply with our foreign debt obligations," said Yulia Tymoshenko, prime minister of Ukraine.
Ceyla Pazarbasioglu, the IMF's mission chief for Ukraine, said the funds could arrive in Kiev by mid-May, if approved by the fund's board. The first tranche of $4.5bn received late last year stabilised Ukraine's financial system.

Kiev's currency lost some 40 per cent of its value last summer, but the IMF froze future tranches amid concern over the budget deficit and political bickering. Bitter rivalry between Ms Tymoshenko, Viktor Yushchenko, president, and opposition groups has complicated Kiev's ability to handle an economy in free-fall.

Securing fresh IMF funds is seen as a victory for Ms Tymoshenko, a top contender in an October presidential contest. The expectation of fresh funds could also shore up confidence in the economy, one of the hardest hit by the global crisis.

"Ukraine's progress should be complimented," Ms Pazarbasioglu said. "The global economic and financial system is going through an unprecedented time. Ukraine obviously gets affected, but we are optimistic and very encouraged about the recent stability in Ukraine. It is a dynamic and resilient economy. It has adjusted to the shocks. The current account deficit has narrowed; inflation has declined more than we anticipated."

On Tuesday, Ukraine's government unilaterally adopted tough IMF conditions, bypassing parliament which failed to pass the unpopular legislation. The measures aim to balance the finances of Kiev's pension fund and state-owned gas company, boosting tax receipts and utility prices for households.

On Thursday, the government and central bank adopted a multi-billion-dollar bank restructuring plan, pledging to bail out seven domestically owned banks.

Interfax-Ukraine, Kyiv, Ukraine, Friday, April 17, 2009

KYIV - Ukraine's Cabinet of Ministers may consider the recapitalization of 26 Ukrainian banks which meet recapitalization criteria, Ukrainian Prime-Minister Yulia Tymoshenko said at a press conference following the government's special meeting in Kyiv on Friday.

In her words, a criterion for the recapitalization of the bank is that it should be systemically important and have a required number of branches and depositors. Twenty-six banks meet that criterion, Tymoshenko said. The other criterion is bank owners' intention to receive additional capitalization. According to her, seven of the 26 banks are willing to become recapitalized.

"If any owner of the 26 banks would like to be involved, this will be additionally considered at a government meeting, and the government is to decide," she said. She stressed that after the banks "get recovered, the government will offer these banks to private owners at open auctions."

Reuters, Kiev, Ukraine, Thu, Apr 16, 2009 

KIEV - Authorities in Ukraine have identified seven banks for recapitalisation, Deputy Finance Minister Ihor Umansky said on Thursday. Umansky identified the banks as Ukrgazbank, Finance and Credit, Nadra, Ukrprombank, Rodovid, Imexbank and Kyiv.

"These are seven banks whose shareholders were not in a position to assume the obligation of increasing capital to the required level on their own," Umansky, currently Ukraine's Acting Finance Minister, told Reuters by telephone. He said all banks undergoing recapitalisation would have to be placed in receivership. Four banks on the list, Ukrprombank, Nadra, Rodovid and Kyiv, are already in such a position.

Umansky said the three other banks have given no cause for doubts in terms of solvency, but would be placed in receivership as this was required by the procredure set down by the government and central bank. "This is an instrument to keep watch on the effective use of state funds," he said.

Nadra currently holds down 9th place among Ukraine's approximately 180 banks in terms of assets, Finance and Credit (F&C) 14th, Ukrprombank lies 15th, Ukrgazbank 17th, Rodovid 20th, Imex 30th and Bank Kyiv 39th.

Umansky, in earlier comments quoted by Interfax Ukraine news agency, included Bank Khreschatyk on the list of banks to be recapitalised, but later said this had been an error and included Bank Kyiv instead. Ukrgazbank, F&C and Imex are among banks whose shareholders have asked the government to take a share in their ownership.

A banking source had earlier said that two banks -- Ukrgazbank and F&C -- were the first to be selected for recapitalisation. Altogether, 11 Ukrainian banks are in receivership. The state budget allows for the government to allocate up to 44 billion hyrvnias ($5.7 billion) for recapitalising banks. ($=7.7 hryvnias) (Reporting by Natalya Zinets, writing by Ron Popeski; Editing by Andy Bruce) 

FarmingUK, UK, Monday, April 20, 2009

United Kingdom - Mironovsky Khleboprodukt is the largest poultry producer in Ukraine, and the company’s share in Ukrainian market amounts to 36%. Net profit of MHP S.A., a holding structure of the Ukrainian Agricultural Group Mironovsky Khleboprodukt in 2008 was down more than threefold to $15m, if compared with the previous year ($50m).

As it is said in the company’s press-release, the results of the forth quarter of the current year, when the company received $165m net loss from $4m net profit a year earlier, had significantly influenced the total net profit.

The revenue of the Ukrainian agricultural holding for the last year grew 69% and totaled to $803m. EBITDA of Mironovsky Khleboprodukt for the reporting period reached $312m, up 88% from last year. The profitability under EBITDA [Earnings Before Interest, Taxes, Depreciation and Amorization] was up to 39% from 35% in 2007. The gross profit totaled to $238m, up 92% from 2007.

In 2008 the company also increased the value of capital investments in its development by 55% to $265m. Total debt of the group as of the end of the year grew up to $517m from $467m in the year’s beginning.

Within 2008 Mironovsky Khleboprodukt received about $107.7m of state subsidies in different forms, including direct subsidies for the produced agricultural products ($46.1m).  MHP’s poultry breeding operations division revenue grew to $550m in 2008 from $318m last year.

Mironovsky Khleboprodukt is the largest poultry producer in Ukraine, and the company’s share in Ukrainian market amounts to 36%. The Group also specializes in grain, sunflower oil, beef, potato and other food production. In May 2008 the company held IPO at LSE, and pursuant to the received results it was valued at $1.66 billion. IPO value including option organized by Morgan Stanley and UBS Investment Bank totaled to $371m, and free float was 22.32%.

LINK: http://www.farminguk.com:80/news/Ukraine-The-meat-industry.15161.asp
Government officials are aware of lax safety standards and environmental
hazards, but little is done to pursue offending companies

By Kseniya Pasechnik, Journalist in Kyiv
Business Week magazine, New York, NY, Friday, April 17, 2009
Late last year, a tire repair factory in the Donetsk area of eastern Ukraine decided to bury smoking rubber waste in the ground not far from its building. The stench lingered in the air, drifting out over nearby villages. Upset inhabitants finally had enough, and, in December, arranged a mass protest near the tire factory's gates. The press came and a scandal broke. In just a few days, the situation in Donetsk was known throughout the country.

Anyone, however, who had hoped that the case would draw attention to the wretched state of the environment in Ukraine and improve the situation has been brought back to earth since then. The factory received a fine, and the controversy quickly quieted down. Despite factories in Donetsk and elsewhere in Ukraine continuing to break laws on waste disposal and management, prosecutors and lawmakers have been slow to react.

"They constantly bring old tires for processing, and putrid smoke hangs above our city all the time," Igor Kolodyazhnyi, a resident Makiivka near the rubber factory, said. "The air smells like cinders and chemicals. Living in such circumstances is simply impossible." Kolodyazhnyi said that although the problem in the Donetsk region is widely known about, no efforts are made to solve it.

He believes that the interests of powerful local business groups are enough to discourage any pressure from the authorities. Other regions are also in bad shape, including those still scarred by the Chernobyl nuclear power plant accident more than 20 years ago.

The air pollution in the Donetsk area is exacerbated by the fires that are common there due to the presence of flammable material. In January, for example, a large fire partly destroyed a local factory that produces nitric acid and ammonium nitrate. Although the Ukrainian Ministry of Extraordinary Situations cited carelessness as the reason that flammable waste products in the factory's storage facilities had been ignited, the authorities downplayed the seriousness of the accident and did not take significant action.

In this industrial belt, accidents such as these are common, both in factories and in the mines. Officials have repeatedly declared their awareness of lax safety standards and environmental hazards and their intentions to take steps to prevent future occurrences. However, both state environmental officials and environmental activists say those words rarely, if ever, take the form of action.

"Accidents happen because chemical companies and those who oversee them … have become accustomed to the release of fumes into the atmosphere and the regular disposal of toxic waste in rivers," Oleg Kruglov, a specialist in environmental protection with the environmental advocacy group Chistaya Zhizn ("Pure Life"), said. Mariupol, a southeastern port city, has the most polluted air of any city in Ukraine, followed closely by Donetsk, he said. "The main question is, what must we do for the air in the region to become clean again?"

State officials in charge of environmental protection readily admit the seriousness of the problem but say their hands are tied. Sergey Tretyakov, head of the State Administration of Ecology and Natural Resources in Donetsk Oblast, said that "reorganization and reconstruction of companies is the only way of solving this problem today."

Nikolai Kostrov, chief of the Ukrainian State Ecological Inspection agency, said time is running out, however, as city and suburban sources of water, as well as the air and soil quality in cities, have reached critical levels. "At this time the area of garbage dumps exceeds the area of preserved territories in Ukraine," he said. "In the capital Kyiv, the most critical situation can be found at the water purification station in Bortnichi [a city suburb].

All sewage waste in Kyiv heads there. Impurities could break through the dike and flow into the Dnieper River if the equipment isn't updated quickly," he said. Anatoliy Golubchenko, deputy head of the Kyiv City administration, recently promised that Bortnichi station would be modernized and a new rubbish recycling plant would be built.

Kostrov said his agency fines environmental law-breakers but admitted that such punishments, in reality, exist only on paper. In practice fines are often blocked in courts and by local authorities without explanation. In addition, environmental cases remain relatively low on the agenda of the office of the public prosecutor, with economic or criminal offenses given priority.

Without the threat of punishment, or some form of state pressure, companies are unlikely to upgrade technology on their own. "We don't have extra money to put special filters in the factory, or to replace out-of-date equipment. I work and live at the plant, and I dislike the air-quality situation, but I can't do anything," the director of a factory in Donetsk, who asked to remain anonymous, said. He also noted that his factory belongs to a huge corporation that likely
has the money to make the necessary changes but has not done so.

Activist groups have tried to increase public awareness of the problem, hoping to spur pressure on the authorities. The Crimean organization Ekologia i Mir regularly recruits members of the public to participate in environmental activities like cleaning up the city or planting trees. "Various waste products are gradually engulfing the Crimea, some produced here and others deposited here from other regions," said Svetlana Berezina, president of the national public ecological organization Zhivaya Planeta ("Alive Planet") who regularly takes part in Ekilogia i Mir's activities.

"We're trying to show people the need to reduce the amount of waste they generate, to reuse or repair items rather than throwing them away, and to separate waste to be recycled. We also work to teach our children about environmental safety and waste management."

The Ministry for Environmental Protection is working on its own concept for ecological education programs. According to ministry statistics, there are currently 326 departments in both middle and higher education establishments in the Ukraine for environmental studies. However, these programs often use old textbooks that do not cover modern methods of environmental protection, and leave students unable to successfully grapple with current environmental problems once they leave school.

Heorhii Philipchuk, the Ukrainian minister of environment protection, said his ministry plans to create centers in every region to provide public information about the state of the environment. "Ukrainians live in the dark ages and don't know what they drink or eat, what they breathe, and what dangers come from the enterprises located next to their homes," he said.

Without public pressure, critics say Ukraine's lawmakers devote little attention to environmental issues. "The ecological problems of Ukraine are actively ignored in parliament," said Kostrov, from the state inspection agency. "The necessary laws and measures for the preservation and defense of the environment and natural resources are not examined."

Others say that even those measures that exist are ambiguous and based on antiquated norms. "For successful development to occur on environmental issues, changes in state legislation are necessary," said Alexander Belyakov, a professor in the environmental department at Kyiv National University. "For instance, the Ukrainian laws on environmental information and environmental protection need precise definitions of violations and punishments."

That is even less likely to happen during these dire financial times, said Kruglov, of Chistaya Zhizn. "They have never focused on the environment, and now, during this financial crisis, even less so." The Ukrainian budget for 2009 provides less money for ecological programs than in recent years.

Still, Philipchuk pledged to fight on. "Ukraine desperately needs a better ecological code, and we aim to create it this year, together with the representatives of scientific establishments and public organizations," he said. While the need for better environmental protection has long existed, he said, Ukraine "until recently has lived by Soviet standards."

Saying the country has accumulated 30 million tons of waste (of which 5 million are toxic), Philipchuk said he ecological situation is catastrophic. The disproportional concentration of industrial companies within populated areas has decreased the lifespan of Ukrainians by 11 years compared with other Europeans, he said. "For example, in the city of Dneprodzerzhinsk, the average lifespan of the residents is only 47 years because of the terrible environment."

Despite such disturbing statistics, the media seldom call politicians to task for their lack of action, and then again only when a particularly egregious polluter such as the Donetsk tire repair factory gets caught or an accident occurs. "When Ukrainians are a little more concerned for their health and for active defense of environmental laws, the situation will be different. Currently, though, these issues are rarely in the media," said Zhivaya Planeta's Berezina.

Alina Horina, a journalist who covers environmental topics for various publications, concurs. "There are always other things newspapers deem more important. Topics on the environmental are only covered when some great disaster has occurred—no one will write about the environment for its own sake," she said.  (Provided by Transitions Online—Intelligent Eastern Europe)

LINK: http://www.businessweek.com/globalbiz/content/apr2009/gb20090417_498939.htm