YES 2018: Ukraine, once again, warns EU of Nord Stream 2 threat to security

Russia’s new pipeline to Europe, Nord Stream 2, will cost Ukraine $3 billion in lost transit fees for piping Russian gas across its territory, a Ukrainian official reckons.

But the project harms not only Ukrainian economy – it threatens European security too, Andriy Kobolyov, CEO of Ukrainian state oil and gas company Naftogaz, said on a panel devoted to the Nord Stream 2 project at the Yalta European Strategy in Kyiv on Sept. 15.

“I believe that within two years the pipeline will be completed,” Kobolyov said. “And as soon as it happens, all calculations show that gas transit through Ukrainian territory will stop.”

Previously, Russian gas monopoly Gazprom said that Ukraine could remain a transit route if the country suggested competitive conditions. However, Kobolyov believes this is unlikely.

“I always smile when people say that Ukraine will be competing with Nord Stream 2 through tariffs and conditions, that this is not a lost battle. No, it is a lost battle,” he said. “At the time when (the first) Nord Stream was built (in 2012), Ukraine already had the lowest tariffs.”

However, Nord Stream 2 isn’t only Ukraine’s issue. It is a threat to European security, Kobolyov said, as the Kremlin might use the pipeline to exert influence and increase its military presence, as has happened in the Azov Sea. After Russia opened the Kerch bridge connecting Ukraine’s Russian-occupied Crimean peninsula and Russia in May, Russian security forces used security reasons as a pretext to stop and inspect all vessels going to Ukrainian ports.

“Today Russia needs a transit route to deliver its gas to Europe, and it is the only factor that pressures Kremlin to maintain at least some stability in the east,” Kobolyov said. “Once Nord Stream 2 is launched, the Ukrainian gas transport system won’t be a deterrent.”

The European Union heavily relies on imports of gas, and a third of it comes from Russia.

Nord Stream 2 is slated for completion at the end of 2019, at the same time Gazprom’s gas transit contract with Ukraine’s Naftogaz expires. The Gazprom subsidiary that is building the pipeline reportedly has received permits from four out five countries whose territory the pipeline is to go through – Finland, Germany, Sweden, and Russia.

“There is an issue with the permit from Denmark, but we have a plan to solve it,” Gazprom CEO Alexei Miller said at a press conference in Moscow on June 29.

Once built, the 1,200-kilometer pipeline will double the capacity of the existing Nord Stream 1 to 110 billion cubic meters of gas per year, delivered from gas fields in Siberia to Greifswald in Germany. From there, it will be sold to other countries.

Another issue raised by the Deputy Foreign Minister of Ukraine Olena Zerkal on the same panel at the Yalta European Strategy conference was EU internal energy market legislation. The so-called Third Energy Package doesn’t extend to offshore gas pipelines such as Nord Stream 2.

EU lawmakers have split opinions over the pipeline. The Baltic and Eastern European states fear increased dependency on Russia and are demanding amendments to the Third Energy Package so that its legislative power covers Nord Stream 2. Meanwhile, Germany, the main backer of Gazprom’s pipeline, defends it as a purely commercial project.

“There are a few scenarios,” Zerkal said. “Either Germany, as a buyer, offers Ukraine to transit some amount of gas, or we promote fair treatment of all kinds of pipelines and the rules of the Third Energy Package (so they are) applicable to Nord Stream 2.”

Source: Kyiv Post

Swedish giant IKEA to enter Ukraine’s market in 2019

It looks like flat-pack furniture giant IKEA has finally decided to put together a business in Ukraine.

The Swedish retailer confirmed on Sept. 12 that it will enter Ukraine’s market, opening a store in Kyiv in 2019.

The official announcement from the company came minutes after Ukrainian President Petro Poroshenko wrote on Twitter that the company was to enter the Ukrainian market.

“IKEA is coming to Ukraine! Today I have a meeting with the Chief Executive Officer of South East Europe Stefan Vanoverbeke,” Poroshenko wrote.

The multibillion-dollar company is a global retailer of furniture, home decor and kitchen appliances, present in 29 countries and famous for its wide range of products and reasonable prices. Over the last year, 2.3 billion people have visited IKEA’s website, which also sells products online.

The company’s store will be located at the brand new Ocean Mall shopping and entertainment center, which is scheduled to open in November. The IKEA store will open in 2019.

“IKEA confirmed that it wants to contribute to a better life for the many people in Ukraine by bringing affordable home furnishing products and solutions to the many people,” the company’s statement reads.

The Swedish company usually builds large warehouse-style stores in the city outskirts. But they have started to switch to the format of “city stores,” adapting to the needs of their urban customers and getting a better feel of the market.

Such stores operate in the United States, United Kingdom, France, Denmark and China. The future store in Kyiv will follow that format – it will be located in the central part of the city near another mall, Ocean Plaza, right by Lybidska metro station.

“The company is switching to smaller stores located in city centers in order to satisfy modern customers who want to make purchases closer to their homes, and also do that online,” the company’s statement reads.

IKEA’s store in Kyiv “will offer a wide range of attractively designed products, as well as a list of services and solutions for the home.” Ukrainians will also now be able to purchase online and pick up their orders at the store, the company said.

Vanoverbeke says that after researching Ukraine’s market the retailer has chosen “the most suitable business model, allowing us to meet many consumers in Kyiv in the shortest possible time.”

The company’s decision to join the Ukrainian market could be a sign of positive changes in the country’s investment climate.

In Sweden-Ukraine bilateral relations alone, the last two years have been the best for Swedish exports to Ukraine since 2011, reaching $400 million in 2017, while Ukraine’s exports to Sweden hit a record high – $89 million.

And on Aug. 18, iconic Swedish fast-fashion clothing brand H&M opened its first store in Ukraine. It will open its second store in October.

Source: Kyiv Post

Survey: Corruption, distrust of courts making foreign firms wary of investing in Ukraine

Corruption and fears of not getting a fair hearing in court are the main obstructions blocking foreign investment into Ukraine, according to the latest investor survey by investment bank Dragon Capital, the European Business Association, and the Centre for Economic Strategy.

They have been selected by foreign investors as the top major obstacles for the last three years.

The annual study, which was conducted in early September, quizzed 109 existing and potential investors. The survey tested Ukraine’s investment climate, and highlighted the positive and negative factors that influence companies’ investment decisions.

According to Tomas Fiala, CEO of Dragon Capital and President of the European Business Association, corruption and mistrust of the courts have been found to be the top impediments to foreign investments for the third year in a row.

“In order for Ukraine to become attractive to investors, it is necessary to ensure the rule of law and justice and to reduce corruption in law enforcement agencies and courts,” Fiala said in a statement on the survey’s results.

The third main obstacle to the attraction of capital to Ukraine is the unstable financial system and shaky currency: these factors were up by two positions in the ranking of investors’ concerns compared to last year’s results.

The authors of the survey said the reason for that is “the continued uncertainty about the prospects for further cooperation with the country’s main creditor, the International Monetary Fund,” as well as worries over whether Ukraine can cope with its external debt payments.

Over the year, the IMF has repeatedly expressed concerns about the slow pace of implementation of reforms in Ukraine that are required for it to disburse more funds to the government.

Ukrainian Prime Minister Volodymyr Groysman recently announced that the country would have to pay back $27 billion in debts over the next four years.

Among other obstacles preventing investors setting up shop in Ukraine are the monopolization of the markets by oligarchs, Russia’s war on Ukraine, cumbersome and frequently changing legislation, oppressive law enforcement agencies, and restrictive capital and foreign exchange controls.

Although Ukraine started liberalizing its foreign currency legislation with a new law that simplifies currency operations for individuals and businesses, Anna Derev’yanko, the executive director of the European Business Association, said it has yet to be properly implemented.

Fiala also noted that the National Bureau of Financial Investigations has yet to be established.

“In September 2017 the country’s leadership at a meeting with business associations promised to create a National Bureau of Financial Investigations. Unfortunately, this has not happened and even our comments on the bill have not been taken into account yet,” Fiala said.

As next year Ukraine will have both presidential and parliamentary elections, foreign companies were also asked to select possible steps a new administration could take that would affect their investment decisions – both positively and negatively.

Among the top positive steps investors named an intensified battle against corruption, the overhaul of the judicial system, the separation of political and business interests, and the reduction of oligarchs’ influence on politics and the economy.

Steps that investors said would worsen the investment climate were Ukraine defaulting on its foreign debt, attacks on independent anti-corruption institutions, a rollback of democratic values, and political pressure on the National Bank of Ukraine.

“According to the rating of obstacles and the perception of possible actions by the new government, we can see that the rule of law, strong democracy and the destruction of the corruption system are prerequisites for investment and economic growth in Ukraine”, said Hlib Vyshlinsky, the executive director of the Centre for Economic Strategy.

Source: Kyiv Post

STEP-BY-STEP GUIDE ON EXPORTING TO CANADA I CAN EXPORT SECOND EDITION

The Free Trade Agreement with Canada creates countless opportunities for proactive Ukrainian exporters.

So it’s time to say “I CAN Export!” and start your export journey to Canada.

To help Ukrainian businesses find the information they need to enter the Canadian market, Canada-Ukraine Trade and Investment Support project (CUTIS) in cooperation with Ministry of Economic Development and Trade and Export Promotion Office prepared second and updated edition “I CAN EXPORT” step-by-step export guide for small and medium enterprises.

This guide aims to provide comprehensive technical information in a jargon-free manner to Ukrainian SMEs on how to export their products to the Canadian market.

This publication seeks to address some of the preconceived ideas that you may have on cross-border procedures and documentation requirements, legislative constraints, transportation options, and the Canadian market itself.

To download the guide, click on the picture below or fill in the small registration form. Once completed, you will automatically receive a link to download the publication, and will be included in the newsletter about educational and business events related to exporting to Canada.

For anyone interested in exporting to Canada, we also recommend paying attention to the “Public Procurement Canada: Getting Started” guide, developed by the Export Promotion Office’s GPAinUA project. 

Norwegian NBT to invest 370 million euros in wind power plant in Kherson Oblast

Norwegian company NBT AS has signed a multimillion-euro contract with Power Construction Corporation of China Limited, or POWERCHINA, to build a large 250-megawatt wind power plant in Kherson Oblast.

The 292-million-euro EPC (Engineering, Procurement & Construction) contract is part of the Norwegian company’s total investment of 370 million euros in the wind farm plant.

The companies signed the contract on Sept. 6 in the presence of Ukrainian President Petro Poroshenko and Norwegian Foreign Minister Ine Soereide Eriksen.

“These 120-meter giants (wind turbines) will be located literally a few kilometers from the territory occupied by Russia,” Poroshenko said, trying to emphasize the stability and safety of Ukrainian-controlled territory. The Office of the National Investment Council of Ukraine, an institution established by the president, provided advisory support.

The project involves the construction of 64 wind turbines on 1,300 hectares in Kherson Oblast near Syvash Lake, located on the west coast of the Azov Sea and separating Crimea from inland Ukraine. The company aims to complete the project by the end of 2019.

Five months earlier, in April, NBT bought Ukrainian SyvashEnergoProm, which operated a 3-megawatt wind farm.

At that time, NBT announced its plans to increase its power capacity to 250-330 megawatts.

Oleksiy Feliv, managing partner at Integrites, the legal firm that has overseen the acquisition process, says that, in total, the purchasing negotiations took a year.

“For Ukraine, this is the first project of such size financed by investors and partners without additional guarantees by banks,” Feliv told the Kyiv Post.

In general, it is a sign of an improving investment climate in the country, he added.

This is certainly true in Ukraine’s renewables sector, which has experienced rapid growth over the past several years. Its production tripled from 2012 to 2017, according to Ukrainian Association of Renewable Energy. Since 2014, roughly a billion dollars have been invested in Ukrainian renewables.

Some legislative changes that have eased doing business in Ukraine include the law on currency regulation and the law on the simplification of wind power plant construction, according to Feliv.

“The business climate in Ukraine has improved significantly in recent years, and our decision to enter the Ukrainian market is based on the progress made by the country,” said Joar Viken CEO of NBT, according to a press-release.

But official statistics paint a different picture of Ukraine’s overall investment climate.

Ukraine attracted only $1.9 billion to $2.3 billion in FDI in 2017, a tiny amount of the $1.8 trillion in investment globally, according to the estimates of the World Investment Report 2017, published by the United Nations Conference on Trade and Development. This was the worst year for foreign direct investment that Ukraine has experienced since 2010.

Despite the numbers, NBT is optimistic about Ukraine’s future business climate.

“We see a remarkable future for Ukraine in the development of renewable energy,” Viken added.

The Norwegian company has more investment plans in Ukraine. According to Feliv, NBT is going to carry out several more wind power projects with a total capacity of 860 megawatts in other regions across the country.

Feliv would not provide further details.