The following is the March 26, 2024 edition of our Ukraine Business Roundup weekly newsletter. To get the biggest news in business and tech from Ukraine directly in your inbox, subscribe here.
Over the past week, Russian attacks targeted energy facilities across Ukraine, affecting nearly every major energy producer in the country and causing power outages for around 1.5 million people.
Ukraine's state-owned Ukrhydroenergo enterprise said that entire units of the Dnipro hydroelectric plant, located in Zaporizhzhia, had been destroyed after several direct hits, adding that building them up from scratch could take between 18 to 24 months.
Head of Naftogaz Oleksii Chernyshov said that the company’s underground gas storage facility in western Ukraine will require repairs to its surface infrastructure but that the gas stored deep underground was unaffected by the attacks. Foreign traders in 2023 had rented 2.5 billion cubic meters of storage space last year and had started injecting more recently.
Attacks on March 22 and 24 caused 90-100 million euros ($97-108 million) in damages to national grid operator Ukrenergo, CEO Volodymyr Kudrytskyi said on Facebook.
DTEK, Ukraine’s largest private energy company, was also affected, losing half of its generating capacity on March 22, “which unfortunately, cannot be quickly restored," DTEK's spokesperson Pavlo Bilodid told Kyiv Independent reporter Martin Fornusek for his recent article on Russia's attacks on the country's energy system.
Why now, especially as Ukraine is just coming out of the heating season and the weather is warming up? Explanations have ranged from retribution to Ukraine’s recent attacks on Russian oil refineries to the Kremlin taking advantage of Ukraine’s dwindling supply of ammunition.
One thing is for certain: If the attacks continue and the $60 billion of further funding for Ukraine still tied up in the U.S. Congress never arrives, the country will be largely unable to protect its skies, Fornusek writes. That doesn’t just mean devastating consequences for critical infrastructure. It will invariably mean the death of more civilians.
Sponsors of war no more
If you’re tuning into this newsletter weekly, you’ll remember that in last week’s edition, I called the efficacy of Ukraine’s “International Sponsors of War” list into question. It seems so had many others, and last week the government scrapped the list.
Well, sort of. The Cabinet of Ministers on March 19 announced that the list would be removed from the website of the National Agency for the Prevention of Corruption. According to sources, Ukraine’s National Security and Defense Council of Ukraine still has a version of the list they’ll be keeping up to date.
Ukraine came up with the International Sponsors of War list following the start of the full-scale invasion to call out and put pressure on companies to exit the Russian market. Some 50 multinational companies found themselves on it, including Nestle, Philip Morris, Unilever, and PepsiCo.
People with whom I spoke said that there were constant complaints among Ukraine’s partners about who was and was not on the list. International partners were “terribly unhappy” with the list, Justice Ministry Denys Maliuska said earlier in March.
Ukraine’s Foreign Affairs Ministry had also been told the list was having a “negative impact” on “important decisions to counter Russian aggression.”
And several questions were raised as to how companies were selected, with some calling into question the integrity of the process.
Instead of publicly listing the companies and individuals, the information will now be transferred to the Interdepartmental Working Group on the Implementation of the State Sanctions Policy which will decide if further action is needed.
Frozen allies
The United States proposed to the Group of Seven (G7) countries that they establish a special-purpose vehicle (SPV) to issue $50 billion in bonds from profits generated by frozen Russian assets and use the proceeds to support Ukraine, Bloomberg reported on March 21.
The SPV would employ around $280 billion of Russian Central Bank assets tied up in G7 countries and Europe, the profits of which would back the bonds, dubbed “freedom bonds,” sources familiar with the matter who spoke on condition of anonymity told Bloomberg.
One unnamed diplomat told Reuters that the U.S. was particularly pushing for the plan, in part to compensate for the ongoing delay in Congress over U.S. aid, but France, Germany, and some other EU countries are reportedly opposed to it, Reuters reported on March 22.
Western countries have immobilized around $300 billion of the Russian central bank's assets since the start of the full-scale invasion.
Russian frozen assets in the EU generate around $3.6 billion of net profits yearly and proceeds from the SPV would equal the $60 billion of U.S. aid stalled in Congress, Bloomberg said.
Lifelines
Ukraine received $880 million from the International Monetary Fund (IMF), Prime Minister Denys Shmyhal announced on March 26.
The IMF announced on March 21 that it had approved a third review of Ukraine's $15.6 billion loan program, enabling the release of the $880 million earmarked for budgetary support. The disbursal was the third such tranche of the Extended Fund Facility (EFF), bringing the total distributed so far to $5.4 billion.
"The funds will help cover priority budget expenditures and maintain macro-financial stability," Shmyhal said.
Ukraine mission chief Gavin Gray said earlier on March 22 that Ukraine has maintained a strong performance on the IMF program throughout its initial year, meeting all but one of the quantitative performance criteria — which involved tax revenues. Gray also said that the IMF expects the war in Ukraine to wind down in 2024.
Kristalina Georgieva, managing director of the IMF, emphasized that Ukraine's macroeconomic and financial stability has been preserved despite "enormous social and economic costs" due to Russia's full-scale invasion.
She also warned, however, that recovery is expected to slow somewhat to 3-4% in 2024, “given the exceedingly high risks to the outlook stemming mainly from the exceptionally high war-related uncertainty as well as potential delays in external financing.”
"The authorities should be vigilant against these risks. It is also critical that the external financing committed to Ukraine by all donors is disbursed in a timely and predictable manner to safeguard Ukraine’s hard-won macroeconomic stability,” she said in a statement.
Reviving real estate
One of Kyiv’s iconic Soviet-era buildings is the latest architectural monument at risk of being devoured by developers in search of their next real estate opportunity.
The brutalist Soviet-era Zhytniy Market in Kyiv’s central Podil neighborhood was put up for auction last week with a suspiciously short bidding period of just five days, causing an outcry among activists.
Celebrity chef Yevhen Klopotenko led online protests against the auction, saying its short time frame meant the winner had been predetermined — not an uncommon feature of Ukraine’s opaque bidding system.
Following the public uproar, the city canceled the five-day auction, rescheduling it for April 15 to allow for more bidders to be able to prepare to participate.
Klopotenko has warned, however, that the fight isn’t over, highlighting on social media the case of Kyiv’s Sinnyi Market which was demolished in 2005, despite protests. He said on March 25 on Facebook that he and his team were now working with lawyers to prepare the paperwork needed for the auction and potential partners to make sure Zhytnyi ends up in the right hands.
“I see Zhytniy as a gastronomic and cultural hub. I want foreigners to come here as they come to the San Miguel market in Madrid,” Klopotenko said.
Read business reporter Dominic Culverwell's full article here.
What else is happening
McDonald’s plans to open at least 6 new locations in Ukraine this year. McDonald’s wants to open six new locations in Ukraine’s Zakarpattia and Chernivtsi oblasts, as well as in Kyiv’s suburbs in 2024, creating 1,500 new jobs in the country, Yuliya Badritdinova, managing director of McDonald's for Ukraine, Czechia and Slovakia, said at a press briefing in Kyiv on March 26. Badritdinova said it was hard to say exactly when the new locations will open, as war-related issues could cause complications and push some openings to 2025. Last year, McDonald’s opened 10 new locations bringing its total number of functioning restaurants to 101 (the company has a total of 117 locations in Ukraine, but 16 of them are closed due to Russia’s war). Badritdinova also said that since reopening in September 2022 after closing for seven months after the start of the invasion, the company has restored operations to 70% of pre-war levels.
Anti-Monopoly Committee's head investigated over suspected illicit enrichment. Anti-Monopoly Committee's chair Pavlo Kyrylenko is under investigation by the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialized Anti-corruption Prosecution Office (SAPO) over suspected illicit enrichment, Radio Free Europe/Radio Liberty (RFE/RL) reported on March 25, citing a statement from the anti-corruption agencies. The proceedings were reportedly launched on March 22 following a media investigation by Schemes, RFE/RL's investigative project, according to which Kyrylenko's family acquired real estate and cars worth over Hr 70 million ($1.8 million) between 2020 and 2023. According to Kyrylenko, his family purchased the property thanks to start-up capital that the grandmother of his wife accumulated in the 1990s by selling shares of the Styrol plant in Horlivka, which she received as its employee.
Polish minister: Talks on licensing system for Ukrainian goods may finish this week. Talks on creating a licensing system for trading Ukrainian goods have progressed and may be completed already this week, Poland's Economic Development and Technology Minister Krzysztof Hetman said in a comment for Radio Lublin published on March 25. The negotiations specifically concern cereals, rapeseed, corn, sugar, poultry, eggs, soft fruits, and apples. Hetman noted that the farmers' demands regarding the Green Deal have already been met. Due to a surplus in wheat and corn, the Polish government is also planning to allocate subsidies for grain sales, the minister said. "I would also like to stress that when it comes to grains, we hope – because this is what we discussed with the Ukrainian side – that even the transit, primarily of corn and wheat, will expire on April 1," Hetman said.
Bloomberg: Russian oil trade feels pressure of Western sanctions in India. Russia's oil trade is starting to feel the pressure of Western sanctions as Indian refineries no longer accept tankers of Moscow's state-owned Sovcomflot shipping company, Bloomberg reported on March 23. Multiple tankers carrying Russian crude have been unable to land in Indian ports in recent months in connection to sanctions. According to Bloomberg, dozens of sanctioned vessels are now idling by in numbers not seen since 2017. Sovcomflot transported around one-fifth of all Russian crude deliveries to India in 2023.
The Guardian: Ukraine says it could make 2 million drones a year with financial help from West. Ukraine could double its rate of drone production to 2 million drones a year with additional support from Western governments and private citizens, Digital Transformation Minister Mykhailo Federov told The Guardian in an interview published on March 20. President Volodymyr Zelensky announced last December that Ukraine was aiming to produce 1 million drones in 2024. Fedorov said that Ukraine was “contracting much less than our manufacturers are capable of” because of a lack of external funding, and called on the country’s partners to provide more financing. According to Federov, Ukraine’s more than 200 companies that are operating in the drone space are based locally and self-sufficient in drone assembly, but that components always have to be sourced from abroad. The main issue companies face is financial support, Fedorov said.
