UKRAINE BUSINESS NEWS: SEVEN ARTICLES
1. STRATEGIES FOR HOTEL DEVELOPMENT IN UKRAINE
Only one international branded hotel per 15 million people in Ukraine
Ukraine is the most difficult, time-consuming country in Europe to develop a hotel project
Hotel magazine, Oak Brook, Illinois, Tuesday, July 14, 2009
2. KIEV BALKS ON RUSSIAN NUCLEAR FUEL
Multinational nuclear technologies company Westinghouse in talks with Ukraine
United Press International (UPI), Kiev, Ukraine, Tuesday, July 14, 2009
3. UKRAINE, ECONOMIC RESTRUCTURING AND REFORM:
YOU CANNOT HAVE ONE WITHOUT THE OTHER
Analysis & Commentary: John Dakin, Attorney
Kyiv Office, Chadbourne & Parke LLP
Special to Kyiv Post, Kyiv, Ukraine, Friday, July 3, 2009
4. UKRAINE AIMS TO EARN $2 BILLION FROM CO2 RIGHTS SALE
Reuters, Kiev, Ukraine, Wednesday, July 15, 2009
5. EUROPEAN UNION EXTENDS AIRLINE BLACKLIST
Carriers from Kazakhstan, Ukraine and Zambia no longer allowed to fly in the EU.
By Jennifer Rankin, European Voice.com, Brussels, Belgium, July 14, 2009
6. RUSSIA: CRAVING TO BE A GREAT POWER
Analysis & Commentary: By Richard Pipes, Moscow Times, Moscow, Russia, July 15, 2009
7. THE START FOLLOW-ON AGREEMENT: PROSPECTS & IMPLICATIONS
AHA! Network, Washington, D.C., Tuesday, July 14, 2009
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1. STRATEGIES FOR HOTEL DEVELPMENT IN UKRAINE
Only one international branded hotel per 15 million people in Ukraine
Ukraine is the most difficult, time-consuming country in Europe to develop a hotel project
Hotel magazine, Oak Brook, Illinois, Tuesday, July 14, 2009
The HTLroundtable organized by PKF hotelexperts, the Vienna-based hotel consulting group, gathered managers of various hotel groups (Hilton, Marriott, Premier Hotels, Rezidor and Starwood), project developers, investors and representatives of various national and international organisations (e.g. EBRD - European Bank for Reconstruction and Development).
Co-hosted by the law firm Wolf Theiss and the project development/consulting company Michaeler & Partner, the focus was the current state of the hotel industry in Ukraine particularly in light of the upcoming European Football Championship in 2012. The participants discussed the possibilities of hotel development, given the financial and political turmoil the country is currently experiencing.
STRATEGIES FOR HOTEL DEVELOPMENT IN UKRAINE
One international branded hotel per 15 million people – this is the current situation of the hotel industry in Ukraine. The Radisson and the Hyatt Regency in Kiev plus the Radisson in Alushta (on the Crimean Peninsula) have opened in the last four years and remain the only hotels managed by international hotel groups in Ukraine, a country with about 46 million inhabitants.
At the same time the Radisson and the Hyatt Regency in Kiev are performing rather well. In fact according to Rezidor Development Manager Darren Blanchard, the Radisson Kiev is one of the best performing hotels of the Rezidor Hotel Group in Europe.
Why are there no other international hotel brands represented in Kiev and in other Ukrainian destinations?
The two main reasons given for the comparative shortness of international hotel supply were:
[1] the bureaucratic red tape in the country as well as the
[2] lack of financing for projects.
There are several projects currently under construction, including at least eight large international branded hotels, with one (InterContinental) scheduled to open in 2009 and three scheduled for 2010 (Fairmont, Holiday Inn, Sofitel).
PREMIER HOTELS PLANS TO EXPAND..HOLD 20% OF THE HIGH END MARKET
At the same time, there is a large number of existing hotels managed by Ukrainian companies, including the five-star Premier Palace in Kiev. According to Oleg Bolotov, the President of Premier Hotels, the group currently manages seven hotels in Ukraine and holds a 20% market share in the four to five-star market. Premier Hotels plans to expand its portfolio to ten hotels in 2010 and will introduce Accord Hotels, a new mid-segment hotel brand, in the near future.
Dimitriy Zaruba from the Association of small hotels and apartments of Ukraine – as well as most other participants – complained about the abundance of arbitrary rules and regulations stymieing existing hotels and new hotel projects. It seems that at the present stage only youth hostel rooms and short-term apartment rental are adding to the number of available rooms in Ukraine.
However, most large international hotel groups would like to enter the market, despite all these challenges.
MAJOR HOTEL COMPANIES PLAN TO BE IN UKRAINE: HILTON, MARRIOTT AND OTHERS
Both Magdalena Sekutowska (Hilton) and Ivica Èaèiæ (Marriott) declared that they have already projects under development or in planning. Anatoly Kondratenko (Development Manager for Starwood Hotels and Resorts Worldwide), would like to see some of his group’s hotel brands (e.g. Sheraton, Four Points by Sheraton) in Kiev and other Ukrainian cities.
Michael Widmann, Managing Partner of PKF hotelexperts, the Vienna-based hotel consulting group, summed up the results of the experts during the HTLroundtable:
1. forget about five star hotel dreams of oligarchs – focus on budget and mid-segment hotels (which are desperately needed)
2. avoid mixed-use developments (which are not financeable at the present stage) – focus on single use
3. try to do smaller hotel projects with a total investment of about euro10-20 million
4. ensure a financial commitment by the operator (e.g. turnover lease, minimum guarantee or – at least – an owner’s priority return)
5. conversions of buildings and refurbishments of existing hotels might be easier to implement than new-built hotels
6. upscale hotels should contain a residential component (e.g. apartments on the top floor)
7. projects have to be well-structured to have any chance of obtaining financing
8. in many cases developers have to wait for an improvement of the market environment
UKRAINE, RUSSIA AND TURKEY HAVE BIGGEST DEVELOPMENT POTENTIAL IN EUROPE
Together with Russia and Turkey, Ukraine has the biggest development potential in Europe. However, probably in no country in Europe it is more difficult and time-consuming to develop a hotel project. The lack of financing is currently the biggest stumbling block for new hotels.
But the major issue which hinders hotel development apart from that are the political and bureaucratic obstacles which keep investors away from Ukraine.
In case this situation could be substantially improved, there would be a bright future for hotel development in Ukraine.
LINK: http://www.hotelsmag.com/article/CA6670826.html?industryid=47567
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2. KIEV BALKS ON RUSSIAN NUCLEAR FUEL
Multinational nuclear technologies company Westinghouse in talks with Ukraine
United Press International (UPI), Kiev, Ukraine, Tuesday, July 14, 2009
KIEV, Ukraine - Ukrainian operators at a nuclear power facility delayed signing nuclear fuel deals with Russian companies while pursuing options with U.S. suppliers.
Energoatom, the nuclear power plant operator in Ukraine, postponed a signing with Russian fuel producer TVEL to renew its import
contract after 2010, RIA Novosti reports, citing Ukrainian-language news outlets.
The two companies were set for an additional July 15 signing of a measure aimed at the construction of fuel-processing facilities for Ukraine, the paper said.
Meanwhile, Ukraine has not ruled out moving forward with talks with the U.S.-based Westinghouse Electric Co.
Westinghouse, the multinational nuclear technologies company, holds a supply contract at the South Ukraine nuclear power plant, which is designed to handle Russian fuel.
Ukraine does not have the industrial capacity to enrich its own uranium, leaving it dependent on import agreements for its fuel. Its entire current nuclear fuel supply comes from Russia, but those contracts expire in 2010.
Ties between Moscow and Kiev soured notably in the energy sector. Russian gas monopoly Gazprom cut gas supplies to Ukraine following a January dispute over pricing terms and debt. That row has lingered in bilateral relations since.
NOTE: Westinghouse is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
LINK: http://www.upi.com/Energy_Resources/2009/07/14/Kiev-balks-on-Russian-nuclear-deal/UPI-92881247587299/
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3. UKRAINE, ECONOMIC RESTRUCTURING AND REFORM:
YOU CANNOT HAVE ONE WITHOUT THE OTHER
Analysis & Commentary: John Dakin, Attorney
Kyiv Office, Chadbourne & Parke LLP
Special to Kyiv Post, Kyiv, Ukraine, Friday, July 3, 2009
I recently received an e-mail from an organization, Business Monitor International, hoping that I would purchase their Ukraine Business Forecast Report for 2009. Rather ominously, they forecast “real gross domestic product to contract by an astounding 14.7 percent this year, which will make Ukraine’s economy the worst performing in the world.”
Why has Ukraine been particularly hammered by the global financial crisis? The International Monetary Fund indicated in November 2008, when approving the $16.4 billion standby loan to Ukraine, that the trigger was plunging prices for the country’s major export, steel, that led to a substantial deterioration in the current account.
Since steel accounted for roughly 40 percent of Ukraine’s exports last year, the significant reduction in the receipt of hard currency reserves from its sale exposed underlying vulnerabilities and caused great stresses domestically.
The foreign currency loans taken out by banks suddenly became more expensive as the hryvnia sharply devalued when it became clear that there were relatively low foreign currency reserves to support it (or even to meet short-term external debt).
High inflation was sapping its strength and a weak fiscal position did not give potential purchasers of the currency much hope that significant resources would be yielded from tax collection. All this, against a backdrop of a crisis that was drying up liquidity globally, stifled capital inflows.
It is clear that Ukrainian banks and businesses have needed urgent surgery. Typically, for Ukrainian banks this has meant one of two options to prevent creditors from taking enforcement action against them: [1] a standstill agreement, which is an agreement between creditors to give the bank time for information to be collected relating to its indebtedness and for a survival strategy to be put together; and [2] second, temporary administration, a procedure controlled by the central bank, which has been introduced into several Ukrainian banks this year.
Both the standstill agreement and temporary administration procedure provide the necessary cover for a formal restructuring. Creditors can then agree between themselves and the bank, or a temporary administrator, on approving an appropriate formula so that creditors can extract the maximum return from their original investment while the bank management or temporary administrator attempts to ensure the bank can thrive in the future.
Issues commonly considered include an appropriate extension to the duration of payment terms under the loans (particularly those that are short-term), an increased interest rate (with payment often left to the end of the term) and whether to convert the currency of the loan.
Only once their debt has been restructured can Ukrainian banks attract fresh capital. If Western money has stopped flowing into Ukraine for the time being, aside from foreign parent banks supporting their Ukrainian subsidiaries, and steel exports remain weak, what new sources are available to keep the economic engine ticking?
IMF LOAN ARRANGEMENT TARGETED AT BANK RECAPITALIZATION
A significant chunk of the IMF standby loan arrangement, as well as funding from other supra-governmental international financial institutions. is specifically targeted at bank recapitalization. But the sums involved, although significant, are dependent upon Ukraine undertaking structural reforms.
Three banks (Ukrgasbank, Bank Rodovid and Kyiv Bank) currently under temporary administration are to be nationalized and will be pumped with about $400 million each using money received by the central bank from international financial institutions. Nadra Bank may be set to join them in state ownership.
Such reliance cannot continue indefinitely and provides only a temporary fix. To continue recapitalization, the Ukrainian government will need to find money from the over-extended state budget. New investors, domestic or foreign, also need to be enticed. If there is no or little systemic reform, such investors are not likely to be foreign.
DOMESTIC BUSINESSES PRESERVING CASH AND RESTRUCTURING
What about Ukrainian businesses? Since reforms have been slow in coming, with international capital markets still very hard to access and usual bank credit lines seizing up as banks have struggled to stay solvent by hoarding cash, domestic businesses have tried to survive by preserving cash and pursuing internal restructuring.
Following the turmoil and volatility at the end of 2008, the first quarter of 2009 was eerily quiet, as businesses used their remaining cash to meet their fixed costs, reduce headcount, make financial forecasts and set budgets. Many considered which parts of their businesses were worth keeping.
Indeed, many large Ukrainian business groups have been busy refinancing their debts. But with limited international debt market capital available, they are also working hard behind the scenes to spin off non-core assets, liquidate unprofitable businesses and enter into new joint ventures with different partners using pooled capital. In these fraught times, it is the minority investors that are most vulnerable to being squeezed out.
Ukraine is now at a critical juncture. If the restructuring of banks and businesses is allowed to occur without systemic reforms being undertaken and little respect shown to minority investors, then it is plausible that Western investors would be less inclined to return.
The chance to kick-start Ukraine into a more open market economy would recede. If Western money dries up, then domestic or perhaps Russian capital will be needed.
It is important to deal both with historic liabilities transparently and fairly, as well as undertake the painful reforms necessary. The manner and extent to which these two issues are tackled will likely determine the amount of appetite that Western investors will have in Ukraine.
Ukraine is a country of enormous potential with a skilled workforce and untapped natural resources. It should not be bottom of the economic table in 2009, or in any year.
NOTE: John Dakin is an attorney in the Kyiv office of Chadbourne & Parke LLP. Chadbourne & Parke, headquartered in New York City, is an international law firm with 12 offices worldwide. He can be reached at jdakin@chadbourne.com.
NOTE: Chadbourne & Parke, LLP is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
LINK: http://www.kyivpost.com/business/bus_focus/44526
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4. UKRAINE AIMS TO EARN $2 BILLION FROM CO2 RIGHTS SALE
Reuters, Kiev, Ukraine, Wednesday, July 15, 2009
KIEV - Ukraine wants to earn $2 billion from the sale of carbon emission rights, funds that would help the country's stretched finances, Prime Minister Yulia Tymoshenko said on Tuesday.
The ex-Soviet state has already sold 30 million Assigned Amount Units (AAUs) to Japan under the emissions trading scheme facilitated by the Kyoto Protocol. Ukraine said it would earn 3 billion hryvnias ($400 million) from that sale.
"We are ready to earn $2 billion from the sale of quotas and to reform the utilities sector within three years," Tymoshenko said at a conference of her political party, Batkivshchina (Homeland).
She did not say when the deal would be struck or give further details. The government had said in May it was looking to sell this year 100 AAUs to Swiss-based Dighton Carbon SA and another 50 to New Zealand's Tawhaki International LP.
Ukraine was allocated 4.5 billion AAUs between 2008-2012 but due to a deep recession and steeply falling industrial activity, it estimates it needs to use only 2.8 billion. The country is allowed to sell about 450 million AAUs.
The state budget has been hit by much lower export and tax revenues linked to the recession. The hryvnia has weakened to the dollar by 30-40 percent from highs of a year ago, complicating efforts to pay for imports such as gas. (Editing by Jon Boyle)
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5. EUROPEAN UNION EXTENDS AIRLINE BLACKLIST
Carriers from Kazakhstan, Ukraine and Zambia no longer allowed to fly in the EU.
By Jennifer Rankin, European Voice.com, Brussels, Belgium, July 14, 2009
The European Union's blacklist of unsafe airlines grew significantly today, with the addition of nearly all of Kazakhstan's airlines (71 in total), as well as carriers from Ukraine and Zambia.
“We cannot afford any compromises in air safety; we have to remain vigilant,” said Antonio Tajani, the European commissioner for transport. “This list has greatly contributed to making Europe's skies safer,” he said.
Six Kazakh airlines had already been put on the EU blacklist in April. Only Kazakhstan's Astana Airlines remains able to fly in the EU, although strict restrictions on its operations remain in place.
Yemenia Airways was not placed on the blacklist, despite concerns following the crash last month of a Yemenia Airways Airbus 310, in which 153 people died. French authorities had already banned the plane that crashed, but the airline was still allowed to operate in the EU.
The Commission is investigating the airline and officials would not be drawn on a possible ban. A Commission source said “we do not put an airline on the list because of an accident”.
But following the Yemenia crash, the Commission called for a global blacklist of unsafe airlines. In Strasbourg today, Tajani said: “It is high time that the international community rethinks its safety policy. Those airlines which are unsafe should not be allowed to fly anywhere.”
The Commission argues that its blacklist gives airlines strong incentives to improve their safety defects. Four Indonesian carriers were taken off the list
today, because they now meet standards set by the International Civil Aviation Organization (ICAO). But Indonesia's 47 other carriers remain on the list.
Information from ICAO plays a major role in the EU's blacklist policy. Kazakh airlines came to attention following a recent ICAO investigation that found serious problems.
Today's publication is the 11th update of the blacklist since it was created in March 2006. It now includes airlines from Afghanistan, Angola, Benin, the Democratic Republic of Congo, Equatorial Guinea, Gabon, Indonesia, Kazkhstan, the Kyrgyz Republic, Liberia, North Korea, Rwanda, Sierra Leone, Sudan, Swaziland, Ukraine and Zambia.
LINK: http://www.europeanvoice.com/article/2009/07/eu-extends-airline-blacklist/65496.aspx
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6. RUSSIA: CRAVING TO BE A GREAT POWER
Analysis & Commentary: By Richard Pipes, Moscow Times, Moscow, Russia, July 15, 2009
In relations between sovereign nations, nothing is more important than understanding the culture of the countries with which one is dealing. Without this understanding, there can be tragic consequences.
If the Japanese in 1941 had understood the American psyche, they would never have attacked Pearl Harbor in the vain hope that once a major part of its Pacific Fleet had been destroyed, the United States would sue for peace.
Similarly, the Germans would not have attacked the Soviet Union if they had known how the Russians traditionally reacted to invasions by foreign “infidels.”
I have a feeling that Western politicians have made little effort to understand the mentality of the Russian people and leaders. And yet we have a great deal of evidence from public opinion polls and Russian politicians to convey what it is they want and what it is they fear.
For one, Russians crave the status of being a velikaya derzhava (great power). They feel that they are entitled to this status since Russia has the largest landmass in the world, one that covers most of Eurasia and stretches from the Baltic to the Pacific.
The other component of Russia’s great power status is the country’s grand accomplishments, such as breaking the back of the German army in World War II and sending the first man into space.
ASTONISHING POPULARITY OF A MONSTER LIKE JOSEF STALIN
The astonishing popularity of a monster like Josef Stalin is primarily due to the fact that he had made Russia a power that was universally respected because it was feared. This craving assumes obsessive forms, particularly because Russians suspect deep in their hearts that their claim to this status is dubious — that they are not really a great power in economic, political or military terms.
This obsession compensates for the inferiority complex that a majority of Russians feel when they compare themselves with genuine great powers, notably the United States.
Precisely because of this inferiority complex, it is important to treat Russians with deference and to consider their opinions. It is also important to understand what is behind their attempt to be a spoiler in global affairs.
When the Kremlin says “no” to Western initiatives, Russians feel that they are indeed a world power. Their uncontrollable fury at the West’s behavior in Kosovo, for example, derived from the sense of frustration that their wishes had been ignored.
The other cultural factor to take into consideration when dealing with Russians is their imperial tradition. One prominent peculiarity of Russian historical development was that the growth of its nation state, Muscovy, occurred concurrently with the growth of its empire.
When Ivan IV conquered Kazan and Astrakhan in the 16th century, acquiring Muslim subjects and opening the gates to Siberia, the Russian state was just beginning to coalesce. This differed from the situation in Western Europe, where the acquisition of colonies followed rather than accompanied the creation of the state.
Many Russians continue to regard Ukraine, the Caucasus
and Central Asia as integral parts of the Russian realm.
As a result, Western powers could let go of their empires without suffering a loss of ethnic identify, but the loss of Russia’s colonial possessions in 1991 was a far more traumatic experience. To this day, the end of the Russian/Soviet empire is a tragic historical episode for Russians and it has little to do with communism. Many Russians continue to regard Ukraine, the Caucasus and Central Asia as integral parts of the Russian realm.
What this means is that foreign powers have to be extremely careful in encroaching on these regions. U.S. President Barack Obama was correct in stressing during the summit last week that the former Soviet republics are now sovereign states and hence free to conduct their foreign policy as they see fit.
Nonetheless, it is equally true that the United States, which is home to the Monroe Doctrine for the American continent, should respect Russia’s sensitivities in this respect. Opinion polls indicate that a majority of Russians regard NATO as a hostile force.
For this reason proposing that former Soviet republics join NATO is dangerous, and this is particularly true for Ukraine. If Kiev were ever to join NATO, it is likely that the Kremlin would seriously consider military intervention as a response.
On the other hand, I do not advise Washington to yield to Moscow on all issues relating to what its leaders call their “privileged zone of influence.” The proposal to install elements of a missile defense system in Poland and the Czech Republic, for example, is in the interest of U.S. security and should be implemented.
A few military officials who do not submissively toe the Kremlin line — for example, General Vladimir Dvorkin — openly admit that 10 interceptors and a radar system in Central Europe do not and cannot threaten Russia’s security.
The United States should not hesitate to condemn Russia’s invasion of Georgia or the spurious “independence” of South Ossetia and Abkhazia. It should feel free to criticize Russian behavior when it violates the rules of civilized behavior at home or abroad. At the same time, we should be aware of their sensitivities and avoid unnecessarily irritating them in word and deed.
NOTE: Richard Pipes is professor of history, emeritus at Harvard University and author, most recently, of “Russian Conservatism and Its Critics.”
LINK: http://www.moscowtimes.ru/article/1016/42/379522.htm
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7. THE START FOLLOW-ON AGREEMENT: PROSPECTS & IMPLICATIONS
AHA! Network, Washington, D.C., Tuesday, July 14, 2009
WASHINGTON, D.C. - The Aha! Network presents the webcast “The START Follow-on Agreement: Prospects and Implications” featuring Stephen Blank, Professor of Russian National Security Studies at the Strategic Studies Institute of the U.S Army War College in Pennsylvania and Olga Oliker, Senior International Policy Analyst, The RAND Corporation on Thursday, July 16, 2009 at 10:00 a.m. in Washington. The moderator is Ambassador William Courtney.
LIVE VIDEO WEBCAST link: http://www.usukraine.org/events/startfollowon.shtml
WHEN: Thursday, July 16, 2009 at 10:00 a.m. (EST)
WHERE: U.S.-Ukraine Foundation, 1701 K Street NW - Suite 903
Note: Bldg entrance is on 17th Street, between K & L Streets)
LIMITED SEATING: Please RSVP your attendance to: rsvp@usukraine.org or by calling (202) 223-2228