Invest in Odessa – new city website

Well, well, well!

No – not three holes in the ground filled with water, but rather a sarcastic acknowledgement that Odessa City Hall has finally got around to creating a new website – Invest in Odessa.

I deliberately use the word “finally”, as way back in autumn 2007 when I first met Mikhail Freidlin, he was working as a special advisor to the Mayor of Odessa (then Edward Gurvitz) on strategic planning and had developed a dozen or so very good presentations for investors on CD Rom for specific projects.  Amongst those dozen or so projects, there were  4 or 5 that were capable of giving a reasonable ROI in a reasonable time frame.

Mikhail was, at least at the time, one of the very few in Odessa who truly understood PFI/PPP and quite a number of the projects were of that nature.  Naturally we hit it off as I have done numerous PFI projects when working with Mowlem PLC many years ago, after leaving the service of “The Crown/HMG” in various roles.

Unfortunately, the global financial prolapse occurred and as a consequence, fear of risk, particularly in central and eastern Europe, replaced the previous desire to find projects to invest in.

However, back then when nobody knew the financial collapse was about to happen, I had several meetings with Mikhail, and agreed to push some of the projects under the noses of some then interested and affluent investors in all things Eastern Europe with experience in PFI/PPP, special purpose vehicles et al – needless to say the timing proved to be less than fortuitous.  O fortuna indeed!

At the time I questioned why such projects were not available on-line to download and why, in fact, there was no such thing as an “Invest in Odessa” website to which interested parties could be initially directed and have an overview of all projects the city was wishing to pursue.  ”Tempters”, for want of a better expression.

Time stands still for no man of course, and soon the vast majority of the western world became engulfed in monetary and fiscal consolidation rather than the risks involved in expansion and development.

A few days ago I noticed the launch of “Invest in Odessa” website by City Hall.  Many of the projects on the website are exactly the same as those identified and developed by Mikhail, although the website still does not allow for downloading his very good presentations.

It also has to be said that not all the pages are translated into English on the English language profile, and that the list if links to legislation, or what appear to be links, don’t actually work – although at least it points readers in the direction of relevant legislation.

Nonetheless, a little of what was discussed in autumn 2007 appears to have become a reality in autumn 2012 (but by no means much of what was discussed) – not that this is the fault of Mikhail, from 2010 we have had a new Mayor who doesn’t listen to anybody, least of all advisors to the previous Mayor.

Now it remains to be seen quite how this new website and new drive to attract inward investment into Odessa will progress.  As anybody who works on the Internet knows, content is king.  Plus the more roads you have leading back to Rome (or in this case links to Invest in Odessa) littering cyberspace the better.

It also does not replace the “roadshow” of sending people to every possible high grade investment gathering around the EU and beyond pushing the projects or actively finding potential investors etc.

A website is a public platform that more often than not is direction-less when it comes to finding the target audience.  Investment audiences do not need to surf the Internet to find projects in which to invest.  Serious projects find investors – actively – rather than passively via a website, unless the website is some sort of generic  “crowd funding” vehicle.

I do not want this entry to become a lesson in attracting project finance or basic strategic marketing, but you get my point I’m sure.

Anyway, “Invest in Odessa” now exists – and about time – even if we are still to emerge from the financial prolapse that began in 2008.  How effective it will be remains to be seen however.

Proving me wrong – Government intervenes in currency

Yesterday I wrote this stating that it was “interesting” Ukraine was attempting to force transparency in the extraction industries – a place from where the oligarchy wealth comes, amongst others.

It is interesting because it attempts to force some transparency into what and how much is extracted, and thus will give indications of what is sold in comparison to what has supposedly been extracted.  The difference between the two is therefore what lays on the inventory and would in theory be there to physically see.

Let us be quite honest, a lot of what is extracted can quite easily be, and is, sold internally or exported under the radar of tax, customs revenue and ultimately the struggling State budget is the loser.

Be it coal, coke, ore, oil, gas etc, the majority that leaves Ukraine, officially or nefariously, is bought and sold in US$.

Considering this “extractive transparency”, it becomes especially interesting that the government seems quite determined to prove my long standing prediction of an exchange rate of UAH 9 to US$1 by the year end wrong, (and UAH 10 or 11 to US$1 by mid 2013 as well, by extension), and to do so they are seeking to force exporters -many of whom are the same people that are the extractors now required to be more transparent – to convert part of their foreign currency earnings into Hryvnia.

Those forcibly converted US$s then being used to intervene in the market and keep the Hryvnia from depreciating – at least temporarily – and thus delaying my prediction.

Just how long the peg to the US$ can be maintained by doing this remains to be seen.

Transparency in Extractive Industries in Ukraine?

Now here is something interesting, not just because it involves transparency within the murky world of extractive industries, but the fact that this even exists in Ukraine – even if only on paper:

МІНІСТЕРСТВО ЕНЕРГЕТИКИ ТА

ВУГІЛЬНОЇ ПРОМИСЛОВОСТІ УКРАЇНИ

НАКАЗ

02.10.2012 м. Київ № 785

Про створення багатосторонньої

групи заінтересованих осіб (БГЗО)

з питання імплементації в Україні

Ініціативи щодо забезпечення

прозорості у видобувних галузях

На виконання завдань, визначених постановою Кабінету Міністрів України від 30.09.2009 № 1098 «Про приєднання України до Ініціативи щодо забезпечення прозорості у видобувних галузях», пунктом 12 розпорядження Кабінету Міністрів України від 18.07.2012 № 514 «Про затвердження плану заходів з впровадження Ініціативи «Партнерство «Відкритий Уряд» стосовно імплементації в Україні Ініціативи щодо забезпечення прозорості у видобувних галузях відповідно до її критеріїв

НАКАЗУЮ:

1.Створити багатосторонню групу заінтересованих осіб (БГЗО) з питання імплементації в Україні Ініціативи щодо забезпечення прозорості у видобувних галузях за участі представників центральних органів виконавчої влади, компаній та громадських організацій у складі згідно з додатком.

2. Багатосторонній групі заінтересованих осіб у місячний термін розробити проекти Положення про БГЗО і Технічне завдання для її роботи.

3. Контроль за виконанням цього наказу покласти на заступника Міністра – керівника апарату Макуху В.О.

Міністр (підпис) Ю. Бойко

Додаток

до наказу Міненерговугілля

від 10.10.2012 № 785

Склад

багатосторонньої групи заінтересованих осіб (БГЗО) з питання імплементації в Україні Ініціативи щодо забезпечення прозорості у видобувних галузях

.	Макуха Володимир Олексійович	заступник Міністра енергетики та вугільної промисловості України – керівник апарату, голова
Представники центральних органів виконавчої влади:
	Кирюшин Ігор Володимирович	директор Департаменту з питань нафтової, газової, торф’яної, нафтопереробної промисловості та альтернативних видів палива Міністерства енергетики та вугільної промисловості України
	Меркушов Віктор Тимофійович	член Національної комісії, що здійснює державне регулювання у сфері енергетики України (за згодою)
	Гребеннікова Лариса Костянтинівна	начальник управління розвитку ринків Департаменту розвитку реального сектору економікиМіністерства економічного розвитку і торгівлі України (за згодою)
	Наврата Артем Ігорович	заступник директора Департаменту фінансів виробничої сфери та майнових відносин Міністерства фінансів України (за згодою)
	Ігнатов Андрій Петрович	заступник Голови Державної податкової служби України (за згодою)
	Мормуль Дмитро Дмитрович	заступник Міністра екології та природних ресурсів України – керівник апарату (за згодою)
Представники компаній:
	Касянчук Сергій Васильович	начальник Управління видобування газу, газового конденсату та нафти Департаменту з видобування гази та нафти Національної акціонерної компанії «Нафтогаз України» (за згодою)
	Нестеренко Олексій Григорович	член комісії з припинення діяльності, заступник директора з питань перспективного розвитку та взаємодії з органами влади дочірньої компанії  «Укргазвидобування» (за згодою)
	Депелян Анжела Мартіросівна	начальник Департаменту з фінансово-економічних питань – член комісії з припинення діяльності дочірньої компанії «Укртрансгаз» (за згодою)
	Рапута Ірина Вікторівна	комерційний директор з розвідки та видобування підприємства з іноземними інвестиціями «ТНК -Україна» (за згодою)
	Тайлі Грехем	директор товариства з обмеженою відповідальністю «Шелл Юкрейн Експлорейшн енд Продакшн І» (за згодою)
	Кларк Пітер	генеральний менеджер товариства з обмеженою відповідальністю «Шеврон Україна» (за згодою)
Представники громадських організацій:
	Тодійчук Олександр Сергійович	Президент міжнародної громадської організації «Київський міжнародний енергетичний клуб» (за згодою)
	Гончар Михайло Михайлович	керівник енергетичних програмгромадської організації «Центр сприяння вивченню геополітичних проблем та Євро-Атлантичного співробітництва Чорноморського регіону «Номос» (за згодою)
	Павленко Олена Михайлівна	засновникгромадської організації«ДІКСІ ГРУП» (за згодою)
	Ігнатьєв Станіслав Євгенович	виконавчий директормолодіжної громадської організації «Інститут сталого розвитку» (за згодою)
	Дейнеко Владислав Валентинович	директор енергетичних програмгромадської організації «Аналітичний центр регіонального співробітництва» (за згодою)
	Алтухов Вадим Вікторович	керівник Донецької обласної громадської організації «Народний контроль» (за згодою)

Combined Heating and Power plant privitisation – Ukraine

This year, the combined heating and power plants (CHP’s) for Odessa, Kharkiv, Dnepropetrovsk and Kherson are all due to be privatised.

None of which seems likely between now and the end of the year due to the tender process and the clauses within the tenders.

Amongst the clauses are the conversion of the plants from being gas fired to coal fueled.   There are also requirements to increase output, in some cases quite considerably, within 3 years, as well as to overhaul and modernise the plants.

Not withstanding that, any purchaser must also repay all overdue debts within 6 months of acquisition.

Any purchaser must produce a feasibility study, and build, new heating networks relating to the region in  some cases.

If that was not enough, any entity taking part in the tenders must have a license for subsoil production in Ukraine which holds a minimum of 1 billion cubic meters of gas reserves – insuring (and committing to) sufficient gas reserves pending conversion to coal.

If that has not put off or disqualified most interested parties, there is then the tender costs to consider with the initial bid cost at UAH 3.5 million and a starting full purchase price for each CHP of about UAH 330 million – discounting the hidden costs of putting together feasibility studies and tenders themselves etc – which is very expensive in and of itself.

Immediately one tends to think of Dmitry Firtash as the most likely to go for this, but it appears he doesn’t really know what’s what – yet.

“I didn’t know that CHPs would be sold. Therefore, I can’t say anything now. If there was a sale, we would definitely take part. But it should be understood what will be tendered and what will be sold. There’s no sense in only buying. You have to know what it is.”

If what he says is true, and he doesn’t know what’s what – then it is a foregone conclusion nobody else will.  Thus I have serious doubts any CHPs will manage to be privatised before the end of 2012.

Hryvnia devalutation almost a certainty before the year end

On 2nd January 2012, I wrote this, stating that the Hryvnia needed to devalue to between UAH 10 or UAH 11 to US$ 1 by mid 2013.

Since then I wrote this, on 1st July 2012 stating it would need to devalue to UAH 9 to US$1 by the end of 2012 and this on 22 August 2012 underscoring what I have previously written.

I am not an economist, nor banker and would never give financial advise to others.  That said, as part of my Business Management degree, of course economics were necessarily part of the studies – albeit hardly to a depth to make the forecasts I have made at the beginning of 2012 have any credibility as far as any readers are concerned – and rightly so.

So, I will now at least add some credibility to my projection 11 months ago, by bringing this Bloomberg article of 22nd October to your attention.

In it, Alexander Morozov of HSBC Moscow, predicts a 10% devaluation of the Hryvnia by the year end after the elections.  That 10% devaluation will take the Hyrvnia to just about UAH 9 to US$ 1 – just as I wrote so very long ago and in the time frame I stated.  Hurray for me!

Further, just as I wrote on 2nd January 2012, Mr Morozov states that the Hryvnia will need to devalue to UAH 11 to US$1 by end of 2013.  Hurray for me – again!

He generously allows an additional 6 months for this to happen over my prediction – but then our predictions were 10 months apart in their making – so I will bow to both his expertise and his access to information that I don’t have.

Nevertheless, it would seem that my predictions from beginning to end of 2012 relating to the Hryvnia are now supported by those who should know – albeit that support is somewhat late in coming.

It seems the last quarter of 2013 will be the earliest to consider jumping back into the Hryvnia in a serious way as there is little likelihood of a recovery in the rate before then, but a continued devaluation until then is much more likely.

Mass privatisation ahead for Ukraine?

For those of you who follow me on twitter and in particular followed a conversation between Alex Nice (@AlexNicest) and myself (@OdessaBlogger) a few days ago, then the start of this blog entry is more of a summary of what was said – but don’t simply pass – it goes on to new ground that wasn’t subject to our 148 character sentence conversation.

For those who do not know who Alex Nice is, apart from being a very nice chap, he was also very active within the Russia/Eurasia sphere at Chatham House until not that long ago.  He has since moved on to another organisation of similar ilk.  Ergo he is a pretty smart and insightful chap with lots of clever things to say.

My connection with Alex is therefore quite obvious considering I am a Chatham House member living in part of the world which was, and still is, of particular interest to him.

Anyway, rumour reached me that Yushni docks has been bid for by a company called SCM.  That company is owned by Rinat Akhmetov, Ukraine’s richest man, the money behind Party of Regions and thus the power behind the thrown.  I casually mentioned the rumour to Alex in our twitter conversation.  The bid offer, I understand, is about $600 million.

To be honest, that seems way over a reasonable price as things stand today, even when including all the infrastructure, grandfather rights and hard assets.  Particularly so when Illychovsk was on the market (in an off-market way) for $235 million only a few years ago until the owner changed his mind and decided to keep it.

Illychovsk port is 49 square kilometers, has its own rail spur, and is far busier than Yushni.  In fact Illychovsk if not the busiest commercial port in Ukraine, it is certainly up there.

The only notable thing relating to Yushni as it stands today, it that it is the deepest port in Ukraine – but that would in no way account for the large bid.

However, back in 2010, I stated that the proposed LNG terminal Ukraine was seeking would be best suited to appear at Yushni due to the land around the port available for development.  Subsequently I have been proved right and indeed it is to be the site for the new LNG terminal as confirmed this year.

Necessarily, that puts a very different light on the future worth of Yushni Port.

However, Ukraine has a very, very long list of companies and State owned assets that are deemed “strategic”.  Amnogst those thousands (and I mean thousands) of companies and assets, are almost all the docks and ports, airport runways, Naftogaz Ukraine etc.

In fact the only port I knew that wasn’t a “strategic asset” was Illychovsk, which by some mysterious dealing was allowed into private ownership a long time ago.

So, wondering how SCM was going to buy what I believe is a listed “strategic asset” and therefore prohibited from sale, I did a bit of metaphorical digging a few days ago.

What I discovered, or rather more accurately, what I was told, is that after the elections there is a draft list of over 1000 currently “strategic assets” that are listed to become privatised as drawn up by the Party of Regions.

Now for any “strategic asset” to be privatised, it necessarily needs the approval of the RADA and thus it waits until after the elections when the composition of the new RADA is known.

One can only assume that Yushni is on the said list and that is why there is a “bid” by SCM at present and not a simple purchase.  It awaits being removed from the “strategic” list.

Of course questions follow as to what else is on the list, who has already offered up a bid and at what price?

Are there already bids in for the 1000 or more “strategic assets” apparently listed to be privatised?

Despite the nefariousness and insider shenanigans that appear to be happening in preparation for this mass privitisation, importantly for Ukraine and the Ukrainian economy will be whether the loss making behemoth that is Naftogaz is on the list and whether it will be broken up and parts of it privatised as is desperately required and advocated for by the EBRD – leaving only the pipelines as a government owned “strategic asset”?

Definitely something to keep a close eye on in the very near future, as one suspects this next large round of privatisation has as much to do with filling holes in the State budget and financing election promises as it does with expanding the oligarchy asset pool.  Especially so with the current President up for reelection in 2015 and remains, at least at present, the oligarchy’s preferred arbiter.

Securities as instuments of tax evasion – Ukraine

Well who would have thought it?

Banks and financial instruments being used to avoid tax!

Well yes, we all would have thought it.  We’ve all got fairly used to the idea that banks, financial markets and financial instruments are not the bastions of goodly deeds – regardless of which bank it is, where ever it is in the world.

And so it comes as no surprise to read that Oleksandr Klymenko, head of the Ukrainian Tax Service, has made this statement:

“Today only 11% of the turnover of securities is performed with the equities of real companies that are listed on stock exchanges. The other securities are instruments for tax evasion. Thus we see today UAH 1 trillion in securities turnover, while only UAH 150 million is paid to the budget.

An analysis of the data available suggests a high level of tax risk. Moreover, experience shows that stock market mechanisms are often used for tax evasion, and the concealment of income and information on the ownership structure of real sector assets, etc.”

The tax agency also noted that this year the share of unprofitable operations, according to official data from the stock market operators, reached 73%, and those at insurance companies were 88%.

According to the press service, the total amount of contracts executed by securities traders in 2011 amounted to UAH 2.2 trillion, including contracts worth UAH 235 billion signed on the organized exchange market. However, even with such a large turnover, the stock market operators reported extra large losses. Last year profits from trading in securities amounted to UAH 119 million, while losses stood at UAH 159 million.

So, I assume we are to see radical changes to this in the near future?  Is there anyone bright enough within the RADA to understand this and actually come up with laws or regulations to put matters right?  If there is, and they do, will it pass as legislation and if it does,will it be enforced?

With elections in October, I suppose we can safely presume that this will not be addressed before 2013 anyway.

Selfish? Moi? Teaching English in Ukraine

Well dear readers.  I have been accused of being selfish!

Moi?

I have been approached, not for the first time, with a request to teach English to some of the local rich folks on a one-to-one basis.  It seems some wish to be  free from classrooms and the brakes which can occasionally be applied by those in the class who take longer for the penny to drop than others.

Also I am seen as something of a permanent fixture here, maybe quite fairly after so many years here, and thus should I teach English students would avoid the continued churning over of English teachers passing through every few months.

At least that was what was said to me in the latest attempt to drag me into the often shitty little world of teaching English in Ukraine.  I say shitty, as all too often the teachers are fly-by-night, or the schools are less than honest in their dealings with teachers, students and the authorities, teachers will try to steal the schools clients for private and more financially rewarding work, and quite frankly, the teaching schedules themselves often really do suck!

Also, I am not a teacher.  The only teaching and examining I have ever done has been for the HVCA in the UK in relation to Health & Safety and the CSCS scheme.  Amongst all the qualifications required to do that, a teaching certificate was not one of them.

Also, many of you dear readers will be reading this blog and quite rightly think to yourselves, he is grammatically retarded and shouldn’t be allowed to teach English to anybody anyway – ever!

In that you may have a point.

So, when most recently asked, I made the honest and fair comment that I am in no way qualified to teach English to anyone and therefore would not do it.

It appears, however, at least to those asking to glean any knowledge from my very limited grasp of my own language, that the very fact I am English, ergo de facto English is my native tongue, I am indeed qualified as far as they are concerned.

I was being, I was informed, quite selfish given the fact that they would pay quite well for my time and that they knew I had plenty of free time.

So, am I being selfish?

If so, then at the very least I think I should complete one of those TEFL courses that produces,  according to those asking for my services,  so many crap English teachers.  At least then I would possess a piece of paper saying I am qualified to teach English in a similarly crappy manner.

The thing is, I’m not convinced I am being selfish by refusing to teach my mother tongue in the first place.  Yet there is now a nagging doubt!