Posts Tagged ‘trade’

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Odessa investment projects – Berezyne – Besarabyazka rail reconstruction

December 25, 2016

Immediately prior to the festive season getting under way, the blog was invited to the Odessa Regional Administration by a friend who is head of the Investment and Tourism Department, Roman Kozlovskyi.

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He and his team can be found on the 6th (top) floor within the rabbit warren that is the Odessa Regional Administration building.  (Thus any investor that enters this labyrinth is effectively at his mercy when it comes to actually finding their way out again.)

The result was a commitment by the blog to highlight some of the best opportunities for investment from a particularly long list.  It will also bring to the attention of certain project initiators some of the worst project offerings.  Some projects should be pushed as they are good projects for all concerned.  Others should be pushed into the rubbish bin of wishful but financially retarded thinking.

As such, ad hoc, entries will appear over the coming weeks relating to the good, the bad (and some ugly) investment projects within the Odessa Oblast

This entry highlights an investment project that seems viable.

In 1999 the rail connection between Berezyne and Besarabyazka was dismantled for reasons that would seem politically rather unclear, if criminally somewhat more understandable.

The 1999 dismantling of this section of railway thus pushed goods moving between Moldova to and from the ports of Odessa via rail to go through the Kremlin sponsored enclave and smuggling haven of Transnistria, an area that falls beyond the direct control of Government Moldova.

As such the reconstruction of the Berezyne – Besarabyazka rail link would provide a goods rail link avoiding Transnistria entirely.

Accordingly any investor could be assured both Governments of Ukraine and Moldova would be very much in favour of using this reconstructed route for commodities such as coal, fertilizers, oil, black metals and iron ore.  Indeed, reading between the lines, it is almost assuredly the case that such commodities would be immediately rerouted once the new track is in place.

Such assurances would naturally bring about numerous obvious methods for generating a return on capital employed for any investor – whichever method is ultimately agreed with the Odessa Regional Administration (there is certainly a degree of flexibility to accommodate any investor within the ORA).

It is hardly a difficult task to monitor the track usage and tonnage transported when only Ukrzaliznytsia and Calea Feratadin Moldova (both State owned rail entities) will use the track.

As is often the case, investors see most risk in the construction phase of any project.  Indeed for really large investments such as PFI schemes it is common practice to refinance a project after the construction phase is completed and that risk is thus removed.

Thus to some basic numbers – for that is what counts for any investor.  (For a full and detailed numbers breakdown a reader/investor is invited to contact Roman Kozlovskyi via the following email:  rkozlovskyi@odessa.gov.ua or the blog can provide his mobile number more privately.)

Clearly there will not be much environmental impact in the reconstruction of a preexisting rail line.  Most of what is required is already there by way of ground works and utilities.  Thus the laying of 21.5 kilometers (20 in Ukraine and 1.5 in Moldova) of track and whatever ground work is required is not an infrastructure project haunted by unknown and unseen technical issues.  The Odessa Regional Administration figures suggest 9 months to complete the project with a team of 30.

The investment sought is UAH 398256930, or about $15.4 million (exchange rate depending).  Hardly a large sum, and in fact perhaps far too small for some investors to consider.  Nevertheless, such is the low risk nature of this infrastructure project and the obvious methodologies provide that return on investment will be fairly swift and attractive, it therefore falls into the category of a good project for consideration.

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Time for the annual tax tinkering – Ukraine

October 26, 2016

Certain things are traditional in Ukraine when it comes to the New Year.  Among those perennials are changes to the tax system.  Indeed “с новым годом” could be a secret code for inevitable tax system tinkering.

(For example 1st January 2015 brought about changes to the Tax Code as required by the IMF when Ukraine was desperate for money.  As it no longer is IMF dependent, clearly it can be expected that the political will to further meet IMF requirements will evaporate within the Verkhovna Rada – though not necessarily within the Cabinet or Presidential Administration.  The February 2017 tranche may never arrive.)

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This year Draft Laws 4117 and 3357 submitted by Chairwoman of the Verkhovna Rada Tax and Customs Committee Nina Uzjanina look set to try and (radically) change the tax system once again.

Naturally there is nothing wrong with policy (and any associated legislative) change as long as that policy is will be effective rather than ineffective – and certainly not counterproductive.  In this particular case, to be blunt, if these drafts laws are passed then for them to be effective there would ideally be a period of education as to what the system is, how it works, and the responsibilities of taxpayer and State within it.

Hence 1st January may traditionally be an ideal time to adopt a new Tax Code or amendments to it, but attempts at changing that Tax Code in November with so little time for “education” is probably not such a wise move.  This is perhaps particularly the case when part of the draft legislation effects a move from a “paper” tax administration to “e-tax” administration for commerce across the entire nation.

There is no need to go into any of the proposals within the draft legislation in detail when there are some fundamental questions to ask first.

A reader will perhaps be reminded of the still on-going debacle that is the e-declaration for the higher echelons of those holding public office.  (Although it is a good bet that almost all those required to make such e-declarations will do so, it is what follows thereafter regarding system functionability, legality, security, and those repercussions upon criminal liability that are far less certain.)

The most obvious question regarding a national e-commerce tax system is whether the entirety of its commercial entities have access to “e”, or rather the Internet.  Not only with regard to Internet coverage but also access to the hardware to actually comply with any e-commerce tax declaration.

(Who pays for the hardware will become a very prickly social/business issue too – especially for the very small business outlets.)

The next question, on the presumption the entire nation is “on-line” and possesses the relevant hardware, is whether they will actually understand the e-commerce system, and if they do, will their customers who may require (or simply) want “paper” as a result of their transaction?

Also, no differently from the e-declaration system, there will be big questions relating to data security, system integrity and reliability, and in this case actual tax payment confirmation – or not.

If the system is compromised due to poor security, how to insure the data only not missued but also is not wiped by those that nefariously enter?  How much tax would be lost between the time of the last system back-up and eventually getting it back on line?  Is Ms Uzjanina proposing a “high side” system used by literally millions of “low side” users in such a system?  Not an impossibility of course, but it would require a filter that prevented “high side” being sucked out through “low side” as the IoT is becoming quite a hazardous place when it comes to defending system integrity.

How much would all this cost?  Undoubtedly Ukraine will adopt such a system sooner or later – as it should – but is it a priority?

Arguably it could be said it will assist in bringing the black/grey economy into the white – if the system infrastructure (both hard and soft), policing, and the business will is there to facilitate it.  If that were the case the argument is that it would therefore swiftly pay for itself.  It would also remove a lot of person to person interaction with the tax authorities thus theoretically reducing opportunities for corruption.

Nevertheless, societal perceptions count, and many will ask if there are more pressing priorities for the limited budgetary funds that have to be met in the immediate term?

Needless to say if these draft laws are adopted (despite some questionable detail deliberately omitted here)  it would certainly be wise to allow for the parallel running of both paper and e-systems for a (fairly lengthy) transitional period  – not only for technical reasons, nor the fact that not all commercial enterprises will have the ability to comply with an e-system, but also for business and societal familiarity to occur.  In fact is there a reason that both systems could not or should not run?  Would it be prudent to run both?

As usual New Year approaches and Ukrainians have come to see tax legislation as inevitable as socks, aftershave and style-less jumpers/cardigans as part of the festive season.  This year is clearly no different.

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A National Corpus or another far right political corpse?

October 16, 2016

Friday 14th October witnessed the 74th anniversary of the founding of the Ukrainian Insurgent Army in Volyn, manifesting with a few thousand marchers in Kyiv.  If eyebrows are to be raised regarding the event it is with regard to how few marchers there were vis a vis the amount of prose the Ukrainian far right has had written about it since 2014.

The march did however witness the birth of a(nother) far right political party.  The (in)famous Azov Battalion and its associated civil movement gave birth to a political party – The National Corpus.  The announcement was made by Andrei Biletsky, the former Azov Battalion commander, now Verkhovna Rada parliamentarian.

Andrei Biletsky

Andrei Biletsky

Gone from the new political party regalia are the Nazi associated symbols long associated with Azov and its wider non-military constituent parts.  The Wolf Hook or any variation thereof is absent in any representations relating to the new National Corpus political party.

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This is perhaps a nod to the rule of law relating to the banning of Nazi and Communist symbolism, but perhaps has much more to do with dulling the image as Nazism in a purely political PR setting.  Mr Biletsky is not a stupid man and will recognise that political success relates to a certain degree of attraction that necessarily has to eclipse a few thousand far right militants and their associated symbolism.

There also appears to be little effort to associate the National Corpus with historical nationalist figures such as Bandera, Konovalets or Shukhevych.  This appears to be something Mr Biletsky is quite prepared to leave to the Svoboda Party – quite wisely if appeal beyond (or even across) the far right militancy is the political aim.

The National Corpus symbolism is far more inclusive – for it is a stylisation of the national symbol, the Trizub.

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Quite what Mr Biletsky will classify as political success if and when it comes remains to be seen.  The retention of his Verkhovna Rada seat?  The National Corpus passing the 5% electoral threshold to enter the Verkhovna Rada as a political party?  Representation or even control in some regional administrations?  Replacing Svoboda as the major far right/nationalist political force (albeit Svoboda is a minor player in the national political picture) is the immediate aim?  Over what time period will success be measured, even if success can be lucidly identified?

(As an aside, not to be outdone, the same day that the National Corpus became a political party, Svoboda announced a “Legion of Freedom” headed by Oleg Kutsin, the former Svoboda leader for Donetsk and commander of the Carpathian Sich military unit.  A clear reactionary aping of the Azov formula.)

As with all populist political parties, be they The Radicals, Batkivshchyna, Ukrop or Svoboda (and increasingly the Oppo Block), sensible economics rarely feature.  Populism is about (empty) promises and appeals to emotion – notwithstanding such parties generally being nothing more than a vehicle for the ego of the leader rather than a party being bigger than its leader.

It therefore comes as little surprise that there is little thus far stated by the National Corpus regarding the economics required to run the nation sensibly.  It is also perhaps hardly the most interesting of subjects to orate when launching a political party to a waiting (albeit small) crowd.

The party manifesto does contain some new domestic political discourse as well as a lot of borrowed, (occasionally concealed, occasionally transparent), policy not only from within Ukraine but further afield.

Notably a call for the return of the death penalty for matters of treason and embezzlement/theft of large sums (a figure is not stated) from the public purse is stated.

There is a call for all Ukrainian citizens to be able to bear arms (the wording suggesting pistols/short barreled firearms).

The renationalisation of all previously owned State entities that were privatised since 1991 – starting with the energy sector.

The return of a Ukrainian nuclear arsenal.

The creation of a Ukrainian “Foreign Legion” for those that wish to serve in the Ukrainian military that are not Ukrainian citizens.

A complete break of economic (and some other) ties with Russia.

The furtherance of economic ties with the EU.

Foreign policy is driven by Baltic-Black Sea security threats and economic opportunities – with the inclusion of the Silk Road/Silk Belt infrastructure with China.

The promotion of “Eastern Europe” as a space that does not include Russia.

A system of national and municipal policing.

Verkhovna Rada parliamentarians reduced from 450 to 300.

The adoption of a system of citizenry similar to that of some of the Baltic states, although there is no outline of how this would be done or where the arbitrary lines would be drawn or whether it would/could be enforced retrospectively thus creating a loss of existing rights for some.

Thus, with some of the main manifesto points highlighted, this is visibly not a manifesto that will propel the National Corpus from political obscurity to national leadership in a single bound.  Far from it.

Clearly some of it is far more rhetorical than policy possible, as Mr Biletsky will undoubtedly be aware.

Obviously certain issues fly in the face of existing Ukrainian international obligations and/or The Constitution.  Numerous constitutional changes and Ukraine freeing itself of major international obligations would have to occur.

Nevertheless, manifesto delivery is not something that is going to occur as it will simply not appeal to the vast majority of the Ukrainian constituency sufficiently.

Ergo, perhaps the immediate questions relate to whether the dumping of Nazi associated symbolism is an acknowledgement that the far right has a truly limited constituency in Ukraine?  Also worthy of pondering is whether the National Corpus considers it has the appeal and strength to unite the more militant/radical it would appeal to under one umbrella, or whether yet another far right party will further split an already small voter base dooming all such parties to political oblivion?

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Ukraine to deregulate food pricing

October 1, 2016

In 1996 Government Decree 1548 regulated the price of foods across Ukraine, and theoretically has done ever since.

From baby foods to eggs, and from bread to sunflower oil (and much, much more in between) it sought to regulate food pricing.

With effect from 1st January 2017 Decree 1548 will cease to apply.  Market forces will quite literally take control in the markets, supermarkets and corner shops of Ukraine.

A radical upward shift in food prices awaits?

Probably not.

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Although there may perhaps be a slight upward movement, to be quite blunt as with many laws, decrees and resolutions bestowed upon the Ukrainian nation by its feckless political class, Decree 1548 has long, long ago been circumvented by the biggest producers and retailers, and simply ignored by small outlets.

The net result of this Decree being canceled will not be a significant rise in food prices, but will be one less pointless bureaucratic nonsense on the official books that Ukrainian business has had to spend time, money and effort to circumvent (or simply ignore) almost since the day the Decree came into force.

By extension where there is less bureaucracy there is less corruption – or more perhaps accurately stated there is reduced opportunity for corruption.

That a widely ignored Decree from 1996 is still de jure 20 years after is was made despite 20 years of ineffective implementation and enforcement may make a reader ponder just how much unenforced, unimplemented, unnecessary post-Soviet flapdoodle and codswallop still clutters the legal framework of the nation that could and should simply be canceled or repealed.

Perhaps Ukraine should create a Government Ministry for Cancelling Retarded Administrative Policy – aka the Ministry of CRAP?  (As opposed to having a lot of crap Ministries.)

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Romania to spend €43.5 billion on infrastructure – Anybody in Odessa know?

September 15, 2016

Although it becomes wearisome to continually state that Kyiv has to radically improve its relations and communication primarily with Warsaw and Bucharest in the immediate neighbourhood, it is once again stated.

15th September witnessed Romanian Transport Minister Sorin Buse unveil an infrastructure master plan for Romania between now and 2030.  A total of €43.5 billion will be spent on roads, railways, airports, ports etc.

Sorin Buse

Sorin Buse

The reason for this huge investment?  The fact that Romania is consistently losing significant inward investment from EU manufacturers due to poor infrastructure – or at least that is what the EU manufacturers are consistently telling Government Romania.

With regard to the investment into roads and rail specifically, for there is a clear interest insofar as Odessa is concerned, 6800 kilometers of new roads and 5000 kilometers of rail modernisation is planned within Romania.

Most of this new and revamped infrastructure will naturally head from Romania toward neighbouring EU nations in order to remove/mitigate the current hurdles to inward EU manufacturing investment in Romania.

However the political leadership in Odessa (and/or Ukraine) may be wise to pay a visit to their Romanian counterparts (something they simply do not do enough of anyway) considering the previously mentioned Odessa-Reni road that is meant to swiftly link Ukraine to Romania, and Odessa ultimately to Bucharest, not withstanding plans to rehabilitate dilapidated rail links between Odessa and Chisinau, ultimately leading to Bucharest and Sophia.

First and foremost, do these routes still feature in the Romanian grand plan for its infrastructure following this announcement?

Does the Romanian grand plan open up any other opportunities as far as Odessa (and Ukraine) is concerned?  Not only road and rail, but ports, airports etc?  Cheap commercial flights?  Air cargo?  Are any of the ports to be modernised situated on the Danube Delta?

In short are there any feasible “bolt on” infrastructure projects that can reasonably be developed on a similar timescale in the Odessa side of the border?

Did anybody in Odessa or Ukraine know about the small matter of a €43.5 billion Romanian infrastructure grand plan next door?

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Road maps to a road map – Minsk

September 14, 2016

With French and German Foreign Ministers now in Kyiv,  and Ukrainian FM Klimkin talking about implementation roadmaps to implement the Minsk document/text which is itself little more than a roadmap.

A roadmap to implement a roadmap may well be en vogue, but is there any point to it?  In theory of course there is, but then in theory, there should no difference between theory and practice, something many practitioners can claim as a falsehood.

A reader may note the use of “document/text” rather than “agreement” in the opening paragraph, for “agreement” is something of a misnomer and infers/gives the impression that the process was entered into without significant coercion.  That by extension and over time gives the perception of a “softer” version of what is a serious violation of Ukrainian sovereignty and trampling of international law.

To be clear, neither Minsk I or II have any legal standing whatsoever.  It legally binds nobody to anything.  It is not even a signed and certified document enforceable by law comparable to the most basic of legal contracts.  It carries no signatures of the conflicting parties (recognised or unrecognised).  It has been ratified by no parliament.  It is therefore not a document that has been deposited with any international body or has any domestic power.  It is text.  It is a document listing bullet points along a possible path to the return (prima facie) to international laws and treaties – despite the perilous repercussions that its implementation would have internally for Ukrainian sovereignty as the text stands, if and when territorial integrity is returned.  It is a framework document, not a legal obligation.

It is a political document and not a legally binding document.

Further, of the numerous western diplomats spoken to privately over the past 2 years, not a single one has expressed their personal opinion that the Minsk document will ever be fully implemented.  Indeed the consensus has been that while it is important for Ukraine (or the West) not to “kill Minsk”, there are perhaps wiser uses of political and diplomatic energy with regard to Ukraine.

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Ukraine cannot be seen to be the assassin of Minsk, first and foremost as it would place serious strain upon European resolve to maintain its (surprising) unity toward Kremlin actions thus far.  Whilst sanctions are not officially tied to the actions of Ukraine – to be clear Russia was not sanctioned over anything Ukraine has done – de facto the passage of time has witnessed the sanctions policy “understanding” in certain capitals either warp, creep, or intentionally become attached to Ukrainian actions as a negotiating lever over Ukraine – as if Ukraine invaded itself and severed Crimea voluntarily or is somehow liable for continuing illegal Kremlin actions within Ukrainian territory.

Nevertheless, if Minsk is to be officially recognised as dead, then it has to be seen to occur at the hands of The Kremlin.

The problem with allowing The Kremlin to kill it is that eventually a Minsk III – or worse Yalta II – would probably not be favourable to Ukraine unless the Europeans found their backbone if they were involved in any serious renegotiating process.

As of the time of writing a ceasefire where the firing actually ceased during the past 2 years has yet to materialise – and to be blunt nobody thought it would, just as nobody thought the Minsk document(s) would ever be fully implemented even before the ink had dried.

The immediate and medium term horizons look far more like an incendiary Nagorno-Karabakh than a frozen Transnistria.

With The Kremlin building permanent military bases not far from the Ukrainian eastern border, clearly it plans to prevent and dissuade a repeat of the Croatian Operation Storm in the years ahead – should such a thought ever enter a Ukrainian policymaker’s head in the future.

The question is therefore whether “western diplomacy” is best employed in keeping Ukraine adhering to entirely arbitrary Minsk timelines to carry out “x” or “y”, or it is better employed in finding reasons why Ukraine should not be held to arbitrary timelines, or unilaterally be expected to fulfill the text of such a (currently) onerous document?

A bad peace will not bring a lasting armistice (insomuch as military conflict is concerned), and war on every other front will continue – economic, social, political, diplomatic etc.  Any interaction between Ukraine and Russia for a generation will now only be transactional regardless of how any peace actually arrives (if/when it does).  As difficult as it is to take the current spate of posturing and rhetoric over Minsk implementation seriously when it comes to its full implementation,  during a war of exhaustion roadmaps to fulfilling roadmaps etc  must surely be expected as part of the diplomatic arsenal available to all sides  and is both an offensive and defensive weapon.

Will we still be talking about unfulfilled Minsk implementation this time next year?  Yes, for no side will be entirely exhausted within 12 months.

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Yushni grain terminal funding approved

September 8, 2016

It has been more than a year since the last entry relating to the plans (and ubiquitous intrigues surrounding those plans) for a grain terminal at Yushni Port.

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(Needless to say those intrigues regarding Cargill, Delta Bank, dredging of what is already the deepest port on the Black Sea etc remain.)

Regardless, plans and financing for a new grain terminal at the port now appear to have been finalised by all parties according to the Facebook page of Artem Chevalier, a former Deputy Minister of Finance – “The Council of Directors of the Bank has just approved a loan of $ 37 million (in addition to the same loan from the IFC – International Finance Corporation), which will focus on the construction of a grain terminal in the port of “Yushni”with a maximum capacity of up to 5 million tons of grain year.  

This project has everything.. An active and transparent Ukrainian investor, a major international player, support from the government, the participation of international financial institutions, environmental audits, energy efficiency, etc.”

To be clear the EBRD finally approved a loan of $37 million, matched by the IFC, with about $100 million from Cargill (which is approximately the same figure the Ministry of Finance allowed Cargill to reclaim from Delta Bank before winding up the bank and leaving the Ukrainian tax payer with the Statutory Insurance bill to pay to depositors) .

As the above link stated more than a year ago, Cargill was also to acquire a controlling 51% stake in MV Cargo, the major operator at Yushni.  (MV Cargo, unsurprisingly, is owned by Cypriot company – Kornleks Impex Limited.)

A new grain terminal capable of dealing with 5 million tonnes per annum will (fairly) soon grace the dockside a Yushni.

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