Ukraine Signs EU Open Skies Agreement

June 29, 2021
Business, Macro Economy, Ukraine
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🔵 The 27-nation EU Council approved yesterday an open skies airline agreement with Ukraine. Scheduled to be signed this fall, the deal will “promote trade, tourism, investment and economic and social development,” the Council said. The accord, “neighborhood aviation agreement”, will require Ukraine to “adopt EU aviation standards and implement EU aviation rules,” the Council added. The agreement will be effective from this summer.

🔵 With the accord a decade in the making, President Zelenskiy hailed the approval, writing yesterday on Twitter: “The agreement will allow our citizens to get cheaper tickets & expand the geography of travel. Its signing will be another step towards entering the single European space.”

🔵 Yesterday President Zelenskiy signed the ‘Google tax’ law – legislation that requires international IT companies to pay Ukraine’s 20% VAT tax on services provided to Ukrainians. Following the examples of the EU and Australia, the Rada designed the bill to collect taxes from such large companies as Apple, Microsoft, Facebook, Google, TikTok, and YouTube. Exemption from the tax will be companies with Ukraine revenues below $36,000 and companies dedicated to education.

🔵 Data risk of the government’s Diia app is mitigated by the fact that the increasingly popular ‘government-in-a-smartphone’ app does not store data, but only displays encrypted information from other government registries, Ian Bateson writes on Rest of the World site about Ukraine’s effort to cut government paperwork. “Diia has also passed two penetration tests, organized with the assistance of the Estonian e-Governance Academy and the American aid agency USAID, which simulated a cyberattack on the system,” he writes. “In December 2020, USAID funded a competition to test the security of Diia with a $34,500 prize for discovering critical vulnerabilities, the embassy said. None were found.”

🔵 Zelenskiy signed a law yesterday that authorizes automatic recordings of overweight trucks and empowers Ukrtransbezpeka, the highway safety agency, to collect fines in court. With the country in the midst of a multi-year, multi-billion dollar road building campaign, the new law is design to crack down on overweight trucks. On hot summer days, overweight grain trucks damage asphalt roads.

🔵 Swiss-based Kistler Group says it will install 250 Weight-in-Motion, or WIM, stations in Ukraine by 2025 to reduce road damage by overweight trucks, reports ITS International, a UK-based transportation news site. Tomas Pospisek, Kistler’s regional manager for Traffic Solutions, says the company has installed WIM units in Hungary and the Czech Republic. Last year, spot checks by Ukravtodor found that about one third of trucks on Ukraine’s road are overweight.

🔵 Over the last three years, 48 WIM units have been installed on Ukraine’s highways. Each unit costs about $500,000. Canada’s International Road Dynamics has partnered with Intercomp, a US company, to win contracts to install 10 units, reports ITS.

🔵 Ukzaliznytsia wants the government to spend $1.5 billion over the next three years to renew cars for passenger trains, UZ CEO Ivan Yuryk tells the railroad’s press office. Referring to UZ’s plan to buy 670 passenger cars, 43 suburban electric trains and five high-speed InterCity trains, he says: “Supporting the railway, in particular the unprofitable passenger routes, at the expense of the State Budget is a worldwide practice that enables the railway to develop and provide quality passenger transportation services.”

🔵 In a first step, UZ signed an agreement to buy 100 new passenger cars from Kriukiv Railway Car Manufacturing Plant, in Kremenchuk, Yuryk announced to the UZ press service. He said this is the first time in the history of independent Ukraine that budget money is being used to buy railway cars. In April, the Cabinet of Ministers allocated $150 million to be spent on the purchase of modern rolling stock. The new passenger cars will include: wheelchair accessible compartments, air conditioning, vacuum toilets, energy saving lighting and electric sockets.

🔵 During the first half of this year, Ukrzaliznytsia has sold 143,000 tons of scrap metal earning $44 million. The sales are through electronic auctions on Prozorro.Sales and proceeds go to renovating train cars and locomotives, says Yuryk.

🔵 UZ losses extended into the first quarter of this year, suffering a $62 million loss for Q1, the railroad reported last week. Passenger traffic peaked at 4.5 million, which was only 63% the level of Q1 last year. Cargo rates, especially for iron, are kept below comparative rates in Poland. Although UZ belongs to the state, it paid about $208 million in land taxes and fees in Q1. Before the pandemic, UZ recorded $109 million in net profit. The collapse in passenger traffic pushed the railroad into a $435 million net loss last year. The company expects to return to a more profitable outcome later this year.

🔵 The nation’s largest employer, UZ cut its staff by 3% last year, to 243,387. The company pays an average monthly wage of $409 – 18% below the national average. UZ’s level of debt is $1.5 billion which is owed to financial institutions including the EBRD, Oschadbank, Ukrgasbank, Sberbank and Alfa-Bank. At a government forum on June 15, Zelenskiy said of UZ: “They are completely bankrupt.” The President said he is tasking Oleksiy Kubrakov, the new Infrastructure Minister, to bring the railroad out of bankruptcy.

🔵 A major US investor in Ukraine, Richard A. Deitz, says UZ is ignoring Supreme Court rulings to avoid negotiating a settlement of a $300 million debt. “UZ has used every trick and procedural loophole to delay and draw out each and every court process,” Deitz, president of VR Capital Group Ltd., said June 15 in a 3,500-word testimony before a Rada commission of inquiry on UZ. In February 2019, Deitz’ hedge fund paid $123.5 million for a package of UZ debt with a face value of $300 million acquired at public auction from Prominvestbank, then a Russia-controlled bank.

🔵 VR offered a discount of $111 million to UZ, Deitz told the Rada and, later, the UBN in an interview. “UZ refused to even engage in negotiations over restructuring,” Deitz told the Rada of his experience over the last 2 ½ years. “Many of our letters received no response at all, and the Supervisory Board has never replied to a single letter we have sent them.”

🔵 “We have received final rulings for many of our claims from the Supreme Court,” Deitz told the Rada. “However, UZ seems to feel that it is above the law and not bound by the Supreme Court.” After 20 years and $1 billion invested in Ukraine, Deitz concluded that UZ’s “actions call into question the fundamental commitment to the rule of law in Ukraine and whether Ukraine is an ‘investable’ country.”

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Ukraine Signs EU Open Skies Agreement

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