Ukraine Business Insight by Mila Borden

UkraineBusiness Issue 2 October/November 2010

KNOWLEDGE IS THE KEY TO UNDERSTANDING

insight

Kosiuk local expansion to replace meat imports

Ukraine Rich List: Young & politically active $4m to $400m growth for Kraft Ukraine Lviv region attracts inward investment Agriculture withstands economic crisis ALSO: Business opportunities • Legal update • Yanukovych 6 months on

CONTENTS Editor Peter Kovalenko editor@ukrainebusinessinsight.com Ukraine Editor Aleksandra Nekrashchuk Editorial Contributors Olga Belyakova Mila Borden Sergey Bovtenko Nataliya Polyanskaya Lisa Ukrainka Editorial Correspondence editor@ukrainebusinessinsight.com Sales & Marketing Director Svitlana Barnes Email: svitlana.barnes@ ukrainebusinessinsight.com Tel: +44 (0) 7746 184 945 Design Reyvis Limited, London studio@reyvis.com Tel: +44 (0)20 8460 1188 Subscription Rates UK Europe ROW 1 year: £95 €145 $195 2 years: £145 €245 $395 subscribe@ ukrainebusinessinsight.com Published by Ai2020 Limited 33 Sheppard Way Cambridge CB1 9AX, UK Printed by Reyvis Limited, London www.reyvis.com Tel: +44 (0)20 8460 1188 Copyright Ai2020 Ltd (except where otherwise stated). All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written permission of the publishers. All current currency conversions were correct at the time of going to press using www.xe.com. No allowance is made for historic changes.

UkraineBusiness insight

News Analysis: Yanukovych six months on

The Yanukovych administration is demonstrating a return to order and making an impact, but are Ukrainians convinced everything is going in the right direction?

Agriculture interview

Yuriy Kosiuk, owner of Myronivsky Hliboproduct, one of the country’s biggest agro-holding companies is exclusively interviewed by UBI.

Agriculture Market report 1

Ukraine’s agricultural sector is set to become an increasingly important player on the world food markets, a factor highlighted by Russia’s wheat export ban. What are the prospects for growth?

Food Processing interview

Dr George Logush,Vice President Kraft Foods, explains how Kraft established its operations in the region, providing an example for international companies daunted by the difficulties encountered in the country, with advice on how to overcome them and secure profits. P19

Agriculture Market report 2

While EU membership is off the cards for now, joining the FTA is underway. Brussels calls the agreement negotiated with Kyiv “the most ambitious so far” and claims it will give Ukraine “a part of the EU’s internal market”.

As food prices increase, the attractiveness of Ukraine’s agricultural sector comes to the fore, but the sector still too risky for the foreign investor? And in practical terms, how should foreign companies enter the market given land is not yet directly for sale?

EU negotiations

In an interview with UBI,Yuriy Kosiuk explains the background to MHP’s dominance of the Ukraine poultry market – and plans for further expansion

Profile: Akhmetov

The richest Ukrainian, Rinat Akhmetov, possibly the 24th richest man in the world, has a crucial role to play in the country’s development.

Ukraine’s Rich List

Who are the richest people in Ukraine? How much do they have and what do they do? This extensive expansion on an early report in Russian provides an overview of Ukraine’s elite and throws up some interesting details.

Lviv Region

Vasyl Horbal, Head of Lviv Regional Administration explains to UBI what the country’s westernmost region has to offer investors, and what projects are currently underway or planned.

Also: Editorial Comment p4; Business Comment p6; Legal Comment p7, Market Comment p18; News Focus p37; Business Opportunities p41; Events Diary p42 October/November 2010 UkraineBusiness insight

News Analysis

Land and the landed The Dutch - and some Arab Gulf states - may disagree, but throughout history conventional wisdom has supported Mark Twain’s contention, “Buy land, they’re not making it any more.” And Ukraine’s rich agricultural land is an increasingly important commercial and strategic asset for the future, as the global rise in food prices that followed Russia’s grain export ban earlier this year demonstrates. Agricultural yields in Ukraine are low by western standards, and could Svitlana Barnes be greatly boosted to the benefit of the country and food production on an international level, but this would require significant investment. Hence the global interest in Ukraine’s plans to sell state land to private investors from this year. Sale of such a vital state asset is a contentious issue – especially in a country where the line “All property is theft” was government policy for most of the last century – with the Communist Party still opposing the sale of agricultural land. If the land already belongs to everyone, who benefits when it is sold? And who should benefit? Should it stay in Ukrainian hands, or would allowing foreigners to buy land increase the price obtained and avoid a ‘sale to friends’? Does it make much difference if it’s a Ukrainian or Russian Oligarch, a Western Corporation or Middle Eastern government fund that owns Ukraine’s farmland? Perhaps the most significant issue for Ukraine is whether those investing in the country’s agriculture sector are doing so for the long term, or shortterm speculators whose interests are served by rapidly increased food prices. Ukraine’s wealthiest nationals divide opinion even more. The fact that some individuals have billions while the country languishes with per capita incomes among the lowest in Europe will be anathema to many. Others concern themselves with question such as, how was this wealth accumulated and what they are doing with their wealth? Or more importantly, to what extent are they investing in Ukraine’s future? This issue of UBI runs through the famous, not so famous and sometimes infamous in our Rich List, and it is notable that the country’s leading industrialists have indeed staked a considerable portion of their wealth on the future success of Ukraine. If there is any justification for keeping foreigners out of Ukraine’s land sale, it is this, that nationals with a vested interest in the country are less likely to ditch their assets when times get hard, and are more likely to take a long term view, which in turn, better serves the interests of the country as a whole. On the other hand, international investors will bring greater transparency, are thought more likely to oppose corruption and croneyism, have access to greater investment funds, cutting edge technology, international management skills, and greater expertise at exploiting international markets. For good or ill, decisions made by Ukraine’s government over the next few months are likely to shape the country for decades to come – so lets hope they get the balance right – whatever the correct balance may be. UBi Svitlana Barnes Joint Publisher

UkraineBusiness insight October/November 2010

Yanukovych: ”We will bring you order - after all this Orange mess.” This was the essence of the election promise of Viktor Yanukovych, the President of Ukraine. Special correspondent, Lisa Ukrainka, reports six months on Not only Ukrainians, but even Brussels and Washington seemed to have had enough of the anarchy of the previous government. And so Viktor Yanukovych narrowly beat Yulia Tymoshenko and, on the 7th February 2010, was elected the 4th President of Ukraine.

from B- days after the loan had been granted - still well below investment grade but a marked improvement from the neardefault ratings in times of crisis. There is a lot of talk of stability in the country’s governing apparatus (or usurpation of power, according to the opponents).

Flying into the country half a year later, it is hard not to notice manifestations of ‘new order’. The notoriously overcrowded and overpriced Boryspil airport has opened a gleaming new terminal F, part of preparations for Euro-2012.At the main train station, the previous crowds of drunks and vagrants are now dispersed; nobody smokes on the trains, the gangs of youths with beer bottles are largely gone from Khreschatyk. In every corner of the country, the face of President Yanukovych smiles at the citizens from numerous billboards. The restaurants of Kyiv, Lviv and Donetsk have begun filling up again - a far cry from the eerie emptiness of two years ago. Construction sites, frozen by the crisis until recently, are coming back to life.

But Ukrainians are used to measuring their government’s success by rather more mundane things: the price of gas and of basic foods. Both soared, in some cases doubled in recent months. The ruling Party of Regions tries to downplay the falling popularity ratings and insists that the government has had to make some unpopular but necessary decisions.

Yanukovych also gets a highly favourable press in Russia, the IMF has renewed granting of loans to the country, which in turn brought about more more favourable credit ratings, Fitch raised Ukraine’s rating to B

So how has the government fared in its first six months? It’s interesting to note the response of foreign experts that we contacted. Some did not get back, some delayed responding. And the spokesman for a well-known US thinktank dealing with geopolitics in Eastern Europe, emailed about a previously promised interview: “Unfortunately, it looks like we won’t be able to do this interview for you due to security concerns over some of our employees working in the region.” It might - or might not - have been the result of

UkraineBusiness insight

The Good, The Bad

And The Unusual

profound reforms in many areas this time round. Order, the ‘team of professionals’ to run the country, Russian as a second state language, cancellation of independent school tests, good relations with Russia. One of the first things the new president accomplished was taking NATO membership out of Ukraine’s official foreign policy agenda. Ironically, it was Yanukovych himself, as exPresident Kuchma’s Prime Minister, who declared NATO membership as Ukraine’s strategic goal in the first place.The removal of NATO from the agenda did not particularly disturb the West, which lost enthusiasm for Ukraine’s membership after the brief Russia-Georgia war in 2008. But it does seem to have noticeably pleased the Kremlin.

Viktor Yanukovych detention of the German expert Niko Lange (who had criticised the government) in Boryspil airport in June 2010. He was released without charges after ten hours and allowed to enter the country. But the accusations of clampdowns on freedom of speech, visa problems for foreign ‘troublemakers’ and disappeared journalists are, once again, in the headlines in Ukraine. The government denies any such accusations blaming it on opposition provocation. In August several senior officials of the former government were arrested, mainly those involved with Naftogaz’s expropriation of US $5 billion worth of gas from the intermediary RosUkrEnergo’s storage during the gas crisis of 2009. A former acting head of the Ministry of Defence was arrested in connection with a privatisation deal. The government insists that

these are simply necessary steps in the fight against corruption. Corruption is only one of the problems facing this new government. They have promised to implement IMF structural reforms in exchange for the loan which will require some unpopular decisions; raising of the gas tariffs for the population in line with IMF requirements has damaged popular support for the government. Basic crops like potatoes were ruined by drought; bread prices are still holding, but sugar, necessary for home preserves, doubled in price. And the 31st of October local and municipal elections are fast approaching. As Prime Minister, Viktor Yanukovych was not an avid reformer, unlike his predecessor Viktor Yushchenko. But he had promised immediate and

Nobody doubted that Yanukovych would improve relations with Russia as he promised: they had been at such a low during the Yushchenko years that only Georgia had been more distrusted by the Kremlin. But the scale and speed of this rapprochement surprised many, even some ruling party sympathisers. The promise of ‘strong power’ was also delivered with astonishing speed. A coalition was swiftly formed in the parliament in a way which many called anticonstitutional, by incorporating individual MPs from opposition factions. The Party of Regions also invited the Communists into the coalition, who might prove to be difficult bedfellows when it comes to the land reform (the Communists are opposed to private ownership of arable land).

Some of Yanukovych’s campaign promises, such as bringing US $50 billion of investment to Ukraine by 2014, making Ukraine the best investment opportunity in the Eastern Europe and reaching European social security standards in his first term in office, hardly anybody expects to come true. But there was a Yanukovych promise which a lot of voters took to heart: the tax reform, specifically the promise of a tax holiday for small businesses. “I see a lot of people here in Kharkiv, businessmen and regular voters, who are very mad at the government”, says an online comment on Yanukovych. “People expected tax breaks, and instead we are hearing all about Azarov’s plan to introduce new, confusing taxes.” So far, it is not clear if any new taxes are actually in the pipeline. Yanukovych’s Prime Minister Mykola Azarov, famous for his hard administrative style and his bad Ukrainian, has had a lot to do in his first six months pass the 2010 budget in April of this year,’ secure the IMF loans without which the country faced an unsustainable balance of payments situation; consider joint ventures with Russia in many areas, including gas and aviation, while trying not to surrender the national interests to the much stronger potential partner. And he has had to initiate the much-needed tax reform. But his proposals for the new Tax Code satisfied almost nobody, not even his boss. The new powers for the taxman and the presumption of guilt of the taxpayer scared some investors.

October/November 2010 UkraineBusiness insight

News Analysis Entering the Ukrainian Market How you go about investing in Ukraine largely depends on who you are. For those who are already here and knowledgeable in how things work, when a new investment opportunity arises, the chances for success are very high. For an outsider, coming in with ideas that have been successful somewhere else, but without any practical experience in Ukraine – it’s a gamble. For individuals and small businesses entering the Ukrainian market, partnering with an existing Ukrainian company makes the most sense. By carefully selecting partners who can help you make your business successful, you will gain access to information that no foreign entity can hope to achieve on their own and fast track through most of the hurdles set up for foreign entities. It’s much easier to answer an existing request than to introduce a new concept that has never been considered before in an unproven market. In Ukraine, access to credit is extremely limited for small businesses. Anyone with access to capital who can provide financing is seen as a valuable partner to a Ukrainian company that has the knowledge and other necessary resources to create a new business venture or to expand an existing one.When someone has taken the time to put together a well thought out plan, and all they need is financing, that’s the beginning of a successful business venture – although the original plan may need to be modified to reflect the needs and experience of both parties. As in any business, it’s important to stay within your area of expertise in an industry you understand well.Venturing off into unchartered territory in a foreign country is not the right approach, as opposed to bringing necessary skills and resources that may be inaccessible locally. Immediate opportunities that are already well developed include agriculture, food processing and food packaging, as well as traditional industries in oil and gas, metallurgy, coal and timber. Infrastructure development is another area that could use a great deal of investment in Ukraine, but dealing with government entities can be more complicated than negotiating with private companies and should be approached with caution. Another area worthy of attention is human capital. The Ukrainian workforce is highly skilled, educated and competitive. Many professionals are fluent in English, and technology makes it increasingly possible to create virtual working environments. Computer programming, database development, design and publishing, and other technology related fields are excellent opportunities for creating successful partnerships. People always find a way to work around obstacles, real or imagined, and where there’s a will, someone always finds a way. UBi Mila Borden milaborden@hotmail.com

UkraineBusiness insight October/November 2010

In September 2010, a reworked Tax Code proposal was submitted to the parliament. If adapted, it will be one of the most liberal in Europe; the new Code suggests reducing tax on profits from 25% to 17%, making Ukrainian big business one of the least taxed; VAT will be lowered to 17% from 20%, and light and tourism industries will see some tax breaks. So far the second version of the Tax Code has not drawn as much criticism as the first. But if parliament approves such a Tax Code with all its tax cuts, how is debt-ridden Ukraine going to fill its coffers? The government is hoping that the cuts will mean ‘de-shadowing’ the economy; more businesses will go legal and more taxes will be paid. There are also more general hopes of growth. “The economy is going to grow, and as it grows, other taxes are going to fill the government coffers,” says economist and Party of Regions MP Oleksiy Plotnikov. In July, an IMF mission in Kyiv agreed to grant Ukraine a US $14.9 bn stand-by loan. “We have to honestly say that this government received into its care a post-crisis country, post-crisis economy,” notes Ihor Burakovsky, the director of the Institute for Economic Research and Political Consulting. But it has not gone unnoticed that the new government almost doubled the amount of Ukraine’s foreign debt. IMF loans usually come with conditions such as muchneeded economic reforms, fiscal stability, acceptable budget deficit. “In effect, Ukraine’s governments have no choice but to surrender a part of its sovereignty,” says Ashish Misra, Head of Investment, Strategy and Research at UK Private Banking, Lloyds Banking Group, “and not to the usual suspect – Russia, but in fact to the IMF. They get to tell Ukraine how to run its fiscal system.”

The IMF, along with other commentators, says that the constant increases in social security payments, such as pensions and state salaries, has put a big strain on Ukraine’s budget. In his Programme for Economic Reform published in June, President Yanukovych announced plans to increase the pension age for women, currently one of the lowest, if not the lowest, in Europe. It will rise from 55 to 60 during the next ten years. It is an unpopular measure, even though many commentators say it is unavoidable. But some questions remain. “What kind of pension reform are we going to see?” asks Dr Burakovsky. “How will the Pension Fund problems be solved in the long run?”

“The economy is

going to grow, and as it grows, other taxes are going to fill the government coffers

”

Yanukovych also promised investment opportunities, justice and an investor-friendly regime. While many foreign investors in Ukraine have seen good returns, especially in agriculture and the food industry, agriculture was the only industry to grow during the recession. For risk-takers, the promise of big profits is there. But the risks remain. “I could not and would not recommend investment in a country without a demonstrably independent judiciary and without a legislative framework that is free from political manipulation,” says Misra. For him, the prospect of huge returns does not justify the risk. “I would not consider investing in countries like Ukraine, or Russia for that matter, where property rights are not respected and courts are not independent.”

News Analysis

But other experts say that it depends on whose property rights we are talking about and who is going to court. Independent political analyst Viktor Nebozhenko views it as follows: “The country is divided into two countries. In one Ukraine there will be rule of law, there might be a point to invest there. And the other Ukraine is at best left to its own devices, and at worst, robbed by the government. They want to separate ‘good’ businesses connected to the so-called ‘Donetsk circles’ (not necessarily in Donetsk) and ‘bad’ businesses. If you are an investor who wants to make sense of Ukraine, first of all look for a ‘Donetsky businessman’, and he, in turn, will sort out all your problems….offering transparency, stability and return on your investment. But if you are connected to non-Donetsk businessmen, you are at risk.” Gas is such a sore question in Ukraine that it has become a cliché to say that Ukraine is hooked on the gas needle. Industries are in no rush to modernise and reduce their reliance on cheap gas to be competitive. And the state, dependent on exporters’ taxes for its coffers, tries its best to provide it. One of the most controversial acts of the new President was signing the Kharkiv agreements with his Russian counterpart Dmitri Medvedev, which allowed the Russian Black Sea Fleet to extend the lease on the Sebastopol naval base until 2042 in exchange for a 30% discount for Russian gas. Yanukovych’s team explained that Ukrainians could not face the gas price hikes, that the extra lease would bring US $40 billion of extra money to improve social standards and defence. The previous government was always vehemently opposed to these agreements. But some experts argued that the deal

did, in fact, serve the interests of Ukrainians: gas is the biggest expense for many. Recently, however, gas tariffs for consumers surged about 50%.

Non-residents gain access to Public procurement

Some experts now question the ‘naval base for cheap gas’ deal.The senior economist for the CASE Ukraina Centre for Social and Economic Research Volodymyr Dubrovsky says: “Yanukovych provided discounted gas for his side’s companies, at a price of some very non-transparent foreign policy concessions. If Russia paid the lease for its Black Sea Fleet base in Crimea into Ukraine’s budget in such a way that it could be used to avoid raising taxes, avoid piling on extra debt, and the gas prices became a headache for the chemicals and steel businesses - in that case, as an economist, I could understand the value of the Kharkiv Agreements to Ukraine.”

As part of its clampdown on actual and perceived corruption, the Yanukovych government has tightened up the laws surrounding public procurement with the aim of ensuring the bidding process is more open and transparent.

Dubrovsky, however, says that raising gas tariffs for consumers was an unpopular but necessary step which Tymoshenko’s government had avoided but Azarov’s had to take to get the IMF loan. Many consumers are not happy. But as it turns out, the gas story is far from over for the industries either. On the 19th of August, a local court in Kyiv legalised the ruling of the Stockholm Arbitration Institute that the state of Ukraine owes RosUkrEnergo close to US $5 billion for gas expropriated at the height of the gas crisis in 2009. Reasons for the Shevchenkivsky court’s decision are being quesitoned and Naftogaz has appealed, but if Ukraine does end up paying the money, it could mean gas price increases for industry. And this issue has caused the first cracks of disagreement to appear in the ruling coalition. Political analyst Viktor Nebozhenko, notes, “The biggest divide in the Party of Regions is between those who own gas (like Dmytro Firtash and his company, intermediary RosUkrEnergo)

Probably the most important innovation among these new provisions is that under Ukraine’s newly adopted Law on Public Procurement (the ‘Law’), officially approved and effective from 30 July 2010, non-residents are now able to compete in public procurement procedures on an equal basis with Ukrainian residents. These regulations permitting access to public bidding by non-residents reverse the earlier situation where under the previous rules, non-residents could only be admitted to public procurement procedures if the goods/services being bought could not be purchased from residents of Ukraine. The procedure for conducting public procurement, such as open bids, two-step bids, procurement from the sole participant, etc, has been modified and further clarified to make these procedures more transparent. The Law also made qualification requirements for participation in bids tougher (eg submission of relevant statements from the bidder’s bank confirming the absence of indebtedness under the credit commitments), which would prevent companies with defaults from participating in public tenders. Under the Law, the Anti-Monopoly Committee of Ukraine (the AMC) will perform the role of an administrative appeals authority with regard to disputes arising out of public procurement procedures. Previously the tender participant’s appeals had to be addressed to the Ministry of Economics or directly to the tender organiser (ie the customer). Importantly, the Cabinet of Ministers of Ukraine has set a level of fees to be charged for submission of appeals. Specifically, the appellant will have to pay UAH 5,000 to appeal regarding the public procurement of goods/services and UAH 15,000 to appeal about the procedures regarding the public procurement of works. On the one hand, such a level of fees will reduce the number of unreasonable appeals, but on the other hand it may prevent some small entrepreneurs participating in public procurement from enjoying their right to protect their interests, especially when the order price under the public procurement is not that high. The Law is also introducing some other public procurement rules, most of which are aimed at making public procurement procedures non-discriminatory and more transparent. UBi Contributed by Olga Belyakova, Senior Associate at CMS Cameron McKenna LLC (Kyiv).

October/November 2010 UkraineBusiness insight

News Analysis and those who use gas (like big metallurgy plants, mines, chemical industry, mayors of big Eastern cities). They hate each other with a vengeance. The real ‘Donetsk guys’ hate Firtash more than they hate the opposition or Yushchenko. Because the mayor of, say, Donetsk needs to go to Firtash cap in hand to get some gas discount. This kind of division inside the party of power didn’t exist before. Those who bring in gas from Russia and those who consume this gas are all inside this party of power. It is a powerful conflict.” Yanukovych finished the summer with a visit to Germany, where airport detentions were mentioned but gas and pipelines were discussed in more detail.The President told Chancellor Merkel that Ukraine wants Germany to be its strategic partner in the EU. His first visit was to Brussels, he keeps inviting Western investors, and his power team, analysts say, want to do their private business with London, Frankfurt and New York. Yanukovych’s programme for economic reform talks repeatedly about EU standards in many areas of the

“The biggest divide in The Party of Regions is between those who own gas and those who use gas

”

economy. Ukraine may stay oriented to the West, not the East, notwithstanding re-establishing close ties with Russia and more recently, China. The influential economist, adviser to the two previous presidents, Oleksandr Paskhaver says: “Successful reforms are not made in a hurry. Successful reforms are achieved through continuous effort. And I have a feeling that such an effort will be applied by this government. (…however) Managing a country is not an administrative process but a social one, with strong communication between government and the society. I think this team still has not learned this. And they should, if they are planning to stay for a long time and if they want to avoid social unrest.”

UkraineBusiness insight October/November 2010

In Russia forest fires, smog and deaths were some of the top news stories of the summer. In contrast, drought-related news from Ukraine mainly concerned wheat exports. “Russians have been asking: why is Russia burning, but why isn’t Ukraine?” says Viktor Nebozhenko. He gives his own answer: because in a more democratic Ukraine there is more public scrutiny over local authorities and the central government, and as a consequence better infrastructure. “Democracy and freedom of speech have quite obvious material value,” he says. After six months, the path down which President Yanukovych wants to lead Ukraine is still unclear in many ways. Opinion is divided, largely reflecting voting at the last election, but neither total surrender of the national interests to Russia nor complete destruction of the opposition have happened as some had forecast. Decisive measures are being taken – ‘strong’ or ‘harsh’ depending on perspective, and ‘Order’ appears a higher priority than ‘transparency.’ We shall see what the future holds. UBi

Interview

To get a job done well – do it yourself

Ukraine remains an importer of meat despite having good agricultural land, hence the meat market is considered a very attractive sector for foreign investors, and one which is also seen as having huge potential for exports. However, it is also one of the most difficult areas in which to operate because there are so many bureaucratic obstacles and changes in legislation. UBI’s Aleksandra Nekrashchuk asked Yuriy Kosiuk, the owner of Myronivsky Hliboproduct, one of the country’s biggest agro-holding companies, to explain his view of the main changes that have occurred in this sector in the wake of the financial crisis and provide his perspectives on the country’s various agricultural sectors UBI: What are the main trends in the meat market over the last year and during the first half of 2010? YK: “There is no market growth and each inhabitant currently consumes about 50 kilos of meat per year. But within that overall picture of the meat market we have seen several changes in customers’ choices. Four to five years ago poultry accounted for some 30 to 35% of the domestic meat market, and pork took a 35 to 40% share, but over the last year poultry’s share has increased to 50%. This trend has continued throughout 2010.” UBI: Over the last couple of years many meat producers have complained about the volume of meat imports coming into the country, and the fact that they are often cheaper than local products. Has the situation changed this year? YK: “It’s true that in 2008 a lot of producers were complaining about the high level

of meat imports. This year the volume of meat delivered is expected to remain constant, and I would estimate that there would be about 350,000 to 400,000 tonnes imported into Ukraine. Our estimates suggest that the proportions will be as follows: 60% poultry and 40% pork.” UBI: What are the main markets for local producers? YK: “First of all it’s the retail channel, then open markets but also the HoReCa (hotels, restaurants and cafeterias – UBI) which takes less than 5% of our sales. We do not work with processing companies much because we also have our own processing capabilities.” UBI: The poultry market is much more competitive that other sectors of the meat market. But your company is planning to build a new poultry factory in the Vinnytsia region with capacity of 400 thousand tonnes per

year. What is the rationale behind the move? YK: “The market is really competitive, but there is an import part which we can capture without any significant problems. This factory in Vinnytsia region has four stages. Some 60% of products in the first two stages is intended to supply the domestic market and the remaining 40% will be exported. For the third and fourth stages the situation will be reversed, and then 70 to 80% of the poultry will be exported and the remaining 20 to 30% will be for the Ukrainian market.” UBI: Do you believe that this will result in reduced prices for domestically produced meat in Ukraine? YK: “I would not say that imports need necessarily be cheaper and prices can change on one side or the other. We came across the paradox where Ukraine is one of the world’s four largest exporters of grain – the primary feedstock for cattle

October/November 2010 UkraineBusiness insight

Interview

- and yet at the same time it is among the five biggest meat importers. That is an absolutely paradoxical situation. We can see that we can be competitive in the world market even without the kind of export subsidies provided by the governments in most European countries.” UBI: European Union experts have attended your factories to assess conditions there. What is the main criteria that needs to be met to be granted permission to export your products to EU countries. What are the first results? YK: “All our factories are suitable for providing export quality product meeting the requirements of these countries. The only question which arises in relation to Ukrainian produce is the quality of its veterinary service. Ukraine’s budget needs to include financing of a programme to monitor salmonellosis (Salmonella). I believe that this will be included in next year’s budget and after that we will be able to start exports to the EU. We will not need any additional controls.”

UBI: What kind of products do you want to export and where? YK: “We want to export a wide range of products. In Europe it will be mostly filleted poultry and to the USA we want to export filleted poultry and wings. Asia and south-eastern Asia is also attractive for us. It is a long procedure to get the permissions needed to export to these countries, which can take from two to four years, but we have begun the process. We have found partners in these countries and hope that we can get all the permissions required by the time the factory in Vinnytsia region is opened.” UBI: Some years ago you pinned your hopes on the poultry processing business. Is that where you still see the future – what is your feeling about the sector? YK: “This business feels good. I am often laughing with the factory manager. Over the past few years he has always been asking when we would get the factory running at full capacity and asked us to give him more orders. Today the factory works in

UkraineBusiness insight October/November 2010

three shifts and stops only for washing. We are very satisfied with this project and are looking for further expansion. “This market segment has understandable trends as we analyse tendencies in neighbouring and international countries. In the USA many poultry companies want to re-classify themselves as FMCG establishments as their percentage of ready-made products now exceeds their proportion of primary goods. In Ukraine the consumption of ready-made products is also increasing, but the market volume is far below that of the EU or the USA. The main reason is the low-income of the population, a large proportion of whom earn about US $1,800 per year.” UBI: What problems face the investors who want to enter Ukraine’s agricultural sector? YK: “There are no special obstacles in Ukraine and they will face the same problems as are faced in other countries. Opening a business in our country requires the company to find the right

Yuriy Kosiuk

location for its factory and find skilled personnel - the lack of which really exists and can be a problem.” UBI: Some years ago you started to develop you own franchising chain of outlets. Is it a good channel for selling? YK: “It is very effective. We started to build the chain in 2003 as that was the only way to teach Ukrainians to eat fresh meat because people had thought that poultry should be frozen. Today we operate about three thousand retail outlets throughout Ukraine and these account for about 40% of our total sales. The product offering extends beyond poultry to include processed meat products and sausages.” UBI: How is your sales operation organised? YK: “We do not work with the distribution companies and we operate the service ourselves using our own transport from the factory to the shop shelves. We took this step because of the low level of service and lack of expertise offered by local distribution companies. We also work on the principle that if you want to do something well, do it yourself. We also developed logistics services ourselves and prefer to build our own warehouses because of the lack of quality alternatives.” UBI: What changes would you like to see in legislation to make your operation easier? YK: “We do not need any changes. The only thing is to leave everything as it is because all the rules now operating in the meat market work and are honest and that is enough to be successful. Frequent changes in regulation are catastrophic for agriculture.” UBI: What is the progress in your activities in the beef sector? YK: We have been disappointed in this product, because there is no customer culture in Ukraine to use beef as an unprocessed product. I do not believe there is currently a viable market for ‘red meat’ production. So we have reduced our capacity by two thirds.” UBI: Is the production of goose liver an attractive market? YK: “It has good export prospects in Russia

and the European Union countries. That is why we have not reduced production volumes. Today we deliver 50% of our output to the retail market and 50% to the HoReCa sector.” UBI: What about the sausage goods market? YK: “It is also successful. We are the leader in this segment and control about 10% of the Ukrainian market.” UBI: Are you interested in developing other processing businesses? YK: No. We have to grow in those market segments where we are currently operating.” UBI: Which areas are your most profitable products? YK: “Our profit levels have reduced significantly, and if some years ago it was about 30%, today it is about 20% - even though we have kept our costs

down thanks to new technology and professional management. If the profit level is less than 15% there is no need to operate a business and it is better to put your deposit in the bank. All our sectors have roughly equal profit levels.” UBI: Are you planning to expand your agriculture sector? You have said that you were going to increase your land plots from 180 to 250 thousand hectares. YK: “I think that we will rent the bigger plots that you refer to, located in the regions the company traditionally operates in, Cherkassy and Vinnytsia (the central Ukraine – UBI) and look at some western and northern regions. We are also focused on export of sunflower oil and our company is the third biggest exporter of this product. It helps to ensure our exchange rate risk and supply our poultry factories with protein and husks.” UBi

Poultry market size (thousand birds) Region

2009

2010

2010 in % to 2009

Ukraine

226543.3

235150.6

103.8

Autonomous republic of Crimea

12377.8

13289.4

107.4

Vinnietska

11204.7

12529.4

111.8

Volunska

7092.6

6650.2

93.8

Dnipropetrovska

17881.8

18654.3

104.3

Donetska

17331.9

18001.5

103.9

Zhitomyrska

6618.3

7008.9

105.9

Zakarpatska

4668.8

4730.3

101.3

Zaporizka

6170

6109.3

Ivano-Frankivska

6122.7

6478.7

105.8

Kyivska

23056

22312.5

96.8

Kirivogradska

6014.4

6265.5

104.2

Luganska

6499.9

6208.8

95.5

Lvivska

10871

11249.7

103.5

Mykolaivska

4493.8

4745.5

105.6

Odeska

7420.9

7481.3

100.8

Poltavska

7463.5

6745.9

90.4

Rivnenska

7263.2

7630.1

105.1

Sumska

5371.2

5526.8

102.9

Ternopilska

5665.3

5652.7

99.8

Kharkivska

11327.1

11326.8

100

Khersonska

6449.2

6587.1

102.1

Khelnytska

4770.3

4999.3

104.8

Cherkasska

21546.6

26020.6

120.8

Chernivetska

3883.5

4192.1

107.9

Chernigivska

4978.8

4753.9

95.5

* to the 1st of August Source: Association “Alliance of breeders of Ukraine”

October/November 2010 UkraineBusiness insight

AGRICULTURE STATISTICS Exports of frozen and refrigerated meat, tonnes

January

February

March

April

May

June

July

August

September October

November December Total*

0.45

360.82

2,242.07

2,488.33

2,888.17

2,355.42

969.11

460.719

1,028.30

1,538.02

1,215.17

1,312.53

16859.11

1,609.27

1,420.00

1,687.06

1,957.57

1,490.81

18929.06

Beef 2008 2009

114.16

816.03

1,329.06

1,748.07

2,127.05

2,183.00

2,447.00

2010

589.32

1,064.55

2,120.18

2,519.67

1,414.86

1,212.91

1,227.07

10148.55

Pork 2008

1.76

1.09

2.04

0.85

0.5

0.28

0.05

0.5

0.14

0.31

0.26

0.07

0.05

1.25

1.44

2009

0.38

0.2

0.15

0.21

0.12

2010

0.83

1.86

12.33

16.13

11.89

7.77 3.86 60.03

Poultry 2008

301.76

242.25

571.17

650.64

723.43

755.76

915.13

865.54

800.79

876.77

735.94

926.91

8,366.08

2009

702.82

430.56

445.42

716.36

1,076.14

1,106.27

1,581.33

1,673.35

2,284.08

3,140.75

3,013.58

2,764.20

18934.86

2010

1,824.44 2,651.35

3,594.24

3,076.46

2,326.08

3,124.62

3,759.35

20356.55

1.54

1.09

2.29

1.54

2.19

3.15

1.64

1.96

18.84

0.35

0.52

0.39

0.25

0.47

Imports of frozen and refrigerated meat, thousand tonnes Beef 2008

0.4

0.55

0.6

1.89

2009

1.12

2.06

1.15

0.71

0.47

0.78

0.61

2010

0.13

0.11

0.45

0.28

0.38

0.1

8.87 1.73

Pork 2008

0.3

0.72

3.98

9.64

14.03

18.58

25.5

25.08

25.58

25.23

19.9

10.08

11.41

12.03

15.1

11.48

12.5

2009

3.66

11.17

10.61

13.82

13.42

12.56

2010

5.56

6.22

7.2

7.28

10.62

9.4

9.1

178.61 140.76 55.38

Fat 2008

0.02

1.05

1.02

3.35

3.09

3.6

4.08

4.84

3.83

4.1

3.74

1.35

4.52

4.19

3.15

5.11

4.7

4.44

4.88

2009

1.21

3.23

4.52

4.36

2.99

2010

1.11

3.55

2.66

3.5

34.07 47.29 13.82

Poultry 2008

1.62

3.52

2.54

20.39

18.89

39.58

34.34

42.45

26.58

33.32

12.3

20.7

15.88

18.53

21.63

11.52

9.49

256.21

2009

10.17

19.36

20.74

8.2

18.03

21.91

20.07

2010

4.89

9.32

9.34

10.7

15.41

21.49

22.59

93.75

0.2

0.49

2.82

1.83

2.65

2.89

2.37

2.78

3.77

2.45

2.01

24.36

1.81

3.95

3.56

3.02

3.81

195.53

Byproducts 2008

0.1

2009

1.99

4.27

3.11

5.47

3.1

3.15

2.3

2010

1.64

2.86

3.03

2.99

2.68

3.53

2.89

39.53 19.62

Siurce: Consulting agency AAA

Import of different types of meat, thousand tonnes

Ukrainian poultry market

2008

2009

2010*

Year

Production*

Beef

18839.02

8873.11

1.73

2000

263

Pork

178610.85 140755.9

55.38

2001

326

Poultry

256213.01 195526.13 93.75

2002

401

2003

432

2004

503

Year

Poultry import

Meat import

2005

658

2005

142

261

2006

781

2006

152

231

132

208

By-products 24355.88

39526.91

19.62

Fat

47286.25

13.82

34072.82

*from January to July

Export of different types of meat, tonnes

Meat imports*

2008

2009

2010*

2007

880

2007

Beef

16859.11

18929.06

10148.55

2008

1032

2008

256

512

Poultry

8366.08

18934.86

20356.55

2009

1132

2009

193

430

*from January to July

UkraineBusiness insight October/November 2010

*thousand tonnes, live weight

*thousand tonnes

The shine on the pearl Present your beloved with a new jewel – try the pearl of Western Ukraine – Lviv. The ‘little Paris’ of central Europe is also know as the Lion City, and was formerly called Lemberg. It is a manageable size, but has a big heart, an exotic past and an exciting future. In this beautifully preserved medieval European city you can wander down mysterious alleyways, past intricate carvings and statues, street chess players, through open-air markets, to an array of highly individual coffee bars where you can relax in the shade or sunshine. Whether you propose to spend a romantic weekend, take a break for the whole family or to start new business, you’ll be glad you chose Lviv, the hub of Western Ukraine. And whatever the purpose of your visit to Lviv, to get a true taste of local hospitality, choose the landmark venue, Citadel Inn hotel & resort. Opened in May 2009 – but in a structure built in 1853, Citadel Inn provides an echo of the majestic Austro -Hungarian Empire and stands today as a reminder of historic royal luxury, excellence and glamour, adding lustre to the gem that is Lviv. It’s a unique place, where old-fashioned traditions and high standards of service are preserved for your pleasure. There are elegant rooms, each with it’s own history, (including a stay by Kaiser Franz Joseph himself) and a range of excursions to suit every taste, weekend tour packages to the Carpathian mountains and Lviv’s castles trip, family weekends catering for children, spa or business trips, all delivered at the highest level. Citadel Inn’s panoramic restaurant Garmata atop the fortification hosts fashion evenings, live music, a range of world cuisines from special visiting chefs, and exquisite menu, and happy hours in the Lobby Lounge. Within this inner lounge, beneath its high walls Elite Woman’s and Gentleman’s Clubs are organised to add to the range of leisure options. The Lobby is also a magnificent place for nightlife where beneath the starry sky you feel a touch of history.

And for al-fresco drinking and dining, the grill bar on terrace is among the best! Fresh barbecue steaks, cold beer and summer specials will make your stay even more memorable… For the children, a monthly Kid’s Club has a range of activity programmes to keep the little ones happy and busy – allowing mum to enjoy her free time relaxing in the spa centre. Citadel Inn mood recipe: 300 gr. of solid historic hotel 200 gr. of spicy Garmata restaurant A generous splash of round-a-clock Lobby Lounge Liberal application of open air terrace Good bottle from impressive wine cellar 50 gr. of SPA – centre 50 gr. of conference-hall 50 gr. of kid’s club Shake well and a Good Mood can be poured out for dozens. And you can vary the ingredient proportions to taste. You know you are always welcome at Citadel Inn Hotel & Resort – a revival of royal hospitality!

www.citadel-inn.com.ua

October 2010 UkraineBusiness insight

Agriculture

Agricultural prospects in the balance According to the Food and Agriculture Organisation (FAO) Ukraine could become one of the main suppliers of food on Earth. The annual joint report for 2010 by the Organisation for Economic Co-operation and Development (OECD) and the FAO are predicting a 20% increase in Ukraine’s food production over the next decade The USDA report (May 2010) notes that even infrastructure shortages and the growth of livestock production may not prevent the ability of the Black Sea states to fulfill their potential for replacing the US as the breadbasket of the world.According to the USDA report, the Black Sea states of Kazakhstan, Russia and Ukraine look set to raise wheat exports Sergey Bovtenko by half to more than 50 m tonnes by the end of the decade, overtaking the US for the first time since the Second World War.

Climatic, natural and geographical factors make Ukraine the 8th largest farmland bank in the world. If we add to this the availability of necessary infrastructure and access to the sea, it is immediately obvious that Ukraine has the opportunity to become a very large player in the world grain market. Current progress in Ukrainian agriculture: Ukraine, the world’s third largest grain exporter Ukraine’s grain balance overview, MT 53,3

Such conclusions require a good evidence base and in-depth analysis of Ukraine’s agricultural sector and its internal processes. Key factors that may help or hinder Ukraine’s future as one of the key suppliers of food in the world are summarised below.

46,0 39,5

Country

Total agricultural area, m ha

Arable agricultural area, m ha

Part arable agricultural area, m ha

Ukraine

42.9

32.4

76%

France

27.6

18.3

66%

Spain

24.9

11.9

48%

Germany

17.0

11.9

70%

16.0

6.1

38%

2,9

Poland

14.8

11.3

76%

2003/04

Romania

13.9

8.9

64%

Italy

12.7

7.0

55%

Ukrainian agriculture: baseline Ukraine is an intensively cultivated country. Its agricultural area represents 42.9 million hectares, which is about 71% of the country’s surface. By comparison, in the European Union, agricultural land represents 41 % of the total. Some 76% of Ukrainian agricultural land is arable land, while in the European Union it is only 61%. The landscape is highly favourable for agricultural activities and largescale farming: 60% of agricultural land is practically flat and the remaining 35% has slopes ranging from 1° to 3°. Ukraine accounts for a third of the world’s chernozem areas (black soils) with an enriched humus layer of between 40 to 50 centimetres, making it the country with the highest quality fertile black soils in the world. Also the country has a moderate, continental climate, which is perfect for the cultivation and plantation of both winter and spring crops of wheat, rapeseed, corn and other crops.

UkraineBusiness insight October/November 2010

39,5

40,5

37,3 31,3

22,7

24,5

21,2 16

11,3

13,2

9,9 4,1

2004/05

2005/06

2006/07

Grain production

2007/08

Consumption

2008/09

2009/10

2010/11

Exports Source: UkrAgroConsult

Ukraine exported 21.2 m tonnes of grain during the period July 2009 to June 2010. Ukraine has remained the world’s third largest grain exporter after the United States and the European Union, while Russia, which exports 19.9 m tonnes of grain, is fourth. These recent figures are higher than average, but not record totals. In the 2008/2009 season, Ukraine supplied 24.5 m tonnes of grain to foreign markets, of which wheat, barley and corn remain the main export crops. Since the 2008/09 season Ukraine has consolidated its position in the world grain market where it is at least 6th across many categories (13% Wheat market, 35% Barley market). For two years in a row, Ukraine’s grain exports were valued at US $3.5 bn to US $4 bn (2005/06 saw record exports of US $ 1.38 bn). Total agricultural production in Ukraine in 2009 grew to over US $120 bn.

Agriculture

In the 2009/10 season, weather conditions were challenging and the problems of lending were significant. In 2009, Ukrainian banks issued some UAH 12 bn of loans to farmers, compared to UAH 9.7 bn in 2008. However these negative factors have not significantly affected the results in 2009/10. The current season has been a survival test for the agricultural sector in many countries – from droughts to floods. However, the forecast for Ukraine’s grain harvest is 40 m tones which will need to be achieved in the most difficult weather and financial conditions (growth in lending in 2010 was just 10% up on 2009). The State Statistics Committee of Ukraine reports that the main agricultural companies in 2009 produced 35.8 m tonnes of grain (78% of the total gross yield), while smaller operations accounted for 10.2 m tonnes (22%).The process of mergers and the establishment of grain cereal holdings has accelerated since 2008, modifying the structure of production. This growth in the number of holdings is due to increased foreign investment in the wake of rising world grain prices. The moratorium on the sale of land, frozen land privatisation and the almost total lack of financial aid from the state has led to strong, professional and financially stable agroholdings in the country. Ukraine’s agribusiness environment initially filtered out the more speculative-minded investors, and so the financial crisis that began in 2008 has not led to a deluge of bankruptcies and scandals.

2007

2008

2009

Number of holdings

Holding’s land bank (Mha)

Agricultural holdings are companies that have more than 50 thousand hectares of land Source: Association of Ukrainian Agribusiness Clubs

Agricultural companies reaching larger scales need to seriously consider increasing the efficiency of their land use. The need for large investments in land (up to US $500 per hectare) encouraged them to look for long-term investment money. For several years these searches were unsuccessful, but since 2007 the global growth in food prices has attracted investors’ attention to this sector. As a result, pent-up demand for cheap money from Ukrainian farmers is now being met by European investment funds and 2007-2008 saw explosive growth in the number of holdings. It is partly this investment in land which has led to growth in the volume of grain produced. Investment of fixed capital in the agricultural sector in 2008 increased by 56% in comparison with 2007 (Hvr 7.4 bn according to the State Statistics Committee of Ukraine). These amounts do not include investments made by private placement on European stock exchanges. From the end of 2006 to the present the agribusiness sector has had four IPOs, two SPOs and six private placements, during which time investments of US $1.18 bn have been made. A mixture of Ukrainian bureaucracy, flaws in Ukrainian legislation, and investor focus on the agro sector has often seen agrocompany owners’ overwhelming desire to create stable companies pursued without regard to the natural, political and economic problems in the country. While many Ukrainian companies were previously only thinking of survival, their EBITDA margin over the last couple of years has exceeded 20%. Introduction of modern scientific and technical methods to increase yields, multiplied by rising world grain prices, promises to increase Ukrainian agribusiness profits still further.

Company

Market Ticker placement symbol

Focus

Myronivsky Hliboproduct (MHP) London MHPC LI Poultry/grain Kernel Holding

Warsaw

KER PW

Sunflower oil/grain

Mriya Agro Frankfurt MAYA GR

Sugar/grain

Astarta Holding

AST PW

Sugar/grain

A2TA GR

Sunflower/poultry/grain

Warsaw

Ahroton Frankfurt Sintal Frankfurt

SNPS GR

Grain

Creative Group Frankfurt

4C8A GR

Sunflower oil/grain

MCB Agricole (Ukrzernoprom) Frankfurt

4GW1 GR

Grain

Lendkom

LKI LN

Grain

Land West Frankfurt

4K1A

Grain

Ukrros Frankfurt

36U1 GR

Sugar/grain

London

France’s Crédit Agricole representative in Ukraine, Jean-Jacques Hervé, a former adviser to the Ukrainian ministry of agriculture, believes that over the next 10 to 15 years Ukraine could triple its export capacity, to become possibly even the top supplier for the main importing countries around the Mediterranean. Ukraine is reported to have the potential to produce 100m tonnes of grain per year. However, there are obstacles facing the development of Ukraine’s agricultural sector, including the fact that current quality levels are not only far below EU levels, but also behind those in the Soviet period: - a third of its 43m hectares of agricultural land lies fallow and another third is badly exploited (53% to 56% of land owners are pensioners); - Agricultural crop yields are significantly lower than in Europe - Fertiliser usage per hectare is significantly lower than in other countries - The majority of local agricultural companies are still poorly equipped - Infrastructure: Well-developed port, but shortage of storage facilities and railcars. Railway infrastructure is less developed than maritime infrastructure Many of these challenges require renewed official leadership but some critics suggest that the Mykola Azarov government’s actions demonstrate that its understanding and support is restricted to heavy industry - metallurgists, miners, oil and gas. When compared to EU support for its agricultural sector, Ukrainian farmers are likely to struggle with the consequences of Ukraine’s 15% drop in GDP in 2009. Formation of large Ukrainian agro-holdings in the past was a reaction to the funding problems of agriculture. In the near future, alternatives to these holdings and their number will increase, and are likely to attract foreign investors through IPOs, GDR and other financial instruments. Western analysts suggest that 80% of the country’s agribusiness and food industry will come from 10 to 20 Ukrainian companies. At the end of April 2010 Avangard Holding received US $187.5 m on the London Stock Exchange, and Kernel Group in Warsaw has invested another US $80 m. Contributed by Sergey Bovtenko

October/November 2010 UkraineBusiness insight

Agriculture STATISTICS Ukraineâ&#x20AC;&#x2122;s grain balance overview, MT

Yields of selected cereals, 100/ha

53,3

63,5

46,0 50,9

39,5

40,5

37,3

40,9

31,3

37,4

21,7 13,6

22,7

25,3

24,5

16,3 11,3

13,2

9,9 4,1

2,9 Sunflower

21,2

Barley

Wheat

Ukraine

Corn

2003/04

2004/05

2005/06

2006/07

Grain production

2007/08

2008/09

Consumption

Total agricultural area, m ha

Arable agricultural area, m ha

Part arable agricultural area, m ha

Ukraine

42.9

32.4

76%

France

27.6

18.3

66%

Spain

24.9

11.9

48%

Germany

17.0

11.9

70%

16.0

6.1

38%

Poland

14.8

11.3

76%

Romania

13.9

8.9

64%

Italy

12.7

7.0

55%

2010/11

Exports Source: UkrAgroConsult

Source: Eurostat, own calculation,

Country

2009/10

Fertiliser usage, kg/ha 212

103

106

114

USA

Poland

Brazil

228

30 11 Russia

13 Ukraine

Argentina

France

Germany

Source: Eurostat, own calculation

UkraineBusiness insight October/November 2010

Food Processing

Kraft grows from $4m to $400 under expert tutelage How difficult is it for a foreign company to set up in Ukraine? Dr George Logush, Vice President Kraft Foods, Area Director: Ukraine and New Markets, Eastern Europe and Central Asia, explained to UBI how Kraft established its operations in the region, suggesting that perseverance and a positive attitude can overcome even drastic shifting of the goalposts If the Ukrainian government were ever looking for an advocate to encourage Western companies to invest in Ukraine, they would struggle to find a better candidate than Dr George Logush. Simultaneously authoritative and amiable, Dr Logush immediately engages through his infectious enthusiasm for the country, and if he comes across as your favourite teacher – this may be influenced by his actual background as a professor.

“It’s no more difficult than

Italy, and better than doing business in Greece

”

With a Ukrainian family background, but brought up in New York City, Dr Logush is totally unfazed by the notorious difficulties faced by expatriates of overseas companies who emphasise the country’s dubious high ranking on world ‘difficulty of doing business’ indices.“Experts say that it’s no more difficult than Italy, and perhaps easier than doing business in Greece,” reminds George. Astounded, I have to ask if he means it – and he does, adding, “Ukraine is quite clearly a European country, combining features of a Black Sea/Mediterranean country and those of a more central East European country.” Dr Logush explains how Kraft entered and expanded in this market, and his understanding as to why the country has found it more difficult to make the transition from a State monopoly to a free-market economy than some of the other former Soviet states. “I had managed a university exchange programme between 1975 and 1981 with Poland. The Polish were already then preparing for the market economy. Ukraine failed entirely to

Dr George Logush prepare, with senior academic and government figures in 1989-1991 believing that they could continue with business in the same way, saying ‘There won’t be any changes here’. They had no idea about economics as a science and about a free market economy, a real lack of knowledge of the basics.They had been totally isolated for so long, with all their information coming via Moscow, heavily censored of any western concepts of economic science which were considered subversive. When the central control collapsed …” (the system was thrown into chaos). In the immediate aftermath – and by implication, to an extent, today - there were ambiguous and even contradictory laws and regulations that were not applicable in the new world – but, Dr Logush emphasises, the people themselves were perfectly reasonable to deal with. Dr Logush had been a tenured MBA professor in New York City at the time, prior to heading up Kraft Foods in Ukraine. In late 1994 Kraft bought the small Trostyanets

chocolate factory in the north east of the country. Factory management conducted sales and their concept about marketing was: “If people want chocolate they buy it, so why spend money on marketing?” There was no notion of brand value. And there was no level of appropriate staff from which to choose to turn around the operation and allow it to compete in an open market. As a result, Dr Logush explains, “I picked 10 of the best 3rd year undergraduate students from 50 at Kyiv Mohyla University and appointed them as the board of management. We had 12 staff in total. I gave each a role – head of marketing, sales, finance, logistics, etc., – and we set about establishing a company from the bottom.” “We had 2,000 customers and selected the strongest 20 to become our distributors, then designed the Korona advertising campaign. It all worked. From a US $4 million pa starting point, Kraft’s Ukraine regional headquarters is now responsible for some US $400+ million per year of sales.” Despite

the

economic

storms,

October/November 2010 UkraineBusiness insight

FOOD PROCESSING December 1995 the factory was working three shifts to meet demand. These were tough times. Ukraine’s GDP dropped by 70% by the end of 1996. However, with an estimated half of the economy in the unreported grey market, Ukraine was a very resilient economy, and by 1997 there was the first sign of economic growth. This ‘undergraduate team’, some of whom are still on the board of management today, learned the principles of business without preconceptions. “We were all equals, we made an analysis of the situation and made decisions by consensus,” explains Dr Logush.” The company went on to look at what additional product categories it could enter to become a major player. “In 1998, a crisis year, we launched into coffee, in a market where our competitor had been in the market since 1991 and had a 68% market share. We saw that our competitor didn’t have roast and ground coffee and so we launched ground (natural) coffee against local and import companies who bought very cheap coffee and marked up their prices. By launching with an excellent quality coffee, Jacobs, with a great brand and world class advertising, our share grew dramatically and quickly. Having established ourselves as the leader in natural coffee sector we decided to launch in soluble coffee (there are three soluble market segments: powder – value; agglomerate-mainstream, and freeze dried-premium) in the premium segment using our now-established Jacobs brand. We exploited the weakness of our competitors who sought to straddle all segments with one brand.” When we launched into the superpremium segment, we avoided stretching our Jacobs brand by launching Carte Noire. “It was also around 1998 that we realised that we needed to develop our own sales force. And, it was the coffee market that provided the scale to allow this – starting with a team of 50. This has grown to the current sales force of 1,500. “Also during crisis, in 1999 we entered the potato chips (crisps) market and acquired a production facility and the Lyuks brand in Ukraine. Part of the thinking was that chocolate does not sell in summer, whereas potato chips do. The key was growing the right variety of potatoes for potato chips – with low moisture and high dry matter.”

After going to Holland and acquiring rights to appropriate varieties, it was necessary to register and test the varieties in Ukraine for a three-year period – or to import the potatoes. While growing cost was $125 per tonne, the import duty at the time was $200 per tonne in off-season, $400 per tonne in season, which meant imports were not economically viable. At this point many others would have decided that they had chosen a wrong track would have given up in the face of such bureaucracy. Dr Logush persisted with his view that people are reasonable if confronted with evidence, and chose six farms to work with on an experimental seed potato programme, growing for research and testing the results in cooperation with the Academy of Sciences. Yields from the new varieties were 35 tonnes per hectare compared to prevailing 10 tonnes per hectare and the authorities were convinced and dropped the three-year investigation period; yields are now up to 50 tonnes per hectare.

Dr George Logush

Kraft picked the six of the more progressive collective farms where the heads were more innovative, and in return for the use of tractors, seeding machines, herbicides, and plant protection, they were willing to be advised when to plant, which fertilisers to use, and to ensure that the potatoes were harvested when they were the right size. These farms were in locations with the right soil – sandy and well draining in north western Ukraine - not the traditional black earth.

“In the period between crises, in 2005 while we were not adding categories, we began looking at geographical expansion. The first territory was Moldova, where we exported our Ukrainian business model – strong branding, effective advertising, appropriate marketing with an on-the-ground sales force. And all went well. So we said,“Why not try Belarus”? and did so. Further expansion followed into Georgia, Armenia, and Azerbaijan, though the last two were in a state of war.”

But then in December 1999 the collective farms were abruptly abolished by presidential decree and the farmland redistributed. Again, Dr Logush simply says that by treating people reasonably, it was possible to overcome this huge and unexpected complication: new deals were struck with the same heads of the farms. Kraft helped them to reorganise as private enterprises and ensure it was a reliable partner and customer for their produce.

Dr Logush went on to explain that the model developed for Ukraine was found to work in all the states of the former USSR, and, unlike for most international companies, the Ukraine office became the headquarters for further expansion throughout Eastern Europe and then into Central Asia and Mongolia. Twelve countries are now covered. For international fast moving consumer goods companies it is the more usual practice for operations in the former USSR to be based in Moscow, often very much to the detriment of business results outside of Russia.

Kraft then built a huge 11,500 tonne warehouse using state-of-the art technology, and then a second warehouse as the business grew larger and larger. “To summarise, just as we started our business in a crisis in 1995, both the potato crisps and coffee products were launched in the crisis of 1998-1999. The company went on to expand into biscuits, sugar-based confectionary, and chewing gum in the next crisis of 2008-2010.

UkraineBusiness insight October/November 2010

The current economic crisis initially caused many businesses to change their practises: credit cuts and a move to cash, headcount slashing, A and C cuts, and sharp devaluation pricing. But Dr Logush says business for Kraft has been especially good when times were tough as it presented the opportunity to

Agriculture

grow market share by doing the opposite of competitors who cut back on credit, staff, and advertising (at the same time as advertising prices were cut). For the future, potential growth is measured by comparing per capita consumption levels. Ukraine still is at about 2/3 that of Russia, half that in Poland, and less than 1/10 that of Switzerland. There are also regional differences to be satisfied: local preference for dark chocolate and use of pure cocoa butter. However, having become market leader in Korona dark chocolate, Kraft was the first to introduce milk chocolate into the market. The company was successful in lobbying for imposition of duty on milk chocolate (to match the existing duty on dark chocolate) to allow local industry to produce milk chocolate for the local market. “This was accomplished with support from Socialist and Communist deputies who supported protection for local industry,” noted Dr Logush with a smile. “It demonstrates how you can lobby successfully in this country if you have the drive and push, and logic and fairness are on your side,” he added. There are still relatively few international competitors to Kraft in Ukraine; exceptions are Nescafe coffee, which arrived in 1991, and Nestle in 1998. Most others in this sector are local producers and importerdistributors. Dr Logush noted that when international companies set up operations in Ukraine, local companies were very quick to copy successfully and to develop and protect their own market share. These local businesses are now huge corporations and represent a large part of the market. Dr Logush emphasises that they are strong competitors, and should not be underestimated. As a result international companies are still under-represented in Ukraine compared to neighbouring countries. But this tough competition has not prevented Kraft from succeeding in Ukraine, and in neighbouring countries, managed from Kyiv, in which Kraft also reports business to be booming. Kraft’s sales growth during the 2009 crisis was +24%, the best in Ukraine, though even this was down from +42% growth achieved in 2008. It is easy to understand why Dr Logush was once again ranked by his peers as the № 1 Businessman Executive in Ukraine (Top 100 by Ekonomika publishing house 2010). UBi

Government leadership sought Both local and foreign experts concur that the main obstacles faced by Ukraine’s agriculture sector are land tenure and access to resources Farmers, large ag r i-businesses and even multinational corporations are unable to acquire the land and equipment necessary for largescale production. As a result, the country’s entire agriculture industry remains disconnected and is not as productive as it could be, given that it should be the breadbasket of Europe. Frustration is running high among foreign investors who believe that their multi million-dollar investments over the past several decades show their commitment to the future of Ukraine. According to a long-term, high level executive working in Ukraine for a multinational corporation, who asked to remain anonymous, one of the main obstacles to development is the fact that agricultural land cannot be bought and sold easily and cannot be used by farmers to secure credit. To get around this, some multinational companies are financing their Ukrainian operations by accessing credit outside Ukraine. However, unable to own land, they are limited in the amount of risk they are willing to take investing in an uncertain business environment in which they consider there is too much bureaucracy and rampant corruption. Government intervention is critical when it comes to making decisions about land ownership and property rights. Business leaders are anticipating clear government regulations that will make it possible to move forward. “We just need to know what the rules are, so we can make decisions about our business operations.” That’s the unanimous view of both local and foreign business leaders in Ukrainian agriculture.

Efficiency is another area that’s a top priority for those actively involved in the industry. Unsuitable storage conditions are reported to result in a loss of nearly 30% of the grain harvested in Ukraine. Lawrence Korchinski, president of Agrosource International, is working to reduce losses during storage and transportation of post-harvest grain in Ukraine. “We focus on direct seeding, conservation tillage, harvesting, grain handling and distribution,” he explained. “It’s important to manage every step in the production process.” Agrosource International is a Canadianbased company that provides technical expertise to agricultural businesses in an effort to reduce grain loss due to frost, decay, spoilage and other damage. A shortage of qualified specialists is a serious concern for Igor M. Buchatskiy, CEO of Sagro Holding. “This is a problem of the entire postsoviet region,” he explained. “We recruit and motivate candidates by offering specialised training and opportunities for personal and professional growth,” he continued. Sagro is a Ukrainianbased holding company with a focus on increased productivity through modern technology. The holding company includes five separate business entities with over 1550 employees involved in harvesting grain, fruit and vegetables as well as meat production and processing. “We urge the government to support the business sector by simplifying the tax code and other bureaucratic processes that impede economic progress. The investment interest is there, and once the land question is resolved, agriculture in Ukraine has a very bright future,” said Buchatskiy. UBi Mila Borden

October/November October 2010 UkraineBusiness insight

Ukrainian agriculture ripe for investors? Ukraine has traditionally been considered one of the more attractive regions for investment in agricultural production. Baker Tilly Ukraine’s Nataliya Polyanskaya considers how this conventional wisdom holds up on a practical basis To date, Ukraine has not yet begun operation of a fully-fledged market for agricultural land. While the right to private land property is stipulated in the Constitution, the Land Code of Ukraine imposes a moratorium on sale of land use areas which is valid until 01.01.2012. However, the process of issuing certificates for land ownership has not been completed. The country contains more than 30% of the world’s black soil giving it a leading position in Europe in terms of physical geography. These most fertile black soils, concentrated in the steppes and forest steppes, account for about 60% of all agricultural land and cultivation accounts for some 57.5% of land use in the country. Currently land ownership in Ukraine is made up of a mix of private, communal and public property. Citizens of Ukraine acquire ownership of land on the basis of: acquisition of the contract of sale, deed of gift, exchange, other civil law transactions; donation of land from state and municipal ownership, privatisation of land previously granted to them for use, etc. Ukrainian legal entities can acquire ownership of land for business purposes by purchase of contract of sale, deed of gift, exchange, and other civil transactions; making land part of the charter

fund of the company by its founders, etc. In addition to the right of ownership, the Land Code of Ukraine specifies the right of land use, rent and easement. According to Article 19 of the Land Code of Ukraine, all land can be divided into the following categories, dependent upon its usage: agricultural, housing and public construction; nature protection and intended for nature protection purposes, recreational purposes, historical and cultural; forest fund; water fund; industry, transport, communications, energy, defence and other purposes. Lease of agricultural land Land plots are leased out to citizens and Ukrainian legal entities, foreign citizens and stateless persons, foreign legal entities, international associations and organisations, as well as foreign countries. Lease of land may be short-term - no more than 5 years, or long-term - no more than 50 years. According to the Land Code, agricultural land cannot be transferred to the ownership of foreign citizens, stateless persons, foreign legal entities and foreign states. Foreign citizens and stateless persons may acquire right of ownership to the land for nonagricultural purposes within localities. They

UkraineBusiness insight October/November 2010

may also acquire right of ownership to the areas outside the localities, in which there are objects of immovable property that belong to them by the right of private property. The right to lease land becomes valid after the conclusion of the lease contract and its state registration. Methods to take control of land shares: a) Purchase lease (sublease) rights for up to 50 years. The lessee shall have priority right to buy the land in the future at US $ 100-200 / ha. b) Purchase the charter capital of an agricultural enterprise – obtaining corporate rights to it. This will allow leasing of land directly from shareholders of the enterprise. Cost: from UAH 1 (with debts) to US $ 5 million for an agricultural enterprise. c) Agreement on joint activities valid for access to public lands owned by farm units of the Agrarian Sciences Academy of Ukraine and other state institutions. Investments Ukrainian and foreign analysts calculate that investment needed in the country’s agroindustrial complex is about US $ 20 billion. Over the past year there has been a trend

“Potential agricultural sector investors should also to consider the alternative of investment in agricultural services, rather than the land itself

”

to increasing investment in agriculture. The Cabinet of Ministers of Ukraine and the World Bank signed a credit agreement to finance the issuance of state certificates for land ownership in rural areas and development of the cadastre system in Ukraine. Total project cost is US $ 359.453 million. To date, Ukraine has already issued more than half of the state certificates on land ownership in rural areas and there are more than six million owners of land shares. Figures According to the State Committee for Land Resources, the value of all land in Ukraine is UAH 330 trillion. This figure is the cadastral valuation, which is based on market value. But the calculations were carried out in 2006, and were it not for the crisis, it is estimated that the ‘land assets’ of the country would be valued at around UAH 1,000 trillion. According to the Department of State Land Cadastre of the State Committee for Land Resources, as of January 1, 2010 Ukrainian agricultural land accounts for 71% of the total land area or 42.8 million hectares, including 33 million hectares of arable land (18%); forest areas, and 4% of land allocated for construction. Since January 1, 2006, the area of

agricultural land has decreased by 128.9 thousand hectares (it decreased by 31.1 thousand hectares since 2009). Recent data from the State Committee for Land Resources shows that over the past 10 years, the owners of land shares are increasingly less likely to lease their land. In 2001 (according to official figures) there were 22 million hectares in lease, compared to the beginning of this year when the figure was down to 17.5 million hectares. That means that during this period 20% of land shares “fell out” of the moratorium. Lease payments for land plots from state and municipal property are assigned to the category of state taxes and fees. Over the last six years lease payments for 1 ha per year have doubled: from UAH 117.1 per year in 2004 to UAH 260 in 2010. However, nearly 80% of these payments are in kind, not cash. The average lease cost for land at the beginning of April 2010 reached UAH 278.3/ ha, which is double that of April 2007. State and communal property totals than 10 million hectares, including territories that are not in land shares. Before the crisis, the cost of agricultural land reached US $ 1,200 per hectare. Now, according to Baker Tilley calculations, the price is more likely to be set at US $100 - 450 / ha, dependent on location. It is forecast that over the next few

years, following lifting of the moratorium on the sale of agricultural land, its value will steadily grow – after an initial dip. The state plans to restrain large corporations from increasing the amount of land they own in order to avoid the creation of modern corporate farmers. There are ongoing debates about limits on the exact extent of land that can be owned by one company. Right now the realistic ceiling value under discussion is 10,000 hectares, though there are some suggestions that 50,000 or even 100,000 hectares would be acceptable. According to the Institute of Agricultural Economics, agribusiness activities start being profitable at processing levels of 50-400 hectares. In January-March this year there were 1,114 land plots and lease rights sold in Ukraine. The total area of this land is 1,513 hectares, which was sold at UAH 238.4 million. According to the forecasts made by the State Agency of Land Resources, after the lifting of the moratorium on the sale of agricultural land, the average cost per hectare of agricultural land will be UAH10,000 to UAH 12,000. According to the agency, this level of prices is now being used in various business transactions. The level of lease price set for land in the country is based on this figure,

October/November 2010 UkraineBusiness insight

Agriculture investment Ukrainian cereal exports (thousand tones) Cereals

2004/05 ME

2005/06 ME

2006/07 ME

2007/08 ME

2008/09 ME

2009/10 ME*

wheat

4 182,99

6 464,97

3 311,68

893,16

12 637,24

9 687,28

barley

4 271,88

3 952,02

5 144,28

1 037,26

6 334,21

5 991,97

maize*

2 300,88

2 507,56

1 032,79

2 057,78

5 516,14

6 649,15 *marketing year (ME) lasts from September to August

and the level of taxes to be paid is based on the price paid. Baker Tilley considers this level to be too low, citing the example of Poland where during a ten-year period before joining the EU the average price per hectare rose from US $250 to US $3,500. Baker Tilley considers there to be several negative aspects to the current land market in Ukraine:

The ban on free land trade (discussed above) and the lack of a complete legal framework for the land market. If we assess the value of a hectare of land in terms of payback period on investment, the payback period may reach 15 years in relation to the fall in wheat crops in recent years and a parallel increase in the price per hectare of land. Larger crop yields can only be achieved where there has been appropriate investment for decades. In predicting the cost per hectare it is also necessary to consider the fact that at the start of land trading there will potentially be six million inexperienced sellers of prime land – for that is how many farmers are due to receive land certificates. It is estimated that one third of children who inherit these land certificates will have been living in cities for a considerable time, and in most cases, they do not need land to carry out their occupation, but no doubt will always need money. In addition, within villages there is unfortunately a high percentage of people will not be eligible to be given any kind of property. Consequently, there is a high probability that the first year of trading will record significantly lower values

for Ukrainian land, which is a favourable situation for medium to long-term investors. Another factor is the annual loss of soil from Ukrainian fields, which averages 15 to 20 tonnes per hectare. More than 30 million hectares of agricultural land has been recognised as degraded, and for some 14 to 17 million hectares the erosion is described as hazardous. Given that the total area of farmland

in Ukraine is about 42 million hectares (or 70 percent of the country), of which arable land is 33 million hectares, the conclusion is that almost all agricultural land in Ukraine has been degraded. In Ukraine, unlike in the EU, fields are not left fallow (removed from production, eg left in grass to restore nitrogen levels, and so improve fertility). Government officials play different roles in this process. If crop rotation and leaving fields fallow were established in Ukraine, which is thought very likely, it could be that a long term land investor could face the need to sow his field with daisies for five or ten years and breed rabbits on it. As a result, current and future investors will be given the opportunity to buy land more suitable for extraction of clay or construction of a brick factory, rather than for growing corn or building a pig farm. Potential agricultural sector investors should also to consider the alternative of investment in agricultural services, rather than the land itself. There are important requirements for domestic agriculture in terms of new technology, which guarantee a serious increase in the need for production of machinery, especially in the first year of free land trading. In

UkraineBusiness insight October/November 2010

turn, the maintenance of effective agricultural production will require a manifold increase in quantities of fertilisers to replenish the ground and this will support significant growth in the chemical and transportation industries. Activities that facilitate increased productivity of private holdings, purchasing of new equipment, the need for increased production and storage capacities - will all stimulate the revival of construction in rural areas, as well as increased demand for regional construction companies. Consequently, the outbreak of free sale land trading will certainly attract serious money in the agricultural sector of the economy. But the lion’s share of the funds, especially at first, will go to the companies serving agriculture, and thus initially these are the parts of the agricultural sector who will profit. Complex vertical investments are forecast to be the most successful, ie the investment not only in the cultivation of crops, but also in their storage, processing, sale, and manufacturing of machinery and fertilisers. Such agro-industrial co-operation pays off in other countries and allows management of costs of production through the entire chain, from field to consumer. This integrated model reflects the economic structures of the former agro-industrial complexes which remain. An unusual aspect of investing in agricultural land in Ukraine is that before purchasing, it is advisable to carry out an inspection of the land for radioactive and other pollution, and evaluate whether it is viable to produce environmentally friendly and economically profitable agricultural products. However, the ‘less pure land’, which can be used for biofuel production, will be cheaper. Many believe that given its immense potential and development prospects, the time is now ripe for Ukraine’s agrarian sector to take its rightful place in European and world markets. UBi Contributed by Nataliya Polyanskaya, Partner,Valuation Advisory, Baker Tilly Ukraine AC E-mail: Nataliya.Polyanskaya@bakertillyukraine.com

Access to the EU – at what price? Ukraine and the EU have been negotiating an Agreement to create a Free Trade Area for almost two years. When completed, the scale of the move could be comparable to Ukraine’s accession to the WTO. UBI looks at what is at stake for Ukraine On 18 February 2008 the then European Commissioner for Trade, Peter Mandelson, and Ukraine’s President,VictorYushchenko, formally launched negotiations for a Free Trade Area Agreement between the EU and Ukraine. The launch almost immediately followed the completion of Ukraine’s accession process to the WTO on 5 February 2008 (Ukraine officially became the WTO member 16 May 2008 after 14 years of talks), which was a necessary precondition for the start of the EU-Ukraine FTA negotiation process. The FTA is envisaged to become a key part of the future Association Agreement between the EU and Ukraine (under negotiation since March 2007). Despite being unable to offer Kyiv the prospect of membership in the near future, the EU still wants to keep the country involved in the integration process by providing an access to the European markets for goods, capital and services, as well as to give Ukraine an opportunity to integrate economically. Prior to the latest global economic crisis the EU was Kyiv’s largest trading partner, consuming almost 30% of all Ukrainian exports (2008). These are traditionally dominated by metals and chemicals, appreciated for their low prices rather than their quality. In return, the EU dominated Ukraine’s imports with its 41% share represented predominantly by machinery and equipment. Deep and Comprehensive For the EU,an FTA is a standard instrument for cooperation with third countries, but Brussels calls the agreement negotiated with Kyiv “the most ambitious so far” and claims it will give Ukraine “a part of the EU’s internal market”. The area of free trade, subject to a successful conclusion of the Agreement, will see customs duties, taxes and charges, as well as volume restrictions for bilateral trade abolished. The FTA between Ukraine and the EU is intended to become the first in a range of “deep and comprehensive” trade agreements,

Philippe Cuisson and Valeriy Piatnytsky

as it will involve not only removing barriers for trade but also providing for harmonisation and approximation of Ukraine’s regulatory and legal environment with that of the EU. Ukraine already has bilateral agreements on free trade with almost all the former Soviet republics and some Free Trade Associations, but, as Kyiv admits, they are mostly partnership declarations which have no provisions for such important issues as, for example, state procurement or dispute resolutions. The future FTA Agreement with EU will have all that and much more. The talks on a future FTA are held within working group sessions, alternating between Kyiv and Brussels. A Test for Business and State Implementing the FTA Agreement could be a rather costly and painful business for Ukraine. The country will need to spend time and money in order to harmonise its legislature in line with numerous European acquis [laws and regulations]. Currently Ukraine is not ready to fully liberalise its markets for European goods and will be opening its markets for industrial goods gradually by introducing transitional periods. But even with the latter possibly in place, some observers argue that the FTA might simply kill those Ukrainian SMEs who would not be able to withstand competitive pressures coming from European businesses and goods.

The new FTA Agreement with the EU will become a challenging test both for the Ukrainian government and businesses. The latter seem to be slow in awakening to the new realities which the Agreement with the EU might bring along. However, some of sectors, representing mostly “old and traditional” sectors of Ukraine’s economy, are already calculating possible losses – for heavy industry, car making, and, most of all, agriculture. Agriculture – a breakthrough force or a stumbling block? In most of the existing FTAs, free trade rules either exclude agricultural produce or apply “a special treatment” in relation to them. Agriculture is especially important for Ukraine, as it is in agriculture Kyiv feels it could be most competitive trading with the EU, and it is in this very sector that the country might be able to achieve the GDP growth it needs so badly. But it is agriculture which seems to be a major stumbling block at the FTA talks between Kyiv and Brussels. With all the EU’s declarations about the willingness to see Ukraine as a prosperous neighbour at its door-step, no one seems to have any illusions that the Commission would compromise the interests of its own five million farmers (the memories remain fresh regarding last year’s riots by European farmers pouring milk in the streets of Brussels’ diplomatic quarter in protest against a gradual introduction of a free market

October/November 2010 UkraineBusiness insight

EU REPORT for European farm products). Plus, a powerful European agricultural lobby representing French, German and Italian agriproducers is closely watching this space, alarmed by the prospect of increasing competition coming from Ukrainian produce. Some Ukrainian observers go as far as pointing to recent scandals about Ukrainian sunflower oil and corn in the EU as an evidence of efforts to discredit the country’s agricultural industry made by the above lobby. Back at the negotiation tables the sides have agreed to cut tariffs for the majority of goods and the EU says it is ready to offer Ukraine immediate and full liberalisation for up to 95% of product lines. What remains is the group of so-called ‘sensitive’ products, not surprisingly - mostly agricultural, where each side is keen to protect its market or push into each others’ territory.There are up to 400 of these sensitive products and the EU says it won’t be able to give Ukraine full liberalisation, but would offer quotas (TRQs) instead. These will remain a subject of “other treatment” (OT”) or a transitional period of 10 to 15 years. The Ukrainians claim that the quality of their agricultural produce is much higher than that of many EU products. They say that the EU has already had excellent access to their market, enjoying a low 10 % duty on agriproducts. Inside Ukraine, there are major concerns raised by the country’s agricultural lobby regarding the prospects of domestic sunflower seed and corn production. Alex Lissitsa, President of the Ukrainian Agribusiness Club Association says that, should the proposed Agreement be signed on existing terms, with the abolition of export duties on a range of products which are strategically important for Ukraine, then the domestic price of sunflower seeds, for example, could go up by 70% to 80%. In the worst-case scenario, the Ukrainian domestic market could see price increases for fats and oils as a whole of some 350% to 400% warns the Ukrainian agricultural lobbyist. Lissitsa’s Association claims that the FTA Agreement with the EU does not take into consideration the interests of Ukrainian farmers and consumers – an opinion reportedly shared by some informed industrialists. The remaining majority is either too preoccupied with immediate needs to deal with the impact of the recent crisis or complain they are neither consulted nor informed about the FTA negotiation processes. As a result, the government in Kyiv

acknowledges the danger of ill-informed opinions being created regarding the potential benefits or downsides of the new FTA Agreement, especially, among Ukrainian SMEs. In general Ukrainian businesses may well be excited by the prospects of concluding the FTA Agreement, but in reality it may be that only a few of them will benefit, especially from a short-term perspective, with one of the key issues remaining – the low quality of Ukrainian goods. This issue could be almost insurmountable for most Ukrainian SMEs. At the same time, most of them agree there is no alternative to joining the FTA with the EU - if Ukraine wants to become prosperous and competitive - but the questions remain - “On what terms, and what is the price to pay?”

“Ukrainians may find that they

have to bid farewell to product names that millions have been familiar with since the Soviet times

”

In the light of the FTA talks Ukrainian businesses insist that protection of the domestic economy, in particular, its car industry, should become a priority for the state. Kyiv points to the fact that banks in Germany and France are happy to extend lending to support their respective car industries, and, as a result, Kyiv is reported to believe that it is European carmanufacturers together with EU agricultural establishments who are in the most comfortable position. So far Ukrainian negotiators have managed to block all efforts to use the future FTA to push through EU car exports to the Ukrainian market, claiming tariffs on cars in Ukraine are already as low as possible. Protecting GIs With the country set to join the FTA with the EU, Ukrainians may find that they have to bid farewell to product names that millions have been familiar with since the Soviet times. Shampanskoye (Champagne wine) and konyak (brandy) might be the first to go - the EU regulations protect its Geographic Indications (GIs) - products traditionally produced on specific regions for centuries following established methods and recipes. With the FTA Agreement in place Ukraine would undertake an obligation not only to stop production or rename its domestic namesakes, such as Champagne wine or Provencal mayonnaise, but would have to protect its market from the flow of such goods

UkraineBusiness insight October/November 2010

with “conflicting” names coming from its neighbours – in particular, Russia – where such provisions would not be in place. Protecting GIs is a new topic for Kyiv, especially in a situation where the number of names to be protected from each side is not comparable – Europe is not familiar with any Ukrainian proprietary product, except possibly, horilka (vodka produced with spices, including pepper, honey, etc. Whereas Ukraine might find it extremely difficult to compete with the flow of authentic European Parmaggano cheese, Madeira wine or Wiener sausages. The issue is creating a big headache for Kyiv and a million dollar question for the Ukrainian negotiators at the FTA table could lie in deciding what Ukrainian producers would be prepared to lose. “Negotiations = Trade-Offs” Irrespective of the hopes expressed in the spring of 2010 by Ukraine’s President Victor Yanukovych and the President of the European Commission, José Manuel Barroso, to have the FTA negotiations completed within a year, the actual negotiators from both sides prefer not to comment on any dates.“We are after a quality agreement and protecting our interests is a priority for us”, says Valeriy Pyatnytsky, Ukraine’s deputy minister of Economy and the chief Ukrainian negotiator at the FTA talks with the EU. “When we talk negotiations, we mean trade-offs”, insists the Ukrainian deputy minister. It is these mutual trade-offs the Ukrainians put their faith in as each side approaches the final stages of the negotiations. Kyiv insists on ‘packaging’ the trade-offs and compensating concessions in one sector by reciprocity in another. In general, Ukraine believes it already has minimal quotas and claims it is ready for trade-offs in fish, dairy and meat – in exchange for immediate liberalisation and less tariff quotas (TRQs) from the EU. During October both the Ukrainian and the EU side are expected to bring “an improved” offer to the 13th round FTA negotiations’ table (to be held in Kyiv). One more round is due to follow in Brussels in December this year. The sides will undertake further discussions on volume quotas, and the talks are likely to become even more intense with more business (and political) interests at stake. Ultimately, the prize of the game for Ukraine lies in joining the world’s biggest free trade area with a 500 million strong market of potential customers. UBi

Rinat Akhmetov The New Ukrainian The hundred richest Ukrainians have about as much money as the five richest Russians. But the richest Ukrainian, Rinat Akhmetov, might be the 24th richest man in the world (if one were to insert Korespondent’s data into Forbes’s rating) and the ninth richest European (according to the same logic). Akhmetov is worth US $17.8 bn (according to Korespondent’s calculations) – US $2 billion more than the richest Russian, Vladimir Lisin, who also got his money from metallurgy plants but ‘only’ has US $15.8 billion (according to Forbes). However, according to Forbes, Akhmetov only has US $5.2 bn. Estimates of Akhmetov’s wealth vary wildly. But Ukrainian experts are more inclined to believe the rich lists compiled by Ukrainian companies, since those have a more realistic idea of what things might be worth. So here we will assume that Korespondent has it right, and Rinat Akhmetov is the richest Eastern European. The richest Ukrainian is an ethnic Tatar and a Russian speaker. Rinat Akhmetov likes to talk about football and rarely, if ever, agrees to be interviewed about anything else. He is an owner of Shakhtar-Donetsk football club and an active participant in preparations for the Euro 2012 football championship. As with many Ukrainian oligarchs, not that much is known about his early years or about his private life today. He is married and has two sons. His mother, apparently, still lives in their home village of

Oktyabrsky - a worker’s settlement named after the ‘Great October Revolution’ - in Donetsk region. There is some information on his childhood and teenage years, but its difficult to substantiate and venturing there is not without its risks. Akhmetov sued the Ukrainian-based website Obozrevatel, alleging that the website defamed him in a series of articles about his early years, and he won US $100,000 damages plus legal costs. The articles describe Akhmetov’s village as a very dangerous place in the 80s and 90s and a pretty gloomy corner of the world today.They are still online today and mention young Rinat’s love of football, boxing and cards. In one of his very few media interviews, the man himself told the Ukrainian ‘Mirror Weekly’ in 2000 that a popular game of ‘fool’“stretches the brain”. His early career is also shrouded in mystery, and assumptions made appear to be based upon rumours, whispers and disputed facts. Even the Obozrevatel articles, which the London High Court of Justice say defamed Akhmetov, mostly tell about his reluctance to be interviewed or talk about those years.

According to his official biography, Akhmetov graduated from the economy faculty of the Donetsk State University at the beginning of the 1990s. In Ukraine, especially in the East, those were the times of gangs, often ethnic, violent crime and shady privatisation. Rival gangsters or businessmen often died in gang disputes. On the 15th of October 1995, a bomb in the Shakhtar football stadium in Donetsk killed Akhmetov’s long-time friend, mentor and associate (according to himself and people who knew them both) Aleksandr Bragin, also known as Akhat’ Bragin, or Alek Grek. Akhmetov, as his second-incommand, replaced him at the helm of their Luks firm and as the president of Shakhtar-Donetsk football club. This was the first time Akhmetov’s name appeared in the mainstream media. In his own words, “I earned my first serious money after founding Dongorbank [Donetsk City Bank – UBI] in 1995.…I learned my most valuable lessons from all the intelligent people fate brought me together with,” (Mirror Weekly, 2000). From Dongorbank and Shakhtar football club in the space of several years Rinat

October/November 2010 UkraineBusiness insight

profile Akhmetov built a massive business empire. In 2000, he founded SCM (System Capital Management), now one of the biggest industrial groups in Ukraine, of which he is the sole owner. The company’s website states that SCM employs 150,000 people and had an annual profit of US $8.151 bn in 2009. Akhmetov told Korespondent magazine that he controls around 140 companies. One of SCM’s biggest companies is Metinvest which owns several steel and mining businesses and has assets in the USA and several European countries, including the UK. In Ukraine, Metinvest owns Azovstal and Yenakieve steel works, Krasnodonvuhillya coal mining company, several iron ore companies, and Khartsyzs’ Pipe Works among others. Another arm of SCM, DTEK, is an energy business, “The first private vertically integrated energy company in Ukraine,” according to its website. It mines over a quarter of Ukrainian coal, controls almost half of the country’s thermal generation market and distributes about 8% of its electricity. The financial businesses of SCM, apart from Dongorbank, include First Ukrainian International Bank and ASKA insurance. He also owns the /Donbass Palace’s luxury hotel where you might stay when you go to see the Euro 2012 football matches in Ukraine. SCM also controls ‘Segodnya’, one of the most popular national daily newspapers, and Kanal Ukraina TV channel which has a smallish audience but with rapid rates of growth. Akhmetov’s name has attracted some controversy. In 2004 the consortium Investicijno-Metalurgichny Soyuz, created jointly by Akhmetov’s SCM and another oligarch, the then president Kuchma’s son-in-law Viktor Pinchuk (No. 4 on the Korespondent’s rich list), made what must be their most notorious purchase. They bought Ukraine’s largest steel company Kryvorizhstal for UAH 4.26 bn (around US $800 m). After the Orange Revolution, the fiery new PrimeMinister, Yulia Tymoshenko, declared the deal fixed and re-privatised the company for almost US $5 billion. Forbes priced it at US $3.5 bn at the time. The buyer, Mittal Steel, must have questioned the value of this investment when steel prices tanked before recovering.

During the Orange years, Rinat Akhmetov got along with President Yushchenko, but not with Prime Minister Tymoshenko. She waged a more obvious war against Dmytro Firtash (see the June/July 2010 edition of UBI), but seemed to have a strained relationship with most oligarchs. Yet he borrows money and trades stock in the West (according to the FT, he raised nearly US $2 bn last summer through Eurobonds and syndicated loans). Akhmetov also has Westerners on his SCM staff, and his steel business is dependent on the Western exports. When his Party of Regions’ comrade Viktor Yanukovych finally became President, some analysts in the West considered Akhmetov to be the ‘winner’ of these elections. But there are some signs that the richest oligarch would prefer to live in a slightly different country than the one Viktor Yanukovych’s team is very fast building. Like Viktor Pinchuk, Rinat Akhmetov has been making efforts to move away from the image of the nouveau riche, the source of whose first money is not clear, and rebrand himself as a progressive force for Ukraine. While Pinchuk has been financing modern art projects and prizes, anti-AIDS campaigns and YES (Yalta Economic Strategy forum), Akhmetov has sought to offer his country a vision of its economic development. In 2006 his SKM group initiated the creation of BEST, Bureau of Economic and Social Technologies, a think tank which consulted the then Party of Regions’ leader Viktor Yanukovych and Akhmetov himself. Its former head Iryna Akimova went on to chair the Committee for Economic Reform for the current government. She is sceptical about the possibility of a custom union between Russia, Ukraine, Belarus and Kazakhstan, and one can only assume that this opinion is shared by Akhmetov. Another Akhmetov-sponsored thinktank, Effective Management Foundation, presented a paper called ‘The Concept of Economic Development of Ukraine’ to great fanfare in 2008. This vision of a liberal economy, reduced role for the state, and an independent judiciary, was meant to become the basis for the future Yanukovych election manifesto. But it did not.

UkraineBusiness insight October/November 2010

A political consultant - who does not wish to be named - says: “Ostensibly all the oligarchs are in the same stall, in the Party of Regions, and there is not much competition among them. But if you look closer, you will see that one of them has done the best out of the latest election, and it is Dmytro Firtash. His group of influence includes Valeriy Khoroshkovsky, the head of the Security Service; Serhiy Lyovochkin, the Head of President’s Administration [formerly Secretariat – UBI] etc. He has under his belt a decision in his favour by the Stockholm Arbitration Institute that the state of Ukraine owes citizen Firtash about US $5 billion.” She adds that Akhmetov’s side feels a little bit unappreciated. His most prominent ally in power is Borys Kolesnikov, Deputy Prime Minister in charge of the Euro 2012 championship. There is some indication, however, that Kolesnikov might be considered for a Prime-Ministerial position once the current head of government, Mykola Azarov, falls out of favour completely. But it is doubtful that President Yanukovych, however grateful he might be for Akhmetov’s support, will want to make him too strong. Political analyst Viktor Nebozhenko says that President Yanukovych is,“afraid to repeat the fate of Kuchma and Yushchenko, when the oligarchs morphed the Ukrainian state through corruption, control of the media, their parties etc. And he wants to oppose them with the help of the Russian security services, Putin, Medvedev, Russia. He hopes to contain the Ukrainian oligarchs this way. He cannot fight Akhmetov himself, but he can put Putin up against Akhmetov.” There is little doubt that Akhmetov – whose businesses have been actively exploring opportunities in the West – has a big role to play in the future of the Ukrainian state, not only the economy. His support has been crucial for the popularity of the Party of Regions and Yanukovych’s victory. But watching Russia and the fate of its oligarchs, especially Putin supporters, mus have made Akhmetov contemplate the drawbacks of absolute power. Many suggest he may be the only oligarch interested in preserving democracy in Ukraine. One analyst suggests, “Akhmetov may be the first to finance a new opposition as soon as someone promising comes along.” UBi

Ukraine’s Rich: Steel, Bread and Politics In the short time that post-soviet Ukraine has allowed capitalism, several people have amassed fortunes, some transparently, some less so. UBI has been given permission to enlarge upon the rankings from this year’s Ukraine Rich List, ‘100 Richest Ukrainians Of Our Days: The First Post-Crisis Year’, first published in Russian by Korespondent

2010 sees the return of many familiar names; some fortunes have been revived and are back to their pre-crisis tally of zeros, and some businessmen have diversified into more crisis-prone industries. Like any rich list, UBI recognises that the following is only an approximation of the actual situation. Korespondent, one of the most respected Ukrainian magazines, teamed up with Dragon Capital to estimate the worth of the top hundred businessmen and women. These estimates can be significantly different from the figures published using other methods of calculation and evaluation of assets, for example, those used by Forbes magazine or by the Polish Wprost are different. Neither of these lists or indeed this on, is, or can be, absolutely correct.The reader should therefore allow for a large margin of error dependent upon how assets are valued, and even the level of public acknowledgment of ownership – likely to become an increasing problem in the

future when personal tax levels will need to be reconciled with reported ownedcompany performance. Nonetheless, Korespondent’s list provides a fascinating illustration of the business community in Ukraine. Here we look at the first 50 of Korespondent’s list with a brief profile, with No 1 – Rinat Akhmetov – profiled in more detail on page 25. We have tried to include the year and place of birth, where possible, to show the regional spread of wealth and underline the youth of Ukrainian capital. Again, where possible, we have also noted the party affiliations and government/legislature positions of the richest Ukrainians. In the changing landscape of Ukrainian politics keeping track of movements

between business and politics is not an easy task. But it is obvious that most rich Ukrainians are closely linked to one or another political force or a succession of forces. “The wealth of an average member of the new power team is probably ten times as much as during any other government.” the former advisor to presidents Kuchma and Yushchenko and the President of the Centre for Economic Development, Oleksandr Paskhaver, told UBI. “We are seeing an almost complete confluence of the oligarchy and power.” On this list there are members of parliament, deputy Prime Ministers, and, unusually, SBU (Security service of Ukraine) chief Valeriy Khoroshkovsky (No. 14).

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Ukraine Rich List

popular ICTV, and others. His wife famously bought an £80 million detached house in Kensington, in 2008, the most expensive property in London at the time. Born in 1960 in Dnipropetrovsk, married, has two daughters and a son.

No. 5, Kostyantyn Zhevago

Another point worth noting is the number of multi-millionaires in agriculture. Experts say that agriculture was the only business in Ukraine which grew during the crisis. Some 20 percent of people on the list gained their wealth through agriculture. 1. Rinet Akhmetov: US $17.8 billion. See page 25. 2. Ihor Kolomoysky: US $6.5 billion. Steel, finance, food industry, mass media, energy, chemicals Ihor Kolomoysky is most often in the news due to his media-businesses. He bought one of the most popular TV channels in Ukraine, Studio 1+1, along with a TV channel ‘Kino’, for under $300,000. He is the owner of the Glavred-media holding. Kolomoysky’s main assets are controlled by the group Privat. He owns just under a half (49.154%) of Privat-bank - the biggest commercial bank in Ukraine. Recently, he has been reported to have bought a resort and a bank in Georgia. In 2009, Kolomoysky won the right to privatise the Odesa Port Plant. The US $ 5 billion deal, however, never happened - the then Prime Minister Yulia Tymoshenko annulled the auction’s results. He is also one of the biggest patrons of football and basketball in Ukraine. This year, Group Privat has begun investing in Budivelnyk - Kyiv’s hockey club. Kolomoysky also has an Israeli passport which he openly admits. He might also be the richest Israeli. Born in 1964 in Dnipropetrovsk. Married, has a daughter and a son.

3. Hennadiy Boholyubov: US $6.3 billion Steel, finance, chemicals, fuel and energy sector, food industry, retail, mass media Hennadiy Boholyubsky is a partner of number two on the list, Ihor Kolomoysky, and owns 48.997% of Privat-bank. According to reports, last April Privatbank’s assets reached UAH 92 m - which is about 11% of the entire banking system of Ukraine. Other assets include dozens of companies in Ukraine and abroad, including Russia, USA, Poland and Romania. He also has assets in chemical industries and manganese in Australia. He is connected to Dnipropetrovsk. Born in 1962 in Dniprodzerzhynsk, Dnipropetrovsk region. Married with four children. 4. Viktor Pinchuk: US $3.1 billion Steel, mass media, finance Time magazine has included Viktor Pinchuk into its ‘Thinkers’ section of the 100 Most Influential People in the World list. The Viktor Pinchuk Foundation is the largest philanthropic foundation in Ukraine. He is known as the organiser of the Yalta European Strategy - an influential annual meeting called to discuss Ukraine’s European ambitions – a supporter of the arts and an AIDS campaigner, together with his wife Olena, the daughter of ex-President Kuchma. He attempted to privatise Kryvorizhstal steel works at the end of Kuchma’s time in office, but the succeeding government annulled the privatisation. His businesses include the Interpipe Group with assets in steel and pipes, several TV channels, including the

UkraineBusiness insight October/November 2010

5. Kostyantyn Zhevago: US $2.4 billion Steel, retail banking, chemicals, pharmaceuticals, machinery construction, agriculture Kostyantyn Zhevago is one of the first Eastern Europeans to list his company (Ferrexpo) on the London Stock Exchange. He did so in 2007 when Zhevago was only 33. “Zhevago was one of the big winners in the privatisation of state-owned assets after the break-up of the Soviet Union. In his twenties he owned a stake in a securities house and bought shares from workers in numerous undervalued industrial assets. He identified his targets by going to Ukraine’s customs and excise department to discover the 300 biggest exporters” - wrote the Times newspaper at the time. Zhevago controls one of the largest banks in Ukraine - the ‘Finances and Credit’. Forbes magazine has named him the youngest self-made multi-millionaire in Europe. Zhevago has been an MP three times and is still a member of the Ukrainian parliament, in Yulia Tymoshenko’s bloc (which did not stop him from attending President Yanukovych’s birthday party this summer). According to yet another rating, by Fokus magazine, he is one of the three top absentees from the parliament, after Rinat Akhmetov (No 1 on the richest list) and Andriy Verevsky (No 13). Born in 1974 in Magadan, Russia. Married, has a son and a daughter. 6. Viktor Nusenkis: US $2.3 billion Steel, food industry Viktor Nusenkis returned to the top ten of the rich list this year after his assets in steel regained some of their earlier value (in 2009 he was number 11 on Korespondent’s list). Another factor which helped him climb the wealth ladder is new information. Korrespondent reported that Nusenkis bought his partner Hennadiy Vasilyev’s share of Donetskstal Industry Group several years ago, and another man thought to have owned a share of the group, Leonid Baysarov, has always been a hired manager. Nusenkis’s

Ukraine Rich List

businesses make steel, mine coal in Russia, and construct mining equipment in the Czech republic. His agricultural holdings grow grain, rear sheep, horses, poultry, bees, make ice-cream, blinis and cakes. There is little other information about him; it is uncertain where he lives now - in Ukraine or Russia, and where else he might also have businesses. Born in 1954, connected to Donetsk. Married, has a son. 7. Oleksiy Martynov: US $2.1 billion Steel, fuel and energy Oleksiy Martynov is yet another rich man of whom very little is known. A member of Privatbank board since 2000, he personally does not own that many shares but some companies with which he is said to be affiliated reportedly own a significant minority. He is a board member for a Moscow commercial bank, Moskomprivatbank. He also oversees the steel and ferroalloys businesses of Privat group (where he is a partner of Kolomoysky and Boholyubov). Born in 1966 in Russia, studied in Dnipropetrovsk. Widowed, has a daughter. 8. Vitaliy Hayduk US $1.5 billion Steel, real estate Korespondent sees the future of this billionaire in politics. This year his company Vis-A-Vis sold its 30% share in Industrialny Soyuz Donbasu (ISD) which this year lost some court cases brought on by Rinat Akhmetov’s holding company and as a result had its assets frozen. Now Mr Hayduk can indeed return to the modest official salary of a Ukrainian statesman, and rumour has it that he wishes to do so. He has already served as a Secretary of the Security Council under president Yushchenko, and used to be a member of the Party of Regions and a minister in Viktor Yanukovych’s government before the Orange Revolution. He still owns some non-ISD businesses. Born in 1957 in Donetsk region. Married, has a son and a daughter. 9. Yuriy Kosiuk : US $1.3 billion Agriculture Almost every second Ukrainian chicken begins and ends its life in this young billionaire’s factories: he controls 40% of

the home market (TM Nasha Ryaba). His Myronivska chicken factory, with a capacity of 200,000 broilers a year, is considered super-modern, and he plans to build another, twice the size of the first. His company Myronivsky Hliboproduct has been buying grain farms and plans to further increase the output of affordable chicken. However, his luxury food businesses have been hurt by the financial crisis. (Also see interview this issue p9). Born in 1968 in Kirovohrad region (according to other sources, in Cherkasy). Married, has a son. 10. Oleksiy Vadatursky: US $1.1 billion Agriculture Vadatursky’s company Nibulon, which started as a quality seed seller, now accounts for one-fifth of all Ukrainian grain exports. The former Mykolaiv state servant responsible for bread started his own business in the 90s in an area he had been familiar with, unlike many others. He claims that making Ukraine one of the biggest producers and exporters of high-quality grain is his life’s ambition (Ukraine exports mainly soft wheat, which is not used for bread in the West). He started building his own fleet for transportation during the crisis and at the beginning of 2010 already had 16 vessels. He also invested in grain terminals on the Dnieper river. Korespondent writes that his company’s investments total $470 million. He has said, however, that Ukraine’s government has not supported their investments.

still co-owns just over 49% of ISD shares together with Oleg Mkrtchyan (No 12). Born in 1955 in Donetsk region. Married, has two daughters. 12. Oleg Mkrtchyan: US $1.06 billion Steel, mass media Mkrtchyan is the third former beneficiary of ISD. Apart from that holding, he is building a plant in his native Kuban region of Russia which, according to his plans, will produce a tenth of all Russian MDF-based wood panelling. Born in 1966 in Krasnodarskiy Kray, Russia. 13. Andriy Verevsky: US $987 million Agriculture The co-owner of Kernel Group claims that his business’s capitalisation surged over the last year. In 2010, Kernel Group acquired one of the biggest sunflower oil exporters, Allseeds company. Verevsky has been an MP thrice but never showed preference for opposition factions (in 2007, he was elected as a member of Yulia Tymoshenko’s bloc but has since joined the pro-government coalition). He is rumoured to favour his company office over his Verkhovna Rada seat. Born in 1974 in Poltava. Married with three children. 14. Valeriy Khoroshkovsky: US $804 million Mass media

Born in 1947 in Odessa region. Married, has a son. 11. Serhiy Taruta: US $1,06 billion Steel, mass media, football Vitaliy Hayduk claims that he sold his part in ISD (Industrialny Soyuz Donbasu) to his partners, Serhiy Taruta and Oleg Mkrtchyan. But Taruta did not hold on to the stock for long – in January 2010 Taruta, as the president of the board of directors, he concluded the sale of 50% plus 2 shares to a group of Russian investors. The crisis hit ISD hard, and the sale was meant to pay off the debt to the Russian Vneshekonombank. The new investors brought in some Russian business, but the court cases won by Akhmetov’s companies and the freezing of ISD’s assets mean more hard times ahead. His reasonably good relationship with the Orange government is unlikely to help. He

Khoroshkovsky is the head of the SBU, Ukraine’s security service. His combining that role with the ownership of UA Inter Media Group Limited (IMG) drew massive criticism and accusations that Khoroshkovsky uses the SBU to suppress rivals (an accusation that he denies). The two TV channels, 5 kanal and TVi (which just happen to be the two channels with the

October/November 2010 UkraineBusiness insight

No. 21, Serhiy Tihipko

most independent editorial policy, even if they don’t have the most viewers) claim that they lost some frequencies, awarded, previously, because of Khoroshkovsky’s interference. He counters, with some support from observers, that their additional frequencies were awarded with irregularities. At any rate, his group owns 9 TV channels including the most popular one, Inter. Born in Kyiv in 1969. Married, two sons and a daughter.

that Kharkiv needs to host the Euro 2012 football matches. His business group, DCH, owns much of the former UkrSibBank assets, including banking, heavy industry, construction and development. He was a member of the last Parliament. Born in 1959 in Mariupol, Donetsk region. Married, has a son. 16. Leonid Chernovetsky: US $776 million Banking, real estate

Born in 1951 in Kharkiv. Married, has a son and a daughter. 17. Yevhen Sihal: US $712 million Food industry For Sihal, Ukrainian chickens lay golden eggs. His company Havrylisvky Kurchata has opened more than 600 franchises during the last 2 years. He is looking to increase exports of poultry to the EU. Has been an MP three times, and is still in parliament in a BUT faction. Born in 1955 in Kyiv region. Married.

15. Oleksandr Yaroslavsky: US $797 million Chemicals, construction, steel, sport

The owner of Kharkiv’s football club Metalist is pretty vexed by the Ukraine Football Federation who took 9 points from his club over a 2008 match with Karpaty, which was judged to have been fixed. He says he is going to fight the decision which had the national team coach resign in protest. Yaroslavsky’s group is the main investor in building the infrastructure

Chernovetsky sold his main asset, Praveksbank, two years ago for $750 million and claims not to hide his wealth. However, his ever-diminishing income declarations have drawn the attention of the media. Scandals and accusations are never far away from the eccentric Kyiv mayor who remains in this post despite dwindling popularity. He is known as Lyonya Kosmos (Space) for his unorthodox ideas. The New York Times in a 2009 interview wrote: “Chernovetsky seemed a little off. For much of the interview, he would not look at his questioner, speaking in almost a monotone while staring at the floor.”

UkraineBusiness insight October/November 2010

18. Oleh Bakhmatyuk: US $700 million Food industry Avangard Agro-holding owns 19 poultry factories, 9 farms and 3 incubators. Oleh Bakhmatyuk estimates that his holding controls 23% of the country’s egg market and 52% of dried egg market. This year he sold 20% of the company’s shares on the London Stock Exchange. Avangard exports its produce to 16 countries, mainly the Middle East and Asia, but it has European ambitions. Bakhmatyuk came to agriculture from gas and energy; he used to own regional energy firms and had a stint in the state gas company Naftohaz Ukrainy. Born in 1974 in Ivano-Frankivsk. Married, has three daughters. 19. Heorhiy Skudar: US $670 million Heavy machinery manufacture The president of the Novokramatorsky Machine-Building Plant has metal companies in Ukraine and abroad among his clients. Lately, according to him, the

Ukraine Rich List

plant has been losing money – to an extent, Skudar says, because of the nonreturn of VAT which he is entitled to as an exporter. But this year the business climate must be warmer for this MP in the ruling Party of regions. Born in 1942 in Chytinskaya region, Russia. Married, has two daughters. 20. Volodymyr Boyko: US $589 million Steel, agriculture

22. Ivan Huta: US $519 million Agriculture Ivan Huta’s holding Mriya has major ambitions with plans to invest in new grain terminals, new machinery, and rent a lot of new arable land. Mriya (Ukrainian for ‘dream’) dreams of another sugar plant to add to the six it owns already. Born in 1956 in Ternopil region. Married with two sons. 23. Valentin Isak: US $499 million Construction, finance His construction company is called Stolytsya (Capital), but it has also a major presence in Cherkasy and some other regions. Both Isak’s businesses suffered in the crisis but seem to have somewhat recovered, and Stolytsya is planning to finish the construction of a residential complex Mykolaiv. He is an enthusiastic builder of Orthodox temples, but merchants are not banished from under his roof either. Together with his partners Isak has built a huge commercial and entertainment centre in Kyiv which was given an English name - Dream Town. Born in 1951 in Moldova. Married, has two daughters.

Boyko’s biggest asset – Mariupol steel plant ‘MMK imeni Illicha’ – has been a subject of a raider attack, according to the man himself. A Russian business group bought out Illich-Stal, the company which controlled MMK imeni Illicha. Other unsubstantiated sources claimed that he sold Illich-Stal to the Russian group voluntarily but did not want to disclose the deal. Born in 1938 in Mariupol, Donetsk region. Married, has a daughter. 21. Serhiy Tihipko: US $566 million Banking, insurance, construction, steel Deputy prime-minister in charge of economy, Tihipko finished third in this year’s presidential elections. Both the winner Viktor Yanukovych and the runnerup Yulia Tymoshenko claimed before the second round that they would invite Serhiy Tihipko into their government. Tihipko has a lot of experience both in banking and politics. Born in 1960 in Moldova, connected with Dnipropetrovsk. Married, has four children.

24. Anatoliy Yurkevych: US $469 million Food industry, retail, machine building, IT Anatoliy Yurkevych estimates the annual turnover of his 11 milk processing factories as US $400 m. Over a half of this turnover is provided by his only factory in Moscow, Russia. He also has a small chain of six supermarkets ‘Kray’ and one hypermarket ‘Krayina’. He owns the shopping and entertainment centre chain Magellan and a building and development company City State.

might prove beneficial for him. He is also an MP for the Party of Regions. Born in 1938 in Kazakhstan, married, has a son. 26. Olha Nechytaylo-Ridzhok: US $411 million Food industry, retail, distribution The first woman on the rich list is also the richest horilka (vodka) maker. Her group of companies Bayadera (TM Khlibny Dar) has achieved a 24.4% market share according to the Ukrvodka association, thus becoming a leader in the country (the main competitors, Khortycya, contest these figures). Her son manages the Eko chain of supermarkets which belongs to Bayadera. Born in 1953 in Horlivka, Donetsk region. Married, has a son. 27. Oleksandr Hereha: US $400 million Retail Building hypermarkets Epicentr, Hereha’s 22-store YI empire, employs 14,000 people. The new Epicentr store in Kyiv, opened in 2009, was hyped as the largest in the world, with 56 thousand square metres of space. This year, Oleksandr Hereha has made some inroads into the Polish linoleum market. Connected to Khmelnytsky region. Married, his wife Halyna is his business partner. The couple have a son. 28. Tariel Vasadze: US $390 million Automobile industry

Born in 1968 in Kazakhstan. Married, has two sons and a daughter. 25. Vyacheslav Bohuslayev: US $453 million Aircraft construction Bohuslayev’s Zaporizzhya based company Motor Sich is likely to be involved in the construction of every Ukrainian plane. It produces more than 50 types of motors for over 60 types of planes and helicopters used in a hundred countries around the world, with Russia being the biggest customer. The recent decision by Kyiv and Moscow to bring together their aircraft building

Tariel Vasadze is having to economise as car sales in Ukraine have dropped 75%, and production has fallen more than 80%. Vasadze’s UkrAvto group has decided to close another six branches. Perhaps due to the cuts the owner of the group received more than UAH 5 m profit in 2009. He is serving his third term in parliament as an MP for Yulya Tymoshenko’s bloc. Born in 1947 in Georgia, has a daughter and a son.

October/November 2010 UkraineBusiness insight

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Ukraine Rich List

gas intermediary money to the tune of US $5 billion or enough gas to last the whole country for three months. The controversial decision of the ex-premier Yulya Tymoshenko to expropriate the gas from RosUkrEnergo storage has come back to haunt the government of her successor, Mykola Azarov. Other Firtash businesses also suffered under the government of Tymoshenko who was famously hostile to this oligarch. In the last elections, however, the once Orangefriendly businessman returned to his former friends and today’s party of power, the Party of Regions. No. 36, Gregory Surkis

29. Petro Poroshenko: US $384 million Food industry, automobile industry, mass media The businesses activities of Petro Poroshenko’s group U k r p ro m i nve s t stretch from sugar to minibuses, from chocolate to television. His 5 Kanal, one of the smaller channels, has recently been hit by the reversal of the earlier decision to award them new frequencies. 5 Kanal was one of the few outlets for the then opposition during the Orange Revolution and keeps a relatively independent editorial agenda today. Poroshenko himself was rumoured to have been favoured by ex-president Yushchenko to become his first Prime Minister, but the post went to Yulia Tymoshenko. Poroshenko was made Secretary of the National Security Council instead. He was the last Foreign Minister of the last Tymoshenko government.

31. Eduard Shifrin: US $368 million Steel Like Dvoretsky, Shyfrin is one of the owners of Zaporizhstal through Guernsey-registered Midland Resources Holding Ltd. Like his Midland Resources business partner Aleks Shnaider, he has been trying to sell his assets which, according to Astrum Investment Management, suffered losses in the millions of dollars in the 2009 post-crisis period. He is known as one of the least public Ukrainian super-rich.

Born in 1965 in Odesa region. Married, has two sons and two daughters.

Born in Torez, Donetsk region, in 1961. Married, two sons.

30. Ihor Dvoretsky: US $372 million Steel, finance A beneficiary and deputy head of the board of Zaporizhstal steel plant, Ihor Dvoretsky is also a co-owner of Industrialbank. Recently he became interested in the pharmaceutical sector.

33. Dmytro Firtash: US $354 million Gas, chemicals, energy As with many Ukrainian oligarchs, not that much is known about Firtash (see the profile in the June/July 2010 issue of UBI) but his name is known very well. On the 19th of August, a Kyiv rayon court legalised the ruling in favour of his RosUkrEnergo supporting the decision of the Stockholm arbitrage institute. According to this decision, the state of Ukraine owes Firtash’s

Born in 1963 in Kamchatka, Russia. Lives and does business in Zaporizzhya. Has three sons and a daughter.

Born in 1960 in Dnipropetrovsk, lives in London. Married, has three children. 32. Mykola Tolmachov: US $358 million Agriculture, construction, winemaking Mykola Tolmachov is the principal owner of Sintal Agriculture.The company raised $34.5 million on the Frankfurt stock exchange last year, selling 15% of its stock.An ex-bricklayer and student construction brigade leader, Tolmachov – who, like many in construction, saw that side of his business sag and his assets lose value – is planning to use the new capital for agriculture.

UkraineBusiness insight October/November 2010

Born in 1965 in Ternopil region. Divorced, has a daughter. 34. Artur Abdinov: US $353 million Steel, finance A board member and co-owner of Industrialbank, Abdinov is also first deputy head of the board of Ekspres-bank and a board member of Khreshchatyk bank. He also has assets in steel and insurance. The 51year old Artur Abdinov graduated from the Simferopol university with a law diploma at 38 and received a degree in finance from an institute in Zaporizhzhya at 47. Born in 1959, connected with Zaporizhzhya. Married, two sons and a daughter. 35. Vasyl Khmelnytsky: US $340 million Real estate, agriculture, finance, investment Vasyl Khmelnytsky used to be the biggest producer of glass in the country. But in 2009, as the construction sector in Ukraine virtually ground to a halt and Chinese and Russian glass invaded the market, he sold his Lysychansky glass plant Proletar to a fellow Party of Regions member Serhiy Dunayev. Today, Khmelnytsky together with his partner Andriy Ivanov (54th richest Ukrainian, according to Kopespondent) controls assets in the food industry, real estate in the capital and banking, among others. He was elected to parliament with first the Green Party and then BUT, currently serving his fourth term as a Party of Regions MP. Born in 1966 in Kazakhstan, studied in Kyiv. Married, two sons. 36. Hryhoriy Surkis, Ihor Surkis: US $314 million Energy, finance, construction, sport, mass media

Ukraine Rich List

The brothers control several big oblenergos – regional energy distribution companies – and are among the main energy players in the country.They also have assets in banking, construction, and real estate. But the Surkis brothers’ main claim to fame is in football. Their FC Dynamo Kyiv has an annual budget of $68 million, but as they coyly explain, not because it is such a profitable team.The Surkis brothers played a big part in the success of the joint Ukraine-Poland bid for Euro 2012. Hryhoriy born in 1949 in Odesa, married, has a son and a daughter. Ihor born in 1958 in Kyiv, married, has two daughters. 37. Yevhen Chernyak: US $306 million Food industry, construction, metallurgy, retail Chernyak’s Khortycya horilka (vodka) is one of the market leaders, if not the leader (depending on who is counting). Chernyak has told Korespondent that Khortycya is rapidly paying off its debts. His companies also produce electrical filters, and he owns the Zaporizhzhya coloured metals plant and trades scrap metals. He claims never to have joined a political party. Born in 1969 in Zaporizhzhya, married, three sons. 38. Vitaliy Antonov: US $302 million Oil refinery, finance Antonov’s Khlibprom is the biggest breadmaker in Ukraine producing up to 8% of the nation’s bread. He is also the president of the board of one of the biggest petrol station owners, Concern Galnaftogas, which owns 300 Okko petrol stations. He also has interests in investment and insurance and is an honorary consul of Lithuania in Lviv.

Filya Zhebrovska (No. 44) which retained the copyright to the popular Korvalol heart drops. Born in 1951 in Poltava region. Married, has a son and a daughter. 40. Oleksandr Kardakov: US $275 million IT Oktava group of companies reported UAH 1.7 billion profits in the 2009 financial year. The profits came as the IT market in Ukraine had not even begun to recover from its near collapse in the crisis.The owner of the group, Kardakov, is optimistic about the future and predicts a sharp rises in demand when companies climb their way out of crisis. Born in 1964 in Kirovohrad region. Married, has a son and a daughter. 41. Vadym Yermolayev: US $266 million Construction, logistics, finance, food industry, agriculture Vadym Yermolayev’s Alef group has assets in several industries, including construction, logistics, alcoholic beverages and agriculture. The Dnipropetrovsk businessmen financed the campaign of the runner-up in the last presidential elections Yulia Tymoshenko. His candidate for the mayor of Dnipropetrovsk has also lost.Yermolayev has kept himself well hidden from the public eye. Born in 1967, connected with Dnipropetrovsk. According to Korrespondent, he is married, has two daughters and two sons. 42. Serhiy Buryak, Oleksandr Buryak: US $261 million Finance

Born in 1962 in Stryj, Lviv region. Married, two daughters and a son. 39. Volodymyr Zahoriy: US $297 million Pharmaceuticals Volodymyr Zahoriy’s Darnytsya pharmaceutical firm is the biggest in Ukraine, according to the firm’s website. The man himself has a kandydat nauk and doctor nauk degrees in pharmacy and is an active researcher with an interest in Ukraine’s pharmaceuticals legislation. In February this year Zahoriy’s Darnytsya lost a court case against Farmak pharmaceutical company of

billion, and finished the first quarter of 2010 with a healthy profit of UAH 19 million. The head of the National Bank,Volodymyr Stelmakh, before this appointment to his current position, was the head of the advisory board at Brokbiznesbank. The elder Buryak brother had a 2-year stint as the head of the country’s tax administration. The younger Buryak is in his third term as an MP, currently with BUT. Serhiy Buryak born in 1966 in Donetsk, married, has a son and a daughter. Oleksandr Buryak born in 1970 in Donetsk, married. 43. Mykola Yankovsky: US $259 million Chemicals, pharmaceuticals Mykola Yankovsky has been at the steering wheel of Stirol since 1988. Since then the company lived through several transformations. Today it is known as OAO Concern Stirol and is a major producer of fertilisers, ammonia, acids etc. A Doctor of economical sciences, professor Yankovsky also teaches technology in Donetsk. A longtime member of the Party of Regions, he has served in Parliament several times. Born in 1944 in Kirovohrad region but connected with Donetsk. Married, two daughters and a son. 44. Filya Zhebrovska: US $257 million Pharmaceuticals In 2009, Ms Zhebrovska’s Farmak company reported record profits. In the year which saw the flu epidemic and several other health scares Farmak sold some 70% more drugs than previously. Starting out as an accountant, Filya Zhebrovska rose to the position of company director in 1995. Her brother Pavlo Zhebrovsky is a pro-Yushchenko MP. Born in 1950 Zhytomyr region. 45. Ihor Yeremeyev: US $249 million Oil refinery, food industry, retail The co-owner of the Continuum Group which controls one of the biggest chains of petrol stations, WOG. Three years ago Yeremeyev bought over 27% shares of the Kherson oil refinery. He also served in the previous parliament as the head of the Narodna Party faction.

The brothers’ Brokbiznesbank suffered in the crisis, was refinanced by the National Bank of Ukraine to the tune of UAH 2.2

Born in 1968 in Rivne region. Married, has a son.

October/November 2010 UkraineBusiness insight

FEATURE

Ukraine Rich List

No.45, Ihor Yeremeyev

46. Stepan Ivakhiv: US $249 million Food industry, fuel, retail The Western Milk Group of Stepan Ivakhiv and his business partner Ihor Yeremeyev (No 45) merged with its competitors, the Lviv company Halychyna.The new company has about a 35% share of the Western Ukrainian market. The partners are also building new petrol stations for their WOG chain, a part of the Continuum group.

turnover in 2009,according to Korrespondent. But he is better known as a politician. Kolesnikov is a deputy Prime Minister in the current government, a long-term political ally of President Yanukovych and a friend of No 1 on the list, Rinat Akhmetov. Kolesnikov had been rumoured to be the preferred candidate to lead the government but instead he became vice-premier in charge of Euro 2012 championship.

of almost UAH 20 billion. Oleksandr Feldman has also built some other commercial and entertainment centres and is thinking of creating a bank for his group. After president Yanukovych’s election, Oleksandr Feldman MP quit the BUT faction and joined the ruling coalition.

Born in 1962 in Mariupol, Donetsk region. Has a son and a daughter.

50. Viktor Ivanchyk: US $203 million Agriculture Ivanchyk’s holding Astarta-Kyiv controls about180 thousand hectares of arable land. According to Kopespondent, Astarta-Kyiv received $36 million profit in 2009. He also owns a part of the Russian oil and gas company Itera and its development rights.

49. Oleksandr Feldman US $215 million Retail, real estate, transport Feldman’s AVEK group owns the legendary Barabashovo (popularly known as Barabashovka) market in Kharkiv. It is a huge, sprawling site equal to 150 football fields, and the biggest commercial centre in Central and Eastern Europe. Its 70,000 traders provide a turnover

Born in 1960 in Kharkiv. Married, has a son.

Born in 1957. Married, has two daughters. UBi

Born in 1968, connected withVolyn region. 47. Volodymyr Konstantinov: US $246 million Construction Konstantinov is the speaker of Crimea’s parliament and an acting head of the Crimea regional organisation of Party of Regions. His corporation UkrRosBud owns Konsol construction company. Volodymyr Konstantinov said, a month after his election as speaker, that Konsol might get some state tenders in Crimea. Born in 1956 in Moldova. Married, two children. 48. Borys Kolesnikov: US $231 million Food industry, transport

Konti, Borys Kolesnikov’s confectionary business, reported almost a billion hryvnya

UkraineBusiness insight October/November 2010

Oleksandr Feldman

Ukraine Rich List

Rich list rankings remain controversial With all the caveats one would expect, in terms of the Korespondent rankings being simply one possible valuation of assets, among a range of alternatives, with changes happening daily, nonetheless, the following list provides a good indicator of the leading players in Ukraineâ&#x20AC;&#x2122;s private sector. Significant changes may follow stricter tax enforcement, with more assets likely to shift offshore. Ranking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51

Name Business activity Wealth in US$ Rinat Akhmetov metals 17.8 bn Ihor Kolomoysky metals 6.5 bn Hennadiy Boholyubov metals 6.3 bn Viktor Pinchuk metals 3.1 bn Kostyantyn Zhevago metals 2.4 bn Viktor Nusenkis metals 2.3 bn Oleksiy Martynov metals 2.1 bn Vitaliy Hayduk metals 1.5 bn Yuriy Kosiuk agriculture 1.3 bn Oleksiy Vadatursky agriculture 1.1 bn Serhiy Taruta metals 1.06 bn Oleh Mkrtchan metals 1.06 bn Andriy Verevsky agriculture 987 m Valeriy Khoroshkovsky media 804 m Oleksandr Yaroslavsky chemicals 797 m Leonid Chernovetsky finance 776 m Yevhen Sihal agriculture 712 m Oleh Bakhmatyuk agriculture 700 m Heorhiy Skudar heavy machinery 670 m Volodymyr Boyko metals 589 m Serhiy Tihipko finance 566 m Ivan Huta agriculture 519 m Valentyn Isak construction 499 m Anatoliy Yurkevych food production 469 m Vyacheslav Bohuslayev aircraft manufacturing 453 m Olha Nechytaylo-Ridzhok food production 411 m Oleksandr Hereha retail 400 m Tariel Vasadze auto industry 390 m Petro Poroshenko food production 384 m Ihor Dvoretsky metals 372 m Eduard Shifrin metals 368 m Mykola Tolmachov agriculture 358 m Dmytro Firtash energy & chemicals 354 m Artur Abdinov metals 353 m Vasyl Khmelnytsky real estate 340 m Hryhoriy & Ihor Surkis energy 314 m Yevhen Chernyak food production 306 m Vitaliy Antonov oil refinery 302 m Volodymyr Zahoriy Pharmaceuticals 297 m Oleksandr Kardakov IT 276 m Vadym Yermolayev food production 266 m Serhiy & Oleksandr Buryak finance 261 m Mykola Yankovsky chemicals 259 m Filya Zhebrovska pharmaceuticals 257 m Ihor Yeremeyev oil refinery 249 m Stepan Ivakhiv food production 249 m Volodymyr Konstantynov construction 246 m Borys Kolesnykov food production 231 m Oleksandr Feldman retail 215 m Viktor Ivanchyk agriculture 203 m Anton Pryhodsky transport 198 m

Ranking 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100

Name Volodymyr Trofymenko Oleksandr Savchuk Andriy Ivanov Ihor Balenko Serhiy Kiy Yuriy Zhuravlev Yakiv Hrybiv Yuriy Rodin Roman Lunin Valentyn Landyk Vitaliy Tsekhmistrenko Volodymyr Kostelman Andriy & Serhiy Klyuyev Anatoliy Kipish Stepan Hlus Mykola Lahun Oleh Shandar Mark Bekker Vladyslav Dreher Viktor Subbotin Pavlo Klymets Serhiy Chernyshov Danylo & Mykhailo Korilkevych Hennadiy Butkevych Yevheniy Yermakov Viktor Karachun Anatoliy Girshfeld Leonid Klymov Ihor Humenyuk Fedir Shpyh Oleksandr Derkach Oleksandr Rodnyansky Oleh Sotnykov Roman Chyhyr Vyacheslav & Oleksandr Konstantynovsky Yevhen Utkin Volodymyr Shapovalov Anatoliy Strohan Bohdan Hubsky Maksym Safonov Oleh Baryshevsky Oleksandr Yedin Volodymyr Kolodyuk Oleksandr Slobodyan Vasyl Horbal Vasyl Polyakov Dmytro Svyatash Volodymyr Prodyvus Oksana Yelmanova

Business activity construction machinery real estate retail mining agriculture food production finance retail consumer electronics agriculture retail metals food production food production finance retail finance heavy industry finance food production finance

Wealth in US$ 196 m 176 m 170 m 150 m 138 m 127 m 125 m 124 m 123 m 104 m 102 m 101 m 100 m 88.5 m 88.5 m 87 m 85 m 80 m 79 m 69 m 65 m 63 m

agriculture retail retail retail machinery finance mining food production food production real estate retail retail

62 m 57 m 57 m 57 m 55 m 53 m 50 m 48 m 48 m 47 m 45 m 45 m

restaurants IT retail retail pharmaceuticals retail retail transport retail food production finance car imports car imports construction real estate

44 m 43 m 41 m 40 m 40 m 40 m 40 m 39 m 36 m 34 m 33 m 32 m 32 m 31 m 30 m

October/November 2010 UkraineBusiness insight

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UkraineBusiness insight October/November 2010

News Focus

Avis takes a new route Jean Tilman, VP marketing and sales at Avis Ukraine explained to UBI the peculiarities of the car leasing and hire operation in the Ukranian market, and how they differ from elsewhere For starters, Avis is primarily known internationally as a car-hire company – but in Ukraine it makes most of its money through leasing. Also unlike elsewhere, the majority of its customers are companies rather than individuals, with the market described as five to ten years behind other European countries with the volume of car hire lower per head of population. But rapid expansion is underway, with Avis forecasting 10-fold growth over the next ten years from 1,700 cars in June 2010 to 17,000 cars – planned to reach 2,000 by the end of this year. Of the 1,700 cars, 250 are for hire, and the rest are for leasing – provided as a comprehensive package – and leasing remains 75% of Avis Ukraine’s business along transport services despite these options not being offered by Avis in most countries. “Just over 90% of Avis’ business in Ukraine is from international companies and so the recession has only caused a 3% to 4% drop compared to the market overall dropping some 25%,”Tilman told UBI. During the current downturn Avis extended its car hire deadlines from three months to a year, which it says helped a lot of companies survive. Tilman also says that the image of car hire has helped bring new segments to the business – aided by high service levels and an extensive network of service stations across Ukraine, a whole technical service package, MOT, extended insurance package that covers not only traffic accidents but also burglary etc – and country-wide branches allowing immediate replacement. While the company is based in Kyiv, it has eight offices throughout the country. The need for a strong servicing and replacement offering is exacerbated by the quality of rural roads in Ukraine. Talking about the country’s road infrastructure,Tilman commented that, apart from some motorway projects, the only road development had been in the Kyiv vicinity and up to 10km radius outside. In the regions the roads are much worse with a lot of improvement work needed before Euro 2012, and while there was

maintenance in terms of people working, the materials used for resurfacing often appeared to be of questionable quality. Avis has recently been winning contracts from major Ukrainian companies – some 200 cars to be provided to Konti confectionary firm in Dontesk, and it already supplies many multinationals such as Ericsson, Sony and Shell. With so much business being corporate rather than individual customers, customer retention is of prime importance, so dedicated customer service managers are appointed, and customers retained for at least three years. No matter what car is leased or hired – economy or luxury - each gets the same high level of service from their sales manager and service manager says Tilman. Included in the transport services are provision of cars with a driver. “Our recruitment of drivers is very strict, requiring extensive experience, trained in languages – with induction training, for example, that they can’t answere the phone when driving, their car is kept in a good condition internally, externally and mechanically, ensuring that they present a good image for the company with a high standard of driving etiquette,” adds Tilman. With the use of these drivers, Avis has also extended into high value services such as meeting clients at the airport, taking shopping or on excursions etc, with pricing per kilometre in cities and per hour elsewhere – services providing for filming crews in the country, and via deals with hotels such as

Raddison, Rus Hotel and Spa resorts, events companies and tourist agents. The divide between luxury and premium is now 30% premium and 70 % economy, with most growth in the economy segment during the downturn, “People have moved down the scale during the recession,” comments Tilman. It is clearly easier to control costs on economy contracts when the cost of a single high value Mercedes contract is equal to ten lower cost Skoda contracts – with less depreciation, and the fact that there will be fewer premium orders. Avis puts itself at No 3 in the Ukraine car hire/leasing market but says it is gaining market share with its sights set on achieving the number two spot over the next year. It says that the recession has hit the market leader hardest, while it has strengthened its position, its offering and service levels. Growth is not just affected by the recession, which Tilman believes is still going down and was far from over. Of greater importance is educating the market as to how leasing works, adding, “Just three years ago no one really understood how insurance worked and why it was necessary.” A whole package of documents are required to apply for credit finance to be allowed, with three scenarios of: rejected; accepted or accepted with certain terms and conditions. To a large extent companies are their own credit reference agencies, thus working with major companies reduces credit risk for the leasing sector. UBi

October/November 2010 UkraineBusiness insight

Regional focus

Lviv

LVIV gears up for 2012 Ukraine’s westernmost region, Lviv, may not have the heavy industry of the eastern regions, or the ports of the south, but its geographic location and the graduates of Lviv University are among the attractions for foreign investors as Mr Vasyl Horbal, Head of Lviv Regional Administration explained to UBI on the eve of a planned regional cross border conference. UBI: What is the purpose of the forthcoming cross-border conference? Is it purely covering political issues or does it also cover cross-border trade and economic issues, such as grey market imports etc? VH: The purpose of the Xth International economic forum, ‘Transboundary cooperation. The prospects’ is to discuss and instigate new international economic initiatives in the sphere of transboundary cooperation, and investigate the problems and prospects for regional development and transboundary cooperation in a wider international context. “As the head of area, I fully appreciate that improving the economic conditions for the local population will require attracting foreign and domestic private investment. “We understand that there are obstacles to be overcome to attract investment to the Lviv region and by holding the forum we

will invite collective suggestions to overcome these obstacles. “First of all forum will address the issue of economic action in relation to the current situation in region and in Ukraine in general, which has caused the postponement of regeneration policies in the second plan, then we will address the real work, including the attraction of investments into area.” UBI: Lviv is the westernmost region in Ukraine – what advantages does this provide for potential investors in the region? What other advantages does the region provide – such as workforce, tourist potential etc? VH: “Thanks to its geographic location, the Lviv region plays an important geopolitical role.The affinity with the country’s border with the European union is a strength of the area for investors. Lviv district contains eight interstate cargo-passenger check points operating across

UkraineBusiness insight October/November 2010

the border. The region’s transport network is also well developed. The Lviv district is on the transit route to many capitals in East and Western Europe, and also contains two international transport corridors; Berlin-Kyiv and Trieste-Lviv. In addition, Lviv Airport links Lviv to the capital and regional centres, as well as many cities of the Near East, Central and Western Europe. “To establish a successful business it’s not enough simply to have a good geographical location and developed infrastructure. It is also vital that there is a high calibre of potential employees. In this regard, the Lviv region also has a lot to offer the investor, as Lviv is one of Ukraine’s primary cities for education and training in many fields of activity, producing experts in areas such as computer sciences, the chemical industry, medicine, economic, building and many other specialisations. “With all this on offer, I can safely say that

Regional Focus: Lviv

UBI: Are there any specific regional or national incentives offered to investors? VH: “Lviv district area operates two special economic zones,SEZ‘Iavoriv’and‘Resortpolice Truskavets.’ These zones were established in 1999 and 2000 respectively, and completely justified their establishment until 2005. During this period they have been involved in over US $ 145 m of inward investment. They are also responsible for the creation of more than 6,000 jobs, and were contributing to ongoing development year after year. “However, in 2005 the Government of Ukraine cancelled the tax privileges and the special customs area for enterprises in the SEZ, having made amendments to the regulations governing the territory, “For a special economic zone for tourists and recreation ‘Resort Truskavets’ and the special economic zone ‘Iavoriv’.These actions have detrimentally affected the development of these regions, both economically, and socially. “Experts on the Lviv state region administration have carried out economic studies which demonstrate the economic feasibility of restoration of special economic zones and the potential to develop new SEZ’s in economically depressed districts in the region. With restoration of privileges for Resort Truskavets and SEZ Iavoriv there would be the opportunity to promote around 10 projects annually up to 2015 with the potential to attract around US $150 m of new investment. Based on these calculations, the regional government is seeking to persuade the Ukraine Cabinet of Ministers to restore the special economic zones.”

Mr Vasyl Horbal the Lviv region contains all the necessary components that foreign investors might need to conduct successful business, from the fast developing tourist sector to manufacturing. I can guarantee an individual approach to each person who intends to invest in the Lviv region.”

UBI: What are the key industry sectors in the region in terms of manufacturing and services? VH: “Lviv region well balanced in terms of its economic activity. District centres in the Lviv region create provide the resources and infrastructural opportunities to support each other. In the tourist sector: Lviv, is the region’s leading tourist centre, and the Skole areas is opening up for tourists keen to enjoy the Ukrainian Carpathians. Truskavets and Morshyn resorts have long been known for their range of recreational activities. These two cities also give Lviv region a powerful medical and leisure base. Regarding industry, we can cite our powerful industrial zones: Mykolaiv - Stryj where the following foreign investors - Leoni (Germany) and Lafarge (France); Zhydachiv - Zhydachiv paper factory, one of the largest factories in Ukraine; Chervonograd

- one of the largest coal mining zones outside of Donbass; Drohobych with the enterprise oil processing refinery Galicia. In addition, there are Brody, Busk, Radechiv, Kamjanka, Buzka which are the region’s agriculture and foodprocessing industry centres. UBI: I understand that the Lviv city authorities are providing E28 m this year and E252.4 m next year for the construction of roads prior to Euro 2012 – what stage are these projects at? When are they due to complete? Is there anything more you can say about these projects – total km, location, participants? What other plans are there to improve the infrastructure ahead of Euro 2012 (in terms of roads, hotels, stadia)? What level of investment does this represent, and what stage are these projects currently at? VH: “It is no secret that the problem of roads in the Lviv region was very severe. There are both objective and subjective reasons for this situation. Despite a lack of funds and replacement of some unscrupulous contractors, today the road situation is as follows: according to the Appendix 2 of the Ukraine Cabinet of Ministers resolution from 14.04.2010 No.357 the Lviv region is being provided with UAH 4827,36 million for building, reconstruction, capital and maintenance of highways, including building a new highway from Lviv to Krakovets at a cost of UAH 4112,60 m. “The state target expenditure for building, reconstruction, capital and maintenance of roads in the Lviv region is put at UAH 1461.5 m in 2010. “The main maintenance and repair projects are the Lviv – Rava Ruska road, Lviv - Krakovets, Lviv – Shehyni and the section of road on the entrance to Truskavets and Schidnytsa from the Kyiv - Chop highway. Reconstruction work is planned for the airdrome SE, Lviv international airport Lviv, and work is planned to upgrade part of the Lviv - Pystomyty- Medenychi road. Construction of the strategic Lviv – Krakovets road is also due to begin.” UBI: What other plans are there for improvement of the Lviv region infrastructure in the run up to Euro 2012 (roads, hotel, stadiums)? What level of investment is involved in these projects and at what stage are they? VH: “Work on building the new stadium is underway, with 40% of work completed to date.The total cost of the project is UAH 1.65 bn. Also reconstruction of the runway and

October/November 2010 UkraineBusiness insight

Regional focus building of the new passenger terminal at the International terminal is also associated with 2012, with the total sum of works put at UAH 1.9 bn. “Also we cannot ignore the question of check points on the Ukrainian-Polish border. So there is also ongoing reconstruction at the existing check points at Rava Ruska-Hrebine, Krakovets-Korchova, Shehani-Meduka. “As to hotels being built, all the requirements of UEFA regarding providing the requisite quantity and quality of room numbers, is practically complete.” UBI: Are there any long-term benefits expected for the region from these projects? VH: “The priority put before Lviv region state administration by the President of Ukraine, is attracting investment. We understand that without an appropriate infrastructure serious investment is impossible. “We understand perfectly that life does not come to an end after Euro 2012. Only someone without vision could ask the question – why invest so much money in putting on football matches when much of the country lacks more basic facilities? When Euro 2012 comes to the end, the participating teams and the fans will go home, but the roads, hotels, medical facilities and airport remains.These facilities will supplement and update the infrastructure of area which has not been significantly updated for decades. “Hosting Euro 2012 will give Lviv Region the opportunity not only to update its infrastructure, but also provides the opportunity to introduce itself as significant tourist centre and to increase the flow of tourists to the Lviv region. “On May, 27th, 2010 in Lviv the Council of Regions the president of Ukraine initiated a bid for hosting the Winter Olympic Games 2022 in the Carpathians. So carrying out Euro 2012 will give the region the chance to advertise itself, and its significantly improves infrastructure, giving it a better opportunity to win the bid for the Winter Olympic Games 2022.” UBI: What other plans does the regional or national government have for the region? VH: “According to the Ukraine Cabinet of Ministers order from August, 1st 2006 No.447-r ‘Approval of the industrial parks creation concept’ the Lviv region is to be the pilot region for the implementation of industrial parks development projects in

Lviv

Ukraine. Lviv region state administration is gathering information to define the territories (the sites available, territories for the enterprises, etc.) suitable for creation of industrial parks which meet the interests of local communities. In order to create Industrial Park Cherlyany, a plot of 510 ha has been prepared and is ready to be transferred to potential investors. Under the scheme the project entails building of the centre for management, technology, science, educational services, commercial and business innovation centres. “The industrial and production zone of the project entails building and operating of the chemical, metallurgical, machine-building, and metal-working industry enterprises from processing of timber to the building industry and the food-processing industry. The business plan for this development entails a projected cost of US $ 475 m. The inadequate infrastructure, absence of opportunities for highly paid work, the reduced regional development and increased decline are to be tackled by substantial development of industrial parks which international experience has shown, can provide give a major stimulus for the national economy development as a whole. UBI: What are the main foreign investments in the region? Are there any significant recent or planned investments (eg PKM Duda’s sale of unprofitable assets including planned purchases by Sweden’s Alpcot Agro AB)? Are there any regionally owned assets that are likely to be sold, in line with the National government sell-off of state assets. VH: “Up to July, 1st, 2010 the volume of direct foreign investments in the Lviv region is US $ 1151.8 m. During the period January to June, 2010 the biggest volumes direct foreign investment has been directed at the financial (47.8 % of total revenues). Considerable investments have been made in trading enterprises (19.9 %), and there has also been investment in real estate, rental sector, engineering and granting of services to businessmen (8.4 %). In industry direct foreign investments account for 16.1 % of total investments, of which two thirds are in mechanical engineering. “Lviv state regional administration has also been heavily involved in the building of a mine for the extraction of coking coal in Lubela village, Zhovkva_district; the investor is Lubel Coal Company through Stelex LLC (USA), building a new factory OJSC

UkraineBusiness insight October/November 2010

Mykolaivcement, establishment of the firm Lafarge (France, dry cement manufacture), completion of the Dobrotvir thermal power station-2 OJSC Zahidenerho, development of the wholesale market for agricultural production at Shuvar in Lviv.” “The executive periodically conducts monitoring of investment activity, collecting data about innovative investment and infrastructural projects, which are achieved with help of private investment, including foreign investment.” UBI: Ukraine is keen to attract foreign investment, so the decision of Hewlett Packard to abandon plans to build a resource centre for counties in the region here in Lviv must have been a painful blow. Can you elaborate on exactly why they decided to withdraw, and what is being done to avoid any repetition? VH: “As a result of close cooperation between the Lviv regional state administration, the Cabinet of Ministers of Ukraine, the Ministry of Economics of Ukraine, the Lviv city council and other enforcement authorities, all steps possible have been made to support the investment project, opening the HewlettPackard Global Business-centre in Lviv. This project would entail operation of outsourced business-processes, granting of general services to customers in different parts of the world. “The company has not rejected the possibility of opening of such a Centre in Lviv, and Lviv regional state administration will provide every assistance to the establishment of this project. “I can also inform UBI readers that Nestle has decided that before the end of 2010 it will open a Global Business-centre in Lviv to handle outsourced services.“ UBI: How do you think that the new proposed Public/Private partnership will affect investment in the Lviv region? VH: “In the first half of 2010 this investment was involved in more than 1000 enterprises in the Lviv region. The largest investment projects, which were successfully and effectively developed are: the garment factory Danish textiles (Denmark); Odv-elektrik (Germany); Agro Limited (Netherlands); Volksbank (Austria), among others. Some projects are still under implementation. Lviv region was and remains the one of the most іnvestmentattractive regions in Ukraine, it is a market with dynamic development, rich potential resources and highly qualified labour.” UBi

Business opportunities

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Please mention Ukraine Business Insight when offering or seeking products and services shown here, then write/email/phone direct to the companies listed as we cannot forward correspondence. Beware – do not part with money or enter agreements without conducting your own due diligence as UBI accepts no responsibility for the veracity of information or identity of companies featured. If you would like to publish your business enquiry in this section of UBI, in print or online, please email direct to svitlana.barnes@ukrainebusinessinsight.com, or complete the form on our website, www.ukrainebusinessinsight.com. This service is free of charge for registered readers.

Investors sought Ukrainian photovoltaics SolarUA plans to build and operate a solar module production facility based on c-Si technology. SolarUA aims to become a leading EPC contractor in the Ukrainian photovoltaics market, which designs, manufactures and installs bankable utility-scale and commercial PV farms. The company is interested in developing winwin partnerships with investors, financing institutions, technology companies and other PV market makers to execute our plans. Contact: Dmitry Lukomskiy, www.solarua.com Flour/pig production, grain storage, processing Investors sought – US $18m plus – for construction of 20k tonne storage capacity grain elevator complex, 150 tonnes per day flour mill, and feeding plant for 3,000 pigs with 400 sows. Elevator and flour mill of Swiss and German origin planned. Finished products may include first and second class flour, cream of wheat, barley, buckwheat and

wheat groats, and pearl barley. Contact: Alexander Aginsky, Aginsky Consulting, info@aginskyconsulting.com, tel +1 503 922 0818 Shale gas Marketing and promotion opportunities for shale gas in Ukraine to attract domestic and international investors. Seeking partners to take part in the work in Ukraine. Contact: Stig-Arne Kristoffersen, EC-BA W.L.L, POB 75339, Bahrain, www.ec-ba.com; info@ec-ba.com Port Facilities Equity partners sought for US $30m plus to complete a private, mid-size, universal cargo river/sea port terminal in Southern Ukraine with access from the river Dniepr and the Black Sea to handle bulk agricultural products with a capacity up to 2.4 m tonnes annually. Contact: Reval Partners, mannart@gmail. com, tel +372 50 43 682 Agricultural enterprise Agri-holding enterprise with an aggregated

land bank of over 12,000 hectares consolidating three agricultural enterprises, under control of single management company, seeks $12 m plus investment. This agri-holding is fully equipped with cultivating, seeding and harvesting equipment as well as transport vehicles, garages, workshops, and facilities for equipment storage and repair, corn floors for crop handling and primary processing, 30,000 sq. m of warehouse premises and grain-dryer complex with a capacity of up to 50 tons per hour. Contact: Sergey Goncharevich, Capital Times, gsm@capital-times.com, tel +380 44 499 8834 Modern office-hotel complex Investment of US $90m plus sought for hotel and office complex in Eastern regional city comprising seven to fourteen story building of 60,000 sq m. Structures planned include offices totalling 29,000 square meters, a hotel with 11,000 sq m and parking. Contact: Alexander Aginsky, Aginsky Consulting info@aginskyconsulting.com, tel +1 503 922 0818

Investments wanted Oil and uranium assets Direct investor interested in oil projects at a mature stage; developed oil fields with good logistics and/or Oil companies for acquisition, JV or equity infusion. Direct investor interested in acquiring Uranium assets which are in an advanced stage. Contact: jdsmolek@gmx.de Investment opportunities sought VC firms seeking deals that can either be VC managed for an extended period of time or rely upon the use of a ‘Reverse Merger’ vehicle at the appropriate juncture of the project time table are difficult to find right now. GrowPublic provides an alternative method of accessing the public markets for VC projects through a series of self-filings with the SEC and FINRA at lower cost than a reverse merger vehicle. Contact: Ted Campbell, GrowPublic CEO, www.growpublic.com, tel 210-913-5497

October/November 2010 UkraineBusiness insight

BUSINESS ENQUIRES Banking, agriculture and energy Looking for investment opportunities in banking, agriculture and energy sectors in Ukraine. Contact: Juliya Fedorovich, International Investment Group AFON CAPITAL Ltd, www.afon-capital.com, kyiv@afon-capital.com, tel +38 044 228 72 73

Agents required Ukrainian companies supplying sawn timber wanted. Local English speaking Ukrainian individual sought to be representative or good opportunity for starting of his own business. Contact Hans Liu, Owner, Shanghai Huiyang Timber Company, hiyoungtimber@gmail.com SBB Towers – transmission masts SBB designs and manufactures aluminum modular towers to restore power to transmission lines and to facilitate maintenance without power interruption. Currently interested in finding agents acting locally in the electrical power fields and who are familiar with tender procedures.

Contact: Olivier Canolle, o.canolle@sbb. ca, www.sbb.ca, http://www.youtube.com/ watch?v=ytH-VDFOF3M

Recruitment Legal Counsel Based in Kiev, to fulfill role of Legal Counsel in a Private Equity fund. A ‘hands on’ lawyer sought, able to demonstrate a ‘can do’ mentality, creative and savvy person.The candidate will need to be comfortable working within a fluid environment and should be ready to take responsibility and ownership of assignments varying widely in terms of content and complexity. Contact Marina Dultseva, md@mip.kiev.ua, mdultseva@yahoo.com, tel +380990553803 Java Teachers Experienced and talented Java Teachers with over 5 years of teaching experience sought. Excellent compensation package and good work conditions. Full-time (part-time is possible). Referrals appreciated and bonuses for placements. Contact: igavrilenko@luxoft.com or call me at +38 044 206-18-08 ext. 4839.

Logistics/Procurement Specialist Logistics/Procurement Specialist needed in Bishkek. US $7K per month. Russian/English speaker. 2-3 year job to construct a biosafety laboratory. Contact: Timtech Ltd, G.lockwood@tfi. intl.com MD for investment bank Seeking an experienced candidate with solid investment banking, transactional experience and track record from large internationally known Investment Banks and institutions; exceptional package on offer. Fluent Russian, Chinese and English preferred; if no Chinese language, then relevant experience is required. Fast growing unit with high exposure to Russia/CIS, China and other deals Contact: jdsmolek@gmx.de MD – agriculture & minerals services Odessa Int’l inspection and testing services company, based in the Ukraine services primarily Agriculture and Minerals industries with a staff of 750 employees. Responsibiliites for operational and sales activity and supporting maximising business revenues. Reporting to the Regional Director based in Russia working with international Vice Presidents. Lead the

management team in all aspects of their business Management and personnel development. Solid P&L risk management and financial experience. Fluent English, Ukrainian and Russian. Contact: Simon Harding, Chairman, Chronos Group, www.TopLinked.com, Ref PLOT30803 MD International logistics Managing Director for UA to lead, develop and implement policies across all sectors in accordance with SMP and Region Europe East board decisions; set strategic business targets for all product lines together with the local management team; maintain close contact with customers, the government, public and business organisations; ensure that all operational units deliver operational excellence to customers from first contact, tender analysis and the solution design process right through to the successful implementation of new business wins. Job description at: http://www.work.ua/ jobs/619234 Contact: Dr Larisa Varenikova, Larisa. Varenikova@yahoo.com

Events diary October Public Health 2010 12-15 October IEC, Kyiv, Ukraine Tel: +380 44 496 8645 www.pe.com.ua info@pe.com.ua Ukrainian Renewable Energy Forum 14-15 October Ukrainian House, Kyiv, Ukraine Tel: +380 44 498 9057 www.ref-ua.com conference@fuelalternative.com.ua Alternative Investment Forum: Russia & CIS 18-20 October Claridge’s Hotel, London, UK Tel: +44 (0) 207 017 7444 www.adamsmithconferences.com info@adamsmithconferences.com Ukrainian Pharmaceutical Forum 19-20 October InterContinental Hotel, Kyiv, Ukraine Tel: +44 (0) 207 017 7444 www.adamsmithconferences.com info@adamsmithconferences.com Wireless Ukraine 4th Autumn InternationalConference and Eastern-European Conference on Telecoms and IT 17 November IEC, Kyiv, Ukraine Tel.: +380 44 280-86-12 director@wirelessua.com ExpoTel 2010 20-22 October Kyiv Expo Plaza, Kyiv, Ukraine Tel: +380 44 461 9342 www.expotel.ua

GreenExpo 2010 27-29 October Kyiv Expo Plaza, Kyiv, Ukraine Tel: +380 44 461 9342 www.greenexpo.kiev.ua World Food Ukraine, 13th International Exhibition 26-29 October IEC, Kyiv, Ukraine Tel: +380 44 496 8645 www.pe.com.ua info@pe.com.ua November Ukrainian Banking Forum 15-18 November InterContinental Hotel, Kyiv, Ukraine Tel: +44 (0) 207 017 7444 www.adamsmithconferences.com info@adamsmithconferences.com EETC 19 November IEC, Kyiv, Ukraine Tel: +380 44 496 8645 www.pe.com.ua info@pe.com.ua December The Ukraine Investors’ Summit 2010 Realising its potential through new leadership 14-15 December Kyiv, Ukraine Tel: +32 2733 5940 www.euroconvention.com info@euroconvention.com Inside Ukraine: Understanding Investment Risks & Opportunities 7 December The Dorchester, London, UK www.economistconferences.co.uk

Pulp and Paper in Russia and the CIS 6-8 December Vienna, Austria Tel: +44 (0) 207 017 7444 www.adamsmithconferences.com info@adamsmithconferences.com February 2011 Wine and Winemaking XI International Exhibition 3-5 February Seaport, Odesa, Ukraine Tel.: +380 48 777 6068. +380 48 728 60 68 info@expodessa.od.ua www. expodessa.od.ua Ukrainian Real Estate Summit 15-17 February Kyiv, Ukraine Tel: +44 (0) 207 017 7444 www.adamsmithconferences.com info@adamsmithconferences.com ICT Expo 23-26 February IEC, Kyiv, Ukraine Tel: +380 44 496 8645 www.ictexpo.info

March 2011 Hotel & Restaurant Expo 2011 23-25 March IEC, Kyiv, Ukraine Tel: +380 44 496 8645 www.pe.com.ua info@pe.com.ua April 2011 Hotel.TourMarket IX Tourist Business Assembley 7-9 April Seaport, Odesa, Ukraine Tel.: +380 48 777 6068. +380 48 728 60 68 info@expodessa.od.ua www. expodessa.od.ua Boat Expo. Odesa VI International Exhibition 7-9 April Seaport, Odesa, Ukraine Tel.: +380 48 777 6068. +380 48 728 60 68 info@expodessa.od.ua www. expodessa.od.ua May 2011

Corporate and Banking Systems (CBSE) 23-26 February IEC, Kyiv, Ukraine Organisers: Premier Expo (Ukraine), ITE Group Plc. (Great Britain). Tel.: +38 (044) 4968645, fax: +38 (044) 4968646 www.pe.com.ua/ www.cbse.com.ua

Beauty Technology – XXI Century International Exhibition 12-14 May Seaport, Odesa, Ukraine Tel.: +380 48 777 6068. +380 48 728 60 68 info@expodessa.od.ua www.expodessa.od.ua/

KievBuild 2011 23-26 February IEC, Kyiv, Ukraine Tel: +380 44 496 8645 www.kievbuild.com.ua

7th Annual Ukrainian Investment Summit May London, UK Tel: +44 (0) 207 017 7444 www.adamsmithconferences.com info@adamsmithconferences.com

Details for the events listed above are correct at the time of going to press, but may be subject to change, so if you are considering attending, check direct with the organisers to confirm. If you wish your event to be included in our next issue (to be published February/March 2011) please submit your event details and contact address to: editor@ukrainebusinessinsight.com

UkraineBusiness insight October/November 2010