Business in Ukraine

Interpipe Group, or simply Interpipe (Ukrainian: Науково-виробничо-інвестиційна група “Інтерпайп”) is the influential Ukrainian business group founded and mostly owned by local business oligarch Victor Pinchuk. The group focuses on steel industry (particularly rolling), although indirectly controlling assets in various fields of industry, services and media. Interpipe is a globally-important player on the metal pipes (hence the name), steel wheels and ferroalloys markets.

Companies of the Interpipe Group are mostly situated in the Dnipropetrovsk Region of Ukraine

The Interpipe product portfolio is focused on creating value-added and technological advantages for companies extracting and transporting oil and gas. Interpipe’s long experience and understanding of the oil and gas business gives it the opportunity to find tailored solutions for clients and to create long-term partnerships with them. Working in tandem with its clients Interpipe Group achieves efficiency increases in exploration work and cost reductions for oil extraction. Above all, Interpipe provides reliability ensuring secure strategic oil and gas pipelines. By opening trade offices in strategic regions around the world Interpipe Group meets its clients’ needs by directly reducing communication distances and optimizing order processing and implementation.

The quality of Interpipe Group business is recognized by international standards and strong partnership relations with such companies as Gazpromneft, Lukoil, Rosneft, Surgutneftegaz, Transneft, Kaztransoil, Kaztransgaz, Turkmenneft, Uzbekneftegaz, Ukrnafta, Ukrgazdobycha, SOCAR, Kuwait Oil Company, Oil India Ltd., Syrian Petroleum Co and Orient Petroleum Co. and SITEP.

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LTD. “STAL’PROM”

OKPO 13437017

Phones: +38 (056) 440712 468701 441198

Address: Ukraine, 49030 Dnepropetrovsk, street of Shevchenko, 30

EXPORT: - PIPES, TUBES And TYPES are HOLLOW, BESSHOVNYE, FROM BLACK METALS (EXCEPT FOR CAST-IRON CASTING)

IMPORT: - CALDRONS are STEAM OR OTHER PAROPROIZVODYASCHIE CALDRONS (EXCEPT FOR AQUATIC CALDRONS of CENTRAL HEATING, CAPABLE ALSO to MAKE STEAM of LOW PRESSURE); AQUATIC CALDRONS With PAROPEREGREVATELEM
- ALUMINIUM is UNTILLED
- PRUTKI FROM ALLOYED STALEY is OTHER; CORNERS, SHAPED And SPECIAL TYPES, FROM OTHER ALLOYED STALEY; PRUTKI is HOLLOW FOR BORINGS WORKS FROM ALLOY OR UNALLOYED STEEL
- STEEL In BARS OR OTHER PRIMARY FORMS; CARBON STEEL

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Metallurgy is the largest key industry in the economy of Ukraine. Its importance is due to the fact that the machine building and metal-working industries depend on the production of ferrous and non-ferrous metals, and that metal is the main source of engineering materials and an important export article.

The metallurgy sector includes 14 integrated steel making plants, 7 pipe plants, 10 plants producing metallic articles, 16 merchant-coke plants, 17 refractory production plants, 3 ferroalloy plants, 20 non-ferrous metallurgical works, 35 factories reprocessing ferrous and non-ferrous scrap metal, and other enterprises.Metallurgy in Ukraine has long history. In the 19th century, blast furnaces were in operation and cast iron was smelted in Donetsk and Luhansk. The main factors of development of metallurgy in Ukraine are the proximity of iron and manganese ore deposits, coking coal, and non-metallic materials – limestone, molding sand, and refractory clay. In addition, the dense transport network makes for efficient delivery of raw materials and goods to the plants.

There is also a developed system of training the workforce, and a presence of reliable consumer – the machine building industry and other industries that consume large quantities of metal.The main raw material for ferrous metallurgy is iron ore. Ukraine is completely self-sufficient in iron ore, coke, manganese, and various supplementary materials. Kryvy Rih basin is the source of most iron ore (about 90%). It is the world’s largest area of iron ore extraction. From there, iron ore is shipped not only to Ukrainian plants, but also to the countries of Western and Eastern Europe. The total iron ore deposits in Ukraine (categories A, B and C) amount to 27 billion tons.

The main area of manganese ore extraction is the Transdnipro manganese-ore basin, an area with unique deposit contents. Both the manganese ore from Transdnipro and Chasiv Yar deposit of refractory clay are well known far beyond Ukraine’s borders. The unique proximity of all the raw materials necessary for the metallurgy industry to each other is the cause of the economic prevalence of the Ukrainian metallurgy industry in the national economy and its significance for the economies of other European countries. Ukraine had been the metallurgy workshop of the former USSR; it used to be the second in the world in steel production, and the fourth in cast iron smelting. In steel production per capita (1059 kg), Ukraine used to be the first in the world. Most of the facilities of the industry are engaged in production of ferrous metals (over 44%) and extraction and enrichment of crude ore (over 30%). The third largest subsectorin terms of production assets involved is the by-product-coking industry.

There are four iron-ore basins in Ukraine: Kryvy Rih, Kremenchuk, Bilozerske and Kerch basins. There are two manganese ore basins, one in Nikopol and the other in Velyky Tokmak. In addition, there are several non-metallic raw material deposits: fluxing limestone (Donbas, Transdnipro, Crimea), dolomites, and refractory clays.The vast majority of metallurgy enterprises of Ukraine are powerful integrated companies that produce over five million tons of metal per year. The largest of them are Azovstal, Zaporizhstal, and Kryvorizhstal. Three metallurgical regions have developed in Ukraine: Transdnipro, Donetsk, and Transazov.Non-ferrous metallurgy includes ore extraction and enrichment, non-ferrous metal production, and secondary raw material processing. Most prominent in the non-ferrous metallurgy industry is aluminum production, using bauxites, alunites, etc. as raw materials. The availability of resources and the rising needs encourage creation of a large aluminum industry in Ukraine.Two large aluminum and titanium-magnesium plants are situated in Zaporizhia. The aluminum plant gets its raw materials from Mykolayiv alumina plant, and the titanium-magnesium plant – from Irzhansk.Verkhniodniprovsky mining-and-smelting integrated works manufactures zirconium and titanium articles exported to dozens of countries.

The production of magnesium uses the salts of Sivash Gulf. Mykytivka mercury deposit (Donetsk Oblast) is the main production source of this metal. The lead-zinc industry is well developed too – zinc is smelted in Kostiantynivka (Donetsk Oblast).Secondary metal enterprises also belong to non-ferrous metallurgy: the hard alloy works (Torez), the rolled brass and copper mill (Artemivsk), pure metal works, etc.In the future a production of superconducting materials, hard alloys, pure metals, etc. is expected to develop fast.

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Just days after lending $2.1 billion to Iceland, the International Monetary Fund is set to give a far bigger $16.5 billion loan to Ukraine. The fund hopes it will help stabilize Ukraine’s faltering economy–assuming the country’s squabbling government can agree to reform its banking sector.

An IMF staff mission reached the agreement with Ukrainian authorities on Sunday. The loan, like Iceland’s, would be spread over two years. “The IMF is moving expeditiously to help Ukraine,” IMF Managing Director Dominique Strauss-Kahn said in a press release.

Ukraine is lucky to have secured an IMF loan, particularly one bigger than reports had previously suggested. The behavior of the country’s government has been as chaotic as the financial markets, with very public squabbles between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. In mid-September, their pro-Western coalition officially collapsed. Yet the country has promised the IMF that it will set a balanced budget and reform its banking sector in exchange for the loan.

Ukraine’s economy has looked shaky lately: Its currency has tumbled, its large steel industry has been hit by a fall in steel prices, and its property boom (particularly in the capital, Kiev) has turned into a bubble on the verge of bursting.

But there’s also a general increasing concern about emerging-market economies, which the IMF will be watching closely. The value of most emerging-market currencies dropped between 6% and 10% against the dollar over the course of last week, according to Barclays Capital analyst Koon Chow, as the world’s hedge funds (three-quarters of which are dollar-based) and other investment funds bailed out of their foreign investments and repatriated their money (see “Flight To The Dollar And Yen”).

Those investors seem spooked by the aggressive action taken by several emerging-market central banks, particularly in Brazil in Hungary, to shore up their currencies. Capital flows to emerging markets have been huge in the last few years, leading to booming property and export markets. But many of these economies have limited capital reserves and high debt-to-GDP ratios. As Western investors bring their money home, many emerging-market central banks are limited in what they can do to shore up their economies, so they turn to the IMF.

Ukraine’s IMF loan is 800 times the size of its “quota,” or the amount of money the country pays to be a member of the IMF. The IMF funds itself primarily through these quotas, which are assigned to each country upon entry based on the size of its economy. At the end of August 2008, the IMF had $341 billion available from these combined payments.

The organization, no doubt, is hoping it will be enough. Hungary, Pakistan and Belarus are reportedly also in talks with the IMF about accessing loans.

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Although Ukraine still lags behind most other Commonwealth of Independent States countries in terms of per capita foreign direct investment, this somewhat belies its record of unprecedented growth in inward foreign investment over the last several years.

Until recently, Ukraine’s economic performance had made it an increasingly attractive destination for foreign investment. However, current domestic and external conditions will test the country’s ability to continue attracting FDI.

Ukraine suffered from a precipitous economic decline throughout the 1990s and was devoid of any large-scale inflows of FDI until well into the 2000s. Until 2003, registered inward FDI barely exceeded $1 billion per year. However, FDI inflows have rapidly accelerated since 2005, growing by no less than $5 billion per year, or over $100 per capita.

At first, the acceleration was due almost entirely to the one-off reprivatization of the Kryvorizhstal steel plant for $4.8 billion. However, solid growth in FDI inflows has continued. While foreign investors have focused on the country’s financial and real estate sectors, FDI has by no means been confined to one particular area of the Ukrainian economy.

However, according to quarterly data from the State Statistics Committee (SSC), net FDI inflows slowed in the second quarter of 2008. This is a result of both domestic and external factors:

– Economic fundamentals. Although the Ukrainian economy has continued to expand at a relatively strong and steady pace, this growth has been coupled with severe inflation. Apart from creating serious risks of stagflation, galloping inflation has prompted the central bank to resort to controversial countermeasures, such as a sharp currency revaluation. The one-time 4% appreciation of the hryvnia in late May correspondingly lowered the value of monetary resources brought in by investors from abroad.

– Global crisis. As important as the domestic factors may have been, the global credit crunch and ensuing financial crisis have also had an obvious negative impact on Ukraine’s FDI inflows. Crisis-inflicted risks and challenges have forced many investors either to revise or suspend their plans for emerging markets in general, and Ukraine in particular. Even investors who were willing to invest in Ukraine may no longer be able to do so with the same diversity or quantity of resources.

However, the full impact of the global financial turbulence is not yet reflected in the SSC’s relevant FDI statistics. Given that a typical investment cycle lasts 12-18 months, investments that came into the country in the first quarter of 2008 were probably the result of decisions made prior to the serious financial deterioration that began in late 2007.

Outlook. Considering the lingering effect of the global credit crunch, as well as the traditional seasonal slowdown in investment activities during the summer months, the slowdown in FDI inflows will likely extend at least into the third quarter. Perceptions of increased political risk have also risen in the aftermath of the Russian-Georgian conflict, which had a particularly acute impact on foreign investment in Russia. Estimated gross outflows from Russia may total as much as $40 billion since the conflict began on Aug. 7 and 8.

The danger for Ukraine is that the conflict could not only frighten investors away from the warring countries, but also from the CIS region as a whole. Furthermore, investor confidence in Ukraine is hardly going to be enhanced by the serious domestic political infighting that culminated in President Viktor Yushchenko’s withdrawal from the governing coalition on Sept. 3. With new parliamentary–or possibly even presidential–elections on the horizon, Ukraine appears to be heading toward yet another period of protracted political uncertainty. To read an extended version of this article, log on to Oxford Analytica’s Web site.

Oxford Analytica is an independent strategic-consulting firm drawing on a network of more than 1,000 scholar experts at Oxford and other leading universities and research institutions around the world. For more information, please visit oxan.com. To find out how to subscribe to the company’s Daily Brief Service, click here.

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LONDON - The days of easy credit may be over for American investors, but nobody seems to have told Ukrainian billionaire Rinat Akhmetov. The coal and steel magnate’s holding company Metinvest received a loan of $1.5 billion on Thursday, the largest ever given to a private Ukrainian firm, courtesy of four major European banks.

Metinvest, which produces over 20% of Ukrainian steel, said that the syndicated loan of $1.5 billion would be used to upgrade production facilities and develop new technologies. The company added that it hoped to invest $4 billion in its businesses over the next five years.

“The loan is unique in many respects,” said Metinvest’s Chief Financial Officer Sergei Novikov. He said it was the largest credit ever given to a private Ukrainian company, and that the margin on the loan was a record 1.7% premium to the London interbank offered rate, or Libor.

The banks teaming up to lend the money are ABN Amro (nyse: ABN - news - people ), BNP Paribas (other-otc: BNPQY - news - people ), Deutsche Bank (nyse: DB - news - people ) and ING (nyse: ING - news - people ). The first slice of $1 billion, received on July 23, will be backed up by a $500 million line of credit.

The loan also points to the “attractiveness of Ukrainian companies in the international market for syndicated loans,” according to Sergei Boichenko, BNP Paribas’ head of financing for the Commonwealth of Independent States. The Commonwealth was formed in 1991 and currently contains 11 former republics of the Soviet Union.

Despite the political turbulence of Ukraine, characterized by revolving-door governments and an awkward co-habitation between arch-rivals Prime Minister Viktor Yanukovych and President Viktor Yuschenko, its economy has been on the up since it first registered economic growth in 2000. Between January and April, gross domestic product grew by 7.9% year-on-year, and overnight interest rates have fallen 1.5 percentage points to 8.0% since 2005.

And lender BNP Paribas has first-hand experience of Ukraine’s tempting growth environment: in 2005 it acquired a controlling stake in UkrSibbank, the fourth-largest bank in Ukraine. And on Friday, BNP joined forces with French insurer AXA to buy 99% of Ukrainian insurer Vesko, the sixth-biggest in the country.

Rinat Akhmetov, owner of Metinvest and SCM Holdings, is Ukraine’s richest business oligarch and has been accused in the past of shady dealings in the criminal underworld and tax evasion. (See “Ukraine Builds Tax Case Against Billionaire”)

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(AP) - Ukraine’s efforts to receive an emergency loan from the International Monetary Fund were stalled Tuesday as a political standoff among ruling politicians blocked legislation to accept the rescue.

Ukraine is hoping the $16.5 billion loan will help it overcome a severe financial crisis, as it battles a drastic fall in exports, a weakened national currency and a shaken banking sector.

But a fierce standoff between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko over a planned election is threatening to stall the deal. Tymoshenko is fighting Yushchenko’s order to hold early parliamentary elections, in which she risks losing her job.

Parliament was to consider Tuesday a series of competing bills aimed at overcoming the financial crisis, but the pro-Tymoshenko lawmakers blocked parliament’s presidium in protest, stalling a vote on the IMF plan.

The IMF hasn’t made its conditions public, but provisions in draft legislation indicate they might include reducing social spending and raising taxes to adopt a balanced budget and stem 16-percent inflation.

Ukraine is one of hardest-hit by the financial crisis among emerging markets. Output in the steel industry, which accounts for 6 percent of the GDP and 40 percent of the country’s exports, is down by 30 percent on a fall of global demand.

That has widened the trade deficit to $12.5 billion so far this year. In the absence of foreign currency flowing into the country, the hryvna plunged to a historic low of $6.01 last week as a run on banks stripped the banking sector of $3.4 billion.

Lawmakers were to resume deliberations in the afternoon and there was hope they would muster the necessary votes. A Tymoshenko ally said his faction was ready to approve a bill submitted by the president.

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Serhiy Taruta, the billionaire who co-owns Ukraine’s leading steel group, Industrial Union of Donbass, is ready to invest some 85 million euros in the construction of a brand new soccer stadium in Lviv, city officials announced late in October.

Serhiy Taruta

Lviv is one of several Ukrainian cities earmarked to host the Union of European Football Associations games during the championship matches that will be co-hosted with Poland. The construction and reconstruction of stadiums at the other cities is well under way and backed by Ukraine’s billionaires. Soccer-crazed Ukrainian businessmen are backing stadium projects in other host cities, including Donetsk, Kharkiv and Dnipropetrovsk. In Kyiv, reconstruction efforts at the city’s main stadium have commenced.

But Lviv has struggled to find backing for a new stadium. News of possible backing from Taruta comes weeks after an Austrian construction group, Alpine Bau, announced it had backed out of the project to build a stadium in Lviv. City officials also recently announced that two foreign companies had agreed to take part in developing the new stadium: Italy’s Codest and Spain’s Horwath Art Consulting.

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The PFTS started the week up on fairly active trading, Tiger Asset Management reports.

As of 12:00 on Monday, 31 deals were concluded, including those conducted in pre-trading period. Total trading volume at noon was $12 million, with $11.5 million in Ukrsotsbank corporate bonds and governmental bonds.

Leaders of the trades are Ukrnafta up over eight percent, Krukivsky Carriage AWorks up nearly five percent, Azovstal up over seven percent and Alchevsk Metallurgical Plant at nearly 12 percent.

The market followed the global upward trend and was aide3d by the stabilization of the hryvnia.

The PFTS’ year-high peak of 1198.22 came on Jan. 17 and followed a 130 percent rise in 2007. However, since the beginning of 2008, the PFTS index has fallen by more than 75 percent from the Jan. 1 start at 1160.34.

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An International Monetary Fund mission held consultations last week with the Ukrainian authorities on a possible stand-by lending facility. These were the first consultations between the two sides in years that focused specifically on lending. They were reportedly initiated by Ukraine, which may have good reason to request IMF assistance as the financial crisis rages across the world.

Until recently, the Ukrainian economy seemed somewhat isolated from the troubles many developed economies had been experiencing as a result of the global credit crunch. Such impressions were enhanced by the country’s observed relative currency stability–despite the sharp one-off currency revaluation conducted by the central bank (NBU) last May–and indicators of continued robust, roughly steady and, at times, even accelerating growth.

However, as the effects of the crisis have reached further and further, some are already being felt across developing economies, too, with Ukraine no exception.

– Tumbling stock market. Traditionally attracting mostly speculative foreign capital rather than classic portfolio investors, the local stock market has always been prone to excessive volatility. If this weakness was hidden during 2007, its best-performing year, it has been fully revealed this year.

– Banking sector’s woes. The main problem that Ukrainian commercial banks face in connection with the global credit crunch lies in the sharply deteriorated conditions for their external borrowing. Over the past three or four years domestic banks have relied heavily on foreign loans to finance not only their credit operations at home but the repayment of loans already received from the same sources. Having accumulated large debts to foreign counterparts, banks may no longer service them from new external borrowing.

– Currency pressures. In the absence of sufficient external financing, the need to mobilize resources to pay debt drove a sharp increase in banks’ demand for foreign currency available domestically. In combination with such factors as reduced inflows of foreign investment, due in part to the demise of the securities market, and falling revenues from exports of metals, unusually strong pressures were exerted on the hryvnia.

Outlook. Since the global financial crisis is likely to prove enduring, Ukraine may have to grapple with its effects largely on its own. When the world economy eventually recovers, financial resources will first and foremost go into investment in high-grade assets in the developed economies, with whatever resources are left coming into emerging markets such as Ukraine later.

However, some financing cushion against the crisis appears to be readily available from the IMF. The assumed $3 billion to $10 billion credit line that could be opened under a stand-by arrangement should help Ukraine cover a widening current account deficit. However, it is not clear if and when an agreement with the IMF is going to be concluded.

Until then, much if not all in the way of crisis management will continue to depend on the central bank’s ability to maintain currency stability while supporting banking system liquidity at appropriate levels. Both look attainable, but in the current conditions their efficient achievement may require far greater policy flexibility than has been the case to date.

To read an extended version of this article, log on to Oxford Analytica’s Web site.

Oxford Analytica is an independent strategic-consulting firm drawing on a network of more than 1,000 scholar experts at Oxford and other leading universities and research institutions around the world. For more information, please visit oxan.com. To find out how to subscribe to the company’s Daily Brief Service, click here.

You may also sign up to The World Next Week, Oxford Analytica’s free weekly service providing depth and context to next week’s important international issues.

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