In the first two months of 2005, Ukrnafta?s oil and condensate output was 72.2% of Ukraine?s total output, a 2.4% yoy decline. In February alone, extraction of oil and condensate in Ukraine declined 2.5% yoy to 317.7 ths mt, while Ukrnafta?s output was down 1.8% yoy to 229.5 ths mt.
A total of 1.05 mn unemployed (or 3.6% of the working-age population) was registered with the State Employment Service as of March 1, 2005.
According to the Finance Ministry, budget revenues were 0.1% higher than planned in February, or ~USD1.84 bn. A 25.5% over-collection of corporate profit tax, compensated for personal income tax collection which was 5.7% below the targeted level.
The project is expected to cost about USD 520 mn. The company plans to attract a loan in order to finance the project. Currently, AZST operate sinter plant with an annual capacity of 2 mn mt. Concorde Capital: After commissioning the new plant, AZST?s market share in Ukrainian sinter production will grow from 4.2% to 30%. Excessive capacities will enable the company to sell part of its sinter output to other steel mills. Most Ukrainian steel mills use sinter as one of the major inputs for pig iron production.
DMK Dzerzhynskogo, controlled by the Industrial Union of Donabss (IUD) will manufacture special billets to be re-rolled at Duferdofin. The Italian Government already approved a grant for implementation of this project. The implementation of this project will ensure stable operations for Duferdofin and afford the opportunity for IUD to have its own re-rolling facilities in Italy, according to company representatives. Concorde Capital: Duferdoin is the steel division of IUD?s main partner Duferco. IUD is successfully implementing its strategy to produce semi-finished good at its Ukrainian mills and further re-roll them at its own as well as Duferco?s capacities in Europe and the USA. This scheme will allow the company to avoid protection measures on markets closed for other Ukrainian steel.
The program will focus on purchasing equipment for Dniprospetsstal's drop-hammer shop and reconstruction of steel smelting shops #2 and #3. Concorde Capital: Part of the capital expenditures will be directed into construction of new electric furnace which will cost DPST EURO 10 mn. The estimated CapEx/Output ratio (USD 90 per mt) is considerably higher than other Ukrainian investment leaders, such as ALMK (with an average investment of USD 60 per mt) and ZPST (with an average investment of USD 50/per mt). Unlike other Ukrainian steel mills, DPST focuses exclusively on high-grade specialty steel, which is the highest price segment, so we can expect relatively higher return from DPST?s per-mt investment.
In Jan-Feb, Ukrainian refineries cut crude refining by 8.0% yoy to 3,208.7 ths mt. In February alone, refining was reduced by 21.3% yoy to 1,544.5 ths mt.
Oil shipments increased through the Druzhba pipeline by 13.0% yoy to 3,502 ths mt. Transit through the Prydniprovski pipeline was down by 10.0% yoy, to 1,839 ths mt.
As a result of the February increase, GDP increased 5.5% YTD. January?s gross domestic product increased by 6.5% yoy. Concorde Capital: This year?s pace of growth is two times lower than in 2004, as expected. A slowdown in industrial output (7.3% versus 18.2% in Jan-Feb 2004) and wholesale and retail trade (1.8% versus 9.4%), as well as negative growth rates in construction, contributed to the lower real GDP growth. Among the growth factors was the processing industry (up 8.5% yoy) and transportation (up 7.2% yoy). The government forecasts an 8.2% GDP growth in 2005. We are slightly less optimistic and still maintain our 7% GDP growth estimate for this year.
According to MTS president Vasiliy Sidorov, the company intends to invest USD 500 mn in 2005 in the development of UMC, Ukraine?s major mobile operator network. Concorde Capital: A month ago, Telenor?s Vice President announced a USD 500 mn investment program for Kyivstar. Thus, UMC?s investment program is a response to a move by its main competitor. This is evidence that UMC plays the role of a ?follower? in the oligopoly game. The strategy gives the company a competitive advantage in terms of knowledge of what its competitor has accomplished.
The increase included the production of 2,624 Tavria and Slavuta cars, 540 Lanos, 1,670 Sens, 96 Opel, 3275 VAZ and 3,568 other models. Concorde Capital: The output increase is related to growing internal demand, especially for low and medium-price segment cars. The company intends to increase production by 15% in 2005.
Output was reduced to 1,984 automobiles in February, continuing the company?s mom output decrease which fell 10.35% in January. Nevertheless, the company increased output by 87.1% yoy in Jan-Feb to 3,993 automobiles. Additionally, two enterprises, which were incorporated into LuAZ starting Feb 15, produced 35 Bogdan buses and one truck BJ-1046. Concorde Capital: The company enjoys VAT and import tariff privileges, after the government officially approved its investment program in Jan. The program foresees an approximately two fold increase in car, truck and bus output by 2008, from 47,400, 6,500 and 3,400 units respectively in 2004.
The Russian government will place the first order for 40 stations. The JV will conduct 15% of its operations, including repair and maintenance. The remainder will be made by Motor Sich. Concorde Capital: The plans will allow the enterprise to further increase its share of exports in sales, which make up over 82% of total revenues. Earlier, Motor Sich?s CEO expressed concern over the possible worsening of relations with Russia after the new president was elected. Increased output diversification is a good sign for the enterprise, as its airplanes engine segment is dependent on the orders for new An-148 airplanes, and government financing for An-70 planes.
Russian oil major Lukoil will invest USD 150 mn in its subsidiary Lukoil-Ukraine by 2011. Lukoil President Vagit Alekperov said the money would be used to increase the number of gas stations. In 2005, Lukoil?s gas station chain will grow by 200-210 units, while overall the program envisages the addition of 350 stations. Lukoil also intends to invest nearly USD 170 mn in upgrading its JV Lukor (in the Kalush, Ivano-Frankivsk oblasts) and nearly USD 300 mn in the modernization of the Lukoil-Odesa refinery by 2011. Lukoil?s plans include the construction of an oil and lubricant factory in Boryspil. The project will cost an estimated USD 20 mn.
The decision to extend the pipeline to Poland is likely part of negotiations to change the current direction of oil flow through the pipeline. Presently, oil is shipped from Brody, in western Ukraine to Odesa, in the south. Ukraine, Poland, and the EU will allocate EUR 2 mn for financing feasibility studies of the pipeline extension to Plock. The EBRD and European Investment Bank have already expressed interest in participating in the project. Concorde Capital: With the new government at the helm, the direction of the Odesa?Brody pipeline is likely to be switched back to its original design. Shipping oil from Brody to Odesa has proven unprofitable. The losing party will be TNK-BP, which will face increased competition from Kazak oil extractors. Ukraine is to benefit from both higher budget revenues and closer ties with the EU. Also, a number of unnamed oil majors have agreed to use the Odesa-Brody pipeline, if the oil is shipped to Europe, according to government sources.