Natural Gas--Ukraine to Boost Gas Output by 50% to Cut Dependency

Ukraine to Boost Gas Output by 50% to Cut Dependency

Ukraine, facing price increases from natural gas suppliers Russia and Turkmenistan, will seek to raise its extraction of the fuel 50 percent this year to reduce its dependence on Russia, Prime Minister Yuriy Yekhanurov said.

"We can extract at least 30 billion cubic meters of gas per year,'' Yekhanurov said Saturday in the central city of Poltava in remarks broadcast by Ukraine's Channel 5 television...

Ukraine wants to invest in gas and oil extraction in Libya, Egypt and the Black Sea together with international oil companies.
Ukraine will spend $100 million exploring for gas and oil this year, according to the government's budget.

Telecommunications--Ukraine--Ukrainian mobile phone saturation

Apparently mobile telephone use in Ukraine has hit 66%:

The number of mobile subscribers (valid SIM-cards) in Ukraine reached 31 million as of 31 January, up from 30.4 million in December 2005, according to figures from Advanced Communications & Media. Mobile penetration went up to 66 percent from 63.8 percent on 31 December 2005. Kyivstar has a market share of 45.5 percent, followed by UMC which has a 44.4 percent share of the market. Astelit has a 8.7 percent share of the market and Wellcom has a 0.8 percent market share.

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Telecommunications--Fiber Optic network

DataGroup to Deliver DWDM Network in Ukraine With Cisco.

Cisco Systems® (NASDAQ:CSCO - News) today announced that Ukrainian telecommunications company, DataGroup, is introducing a new portfolio of high-capacity services based on the Cisco® ONS 15454 Multiservice Transport Platform (MSTP). The new 6500 km countrywide fibre-optic network will provide the dense wavelength-division multiplexing (DWDM) backbone for delivering Ethernet-based services in all regional centers of Ukraine. In addition, it will help enable DataGroup to take advantage of the reconfigurable optical add/drop multiplexer (ROADM) capabilities of the Cisco solution to speed service delivery to clients.

The Ukrainian company aims to deliver a new portfolio of services ranging from high-speed Ethernet connectivity and carrier interconnect services for the Ukrainian and Pan-European market, to managed storage area network (SAN) extension services. The new infrastructure deployment will form a key part of DataGroup's overall IP Next-Generation Network (IP NGN) architecture supporting service delivery.

Ukraine-Agriculture-Soybean production

Ukraine: soybeans exports increased 11 times from last year. The total crop increased from 363,000 tons in 2004 to 611,500 in 2005.

This is significant because Ukraine has been an importer of soy protein. Looks like that might not remain the case.

Banks and Banking--Bank Acquisitions Ukraine

Emerging Markets Economic Briefings notes:

The news of another large Ukrainian bank about to be acquired by one of the leading European financial institutions seems to confirm the trend that foreign bankers are willing to bet on Ukraine, and to do so in spite of political instability ahead of the March parliamentary elections.

I was talking to an analyst the other day who is working with a couple of banks about the banking sector here. He said that there are acquisitions taking place but he thinks they typically overpay. A lot of that is not knowing the financial history here. For example, one of the problems he finds also in the banking sector here is that a lot of banks have what essentially non-arms length loans that is loans that have been made to related third parties is how he put it. This has happened because most bansk started as a repository for a large company's cash. In other words, most banks were wholly owned by large companies here and there was no separate identity. A foreign bank looking for an acquisition here needs to be careful of that.

This said, there is a lot of room to grow here and there is a need for competition. A typical mortgage here is around 18% and there is a kind of inflation formula factored in. And a lot of services that banks offer in the West do not exist here. Checking accounts are unheard of, for example. If a person needs to pay on a mortgage, for instance, he either has to have an account in that bank or take cash to that bank to pay for it. Nothing else is available for use.

Mobile telecommunications--Cell phones

More from the US Department of Commerce on mobile telecommunications:

Mobile Communications

Five Ukrainian operators - UMC, Kyivstar GSM, Golden Telecom GSM, DCC, and Wellcom - offer wireless mobile services in Ukraine in the following standards:
GSM900/1800 (UMC, Kyivstar GSM, Wellcom, Golden Telecom GSM), and D-MPS
(DCC). Late in 2003 the mass media announced that a major Turkish investor will form a joint venture with DCC to deploy a third nationwide GSM network. In the second half of 2004, JV Astelit started deploying the network. Wellcom was also actively expanding its existing network to cover new territories and regions.

In 2004 wireless mobile communications (MC) for the first time became the biggest subsector of the telecom industry in Ukraine. From January - October 2004 MC revenues amounted to UAH 7.58 billion or $1.43 billion, which is almost 100 percent
more than for all of 2003 (UAH 3.83 billion or $736 million). These revenues represent 43.59 percent of total telecom industry revenues. This successful financial performance for the first time ranks MC as the first communications sub sector in terms of revenue ahead of the longdistance and international wire line communications that historically led other industry sub sectors. The number of MC customers also doubled reaching 12 million (compared to 8-10 million customers of wire line telecom services). The market penetration for MC is 25.5 percent.

Thee mobile phone industry has been characterized by a lack of competition much like a lot of other sectors in Ukraine. This has been the case because the mobile phone companies havee been owned by person's close to the prior regime of Kuchma. They were and are "oligarchs," a term used here to describe them, the original meaning of which comes close to describing what they are. They have/had political clout as major owners of businesses. For this reason, they have been able to limit any competition. That is one reason why cellphone rates remain so high--no competition.

But, much like everything else in Ukraine, this is slowly changing. One of the major political figures sees fighting the oligarchs as the main problem in Ukraine. This is a typical solution here. The problem though is that it most often means state power meddling in economic affairs. What is really needed is transparency, openness and rule of law. If they concentrated on these, and they are slowly moving that way, the oligarchs would cease to be a problem.

Even so, there are still investment opportunities in mobile telecommunications in Ukraine. And equipment to support mobile telecommunications is an area of opportunity.

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Telecommunications--An Overview

The following is from the US Department on telecommunications in Ukraine

Telecommunications and IT are important infrastructure sectors for Ukraine. The revival of the Ukrainian economy after 2000, as well as foreign and domestic investments in telecommunications made over the last 10 years, has brought marked changes in the Ukrainian telecom industry, particularly in mobile wireless and Internet. Obsolete analog networks are circumvented by a growing number of wireless mobile and fixed "overlay" networks. During January – October 2004, telecom industry revenues reached UAH 17.41 billion or $3.28 billion (compared to $2.54 for all of 2003). The average level of teledensity reached 24 percent. Revenues from long distance and international calls account for 28 percent of total services provided by the industry. Two leading wire-line operators Utel and Ukrtelecom process 95 percent of long distance and international calls. The local loop accounts for 13 percent of industry services. Private wire line telecom providers are slowly overcoming Ukrtelecom’s monopoly, although their market share is still too small to trigger major changes that would reshape the market.

A lack of transparency and slow decision making in licensing and frequency allocation, continuing delays with privatization of Ukrtelecom, ongoing disputes between telecom authorities and private telecom operators seriously hurt the
development of the whole telecom industry which is far behind the rest of the national economy in its movement toward liberalization, transparency and openness for foreign investments. INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2004. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

The last paragraph is splash of cold water that can sober up investors wanting to deal here. But this was written last year and there continues to be headway made against these problems. It is interesting to note that Russian investors see Ukraine as a real land of opportunity in telecom (and all other areas for that matter.) They deal in a country that has had and continues to have in a number of ways the same sorts of problems as Ukraine. So they may have the stomach for more risk and are able more to operate in this kind of environment. But they are still investors and still businesses looking to maximize profit and to minimize risk. What is it they know that you don't know? Details at 11.

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Investment--Telecommunications--More Ukrtelecom

I don't have the link right now but after I made the last post, I read that Ukrtelecom will have a valuation of around $7 billion. It would be interesting to know who is doing the valuation and what it is based on. Are they valuing the assets of Ukrtelecom? The future profitability of the company? The problem again is what I posted the last time: competition is moving rapidly; Ukrtelecom is moving slowly.

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Telecom--Investment--Ukrtelecom

The government is taking steps to make the local telecommunications monopoly more attractive to investors. UNIAN-News from Ukraine

Ukrtelecom is the state owned telecommunications monopoly that was due to be sold this year. The sale was delayed for some reason probably political. (There was some talk about keeping some strategic assets in government hands--that could have been it.) It is a company like any other state company, bloated, inefficient and with customer service not much different than you would get from the local office of bureaucrats. (Actually, these are bureaucrats. Duh.)

And they are faced with some pretty good competition these days. It takes from 6 months to a year last time I checked to get a telephone installed by Ukrtelecom and you have to go to their offices to order it up. But a local company called Golden Telecom will come to your house, sign you up, and after you pay their deposit, about $50, you get your phone in about 2 weeks. And there are other companies out there that offer phone service too.

And the mobile phone is pretty much standard for everyone now, in the city that is. Everyone has one and, though it is pretty pricey per call, about $.25 per minute, is used by people pretty extensively.

The point is that Ukrtelecom value may be dropping as we sit here because competition may be passing it by. Delaying the sale means value drip, drip, dripping away.

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Gas--Acquisition--Canadian company acquires Ukrainian gas exploration company

A Canadian company, Transeuro, acquired a Ukrainian company, Pivdenspetsbud to get access to the rights to exploit a gas field in Western Crimea--Transeuro Announces Acquisition in Ukraine. (Here's a map of the Crimea.)

The rights were acquired by the Pivdenspetsbud through Joint Activity Agreements with a third party company, Crymgeologia. Crymgeologia is the company that holds the license to exploit the gas field.

I don't know for sure, but Crymgeologia sounds like a government or quasi-government entity that you often are left dealing with here.

The gas bearing zone is around 4000 meters. That is more than 12000 feet down. No company here has the technology to drill down that far absent some involvement from Western companies. So they are keen to get outside help and investment. $650,000 seems to be a small price to pay to get in on it. There will be some headaches for them of the regulatory variety but, notwithstanding those, the price looks like a bargain.

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Energy Investment-Oil and Natural Gas--Business Profile

Here's a company working in the oil and gas sector in Ukraine profiled in the article Resource Investor - Energy - An Opportunity in Ukrainian Oil & Gas?

The article mostly reads like a press release and it is a bit of a tough slog through it. It touts the contacts the company has, an important thing here. And then some interesting information:

A mix of workovers and new drilling is characteristic of Cardinal's development plans for its various assets across Ukraine. Many of the country's existing oil & gas wells are poorly completed and can often benefit from workovers either to restore production where total failures have occurred, or to raise output levels where these sit below their potential.

Cardinal uses mostly Ukrainian equipment hybridised with certain Western components, which keeps costs lower than would otherwise be the case and should improve effectiveness, as local equipment tends to be outdated and ill constructed. However, given the absence of Western oil & gas service companies in Ukraine, use of adapted local equipment is a convenient option for Cardinal.

Apparently, some wells have played out for reasons that aren't stated but are being re-worked by Cardinal. That must mean making them productive with new methods or with their hybridized equipment. That equipment is a hybrid of Ukrainian equipment augmented by the addition of Western components. They argue it saves money and I bet it does.

Equipment used here is mostly old. Not much has gone into investing in new equipment. And there isn't much of an industry to produce new equipment and the equipment that is produced tends to not be up to Western standards though it is serviceable in a general way. And there are no companies manufacturing pumping equipment capable of producing at levels below 6000 feet. That must be the reason for the Western components.

So we have a company having success re-working old wells using hybrid equipment which saves them money. Sounds good to me.


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