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Country Commercial Guides for FY 2000: Ukraine Report prepared by U.S. Embassy Kiev, Released July 1999 Note*

Chapter VIII: Trade and Project Financing

A. Brief Description of the Banking System

The Ukrainian banking system consists of the central bank - the National Bank of Ukraine (NBU), and commercial banks of various classifications. The NBU is responsible for monetary circulation, registration of commercial banks and oversight of their activities, and sometimes intervenes in the currency market to moderate changes in the exchange rate. As of January 1, 1999, there were 221 banks registered in Ukraine, 170 of which were actually operating.

Five banks in Ukraine, which were state banks during the Soviet era, currently hold much of total banking capital: Prominvest (construction and capital investments); Bank Ukrayina (agriculture); Ukrsotsbank (the social sphere); Ukreximbank (export-import operations); and Oshchadbank (general population savings). These banks remain dominant in serving government programs in their respective sectors. Today, only Ukreximbank and Oshchadbank remain state banks, the others having been privatized. Recently the state-run Oshchadbank has been reorganized into an open joint stock company, with the state retaining all 100 percent of its stock. In early June 1999, the State Commission for Securities and Stock Exchange registered information on the issue of Oshchadbank's stock. Bank Ukrayina, after its default on UAH 115 million worth of client commissions in late 1998, is under a rehabilitation program that is to last until 2003.

Some of the larger commercial banks founded by Ukrainian enterprises and entrepreneurs without state money are: Privatbank (Dnipropetrovsk), Aval, Ukrinbank, Pravex-bank, VA Bank (Kyiv), Ukrsibbank (Kharkiv), and Sloviansky (Zaporizhzhya).

Problems common to all commercial banks include unstable macroeconomic conditions and thus a high level of interest rates reflecting a substantial risk premium.

However, there are positive trends in the development of the Ukrainian banking sphere. Effective May 24, 1999, the National Bank lowered the discount rate for the third time from 50% to 45%, and lowered the Lombard rate from 55% to 50%. Despite the fact that the reduction of rates has only marginally influenced the banking sector, this trend will undoubtedly stimulate the banks to increase their credit activity in the medium term. Ukraine's payment system is very reliable. After five years of use, the Electronic Payments System (EPS) has shown that it fulfills all the requirements for a national system of interbank payments. The average duration to complete payment is from ten minutes to two hours.

Banking is the first sector in Ukraine that transferred to International Accounting Standards (IAS). Since January 1, 1999, banks are required to present their reports according to IAS. These standards have the potential to improve the entire banking sector by forcing banks to be more transparent.

Another positive development is the adoption by the NBU of many new regulations that are consistent with Western-based banking, such as restrictions on loans to single borrowers and to owners.

The NBU has raised requirements concerning the liquidity of commercial banks and the amount of statutory capital (at least ECU 1.0 million). This banking supervision reform allows for the creation of an effective monitoring system to oversee the activities of commercial banks, making it possible to identify problems of individual banks for the NBU to react to promptly. In February 1998, the NBU Board approved a bank supervision development strategy for 1998-2000; this strategy provides for measures to create a regulatory framework for banking supervision.

The Ukrainian government eased restrictions on foreign banks and has one of the more liberal policies towards foreign banks in the region. Therefore, several have recently entered Ukraine, including Creditanstalt Austria, ING Barings, Rafeissenbank, and Citibank. The European Bank for Reconstruction and Development (EBRD) has made several investments in the banking industry. Credit Lyonnais Ukraine (France), registered in 1993, is now listed as the country's 10th-largest bank. Among the largest banks with foreign capital (or having 100% foreign capital) are: Societe General Ukraine, Credit Suisse First Boston (Ukraine), the First Ukrainian International Bank (Donetsk), Electronbank (L'viv) and Inkombank (Kyiv).

There are few market entry barriers in the banking sector. Foreign-owned banks are required to open a resident office one year before applying for a banking license. The minimum authorized statutory fund is ECU 10 million, a small sum by international standards. In April 1998, the NBU abolished the 15% limit on foreign investment in domestic banks, further blurring the line between local and foreign investment. The NBU does require that the currency share of authorized capital of foreign banks be converted into local currency. Most foreign operations serve multinational subsidiaries and joint ventures by extending short and medium-term credit and assisting in export transactions.

B. Foreign Exchange Controls

In March 1993, the government of Ukraine issued three decrees concerning currency regulation in Ukraine. Additionally, the NBU has issued a series of instructions and regulations.

Current legislation stipulates that Ukrainian currency is the only legal form of payment on the territory of Ukraine, which may be accepted without limitation for the settlement of debts and obligations. Currency decrees stipulate that individual licenses have to be obtained from the NBU to carry out the following operations:

i) use of hard currency on the territory of Ukraine as a form of security; ii) a resident of Ukraine opening a bank account abroad; iii) a resident making an investment abroad, except in the event of inheritance, the acquisition of shares, or an ownership interest by a resident in a non-Ukrainian legal entity; iv) obtaining or granting of loans in hard currency by a resident of Ukraine, if the amount of the loan is in excess of the minimum levels established by the NBU; v) making hard currency payments abroad from Ukraine (except instances listed in the following paragraph).

Individual licenses are not required for the following transactions:

i) payments abroad in hard currency, which are carried out by residents in order to fulfill obligations in such currency to non-residents in connection with payment for goods, services, intellectual property rights, and other property rights;
ii) payments abroad in hard currency made in the form of interest payments on loans and profits from foreign investments;
iii) transfer, upon the termination of investment activities, of hard currency from Ukraine, which had been previously invested in Ukraine.

As of August 1, 1998, the use of foreign currency for cash payments on the territory of Ukraine is prohibited.

Currently, the official exchange rate, auction rate, and "street" rate fluctuate at similar levels. According to the Foreign Investment Law, the exchange rate for converting foreign investments into Ukrainian currency is the rate established by the NBU.

A. General Financing Availability

Credit availability in the private sector is scarce, as commercial banks remain risk-averse; the spreads between lending and deposit rates are high and loans are mainly short-term. Effective on May 24, 1999, the NBU lowered the discount rate from 50% to 45%. The reduction of rates has only marginally influenced the banking sector, but this trend will undoubtedly stimulate banks to increase their medium-term credit activity.

The majority of commercial bank loans are for 90 days or less, with most terms being 30 days or less. This precludes loans from Ukrainian commercial banks for virtually any transaction - a major problem affecting a wide range of business in Ukraine. Starting on July 1, 1999, the National Bank lifted all restrictions on the prepayment of import contracts.

Earlier, advance payment on import contracts could not exceed $ 100,000. This resolution was adopted in pursuance with the IMF's requirement to further liberalize the currency market. As a result of this measure, imports to Ukraine are expected to increase, inevitably intensifying competition between domestic and foreign producers.

B. How to Finance Exports/Method of Payment

Ukraine has adhered to a number of international legal instruments pertaining to international payments via checks, bills of exchange, letters of credit, and collection arrangements. The safest method of receiving payment for a U.S. export is through an irrevocable letter of credit (L/C). To carry out hard currency transactions, a bank has to be authorized by the NBU. Authorized Ukrainian commercial banks are members of SWIFT (Society for Worldwide Inter-bank Financial Telecommunications).

C. Types of Export Financing and Insurance Available

1. The Bankers' Association for Foreign Trade (BAFT) is an association of banking institutions dedicated to fostering and promoting American exports, international trade, finance, and investment between the U.S. and its trading partners. BAFT's access to the Export Capital Program (AXCAP) has greatly strengthened BAFT's commitment to American exports. AXCAP serves as a "national catalog" listing banks and other companies involved in trade finance and trade finance services. For further information, contact:

Bankers' Association for Foreign Trade 2121 K Street, N.W., Suite 701, Washington, DC 20037 Tel: (202) 452-0952; Fax: (202) 452-0959 E-mail: baft@baft.org http://www.baft.org

2. The Export-Import Bank of the United States (Ex-Im Bank), an independent U.S. Government agency, helps to finance the overseas sale of U.S. foods and services. Ex-Im Bank programs for Ukraine include short-term and medium-term coverage for sovereign risk transactions. Under its short and medium-term programs, Ex-Im Bank requires an indication of host government support before accepting an application. In late spring 1996, the Export-Import Bank approved the guarantee of a $171 million loan from Societe Generale for the sale of John Deere agricultural equipment to Ukraine. This was the Ukrainian government's first request for Ex-Im Bank guarantees since the Bank reopened its programs in Ukraine in May 1995. For further information, contact:

Ex-Im Bank 811 Vermont Ave., N.W., Washington, DC 20571 Tel: (800) 565-3946; Fax: (202) 565-3380 http://www.exim.gov

3. Overseas Private Investment Corporation (OPIC)

The Overseas Private Investment Corporation (OPIC) is an independent, self-sustaining U.S. Government agency that encourages private sector U.S. investment overseas by providing investment finance and insurance to American businesses large and small making long-term investments. OPIC has provided more than $3.5 billion in combined project financing and political risk insurance to U.S. companies sponsoring projects in Armenia, Georgia, Kazakstan, Kyrgyzstan, Moldova, Russia, Ukraine and Uzbekistan.

The U.S.-Ukraine OPIC Agreement was signed in Washington on May 6, 1992. The Agreement enables the U.S. to provide investment insurance, project financing, and various investor services to private U.S. investors for sound business projects in Ukraine. Since the signing, OPIC has lead several investment missions to Ukraine and hosted several reverse investment missions by Ukrainian business representatives to the United States.

OPIC risk insurance and financing programs are also available to U.S. investors in Ukraine. OPIC has also facilitated conferences and exchanges between the two countries to increase business relations.

Key contacts are:

James Gale, Investment Development Manager
Overseas Private Investment Corporation
1100 New York Ave.
Washington, DC 20527-0001
Tel: (202) 336-8628; Fax: (202) 408-5145
http://www.opic.gov
E-mail: info@opic.gov

LaWana Gray, Information Officer
Tel: (202) 336-8663

4. The U.S. Small Business Administration (SBA) does not have a specific program designed for the NIS, but all qualified U.S. companies doing business in the region may apply for SBA financing.

SBA guarantee program include the Regular Business Loan Guarantee Program, which provides loan guarantees to small business for fixed assets and working capital; and the Export Revolving Line of Credit Program, through which a business can receive a government-guaranteed loan to finance labor and materials for manufacturing or wholesaling, developing foreign markets, financing foreign accounts receivable and, in some cases, business travel and trade show participation.

The International Trade Loan Program provides long-term, fixed-asset financing and short-term working capital to purchase or upgrade facilities or equipment and to make other improvements within the U.S. for the production of foods and services. For further information, contact:

Small Business Administration
409 3rd St, S.W., Washington, DC 20416
Tel: (800) 827-5722; Fax: (202) 205-7064
http://www.sba.gov

D. Types of Project Financing Available

1. The European Bank for Reconstruction and Development (EBRD) established an office in Kyiv in 1993. At the end of 1998, the EBRD's total commitments in Ukraine reached over $600 million, covering all major sectors of Ukraine's economy - agriculture, energy, transportation, communication, financial services, oil and gas exploration, and manufacturing. Approximately 55% of the EBRD's commitments went to the private sector, while 45% went to the public sector. (See section G for EBRD projects.)

To contact the Senior Commercial Officer in the U.S. EBRD Office with project proposals and inquiries:

Gene Harris, Office of the U.S. Director
European Bank for Reconstruction and Development
One Exchange Square, London EC2A 2EH
Tel: (44-171) 588-4027, 588-4028
Fax: (44-171) 588-4026
E-mail: Gene.Harris@mail.doc.gov
http://www.ebrd.com

For information on the procurement process, contact the Procurement Unit at:
Tel: (44-171) 338-6534;
Fax: (44-171) 338-7472
http://www.ebrd.com/english/procure/index.htm

For general information on the EBRD and other Multilateral Development Banks, contact:

Janet Thomas, Acting Director
U.S. Department of Commerce
Ronald Reagan Building, Mezzanine Level
Washington, DC 20230
Tel: (202) 482-3399; Fax: (202) 482-3914

(Ukraine contact information may be found in Appendix E.)

2. The World Bank - Ukraine joined the World Bank in September 1992, with the first loan of $27 million for an institutional building project approved in June 1993. Since then, the Bank's program in Ukraine has been steadily expanding, and its commitments to date exceed $ 2.2 billion. For more information contact:

World Bank Headquarters
1818 H Street NW, Washington, DC 20433
Tel: (202) 477-1234; Fax: (202) 477-6391
http://www.worldbank.org

(Ukraine contact information may be found in Appendix E.)

3. The International Finance Corporation (IFC) is a member of the World Bank Group, a family of multilateral development institutions owned by and accountable to member governments around the world. The IFC was established in 1956 with a mandate to assist in the building and strengthening of the private sector in developing countries and in countries with transitional economies.

Currently, IFC is working on three technical assistance projects in Ukraine. With funding from USAID, IFC has been working on small-scale privatization in Ukraine since 1992. With funding from the British Know-How Fund, IFC began a pilot project in October 1994 for post-privatization support in Luhansk.

IFC has assisted in the establishment of post-privatization support offices in the cities of Luhansk, Mariupol, Khmelnytskiy, and Cherkasy. In May 1995, again with funding from the British Know-How Fund, IFC began a pilot project for the preparation of large enterprises for voucher privatization in the Kharkiv oblast. For further information, contact:

International Finance Corporation
212 Pennsylvania Ave., N.W., Washington, DC 20433
Tel: (202) 477-1234; Fax: (202) 974-4384
http://www.ifc.org

(Ukraine contact information may be found in Appendix E.)

4. The U.S. Trade and Development Agency (TDA) offers U.S. businesses a variety of tools to help increase American exports in the face of stiff international competition. Through the funding of feasibility studies, orientation visits, specialized training grants, and various forms of technical assistance, TDA enables American businesses to become involved in the planning stage of infrastructure and industrial projects in middle-income and developing countries.

TDA's assistance to the NIS has focused on the funding of feasibility studies, particularly those that create long-term cooperative relationships between U.S. firms and their NIS counterparts. Since 1991, TDA has approved funding for about $75 million for feasibility studies in almost 200 major projects in the NIS. Exports of U.S. goods and services related to those projects already total more than $600 million.

For further information, contact:

Daniel Stein, Regional Director
KelleyAnn Szalkowski, Country Manager
U.S. Trade and Development Agency
1621 North Kent St., Suite 200
Arlington, VA 22209-2131
Tel: (703) 875-4357; Fax: (703) 875-4009
E-mail: info@tda.gov
http://www.tda.gov

5. The Renewable Energy Pre-Investment Support (REPS) Fund, supported by USAID and the U.S. Export Council for Renewable Energy, provides pre-investment support for projects in renewable energy, including biomass, hydro, solar, wind, and geothermal. REPS, managed by Winrock International, assists project developers by providing up to 50% of the cost of a feasibility study, or feasibility study costs as a reimbursable grant.

Winrock International
1611 N. Kent Street, Suite 600
Arlington, VA 22209
Tel: (703) 525-9430; Fax: (703) 243-1175

Winrock International
c/o Institute of Agrarian Sciences
10 Heroiv Oborony Vul., Kyiv 252127, Ukraine
Tel: (380-44) 261-3217; Fax: (380-44) 266-0539

6. The Western NIS Enterprise Fund, capitalized with $150 million by the U.S. Government, has been fully operational in Ukraine, Belarus, and Moldova since June 1995. The Fund provides equity capital and loans in amounts between $500,000 and $5 million to small and medium-sized private companies involved in food processing, distribution, construction materials, and other light manufacturing industries. The Small Business Loan Fund, a separate fund managed by Western NIS, makes commercial loans under $100,000 to small businesses and entrepreneurs. The Fund has committed over $30 million since September 1996.

Scott A. Carlson, President & CEO
Western NIS Enterprise Fund
15 West 39th Street, 11th Floor, New York, NY 10018
Tel: (212) 556-9320; Fax: (212) 556-9321

Natalie A. Jaresko
Regina Business Center
4 Muzeyny Provulok, 3rd Floor, Kyiv 252001, Ukraine
Tel: (380-44) 247-5580; Fax: (380-44) 291-5589

7. The Eurasia Foundation, a privately-managed, grant-making organization established with financing from USAID, supports technical assistance, training, education, and policy programs. The Eurasia Foundation also awards grants to American organizations with partners in the NIS and directly to NIS organizations involved in projects that promote economic and democratic reform. In 1998, Eurasia issued $2.5 million in grants to 200 Ukrainian NGO's in business development, education, and management training; economic education and research; electronic communications; media; NGO development; public administration; and rule of law.

1350 Connecticut Ave., N.W., Suite 1000
Washington, DC 20036
Tel: (202) 234-7370; Fax: (202) 234-7377
http://www.eurasia.org

Marie F. Sotck, Director
Western NIS Regional Office
26, Lesi Ukrainki Vul., #506, Kyiv 252133, Ukraine
Tel/Fax: (380-44) 295-1065, 295-7402
E-mail: eurasia@eurasia.freenet.kiev.ua

Small-Business Loan Program
26, Lesi Ukrainki Vul., #506, Kyiv 252133, Ukraine
Tel/Fax: (380-44) 294-8209
E-mail: sblp@efsblp.freenet.kiev.ua

8. The Ukraine Fund makes equity investments in small and medium-sized existing private businesses and joint ventures. Investments range from an average of $250,000 up to $1.5 million for portfolio investment over a period of time. The Ukraine Fund has invested $7 million in 23 projects involving companies producing for the Ukrainian market, in such sectors as real estate, building materials, and food processing and distribution.

Jerry Bird, Vice President
Claflin Capital Management, Inc.
77 Franklin Street, Boston, MA 02110
Tel: (617) 426-6505; Fax: (617) 482-0016

Valeriy Schekaturov
Ukraine Fund
26, Pushkinskaya Vul. Apt.26, Kyiv 252004, Ukraine
Tel: (380-44) 228-0916, 228-6216
Fax: (380-44) 228-0916

9. The Defense Enterprise Fund makes debt or equity investments in joint ventures between U.S. and NIS firms specializing in the process of defense conversion. The Fund may provide loans or make investments in qualified join ventures, which include personnel and facilities formerly involved in research, development, production, or operation of the defense sector. Contact:

Defense Enterprise Fund
6630 West Broad Street, Suite 100
Richmond, VA 23230-1702
Tel: (804) 673-6230; Fax: (804) 281-0708
E-mail: Mblake@gpventures.com
http://www.gpventures.com/aboutdef.htm

E. Types of Projects Receiving Financing Support

European Bank for Reconstruction and Development (EBRD) Projects:

As of May 31, 1999, the European Bank for Reconstruction and Development (EBRD) had signed 28 projects in Ukraine totaling ECU 721 million, of which 22 were in the private sector. Investment have been made in a broad range of sectors, including food processing, the financial sector, oil and gas extraction, transportation, agricultural services, telecommunications and port facilities, as well as tourism and logistics. The EBRD is also making increased use of technical cooperation to promote project development and to provide support for enterprise restructuring, institutional strengthening and post privatization.

Total committed technical cooperation expenditure for Ukraine at the end of December 1998 amounted to more than ECU 27.9 million. The EBRD acts as administrator of the Chornobyl Shelter Fund, which was established in December 1997 to help Ukraine transform the existing Chornobyl sarcophagus into a safe and environmentally stable system.

The Chornobyl Shelter Implementation Plan (SIP) is being carried out under the Fund, which is administered by the EBRD on behalf of the G8 and other contributing countries. A dedicated project team within the Bank is managing the SIP. The EBRD role will be very similar to that already undertaken for the last six years as administrator of the Nuclear Safety Account (NSA) and will follow similar procedures.

The Bank's key main operational objectives are as follows:

- support of private sector development through credit lines and equity funding for SMEs, and through direct financing of both joint venture and local private companies;
- support for privatisation by providing financing and technical services for the most promising newly privatised enterprises;
- support for the strengthening of the financial sector; - promotion of private investment in agricultural sector development;
- rationalisation of the energy sector;
- rehabilitation and reform of key infrastructure sectors.

Signed private sector EBRD projects as of May 31, 1999 include:

Radisson SAS Kyiv In December 1998, the EBRD provided financing to support the construction by Radisson SAS of the first international class hotel in Kyiv. The project involves the development, construction and operation of a 244 room international-standard four-star business hotel, which will be the first fully privately financed, newly built hotel in Ukraine. EBRD financing consists of an equity investment of ECU 6.2 million and a loan of ECU 7.4 million. The total operation cost is ECU 39.5 million.

AD-Zarya
In February 1998, the EBRD made a $ 12.4 million equity investment in AD-Zarya to complete its world-class glass container production plant. An energy-efficient and environmentally friendly facility will be established, using modern technology and operating according to competitive market principles. The project will help to develop Ukraine's food processing and beverage industries.

Obolon
Ukraine's first privatized brewery, Obolon, signed a $ 40 million loan in December 1997 with the EBRD. The funds will be used to modernize its operations, increase its production capacity and install a financial accounting system to provide reports according to International Accounting Standards.

Ukrainian Wave
With a two-tranche $ 15 million loan from the EBRD, Ukrainian Wave, a joint venture company, will be able to install and operate a digital, wireless network, which will accommodate the immediate telecommunication needs of both businesses and residents in the city and in the region of L'viv. The loan agreement was signed in December 1997.

Svitoch Confectionery
Ukraine's first privatized confectionery company, Svitoch, received an $8 million loan in April 1997 to help modernize its operations. The funds will be used to purchase new production lines, install a financial accounting system to provide reports according to International Accounting Standards and implement "Svitoch 2000", a major program to improve efficiency and organization of the company.

Iveco-Kraz commercial vehicle manufacturer
In November 1995, the EBRD agreed to invest $ 18 million in Iveco-Kraz, a joint venture between Iveco SpA (Iveco), Italy's leading commercial vehicle manufacturer and part of the FIAT Group, and AvtoKraz (Kraz), Ukraine's largest truck manufacturer.

The EBRD's commitment represents a 30 per cent share, while Iveco and Kraz hold 58 per cent and 12 per cent, respectively. The EBRD's investment is being used to finance new equipment and working capital. Iveco-Kraz manufactures and distributes in Ukraine light and medium-sized commercial vehicles produced at the Kremenchuk plant.

Ukrshipping (subsidiary of Ukrrichflot) In September 1995, the EBRD's Board approved the partial funding of the acquisition of five new river-sea vessels by Ukrrichflot's subsidiary, Ukrshipping. The EBRD is the lender of a record $ 16.5 million loan to Ukraine's first private shipping company.

The loan is co-financed on a 50/50 basis by the Bank of Scotland. The 3,500 DWT general cargo ships are being built at Romania's Oltenitsa shipyard and will help Ukrrichflot become more competitive in the international market by modernizing its fleet. There is no state guarantee to back the financing. This EBRD deal is the first loan in any Ukrainian sector between Western financial institutions and a private indigenous enterprise.

Kyiv International Bank
Kyiv International Bank (KIB) is a newly created investment bank focusing on long-term funding for medium-sized private firms, providing a full range of commercial banking and corporate finance services. In August 1995, the EBRD made an equity investment of EUR 1.75 million in KIB for a 35 per cent share.

Capital increase in Kyiv International Bank, Ukraine
A EUR 1.75 million investment was made to maintain the Bank's 35 percent participation in KIB's capital. In order to comply with the capital requirements of the bank as to the majority owned by foreign shareholders, KIB has to increase its capital to EUR 10 million (from EUR 5 million). KIB will issue 1,000 new ordinary shares, to be proportionally subscribed by the EBRD and Rabobank.

FUIB credit facility and FUIB equity investment In August 1995, the EBRD granted credit of $ 13 million to First Ukrainian International Bank (FUIB), a leading private commercial bank. This financing has allowed FUIB to expand its medium-term lending to private sector Ukrainian enterprises for projects satisfying specific lending criteria. Customers are mostly private enterprises, although state-owned enterprises currently in the process of being privatized are also eligible. This is the EBRD's first direct bank-to-bank credit line in Ukraine, and complements the SME credit line. FUIB equity investment (under MBEFF - share purchase) is EUR 8.57 million.

Dnipropetrovsk Oil Extraction Plant I and II
Financing is being provided for the purchase of raw materials necessary to produce 45,000 metric tons of refined edible sunflower oil per year in Dnipropetrovsk, Ukraine. This project modifies earlier projects signed by the EBRD in December1995 and September 1997. A three-year revolving credit facility of $ 35 million replaces the existing $ 15 million facility. Also, a $ 8.5 million senior, subordinated debt issue maturing on December 31, 2002 will replace the Bank's $ 8.5 million existing preference share issue. Loan proceeds from the project will be used for the purchase of sunflower seeds from local producers in Ukraine and refinancing an earlier preferred share issue.

Ukraine Trade Facilitation Program
The Ukraine Trade Facilitation Program (UTFP) is a bank guarantee program of $ 50 million aimed at a select group of Ukrainian banks. The program will enable these banks to develop and strengthen their trade-related services, and thus increase the availability of such services to Ukrainian companies, which will in turn contribute to the expansion of Ukraine's foreign trade. The credit line was agreed upon in December 1995. Presently, two Ukrainian banks have qualified for credit limits under the UTFP.

Integrated agricultural services
In May 1995, the EBRD granted $ 3 million in equity and $ 3.9 million in debt to Kiev-Atlantic Ukraine (KAU), a specially formed joint venture company designed to build and operate a new purpose-built agri-center at Myronivka, south of Kyiv. At the center, farmers should be able to exchange their produce for critical agricultural supplies, allowing them to modernize production methods and increase their output. When completed, the center should provide crop production services, marketing services, and storage and processing facilities. Supplies will range from fertilizers and seeds to veterinary products, farm machinery services and fuel, all in exchange for farm produce. Currently, the project is experiencing some difficulties, which are being reviewed by the company and the EBRD.

Poltava oil and gas extraction
The Poltava Petroleum Company (PPC) is a joint venture between the Ukrainian State Property Fund, Poltava Gasprom and JKX Exploration and Production Ltd. (a British independent oil and gas company). In April 1995, the EBRD granted PPC a loan of $ 8 million, the Bank's first investment in the Ukrainian energy sector. PPC is undertaking production of the Ignatovskoye oil and gas field in the Novo-Mykolayivskiy complex south of the city of Poltava in central Ukraine. It is the first fully operational oil and gas joint venture in Ukraine. The EBRD financing has been used for the drilling of four new wells, connecting them to an operation and production base, and constructing a pipeline and rail-loading facilities.

SME credit line
In December 1994, the EBRD signed an agreement for a $ 121.2 million credit line designed to assist private small and medium enterprises (SME's) in Ukraine. The funds are being provided in four tranches to the National Bank of Ukraine (NBU) for on-lending to Ukrainian companies via eligible participating banks. An autonomous Project Monitoring Unit (PMU) was established within the NBU to monitor the credit line. The SME's eligible for financial assistance are those seeking hard currency denominated financing for investment, export/import activities and leasing.

The seven participating banks are benefiting from technical assistance, which provides institutional development programs and strengthens credit assessment skills. The banks participating in the SME Line of Credit represent the best private financial intermediaries in Ukraine in terms of prudential requirements, balance sheet strength, and management quality. The line began disbursing in April 1995. As of the end of 1997, nearly $ 64 million had been disbursed for 81 SME projects in a broad range of sectors across the country.

Micro and SME credit line (SME II) In May 1998, the EBRD signed an ECU 80 million credit line to finance micro, small and medium-sized enterprises in Ukraine. The project aims to continue the efforts started under the first line of credit to assist promising Ukrainian private banks in their efforts to become effective financial intermediaries

Ukraine Fund (plus capital increase) The Ukraine Fund is a venture capital fund established in 1992 with a subscribed capital of $ 11.8 million, of which the EBRD contributed $ 3.5 million. The Fund makes equity investments in SME's in Ukraine, including privatized enterprises, with high-quality management and exceptional profit prospects. Most of its capital is used for investments in the production of consumer goods and services for the local market. With a large pipeline of future investments, the Ukraine Fund received a capital increase of $ 8.5 million from the EBRD, which was signed in December 1995.

Signed public sector EBRD projects as of May 31, 1999 include:

Ukraine energy service company
A sovereign loan of $ 30 million provided by the EBRD in May 1998 will finance the establishment of Ukraine's first energy service company. UkrEsco will identify and implement energy-saving investments in small and medium-sized enterprises (SME's) and public sector institutions.

Air navigation system upgrading
In February 1998, the EBRD provided a loan of $ 25.4 million to the Ukrainian State Air Traffic Services Enterprise, a state-owned company, to finance the installation of modern air traffic control equipment. The project will help to ensure aviation safety in Ukrainian air space and to attract additional overflight traffic, which will generate increased revenue.

Gas meters
In December 1997, the EBRD signed a $ 80.6 million sovereign loan with UkrGas, a state-controlled corporation in charge of natural gas distribution. The proceeds will enable UkrGas to acquire and install over one million residential and commercial gas meters throughout the region of Dnipropetrovsk, as well as improving its billing and collection capabilities. The project will contribute significantly to improving efficiency of energy use throughout the region.

Starobeshevo Power Plant modernization
In December 1996, a loan agreement was signed with Donbasenergo Genco, one of Ukraine's four state-owned thermal power generators, for a credit of $ 113 million to finance the replacement of an old coal-fired boiler with a more efficient and less polluting unit. The project will contribute to a significant improvement in energy efficiency, as the new boiler will use a waste product, replacing expensive local coal and imported gas and fuel oil.

Refurbishment of Boryspil Airport
Boryspil is Ukraine's largest international airport, situated about 40 kilometers from Kyiv. In December 1993, the EBRD granted a loan of $ 5.1 million to help finance renovation of the airport. The total project cost was $ 14.8 million, financed by a loan from the Ukrainian government and the First Ukrainian International Bank. The financing paid for refurbishment of the passenger terminal, which has helped the airport handle growing numbers of passengers and increasing international air traffic. These renovations also created facilities for commercial activities, such as duty-free shops and restaurants, which generate revenue for the airport. The renovations were completed in May 1994.

ITUR Telecommunications
ITUR (Italy-Turkey-Ukraine-Russia) is the name of a trans-border project funded by 26 international telecommunications operators and banks. The involvement of the Ukrainian Enterprise for International and Interurban Telecommunications and Broadcasting (UKRTEC) was made possible by a loan of $ 53.12 million from the EBRD, granted in June 1994. The project provides Ukraine with modern telecommunications links with Europe, neighboring Black Sea countries and the rest of the world. The ITUR consortium is constructing an under-water cable, and constructing and operating a "land link" fiber optic cable, which links the ITUR landing station at Odesa to Kyiv and connects the ITUR terminating station to Palermo, Italy, and the rest of the world. The EBRD is also providing technical co-operation financing for the project.

Eurovision - TV Ukraine
Ukraine was one of 15 central and east European countries to benefit from the extension of the Eurovision network. In July 1992, the EBRD granted credit of ECU 11.5 million to help finance the design, supply and installation of earth stations in each of the countries, thus enabling them to be linked to the Eurovision network by satellite. Each country borrowed ECU 0.78 million for the partial financing of one transmit-and-receive earth station.

Zaporizhzhya water utility development and investment program The project will finance critical investments in the water supply and wastewater sector in Zaporizhzhya and will enhance the financial and operational performance of Vodokanal, the publicly-owned water company. The EBRD would provide a $ 28.0 million load to Vodokanal. Total project cost, including interest during constructions and fees, would total $ 46.3 million.

World Bank Projects:

Financial Sector Adjustment Loan: Loan Amount: IBRD-$ 300 million Approved: September 15, 1998 This project will underpin Ukraine's macroeconomic reform program with a comprehensive set of policy measures intended to strengthen the financial sector, with a special emphasis on the banking system. The loan will reinforce the reform measures being undertaken under other Bank adjustment and investment operations by positioning the banking system to play a lead role in financing the investment needs of all sectors of the economy, particularly the newly emerging private sector.

Second Enterprise Development Adjustment Loan:
Loan Amount: IBRD-$ 300 million
Approved: September 15, 1998
This project will support the government's privatization, capital markets development, accounting reform, bankruptcy reform, and deregulation programs. Other objectives are to:

(1) provide foreign exchange for the purchase of critical imports and
(2) support the development of the foreign exchange markets. The reforms will ensure the primary ownership transfer of most enterprises from the public to the private sectors and accelerate the secondary ownership changes already underway.

Kyiv District Heating Improvement:
Loan Amount: IBRD-$ 200 million
Approved: May 21, 1998
This project will increase the efficiency of district heating in Kyiv by: replacing and increasing heat production capacity to better meet existing and expected future demand of district heating; introducing modern technologies and materials to extend the life of the Kyiv district heating system; and promoting sound cost recovery policies and practices.

Treasury Systems Project:
Loan Amount: IBRD - $ 16.4 million
Approved: February 24, 1998
This project will support ongoing government efforts to design and implement a fully functional, automated treasury system that will serve as an effective instrument for budget execution and cash management. The project will provide technical assistance, computer equipment and software, as well as training to enable the authorities to design, develop, test, and implement training programs for budget execution, treasury operations, and payroll management.

Coal Sector Adjustment Project (Coal Secal)
Loan Amount: IBRD - $ 300 million
Approved: December 11, 1997
This project will to help finance the government of Ukraine's coal sector reform program. The loan will assist in financing the social mitigation program associated with the restructuring of the coal industry and safeguarding the viable portion of the industry. The loan will also support the transitional burden on the Ukrainian federal budget by providing significant balance of payments and budget financing assistance to strengthen overall economic stability.

Electricity Market Project:
Loan Amount: IBRD - $ 317 million
Approved: October 11, 1996
The Electricity Market Development Project will support the development of a competitive electricity market by: building up stocks of fuel and spare parts and providing overdue maintenance at 14 thermal power plants; installing metering and communications equipment to improve recording and billing of electricity use; and providing technical services and training for implementing the project, managing the finances, and developing a privatization program.

Social Protection Support Project:
Loan Amount: IBRD - $ 2.6 million
Approved: April 24, 1997
This project will improve the administration of the Ukrainian Ministry of Social Protection (MSP) Housing and Municipal Service Allowance Program (HMSAP). HMSAP was introduced by the government to assist tenants who cannot afford to pay for the rapid increases in municipal rents and tariffs imposed as Ukraine moves to privatize services. The project involves installation of hardware and training of MSP and HMSAP staff in automated systems operation for the processing of applications and documents. This includes: installation of about 800 computer workstations, 500 printers, diskettes, and initial consumables; installation of computer workstations with modems and communication software at local, regional and national administrative offices; establishment of a computer training center; and assistance for overall project implementation.

Agricultural Sectoral Adjustment Loan:
Loan Amount: IBRD - $ 300 million
Approved: September 18, 1996
The loan will support the growth of a market-based agricultural system and the implementation of agricultural and trade reforms. Its aim is to increase market competition and encourage private ownership and investment in land and other productive assets, and provide short term balance-of-payments support for financing critical imports. The loan will benefit the development of markets to replace the past administrative system and to increase rural welfare and reinvestable profits for future capital formation.

By reducing state procurements and restrictions on agricultural exports, more farm output will flow to export and domestic markets for higher quality products. These markets will offer higher real prices than the State has paid in the past, thereby raising farm-level income and output. The reform program will improve agricultural terms of trade, increase input flows to farms, expand agricultural exports, and increase the efficiency of farm management.

Enterprise Development Adjustment Loan:
Loan Amount: IBRD - $ 310 million
Approved: June 27, 1996
The project will support the government's trade and price liberalization, privatization, capital markets development, and post-privatization restructuring programs. The project will provide foreign exchange for the purchase of critical imports and support the development of foreign exchange markets. The project will also include the implementation of a privatization program for 5,000 medium and large enterprises, as well as the acceleration of privatization of small-scale enterprises. Additionally, the project will support the creation of a legislative framework and institutions to regulate new capital markets, including a securities and stock markets commission and a self-regulatory organization for market intermediaries.

Coal Pilot Project:
Loan Amount: IBRD - $15.8 million
Approved: May 16, 1996
The main objective of this project is to mitigate the social and environmental consequences that arise from mine closures brought about by an overall government restructuring of the sector. The project will test ways to implement mine closures safely, with due regard to technical, environmental, economic, financial, and social aspects; ensure that mine workers are given opportunities to either transfer to other jobs in the sector or leave the industry with reasonable compensation and a choice of assistance for seeking other employment; transfer social assets to municipal management; and through monitoring and feedback, gain experience from the Pilot Project for other projects.

Approved TDA Projects in Ukraine, as of June 1999:

Aluminum Smelter - TDA has approved partial funding ($240,900) for a study on conversion of the ZALK smelter to pre-bake technology. Kaiser Aluminum and Chemical Corp. has been selected to conduct the study.

Pollution Control-TDA has approved funding ($200,000) for studies on environmental investments by industrial enterprises, to be financed by the World Bank. Booz-Allen & Hamilton conducted the studies.

Oil Pipeline-TDA is providing partial funding ($750,000) for a study on construction of an oil pipeline from Odesa to Brody. Gulf Interstate Engineering is conducting the study.

Vinyl Windows-TDA is providing partial funding ($250,000) for a study on production in Ukraine and Russia of vinyl windows from U.S. components. ACRO Extrusion Corporation is conducting the study.

Defense Conversion-TDA is providing funding ($150,000) for an Orientation Visit for representatives of Kharkiv-based defense enterprises. Power Tech Associates is organizing the OV.

Coal Recovery-TDA is providing partial funding ($375,000) for a study on recovery of coal from slurry ponds. A consortium headed by Oxbow Coal and Carbon is conducting the study.

Air Traffic Control-TDA is providing funding ($500,000) for a study on upgrading the ATC system in Ukraine. ARINC is conducting the study.

Meat Processing-TDA is providing partial funding ($150,000) for a study on four meat processing projects. Koch Supplies Inc. is conducting the study.

Kyiv Airport-TDA provided partial funding ($500,000) for a study on upgrading Boryspil airport. The Canadian Government provided an additional $300,000. Hughes Aircraft conducted the study.

Power Plant Repowering-TDA provided partial funding ($400,000) for a study on conversion of a coal-fired power plant in Dnepropetrovsk to gas. NRG and Black & Veatch conducted the study.

Aluminum Smelter-TDA provided partial funding ($500,000) for a study on upgrading of environmental controls and automation at the Zaporozhye smelter. Technalum conducted the study.

Spent Fuel-TDA provided partial funding ($300,000) for a study on construction of a spent fuel facility at Zaporozhye Nuclear Power Plant. Duke Engineering & Services conducted the study.

Power Plant Systems-TDA provided partial funding ($200,000) for a study on coproduction of instrumentation systems for nuclear power plants. Westinghouse Electric conducted the study.

Electronic Money-TDA provided partial funding ($450,000) for a study on development of a new banking network utilizing smart cards. Vastarr conducted the study.

Antonov Aircraft-TDA provided partial funding ($1,000,000) for a study on coproduction of the An-38, a small passenger/cargo aircraft. AlliedSignal conducted the study.

Cement Plants-TDA provided partial funding totaling $400,000 for separate studies on the rehabilitation of two cement plants. Fuller International conducted the studies.

District Heating-TDA provided funding ($626,000) for a study on upgrading the Kyiv district heating system. Joseph Technology conducted the study.

Energy Conservation-TDA provided partial funding ($400,000) for a study on energy conservation investments at three facilities. Honeywell Inc. conducted the study.

Railways-TDA provided funding ($250,000) for studies on restructuring of and development of a telecom plan for Ukrainian Railways. Clell Harral International conducted the telecom study; JH Winner Inc. conducted the restructuring study.

Coalbed Methane-TDA provided partial funding ($600,000) for a study on development of coalbed methane in the Donbass region. International Coalbed Methane Group conducted the study.

Nuclear Safety-TDA provided funding ($152,000) for a safety study related to an EBRD-financed project to complete two nuclear power plants. Scientech-NUS conducted the study.

United States Agency for International Development The United States Agency for International Development (USAID) is the U.S. Government's major foreign assistance agency. USAID's principal mission in Ukraine is to help the country make the transition to a broad-based democracy with a market-oriented economy. USAID also supports the government of Ukraine's efforts to alleviate the privations imposed on the most vulnerable members of society during the economic transition. U.S. assistance focuses on six areas:

Privatization and Capital Markets
USAID finances and provides technical assistance for large- and small-scale privatization including:

1) a nationwide network of auction and bid collection centers;
2) public information campaigns on privatization and market reform;
3) preparing state enterprises for auction;
4) calculating and reporting auction results; and
5) legal, organizational and policy support to national and local officials on all privatization programs.

USAID supports the privatization of housing, urban land and the private provision of residential maintenance services.

Capital markets development assistance includes regulatory drafting, technical assistance, training and equipment to:

1) support new Securities Commission;
2) foster a better legal and enforcement environment for corporate governance and shareholder rights, that focus on investor protection;
3) improve issuers financial disclosure procedures;
4) establish and enhance the nationwide, computer-assisted over-the-counter share trading system and a private central securities depository;
5) develop securities industry institutions such as independent registrars, custodians, and broker-dealer firms, and 6) establish self-regulation within securities industry and improve professional standards.

Business Development USAID supports new and privatized enterprises through activities aimed at transfer of business skills, reforms to the legal and regulatory environment, increasing access to finance and post-privatization restructuring. Deregulation at the local and national level is a top assistance priority. Many of the business development activities target micro, small and medium sized enterprises. A network of 15 business centers and 3 incubators reaches entrepreneurs at all levels. Credit and investment programs for larger businesses through the West NIS Enterprise Fund and small and micro loans through the Eurasia Foundation, the EBRD, and business incubators provide finance and equity capital to enterprises. An enterprise restructuring activity builds on corporate governance practices to bring about improvements in privatized enterprises. Procedures and systems have been put in place to privatize land under privatized enterprises and sales are proceeding.

Economic Restructuring The focus of USAID's economic restructuring program is to help Ukraine create the institutions of a market economy, particularly in the banking system, commercial law, tax systems and trade and investment regimes, plus macroeconomic analysis. The program concentrates on: 1) improving overall tax structure and administration; 2) developing tools for budget estimation, analysis and monitoring; 3) developing professional skills and organizational capability at the National Bank and advancing professional skills of the commercial banks; 4) providing macroeconomic policy research and analytical support for key policy makers; 5) strengthening the bankruptcy, collateral and enforcement systems of the legal framework; 6) reforming the regulatory regime of the government as it affects private business; (7) supporting revision of the civil code; and 8) establishing a commercial law clearinghouse to promote public access to the legislative process.

Agriculture Reactivating and transforming Ukrainian agriculture and the entire food production system is central to economic recovery and reform. USAID is assisting Ukraine in restructuring this priority sector through an agricultural strategy that focuses on one to three regions in the areas of: 1) financing and developing private sector sources of inputs to agriculture, and private processing of agricultural products; 2) developing an agriculture credit program; 3) privatizing agricultural land with special emphasis on restructuring collective agricultural enterprises into private entities and the issuance of land titles and developing a land market; 4) reducing the environmental impact of agricultural chemicals; 5) private farm and household plot development; 6) privatization of the agro-industrial complex including grain storage, input and marketing facilities; and 7) implementing new agriculture policies to facilitate a private- sector based market economy.

Energy and Environment
USAID has helped develop a multi-faceted energy program for Ukraine which focuses on:

1) power sector restructuring, which has helped transform the power sector from a vertically integrated monopoly to a market system with regulatory oversight of tariffs and licensing, and power distribution based on financial bids;
2) assisting the government of Ukraine to privatize the power sectors, starting with 27 distribution companies;
3) development of a coal bed methane industry;
4) improving energy production and conservation by introducing new technologies, management techniques and applying market principles; and
5) supporting Ukraine's nuclear safety performance and improving nuclear sector regulation and inspection. U.S. assistance is also helping Ukraine improve its environment with activities to: 1) strengthen environmental institutions within government, the private sector and the NGO community;
2) assist governments to improve the operations and management of infrastructure, particularly water systems;
3) develop environmental assessment capacity within industry and promote eco-efficient business development;
4) coordinate with other donors and Ukraine to address social, environmental and energy efficiency issues related to the closure of the Chornobyl Nuclear Power Plant.

Democratic Reforms
Ukraine is seeking to become a nation ruled by law, where human rights are respected and freedom of speech and press ensured, in which government policy and activity reflects the needs and wishes of an informed citizenry, and to whom representatives are responsive and officials are accountable. USAID programs promote democratic reform by helping to:
1) develop competitive and fair political processes, including elections;
2) support the emergence of laws and legal institutions that support and embody democratic processes;
3) strengthen local government to make it effective, responsive and accountable to citizens;
4) empower citizens to participate actively in the political and economic life of their communities through non-governmental organizations, through democratically-structured political parties, and independent trade unions; and 5) strengthen independent media.

Social Protection
USAID's support for social sector restructuring in Ukraine is designed to protect the most vulnerable members of the population during the economic transition, reduce government budget expenditures on the social sector, and facilitate price increases necessary to increase the quality of social services. Our activities address the urgent humanitarian and health needs of the people of Ukraine by:

1) supporting the government in moving from universal housing and communal services subsidies to those based on income;
2) providing humanitarian assistance and strengthening the ability of non-governmental organizations to deliver social services;
3) laying the foundation for a sustainable system of pensions and social insurance;
4) providing training and supplies to improve the quality of and access to reproductive health care and the screening for and treatment of breast cancer;
5) supporting hospital partnerships for the exchange of information, training and personnel;
6) providing emergency medical assistance while strengthening the Ukrainian government's ability to respond to health and environmental crises.