Ukraine Business Roundup – Russia attacks the energy grid … again

Below you will find the August 27, 2024 edition of our weekly newsletter Ukraine Business Roundup. To receive the most important business and technology news from Ukraine directly to your inbox, subscribe Here.

Just as Ukraine was breathing a sigh of relief that the month-long power outages caused by Russian attacks since this spring were finally over, Moscow launched its biggest attack yet.

On August 26, Russia fired over 230 missiles and drones, primarily at the country's energy infrastructure. Ukrainian government officials called it the largest attack since the start of the large-scale invasion.

Ukrainian Foreign Minister Dmytro Kuleba said 15 of the country's 24 oblasts were targeted in the attack. According to the State Emergency Service, seven people were killed and 47 injured.

The attack targeted and hit the Kyiv Hydroelectric Power Plant, located in the town of Vyshhorod just outside Kyiv. The attack forced the closure of the bridge over the power plant, leaving people helpless for hours. It also caused fear among the population that the dam could break and flood parts of the city. Ukrainian authorities later stated that the dam had not suffered critical damage, which was confirmed by our journalists who were on the scene.

The attacks continued throughout the day and into the night – the sirens sounded almost every hour until the early hours of the morning.

Ukrainians already know what attacks on energy infrastructure mean: the prospect of power outages, the need for noisy diesel generators, and renewed fears that the country will not survive the winter if infrastructure cannot be repaired in time.

Shortly after the attacks began around 9 a.m. yesterday morning, DTEK, Ukraine's largest private energy company, announced that an emergency power outage had been imposed across Ukraine.

A day later, on August 27, authorities announced that emergency power outages would be imposed across the country and could last for another two weeks.

While I was writing this newsletter, the power suddenly went out in the office. Luckily, we have a generator, which my trusty colleague switched on so that we could continue working comfortably.

This latest attack is further proof that Russia has not deviated from its plans to destroy Ukraine's energy system, Roman Nitsovych, head of research at Ukrainian energy think tank DiXi Group, told Kyiv Independent reporter Andrea Januta.

“I don’t think this is the last strike of this kind against energy infrastructure,” he added.

Increased budget support needs

According to updated forecasts for 2025, Ukraine will need to increase its external budget support by $12-15 billion, Deputy Finance Minister Olha Zykova said on August 21.

The International Monetary Fund (IMF), which provides economic support to Ukraine through its Extended Fund Facility (EFF) program, estimated that Ukraine's external financing needs would amount to $22.7 billion in 2025.

“The intensity of hostilities and the risk of prolonged war, as well as the systematic growth of spending in the security and defense sectors, are the key factors influencing the growth of financial needs.”

Ukraine received about $24.7 billion in direct budget support from international partners in 2024, Zykova said. Ukraine expects to receive another $13.5 billion in external financing by the end of 2024.

These additional funds would be provided by the European Union's Ukraine Facility Programme, the United States, the EFF, Japan and the United Kingdom, she said.

Auto sales in Ukraine booming

According to data from the automobile association Ukravtoprom, Ukrainians have spent $1.6 billion on purchasing new cars since the beginning of the year, 19 percent more than in the same period last year.

About half of total sales were accounted for by five car brands: Toyota, BMW, Volkswagen, Mercedes-Benz and Renault. Toyota was the leader with total sales of $251 million in new cars.

Lexus, Audi, Land Rover, Skoda and Porsche also made it into the top 10 of new car sales.

In July 2024, demand for used cars from the United States increased by 75% year-on-year, with more than 4,100 used cars registered in Ukraine this month, the association previously reported. Sales of hybrid cars also increased by 56%.

Car sales may continue to rise, at least for now. Bloomberg reported in late July that the Ukrainian government's plan to impose an additional 15 percent tax on new car sales had led to a surge in demand. New car sales are expected to rise 30 percent in July compared to the previous month. However, since the tax is expected to come into force in the fall, the boom is likely to be short-lived.

Making privatization ‘great’ again

The Ukrainian government plans to resume its “large-scale privatization” initiative in September, the head of the State Property Fund Vitaliy Koval said in an interview with Liga.net.

The fund plans to offer five assets for privatization under the initiative: the United Mining and Chemical Company (UMCC), the Hotel Ukraine in central Kyiv, the AEROC aerated concrete factory, the Demurinsky mining and processing plant and a majority stake in the Ocean Plaza in Kyiv.

The sale of UMCC would be only the second time in Ukraine's independent history that a major industrial enterprise would be sold at an open auction, and the first time this would happen on the Ukrainian platform Prozorro, which was created to provide greater transparency in real estate sales, Koval said.

The privatization of Ukrainian state assets (the list has been expanded since the start of the large-scale invasion to include the nationalization of Russian or Russian-controlled assets) is crucial for the country's economic development and investment.

While the government has plans for its “grand privatization project,” the extremely low number of large-scale (or transparent) privatizations over the past 30 years does not inspire confidence. And during a full-scale war, where major assets are regularly targeted by Russia, it seems difficult to find buyers.

Oligarchs: Where are they now?

The influence of Ukraine's oligarchs, once the country's rulers, has declined dramatically over the past decade, writes Jakub Parusinski, director of KI Insights, the Kyiv Independent's in-house research and consulting unit, in a recent opinion piece.

But with the start of Russia's large-scale invasion, the oligarchs who once shaped Ukraine's post-Soviet development are confronted with a new reality: the structural factors that gave rise to these powerful figures have largely disappeared. What remains is a political landscape that is very different from the one they once dominated, he writes.

But what happened to the Ukrainian oligarchs and what does this mean for the future of the country?

In addition to the rise of Ukrainian civil society, especially since the Euromaidan revolution and the first Russian invasion in 2014, the war has also destroyed industries that once formed the financial backbone of the oligarchs.

Ukraine's richest people have seen their fortunes dwindle and assets disappear. The richest oligarch Rinat Akhmetov has seen his net worth drop from around $7.6 billion in 2021 to just over $4 billion in 2023. Notorious oligarch Igor Kolomoisky has been behind bars since last September.

Read more here.

What else is happening

Ukraine tests first ballistic missile, Zelensky says

Ukraine has conducted a successful test of the first domestically produced ballistic missile, President Volodymyr Zelensky said on August 27. “It may be too early to talk about it, but I want to share it with you,” the president said at a press conference during the Ukraine 2024 Independence Forum in Kyiv.

Russia spent between $1.2 and $1.3 billion on its attack on Ukraine on August 26, Forbes Ukraine estimates

Russia used 127 missiles and 109 combat drones against Ukraine on August 26. According to the Ukrainian Air Force, this was the largest airstrike since the start of the large-scale invasion. Forbes Ukraine estimates that the attack cost Russia about $1.2-1.3 billion. By comparison, Russia's large-scale attack on Ukraine on July 8, in which around 38 missiles of various types were fired, cost about $200-500 million, according to Forbes.

Nova Poshta plans to enter the Austrian and Dutch markets by the end of 2024

Ukraine's largest private postal service, Nova Poshta, known abroad as Nova Post, announced last week that in the first half of 2024 alone, the company had opened branches in four new countries – Italy, the UK, Spain and France – and would also be active in Austria and the Netherlands by the end of this year. The company has started operations in 16 European countries since the start of the large-scale invasion, where it has 104 of its own branches and more than 68,700 partner service points.

Ukrainian banks will earn more in the first six months of 2024 than in the entire pre-war year of 2021

According to Forbes Ukraine, Ukrainian banks generated 79 billion hryvnia ($1.9 billion) in the first six months of this year, compared to 77.4 billion hryvnia ($1.8 billion) in all of 2021 before the start of the full-scale Russian invasion. Credit portfolio banks, on the other hand, have not yet recovered to their pre-war levels, and the number of branches in the country continues to decline as the war enters its third year. Universal Bank, through which one of the country's most popular banks – the online-only bank Monobank – operates, has seen the sharpest increase in the number of its depositors, according to Forbes.

Ukraine resumes energy exports, says state grid operator

State-owned grid operator Ukrenergo announced on August 23 that it would resume electricity exports to neighboring countries from August 25. The move was prompted by weather changes, a significant drop in consumption and the repair of another power unit at one of the nuclear power plants, Ukrenergo said. “Exports will take place only during periods of surplus, when solar power plants are active. During periods of maximum consumption, when the power grid does not have enough capacity, no electricity will be exported from Ukraine,” Ukrenergo said.