Cana­dian busi­nesses look at energy, real es­tate, lo­gis­tics and aerospace

Kyiv Post - - Business - BY OLENA GORDIIENKO [email protected] Kyiv Post staff writer Olena Gordiienko can be reached at [email protected]

The cul­tural and emo­tional ties be­tween Ukraine and Canada, home to 1.2 mil­lion peo­ple who trace their roots to Ukraine, are stronger than busi­ness ones. Cu­mu­la­tive Cana­dian in­vest­ment in Ukraine stands at $72.4 mil­lion, a small part of Ukraine’s $49 bil­lion to­tal from for­eign sources. The par­tial cause is cor­rup­tion and slow pace of re­forms.

“We would like to see faster changes, but at least we see some pos­i­tive trends,” said Zenon Potichny, board di­rec­tor of Shel­ton Petroleum oil and gas com­pany, and pres­i­dent of the Canada-Ukraine Cham­ber of Com­merce.

There are some bright spots, among them, large com­pa­nies like Cana­dian Tire re­tail chain are hir­ing out­sourc­ing help from Ukraine, es­pe­cially in­for­ma­tion tech­nol­ogy ser­vices.

If the two na­tions sign a bi­lat­eral free-trade agree­ment un­der ne­go­ti­a­tion, the eco­nomic ties should in­ten­sify.

Here are some of the promis­ing in­dus­tries:

Energy

Energy, in­clud­ing oil and gas, are among the most in­ter­est­ing sec­tors for bi­lat­eral co­op­er­a­tion, Potichny says. Canada is the fifth largest oil and gas pro­ducer in the world.

Cana­dian-Swedish Shel­ton Petroleum has al­ready in­vested nearly $8 mil­lion in Ukraine since 2001. Its Lelyaki field in Ch­erni­hiv Oblast, de­vel­oped with state-owned Ukr­nafta, brought in only $1-$1.5 mil­lion in 2014, half the usual rev­enue, be­cause of the drop in oil prices, while ex­trac­tion taxes rose from 39 to 45 per­cent in Ukraine. One of their two off­shore wells near Rus­sian-oc­cu­pied Crimea is now on hold.

Potichny says that when these taxes are low­ered and the cen­tral bank re­moves hard cur­rency re­stric­tions, par­tic­u­larly on pay­ing div­i­dends abroad, Shel­ton will look for new op­por­tu­ni­ties to ex­pand.

Canada’s Iskan­der Energy, an oil and gas ex­plo­ration and de­vel­op­ment com­pany, had to stop oper­a­tions in May 2014 when fight­ing in­ten­si­fied in the Don­bas, where all three of the com­pany’s li­censed sites were lo­cated.

“Ev­ery­thing that we in­vested, $15 mil­lion, this is the money that at this point I don’t know if we will ever re­cover,” com­pany pres­i­dent Jaroslav Ki­nach says. “Our strat­egy now is to pro­tect what we have and wait un­til Em­ploy­ees of Meest Ex­press, a Cana­dian-owned par­cel de­liv­ery ser­vice, sort pack­ages at a ter­mi­nal in Kyiv on June 24. (Volodymyr Petrov) the war is set­tled, un­til at least some cer­tainty is es­tab­lished in eastern Ukraine, be­cause our share­hold­ers are not pre­pared to in­vest any money into Ukraine at this point of time.”

Met­als & min­ing

Share­hold­ers of Black Iron, a Cana­dian iron ore ex­plo­ration com­pany with oper­a­tions in Kryvyi Rih Oblast, are also not yet pre­pared. Although far enough ge­o­graph­i­cally from the war, the com­pany has been strug­gling with le­gal and bu­reau­cratic is­sues for the last three years, many in­volv­ing its at­tempt to pur­chase 2,600 hectares from the state.

If the pur­chase goes through and the pro­ject hap­pens, it would cre­ate 2,000 di­rect jobs and up to 8,000 in­di­rect jobs over the next 20 years, the com­pany’s pres­i­dent and CEO Matt Simp­son says. With $68 mil­lion in­vested to date, the com­pany has not started min­ing oper­a­tions. This would re­quire an ad­di­tional $1.1 bil­lion.

“We don’t want to spend a lot more money on the pro­ject un­til we know that (the cur­rent) gov­ern­ment is gen­uine and will­ing to help us re­solve those is­sues,” Simp­son says. “Ukraine’s new gov­ern­ment needs to fo­cus on en­sur­ing that ex­ist­ing for­eign in­vestors in Ukraine are suc­cess­ful to help restart the econ­omy by at­tract­ing fur­ther for­eign in­vest­ment.”

Real es­tate/ho­tel-of­fice

Other Cana­dian busi­nesses in Ukraine are more firmly rooted.

Although 2014 was tough for Toronto-Kiev, a mixed-use real es­tate com­plex, the de­vel­op­ment is do­ing bet­ter than the mar­ket av­er­age, says Yuriy Kryvosheya, pres­i­dent of the Cana­dian-Ukrainian joint ven­ture.

Cana­dian Am­bas­sador to Ukraine Ro­man Waschuk called the com­plex, which will host the Canada Day cel­e­bra­tion on July 1, a “vis­i­ble sym­bol of the very real pres­ence of Cana­dian in­vest­ment… in Ukraine.”

Waschuk es­ti­mates the in­vest­ment at more than $50 mil­lion. It com­prises 83,000 square me­ters and in­cludes a Hol­i­day Inn ho­tel, of­fices, restau­rants, stores and un­der­ground park­ing. A 30 per­cent growth in oc­cu­pancy in 2014 was largely at­trib­uted to the low base rate of 2013, as the prop­erty was only com­mis­sioned in 2012, Kryvosheya says.

Lo­gis­tics

The Cana­dian lo­gis­tics com­pany Meest Ex­press, part of the Meest Group, man­aged five-per­cent growth in 2014 de­spite the loss of branches in the east and Crimea and the hryv­nia’s de­val­u­a­tion. Meest was cre­ated in 1989 to trans­port aid and com­mer­cial cargo from the di­as­pora in Canada and the U.S. to Ukraine. Meest Group plans to in­vest an ad­di­tional $3 mil­lion in chain de­vel­op­ment, mar­ket­ing and in­for­ma­tion tech­nol­ogy in 2015. It has al­ready in­vested some $30 mil­lion to date and em­ploys about 3,000 peo­ple.

Meest, like other com­pa­nies, is “wait­ing for talks about fight­ing cor­rup­tion to start be­ing im­ple­mented,” ac­cord­ing to deputy CEO for com­merce and mar­ket­ing Oleg Kalen­skyi.

Out­sourc­ing

Pro­mo­tion, a group of out­sourc­ing com­pa­nies in Ukraine, pro­vides up to 70 per­cent rev­enue for its par­ent, KSV Con­sult­ing group founded in Toronto in 1998.

The com­pany’s in­ter­nal staff of 70 in Ukraine pro­vides out­sourc­ing, re­cruit­ing, IT and hu­man re­sources

Aerospace

Waschuk noted promis­ing bi­lat­eral con­tacts in aerospace, “which re­late to the need of ma­jor Ukrainian pro­duc­ers to find new propul­sion, avionics and other part­ners,” for which Cana­di­ans are welle­quipped. A thriv­ing aerospace com­mu­nity in Mon­treal, in par­tic­u­lar, is now seek­ing new op­por­tu­ni­ties in Ukraine.

Yuriy Kryvosheya, pres­i­dent of the 83,000 square-me­ter Toronto-Kiev real es­tate com­plex, stands near the en­trance to the Hol­i­day Inn ho­tel, which is part of the de­vel­op­ment, on June 25. (Kostyan­tyn Ch­er­nichkin)

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