Аналитика

Prime Minister Yuliya Tymoshenko has underlined the unsatisfying quality of pharmaceuticals considering their high prices. According to her announcement, the considerable growth of prices on drugs for the unprotected social groups in Ukraine has taken place since 2005. For instance, the price of Karvalol (a drug for heart diseases) had doubled in the last three years.

Tymoshenko believes that it’s possible to create a partnership system between government and pharmaceutical businesses to increase the quality of drugs.

The Prime Minister also mentioned that annual drug imports into Ukraine amounts to UAH 9 bln, with local production amounting to UAH 4 bln. At the same time, 70% of the materials required for drugs’ production are imported, while local resources are used for only 5% of production.

Our view: We believe that in front of Yuliya Tymoshenko’s political affairs, the possibility of implementing complicated partner relations and developing a number of drugs that break price records are unlikely to be realized within the short term. Nonetheless, we believe that sooner or later such a system will be created, considering the common European practice. This would not have a significantly negative impact on local producers; however, on the other hand, we view it as POSITIVE in terms of increasing government tenders for purchasing drugs, which would focus only on local producers. Such drugs are mostly in the lower price niche, from which local producers would escape considering GMP standardization, thus allowing them to enter a higher price bracket.

Ukraine’s Cabinet of Ministers announced that it is transferring UAH 50 mln (USD 10.3 mln) to the Ukrainian Oschadbank, a successor of the Soviet Sberbank, to reimburse the lost bank deposits to those persons who held deposits in the former Sberbank.

Therefore, the government continues to implement its January decision to reimburse UAH 5 bln (USD 1 bln) to the owners and heirs of the owners of the devalued Soviet-era deposits. Each deposit owner or heir of that owner will receive a maximum of UAH 1,000 (USD 206).

Our view: We do not see a substantial impact of the planned social transfers, which constitutes some 0.03% of the monetary base, on the disposable income of Ukrainians, thus resulting in a low inflationary impact. However, we anticipate that the continuous social transfers may influence the population’s inflationary expectations, which may have a limited impact on an increased inflation.

The expectation of strict anti-inflationary policies, coupled with an expected CPI drop in August, gives us grounds to confirm our earlier inflationary forecast for 2008 of 20.5% EOP.

The National Bank of Ukraine (NBU) announced that Ukraine’s monetary base increased in August 2008 3.2% MoM (19.1% YTD), thus reaching UAH 169 bln (USD 34.8 bln), while M3 grew 1.6% MoM (19.8% YTD) and reached UAH 474.7 bln (USD 97.9 bln). Therefore, both aggregates’ growth slowed down as compared to July (6.1% and 3.8% MoM respectively).

The YoY growth rates in August were 40.2% for the monetary base (41.6% in July) and 44.3% for M3 (47.4% in July).

As announced earlier, the NBU expects that Ukraine’s monetary base in 2008 will grow 25-30%, while M3 will grow 35-40%.

The NBU also announced that liquidity in the banking sector fell insignificantly and that interest rates in both domestic and foreign currencies increased by 0.2-0.5 p.p.

Our view: We see the decreasing growth rate of monetary aggregates as one of the consequences of the government’s conservative monetary policy in attempts to curb inflation. Nevertheless, we still believe that monetary growth should be suppressed even more to meet the government’s inflation target of 15.9%.

The expectation of strict anti-inflationary policies, coupled with an expected CPI drop in August, gives us grounds to confirm our earlier inflationary forecast for 2008 of 20.5% EOP.

The Government of Ukraine has drafted a bill for the Rada (parliament), according to which beer excise duty will be increased 58% to USD 0.1 per ltr in two stages. The first stage is planned for January 1, 2009–June 30, 2009, when excise duty will be lifted to USD 0.08 per ltr, followed by a further decrease to USD 0.1 per ltr in July 1, 2009.

Earlier in 2008, the government already exploit the opportunity to fill the gap in the budget by lifting the beer excise duty to USD 0.07, which did not receive approval from the Rada.

Our view: Ukraine has the lowest beer excise duties among its closest neighbors Russia, which are USD 0.12 and USD 0.28 respectively. In previous years, beer producers used to pass the increased in excise tax on to the end product. In our view, intense competition within the industry and the further rise of excise taxes could squeeze operating margins, forcing small companies to leave the beer market.

The Ukrainian parliament approved a new preliminary draft law that obliges electricity distribution companies (oblenergos) to continue supplying electricity for public transport at low subsidized tariffs of USD 41 per MWh while the wholesale price in September reached USD 76 per MWh. The difference is that previously these tariffs were subsidized through surcharges to the wholesale electricity price, whereas now the compensation is laid on oblenergos and not on the wholesale electricity price.

Our view: The controversial statements were made by the Head of the National Electricity Regulatory Commission (NERC) and CEOs of the oblenergos. According to the NERC, the change in the compensation mechanism will hardly affect oblenergos, whereas the CEO of Poltavaoblenergo [POON] assumed that the proposed changes may cause up to USD 1 mln in yearly losses for electricity distribution companies. Considering that the FY2007 net income of POON amounted to USD 3 mln, the expected losses may eat up to one third of a full year’s net income.

In our view, although the compensation mechanism for oblenergos exists, it is indeed very vague. We believe this is another piece of evidence as to the high level of industry regulation by the state, which hinders efficiency improvements in the electricity distribution sector. Therefore, we look forward to see the new market regulations that are currently being elaborated by the NERC, which propose a change in the tariff calculation method to the more economically-sound RAB-based method. This method will, in turn, increase financial margins and reveal the true potential of the sector