News (#06 June 2019)

Biznews

Automotive

Porsche fined EUR 500 million

Porsche, the German sports cars manufacturer, part of the Volkswagen group of companies, was fined EUR 535 million because of diesel engines, which released more harmful substances into the air than allowed.

The formal grounds for imposition of the fine was due to quality control negligence.

Porsche refused to file a further appeal. The company statement says that the negligence, which caused the fines imposition, originated in actions by employees in the companys hierarchy working several management levels below the Porsche Board.

This fine has become another one among other penalties imposed on the Volkswagen group of companies within the framework of so-called Diesel Gate the scandal that has been going for several years. In 2015, the group of companies acknowledged that the software installed in 11 million vehicles made it possible to obtain successful laboratory test results on pollutant emission of diesel engines, despite the fact that the actual figures when driving exceeded the regulatory standards. So, fines were imposed on both Volkswagen itself and its subsidiaries, particularly on Audi and now Porsche has joined this list.

Volkswagen faced thousands of investors filing claims against the group of companies because of the losses incurred by them as the owners of company securities once Diesel Gate exploded. Hundreds of thousands of drivers also demand indemnification due to the scandal.

Currently, total losses incurred by the German group of companies due to Diesel Gate are estimated at EUR 30 billion.

Transport

Scandinavian Airlines to resume flights to Ukraine in autumn

SAS has announced the resumption of flights to Ukraine after a break of 8 years. The flight program launch is scheduled for the winter 2019/2020 season with the start of KyivOslo flights. It will be performed between Gardermoen and Boryspil Airports from 26 October. There will be three flights a week, on Tuesdays, Thursdays and Saturdays.

According to the information on the ticket booking system, the cost of a round trip with hand luggage will be EUR 154.

Competition

AMCU allowed DTEK Naftogaz LLC to buy 2 more regional power distribution companies

At its meeting on 25 April the Antimonopoly Committee granted DTEK Naftogaz a permit to buy a stake ensuring control of over 50% in both companies, in Kyivoblenergo and Odesaoblenergo, from VS Energy group, which is owned by Russian businessmen.

Given that the electric power distribution market is a natural monopoly and falls under government regulation, such concentration affects neither the market nor the conditions of activities conducted therein. At the same time, any monopoly, and a natural one above all, always creates a risk of abusive practices. And this risk may increase if the owner of the natural monopoly is a vertically integrated company.

The Committee lists the following as the main potential risks:

transfer of part of the costs related to production or supply of electric power to services on its distribution, which may ensure the owner a competitive advantage by means of a better price offer for the sale of electric power;

ensuring unjustified advantages to its own producers when purchasing electric power to compensate in-process losses;

creation of obstacles related to access to electric power distribution systems for companies which are not part of DTEK Group.

Also, following the concentration, DTEK may receive more votes in the Wholesale Electricity Market governing bodies, thereby threatening to block the activities of both the General Meeting of WEM and the Council of the organization.

Given the above-mentioned potential risks, the AMCU established the procedure for granting a concentration permit, including the following binding obligations, namely:

To prevent cross-subsidization (transferring costs of DTEK group related to the production and supply of electric power to Kyivoblenergo PJSC and Odesaoblenergo JSC).

To ensure purchase of electric power by Kyivoblenergo PJSC and Odesaoblenergo JSC to compensate for in-process losses on a competitive basis (that is, not to provide unjustified advantages to DTEK companies).

To prevent termination and/or amendment of the essential terms of current agreements in place between Kyivoblenergo PJSC and the supplier of electric power to the population.

To inform of each fact of refusal to enter into an agreement on the provision of electric power distribution services and of the reasons for such refusal.

Not to put forward more than 2 candidates for election to the Council of Wholesale Electricity Market of Ukraine on part of Suppliers and Providers of the Distribution System (to prevent the blocking of WEP Meeting and Council activities).

Banking & Finance

NBU cuts discount rate

The Board of the National Bank of Ukraine decided to lower the discount rate by 0.5% to 17.5% per annum from 26 April 2019.

It explained this by saying that a steady slowdown in inflation to the target of 5% makes it possible to start a cycle of cutting the discount rate.

The National Bank expects inflation to decline to 6.3% by the end of 2019 and that it will be set within the target range of 5% +/- 1 pp. by the beginning of 2020.

As the regulator points out, the main internal risk for implementation of the macroeconomic forecast, in particular, for the slowdown in inflation to the target value in 2020, is the traditional increase in uncertainty in a year when presidential and parliamentary elections are held.

The NBU also specified the significant external risks:

the global recession and the drop in prices on commodity markets;

increase in geopolitical challenges, particularly due to uncertainty in relation to Brexit;

uncertainty regarding the volume of gas transit through Ukraine from 2020 following the construction of Russian by-pass gas pipelines to Europe;

escalation of the military conflict and new trade restrictions on Russia.

NBU to strengthen FinTech support in Ukraine

The National Bank of Ukraine has launched a pilot project to stimulate the development of FinTech solutions in Ukraine by establishing the Expert Council on Communication with Innovative Companies.

Innovative companies can file applications (in Ukrainian or in English) to the National Bank for consideration and discussion of their own state-of-the-art products.

The companies will be provided with direct feedback and recommendations regarding legal support for each of the presented innovative products, Oleksandr Yablunivsky, Director of the NBUs Payment Systems and Innovative Development Department, said.

Moreover, if appropriate, the National Bank will appeal to the Government with a proposal to amend Ukrainian legislation to make the introduction of truly innovative financial products and services possible.

Capital Markets

Ukraine to join international depository network for first time

Clearstream, the International Central Securities Depository, and a member of the Deutsche Börse Group, integrated the Ukrainian market into its network on 27 May.

The launch of the first link with the international depository in the history of Ukraine will be performed through an account opened in the Depository of the National Bank of Ukraine.

Foreign investors will get easier access to government securities denominated in UAH.

The launch will promote rising demand for domestic government loan bonds, and increase their liquidity and attractiveness on the international capital market.

Additionally, integration into the Clearstream network will improve the currency structure of the government debt by increasing the share of financing in UAH, will increase the efficiency of the transmission monetary policy mechanism of the National Bank of Ukraine and will promote further development of the Ukrainian capital market.

The correspondent bank and the account provider in Ukraine will be Citibank.

M&A

Visa acquired Earthport

Visa Inc. has announced the acquisition of Earthport, which provides cross-border payment services through the Automated Clearing House, the largest independent network.

Currently, Visa offers the services of card-to-card transfers, and following the acquisition of Earthport, the company will ensure transfers worldwide through a single Visa network.

Solutions for many usage scenarios, including wages transfer and international transfers between individuals and companies, can be developed via integration with Earthport technology. Moreover, using Earthport technology Visa will further expand and scale up its portfolio of scenarios related to use of the Visa Direct system, which includes payments, transfers between individuals, cross-border transfers, payments to contracting parties and settlement of accounts.

The company also reported that the demand for instant and efficient money transfers between consumers and companies is evidenced by an increase in the number of transactions through the Visa Direct service, which exceeded 100% in the past year.

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