Ukraine Infrastructure Report Q4 2013 - New Study Released

Although we expect the Ukrainian construction sector to return to growth from 2014, we see little likelihood of a complete recovery to 2007 levels during our forecast period to 2022, especially considering the 24.5% contraction the sector experienced in 2012. Weak government finances, an uncertain macroeconomic environment, the absence of private sector investments and completion of 2012 football tournament-led projects will be the major factors holding back construction spending. We see the infrastructure sub-segment performing better than the residential and non-residential construction segment, with railways and renewables leading the country's infrastructure potential.

2012 real contraction data for Ukraine's infrastructure sector came much larger than we initially expected, at nearly 25% year-on-year (y-o-y). We expect this contraction to continue in 2013, although more modestly. The bright spots in the construction industry are the transport and the energy infrastructure segments. Key developments that help shape our relative more optimistic outlook for the infrastructure sector include:

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* Growth potential in the railways and airports sub-sectors will help the overall transport industry to maintain strong growth. In January 2013 Prime Minister Nikolay Azarov revealed that the country will start construction of high-speed railways by the end of the year. Plans are also underway to modernise the local railway fleet. This will be in addition to the UAH16bn (US$1.99bn) likely to be spent by rail operator Ukrzaliznytsia on the electrification of 1,467km of railway track by 2016.
* In March 2013 Azarov announced plans to spend UAH7.2bn towards construction and repair of roads during the year, which will bring some much-required investment into the sub-sector. Vice Prime Minister Oleksandr Vilkul revealed that the investment is a part of a broader plan involving renovating over 9,000 km of roads over the next two years. He also revealed that some funds will also be allocated towards building a bridge over the Dnipro River in Zaporizhia, reconstructing the Kyiv-Kovel-Yahodyn and the the Stryi-Ternopil-Kirovohrad-Znamianka highways, and on the Sevastopol bypass.
* The electricity sector is also seeing an influx of renewable power investments, with solar and wind doing especially well. In April 2013 Danish wind turbine manufacturer Vestas was awarded a contract to install wind turbines at a new wind farm in Ukraine, reports Power-Technology. A report by the National Commission on the State Management of Energy revealed that the capacity of solar power stations in Ukraine increased two-fold in 2012, while that for wind power was up by over 32% y-o-y.

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