bne:Newspaper - April 10, 2015

Content: 2 Top Stories 6 The Regions This Week 12 Eastern Europe 15 Eurasia 18 Central Europe 22 Southeast Europe 25 Opinion 27 Lists 24 Lists

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April 10, 2015

Estonia's new government promises to promote fairer growth Wojciech Kosc in Warsaw Estonia’s new rainbow coalition government was On April 8, Prime Minister Taavi Roivas unveiled sworn in on April 9, after five weeks of negotiations an outline of his cabinet’s programme that following the March 1 general election. prioritises national security and promises to widen the benefits of economic growth to all.

The centrist Reform Party, which topped the polls, leads a coalition that includes the Social The latter priority is clearly the influence Democrats and the liberal-conservative IRL. of the Social Democrats, whose impact on Reform has worked with both of these junior partners in previous governments.

See page 2

Bulgaria aims to overtake Romanian anti-corruption efforts bne IntelliNews Bulgaria has announced plans to set up a single authority to tackle corruption, following criticism from the European Commission. Prime Minister Boyko Borissov said on April 3 that within four months Bulgaria is aiming to overtake Romania, where a series of high-profile corruption probes have been launched recently.

National Strategy for Prevention and Combating of Corruption will be to set up a single body taking over the operations of existing anti-corruption agencies, Bulgaria’s Deputy Prime Minister, Meglena Kuneva, told journalists on April 3, according to a government statement.

The main step under the government’s new

See page 4

Top Stories April 10, 2015

Estonia's new government promises to promote fairer growth the government’s programme as a whole is considered bigger than in previous cabinets they took part in.

According to some observers, it may also be a prelude to tensions within the government because of the Social Democrats’ larger position than seems merited purely from the number of mandates they won in the parliament.

In the March 1 vote, the Reform Party won 27.7% of the vote, which will translate into 30 of the 101 seats in parliament. The Centre Party came second with 27 seats, followed by the Social Democrats with 15. The conservative IRL secured 14 seats. The new Free Party and Conservative People’s Party took 15 seats between them.

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years, but, unfortunately, in the long term,” the PM warned. Roivas pledged to keep defence spending at 2% of GDP at the very least, as recommended by Nato. Estonia is one of the few European states to already meet the recommendation.

Boosting economic growth, with a shift towards high value-added products and services oriented for exports, is another policy plank for the new administration, the PM pledged. Estonian growth has stuttered recently, especially in comparison with its Baltic peers. The economy expanded by no more than 2.1% in 2014, and the outlook for 2015 is not much better at 2.3% in the most optimistic forecast right now, which comes from the European Commission.

To make growth accessible for more people in the 1.3mn state, the coalition plans to increase

CHANGES ARE GOOD

It appears that the slightly more left-leaning orientation of the government’s plan for the next four years may be a plan to defuse those tensions early on.

“There will be many tensions and I predict that the Social Democrats will take a chance to put their foot down sooner or later, because the set-up in the parliament will give them this opportunity. This will place many risks upon the new government,” public broadcaster ERR reported on April 8.

Roivas outlined the priorities for the next four years in a speech in front of parliament ahead of the parliamentary vote on the new government on April 8. Perhaps the least controversial priority is national security, which topped the priority list in Roivas’ speech.

“Russian aggression [is]affecting [Estonian] security not just in the next four

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Top Stories April 10, 2015

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the minimum wage from 39% to 45% of the average salary of ¤1,039 per month. It will support increasing the tax-free allowance by 33% from the current ¤154 to ¤205 per month.

Pensions will be increased in line with wages’ growth – which came in at pretty solid rate of 5.3% y/y in 2014. Children’s allowances will also be increased.

with Estonia’s conservative fiscal policy.

The percentage of Estonians living in relative poverty increased to 22.1% in 2013, while 8% lived below the absolute poverty threshold, recent statistics show. The number of people living in relative poverty grew by 3.4pp and those living in absolute poverty by 0.7pp.

With debt at mere 10% of GDP, Roivas’ previous government flatly refused to make any larger use of the European Central Bank’s quantitative easing (QE) plans. The QE programme should prove positive for the Estonian economy, but it will not trigger a sovereign bond issue to take advantage of lower borrowing costs, the central bank pledged on March 10.

Estonia needs to boost productivity and harness human capital in order to ensure a “steeper, more inclusive and more sustainable growth path”, the Organisation for Economic Co-operation and Development (OECD) suggested in January.

Apart from raising incomes, these measures, the government hopes, will address the demographic crisis facing Estonia. Analysts warn that the shrinking workforce is pushing wages up. The central bank said in a report released on April 8 that this threatens to disrupt investment, while it is also seen as a bottleneck to growth.

However, the new government will need to find a way to balance addressing the social issues

“According to the very preliminary information the cost of the promises is around ¤300mn,” Swedbank said. “Unfortunately, it’s unclear yet how the government is going to finance this ambitious program as they have the objective to keep the state budget in structural balance”.

What may keep these spending plans in check is that the post of finance ministry went to the conservative wing of the government, the IRL party.

The Reform Party took arguably most of the other important posts: foreign ministry, economic affairs and infrastructure, the interior, rural affairs, education and research, and public governance.

The Social Democrats will get defence, culture, health and labour, and foreign trade and entrepreneurship. IRL’s portfolios include environment, finance, social protection, and justice.

Top Stories April 10, 2015

Bulgaria aims to overtake Romanian anti-corruption efforts The new agency will be responsible for investigations into over 7,600 senior government officials and magistrates, said Kuneva, a former European Commissioner. It will take over from the existing Commission for Prevention and Ascertainment of Conflict of Interest, the Centre for Prevention and Suppression of Corruption and Organised Crime (BORKOR) and National Audit Office units.

Six priority areas have been identified, including countering top-level corruption, reducing petty corruption and building a climate of public intolerance to corruption. Changes to the law to protect whistleblowers are also planned.

The strategy “foresees the creation of a single unit for analysis and investigation of assets and conflict of interest of persons occupying high state positions", said a statement posted on the government’s website.

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Launch of the single agency would represent a considerable change in Bulgaria, which until now has had “no independent institution to focus efforts, make proposals and drive action against corruption,” according to a November 2014 report by regional anti-corruption and good governance initiative Southeast Europe Leadership for Development and Integrity (SELDI).

This has had a damaging effect on business.

51% of companies consider corruption to be a problem, while 94% believe close links between business and politics lead to corruption, and 66% say the only way to succeed in business is to have political connections, the report says.

Stepping up anti-corruption efforts was one of Borisov’s promises in the run-up to the October 2014 parliamentary election.

The mass protests that forced out both Borissov’s previous centre-right government, which held power from 2009 to 2013, and its successor under Plamen Oresharski, show that Bulgarians are becoming increasingly intolerant of official corruption.

The decision to launch the new body also follows criticism from the European Commission. Bulgaria made slow progress “The aim of the strategy is to turn Bulgaria into a on judicial reform and tackling corruption and country where petty corruption is limited largely organised crime in the last year, according to the to average EU levels, high-level corruption is not European Commission’s January 2015 report on left unpunished, anti-corruption institutions work progress under the Co-operation and Verification efficiently and have a real deterrent effect on Mechanism (CVM), a tool created to assess steps corruption, and perceptions and experiences of taken in Bulgaria and Romania in these areas. individuals and companies of corruption levels in Bulgaria are significantly reduced. The document This has been primarily attributed to political recognizes the crucial importance of policies in turmoil in the country in 2014. “The fact that the other areas that have an overall impact on the period covered by this report saw three different fight against corruption, namely: the judicial governments and a deadlocked parliamentary reform, the administrative reform, e-governance, situation has clearly contributed to a lack of and public procurement,” it adds. resolve to reform.” the report said.

The proposed strategy needs to be approved by Commission First Vice-President Frans both the cabinet and the parliament. Sofia aims to Timmermans said in a statement that, “in put it into operation by January 1, 2016. a number of areas, problems have been

Top Stories April 10, 2015

acknowledged and solutions are being identified".

However, overall the report was less positive, pointing out that, “responses to the well-known problems in area of corruption and organised crime have remained piecemeal and lacking in overall strategic direction. There are very few examples where high-level cases of corruption or organised crime have been brought to conclusion in court.”

Surveys have also shown a mixed picture in terms of Bulgarian attitudes towards corruption.

A Eurobarometer survey published immediately before the CVM report found that a strong majority of Bulgarians saw judicial reform, the fight against corruption and tackling organised crime as serious problems for the country, and they had a high level of concern that the situation had deteriorated.

The SELDI report finds that corruption pressure - measured by the percentage of the population who had been asked for a bribe - was among the highest in the region; however, Bulgarians also demonstrated a high level of resistance to demands for bribes.

The report also points out that while the size of Bulgaria’s informal economy has shrunk in the last decade, according to the Bulgarian Center for the Study of Democracy’s 2013 Hidden Economy Index, “the share of the hidden economy in Bulgaria increased in 2013 among both businesses and the population. The main reasons behind this development can be sought in low income, harsh labour market conditions, the decline in the economic outlook, as well as the overall political instability in 2013.”

The relative lack of progress in Bulgaria compared to its neighbour and fellow EU member

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state Romania appears to be one of the main motivations for the new strategy.

Speaking during a visit to Varna on March 3, Borissov claimed that Bulgaria would draw ahead of its neighbour within four months.

“In a sense, they were trying to catch up with us ... What has happened in a year and a half is that Romanians are now given to us as an example.

Four years ago they were behind us,” he said, Bulgarian news agency Novinite reported.

Bulgaria was in 69th place on Transparency International’s 2014 Corruption Perceptions Index, tied with Greece, Italy and Romania. The four countries were rated the most corrupt within the EU. However, Romanian prosecutors, in particular the National Anticorruption Directorate (DNA) have been extremely active in their attempts to bring high-level officials to justice, resulting in a series of investigations and arrests affecting former ministers and top businesspeople. Chief prosecutor Laura Kovesi said on February 24 that 2014 had been a record year with the largest ever number of indictments, convictions in investigated cases, and investigations into highlevel public officials.

Most recently, on April 3, Romania’s richest businessman Ioan Niculae was sentenced to 30 months in prison after being found guilty of bribery. The same day, the high court ruled that Darius Valcov, who resigned as finance minister in March after a corruption probe was launched, could be taken into custody. Other influential politicians to have become the target of corruption investigations include former presidential candidate Elena Udrea, and former minister for large projects Dan Sova.

The Regions This Week April 10, 2015

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Central Europe RBI says it is ready to take on CHF loan risks in a bid to help offload its Polish unit. The Austrian bank could offer guarantees on the portfolio, its CEO said. With Warsaw yet to make a final decision on whether it will force a solution on lenders, M&A has all but halted in the sector.

Poland's finance minister played down the dangers of zloty appreciation to economic targets. The rise of the currency threatens exports and efforts to stem deflation, and analysts expect verbal intervention and then a return to monetary easing.

Slovenske Elektrarne pledged its sale will not delay the country's new nuclear reactors.

Bratislava has complained that Enel should not sell its 66% stake until it completes the long delayed and over budget expansion of the Mochovce plant.

Hungary’s government is reportedly well on the way towards yet another bank acquisition. Local media claimed on April 9 that the Hungarian unit of Sberbank is likely to be the latest asset to be added to its collection, following a series of purchases that has helped the state boost local ownership in the banking sector to over 50%.

The Czech government approved a bill reinstating military drafting. The general draft will be reinstated for men, and for the first time women will also be subject, effective as of 2016.

Every person will go through a medical test once they reach 18 years of age, but the bill does not bring back compulsory military service.

The five-year anniversary of the Smolensk plane crash has been marked by political opportunism and bickering. The April 2010 plane wreck that killed then president Lech Kaczynski and 100 others was either the fault of the pilots, the Russian ground crew, or the meddling bigwigs on board, depending on who is talking and their political agenda ahead of Polish elections in the autumn.

The zloty and the forint rose to multi-year highs and government bonds strengthened through the week. Assets in the region are benefiting from strong economic data, the ECB's asset-buying Czech Finance Minister Andrej Babis faces programme, and signs from the US Fed that it will rising pressure over his conflicts of interest. hold off on tightening monetary policy.

The billionaire Ano leader's Agrofert corporation received CZK1bn in subsidies from the Czech The Czech finance minister's Agrofert will be a state in 2014, a rise of CZK128mn over the major beneficiary of extended support for bio- previous year, when he was not in office, fuel, the opposition claims. The government has according to local media. The focus comes as agreed to extend tax benefits for first generation the coalition approved extending support for bio-fuels, of which the agro-chemicals bio-fuels. corporation is a major producer. Andrej Babis has also recently changed top management at Hungary will only lower taxes for banks that state fuel distributor Cepro, which buys the bioboost lending, PM Orban suggested on April 10. fuels going into diesel and petrol.

Budapest earlier promised to drop the punishing levy, but analysts had already expressed Lithuania has been invited to open negotiations scepticism it would follow through. The PM said to join the OECD. Lithuania first applied to join in a clause that allows for a tax cut for banks that 2002. It is unlikely to complete the process until lend more is highly likely to be included in the 2017. Membership will boost investor interest 2016 budget. and the wider economy, claimed President Dalia Grybauskaite.

The Regions This Week April 10, 2015

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Southeast Europe Albanian prosecutors have asked for a 20-year prison sentence for Ardian Bitraj, the chief suspect in the theft of ALL713mn (€5mn) worth of cash from the Albanian central bank.

Former central bank governor Ardian Fullani was dismissed in 2014 after the thefts were discovered.

VAT on all food items will be cut from 24% to just 9% in Romania from June 1, Romania’s Prime Minister Victor Ponta announced in a televised statement on April 7. The VAT cut will also apply to related restaurant services.

Kuwaiti construction company Smart Invest and Bosnian Ans Drive have launched the construction of the Sarajevo Tower. The BAM100mn (€51.1mn) development in the Bosnian capital will include offices, apartments and a shopping mall.

UK-based mining and energy group Mineco said its subsidiary Medos One has won a 50-year concession to build and run a 4 MW hydropower plant in Bosnia. The project, located near the city of Zvornik, will be developed over the next two years, with the plant expected to be operational in March 2017.

Croatia Airlines is interested in taking a stake in flag carrier Montenegro Airlines.

Representatives of the Croatian airline met Montenegro’s Transport Minister Ivan Brajovic after Podgorica announced plans to offer Montenegro Airlines for sale this year.

The Macedonian government has adopted measures to boost the competitiveness of the business sector. The measures envisage supporting both large firms and SMEs, connecting local companies with foreign investors, and setting up a skills development fund to improve workforce productivity.

Romanian government officials will discuss planned fiscal reforms with the International

Monetary Fund (IMF) in Washington in midApril, newly appointed Finance Minister Eugen Teodorovici said on April 8. Romania’s 24-month stand-by arrangement with the Fund expires in September, and has been frozen since June 2014.

Russia is considering allowing duty-free imports of Serbian-made Fiat cars in return for duty-free exports of Russian cars to Serbia. The issue will be discussed on April 15 at a meeting of the Eurasian Customs Union.

Gambling sector representatives called for Albania’s draft gambling law to be made more lenient at a meeting with the parliament’s economics and finance committee on April 7. If adopted, the law will restrict casinos to tourist resorts and five-star hotels.

Bulgaria’s government debt increased by 38.6% y/y to €10.65bn at end-February after growing by 38.3% y/y at end-January, finance ministry data showed. In monthly terms, the debt stock edged up 0.2% after dropping by 5.9% at end-January.

US power companies AES and ContourGlobal have reportedly agreed to reduce the price of electricity generated at their coal-fired power plants in Bulgaria. The new agreements will not affect the price of electricity for final consumers, but will relieve the deficit accumulated in Bulgaria’s electricity sector.

Bulgarian internet media Sportal Media Group has acquired mobile application Betscores. This is the second mobile application the company bought in less than two months.

The number of tourists visiting Croatia rose 14.7% y/y to 164,234 in February, the statistics office said on April 7. The number of overnight stays also rose by 15.4% to 368,780.

The Regions This Week April 10, 2015

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Eastern Europe Russian tycoon Mikhail Fridman will invest $16bn in US and UK telecom and tech assets via his London-based LetterOne Technology (L1 Technology) holding. Fridman's Alfa Group was paid $14bn for its share in oil company TNK-BP, which was bought by the state-owned Rosneft last year.

A record 250,000 square metres of new shopping centre real estate opened in the first quarter of this year, more than in 2011, 2012 or 2013 in their entirety and four times more than in the first quarter of last year, according to Jones Lang LaSalle (JLL).

The Russian ruble rallied this week to become the world's best performing currency this year.

The ruble jumped over 3% on Wednesday to RUB53.4 against the dollar. The ruble also rose 2.5% to 58 against the euro. It hit a low of RUB80 to the dollar and RUB100 the euro in December.

Rental rates at warehouses in the Moscow region dropped to a five-year low in the first quarter of this year, real estate consultancy CBRE says. The average price for warehouse space was RUB4,600 ($83) per square metre in the first quarter, according to the report.

Russia's Duma's unanimously voted to remove opposition lawmaker Ilya Ponomaryov’s parliamentary immunity. Ponomaryov was the only deputy to vote against the annexation of Crimea last year, but has been accused of corruption after accepting a $750,000 payment from Skolkovo institute for a series of lectures and a research project.

Russians showed a record lack of interest in leaving the country for good, according to the Levada Centre: 83% of Russians have no plans for resettling to other countries; 57% of the respondents replied with a firm "No" and another 26% said "rather No than Yes". The result is the lowest in the history of the poll since 1990.

Hungary lowered reverse supplies of natural gas to Ukraine seven-fold from April 1. Hungary has been key in replacing Russian gas supplies to Ukraine but has increasingly moved into Moscow’s orbit in the current dispute.

The majority of Ukrainians (93%) believe a transport and economic blockade of Donbas will only embitter people and alienate Donbas from Ukraine. Economic and transport blockade of east Ukraine’s self-proclaimed Luhansk People’s Republic will only drive a wedge between people in the war-torn east and the rest of Ukraine, suggests a recent opinion poll conducted in the region.

Moscow ranks as the world's sixth most expensive city to rent as an expat, plummeting from second place in 2014, according to a study

by EuroCost International, a Luxembourg-based expatriate relocation firm.

Over half of migrant construction workers employed in the Moscow region are working in Russia illegally, the Moscow region migration official said. Russia has been cracking down on migrant workers recently.

Russian price inflation rose to 16.9% in March, its highest level since 2002, as the country adapts to a sharply weakened ruble and the impact of politically motivated food import bans.

Belarus is the most popular CIS destination for Russian tourists, according to the Russian online hotel booking service Oktogo.ru. It is followed by Ukraine, Kazakhstan, Azerbaijan, Armenia, Uzbekistan, Moldova, Kyrgyzstan and Tajikistan.

Ukraine's Prime Minister Arseniy Yatsenyuk was accused of pressuring the Ukraine's Inter TV channel after it reported on his party's corruption.

The Regions This Week April 10, 2015

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Eurasia The Kazakh parliament has approved a bill introducing some new financial instruments known from Islamic religious laws, namely “takaful”, or Islamic insurance, and “murabaha”, a form of Islamic leasing.

Turkmen president Gurbanguly Berdimuhamedow reiterated his commitment to develop a pipeline linking his country’s giant gas fields with Pakistan and India through Afghanistan, the socalled TAPI pipeline.

Fitch Ratings has released a report "Devaluation Would Pressure Kazakh Banks", which assesses the potential impact of tenge devaluation on Kazakhstan’s banking sector. The report comes amid growing speculation about the possible devaluation of Kazakhstan's currency. Fitch said that Kazakh banks’ asset quality and capitalisation would deteriorate in such a scenario. However, devaluation will not necessarily lead to lower bank ratings since they are already low, mainly in the B category.

Kazakh gross FX/gold reserves increased by 0.14% m/m to $29.12bn as of end-March, the National Bank of Kazakhstan reported.

Moody's Service Investors changed the outlook on the Baa3 long-term issue rating of the City of Astana to stable from positive. At the same time, the agency affirmed the rating.

Turkmenistan’s exports of natural gas to China grew by 47.6% y/y to 2.22mn tonnes (3.08bn cubic metres) in February, according to the Chinese General Customs Administration. Kazakhstan supplied another 24,256 tonnes to China in the period, up by 4.2% y/y, whereas China has not received any gas from Uzbekistan so far this year.

Turkmenistan's annual GDP growth stood at 10% in the first quarter the year, ticking down from a 10.3% annual rise in the same period of 2014.

Industrial production and capital investments reportedly grew by 11.1% y/y and 5.2% y/y, respectively, in Q1.

Kyrgyzstan’s annual GDP growth stood at 7.7% in the first quarter of 2015. That marks an increase from the 5.6% GDP growth posted in the same period of 2014, as shown by figures from the Finance Ministry.

Unemployment in Kazakhstan stood at 5% in 2014, preliminary data according to ILOdefinitions compiled by the State Statistics Committee shows. The number of workers amounted to 8.6mn people or 67.1% of the population over 15 years old. The number of working men reached 4.4mn and women - 4.1mn.

Uzbekistan and the US finalised a tax compliance agreement aimed to facilitate tax reporting back at home on US citizens working in the Central Asian country, the US embassy in Tashkent said in a statement.

Uzbekistan's state oil and gas firm Uzbekneftegaz and foreign investors will launch projects worth a total of $7.1bn to develop the local hydrocarbons industry.

In 2015 Armenia’s economic growth will be close to zero, said Mark Horton, country chief of the International Monetary Fund. Dwindling remittances, down by over 35%, shrinking exports, especially to Russia, and decreasing copper prices have given grounds for an outlook lower than six months ago. Also, interest rates on foreign financing are relatively high because of geopolitical risks.

In February, Armenian commercial banks’ outstanding loans amounted to AMD37.5bn (€72.9mn), marking a 4.7% increase m/m and accounting for 1.8% of banks’ total lending, according to the National Statistical Service.

bne Chart April 10, 2015

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Putin ratings defy grim economic outlook 25 years after Ronald Reagan left the White House, it would seem that Russia has its own ‘Teflon President’ in Vladimir Putin. The Russian president’s consistently high ratings show that his and Reagan’s similarities go beyond a Hollywood penchant for horse riding and rifletoting, to an ability to come out of any crisis smelling of roses.

Index when combined. The Despair Index measures the relative prosperity of different countries by combining inflation, unemployment and poverty, and is a valuable way of comparing the quality of life across the globe.

A recent World Bank report has predicted that the next two years will be difficult for most Russians, with the economy suffering on several fronts that could directly hit the pockets of the population.

Entitled “Dawn of a New Economic Era”, the study forecasts increases in unemployment, inflation and in Russia’s poverty rate – three key indicators that had previously been considered hallmarks of Russian prosperity under Putin's rule and also make up bne IntelliNews’ Despair

Despite the grim outlook, Putin’s approval ratings are better than they have been in the last three years, and have actually improved throughout the triple blow of low oil prices, a tanking ruble and the continued military conflict in eastern Ukraine.

A look at the first bne:Chart shows that the Despair Index has generally been representative of Putin’s approval rating for the last few years. Bearing in mind that Russia’s Despair score has consistently bettered the EU and US scores since 2012, the correlation between the Despair Index and Putin’s support is understandable.

Despair Index with Russia projections...

Sources: World Bank; Rosstat

Despair Index Score

45.0

44.8

40.0

40.0 37.3

37.5

35.0

41.3

37.1

37.7

36.6 36.2

36.8

32.9 33.3 30.2

29.9

30.0

28.5

27.6

27.7 26.2 25.0

25.0

27.1

26.3

30.0

24.1

23.6

2008 Country BRICS average

24.4

2009

2010

EM average

2011

EU

29.0

27.0

26.1

21.5

21.6

2012

2013

Year

Russia

24.1 22.9

2014

Russia projection

2015

2016

United States

2017

bne Chart April 10, 2015

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Since then, however, Russia’s Despair Index score has rocketed, while Putin’s popularity has paradoxically also increased.

goes some way to explaining how Putin has so far managed to avoid the blame.

Even a projected respite in 2016 that will see Russia's score fall from 37.7 to 29.0 will still leave it languishing behind the EU and US, if their respective 2014 scores are indicative of things to come.

Russia’s projected 2016 score of 29 is certainly a sharp jump up from 2012’s score of 21.5, yet it will still sit only two points above the EU average, well ahead of the emerging market average of 36.2 and leagues ahead of the BRICS average of 44.8.

So why are Putin’s ratings so consistently positive? The easy answer is that Russia’s low Despair Index score was Putin’s gift to the country, and with the acquiescence of the Russian people Putin has since been mostly left to his own devices.

Compared with its own outstanding record of growth over the last decade, Russia’s score is indeed very poor, yet even after the hardships forecasted by the World Bank, it will still better Italy and Spain’s 2014 scores of 31.5 and 43, respectively.

Logic, then, would dictate that a high Despair score would be seen by Russians as Putin breaking his side of the deal. With that, surely, would come political trouble for the president.

Things may be bad in comparison to the halcyon days of 2012, but a westward glance would suggest to Russians that they could be considerably worse. What is clear, though, is that one way or another, 2015 will be a defining year for Putin.

The second bne:Chart, which compares the Despair Index scores of a number of countries,

Is Putin running out of luck?

Despair Index score

40

36.1

30

26.4 21.3

20

38.1

21.3 38.1

25.6

21.3 38.1

42.0

41.3

24.3 42.3

22.7

25.7

25.7 25.2

26.0

0

40.0

41.0 34.7

10

Despair Index score

27.0 23.7

23.3

24.0

20.0

Putin disapproval rating

2012 Q3

2013 Q1

2013 Q3

60.0

2014 Q1

2014 Q3

2015 Q1

Putin disapproval rating

Sources: Rosstat; World Bank; CEIC Data

Eastern Europe April 10, 2015

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Tsipras visit to Moscow brings scant relief

bne IntelliNews Greek Prime Minister Alexis Tsipras stepped up his debt-stricken country’s new courtship of Russia at top-level talks in Moscow on April 9, but appeared to end his two-day visit emptyhanded - apart from an icon returned to Greece 70 years after the Nazis stole it in WWII. Rich in goodwill but low on immediate tangible results for Greece, was the consensus view on Tsipras’ trip, as his government wrestles with its huge debt burden and tense relations with EU partners. Tsipras met President Vladimir Putin and his counterpart Dmitry Medvedev for wideranging talks, but no direct financial support was discussed or offered, at least not publicly.

said to be seeking a discount of around 10% on Russian gas supplies. Sources close to the talks told Reuters that Greece could make around €500mn a year in profits from such a role.

Turkish Stream was proposed by Putin in December during his state visit to Turkey, and is intended to replace the cancelled South Stream project.

"The Greek side has not addressed us with any requests for aid," Putin said on April 8. "We discussed cooperation in various sectors of the economy, including the possibility of developing major energy projects," he told a joint press conference, also naming "ports, airports, and pipelines" as attractive for Russian investments.

Moscow may possibly give Greece a prepayment of funds based on future profits earned from shipping gas to Europe, two Greek government sources told the agency. Before Tsipras’ visit, the Kommersant business daily also cited a Russian government source who said Greece may get a discount on gas deliveries and new loans in exchange for access to unspecified assets.

But none of this translates into the huge sums of money Athens needs now to avoid defaulting on its international debts.

The leaders also reportedly reached no concrete agreements on Greece's participation in the mulled Turkish Stream pipeline project, which would run from Russia under the Black Sea to Turkey and eventually feed some 63 billion cubic metres of natural gas into Turkey's pipeline network headed towards Europe.

The Greek prime minister's Moscow visit had caused unease among EU partners that Greece might break ranks over economic sanctions on Russia in exchange for aid. Earlier, European Parliament President Martin Schulz warned against undermining common EU policy towards Russia.

Greece hopes to provide an extension to Turkish Stream through its territory and on to Italy and is

The union was entitled to "demand solidarity and guarantees that solidarity should not be

Eastern Europe April 10, 2015

discontinued as a result of unilateral deviation from common action," Schulz told German media. "This is what he [Tsipras] should be guided by in Moscow. The European Union expects this of him as the head of government of one of the EU member-countries."

Tsipras responded by saying: "Greece is a sovereign country with an unquestionable right to implement a multi-dimensional foreign policy and exploit its geopolitical role."

For his part, Putin said Russia was not trying to drive a wedge between EU members to better its overall position.

"I want to assure you that we do not aim to use any internal European Union situations to improve ties with the European bloc as a whole. We want to work with the whole of united Europe," said Putin, However, some observers say the Russian leader's intention to be the exact opposite.

"The game plan of Putin is to break Western institutions, especially the EU and NATO," Joerg Forbrig, a senior programme director at the German Marshall Fund in Berlin, told Bloomberg. "Russia sees Europe as weak and indecisive."

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Wooing Moscow could be one possibility to generate credits at this critical time, and the hope was reflected by the Greek leader's ample use of metaphor-laden images. After previously calling Western sanctions against Russia a "road to nowhere", Tsipras told Putin these were no less than "economic war". He also promoted Greece’s potential as “a link and a bridge between the West and Russia" - despite the frozen state of relations with Russia in the past year.

"I do not know if this is like the Siberian winter, but this was winter and now we are having spring and we should support this spring for the real development of our relations," he said in comments reported by news agencies.

Russia was Greece's top trading partner in 2013, with a two-way exchange of almost $10bn mainly due to imports of Russian natural gas before last year's political upheavals brought a 40% slump in trade.

But if Tsipras had at least hoped to talk up a Greek exclusion from the Russian ban on EU food products, he was disappointed: Putin ruled out any exception during their meeting. Athens had written to the Russian authorities asking them to drop import restrictions for a number of Greek food products, such as strawberries, kiwi Meanwhile, Putin lent the occasion some symbolic fruits, peaches, fish and seafood. solidarity with Greece amid its EU wrangles by handing over to Tsipras a stolen Orthodox icon.

Deutsche Welle commentator Barabar Wesel Seized from a Greek Church by Nazi troops during said if anything, the visit has backfired, and noted the war and taken to Germany, the piece was later that "the Greek prime minister has to sit at the recovered by the Red Army, Kremlin spokesman negotiating table in the next two weeks with Dmitry Peskov said. the same people he has incensed by his trip to Moscow".

Greece is struggling to meet huge load repayments that are due now. Greece on April 8 Tsipras maintained a proud front, nonetheless: was able to sell ¤1.13bn in six-month Treasury "Greece is not a beggar going around to bills to keep itself afloat, while another repayment countries asking them to solve its economic of €450mn to the IMF loomed the following day, as problem, an economic crisis that doesn't only well as monthly payments of ¤1.5bn for pensions concern Greece but is a European crisis," he and salaries. Greece must also roll over another said. €1bn in short-term debt on April 15.

Eastern Europe April 10, 2015

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Ukraine government moves to regain control of gas distribution network

bne IntelliNews The Ukrainian government has urged said, in reference to oil and gas majors that parliament to adopt a law at an April 8 vote that have effectively been controlled by a small will rein in free use of state gas pipelines by the circle of businessmen for the past decade. country’s connected business elite.

In February, UkrGaz-Energo, a subsidiary “Let me remind you that almost all gas of state-run Naftogaz Ukrainy, filed a lawsuit distribution networks are state property," Prime demanding the annulment of a government Minister Arseny Yatsenyuk told a cabinet meeting decision made in 2012 under ousted on the eve of the scheduled vote in the Rada. former president Viktor Yanukovych that “And by a strange coincidence, regional gas granted regional gas companies free use companies that belong to the Firtash-Lyovochkin of distribution networks. group [businessman Dmytro Firtash and MP Serhiy Lyovochkin] have free access to all gas More than 70% of the country’s regional gas companies are reportedly owned by Ukrainian distribution networks owned by the state.” businessman Dmytro Firtash, who has been The government now wants the adopted law to under house arrest in Vienna since March 2014 allow the introduction of a fee for the exclusive under an FBI warrant for allegedly bribing right to use the distribution networks, the Indian officials to gain mining licences.

Ukrinform news agency quoted Yatsenyuk as saying.

Firtash was closely connected with Yanukovych and also has extensive interests "And now we will regain control over all of the in the chemical sector. Lyovochkin, another wealthy Ukrainian businessman and member gas distribution networks that have been in private hands, but which belong to the state, of parliament, was the former head of the and for which the state has not received a Yanukovych administration. He and Firtash penny for their use," the prime minister added. have mutual business interests, including joint ownership of the Inter TV channel.

The government also intends to regain control over Ukrainian state fuel companies, Yatsenyuk

Eurasia April 10, 2015

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Mongolia’s PM claims agreement reached over Oyu Tolgoi expansion

Jacopo Dettoni in Almaty Mongolia’s Prime Minister Chimed Saikhanbileg says that a long-awaited agreement with Rio Tinto over a massive underground expansion of flagship copper and gold mine Oyu Tolgoi has been reached.

Foreign direct investment (FDI) fell to $507.6mn in 2014, down from $2,139mn in 2013, according to figures published by the Bank of Mongolia. That marks the country's poorest FDI performance since 2009.

“The two sides have reached agreement, in principle, on the main points of dispute,” he said during a televised speech republished by the government’s website on April 5.

It also cost the job of former PM Norovyn Altankhuyag, who was forced to resign in November amid growing concerns over, among other things, his ability to successfully handle the negotiations with Rio Tinto.

An agreement would put an end to almost two years of negotiations that cost Mongolia much of its reputation as one of the world’s hottest economies in the frontier markets arena.

Turquoise Hill, Rio Tinto’s local subsidiary, owns a 66% stake in the mine, the remainder being in the hands of the government. The open-pit mine came online in July 2013, but its underground expansion, which is expected to bring to surface as much as 80% of the mine’s total value, got suspended a few weeks later as local authorities and Rio Tinto locked horns over a number of pending issues such as taxes and the environmental impact.

Oyu Tolgoi’s impasse cast a shadow over the county’s business climate, with foreign investors becoming increasingly hesitant to invest in the country. Oyu Tolgoi is the largest ongoing investment in Mongolia and is considered a barometer of the country’s business climate.

“Soon we will officially announce these results to the international community, after bureaucratic levels finalise relevant steps,” Saikhanbileg added.

Neither Rio Tinto nor Turquoise Hill has issued any official statement yet. Turquoise Hill had already reiterated its stance in a technical report on March 24.

"Further development of the underground mine is expected to commence once the following conditions are met: successful resolution of the mine’s shareholder matters, including the tax situation; agreement of a comprehensive funding plan including project finance; approval of the 2014 feasibility study by the Oyu Tolgoi shareholders and acceptance by the Mongolian Minerals Council; obtaining all necessary permits for the mine’s operations and development."

The Mongolian Tax Authority launched a tax review into Turquoise Hill’s Oyu Tolgoi operations

Eurasia April 10, 2015

in 2014. That allegedly brought to light unpaid taxes, penalties and disallowed entitlements worth some $127mn. The amount, notified to the company in June 2014, was reduced to $30mn in September 2014.

With regard to the project’s funding plan, a consortium of local and international banks committed to providing $4.2bn in financing for a project, but a deadline for that expired in September and has not been officially renewed yet. Oyu Tolgoi handed local authorities an updated feasibility study for the mine’s underground expansion for final approval in September. The study put the project’s overall price tag at $4.9bn and estimated a 29% internal rate of return (IRR) after tax.

Saikhanbileg also announced a breakthrough in the negotiations of another pending and longawaited investment in the mining sector, the development of Tavan Tolgoi, the country’s largest coking coal deposit.

“Tavan Tolgoi negotiations are getting closer to an end,” he said, pledging a final decision to come through in the next government meeting.

Located in the southern Gobi desert, about 200km from the Chinese border, the mine holds some 1.8bn tonnes of high-quality coal – with a wider resource amount put at around 7.8bn tonnes. Local authorities have struggled to fully develop the mine since a failed tender in 2011, in which the Mongolian government rescinded an agreement that would have allowed a consortium comprised of US Peabody Energy, OAO Russian Railways and China’s Shenhua Energy to operate the mine.

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The government resumed the tendering process in 2014, when Shenhua Energy, alongside Japan's Sumitomo Corporation, teamed up with a mining unit owned by the Ulaanbaatar-based firm Mongolian Mining Corporation to come up with $4bn in investment to develop the mine in partnership with the state. A final decision on this is now pending.

The Oyu Tolgoi and Tavan Tolgoi expansion projects total about $9bn in investment, a gamechanging figure for the Mongolia's economy, whose 2014 GDP amounted to MNT21,800bn ($11bn). Saikhanbileg’s announcements were enough to breath new life into the investors’ long gone optimism over Mongolia’s economy.

“Cheers to PM Saikhanbileg for historic OT and TT efforts, if jumping the gun, still enjoyed this,” Nick Cousyn, chief operating officer of local investment bank DBSec, wrote in a tweet attaching a picture of a freshly uncorked bottle of French champagne.

“In words of Murray Walker [famous Formula One motor racing commentator] "its GO GO GO" for #Mongolia!!!” Trevis Hamilton, founder and CEO of Mongolia-focused investment bank Khan Investment Management, wrote in another tweet, also attaching a picture of a freshly uncorked bottle – Mongolian vodka in his case.

Other commentators were more cautious though as Mongolian prime ministers have often failed to deliver on their promises. In this regard Saikhanbileg still boasts a clean reputation as he has only been in office since November. The reach of his promises, and his overall credibility, will eventually depend on how “soon” both projects will kick off.

Eurasia April 10, 2015

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Kyrgyzstan ready to back out of Centerra Gold deal

bne IntelliNews The chances of a long-awaited agreement over restructuring the ownership of Kyrgyzstan’s flagship gold mine Kumtor dramatically shrank on April 9 when Prime Minister Djoomart Otorbaev said that a deal is not in the interest of the country any more.

“Now I do not believe that the creation of a joint venture would meet the interests of the country,” news website Dispatchnewsdesk.com quoted Otorbaev as saying during a press conference.

“Yes, a year ago I was a supporter of the joint venture, but now I do not believe that it is in the interests of Kyrgyzstan. We change our opinion, based on the actual situation. And that is why now I do not agree on a joint venture," said the prime minister.

Kyrgyzstan, via state mining firm Kyrgyzaltyn, holds a 32.7% stake in Centerra Gold, which fully owns the Kumtor mine. Under pressure from both the opposition and a popular backlash against the mine's foreign ownership, the government has been seeking a better deal for the country for months. President Almazbek Atambayev struck a non-binding agreement with Centerra Gold for the restructuring of Kumtor in January 2014. According to the deal, the state will swap its 32.7% stake in Centerra Gold, which is

also developing mining projects in Mongolia, for half of a newly established 50-50 joint venture that will be in charge of running only Kyrgyz operations.

Yet the negotiations between the government and Centerra Gold turned sour when the latter sharply reviewed downwards the mine’s estimated reserves. The Canadian company cut the mine’s proven and probable reserves to 6.1mn ounces at the end of 2014, from 8.5mn ounces at the end of 2013, after introducing a new resource model and updating the mine design, the company said in a statement earlier this year. The new reserve estimates cast a shadow on the overall profitability of the whole deal.

“We expected to get $2.24bn and it turns out to be $742mn less,” Otorbaev said.

The government has now proposed to increase the number of its representatives sitting on the Centerra Gold’s board of directors – currently, it has three of 11 directors - instead of seeking a joint venture. In the meantime, opposition parties are still calling for a complete nationalisation of the mine and will likely make it a key topic of their platforms in the run-up to the autumn elections.

Central Europe April 10, 2015

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Slovak Telekom announces intention to float

bne IntelliNews Slovak Telekom confirmed on April 8 the government’s plan to float its 49% stake in the company on the Bratislava and London stock exchanges. Slovakia hopes to earn around ¤1bn from the sale, although analysts suggest that could prove optimistic.

The Slovak government first announced the IPO on April 1. That accompanied approval of a plan to transfer the economy ministry’s 34% stake in the telecom operator to the country’s privatisation agency - the National Property Fund (FNM) - which holds 15% currently.

The stake will be offered in the form of shares on the Bratislava Stock Exchange and Global Depositary Receipts (GDRs) on the London Stock Exchange, Slovak Telekom said in a statement.

The offering will include a public offer to investors in Slovakia and the Czech Republic and sales to institutional investors in other jurisdictions.

“The IPO will mark an important next step in our development and bring greater visibility to the value we intend to create,” Slovak Telekom CEO Miroslav Majoros said.

Citigroup and JP Morgan are acting as joint global co-ordinators and joint bookrunners. Erste Group and Wood & Co are acting as joint lead managers of the IPO. The government has been trying to offload the minority stake in the national telecom operator for some time. However, it has struggled to find a strategic investor. In the meantime, it has signalled that it wants to accelerate the sale, suggesting it wants to use the funds raised to buy a majority holding in power producer Slovenske Elektrarne.

The country had previously said it had not ruled out a direct sale to a strategic investor, but it has had little success in whipping up interest. Majority shareholder Deutsche Telekom has shown no enthusiasm to utilise its pre-emptive rights to buy the stake, while Bratislava has not received “any official offer for talks for the time being", despite a series of unofficial talks, Economy Minister Pavol Pavlis said in February.

"We cannot prevent Deutsche Telekom from making an offer, but today the government approved a sale through the stock exchange.

If Deutsche Telekom comes with an offer by the time of placement, the government would consider it," the ministry spokeswoman told Reuters on April 1.

Retail investors in Slovakia that submit early orders will be offered a 5% discount on the asyet-undisclosed offer price, as well as priority in allocation on ordered shares with a total value of up to ¤10,000. The submission deadline for early However, despite the push from Bratislava, the orders will be announced during the subscription German telecom sounds unlikely to get period. involved. "Our strategy regarding our European

Central Europe April 10, 2015

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participations has always been to look at opportunities from a perspective of whether it makes economic sense. We will do the same with Slovak Telekom," a Deutsche Telekom spokesman said at the same time.

Romanian Communications Minister Sorin Grindeanu said on April 7 that Bucharest would prefer to organise an IPO of Telekom Romania than to open talks with the company’s majority owner Deutsche Telekom on the sale of the government’s 46% stake. In contrast to Slovak The Slovak Telekom statement on April 8 said only Telekom however, the German company said in that "Deutsche Telekom AG is not offering any March that it is ready to buy the stake, if the price shares in the offering and has stated its intention is right. Romanian officials suggested in 2013 the to retain its 51% shareholding in Slovak Telekom". stake is worth up to ¤600mn.

Bratislava had earlier said it was likely to use the proceeds to cover its financing needs for 2015. However, Pavlis has also suggested Bratislava could direct the funds to acquire part of Enel’s 66% stake in Slovenske Elektrarne. Prime Minister Robert Fico gave that plan his backing in February.

In September, the economy minister said he would like the Slovak government, which owns a 34% stake in SE, to raise its holding to 51%.

Bratislava has been piling the pressure on the Italian utility since it put SE up for grabs in the summer. That has led suitors such as Czech utility CEZ to downplay their interest in the power producer via the media.

The Slovak operator leads a bevy of potential telecom sales around Central and Eastern Europe, though others appear to have more sparkle for strategic investors.

Local media claim Deutsche Telekom and several US and European firms are in the race for the privatisation of Telekom Slovenije. The government in Ljubljana is reportedly eyeing ¤1.6bn from the sale of its 73% stake.

Belgrade is revving up to make a decision on the privatisation model for Telekom Srbija.

Local media speculates that Telekom Austria, Deutsche Telekom and Orange are interested. A bid from a US investment fund, in cooperation with the European Bank for Reconstruction and Development (EBRD), is also said to be possible.

Serbia last tried to sell its most profitable firm in 2011, estimating its value at ¤2.2bn. Telekom Austria was the sole bidder for the 51% stake on the table, but its offer of ¤900mn plus ¤500mn in future investment was turned down, It is not yet clear if Belgrade plans to put its complete stake of 70% up for grabs this time around.

Central Europe April 10, 2015

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Czech president sparks row as he bars US ambassador bne IntelliNews

The mild-mannered Czech government is While Czech Prime Minister Bohuslav Sobotka struggling to take ownership of the country's made clear his opposition to the president's foreign policy from the loose cannon that is comments, his response, as has been common President Milos Zeman. through the Ukraine crisis, pulled punches. "I

would naturally welcome it if the attitude of Mr The Czech government has belatedly reacted to President to foreign policy in general was a bit more President Milos Zeman's latest enthusiastic dive professional," he told Ceska Televize on April 6. into the country's foreign policy stance towards

Russia. However, while the meek suggestions that Another Zeman foe, Foreign Minister Lubomir the head of state has gone a bit far in barring the Zaoralek, who has taken a tough line towards US ambassador from Prague Castle presumably Russia over Ukraine – also issued a rather guarded seek to reintroduce some dignity to proceedings, statement on Twitter on April 7. The "president's they also leave Zeman's pro-Russian voice to words are unfortunate and not very diplomatic", dominate in the international arena. he wrote. "We keep saying we want everyone to

communicate. We shouldn't be closing doors."

Zeman, who from his largely ceremonial post has been pushing ever more vocally for a "pragmatic" The ruling Social Democratic Party (CSSD) is still foreign policy, waded into yet another unsavoury recovering its composure after a surprisingly spat over the Easter weekend. The head of state weak showing in the election in 2013, and has reacted with fury to what he saw as interference often seemed hesitant about endorsing US and EU from the US diplomat, and told Parlamentni policy on Russia. Much of the Czech political and listy on April 5 that his door is now closed to business elite has also trodden a fine line, leaving Ambassador Andrew Schapiro. foreign policy ambivalent at best, and open to

Zeman's hijacking.

The statement followed the diplomat’s comments on the head of state's plan to travel to the World A former CSSD premier, Zeman exhibits no such War II commemoration ceremony in Moscow next hesitance. He has long been noted for his Russian month. Schapiro suggested it would be “awkward” links, and has raised fury with several controversial should Zeman attend the event as the only statements over recent months, including calling statesman from an EU country. the conflict in Ukraine a "civil war". Zeman has also

regularly criticized EU sanctions against Russia.

“I cannot image a Czech ambassador in

Washington giving advice to the US president on The Czech president, however, claims his absence where he should travel,” Zeman told the monthly would be disrespectful to the Russian soldiers magazine. “I will not let any ambassador influence who helped oust the Nazi regime. He insists my plans for foreign trips … I am afraid that after he will travel to Moscow despite a boycott by the statement, Schapiro's door to the Prague President Barack Obama and German Chancellor Castle is closed.”

Angela Merkel, alongside several others. The

Central Europe April 10, 2015

Czech head of state will join peers from China, India, South Africa, Vietnam and North Korea.

Even Greek Prime Minister Alexis Tsipras, also seen as close to Russia, is wary of going directly against the grain Zeman style. While he's due in Moscow this week, a senior official told the Wall Street Journal he won't return to Russia in May.

“If the meeting took place on May 9, it would … send the wrong message,” the official said. “We are trying to upgrade Greek-Russian relations, but we always respect Greece’s place in the European Union,” the official said.

That leaves the Czech president looking somewhat isolated. However, the Russian press has widely praised Zeman for standing up to what it calls Washington's attempts to turn the whole of the EU into vassal states.

Indeed, Moscow will be delighted with the impact of Zeman's stance. While the May 9 ceremony is a regular commemoration of the millions of Soviet troops that fell in defeating the Nazi's 70 years ago, this year's event is also seen spreading discord in the EU, especially in the eastern reaches of the bloc.

In all fairness, Zeman may have a point when noting a Czech diplomat would be unlikely to comment on President Obama's travel plans, but should one do so, it's unlikely the US head of state would loudly ban them from the White House.

More seriously, the Czech Republic is a member of Nato and the EU, both of which are facing a pressing security challenge from the east. Ousting the country's top US representative is clearly not constructive, and flies in the face of the policy professed by the government, albeit somewhat weakly.

That weakness is the crucial point however.

Zeman's mischief is as much to do with his lust to increase his sway, and to engineer domestic politics. as anything. Top of Zeman's list is to drive divisions within the Czech political scene

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and its surprisingly resilient coalition government between the CSSD and the Ano party of powerful finance minister Andrej Babis.

Reflecting that jockeying, Ano's Chairman Jaroslav Faltynek said Zeman “overreacted” to the US ambassador. However, he also said he agreed that it was not suitable for an ambassador to criticize a head of state, reports CTK. “I presume that the whole affair will be explained rationally,” he summed up, apparently fully uncommitted.

Following its well practiced strategy to pick off individual states, Moscow was far more clear in expressing its stance. "The loyalty to the legacy of Soviet troops who died in their fight against fascism does credit to Zeman," said Konstantin Dolgov, the head of the Russian Foreign Ministry's human rights commission.

Keen to exploit any weakness it can find in the EU ranks to derail sanctions and other opposition to its exploits in Ukraine, Moscow will welcome Zeman's continued efforts to divert the Czechs from Western policy, and to inspire suspicious glances towards Prague from Washington and Brussels. Just as it has pressed economic buttons in Germany and France, Moscow is busy wielding gas, finance and longstanding political links in Central Europe.

Hungary's PM Orban is well noted for his lean towards Moscow, which has been greased with a discount gas deal and ¤10bn in financing for the expansion of the country's only nuclear power plant at Paks.

Like the Czech Republic, Slovakia sends out contradictory signals: while President Andrej Kiska has ruled out traveling to the May ceremony, Moscow has said it expects Prime Minister Robert Fico.

The concern in the West is that Moscow is gaining in efforts to try to weaken Brussels' leverage. No member state has successfully put up serious resistance to sanctions yet, but the end of the current regime is approaching this year and will need unanimity to be renewed.

Southeast Europe April 10, 2015

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Croatian banks accept conversion of Swiss franc loans into euros bne IntelliNews Croatian banks have accepted the government’s proposal to convert loans denominated in Swiss francs into euro-denominated loans, Finance Minister Boris Lalovac said on April 8.

The loans should be converted at the exchange rate on the date on which the loan was approved, Lalovac said in an interview with public broadcaster HRT. He added that talks with banks should continue within a month, to give lenders time to make their calculations.

Croatia was one of the worst affected countries by the Swiss franc loan crisis, which has had an impact on several countries across Southeast and Central Europe. At the end of last year, Swiss franc denominated loans made up 16% of all lending in the country and some 38% of all mortgage loans were denominated in the Swiss currency, according to data from the Croatian central bank.

Resolving the crisis has been a priority for Prime Minister Zoran Milanović’s government, in the run-up to parliamentary elections expected to be scheduled by the end of this year. The ruling Social Democratic Party is already on the defensive after its candidate Ivo Josipovic was defeated in the presidential elections in January.

On January 23, the Croatian parliament approved a government proposal to freeze the exchange rate used to calculate the Croatian kuna value of personal loans taken out in Swiss francs at HRK6.39 for a period of one

year. This was the rate immediately before the Swiss central bank announced its surprise decision to abandon its ceiling of CHF1.20 to the euro on January 15. However, the decision offered a solution only for the 12-month period after January.

Udruga Franak, the association representing Croatians holding loans denominated in Swiss francs, demanded a long-term solution that would include converting foreign currency loans into kuna-denominated loans at the exchange and interest rate valid when the loans were taken out.

At a press conference on March 31, the association threatened to stage mass protests in April if Zagreb failed to resolve the issue. “We are going to stage mass protests because without that nothing is likely to change," Udruga Franak coordinator Ivan Kontrec said, Reuters reported.

The Croatian central bank warned earlier this year that the cost of converting the Swissfranc denominated mortgage loans into kuna at an exchange rate of 6.39 could amount to HRK3.8bn (¤493.5mn).

Meanwhile, the government has also been under pressure from the Croatian Banking Association (HUB), which has sought to prevent the financial burden of resolving the crisis falling on its members. The association proposed that Croatians who can no longer afford to pay mortgage loans denominated in Swiss francs might have their properties as

Southeast Europe April 10, 2015

well as their debt transferred to the state or the bank. The model would apply only to mortgage holders who are no longer able to pay their installments due to job loss, a considerable reduction in income or loss of working ability.

However, Lalovac had described the banks' proposal as worrying, stressing that it was unacceptable to the state.

Government officials reportedly also discussed a model that envisaged the conversion

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of Swiss franc denominated loans into euro denominated loans with part of the principal being written off. Most of the conversion cost, around HRK3bn of the total cost, would be covered by the state over a 10-year period.

The HUB, however, warned that such a decision could be made only on a voluntary basis, taking into consideration social differences and sharing the costs between banks, the state and debtors.

Unification with Kosovo ‘inevitable’, says Albanian PM bne IntelliNews Albanian Prime Minister Edi Rama angered the Serbian government on April 6 when he said in a television interview that the unification of Albania and Kosovo was “inevitable and unquestionable".

Rama’s statement followed a drive in Tirana for increased economic integration with mainly ethnic Albanian Kosovo.

Rama told Kosovan broadcaster Klan Kosova that the main question was whether unification would happen within the European Union. "The question is how it will happen. Will it happen in the context of the EU as a natural process and understood by all, or will it happen as a reaction to EU blindness or laziness?” Rama said late on April 6, according to Reuters.

Rama also criticised the EU for failing to extend a visa-free regime to Kosovo, and called on Brussels to speed up integration of the Western Balkans countries.

The statement generated an angry response

in Belgrade. While Kosovo declared its independence in 2008, it has never been recognised as an independent country by Serbia.

“I promise to Prime Minister Rama ... Kosovo and Albania ... will never unite!” Serbian Prime Minister Aleksandar Vucic wrote on his Twitter feed on April 7. “Please Albanian leaders stop causing further instability in the region!” he added.

Over the last six months, relations between Serbia and Albania have improved, with a series of high level visits following Rama’s historic visit to Belgrade in 2014. Recently, Serbian Foreign Minister Ivca Dacic also attended a regional infrastructure conference in Pristina, holding a brief conversation with his Kosovan counterpart Hashim Thaci.

However, the concept of “Greater Albania” has long worried not only Serbia but other states in the Western Balkans. Based on the location of

Southeast Europe April 10, 2015

ethnic Albanian populations, “Greater Albania” would include not only Albania and Kosovo, but also parts of Greece, Macedonia, Montenegro and Serbia.

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and the international community, the two countries have been quietly working towards economic integration.

“In the span of a year, we proved that the Demonstrating the incendiary nature of the undertaken policies have been a match to our concept, fighting broke out in Belgrade’s Partizan common and great ambition, in particular when stadium during a Euro 2016 qualifying match it comes to the actions taken in relation to between Albania and Serbia on October 15, when the harmonisation of our main developmental a drone pulling a flag with a map of “Greater policies,” Rama said during Kosovan Prime Albania” was flown into the stadium. Rama’s Minister Isa Mustafa’s visit to Tirana on March brother Olsi Rama was blamed for the incident 23, according to a government statement. though he has denied responsibility. After the match was abandoned, several Albanian-owned “Work has been done to create a common businesses in Serbia were attacked, and Rama’s energy market and complete our 400 kV planned visit to Belgrade was postponed until interconnection power line. Efforts have the following month. intensified in terms of agricultural cooperation, in a bid to unify standards and adjust legal Current levels of popular support for union methods in food control. Further, we have laid between Albania and Kosovo are unclear. In 2010, the foundations for the pre-university system the Gallup Balkan Monitor surveyed support unification.” for the idea of a Greater Albania comprising Albanian-populated areas of Kosovo and The meeting - under the slogan “One land Macedonia as well as Albania. In the 2010 survey, One People - One dream” - took place a month 81% of Kosovo Albanians supported the idea, up after Albania and Kosovo finalised coordination from 54% in 2008. Meanwhile, support within of their customs systems, which will facilitate Albania dropped from 68% in 2009 to 63% in 2010. the movement of goods and people between the two countries. The unified customs regime is Within Kosovo, the staunchest supporter of due to be launched in May. unification is the nationalist Vetëvendosje (Self Determination) movement, which has called for a In 2014, Albania and Kosovo signed an referendum on the issue. agreement on the creation of a common energy market. After a meeting with Albanian Conversely, any attempt at unification with Minister of Energy and Industry Damian Albania would threaten the already uneasy Gjiknur on March 10, Kosovan Economic coexistence of Kosovo’s 100,000-strong Serbian Development Minister Blerand Stavileci said minority alongside the country’s mainly the move was “essential” and “a prerequisite ethnic Albanian population. Serbia has never for economic development of both countries”, acknowledged the independence of its former according to a government statement. Since province, and most ethnic Serbs within Kosovo the agreement was signed, construction work continue to look to Belgrade rather than Pristina on an interconnection line between Albania and for leadership.

Kosovo has started - though the joining of the two countries’ grids is happening in the context However, while political unification of Albania of a wider interest in energy sector integration and Kosovo would require defying both Serbia across Western Balkans.

Opinion April 10, 2015

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Turkmenistan being pushed out of its comfort zone MACRO ADVISOR:

Chris Weafer of Macro Advisory Turkmenistan is still some way off from opening up to portfolio investors, although this country of almost 5.5mn people with a PPP-based GDP per capita of almost $13,000 has been on the radar of many of the world’s major corporations for some time. And now the winds of change are building in Central Asia’s last closed economy.

year, as both Russia and Iran cut back further on purchases and China pays a lower price even as it raises import volumes.

That loss in revenue directly impacts the budget and has forced the government to rethink its spending plans. The president has ordered a 10% cut in spending for this year with particular A number of economic and geopolitical events are emphasis on cancelling, delaying or stretching the making it less easy, and much less comfortable, time-line on large infrastructure projects. At the same time, the government took the surprising for the government in Ashgabat to remain as isolated as it has been in the past. The mixture step of devaluing the manat by 19% against the US of energy price weakness, contagion from the dollar on January 1 in order to force a reduction Russian ruble’s weakness and the possible in imports and to help limit the loss of domestic rehabilitation of Iran is starting to have an competitiveness against ruble-priced imports. uncomfortable impact on Turkmenistan.

The two areas that appear exempt from spending cuts are in the social and security categories.

Turkmenistan has been able to sustain doubledigit headline growth for many years and has a State sector wages, pensions and some macroeconomic profile that compares favourably social programmes will see a 10% increase in with others in the region and amongst other expenditure this year as the government tries to emerging or frontier economies. That growth, protect people from the impact of higher inflation and the relative stability in the economy, has and to limit the risk of protests if the economy mostly come from the steady increase in revenue deteriorates and inflation accelerates. Security generated from the country’s vast gas reserves. spending is also expected to rise (no public data) as Initially, this started when the country was able the country responds to the heightened concerns to extract a higher price from Gazprom, while in over radical Islamism, such as IS and the Taliban, recent years this has come from the growth in gas which is threatening the Central Asia region. exports to China.

In terms of hard numbers, the economy is still However, despite the relatively closed nature of expected to expand by 9.5% this year, down Turkmenistan, it is now also feeling the chilling marginally from the 10.3% growth reported for effect of both lower gas and oil prices, and the last year. Retail sales may again see double-digit contagion from the near 50% devaluation in the growth (base effect and higher salaries/pensions) Russian ruble’s exchange rate during the last and the industrial sector is expected to post quarter of 2014. The value of gas export revenues above 10% expansion. Inflation will be higher this is expected to fall by approximately 25% this year due to the currency devaluation and social

Opinion April 10, 2015

businessneweurope I Page 26

spending programmes. However, the expected 7.5% increase is still modest in regional terms.

Ending fuel and energy subsidies for the general population is also a factor, and is another reason for concerns over social unrest and, hence, another factor pushing up security costs in the budget.

pipeline can be constructed across Iran. Russia has no incentive to allow that because Central Asian gas would cut into Gazprom’s exports, and Iran has even less incentive as it looks past the sanctions period at a possible gas pipeline of its own to the EU market.

The country’s balance sheet is in relatively good shape: sovereign debt/GDP is around 20% and financial reserves are sufficient for approximately 22 months, according to a recent state report.

The fact that exports are expected to decline faster than imports is one reason why the current account deficit is expected to nearly double to 7.5% of GDP this year. The budget reported a surplus equal to 0.8% of GDP last year, but despite the president’s order to achieve a balance in 2015, we are factoring in a deficit equal to 2% of GDP. Nevertheless, in general the country is in good financial shape, and ready to ride out the external energy and ruble contagion for several years.

The planned gas route across Afghanistan (TAPI) is still deemed too dangerous for investors or energy companies to fund the $10bn cost. If the current framework nuclear deal with Iran results in a final, binding deal, then post-sanctions Iran will be a safer and cheaper alternative for gas heading south. Turkmenistan will again lose, leaving it with only one export option – east to China.

Reliance on the energy sector for future growth and financial stability carries clear risks, which are amplified by the country now heading towards an almost exclusive gas export arrangement with China that holds obvious dangers in terms of future pricing. Russia is rapidly winding down gas imports and has said it will need to import only 4bn cubic metres (cm) this year, down from 10bn cm in 2014. Iran, which imported over 10bn cm last year, has also been cutting back on purchases as it grows its domestic production. That leaves only China: both countries have signed new contracts to boost export volumes from under 30bn cm last year to 80bn cm by 2020, which is forecast to represent 40% of China’s gas demand in that year.

Fearful of reliance on only one customer, Turkmenistan has been trying to find a way to start exporting gas to Turkey and the EU, as well as to Pakistan and India. At the same time, the EU has launched an initiative to secure Central Asian gas as it tries to reduce reliance on Russia; however, there is no physical route for that gas unless Russia and Iran agree to either a new legal status for the Caspian Sea or a land-based

One area where Turkmenistan is very favourably placed is actually its geographic location for transport. It is a key route for planned rail transport links from Kazakhstan to the Gulf of Oman – the first part of which is now operational and, eventually, will be part of China’s planned transport links to the Arabian Sea. Turkmenistan provides the only safe route for China to the coast circumventing Afghanistan, and is a much easier and cheaper alternative than via Pakistan.

Being the key part of the transport corridor clearly offers investment and diversification opportunities.

It is planned that the rail projects will eventually open up to carry passengers and that is one reason why some of Turkmenistan’s big touristorientated projects are likely to be exempt from major spending cuts. Ashgabat is set to host the 2017 Asian Indoor and Martial Arts Games, and plans to use this as a showcase for tourism.

To that extent, the country is both economically and geographically at a crossroads. It can benefit from the latter, but clearly needs to try and move beyond hydrocarbon and China dependency in terms of the former. The dangers from a worsening trend in the economy are obvious in terms of governance and domestic stability risks.

Chris Weafer is Senior Partner at Macro Advisory, which offers bespoke Russia-CIS consulting.

Weekly Lists April 10, 2015

bne: Infrastructure Hungary and Balkan partners to co-operate to meet Russia’s Turk Stream

Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure.

For more information, please visit the website at www.bne.eu.

businessneweurope I Page 27

Hungary, Greece, Macedonia, Serbia and Turkey have agreed to boost cooperation in energy projects that will ensure improved security of natural gas supply, Hungary’s Foreign Minister Peter Szijjarto said on April 7.

The statement followed a meeting of foreign ministers from the five in Budapest. A joint declaration on strengthening energy cooperation in the region was signed. The officials also declared their intention to increase interconnections between their gas networks.

bne IntelliNews

However, the central point is their pledge to pursue a plan to carry Russian gas arriving via "Turk Stream" to Central Europe. The five pledged “to create a commercially viable option of route and source diversification for delivering natural gas from the Republic of Turkey through the territories of their countries to the countries of Central and South Eastern Europe as well as other countries”, according to a statement from Hungary’s foreign affairs ministry.

Global Yatirim agrees to buy Riga Passenger Terminal

Global Yatirim Holding said its 100% subsidiary Global Liman, a port operator, signed a non-binding letter of intent to buy Riga Passenger Terminal LLC’s cruise and ferry operations at Riga port’s passenger terminal. Global Yatirim Holding did not provide other details.

bne IntelliNews

Global Yatirim Holding said in March that Global Liman was planning to offer up to a 41.8% stake in an initial public offering.

Global Liman will lift its capital from TRY66.25mn to TRY90mn (¤32.7mn), its TRY9mn-nominally valued Global Liman shares will also be offered in the planned IPO, Global said, without elaborating on the timing of the offering. In February, Global Liman mandated a consortium of banks that include Bank of America Merrill Lynch, Citigroup Global Markets Limited (Joint Global Coordinators and Joint International Bookrunners), and Ak Yatirim Menkul, Garanti Yatirim, Is Yatirim (Domestic Bookrunners) for an initial public offering.

Weekly Lists April 10, 2015

bne:TMT Romania prefers IPO of Telekom Romania bne IntelliNews

Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure.

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businessneweurope I Page 28

The Romanian communications and information society ministry would prefer to organise an IPO of incumbent telecoms operator Telekom Romania than to open talks with the company’s majority owner Deutsche Telekom on the sale of the government’s 46% stake, Communications Minister Sorin Grindeanu told the Mobile Innovation 2015 conference in Bucharest on April 7.

Deutsche Telekom has no pre-emptive rights over the 46% stake currently in state hands, Grindeanu added, according to economica. net. Grindeanu’s statement came after Deutsche Telekom said it is ready to buy the whole company if the price is correct. Deutsche Telekom holds 54.01% of Telekom Romania via OTE.

Media watchdog warns over sackings at Kosovan state broadcaster

Reporters Without Borders has issued a statement criticising the decision by Kosovan state radio and television broadcaster RTK to fire newsroom editor Arsim Halili and RTK union president Fadil Hoxha.

bne IntelliNews

Halili and Hoxha were sacked on March 26 for allegedly posing a threat to RTK and damaging the broadcaster’s image, RWB said in an April 4 statement.

The decision was made after the two “denounced cases of censorship and other irregularities”, the statement said. It also coincided with the start of a parliament debate on management problems within the company.

“We strongly fear that the sole aim of these two dismissals is to silence criticism of RTK’s management and, in particular, criticism of censorship within this public broadcaster,” RWB programme director Lucie Morillon said in a statement.

“We urge RTK’s board of governors to rescind these dismissals.

Halili and Hoxha drew attention to censorship and other practices that deserve a thorough investigation, one that could call in to question [director general] Mentor Shala’s right to continue in his current position. In this light, the grounds he gave for the dismissals seem spurious.”

Weekly Lists April 10, 2015

Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure.

For more information, please visit the website at www.bne.eu.

businessneweurope I Page 29

bne:Banker

Banca Transilvania will pay ¤81mn to acquire 100% of the capital of Volksbank Romania, Transilvania announced on the closing of the transaction on April 7.

Banca Transilvania acquires Volksbank Romania

Separately, the balance of parent funding outstanding in Volksbank on the closing date has been assigned to Banca Transilvania at nominal value, according to the terms of the deal. The balance is estimated at RON2.857bn (¤637mn) based on data as of the end of December 2014 adjusted to reflect further operations.

bne IntelliNews

Of the total ¤81mn purchase price for Volksbank’s capital, ¤58mn has been placed in an escrow account to cover certain future risks that may arise within one year.

Creditors of Ukraine’s state-owned banks to get softer restructuring terms bne IntelliNews

Debt of Ukraine's state-owned banks Oschadbank and Ukreksimbank is to be restructured at softer terms than other subsovereign debt, according to a statement by the Finance Ministry.

“Given the importance of Ukreximbank and Oschadbank for the banking system and the economic recovery of Ukraine, the restructuring of their financial instruments will be subject only to the IMF Programme target on liquidity,” reads the statement dated April 4. This means the bank's debt will be treated differently from that of other sub-sovereign borrowers such as the state railway operator or the city of Kyiv, according to the ministry.

Ukreksimbank is currently in talks with creditors to restructure a five year $750mn Eurobond due in April.

Weekly Lists April 10, 2015

Below is a selection of stories from bne's lists. bne offers a variety of daily, weekly and monthly lists to subscribers, including: daily lists for Russia, Turkey, Ukraine, Central Europe, Southeast Europe and Eurasia; the weekly lists Banker, Deal, Credit, Investor, Stocks; and monthly lists Real Estate and Infrastructure.

For more information, please visit the website at www.bne.eu.

businessneweurope I Page 30

bne:Credit

The Czech Republic should set a definite target date for adopting the euro, Prime Minister Bohuslav Sobotka said on April 8, suggesting that the country could enter the Eurozone in 2020.

Czech premier calls for target euro adoption date

The PM spoke following a meeting with President Milos Zeman. The head of state has led recent calls to return to the issue.

bne IntelliNews

IMF mission to visit Bosnia to discuss new loan agreement bne IntelliNews

While echoing the president - usually a sworn enemy - Sobotka admitted that the ruling coalition still hasn’t reached consensus on the currency switch. The premier has said recently that a lack of support from Finance Minister Andrej Babis’s ANO party - which leads opinion polls - is preventing the coalition government from setting a target date.

An IMF mission should arrive in Bosnia within weeks to discuss a new loan agreement with the government, the IMF's resident representative in Sarajevo, Ruben Atoyan, said as quoted by news service Capital.ba. The mission will also discuss with the government the financial challenges the country is facing.

In January, Atoyan said the IMF decided to delay the disbursement of a new loan tranche under its stand-by agreement with Bosnia because of lack of reforms. Before that, in September, the IMF said that Bosnia needed more time to implement the policies agreed under its stand-by loan deal in order to receive approval for the next loan tranche.

In December, the IMF concluded its mission to Bosnia as part of the eighth review of the country's augmented ¤632mn stand-by loan deal, saying that the country’s economic outlook remains uncertain because of limited donor support.