Bne newspaper november 14 2014

Content: 2 Top Stories 6 The Regions This Week 11 Eastern Europe 13 Eurasia 16 Central Europe 19 Southeast Europe 22 Opinion 27 Lists

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Ukraine's ceasefire breaking down

bne The shaky month and half ceasefire in Ukraine seems to be breaking down amid a mounting daily death toll over the past week and reports of Russian "little green men" and soldiers crossing the border into the disputed eastern provinces.

Nato reported that columns of Russian tanks, artillery and combat troops have been entering Ukraine over the past two days. The Organisation

for Security and Co-operation in Europe (OSCE) followed up on November 11 with a report of a convoy of 43 unmarked military trucks moving toward eastern Ukraine and claimed on November 12 that "little green men" or combat soldiers in uniforms with no insignia, were entering Ukraine over the border with Russia.

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Russia's central bank abolishes trading corridor, restricts liquidity, as ruble stabilises bne Russia's central bank has abolished the ruble trading corridor - effectively floating the currency - while temporarily restricting ruble liquidity to impede further depreciation.

Russia's central bank said that as of November 10 it had abolished the ruble trading corridor and would no long intervene to defend the ruble against the bi-currency dollar / euro basket.

Central bank head Elvira Nabiullina told Russian TV that this is effectively a ruble free-float.

"Instead we will intervene on the currency market at any time and with a volume we judge necessary to stem panic-driven speculative demand," she said, as quoted by Interfax. The central bank See page 4

Top Stories November 14, 2014

Ukraine's ceasefire breaking down

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A fragile ceasefire agreed on September 5 at a summit in Minsk forced both Russia and Ukraine withdraw their regular army troops, but that left the militias both sides have been using to fight

as proxies in place. The level of violence died Speaking in Sofia on November 12, down, but about 10 people were still being killed Nato commander US General Philip Breedlove a day since the start of the ceasefire. According said: "We do not have a good picture at this time to reports, fighting around the Donetsk airport remains particularly fierce. of how many. We agree that there are multiple columns that we have seen," reported RFE/RL.

However, the death toll climbed alarmingly earlier The spokesman for the OSCE Special Monitoring this week when reports of 200 fighters being Mission to Ukraine, Michael Bociurkiw, added on killed in Donetsk emerged. It seems there was an assault on the city in an effort to recapture it, November 12 that monitors near Donetsk had observed 126 unmarked military vehicles since which now seems to have provoked a response from Russia to ensure the battle lines in what is November 8. "By unmarked, I mean no license plates. We also mean that the men inside these rapidly becoming a frozen conflict don’t move. vehicles have no insignia on their uniforms. But

they're towing very heavy equipment, and we're However, it is not clear who has started the talking about multiple rocket launchers, we're offensive. In Kyiv, the newly appointed Ukrainian talking about 126-milimeter howitzer guns. This Defence Minister Stepan Poltorak said on is not what one expects after the signing of the November 11 that Ukrainian government forces are redeploying in preparation for a possible Minsk accords," Bociurkiw told RFE/RL.

offensive by pro-Russian separatists. This followed Neither organisation released any photos or reports that pro-separatists rebels were beefing up their positions, especially around the Donetsk other evidence of these claims. However, social media was rife with pictures of Russian tanks region port city of Mariupol, in preparation for a possible offensive. Separately on November 12 on the move and trucks towing howitzers and Katyusha rocket launchers, which it was claimed, an AFP correspondent said mortar shells were are on their way to Donbass. It is not possible to being fired from an area near the Donetsk city independently confirm these claims. Other reports centre toward government-held positions around stated that up to 40,000 Russian troops have been Donetsk's international airport. massing on the border.

Another possibility is that Russia is making a Russia's Defence Ministry hotly denied any of push to capture the port of Mariupol that was the Russia's military were in Ukraine, nor ever have scene of heavy fighting in the run up to the Minsk been. Defence Ministry spokesman Major General summit. Reports emerged this week that Russia Igor Konashenkov told journalists the "rumours" was having trouble supplying the Crimea as winter of alleged Russian military presence in Ukraine closes in and that the obvious solution would be to create a land bridge linking Russia's mainland "are not backed by any facts. We have already stopped paying attention to these baseless with the peninsular. This would run through allegations,” he said on November12.

Mariupol, which currently remains under the control of the government in Kyiv.

While the situation remains very unclear, it appears that the fighting has escalated and that If regular army units have entered the fight on both the Ukrainian and Russian regular army have both sides then that could spell the end to even the pro forma claims by both Kyiv and Moscow re-entered the fight.

Top Stories November 14, 2014

that the ceasefire is holding, despite the obvious evidence that the militias have carried on shelling each other since the Minsk summit.

It would also open the way for more sanctions on Russia. This week talk that the sanctions could be scaled back was quickly scotched by EU officials, who said the fate of sanctions rested on what happens on the ground in Eastern Ukraine.

German Chancellor Angela Merkel said on November 11 that further economic sanctions against Russia are not planned, but she left the door open to expanding the sanctions if the military situation deteriorates.

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The escalation of fighting in the last days has also provoked a rebuke from the White House, but no action. When pressed by The Washington Times for an explanation of the consequences Russia might face if the ceasefire fails, State Department spokeswoman Jennifer Psaki told reporters that “we and our allies and partners would be prepared to broaden and deepen existing sanctions". Psaki added that Merkel had referred to an “openness to adding people or entities” to the sanctions and said, “so that’s really what we’d be talking about".

EU foreign ministers are due to discuss sanctions next week.

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Top Stories November 14, 2014

Russia's central bank abolishes trading corridor, restricts liquidity, as ruble stabilises will also intervene against any threat to macroeconomic stability, she said.

In order to prop up the ruble, the central bank will also temporarily restrict banks' access to ruble liquidity, and thereby reduce speculative demand on the currency markets, Nabiullina said on TV. "It [ruble liquidity] is being used not only to supply credit to the economy, but also for games on the currency market," she said.

Nabiullina said the free float would help increase the effectiveness of the central bank's monetary policy, tackle inflation and increase the economy's ability to absorb shocks.

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"What we are seeing on the currency market is absolutely not connected to fundamental economic reasons and factors. Everything will come into the appropriate equilibrium," Putin added. Putin said there were no plans for currency controls or turning back from introducing a ruble free float.

The ruble's bounce after weeks of falling in fact started late on November 7, after a warning from Russia's central bank that it would use large-scale intervention against speculators, and that it regarded the ruble price as nearing market equilibrium.

Abolishing the trading corridor now conserves central bank reserves and makes its threats that it could intervene massively against speculators more credible.

CHANGES ARE GOOD

After weeks of falling, the ruble strengthened by over a ruble to the dollar in the morning of November 10 - before the central bank announcement - after the price of oil spiked, and Russian President Vladimir Putin said there were no fundamental reasons for further devaluation. The ruble remained steady at around RUB45.2 to the dollar after the central bank announced it was abolishing the trading corridor.

The price of Brent crude rose for the third time in four days, to $83.63 per barrel, up 25 cents on closing, after China published better than expected export data on November 10.

Putin, speaking during a visit to China on November 9, told a press conference: "Currently we see speculative jumps in the exchange rate but this will stop soon, taking into account the actions that the central bank is undertaking in response to speculators."

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Top Stories November 14, 2014

Russian authorities will hope that the ruble bounce on November 10 will discourage households from buying dollars, say analysts, after the first signs of Russians converting savings into dollars appeared last week.

“This, with other signs of rising devaluation expectations, prompted the central bank to intervene verbally and threaten ad hoc interventions ... This is a welcome change in rhetoric, but we remain concerned that the market might want to test the regulator’s willingness to act,” wrote VTB Capital analysts in a research note.

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Other pundits are not convinced. “I would certainly contend that fundamentals are indeed driving rouble weakness,” wrote Standad Bank's Tim Ash. According to Ash, the ruble has been overvalued because oil prices are being artificially supported by the US anti-crisis policy of quantitative easing, which has also eroded growth, along with red tape and weak property rights. “The latter means that locals and foreigners don't want to invest in Russia in the real economy which is a huge longrun problem,” argues Ash.

Ash also believes that the central bank has its hands tied politically, having committed to a ruble According to VTB Capital, the recent sharp drop in free float, while not being able to hike interest the ruble was prompted by “panic capital flight,” rates for fear of crippling growth. “So really all and not fundamentals. “We continue to believe the CBR has left is verbal intervention and direct that the ruble has overshot and once the dust intervention,” says Ash. settles it will gravitate towards a fair value (…) around 42-43 against the dollar.”

The Regions This Week November 14, 2014

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Eurasia Russian telecom giant Beeline increased its ebitda to $269mn in Central Asian markets in the third quarter. The brand operates in Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. Its total revenues stood at $479mn, 40% of which, or $197mn, was raised in the company's largest market in the region, Kazakhstan.

Turkmenistan's economic growth stood at 10.3% year on year in the first 10 months of 2013, according to government figures. Industry grew by 13.5% and investment was up by 8.3%.

The IMF estimates the country's economic growth to reach 10% to 11% in 2014 against 10.2% last year.

The number of tourists who visited Armenia increased by 13.6% year on year to 941,151 people in January-September. The number of Armenians travelling abroad increased by 12.5% to 886,251 people in the given period.

Uzbekistan and the Japan International Cooperation Agency (JICA) signed a $621mn loan agreement for the construction of a 900MW gas-fired power plant in the country's east. The loan will be issued for 40 years, including a 10-year grace period. The interest rate is set at annual 0.3%. JICA is already financing the construction of two combined cycle power facilities with total capacity of 900MW in the country's south.

Azerbaijan’s State Fund for Information Technology Development is allocating AZN1.46mn ($1.8mn) to finance start-up projects in IT. About AZN560,000 ($713,558) is granted to projects, while AZN900,000 ($1.14mn) is in credit financing of two larger projects. The fund issues loans up to 10 years at a maximum of 5% per year.

Kazakhstan registered 520,410 cars in January-September, a 15.2% growth year-on-

year. A total of 3.69mn cars were registered in the country as of October 1. In the first nine months of the year, number of cars registered by individuals increased by 15.3% year on year to 495,000 units and by legal entities by 13.95% to 25,000 units.

Russia's Lukoil has produced 25bn cubic metres (bcm) of natural gas in Uzbekistan since it started operations there in 2004. It has invested $3.5bn in its Uzbek projects and intends to bring the figure to $8bn. Lukoil produced 3.74 bcm from the western Kandim-Hauzak-ShadyKyngrad field and 1.1 bcm from the southern Gissar field in 2013.

Kazakhstan's gross foreign exchange and gold reserves grew by 1.12% month on month to $28.274bn as of November 1. Net foreign reserves increased by 1.35% to $27.478bn.

October became the fourth consecutive month when reserves posted a growth. Reserves held in foreign currency increased by 2.21% to $21.261bn while gold reserves shrank by 2.04% to $7.13bn (due to lower gold prices). Since, the beginning of the year, the reserves increased by 14.40%.

The Senate of Uzbekistan's parliament approved the 2015 state budget with a planned deficit of UZS1.8 trillion ($752.3mn at the official exchange rate) or around 1% of forecast GDP. Budget revenues for 2015 are expected at UZS36.2 trillion, whereas expenses are estimated at UZS38 trillion. The budget is based on an expected GDP growth of 8% in 2015. Inflation is forecast at 5.5-6.5%.

The Kyrgyz government spent a total of KGS2,075bn ($36.04mn) in the first 10 months of 2014 to service public debt. It spent KGS1,836bn in the same period of 2013. Total external debt amounted to $3.4bn at the end of September, or 53.1% of GDP, up from $3.2bn at the end of 2013. The government expects it to grow to 58% of GDP in 2014.

The Regions This Week November 14, 2014

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Central Europe The Czech coalition is teetering on the edge of another crisis. Health Minister Svatopluk Nemecek of the CSSD accused Finance Minister and Ano leader Andrej Babis of ordering a hatchet job in his Mlada fronta Dnes daily. Babis accused his foe of alcoholism and advised he seek psychiatric treatment. CSSD PM Sobotka weakly denied a rift between the parties, while Ano now stands well in front in polls.

greater relief for forex borrowers onto the banks, after Budapest announced conversion of loans to forints will take place at market rates.

Hungarian retailers are preparing to fight a possible bill shutting shops on Sundays. The federation of entrepreneurs and employers expressed "shock and worry" that "interest groups in and outside parliament" are seeking to "deliberately jeopardise or eliminate jobs in commerce".

As is now almost a tradition, Poland's Independence Day was marred by nationalist riots in Warsaw on November 11. Extremist farright groups attacked police, with close to 300 detained.

Lithuania has charged a state employee with spying for Belarus, prosecutors announced.

The air traffic control worker is one of two arrested a year ago following an intelligence service investigation. Prosecutors said the stolen information would have been passed to Russia.

Polish developers’ housing sales have surpassed the boom years over the past 12 months, portal pb.pl reported. A total of 42,700 units were sold, which is nearly 19% more than in 2007. Developers have hiked supply pipelines.

Hungary will pump HUF300bn into a "bad bank".

The central bank will set up an asset management agency in order to help local commercial lenders to clean up their portfolios by purchasing problematic commercial real estate loans and related properties.

The Czech transport minister resigned, with bets on the former head of Skanska to replace him.

Ano would win a landslide if a Czech election was Ano's Antonin Prachar quit after criticism from held now, a poll suggests. The coalition party, set across the coalition. PM Sobotka has questioned up by powerful Finance Minister Andrej Babis in the appointment of Dan Tok as his replacement, 2011, would win 35% of the vote, the survey said. with conflicts of interest clear for the former construction company executive.

US companies are interested in Lithuanian shale gas, PM Butkevicius claimed this week. In an Five big banks are likely to remain in Hungary exploration tender in 2012 Chevron was the only after consolidation a central bank official bidder. However, the US giant quit the country claims. The MNB is at the forefront of persistent before starting work on the concession after "forecasts" that the sector is set for consolidation. delays and changes in regulations.

The state is reported to be set to buy Budapest Bank from GE, its second of the eight banks Hungary has drafted a "fair banking" bill. The considered "large" following acquisition of MKB legislation will regulate bank lending, including earlier this year. The only locally owned lender on capping interest rates and loan volumes. The the list is OTP. move is seen as a backdoor route to loading

The Regions This Week November 14, 2014

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Southeast Europe The Albanian government’s plans to increase some corporate taxes from 2015 will have a negative effect on the business environment, the head of the Albanian Chamber of Commerce has warned. Nikolin Jaka criticised in particular the planned increase in the dividend tax rate from 10% to 15%.

Consumer prices in Bulgaria fell 0.4% yearon-year in October after decreasing 0.8% yearon-year the previous month, indicating that the steep rise in electricity tariffs has helped ease deflationary pressures, statistics office data showed.

GeoPost, the international parcel delivery service of the French postal operator La Poste Group, has acquired a 25% stake in Bulgarian package delivery company Speedy. The deal was carried out through a share capital increase that reduced the stake of Speedy's majority shareholder Valeri Mektupchian to 66.11%.

Russian ban on Moldovan wines introduced in autumn 2013 and additional bans on fruit and meat in 2014.

Czech ski producer Sporten, US company Boba Ing and German private equity firm Adcuram are reportedly interested in the privatisation of Slovenian sporting goods maker Elan. Selling Elan will allow the Slovenian government to recover ¤10mn used to recapitalise the company in 2008, which was later judged by the European Commission to be illegal state aid.

Turkey could scrap a controversial plan to buy missile defence systems from China, Turkish and European sources told AFP on November 12, a deal that has upset and alarmed Turkey’s Western allies.

Prime Minister Ahmet Davutoglu announced on November 12 a package of reforms aimed at improving Turkey’s poor worker safety record, after a series of deadly accidents in mines and construction sites this year. Turkey has one of the world’s worst records on industrial safety, with at least 1,235 people killed in workplace accidents in 2013 alone.

The International Monetary Fund (IMF) expects Croatia’s economy to shrink by 0.5%-1% this year due to the continued contraction of domestic demand, the fund said on November 12. In 2015, Croatian GDP is expected to stagnate though there is considerable uncertainty as Zagreb’s fiscal Albania's finance ministry has started stance for 2015 is still unknown. preparations to launch a second Eurobond issue next year. The issue, expected to be in the range Croatian consumer goods producer and of between ¤300mn and ¤500mn, will be used distributor Atlantic Grupa said on November to refinance Albania’s first Eurobond, which will 12 it has signed a deal to acquire Serbian food mature in November 2015, and finance public producer Foodland. Atlantic Grupa admitted it investments. is eyeing new acquisitions worth up to ¤80mn in Parliament speaker Trajko Veljanoski has ordered order to reduce its dependence on South-East European markets and strengthen its position in the preparation of a report on attendance during Western Europe. the first six months of the new assembly after a boycott of the Macedonian parliament by 31 Moldova's exports contracted by 7% y/y to opposition MPs. Macedonia’s opposition SDSM $565mn in the third quarter of 2014, driven by a claims that the April parliamentary elections were 21% contraction in exports to the Commonwealth rigged. of Independent States (CIS), the statistics office announced on November 12. This follows a

The Regions This Week November 14, 2014

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Eastern Europe The National Bank of Ukraine (NBU) proposes to ban early withdrawal of fixed-term deposits and all cash payments over ¤1,000, says NBU Governor Valeriya Gontareva. The NBU chief says that the regulator wants corresponding amendments to be introduced to the Civil Code. In her words, such restrictions would help balance assets and liabilities in the banking system.

Russia's President Vladimir Putin and China's President Xi Jinping agreed to increase the use of the yuan in mutual transactions, at the AsiaPacific Economic Cooperation (APEC) summit in Beijing at the weekend.

The National Bank of Ukraine has increased discount rate from 12.5% to 14% from November 13. The IMF said that it would only get involved in setting Ukraine's macro policy after a new cabinet is formed.

Russian GDP increased by 0.7% year-on-year in the third quarter, down from 0.8% in the second quarter, according to the Federal Statistics Service's (Rosstat). Growth is so poor that the Central Bank of Russia (CBR) this month downgraded the forecast for the whole year to 0.3% from 1.3%.

Russia's launched a new "anti-propaganda" broadcaster called Sputnik that is built on the remains of RIA Novosti that was wound up last year. In related news the UK branch of Kremlinowned TV station RT that launched a week ago is already in trouble with British authorities for biased reporting.

The Russian central bank raised its forecast for capital outflow in 2014 to $128bn against the $90bn predicted earlier, driven by panic buying of dollars on the back of the extremely sharp falling ruble value.

The currency is down about 30% so far this year. The CBR also raised its inflation forecast for 2014 to 8.28.4% from 7.5% at the start fo the year.

A man in the Siberian town of Ob may face up

to 15 years in prison for killing his friend with a chocolate bar. The two men got drunk and got into a fight. Then, he took a chocolate bar and thrust it into his friend’s throat, choking the victim to death.

Some 68% of Russians say they do not want their sons and daughters to fight in south-eastern Ukraine on the side of pro-Moscow militants, according to the Levada Centre poll. Only 13% support an open confrontation, with another 19% undecided. However, the support for the annexation of Crimea remains high, with 55% saying they approve of the action, only 2% less than approved of the annexation in March.

Cargo through Russian seaports is up 6% but exports of grain shipments soared 80% to 25.5m tonnes on the back of a bumper harvest this year, while crude oil exports fell 8.4% to 158.5m tonnes. Total export freight was up 8% to 411.9m tonnes, but imports have been hit by the ruble devaluation and were down 5.2% to 36.5m tonnes. That means Russia is on course to earn a net trade surplus of $202bn this year, up from the $182bn it earned last year.

US Cable news channel CNN pulled the plug on its Russian broadcasts starting January 1, citing the new 20% cap on foreign ownership of media outlets law as the reason.

The State Duma introduce an anti-money laundering bill that demands production of an ID for purchases of jewellery worth more than RUB15,000 ($325).

However purchases up to RUB100,000 ($2,180) are allowed using digital wallets and credit cards, which include information about the user. The rule brings Russian law into line with European rules.

The British Defence Ministry has issued staff working in Russia with an official warning to avoid “honeytraps” — beautiful Russian women offering sex to diplomats as part of espionage operations.

The Sunday Times reports that Russia's Federal Security Service is known for its penchant for preying on “marital infidelity or sexual activity the target may wish to hide” to get information out of British officials.

bne Chart November 14, 2014

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Putin popularity reaches an all-time high, propensity to protest close to all-time low A recent poll by Russia’s Levada Centre has shown that despite rocketing food prices, the desire to protest in Russia is close to an all-time low at 12%, while support for President Putin has matched the all-time-high approval rating of 88% - a figure last seen in September 2008.

As our chart shows, Russia’s ban on food imports from countries that have imposed

sanctions on it has caused sharp rises in food prices, with the cost of meat and poultry rising by 16.8 per cent in September, according to Russia’s state statistical agency, Rosstat.

Inflation hit 8 per cent in September, while the ruble’s value plummeted to 47 to the dollar in early November.

Putin approval Desire to protest

Eastern Europe November 14, 2014

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Ukraine's hryvnia slides to a new low of UAH16.05 to the dollar bne Ukraine's hryvnia slid to a new historical low of UAH16.05 to the dollar at the close of November 12 on the interbank market. This marks a 50% devaluation on the UAH8 to the dollar exchange rate propped up by former president Viktor Yanukovych from 2010 through to his ousting in February 2014 - at the expense of the nation's hard currency reserves.

proceeded to annex Ukraine's Crimea peninsula and Russian-backed insurgents seized control of Ukraine's eastern Donbass region, provoking war. Now the hryvnia is the world's worst performing currency in 2014.

Under the new post-Yanukovych leadership, and demands from international lenders, the National Bank of Ukraine refused to intervene On November the National Bank of Ukraine reacted until September. But facing crucial parliamentary by deciding to raise the discount rate from 12.5% to elections on October 26, and billions of dollars 14.0%, partly to prop up the forex market. According in payments to foreign creditors and for gas to Valeriya Gontareva, head of National Bank of imports from Russia, newly elected President Ukraine (NBU), the central bank intends to fully switch Petro Poroshenko in September called bankers to flexible exchange rate policy and inflation targeting. and oligarchs to a meeting where he demanded of them that the hryvnia be held stable at UAH12.95 Today's crossing of the psychological UAH16 to - helped by a raft of administrative measures such the dollar mark will not be the end of the descent, as restricting sales to individuals to $200 per day. top NBU officials warned. "A balanced hryvnia exchange rate will come into being when the The hryvnia then indeed stayed at UAH12.95 to currency stops devalution," Serhiy Ponamerenko, the dollar, but at the price of freezing the official the NBU's head of currency operations told currency market. It proved nearly impossible to buy newswires on November 13. even tiny amounts of dollars at the official exchange rate, except for politically connected structures, and "Unfortunately, it is impossible to judge where a thriving currency black market sprouted up over the slide of the hrvynia might stop," says Dmitry night. NBU head Valeriya Gontareva found this out Boyarchuk, executive director of thinktank CASE to her cost when she demonstratively went with Ukraine. "If you look at the fundamentals, then journalists to buy $200 from the nearest bank - and there is no need for further weakening of the was turned away by the bank's currency exchange hryvnia. The problem is that the country has booth empty handed. lost confidence in the leadership of the NBU, and in fact we see vicious circle of devaluation," Following crucial parliamentary elections on Boyarchuk told Liga.net portal.

October 26, the NBU removed the shackles from the hryvnia - and it duly plummeted.

With the currency in free fall, and the security situation unstable, the price of Ukrainian debt also Ukraine experienced a similarly massive devaluation plummeted to new lows for the year. during the global financial crisis 2008-9, when the hryvnia fell by as much as 60% from its pre-crisis The hryvnia started to slide immediately after the level of UAH4 to to the dollar to UAH10 to the dollar, ousting of Yanukovych, and accelerated as Russia before stabilising at UAH8 in 2010.

Eastern Europe November 14, 2014

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China set to be Gazprom's main customer

bne Deliveries of Russian gas to China could overtake those to Europe, making China the main customer of Russia's state gas giant Gazprom. This will be the result if a mooted "western route" gas pipeline is built, Gazprom CEO said on Sunday in Beijing during the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

Russia and China signed a package of 17 documents, including the framework deal between Gazprom and China's energy giant CNPC to deliver gas to China via the western route pipeline. The 'western route' pipeline will run through Russia's West Siberian region of Altai to north-west China and supplement the East Siberian 'Power of Siberia' pipeline agreed between China and Russia in May. Miller said that "taking into account the increase in deliveries via the 'western route', the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective."

The pricing formula for Russian gas supplies to China vie the "western route" pipeline will include a take-or-pay contractual obligation, Miller also said, providing Gazprom with assurances about the volume of gas that will be shipped via the pipeline.

about 40bn m3. Total gas supplies to Europe in 2013 were about 160bn m3.

After signing a memorandum in 2004 the “Eastern Route” deal was negotiated for over a decade and was finally closed on Vladimir Putin’s visit to China on May 20 amid the sharp deterioration of relations with Gazprom’s European clients.

According to May's historic agreement worth $400b, Russia is to deliver 30bn of cubic meters over a span of 30 years to China, via the East Siberian pipeline.

Construction on the eastern pipeline, called 'Power of Siberia' started in September, according to Gazprom.

Miller said however that Gazprom would not receive advance payments for gas from China to fund the pipeline construction. He explained that negotiating an advance payment from China would involve providing a rebate on the price of gas to be supplied, which Gazprom does not wish to do.

Instead Gazprom will take out loans to fund pipeline construction, Miller said. Analysts see Gazprom as likely to draw part of the estimated over $55bn needed for the pipeline from the state The western route supplies would almost double infrastructure investment fund, the National the 38bn m3 annual gas supplies under the major Wealth Fund, thus competing with national oil $400bn 30-year 'Eastern Route' deal closed company Rosneft and other major projects which between Gazprom and CNPC in May. Should the have filed bids for the funds. Gazprom will however second route be negotiated, with 68bn m3 annually raise funds from banks as well, and possibly take as of 2018 China would become the largest buyer out loans from China, Miller said at the press of Russian natural gas, surpassing Germany with conference.

Eurasia November 14, 2014

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Kazakh president pledges annual $3bn boost for ailing economy

bne Kazakh President Nursultan Nazarbayev has pledged to draw an extra $3bn annually from the country's oil fund to support the ailing economy over the next three years. Nazarbayev made the announcement in a surprise state-of-the-nation address on November 11, indicating that the state of the national economy is dire and needs urgent attention.

The president explained that the cash would be taken from the National Oil Fund to "ensure stable socioeconomic development and protect the economy from external troubles" because the situation in the global economy had prevented the country from "achieving set goals without additional financial resources".

a target of GDP growth from 6% to 4.3% for 2014 and to redraft the budget.

Kazakhstan and Russia are members of the Customs Union that will be transformed into the Eurasian Economic Union in 2015. Russia is Kazakhstan's major trading partner, accounting for a third of Kazakhstan's imports. According to the Kazakh Statistics Committee, Kazakh exports to Russia fell by nearly 30% year on year to $3.3bn in January-August 2014, while imports contracted by 21.7% year on year to $8.7bn.

Despite the visible signs of the negative effect of the slowdown in Russia on the Kazakh economy, Astana tries not to draw attention to close economic links between the two countries, preferring to blame global economic trends for problems faced by the domestic economy.

"It's high time we used [money from] our fund as Kazakhstan shouldn't repeat other countries' mistakes and should use the fund for economic growth most efficiently," Nazarbayev said. "I've taken The president did not clarify on what the a decision on additional allocation of up to $3bn from additional $3bn would be spent but he said the the National Fund annually in 2015-2017." investment from the fund should be "mandatorily" accompanied with structural reforms in the The delivery of the annual state-of-theeconomy. He noted that international financial institutions such as the World Bank, the Asian nation address is usually well-advertised and broadcast live but the president explained that Development Bank, the European Bank for Reconstruction and Development and the Islamic he had decided this year to give the address Development Bank were ready to allocate "about earlier so that the government could prepare in the remaining 50 days of 2014 to start work $9bn for 90 priority projects". immediately in 2015.

The National Oil Fund accumulates money raised The slowdown in the Russian economy and falling from the extractive sectors, privatisation of stateowned assets and sale of farmland. Kazakhstan oil prices have forced the government to reduce

Eurasia November 14, 2014

withdrew $10bn from the fund to fight the consequences of the global economic crisis in 2007-2009, money mostly spent on bailing out the collapsed banking system. Last February, the president announced the withdrawal of a further KZT1,000bn ($5.5bn) from the National Fund to be spent in two tranches of KZT500bn in 2014 and 2015.

The president noted that the second instalment would be spent in 2015 on: 1) issuing soft loans to small and medium-sized businesses in the food, chemical, machinebuilding and services sectors (KZT100bn); 2) on a buyout of non-performing loans by injecting additional capital into the Distressed Loans Fund (KZT250bn); 3) on building the country's first 'dry port' on the border with China, and petrochemical technology parks in Atyrau and Taraz (KZT81bn); 4) on building the Expo 2017 facilities in Astana (KZT50bn); Â 5) on expanding Astana airport's capacity from the current 3.5mn passengers to 7.1mn passengers a year by 2017 (KZT29bn).

Nazarbayev dubbed the government's policy over the next five years Nurly Zhol (Bright Path) and

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said it would focus on developing the country's transport infrastructure and power grids, and overhauling the utilities sector, which requires investment from all sources worth KZT2,000bn ($11bn) by 2020, including an additional KZT100bn annually  from the government coffers.

The president noted that the policy's roadbuilding programme alone would create 200,000 new jobs.

The new policy also envisages constructing public rented housing which tenants will ultimately be able to buy, by paying off the difference between the value of the flat and the rent they have so far paid while living in it. An additional KZT100bn ($553mn) will be allocated from the budget, the president said.

The National Oil Fund was set up in 2000.

According to the finance ministry's report on the fund's performance, the fund accumulated KZT16,634bn ($91.9bn) as of November 1, including $76.8bn in hard currency. According to the law, all receipts from the extractive sector is accumulated in the fund which guarantees transfers worth KZT1,702bn ($9.4bn) annually to the budget in 2015-2017.

In emergency situations such as the 2007-2009 crisis, the government can withdraw additional money from the fund as long as the fund's assets do not fall below 30% of GDP. Kazakhstan's GDP is expected to total KZT41tn ($226.5bn) in 2014.

Eurasia November 14, 2014

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Azerbaijan shoots down Armenian military helicopter

bne Azerbaijan has admitted shooting down an Armenian military helicopter, as skirmishing intensified over the disputed enclave of NagornoKarabakh.

The Azerbaijani Defence Ministry said on November 12 that the country's armed forces had shot down an Armenian army Mi-24 helicopter as it was heading to attack Azerbaijani army positions.

Azerbaijan's Trend news agency said Armenian air forces had been holding drills with "provocative flights" along the line of contact for the past three days. "Today at 1345 a Mi-24 helicopter of the Armenian armed forces attacked Azerbaijani positions during a flight mission 1,700 metres to the northeast of the village of Kengerli in Agdam District," Trend said. "As a result of fire from Azerbaijani positions, the enemy helicopter was shot down."

The helicopter's debris fell down 500 metres away from the line of contact, the Azerbaijani news agency said.

Armenian ARKA news agency said the helicopter belonged to the "air forces of the Republic of Nagorno-Karabakh" and it was carrying out a "training flight". It added that Azerbaijani armed

forces "were continuing to heavily shell the place of the incident".

Timothy Ash, analyst at Standard Bank, thinks this is not the start of a prolonged conflict but is similar to the upsurge in skirmishes several months ago. "This is likely linked to regional security issues - particularly those in Ukraine.

Russia is again trying to send a message that it is key to regional security - it can be a peacemaker in the region," Ash wrote in a note.

Ash added that the mood in Azerbaijan was against an open conflict with Armenia because any conflict would drag Russia into it and would undermine Azerbaijan's remarkable economic transformation over the past decade. "A common view we heard in Baku was why sacrifice this at this stage, when over time Armenia's own weak economic performance would force it to negotiate with Azerbaijan over NK?" Ash said about the mood on the groun in the Azerbaijani capital.

Azerbaijan and Armenia dispute NagornoKarabakh and adjacent territories Armenia controls following a war between the two countries between 1988 and 1994. A part of Agdam District where the helicopter was shot down is controlled by Armenia.

Central Europe November 14, 2014

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BALTIC BLOG:

Out and about in Latvia

Mike Collier in Riga When Latvian Foreign Minister Edgars Rinkevics came out as gay via Twitter on the night of November 6, it marked a first not only for Latvia and the Baltic states, but for Central and Eastern Europe as a whole: a government minister (and an important one at that) who stated not only that he was gay, but that he was proud of the fact.

which have been exposed by last year's disaster at a supermarket in the Riga suburb of Zolitude when the roof collapsed, killing 54 people. Some of the bereaved were not married to loved ones they had lost and in the absence of a UK-style common-law-spouse status or an Estonian registered partnership model, they have been left shut out of legal claims and compensation In fact, Estonia could take a small part of credit (or payments. blame, if you are that way inclined) for Rinkevics' decision. When the Estonian parliament, or Rinkevics' announcement was unexpected, though Riigikogu, approved legislation on October 9 that rumours about his sexuality have occasionally will give legal status to same-sex partnerships in been whispered in the corridors of power, Estonia from 2016, it fundamentally changed the sometimes with the implicit encouragement of his landscape of the gay debate in the region, moving political opponents. Not too long ago, opposition it on from theological discussions of what God Harmony party leader and Riga mayor Nil Ushakov was hinting about Rinkevics' supposed wants us to do (or not do), to whether same-sex couples can have legal protection like everyone “psychological problems,” yet he was also among else, pay taxes like everyone else and feel part of the first to say he respected Rinkevics' comingout and wished him luck in his future career. society the same as everyone else.

One theory doing the rounds is that, following Rinkevics' decisions to ban a string of Russian entertainers from Latvia for extremist antiUkraine and anti-gay statements (such as actor Ivan Okhlobystin's advice that gays should The English-language tweet quoted by most be burned in ovens), Russia was preparing to Western media as Rinkevics' coming out moment was actually preceded by another in Latvian an hour out him in such a way as to cause maximum embarrassment ahead of Latvia's presidency of or so earlier, which was far more interesting. ”Our country must create a legal framework for all the EU during the first six months of 2015. The types of partnerships, I will fight for it, I know idea seems credible, particularly bearing in mind that there will immediately be megahysteria but similar claims about Russian 'black propaganda' #Proudtobegay," Rinkevics wrote. being prepared to 'out' Lithuanian President Dalia Grybauskaite as a lesbian (which she denies) in He was referring not only to the lead given by the run-up to Lithuania's EU presidency.

Estonia, but to the out-of-date rules in Latvia In Latvia and Lithuania, all mainstream parties immediately said they would never back such legislation, but the genie was out of the bottle.

Central Europe November 14, 2014

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But whatever the reason for the timing, the decision itself remains a landmark. It is true that anonymous message boards in Latvia and elsewhere quickly filled with abusive comments.

With sad predictability, Russian posters were particularly venomous, many as a result of their clear inability to differentiate homosexuality and paedophilia. But no major politicians suggested Rinkevics should resign and a couple of public officials who did quickly had their own suitability for their positions questioned.

among the first officialsto offer, support tweeting: “A very brave man and a very good foreign minister.”

On Twitter itself where users are more readily identifiable, Rinkevics received overwhelming support – a far cry from the 'megahysteria' he had predicted. That itself says something about the maturity and increasingly westernized orientation of large parts of society in CEE. Inevitably, President of Estonia (and de facto president of Twitter) Toomas Hendrik Ilves was

He later noted how, “Russia continues to troll Latvia's Foreign Minister for coming out.

Pretty weird, I'd say.” As if to prove Ilves' point, Russian Deputy PM Dmitry Rogozin – who had already told Rinkevics he “had nothing else to be proud of” – then tweeted to Ilves: “I say you're having a get-together”, which Ilves himself cleverly re-tweeted in case Rogozin got the idea of deleting it.

Newly-installed EU foreign policy supremo Federica Mogherini delivered such strong support for Rinkevics it would be interesting to know what they thought of it back home in Italy: “Proud of you @edgarsrinkevics! Hope we'll make it possible for all to say so, without necessarily being strong and brave (as you are!).”

The only magazine covering business, economics, finance and politics in the dynamic new markets of Emerging Europe and the CIS.

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Central Europe November 14, 2014

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Sharp Polish deflation revives calls for more easing

bne Polish inflation sank well below expectations in October with a 0.6% drop in the consumer price index in annual terms, data released by national statistics office GUS on November 13 revealed.

The poor figure has analysts desperately calling on the central bank to return to monetary easing.

However, the sharp and continued drop in inflation will reignite calls for the central bank to resume monetary easing in December, after suprising analysts by remaining on hold at 2% earlier this month. Many hope to see at least a 25bp interest rate cut.

The drop in CPI means deflation has now persisted for four months, after Poland had its first reversal - at 0.2% - in July. In both August and September CPI fell back another 0.3%. The market had expected a 0.4% drop in October.

"The reading is clearly below market expectations and strengthens our view (and market expectations) that another rate cut is needed," write analysts at Erste Bank.

The biggest drag came from fuel, as well as food prices, which suffered a 0.2% drop after rising 0.1% a month earlier. Failing to prevent the fall were rises in the prices of clothing and footwear and housing.

Analysts at Deutsche Bank suggest the drop in prices is "mainly due to the strong harvest in the country and Russian ban on food imports, suppressing food prices".

Consensus now expects deflation to last to the end of the year, or perhaps even a few months more. Some analysts stress that the reasons driving prices down deflation are external, and the trend should therefore have no dire impact on the economy.

However, the National Bank of Poland signalled after its last meeting that its focus will now move onto growth rather than inflation, and several members of the monetary policy council have since made hawkish statements. The NBP updated its projections in a new inflation report on November 12, and now predicts belowtarget inflation to 2016.

Yet the calls for further action from rate setters are getting more desperate, with analysts again concerned that the NBP is once again falling behind the curve. Erste expresses "hope that tomorrow’s GDP data will be convincing enough for monetary conditions to be further eased".

Southeast Europe November 14, 2014

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Albanian and Serbian PMs clash at historic Belgrade meeting bne Hopes that Albanian Prime Minister Edi Rama’s visit to Belgrade on November 10 would herald a new era of better relations between Albania and Serbia were dashed when Rama clashed with his Serbian counterpart Aleksander Vucic at a joint press conference.

Rama’s visit - the first by any Albanian leader to the Serbian capital for almost 70 years - appeared to go well, until Rama brought up the issue of Kosovo.

“As for Kosovo, we have two completely different views, but the reality is one and invariable,” Rama said. “Independent Kosovo, recognized so far by 108 different countries across the world and supported by the International Court of Justice, is an undeniable and inalienable regional and European reality.”

Kosovo was formerly a region of Serbia and has a largely ethnic Albanian population. Serbia is adamant that it will not recognise Kosovan independence.

Rama’s words sparked an angry response from Vucic, who said he “did not expect this provocation".'

"What does Albania have to do with Kosovo?

Kosovo is not part of Albania and it will never be,” Vucic said, according to the BBC, adding that Serbia “won’t be humiliated in the heart of Belgrade".

Rama hit back, saying that the sooner Kosovo is recognised "the faster we can move on”.

While relations between Serbia and Albania worsened during Kosovo’s battle for independence from Serbia in the late 1990s, there is a long history of conflict between the two countries. The last visit of an Albanian leader to Belgrade was Enver Hoxha’s visit to Yugoslavian President Josip Broz Tito back in 1946.

Up until the press conference, both sides seemed keen to improve relations. This is at least partly motivated by both countries’ progress towards EU membership, which has provided a fresh impetus for peacemaking in the Balkans. For Serbia, normalisation of relations with Kosovo is one of the key conditions for entry to the bloc.

Vucic told the press conference that his one-onone meeting with Rama had lasted longer than planned, and that he believed that the “problems the two sides shared could be solved."

“This visit marks a new beginning and I hope the pragmatic relations between Serbia and Albania will be focused on improving not only our mutual political and economic relations, but on making relations across the region better,” Vucic said.

Rama also took a positive stance in his address.

“Our future depends a lot on what we can do together on the road to joining Europe, a road that will be even more difficult for each of us in the Balkans if we take it separately... The vision of the United Europe has finally gathered us together on the road of peace among us,” he said. Rama also extended an invitation to Vucic to visit Tirana in 2015.

While improving diplomatic relations in the Balkan

Southeast Europe November 14, 2014

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region was naturally the main focus of the meeting, on the pitch when Albanian players tried to defend economic cooperation was also on the agenda. the flag from their opponents, and the match was abandoned. Further complicating the issue, Rama’s “We want Serbian investors to visit Albania, not brother, Olsi Rama, has been accused by Serbian only related to the energy sector but also to other officials of being responsible for sending the drone fields of mutual interest,” Vucic said. He proposed into the stadium, though he has denied the charge. that the two countries jointly present major infrastructure projects such as the BelgradeThe violence on the pitch on October 14 was Tirana railway to the EU to increase their chances followed by a series of attacks on ethnic Albanian of securing funding. targets within Serbia in the following days.

Rama and Vucic had originally been scheduled to meet on October 22. However, on October 14 a brawl at the Euro 2016 football championships between the two countries held in Belgrade sparked a diplomatic row.

The match was interrupted when a drone carrying an amended version of the Albanian flag was flown into the stadium. The flag showed a map of “Greater Albania”, drawn to include parts of Greece, Macedonia and Serbia. Fighting broke out

However, rather than cancelling the visit after the football match, Rama and Vucic discussed the visit on October 19, agreeing to postpone it until tensions had eased, rather than cancelling.

The two prime ministers said at the time that “they must not and will not miss the opportunity to meet and work on maintaining regional stability,” according to a statement on the Serbian government website. The government also referred to it as “turning a new page” in the Balkans.

Romanian foreign minister quits over voting shambles bne Romanian Foreign Minister Titus Corlatean has resigned after being blamed for the shambolic organisation of voting in the first round of the presidential election at the country's embassies abroad on November 2.

Huge queues and chaotic scenes were reported at embassies in London, Paris and other cities with a large Romanian diaspora, with many voters unable to enter the polling booths before polls closed for the day. Police had to be called to the Romanian embassy in Paris after disputes between officials and angry voters.

Both Prime Minister Victor Ponta and President

Traian Basecu blamed the chaos on Mr Chorlatean, who resigned on November 11.

There were big demonstrations over the weekend in cities across Romania, with protesters demanding that the authorities ensure Romanians abroad are able to vote on November 16, while some also chanted slogans against Mr Ponta.

The largest protests were in the prosperous northwest, the main power base of the opposition Liberal Christian Alliance (ACL). A few hundred people gathered in Bucharest, but much larger crowds - some numbering several thousand - were reported in regional centres.

Southeast Europe November 14, 2014

The protests started on the evening of November 7 in Sibiu, hometown of Ponta’s rival for the presidency, ACL candidate and long-time Sibiu mayor Klaus Iohannis. Around 1,000 people attended a rally publicised by a Facebook and social media campaign.

The following day 2,000 people turned out Timisoara and the crowd was estimated at over 5,000 in Cluj - both cities are in Transylvania, the ACL voter heartland. According to Romanian daily Ziare, some local ACL leaders joined the protest in Cluj. Protests were also organised in several other cities including Brasov, Constanta and Iasi.

More are planned for November 15, the eve of the second round ballot.

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Tariceanu trailing in third place with just 5.36%.

Opinion polls indicate a victory for Ponta in the second round on November 16. The latest poll from CSCI/Infopolitic published on November 13 showed that with just three days to go Ponta’s 10-point lead over his rival centre-right candidate Klaus Iohannis has narrowed to eight points. However, Ponta is still expected to win with 54% of the votes cast.

In the first round, Ponta had a clear lead on 40.44%, followed by Iohannis on 30.37%, with Calin Popescu Tariceanu trailing in third place with just 5.36%.

Ponta indicated shortly after the first round results came in that his top pick among three possible candidates to succeed him as prime minister would be Tariceanu. The prime minister is thereby hoping to persuade those who cast their votes for Tariceanu in the first round to back him in the second.

According to Agerpres, Corlatean said on November 7 that there will be more voting booths abroad, though the number of polling stations is not being increased. Up to four million Romanians currently live abroad, most of them in western Europe, though not all the diaspora are eligible to vote.

While Tariceanu’s supporters may gravitate to Ponta, Iohannis is likely to attract supporters of Increasing the pressure on Ponta is the fact that other candidates such as Elena Udrea and Monica the failure to allow diaspora Romanians to vote Macovei, as well as those representing Romania’s ethnic Hungarian minority, who typically favour most likely increased his margin on November 2. Past elections have shown that the majority rightwing candidates. typically vote for rightwing candidates. In 2009, for example, diaspora votes were critical in securing In almost all presidential elections in Romania the presidency for Basescu. On November 2, since 1989, the winner of the first round of voting Iohannis took 46% of the votes from Romanians has gone on to be elected president. There is, voting from abroad, compared to just 16% for however, still potential for an upset at this stage.

Ponta.

In the 2004 presidential election the Social Democratic Party’s (PSD) Adrian Nastase took the largest share of the vote in the first round, but By contrast, among total votes cast in the first round, Ponta had a clear lead on 40.44%, followed was overtaken in the second by Romania’s current

by Iohannis on 30.37%, with Calin Popescu president, Basescu.

Opinion November 14, 2014

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Kakha Bendukidze, Georgian businessmen and minister, who became a reform guru OBITUARY:

By Ben Aris in Moscow Kakha Bendukidze, a leading businessman in Russia turned star reformer in his native Georgia, has died in London at the age of 58.

He had recently undergone a heart operation in Switzerland.

reform and the difficulties of changing the mentality of the Soviet-era bureaucracy; how to convince the bureaucrats that had been running these countries for decades, and were mostly still in place, to change their ways.

The last time I met Bendukidze, a man of frenetic energy, was at the Free University of Tbilisi on the outskirts of town, where he was rector in 2008. Typically, I got the call from his assistant at 9pm on a balmy summer evening in the Georgian capital where he had returned several years before to head the country's reform drive.

Bendukidze slashed Georgia's red tape and transformed the country into the best place in the Commonwealth of Independent States (CIS) to do business during his tenure as first Minister of Economy and then Minister for Reform Coordination between 2004 and 2008. If there was no reason for a permit he nixed it, battling agains the bureaucratic inertia of a whole generation of Soviet-era pen pushers.

Bendukidze was a large man. He waddled into the room and collapsed into a seat, closed his eyes and began a long conversation in his deep rumbling voice on the goals and problems of reforming Georgia's body of law to make life easier for business.

"There are too many laws, regulations and permits – this is a permissive society, not an entrepreneurial one: you need permission to do everything and if you want to do something new where there is no permit you can't do it. In the west if there is no rule preventing you from doing something then there is no restriction on it," Bendukidze explained in his sonorous voice. "We have to change the basic approach of how both government and business people think about how life should be organized."

We drank tea and talked into the night about

Even today Georgia remains nearly the top of the list in global business rankings. In bne's Ethical Business ranking released last month, Georgia not only ranks highest in the CIS, its score of 71.8 out of a 100 puts it on a par or ahead of most of the leading Western European countries. That was largely Bendukidze's doing.

He has created the template that other countries with genuine aspiration to change look to. "We are going to do a Georgia," Sergei Tigipko the Ukrainian Economics Minister told a packed room of investors in Kyiv shortly after Ukrainian President Viktor Yanukovych took over as president in 2010, when hopes were still high that Ukraine would mend its ways and join Europe.

And it was no surprise that Bendukidze was

Opinion November 14, 2014

back in Kyiv in October, called in by Ukrainian president Petro Poroshenko's new government to give advice on what to do next. True to form Bendukidze was blunt about the problems the country faces: "The patient's head is coming off, and there is a bucket of blood next to the bed," Bendukidze said. "What are the relatives doing? They are vaguely worried about what the neighbours might think," he told a Bloomberg journalist who door-stepped him in a Kyiv hotel lobby two weeks ago.

Bendukidze was born on April 20 1956 in Tbilisi, Georgia, and trained as a biologist. In 1988, as economic reforms launched by Soviet general secretary Mikhail Gorbachev took hold, Bendukidze opened a small business, producing biochemical samples for laboratory work before moving to Russia to make his fortune.

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Soviet-era engineering giant Uralmashzavod, producer of mining, drilling and metallurgical equipment.

But those were heady days when everything was new and anyone with some entrepreneurial flare could become a multimillionaire literally overnight.

But even in the 1990s Bendukidze was setting a benchmark for, if not quiet western standards of corporate governance, then at least making money from just doing business. He was never counted in with the seven oligarchs who sprang to prominence in those days and got rich from their ties to government more than anything else.

Bendukidze was the man to seek out in the coffee hall of the Russia Economic Forum for journalists as an exceptional example of a businessman that was trying to create something of value.

However, he sold up in 2003 and moved to Georgia Bendukidze sprang to prominence in the midin the wake of the Rose Revolution to join the 1990s where he turned a collection of Soviet-era newly formed government of Mikheil Saakashvili. industrial assets into the Uralmash group and While he never said explicitly why he left Russia, emerged as a leading industrialist. the opportunity to give something back to his motherland probably played a role, as did the rise The first time I met him was in the early 1990s in of Putin: 2003 was the height of the Yukos scandal and a time when Russian President Vladimir Putin the coffee hall of the legendary Russia Economic Forum summits held in London, across the road was taking full control of the commanding heights from the Palace of Westminster, until the Kremlin of the Russian economy – not the place for a squashed it and forced the business elite to switch liberally minded businessman who made a point to the government-sponsored St Petersburg of keeping his distance from government when it Economic Summit instead. came to running his empire.

Bendukidze was not untainted by the controversial privatisations of the mid-1990s, where he managed to take control of a swathe of heavy industry in the Urals region, with a total workforce near to 100,000. He consolidated the plants into the United Heavy Machinery Plants Holding, abbreviated to OMZ, which included the legendary

In Georgia he oversaw the implementation of sweeping reforms that transformed Georgia from a war-torn failed state into a new paradigm for ease of doing business and coined the proprivatisation slogan "sell everything except your conscience".

Opinion November 14, 2014

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The 50-year fight for gay rights MOSCOW BLOG:

By Ben Aris in Moscow It was entirely predictable: the same day that Tim Cook, the CEO of Apple, came out and declared that he was the first openly gay boss of a Fortune 500 company, the Russian Duma said they would ban him from Russia for life.

“What could he bring us? The Ebola virus, AIDS, gonorrhea? They all have unseemly ties over there,” St Petersburg city council member Vitaly Milonov said, who is famously homophobic. "Ban him for life."

Russia has been lambasted for its homophobic attitudes. The so-called "gay propaganda" law that was passed earlier this year is nominally designed to protect minors from what the authorities have in effect painted as a sexual perversion.

The law nearly makes explicit a link between homosexuality and paedophilia, which has long ago been proven to exist only in the minds of homophobes.

While Russia's anti-gay stance has caught most of the headlines, the problem of sexual discrimination is a big problem in the whole former Soviet bloc. Stuck behind the Iron Curtain during the 1950s and 1960s, the whole of Central and Eastern Europe is just starting to grapple with the civil rights issues that the West has more-orless put behind it.

Just this year the governments in both Moldova and Kyrgyzstan floated their own versions of Russia's anti-gay propaganda law; the authorities

in the Serbian city of Belgrade tried to ban a gay pride march; Georgia considered a ban on same-sex marriage; videos emerged of Ukrainian gays being viciously beaten with impunity by local homophobes; an Armenian court allowed a newspaper to publish a "gay blacklist" outing homosexual public figures; a young man in Azerbaijan killed himself after his parents found out he was gay; and Albania was dubbed "Europe's most homophobic country." I could go on. The list is very long.

What is behind this intolerance is not illiberalism per se, but simple ignorance and the fundamentally conservative nature of almost all eastern European societies. The Kremlin's new "anti-propaganda" vehicle, the newswire Sputnik, summed up the clash in cultures very neatly in a November 12 editorial entitled, "Five things that drive the West mad about Russia."

"Russia is a conservative country and is becoming more and more so with every passing day," wrote RT commentator Peter Lavelle. "Religious belief is on a comeback in Russia and in a very big way... The vast majority of Russians have become disenchanted with the West and its messages.

Bearded women, gay marriage and non-traditional notions of the family are ideas from afar and not realities most in Russia accept at home. This does not mean there is an absence of tolerance. Nontraditional lifestyles and alternative beliefs are accepted, but not promoted by the state. This is a popular and supported position."

Opinion November 14, 2014

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The conservatism of all CEE societies is in no way a justification for the intolerant attitude to minorities that most of these countries have adopted (not just to the LGBT communities), but it does present a nasty problem for the West of how best to address the issue.

The entire region remains conflicted to different degrees by the broad set of civil values we take for granted in the West, torn between the duty to adopt European values that comes with EU membership, and the extremely conservative values that are grounded in the Orthodox church.

However, change is afoot. The authorities in Belgrade were forced to back down by the EUaspirant government and the city held its first ever gay pride march in September. The same thing happened in Moldova, another wannabe EU member, which also held its first gay pride march in October.

Georgia is probably the best example. Probably the most Westernised country east of Tallinn, former prime minister Bidzina Ivanishvili told journalists that sexual minorities should have equal rights in May this year, though a gay pride march in Tbilisi the same day quickly became violent when antigay groups attacked the crowd. Home to more churches per square kilometre than any other city in the world, 12 people were taken to hospital, including three policemen and a journalist.

Clearly association with the EU is good news for the LBGT communities in the former Soviet bloc, but the progress remains a top-down process driven by pressure from Brussels. In the most recent example, on November 6 Latvian Foreign Minister Edgars Rinkevics came out on Twitter, the first sitting minister to openly admit he is gay, not only in the somewhat more liberal Baltics, but of any state in CEE. However, despite the Baltics' reputation for being the most "western" of the eastern European states, even Rinkevics was anticipating a storm of reaction.

Homophobia has been institutionalized in Russia and several other countries in the region. And the current break with Europe will only make things worse for Russian gays.

Boris Yeltsin reluctantly decriminalised homosexuality in 1993, but only because it was a prerequisite for joining the Council of Europe.

The government didn’t announce the fact at the time and the news only leaked out gradually as the police stopped arresting gays. Homosexual sex between consenting adults remains legal, but the terms of the recent gay propaganda law are so vague it is now in effect illegal in Russia to even talk to your children about LGBT issues.

”Our country must create a legal framework for all types of partnerships, I will fight for it, I know that there will immediately be megahysteria but #Proudtobegay," Rinkevics wrote on Twitter. As it turned out, instead of being demonised, Rinkevics received overwhelming support for his bold stand by the twitterarti following his declaration – RT's Lavelle is right in that the already though not, needless to say, by Russian politicians. conservative Russian society is becoming more conservative as Putin rallies the population to the Estonia leads the pack on putting sexual nationalist flag. A survey from the independent minorities on the same legal footing as everyone Levada Centre found earlier this year that 68% else. Its parliament approved same-sex of Russians support the gay propaganda law and partnership legislation on October 9 that will go only 7% were against it. A similar poll by the stateinto effect in 2016. But the fight is still uphill: all owned VTsIOM earlier this year found that 85% of Russians are against same sex marriage with the mainstream parties in Latvia and Lithuania only 5% for it. And both pollsters found the trend is immediately said they would never back such legislation in their countries. And these sorts of towards less, not more, tolerance. laws remain anathema anywhere to the east of the Baltics.

What's to be done? How can a deeply conservative

Opinion November 14, 2014

and traditional country like Russia make progress on this, one of the most divisive debates in society? And how can the West help?

We know how to fight bigotry in the West, as we have been doing it for 50 years: confrontation and blind condemnation is not the way forward.

In the November 2013 issue of the Atlantic magazine, Jonathon Rauch, a gay activist and contributing editor, took on homophobic author Orson Scott Card by condemning a call for a boycott of his newly released book-turned-movie Ender's Game.

"I have been advocating gay marriage and gay equality for more than 20 years… In a roundabout but important way, bigoted ideas and hateful speech play an essential part in advancing minority rights. Even if we have every right to boycott Ender’s Game, gays are better served by answering people like Card than by trying to squelch or punish them," Rauch wrote.

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"In hindsight, this may be the greatest compliment I have ever been paid. It is certainly among the most sincere," Rauch wrote. "Despite the caller’s best efforts to shut out what I was saying, the debate he was hearing — and the contrast between me and my adversary — was working on him. I doubt he changed his mind that day, but I could tell he was thinking, almost against his will."

Rauch would argue that rather than drive a wedge between Russia and the US over the gay issue by not showing up for the Olympics, the US should be sending planeloads of gay sportsmen, artists, engineers, bankers, cooks, politicians and scientists to Russia. It is only through proximity and familiarity that Russians can be convinced homosexuals are not a threat or even different from anyone else, other than what goes on in private in the bedroom.

But even so, it will take many years. Jason Jones of the US spoof news programme, The Daily Show, summed it up well during a report he filed US President Barack Obama snubbed Vladimir from Moscow earlier this year. Jones interviewed Putin's invitation to the Sochi Olympics over the Sergei Markov, an analyst close to the Kremlin, gay rights issue (among other things), but Rauch who was politely disdainful of gays, but Jones was argues that confrontation goes nowhere; you have expecting ordinary Russians vox-popped on the to engage your enemy. street to condemn the official intolerance, as was the case with a similar report he filed from Tehran In 2004 Rauch was on a radio talk show to a year earlier. They didn't. If anything, the regular promote a book on gay marriage debating a Russians were even more vehemently anti-gay prominent gay marriage opponent. After the show, than the authorities. "The attitude to gays in a listener called in complaining, "Your guest is Russia is just like ours in America – 50 years ago," the most dangerous man in America, because he Jones quipped. sounds so reasonable."

Weekly Lists November 14, 2014

bne:Investor British retailer New Look pulls out of Russia and Ukraine

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.

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British fashion retailer New Look said Tuesday that it would leave both Russia and Ukraine due to "political uncertainty," the Financial Times reported. "All retailers are having an extremely tough time in Russia, not just in clothing," the FT quoted CEO Anders Kristiansen as saying. The retailer had in August put plans for expansion in Russia on ice as the standoff over Ukraine spiralled into Western sanctions and a retaliatory ban by Russia on select food imports.

bne New Look’s move followed other foreign retailers, who decided to close down entire chains in Russia. In late September, Empik Media & Fashion said it would close its Esprit and OVS stores. In October, Finnish department store Stockmann announced plans to close 20 of its clothing stores in Russia.

Kashagan consortium awards $3bn pipeline replacement contract

The consortium developing Kazakhstan's giant offshore oil field Kashagan have selected German and Japanese companies for contracts worth $3bn to completely replace a 200km leaking pipeline network that forced production to a halt in October 2013.

bne German Butting and EBK combined will supply 131.4km of pipes; the remaining 69.9km will be sourced through Japanese JSW, sources familiar with the deal told bne. Deliveries will start in March 2015 and continue throughout the year until the end of December.

Weekly Lists November 14, 2014

bne:Deal Russia signs huge Iran nuclear power deal as prelude to political solution bne

Hungarian bidders reportedly eyeing Slovenske Elektrarne Carmen Simion

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.

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Russia has signed a deal with Iran to build two nuclear power plant units, in a possible prelude to a Russian-brokered solution to Iran's row with the West over its nuclear power programme.

The agreement was signed in Moscow between Sergei Kiriyenko of Russia's Rosatom and Ali Akbar Salehi of Iran's Atomic Energy Organization, the two countries' respective state nuclear power agencies. The memorandum envisages Russia building a further six power blocks, making Iran Russia's number one customer in nuclear power.

Russia has already built one nuclear power plant at Bushehr. The two new pressurized water reactors agreed, and possibly a further two, will also be built at the Bushehr site, with a further four to be built at different locations, according to the New York Times.

Two Hungarian companies are considering bidding for Enel’s 66% stake in Slovak electricity utility Slovenske Elektrarne (SE), according to local press. However, there is reportedly concern in the West that they could be operating as a front for Russian companies.

Alongside state-owned holding MVM is oil and gas group MOL, which is 24.6% state owned, according to Hungary's 444.hu news portal, which is a staunch critic of the government in Budapest, quoting "unnamed sources".

Weekly Lists November 14, 2014

bne:Banker Hungary's banks relieved by market rate conversions bne

Georgia’s TBC Bank hikes profit by a third, becomes No.1 in deposits Monica Ellena in Tbilisi

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.

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Hungary will force the conversion of forex bank loans at current exchange rates, the economy ministry announced on November 9.

The move appears to let lenders off the hook, and suggests that the government is feeling the pressure at home and abroad.

In an emailed statement, the economy ministry said Hungary's banks will be required to convert foreign currency loans at the Magyar Nemzeti Bank's November 7 exchange rate, or at the average rate since June 16 - the date that a constitutional court ruling finally opened the way for the government to force the conversion. That will put the conversion rate at around HUF309 to the euro and HUF256.5 for the Swiss franc.

The MNB announced it will provide ¤9bn to banks via tenders at spot prices to help them hedge "open" positions. The press release from the central bank also suggests the conversion process will last around three years until the liabilities of banks mature. That, again, will be welcomed by the banks, who had feared an instant conversion.

TBC Bank, Georgia's second largest, which this year listed in London, hiked net profits by a third to GEL45.6mn ($25.9mn) in the third quarter and consolidated its leadership in deposits. The lender reported a total operating income of GEL114.5mn ($65.2mn), up 20%. As of September 30 total assets increased by 25.6% y/y to GEL5.04bn ($2.8bn) primarily driven by the increase in retail loans and loans to small and medium sized enterprises (SMEs).

In June 2014 TBC floated on the London Stock Exchange, marking Georgia’s largest ever public initial offering (IPO) and a stepping stone in the lender’s 22-year long history.

Weekly Lists November 14, 2014

bne:Credit Russia's central bank says even $80 oil is not a problem bne

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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Russia's Central Bank (CBR) says even a price of $80 per barrel of oil is not a problem for the economy because the consequent depreciation of the currency buoys export revenues. Currently oil is trading at close to $85 but the CBR's main forecast for next year is a price of $95, falling to $92 by 2017. Its most pessimistic scenario is an $80 oil price, together with sanctions imposed by the European Union and US remaining in place for another.

Accounting for well over half of the government's tax revenues, falling oil prices hits the state in the pocket. However, as Alfa Bank showed in a note last week, lower oil prices also cause the ruble to depreciate, offsetting much of the pain as far as the budget is concerned. Oil prices have fallen by about 20% this year, but the value of the ruble has fallen by some 24% against its basket of currencies over the same period.

That means the government is one of the biggest winners from devaluation, because when it converts petrodollar revenue,s it gets significantly more (albeit less valuable) rubles.

Russia to appeal $50bn award to Yukos shareholders bne

The Kremlin is to appeal a decision ordering Russia to pay $50bn in damages to shareholders in former oil company Yukos, according to Tim Osborne, director of Group Menatep Limited, who represents the former shareholders. "I can confirm that the Russian authorities have served papers commencing an action to have the ECT Arbitration Awards set aside. The case will be before the District Court in The Hague," Osborne told RAPSI news agency.

In July, the Hague Permanent Court of Arbitration awarded a total of $49.8bn damages to three former shareholders in Yukos in connection with the bankrupting of Yukos in 2004-2005, as a result of which the Yukos assets were renationalised and acquired by state-owned Rosneft, now Russia's largest oil company. The Kremlin is arguing that the arbitration panel was not entitled to consider the case. Russia's Finance Ministry has previously said the decision involved “biased interpretation of the evidence” and “unacceptable reversal of complex decisions made by Russian courts,” according to RAPSI.

Weekly Lists November 14, 2014

bne:Stocks Russia's Sistema not to appeal losing Bashneft's back to state bne

Russian blue chips consider abandoning London for Hong Kong bne

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.

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The BoD of Russia's industrial holding AFK Sistema is not going to appeal the seizing of the 72% stake in Russia's fifth largest oil company Bashneft, Sistema's press service announced. The holding explained that it will bring an action to recover the losses from the counterparties (and their successors) that sold Bashneft to Sistema originally.

This could mean that Sistema is not going to effectively contend the decision of returning Bashneft back to the state, but will try to recover damage from losing one of its anchor assets. Sistema privatized Bashneft by consolidating the energy and fuel assets acquired from the Bashkiria federal republic for over $2.6bn.

With East-West relations at rock bottom, Russia's leading blue chip companies are toying with the idea of abandoning the London Stock Exchange as the long preferred venue for listing their shares, and moving to Hong Kong. In the last month, state-owned oil and gas giants Rosneft and Gazprom, together with privately owned oil producer Lukoil, have all said they are thinking about delisting from the LSE and floating on the Hong Kong Stock Exchange instead and denominating their stocks in Asian currencies, according to comments made by Russia's Economic Development Ministry on November 8.

The banks are also talking the same game: Russia's state-owned de facto development bank Vnesheconombank says it may launch an affiliate in Hong Kong next year, while retail banking behemoth Sberbank and leading commercial bank Promsvyazbank are also considering opening branches in Hong Kong, the ministry said citing its head Alexei Ulyukayev.