Bne newspaper november 7 2014 by Ben Aris

Content: 2 Top Stories 5 The Regions This Week 11 Eastern Europe 14 Eurasia 17 Central Europe 21 Southeast Europe 25 Opinion 28 Lists

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Ruble fall continues as Russia's central bank moves to free float bne Russia's central bank announced on November 5 that it would restrict interventions on the currency market to $350mn per day, in a move towards a ruble free float scheduled for January 2015. The ruble's devaluation continued following the decision, reaching RUB44.87 to the dollar, down from RUB43.83 at the opening of trading. The drop of 2.6% was one of the largest singleday drops of the last 10 years.

The central bank raised its main interest rate by 150 basis points on October 31 due to inflation fears, but this had little effect on the ruble's continued depreciation. The ruble has dropped in value against the dollar by around one-third since the start of the year. "In case the value of the dual-currency basket [of dollars and euros] stays on or outside the See page 2

Mongolian prime minister loses confidence vote Terrence Edwards in Ulaanbaatar Altankhuyag Norov, Mongolia’s prime minister, resigned on November 5, signalling the end of the so-called “Government of Change” that he formed in 2012 with a grand coalition.

in a no-confidence vote called by the opposition on November 5, 34 of 66 members of parliament voted in favour of ousting Altankhuyag, Mongolian television showed. Eight members of his own coalition government failed to vote.

Lawmakers had been preparing to vote on appointments for a government reshuffle that was The Democratic Party will now have to regroup largely motivated by the slowing economy. But See page 4

Top Stories November 7, 2014

about 49%, a civil servant familiar with this year's budget-making process told bne. Mongolia also only has until the end of the year before the next deadline to agree a $4bn financing package that would fund an expansion of the troubled Oyu Tolgoi mine. Most important to investors is Oyu Tolgoi, as its sheer size means its fate acts as bellweather for investment in the wider economy. Diversified miner Rio Tinto, which is an indirect 66% shareholder in the project with Mongolia, suspended construction when negotiations fell apart in the second half of 2013. Rio Tinto holds its share through its majority ownership of Torontolisted Turquoise Hill Resources, while Mongolia owns the remaining 34%. December 31 is the fourth deadline that Rio and Mongolia have laid down as the two sides

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try to resolve disagreements before the project financing with the banks will have to be extended for the fourth time. One item that the prime minister was directly responsible for was signing a memorandum of understanding to show the banks lending to the expansion project that all sides were ready to move forward as partners again. Other loose ends include a resolution to a disagreement of $30mn in taxes that Mongolia says is owed by the Oyu Tolgoi mining unit. Also, Oyu Tolgoi's board still must hand over a feasibility study for the project to the Mongolian Minerals Council, which could give the country's approval. Even with a fully functioning government, getting all this done before the end of the year would be a big ask.

The Regions This Week November 7, 2014

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Eurasia Kazakhstan's national oil and gas holding KazMunayGas is continuing to accept bids for its upcoming Eurobonds. The demand is reported to have exceeded $5.5bn. The nominal volume of the first and second issues amounts to no less than $500mn each. The expected maturity of the first issue is 10.7 years, due on May 7, 2025, and of the second issue is 30 years due on November 7, 2044, with expected yield at about 5.1% and 6.25% correspondingly. Azerbaijan's banks made a combined profit of AZM317.19mn ($248.9mn) in January-September, according to the Central Bank. A total of 38 banks posted a combined profit of AZM348.52mn ($273.3mn), while six banks incurred losses worth $31.33mn ($24.6mn). The Azerbaijani banks' total assets stood at AZM23.5bn ($18.4bn), and issued loans worth AZM16.3bn ($12.8bn) and opened deposits to the tune of AZM10.1bn ($7.9bn) as at October 1.

from MNT192,000 in 2013. The government has earmarked MNT320bn for the increase of salaries and MNT170bn for pensions and social benefits in 2015. Average nominal household income growth slowed down to 16.9% in 2013, reaching 46.3% in 2012. In the first quarter of 2014, the nominal household income growth further moderated to 6%, below the headline inflation rate over 12%. Chairman David Klinger and CEO Kay Priestly will "retire" following the prime minister's resignation, according to Turquoise Hill Resources, the Rio Tinto-controlled Mongolian subsidiary operating and developing copper/ gold mine Oyu Tolgoi. Long-serving Rio executive Jeff Tygesen will replace Priestley as CEO of the subsidiary, and Jill Gardiner will act as the new chairwoman. Rio Tinto, which owns 50.79% of Toronto-traded Turquoise Hill, which in turns owns 66% of Oyu Tolgoi.

The European Commission has opened an inEU countries had invested $95bn in Kazakhstan depth investigation into the sale of Greeceâ&#x20AC;&#x2122;s between 2005 and June 2014, while the US and National Gas System Operator to SOCAR, China had invested $19bn and $11.8bn respectively. Azerbaijanâ&#x20AC;&#x2122;s state oil company, to assess whether About 130 investment projects worth $21bn have the sale is in line with EU merger regulations. been carried out in the processing sector and about The EC is concerned "that the transaction may 70 projects worth $36bn are in the pipeline. FDI in reduce competition on the upstream wholesale the insurance and financial sectors fell by 22% and supply market for natural gas in Greece because 60% respectively in 2010-H1/2014 compared to 2005- it could allow the merged entity to hinder 2009, while FDI in the processing industry increased SOCAR's competitors in accessing the Greek gas by 153% in the given period. transmission network". Commercial banks operating in Georgia are no longer allowed to own companies offering non-bank products and services. Banks offering unrelated banking products, such as real estate or agriculture businesses, negatively influence the competition of the market economy, according to the country's central bank. Commercial banks will have to de-invest from non-core businesses by December 31, 2015. Mongolia's government will double the national minimum wage to MNT380,000 ($205) in 2015

The ongoing investigations into investments in Eurasian countries carried out by Scandinavian telecommunications giant TeliaSonera don't pose a significant financial risk for the group, Moody's believes. The company has been subject to increasing scrutiny by prosecutors in the Netherlands, Sweden, Switzerland and the US, since corruption claims related to Ucell, its subsidiary in Uzbekistan, emerged in 2007. Subsequent internal reviews raised doubts over the company's practices in other subsidiaries like Kcell in Kazakhstan.

The Regions This Week November 7, 2014

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Central Europe Hungary's increasing isolation from the West has not hurt Prime Minister Viktor Orban's approval ratings. Support for Hungary's ruling Fidesz party remains solid, polls in October showed, with support the same as the month before at 55%.

Lithuania has asked for European Space Agency funding for the first time. However, a Lithuanian moonwalk is not on the cards. The grants, up to a total of 造2m, will help finance business and science projects.

Less than half of Slovaks trust EU institutions, a Eurobarometer poll shows. Just 41% of those surveyed say they trust Brussels, the first time the country has come in below the bloc average (43%). Only 6% of Slovaks aged 16-24 showed an interest in May's European Parliament elections. The EU average was 28%.

Czech President Zeman hit the headlines due to an expletive-laden radio interview. Criticism has been rife after the rambunctious head of state laced comments on both domestic and international affairs with obscenities. However, Zeman has rejected the reaction out of hand.

The Czech government is pushing a long-term energy plan based on nuclear and coal, Jan Mladek, minister of industry and trade, said on Czech TV on November 2. The official said the cabinet does not support gas-fuelled power stations or large scale support of renewables. Latvia has banned another Russian film star from entering the country ahead of the popular New Wave pop contest. Riga said Mikhail Porechenkov is no longer welcome after the action movie star was shown on camera firing a machine gun in the wartorn breakaway Ukrainian territory of Donetsk. Citing "unattractive" market conditions, Polish coal miner JSW cancelled a planned eurobond issue on November 3. "We did not accept the terms the capital market now offers," JSW CEO Zagorowski said. "The perception of the mining segment is not the best, and in Europe a lot of investors were disappointed by NWR." The company pledged it will not look to a share issue instead, but its stock still dropped heavily.

The supreme court has handed Hungary's homeless a break. Budapest will likely be forced to lift parts of its controversial laws on rough sleeping, which were passed last year, after the Kuria said it has overstepped its bounds. Slovakia's only female minister was sacked over corruption this week. Health Minister Zuzana Zvolenska got the boot due to an overpriced purchase by a provincial hospital. Parliament deputy chairwoman Renata Zmajkovivova who was on Piestany hospital board also got the chop. However, powerful speaker Pavol Paska, who formerly worked for the company that sold the equipment, threatened legal action against anyone questioning his role. Latvian Foreign Minister Edgars Rinkevics came out as gay via Twitter on November 6. The first openly gay Latvian politician, he received support from others in the Baltics, but was trolled by Russian deputy PM Dmitry Rogozin.

The USSR's non-aggression pact with Nazi Germany was not "bad" Russian President Hungary's place is firmly in the EU, former Putin said this week. The claim will rattle CEE deputy PM and new European commissioner Tibor countries on tenterhooks over what they see Navracsics insisted this week. The Brussels official's as Moscow's expansionist strategy. The 1939 initial candidacy was rejected in October as part Molotov-Ribbentrop Pact saw the two powers of Budapest's growing spat with the West, which agree to carve up Finland, Estonia, Lithuania, has seen Hungarian officials blasting the EU and Latvia, Romania and Poland into spheres of threatening the country could even leave the bloc. influence.

The Regions This Week November 7, 2014

Southeast Europe Belarus has introduced a temporary ban on meat imports from Moldova and Montenegro. The ban follows a warning from Russia that it may block imports of Belarusian processed meat products if it continues to import from the two countries. Conditions improved in Turkey’s manufacturing sector for the third month in a row in October, according to Markit. Output and new orders increased at stronger rates than in September, while new export business stabilised. The Turkish government plans to re-launch the privatisations of several highways and two bridges across the Bosphorus Strait in the first quarter of 2015. This follows Finance Minister Mehmet Simsek’s announcement of the government’s new privatisation agenda in October. Money transfers from abroad to Moldovan individuals increased by 8.6% year-on-year to $7.47mn in the third quarter of 2014, according to the Moldovan central bank. In terms of the ratio of remittances to GDP, Moldova is the fifth most remittance dependent country out of 165 countries assessed by the World Bank. ThyssenKrupp is interested in expanding its business in Serbia, where it already operates two plants, through partnership agreements with local companies. The German industrial group may also take part in Belgrade on Water, a major project to transform the image of the Serbian capital. The Croatian economy will contract by 0.6% in 2014 and grow by 0.2% in 2015, the Zagreb Institute of Economics (EIZ) said in its latest quarterly economic outlook, downgrading its previous forecasts due to the slower than expected recovery in the euro zone and negative signals on the domestic scene. Moody’s said on November 4 that Turkey’s sovereign credit profile is being challenged by a growth environment weaker than in 2010-2013 while the country’s exposure to volatility in foreign capital

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inflows has been compounded by the recent rise in geopolitical risks, and continued domestic policy uncertainties. Previously, Moody’s reports on the Turkish economy have angered President Reycip Tayyip Erdogan and other top politicians. Turkish automotive sales rose 14.75% year-on-year in October, marking the first year-on-year increase recorded since the beginning of the year. Total automotive sales amounted to 66,573 units in October, according to the Automotive Distributors' Association. Bulgaria's consumer confidence indicator weakened in October, likely reflecting disappointment with the results of the October 5 general elections, a statistics office survey showed. Household spending is unlikely to increase significantly in the near to medium term. Serbia's potential new arrangement with the International Monetary Fund (IMF) is expected to set out plans for 12 key state-owned companies, finance minister Dusan Vujovic told TV broadcaster RTS. The new programme will define the steps the 12 companies shall undertake, including reducing wages - the first time that such conditions have been included in an agreement between Serbia and the IMF. French construction company Vinci is understood to be interested in Belgrade's Nikola Tesla airport. The Serbian government is currently considering whether to put the airport operator up for privatisation or opt for a concession agreement. Tofas, the carmaker owned by Fiat and Turkey’s Koc Holding, said on November 6 that it will invest $520mn at its Bursa plant in northwest Turkey to produce new hatchback and station wagon model vehicles. Most of the vehicles will be for export. Slovenian Sovereign Holding (SDH), which manages state capital investments, said it has received preliminary bids from a number of strategic and financial investors interested in buying 51.55% of Zito, one of Slovenia’s top food producers. The names of the bidders have not been disclosed but are believed to include Croatian companies Franck and Podravka.

The Regions This Week November 7, 2014

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Eastern Europe Putin was named the world's most powerful man by US magazine Forbes in its annual poll of powerful people. He beat US president Barak Obama, which the magazine called the "handcuffed head of the most dominant country in the world”. Also in the top five were Chinese President Xi Jinping, Pope Francis and German Chancellor Angela Merkel. Russia has introduced a draft law that would ban the sale of alcohol and cigarettes from the shelves next to cash registers in supermarkets. The number of Russians traveling to European countries has seen the biggest drop ever, while fall in the number of visits to popular mass market destination like Turkey, Thailand and Egypt has been least affected. Outbound Russian tourism has been badly hurt by the fall in the value of the ruble this year, down by 24% year to date. Alexei Poroshenko, a son of Ukraine’s President Pyotr Poroshenko, was voted into the Ukraine’s parliament, the Verkhovna Rada in the October 26 parliamentary elections in in the city of Vinnitsa, west-central Ukraine. He got 64.04% voters. His father and the current president ran in the same city in the 2012 parliamentary elections and won 71.5% of the votes.

Ukraine's GDP will drop by 7%, over the first nine months of 2014 and has already dropped by 3.5%, the head of the National Bank of Ukraine Valeriya Gontareva said on Monday. The NBU has been predicting a total contraction of 9% for this year. Russians got a day off work this week on November 3 to celebrate National Unity day – the trouble is one in two Russians were not certain exactly what it is they are supposed to be celebrating. The holiday replaces Revolutionary Day on November 7 that celebrated the start of the October Revolution in 1917 (which actually happened in November, as Russia still uses the orthodox calendar). The contraction of in Russia's service sector in October was the greatest pace since May this year, according to the HSBC Purchasing Managers Index (PMI). Services account for some 60% of Russia's GDP. Russia's capital Moscow has ranked 9th most dangerous transport systems for women in the world from a list of 16 — the only city in Europe to feature inside the top 10 in a survey from carried out by the Thomson Reuters Foundation and YouGov. FIFA apologized for including a map of Russia that clearly showed Crimea as part of Russian territory in a promotional clip for the 2018 World Cup which will be hosted by Russia. The map caused outrage in Ukraine and objections in the West which refuses to accept the peninsula's annexation.

Ukrainian gas company Naftogaz transferred the first $1.45bn of a total $3.1bn it has agreed to pay to Russia's Gazprom bring an end to fears of a new gas war and a cold winter in Europe. The remainder from a total $6bn Gazprom says it is owed will regulated by Putin's popularity dipped a bit in October but the Arbitration Institute of the Stockholm Chamber remains amongst the highest of any leader in the of Commerce, Naftogaz said. The EU and IMF have world: his rating fell to 62.5% in October, down form agreed to help finance the payments. over 70% for August and September, but still off from his all time high of 87.4% set on April 12, 2008. The self-proclaimed Prime Ministers Alexander Zakharchenko and Igor Plotnitsky won the Russian state-run news agency Rossiya Segodnya controversial Donetsk People's Republic election lauched a news channel RT UK last week to take the and the Luhansk People's Republic at the weekend. Only Russia will recognise the controversial elections, Kremlin's view of the world to the west and intends to follow up with dozens of different languages which Kyiv says contradict the Minsk peace stations. agreement.

bne Chart November 7, 2014

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IMF programs massive expansion post 2008 The IMF has played a crucial role in supporting countries following the collapse of the Soviet Union. In the boom years running up to 2008 it started to seem irrelevant as many of its client countries were able to increasingly stand on their own feet. However, the 2008 crisis changed all that: since then the IMF is back with a vengeance and as the chart shows is probably even more relevant today than it was 20 years ago. The first program was for Poland in February 1990, only months after the Berlin Wall fell, in support of the “Balcerowicz Plan” for radical, front-loaded reform. This was quickly followed by programmes for Hungary and Yugoslavia that same year, with programs for Bulgaria, Czechoslovakia and Romania coming in 1991. With the slew of new countries joining in 1992 after the dissolution of the Soviet Union, the IMF faced a problem: most of the new states

lacked the institutional capacity to meet the Fund’s normal lending standards. The Systemic Transformation Facility (STF) was set up in 1993 to provide support to countries as they built up sufficient capacity and policy credibility to move to a full-fledged IMF program. More than half the transition countries used the STF in 1993–94. Financing under the STF was strictly limited, reflecting the risks involved and limited repayment capacity. Indeed the early transition programmes were generally not very large, at least in comparison with what came later in the Asian, global and eurozone capital account crises. But many of them contended with output losses of unprecedented scale. The volume of transition programs remained high through the 1990s. But in the 2000s, the benign global environment and ready availability of market financing meant very

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IMF programs massive expansion post 2008 (cont.) few countries were turning to the IMF for financing. This changed dramatically with the onset of the global financial crisis in 2008â&#x20AC;&#x201C;09, which saw eight countries in the region returning to the IMF for support. The scale of the turnaround in private capital flows resulted in extremely high financing

needs and very deep recessions in some casesâ&#x20AC;&#x201D;although the programs helped avoid even worse contractions of demand. This period also saw the introduction of new precautionary credit lines from the IMF for countries with sound policies but facing heightened risks, which were used in different forms by Poland and FYR Macedonia.

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Eastern Europe November 7, 2014

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Ukraine says Russia has launched 'Operation Domino' in east

bne Russia has launched 'Operation Domino' against Ukraine, says Ukraine's security service, SBU. Kyiv says the Kremlin is flooding Ukraine's Donbass with guerilla fighters and their military trainers, intending to use the rebel-held region as a bridgehead for further expansion across Ukrainian territory. According to SBU spokesperson Mariyan Lubkivsky, speaking on a television news program on November 6, Russia has started a huge training programme for guerilla fighters across the Donbass region of East Ukraine, held by Russian-backed insurgents, with the intention of expanding rebel-held territory. "SBU counter-intelligence has established that fighters with the help of their Russian handlers have moved their training grounds from Rostov [the Russian region that borders Ukraine's Donbass] in order to train fighters directly on the territory of Donetsk and Luhansk regions in Ukraine: this is operation 'Domino' and is financed directly by the Russian federal budget," Lubkivsky said.

presence of Russian fighters in Donbass," he said. He also said that what Russia has claimed to be 'humanitarian convoys' bringing food and water to Donbass, in fact contain equipment for training the fighters. Lubkivsky said that there were already as many as 25,000 rebel fighters on the territory of Donbass, preparing to enact the 'domino' scenario, whereby successive regions fall to the rebels, as Ukraine weakens. Previously, the Financial Times had reported interviewing a number of Russian military in rebel-held Lugansk, who said they had come to train the rebels. Ukraine's defence minister Stepan Poltorak told former Nato supreme commader in Europe Wesley Clark that "our Eastern neighbor is actively supporting the terrorists [Russianbacked rebels] and supplies then with arms, artilleries and tanks to them, and does everything to futher destabilise the situation in Ukraine," as quoted by newswires on November 6. Poltorak also acknowledged that Ukrainians in the eastern region also actively participated in the insurgency.

Lubkivsky said that Russia had deployed thousands of top-class specialists to train guerrilla fighters, who comprise both locals and Independent Ukrainian defence analyst Dmitro irregulars recruited from Russia. "This is one Tymchuk, of the Centre of Military-Political more indication of the evident but undeclared Research, also reports that Russian forces

Eastern Europe November 7, 2014

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are building up towards an attack. "During the last few days we can observe the completion of formation of tactical attack groups by the enemy, and now they are ready for offensive action. Simultaneously Russia is moving troops up to the Ukrainian border."

terms of the Minsk peace accords signed on September 5.

Fighting between Kremlin-backed insurgents, regular Russian army units, and Ukrainian regular and irregular forces was ended by a ceasefire agreement signed in Minsk on According to Tymchuk, the Russian-backed September 5 by representatives of Russia, insurgents are clearly planning further action, Ukraine, the Donbass rebels and the but a direct Russian incursion is at the moment Organisation for Security and Cooperation in unlikely, with the Russian forces intended as a Europe. back-up. "Only a show of [Ukrainian] force can thwart the aggressor's plans," Tymchuk wrote But the Donbass rebels' decision to stage their on Facebook. own unrecognised elections on November 2 is claimed by the West and Kyiv to have breached Rebels leaders for their part accused the commitments made under the Minsk peace Ukrainian forces of stepping up aggressive agreement, leading Kyiv to declare it will activity, but in a statement released by the revoke a law according special status to the press centre of Ukraine's so-called "Antirebel-held territories that was also part of the terrorist centre" Ukraine's commanders peace agreement, and potentially restarting said that they were still closely following the hostilities.

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Eastern Europe: Russia, Belarus, Ukraine, Central Europe: Estonia, Latvia, Lithuania, Poland, Czech, Slovakia, Hungary, Southeast Europe: Slovenia, Croatia, Serbia, Romania, Bulgaria, Turkey, Moldova, Albania, Bosnia, Macedonia, Montenegro, Kosovo, Eurasia: Kazakhstan, Georgia, Armenia, Uzbekistan, Kyrgyzstan, Turkmenistan, Tajikistan, Azerbaijan, Mongolia.

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Eastern Europe November 7, 2014

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Timchenko targeted by US money laundering probe

bne US federal prosecutors are investigating Russian oligarch Gennady Timchenko, according to the Wall Street Journal, on the suspicion that funds from allegedly corrupt deals in Russia involving Timchenko were routed through the US financial system.

Photo: job-sbu.org

Timchenko sold his stake in Guvnor to co-owner Torbjörn Törnqvist earlier in 2014 after being placed under sanctions by the US in connection with Russia's incursion into Crimea. Gunvor told WSJ it had received no notification of any investigation, and pointed out that it had not bought any crude oil from Rosneft for over two years.

According to the WSJ, the US Attorney’s Office for the Eastern District of New York, with the assistance of the US Justice Department, is investigating Timchenko, an oil trader who is WSJ sources said that the investigation is part also a longstanding associate of Russian president of a wider push by US prosecutors against the Vladimir Putin. laundering of proceeds of foreign corruption under the Kleptocracy Asset Recovery Initiative, Timchenko has risen from being head of a major announced in 2010, which initially targeted Russian oil refinery at the end of the 1980s allegedly corrupt officials from Africa and the to being one of Russia's richest men, with a Middle East. In April, US Attorney General Eric business empire ranging from oil trading to Holder announced he had created a specialised infrastructure construction. team of FBI agents to investigate kleptocracy. US officials have previously said that Putin may have investments in Timchenko's oil trading company Gunvor, apparently referring to investigations by the Russian press. The Timchenko investigation is also probing whether any of Putin’s personal wealth is involved. Prosecutors have requested information about the prices at which Gunvor purchased oil from Russian state-owned oil company Rosneft, selling it on to third parties, WSJ sources said.

Politically-connected Ukrainian gas trading oligarch Dmitro Firtash was arrested in March in Vienna at the request of the FBI, in connection with alleged bribery in India. He is currently contesting the US extradition request. It is not known whether this was part of the Kleptocracy Asset Recovery Initiative.

Eurasia November 7, 2014

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Georgia's Free Democrats leave ruling coalition as political crisis deepens bne Georgia’s Free Democrats party have left the ruling coalition Georgian Dream, its leader Irakli Alasania announced on November 5. The decision came at the end of a tense day following Alasania’s dismissal as defence minister on November 4 by Prime Minister Irakli Gharabishvili.

by pipelines that carry Caspian oil and gas from Azerbaijan to Europe. In June 2014, Georgia signed an Association Agreement and a Deep and Comprehensive Free Trade Agreement with the European Union.

The Free Democrats hold 10 of the coalition’s 83 seats in the 150-seat assembly. Analysts think that “We have left the coalition,” Alasania declared after his party met other leaders of the coalition to at least two MPs are likely to stay in the coalition, leaving it with exactly half of the seats. The discuss the crisis. coalition will now need the backing of independent deputies for a majority but a confidence vote must The minister’s sacking’s came a few hours after Alasania, one of the cabinet most-Western minded be called only if seven or more of the 20 cabinet members are replaced. and most popular ministers, issued a statement branding the recent arrests of General Staff The PM has already appointed little-known Mindia officials and charges of army medical officers as Janelidze as the new defence minister but has yet “obviously politically motivated”. to name a new foreign minister and state minister. These three changes in the government do not He added that the measures represented “an require parliament’s approval. attack on Georgia’s Euro-Atlantic choice”. The prime minister slammed the statement as “completely irresponsible” and sacked Alasania. The move was followed by a series of resignations in protest. Alexy Petriashvili, a member of the Free Democrats, left his post as state minister for European and Euro-Atlantic integration; Maya Panjakidze (who happens to be Alasania’s sister-in-law) resigned as foreign minister, and Davit Zalkaliani quit as first deputy foreign minister. However, Justice Minister Tea Tsulukiani, Alasania’s party ally, decided to stay in office. The defection of the Free Democrats increases political instability in the country of 4.5mn crossed

Foreign officials have expressed concern over the current crisis. The US ambassador to Georgia, Richard Norland, said on November 5 that there were “legitimate” concerns that the judicial system was being used in “a politicised way”. On October 28, the public prosecutor’s office announced the arrest of one former and four serving officials in the Ministry of Defence on charges of misspending over GEL4mn ($2.3mn) in a suspected sham tender to lay fibre optic cables last year.

Eurasia November 7, 2014

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Caucasus and Central Asia suffer from Russian slowdown

Naubet Bisenov in Almaty Economic activity in Caucasus and Central Asia (CCA) countries is dwindling largely because of sluggish domestic demand and the slowdown and rising regional tensions affecting Russia, which is the region's key trade partner and source of remittances, according to the IMF. Because of overdependence on Russia, the region's non-oil producers will be hurt most, it believes. In its Regional Economic Outlook Update for the Middle East and Central Asia published in October the IMF said that weakening domestic demand and spillovers from the slowdown in Russia would bring economic growth in the region down to 5.5% in 2014 and 2015, 0.75 percentage points lower than projections made in May.

buffers and diversified export markets" but their combined economic growth will still soften to 5.6% in 2014-15 from 6.8% in 2013. "The reduction in oil exporters' growth mainly reflects further delays in the production of the Kashagan oil field in Kazakhstan and weaker domestic demand growth in Azerbaijan," the IMF concludes. Non-oil growth in oil-exporting countries will decline by about a percentage point to 7.5% in 2014-15 on the back of slower consumer lending, as a result of macroprudential measures, investor caution because of the devaluation of the tenge and other regional currencies, and increased geopolitical risks surrounding Ukraine-Russia crisis, it added.

"Russia's growth is very close to zero for this year and next year and obviously, Russia's growth rate matters a lot to this region as does China's," Juha Kähkönen, deputy director of the IMF's Middle East and Central Asia Department, said presenting the report in Almaty on November 4. China's economy is still growing fast at more than 7% but it is slowing down, Kähkönen noted.

Kähkönen said that the growth projections presented in the outlook update were made in the summer and didn't take account of the falling oil price, noting that forecasts were made on the premise that the average oil price would be $103 per barrel this year and $99 next year. He also explained that the outlook update did not anticipate a tightening of Western sanctions against Russia over its support to rebels in eastern Ukraine.

However, the outlook suggests that the region's oil and gas exporters - Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan - will be able to reduce the negative effects of Russia's slowdown thanks to "high oil prices, large policy

The region's oil importers' - Armenia, Georgia, Kyrgyzstan and Tajikistan - larger dependence on remittances from and trade with Russia, coupled with limited initial policy space, will cut growth from 5.6% in 2013 to 4.6% in 2014,

Eurasia November 7, 2014

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despite the expected recovery in Georgia, the IMF said. "Growth is expected to pick up steadily in 2015 and beyond, supported by gradual fiscal consolidation and a reduction of external vulnerabilities," the report explains. "Armenia's favourable new five-year gas supply agreement with Russia and Gazprom, and large infrastructure projects in the Kyrgyz Republic, will also contribute to the recovery in the medium term." Geopolitical risks surrounding the RussiaUkraine conflict may lead to a deeper and a more protracted Russian slowdown which will

in turn impact on CCA economies through remittances (Armenia, Kyrgyzstan and Tajikistan), trade (Kazakhstan, Kyrgyzstan and Turkmenistan) and direct investment (Armenia, Kyrgyzstan and Tajikistan) channels. A 1 percentage point decrease in Russia's GDP would cut CCA non-hydrocarbon exports by an estimated 0.75% and remittances by about 1.5%. "If the Russian ruble were to depreciate relative to that of a CCA country, the purchasing power of remittances could decrease further," the IMF warned. "This channel is especially important in the CCA oil importers, where remittances comprise a sizable share of national income."

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Eurasia Europe Central November 7, 2014

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Latvia gets a new old government

Mike Collier in Riga Latvia got a new government on November 5, following a month of inter-party wheeling and dealing after parliamentary elections on October 4. The net result of all the wrangling is that very little has changed – except a reduction in the government's chances of holding together in the long term. Following a farcical first sitting of the new parliament on November 4, incumbent Prime Minister Laimdota Straujuma's proposed cabinet and action plan for the next four years was passed by 61 votes to 39 after a lengthy debate. Straujuma originally came to power in January 2014 after her predecessor Valdis Dombrovskis – now a Vice President of the European Commission - stepped down. She now heads a coalition commanding a solid 61-seats in the 100-seat unicameral chamber.

and Farmers' Union (ZZS) and the rightwing nationalist National Alliance. Despite winning more seats in the election than any other party in elections, the proRussian social democrat Harmony party will be condemned to opposition along with two newcomers – the Regional Alliance and Latvia From The Heart, with representatives of all three opposition parties criticising the government declaration as vaguely worded and lacking in costings and timings. While many of the ministers in Straujuma's cabinet remain unchanged – including Foreign Minister Edgars Rinkevics – there are a handful of new arrivals, the most notable of which is Janis Reirs, who replaces Andris Vilks in the crucial position of finance minister.

Vilks' loss is just the latest in a series of appalling gaffes by the Unity political party that is the core of the coalition. For a start, many Straujuma vowed in her address to parliament of its more capable ministers have either quit to concentrate on three main areas: national security, family welfare and economic growth. “I or gone to Brussels, including Dombrovskis and former defence and foreign minister Artis don't mean pedal to the metal growth, I mean Pabriks. smart growth,” she told MPs. On security she stressed the need for Latvia to break its energy dependence on Russia, without mentioning it by name. "Security is also energy independence... these years are the time to increase our energy security," she said. Straujuma's coalition comprises her own centre-right Unity party, the populist Greens

Straujuma was only ever intended as temporary premier and ran a dreadful election campaign in which she took major flak over the perceived rush to complete the sale of state-owned Citadele bank to US investors Ripplewood Holdings (an announcement that the deal was signed was made within minutes of her confirmation).

Eurasia Europe Central November 7, 2014

Even her ability to speak coherently has disintegrated and her performance in parliament on Wednesday, outlining her government's legislative proposals, was as if she was reading it for the first time.

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it no-one wants to follow you (Dombrovskis) or because the job is a one way ticket to failure.

With the EC reining back Latvia's growth forecast for next year on November 4 from 4.2% to 2.9% and citing the impact of the Ukraine When outgoing European Commissioner Andris crisis as a major contributory factor, with Piebalgs announced he was joining Unity, many African Swine Fever on the verge of destroying the pork industry, with Russian sanctions assumed he would lead the new government. squeezing the dairy industry, and with Russian He quickly scotched that idea, leaving planes and boats stalking the borders on a daily Straujuma in a field of one. There's usually a very good reason when no-one else wants your basis, there is a clear feeling things will get worse before they get better. job â&#x20AC;&#x201C; it's either because you are so brilliant at

Central Europe November 7, 2014

EU demands Hungary clarify stance on South Stream

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Photo: gazprom.com

bne The European Commission on November 4 demanded that Hungary clarify newly-passed legislation that opens the way for it to sidestep EU oversight and push on with building the Russian-led South Stream gas pipeline. The Hungarian parliament approved an amendment on November 3 that allows any company to build pipelines. Currently, only certified transmission system operators (TSO) can construct international routes. However, such companies are subject to international approvals because of the need to harmonise development plans. While the Russian pipeline is not named in the new legislation, Hungarian officials leave little room for doubt. "South Stream is going to be built, however, it would be important to enable as many firms as possible to compete for construction of its Hungarian segment," Antal Rogan, head of the Fidesz parliamentary group told Reuters on October 22. "That is because more companies are able to build pipelines than those that can operate pipelines."

and US, which have recently signalled their anger over Hungary's stance on the Ukraine crisis. After Prime Minister Viktor Orban met Gazprom CEO Alexei Miller on September 22, Hungary promptly halted reverse gas supplies to Ukraine, which is struggling to agree a deal with the Russian state giant following a cut-off in June. Meanwhile, Gazprom agreed to raise supplies to Hungarian storage facilities. Meanwhile, the EU will worry that Budapest's efforts to circumvent its juristriction on South Stream could open the floodgates. It has recently fought hard to block work on the pipeline in Bulgaria, and even non-member Serbia. European Commission spokesperson Ana-Kaisa Itkonen said that the EU executive is aware that the latest move in Hungary could open the way for it to continue with South Stream. Brussels is in contact with Budapest in order to seek further clarifications, she added. Itkonen admitted separate authorization procedures for the building and operation of pipelines would not break EU rules. However, she also issued a thinly-veiled warning that Brussels is ready to continue to leverage its infamous web of bureaucracy and regulation in its fight against the Russian project.

The standoff between the West and Russia has provoked the EU to accelerate efforts to diversify away from Russian energy dependence. Brussels has ordered all work halted on South Stream, which is planned to bypass Ukraine's transit network to carry 63bn cubic metres of gas under the Black Sea and on "In any event, it is crucial that in granting a licence to an undertaking to build a pipeline to an Austrian hub. which normally takes place after commitments have been made to book capacity therein - the The Hungarian move therefore appears strict provisions of the directive for operating purposefully designed to provoke the EU

Central Europe November 7, 2014

a pipeline (becoming a Transmission System Operator) are not prejudiced, as well any public procurement rules", the spokeswoman stated, according toEuractiv. The EU has used the bloc's Third Energy Package regulations, nominally aimed at ensuring liberalisation of the market, as its main weapon to push back South Stream. It demands that all contracts between Russian

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state-controlled Gazprom and host countries be redrawn in line with the regulations, which would take at least two years. Andras Deak at the Hungarian Academy of Sciences suggested to Bloomberg that Hungary's Prime Minister Viktor Orban continues "testing the EU limits with Russian backing". However, he added that "the EU stopped Bulgaria, and it's going to stop us as well".

Layout of South Stream’s Serbian section and existing gas pipelines in Serbia. www.gazprom.com

Southeast Europe November 7, 2014

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Borisov wins confidence vote to return as Bulgarian premier

bne Bulgarian MPs have backed a new coalition government led by former Prime Minister Boiko Borisov’s GERB (Citizens for European Development of Bulgaria) by 149 votes to 85.

Other key appointments include Daniel Mitov, foreign minister in the current caretaker government, who will retain his position.

Addressing the parliament before the vote, A month after Bulgaria’s parliamentary elections, Borisov told MPs that he would lead a “proEuropean, reformist government". Borisov on November 6 struck a coalition deal with fellow rightwing group the Reformist Bloc. The government also has the backing of the Borisov’s speech highlighted the country’s left-wing Alternative for Bulgarian Revival (ABV), economic problems and lack of reform. "Our which will get one ministerial post, and the government is a reformist one because a number nationalist Patriotic Front (PF). of sectors are outdated and taxpayers' money have been unduly spent," he said, according to website Novinite. Together, GERB and the Reformists have 107 of the 240 seats in the parliament, and the ABV adds 11, meaning support from the PF's 19 MPs On November 4, the European Commission cut are needed to get a parliamentary majority. its 2014 growth forecast for Bulgaria from 1.7% to 1.2%. So far in 2014, investment has been The new cabinet will comprise of 18 ministers, 10 driven mainly by public expenditures, which is from GERB, 7 from the Reformists and one from expected to significantly decrease in the coming years, the EC said. Meanwhile, private investment ABV. is seen contracting in 2014-2015. In addition to Borisov’s return as prime minister, GERB has two deputy prime ministers in the new The new government faces numerous challenges, not least reviving the economy and government - Tomislav Donchev will become Deputy Prime Minister for absorption of EU funds restoring investor confidence. “This coalition will be centre-right/reform, which is important and economic policy, and Rumyana Bachvarova given the significant challenges facing Bulgaria as Deputy Prime Minister responsible for in terms of addressing problems in the banks, coalition policy and state administration. recent weakness in public finances, weak growth Meanwhile, the Reformists’ Meglena Kuneva will and deeper seated structural problems,” Tim Ash of Standard Bank wrote in an analyst note become Deputy Prime Minister in charge of EU on November 4 when the shape of the new policies and institutional matters, and the party will also get the defence and education portfolios. government started to emerge.

Southeast Europe November 7, 2014

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Borisov’s previous four-year term as prime minister came to an end in February 2013 following mass protests over high energy costs, corruption and low living standards in Bulgaria. However, the subsequent government, a shaky coalition comprising the the former communist BSP and the mainly ethnic Turkish MRF, survived for barely a year and was dragged down by a series of corruption scandals. As a result, the October 5 elections were Bulgaria’s second snap elections in under two

years, raising hopes a fresh poll would pave the way for a more stable new government. However, with many voters turning to small and fringe parties to demonstrate their disillusionment with mainstream politicians, the elections produced a fragmented parliament divided among eight parties, with none holding a majority. The formation of a new coalition under Borisov has, however, allayed fears that yet another round of snap polls might be called if MPs failed to reach a coalition deal.

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Southeast Europe November 7, 2014

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Turkey's Yildiz takes the Biscuit

David O'Byrne in Istanbul Turkey's leading confectionary and biscuit maker Yildiz Holding has made another big international foray by agreeing to buy UK-based biscuit and snack maker United Biscuits. The family behind Yildiz have strong ties to Turkey's leading Islamist politicians and the president's Justice and Development Party (AKP), but their company has an international flavour to it. The deal, which if completed would make Yildiz the world's third biggest biscuit manufacturer, was realised through a competitive bidding process with US-based Kellogg and Canadian pension fund, Ontario Teachers. Yildiz has not confirmed the sale price, although media reports have suggested that the sellers, US private equity consortium Blackstone Group and PAI Partners, had been in talks over a price of around $3bn. In a statement confirming the purchase, Yildiz said that the acquisition is in line with its strategy of international diversification, and complements its existing confectionary and food manufacturing businesses. Yildiz's main Turkish manufacturing arm, the 70-year-old Ulker Biskuvi Sanayi group, is Turkey's biggest biscuit and snack manufacturer, and already distributes its products to 85 countries, giving it a strong presence in North America, China, Japan and the Middle East & North Africa region, and has manufacturing operations in six countries including Saudi Arabia and Egypt. In recent years Yildiz has expanded

from biscuits and chocolate into beverages, margarine and dairy products, as well as frozen and other convenience foods. According to Yildiz, its operations complement well United Biscuits' strong presence in Europe and the UK. "We want to grow United Biscuits to be a global player as part of Yildiz,” said chairman Murat Ulker. “This will include enhancing its position in the UK, where Yildiz currently has minimal presence." United Biscuits is not Yildiz group's first major foreign purchase. In early 2008 the group bought upmarket Belgian chocolate manufacturer Godiva for $850mn, since when it has succeeded in growing the brand in both Europe and the US, raising revenues from $49mn in 2008 to an anticipated $769mn this year and with plans to exceed $1bn in 2016. That purchase raised eyebrows, not just because it is a rare example of a Turkish company buying a global consumer brand and making a success of it, but also because of Yildiz's long-standing reputation as a conservative Turkish company with strong Islamic values – not a prime candidate to buy a manufacturer of luxury liqueur chocolates. Yildiz's purchase of Turkish supermarket chain Sok in 2013 was swiftly followed by the disappearance of alcohol from the chain's shelves, for example. Similarly, Yildiz still holds an 11% stake in Islamic finance house Turkiye Finans, and both the Ulker

Southeast Europe November 7, 2014

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family and its companies have long and close Despite this, in an interview in October 2013 relations with Turkey's leading Islamist politicians. Murat Ulker denied that his companies were "conservative" in their operations, pointing to its success with the Godiva brand. And Yildiz's Yildiz chairman Murat UlkerÂ himself was in internet site makes great play of the company's the same class at the prestigious Istanbul commitments to the values of Turkey's secular boys' school, Istanbul Erkek Lisesi, as current republic, with its social activities including Turkish prime minister Ahmet Davutoglu, while sponsorship of sports and arts projects for the family of current Turkish president, former children, and continuing support for turkey's main prime Minister Tayyip Erdogan, have long been environmental charity TEMA, which it helped shareholders in businesses distributing Ulker found. products. Such contacts did not go down well with Turkey's former secular elite, with the Turkish military for many years being widely reported to have boycotted products produced by Ulker and other Yildiz subsidiaries.

On the corporate side too, Yildiz differs from many traditional family run Turkish companies.Â Although headed by family head Murat Ulker, the company's five-man board also includes several executives with foreign experience.

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Opinion November 7, 2014

Is Washington about to lose Prague, as it did in 1948?

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COMMENT:

The matter was fudged, with the State Department finally offering Prague a watereddown package of aid, the effect of which was to weaken their democratic friends in the Klement Gottwald government and to embolden the Communists.

James de Candole of Candole Partners

The fatal blow came in August 1946 at a gathering of US, Soviet and European foreign ministers in Paris to discuss US aid for European reconstruction. The Soviet deputy foreign minister denounced it as an attempt to "bring about the economic enslavement of Europe."

There are many remarkable insights offered in “On the Edge of the Cold War”, the definitive study of the failure of US diplomacy and intelligence in post-war Prague by Professor Igor Lukes of Boston University. Perhaps the most instructive The Czech delegation, led by then foreign minister is the way in which Washington’s economic diplomacy turned a means of bolstering the Czech Jan Masaryk, applauded these provocative remarks. democratic system into a means of accelerating Washington was outraged. In a public statement its destruction. soon after Masaryk’s fateful applause, then US secretary of state James Byrnes declared that no The US offer of reconstruction aid, originally conceived as a way to help Czech democrats steer more aid would go to Eastern European countries a middle course between the Soviet Union and the that, “vilified the US and distorted its motives West, became instead Washington’s way to punish and policies.” American aid, he declared, should the Communists. This had the effect of driving the be used to help its "friends" and not to subsidize "Communist control of Czechoslovakia." But democrats into Communist hands and, in all too Czechoslovakia was not yet under Communist many cases, to their deaths as well. control in the summer of 1946. The root cause of American mishandling of its However, what the US did next helped to ensure economic support to Prague was an argument over how to extract compensation from the Czechs that it soon would be. The State Department broke off negotiations, rejected Prague’s request for a for the US-owned properties and assets, whose $50mn loan and conditioned all future help on a value was estimated at between $30mn-50mn, reduction in the number of Communists in the that had been expropriated by the Czech state in Gottwald government. October 1945. The demand for compensation soon became a reason not to grant the Czechs’ request for reconstruction aid in the form of US loans and credits. The US State Department was split between those who wanted to separate the two issues, and those, like Ambassador Laurence Steinhardt, the US ambassador to Czechoslovakia, who insisted that they be joined, with no aid offered without a Czech commitment on compensation. Many of these expropriated properties were owned by Steinhardt’s clients – he ran a law firm in New York.

The Communists were jubilant, having brought about through provocation and threats just the result they had been hoping for. (For a comprehensive review of "On the Edge of the Cold War", see the article by Benjamin B. Fischer, the former chief historian of the CIA, in the International Journal of Intelligence and Counterintelligence, Volume 26, Number 2, June 2013). Remove the Czech desire, you remove the Russian opportunity 65 years later and there is

Opinion November 7, 2014

no doubt that the Czech political and business elite has fallen back under Russian influence. The attraction today is not ideological, though: it is driven by vanity, personal greed and a pragmatic recognition that business dealings with Russians are free of the burdensome bribery measures imposed by their own governments on Western corporate executives operating abroad. The single most important vehicle driving Czechs into the embrace of Vladimir Putin’s Russia is the persistent desire of the Czech politicians and industrialists to build more nuclear reactors. This desire is being fuelled not only by the Kremlin, but by Washington and London as well. The foreign expansion of Russian nuclear holding Rosatom, lavishly funded by the state, is an integral part of Russian foreign policy. Winning a Czech nuclear contract would please Rosatom’s Yuri Ushakov, who served as Russian ambassador to Washington and is today one of Putin’s closest aides. But more important than installing a MIR1200 reactor in southern Moravia is the opportunity that the Czech desire affords Russia to co-opt Czech politicians and businessmen to the Kremlin’s cause of weakening Nato and the EU. The ability of Czech politicians to resist Russian offers of nuclear assistance is in inverse proportion to their desire to have more reactors. And it is being steadily undermined by the West. British economic diplomacy towards Prague is heavily influenced by Rolls-Royce’s business partnership with Rosatom and by its ambition to see Rosatom’s MIR1200 consortium win in Prague. Likewise, US economic diplomacy towards Prague urges the Czechs to build more reactors. This is short-sighted in the extreme. Consider the consequences of a Czech failure to select the bid in any fresh nuclear tender from rival nuclear firm, the US’ Westinghouse. How would Washington react if Prague were to follow Hungary and sign up Rosatom without

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holding a tender? Would it take umbrage, as Secretary of State Bryne took umbrage in 1946? Would Washington complain, as the recently departed US ambassador in Prague Norman Eisen complained when the Temelin tender was cancelled earlier in 2014, that: “as close friends and allies, we are concerned about the signal this may send to US investors.” Indeed, would Washington seek to ‘punish’ the Czech Republic for its decision, and how would this help those few public figures left in Prague opposed to Putin’s spreading influence in the city? A wiser reaction would have been for Washington to acknowledge that the official reason for abandoning the nuclear tender (an unwillingness to burden Czech households with much higher electricity bills) was commendable, and then to focus its diplomatic efforts on removing the Czech desire for more nuclear reactors altogether. In this

Opinion November 7, 2014

way, Washington might manage to derail the best vehicle that Russia has for extending its influence over Prague. The great concentration of economic and political power that would result from expanding the Czech nuclear fleet can hardly be in US interests given the near certainty that much of this power would end up in Russian hands. Much wiser would be for US diplomatic efforts to be directed at encouraging the Czechs to pursue a policy of de-concentrating its electricity generation sources on nuclear, and embrace a broader mix including renewables. Instead of playing nuclear ‘tug of war’ with the Russians on Czech soil, the Americans should accept that this is a war that Russia wishes them to fight – and not only because Russia is more likely to win. Even if no new reactors are built, for as long as the Czech desire remains, so does the Russian opportunity. In general, the political and economic well-being of the Czech Republic, and therefore US interests here, would be better served by US diplomatic efforts to shore up the country’s demoralized and brittle political institutions. It is very much in Russia’s interest to keep Czech democratic institutions weak. It is a startling measure of the failure of US (and European) diplomacy towards the Czech Republic that there remains only one outstanding local politician left in Prague who dares publicly to criticize his colleagues for their pro-Russian sentiments, and that this person is in every other way discredited. Miroslav Kalousek’s anti-Russian outbursts have become so vociferous these days that one could be forgiven for thinking that he is a provocateur, working to bring about exactly what he claims to want to avoid. Who needs enemies when the US has friends like these? The Russians must be jubilant! Professor Lukes in his book professes astonishment at the glibness of US diplomats in

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post-war Prague, pointing out that none seems to have anticipated the Communist coup in February of 1948, believing until the last moment that the democrats, with whom they associated, would prevail. Ambassador Steinhardt’s opposition to extending credit to the Czechs without a commitment on compensation for seized US properties backfired horribly. It contributed directly to the Communist seizure of power in 1948 and the loss of those properties until their partial return in the years after 1989. That glibness remains. What is obvious to all Czechs – that Rosatom is a vastly more attractive partner for the class of politicians and businessmen running their country today – appears to be lost on the US diplomats that inhabit Prague’s splendid Schönborn Palace. The last thing the Czech nuclear lobby wants is a US corporation, hamstrung by anti-graft laws, breathing down their necks. If US diplomats want to help US firms win business in this country, they must ‘allow’ them to operate according to local, unwritten rules and run the risk of going to jail back home. Hypocritical perhaps, but effective and certainly not naїve. And impossible. Instead, US diplomats are encouraging the Czechs to build more nuclear reactors in the hope that the country’s politicians will run a transparent tender leading to the selection of Westinghouse. This is as foolish as Ambassador Steinhardt’s assumption that Klement Gottwald would honour his promise to uphold Czechoslovakia’s democratic system in 1946. In short, US economic diplomacy today, by feeding the Czech desire for more nuclear reactors, actually serves the Russian purpose well, because it will only deepen American frustrations with the Czechs. This is how to lose Prague for the second time.

Weekly Lists November 7, 2014

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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bne:Investor 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. Considered the largest oil field ever discovered outside the Middle East, with recoverable reserves between 9bn and 13bn barrels of oil, delays and cost overruns have hampered developments at Kashagan so far. The operating consortium NCOC has already spent more than $50bn, five times early projections, and full field development costs over the 40-year concession timeline are now forecast at $136bn.

Rolls-Royce drives into cash-strapped, petrolscarce Kazakhstan Naubet Bisenov in Almaty

The ultra-luxury car brand Rolls-Royce has ridden into oil-rich Kazakhstan's commercial capital of Almaty, lured by the lingering gleam of an economic boom experienced in the noughties. Unfortunately, Rolls-Royce’s first showroom in Central Asia is opening even as the economy continues to struggle and the country is plagued by petrol shortages. At a news conference "celebrating such a landmark occasion" in Almaty on October 30, Torsten Muller-Otvos, Rolls-Royce Motor Cars’ CEO, said the country's oil-fuelled boom had created increasing demand from discerning customers for pinnacle luxury products such as Rollers. "[Kazakhstan] has witnessed a surge in the number of high-net-worth individuals and is also experiencing strong demand for luxury goods. It is fast becoming a major destination for top-end luxury products," Muller-Otvos said. "We see a lot of potential here in Kazakhstan and look forward to realising that potential together with our new partners here in Almaty." Muller-Otvos said that the BMW-owned image-conscious brand had picked as its Kazakh partner Astana Motors, which is already operating dealerships for BMW, Toyota and Hyundai, because it shared "the ethos of our founding fathers". "I have full confidence that we have chosen the most appropriate partner here in this country," he said.

Weekly Lists November 7, 2014

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bne:Deal Slovenske Elektrarne CEO hints that Enel might abort Slovak group's sale bne

Italy's Enel might yet pull out of plans to sell its 66% stake in Slovenske Elektrarne (SE), the CEO of the Slovakpower producer said on November 4. The statement reflects the uncertainty over the state's attitude to the sale, and growing pressure on Enel ahead of a SE shareholders meeting that will discuss the troublesome expansion of the Mochovce nuclear plant. The claim by Luca D'Agnese - quoted by TASR news agency - comes just days after Enel CEO Francesco Starace told Italian lawmakers the company still expects to receive binding bids for its Slovak and Romanian assets by the end of November. Moreover, Starace said Chinese companies are now interested in the acquisition. The sale of the Slovak assets, announced by the Italian company in July, is looking more complicated by the day.Pressure is growing from the government in Bratislava, which insists it wants to try to buy some of the stake to increase its 34% holding. Meanwhile, the deterioration of relations between Moscow and the West excludes potential suitors from Russia. State nuclear group Atomstroy had been previously suggested as a leading contender by local media.

Penta hands over control of Slovakia's SME bne

Slovak financial group Penta has agreed to hand over majority control of the publishing house behind influential daily SME, following huge controversy over its recent purchase. It remains unclear, however, who will now control the newspaper's editorial content, and the former editors say it makes no difference to their move to set up a rival. NAMAV, newly-founded and financially-backed by Czech-Slovak investment group Penta Investments, has agreed to transfer a 5% share of its recently acquired 50% stake in Slovak publishing house Petit Press to the other shareholder in the company, financial company Prva slovenska investicna skupina (PSIS), sme.sk reports.

Weekly Lists November 7, 2014

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bne:Banker Corpbank loses licence, faces bankruptcy bne

Bulgaria's central bank (BNB) has revoked the operating licence of Corporate Commercial Bank (Corpbank), once the country's fourthlargest lender, after private investors and the government refused to take steps to plug the BGN3.75bn (¤1.9bn) hole in the bank's capital. BNB said in a statement that it has asked the courts to declare Corpbank insolvent. Once that has happened, the Bulgarian Deposit Insurance Fund (BDIF) will take over the bank and appoint a new management. The central bank said it would recommend that the new management of the bank investigate its predecessor's stewardship of Corpbank. Bulgaria's prosecutor's office will also investigate allegations of misappropriation by the previous management of the bank.

Slovenia looks to resurrect corporate life after debt Guy Norton in Zagreb

Having spent most of the past couple of years successfully fending off the threat of a complete meltdown in its bad debt-laden banking sector, Slovenia is now looking to make some headway on the equally tricky task of restoring its cash-strapped corporate sector back to financial health. In the latest sign that bank creditors and corporate debtors may actually be able to finally agree on mutually beneficial solutions to the thorny issue of non-performing loans which two years ago were running in excess of 30% of total lending, the creditors of car parts supplier Cimos, one of Slovenia’s biggest companies, this week proposed a revised debt workout plan. The terms of the proposed deal include a debt-to-equity conversion worth ¤208m in favour of Cimos’s leading creditors, including the Bank Assets Management Company, the so-called bad bank set up in March 2013 to address the alarming NPL problem in the Slovenian banking sector. In addition, Cimos’s creditors will provide the company with ¤40m in working capital.

Weekly Lists November 7, 2014

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bne:Credit Slovakia should reform to stay below debt ceiling, says OECD bne

Slovakia is at risk of exceeding a constitutional debt ceiling of 60% of gross domestic product (GDP), the Organisation for Economic Co-operation and Development (OECD) warned in a report released on November 5. Crossing the threshold would trigger a mandatory vote of confidence. According to the OECD's projections, gross government debt as a percentage of GDP will hit 60.2% next year, and rise to 60.9% in 2016. This year, debt is forecast to total 58.6%. The warning could put more pressure on the centre-left government of Prime Minister Robert Fico to reduce the budget deficit. However, the OECD warns that may not be the best course at a time when the economy is just pushing towards more robust growth. "Government debt has risen sharply since the 2009 global crisis and is now running into constitutional debt ceilings," the OECD said in the latest economic survey of the country. "Indeed it is too high to allow automatic [budget] stabilisers to work."

Poland leaves interest rates unchanged, Romania cuts by 25bps bne

The National Bank of Poland (NBP) surprised for a second month in a row by leaving benchmark interest rates unchanged at 2.0% on November 5. Despite much confusion sown by individual rate setters since the October surprise of a 50 basis point cut, the majority of analysts and the markets had expected rates to drop another 25bp, with most insisting the NBP is again behind the curve. Romania’s central bank cut the monetary policy rate by 25bps to 2.75% and separately cut the required reserve ratio (RMO) on foreign currency liabilities by 2pps to 14%, the monetary authority announced on November 4. The interest rate cut was expected by bank analysts, however, the step is still rather bold, given the uncertain political outlook and the fact that this was the first meeting of the new management of the monetary authority.

Weekly Lists November 7, 2014

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bne:Stocks Czech billionaire Kellner plays rough with shareholders Tim Gosling in Prague

There is "no reason to hold shares" in the Czech Republic's largest telecommunications company O2, analysts at Erste Bank stated on November 4. That dire warning comes in the wake of moves by PPF Group – which bought control of O2 12 months previously – that suggest it wants to squeeze out remaining minority shareholders and use the company to funnel cash to its other businesses. The market has been wary of the intentions of PPF – the investment vehicle of the Czech Republic's richest man, the reclusive Petr Kellner – since it agreed to pay Spain's Telefonica ¤2.47bn (or CZK305.6 per share) for its 65.9% stake in O2 in November 2013. Kellner's company negotiated a ¤2.3bn loan to fund the deal. Analysts promptly began speculating that O2 would soon be delisted, as PPF is not in the habit of operating under shareholder scrutiny. O2 announced on October 14 it had received a request from PPF, for a loan of CZK24.8bn (¤892m) to be used to pay down part of the debt it took on to fund the acquisition of the telecom firm. This is a highly antagonistic move for minority shareholders, who have got used to high dividend payments under Telefonica.

Balkans was East Capital's best fund so far this year Peter Elam Hakansson, founder of East Capital

This year's stock market winners in Eastern Europe are in the Balkans. The Slovenian stock exchange has performed best, and is up nearly 20%*, followed by Turkey and Serbia, with gains of around 15%, and then Romania, which is up approximately 5%. It has also been positive for our Balkan fund, which is up 23.7% in SEK. The Balkan fund just turned 10 and was named best fund by Business News Europe (BNE) for a second year in a row. Our outlook on this region remains positive, and we have spent even more time travelling there recently. There are several reasons for the gains. In general, you could say these countries are doing the right things, but in different ways. Their base levels are low to begin with, as their stock exchanges were among those hit the hardest during the financial crisis. They are also increasingly being "discovered" by international investors and frontier funds who see solid relative values in the region. In comparison to global values, the markets in the Balkans, along with Russia, appear to be valued the lowest at this time.