Page 1

WWW.BNE.EU

Moscow Exchange to buy 20% in Kazakhstan Stock Exchange Albania beats EU nations on renewable energy Near photo-finish in Georgia’s presidential election firstround vote

November 2018

US sanctions assault has sent Iran into recession: IMF

Turkish lira at new all-time low in Real Effective Exchange Rate terms p.16

Belarus retail giant Eurotorg mulls $300mn IPO in London p.18

Romania’s “disobedient” GenZ shuns employment for startups p.34

ISSN 2059-2736

UKRAINE’S RENEWABLE RUSH STILL FACES UNCERTAINTIES


From our desk to yours Get the original CEE, Central Asia, MEA and South Asia business newswire. Try IntelliNews Pro for free today at j.mp/intellinews-pro

PRO


4

I Contents

bne November 2018

Senior editorial board Ben Aris (Berlin) editor-in-chief & publisher

+49 17664016602 baris@bne.eu

Clare Nuttall (Bucharest) news editor

+40 757369985 cnuttall@bne.eu

20 11

Eurasia & Southeastern Europe William Conroy (Bucharest) editor wconroy@intellinews.com Central Asia Kanat Shaku (Almaty) bureau chief kshaku@intellinews.com

13

Eastern Europe Sergei Kuznetsov (Kyiv, Minsk) skuznetsov@bne.eu Subscriptions +44 753 529 6546 Stephen Vanson (London) svanson@intellinews.com Advertising Elena Arbuzova (Moscow) business development director (CIS) Design Olga Gusarova (London) art director

+7 9160015510 earbuzova@bne.eu

+44 7738783240 ogusarova@bne.eu

Please direct comments, letters, press releases and other editorial enquires to editor@bne.eu

All rights reserved. No part of this publication may be reproduced, stored in or introduced to any retrival system, or transmitted, in any form, or by any means electronic, mechanical, photocopying, recording or other means of transmission, without express written permission of the publisher. The opinions or recommendations are not necessarily those of the publisher or contributing authors, including the submissions to bne by third parties. No liability can be attached to the publisher for these comments, nor for inaccuracies, errors or omissions. Investment decisions or related actions taken on the basis of views or opinions that appear herein are the responsibility of the reader and the publisher, contributors and related parties cannot be held liable for these actions.

bne Intellinews is published by Emerging Markets Direct OU Print issue:

6 THE MONTH THAT WAS

COMPANIES & MARKETS 10 Moneta, Air Bank and Home Credit to create third largest Czech bank 11 Moscow Exchange to buy 20% in Kazakhstan Stock Exchange 12 Russia's FinMin to promote ruble transactions, but promises not to force them on population

bne.eu/subscribe

20 Czech company Prusa holds an extraordinary position in 3D printing among CEE countries, growing by 17,118% 21 Croatia’s Rimac to supply EV technology to Automobili Pininfarina in €80mn deal 22 Russian data storage law not properly implemented

COVER FEATURE 13 Magna opens BMW seating facility at new Czech plants 14 Shell and Eni-led consortium agree $1.1bn profit-sharing settlement with Kazakhstan 15 Russia's car sales slow down in September, but demand strong ahead of VAT hike 16 Turkish lira at new alltime low in Real Effective Exchange Rate terms

Sign up to FREE electronic version of bne monthly magazine OR buy a print subscription at

19 Russian cross-border online shopping up by 24% to over $5bn as of June

13 Turkey to import Russian wheat using rubles in a first

£4.50 /$6.75 /€5.90 . €499 / year

Follow us on twitter.com/bneintellinews

19 Russia's Yandex acquires coupon aggregator Edaadeal

17 Chocolate giant Barry Callebaut eyes fast-growing Russian market, acquires peer 18 Belarus retail giant Eurotorg mulls $300mn IPO in London

23 Ukraine’s renewable rush still faces uncertaintiesr

CENTRAL EUROPE 30 Croatia posts highest increase in insolvencies in CEE in 2017 31 Further delay to Paks nuclear power plant expansion 32 Hungarian government to abruptly phase out home savings funds 33 Pro-Russian party wins Latvia election but new government could be long in the making


Contents

bne November 2018

14

30

I5

43

28 SOUTHEAST EUROPE

EURASIA

34 Romania’s “disobedient” GenZ shuns employment for startups

48 Pashinian’s people power clears the way for early elections in Armenia

36 Albania beats EU nations on renewable energy

49 US sanctions assault has sent Iran into recession: IMF

37 EBRD takes 41% in Moldova’s biggest bank MAIB as banking sector turnaround begins

50 Russia to restart importing Turkmen gas after three years

EASTERN EUROPE 40 Belarus' new nuclear power plant will change the balance of energy in the Baltics 41 Ukraine launches solar power plant next to Chernobyl as renewables take off 43 VOX: Banking in a time of uncertainty – BCS GM diversifies out of Russia 45 KYIV BLOG: Vested interests threaten to capture Centrenergo privatisation

51 Near photo-finish in Georgia’s presidential election first-round vote

48

OPINION 52 ALACO DISPATCHES: Could China scupper Trump’s bid to bring Iran to heel? 54 Russia’s game in Syria 56 Iran: Icy blast from the US, warm overtures to Europe

NEW EUROPE IN NUMBERS 46 Ukrainian Orthodox church wins approval to break away from the Moscow Church

45

59 Trust in Putin rating plunges to 39% due to unpopular pension reform

54


6

I The Month That Was

bne November 2018

Politics Eastern Europe Russia may be excluded from the number of participants in the Council of Europe (PACE) if it does not transfer contributions to the organization’s budget by the middle of next year, said the Secretary General of the Council of Europe, Thorbjorn Jagland. Central Europe Istvan Tarlos will run for a third consecutive term as mayor of the Hungarian capital Budapest in next year's local government elections. Prime Minister Viktor Orban has asked the incumbent mayor of Budapest to run again, as while he is not a member of the ruling Fidesz party, he has a massive lead in the polls. Lithuania will hold a referendum on dual citizenship at the same time as the presidential and European Parliament elections in May 2019. MPs voted in favour of the plan following pressure from citizens in the country of 2.85mn that has a very high emigration rate. Czech President Milos Zeman suggested scrapping the Senate in an interview with Czech Radio. The president also laid into so-called “solar barons” whom he described as “economic f***ers”, prompting a number of complaints to the Radio and Television Broadcasting Council over his language.

Southeast Europe Bulgarian journalist Victoria Marinova was brutally murdered. A 21-year-old local man on suspicion of

www.bne.eu

raping and killing Marinova was detained in Germany. The police said they were working on several different theories for the murder, including those related to her work – she hosted an investigative TV show – and personal life. Without prospects of joining the EU in future, the Western Balkans might face new military conflicts soon, the President of the European Commission Jean-Claude Juncker warned. Juncker added that the history of the 1990s still has not been overcome in the Balkans. A Slovenian think tank claimed the “biggest ever” theft of votes and fraud took place during the recent general election in Bosnia. The Ljubljana-based International Institute for Middle East and Balkan Studies (IFIMES) argued the vote should not be recognised. A rift appeared within Bulgaria’s junior ruling party, the far right United Patriots. The National Front for Salvation of Bulgaria, one of the trio that makes up the United Patriots, says it will withdraw its support for parliamentary faction leader Volen Siderov amid a spat over plans for next year’s European Parliament elections.

Tajikistan established an alternate route for deliveries of goods from Azerbaijan, which bypasses Turkmenistan, Trend news agency reported. The development follows Turkmenistan’s blockading of Tajik trucks as well as trucks from other countries with Tajikistan as their final destination. Transparency International Georgia accused the government of an "unprecedented attack" on NGOs prior to the presidential elections on October 28. The transparency watchdog is pulling out of the Georgian Inter-Agency Commission for Free and Fair Elections in response, saying it "no longer sees potential for maintaining a constructive dialogue with the government”. Kyrgyzstan's Supreme Court ordered the immunity enjoyed by ex-presidents to be cancelled, ruling it unconstitutional. The ruling comes at a time when current President Sooranbai Jeenbekov appears to be locked in a power struggle with his predecessor Almazbek Atambayev, who stepped down in November 2017.

Eurasia

Mongolia's parliament voted to dismiss transport minister Bat-Erdene Jadamba after an official was beaten to death inside the ministry's building in August. The killing allegedly by a fellow official is believed to be related to a dispute over a ministry job – government jobs are highly sought-after in the country.

A Kazakh court sentenced the former mayor of Kazakhstan’s largest city Almaty in absentia to 17 years in prison. Viktor Khrapunov and his wife Leila Kharpunova were found guilty of fraud, creating and running an organised crime group, money laundering, abuse of office, and embezzlement.

Uzbek President Shavkat Mirziyoyev blames the lack of industry in the Ferghana Valley on his predecessor’s widow. A recording leaked to RFE/RL’s Uzbek Service revealed that Mirziyoyev considered Islam Karimov’s wife, Tatyana Karimova, and her sister-in-law Tamara were ultimately responsible for the situation in the vital region.

Prosperous Armenia Party leader Gagik Tsarukian is backing Prime Minister Nikol Pashinian’s plan to force snap general elections in Armenia in December. Tsarukian's move comes one week after he was pushed out of the governing coalition formed after the country’s spring ‘people’s revolution’.

The US asked the International Court of Justice to throw out a claim by Iran to retrieve bank assets worth $1.75bn impounded by US courts during the 1979 Islamic Revolution. In 2016, the US Supreme Court ruled that the funds must be turned over to American families of victims of alleged Iranian terrorist attacks.


The Month That Was I 7

bne November 2018

Economics Eastern Europe The Ukrainian government hopes to close a new deal with its biggest donor, the International Monetary Fund (IMF), and release the badly needed financial support after its $17.5bn extended fund facility was effectively frozen for foot-dragging on reforms, the local press in Ukraine reported on October 10. Russians are healthier and better educated than their per capita income would suggest, the World Bank found in a survey. The education and health of those Russians born in 2017 by the time they come of age at 18 years old will be comparable to their peers in countries with high standards of life, the World Bank's Human Capital Index (HCI) shows. Russia's economic growth slowed in September according to the base sector data released by the RosStat statistics service on October 19, both on the output and demand side. After a report on slowing industrial output growth in September, transportation turnover also indicated weaker activity with transportation, and agriculture decelerating but construction activity inching up by 0.1% y/y. Ukraine is Europe’s poorest country with a gross domestic product (GDP) per capita in current prices in US dollar terms at $2,964.193 in 2018, according to October's update of the World Economic Outlook published by the International Monetary Fund (IMF). Ukraine is behind Moldova ($3,226.717), Belarus ($6,020.043) and Russia ($10,950.492). Russia's Finance Ministry will cut the net domestic borrowing plan by RUB380bn ($5.7bn) in 2018, Interfax said on October 9 citing the ministry's debt department head Konstantin Vishkovsky.  Earlier in the year the Finance Ministry increased the net borrowings plan by RUB227bn to RUB1.04 trillion.

In January-August 2018 Belarus increased the export of merchandise and services by 18.3% in comparison with the same period of last year to $27.4bn, said the National Bank of the Republic of Belarus (NBRB).

years, with the public finance deficit at 0.1% of GDP next year and a balanced budget in 2020. The Ministry of Finance promised both the debt and deficit will fall in the next two years before recording a surplus of 0.2% of GDP in 2021 for the first time in Slovakia’s history.

Central Europe Southeast Europe Poland’s economy will expand 4.4% in 2018, the IMF said in its latest World Economic Outlook. The projection for this year has been revised upwards by 0.3pp compared to the IMF’s previous forecast from April, reflecting “strongerthan-expected investment growth,” the IMF wrote.

The IMF cut its growth outlook for Turkey to 3.5% in 2018 and 0.4% in 2019 in the latest edition of its World Economic Outlook. With Turkey mired in economic turmoil, the IMF also called for an extensive set of measures to shield the economy. Croatia recorded Central and Southeast Europe’s highest increase in insolvencies in 2017, up 40.1%, a Coface study showed. Most countries in the region experienced higher rates of economic growth in 2017, but the overall number of insolvencies in the region still rose by 6.4%.

Latvia’s foreign trade deficit increased 35.4% y/y to €395mn in August, provisional data released by the country’s Central Statistical Bureau (CSB) showed. The widening of the deficit owes to imports once again growing faster than exports in August. Hungary's CPI reached a five and a half year high in September, as consumer prices accelerated to an annual 3.6% growth. The figure beats the Magyar Nemzeti Bank’s 3.4% forecast and the 3.5% median consensus of analysts.

More than a third of the population in Bulgaria and Romania was at risk of poverty or social exclusion last year, Eurostat data showed. According to the study, 38.9% of the Bulgarians and 35.7% of the Romanians were at risk of poverty or social exclusion. Turkey's unemployment rate rose to 10.8% in July from 10.2% in June, national statistics institute TUIK announced. The news highlighted “a trend that is likely to continue for a while given the ongoing deterioration in the growth outlook,” ING Bank said in a research note.

Eurasia FDI in Poland dropped substantially in 2017, coming in at PLN34.7bn (€8.1bn), which is a drop of 44.1% compared to 2016, when a record amount of PLN61.8bn of FDI arrived in the country, a report from the National Bank of Poland (NBP) said. The Slovak government approved the draft state budget for the next three

Azerbaijan can boost its non-oil exports by 16% with petrochemical output at new plants developed by SOCAR Polymer, AzerNews reported director general of the company Farid Jafarov as saying. Turkey would be a priority market for sales, while shipments to Russia and into European markets are planned.

www.bne.eu


8

I The Month That Was

bne November 2018

Business Eastern Europe Ukraine has installed a 1MW solar power plant in the contaminated area adjacent to the decommissioned nuclear power station in Chernobyl. The photovoltaic facility is comprised of 3,800 panels and is expected to produce enough energy to meet the power demand of 2,000 local apartments. The Russian government has asked state-controlled banks Sberbank and VTB to set up a regional air carrier, Vedomosti daily said on October 17 citing unnamed sources. The new airline could be established after 2019 with a passenger turnover of 6mn-10mn people annually. The Greenhouse Group of Arkady Abramovich, thought to be the son of London-based billionaire Roman Abramovich, plans to build 300 hectares of high-tech greenhouses producing tomatoes, cucumbers, and bell peppers in the Russian Far East district. The investment is estimated at $2.5mn3mn per ha or $750mn-900mn overall. Abramovich-junior already invested in greenhouses in Russia's southern Belgorod region. Russian crude oil production in September exceeded by a small margin its previous peak in the post-Soviet era, the Russian Energy Ministry reported. Russia’s average daily production in August rose by 1.3% y/y to 11.4mn barrels. Russians spent $5.19bn on the purchase of goods in foreign online stores in the first half of the year, according to statistics from the Central Bank. This is 24% higher than the level of January-June last year. Russia's grain harvest in 2018 will be a solid 106mn tonnes, the Minister of Agriculture Dmitri Patrushev estimated on October 9 during an interview with the Rossiya 24 channel. The estimate is in line with previous reports that harvest in Russia could be 10-15% lower than

www.bne.eu

previously expected due to adverse weather conditions.

Central Europe The government in Vilnius is in talks with Japanese companies as it prepares to decommission the nuclear power plant in Ignalina, eastern Lithuania. Energy Minister Zygimantas Vaiciunas discussed possible participation in the decommissioning with Hitachi Ltd. and Toshiba Corp. Swedish furniture giant Ikea plans to open stores in Estonia and Ukraine, among several other new markets. Ikea is already present in Latvia and Lithuania. German company Bauer Media Group agreed to sell Bauer Media in the Czech Republic and Slovakia to Mafra publishing house, a member of Agrofert group. The decision follows from Bauer Media Group’s intention to focus on the markets where it is among the leading players.

including Zentiva Romania, by Advent International (€287mn estimated value). Albania will force urban casinos and betting shops to relocate to the outskirts of cities. The aim is to prevent the proliferation of gambling in Albania, one of the poorest countries in Europe, as the gambling industry has seen steady growth in the last few years. Slovenian resort operator Terme Catez sold Marina Portoroz. The company's new owners are Adventura Holding, a company owned by Slovenian businessman Darko Klaric, and Glen, which is owned by the managers of wood processing company Lesnina. Albania’s AlbChrome will expand its ferrochrome production by investing €10mn at its plant in Burrel, in the country’s north. The expansion is expected to have a major impact on the economic development in the region of the cities of Bulqiza, Klos, Burrel and Elbasan.

Eurasia Serbian BK Group launched a $1.2bn residential real estate project in Kazakhstan’s capital Astana. The BK Tesla Park will be built in one of the main streets of Astana by BK Group’s Kazakh subsidiary Tesla Grad Astana.

Carmaker Magna International opened its fifth plant in the Czech Republic to support its new BMW Group business. The plant plans to produce more than 360,000 seating systems in various configurations for BMW models per year.

Southeast Europe Romania’s M&A market expanded 15% y/y in 3Q18, a Deloitte study showed. Total M&A transactions were in the €1.4bn to €1.6bn range, with the largest being the acquisition of Zentiva,

The Central Bank of Iran ring-fenced $3bn of reserves to cover the financing of imports of pharmaceutical products, Islamic Republic News Agency reported. The country is making sure nearly all pharmaceutical products will remain available despite sanctions. Royal Dutch Shell backed out of plans to buy a stake in Kazakhstan’s KazMunayGas (KMG), Bloomberg reported, citing three anonymous sources familiar with the matter. The decision came following a due diligence process which included discussions on corruption risks at the state-run oil and gas company.


The Month That Was I 9

bne November 2018

Finance Eastern Europe The head of Russia's largest oil company Rosneft, Igor Sechin, has postponed a share buyback until at least the end of this year, Ria Novosti and Tass cited the oil boss saying on October 17. The shares of Rosneft fell by 0.4% following the announcement, while the Moscow Exchange index grew by 1.5% at the same time.  Russia's state development bank Vnesheconombank (VEB) could double its loan portfolio from current RUB3 trillion ($46bn) in the next five years, the newly appointed head of the bank Igor Shuvalov told President Vladimir Putin on October 16. VEB, which was on the brink of default in 2015-2016 overburdened by loans issued for Sochi Olympics construction and hit by sanctions, has been slated by the Kremlin to become one of the main hubs of infrastructure spending after an appointment of Shuvalov. Uber Technologies could hold an IPO in 2019. The company has been valued at $120bn by Goldman Sachs and Morgan Stanley, which is double current valuation and exceeds the value of General Motors, Ford Motor and Fiat Chrysler Automobiles combined, according to the Wall Street Journal citing unnamed sources. In one of the biggest deals in the Russian tech sector in 2017, Uber and Yandex.Taxi of internet services major Yandex formed a joined venture in Russia and five other countries (Armenia, Azerbaijan, Belarus, Georgia and Kazakhstan). 

mercial Sea Port (NCSP) jumped by 7% on October 9 on Transneft buyout talks pushing on the capitalisation to RUB133bn. The investors reacted to a possible minority shareholder buyout offer by the new controlling shareholder Transneft. State oil pipeline monopoly Transneft consolidated its stake in NCSP to over 60%, acquiring 25% in joint venture with Summa Group of jailed Kremlin-connected oligarch Ziyavudin Magomedov. Russia's state-controlled VTB Bank and the government agreed at a meeting to try and persuade President Vladimir Putin to postpone the central bank's implementation of Basel III capital standards scheduled for January 2019, Bloomberg and RBC business portal reported citing unnamed sources. VTB's head Andrei Kostin urged the Kremlin to intervene amid increased sanctions risks as they could compromise dividends.

Moscow-based International Investment Bank successfully closed the order book for a new bond issue on the Romanian stock exchange. The issue, structured in two tranches, in the Romanian leu and euro, is the fourth one in a row for the IIB and the largest one in terms of volume on the Romanian market. Slovenian banking group Nova Ljubljanska banka NLB will proceed with an IPO on the Ljubljana Stock Exchange and the London Stock Exchange. The Slovenian government is required to privatise the bank by the end of this year under its commitments to the European Commission.

The sovereign Russian Direct Investment Fund (RDIF) is to set up a regional fund worth CNY5bn ($721mn) together with Chinese counterparts, the head of the fund Kirill Dmitriev told Tass on October 9, adding that first transactions in national currencies are expected in early 2019.

Turkish President Recep Tayyip Erdogan said that his Justice and Development Party (AKP) will introduce a bill in parliament switching the main opposition party’s shares in Turkey’s largest listed lender, Isbank, to the treasury. The Republican People’s Party holds a 28% stake in Isbank, bequeathed to it by Mustafa Kemal Ataturk, founder of the Turkish Republic.

Central Europe

Eurasia

Latvia began investigating a number of local banks for possible servicing of a Turkish company SIA Falcon Group, which the US authorities sanctioned for attempts to supply North Korea with weapons and luxury goods. It is not clear how many or which banks exactly serviced SIA Falcon Group, which had an office in Riga.

The EBRD will provide six loans worth €333mn to Uzbekistan for the development of sustainable solutions for the municipal and power infrastructure sectors. Uzbekistan, a nation of 33mn people, has been suffering for decades from underinvestment in public utilities, including in district heating along with water and wastewater infrastructure.

Southeast Europe

Shares of Russia's largest port and stevedore group Novorossiysk Com-

ber 20 that the lender is to be restructured with an expanded mandate. Exactly how Turkiye Kalkinma Bankasi will be used to bolster growth amid Turkey’s economic turmoil is not yet clear.

Shares in a little-known Turkish stateowned development bank clocked up a gain of 863% since Treasury and Finance Minister Berat Albayrak said on Septem-

Two Azerbaijani food companies were accepted for listing on the Baku Stock Exchange. Cheese producer ImisliYag-Pendir JSC and Mingecevir Baliq (Mingecevir Fish) will be listed in the bourse’s alternative market segment.

www.bne.eu


10

I Companies & Markets

bne November 2018

Equity investors are nervous as to what they can expect from richest Czech Petr Kellner given his past treatment of minority shareholders.

Moneta, Air Bank and Home Credit to create third largest Czech bank bne IntelliNews

A

big Czech banking market shake-up is on the cards after Prague-listed Moneta Money Bank (formerly GE Money Bank) on October 8 announced it is in discussions to acquire Air Bank and Home Credit’s Czech and Slovak consumer loans arm from the PPF Group owned by richest Czech Petr Kellner. The Czech koruna (CZK) 20bn (€750mn) deal, which has reached a preliminary and non-binding stage, would create the third-largest bank by distribution network in the Czech Republic – behind Ceska sporitelna and CSOB – and the fifth largest by assets. Moneta, which is to take the Air Bank name, plans to swap 24.5% of its equity in the form of new shares for Air Bank and Home Credit CZ/SK and make a cash payment to PPF of CZK6.75bn. Jiri Smejc’s Emma Capita is to take 2.8pp of the new shares. Given that Kellner will own slightly more than a fifth of the new entity analysts spoke of how he might be pulling off a coup by swapping an unlisted financial institution for a listed one. J&T Bank said in a research note: "It is too early to assess the benefit of the transaction for existing shareholders but we

www.bne.eu

consider it positive that the bank will have a major shareholder and that it will be able to compete to a bigger extent with the largest banks on the Czech market." ‘Price 2.5 times higher than usual’ After the draft deal was announced, Moneta Money Bank’s shares fell at one point by 4.5%, before closing down 1.5% at CZK80.80. The share price fell as analysts and investors

“The deal will create the third-largest bank by distribution network in the Czech Republic” expressed doubt about whether Moneta is paying too much, with analyst Milan Lavicka at J&T saying that the price was 2.5 times higher than the usual price in Czech banking but that he does not consider it excessive given Air Bank’s quick growth and the expected synergies. The fall in the share price was also attributed to Kellner’s reputation for playing rough with minority shareholders in listed companies. When Kellner bought Czech telecom provider O2, remaining shareholders complained that


bne November 2018

Kellner was talking down the price while hiving off its best assets. "The morning market reaction is a typical response when the buyers express concern about whether the acquisition is correct and, most importantly, correctly valued," said Radim Dohnal, an analyst from Capitalinked.com. The unexpected transaction made a lot of sense, CEO of Chytry Honza Nicolas Eich observed. The new entity would become a leading player with a broad distribution network and a strong technological focus. PPF Banka and the Zonka peer-to-peer lender are not part of the planned merger, Czech daily Lidove noviny indicated. Completion of the Moneta/PPF transaction is planned for July 1, 2019. Upon settlement, Moneta will acquire 100% of the shares in Air Bank and Home Credit CZ/SK. The new bank’s distribution network in the Czech Republic would boast 237 retail branches and 2,961 business partners supported by 1,005 ATMs. More than a million clients of the Moneta Bank would join about 637,000 Air Bank customers and about 469,000 Home Credit retail borrowers. Moneta’s goal For Moneta Bank, the goal of transaction is to increase earnings per share and dividend per share capacity by at least 10% in the first year after the transaction is closed. The newly formed group will target 75% of lending activities in retail and small business. "Challenger banks have taken more than a million customers

Companies & Markets I 11 in the last 10 years out of the large banks," Moneta CEO Tomas Spurny said, as quoted by Reuters. "Instead of fighting a competitive pricing war we want to join our capabilities."  PPF Group invests in a number of sectors from banking and financial services to telecommunications, biotechnology, insurance services, real estate and agriculture. It operates in Europe, Russia, Asia and North America. At the end of the year, the Group owned assets worth more than €38bn. Home Credit, founded in 1997, is one of the leading providers of consumer finance in Central and Eastern Europe, the Commonwealth of Independent States and Asia. The majority

“Challenger banks have taken more than a million customers in the last 10 years out of the large banks” owner is PPF Financial Holdings with 88.6%. The minority shareholder is the investment holding company Emma Omega owned by Smejc with 11.4%. Moneta is a specialist retail and small and medium size enterprises-focused banking and financial services company. It offers various consumer credit and deposit products to retail and commercial customers, and is one of the largest companies traded on the Prague Stock Exchange. A shareholder vote on the merger is expected by the end of this year. No current Moneta shareholder has more than 5% in the bank.

Moscow Exchange to buy 20% in Kazakhstan Stock Exchange bne IntelliNews

T

he supervisory board of Moscow Exchange (MOEX) on September 27 approved the acquisition of an equity stake in Kazakhstan Stock Exchange (KASE), Russian Tass news agency reported. KASE, launched amid a global financial crisis in 2008, suffers from a lack of transparency and a number of barriers to entry for foreign investors, such as the need to hire brokers who possess knowledge of the local language. These obstacles make it highly unattractive for any foreign investor and deter

them from properly setting up shop in the Central Asian country. Moreover, KASE is highly illiquid as local companies normally rely on bank funding, since there are no prospects for raising funds on the KASE. KASE, based in Almaty, has seen its equities trading average hit a mere $11mn this year. MOEX’s decision to make the stake acquisition follows an agreement signed between MOEX and KASE in April. It will acquire up to 20% of KASE in two stages by end-2019 for a total of RUB338mn (€4.44mn). 

www.bne.eu


12

I Companies & Markets

bne November 2018

Russia's FinMin to promote ruble transactions, but promises not to force them on population bne IntelliNews

T

he Russian government plans to push the state-owned enterprises (SOE) into increasing the amount of international transactions they settle in rubles as part of the on going effort to reduce the use of the US dollar, the Minister of Finance Anton Siluanov said at the Rossiya 24 TV channel, without specifying the scope and timing of the effort. Siluanov’s comments follow reports that the government is designing a package of measures aimed at lowering Russia's dependency on the US dollar and facilitating ruble transactions, especially in cross-border trade. At the same time in another interview to Rossiya 1 channel Siluanov said that "circulation and savings in [the US] dollar is the [free] choice of every citizen", adding that no one should "run to the banks and withdraw currency." Russian have recently been doing exactly that, especially following comments by VTB CEO Andrei Kostin suggesting that dollar deposits may be forcibly converted into rubles in the event of harsh new sanctions imposed on Russia by the US this autumn. Depositors pulled $1.5bn from the banking system and $1.2bn from Sberbank alone in August and have withdrawn a total of $5.9bn since the start of this year. A corresponding increase in ruble deposits was not seen, suggesting people are holding these dollars in cash. Foreign currency deposits with Sberbank have declined by some 10% this year and the share of foreign currency in the total deposits with the state-owned lender is down to 29%. The government is merely "liberalising external trade, liberalising economic transactions within the country," the Finance Minister stressed. According to sources of The Bell and Vedomosti daily, the government's plan is not coercive and it will not force the switch to ruble-denominated external trade, but rather seeks to encourage and facilitate the switch with a series of incentives such as easier currency controls, tax breaks, accelerated VAT refunds for ruble transactions and a liberalisation of currency legislation. Siluanov also suggested that by 2024 strict rules for repatriating foreign revenues by exporters could be relaxed for those

www.bne.eu

The government plans to push the state-owned enterprises (SOE) into increasing the amount of international transactions they settle in rubles

companies that settle transactions in rubles, as reported by Tass on October 4. Sanctioned Russian companies have already had currency controls eased by the government, with the penalties for not repatriating export revenues lifted for the companies on the US Specially Designated Nationals And Blocked Persons List (SDN List). The Finance Ministry also suggested that sanctioned companies are freed from the obligation of using Russian correspondent banks for export transactions. According to RBC business portal, new amendments to currency control rules were designed after complaints of Power Machines (Silovii Mashini) or metals tycoon Alexei

“Depositors pulled $1.5bn from the banking system and $1.2bn from Sberbank alone in August” Mordashov. The company has been sanctioned for its exposure to business in the annexed Crimea peninsula and reportedly has $100mn of exports revenues from a Vietnam power station contract blocked in the banks. However, amid the talk of limitations on the US dollar in the economy, the Russian population is becoming nervous about the safety of their currency deposits and are withdrawing their money from banks. The trend is still mild: total FX deposits are down from $32.5bn to $31.7bn this year. But the continuous outflow can't be solely attributed to the need for foreign cash in the holiday season. In the meantime the government will extend the support to holders of FX-denominated mortgages, Vedomosti daily reported on October 4 citing the decree signed by PM Dmitri Medvedev. An additional RUB732mn will be granted from the federal budget for the programme, which was put in place in 2015 with RUB6.5bn already spent on supporting 20,000 mortgage holders. 


Companies & Markets I 13

bne November 2018

Turkey to import Russian wheat using rubles in a first bne IntelliNews

T

urkey for the first time will import high-protein wheat from Russia using Russian rubles, state-run news agency Anadolu reported on October 2, citing Russia-based SovEko. Some 17,000 rubles (around $260) per tonne of wheat is expected to be paid for consignments amounting to 30,000 tonnes. Turkish President Recep Tayyip Erdogan has been complaining that the US is using the dollar as a weapon to undermine other

country’s economies lately. He has urged Turkey’s trading partners to use local currencies in trade where possible. Last month, Governor of the Central Bank of Iran Abdolnasser Hemmati said Russia, Iran and Turkey had agreed to expand trade conducted in national currencies. The agreement was made on the sidelines of a trilateral summit on the Syria conflict held in Tehran on September 7 attended by the Iranian, Russian and Turkish presidents.

Magna opens BMW seating facility at new Czech plants IntelliNews Pro

T

he carmaker Magna International has opened its 16th seating plant in Europe and fifth plant in the Czech Republic to support new BMW Group business, the manufacturer announced in its press release on Thursday October 11. The plant plans to produce more than 360,000 seating systems in various configurations for BMW models per year.

of our customers,” says General Manager Martin Polivka of Chomutov Seating in the press release.

Production is expected to start by the end of this year and will create 150 new jobs in 2018 and additional 150 jobs throughout 2019. “This is a big win for our employees as well as our community, where we are making a positive economic

Magna with its engineering and sales centres in 28 countries, is a mobility technology company and one of the world´s largest automotive suppliers. Their competitive capabilities include body exteriors and structures, power and vision technologies, seating systems and complete vehicle solutions.

“Continuing to win business with a customer like BMW Group is critical to our global growth and speaks to our ability to produce innovative, cost-effective seating solutions” added President Magna Seating Mike Bisson.

“Our facility is using the latest technology with special attention given to high flexibility so that we can react quickly to new developments” impact. Our facility is using the latest technology with special attention given to high flexibility so that we can react quickly to new developments and changing requirements

www.bne.eu


14

I Companies & Markets

bne November 2018

Shell and Eni-led consortium agree $1.1bn profitsharing settlement with Kazakhstan Kanat Shaku in Almaty

T

he Shell and Eni-led consortium of energy companies operating Kazakhstan’s giant Karachaganak gas condensate field are to pay $1.1bn to settle a longrunning profit-sharing dispute, the Kazakh Energy Ministry said on October 1. The development should finally put an end to the disagreement, the settlement of which was pushed back time and time again this year and last year. The Karachaganak project accounts for 49% of Kazakhstan’s total gas output and 18% of its oil output. Kazakhstan filed a $1.6bn claim against the consortium developing the Karachaganak field, Russia’s Lukoil announced in April last year. The claim, at the time, amounted to an attempt by Astana to source additional funds from the oil

“Kashagan boosted its output to 8.4mn tonnes in the first eight months, beating its 2017 full year production result.” industry despite the difficult circumstances caused by the slump in world oil prices. The recovery seen in oil prices, however, appears to have made it possible for Kazakhstan to obtain most of its claim in the form of the settlement. Moreover, Kazakhstan and the consortium are to amend the terms of their production-sharing agreement allowing the Central Asian nation to in future receive a higher share of revenues from Karachaganak, discovered in 1979. The resulting extra income is set to amount to $415mn per year by 2037 at the Brent crude price of $80 per barrel, the ministry said.

www.bne.eu

Shell and other stakeholders in the field have also agreed to further investment to drive up future revenue.

The consortium will additionally provide a $1bn long-term loan to Kazakhstan for infrastructure development. Billions more in investment The Energy Ministry added that the companies involved in Karachaganak have committed to investing $5bn more in the field so that it will produce billions in additional revenue. Moreover, they are said to have agreed to supply feedstock for Kazakh refineries and chemical plants on commercial terms. Kazakhstan is developing its petrochemical industry as a way of obtaining more added-value from its vast hydrocarbon riches. Both Shell and Eni jointly operate the Karachaganak project in northwest Kazakhstan’s Uralsk Region. Each holds a 29.25% stake. The rest is owned by Chevron Corp (18%), Lukoil (13.5%) and Kazakhstan’s stateowned KazMunayGaz (10%). Karachaganak, Kashagan and Tengiz are the three largest Kazakh oil and gas fields. Karachaganak is thought to contain 1.2bn tonnes of oil and gas condensate and more than 1.35tn cubic metres of gas. Kazakhstan’s oil output in the first eight months of 2018 grew by 5.3% y/y to 60mn tonnes, Energy Minister Kanat Bozumbayev told a government meeting on September 12. The increase was mostly driven by an ongoing acceleration in the output of the giant Kashagan field alongside growing world oil prices. Kashagan boosted its output to 8.4mn tonnes in the first eight months, beating its 2017 full year production result. Kazakhstan produced 86.2mn tonnes of oil in 2017, up from 78mn tonnes in 2016, where Kashagan alone produced over 7mn tonnes.


bne November 2018

Companies & Markets I 15

Russia's car sales slow down in September, but demand strong ahead of VAT hike IntelliNews Pro

S

ales of cars and light commercial vehicles (LCVs) in Russia increased by 6.2% year-on-year in September and by 14.9% y/y for January-September 2018 to 0.157mn units and 1.3mn units, respectively, according to the latest data by the Association of European Businesses (AEB).

A drop in demand in 2019 could be avoided due to continuous government support. The Russian government will spend RUB10bn ($143mn) on supporting car demand in 2019, Tass reported on September 15 citing the Minister of Industry and Trade Denis Manturov, without providing further details.

The growth rate of the car market slid into the two-digit zone, as 2018 marks the second year of market recovery exhausting the base effect. But the front-loaded purchases of cars are expected to continue until the end of the year, with consumers avoiding higher prices on weaker ruble and VAT hike.

Previously in July the Russian government extended the programme of car sector support until 2020, providing RUB15bn ($240mn) worth of state financing for discounted leasing for an annual 45,000 car sales.

"Total market sales in September continue to show positive momentum, on the backdrop of a strong performance in the same period of the previous year," the head of AEB Joerg Schreiber commented. The AEB even revised the sales forecast upward to 1.8mn units in 2018 or 13% y/y growth "in view of the current market conditions, and the expected VAT increase from January next." Previously VTB Capital expected 11% y/y market growth, expecting the sales growth rate to slow down somewhat due to price increases and the less favourable base effect, "although the VAT increase from 2019 might support demand at the end of the year." 

“A drop in demand in 2019 could be avoided due to the continuous government support” Discounted loans for consumers on the car market and "cash for clunkers" utilisation programmes helped the domestic car market recover in 2017 and 2018 after four years of decline. The performance of the top seller on the Russian market Avtovaz carmaker and its Lada model has been supported by state initiatives.

www.bne.eu


16

I Companies & Markets

bne November 2018

bne:FX

Turkish lira at new all-time low in Real Effective Exchange Rate terms bne IntelliNews

T

urkey’s CPI-based Real Effective Exchange Rate (REER) index fell to a fresh record low of 61.62 in September from 64.88 in August, central bank data showed on October 4. The index stood at 85.19 at the end of 2017. In January, the index edged up to 85.87 but it subsequently showed declines at an escalating pace across the following eight months.  The first all-time low level seen this year occurred in March. Things have worsened month by month since then. A higher REER points to the Turkish lira (TRY) gaining value in real terms against foreign currencies while a decline in the index indicates it has lost real value. The TRY was trading at 6.1707 against the USD, weaker by 2.0% d/d, as of 17:15 Istanbul time on October 4. In the year to date, the currency has lost more than a third of its value versus the dollar. The TRY’s weakest ever level against the dollar, namely TRY7.24, was recorded on August 23.

www.bne.eu

Turkey’s annual consumer price inflation rate sprang from 17.9% in August to 24.52% in September, the Turkish Statistical Institute (TUIK) announced on October 3. The

“The inflation result was the highest level recorded since the end of 2003” inflation result was the highest level recorded since the end of 2003 and came in at a worse level than all expectations. Given the shock caused by the latest inflation data, pressure is again mounting on the central bank to push up interest rates. Its monetary policy committee (MPC) will meet on October 25. At the MPC’s last meeting, on September 13, the ratesetters brought in a huge interest rate hike of 625 basis points. However, inflation is now running ahead of the benchmark interest rate of 24%.


Companies & Markets I 17

bne November 2018

bne:Deal

Chocolate giant Barry Callebaut eyes fastgrowing Russian market, acquires peer IntelliNews Pro

O

ne of the world's largest B2B cocoa producers and grinders Swiss Barry Callebaut acquired Inforum, Russia's largest producer of industrial chocolate, compound coatings and fillings, the companies said on October 4. Russia's is the second-largest chocolate market globally, with 4.8kg of chocolate consumed per capita annually. The market grew at 9.2% in natural volumes year-on-year as of April 2018, by a large margin outpacing the global growth of 2.5%, Kommersant daily said citing Nielsen data.

Inforum's sales in 2017 amounted to $5.1bn. Russian nationals Viktor Voytov and Viktor Kudryavtsev own 42.47% in the company, 7.87% is held by the strategic director Evgeny Bulytov, and the rest is owned by businessman Konstantin Zhukov. Voytov will chair the board of Barry Callebaut's Russian division post-acquisition. Barry Callebaut already operates a plant in Russia's Moscow region at 27,500 tonnes annual capacity.  

Barry Callebaut seeks to strengthen its position in Russia and the CIS, as well as export markets, without disclosing the amount of the deal, which still requires the approval of the Federal Antimonopoly Service (FAS). Analysts surveyed by Vedomosti daily estimate the deal at RUB1.8bn ($27mn). The Swiss company united over 60 producers globally with 1.9mn tonne capacity, €6.3bn turnover in 2017, and €11.28bn marker capitalisation. Jacobs Holding AG holds 50.11% in Barry Callebaut, with 8.48% held by Renata Jacobs, and 3.64% by Massachusetts Mutual Life Insurance.

“Russia's is the second-largest chocolate market globally”

May, 2018

www.intellinews.com

@bneintellinews

Avast to enter London bourse in bid to raise up to $1bn Avast to enter London bourse in bid to raise up to $1bn St Petersburg's start-up scene flourishes on high talent and low costs Romania entrepreneur aims to put home-grown UAV defence technology industry on the map FinTech Russia's mobile major MTS increases stake in Ozon to 16.7%

Avast to enter London bourse in bid to raise up to $1bn Jaroslav Hroch in Prague Avast, which owns the popular consumer antivirus company AVG, will apply to list its shares on the London Stock Exchange in the hope of raising $200mn (CZK4.1bn) in primary proceeds from an IPO, the Czech-founded company announced on April 12.  See page 2

St Petersburg's start-up scene flourishes on high talent and low costs Filip Brokes in St Petersburg

We have launched a new publication bneTech

Contents

bne:Tech

See page 3

1 2 3

6

9

Blockchain Romanian startups at the heart of blockchain energy trading rally

10

Central Europe Russian-Lithuanian startup Gosu.ai raises $1.9mn from Russian and French investors

13

Eurasia Iran hit by cyber attack that left US flag on screens 14 Iranian government set to block hugely popular Telegram messaging app 15 Iran's black market phone disconnection drive pushes up legal mobile imports 15 Eastern Europe Internet catches up with TV on Russian ad market Sales of connected appliances jump in Russia Russia's HeadHunter Group seeks to raise $250mn with NASDAQ IPO Russia ranks second in the world for digital piracy Russian messaging service Telegram raised another $850mn with ICO

17 17 18 18 19

Southeast Europe Russia's HeadHunter Group seeks to raise $250mn with NASDAQ IPO

20

The Regions This Month

21

GET THE BEST CONTENT DELIVERED STRAIGHT INTO YOUR INBOX!

SIGN UP HERE

bne:Tech

A FREE newsletter covering technology, blockchain, ICOs, TMT and all aspects of the "new economy" in Emerging Europe, Central Asia and MENA. Click the button to read the latest issue

SIGN UP HERE www.bne.eu


18

I Companies & Markets

bne November 2018

bne:Funds

Belarus retail giant Eurotorg mulls $300mn IPO in London IntelliNews Pro

E

urotorg, the largest food retailer in Belarus is planning to list around $300mn of its shares in London in coming weeks, according to Reuters.

The move could be the first international listing by a Belarusian business. The offering of global depositary receipts could be launched soon, according to an unnamed source. Reuters' sources declined to comment on the company’s valuation, but based on average valuation multiples of its peers, Eurotorg (aka Euroopt) could be worth close to $1.5bn including debt, according to bne IntelliNews sources close to the deal. Its main comparables include Dino Polska in Poland and BIM in Turkey, which respectively have enterprise values of 22.8 and 15.8 times core earnings, Refinitiv Eikon data shows. Eurotorg, which was facing a very high possibility of default on its debt obligations to local banks, placed $350mn five-

www.bne.eu

Belarus' largest supermarket chain hopes to raise $300mn in the country's first ever IPO soon

year Eurobonds in October 2017. Fitch Ratings has assigned Eurotorg a Long-Term Issuer Default Rating (IDR) of 'B-(EXP)' with a stable outlook. At the same time, Fitch has assigned an expected rating of 'B-(EXP)'/'RR4' to Eurotorg's proposed notes.

“Eurotorg (aka Euroopt) could be worth close to $1.5bn including debt” Successful measures to reduce debt, combined with solid Ebitda growth, helped to improve the net debt/Ebitda ratio to 3.0x as of June 30, compared to 3.2x at the end of 2017. The Ebitda/interest expenses LTM coverage ratio stood at 2.9x as of late June, compared to 2.7x as of late December 2017, the company said in a statement. 


bne November 2018

Companies & Markets I 19

bne:Tech

Russia's Yandex acquires coupon aggregator Edaadeal IntelliNews Pro

R

ussia's internet services major Yandex acquired 100% of discount and coupon aggregator Edadeal, RBC business daily said on October 2, citing the founder of the startup and ex-product manager of Yandex Natalia Shagarina. As reported by bne InelliNews, Edadeal is taking the Russian online retail business by storm, and is fomenting a revolution by offering punters a cashback reward for buying a product. Shagarina founded the company in 2012, with Yandex acquiring the first 10% in 2015 for an undisclosed amount. Analysts estimated that Edadeal could be valued at RUB600mn-800mn ($9mn-12mn). “I didn't set the company up because I had a good idea that I thought would make a lot of money,” Shagarina told bne IntelliNews in March. “I was just concerned with solving problems that affect my own personal life.”

The concept of the Edadeal site is simple. The home page looks like an online grocery store with lists of products you can buy – everyday things like groceries, cleaning products, pizzas, cosmetics – the kind of things that fill every family’s weekly shopping basket. The clever bit is the site works with retail stores and works out what is the most valuable way to buy these things for you. That doesn't just mean saving money – although discounts and deals are a big part of the offering – but it also takes into account how far away the various shops are from you and from each other and how much you like (or dislike) going to each shop. As of September Edadeal had over 6.2mn users, while MediaScope estimates that in August in large Russian cities the Edadeal app was 19th most popular website in Russia with 7mn visitors. Over 650 retailers and 50 top producers of fast moving consumer goods are partnered with Edadeal.

Russian cross-border online shopping up by 24% to over $5bn as of June IntelliNews Pro

I

n the first half of 2018 the cross-border spending of Russian online shoppers jumped by 24% year-on-year to $5.2bn, RBC daily reported on October 4 citing the data by the Central Bank of Russia (CBR). In the first quarter alone crossborder e-commerce was up by 35% to $2.72bn and moderated to 13.8% growth to $2.48bn in the second quarter, possibly due to ruble weakening. The Association of Internet Trade Companies (AKIT) previously expected cross-border online trade to reach RUB470bn480bn ($6.9bn-7.3bn) for 2018 overall. But the numbers having reached $5.2bn by the end of June already made AKIT

revise the outlook to record-high $11bn-12bn, up from $8.9bn seen in 2017. The second half of 2018 is expected to have higher crossborder online trade due to holiday discounts in Chinese online stores in November and higher spending of Russians in the end-of-the-year holiday season, the head of AKIT Artem Sokolov commented to RBC. Foreign online retailers have recently improved the delivery terms to Russia, are exempt from VAT, excise duties, and Russian red tape such as certification or online cash registers, Sokolov added.

www.bne.eu


20

I Companies & Markets

The main drivers of cross-border online trade are electronics, footwear and apparel, according to Deloitte as cited by RBC. The average cross-border receipt usually does not exceed RUB1,660 (€22). The rise in cross-border online trade could also be attributed to anticipation of further ruble weakening. However, the head of the National Association of Longdistance Trade (NADT) Alexander Ivanov argues that CBR's data is skewed and could include transportation costs. On his estimates cross-border online trade plateaued at about $3bn annually in 2016 with an average receipt of $12. Analysts surveyed by RBC note that poor regulation of crossborder online trade is another challenge to local retailers who see billions of US dollars leave the domestic market every year. To support local online and traditional retailers, the Federal Customs Service (FTS) plans to introduce a levy on any purchases in foreign online stores delivered to Russia starting in 2020.

bne November 2018

The move could reportedly bring RUB25bn ($0.4bn) to the Russian budget annually and make local e-commerce more competitive. Currently foreign online purchases of less than €1,000 per one consumer or below 31kg in weight ate not taxed. The Finance Ministry already suggested lowering this ceiling to €500 and to €200 in the longer-term, which was not approved by the government. However, the largest Chinese online retailer Alibaba could dodge tougher regulation through joint ventures with Russian companies. Alibaba is reportedly in talks with VTB Bank, and announced a partnership with Russian internet major Mail.ru, its shareholder mobile operator MegaFon, and the sovereign Russian Direct Investment Fund (RDIF). In the meantime another major emerging local e-commerce player Yandex.Market and Sberbank's joint venture said it will focus on developing a cross-border trade platform that uses non-Chinese suppliers of good quality, mass produced items, as well as announced cooperation with Turkish suppliers.

Czech company Prusa holds an extraordinary position in 3D printing among CEE countries, growing by 17,118% bne IntelliNews

A

survey by Deloitte entitled “CE Technology Fast 50”  was dominated by Czech companies, with three reaching the top five, Deloitte said in a press release. Czech developer and manufacturer of 3D printers Prusa Research became the fastest-growing technology company in the region with 17,118% growth year-on-year, followed by a Czech online travel agency Kiwi.com (2nd place, 14,377%) and an online pharmaceutical retailer Pilulka Distribuce (5th place, 1,681%).

According to Jan Homola at the International Engineering Fair, the fifth 3D press conference held in Brno, 3D printing is one of the most robust segments in manufacturing technology, and has been growing at a double-digit pace for several years. The fastest growing market is metallic 3D printing. “GE Aviation in Prague has been developing an aircraft engine Catalyst, making it one of the first engines to use printed metal parts in real-life traffic." Homola adds.

“Czech firms dominate this year’s rating with unprecedented growth. Kiwi.com did not defend its last year’s victory and was replaced by Prusa Research; however, both firms are growing much faster than the closest competitors and essentially have created their own competition. I am almost certain their results will guarantee top positions for them in the EMEA round of Fast 500,” says Director of Deloitte Technology Fast 50 CE Jiri Sauer.

Other Czech companies among Deloitte´s top 50 are Proficio Marketing (8th place, 1,228%), StartupJobs.cz (18th place, 605%), INVENTI SOLUTION (23rd place, 534%) and ZOOT (25th place, 513%).

In the area of additive production 3D printing, the Czech Republic has an extraordinary position in the world. The companies such as Prusa Research are synonymous to the quality in 3D printing production worldwide, Czech News Agency reported the vice-president of the association Klastr Aditivni Vyroby saying of Klastr of Additive Production.

www.bne.eu

Prusa Research was founded in 2009 as a one-man startup of Josef Prusa. Within few years it has evolved into one of the most innovative and growing companies in the 3D industry, producing over 1,000 printers a month with a team of 60 people (as of September 2016). Kiwi.com is an online travel agency, providing a fare aggregator, metasearch engine and booking for airline tickets on its website.


bne November 2018

Companies & Markets I 21

Croatia’s Rimac to supply EV technology to Automobili Pininfarina in €80mn deal Carmen Simion in Bucharest

C

roatian technology and electric sports car company Rimac Automobili announced on September 28 it will provide battery and drivetrain expertise, software and hardware, in a contract worth up to €80mn to Germany’s Automobili Pininfarina for the development of their electric hypercar, the PF0. Rimac’s main focus is on high-voltage battery technology, electric powertrains and the development of digital interfaces between man and machine (HMI Development). Rimac also develops and produces e-bikes under its subsidiary Greyp Bikes. In June, Porsche AG took over a 10% stake in Croatian company. The contract with Automobili Pininfarina marks a significant step for both parties as the Munich-based company secures an innovative, successful and highly proficient technical partner, whilst Rimac partners with an iconic brand and secures

their first full-system series production automotive supply contract, Rimac said in a statement. Automobili Pininfarina, owned by the Mahindra Group, was launched in April 2018 with the mission to produce luxury electric hypercars. The first Pininfarina-branded stand-alone car – codename PF0 – will be revealed in 2019. “From the moment I met Mate [Rimac, founder and CEO of Rimac Automobili], I knew that he and his team at Rimac could provide the power we need to deliver memorable driving experiences to match the incredible design standards set by Pininfarina," commented Michael Perschke, CEO of Automobili Pininfarina, in a statement. This collaboration brings together the future of electric performance with the heritage of Pininfarina’s legendary automotive styling capabilities to deliver a truly beautiful hypercar.

Russian data storage law not properly implemented IntelliNews Pro

T

he controversial data storage law or "Yarovaya Law" that came into effect on October 1 is not properly implemented by telecom and internet operators, as they are not ready with implementing the massive data storage systems, Vedomosti daily reported on October 1. The legislation, authored by lawmaker Irina Yarovaya, requires that operators store recordings of users’ calls and online activities for six months under measures ostensibly aimed at combating extremism and terrorism. The availability of stored data to Russian security services has raised concerns about civil liberties, came in contradiction

with EU regulations, while implementing the law risks to burden telecom companies with 0.5-1.0x additional leverage. But as of October 1 2018 the operators are lacking the normative base for implementing the law, which includes the characteristics, the certification process, and installation process of the required data storage systems, unnamed industry sources told the Vedomosti daily. The Ministry of Communication and the Federal Security Bureau (FSB) have not yet defined the requirements for the data storage systems and access to the data storage network, the Russian Association of Electronic Communication (RAEK) confirmed.

www.bne.eu


UKRAINE’S RENEWABLE RUSH STILL FACES UNCERTAINTIES 22

I Cover story

Fabrice Deprez in Nikopol

www.bne.eu

bne November 2018


Cover Story I 23

bne November 2018

A

cold autumn wind is sweeping through the roughly 400 hectares of dirt that will soon host the biggest solar plant in Ukraine. 350 workers started laying 750,000 solar panels in this former ore quarry near the city of Nikopol, in southern Ukraine. DTEK, the Ukrainian energy giant which will operate the plant, says it is set to start running in early 2019. To keep to the schedule, the number of workers will soon rise to a thousand, most of them Chinese employees from the China Machinery Engineering Corporation. “We’re ambitious,” DTEK CEO Maxim Timchenko told bne IntelliNews. “Our goal is to set up 1GW of capacity in renewables by the end of 2019.” 40 kilometres south, on the bank of the Azov Sea, the company is also getting ready to operate 26 wind turbines currently being built by General Electric. Sunny weather and the steady breezes blowing from the Azov Sea have put the southern regions of Zaporozhe and Dnipropetrovsk at the heart of Ukraine’s recent rush into renewables. Its supporters hope the increasing number of projects could translate into major foreign investments and bolster Ukraine’s energy independence. At the same time, uncertainties over the energy reform mean the sustainability of this growth is still unclear. Ukraine still relies on soviet-era nuclear power plants as well as gas and coalpowered thermal plants for its electricity. Nuclear, natural gas, oil and coal make up 96% of the country’s energy mix, with renewables estimated at somewhere between 1 and 2%. Several of these traditional facilities are also located in southern Ukraine: a 20 kilometres radius around the Nikopol solar plant includes both the most powerful nuclear plant and coal-powered thermal plant in Ukraine. The latter is also owned by DTEK. DTEK is owned by Ukrainian oligarch Rinat Akhmetov, Ukraine’s wealthiest man. The conglomerate controls 70% of the country’s thermal plants, which provide most of the electricity. At the

same time, it is set to become the biggest player in Ukraine’s renewables sector. Rush into renewables Renewables is still in its infancy in Ukraine, but it has seen a flurry of projects in the last two years. The number of licenses for producing renewable energy delivered in Ukraine grew from 131 in 2015 to 163 and 230 in the following years, according to the Ukrainian Association of Renewable Energy (UARE). State-run power company Ukrenergo expects the country’s renewable energy capacity to go from the current 1.5GW to 3GW in 2019. Renewables have benefited from socalled “green tariffs”, state subsidies designed to boost investment in clean energy. “The green tariff is set in euro, which is important to make it attractive to investors,” Iryna Krymus, an expert at the UARE, told bne IntelliNews. Launched in the country in 2008, the green tariffs jumpstarted the renewable sector in Ukraine: 12 licenses for renew-

solar power plant in the Kherson region. DTEK has also signed a second contract with US General Electric to supply equipment for Prymorska wind farm in the Zaporizhia region in October. Media also extensively reported on the construction of a 1MW solar plant in Chernobyl’s “exclusion zone”, which was the result of a partnership between Ukrainian company Rodina and Germany’s Enerparc AG. Ukraine’s incentives to switch to renewables include the fact that “most of the existing power generation facilities in Ukraine are worn out and inefficient” Igor Dykunskyy says. As they will need to either be overhauled or replaced in the coming decades, renewables might prove a viable alternative. But the most powerful argument could be the issue of energetic independence: the seizure of Donbas by Russia-backed separatist groups has forced the country to increase its imports of anthracite coal, mostly from Russia, to keep thermal plants running.

“We’re ambitious. Our goal is to set up 1GW of capacity in renewables by the end of 2019” ables projects were delivered in 2009, and 107 in 2013. “We started investing in renewables in 2010, with a pilot project, 200MW of wind power” DTEK CEO Maxim Timchenko says. “It was very successful, but the 2014 political and economic crisis forced us to suspend all our expansion projects. Now however, we’re back on the market.” Foreign investors have also shown interest in renewables. In Nikopol, where DTEK has set up its 200MW solar plant, Canadian company TIU Canada is planning to start operating a 10.7MW solar power plant in January. Norway's Scatec Solar announced in June it would soon begin construction of two solar parks in the Cherkasy region with a total capacity of 83MW. Ukrainian businessman Vasyl Khmelnytsky has completed a 18MW

The shadow of the energy reform The attractiveness of the green tariffs, reforms and the gradual recovery of the Ukrainian economy are generally credited for the growth of Ukraine’s renewables sector. “A key reason for the development of renewables in Ukraine is a good regulatory regime and guarantees from the state to investors,” Maxim Timchenko said. Oleh Savitskyi, an energy policy expert for the NGO “Ekodia”, also pointed out the support of state power company Ukrenergo as a major factor: “They’re pro-renewables. They are not restricting access to the grid and they created a very transparent and clear procedures for grid connections,” he says. But analysts also see behind the rush a desire to take advantage of beneficial

www.bne.eu


24

I Cover story

conditions before upcoming regulatory changes. Ukraine has engaged in an ambitious energy reform that plans to do away with the current green tariffs to replace them by an auction system. Rather than providing fixed subsidies,

bne November 2018

July 2019 will be able to keep benefiting from green tariffs until 2029. Igor Dykunskyy, managing partner at DLF attorneys-at-law believes that “there is a risk of a decline in the renewable energy sector in Ukraine

“Renewables is still in its infancy in Ukraine, but it has seen a flurry of projects in the last two years” the government would issue tenders to buy a certain capacity of renewables electricity.

after 2020. Once the feed-in tariff is reduced, the payback period of the projects will increase.”

“Right now, there’s a window of opportunity to get the green tariff before it is cancelled, so we see a rush of projects,” Oleh Savitskyi says. “But this is very short term, and there’s a real possibility we’ll see a drop in the numbers of big projects when the auctions are introduced.”

The current appetite for renewables projects could, paradoxically, cause some issues too. Analysts worry that the grid connection in southern Ukraine, where most of the renewable projects are located, might soon be saturated. “The construction of new power plants will not make any sense without the development of power transmission and storage systems,” according to Igor Dykunskyy.

The current draft of the law states that renewable projects set up before

Ukraine still has major advantages that could make it a serious player in the renewable business. Its geographic position makes it ideal for both solar and wind power, with several promising regions (such as the western Transcarpathia) still untapped. The country joined the International Agency for Renewable Energy as a member in February 2018. And while renewables represent less than 2% of the total energy mix, it “accounted for around 6.4% of the total electricity generation by January 2017,” a Carnegie Europe report found. The figure is half the target (11%) set up in the National Renewable Energy Action Plan, adopted in 2014. “Renewables will take a larger share of the market,” Oleh Savitskyi argues. “How big will depend mostly on political factors, the two key issues being unfavourable conditions for foreign investors and problems with the independent regulator, who isn’t independent.” Ukraine’s National Energy Regulator Commission was established in 2014, and has since regularly been accused of being subject to intense political pressure.

RUSSIA Oil rich Russia is lagging behind the rest of the region in embracing renewables. While the country is also home to rivers ideal for the production of hydropower by 2025 the share of renewable energy sources in Russia's energy mix will amount to 1% or 11.3bn kWh, well behind the official government's target of 4.5%. To meet the target Russia needs to add 24GW of install capacity but the state support programme for the sector includes plans for only 5.5GW of solar and wind stations and 445MW of waste-toenergy stations. The state technology promotion agency Rosnano has said Russia has the world's biggest potential for wind generation and estimated that 10GW of new capacity is required in 2025-2035 to support domestic renewable energy sector. Previously the government planned to auction 3.351GW worth of licences but has cut that to 250MW under the reduced plans, while the number of planned hydropower stations has been halved to 425MW of planned new capacity. Solar power investment was the only part of the

www.bne.eu

programme that was expanded by 240MW to 1.759 GW, Prime-TASS reported. Rosnano has tied up with Finland's power company Fortum and set up a wind power development fund. The partners plan to invest RUB30bn ($526mn) into wind farms projects over the next five years that can generate several hundred megawatts of power. To meet the government plan a total of RUB1.37 trillion ($20.89bn) needs to be invested, but the gains to GDP are worth RUB1.54 trillion according to experts. EXISTING PROJECTS INCLUDE: • Fortum wind farm: was completed in 2017 with 35MW of installed capacity in Ulyanovsk region in the Volga basin. Other prospective sites for wind farms are near the cities of Rostov, also in the Volga basin, and Murmansk on the northwestern coast, as well as Krasnodar in Siberia and the southern Stavropol region.


bne November 2018

PLANNED PROJECTS INCLUDE: • Rushydro wind farms: plans to invest $1bn into the Far East to build a total of 250-300MW of which the company is already committed to the construction of 50-60MW of wind power stations.

Cover story

I 25

• Enel Russia wind farm: has commitments to build 291MW of wind power. • Renova solar plants: together with Rosnano commitments to build 250MW of solar power energy plants.

UKRAINE Ukraine has thrown itself into renewables as it strives to break its dependence on Russian gas imports. Several large projects have been completed and more are planned.

EXISTING PROJECTS INCLUDE: • • Chernobyl solar plant: completed in October a 1MW solar plant next to the Chernobyl nuclear reactor. 3,800 photovoltaic panels will produce enough power to light 2,000 households at a cost of $1.1mn. Operated by Ukrainian company Rodina and Germany’s Enerparc AG. • Kherson region solar plant: Ukrainian businessman Vasyl Khmelnytsky completed the 18MW solar power plant earlier this year that is operated by UDP Renewables. • Prymorska wind farm: the first phase of this farm in the Zaporizhia region is complete and operator Ukrainian utilities major DTEK recently signed a deal with US General Electric to supply equipment for a second stage. Install capacity is 100MW that will be doubled in the second stage. Each stage costs €150mn. PLANNED PROJECTS INCLUDE: • Windkraft wind farm: also in the Kherson region will be completed in 2018 with installed capacity of 170MW that will be increased to 110-240MW in a second phase. • Lymansky wind farms: two units planned for the Odesa

region with installed capacity of 120MW and 72MW operated by Ukraine Power Resources and Yuzhne Energy. Cherkasy region solar plant: under construction by Norway's Scatec Solar with an installed capacity of 83MW at a cost of €85mn that should be complete in 2018. Botievo wind farm: the first wind farm project in utilities major DTEK renewable portfolio, the company borrowed €235mn from Germany’s LandesBank Berlin to construct the 90MW wind farm in the Zaporizhia region. I&U Grou biomass plant: the EBRD recently agreed to provide €15mn to finance the construction of a 6MW biomass energy plant for the Ukrainian agricultural company in the Kirovograd region of central Ukraine. Primoskaya wind farm: In August, DTEK Renewables, the holding company consolidating DTEK renewable energy assets, has raised €90mn in debt financing for the construction of the first stage of the Primorskaya wind electricity plant with a capacity of 100 MW also in the Zaporizhia Region. A second stage will increase the capacity to 200MW at a cost of €90mn. Dnipro solar plant: French-Ukrainian company MAIN Group Ukraine, plans to break ground next Spring on a $100mn, 85MW solar power plant in a Dnipro city suburb on 175 hectares in the Igren district. The main shareholder of MAIN Group Ukraine is French company Ribour Participations, which is main owner of Ingeliance Group, a Bordeaux-based engineering company.

HUNGARY Hungarians are embracing solar power and the number of Hungarian homes powered by their own solar panels rose by a whopping 45% y/y to 29,600 last year, data released by the energy regulator MEKH. The capacity of most household power plants is below 5kW. Energy generated by them reached 241MW (MW refers to power), a 46% annual increase. EXISTING PROJECTS INCLUDE: • MET Dunai Solar Park: operated by the MET Group energy holding, which has invested €25mn into a solar

park and started to produce electricity on October 26. The 17.6MW solar power plant built in Central Hungary is the company’s first renewable energy project, producing enough electricity for 9,000 households. PLANNED PROJECTS INCLUDE: • Matrai Eromu Visonta solar power plant: Hungary’s largest coal-fuelled power plant Matrai Eromu broke ground on two solar power plants this year with 20MW capacity each – the largest solar power project in Hungary.

www.bne.eu


26

I Cover story

bne November 2018

• MVM Hungarowind solar plants: the subsidiary of the state-owned electricity firm MVM plans to build 110 small solar plants with a maximum capacity of 0.5MW each across the country, co-funded by the EU.

• MOL solar plants: the national oil company is in the process of building three solar plants at industrial sites across the country that will have a combined installed capacity of 18.3MW.

BALTICS All three Baltic states have been trying to diversify away from traditional fossil fuels to renewables to improve their security. Lithuania already produced 178MW (MW refers to power) from wind power in 2016, but it remains largely dependent on traditional fossil fuel sources of energy. Latvia was an early investor in renewables, making much of its progress before 2004, and increasing only modestly in the following 12 years, while as of 2016 it still fell slightly short of its 2020 target. Hydropower production

leapt by 73.2% in 2016 in Latvia and wind power was up a healthy 17.1%. Over the last ten years the share of gas fuelled power has fallen by 5% to reach just 23.4% in 2017, with the share of renewables overtaking gas to make up 32.9%. Fuel wood makes up another third. Estonia also managed to break its addiction to gas by exploiting local shale gas rocks. Already in 2007, more than 90% of its power was generated from oil shale. The Estonian energy company Eesti Energia owns the largest oil shale-fuelled power plants in the world, the Narva Power Plants.

POLAND Poland made a good start on moving to renewables in the noughties but is lagging behind its EU targets now. Some 80% of its power is still generated by coal-fired power stations.

Polish power sector is facing an increased cost of electricity generation after the cost of permits to emit carbon dioxide skyrocketed 265% y/y to nearly €25 per tonne in September, which is pushing the country to accelerate its green energy programme.

The government is planning 10GW of offshore wind power by 2030 the government said in September.

ALBANIA Albania is the greenest country in Europe, with 85% of the electricity consumed in the country generated from renewable sources, according to Eurostat. Only Iceland and Norway beat Albania in the share of green energy they consume. Some of the main hydropower infrastructure

was built back in the communist era such as the Komani HPP on the Drin river, which provides some 65% of the country's electricity. The rest of the EU has a target of achieving 20% final energy consumption from renewable sources by 2020.

ARMENIA • Masrik-1 solar plant: Fotowatio Renewable Ventures (FRV), part of Saudi-based Abdul Latif Jameel Energy, won a tender and will invest $40-50mn to build Armenia’s first solar power plant. When completed,

www.bne.eu

the 55MW plant will provide power to more than 21,400 homes. Construction work is due to start in early 2019 and the plant goes online in 2020.


bne November 2018

Cover story

I 27

KOSOVO • Kosovo wind park: A unnamed French company said it is ready to invest €120mn in a wind park project in Kosovo

in October. The wind park will produce 80MW of power, according to the French ambassador.

MACEDONIA • ELEM solar power plant: Macedonia’s state-run power producer ELEM plans to invest €10mn into a 10MW solar power plant – the first solar park built by ELEM.

The project is part of ELEM's strategy to diversify its electricity production and to increase production from renewable energy sources.

MONTENEGRO • Briska Gora solar power plant: A consortium of Finland’s state energy company Fortum and Montenegro’s majority state-owned power firm EPCG is the front runner in a tender in October for the construction of a 100MW solar power plant in Briska Gora in the

northern part of the country that will cost €178mn. • Podgorica solar power plant: The local authorities of Montenegro’s capital Podgorica plan to build a solar power plant in the nearby village of Velje Brdo.

SERBIA Serbia will connect 200MW of wind power plants to its network by the end of the year, Energy and Mining Minister Aleksandar Antic said in October. • Kosava wind farm: Fintel Energija, the Serbian subsidiary of Italian Fintel Energia Group, plans to invest €120mn

in the first phase of the Kosava wind farm near the northern town of Vrsac in Vojvodina, the company said in July – the largest investment so far in the renewable energy sector in Serbia. The first phase will consist of 20 wind generators with a total installed power of 69 MW and will produce enough power for 45,000 households.

BOSNIA • Vrbas hydropower plant: Bosnia & Herzegovina’s Serb-dominated entity Republika Srpska signed a deal with Russia’s Rakurs Engineering in September for cooperation on the completion of a cascade of mediumsized hydropower plants on Vrbas river in a project estimated to cost €500mn.

• Trusina wind and solar park: Launched in July the two projects in the Republika Srpska will have installed capacity of 49.5MW and 65MW respectively. • Dabar hydro power plant: a tender is being held for the 160MW hydro power plant, which is estimated to cost €200mn.

ROMANIA In 2030, Romania will surpass the renewable energy target set by the European Commission, according to a Deloitte study. In 2020, the share of electricity from renewable sources will reach 26.8% of Romania’s power consumption, over the European Commission’s 20% target in the EU. In 2030, renewable energy will reach 35.5% of the domestic

consumption, also over the European target of 32% for that year, local Economica.net reported. The local electricity production will reach 73.1 TWh in 2030, 24% of, which will be produced in hydropower plants, 23% in wind parks, 22% will be nuclear power and 10% will come from photovoltaic parks, according to Deloitte estimates. The total installed

www.bne.eu


28

I Cover story capacity of local power plants should reach 26.6 GW, with shares of 26% for hydro and wind and 18% for solar. The electricity consumption per capita in Romania will also

bne November 2018

grow until 2030, to reach 54% of the EU average, up from 45% in 2020. The increase will come from higher electricity use for transport and household heating/cooling.

MONGOLIA Mongolia will raise its renewable energy capacity by 120MW this year, to bring the total of renewable energy generation to 20% of the country’s electricity needs by 2020 and 30% by 2030.

is located 542 kilometres south from Ulaanbaatar in the Gobi desert.

• Salkhit wind farm: Mongolia’s first 50MW wind farm is located 75km from Ulaanbaatar, cost $122mn and went online in 2012.

• Sainshand wind farm: Mongolia’s third wind farm is located 460 km south-east of Ulaanbaatar in the Gobi Desert and being financed by French multinational electric company Engie. The 55MW wind power project is due to be completed in 2018.

• Tsetsii Wind Farm: the 50MW wind farm cost $128mn provided by the European Bank for Reconstruction and Development (EBRD) and Japan International Cooperation Agency (JICA). Launched in 2017, the plant

A 15 MW solar power plant has launched in Dornogovi province in May. Two more solar power plants with a capacity of 20 MW and 30 MW, respectively, are planned for 2018.

TURKEY Turkey’s installed capacity is 76,550MW at present, up from 27,264MW in 2000. Turkey is targeting 20 GW of capacity in wind power and the generation of 30% of its energy from renewable sources by 2023.

ern Turkey on the Dardanelles Strait, and Denizli (66 MW) in the eponymous province in the southwest of the country. The nine new solar photovoltaic plants in five locations across Turkey with a combined capacity of 85MW.

Turkish solar power production rose by 175% to 2.8mn megawatt-hours in 2017 compared to the previous year. Turkey intends to install 5,000MW of solar PV capacity by 2023. The country’s installed solar power capacity was 833MW at the end of 2016 and has risen over 200% in the last year. The ratio of solar electricity production against all electricity production increased to 0.97% in 2017, from 0.38% in the previous year. Turkey’s wind power production increased by 15.2% to 17.9mn MWhrs in 2017.

• World’s biggest offshore wind farm: In June the government started accepting bids to build a 1,200MW offshore wind farm – the worlds biggest. Turkey’s Ministry of Energy and Natural Resources has officially set the ceiling for the price of one megawatt-hour at $8. Turkey has identified locations in the Marmara region in northwest Turkey straddling Europe and Asia and the Thrace region on the Black Sea as the potential sites to host the offshore wind farm.

The EBRD has provided €400mn in financing to support Turkey’s Sustainable Energy Financing Facility (TurSEFF). The total investments required to meet Turkey’s expected energy demand in 2023 is estimated to be around $110bn, more than double the total amount invested in the last decade. • Akfen Renewables: The energy arm of the Turkish conglomerate by the same name owns several renewable energy resources. In September the company signed a $102mn loan deal with the EBRD to construct four new wind farms and nine solar PV plants with a combined capacity of 327MW. The wind farms have a total capacity of 242 MW: Ucpinar (99 MW), Kocalar (26 MW) and Hasanoba (51 MW) in Canakkale, a province in northwest-

www.bne.eu

• Fina wind power projects: GE Renewable Energy and Fina Enerji, owned by Fiba Holding, on March 12 signed an agreement to build eight wind projects with installed capacity of 410MW of power by 2020. Fina already has nine wind farms with a capacity of 336MW and four solar energy plants with 25MW. An additional 200MW is due to be complete in the next 24 months. Nine wind power plants with a capacity of 425MW are expected to be completed by 2020 bring the companies total capacity to 761MW within two years. • Konya solar power plant: In March, a Turkish-South Korean consortium placed the best offer to build a 1,000MW solar PV plant near the city of Konya, Central Anatolia. The consortium, made up of Turkey’s Kalyon and South Korea's Hanwha, offered a sell price of 6.99cents/kWh for the electricity to be produced by the $1.3bn solar plant.


bne November 2018

Cover story

I 29

From our desk to yours Get the original CEE, Central Asia, MEA and South Asia business newswire. Try IntelliNews Pro for free today at j.mp/intellinews-pro

PRO www.bne.eu


30

I Central Europe

bne November 2018

Croatia posts highest increase in insolvencies in CEE in 2017 bne IntelliNews

C

roatia recorded a 40.1% increase in insolvencies last year, the largest rise in the Central and Eastern European region (CEE), a Coface study showed on October 9.

"High capacity utilisation and solid demand encouraged companies to expand their capacities,” Grzegorz Sielewicz, regional economist, Coface Central & Eastern Europe, explained.

Despite the fact most of the countries in the region experienced higher rates of economic growth, the overall number of insolvencies in the region rose last year by 6.4%, after a decline of 6% registered a year before and a 14% plunge in 2015. Apart from Croatia, the highest increases in insolvencies were reported by Poland (+16.4%), Hungary (+14.4%) and Serbia (+13.1%).

Insolvencies in Central Europe

In addition, more countries were affected by an increase in insolvencies in 2017. During the year, nine countries reported a higher volume of insolvencies (Croatia, Estonia, Hungary, Lithuania, Poland, Romania, Russia, Serbia, and Slovenia). Only five reported a decline.

www.bne.eu

“In addition to this, positive periods in the economy motivated new businesses to set up, despite the high level of competition prevailing in a number of sectors. Companies frequently experienced


Central Europe I 31

bne November 2018

increases in turnover, but lesser increases in profits. Profits were constrained by rising costs, including wage growth and the higher costs of inputs – as confirmed in accelerating producer price indexes,” he added.

Further delay to Paks nuclear power plant expansion bne IntelliNews

In Croatia, the surge is explained by the current bankruptcy law, under which the National Financial Agency (FINA) is obliged to start bankruptcy proceedings for any company whose accounts have been blocked for more than 120 days. Coface expects insolvencies to rise 1.3% this year in Croatia. In Poland, statistics are still affected by legal changes that were implemented in 2016, when separate laws were introduced to cover insolvencies and the restructuring of companies which are experiencing payment problems. Next year, Coface expects insolvencies to rise 20.2%, the highest hike in the region. However, although changes in legislation made the total number of proceedings higher than a year before, Poland still recorded the lowest insolvency rate in the CEE region, of just 0.04%. By contrast, the strongest decrease of insolvencies were recorded in Slovakia and the Czech Republic, by 27.1% and 26%, respectively. The drop in the Czech Republic was supported by legislation changes as well as by the economic environment. Similarly, Slovakian profited from supportive economic developments. Despite the economic acceleration, insolvencies still remain above the precrisis levels of 2008 in most countries, the study showed. Only Romania and Slovakia enjoy lower levels of company insolvencies than before 2008.

“Companies frequently experienced increases in turnover, but lesser increases in profits”

The tender for the extension of the cooling canal system at the Paks nuclear power plant, a key safety investment, has been declared invalid, which will further delay the project, already behind schedule by at least two years, Hungarian local media reported on September 28. Hungary is expanding its sole nuclear power plant in Paks, which accounts for 40% of the electricity produced in the country. Based on a 2014 intergovernmental contract, Hungary picked Rosatom for the largest ever investment. The €12.5bn project is being financed from a €10bn Russian loan. Parbeszed MEP Benedek Javor reported on his blog that Russia’s Rosatom, the main constructor of the project, had received no valid bids to extend the cooling canal system.  There are numerous other procurement tenders that have been rendered invalid due to the lack of interest or the failure to meet criteria. "The series of unsuccessful procurements show that market participants are simply not interested in the project, and it may prove to be difficult to get the right companies and professionals engaged in the construction,” Javor said.  Expanding the cooling-water discharge capacities at Paks is one of the most important projects environmentally. In the summer the temperature at spots where cooling water is discharged to the Danube almost exceeded regulatory limits. If they had been breached, the power plant would have had to be shut down. As the capacity of the Paks nuclear power plant will double from 2,000Mw to 4,400Mw by adding two new blocks, the cooling-water discharge capacities will rise from 100 m3/s to 232 m3/s. The delay at Paks was discussed during Prime Minister Viktor Orban’s talks with Russian President Vladimir Putin in September. The Hungarian PM blamed “the bureaucratic practices of the European Union” for the delay, but in fact the Hungarian authorities have also been late issuing licenses. The minister without portfolio for the Paks expansion told the parliament’s economic committee in May that the project is 22 months behind schedule because of the earlier challenges launched by the European Commission and because of amendments to contracts, therefore the two new units will not be completed before 2026 or 2027.  In related news, block three of the nuclear power plant has been running at reduced capacity for a time because of scheduled repairs. The event has no impact on nuclear safety and on the operation of the other blocks, according to information on MVM Paksi Atomeromu's website.  

www.bne.eu


32

I Central Europe

bne November 2018

pocketing extra profits, HUF60bn since 2010. The scheme is expected to cost the budget HUF70bn this year, which is roughly 0.3% of the budget’s expenditures for 2018. Savings in the funds could be used to build a swimming pool or a sauna, he also lamented.  The government’s swift move to do away with home savings funds caught market players by surprise. Customers line up to sign last-minute contracts at home savings fund Fundamenta.

Hungarian government to abruptly phase out home savings funds Ben Aris in Berlin

T

he Hungarian government plans to phase out the state subsidy on deposits with home savings funds, according to a bill submitted by the ruling Fidesz party on October 15. Parliament could vote on the proposal as early as October 16, after which it could be signed into law. Subsidies on existing contracts would be paid until the saving period ends.

long queues at its offices. Customers will only have a couple of days to sign up for a new contract.

Under the Hungarian home savings fund scheme, there is a minimum four year pre-saving period, after which clients can tap their deposits and take out loans to buy or upgrade their homes.

Analysts said home savings funds offer a good investment opportunity with a risk-free annual yield of 10% due to the state grants. Fidesz MP Erik Banki, who heads the parliament's economy committee and submitted the proposal, said home savings funds had not served the purpose of supporting home construction effectively recently. He said the scheme has become inefficient and costly to the state and taxpayers.

Home saving funds began operating in 1997 and three players came to rule the market. Fundamenta-Lakaskassza, Hungary's biggest home savings bank, had total assets of HUF483bn (€1.5bn) at the end of last year, followed by OTP with HUF325bn and Erste with HUF75bn. The value of loans extended by the top three home savings funds was HUF289bn. After the announcement, Fundamenta reported an influx of new inquiries and

www.bne.eu

Previously rumours emerged that the government would raise the state subsidy to HUF100,000 for annual payments of HUF480,000. Under the current scheme, there is a HUF72,000 subsidy on annual payments of HUF240,000.

Deposits in home savings funds accounted for one-third of savings, including pensions and health funds, they eat up three quarters of total state subsidies, he added. He blasted home savings funds for

The scheme has helped mainly lowerincome households, and the swift termination of the scheme sends a wrong message and has a damaging consequence for households’ willingness to save in the future, some critics said. Other analysts said the government could have tightened the rules to make the scheme more efficient if it really wanted to. If the bill is passed, the government will channel money saved on state subsidies to home saving funds to increase funding for its home purchase subsidy scheme (CSOK). There are more than 90,000 Hungarian families, who have received HUF250bn in grants under the programme since 2015. The scheme favours upper-middle-income families. There is a maximum of HUF10mn in state grants for the purchase of new homes for families with three or more children. Opposition MPs have lashed out at the proposal and suspect that the government will channel subsidies to companies that organise so-called National Home Purchasing Communities (NOK).  Parliament approved legislation on the establishment of such communities in the spring of 2016, based on the UK’s building society model. Local media reported that Central NOK Szervezo, the first such company to receive a licence, had ties to businessmen close to Fidesz. There is a maximum HUF300,000 subsidy on an annual payment of HUF1mn under the scheme.


Central Europe

bne November 2018

I 33

Pro-Russian party wins Latvia election but new government could be long in the making Wojciech Kosc in Warsaw

T

he pro-Russia centre-left Harmony party won the Latvian general election on October 6, scooping 19.8% of the vote and 23 seats in the 100-seat parliament. But it might end up isolated from power once again.

A coalition securing at least 51 seats in the parliament is possible if the JKP, the National Alliance, liberals, and the Greens and Farmers Union manage to strike a government agreement in the coming weeks.

Harmony’s apparent pro-Russia stance is a political liability in Latvia, once a part of the Soviet Union and currently an enthusiastic member of the EU and Nato.

The populists from KPV LV were seen as a possible coalition partner to Harmony but would still need a minimum of 12

The party is not well liked by the other parties in the country. Following a recent revamp with a social-democratic gloss, Harmony won the most votes in the last three elections yet it was invariably pushed aside by a coalition government of other parties, a scenario that appears likely following the most recent vote.  However, the fragmentation of the votes cast for other parties means coalition negotiations to ensure Harmony is marginalised once again could be difficult and prolonged. 

now expected to nominate a new prime minister. The president has given the parties two weeks to hold informal talks on a potential coalition set-up before he steps in. Vejonis said he would make sure that the new government guarantees Latvia’s current course. The new government should keep Latvia’s foreign policy

“Harmony won the most votes in the last three elections yet it was invariably pushed aside by a coalition government of other parties” seats to secure a majority. It is not clear at the moment if any party is ready to end Harmony’s long-standing isolation. Latvian President Raimonds Vejonis is

unchanged, continue to strengthen national security, and maintain a balanced state budget, the president tweeted in reaction to the election results.

The populist KPV LV and the New Conservative Party (JKP) respectively won 14.3% and 13.6% of the vote and will have 16 seats in the parliament each. The National Alliance and liberal For Development/For! Will have 13 MPs each after winning 12% and 11% of the votes, respectively. The Greens and Farmers Union won 9.9% of the votes and will have 11 MPs while the New Unity party will have eight seats after winning 6.7% of the electorate.  Nine other parties partaking in the election did not manage to win the minimum of 5% of the vote needed to secure a parliamentary representation.

Pro-Russian Harmony, led by Nils Usakovs (pictured) has recently revamped itself with a social-democratic gloss.

www.bne.eu


34

I Southeast Europe

bne November 2018

Generation Z is the first completely digitalised generation.

Romania’s “disobedient” GenZ shuns employment for startups Clare Nuttall in Bucharest

A

large share of the startups in Romania have been launched by people in the 29 and under age group, indicating Generation Z Romanians increasingly prefer to launch their own businesses, analysis from consultancy Cromwell Evan Global shows.  The data from the National Statistics Institute reveals no less than 54.41% of shareholders in companies in Romania were in this age group as of July 31, 2018, up a dizzying five times compared to 2017.  “These are the representatives of generation Z: the completely digitalised generation. Extremely ambitious, but with a low level of obedience, those can become successful entrepreneurs,” said a comment from the newly launched Bucharest-based consultancy. 

www.bne.eu

There’s some ambiguity over when Generation Y, also known as the Millennial generation, ends and Generation Z begins. US-based think tank Pew Research Centre announced earlier this year it would apply the

term “millennial” only to people born between 1981 and 1996, meaning that by its definition millennials are aged between 22 and 36. According to that definition, many of the

Industrial Production & Industry Value-Added


Southeast Europe I 35

bne November 2018

shareholders in the Romanian National Statistics Institute’s 29 and under category are actually Millennials, but wherever the line is drawn the figures show a startlingly large proportion of shareholders are in the youngest decade of adulthood. Cromwell Evan Global’s founder and co-managing partner Oana Motoi told a press conference this is a phenomenon seen all over the world, not just in Romania. 

with a certain kind of lifestyle – rather than seeking to build groundbreaking businesses.

entrepreneurs in Romania, already a popular destination for international IT and outsourcing firms.

“We have seen large multinationals starting to work with subcontractors because this generation doesn’t want to get stuck in the office, work eight hours

Examples of successful companies launched by older generations of Romanians include robotic process automation (RPA) software

“They are the creators of the new business type: from specialty coffee shops and design studios, to IT hubs or fashion businesses”

The other observation made by Motoi is that a lot of the businesses launched by younger Romanian adults are "more oriented towards creatives, restaurants and things like this”. “They are the creators of the new business type: from specialty coffee shops and design studios, to IT hubs or fashion businesses,” the firm’s analysis said.  This indicates that younger entrepreneurs are embracing sectors that fit in

a day and sometimes more, they want to be flexible, they want to have a flexible programme and so on,” Motoi told journalists. And while many of the businesses launched by young entrepreneurs may not have the potential for breakout success, the exception is the IT sector, which has been highly attractive for

company UiPath, which raised $225 million in its latest series C funding in mid September, taking its valuation to $3bn. Bitdefender is another example of a company founded by Romanians that has achieved international success, but there are also strong examples across the IT hardware and game development segments among others.

Key topics - 2018:

The largest conference for capital market professionals in Russia

Saint-Petersburg December 6-7 2018 LEAD PARTNERS:

XVI Russian Bond Congress

• Fixed income market regulation and infrastructure in Russia • Traditional discussions: macro-analysts, FI-analysts, portfolio managers • Corporate bonds • Subfederal and government bond market • Structured products market • High yield in Russian DCM • Investments in infrastructure: green bonds, concession bonds

Book your place now

Contacts:

Participation: Aliya Gallyamova aliya@cbonds.info

www.bne.eu


36

I Southeast Europe

bne November 2018

Albania beats EU nations on renewable energy bne IntelliNews

A

round 85% of the electricity consumed in Albania in 2016 was generated from renewable sources, a compilation of data released by Eurostat at the end of September showed. This puts the Western Balkan nation that produces virtually all of its energy from hydropower ahead of all the EU member states and behind only Iceland and Norway in terms of the proportion of energy consumed from renewable sources. 

Within the EU, the top countries measured in terms of the share of energy from renewable sources measured as a percentage of gross final energy consumption are Sweden, Finland and Latvia.

all generate a substantial share of energy from renewable sources as a percentage of gross final energy consumption, and all four have already met their 2020 targets, according to Eurostat.

The data shows that Latvia was an early investor in renewables, making much of its progress before 2004, and increasing only modestly in the following 12 years, while as of 2016 it still fell slightly short of its 2020 target.

Albania has long taken advantage of its many rivers to produce electricity. Some of the main hydropower infrastructure was built back in the communist era such as the Komani HPP on the Drin

The Baltic state has invested heavily into biofuel and biogas, although they have also dabbled in hydropower and wind energy. According to data from the Central Statistical Bureau cited

Romania, for example, saw an explosion of investment into new wind and solar power capacity in the earlier part of this decade, spurred on by a generous incentive scheme based on green certificates. However, successive governments have since scaled back the incentives, including for investors already committed to Romania, undermining the economic viability of numerous projects – along with investor confidence in the country.

“Albania has long taken advantage of its many rivers to produce electricity” river, which provides some 65% of the country's electricity, although there have been more recent investments including by Norway’s Statkraft. As a result, the aspiring EU member state – Albania was given candidate status in 2014 and is hoping to start negotiations next year – is well ahead of the bloc’s target of achieving 20% final energy consumption from renewable sources by 2020 across the union (individual national renewables targets range from 10% in Malta to 49% in Sweden).  In fact, the extremely rapid pace of investment into new hydropower facilities in Albania and other countries in the Western Balkans has drawn strong criticism from environmental groups, who are concerned about the impact on some of the last wild rivers in Europe.

www.bne.eu

by Biofuels International, biofuel production grew almost 20 times in the decade between 2005 and 2015. Among the eastern EU member states, Estonia, Croatia, Lithuania and Romania

At the other end of the scale, energy from renewable sources as a percentage of gross final energy consumption is relatively low in Poland, Slovakia and Hungary, though Hungary in particular made strong progress between 2004 and 2016. More new investments have been announced recently in Hungary. MVM Hungarowind, a unit of the state-owned electricity firm MVM, plans to build 110 small solar power plants, with a

Share of energy from renewable sources, 2004 and 2016 in % of gross final energy consumption

Source: Eurostat


Southeast Europe

bne November 2018

maximum capacity of 0.5MW, as part of several projects across Hungary this year with European Union co-financing, the company said on August 29. The following month, Matrai Eromu, controlled by Prime Minister Viktor Orban's proxy Lorinc Meszaros, approved a long-term strategy that includes investments in renewable energy as well as energy storage.  In total, the Eurostat report finds that the primary production of renewable

energy within the EU28 countries was 211mn tonnes of oil equivalent (toe) in 2016. This represented a 66.6% increase in the decade to 2016, or an average growth of 5.3% per year. However, it should be noted that wood, and other solid biofuels and renewable wastes made up almost half of that total (49.4%). Other popular forms of renewable energy were hydropower (in second place with 14.3% of the total in 2016), followed by wind power (12.4%).

I 37

“Although their levels of production remained relatively low, there was a particularly rapid expansion in the output of wind and solar power, the latter accounting for a 6.3% share of the EU28’s renewable energy produced in 2016, while geothermal energy accounted for 3.2% of the total,” Eurostat’s report said. “There are currently very low levels of tide, wave and ocean energy production, with these technologies principally found in France and the United Kingdom.”

Invalda INVL fund – agreed to buy a 41% stake in the country’s largest bank Moldova-Agroindbank (MAIB) after that stake was confiscated from “non-transparent shareholders” by the central bank. The three paid MDL451.533mn (€23mn) for the stake.

EBRD takes 41% in Moldova’s biggest bank MAIB as banking sector turnaround begins

EBRD takes 41% in Moldova’s biggest bank MAIB as banking sector turnaround begins Russia and Ukraine in cleaning up its banking sector.

The Vilnius-based Invalda INVL group’s companies have more than €600mn of assets under management, entrusted to them by over 190,000 clients in Lithuania and Latvia as well as international investors. Horizon Capital is a private equity firm managing funds which provide financing to businesses in Ukraine and Moldova. Its funds have attracted investments from the EBRD and other investors. Malige told bne IntelliNews that none of the partners dominate the ownership in the consortium.

On October 2 the European Bank for Reconstruction and Development (EBRD), together with two private equity investment funds – Horizon Capital from Ukraine that used to be run by former finance minister Natalie Jaresko, and the Latvia-based AB

The new shareholders are operating through UK-based company HEIM Partners, which is owned by the EBRD and Invalda INVL, with 37.5% of shares each, and Horizon Capital, which holds the remaining 25%. Horizon is responsible for strategic direction

Ben Aris in Berlin

M

oldova has been a banking black hole for more than two decades. Tiny, poor and unreformed, the country has been used by businessmen from across the former Soviet Union as a willing banking base to launder money as the most convenient entrepôt into the European financial system. But that could be about to change, as Moldova follows the likes of

“Moldova’s banking sector has been plagued by non-transparent shareholders for too long. You would remember the $20bn money-laundering scandal, the so-called Moldovan Laundromat, and the $1bn theft from three key banks (12% of Moldova’s GDP),” says Francis Malige, the EBRD's managing director for Eastern Europe and the Caucasus. “But Moldova now proves that a turnaround is possible.”

www.bne.eu


38

I Southeast Europe

and management of the MAIB stake on behalf of the consortium, an EBRD statement said. MAIB is the largest commercial bank in Moldova, with assets at the end of 2017 of €1.078bn and equity of €180mn. It is also one of the oldest, having been established in Soviet times. The shares that went under the gavel on October 2 have had a complicated history, Malige explains. They have changed hands several times in the last two decades, but were bought by the non-transparent shareholders in 2012. “None of the new shareholders has a controlling share and we will work together with the like-minded shareholders, local Moldovan investors,” Malige told bne Intellinews.  On the block These shareholders were using the bank in various scams to launder money and although the stake was split up into various holdings, they were illegally coordinating their actions. The determination to do something about the corrupt nature of the Moldovan banking sector has been gathering momentum, especially after there were mass demonstrations following the $1bn bank theft in 2014. The 41% stake in MAIB was confiscated by the state, under the new banking regulations introduced last year that provide improved ownership transparency, from non-transparent shareholders spotted by the central bank as operating in a coordinated manner. The stake was controlled by controversial local investor Veaceslav Platon according to reports. Platon is currently in jail for frauds related to Moldova’s savings bank Banca de Economii (BEM).  The National Bank of Moldova (NBM) had already blocked the voting and other shareholder rights of the bank in March 2016 after the shareholders had been found to be illegally coordinating their actions: the stake had been split up into small pieces so as not to raise the central bank’s red flags on collusion.

www.bne.eu

bne November 2018

An appeal to the Stockholm arbitration court by the shareholders failed in 2017, clearing the way for the stake to be sold by the government to new investors. In June this year the EBRD threw its hat into the ring and said it would buy the stake in a consortium with the two private equity firms. Regional banking clean-up Moldova has become famous for its banking scams. In one popular version a shell company offers a guarantee on a loan made by a second shell company. Then the first is bankrupted and transfers cash to the second as an award ordered by the courts, cleaning the money in the process. In another popular scheme, one company deposits money in an account in Moldova. A second company sues the first on some charge like breach of

There were 518 banks left in Russia as of the end of August, down from over 4,000 in the 90s, and well on the way to reaching the unofficial target of 300 banks in the next few years. In parallel the CBR has been beefing up regulation and reporting. It has introduced the Basel III regulations, banks were made to report using IFRS standards long before the rest of the economy, and more sophisticated prudential rules have been introduced for banks that offer retail loans, among other measures. Ukraine has seen a similar story. Although reforms are going very slowly under the International Monetary Fund (IMF)-sponsored programme, the changes to the banking sector carried out by former central bank governor Valeriya Gontareva have been a stunning success. She also closed about half the banks to bring the total down to 86 as of the end of

“Moldova’s banking sector has been plagued by non-transparent shareholders for too long” contract and takes the case to a fake arbitration tribunal, which then awards the second company the deposits of the first. A court order is obtained to make the transfer and the money becomes white in the process. While MAIB was not involved in this sort of scam the whole banking sector has been infected by an environment of dodgy dealing that the regulator wants to put behind it. The changes in Moldova are part of a region-wide trend where central banks are attempting to clear out the banking rot that set in during the wild days of the 1990s. Central Bank of Russia (CBR) governor Elvira Nabiullina has closed down half of the sector's banks since taking office in 2013 at a steady pace of 100 banks a year. That has caused its own problems and nearly sparked a banking crisis last autumn when the CBR shuttered several of the country’s biggest commercial banks, the so-called Garden Ring banks.

August and shuttered many of the money laundering scams posing as banks. In November 2016 the National Bank of Ukraine (NBU) took its boldest step yet and nationalised PrivatBank, the largest commercial lender in the country, where 98% of the loan book was discovered to have been made to shell companies belonging to the owners, in what was a wholesale theft of depositors’ money. “It is not enough for the regulator to want to clean the sector up – you need everyone on board,” says Malige. “In the case of the nationalisation of PrivatBank in Ukraine the deposit insurance agency, the NBU, the Ministry of Finance, the legal authorities, the parliament and the international partners all had to be on board before the bank could be nationalised. In the last years we have seen a similar alignment of interests happen in Moldova. The authorities have said enough is enough and the people have suffered enough. They want change.” Now it’s Moldova’s turn. The NBM has taken control over two of the three top


Southeast Europe

bne November 2018

banks for breaking transparency laws, as the first steps to a sector clean-up. In addition to MAIB, the central bank took over Moldindconbank in April, and put both under the control of the Public Ownership Agency (APP), which will sell the stakes off to investors. Moldinconbank was at the heart of Moldova’s Laundromat system. “As new owners of MAIB, the EBRD-led consortium will bring new discipline, new technologies and effective incentive structures to continue to make MAIB the leading bank in Moldova, better serving SMEs and supporting the economy more broadly,” Malige explained. “In a nutshell, we want to ensure that the country’s largest lender is clean, healthy and works for the benefit of people, businesses and the economy – and not a selected few.” The EBRD already owns another bank in the country, but goes up a tier with the MAIB deal. In January, together with Romania’s Banca Transilvania, the EBRD bought another 27% in Victoriabank, the third largest bank in the country and one of the few well respected local banks, taking its share to a controlling stake in what one EBRD banker called a watershed moment.  “This gradual and fundamental cleanup of the Moldovan banking sector, the entrance of robust and transparent shareholders, which abide by highest standards of corporate governance mean that the country’s lenders can no

Find more Southeast Europe content at

longer be used for money laundering or other illegal transactions. As moneylaundering concerns grow, Moldova is a ray of light, proving that a turnaround is possible,” Malige said. Once the MAIB deal goes through, the EBRD will have significant stakes in two out of the three biggest banks in the country and since the state took control of Moldindconbank that too could well be sold to new investors soon. Exit strategies For investors the potential exit is as important as finding a good business to invest into, and there are plenty of options. The funds must have an eye on the Bank of Georgia, which was the leading bank in the similarly small country of Georgia, but managed to list on the London stock exchange where its valued soared. “I’m not sure we can list MAIB in London, but the regional exchanges are attractive, especially the Warsaw Stock Exchange as one possible exit,” Malige told bne. The other alternative is to sell to a strategic investor. Romania’s Banca Transilvania has already gone with the EBRD into Victoriabank and there are a bevy of other banks with business across the region from Austria and Hungary in particular. Moldova is not a big market but the experience of the Bank of Georgia has shown even small markets can make big profits for their investors.

I 39

COUNTRY REPORTS

Check out IntelliNews Pro’s Country Reports covering the 30 countries in Central & Eastern Europe/Commonwealth of Independent States. A monthly round up of the most important economic, finance, business and political events, the reports are aimed at busy professional investors and companies that need to keep on top of the story. To subscribe to the reports delivered by email get in touch with our sales staff for a trial. T. +44 203 633 2008 E. sales@intellinews.com Or go to bne.eu/welcome to see samples of this and other products.

www.bne.eu/southeast-europe

Selected headlines from past month: · Serbia, Romania, Bulgaria and Greece plan joint bid to host 2030 World Cup · Attitudes to religion and minorities in Eastern Europe remain largely unreformed after 25 years of democracy · Star performers: Azerbaijan and Turkey shoot up the Doing Business rankings · US reportedly agrees outline waivers on Iranian oil embargo

www.bne.eu


40

I Eastern Europe

bne November 2018

The Astravets nuclear power plant in Belarus is almost complete.

Belarus' new nuclear power plant will change the balance of energy in the Baltics Ben Aris in Berlin

C

onstruction of Belarus’s new Astravets nuclear power plant is almost complete. Under a deal signed in 2007, Russia’s Atomstroyexport is building the controversial $11bn plant that is 90% financed by the Kremlin, and the first reactors of the 2.4GW plant are due to go online in December 2019 with the power station fully operational year later.

in Fukushima in Japan in 2011, raising concerns about the safety of those close to the plant.

sector in a difficult position with most of its domestic utility companies unable to earn a living.

At the same time the neighbouring EU members are also concerned the Russian-sponsored energy project will end up being another energy sector foreign policy cudgel that the Kremlin can use to

Belarus in the grip of Russian energy Belarus is a deficit energy producer and almost entirely dependent on Russia for its fuel and energy needs. The total installed capacity of power plants in

Belarus’s neighbours have been against the plant from the beginning, especially Lithuania and Poland.

“Belarus’s neighbours have been against the plant from the beginning”

Located in the western Grodno region, near the border with Lithuania, the plant is only 60km from the Lithuanian capital Vilnius, less than the 100km from populated areas the International Atomic Energy Agency (IAEA) recommends following the nuclear disaster

threaten the former Soviet vassal states. But even putting those concerns aside for a moment the size of the power plant will significantly alter the balance of energy supplies and Lithuania in particular could find its own power

www.bne.eu

Belarus is circa 8.4 GW, according to the IAEA, of which the vast majority is gas burning. With no significant hydrocarbon resources of its own and only a little


Eastern Europe I 41

bne November 2018

biogas and hydropower installed capacity, Belarus imports about 82% of its energy from Russia, according to the IAEA. While Belarus is connected to the Sovietera “IPS/UPS” regional power sharing system, it is largely reliant on its own generators for its own power. The total electricity generation of 29.92bn billion kWh from its 22 gas fired plants met 90% of domestic demand in 2007, the last data available from the IAEA, with another 9.406bn kWh imported mostly from Russia and 5.062bn kWh exported. However, Belarus is a major transit route for Russian energy on its way to Russian customers in western Europe and Russia plays a big role in the Belarusian economy. Traditionally most of Russia’s gas travels through Ukraine’s Druzhba (Brotherhood) pipeline on its way to the west. Russia has already built a new northern route called Nord Stream and controversially is in the midst of expanding this pipeline, doubling its capacity. At the same time a southern route through Turkey, the so-called Turk Stream pipeline, is also under construction. But less well known is the Belarusian transit pipeline; Belarus exports 99% of the gas entering the country and earns handsome transit fees from Russia in return. In addition, it has two of the most modern oil refineries in the Commonwealth of Independent States (CIS) that were built shortly before the collapse of the Soviet Union. Russian companies send significant amounts of crude to these refineries and Belarus then re-exports 90% of the production to customers in the west, again to make a tidy profit.

Ukraine launches solar power plant next to Chernobyl as renewables take off bne IntelliNews Ukraine has installed a 1MW solar power plant in the contaminated area adjacent to the decommissioned nuclear power station in Chernobyl, as Ukrainian investment into renewable energy takes off.  The photovoltaic facility is comprised of 3,800 panels and is expected to produce enough energy to meet the power demand of 2,000 local apartments. It benefits from feed-in-tariffs (FiTs) that guarantee a certain price for power, Reuters reported. The $1.1mn solar plant is the result of a partnership between Ukrainian company Rodina and Germany’s Enerparc AG. Ukraine has been steadily investing in renewable sources. During the first nine months of 2018, the country added over 500MW of renewable power capacity to its energy mix, more than twice as much as in 2017. Amongst the projects announced this year are: • Ukrainian businessman Vasyl Khmelnytsky completed a 18MW solar power plant in the Kherson region, the businessman said on his Facebook page, as reported by Interfax. The plant is owned by UDP Renewables, part of Khmelnytsky’s UFuture Group holding company. • Windkraft Ukraine, a company based in the country's Kherson region, is going to expand the installed capacity of its wind farms in this region to 170 MW by the end of the year, the company's director Carl Sturen said on September 20. The company is also mulling the next project to boost capacity by another 150-170 MW, Sturen told Interfax news agency, adding that the company used its own funds and bank loans in 2018. • Ukraine Power Resources and Yuzhne Energy plan to build wind power plants with an installed capacity of 120 MW and 72 MW, respectively, in the Lymansky district of the Odesa region, according to a statement from the Ukrainian Wind Energy Association (UWEA). • Norway's Scatec Solar is going to begin the construction of a €85mn solar power with a total capacity of 83 MW in the Cherkasy region this year, according to the company's June 12 statement.

The Kremlin uses the price it charges for gas and the duties it charges in oil operations to bind Minsk to Moscow. The two sides are constantly bickering over these prices, but at the end of the day Moscow heavily subsidises the Belarusian economy by keeping them low compared to prices in the rest of the region. When the Astravets nuclear plant comes online, the amount of gas Belarus needs

A solar power plant next to Chernobyl is only one of half a dozen renewable energy projects in Ukraine.

www.bne.eu


42

I Eastern Europe

bne November 2018

to burn will be significantly reduced, allowing it to earn a little extra from re-exporting more gas. While this will be a significant saving for the Belarusian budget, the overall volumes of gas transiting the country will not be greatly impacted and so will have little effect on the regional or European markets. The really big effect will be one on the regional power markets.

30% more than piped gas and is not competitive with the other sources of power available to Lithuania. Consequently the Klaipeda terminal is currently working at 20% of its capacity and the government has been toying with forced purchase orders of LNG to keep it functioning. If a new supply of even cheaper Belarusian power comes onto the market then Klaipeda will be even more unprofitable.

Belarus becomes a regional powerhouse Compared to its neighbours Belarus is a major producer of power. When Astravets comes online Belarus’s installed capacity will rise to 10.8GW compared to Lithuania’s 3.6GW, Estonia’s 2.7GW and Latvia’s 2.6GW. Belarus will be generating a surplus and will be in a position to export enough cheap nuclear power to meet most of the demand in all three Baltic states. For example, while Lithuania has 3.6GW of installed capacity and access to another 1.3GW via the LitPol and Nordbalt interconnection links with Poland and Northern Europe, its average consumption is 1.1GW, rising to a peak of 2.3GW in winter, according to Eurostat.

Currently electricity prices in the region are so low burning gas to generate power costs more than importing power from Lithuania’s neighbours. In 2017 Lithuania imported 80% of its power, mostly from Sweden and Poland, largely ignoring its domestic utilities.

With so much excess generating capacity, there is no danger that Russia, using Belarus as a tool, can put itself in a position to turn off the lights in Vilnius so the Astravets power plant can’t be used as an overt foreign policy tool in the same way as Gazprom’s gas supplies to Kyiv have been used as a club on several occasions in the past. However, the cheap power Astravets produces will upset the economics of the power sector and have led Vilnius to fiercely resist the construction of Astravets. Power in Lithuania is expensive, making it the most vulnerable of the countries in the region. After it closed its only nuclear power plant at Ignalina in 2010, consumers experienced a 33.3% increase in electricity rates, and of its 3.6GW of generating capacity 2GW burn gas that has to be imported, which is expensive. To break its dependence on Russia, the government invested some half a billion dollars into the Klaipeda floating liquefied natural gas (LNG) terminal launched in 2014. The trouble is that LNG costs some

www.bne.eu

From this perspective an additional 2.4 GW of Belarusian power on the regional market would drive electricity prices down even further. Lithuania’s utilities would be priced out of the market and useless in pure economic terms. All three Baltic states have been trying to diversify away from traditional fossil fuels to renewables to improve their security and indeed Lithuania already produced 178MW from wind power in 2016. But the other two Baltic states have progressed much further and already reduced their exposure to risks from a boost in Belarusian power generation or Russian games with gas supplies. In Latvia hydropower production leapt by 73.2% in 2016 and wind power was up a healthy 17.1%. Over the last ten years the share of gas fuelled power has fallen by 5% to reach just 23.4% in 2017, with the share of renewables overtaking gas to make up 32.9%. Fuel wood makes up another third. Estonia also managed to break its addiction to gas by exploiting local shale gas rocks. Already in 2007, more than 90% of its power was generated from oil shale. The Estonian energy company Eesti Energia owns the largest oil shale-fuelled power plants in the world, the Narva Power Plants. BRELLixt The difference in the energy profiles of the Baltic states has divided their inter-

ests and left Lithuania in the corner trying to protect its energy sector. Its bet on LNG has not paid off and its renewable sector has not grown far enough, leaving it currently dependent on imports. So politicians in Vilnius have been working hard to stymie the Astravets power plant. The first line of attack has been to question the safety of the plant, which is uncomfortably close to the capital. Ironically, even the EU has signed off on the safety of the Russian-made reactor. The Astravets plant successfully passed EUdesigned stress tests peer-reviewed by the European Union Safety Regulators Group (ENSREG), which examined the facility on the basis of its preparedness for earthquakes, flooding, heat sink, and other severe accidents. IAEA experts have also certified the Astravets plant to be capable of withstanding "the worst credible external event." The VVER-1200 reactor model set for use in Belarus is also being deployed in Finland, Hungary, and Russia. These reassurances have not placated Vilnius, where politicians insist that they will not allow any Belarusian power onto their grid. The Lithuanian parliament passed a bill in mid-June declaring that the power plant is a threat to national security and demanded that the government come up with measures to prevent imports. So far Lithuania has not got Estonia and Latvia on board with its boycott but Poland, which borders Lithuania and Belarus, said in March it would not import electricity from the controversial plant. Lithuania’s preferred solution is to leave the old Soviet power sharing grid completely, but as that comes with a $1bn price tag Vilnius has struggled to get Tallinn and Riga on board. The Soviet IPS/UPS power sharing system works under rules that are governed by the so-called BRELL agreement, signed in 2001, before the Baltic countries joined the EU in 2004. Poland, Hungary, Czechia and Slovakia have already made the jump to the EU’s Continental Synchronous Area in


bne November 2018

1995 and left the Soviet system. After years of debate the three Baltic states are now moving slowly towards a “BRELLxit” and there is a plan for the Baltics to also make the switch to the European system by 2025. The future of BRELLxit remains unclear as it comes down to a question of who will pay the $1bn bill. The first stage will be to connect Poland's grid to complement the one existing Lithuania-Poland electricity interconnector, the 500 MW LitPol Link. As the other two Baltic states have already managed to greatly improve their energy security they have become a lot more sensitive to the cost of the BRELLxit, Estonian Minister of Economic Affairs and Infrastructure Kadri Simson has said that delinking the Baltics

Eastern Europe

I 43

from BRELL will be so expensive he has questioned the economic viability of the plan. However, on the general principle of reducing the EU’s exposure to possible Russian energy aggression, the EU as a whole still supports the idea. Currently it seems that the EU appears willing to foot much of the bill for delinking.

For Moscow, establishing and even financing the Belarusian nuclear plant makes sense as it weakens the argument for a BRELLxit. Minsk is nominally an independent player and so the power supplies to the Baltics appear to have been diversified away from Russia to an extent, reducing the political risks.

And delinking could bring some energy savings in the long-term, but not the shortterm. Experts say consumers in Latvia and Lithuania could eventually enjoy price reductions of 5-7% in power tariffs, but in the short-term utilities would almost certainly pass the cost of delinking on to customers, which means the cost of power would have to go up at first.

The decision will boil down to a tussle between the economic and the political arguments. Germany’s example of choosing to push ahead with the controversial Nord Stream 2 gas pipeline, where Berlin considers the plentiful supply of cheaper Russian gas to outweigh the political objects of other European countries in the northwest corner of the union, suggests that economics will trump politics in the BRELL countries too.

That has to be set against the economics of the fact that power imports from Belarus are likely to reduce energy costs even more.

BCS GM CEO Roman Lokhov

Banking in a time of uncertainty – BCS GM diversifies out of Russia

VOX:

Ben Aris in New York

B

CS Global Markets is a fast growing broker-dealer that has its origins in Russia, but has been diversifying into the UK and US. With offices in both countries it has been providing services in these markets for its Russian clients but at the same time using the platforms to establish itself in a number of niches. bne IntelliNews editor-

in-chief Ben Aris sat down with BCS GM’s CEO Roman Lokhov on the sidelines of the recent annual MOEX investment summit in New York to discuss the bank’s business. Ben Aris: BCS grew out of its Russian domestic business but has become increasingly international. You recently became a member of the New York Stock Exchange

(NYSE), which is a first for a Russian bank. You now have offices in New York and in London with some 60% of revenues from non-Russian business. What is the idea behind the diversification and how have you managed it? Roman Lokhov: The idea to diversify came several years ago after we gained

www.bne.eu


44

I Eastern Europe

bne November 2018

25% of MOEX trading turnover. You can have organic growth. You can add new debt. But ultimately you have to build a platform that can be used in other markets.

we are another Russian broker and offer services that people didn't need. So we tried to identify niches where we can compete, and to hire a good team of people so we can compete.

In London we saw an opportunity to get into the prime brokerage segment where we are strong. The regulation in Europe became very strict and we saw that funds in the middle range – $50m-$100m – are underbanked. Larger banks have these capital adequacy restrictions and

We created an American broker-dealer that provided niche services that addressed our customer base. We are very strong on execution, which is why we got membership in the NYSE. We can execute on blocks and participate in auctions and offer after market close

“We created an American broker-dealer that provided niche services that addressed our customer base” other issues, and either overcharge these smaller funds or provide a low level of service. This is why we entered this niche. We invested in a swap engine. We wanted to be innovative because no one in Russia does this sort of thing. We needed to keep our leading position at home so we have to innovate constantly. Some of these developments will come to Russia first eventually so why not be first? BA: Are you using your platform to enter on the Russian business that you do, but then use the relationships with customers in the US and UK to build and offer non-Russian services by building on the relations that you already have? RL: In Europe this was exactly the case. In America it was exactly the opposite. We started working on that market and as geopolitical [tension] picked up the Russian banks started to leave the market. There are just two government owned banks – VTB and Sberbank – who were left on the market. I believe there is no Russian bank that was extremely successful in the US. Everyone who worked on the US market came with very standard services. They offered buying stocks or bonds and that was pretty much it. Several years ago I felt it was not possible to come to New York and say that

www.bne.eu

trading, not just on Russian stocks but on everything. Then we invested in a desk trading distressed equities – Chapter 11 etc – not a lot of guys are doing it but it was another place were we can attract customers. Last week we closed a transaction where we provided a subordinated loan to a US minority broker to get access to IPOs and flows so we can provide unique services to Russian customers and those in other countries like Israel. This is important to our customers as normally the US is the second traded market after the local one. BA: During this MOEX summit the sanctions have come up again and again. Is it not a problem to be Russian? People are nervous as dealing with Russians can have political ramifications. Do you suffer from that? Do you feel that? Or is it: the service is the service; the price is the price? RL: It is not that easy. It all depends on the niche and the customers. Let's take several services. We are number one in servicing quants funds and high frequency trading. So the more volatility they get the better. Do they have problems there? Not at all. Long only funds? Do they have issues? Yes, of course. Sanctions are not a good thing and people are waiting to see what will come in two months or half a year. But number one they are here for the

long-term. Yes, there will be uncertainty, and yes, there will be turbulence. But are we talking about six months time until things become clearer? Will these investors disappear forever? I don't think so. We have our relations. They still need good research on the CIS and Russia. Tinkoff bank just returned 1,000% in the last two years. We still have very good midcap companies coming to market. BA: There is a community in New York that has been investing in Russia and it has been an extremely turbulent ride. But they know full well that when you get the timing right then it can be a very profitable investment. Now the equities are very cheap because of the problems. Maybe this is a good time to get into the market? RL: Everything is cheap, this is the broad picture. This is the picture for portfolio mangers, and maybe it is better to wait. But as an investment bank you have to be there, and there are still stories that are less dependent on sanctions. And it is always possible to cherry-pick. The sentiment on Russia is poor and stocks are down, but at the same time these two companies – shoe retailer Obuv Rossii and logistics company Transglobal – are dependent on the local market. We do roadshows with them every second month and they have fulfilled their investment programmed. I don't see investors that have sold their stock since the IPO last year. Investors believe in the story. With our brand we have created a Russian investment story. We just had a conference in London and despite the fact the markets are closed at the moment and people are waiting, we had a significant number of people come willing to listen to stories. BA: You think the market will come back and tensions will ease? RL: Russia will come back for sure, but it is a question of time. Sanctions won’t disappear quickly but there are still a lot of opportunities. BA: BCS GM recently tied up with Tigress Partners, which is a woman-owned fund


bne November 2018

in New York. What was the rationale for that? RL: It is a minority US broker but it is in keeping with our idea of niche. They have access to certain deals and flows that we can’t get by ourselves. We see strong management and strong research. We need strong research on American stocks for Russia and we can execute on this with our membership on NYSE,

Eastern Europe

which Tigress doesn't have. The deals they can access are difficult to find from Russia. So that is why we have our US office and the partnership. BA: You are providing access and services to Russian investors that want to come to the States: but that business is still going on? RL: Of course. Normally you need a platform to be competitive. There are inter-

I 45

active brokers getting into Russia and providing access to US, but we have a lot of advantages too. There are still billions of dollars coming into investment accounts and they are looking to diversify. And we want to be there to catch this flow. This interview is part of a podcast. List to the whole interview here

The SPF and the nation's economy ministry are going to complete preparation of privatisation conditions in three days, Trubarov said, and will make an official announcement to launch the process in mid-October.

Centrenergo's Trypilska power plant has been the largest supplier of electric power in the Kyiv region since the Chernobyl nuclear power plant was shut down.

Vested interests threaten to capture Centrenergo privatisation

Alexander Paraschiy at Kyiv-based brokerage Concorde Capital believes that "at first glance, the starting price of Centrenergo looks feasible for potential investors". However, market experts agree that the company will likely be sold to the Ukrainian businessman Vitaliy Kropachev, who in recent months has monopolised coal supplies to Centrenergo.

KYIV BLOG:

According to information supplied by the company, coal companies controlled by the businessman – the Chervonolymanska coal mine based in the southeast of Ukraine, as well as three coal cleaning facilities – accounted for 83% of supplies (1.9mn tonnes) to Centrenergo in January-August.

Sergei Kuznetsov in Kyiv

Ukraine has a long tradition of local oligarchs manoeuvring to prevent the fair and open sale of state-owned assets. The government has tried to privatise Odessa Port Plant (OPP) three times already but it has proven impossible to sell partly because of a debt of UAH193mn owed to Ukrainian oligarch Dmytro Firtash's company Ostchem.

T

he Ukrainian authorities will attempt to privatise the country's leading power generating company Centrenergo in late Novemberearly December. However, the privatisation tender of what Kyiv has branded as a jewel in the crown of state assets seems to have been reduced to a farce, with the transfer of the company to a businessman who has close ties with Petro Poroshenko's team. On October 3, the Ukrainian cabinet approved a starting price for the sale of the 78.3% stake in Centrenergo of

UAH5.98bn ($210mn), according to State Property Fund's (SPF’s) head Vitaliy Trubarov. This will be the biggest privatisation of the year and has been widely anticipated as the company is considered one of the most attractive in the government’s portfolio of assets to be sold off.

“Ukraine has a long tradition of local oligarchs manoeuvring to prevent the fair and open sale of state-owned assets” www.bne.eu


46

I Eastern Europe

bne November 2018

Ukrainian Orthodox church wins approval to break away from the Moscow Church bne IntelliNews The Ukrainian Orthodox church won approval from the patriarch in Istanbul to break away from the Moscow patriarchy and become an independent church on October 11, creating a schism that deepens the rifts between Ukraine and Russia and could end in violence. Ukraine’s President Petro Poroshenko applied to the head of the Orthodox Church based in Istanbul for autocephaly, or independence, and a ruling to separate the Ukrainian church from the Russian one in April this year, but the Russian clergy fiercely opposes the biggest split in Christianity since 1054 when the Catholic and Orthodox churches divided. Ukraine and Russia trace their Orthodox Christian roots to Volodymyr the Great, the prince whose baptism in 988 in Kiev led to the christianisation of the region known as the “Kievan Rus”. At a three-day synod presided over by the Ecumenical Patriarch in Istanbul, the seat of the Orthodox Church, Ukraine’s request for independence was endorsed. The synod said it will “proceed to the granting of Autocephaly to the Church of Ukraine,” a statement said, reports Reuters. “The decisions of the Ecumenical Patriarch and Synod finally dispelled the imperial illusions and chauvinistic fantasies of Moscow,” Poroshenko said after the announcement. “It is a question of our independence, national security, statehood, a question of world geopolitics.” The decision is a boon for Poroshenko, who is due to stand for re-election in March next year and is currently trailing in the polls behind his rival opposition leader, former prime minister and head of the Batkivshchyna (Fatherland) party Yulia Tymoshenko. Poroshenko has been playing the “tough leader in a time of war” card and attacking Russian interests by banning fights, books and TV broadcasters to bolster his patriot image. As part of the decision the synod rehabilitated the Ukrainian patriarch who was excommunicated by the Russian Orthodox church for breaking away in the early 1990s. The Moscow Church promised "harsh response after Constantinople actions concerning Ukraine". The Russian Orthodox Church said it would break eucharistical relations with the Ecumenical Patriarchate and create a schism in the 300mn strong Orthodox Church for the first time in a millennium. Kyiv is the birthplace of the Russian Orthodox Church.

At the same time, another oligarch Ihor Kolomoisky has threatened to challenge any privatisation sale as his company Nortima says it would regard any sale as the purchase of stolen assets following a 2009 tender in which Nortima outbid two rivals with an offer of $600mn at the exchange rate at the time, but was rejected by the Ukrainian authorities. Mysterious 'coal king' Kropachev is close to Ihor Kononenko, who is a close associate and longtime business partner of Poroshenko. Kononenko, the first deputy head of the Poroshenko Bloc faction in parliament, is regarded as a 'grey cardinal' on the Ukrainian political scene for his leading role in unofficial negotiations with other parliamentary factions, and together with Poroshenko owns various businesses and funds as bne IntelliNews described in a detailed investigation “LONG READ: Poroshenko’s empire – the business of being Ukraine’s president” published in August 2016. Kropachev’s three coal cleaning facilities were added to his portfolio in 2016, after he reached arrangements on their purchase with representatives of Mako Group run by Oleksandr Yanukovych, the eldest son of the former Ukrainian president, who fled the country in 2014. Meanwhile, Chervonolymanska was acquired by Kropachev’s conglomerate in late 2017. Igor Humeniuk, a former member of the pro-Russian Party of Regions, acted as the seller of the asset: his companies were listed as the official owners of a majority shareholding in Donbasenerho, which went private serving Oleksandr Yanukovych’s interests, according to the Ekonomichna Pravda online outlet. In February, Ukraine's leading energy conglomerate DTEK, controlled by fellow oligarch Akhmetov, complained that Centrenergo cancelled coal supply contracts and refuses to purchase its coal any more, buying from Kropachev's coal companies instead. The Centrenergo-DTEK agreements were broken in late 2017, when Cher-

www.bne.eu


bne November 2018

Eastern Europe

“Kropachev is close to Ihor Kononenko, who is a close associate and long-time business partner of president Poroshenko” vonolymanska launched its production of hard steam coal and started pursuing this niche on the market. In late January, a company related to Chervonolymanska won an open tender to supply 0.1mn tonnes of hard coal to Centrenergo at UAH2,400 per tonne, which is less than the prevailing market price. Chervonolymanska mined 0.90mn tonnes of coal in 2017, all of which was coking coal, according to statistics from Ukraine’s energy ministry. What is Centrenergo? Centrenergo plays a leading part in power generation for the Kyiv, Kharkiv and Donetsk regions. The company supplies electricity to the wholesale energy market and thermal energy for heating and hot water supply of the towns of Svitlodarsk (the Donetsk region), Ukrainka (the Kyiv region) and the village of Komsomolske (the Kharkiv region).

I 47

a higher multiple: $73/kW, the expert wrote in a note on October 4.

capital of Ukraine. After the Chernobyl nuclear power plant was shut down Trypilska became the largest supplier of electric power in the Kyiv region. Debts Concorde's Paraschiy believes that the announced starting price implies total EV of about $260mn, EV/Capacity of $55 per kW and EV/Output’17 of $41/MWh. In terms of EV/Output, most of the previous privatisation tenders in Ukraine were closed at a lower price ($10-$33 per MWh), except for the sale of Zakhidenergo’s 45% stake in 2012 (at $45/ MWh). In terms of EV/Capacity, the previous tenders, on average, brought

Recently, Centrenergo and the nation's State Reserves Agency (SRA) signed a number of amicable agreements on repayment by the company of about UAH85.5mn of debts, which were formed in the late 1990s when Centrenergo borrowed natural gas, boiler oil, and coal from the SRA, but failed to return them. "All moves between Centrenergo and the SRA on repayment of this sum have been agreed in court," the agency's media office said in a statement, adding that Centrenergo will handle the repayment in stages: the entire sum of the debt is due to be repaid within four years. As of late 2017, Centrenergo's total debts to state companies stood at UAH600mn, while its debts to commercial firms were at UAH130mn, according to the Minprom online outlet.

The company consists of three thermal power plants – Vuglegirska, Zmiivska and Trypilska. The total designed capacity of the power plants amounts to 7,690 MW which is equal to about 14% of Ukraine’s total generating capacity. Within total electric power production in Ukraine the electricity share generated by Centrenergo accounts for about 8% of the total, according to the company's marketing material. The company’s largest power plant, Vuglegirska, is located in the industrially advanced Donbas region of Ukraine, which is home to lots of power-intensive industrial enterprises. The Donetsk coal basin is situated in the area as well. The Zmiivska plant is located in the Kharkiv region adjoining the Donbas area, which also has advanced industry and agriculture. The third power plant, Trypilska, is located in the Kyiv region near to the

Find more Eastern Europe content at

www.bne.eu/eastern-europe

Selected headlines from past month: · KRUK REPORT: Merkel gives Poroshenko an image bump with a trip to Kyiv · Ukrainian acid attack victim Kateryna Handziuk dies of her injuries · Russia to double support to local winemakers · Ukraine exercises its call option on the expensive August $725mn Eurobonds

www.bne.eu


48

I Eurasia

bne November 2018

Pashinian’s people power clears the way for early elections in Armenia bne IntelliNews

A

rmenian Prime Minister Nikol Pashinian announced in the early hours of October 3 that rival parties have agreed not to field prime ministerial candidates after he resigns, paving the way for a snap general election. The Republican Party, ARF Dashnaktsutyun and Tsarukyan parliamentary factions appear to have backed down after passing controversial legislation on October 2 that would have made it more difficult for Pashinian to carry out his earlier pledge to call early elections.  The legislation was rushed through parliament on the evening of October 2, hours after Pashinian told journalists parliamentary elections would take place in December.  The prime minister, a former protest leader who took power following weeks of mass demonstrations in April and May that toppled the former Republican Party government, called on his supporters to take to the streets again as MPs prepared to vote on the changes. 

www.bne.eu

Thousands responded to his call and gathered outside the parliament while the vote was taking place, preventing MPs from leaving the assembly. Pashinian didn’t attend the parliamentary session, instead delivering an address to the crowd in which he warned of a counter-revolution.  “The adoption of the bill is a plot against the highest power – the people of the Republic of Armenia,” the prime minister said, according to Public Radio of Armenia.  After addressing the crowd, Pashinian entered the parliament for talks with rival parliamentary factions, which resulted in an agreement that no other

candidates would be put forward when he submitted his resignation. He indicated afterwards that the deal had been agreed when it became clear that protests would again erupt if parliament blocked the planned early elections.  “I have to resign in coming days, but I expect that the Republican Party and the parliament would not make people nervous, as they have to realise that if I resign and they propose a candidate, and they can do it theoretically, this would provoke a reaction of the people,” he said, News.am reported.  Pashinian resigned after he hosted the Francophonie Summit on October 7-12, according to local media reports.

“The adoption of the bill is a plot against the highest power – the people of the Republic of Armenia”


Eurasia I 49

bne November 2018

US sanctions assault has sent Iran into recession: IMF bne IntelliNews

U

S sanctions have pushed Iran’s economy into recession and the situation is set to worsen as Washington steps up its economic drive against Tehran, the International Monetary Fund (IMF) said in its latest World Economic Outlook released late on October 8. The IMF estimated that the Islamic Republic’s economy will contract by 1.5% this year and 3.6% in 2019 under the current circumstances. The US will substantially scale up its economic attack on Iran – designed to force the Iranians to the table to renegotiate their role in Middle East affairs – on November 5, on which date it wants to see a worldwide embargo in place on the country’s lifeline oil exports. The damage already wrought by the US sanctions can be gauged by comparing the IMF’s latest economic outlook for Iran to the projection it gave prior to US President Donald Trump’s announcement of the sanctions in early May – at that point the IMF projected Iran's economy would grow by 4% in both 2018 and 2019. Anticipated "reduced oil production" under the sanctions was key to the revised forecast, the IMF said. China refuses to go along Iranian crude exports reached a peak of around 2.5mn barrels per day after the multilateral sanctions were lifted in January 2016 after the signing of the nuclear deal by Iran and six major powers. But most estimates currently put them at around 500,000 b/d down in the run-up to the embargo deadline, after which they can be expected to fall much further. However, largest buyer of Iranian oil, China, has refused to go along with the requested boycott of Iran’s crude and second largest buyer India is pushing for at least temporary waivers to allow it to continue purchases.

Apart from the US, all the other nuclear deal signatories – Iran, Russia, China, Britain, Germany, and France – remain signed up to the accord under which Iran must comply with measures that bar any path it might take to develop a nuclear weapon. Each of the signatories that objected to the US walking out of the deal, pointing out that the Iranians were in full compliance with it, have promised to make efforts to maintain trade and investment with Iran, although the results have been rather meagre so far and a great number of big foreign companies have exited the country fearing secondary US sanctions.

In another reported move that would signal the EU’s commitment to protecting Iran from the Trump administration’s economic assault, Brussels has repeated a previous offer to open a representative office in Iran. The Austrian mission to Tehran is said to have announced that there are serious plans to move ahead with the project if it proved acceptable. Austria currently holds the EU’s rotating presidency. Oil minister scoffs at Saudis Meanwhile, on October 8, Iran's oil minister scoffed at Saudi Arabia’s claims that it can replace Iranian oil shipments lost due to the renewed US sanctions, saying

“The US will substantially scale up its economic attack on Iran” Rouhani welcomes EU’s SPV On October 3, Iranian President Hassan Rouhani welcomed an EU plan to create a Special Purpose Vehicle (SPV) that will facilitate foreign trade with Iran while protecting traders from the secondary sanctions reach of the US. Brussels says the SPV might be ready for initial trading by early November. Analysts expect it will be mostly used by small and medium sized companies with less risky levels of exposure to the US economy and financial system.

they were exaggerations that the market would never believe.

European diplomats have described the SPV proposal as a means to create a sophisticated barter system, similar to one used by the Soviet Union during the Cold War. Iranian crude oil is to be exchanged for European goods without money changing hands. For example, Iran could ship oil to a German firm and the credit generated by that transaction could then be used to pay a French manufacturer for goods shipped the other way. There would be no transparency as to who is using the system.

Zanganeh said that the Saudis had simply opened up "their previous reserves" to the market but had not raised their output capacity.

"Such exaggerations might please Mr Trump, but the market will never believe them," Bijan Namdar Zanganeh said, according to the oil ministry's SHANA news service. "These statements were made due to Mr Trump's pressure on Saudi authorities. The reality is that neither Saudi Arabia nor any other producer has such a capability," he added. 

The Saudi statement could have a "shortterm psychological effect", he added, but it would not mean much to global energy markets which had shown their concern over shortages by raising prices. If an oil price hike hits the American motorist, it might be a problem for Trump in the run-up to the US mid-term elections on November 6.

www.bne.eu


50

I Eurasia

bne November 2018

around 10bn cubic metres (cm) of Turkmen gas per year, but prior to the scrapping of all the gas imports that figure was down to around 4bn cm.

The Darvaza gas crater, or "Door to Hell", in central Turkmenistan. The crater was caused by the collapse of a natural gas field into an underground cavern. Soviet geologists in 1971 set it on fire to prevent the spread of methane gas. It has burned continuously ever since.

Russia to restart importing Turkmen gas after three years bne IntelliNews

T

urkmenistan has received some badly needed positive news from Russia’s Gazprom in the fight against its financial crisis, with the state giant announcing that it will resume importing Turkmen natural gas from the start of 2019.

"We are talking about the resumption of purchases of Turkmen gas by Gazprom in the very near future – from January 1, 2019," Miller said. He added that the details of the new deal still need to be finalised. He gave no indication of the scale of imports that could result.

Gazprom CEO Aleksey Miller made the commitment in an interview with Turkmenistan’s state-run television channel on October 8.

Left with only China The Russian decision to scrap its gas import relationship with Turkmenistan nearly three years ago left the Turkmen with only China as a major customer for

Until it was displaced by China at the beginning of the decade, Russia was the number one importer of Turkmen gas, but at the beginning of 2016 it stopped taking shipments altogether after price disputes and a mysterious pipeline explosion in 2009. However, both Moscow and Ashgabat in August signed the Caspian Sea convention, which included preliminary plans for Russia to restart imports of gas from Turkmenistan, which sits on the world’s fourth largest gas reserves. Relatively cheap imports of Turkmen gas used to help Russia boost its own gas exports to Europe.

www.bne.eu

Turkmenistan is greatly dependent on gas export revenues to sustain its economy. Reliable information on the extent of the financial turmoil afflicting the remote and tightly controlled nation of less than six million people is difficult to source, but in June this year there were reports of passport-based bread rationing while in late September the remnants of Turkmenistan's threedecades-old free and discounted gas, electricity and water programme for its inhabitants were eliminated by the signing of an austerity decree by Turkmen President Gurbanguly Berdymukhammedov. Turkmenistan exports gas to China through the Central Asia-China pipeline. Those gas deliveries are currently thought to be running at between 30bn cm and 40bn cm per year, and Ashgabat had plans to boost the flow to 65bn cm by 2021, until the construction of the Line-D section of the Central Asia-China pipeline came to a halt. It is believed that a large part of the revenues Turkmenistan earns on gas sales to China are used to pay off debt on the Beijing-financed pipeline link, which also crosses Uzbekistan and Kazakhstan. Turkmenistan, meanwhile, is constructing the Turkmenistan-AfghanistanPakistan-India (TAPI) pipeline. The project envisages supplying gas from one

“Until it was displaced by China at the beginning of the decade, Russia was the number one importer of Turkmen gas” their gas. The second major export destination for Turkmen gas is northern Iran, but Ashgabat and Tehran are engaged in a row over historical gas debts that the Iranians allegedly owe. From 2010 to 2015, Gazprom imported

of the world's largest fields, Galkynysh, with estimated reserves of 13.1tn cm, to Pakistan and India via Afghanistan. Whether the Taliban will stick to their pledge to protect the project (in return, of course, for a share of the spoils) is open to question.


Eurasia

bne November 2018

I 51

Near photo-finish in Georgia’s presidential election first-round vote bne IntelliNews

F

rench-born former foreign minister Salome Zurabishvili is to face another ex-foreign minister Grigol Vashadze in a runoff for the Georgian presidency to be held by December 2.

The first-round vote gave Zurabishvili, an independent candidate who has the backing of the ruling Georgian Dream coalition, a wafer-thin lead of 38.64% of votes to 37.74% over Grigol Vashadze, who is supported by an opposition coalition including main opposition party United National Movement (UNM), the Central Election Commission (CEC) said on October 29, a day after the vote. Former speaker of parliament Davit Bakradze, nominated by the opposition European Georgia party, trailed home in third place among a field of 25 with 10.97% of the vote. Bakradze said his party would throw its support behind Vashadze in the runoff. Prime Minister Mamuka Bakhtadze congratulated Georgians after the polls closed, saying the vote was held in a "peaceful, free, and democratic environment."

and regional political representatives. One of the side effects of this change was it was difficult to enthuse voters to come out and cast their ballots. The election was marred by a low turnout that stood at a modest 46.7%, according to officials, in line with expectations and almost exactly the same figure as was seen for the 2013 presidential election. Vashadze is expected to hold a slim advantage in the second round. He will benefit from a consolidation of opposition forces ahead of the runoff, while Zurabishvili will count on 'big tent'

equally against Georgian Dream and the other opposition parties, particularly the centre-right UNM, regarded as associated with former President Mikheil Saakashvili. Other presidential candidates included Davit Usupashvili (2.26% of votes), Zurab Japaridze (2.3%) and Kakha Kukava (1.34%). Zurabishvili, 66, served as Georgia's foreign minister for just over a year before she was fired in 2005 following disagreements with parliament. The UNM, which is the main player among 11 opposition groups in all that have got behind Vashadze, was

“The election is the last one for a president with full republican powers” party Georgian Dream, led by billionaire and ex-PM Bidzina Ivanishvili, perhaps stepping up its massive backing. Shalva Natelashvili, the leader of the Georgian Labour Party, won 3.74% of votes. But his voters are seen as

founded by Saakashvili, the former Rose Revolution leader now living in exile abroad Saakashvili was president from 2004 until 2013, the year after Georgian Dream defeated the UNM in parliamentary elections.

"We all are serving the nation," said outgoing President Giorgi Margvelashvili, who is not seeking a second term, after placing his vote. Modest turnout The election is the last one for a president with full republican powers. The constitution has been changed and Georgia is transitioning, like many countries in the region, to a parliamentary democracy. Constitutional amendments passed last year mean that future presidents will be elected by a 300-member College of Electors, comprising of MPs and local

A polling station in Tbilisi visited by the OSCE Parliamentary Assembly election observation mission.

www.bne.eu


52

Opinion

bne November 2018

Supreme Leader of Iran Ali Khamenei is seen (right) receiving Chinese President Xi Jinping in 2016. Seated to the left of Xi is Iranian President Hassan Rouhani.

Could China scupper Trump’s bid to bring Iran to heel?

ALACO DISPATCHES:

Yigal Chazan of Alaco

P

resident Donald Trump’s strategy of pressuring Iran into making more security concessions through renewed sanctions looks set to be undermined by China’s apparent determination to continue importing Iranian crude, a key source of revenue that could throw Tehran an economic lifeline. In May, Trump unilaterally withdrew from the international nuclear agreement – signed in late 2015 between Iran and the five permanent members of the Security Council, Germany and the EU. Sanctions relief in exchange for curbs on the country’s uranium enrichment programme had allowed Iran, OPEC’s third largest oil producer, to achieve pre-sanctions crude export levels. But the US administration argued that the deal failed to stem Iran’s ballistic missile programme and its destabilising influence in the Middle East. Washington now wants to squeeze Iranian oil sales – which generated $50bn in the last financial year – to force Tehran back to the negotiating table. Trump is looking to secure a more wide-ranging nuclear agreement that would address the perceived shortcomings of the original deal.

www.bne.eu

The US president is hoping to draw Iranian concessions by doubling down on its weak economy. Since the nuclear deal took effect in January 2016, Iran has been unable to attract

“Washington now wants to squeeze Iranian oil sales to force Tehran back to the negotiating table” the levels of foreign investment it hoped for, due in large part to pre-existing non-nuclear US sanctions. Crude sales – which along with oil products account for most Iranian exports – have been unaffected by these measures, helping to take Iran out of recession. But its finances remain in a parlous state, evidenced by recent nationwide protests over matters including steep price rises, the collapse of Iran’s currency, the rial, and high levels of unemployment. The renewed US oil and gas sanctions come into force on November 4 – following the first wave of sanctions introduced


Opinion

bne November 2018

on August 6 that target areas including gold, steel, sovereign debt, the automotive industry and acquiring industrial process software and buying US banknotes – and Washington has been busy urging big importers of Iranian crude to find alternative suppliers. It has been considering temporary waivers for those, such as India, Iran’s second largest buyer after China, which might struggle to diversify their sources in the short term. While leading European countries remain committed to the nuclear deal, their oil companies are now wary of engaging with Iran because of the impending American restrictions.  Pledge under strain China, which purchases over 25% of Iranian oil exports, is another matter, however. In early August, reports suggested that Beijing which, like the Europeans and Russia, supports maintaining the 2015 agreement, told the US that it would not cut purchases of Iranian crude – valued at around $15bn –

“With no sign of a downturn in USChina trade tensions, Beijing seems set to defy America over sanctions” but agreed not to increase them. However, the pledge is likely to be put under strain by worsening trade relations between Washington and Beijing. Tit-for-tat tariffs on imports have been escalating over the last month or so. And tensions heightened with the US imposing duties on $200bn of Chinese goods, China responding with levies on $60bn of US imports. There was a surge in China’s imports from Iran in July, followed by a marked drop in August, suggesting stockpiling in advance of the re-imposition of the US measures. The trend was also seen amongst other big importers of Iranian crude and their purchases are likely to continue falling in advance of the November deadline. However, with Trump

May, 2018

www.intellinews.com

@bneintellinews

Avast to enter London bourse in bid to raise up to $1bn Avast to enter London bourse in bid to raise up to $1bn St Petersburg's start-up scene flourishes on high talent and low costs Romania entrepreneur aims to put home-grown UAV defence technology industry on the map FinTech Russia's mobile major MTS increases stake in Ozon to 16.7%

Avast to enter London bourse in bid to raise up to $1bn Jaroslav Hroch in Prague Avast, which owns the popular consumer antivirus company AVG, will apply to list its shares on the London Stock Exchange in the hope of raising $200mn (CZK4.1bn) in primary proceeds from an IPO, the Czech-founded company announced on April 12.  See page 2

St Petersburg's start-up scene flourishes on high talent and low costs Filip Brokes in St Petersburg

upping the ante on trade, Beijing may feel its commercial interests would be further undermined if it were to comply with his urgings on oil imports from Iran. Setting aside retaliation for US hostility on trade, China’s arguments for pressing ahead, or increasing, imports from Iran include some of its refineries only being able to refine Iranian crude and the need to offset cuts by other importers to avert price rises. Hardline position Former US president, Barack Obama, is said to have managed to persuade Beijing to limit its investments in Iranian oil at a time when US-China relations were on a good footing. Trump is likely to struggle to do the same. He would have to step back from the trade war to stand a chance of achieving compliance on sanctions. But such an outcome appears unlikely given his hardline position on Chinese exports and China’s dependence on Iranian oil. Indeed, there are already signs that Beijing is exploring means of circumventing US sanctions. Reports have suggested that Chinese oil importing companies have been transferring their cargoes onto Iranian tankers for delivery to China, with Iran insuring the shipments. International insurance companies and banks are reluctant to underwrite and finance such transactions for fear of being penalised by the Americans. With no sign of a downturn in US-China trade tensions, Beijing seems set to defy America over sanctions, though the extent of Chinese defiance remains unclear. Iran is hoping it will be sufficient to offer it an economic lifeline. Last month Iran’s foreign minister, Mohammad Javad Zarif, said China could play a pivotal role in helping to preserve the nuclear accord. If that proves to the case, Trump may have to rethink his strategy for bringing Tehran to heel.

Yigal Chazan is an associate at Alaco. Alaco Dispatches is the business intelligence consultancy’s take on events and developments shaping the CIS region.

We have launched a new publication bneTech

Contents

bne:Tech

See page 3

1 2 3

6

9

Blockchain Romanian startups at the heart of blockchain energy trading rally

10

Central Europe Russian-Lithuanian startup Gosu.ai raises $1.9mn from Russian and French investors

13

Eurasia Iran hit by cyber attack that left US flag on screens 14 Iranian government set to block hugely popular Telegram messaging app 15 Iran's black market phone disconnection drive pushes up legal mobile imports 15 Eastern Europe Internet catches up with TV on Russian ad market Sales of connected appliances jump in Russia Russia's HeadHunter Group seeks to raise $250mn with NASDAQ IPO Russia ranks second in the world for digital piracy Russian messaging service Telegram raised another $850mn with ICO

17 17

18 19

20

The Regions This Month

21

SIGN UP HERE

bne:Tech

A FREE newsletter covering technology, blockchain, ICOs, TMT and all aspects of the "new economy" in Emerging Europe, Central Asia and MENA.

18

Southeast Europe Russia's HeadHunter Group seeks to raise $250mn with NASDAQ IPO

GET THE BEST CONTENT DELIVERED STRAIGHT INTO YOUR INBOX!

53

Click the button to read the latest issue

SIGN UP HERE www.bne.eu


54

Opinion

bne November 2018

INTERVIEW:

Russia’s game in Syria Ben Aris in Rhodes

T

he military phase of the war in Syria is coming to an end, with the rebels and terrorists left in their last stronghold in the northern town of Idlib. Russia’s President Vladimir Putin has already said that the Russian forces will pull out (although they are still there) but the situation remains fraught. bne IntelliNews editor-in-chief Ben Aris sat down with Israel’s former prime minister Ehud Olmert at this year's Rhodes Forum "Dilaogue of the Civilisations". Olmert has negotiated with Putin many times and focusses on Russia’s growing activity in the region, to discuss the conflict and what happens next. Ben Aris: Clausewitz said “war is politics by other means,” but in the war in Syria there seems to be as much politics as war. There are several players in the field all with different goals and motivations. What is Israel’s interest in this conflict? Ehud Olmert: The situation in Syria is complex and there have been problems for a long time, since 2011. It's a situation that has gone out of control. The emergence of Islamic State (IS) and the Caliphate and the confrontation with Syrian President Bashar al-Assad has created a big mess. This is an internal Syrian issue with possible ramifications outside. The question for Israel was if it should intervene? We could easily have overthrown Assad at that time. But we decided that as long as it doesn't pose any immediate dangers to Israel we would refrain. And that was the case until the end of 2016. With the growing penetration of Iran [into Syria] we became a lot more concerned, especially with the political instability inside Syria itself. At the same time the fact that America weakened its commitment to the Middle East has opened up a big space for the Russians to increase their penetration. Now we have reached a point where Assad seems to have regained his position in Syria and there is a military presence from Iran.

www.bne.eu

Israel’s former prime minister Ehud Olmert negotiated with Russia's Vladimir Putin many times over the Syrian and Iranian questions.

We have an interest now. Iran, which is a very vocal and aggressive enemy of Israel, has military forces on our border. We don't trust them. We know how to deal with Syria easily. But Iran is a different story. The Russians seem to have exploited this very much to the benefit of their dominance in the area by allowing the Iranians to come into Syria, but at the same time supervising their entry so as not to upset the balance.

“We could easily have overthrown Assad at that time” The Israeli interest is to block any further expansion of Iran into Syria, but at the same time not to get into any confrontation with Russia, which we don't see as an enemy of Israel. Russians are not hostile to Israel. The Russians are interested in protecting what they consider to be their interests. We will never attack Russia obviously. We are not idiots. But we will attack those, even those the Russians protect, if they endanger the state of Israel. BA: Israel has been in Syria for about a year and is specifically targeting Hezbollah, Iranians and those Syrians that offer assistance to either of them. But this confuses the picture as it introduces another military player into the game with a specific set of interests. EO: What can we do? It’s complex – yes. But we can’t ignore it. Can we rely on the Americans? Are they present in this area? No, they are not. They seem to have given up their desire to be the major player in this part of the world. It’s not a criticism. It's a fact. BA: Doesn't that hugely change the political map of the region?


bne November 2018

EO: I don't know if it hugely changes it, but it has an impact. BA: The US drawback has created an opportunity and Russia has moved in. EO: Is this the first time that Russia has had a military presence in Syria? No. So there is nothing dramatically new. Russia was in Syria before the 1973 war. And a Russian plane was shot down then over Syria. We have a history of conflicts. Now they have taken the opportunity that was created by the weakness of the Syrian government and they came in again to establish an exit to the Mediterranean via Syria. BA: The Russians and the Iranians have become much closer. Is that a relationship that worries you or is it just a Great Game? EO: It's a game. Don't lose track of the proportions. Is Russia really getting so much closer to Iran? They provided Iran with nuclear fuel for the Bushehr power station and the S300 missile system. Russia has had relations with Iran for many years and always wanted the option of having influence in that part of the world at the expense of American influence. I had many discussions with President Vladimir Putin about Iran and about Russia’s intentions in the region and the supply of the S300 to Iran. At the time he refrained from supplying the S300 to Iran because he said I convinced him not to do it. Russia uses Iran for its own ends. Russia will not allow Iran to endanger the state of Israel. This is my conviction. It's a pragmatic relation and there is no ideology to it.

Opinion

55

Donald Trump to reimpose Iran sanctions. Isn’t the re-imposition of sanctions on Iran in Israel’s interests? EO: If there are sanctions that threaten the strength of the Iranian government then whoever mobilised the US to reimpose sanctions deserves credit. The other question, which is not as important, is: is it a good thing that the US cancelled its agreement with Iran while Germany, France, China and Russia are all tied to this agreement, or should the old agreement have stayed in place with America participating? That's a tough question. I think the old agreement was better and I didn't support the Americans cancelling their participation in the agreement. I don't think it was the most useful thing to do. BA: The military phase in Syria is coming to an end. What happens next? EO: Assad lost his moral authority in the eyes of the rest of the world. I tried to make peace with him and he was dumb enough not to understand how useful it could be. He pulled out at the last moment in 2008 in what could have been a historical decision. He slaughtered 500,000 of his own people. It is not something that can be forgotten or forgiven. He will eventually be thrown out. But I hope that he will be thrown out by genuine Syrian parties and not extremists or jihadists.

Russia will not stop Iran from attacking Israel. But it will not assist Iran in that attack. If Israel attacks Iran then Russia will not intervene to prevent our attacks. We have been attacking Iran in Syria for the last year, hundreds of times, and Russia didn't intervene. We have created a special communications system to let the Russians know when we are coming to avoid precisely what happened a few weeks ago [when Syrian air defence accidentally shot down a Russian bomber during an attack by Israel jet fighters on a target in Syria].

“Russia will not stop Iran from attacking Israel. But it will not assist Iran in that attack. If Israel attacks Iran then Russia will not intervene to prevent our attacks”

BA: What is Putin’s goal? Russia is not a natural ally of the Arab world. What does he hope to achieve?

Is Assad capable of rebuilding his country and making it prosperous? I doubt it. He is from a minority. The choice will be between a tight brutal regime or a genuine strong opposition.

EO: The Middle East is an important region that has always been of great interest to Russia. Putin told me many times in the past: “I have nothing against Israel and I won’t allow anyone to endanger it. I will not assist anyone that jeopardises the security of Israel, but don't get me wrong I will not lose my interests in those places if it means dealing with countries that are not friendly to Israel.” I don't like it. I’m not happy with it. I have a lot to say to Putin, but it is a masterplan of Russian interests. BA: There were reports in July that Israeli Prime Minister Benjamin Netanyahu said he personally persuaded US President

I hope an opposition will emerge. And I think the Russians won’t intervene. If there is a choice between Assad and extremists then there is no choice. But if the choice is between Assad and a genuine opposition in Syria then I think Russia won’t care and won’t intervene in any change. This interview has been edited for style and brevity. Listen to the full interview as a bne podcast here

www.bne.eu


56

Opinion

bne November 2018

IRAN:

Icy blast from the US, warm overtures to Europe bne IntelliNews Air disasters in Iran in recent years have been blamed on previous sanctions that left the country’s aircraft fleets in a rotten state. The World Court says aviation imports should be allowed as “humanitarian”. Iran managed to acquire some Airbus planes before US sanctions snapped back.

A

lready in the deep-freeze, US-Iran relations suffered another icy blast on October 3 as Washington announced it was scrapping a decades-old friendship treaty with the Iranians after Tehran successfully cited the document in an international court case against the Trump administration’s sanctions policy. Simultaneously, Iran attempted to add warmth to its relations with Europe as Iranian President Hassan Rouhani praised the EU for taking a “big step” towards preserving business with his country despite Washington’s demands that the Europeans should fall in line with its renewed heavy sanctions regime. "I'm announcing that the US is terminating the 1955 Treaty of Amity with Iran. This is a decision, frankly, that is 39 years overdue," US Secretary of State Mike Pompeo told reporters on October 3, referring to the year of the 1979 Islamic Revolution. Pompeo acted after the top UN court ordered the US to ease sanctions it reimposed on Iran following the unilateral withdrawal of Washington in early May from the 2015 multilateral nuclear accord between Tehran and six world powers. The 1955 Treaty of Amity, Economic Relations, and Consular Rights called for "friendly relations" between Iran and the US. It also encouraged mutual trade and investment, regulated diplomatic ties, and granted the International Court of Justice (ICJ), sometimes referred to as the World Court, jurisdiction over disputes.

The sanctions squeeze has had a severe effect on Iran's economy. The value of the Iranian rial has plummeted, inflation – by some estimates – is running at 250% and foreign investors have fled the country fearing exposure to secondary sanctions levied by the US. By November 5, Trump wants to see a complete worldwide embargo on Iranian oil exports. If enough countries join that embargo, it could deal a potential knockout blow to the Iranians' economic situation. Iran pushed back against the reinstatement of sanctions – under the nuclear deal abandoned by Trump it was protected from heavy sanctions in return for compliance with measures that curbed its nuclear development programme – in a case filed in July at the ICJ in The Hague. The US was guilty of "economic aggression" and the sanctions breached the friendship treaty between the two countries, the Iranians argued. US lawyers countered that the reimposition of the sanctions was legal and a national security measure that could not be challenged at the UN court. ICJ: Allow "humanitarian" goods In a preliminary ruling, the ICJ said on October 3 that exports of "humanitarian" goods such as medicines and medical devices, food, and agricultural commodities" should be allowed, as should shipments of aviation safety equipment.

ICJ decisions on disputes between UN member states are binding and cannot be appealed. But the court has no mechanism with which to enforce its decisions.

US sanctions stopping the flow of such goods did indeed breach the treaty, the court said. The court's president, Judge Abdulqawi Ahmed Yusuf, said the sanctions on goods "required for humanitarian needs ... may have a serious detrimental impact on the health and lives of individuals on the territory of Iran".

US President Donald Trump is attempting to throttle Iran’s economy with sanctions. He wants to force Tehran to reshape its role in Middle East affairs.

Sanctions on aircraft spare parts, equipment, and associated services have the "potential to endanger civil aviation safety in Iran and the lives of its users”, he added.

www.bne.eu


Opinion

bne November 2018

57

The ruling is a decision on provisional measures. It could take the court years to come to a final decision on the entire lawsuit.

Zarif told the BBC on October 3 that support from Europe to preserve economic ties with the Islamic Republic in the face of the American pressure had proved “better than expected”.

Pompeo told a press briefing the ruling “marked a useful point for us to demonstrate the absolute absurdity of the Treaty of Amity between the United States and the Islamic Republic of Iran". The US was "disappointed" that the ICJ "failed to recognise that it has no jurisdiction to issue any order relating to these sanctions measures with the US, which is doing its work on Iran to protect its own essential security interests".

“To maintain financial and monetary relations in Iran, Europe has formed a special body... Europe has taken a big step,” Rouhani was quoted as saying by Tasnim news agency, in a reference to the EU effort to create a Special Purpose Vehicle (SPV) that will facilitate foreign trade with Iran while protecting traders from the secondary sanctions reach of the US. Brussels says the SPV might be ready for initial trading by early November.

Pompeo added that Washington would work to ensure it provides humanitarian assistance to the Iranian people.

Rouhani, a pragmatist and centrist who entered into the nuclear accord despite howls of protest from hardliners who said the US could not be trusted, added that the Trump administration was “extremely angry” with Europe’s decision.

Iranian Foreign Minister Mohammad Javad Zarif called the court decision "another failure for the sanctions-addicted” US government. It was a “victory for the rule of law", he added. Iran’s Foreign Ministry said the ruling proved "the US sanctions against people and citizens of our country are illegal and cruel". Europe's help "better than expected" Joining in Rouhani’s praise of Europe – the EU and major power signatories that remain in the nuclear deal, namely the UK, France, Germany, Russia and China object to the US ending its participation in the nuclear deal, pointing out that the Iranians have honoured their side of the agreement –

European diplomats have described the SPV proposal as a means to create a sophisticated barter system, similar to one used by the Soviet Union during the Cold War. Iranian crude oil is to be exchanged for European goods without money changing hands. For example, Iran could ship oil to a German firm and the credit generated by that transaction could then be used to pay a French manufacturer for goods shipped the other way. There would be no transparency as to who is using the system. Countries outside Europe might be invited to use the mechanism.

Key topics - 2018:

The largest conference for capital market professionals in Russia

Saint-Petersburg December 6-7 2018 LEAD PARTNERS:

XVI Russian Bond Congress

• Fixed income market regulation and infrastructure in Russia • Traditional discussions: macro-analysts, FI-analysts, portfolio managers • Corporate bonds • Subfederal and government bond market • Structured products market • High yield in Russian DCM • Investments in infrastructure: green bonds, concession bonds

Book your place now

Contacts:

Participation: Aliya Gallyamova aliya@cbonds.info

www.bne.eu


58

I New Europe in Numbers

Motor Vehicle Sales in Turkey

bne November 2018

Vehicle sales in Turkey expected to fall 39% y/y in 2018 says automotive association Total vehicle sales in Turkey are expected to decline by 39% y/y to 600,000 units in 2018, Hayri Erce, general director of the Turkish Automotive Distributors’ Association (ODD), said on October 17. Domestic vehicle sales are expected to decline further to 450,000 units in 2019, Ali Bilaloglu, chairman of ODD, said. Producers and consumers are under pressure in Turkey as the country, beset by a currency crisis that analysts fear could morph into a debt crisis, slips towards what could be a deep recession.

TKB (KLNMA) Share Price

Shares in little-known development bank skyrocket as investors anticipate big role amid Turkey’s economic turmoil Shares in little-known Turkish state-owned development bank Turkiye Kalkinma Bankasi (TKB) have clocked up a gain of 863% since Treasury and Finance Minister Berat Albayrak said on September 20 that the lender is to be restructured with an expanded mandate. Exactly how the bank will be used to bolster growth amid Turkey’s economic turmoil is not yet clear, but the TKB share price skyrocketed from TRY6.67 on September 20 at the close to TRY50.60 on October 10 as of 15:00 local time.

Russia Current account BPM6 $mn

Russia Inc is more profitable than in 2008 and heading for a record-breaking current account surplus What a difference a year makes. Russia was facing the prospect of a double deficit last year when the balance of trade surplus very briefly went into the red, but this year thanks to rising oil prices it is on course to turn in a record current account surplus north of $100bn. The Central Bank of Russia (CBR) reported that the current account surplus reached a whopping $75.8bn in 9M18, up from $19.7bn in 9M17, and $49.4bn in the first half of 2018, implying a surplus of $26bn in the third quarter of the year. The trade surplus reached $136.3bn in 9M18, while capital outflows from the private sector came in at $31.9bn, with $19.2bn of outflows registered in the third quarter. The combined outflow from the private and public sectors reached $40.2bn over 9M18.

Ukraine gross int reserves ($mn; gold incl)

Ukraine's currency reserves back up to $18.1bn, over three months of import cover Ukraine’s gross international reserves (GIR) increased by 0.6% in October to $16.737bn as of November 1, according to the National Bank of Ukraine (NBU). And that result does not take into account the placement of a $2bn Eurobond by the ministry of finance on October 25, which came on the back of a new agreement with the country’s most important donor, the International Monetary Fund (IMF).

www.bne.eu

"Thanks to the funds from [the Eurobond] placement, as of November 5 Ukraine's international reserves rose to $18.069bn, which corresponds to three months of future imports," the NBU said.


New Europe in Numbers

bne November 2018

Trust in Putin rating plunges to 39% due to unpopular pension reform A new survey by independent pollster the Levada Center asking which politicians people trust the most has seen trust in President Vladimir Putin plunge to 39% in September this year from 59% in November 2017, Levada said on its website. However, in Levada’s last monthly benchmark Putin's “approval” rating poll, as opposed to the “trust” poll, was relatively unaffected, though it has sunk from 70% in August to 67% in September. The October approval results will be out soon, but are likely to show that Putin remains very popular, although his image has clearly been bloodied by the pension reform, and pundits expect his approval ranking to fall as well in October’s poll. Putin’s popularity has taken a hit by pushing through a hike in retirement ages that he signed into law. The retirement ages were 60 years for men and

The announcement was made in the midst of the World Cup in July by Russian Prime Minister Dmitry Medvedev, but led to widespread, though peaceful, protests across Russia. The most newsworthy protests were held in Moscow and led to limited altercations between the police and demonstrators. The problem with hiking the retirement age is few “pensioners” actually retire on reaching the qualifying age. Their pension is better understood as a second income most Russians look forward to that has a major material impact on their quality of life, which makes increasing the pensionable age closer to actual old age a major blow. Indeed, in some regions life expectancy for men is less than the 65 year threshold for “retirement”. The increase in retirement ages is long overdue and together with an increase in VAT from 18% to 20%

“Putin remains very popular, although his image has clearly been bloodied by the pension reform” 55 for women, set in the USSR back in the 1930s when average life expectancy was 40 years. They have now been increased to 65 for men and 63 for women. The reform was necessary as the number of workers is falling thanks to a demographic dent hitting the population now, caused by the economic turmoil of the collapse of the Soviet Union from 1991: one pensioner used to be supported by two workers, but the ratio has fallen close to 1:1 now. Russian First Deputy Prime Minister and Finance Minister Anton Siluanov said earlier this year that the budget would not be able to afford to pay for pensions if reforms were not made, but the age hike has been extremely unpopular.

introduced at the same time is the first time Putin has directly increased the burden on the population since he took office in 2000. Ironically the popularity of Medvedev, who is technically responsible for the decision and actually made the announcement, has been relatively unaffected, with trust in him falling one percentage point from 11% to 10% over the same period. Defence Minister Sergei Shoigu, long the second most popular politician in Russia after Putin, also took a hit with his popularity falling from 23% to 15%. Trust in opposition firebrand and Liberal Democratic Party of Russia (LDPR)

I 59

leader Vladimir Zhirinovsky actually rose by one point to 15% in the period, to make him the second most popular politician in Russia. Recently re-elected Moscow mayor Sergei Sobyanin also gained one point but remains in single digits with only 4% of Russians saying they trust him. Medvedev may have seen his trust rating stay more or less the same but he also has the dubious honour of leading the sister poll that asked: “which politician don't you trust”, with a score of 31%, up from 19% over the same period. Oddly enough Zhirinovsky is also second in that poll and also saw his score rise there too from 18% to 20% over the same period. Putin was third and saw his “don’t trust” rating increase from 7% to 13% in the same period.

Which politicians, public figures do you trust most? Nov. 2017

Jun. 2018

Sep. 2018

Putin V.

59

48

39

Zhirinovsky V.

14

14

15

Shoigu S.

23

19

15

Lavrov S.

19

14

10

Medvedev D.

11

9

10

Zyuganov G.

10

7

8

Grudinin P.

-

7

4

Sobyanin S.

3

4

4

Navalny A.

2

2

3

Mironov S.

4

2

2

Not interested in politics

1

1

1

There are no such

14

21

18

Difficult to answer / I do not know / no answer

11

12

18

Source: www.levada.ru

www.bne.eu


MOSCOW

LONDON

CYPRUS

bne IntelliNews November 2018  

bne is the leading English language publication covering business, economics, finance and politics of the 30-plus countries of emerging Euro...

bne IntelliNews November 2018  

bne is the leading English language publication covering business, economics, finance and politics of the 30-plus countries of emerging Euro...

Advertisement