bne:Newspaper - December 5, 2014

Content: 2 Top Stories 5 The Regions This Week 10 Eastern Europe 14 Eurasia 17 Central Europe 20 Southeast Europe 23 Opinion 26 Lists

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Russia cancels South Stream pipeline

bne IntelliNews Russia will not build the ¤30bn South Stream gas pipeline project because of resistance to it by the European Union, President Vladimir Putin announced on December 1 during a visit to Turkey.

"If Europe does not want to carry out the project, then it will not be carried out,” said Putin. “We are now going to focus our energy resources in other directions, including the [liquefied natural gas] LNG projects.”

The South Stream pipeline, with a projected annual capacity of 63bn cubic metres (cm), was planned to run under the Black Sea to Bulgaria, continuing on the mainland to the Baumgarten gas hub in Austria. The pipeline would thus have created an alternative to the traditional gas transit via Ukraine, on which Russia is dependent for See page 2

Putin offers Russian business 'full' offshore capital amnesty bne IntelliNews Russian President Vladimir Putin has announced a complete capital amnesty, allowing businesses to repatriate offshore funds without fear of the consequences. "We need to finally turn the 'offshore page' in the history of our economy and country," Putin told the federal assembly in his annual address.

in Russia, he will receive sold legal guarantees that he will not get taken before diverse organs, including law enforcement organs, and asked about their origins and means of acquisition, there won't be problems with criminal or administrative charges, or questions from tax or law enforcement organs," Putin said. He

"If someone legalises his funds and property

See page 3

Top Stories December 5, 2014

Russia cancels South Stream pipeline transit of up to 80% of its gas exports to Europe.

Since South Stream is widely regarded as an anti-Ukrainian project, the EU forced Bulgaria and other transit countries to halt construction work on the grounds that South Stream does not comply with the third energy package on giving competitors third-party access.

The cancellation takes place as construction of an initial section of the pipeline had been completed and work was due to start on the underwater phase. Gazprom had so far invested $4.7bn in the project, mostly in its Russian debottlenecking pipeline system that would enable it to pump larger gas volumes towards the Black Sea, according to analysts.

"There's no point in us building a pipeline to the coast of Bulgaria only for it to stop there because work is blocked in Bulgaria," Putin observed.

However, Putin’s decision was also seen as forced by the way declining hydrocarbon prices and financial sanctions on Russia have made the project uneconomic.

This is the second mega-project that Russian gas export monopoly Gazprom has had to abandoned over the last two years due to cost considerations.

In 2012, Gazprom finally laid to rest plans to develop the giant Shtokman gas field in the Barents Sea, valued at over $40bn.

Putin and Gazprom CEO Alexei Miller were on a visit to Turkey when they announced the decision. This allowed them to put a brave face on the climbdown, since they then revealed that the pipeline section already built in Russia would now be used to launch a new southward pipeline, running under the Black Sea to Turkey.

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Miller said that an additional 63bn cm pipeline alternative to South Stream could connect Turkey and Russia, coupled with the construction of a gas hub on the Turkish border for further distribution to Europe. The pipeline to Turkey would continue via the Black Sea from the pipeline stretch already built on the Russian mainland, at an estimated cost of around $4.66bn.

Gazprom also said that the existing Blue Stream pipeline that takes Russian gas to Turkey might be expanded by 3bn cm/y capacity up to 19bn cm, of which 14bn cm/y would be sold on the Turkish market and the rest delivered to a transfer point at the Greek border, from where it will flow to the EU. Analysts were sceptical of the economic case for the proposed new pipeline via Turkey, given the expansion of the Blue Stream project, and Turkey's other ongoing gas transit projects: namely, the 31bn cm/y TANAP pipeline that Turkey is developing in partnership with Azerbaijan to carry Azeri gas to Europe, and construction of which is slated to begin next year, and Turkey's more nebulous plans to transit gas from the Kurdistan Region of Northern Iraq to Europe.

"Though Gazprom’s capex on the new project may potentially be lower, the endeavour still leaves many questions, among them being: Who exactly will consume the 49bn cm of Russian gas if the pipeline ends at the Turkey-Greece border, at the same time that competition from the Southern Gas Corridor and Azerbaijan gas aggravates the potential risk of the pipeline being underutilized?"

Alfa Bank's Alexander Kornilov asked.

Russia’s decision to axe the South Stream gas pipeline project is a blow for Southeast European countries from Bulgaria to Austria, which had hoped the pipeline would ensure reliable supplies of gas from Russia.

Top Stories December 5, 2014

Putin offers Russian business 'full' offshore capital amnesty emphasised that the capital amnesty would be a "complete" and "full".

The amnesty is a counterpart to the passing in 2014 of a bill on taxation of foreign companies controlled by Russian taxpayers and identified as being used in tax minimisation schemes. Both are seen as part of the administration's 'deoffshorisation' policy announced in 2012.

Putin already introduced a capital amnesty in 2000, when he first came to power, but only for individuals, not corporates, and with little effect. But more Russian businessmen are likely to take advantage of the opportunity now, say experts, partly because of the new law on 'foreign controlled companies', but also because of the imposition of sanctions and asset freezes on Russian business by the West in response to the Ukrainian crisis, as well as the experience of Russian deposit holders in Cyprus banks, who received a 'haircut' as part of the EU bailout of the financially distressed tax haven.

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any later reconsideration.

Business has latterly been especially worried that the government might raise the tax burden, given the fall in the price of oil, discussions in the summer about the introduction of a sales tax, and a draft bill in parliament allowing police to open tax cases independently of the tax service.

Putin awarded small business a two-year tax holiday on starting up, and also awarded a twoyear tax holiday to new production lines "starting from zero".

Putin called for further improvements to the business environment. These include a public register of state inspections of businesses, where it will be possible to see which state bodies inspected which business for what reason, in order to identify where a coordinated targeting of a specific business was taking place. He said

CHANGES ARE GOOD

Many Russian big business owners have already started moving ownership of their businesses back to Russia, according to business daily Vedomosti, partly out of desire to show loyalty to the Kremlin, and are likely to take advantage of the new law.

The return of offshore capital could help boost growth in an economy which is predicted to enter recession next year. It could also help banks and business cope with a shortage of finance, caused by Western sanctions on Russia because of Ukraine.

Putin also announced 'tax stability' for the next four years, with no new taxes or tax hikes, "and not to return to this question", he said, ruling out

YOUR BUSINESS PARTNER. www.rbinternational.com

Top Stories December 5, 2014

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this would apply not only to business but also to budget organizations and NGOs.

methodology to capture qualitative aspects of respective jurisdictions.

Putin proposed introducing 'inspection holidays' for businesses that over three years have not been admonished over shortcomings, which would then enjoy three years without any inspections, Putin said.

Putin also announced measures to boost investment to 25% of GDP annually by 2018, through import substitution and localisation of production - including free trade zones in Crimea, following Russia's annexation of the Ukrainian peninsula - and also in the far eastern maritime hub of Vladivostok, and a system of industrial parks throughout the country.

In order to stimulate regional authorities to improve the business climate, Putin said that he would introduce a national investment climate rating to assess how regions were adopting 'best practices' in improving the business climate, and that the rating would be referred to at meetings of the state council, where the president meets with regional heads.

Russia's investment climate got an image boost this year in the World Bank's benchmark 'Doing Business' rating in which Russia jumped to 66th place from 97th, using a new extended

In this context Putin mentioned the huge ongoing 30% devaluation of the ruble in 2014, as stimulating import substitution, by boosting the competitiveness of Russian firms. But he also warned that Russia's central bank would take decisive action against those speculating against the currency. In response, the ruble fell to a new historical low of just under RUB54 to the dollar in the course of the speech.

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The Regions This Week December 5, 2014

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Eurasia Armenia will raise the minimum wage to AMD5,000($126.3) from July 2015. The increase will require an allocation of AMD41.6bn ($94mn) per year and is due to come into force as of July 1, 2015. The government plans to further raise the minimum wage in 2017 to AMD65,000 ($149.3).

According to the National Statistical Service (NSS), the median gross salary in January-October 2014 was up by almost 8% y/y to AMD166,300 ($382).

maintenance works conducted by Tengizchevroil, the country's largest producer. It halted production for 75 days this year, up from usual 30 days due to extra work with the sour gas injection plant. Kazakhstan produced 81.7mn tonnes of oil last year. The target for 2014 was set at 81.8mn tonnes.

Kazakhstan started supplying power to Kyrgyzstan on December 1. Zhambyl power Armenia’s inflation will be 4% in 2014. It was thermal plant in the country's south is using 5.6% in 2013. According to the National Statistical 230 MW of its capacity to supply power to the Service (NSS), consumer prices increased by 2.9% neighbouring country. In November, the two y/y in the first ten months of 2014. In August, the countries agreed on supplies of 1bn kWh of Central Bank of Armenia revised its economic electricity in winter. Dry weather conditions and growth forecast for 2014 downwards to 3.6% from excessive use of water to generate power reduced its previous forecast of 4.1%. the water level in the Toktogul reservoir which forced the government to seek supplies of power Azerbaijan places bonds worth $252.2mn for in neighbouring countries. the Southern Gas Corridor. The Southern Gas Corridor closed joint-stock company placed Russia's MTS has finally returned to Uzbekistan 2.522mn bonds at a nominal value of $100. This after expulsion in July 2012. Universal Mobile is the fourth bond placement by the company Systems (UMS), a new joint venture between MTS since Azerbaijan's President Ilham Aliyev signed a and the Uzbek government, started operations on decree establishing the company in February. The December 1. Uzdunrobita, MTS' local subsidiary, company was set up to manage energy projects was Uzbekistan's largest mobile operator with under the second stage the giant Shah-Deniz gas some 9m subscribers in July 2012 when Tashkent brought charges of tax evasion and illegal use of field and the expansion of the South Caucasus Pipeline, Trans-Anatolian (TANAP) Pipeline, and equipment. The dispute was settled in summer, the Trans-Adriatic (TAP) pipeline. as the parties agreed to transfer Uzdunrobita's assets to UMS, in which MTS will hold a 50.01% Kazakhstan has revised grain harvest projection stake and the rest will be in the hands of the to up to 17mn tonnes in clean weight in 2014.

Uzbek government.

The original target was set at 15.5mn tonnes.

Grain exports are expected to stand at only 7mn Tajikistan's 2014 cotton harvest amounted to tonnes due to a lower quality of the crop. Earlier 385,597 tonnes, or 95% of the target. The country projections put exports at 6-8mn tonnes. In 2013, produced 395,000 tonnes of cotton in 2013.

Kazakhstan harvested 18.2mn tonnes of grain and Tajikistan cut cotton fibre exports by 45.5% year exported 8.7mn tonnes. on year to 40,600 tonnes in the first nine months of 2014. In monetary terms, exports dropped by Kazakhstan might miss its oil production 45% to $67.8mn, making up 8.7% of the country's target this year. Deputy Energy Minister Uzakbai total exports in January-September.

Karabalin explained that the current level of production is at 98.7% on the same period of last year. The reason for lower oil output is

The Regions This Week December 5, 2014

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Central Europe Prague will repatriate ethnic Czechs from eastern Ukraine, local press reports. The interior ministry is vetting the identities of up to 50 people in Donbas who have applied. The move comes after months of debate, with populist President Milos Zeman leading the charge.

arranging one million centu coins into a pyramid over one metre tall.

Poland will block UK plans to clampdown on EU migrants claiming benefits unless it applies the measures to Britons as well, Warsaw's deputy foreign minister said. Rafal Trzaskowski Women's groups were outraged as Hungarian insisted discriminating on grounds of nationality police produced a video warning that young is an "absolute red line". Meanwhile, an official women flirting could lead to rape. Critics said the in Prague published a photo of Czech WWII film puts the blame on the victim.

RAF pilots on Twitter, asking if they had earned benefits during their time in the UK. Central Europe was hit by ice storms that froze transport across the Czech Republic and Hungary. A Latvian MP quit after praising Nazis for Tram and train transport was stalled in Prague, killing gays. In an online debate with fellow while 40,000 homes in Budapest saw their power Unity Party members on legalizing same-sex cut. partnerships, Inga Priede tweeted: "Thanks God! The Germans shot them in their time. Was good Poland has its first openly gay mayor. Robert for demographics."

Biedron, an MP and member of Palikot's Movement, won the election in Slupsk. The same Hungarian PM Orban is "a neo-fascist dictator party also features a transgender MP on its getting in bed with Vladimir Putin,” claimed John list. Poland continues to lead the way for LGBT McCain this week. The outspoken US Senator progress in Central Europe, despite its strong spoke as he opposed the appointment of soap Catholic traditions. opera producer and Obama bundler Colleen Bell as the new ambassador to Hungary. Budapest has Andrej Babis sees himself as Czech PM, while seen relations with Washington plummet in recent he also suggested that weak rival and current months, as the government appears to lean PM Bohuslav Sobotka could become the next further towards Moscow. president – a mainly ceremonial role. The billionaire leader of coalition member ANO is Poland will have its full rescue plan for the looking to strengthen his hand while his party coal industry ready by the end of the year, the leads in the approval ratings. official charged with sorting the issue out said on December 4. Warsaw is pulling listed utilities, as Hungary will pull the expansion of Paks out well as state funds and banks, into the politicallyof public oversight. Budapest has put forward charged effort. a bill designating the Russian-led and funded expansion of the nuclear plant a "priority project" Hungary will raise its ownership of the banking for the economy. It also placed exception limits on sector with the purchase of Budapest Bank from info releases by any company taking part.

GE Capital. The government – which has been hammering the banks and says it wants 70% of Lithuania built the "world's largest coin the sector in domestic hands - is mulling a sale pyramid" to celebrate its move to the euro. within two years, or a merger with MKB, which it With the country set to adopt the EU currency bought in August. on January 1, volunteers spent three weeks

The Regions This Week December 5, 2014

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Southeast Europe Bankruptcy proceedings have been launched against Croatian lender Nava Banka at the request of the country’s central bank. Proceedings were launched at the Zagreb commercial court on December 1 after Nava Banka failed to meet central bank requirements.

The Serbian government has launched the privatisation procedure for steel mill Zelezara Smederevo. Ten international investors have submitted letters of interest in the mill, with US group Esmark believed to be the favourite.

The Slovenian parliament has approved the appointment of Zdravko Pocivalsek as economy minister, putting an end to nearly two months of uncertainty over the position. His predecessor Jozef Petrovic resigned in October after only one month in office following fraud allegations.

Chinese firm CRBC, will cost ¤809mn, with part of the funding to come from China Exim Bank.

Romania’s government endorsed on December 3 the third revision to this year’s budget, despite severe criticism from the independent Fiscal Council, which argues that the revision is in breach of legislation on fiscal responsibility.

Turkish state-run lender Halkbank said on December 2 that it has decided not to buy a controlling stake in Serbia’s Cacanska Banka after the parties failed to reach an agreement.

Halkbank placed a bid to acquire a 76.76% stake in Cacanska in August.

State-controlled Telekom Srbija has submitted a bid to buy a majority stake in local lender Dunav Banka from its current owners, insurer Dunav Osiguranje and reinsurer Dunav RE, also Bulgaria's GDP expanded by 1.5% y/y in the third owned by the state, Serbian media reported on quarter of 2014, less than the flash estimate's December 3. The telecoms company intends to 1.6% and below the 1.8% growth in Q2. Growth enter the mobile banking sector and catch up slowed in Q3 as domestic consumption expanded with its biggest competitor, Telenor Serbia, which by only 0.8%, compared to a rise of 1.2% in the started offering mobile banking in September. previous quarter.

Slovenia has proposed infrastructure projects worth a total of ¤4bn for financing under the Russia has sent the first seven lorries with humanitarian aid to Moldova’s separatist recently announced ¤315bn plan of the new head of Transnistria republic. This was the first shipment the European Commission, Jean-Claude Juncker, of a planned 60-lorry convoy expected to be sent aimed at boosting the European Union's economy to Transnistria in the coming weeks. in the next three years and creating new jobs.

Montenegro should speed up structural reforms aiming to improve the functioning of local market and decrease unemployment, according to the head of the EU delegation in Podgorica Mitija Drobnic. Montenegro's registered unemployment rate rose to 14.95% as of December 1 from 14.5% a month earlier.

Montenegrin opposition Movement for Changes wants a referendum on the construction of the Smokovac-Matesevo section of the Bar-Boljare motorway. The 44km section, to be built by

Turkey say automotive sales rose by a modest 1.66% y/y to 80,621 units in November after a robust 14.75% y/y increase in October. The Automotive Distributors Association expects total auto sales of 725,000-775,000 units this year.

The Croatian parliament approved on December 2 next year's budget bill with planned deficit of HRK12.5bn (¤1.6bn) or 3.8% of GDP. The budget is based on a projected economic growth of 0.5% backed by rising exports and gross fixed capital formation.

The Regions This Week December 5, 2014

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Eastern Europe The ruble fell by almost 10% on December 1, smashing through the RUB50/$ mark and well over RUB60/¤. The Central Bank of Russia spent more than $500m trying to halt the fall and stabilise the currency as traders panicked.

Russia's Economy Ministry released a new oil price forecast for the 2015 budget of $80/ bbl average Brent down from $100/bbl previously, and now no longer assumes that the Western sanctions will be lifted in 2015. The Ministry expects the Russian economy to fall into a recession in the beginning of 2015 and to bottom out by the middle of the year, with GDP contracting 0.8% in 2015 versus the previous forecast of 1.2% growth.

Oil prices tanked, the cause of the ruble devaluation, and crossed below the $70 per barrel mark. Analysts suspect Saudi Arabia is trying to take out the heavily indebted marginal shale producers in the US.

year as president before the crisis struck, credited with putting Russia on track for sustainable growth.

More Russians blame the collapse of the Soviet Union on a "conspiracy" of hostile Western forces than seven years ago, according to independent pollster Levada Center. The number of Russians who blamed the Soviet Union's demise on the West had risen to 28% from 16% seven years ago. 54% regretted the collapse of the regime, while 28% didn’t regret it.

The offshore Black Sea part of the South Stream pipeline may be diverted to Turkey, creating a gas hub at the border with Greece, Russian President Vladimir Putin said during a visit to Turkey. This would divert the gas intended for Europe to Turkey and reduce Russia's dependence on Europe as a customer.

Putin gave his annual state of the nation speech where he said Russia does not intend to get bne subscriber, founder of Horizon Capital and US involved in costly arms race, but defensives citizen Natalie Jaresko was confirmed as finance capabilities will continue to be developed. He also minister of Ukraine. East Capital fund manager re-emphasized the anti-corruption drive, saying and another friend of bne, Aivaras Abromavicius, that the improper use or theft of budget funds who is Lithuanian, was chosen as economics allocated for arms orders should be treated as the minister. The new health minister, Georgian financing of terrorism.

Alexandr Kvitashvili, is the only one of the three foreigners to have experience in government as Belarus plans to spend $3bn to pay off head of Georgia's health ministry. foreign debt in 2015, head of the budget policy department of the Finance Ministry, Yuri Two prominent figures came out against the EU Seliverstov, said. “Foreign debt has a serious sanctions on Russia. Russian opposition figure impact on the structure of the 2015 central Mikhail Khodorkovsky addressed the European budget. Therefore we have to run a budget surplus Parliament, calling anti-Russia sanctions a of BYR16 trillion,” Seliverstov said. political mistake and describing them as useless.

Former German chancellor Gerhard Schroeder Belarus improved to 119th place out of 174 said the same thing in an interview with Die Welt. countries studied in the latest Corruption Perceptions Index compiled by Transparency Time magazine named Vladimir Putin "man of International. Belarus scored above Russia (136) the year" again. Russia’s president was also the and Ukraine (142). publication’s man of the year in 2007 in his last

bne Chart December 5, 2014

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Corruption index shows CEE/CIS needs to do better This year’s Corruption Perceptions Index from anti-graft group Transparency International shows some marginal improvement here and there, amid some big disappointments.

On the positive side, all Central Asian and South Caucasus countries improved their standings, except for Turkmenistan. Kazakhstan and Kyrgyzstan made the biggest leaps, jumping 14 places to 126th and 136th respectively out of 175 countries ranked. However, as the bne:Chart shows, any improvements were from a low base so the region remains entrenched in the ‘red camp’.

In Eastern Europe, Russia dropped three

positions to 136th place, while Belarus improved to 119th place. But it is Ukraine that remains Europe's most corrupt country in 142nd place, improving just one spot from 2013 despite a revolution specifically driven by the people’s desire to see a crackdown on corruption.

But it was Turkey that disappointed the most in the CEE/CIS region, dropping 11 places to 64th place in a year in which the government responded to a wide-reaching corruption scandal with a severe clampdown on political dissent.

Could and should do better is the message from this year’s survey.

Eastern Europe December 5, 2014

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Three foreigners appointed to new Ukrainian cabinet

bne IntelliNews Five weeks after parliamentary elections in Ukraine on October 26, the crisis-stricken country is one step away from getting a new government including three foreign-born ministers, according to a list of the cabinet appointees drawn up by the governing coalition for approval by parliament.

November shortly after having been reportedly offered the post of Ukrainian economy minister.

The new health minister, Georgian Alexandr Kvitashvili, is the only one of the three foreigners to have experience in government, having run Georgia's health ministry and carried out reforms under the leadership of exiled former Georgian The foreign-born ministers comprise a US citizen, president Mikheil Saakashvili. Saakashvili is a Lithuanian citizen and a Georgian citizen, who believed to have been offered the post of deputy were named finance minister, economy minister prime minister in the government, but turned it and health minister respectively, after having down. It is unclear how well acquainted Kvitashvili been given Ukrainian citizenship earlier in the day is with Ukraine. by a decree of President Petro Poroshenko. All three have been nominated to the government by Another star Georgian reformer under the former Poroshenko's eponymous party and, according Saakashvili government, currently exiled after to previous media reports, they will be paid losing power in 2013, Ekaterine Zghuladze may internationally attractive salaries from a special become deputy interior minister of Ukraine, and fund raised by officials of the presidential understudy - or chaperone - to the incumbent administration. minister Arsen Avakov. If Zghuladze does not make the government, she may head Ukraine's Natalie Jaresko, the new finance minister who much-hyped but not yet existing anti-corruption hails from the US Ukrainian diaspora, came bureau. to Ukraine in the early 1990s as a US embassy official, and stayed on to set up her own boutique The government includes two more securities private equity company Horizon Capital, becoming brokers: new energy minister Volodymyr Demchishin, a partner of National Bank of a respected voice in Kyiv's expat community.

Ukraine head Valeria Gontareva in her Ukraine Lithuanian Aivaras Abromavicius, the new Investment Capital boutique brokerage, and economy minister, is less well known in Kyiv. He is nominated by Poroshenko;, and agriculture a partner in Swedish investment boutique East minister Oleksiy Pavlenko, a partner in investment Capital, which specialises in emerging and frontier company Pharus Assets Management, nominated markets, and like Jaresko, is acquainted with by third place party Samopomich, headed by Lviv conditions on the ground in Ukraine. Abromavicius mayor Andriy Sadoviy. is believed to have been a second choice for the position following the tragic death of late Georgian Poroshenko ex officio names the defence and star reformer, Kakha Bedukidze, who died in foreign ministers, who thus remain the same,

Eastern Europe December 5, 2014

with Yatsenyuk getting to keep two key allies in his People's Front party in their positions - Avakov at the interior ministry, and Pavlo Petrenko as justice minister. The smaller pro-Europe parties, Batkyvschina, headed by former prime minister Yulia Tymoshenko, and Radical Party of populist Oleh Lyashko, have a deputy prime minister and one minister portfolio respectively.

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The new cabinet will inherit several huge problems, of which paying for gas supplies this winter is the most pressing.

Ukraine still has to pay for more than 1bn cubic meters of natural gas that it needs in December, worth some $385m, outgoing energy minister Yury Prodan said on December 2, as a cold spell hit the country. Power generators are introducing rolling The new cabinet controversially includes a Ministry outages to cut consumption because of fuel shortages. of Information Policy, which is designed to counter anti-Ukrainian propaganda, such as that emanating from Kremlin-funded news outlets, and The news caused a surge in yields on Ukraine's sovereign Eurobonds, which jumped by 40 basis to promote Ukraine's image and arguments in points on December 1, to reach an all-time-high the world. The ministry will be headed by a close of 20%. associate of Poroshenko, Yury Stets.

Eastern Europe December 5, 2014

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Russian idea of banning dollar, euro in EEU trade dismissed

Alexandra Jarosiewicz and Naubet Bisenov The executive body of the Eurasian Economic Union (EEU) and a Kazakh business lobby have dismissed the possibility of switching to national currencies in trade within the Russia-led trade bloc when it comes into being on January 1, instead of the current system of using dollars and euros in some transactions.

At present around half of trade within the members of the EEU is conducted in the dollar and euro, increasing their dependence on foreign currencies, according to Murychev.

The statement came in reaction to an article in Russian newspaper Izvestia, in which the chairman of the board of directors of Russia’s National Payment Council, Alexander Murychev, suggested that the dollar and euro should be banned in trade between the member states of the EEU, with Russia, Kazakhstan and Belarus switching to national currencies in mutual payments by 2025-2030.

Following the Kazakh business group's negative reaction to the Russian suggestion, the Eurasian Economic Commission, the executive body, intervened to clarify that a plan of action proposed

by Russia's National Payment Council did not mean that it would be adopted because the council was a public organisation. At the same time, the Commission said that the member states of the Customs Union (the precursor to the EEU) were currently revising the provisions of the treaty on the establishment of the EEU.

However, the Kazakh National Chamber of Entrepreneurs responded by pointing out that the agreement establishing the EEU does not The slap down is another sign of division between include provisions providing for a ban of certain the three members of the precursor body to the currencies in mutual trade. The document instead EEU, the Customs Union, whose leading member speaks only about how EEU states should strive Russia wants the trade bloc to act as a instrument to increase the role of national currencies. The in its current fight against the EU and the US, Chamber has no information about any ongoing while Kazakhstan and Belarus are less keen to work on the mentioned ban of foreign currencies, disrupt ties and trade with the West. it said.

"The creation of a single payment space of the EEU will lead to the acute need to adopt a system of multi-currency operations or to a speedy switch to a payment system of a single currency.

Simultaneously, it is necessary to raise the issue of excluding the dollar and euro from interstate payments before the national banks of member states," Murychev told Izvestia.

The Commission, however, pointed out that a switch to transactions in national currencies has the advantage that it will reduce costs and risks. "The Eurasian Economic Commission has just started to discuss this issue, but there is no talk at the moment of a switch by EEU member

Eastern Europe December 5, 2014

states to transactions in exclusively national currencies,"Â Tengrinewsquoted the Commission's press service as saying.

The Commission said that there were no real grounds for banning foreign currencies in mutual trade. "The EEU treaty does not have such provision." It noted that member states aim to coordinate currency policy to expand economic integration, ensure free movement of goods, services and capital, and boost the role of national currencies in trade and investment, as well as ensure the mutual convertibility of national currencies.

This is another row between Kazakhstan and Russia regarding the functioning of the EEU. In recent weeks the parties have traded accusations over restrictions on the transit of meat from third

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countries via the Russian territory to Kazakhstan.

In a separate move, Astana also banned the sale of certain types of alcohol products made in Russia.

The suggestion of banning reserve currencies in mutual trade clearly shows that Russia is eager to pursue its own interests in the EEU, disregarding Kazakh and Belarusian positions. Russia is keen to use economic integration in its backyard as a tool in pursuing its global policy objectives and is seeking to bring as many former Soviet countries as possible back into its orbit. This explains the haste with which Moscow is fast-tracking Armenian and Kyrgyz membership of the EEU. In October, Armenia signed the treaty to join the EEU in 2015, while Kyrgyzstan is expected to follow suit some time next year.

Eurasia December 5, 2014

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Mongolia's new PM starts putting together 'super coalition' government bne IntelliNews Mongolia's Prime Minister Chimed Saikhanbileg submitted to parliament on December 3 a new government structure that will serve as the foundation for his proposed “super coalition” government.

What's new is a mysterious post with no description at all, (the job is simply referred to as “minister”). That role will be anyone's guess. “The real reason I suspect is to find a middle ground with the coalition partners who all wanted a different structure,” says Badral Munkhdul, the chief executive of market analyst firm Cover Mongolia, in a note alerting clients to the news of Saikkhanbileg's proposal. He reckons that the job will be to manage a few key national programmes.

The steady pace at which Saikhanbileg builds his government provides further evidence that the government transition will be a smooth one, and will raise hopes that he will be able to lift up again Mongolia's fallen mining industry.

Quick action is needed as Mongolia's deadlines for its two largest mining endeavours approach.

Saikhanbileg's “choice of a new cabinet over the Moving forwards in both, says Saikhanbileg, is next two weeks will be critical,” writes Marius essential to his strategy to reboot the economy.

Toime, a projects partner at international law firm Berwin Leighton Paisner, in the Financial Foreign investment was down 57% for the first Times' beyondbrics blog. “Including more 10 months of the year compared with the same professionals and experienced bureaucrats, period in 2013, reported Mongolia's central bank. rather than officials elected for political reasons, That is a large reason why the World Bank is would signal a recognition that corruption must be predicting only 6.3% growth this year, which is still addressed.” respectable but less than half of three years ago.

Already dubbed the “Government of Unity” by Saikhanbileg, it will include the once-opposition Mongolian People's party. The idea is to forge out of multiple pacts an effective government, all working towards a single goal: restoring the economy to levels comparable to 2011, when Mongolia experienced peak growth of 17.5%.

If parliament approves, the new cabinet will have 19 posts divided between five parties. The government will have 16 ministries, the same as before, compared to the 13 proposed by former premier Norov Altankhuyag Norov just before he was ousted in November.

Noticeably absent, however, is the Environment and Green Development Ministry, which had been praised internationally for having the mission of steering development in a clean, environmentally friendly direction.

Activity at both the Oyu Tolgoi copper and the Tavan Tolgoi coking coal mines would help return some of that lustre from 2011. Construction of an expansion project at Oyu Tolgoi has been on suspension since August 2013 because of disputes between the government, which owns 34% of the $6.5 billion project, and 66% stakeholder Rio Tinto.

The diversified Anglo Australian miner needs the government to consent to a $4bn project financing package that would pay for the expansion.

Also underway is a bidding process in which private companies take part in mining of the country's largest coal mine, the Tavan Tolgoi basin, owned by Erdenes Tavan Tolgoi. Hong Kong-listed Mongolian Mining Corp, which is owned by Mongolia's largest local holding company, in addition to companies from Japan and China are bidding for the rights to mine as a consortium. Mongolia plans to release a shortlist for the bidding by December 15.

Eurasia December 5, 2014

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Georgian parliament overrides president's veto of surveillance bill

bne IntelliNews The Georgian parliament has passed a controversial government-backed bill on surveillance which allows the Ministry of Interior to retain direct access to telecom operators’ networks. The vote on November 30 overrode the veto the day before from President Giorgi Margvelashvili, who said the bill lacked the “right balance” between privacy rights and security tapping.

Supporters of the bill, including the chairwoman of parliament’s human rights committee, Eka Beselia, who is one of the law’s initiators, cite mainly “security challenges” behind the need to allow the Interior Ministry to retain its direct access. In her closing remarks Beselia stated that the Interior Ministry requires sufficient tools to tackle security challenges the country is facing.

In March a platform of over 20 human rights and watchdog groups joined forces in the 'This Concerns You – They are still Listerning' coalition and lobbied to introduce a mechanism for judicial oversight over the government’s ability to carry out unrestricted surveillance.

“Challenging the law in the Constitution Court is at this stage is the last resort,” points out Giorgi Gotsiridze, lawyer in constitutional litigation at the Georgian Young Lawyers’ Association, (GYLA) which is part of the coalition.

The parliament rejected an alternative bill proposed by Margvelashvili that excluded the wiretapping by the law enforcement agencies without court authoriaation. After the parliament overturned his veto, Margvelashvili eventually signed the law.

Georgian Prime Minister Irakli Garibashvili, a strong supporter of the bill, has clashed more than once with watchdog groups whose opposition to the surveillance regulation he slammed would “damage” Georgia’s international reputation and “undermine” the country’s security. On November 28, Garibashvili, who held the position of Minister of Interior until November 2013, reportedly said “my slogan is that the strong Interior Ministry, the strong state, the strong Georgian special services [are] the prerequisite of our country’s success, progress, development and strength”.

Civil society groups have long been campaigning against the bill as they fear granting the Ministry of Interior too much authority to peek into citizens’ lives, a practice widespread under former president Mikheil Saakashvili’s tenure.

The surveillance debates revolves around who should have direct access, the “key”, to telecommunication service providers’ networks.

The approved bill introduces a ‘two-key system’, one in the hands of the Interior Ministry, the other

Eurasia December 5, 2014

at the Personal Data Protection Inspector’s Office, whose authority has been increased as a result of recent legislative amendments.

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According to Caterina Bolognese, who represents the Council of Europe in Georgia, in March and September the Strasbourg-based human right organisation provided assistance to the “The ministry, which incorporates intelligence and parliament, bringing data protection experts to security agencies, has the technical capability to Georgia “to discuss how to regulate surveillance listen in on conversations, but the system is not issues in line with human rights law". traceable for the legal data inspector,” explains Gotsiridze. “The two-key system is ineffective for Concerns about secret surveillance, privacy the needed check and balances and it poses a rights and personal data protection are not new serious challenge to personal freedom and privacy in Georgia. In 2010 the previous government rights.” approved a legislative clause granting law enforcement agencies “permanent access” to A video released by the coalition in March appeals telecommunications companies’ servers. The to citizens’ privacy rights. clause allowed the installation of the so-called “black box” spy devices to monitor citizens' “Each of you can be among those 21,000 citizens communications without any efficient oversight. on whom the Interior Ministry has the capability Last year the new government pledged to to simultaneously eavesdrop,” says Vakhushti establish legislative and executive mechanisms Menabde, lawyer at the Human Rights Education to prevent illegal surveillance, a pledge civil and Monitoring Center (EMC). society groups claim has now proved empty.

Central Europe December 5, 2014

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Central European PMIs power onwards in November

bne IntelliNews Central European purchasing manager indices (PMI) continued to power onwards in November, with Poland joining Hungary and the Czech Republic in registering an improvement in sentiment, data released by Markit on December 1 showed. Adding to recent bright data out of the region, it suggests a surprisingly strong end to the year.

The brightening picture in the Visegrad states comes despite the continued stand-off with Russia and further deterioration in the Eurozone economy. Indeed, Markit revealed the same day that the PMI for Germany – whose supply chain drives a huge chunk of export demand for Central Europe – dropped to a 17-month low of 49.5 in November. Any mark below the 50-point threshold denotes contraction in a country's manufacturing sector.

Yet Hungary – which saw its PMI rise 0.1 points to 55.1 - and the Czech Republic have spent the second half of the year swatting away such worries, with their PMI readings robust; albeit the Hungarian data is considered erratic and a poor guide to actual industrial production.

Agata Urbanska-Giner at HSBC, a co-issuer of the Czech and Polish data, notes the ongoing confluence of positive signals. The PMI data "continues to show expansion in manufacturing, despite more volatile business confidence data from Germany," she writes. "It is also in line with improving broad business and consumer sentiment according to the survey by the Czech statistical office."

However, the recently stuttering Polish data did most to push sentiment in the region. Poland's PMI readings have sagged on the back of subdued confidence in recent months as the economy has fretted over the Ukraine crisis and its effects.

However, the reading jumped from the 51.2 seen in October to a seven-month high of 53.2 in November. Again, new orders did much of the legwork.

"It really looks as though lower oil prices are more than making up for the negative spillover out of eastern Ukraine," write analysts at Commerzbank, "something that is likely to hold for some months."

Coming on the back of better-than-expected The Czech economy has remained upbeat third quarter GDP growth of 3.2% released last throughout the year, boosted by the central bank's week, the strong return to expansion of the zero rates and a weakening of the currency. The manufacturing sector is likely the knockout blow November PMI reading reflects that once again, to any remaining hope of more easing this year rising to 55.6 from 54.4. That the improvement in Poland. The monetary policy council meets was powered by new orders bodes well for fourth this week, with the hawks in the ascendancy, quarter output in the vital sector. despite resistance from governor Marek Belka.

Central Europe December 5, 2014

"Today’s PMIs, coming alongside the rise in the [European Commission's] economic sentiment indicators published last week, reinforce the picture that growth in Central Europe has strengthened in the fourth quarter," writes William Jackson at Capital Economics. "At the margin, the pickup in the Polish PMI will reinforce the position of the hawks on the MPC. Accordingly, while [the December 3] rate decision looks like being a close call – with an interest rate cut a distinct possibility –

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we are sticking to our forecast for the policy rate to be left on hold at 2.0%."

The Polish central bank meeting comes just a day before the European Central Bank's December 4 meeting. The weak Eurozone PMI data means it's likely to move further towards quantitative easing.

That would then set the scene for further easing in Poland – as well as Hungary most probably – in early 2015.

Baltic states to reopen talks on new nuclear plant

bne IntelliNews The Baltic states are set to reopen talks on building a new nuclear plant, a Lithuanian official said on November 28. The success or failure of the effort will say much about the level of unity the percieved threat of Russian energy dependence can instill in the three bickering neighbours.

everything has been considered and now we will open political discussions with Latvia and Estonia," Grauziniene told local radio, according to BNS. "Today, with Latvia’s parliamentary speaker coming on a visit, we will talk about energy."

Lithuanian parliamentary speaker Loreta Grauziniene told media that the Visaginas nuclear power plant project would soon progress to the level of political talks between Baltic leaders. The resurrection of discussion over the ¤6.5bn nuclear facility for the region comes amidst growing concern over energy security in Estonia, Lithuania and Latvia, with imports from Russia covering a sizable chunk of the region's power needs.

Pushed by Lithuania's previous centreright government, the Visaginas project was dropped after a non-binding referendum was called simultaneously with the October 2012 general election, with 63% voting against. That incoming centre-left administration led by Prime Minister Algirdas Butkevicius quashed the project after taking office.

“On a company level, discussions with Estonia and Latvia continued all the time. Now that discussion should move to a political level since, as far as technical things are concerned,

However, with the tension with Russia rising since the start of the year, the government officially resurrected the project in April. Grauziniene said public opinion in Lithuania will need to be consulted once more.

Central Europe December 5, 2014

The project will also provide a good test of just how far the percieved Russian threat can promote Baltic cooperation. The trio of states have argued for years over numerous pan-regional energy project. The were cut off from European energy networks because of their Soviet history, and remain highly dependent on Russian supplies of oil, gas and power.

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region and the town of Ostrovets, respectively.

Lithuania has been challenging these projects on the grounds that their environmental impact assessments do not meet UN standards.

However, the size and cost of a nuclear plant means Lithuania has no choice but to build consensus. “If we did [the project] together with Latvia and Estonia, or with some other partner, it would definitely be cost-effective, based on the latest calculations and estimates,” Grauziniene insisted.

A contract on Visaginas was signed with Hitachi in 2011. The Japanese corporation, which would supply the reactor and hold a 20% stake in the project, is reported to be in talks with Lithuania, which holds 38%, Estonia (22%) and Latvia (20%) on resurrecting Visaginas. Lithuania's energy ministry signed a memorandum of understanding with Hitachi late in July to set up an interim project company. Latvia and Estonia have been invited to join.

The project envisages a 1,350 MW unit built at Visaginas on Lithuania's north-eastern border with Latvia and Belarus. It would sit alongside the former Ignalina nuclear power plant that supplied about 70% of Lithuania's electricity before it was shut down under an agreement ahead of the country's EU entry. Lithuania currently imports over 60% of the power it consumes.

Electricity consumption in the three Baltic countries is expected to reach 29-33bn kWh/year by 2020, and without a large new power plant only two thirds of this will be covered by its own capacity, according to an October update on the new plant by the World Nuclear Association.

Lithuania’s neighbours Russia and Belarus have been moving on with their own respective nuclear power plants projects, in the Kaliningrad

5 & 6 February 2015 - Tbilisi, Georgia

2nd Annual South Caucasus Infrastructure New Energy Investment Summit

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UNDER THE AUSPICES OF: of Energy and Natural Resources of Georgia * Ministry of Regional Development and Infrastructure * Ministry of Georgia

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Southeast Europe December 5, 2014

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Pro-EU parties reach coalition deal in Moldova as Moscow cries foul

bne IntelliNews Moldova’s three main pro-EU parties said on December 4 that they had agreed to form a coalition government. The move, which confirms Moldova’s course towards integration with the European Union, was expected after the three parties took slightly more seats than their proRussian rivals in the November 30 election.

Liberal Democratic Party of Moldova (PLDM) leader Vlad Filat, Democratic party leader Marian Lupu and Liberal party leader Mihai Ghimpu agreed at a meeting on December 4 to create a coalition. The three parties have a combined total of 55 seats in the 101-seat parliament.

While the three parties have agreed to work together, numerous details remain to be thrashed out, including the composition of the new government. The PLDM said in a December 4 press release that they have set up expert groups to draw up the government’s programme for the next four years.

The largest share of votes on November 30 was taken by the Socialist Party of Moldova, a radical offshoot of the Moldovan Communist Party, taking 20.51% of the vote according to the Moldovan Central Election Commission. The PLDM was an extremely close runner up with 20.16% - though this represented a drop of eight percentage points since the last election.

The general election was widely viewed as critical to deciding whether Moldova’s future orientation lay towards the EU or to Russia. Both the Socialists and Patria - which was barred from

taking part just days before the election - wanted the EU Association Agreement signed by Prime Minister Iurie Leanca in June to be scrapped, while the Communist Party under former President Vladimir Voronin took a softer stance, calling for the agreement to be amended.

A majority for the pro-Russian parties would most likely have led Moldova towards joining Russian President Vladimir Putin’s Eurasian Economic Union - due to be formally launched on January 1, 2015 - alongside Russia, Belarus, Kazakhstan and Armenia.

This would have reversed progress made towards EU integration in 2014, when Chisinau signed the Association Agreement and Deep and Comprehensive Free Trade Agreement (DCFTA).

Shortly before the agreements were signed, Leanca said he was certain that signing “is for the good of the country, the economy and the people ... Europe is in our history, our culture, our language and our values – but most importantly it is where we see our future,” the prime minister added. Chisinau is now aiming for EU accession by 2020, and before the election the previous government indicated it plans to submit its application to Brussels next year.

Moldova’s economy is already increasingly oriented towards the EU, with more than half its exports going to EU countries, a trend that has increased after Russia introduced a series of trade embargoes in the second half of this year.

But while Leanca’s government forged ahead with EU integration, the popular mood within Moldova

Southeast Europe December 5, 2014

was divided, with around half the population estimated to favour retaining traditional ties with Russia. Younger urban voters’ enthusiasm about the EU has been balanced by a preference on the part of older voters and Moldova’s substantial ethnic Russian minority to remain within Moscow’s sphere of influence.

A decisive move towards the EU could also force Chisinau to finally give up hopes of ever regaining control over the breakaway region of Transnistria, also known as Transdniester. The region, which lies between the eastern bank of the Dniester river and Moldova’s border with Ukraine, has been de facto independent from Chisinau since a brief war in the early 1990s. While stopping short of recognising Transistria as independent, Russia has continued to provide military backing as well as supporting its stagnating and corrupt economy.

As Moldova slips further away from its influence, Moscow has shown its displeasure with the result of the election, raising fears of Russian-backed protests within Moldova in the coming days.

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Russia was angered by the decision, announced by the Moldovan Electoral Bureau just days before the election, to ban Patria. The bureau said it had made the decision after police reports showed Patria was funded from abroad, which is illegal in Moldova. Its leader, businessman Renato Usatii, is also alleged to have links to the Russian security services. The decision was backed by Moldova’s Supreme Court on November 26.

While the Organization for Security and Cooperation/Europe's Office for Democratic Institutions and Human Rights (OCE/ODIHR) assessed the vote as “democratic and free”, Russian observers - which are typically complimentary about polls in friendly CIS countries - issued a damning report on the election. “We cannot ignore the fact that the conclusions about their transparent and democratic nature are at odds with the gross violations committed during the preparation and conduct of the elections,” says a December 3 statement from the Russian foreign ministry.

Turkey slumps in Transparency International corruption ranking bne IntelliNews Turkey fell dramatically on Transparency International’s 2014 Corruption Perceptions Index, after a year in which the government responded to a wide-reaching corruption scandal with a severe clampdown on political dissent.

Turkey did, however, have one of the better overall rankings within the Southeast Europe region, where with some exceptions, most countries made at best sluggish progress in tackling corruption.

Turkey dropped 11 places on the 2014 index, released on December 3, falling to 64th place out of 175 countries, down from 53rd place among the 177 countries ranked in 2013.

Turkey’s score assigned by TI was lowered from 50 points in 2013 to 45 points in 2014 - the five point drop the largest fall of any country rated on the index. The score is based on how corrupt

Southeast Europe December 5, 2014

a country’s public sector is perceived to be, with perceived corruption rated on a scale of 0 (highly corrupt) to 100 (very clean).

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level scandal that broke in late 2013 providing the impetus for Ankara to clampdown on online activity. The use of social media to mobilise protesters and spread independent reports about the demonstrations in Gezi Park in May 2013 further alarmed the authorities.

A low score reflects prevalent bribery, lack of punishment for corruption and public institutions that are unresponsive to citizens’ needs, according This resulted in the arrests of at least 30 people to TI, while countries with open governments where the public can hold leaders to account gain in connection to their online postings. Several higher scores on the index.

Turks have received heavy sentences, including Osman Garip who was given over a year in jail for “Images of gold bars and millions of dollars defaming Erdogan on Facebook. stuffed in shoeboxes, coupled with incriminating After recorded conversations between highvideos, the firing or resignation of government ranking officials were leaked on YouTube and ministers, multiple arrests and sadly, a number SoundCloud, Turkey’s then prime minister, now of suicides, topped the list of stories this year involving endemic corruption at the highest levels president, Recep Tayyip Erdogan effectively declared war on social media, which he called of Turkey’s business and government,” wrote the “worst menace to society". Erdogan also Anne Koch, TI’s regional director for Europe and vowed to “wipe out Twitter” and access to both Central Asia in a December 3 blog post. the micro-blogging site and YouTube were blocked in advance of the March local elections.

“Too bad the government response was a crackdown on political enemies as well as On a more positive note, Turkey’s Constitutional thousands of police officers, prosecutors and regulators who were sacked or “reassigned”, Court later ruled that the bans violated freedom of expression and ordered that blocking orders be and not the corrupt,” Koch added. “The multiheaded corruption scandal was preceded by lifted. massive citizen protests last year and a mining tragedy in May of this year directly related to However, Ankara has continued to adopt new legislation in an attempt to legitimise online corrupt practices. This has all taken the shine off surveillance and control, alongside 18 other Turkey with its nearly double-digit growth rate countries, the Freedom House report finds. now suffering a similar decline to its Corruption Turkey’s Law No. 5651 on regulation of the Perceptions Index score.” internet was amended in February 2014, with In another embarrassment this week, Turkey was the changes including greater liability for hosting slammed for one of the most significant declines and access providers, and greater scope to block websites. Two months later, Turkey also in online freedom worldwide as the authorities amended the law on the National Intelligence blocked social media and gained new powers to Organisation, giving it new powers to obtain monitor online activities, according to Freedom information and electronic data from public House’s annual Freedom on the Net survey published on December 4. bodies, private companies, and individuals without a court order.

Turkey, which is rated as “partly free” by Freedom House, fit with this pattern, with a top-

Opinion December 5, 2014

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Stuck in the middle with you MOSCOW BLOG:

bne IntelliNews German Chancellor Angela Merkel has been talking tough on Russia, leading to a string of op-eds suggesting Germany has given up on Ostpolitik and Russia's biggest fan in western Europe is about to turn its back on the Kremlin.

The situation has been misread. Far from giving up, Germany wants to build closer business ties, and is even willing to set up a free trade agreement with Russia.

Germany is extremely keen for peace to return.

The Russian economy is sinking and will probably slip into recession next year. German companies are heavily invested in Russia, which remains an extremely profitable market for them.

The problem is that both sides have dug their heels in over East Ukraine and the talks on what to do next are deadlocked. And so much trust has been destroyed on all sides by the debacle that any deal seems all but impossible to cut at the moment.

issue. In the end Putin decided to leave early, reportedly so that he could "catch up on sleep" on the long flight home.

But that was all for the cameras. The key meeting was Putin's conversation with Merkel. Afterwards she didn’t say anything explicitly about a change in policy direction, but she has made her position clearer.

While a trade deal between the European Union and Russia is not currently possible, Merkel believes some sort of free trade deal between the EU and the Russia-led Eurasian Economic Union (EEU), which comes into being in January, could be.

If Merkel's position was in any doubt, she made it explicit during her report to the Bundestag on her trip to the G20: “We are ready for talks between the Eurasian Union and the EU on trade issues,” the Financial Times reported.

Merkel's four-hour tête-à-tête with Russian President Vladimir Putin at the G20 summit in Brisbane, Australia, in November was the first time the two leaders had met face to face since Russia annexed the Crimea in March.

In theory this should not be difficult to organise, even though the actual negotiations would be hard. It also fits with Putin's vision of a "greater Europe" that stretches from Portugal to Vladivostok, in which Russia would obviously play an important role.

Putin faced a chilly reception by the world's premiers. The host country's prime minister, Tony Abbott, almost threatened Putin with violence, saying he would "shirtfront" Putin on the Ukraine

In effect what Merkel is trying to negotiate – and this is her forte, having cut her political teeth as a master builder of messy European Union agreements on divisive issues – is a European

Opinion December 5, 2014

reset with Russia. She is trying to persuade Putin to step up and play the part of a true European partner that he always claims to be, putting aside his geopolitical ambitions.

Between March and the end of September Germany had deliberately tried to water down European's version of sanctions, which ended up being largely symbolic. There were even hopes at the beginning of November, before the G20 summit, that Europe, at Germany's behest, would withdraw the sanctions.

Merkel was giving Putin time to end the military confrontation in eastern Ukraine. Merkel had flown to Kyiv the weekend before the September 5 Minsk Summit between Putin and Ukrainian president Petro Poroshenko, and had clearly lent heavily on Kyiv to compromise. After the Minsk Summit ceasefire deal she expected to see an end to the hostilities.

However, as September wore on there was little abatement in the fighting in Ukraine's eastern districts; in the month after the Minsk "ceasefire" more than 1,000 people died, bringing the total of those who have lost their life to more than 4,000, according to the UN. Now Germany has finally lost patience with Russia. Merkel is still offering some sort of EU-EEU FTA deal, but she is now also saying negotiation cannot begin until Russia completely withdraws from East Ukraine and sanctions will remain in place in the meantime for as long as necessary.

"The situation in [Ukraine's eastern cities of] Luhansk and Donetsk continues to be far away from a ceasefire. That's why economic sanctions are and remain unavoidable," she said. "We need patience and persistence in our efforts to overcome the crisis," she added, clearly implying that talks continue.

The impasse doesn’t mean Germany is going to sit back and wait for Russia's next move. The

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week after the G20, Germany's foreign minister Frank-Walter Steinmeier travelled to both Kyiv and Moscow to continue the negotiations Merkel had begun in Brisbane. But he was also clearly frustrated, telling reporters after his surprise invitation to dinner with Putin that "no breakthrough" was on the cards.

For his part Putin has constantly maintained that Russia's so-called pivot to Asia doesn’t represent an abandonment of its relations with the West, which he stresses remains Russia's "natural partner.” However, like Merkel, Putin has also dug his heels in.

"We call [on the West] to abandon the distorted logic of restrictions and threats and to search for mutually acceptable solutions to outstanding issues," Putin said in an interview with with Turkey's Anadolu news agency on November 28 ahead of a visit to Turkey. "Attempts to use the language of ultimatums and sanctions in talks with Russia are absolutely inadmissible and have no chance for success," the president said.

Putin will not withdraw from Ukraine until he gets a "100% guarantee" that Ukraine will not join Nato, and that Russia's commercial interests will be taken into account in any trade deal Ukraine signs with the EU. Merkel's position is made even more difficult by the fact that the Ukrainians are unwilling to play ball. Not only is Kyiv a long way from promising to not ever join Nato, in his speech to the new post-election Rada that met on November 27, Poroshenko said that Ukraine's constitutional "non-bloc" status should be changed and the government will organise a referendum on joining Nato as soon as possible.

Merkel immediately slapped that idea down, reiterating that even if Ukraine applies to join it will be refused because, "decisions on membership are made by Alliance countries and not voters”.

Opinion December 5, 2014

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“Nato membership for Ukraine isn’t on the agenda at this point,” Michael Grosse-Broemer, the parliamentary whip for Merkel’s Christian Democratic bloc told Bloomberg the same day, a point also repeated by Steinmeier hours later just in case the point was not being made emphatically enough.

Merkel lent on Poroshenko ahead of the Minsk summit, but maybe it is a trick she cannot pull off twice. Ukraine is clearly tiring of western "help” - the EU was widely ridiculed by the Euromaidan protestors at the start of this year for constantly sending messages of "grave concern" and little else.

But the mood in Kyiv is one of grim determination, especially in the face of the ever-rising death toll in the eastern parts of the country. No one is prepared to make any compromise with Russia on anything, reported Tim Ash, head of emerging markets research at Standard Bank, who was just in Kyiv to meet with local political and business leaders.

Ukraine is again in desperate need, this time for money, but analysts have accused the West of "sleepwalking" in the crisis. The EU offered to send just ¤500mn before the end of the year on November 27 and from funds already committed – far from the $10bn that analysts say the country needs to stave of total economic collapse.

In his refusal to withdraw his forces Putin is hoping to manoeuvre Merkel into the roll of playing a middleman who will strong-arm the Ukrainians into a compromise. Putin doesn’t trust the Ukrainians, but it also seems that Germany's enthusiasm for playing Russia's gofer is fading.

That leaves Merkel in the middle with the extremely difficult task of finding some common ground between all sides. No wonder she is frustrated and talking tough.

Weekly Lists December 5, 2014

bne:Investor Hungary to ban Sunday shopping at large (foreign-owned) retailers bne IntelliNews

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

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

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The Hungarian government is ready to support the proposal from junior coalition partner the Christian Democratic People’s Party (KDNP) to ban shops from opening on Sundays, said Antal Rogan, who heads Fidesz' parliamentary caucus. The ban is a "first step" to making sure that no one works on Sundays, according to MTI. Under the proposed bill, only shops where the owner or a member of his family works will be allowed to open, the official explained. The original proposal was for the ban not to be applied on stores of up to 400 square metres. However, that prompted complaint of discrimination.

Critics of the Fidesz government have long accused it of hammering international retailers, such as Tesco, Spar and Auchan, which have been hit by high taxes and other legislation since it came to office in 2010. Many see Fidesz's policies in sectors such as retail, banking and utilities as dictated by the interests of domestic players.

Slovenian employers 'strike' after unions reach deal with government Guy Norton in Zagreb

The last time that Slovenia successfully managed to cobble together a social pact that satisfied government officials, trade union leaders and employers representatives was way back in 2009. After employers walked out of talks on December 2, a comprehensive social pact remains as elusive as ever, as the country grapples with the aftermath of its self-inflicted banking crisis.

On December 2 the centre-left administration led by Prime Minister Miro Cerar announced that it had finally managed to come to terms with public sector trade union officials over the terms of the 2015 budget and thus avoided the threat of nationwide industrial action ahead of the Christmas/New Year period. However, any hopes that the authorities in Ljubljana would be able to ink a deal with employers were instantly dashed when the Gospodarska zbornica Slovenije (GZS), the country’s chamber of commerce and industry, announced it would boycott talks on a new social pact in protest at what it claimed was the inequitable pressure being placed upon entrepreneurs in the country.

Weekly Lists December 5, 2014

bne:Deal Slovakia puts more obstacles in way of Slovenske Elektrarne sale bne IntelliNews

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

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

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Slovakia is set to terminate Slovenske Elektrarne's (SE) lease of the huge Gabcikovo hydropower plant, Prime Minister Robert Fico said on December 4. The move throws up another potential problem for Enel’s planned sale of its 66% stake in the utility.

Fico claims the Italian utility has blocked access to information that would allow Bratislava to assess if the plant’s profit is fairly distributed between Enel and the Slovak state, TASR news agency reported. Moreover, Fico added, the Italian company has not presented any plans for the overhaul of the plant on the Danube river.

The spat only throws up more problems for Enel's effort to sell its stake in SE, which have been hit by the poisonous atmosphere surrounding the long-delayed and over-budget expansion of the Mochovce nuclear plant. On top of that, suitors have been put off by the government's highly public claims that it wants to increase its 34% holding in the company, despite its own budget constraints.

Hungary fears Paks nuclear project might go the same way as South Stream bne IntelliNews

Hungary might have to scrap its Russian-backed project to expand the Paks nuclear plant if the EU blocks it, a government official has admitted.

Hungary hopes the European Commission will make a decision within a year on whether the planned expansion of the country's sole nuclear power plant meets EU rules on state aid. Budapest could yet scrap the project if Brussels fails to give it the nod, Attila Aszodi, the government official that heads the Paks scheme, said on December 3, according to Reuters.

Budapest is under huge pressure from Brussels and Washington over its percieved lean towards Moscow. Hungary's halt of transporting EU gas to Ukraine in September, as it agreed on raised imports from Gazprom, was the spark for a Western hardening of approach to Budapest in which Hungarian officials have been blocked from entry to the US for alleged corruption.

Weekly Lists December 5, 2014

bne:Banker Hungary agrees to buy Budapest Bank from GE bne IntelliNews

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

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

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The Hungarian government has signed a preliminary agreement to buy Budapest Bank from GE Capital, officials said on December 4. The acquisition will move the state another step closer to its ambition to raise domestic ownership of the banking sector to as high as 70%.

The purchase price for the country's eighth largest lender will be determined after the completion of due diligence in a few weeks, Economy Minister Mihaly Varga said. The deal is expected to be finalised by mid-2015. The US corporate giant put Budapest Bank up for sale in October. It is also pushing to sell Polish lender BPH. Lenders in Hungary have been under pressure since ruling Fidesz came to power in 2010. In addition to paying Europe’s highest bank tax, the introduction of a financial transaction tax and a relief scheme for mortgage borrowers, the government is now forcing banks to compensate borrowers for credit practices deemed unfair, leading to huge losses.

Banks are also expected to incur losses as a result of newlyadopted legislation forcing them to convert $14bn of foreigncurrency mortgage loans to forints.

Slovak NPL ratio falls in October bne IntelliNews

The share of non-performing loans in the total portfolio of bank loans fell in Slovakia at the end of October after posting a slight increase in the previous month, according to data released by the central bank on December 1.

The share of bad loans held by Slovakia's banking sector decreased to 4.83% of the portfolio. Non-performing loans (NPL) made up 4.9% of the total at the end of September, according to IntelliNews calculations based on data released by the central bank.

On an annual basis, the NPL ratio remains unchanged.

The total value of bad loans increased by 7% y/y to ¤2.23bn in October, slowing from an 8.8% annual rise the month before.

Compared to the previous month, the value of bad loans fell by 1.4% after rising 5.6% in September.

Weekly Lists December 5, 2014

bne:Credit Yields on Ukraine's sovereign Eurobonds hit 20% bne IntelliNews

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

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

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Yields on Ukraine's sovereign Eurobonds jumped by 40 basis points on December 1, to reach an all-time-high of 20% by midday, according to Bloomberg. The move came after Ukraine announced that it had failed to make an advance payment for December gas to Russia, and a visiting IMF team left without meeting with government officials, and is reportedly not to return before January.

As Arctic temperatures hold Ukraine in its grip, with daytime temperatures at -5C, Ukraine's acting energy minister Yury Prodan said that Ukraine had not made any advance payment to Russia's Gazprom for December gas, estimated at 1bn-1.5bn cubic meters, costing $385m-$578m. Prodan did not explain why Ukraine's gas company Naftogaz had failed to make the scheduled payment, which was part of an agreement reached between Ukraine, Russia and the EU on October 30.

Besides the advance payment for December gas, Ukraine also agreed to pay $1.6bn as a second tranche of payment on arrears to Russia for gas supplies. Once those are paid, according to Olena Bilan, economist at Kyiv boutique Dragon Capital, Ukraine's international reserves, at only $12.6bn in October, could hit single digits by the end of the year.

Polish central bank breaks cycle of surprises as rates held steady bne IntelliNews

For the first time in three months, the Polish central bank didn't spring a surprise, as it announced on December 3 that it will keep rates on hold at 2%. While the Monetary Policy Council (MPC) of the National Bank of Poland has lived up to its rambunctious reputation in recent months, improved economic indicators convinced most of its members that there should be no more rate cuts this year.

Following a shock 50-basis-point cut in October, the NBP turned expectations on their head again last month as they held rates steady at the record low level. However, since then third-quarter GDP growth of 3.3% and other macroeconomic indicators have offered a brighter picture of the economy.

Reports recently have suggested deep and personal splits on the MPC. That speculation especially surrounds the influence that Governor Marek Belka still commands. Like many economists, he has spent the last month insisting that further cuts are needed, having said in October that he wanted to see any cuts "concentrated in time."

Weekly Lists December 5, 2014

bne:Stocks Slovenian brewer Pivovarna Lasko looks set to have new owner bne IntelliNews

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

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

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Slovenia's largest beer maker, Pivovarna Lasko, looks set to have a new owner after a consortium put its holding of almost 50% of the shares up for sale as the brewer received bids to take part in a capital injection.

Dutch brewer Heineken and Denmark's Carlsberg, as well as several private equity funds are among the seven companies which have submitted non-binding bids to take part in the ¤75mn recapitalisation of Pivovarna Lasko, Slovenian media reported on December 4, quoting unnamed sources. Pivovarna Lasko has a stock market valuation of ¤198mn but gross financial liabilities of ¤242m as of the end of September.

Also on December 4, Pivovarna Lasko said in a stock exchange filing that it was informed by its largest single shareholder, Slovenia's Bank Asset Management Company (BAMC), that a group of Lasko shareholders led by BAMC has formed a consortium to sell jointly their holdings in the brewer. The consortium of sellers controls 44.68% of Pivovarna Lasko's total equity. Pivovarna Lasko said that the consortium has asked the management about how it could get involved in the recapitalisation process in order to start negotiating with potential investors on the share price and other terms of the pending deal. The consortium also wants the management's view regarding hiring a joint consultant.

MMC forms consortium to bid for Mongolia's largest coal deposit bne IntelliNews

Energy Resources, a subsidiary of Mongolian Mining Corporation (MMC), a coal mining company listed on the Hong Kong stock exchange, has formed a consortium to submit a bid for the operatorship of Mongolia's largest coal basin Tavan Tolgoi, the company said in a statement on December 1. MMC already operates the Ukhaa Khudag and Baruun Naran coking coal mines in Mongolia.

Tavan Tolgoi stores as much as 7.4bn tonnes of coking coal. Local authorities have struggled to fully develop the mine since a failed tender in 2011. Operations at the mine's eastern pit came to a halt in August when state coal firm Erdenes Tavan Tolgoi and mining contractor Macmahon Holdings made public a range of disagreements that prevented the mine from being developed further.