bne:Newspaper - December 19, 2014

Content: 2 Top Stories 5 The Regions This Week 9 Eastern Europe 12 Eurasia 14 Central Europe 18 Southeast Europe 21 Opinion 24 Lists

bne:Newspaper Follow us on twitter.com/bizneweurope December 19, 2014

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Ruble stabilises after torrid week

bne IntelliNews The ruble surged back from the abyss on December 18 following a meeting the day before of Prime Minister Dmitry Medvedev and top government officials with the heads of some of Russia's leading exporters to discuss the situation on the currency markets.

Following the meeting, the dollar fell by 8.7% against the ruble to close at RUB61.6, while the euro fell by 9.55% to RUB77.0.

Medvedev reportedly instructed Russia's central bank and the financial intelligence unit to monitor exporters' sales of hard currency revenues to ensure they were "rhythmic and stable".

The implication is that the exporters were told to voluntarily repatriate more of their hard currency See page 2

Ukraine hopes for $3bn from IMF by early January, around $15bn over 2015 bne IntelliNews Ukraine's newly appointed finance minister Natalia Jaresko said that she hopes Ukraine can get $3bn from the International Monetary Fund by early January, and that in total Ukraine needs around $15bn in funding additional to its existing IMF standby arrangement.

In comments to the Wall Street Journal, Jaresko said Ukraine could get the urgently needed IMF funds in early January, if Ukraine's parliament

in coming days passes a "tough" budget for 2015 and legislates for serious reforms.

Jaresko said that the draft budget for 2015 would be based on a forecast of 0% growth, defying widespread forecasts of a continued contraction in the economy.

See page 3

Top Stories December 19, 2014

Ruble stabilises after torrid week revenues. "No one forced anybody to do anything and no one threatened, but an agreement was reached," an official at the meeting told business daily Vedomosti.

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The finance ministry also announced that it is going to sell the foreign currency balances of the federal treasury accounts - some $7bn - on the market in order to help stabilise the ruble, though it was unclear whether or to what extent this had already started.

Medvedev argued there was no need for formally reintroducing stricter currency controls. "There is no need to apply excessively tough regulations in this sphere, which we already had during a certain period. They didn’t do anything useful," he said.

The move came after a torrid week for the rouble, with an overnight hike in interest rates by 6.5 percentage points to 17% before markets opened on December 16 failing to stem the panic. The ruble appreciated for less than an hour on December 16 According to Vedomosti, the exporters have after the central bank's overnight hike in interest agreed that by March 1, 2015, the companies should have the same level of foreign currency rates and went over 80 to the dollar. assets as on October 1, 2014.

Some banks were reporting a fourfold increase in demand for hard currency, according to Bloomberg, Another official told Vedomosti that the government as the population rushed to buy dollar cash. "It has merely wants exporters to return to previous levels been converting savings into USD at an accelerated of hard currency sales. "It's not quite right if you pace, with the bulk of these conversions occurring in need rubles to issue bonds instead of selling hard the morning," Alfa Bank analysts said of the Russian currency revenues," the official said. population in a research note.

The new monitoring regime affects all companies with large hard currency revenues the official With the oil price beginning to stabilise at last, some market participants blamed the panic on said. State companies will receive instructions on this count, whereas private companies will reach speculation over how Rosneft would convert a RUB625bn bond raised from Russian state banks informal agreements. "Companies will behave on December 11. Rosneft needs to repay $6.9bn responsibly," said the official, "or otherwise the in credits by December 21, originally taken out to government will form a bad impression of them fund the purchase of oil major TNK-BP in March and reflect this in its work," he added.

2013. Rosneft also has to pay back another $7.3bn loan by February 13, 2015.

Most of the exporters seemed ready to comply with the monitoring regime. But some may have Medvedev announced a package of measures to problems doing so - state-owned oil giant Rosneft has to pay back $6.9bn in debt on December 21 stem the ruble’s fall but insisted that "everyone knows that the ruble is undervalued". "The and another $7.3bn on February 13, 2015, as well exchange rate is adrift from the fundamentals and as pay for imported equipment. With the collapse does not reflect the real situation in the economy." in oil prices, companies need to build up hard Medvedev said the government would take a currency funds for future payments. "whole series of obligatory measures" to stabilise the currency, including "increasing supply of The meeting was attended by the heads of oil companies Rosneft, Lukoil, Tatneft, Bashneft and hard currency refinancing loans to banks [and] ensuring a balance between supply and demand Surgutneftegaz, gas giants Gazprom and Novatek, by means of increasing the supply of hard metals giants Norilsk Nikel and Severstal, and diamond producer Alrosa. currency liquidity where necessary".

Top Stories December 19, 2014

Ukraine hopes for $3bn from IMF by early January, around $15bn over 2015 The IMF mission left Kyiv at the end of November, saying it would only return in early January. According to media reports, the delay in the IMF's disbursal of the next tranche of a $17bn standby agreement is caused by Ukraine's failure to eliminate the deficit of state energy company Naftogaz, caused by energy subsidies to the population, as well as its retention of a system of extensive tax benefits for the agriculture sector.

Jaresko in the interview became the latest leading Ukrainian politician to call on international donors for additional funding to break what she called the "cycle of distrust". She indicated that the sum of additional funds needed is in the range of $15bn over 2015.

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conditions restricting its sovereign debt to GDP ratio to a maximum of 60%. Analysts estimate the ratio as having already reached 70%. Russian President Vladimir Putin has said that Russia would not use the option, in order to preserve financial stability in Ukraine.

An International Monetary Fund team will return to Kyiv in January amid suggestions that Kyiv has not done enough to get a second tranche of its $17bn stand by credit.

"I was impressed by their [Ukraine's government] vision for an economic transformation of Ukraine, and by their commitment to decisive, front-loaded implementation of their reform agenda," first deputy managing director of the International Monetary Fund David Lipton said in a statement on December 13, after a visit to Kyiv and meetings with top officials. Ukraine's parliament voted in a new government on December 2, including a raft

CHANGES ARE GOOD

On December 16, both President Petro Poroshenko and Prime Minister Arseny Yatsenyuk told European leaders and experts that Ukraine needs extra financial support.

Jaresko told journalists that Ukraine would manage to pay Russia's Gazprom $1.65bn before the end of the year, as agreed under an EURussia-Ukraine agreement signed in Brussels on October 30, with the funds already put aside

by Ukraine's National Bank in a special account.

Ukraine's energy company Naftogaz paid Gazprom $1.45bn in arrears on November 4, and made an advance payment for gas of $378m in early December.

Jaresko also said that there were no talks ongoing with Russia to restructure a $3bn Eurobond due in December 2015. According to reports, Russia could demand early repayment of the bond in March 2015, due to Kyiv's likely breach of

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Top Stories December 19, 2014

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of foreign specialist in key posts intended to ram through sweeping cuts and reforms.

presidential administration on December 10 to return to managing MHP.

However, while the new government looks set to try to implement IMF demands in the future, the fund's review mission that visited Kyiv in November is reported as being dissatisfied with the current status of Ukraine's implementation of conditions, and thus not willing to disburse a third tranche.

The second longstanding requirement of the IMF to Ukraine, likewise unfulfilled, is to eliminate the deficit of state energy company Naftogaz Ukraine.

According to the report in Zerkalo Nedeli, IMF experts found that the deficit was set to increase to 5.7% of GDP by the end of 2014. The reason for this is the massive devaluation of Ukraine's currency, which has meant the hryvnia value of energy imports doubled, nixing hikes in domestic tariffs already implemented. Ukraine already implemented an initial 50% hike in gas tariffs for the population and utilities in May 2014, as demanded by the IMF, but this increase has been effectively reversed by the hryvnia devaluation.

Weekly newspaper Zerkalo Nedeli, claiming knowledge of the results of the IMF review, lists a number of still unimplemented Ukrainian commitments to the IMF that may be delaying the payment of the third tranche of a $17bn standby credit agreed, in April 2014. The first tranche of $3.19bn was paid out in May, and a second tranche of $1.7bn in August.

One key IMF condition for disbursal of further tranches, still unmet by Ukraine, is the removal of sweeping tax benefits provided to Ukraine's agriculture sector. Agriculture reportedly contributes only 1% of budget revenues, worth 0.4% of GDP, while comprising 10% of overall GDP, according to Zerkalo Nedeli. The IMF, demanding that Ukraine's agriculture sector pay the same taxes as the rest of the economy, made this a condition to be implemented by the end of September, according to Zerkalo Nedeli.

Resistance from Ukraine's powerful agriculture lobby blocked implementation, according to analysts. Opposition to the move may have been spearheaded by former first deputy head of Ukraine's presidential administration, Yury Kosyuk, who is owner of one of Ukraine's biggest and most heavily leveraged agriculture holdings, grain and chicken producer MHP, listed on the London Stock Exchange. Kosyuk left the

Now the IMF is calling on Ukraine to bring forward further hikes in the domestic price of gas, demanding a 40% hike in January 2015 and again in July. Ukraine wants to delay any price hikes until May 2015. The IMF also wants to force Naftogaz to call in debts by means of direct seizure of funds from bank accounts of debtors, according toZerkalo Nedeli.

According to a report in the Financial Times on December 9, the IMF has identified a $15bn fiscal gap in Ukraine's finances, and is unwilling to disburse any more funds under the current program until international donors undertake measures to close the financial gap.

"It seems unlikely that further IMF credits will now be forthcoming until the end of January at the earliest (‌) This all suggests that Ukraine will remain vulnerable and exposed in the interim, with official FX reserves expected to drop to around USD8bn or thereabouts by year end, just weeks of import cover," writes Standard Bank's Tim Ash.

The Regions This Week December 19, 2014

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Central Europe A Hungarian painting discovered by Stuart Little has been sold. "Sleeping Lady with Black Vase"

by Robert Bereny – lost for 90 years - fetched ¤230,000 at an auction in Budapest after it was spotted by an art historian on the kids film.

The Czech Republic is to treat alcohol and gambling like illegal drugs in a new plan to reduce their impact. The strategy is to include measures to curb access to alcoholic beverages and gambling.

Slovakia has called for France and Italy to be disciplined for breaking EU fiscal rules. Finance Minister Peter Kazimir insisted in an interview the bloc needs to be a level playing field. Bratislava, which has battled to keep its deficit within EU limits, could take part in a ¤300m investment plan to boost Eurozone growth depending on how Brussels would treat it with regard to fiscal rules.

Russia says it had a spy in Estonia's security service for over 20 years. The FSB claims Uno Puusepp – who now lives in Moscow - was key to accessing information on the work of the security services of the US and EU, as well as the Baltic region.

Poland's first high-speed train service has launched. The tilting train Pendolino raced from Krakow to Warsaw in just 2 hours 32 minutes, half an hour quicker than the standard journey.

However, safety and efficiency on the wider Polish rail network remains a concern.

Another truce has been called in the CzechPolish food fight. Insults and threats have been flung across the border for the second time in as many years over Czech inspections of Polish food imports, with Warsaw claiming Prague is trying to block trade. Officials said EU rules can oversee the problems.

Latvia plans to issue interest-free bonds.

The Baltic state will offer residency permits to anyone lending it ¤250,000 for free for five years.

A scheme run by Riga offering EU documents to property buyers has been criticized for being too cheap and opening the way for dirty money from the CIS and beyond.

RBI is looking to sell its Polish unit, media reports claim. The Austrian lender has refused to comment, but did not deny the suggestion by unnamed sources. Polish banking watchdog KNF is unlikely to be impressed.

A Czech man died after setting himself on fire in Wenceslas Square. On day release from a local psychiatric hospital, the 56-year old selfimmolated at the same spot as Jan Palach, who burnt himself in protest over the 1969 invasion by Warsaw Pact forces.

Hungarians continued to protest this week.

Thousands turned out to call for PM Orban and his Fidesz cohorts to go due to tax rises and other measures in the 2015 budget that was passed this week. Demonstrations persist against weakening Carmaker TPCA is to 500 jobs at its Czech plant democracy, corruption, the stand off with the US in March due to falling demand, particularly out of and Budapest's lean to Russia since late October. the Eurozone, bad news for the wider economy, which is heavily dependent on automakers for Slovakia is to join the European Space Agency. growth. TPCA currently employs 3,700, but is set Officials in Bratislava say the investment of ¤1.4m to pull production 10% lower than forecast in 2015. in annual membership fees will be money well spent, as it will open the way to develop innovative products and services.

The Regions This Week December 19, 2014

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Southeast Europe Bulgaria and Serbia will step up efforts to build a gas interconnector linking the two countries as soon as possible. The project is expected to cost between ¤100mn and ¤120mn and will receive EU funding.

who has initiated a clampdown on electricity theft, wrote on his Twitter feed that there was no justification for non-payment.

Bulgaria's GDP growth is likely to slow to 1.2% in 2014 from an expected 1.4% this year mainly Croatia’s economy is expected to stagnate or due to the collapse of Corporate Commercial slightly grow by 0.2% in 2015 after six consecutive Bank, according to Raiffeisen Bank. The bank's years of decline, according to central bank forecast is much more optimistic than that of governor Boris Vujcic. Growth will be driven by a the government, which predicts 0.8% economic slight increase in private consumption, recovering growth for 2015. investments and a positive contribution from net exports.

Fiat Automobili Srbije (FAS) remained Serbia's largest exporter in January-November even Turkey’s Yildizlar Holding has reportedly though its sales abroad have been shrinking due reached a preliminary agreement with China’s to subdued external demand, the finance ministry CMEC to sell power distribution network said on December 17. The second largest exporter Osmangazi Elektrik Dagitim to the Chinese firm. after FAS was oil and gas company NIS, the local Yildizlar acquired the power grid for $495mn when arm of Russia's Gazprom Neft. it was privatised in 2010.

Kosovo should focus on the implementation The parliament of Bosnia’s Serb Republic has of structural economic reforms to deal with approved its new government following the the country's high level of unemployment, the October 12 elections. Zeljka Cvijanovic of the EU General Affairs Council said in report on Alliance of Independent Social Democrats remains December 16. The young Balkan state had a 30% Prime Minister for a second term. jobless rate as of end-2013, according to the latest data.

The latest finance ministry data on Albania's budget execution suggests that the government Turkey’s tight monetary policy stance will will be able to achieve its 3.4% of GDP deficit be maintained until there is a significant target for this year as the country's 11-month improvement in the inflation outlook, Central budget gap equalled 3% of projected economic Bank governor Erdem Basci said on December output.

17. Exports have continued to support growth while the moderate course of consumer loans and China’s state-owned Eximbank and Bosnia’s the favourable terms of trade will contribute to Federation government have signed an the improvement in the current account balance, agreement for a ¤667.8mn credit to be used Basci added. for the construction of the 450MW unit 7 at the thermal power plant Tuzla. China's Gezhouba Russia’s economic difficulties will affect Moldova Group will build the unit. mainly through a fall in remittances, think tank Expert-Grup forecasts. Remittances from migrant Albanian Deputy Environment Minister Diana workers currently account for around 25% of Bejko has been fired for allegedly not paying Moldova’s GDP, with Russia the most popular the electricity bills for her summer house in the destination. coastal town of Velipoja. Prime Minister Edi Rama,

The Regions This Week December 19, 2014

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Eastern Europe Putin squashed speculation that gas pipeline deals with China are not profitable during his annual press conference on December 18. He also blamed the collapse of the ruble on oil price falls and promised the current crisis will last "two years in the worst case scenario," but said recovery could start as soon as first quarter of next year. He also said the crisis was an opportunity to drive diversification.

Putin and Poroshenko called each other on the night after the ruble crash to call for more progress on ceasefire in east Ukraine. That lead to speculation that sanctions and Russia's internal problems will force Putin to make a real peace with Ukraine. Merkel was also on the line. More three-party talks on Ukraine's reconciliation are scheduled for Sunday.

Queues formed outside exchange rate offices in Belarus as the collapse of the Russian ruble spilled over the border to affect its neighbour.

Heavily dependent on trade with Russia, contagion from the collapse of the ruble is affecting all the other countries in the CIS. Lukashenko promised no devaluation.

Ukraine set itself the task of building Europe's strongest army to protect itself from Russia and return the Crimea. The government has proposed spending 5% of GDP on defence – more than Russia and the US, as well as more than twice as much as any Nato member is obliged to spend.

However, how this financing will be funded has not been decided.

Massive ruble fluctuations forced retailers suspend sales and some distributors halted deliveries to supermarkets until the crisis cools.

Supermarket Auchan is facing a strike until is renegotiates deals while Metro is resetting prices every two days.

The ruble was worth exactly half of what is was against the pound since the start of this year (RUB46.2/£1 vs 92.4) as the currency went into meltdown this week despite a 6.5% rate ike by the

Central Bank of Russia (CBR). Leading retailers to re-introduce "conversion units", or "y.e." on price tags – a short hand for dollars as it is illegal to price goods in foreign currencies.

Russia's Sukhoi Civil Aircraft plans to increase its market share to 20-25% of the world's market for medium-range aircraft with its Sukhoi Superjet 100 (SSJ-100) planes within 10 years, Senior Vice President Yevgeny Andrachnikov said.

The cash-straped government has ordered all Russian state firms must pay dividends in 2015.

The state has already ordered all its companies to pay dividends, but about half have organiesd expemptions for various reasons, which have now been rescinded.

Russia's Federal State Property Management Agency is pushing ahead with its privatization of large state-owned companies over next three years. A 19.5% stake in oil major Rosneft is on the privatisation roster but even if the sale doesn’t happen its owner, state energy assets manager Rosneftegaz, will nevertheless pay RUB100bn to the budget the government said.

Shareholders of Russian pharmaceutical company Veropharm have decided to delist the company's shares from the Moscow Exchange from Thursday, according to a statement of the company released on Friday.

The Hong Kong Special Administrative Region offered Russia to enhance partnership in infrastructure investment projects. In particular, broader bilateral ties envisage prospects for Russia’s use of clearing settlements in yuan to bring down currency risks.

A businessman, who owned a stake in an investment enterprise, shot himself in the head apparently because of loses incurred by this week's ruble collapse. The ma was found in his room in Hotel National Moscow on Tuesday in what police are treating as a suicide.

bne Chart December 19, 2014

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Oil price and Russia GDP scenarios The falling price of oil has made forecasting what will happen to Russia's economy in 2015 nigh-on impossible, so most banks are issuing scenarios for next year.

As this week’s bne:Chart shows, Renaissance Capital believes that an oil price of $90 a barrel will have to be achieved in order for Russia’s economy to avoid recession in 2015, giving a ruble rate of RUB42.1 against the dollar.

That oil price is far from the consensus, with most predictions putting the price at averaging around $70 for next year. In that case, Russia’s GDP would contract 3.1% with a ruble/dollar rate of RUB44.7.

Few analysts predict the 2015 oil price will average $50, but some like Renaissance have included it in their outlooks. In that case, the investment bank believes Russia’s GDP will contract a dramatic 5.8%.

Eastern Europe December 19, 2014

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Growth is around the corner, says Putin

bne IntelliNews

www.kremlin.ru

"Growth is inevitable and imminent," Putin promised Russians who tuned into the president's annual press conference. He predicted that the poor economic situation would last up to two years in the "worst case scenario" but recovery could start as soon as the first quarter of next year – it would depend on what happened to the price of oil.

had to be budget cuts to take into account the new realities (without specifying what would be cut) social payments, pensions and state employee pay would not be cut.

"We must not waste our reserves on the market but give loans to the market, via things like repos. These instruments can be issued for a month, a week or a day. And this money will be repaid, so it is a way to offer access to the reserves. It has been done correctly but maybe could be done faster," said Putin.

"If [the West] takes out the bear's fangs and claws it will not be able to do anything. It's just a stuffed animal. We are trying to maintain our security interests," said Putin earnestly.

The government said even before the December 15 plunge of the ruble by 10% that it will cut spending by 10% - the first nominal cut in budget Putin predicted that the global economy would spending since Putin took office in 2000. The inevitably return to growth and this would drive up obvious place to make these cuts is in defence the price of oil, lifting the value of the ruble with it. spending, which has ballooned in the last two years and currently accounts for about a third of The whole of the first half hour of the press total budget spending. But given Putin's siege conference was dedicated to the discussion of mentality that he has been showing during his economics in unusual detail for this annual preconfrontation with the west, it is likely that the Christmas jamboree. Putin struck an upbeat tone, president will find every way possible to avoid stressing that Russia has plenty of reserves, that cutting the re-armament programme that he the fall in the oil prices was temporary and that regards as a fundamental national security things would be back to normal soon – depending issue. on what happened with the "external factors."

Putin added that another 25% of Russia's While stressing that Russia has adequate problems were the result of sanctions and painted government reserves of RUB8.4 trillion rubles a picture of East-West confrontation where Russia must stand up for its national security interests. ($142bn), Putin admitted that the collapse of the oil price was driving Russia's current woes – and He described Russia as a bear that "they" wanted to "sit quietly and eat honey" and chain up. that oil prices could fall further.

And he went out of his way to assure the millions of Russian tuning into the event that while there

Putin didn’t blame everything on oil and Nato's aggression, but conceded that his government has also failed to carry through on the obvious need to diversify the economy. Putin fended off a question

Eastern Europe December 19, 2014

blaming Russia's legendary bureaucracy for the economic problems.

"You think Russian bureaucracy is bad? You should see the bureaucracy in the EU. Compared to that Russian bureaucracy is not a problem," Putin said.

"Our problem is that everyone wants to invest into energy as that is the most profitable. No-one is investing into high tech."

He suggested that this crisis might be the goad that Russia needs to finally put in the deep structural reforms that Russia needs in order to flourish. Prior to the press conference, Economic Minister Alexey Ulyukayev said in an interview that Russia could grow by 2%-3% a year if it made these reforms.

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Putin returned to the theme of promoting the business environment as the way to diversify the economy.

"We need to provide a friendly business environment for entrepreneurs, we need more innovation, to diversify the economy, regional development, to stop using police/courts for business disputes," said Putin.

However, Putin has consistently failed to follow through with effective reforms. His line is belied by the recent renationalisation of privately-owned oil major Bashneft, which has seriously undermined confidence amongst both Russian and foreign investors.

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Eastern Europe December 19, 2014

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Chevron pulls out of Ukraine shale gas venture

bneIntelliNews US energy group Chevron has pulled out of a project to explore for shale gas in West Ukraine's Olesska field, after trying for more than a year to get the government to simplify taxation for this type of business, writes TASS, citing the press service of the American company.

nationalist Svoboda party on ecological grounds.

Under the Agreement, Chevron was set to invest $350mn in geologic exploration. Total investments in gas production was estimated at round $10bn.

Chevron and state-owned Nadra Olesska held equal stakes in the venture.

"We have just terminated that PSA [product sharing agreement]," said Peter Clark, Chevron's country manager. "When it was signed, things had to be done, but not all of them got done."

The termination is a blow to Ukraine's efforts to achieve energy independence from Russia and create a more inviting business climate for Western firms.

In November, Ukraine's government informed Chevron that it had fulfilled all the conditions necessary for the US company to begin exploration and production of shale gas in the west of Ukraine. “We have sent a letter to Chevron, and now we are expecting a reply within 30 days. We are interested in signing the operation agreement as soon as possible," Yaroslav Klimovich, head of Nadra Ukrainy, said then. Under the production sharing agreement, Chevron was to complete geology exploration and drilling within five years.

It comes against the background of economic uncertainty in Ukraine, plummeting global energy prices, corruption worries regarding the original deal signed with the discredited former administration of ousted president Viktor Yanukoyvch, local fears over ecology, and disillusionment about shale gas prospects in Europe. The Olesska field shares geological features with Polish shale fields which have proved a major disappointment.

On November 5, 2013, Ukraine finally signed a Production Sharing Agreement (PSA) with Chevron and Kyiv-based Nadra Olesska company for the Olesske gas field (Lviv Region and Ivano-Frankivsk Region) after months of wrangling over the terms and strong opposition by the West Ukrainian

In May 2012, Ukraine, hoping to reduce its dependence on imports of expensive Russian gas, had selected foreign partners in shale gas production. Chevron was declared the winner of a tender for the exploration and development of the Oleske deposit in western Ukraine and Shell was declared the winner of a tender for the development of the Yuzivske deposit in the east of the country.

The US Energy Information Administration estimates the Ukrainian shale gas reserves at 1.2tn cubic metres, which makes the country the third largest in Europe after France and Norway in terms of the reserves of this fuel.

Eurasia December 19, 2014

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Ruble collapse sparks shopping frenzy in future EEU partners

Jacopo Dettoni in Almaty Consumers from Russia's future Eurasian Economic Union (EEU) partners – Armenia, Belarus and Kazakhstan - are using Russian online retailers to pick up bargains as the ruble’s collapse strengthens their dollar-linked currencies.

The Armenian dram, Kazakh tenge and the Belarus ruble have risen to levels against the Russian ruble unseen since the 1998 ruble crisis.

Since the beginning of the year, the ruble has depreciated by 55% against the dram, 58% against the tenge and 65% against the Belorussian ruble as all these currencies remain, to different extents, technically tied to the US dollar.

As a consequence, the price of goods sold by Russian online retailers has grown increasingly cheaper than those offered in neighbouring domestic markets. In November alone, Armenians spent 123% more on Russian online shopping websites than in November 2013, Belorussians 78.3% more and Kazakhs 32.5% more, according to figures from UCS, one of Russia's largest card payment processing companies.

There was a surge in demand for consumer favourites such as Apple's iPhone 6, Russian imports of which were 25% cheaper than in Armenia, Kazakhstan or Belarus over the last few days, Russian press reported. That was enough to prompt Apple to halt online sales in Russia on December 17 because the rouble's value was too volatile for it to set prices.

Arbitrage opportunities are not limited to the web. Kazakhs living in northern provinces bordering Russia are reportedly buying cars across the border to save over 20% on the sale cost, according to figures published by Kazakh car website Kolesa.kz. Cross-border real estate transactions are on the rise too.

However, if shoppers are enjoying the ruble’s collapse, local exporters are feeling the chill as their products have become relatively more expensive than they used to be.

“We currently have exported solely 50% of the originally planned amount to Russia,” Vahagn Mkrtchyan, an Armenian wine producer, told news website News.am earlier this month.

“The purchasing power of Russians has dropped and sales of Kyrgyz garment companies decreased by approximately 16% [in 2014] compared with 2013,” Sapar Asanov, a representative of the Krgyz garment industry, told news website Kabar on December 17. Kyrgyzstan, whose currency has gained 61% against the ruble in the year-to-date, is expected to confirm its EEU membership by the end of the year.

Armenia, Belarus, Kazakhstan, and Kyrgyzstan all have narrow industrial bases and local producers fear the competition of duty-free Russian products as the EEU comes online on January 1. The current ruble depreciation will add to their woes.

Eurasia December 19, 2014

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Armenian central bank reassures the public as dram drops to record low

bne IntelliNews The Armenian dram tumbled to record lows against the euro and the dollar on December 17, crossing the ceiling of AMD700 to the euro and AMD560 to the dollar, before recovering to be quoted early December 18 at AMD471. The Armenian unit of Russian-owned VTB Bank denied a report in a local online publication that it had sold $200,000 to an individual at the exchange rate of AMD760 per dollar.

17 that the government will stick to its floating exchange rate policy to ward off long-term instability and he reiterated the situation is the result of global and regional developments.

So far, Armenians have shown little sign of panic – they haven't lined up at bureaux de change to purchase hard currency, as in March 2009 when the dram lost about 30% of its value against the dollar in a few hours.

The chairman of the Central Bank of Armenia (CBA), Arthur Javadian, sought to downplay the dram’s at one point 37% devaluation against the greenback over the last three months, according to news agency Arka. On October 1, the exchange rate was AMD407 to the dollar.

Local banks have tried to keep the situation under their control – some limiting the sale of foreign currencies, some sold them only to their clients, and some stopped selling them at all.

Linked to the Russian ruble’s freefall, Javadian assured that “currently the dollar is overvalued, while the Armenian dram is too devalued,” chalking up the discrepancies to panic and speculation by investors.

To stabilize the situation and curb jobbing at forex market, the CBA raised the Lombard repor rate from 10.25% to 21% and started currency interventions via everyday auctions with limited amounts announced beforehand. Last week the CBA sold daily $6mn to banks, while this week it reduced those daily sales to $4mn.

Echoing Javadian, Armenian Prime Minister Hovik Abrahamyan said in a statement on December

Central Europe December 19, 2014

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Central Europe likely to keep spillover from Russian bloodbath at arm's length bne IntelliNews The bloodbath in Russia on December 16 guarantees that its economy will slide into recession in 2015. However, unlike some emerging markets, which are scrambling to avoid following in its footsteps, Central Europe is likely to suffer only limited damage.

The main direct risk for Central Europe comes via trade links to Russia. However, as has been seen from the Russian embargo on food imports, Central European exporters are not heavily exposed to Russia. "The direct impact of the sanctions imposed by Russia is close to zero," note analysts at Erste Bank.

"Even a sharp decline of exports, i.e. 35% drop of exports to Ukraine and 10% drop of exports to Russia, shaved off only 1pp from the export dynamics," they point out. Slovak export growth came in lowest over the last three months at around 2%; the Czech Republic shrugged off the Russian sanctions to push to a 7% expansion.

Thus, Erste appears unconcerned by the "striking implications for imports," of the situation in Russia.

While Poland is by far the biggest exporter to Russia in the region, sales to its eastern neighbour make up little more than 5.4% of total exports. What is more worrying for the country is the effect of a full-blown Russian crisis on sentiment. That effect is widely thought to have been behind the slump the country experienced in mid-2014, which others in the region ignored.

"The final channel is via a knock to consumer and business confidence, which would cause domestic spending to weaken," William Jackson at Capital Economics notes. "This is, of course, harder to measure. And we will know more in the first half of January, once the first surveys for this month have been published. For what it’s worth, surveys for October and November show that economic sentiment in CEE actually improved, even though Russia was, at the time, slipping into crisis."

Another indirect risk is the effect of the Russian recession on the Eurozone, which is the major destination for Central European exports.

However, the region has shown in recent months a surprising ability to shrug off the effects of a clear slowdown in the single currency area and the poor data out of Germany - to which it is heavily tied through industrial supply chains.

The huge plus for Central Europe is that it is now seeing a change in growth dynamics. Having spent recent years hugely dependent on exports (save Poland), the region's economies have this year seen the return of domestic demand, as consumption rises and investment kicks off.

Central Europe has seen GDP growth close to 2pp faster than the Eurozone thus far in 2014, at an average of 2.5% versus 0.6%.

"Growth in CEE is not solely export-driven, as it was in the first stage of the economic recovery," proclaim the Erste analysts. "That increases the resilience of growth in [Central Europe] against potentially worsening external demand."

Central Europe December 19, 2014

While sentiment and exports are a concern, the financial channel is not. Direct financial linkages with Russia are small in the region, albeit Latvia's banks are understood to hold a significant chunk of cash from the CIS. There was of course some short-term spillover in Central Europe. Currencies showed some weakening during the ruble bloodbath on December 16, but soon recovered their composure. The Hungarian forint hit a threemonth low of 312.66 to the euro, but soon stabilized on the back of a central bank meeting the same day at which the MNB held rates for a fifth straight month.

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importers, and cheaper oil and gas should give the economies of both a shot in the arm.

"Lower oil prices may primarily encourage household consumption and real income," analyst Jan Bures notes, pointing out Hungary especially stands to benefit. Industry should also see a bump up on lower energy costs. While the impact is unlikely to be huge, it may help make up for the effects of reduced trade with Russia.

Overall, KBC suggests lower oil prices could offer Hungary's real economy a 0.4pp hike, with Poland and the Czech Republic joining Germany in gaining 0.3pp.

However, the volatile forint was the hardest hit across the region. Most regional currencies weakened by no more than 1% against the euro.

On top of that, even Hungary's exposure was limited. The government bond market remained stable throughout the week, even whilst the Russian car crash was unfolding.

Stocks exposed to Russia also suffered some falls.

Hungary's OTP Bank fell over 5% in Budapest, while Austria's Raiffeisen Bank International dropped 9.4%. Indeed, thanks to its strong presence across the region, the Austrian banking sector is seen as one of the main channels via which Central Europe could be hit by greater contagion.

However, Hungary may be the only one facing real danger from that quarter, with the rest of the markets among the most stable in Europe. "The region [is] vulnerable to strains in the European banking sector, with the most likely trigger being a re-escalation of the eurozone debt crisis, not problems in Russia," suggests Jackson.

Looking longer term, assuming Russia avoids a total economic meltdown, Central Europe has some benefits to reap from the stand off between Moscow and the West. KBC analysts note that low oil prices will have a positive economic impact.

Both the region and the Eurozone are energy

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Central Europe December 19, 2014

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Latvia calls for Belarus visa liberalisation, support for WTO accession as EU reassesses neighbourhood policy Iana Dreyer of Borderlex Latvian Foreign Minister Edgars Rinkevics on December 15 called for a clear commitment to support Europe’s eastern neighbours in the coming months as the Baltic state prepares to take over the EU’s member state council presidency. He stressed in particular the need to start talking about visa liberalisation and accession to the World Trade Organization (WTO) with Belarus.

Speaking on a visit to Brussels, Rinkevics set out the key priorities of his country as regards the EU's "Eastern Partnership" policy, which is targeted at Ukraine, Moldova, Belarus, Armenia, Azerbaijan and Georgia to support democratisation and offer deeper ties with the EU’s single market. The Baltic states, which are former Soviet republics that joined the EU in 2004, take a particular interest in the bloc’s policies towards the former Soviet space, and Latvia is set to take over the rotating presidency of the EU member state council from Italy in January 2015.

“I think we should use the four-five months we have for the preparation of the Eastern Partnership summit [to be held in May 2015] to define a clear political signal that the Eastern Partnership is as important to the European Union as five years ago,”, Mr Rinkevics said. “We need a reaffirmation of our commitment to our eastern partners.”

what would be the endgame, what would be the benchmarks, the way forward in the longer term” to Europe’s eastern neighbours – particularly the question of whether they will ultimately be able to become full members of the EU continues to loom large.

Rinkevics proposed a multi-tiered approach towards Europe’s eastern partners. Moldova and Georgia should be rewarded with more liberalisation and better access to the EU’s market, as they have made substantial progress in implementing EU laws and requirements.

Georgians should be offered visa-free travel in the coming months, the minister believes. Moldovans recently obtained visa-free status with the EU. Ukraine should be supported and offered more visa liberalisation, “but any further advice and support from Europe is very much dependent on real results” regarding political and economic reforms, the foreign minister said.

Moldova, Georgia and Ukraine have recently signed and ratified free trade and association deals with the EU. Ukraine’s implementation of the trade policy pillar of the deal was postponed until December 2015.

The EU is currently reviewing its so-called "Neighbourhood Policy", which was formalised in 2011 and has come under heavy criticism with the crisis in Ukraine and the flare-up of violence in the Middle East.

In the case of Armenia, a country that has decided to drop its association process with the EU in favour of joining the Russia-championed Eurasian Economic Union (EEU) instead, Latvia’s foreign minister said that there is scope to cooperate in targeted areas like the rule of law.

In reference to this internal debate process, the Latvian foreign minister said that over the last few years the EU has failed “to give a clear vision of

Azerbaijan’s case is more difficult, as the oil-andgas-exporting, authoritarian country does not appear to be interested in working with the EU

Central Europe December 19, 2014

within the Eastern Partnership framework, the minister explained.

Rinkevics stressed continued cooperation with Belarus. “Certain developments [in Belarus] show that we can actually get more cooperation on a variety of issues.” He said there should be a “visa dialogue” and “visa liberalisation as a second step,” support for Belarus' accession to the World Trade Organization (WTO), and cooperation in the field of education.

Relations between the EU and Belarus have been strained in recent years. Belarus is subject to European sanctions due to Minsk’s human rights violations. Belarus, a non-democratic state with an econonmy that has kept intact many of its Soviet structures, is one of the few countries in the world that are not yet members of the WTO. Belarus is a member of the EEU, which includes a customs union that involves applying the same trade policy as Russia and Kazakhstan, the third EEU member. But it has not followed Russia

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in applying trade sanctions against European agricultural products last summer. The crisis in Ukraine has triggered interest in Minsk and in Brussels to seek a rapprochement.

The ongoing crisis in Ukraine unravelled after the failure of the Eastern partnership summit in Vilnius in late 2013, hosted by another small Baltic country, Lithuania. This gives the Latvian EU presidency in the first semester of 2015 particular political salience.

The presidency of the 28 member-state council is an institution that has lost some of its power since the coming into force of the 2009 Lisbon treaty, the EU’s fundamental sets of laws. The political priorities of the countries taking this role for six months nonetheless continue to shape the bloc’s political agenda.

This article first appeared on Borderlex, which provides news, analysis and intelligence on EU trade policy.

Southeast Europe December 19, 2014

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China stakes claim in Central and Southeast Europe

bne IntelliNews A Chinese agreement to finance a high-speed railway from Belgrade to Bucharest was one of around $10bn worth of investments, mainly in the energy and infrastructure sectors, signed during a China-Central and Eastern Europe summit this week. By funding the railway, Beijing hopes to establish a rapid connection from Greece’s Pireaus Port through the Balkans to the EU member states of Central Europe.

region, investments into transport links across the Balkans are needed.

Several agreements on the ¤1.5bn railway, which will be financed by soft loans from stateowned China Exim Bank, were signed between China, Hungary and Serbia on December 17.

When the line is operational, the travel time between Belgrade and Budapest will be slashed from the current eight hours to just 2.4 hours.

Macedonian counterpart Nikola Gruevski was also in attendance as there are plans to extend the line south to Macedonia and Greece in future.

Investments into infrastructure to transport raw materials into China and Chinese manufactured goods to foreign markets is nothing new. Closer to home, Beijing is looking to fund a railway across Central Asia to create a direct rail link between its factories and the massive wholesale bazaars of Kyrgyzstan and Uzbekistan. Further afield, in May 2014, China signed an agreement in Kenya to build a new line from Mombasa to Nairobi that will extend to four other East African states in future.

Chinese Prime Minister Li Keqiang, who headed a 200-strong delegation to Belgrade, said he expected the line would benefit both China and the countries of Central and Eastern Europe and the EU, according to a Serbian government statement.

While land rail routes across Eurasia to Europe are also being developed, sea shipping remains the cheapest route from the Far East to Europe, and Piraeus is a convenient entry point to the continent. While growth in the region has been patchy since the recent global economic crisis, in the longer-term the EU member states of Central and Eastern Europe and future entrants from the Balkans are expected to converge with longerestablished EU members from Western Europe in terms of spending power.

Chinese shipping giant Cosco Pacific took over the management rights to half of Piraeus port and is now expanding two container terminals under a 35-year concession agreement, with the aim of turning the Greek port into one of Europe’s top five container ports. However, to take full advantage of Cosco’s investment in Piraeus and its potential to become a gateway to the CEE

"We will propose construction of a rapid land and maritime route based on the Budapest-Belgrade railroad and the Greek port of Piraeus to improve regional connectivity," Li told journalists in advance of the summit, South China Morning Post reported.

Since 2012, when the first China-CEE summit was held in Warsaw, Chinese attention on the region

Southeast Europe December 19, 2014

businessneweurope I Page 19

has steadily increased, with a focus on energy and infrastructure. Aside from the access to new markets, there are further commercial benefits for China, as Chinese companies are selected for lucrative construction contracts on projects funded by Chinese state-owned banks.

Russia. Meanwhile, in a further retrenchment from the region, Russian President Vladimir Putin announced on December 1 that Russia will scrap the planned South Stream pipeline that would have supplies numerous states across the region with gas.

On December 16, the opening day of the summit, Li told the 16 regional leaders to attend that China would launch a $3bn investment fund for the region.

China, meanwhile, has no political axe to grind in Eastern Europe, but hopes to take advantage of Russia’s weakness to make further inroads commercially. Poland and other countries in the region are, for example, looking to China as a potential market for food products following the Russian embargo.

Also on December 16 Albania signed a deal with Exim Bank on funding for the completion of construction works on the Arber motorway that links the capital Tirana with Macedonia.

This would add to already booming trade ties.

According to Chinese Commerce Minister Gao In the energy sector, Serbian and Chinese officials Hucheng, trade between China and Eastern Europe may top $60bn in 2014 - five times its 2003 have signed a loan agreement for the second level, AFP reported. stage of the Kostolac B thermal power project, which includes the construction of a new 350MW However, not everyone has welcomed the plant and the expansion of the adjacent Drmno growing Chinese presence in the region. In open-pit coal mine. The value of the project is advance of the summit, Serbian police arrested expected to be $715mn, of which $608mn will eleven human rights activists from Bulgaria, come from a 20-year China Exim Bank loan.

Finland and Slovakia, who were planning to take In neighbouring Bosnia, Eximbank has signed part in peaceful demonstrations against the an agreement with the Bosnian Federation Chinese treatment of Falun Gong practitioners. government for a ¤667.8mn credit to fund construction of the 450MW unit 7 at the thermal A December 17 statement from Amnesty International voices concern “that the Serbian power plant Tuzla. China's Gezhouba Group is authorities are acting unlawfully, and urges them expected to build the unit. to immediately end any detention based solely on the persons’ intention to exercise their right to The timing of the summit, amid a sharp falling peaceful assembly.” off of Russia’s influence, may also have helped China extend its influence in the region. With some exceptions, notably Serbia, most of the Several of the energy sector projects to receive would-be EU member states in Southeast Europe promises of Chinese funding are also a cause for concern as they increase the use of coal within the have opted to join EU and US sanctions against Russia over Ukraine. Tit for tat sanctions imposed Balkans region. CEE Bankwatch Network warned in July 2014 that planned new lignite power plants

by Moscow caused trade between Eastern including Tuzla unit 7 in Bosnia and Kostolac in Europe and Russia to drop, a trend that is likely Serbia risk breaching EU pollution limits. to continue amid the new economic crisis in

Southeast Europe December 19, 2014

businessneweurope I Page 20

Romanian Social Democrats reshuffle cabinet bne IntelliNews Romania's Social Democrats endorsed on December 14 the reshuffling of both the ruling coalition and the cabinet, in a bid to shore up the government following Prime Minister Victor Ponta's defeat in the presidential elections.

• The finance and budget ministries will merge and former budget minister Darius Valcov becomes minister of finance and budget; former finance minister Ioana Petrescu will leave the cabinet.

The ethnic Hungarian UDMR party has officially decided to pull out of the government, but UDMR president Kelemen Hunor said that Hungarian lawmakers would approve the new cabinet in exchange for lower ranking positions in the public administration. The Conservative party (PC) of Dan Voiculescu, who is currently in jail for corruption, and the small UNPR party of retired general Gabriel Oprea were given one more seat in the cabinet, and the newly formed reformist Liberal party PLR of Calin Popescu-Tariceanu (which separated from the opposition PNL) will join the coalition.

• The new minister of economy is going to be Mihai Tudose, a PSD MP and intelligence school graduate with no particular experience for the position.

• The energy department, until now a department of the ministry of economy, is turned into a full ministry and absorbs the ministry of small and medium sized enterprises. Energy minister Eugen Nicolescu – an expert that has performed particularly well so far - leaves the office. Andrei Gerea of the PLR is nominated to become the new minister.

The balance of votes should in principle secure smooth endorsement of Ponta's new cabinet.

• Vice-president Liviu Dragnea loses his seat.

Ponta had made clear that PSD lawmakers There will be only one vice-PM, in the person voting against the new cabinet would be expelled. of UNPR president Gabriel Oprea. Dragnea will remain minister of regional development and Among the other key changes: public administration.

• The three new active members of the cabinet will be given 2 ministries each. This is clearly aimed at securing the votes of the three parties' MPs.

Opinion December 19, 2014

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The oil price is all that matters regarding Russia

Chris Weafer of Macro-Adviser The key takeaway concerning the economy and the ruble from President Valdimir Putin’s press conference on December 18 is that the Kremlin does not have any strategy or plan to try and pull out of this slump or to halt the decline in the ruble.

The message seems to be one of trying to weather the worsening storm, which he said will get much worse over the next half year and may not start to ease for up to two years. The government will deal with outbreaks of the crisis, such as this week’s ruble collapse, on a case-by-case basis while crossing its fingers that the price of oil will soon start to rally.

Given that the US and the EU have both moved to tighten sanctions again this week, and even despite there having been a calmer period with more encouraging comments from all sides involved in the eastern Ukraine crisis, there is realistically no hope of a substantial easing of the financial sector sanctions through the first half of 2015 and maybe not until 2016. Kicking the injured while on the ground seems to be a more satisfying political course than engaging in talks. That really leaves only the oil price as the source of hope that the worst case scenarios for the ruble and the economy can be avoided.

The one factor that gives some substance to that hope is Russia is by no means the only country to be now hurting from the oil price fall. It is, however, the only one getting all the publicity and subject to speculation of imminent disaster. It is also the only one of the oil-dependent economies

which allows its currency to free-float and take a battering. While I have said that the Kremlin is not publicly disclosing any specific strategy, the one choice it appears to have made is to allow the ruble to fall, and to fall much further if oil goes down below $60 per barrel. It is a kind of “lesser of two evils” strategy. The weak ruble protects the country’s budget revenues and provides a soft stimulus for domestic manufacturers. It allows the country to survive the crisis at the expense of growth and investment flows. Both of which are being sacrificed over the medium term in order to try to remain in a relatively better shape to recover after the crisis. Hence, trying to limit the decline in financial reserves in order to protect the country’s investment grade rating is a better strategy than burning though the money while oil remains weak.

The oil price is key to how Russia survives this crisis and to how long it lasts. If the price of Urals crude were to rally back to $90 per barrel, then we could expect to see the ruble back at RUB50, or lower, against the dollar, and there would be little talk of an imminent financial crisis. Over the short term, it is difficult to see what might cause that rally. Much more likely the price of crude will drift below $60 per barrel and down to the low $50s.

But, as we have highlighted in several previous columns, all of the Opec producers now need a much higher oil price average than was the case in 2008. At the current oil price, Saudi Arabia, the United Arab Emirates and Kuwait are dipping into their financial reserves to cover their respective budget deficits. Their currencies are pegged to

Opinion December 19, 2014

the dollar so they don’t have the issue of inflation or higher interest rates to deal with, but the longer oil stays low the greater will be the cost to them. Venezuela was already on the brink of an economic collapse even before the price of oil fell, and the African producers are also not in good shape to live with low oil for long.

It is ridiculous to assert that Saudi Arabia is colluding with the US to hurt Russia and Iran. The gap between the Kingdom’s budget requirement and today’s price is costing it $200mn in lost revenue every day. That’s a sizeable favour to grant! Pressure within Opec to reach a compromise over Saudi’s demand for pro-rata cuts is already growing and any assumption that the group will simply do nothing indefinitely as oil slides to $50 per barrel, or lower, is unrealistic.

Venezuela’s economy, and a sizeable portion of its 2.5mn barrels of daily production, is at risk over the near term and any decline in output would in any case help prop up the oil price.

Yes, apart from the oil price, there are several reasons why the ruble has been hit so hard over the past few months. But oil is the critical driver.

Since October 1, the ruble has lost 50% against the dollar while the oil price is not far behind with a 44% drop in the same period. Oil weakness and sanctions came on top of an already weakened base in the economy that has been evident since early 2013. The previous growth drivers, ie. consumer spending and manufacturing sector growth, which had sustained the booming economy for the past dozen years, had become exhausted. Lower wage growth, rising inflation and high interest rates all took their toll. The economy would have been weaker in 2014 even regardless of the sanctions and oil.

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the widely reported bridging loan was extended to Rosneft on the evening of December 15 most certainly added to the market volatility.

The currency seems to be now settling closer to the RUB60 level against the dollar. At that level, it has lost 83% against the US currency and 60% against the euro. The impact of that fall, and the continuing uncertainty, is that inflation will push much higher in the first few months of 2015 with headline inflation number expected to hit 14-15% from 10% today. The CBR’s benchmark key rate is now at 17%, having started the year at only 5.5%, and the likelihood is that the rate will go higher still in the next quarter as the CBR tries to tame inflation and provide support for the ruble.

We heard that message again from President Putin during his press briefing. He made clear that he is opposed to the use of financial reserves to try and support the currency and is also opposed to mechanisms which may be interpreted as a form of capital controls. In effect, it means that the CBR has relatively few options and one of those will be to continue using interest rates to try to attract support for ruble assets.

What that means is the economy is very likely to fall off a cliff in the first and second quarters of 2015. While we see GDP contraction of between 3% and 5% as probable for the full year (depending on where oil trades), a much steeper fall in the first half is now inevitable. Consumers, especially in Moscow, has been busy taking ruble cash out of ATMs all week and have been buying appliances and other imported goods which will soon see big price rises or even shortages after the New Year.

That will provide a big boost to the retail sector in December, but will mean the sector will be a wasteland through the next six months. High Lack of confidence prices, high interest rates and low nominal wage This week we saw a new, and potentially dangerous growth makes that a certainly. The high cost of debt will also severely cut capital investment in 2015. element if not calmed very soon. That is the sharp drop in public confidence in the Central Bank of Russia (CBR), which led to a frenetic few days when The one compensating factor is that the weak the CBR seemed to panic and the ruble briefly ruble, in the absence of higher oil revenues, reached towards 80 against the dollar. The way continues to protect the budget and will, for

Opinion December 19, 2014

example, allow the government to boost pensions and some public sector worker salaries by the rate of inflation in 2015. It will also help boost local demand and growth in the manufacturing sectors.

But the bottom line is the oil price. If it falls further, the financial squeeze on Russia will tighten and the ruble will fall, along with equities and debt prices. If oil starts to rally, then the

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pressure eases and the crisis is a whole lot more manageable, ie. including the sanctions impact.

For investors it is therefore a straightforward decision: buy Russia if oil goes up and disregard all of the other noise, but stay away so long as oil trends lower.

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

Weekly Lists December 19, 2014

bne:Investor garian parliament passes Sunday shopping ban 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.

businessneweurope I Page 24

Hungary’s parliament has approved a bill forcing large retailers to stay closed on Sundays, in a move critics say is yet another swipe at international investors.

Prime Minister Viktor Orban, whose ruling Fidesz party enjoys a constitutional majority in the lower house, has defended the bill. He said it protects Sunday as a Christian day of rest. He also noted that neighbouring Austria and Germany have similar restrictions.

According to the bill passed on December 16, the ban will not apply to shops with retail space of under 200 square meters, on condition that the staff on Sunday include a business owner with a stake of at least 20%, or a family member. Other exemptions include tobacconists, pharmacies, retail units at airports, train stations, prisons or hospitals, farmers' markets, petrol stations, and stores on military precincts. The bill limits opening hours to 6 am to 10 pm.

Ukraine to get ¤300mn in loans from EU for gas pipeline repairs

Kiev secured ¤300mn in development loans to repair the leaking pipeline that is the main natural gas route from Russia to the EU, under a deal on December 15 Reuters reported.

bne IntellinNews

EBRD will lend Ukraine ¤150mn on top of ¤150mn already promised by the European Investment Bank. EBRD officials also said the bank was considering financing gas purchases. The new money covers a four-year upgrade of a crucial section of the Urengoi-PomaryUzhgorod pipeline, including a link that allows gas to be pumped east as well as west across the Slovak border.

Riccardo Puliti, EBRD managing director for energy, said that because of concerns about corruption, previous energy loans had only been for grids, but the bank was now confident Kiev was serious about reforms.

Weekly Lists December 19, 2014

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

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

businessneweurope I Page 25

bne:Deal

Poland is building stronger legislation to protect "strategic" companies from "hostile" takeovers, a government official announced on December 18.

Poland to protect strategic companies from hostile takeovers

The state treasury is working on a draft law designed to monitor transactions on the Polish capital market. The legislation will also give it the power to nullify any deal perceived as a threat to national security, Treasury Minister Wlodzimierz Karpinski said.

He added that the government should pass a draft by the middle of next year.

bne IntelliNews

The official pointed to chemicals holding Grupa Azoty as an example of a successful defence against hostile attention.

Russian peer Acron attempted to gain control of Poland's largest chemicals concern Azoty Tarnow in 2012-2013, while it was suspected Russian interests were behind a bid by Synthos for Pulawy.

LSR Group sells cement plant in value-accretive deal

LSR Group announced that it has signed a preliminary agreement with Eurocement to sell its cement plant in Slantsy. The sales price was not disclosed, but Delovoy Peterburg reported a price tag of RUB18bn, including debt.

Sberbank CIB Our view: The sale of the plant at this price in the current FX environment looks value- accretive at first glance. It should allow LSR Group to deleverage, cutting its debt by roughly half (bringing net debt/EBITDA to 0.7 by year end) and eliminate $- denominated liabilities that make servicing and amortizing this debt a much more lengthy and cash-consuming exercise.

Deleveraging the balance sheet also makes a dividend payment next year (we estimate at least R45 per share for a 9% yield at the current share price) much more certain and gives LSR Group more financing options should it participate in development of the second phase of ZIL. At R18bn, we estimate the plant was sold at 13.5 times 2014E EV/EBITDA, 33-43% premiums to the current EM average of 9.4 and DM average of 10.1. The news should be supportive for the share price.

Weekly Lists December 19, 2014

bne:Banker Bankrupt Polish credit unions drain deposit guarantee fund

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

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

businessneweurope I Page 26

The Polish Financial Supervision Authority (KNF) in December requested that the Wolomin SKOK (the abbreviation for Polish credit unions) be declared bankrupt. Paying out client deposits will cost as much as PLN2.3bn (¤523m), or about a fifth of the assets held by the government-run Banking Guarantee Fund. The fund takes in 0.1% of banks’ risk weighted assets annually. In July, the fund had to pay out PLN815m to cover the deposits of clients of SKOK Wspolnota, which failed earlier this year.

Jan Cienski in Warsaw The problems in the sector have been brewing for a long time.

Although credit unions only account for about 1% of the assets of the Polish banking system, they have been very loosely regulated for most of the past two decades. The KNF only assumed the right to control them in 2013, as they had jealously guarded their independence.

The banking regulator says the credit unions need an injection of PLN1.5bn to meet minimum capital adequacy standards. As well, about half of outstanding loans are past due.

Hungary’s central bank to restructure new state lender MKB

Hungary’s central bank will take MKB Bank under its wing and offer it a safety net as it undergoes restructuring, the governor of the Magyar Nemzeti Bank said on December 18.

bne IntelliNews

At the request of the government, the MNB will reorganise the lossmaking MKB - which was bought by the state earlier this year - as the first step to clean up its portfolio, Gyorgy Matolcsy said at a joint news conference with Prime Minister Viktor Orban.

The government aims to make MKB one of the country’s top three lenders. Hungary completed the acquisition of the country's fourth largest bank from Germany's BayernLB in October. Earlier this month it also signed a preliminary agreement to buy Budapest Bank from GE Capital. Asked whether the government plans to merge the pair, Orban said a decision will be made after Budapest Bank’s acquisition is completed in May or June. The government said it will sell the two banks within three years.

Weekly Lists December 19, 2014

bne:Credit S&P cuts Bulgaria's rating to junk

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

businessneweurope I Page 27

Standard & Poor's has cut Bulgaria's long- and short-term foreign and local currency sovereign credit ratings to below investment grade because of the risk of further state support to the financial sector and the deteriorating fiscal position, which are expected to push the country's net public debt to just below 30% of GDP in 2017, from 12% in 2013.

bne IntelliNews

The rating was lowered to BB+/B from BBB-/A-3, with the outlook remaining stable. The stable outlook balances the risks S&P sees from potential vulnerabilities building up in the financial sector against still-low levels of government indebtedness, S&P said in a statement. However, the credit agency could lower the ratings if the domestic financial system requires further government support.

Fitch Ratings and Moody’s both rate Bulgaria at investment grade.

Gazprombank demands repayment of $842mn loan from Firtash

Russia's Gazprombank wants Ukrainian oligarch Dmitry Firtash' gas trading firm Ostchem to repay a $842.5mn loan, because of breach of conditions relating to the loan, the bank said in a press release, without specifying what conditions had been breached.

bne IntelliNews The loan was guaranteed by four fertiliser plants owned by Firtash' holding structure Group DF, and secured by 5.67bn cubic meters of gas held by the plants in Ukraine's underground storage.

The loan was used to purchase the gas from Russia's Gazprom, at a price of $268.5 per 1,000 cubic metres, significantly lower than the price paid by Ukraine's energy company Naftogaz for Russian gas, according to a recent investigation by Reuters. The loan is to be repaid by December 30, otherwise Gazprombank will demand return of the gas, the bank said in its press release.

Weekly Lists December 19, 2014

bne:Stocks Evtushenkov freed from house arrest following Bashneft's transfer to state bne IntelliNews

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Vladimir Evtushenkov, founder and chairman of Russian conglomerate AFK Sistema, has been freed from house arrest.

Shares in the financial and industrial group AFK Sistema then soared by 100% after Russian President Vladimir Putin endorsed him on TV. Evtushenkov was placed under suspicion of profiting illegally from the privatisation of the Bashneft oil company, which has subsequently been renationalized.

Following news of his release, Putin, speaking at a question-andanswer TV session, said Evtushenkov was not guilty of moneylaundering, and that he had been to a planned meeting with top Russian businessmen.

O2 Czech Republic approves CZK24.8bn loan to parent PPF

Shareholders in O2 Czech Republic approved a controversial CZK24.8bn (造900mn) loan to its new parent PPF on December 17, despite angry protests from minority shareholders in the telecom.

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Financial group PPF, owned by the Czech Republic's richest man, Peter Kellner, requested the loan from the low-leveraged O2 in October. It plans to use it to pay down part of the debt it took on to fund the acquisition of the telecom earlier this year.

The move has hit O2's share price, with the company's dividends expected to suffer as a result of the loan. O2 shares dropped a further 1% by the close on December 17 to leave them 17% below a buyout offer price launched in May, reported Reuters. Small shareholders reportedly shouted "Lies" and "Shame on you" at the meeting.