bne:Newspaper - February 6, 2015

Content: 2 Top Stories 5 The Regions This Week 10 Eastern Europe 14 Eurasia 17 Central Europe 20 Southeast Europe 24 Opinion 27 Survey 29 Lists 24 Lists

bne:Newspaper Follow us on twitter.com/bizneweurope February 6, 2015

www.bne.eu

Merkel and Hollande to present Putin with peace plan bne IntelliNews German Chancellor Angela Merkel and French President Francois Hollande will present a new peace plan to Russian President Vladimir Putin on February 6 in an attempt to halt the escalation of fighting in Eastern Ukraine.

They showed the plan to Ukrainian President Petro Poroshenko on February 5. The European leaders said that they will “step up efforts toward

a peaceful resolution” of the conflict, which Hollande called a “war” that threatens peace “at the border of Europe".

Pavlo Klimkin, Ukraine’s foreign minister, said that implementation of the Minsk ceasefire agreement remained the basis of the discussed See page 2

Hryvnia plunges 30% after Ukraine central bank lets it float freely bne IntelliNews The Ukrainian hryvnia fell 30% to a record low against the dollar on February 5 after the central bank let the currency float freely and raised its key interest rate in an effort to conserve its depleting foreign exchange reserves.

With the currency hitting record lows everyday for the past few weeks and foreign reserves standing at $7.5bn - merely enough to cover five weeks of

imports - the central bank has in effect abandoned attempts to prop up the currency. The currency has fallen from 8.7 hryvnia to the dollar a year ago to 24.63 at the lowest point on February 5.

The central bank raised its key interest rate to 19.5% as of February 6 from the current 14%, in a move See page 4

Top Stories February 6, 2015

Merkel and Hollande to present Putin with peace plan

between Poroshenko, Merkel and Hollande. “We discussed steps needed to implement the Minsk agreements,” he tweeted.

businessneweurope I Page 2

In the meantime the EU has expanded the “black list” of Russian and Ukrainian nationals, by adding another 15 individuals and four companies, TASS reports citing unnamed European diplomatic sources. Reportedly the additions will include mostly the leaders of the rebels in Eastern Ukraine. At the same time the German DPA agency reported that the expanded list could include high-ranking Russian officials.

It appeared that publication of the list was awaiting the result of the talks in Moscow. The expanded list reportedly could be published by February 7.

Currently the list already includes 132 individuals and was last expanded on November 29 2014.

“The three leaders called for an immediate ceasefire, removal of foreign armies from Ukraine, pullback of heavy weaponry, closure of the border TASS sources also said that Greece, that recently and freeing of all hostages,” said a statement on argued against expanding sectoral sanctions Poroshenko’s website. against Russia, is not going to protest expanding the “black list” as this has no hard economic Putin has also proposed a new peace plan to consequences.

Poroshenko, Kremlin officials said on February 5, and was waiting for a response. Russian officials Nato is also ramping up its presence in Eastern said the possibility of sending UN peacekeepers Europe. Nato has agreed to establish a new to Ukraine was also expected to be discussed at rapid reaction force, boost its troops in Poland the meeting with Hollande and Merkel. and Romania, and establish six command and control centres in Central and Southeast Europe US Secretary of state John Kerry was also as part of the alliance’s response to the Russian this week in Ukraine. The US Presidential aggression in Ukraine. administration is discussing supplies of weapons to Ukraine, though this is opposed by most According to Nato’s secretary general Jens European leaders.

Stoltenberg, the rapid reaction unit known as Spearhead Force will be the “centrepiece” of the As both Kiev and the rebels announced another current Nato Response Force (NRF). It will consist wave of military conscription, Nato warned that of a land brigade of about 5,000 troops, supported the 10-month conflict in Ukraine is escalating to by air, sea and special forces. the worst fighting since it broke out.

“The lead element of this land brigade will be On the ground in eastern Ukraine, fighting has ready to move within as little as 48 hours, with centered on Debaltseve, a village astride a key the rest moving within a week,” Stoltenberg said. link between Donetsk and Luhansk, the rebels' The Spearhead Force will be backed by two more two main strongholds. On February 5, the rebels brigades in case of a “major crisis.” appeared to have captured Vuhlehirsk, a nearby The Spearhead Force will rely on France, small town where government troops had also been holding out. The army said it was still Germany, Italy, Poland, Spain and the UK as socontesting the town, but Reuters journalists saw called “framework nations", providing the main elements of the force. no sign of areas under army control.

Top Stories February 6, 2015

Following the decision, the NRF - which will itself undergo some restructuring to improve its capability - will more than double in size, from the current 13,000 troops to about 30,000.

During the meeting in Brussels on February 5, Nato defence ministers also agreed to establish six multinational Nato command and control units in Lithuania, Latvia, Estonia, Bulgaria, Poland, and Romania, with rotating personnel, focussing on

businessneweurope I Page 3

planning and exercising collective defence.

Nato’s decisions thus respond to what the alliance’s secretary general Jens Stoltenberg described on February 5 as a “very critical time for security in Europe, and across the world".

“In Ukraine, violence is getting worse and the crisis is deepening. Russia continues to disregard international rules and to support the separatists with advanced weapons, training and forces,“ he said.

We are specialists in emerging and frontier markets Rather than working from an office, we work on the ground, visiting more than one thousand companies in thirty countries each year. This tells us more about the markets than any index in the world ever could.

Read more about our award-winning funds at www.eastcapital.com.

Historic yields are no guarantee for future yields. Fund shares can go up or down in value, and investors may not get back the amount invested. Before investing, please read the prospectus carefully. Full information on East Capital’s investment funds such as the prospectus, key information documents and financial reports can be obtained free of charge from East Capital, from our local representatives and are available on the website. Please also note that the funds, or some of the funds, may not be available for sale in your country.

Top Stories February 6, 2015

Hryvnia plunges 30% after Ukraine central bank lets it float freely aimed at curbing inflation and stablising financial markets. Valeriia Gontareva, the central bank's head, said that the bank is strengthening its monetary policy to target inflation and control "the market situation". She added that the central bank has the tools required to ease market volatility and that she hoped the market would find a balance soon. "If there is any worsening of the situation the National Bank is ready with the tools needed to calm the foreign exchange market," Gontareva said.

However, analysts believe the rate increase would do little to dig Ukraine out of its financial mess, says Reuters. "They can't afford to lose more FX reserves but I don't think higher interest rates will scare people away from selling the UAH," said Simon Quijano Evans head of EM research at Commerzbank in London. "It's more about economic failings and the war situation at this stage. Interest rates won't make any difference just as they are not in Russia."

businessneweurope I Page 4

The central bank now forecasts that GDP will contract by 4%-5% in 2015, while inflation will hit 17.2%. The inflation will slow down thanks to tighter monetary policy coupled with other stabilisation measures undertaken by the NBU and the government in the framework of a new co-operation programme with the International Monetary Fund (IMF).

During the press conference, Gontareva also announced that the NBU has reached an agreement with the IMF toincrease financial aid to the country, without providing exact figures.

Earlier, the IMF authorities also admitted that the Fund has been is in talks with Ukrainian authorities about increasing its financial support and said it would support a larger, longer-term funding plan than its current $17bn programme.

CHANGES ARE GOOD

In 2014, consumer prices in Ukraine rocketed by 24.9%, while producer prices soared by 31.8%.

Gontareva said that the high dependence of Ukraine's economy on imports is behind the high inflation rate in 2014, which resulted in price hikes amid a devaluation of the national currency.

In 2014, the NBU moved to flexible exchange rate formation, which resulted in the hryvnia practically halving in value against the dollar. In late 2014, the NBU shifted to a combination of market and administrative rate regulation, setting an indicative rate for the market through daily auctions in the interbank foreign exchange market using small quantities of its reserves. On February 2, the central bank announced the introduction of a single currency exchange rate, which was eventually introduced on February 5.

YOUR BUSINESS PARTNER. www.rbinternational.com

The Regions This Week February 6, 2015

businessneweurope I Page 5

Central Europe A transgender lawmaker announced she will enter the Polish presidential race. 60-year-old Anna Grodzka is backed by the Green party in the vote, which will take place on May 10. Grodzka transitioned in 2009 and was elected Poland's first transgender MP in 2011.

pay 造327mn as it joins the European Stability Mechanism. The country is obliged to subscribe to 造2.86bn of ESM capital stock.

Hungarian gas deliveries to Ukraine have halted again. Supplies stopped on February 3, transmission system operator FGSZ reported, claiming a fall in demand. Hungary only resumed the deliveries in January after cutting them in September, just after agreeing raised supplies from Russia. Vladimir Putin is due in Budapest on February 17.

Austria's Erste denied it is in talks to acquire the Hungarian operations of compatriot Raiffeisen Bank International. RBI announced in January it may sell some assets as part of a drive to reduce its balance sheet by 20%. The second largest lender in CEE, the bank is struggling under the impact of the Ukraine crisis and the hike in the value of the Swiss franc.

German car manufacturer BMW has denied it is planning to build a new plant in Hungary.

Speculation that a plant would be built, and the compatriot Mercedes would add to its facilities in the country, cropped up in the wake of a visit by German Chancellor Angela Merkel this week.

Rail workers are threatening to join the Polish strike trend. Unions at rail freight operator PKP Cargo will launch strike action unless demands for bonuses and other compensation are met.

Miners and farmers are already out after the government quickly folded to demands from coal miners late last year.

Tesco Hungary is mulling the closure of a further 31 loss-making stores in response to recent legislative changes regarding the retail The Czech finance minister's business empire is sector, local media reported on February 3. flourishing. Andrej Babis' Agrofert Group increased Having already announced it will close 13 outlets, unconsolidated revenue last year by CZK3bn to the UK grocery retailer is now expected to decide CZK239bn, helping boost profit 19% year-on-year. the future of 31 more Hungarian stores by the Babis claims all the group companies enter into end of summer. regular open tenders with the state.

Rocked by the oil price slump, Hungary's MOL The Hungarian government has proposed a has suspended plans to seek a special dividend day of debate on immigration in parliament. from Croatian gas and oil firm INA in which it Group leader Antal Rogan said the submission holds a 49.1% stake and management rights.

"Hungary needs no economic immigrants" is However, the loose oil market is unlikely to make in light of a twenty-fold rise in the number of MOL's fight with fellow shareholder Zagreb any political asylum seekers in the past two years. easier.

The Eurozone's newest member got a bill of over 造300mn on entry. Lithuania will need to

The Regions This Week February 6, 2015

businessneweurope I Page 6

Southeast Europe Romania’s central bank cut the monetary policy rate by 25bp to a record low of 2.25%, effective February 5. At a press conference, central bank governor Mugur Isarescu hinted that further cuts may be forthcoming.

The International Monetary Fund said it expects Montenegro’s economy to recover in 2015 and GDP growth is seen accelerating to 4.6% this year from an estimated 2.0% in 2014 thanks to expected expenditure on the Bar-Boljare motorway project. However, the IMF noted that the project places a large burden on public finances and exacerbates debt and financing risks.

UAE-based property developer Buroj plans to build a ¤2.3bn tourist complex in the Bosnian Serb Republic’s Trnovo municipality near Sarajevo. The complex will include thousands of apartments, several hotels, trade centre and related infrastructure.

Re thermal power plant will cost ¤1bn. US-based ContourGlobal was the only bidder in a tender for the construction of the coal-fired power plant.

The economic contraction in Russia and the deterioration in relations between Moscow and Chisinau are likely to result in many Moldovan migrant workers returning home from Russia.

This is likely to have a significant impact on the country’s unemployment and balance of payments.

Anti-corruption prosecutors have filed two requests to launch criminal investigations into former Romanian presidential candidate Elena Udrea. A close ally of former President Traian Basescu, Udrea stood unsuccessfully in the November presidential elections.

The European Commission has given the Serbian government the green light to extend its talks with US group Esmark on the privatisation of steel mill Zelezara Smederevo until February 15.

Bulgaria's public debt increased to 27.1% of GDP Serbia is seeking full guarantees that the US at end-2014, which compares to a debt-to-GDP group will retain the company's employees and ratio of 17.9% a year earlier, finance ministry data maintain production in the long-term. showed. In December, the government borrowed Turkish President Recep Tayyip Erdogan renewed ¤1.5bn from four foreign banks and issued ¤828mn worth of securities on the domestic his criticism of the central bank’s policies on market.

February 4, only a day after fresh inflation data prompted the central bank to delay its decision Albania's central bank estimates that in 2014 to reduce interest rates. His comments raise the economy grew at a faster rate than the 1.4% questions about the bank’s independence. expansion recorded the previous year. Growth was underpinned by domestic private demand, Sarajevo will seek to save from bankruptcy whereas public sector and external demand made Bosnia’s indebted flag carrier BH Airlines. The no positive contribution, the bank said. company’s bank accounts have been blocked for months by the Mostar-based arm of Hypo AlpeCroatian fertilisers producer Petrokemija has Adria-Bank over outstanding debts. raised its capital by HRK253mn (¤32.8mn).

Zagreb may attempt to privatise the company later Montenegro’s economy ministry has started this year. preliminary talks with bidders in a tender over concessions for offshore oil and gas exploration Kosovo's economic development ministry blocks. Montenegro opened the tender in August estimates that the construction of the Kosova e 2013, and plans to pick several investors.

The Regions This Week February 6, 2015

businessneweurope I Page 7

Eastern Europe Russian Duma deputies who go overseas and spend more than a month abroad could be stripped of their powers, according to a new draft law introduced by Communist party deputy Ivan Nikitchuk, the first deputy chair of the Russian State Duma Committee for Natural Resources.

in Sochi, Krasnodar Krai. Russia has banned all gambling from cities other than in designated zones.

Rosneft was raising money from Swiss trader Trafigura days before it had to pay off a $7bn debt. The company was also blamed for crashing Opposition blogger and anti-corruption Alexei the ruble in December with a $11bn domestic Navalny says his Progress political party intends bond issue by the governor of Russia's central to run in Russia's 2016 Duma parliamentary bank this week. elections and called for protests and rallies if the government fails to register the party's Hundreds of protestors tried to storm the application.

Ukrainian presidential administration office, calling for the resignation of Ukrainian president China's leading credit rating agency upgraded Petro Poroshenko. They are unhappy about being state-owned Gazprom's long-term credit outlook called up to serve in the army in the fight with to AAA for both local and foreign currencies with Russia. stable outlook. The rating action comes a week after US-based Standard & Poor's downgraded Ukraine has barred Russians from entering the Russia's sovereign rating to junk. country with their "national" passports. Now they can only enter on an "international" passport, Only 3% of Russians think the West is meddling putting jobs of several millionn Ukrainians in Ukraine, according to a poll by the stateworking in Russia in jeopardy. owned VTsIOM pollster, despite the heavy state propaganda. Half said there was civil war in Ukraine's currency tanked again to new Ukraine, 17% genocide and the same amount historic low of UAH16.24 to the dollar on described the situation as anarchy. About a Tuesday, as violence flared again. The National quarter of Russians (26%) say that there is a Bank of Ukraine stopped market interventions "rather high probability" that Russia will launch in November to preserve the shrinking cash military activity in the region. Another 10% is reserves. The currency's value has been halved in "convinced that a war between the countries is the last year. already underway".

Eight out of ten (79%) Russians say their lives VTB Bank, Russia’s second largest bank by have been affected by sanctions, including 34% assets, filed on Monday a RUB50.2bn ($728mn) who said they experienced "serious problems”, lawsuit with the Moscow Commercial Court but seven out ten (69%) believe that the Kremlin against mining company Mechel, which has been policy in Ukraine is the right one, according to a tottering at the edge of bankruptcy, RAPSI reports survey by the independent Levada Centre pollster. from the courtroom. VTB Bank announced in late Only one in five (21%) think that Moscow should December 2014 that it was considering suing make concessions to Ukraine. A separate poll Mechel for about RUB47bn. found that inflation is currently Russian's top concern.

Russia is to liquidate one of its two gambling zones. The government will close the Azov-City gambling zone and then a new one will be built

The Regions This Week February 6, 2015

businessneweurope I Page 8

Eurasia Uzbekistan's growing working population presents a “window of opportunity for increased economic growth”, according to the World Bank.

It forecasts the country's labour force will grow by nearly 4mn people by 2030. This will reduce the dependency from 52% in 2010 to 46% in 2030, the bank suggests.

Uzbekistan has signed export contracts worth $130mn with European countries. This concerns raw cotton, semi-finished and finished textile and agricultural products. This marks a reversal in European policy to shy away from Uzbek cotton, the production of which involves child and forced labour.

Kyrgyzstan's economy will experience another setback in 2015 as gold production is expected to drop this year, while the crisis in Russia will dampen remittances, trade and domestic demand.

As result, growth is likely to decelerate to 1.7%, the IMF says.

The National Bank of Kyrgyzstan carried out four interventions worth $60.5mn to support the weakening Kyrgyz som in January. The som depreciated by 1.6% against the dollar in January and lost 19.5% in 2014. The National Bank carried out 45 interventions worth $511.75mn to support the som in 2014. This decreased its foreign reserves by 13% to $1.943bn in 2014 from $2.234bn in 2013.

Malaysian firm HOS International will start building a $400mn, 300MW Shurob thermal power plant in northern Tajikistan in 2015. The government granted the firm the public-private partnership project to develop the power plant and the nearby Shurob mine, from which the needed coal will be sourced, in October 2013.

Mongolian Prime Minister Chimed Saikhanbileg wants to amend the mining law envisaging the swap of state-owned stakes in the country’s strategic mines for higher royalties. The move

aims to overcome the current impasse hampering the development of the national flagship mine Oyu Tolgoi and revive flagging foreign investment.

Total foreign direct investment (FDI) in Mongolia fell to $644.3mn in 2014, down from $2.139bn in 2013. That marks the country's poorest FDI performance since 2009, when FDI amounted to $624mn. Its foreign reserves decreased by 26.6% y/y to $1.649.9bn in 2014.

Five-star hotel Preference Hualing will open up on the shorelines of Tbilisi Sea in May 2015. The hotel will be part of the Tbilisi Sea New City development, occupying 420ha of land. The project will be completed in 10 years, with $150mn invested in the first three years.

Azerbaijan has started military exercises amid growing tensions with neighbouring Armenia over the breakaway region of Nagorno-Karabakh. The manoeuvres, involving all units of the military forces, began on February 2 and involve 20,000 soldiers, 300 armoured vehicles, 200 missile launchers and artillery units and up to 20 military jets.

Georgia ranks fifth in the world in terms of books published per capita in 2014, according to the International Publishers Association. Britain tops the list with 184,000 titles, or 2,870 per million inhabitants. Taiwan and Slovenia with 1,831 titles per million people are closest to Britain's figure, followed by Spain (1,626), Georgia (1,547) and the Czech Republic (1,509). China and the US with 444,000 and 304,912 titles, respectively, are ranked 12th and China 25th in terms of titles per capita.

Kazakh prosecutors have fined ArcelorMittal Temirtau over cutting the pay of its smelter's personnel. It found the cut illegal and imposed a $3,200 fine on the company. In January it cut wages of local staff by 25% and foreign staff by 50%, citing financial problems it is currently facing due to low demand for its output. Prosecutors demand that ArcelorMittal restore the pay.

bne Chart February 6, 2015

businessneweurope I Page 9

Russians appear blasé toward sanctions A recent poll by Russia’s Levada Center has shown that Western sanctions left scarcely more of an impression on Russians than their New Year holidays did.

As the bne:Chart shows, when asked January 23-26 what they considered the most important event of the last month to be, 28% said that they believed it to be continued Western sanctions – only 4% more than said it was their New Year holiday or vacation.

The ongoing conflict in fighting in Eastern Ukraine and Donbass led the poll, with 66% of

respondents citing it as the most important event of the last month, while the collapse of the ruble registered 42%.

In fifth place was the continued decline in oil prices, which has seen the price of Brent crude plummet by more than half from its $110 per barrel high of 2014 to $55/b at the time of writing.

Were it not for the weakened ruble, this may have featured higher in the ranks, as the weakened currency has softened the blow of lower oil prices, which are dollar-denominated.

Eastern Europe February 6, 2015

businessneweurope I Page 10

Russian coal keeps UK household lights on as winter grips

Nick Kochan in London As winter grips the UK, a group of Russian coal companies with leaders closely linked to President Vladimir Putin are enabling British power companies to keep the country’s lights on – a precarious position as the sanctions rhetoric rises once again.

of the National Union of Mineworkers. “If Prime Minister David Cameron says he does not like what Russia’s doing in Ukraine, Putin can always turn round and say he’ll be sending Russian coal east not west this year,” he says.

Russian coal has the benefit of quality and geography, says Nigel Yaxley, managing director of the Association of UK Coal Importers. The proximity of Russian ports in Murmansk and the Baltic gives Russia an advantage over competing coal supplies from Colombia, the US and South Africa.

Three Russian firms, SUEK, KRU and SDS Coal, produce most of the imported coal to a country whose energy system is creaking. These firms export to the UK just under a $1.5bn worth of coal a year, according to Greenpeace. EU data show that the UK heads the list of European importers of Russian coal; it imports about 20mn tonnes of Russian coal each year, most of which is However, while the Western sanction lists do not bought by the six big power generators. name any individuals linked to coal companies, that could change: the big Russian coal companies Tony Lodge, a research fellow at the Londonimporting to the UK are all led by people with close based Centre for Policy Studies think-tank and ties to the Kremlin. the author of “Clean Coal – A Clean, Secure and Siberian Coal Energy Company (SUEK) – whose Affordable Alternative”, notes that while most of the talk is about Russian oil and gas, the UK has latest annual report notes the UK is now the company’s most important export market after “a real liking for Russian coal coming from the Baltic in summer or Archangel in winter. I know China, with 41% of “Atlantic” sales – has Andrey of traders who are looking to double their coal Melnichenko as its major shareholder and import contracts to the UK now. This is hard stuff. chairman. His companies are listed as strategic It’s about keeping the lights on.” enterprises in Russia, allowing them in some cases to rely on the support of public institutions At a time when the rhetoric on sanctions grows on a priority basis, and he is reported to be close to the inner circle of Putin. louder as the situation in Ukraine deteriorates, relying on growing quantities of Russian coal to bridge an energy shortfall is a dangerous position Melnichenko’s business empire had its origins in the purchase of MDM Bank in the mid-1990s, to be in, warns Chris Kitchen, general secretary

Eastern Europe February 6, 2015

but in the early 2000s he went on to acquire coal assets including SUEK and the nitrogen and phosphate fertilizer company EuroChem. A heavily publicised lawsuit with Shaft Sinkers, a contractor hired to drill a mining shaft, put it at odds with the trio of oligarchs who hold shares in Eurasian Natural Resources Corporation (ENRC), a major scandal-hit shareholder in Shaft Sinkers. This has caused EuroChem, and its founder, some embarrassment and expense.

businessneweurope I Page 11

companies with coal ready to take up the slack.

“This is a very flexible market,” he says.

However, even the most diehard proponents of sanctions on Russia cannot the escape the fact that it would be both costly and disruptive for the UK to sever imports of Russian coal. The Russian coal companies for their part have found a market that is an eager buyer of Russian coal. Declining demand from China is likely to push them further into the UK market.

Kuzbassrazrezugol (KRU) is majority-owned by a Russian copper company headed by Iskander Makhmudov called UGMK (also known as UMMC).

Coal may be a more flexible energy source than gas, but the UK shows no signs of taking up the available alternatives. The scale of imports are such About 15 years ago, Makhmudov brought in Andrei that customers would not be prepared to pay the Bokarev to run KRU. A measure of Bokarev’s higher costs that would result from importing coal achievement was the award of the Alexander Nevsky from further away. Nor would the government want prize for services to the Sochi Olympics in April 2014. to in an election year. For the moment, Russian This was seen as an indication that he falls within companies have a tight grip on the UK market and Putin’s circle of trusted industrial advisers. Bokarev, this is unlikely to loosen any time soon. who heads up Transmashholding, is involved as director, shareholder or board member in three March 26/27, different companies that have been placed under 2015 sanctions by the US, namely Kalashnikov, Rosneft Renaissance-Marriott Hotel, and Transoil.

Minsk Belarus

At the end of 2014, when announcing its thirdquarter results, KRU revealed that the company’s coal production had fallen 3% on year in JanuarySeptember 2014 to 32.58mn tonnes. This partly reflects the falling price of coal, which is down about 50% over the last two years.

Sibirskiy Delovoy Soyuz (SDS) – a subsidiary of the Siberian Business Union – produces more than 20mn tonnes of coal a year and is headed

by Vladimir Gridin and Mikhail Fedyaev, who are close associates of the Russian president. Gridin serves in the State Duma for Putin’s United Russia Party and is deputy chairman of the Transport Committee. Fedyaev's son Pavel became State Duma deputy for United Russia in 2011.

Yaxley of the Association of UK Coal Importers says that if there were a breach in Russian supply for whatever reason, there are plenty of

City Investment/ Development tour - March 28 Republic of Belarus:

Premier Partners:

Supporting Partners:

International Media Partner:

Venue Partner:

BRITISH - BELARUS

CHAMBER OF COMMERCE

www.NEEAwards.com For further information contact: Craig Smith / +48 604 144 769 / craig@europaproperty.om Mikhail Borkowskiy / +48 697 401 397 / russia@europaproperty.com

Eastern Europe February 6, 2015

businessneweurope I Page 12

Murdered Russian dissident Litvinenko’s deathbed interviews undermine police case

John Davison of Exaro Russian dissident Alexander Litvinenko gave interviews to police on his deathbed that undermine the official story of how he was killed.

Exaro, the investigative website and a sister publication of bne IntelliNews, reveals how Litvinenko gave an account to two detectives from Scotland Yard of how by chance he came to drink a few sips of green tea, which police believe was laced with radioactive polonium.

Putin, Russia’s president, was behind his poisoning.

The disclosures are set to be raised at the inquiry into Litvinenko’s death on February 3 when one of the two officers, Detective Inspector Brent Hyatt of the specialist-crime directorate of the Metropolitan Police Service, is due to give evidence.

Litvinenko told the two detectives how, after some Police say that Andrei Lugovoi and Dmitry Kovtun, last-minute arrangements, Lugovoi met him in working for Russian intelligence, met Litvinenko the lobby of the Millennium Hotel in Mayfair. just over eight years ago at a hotel bar in London’s According to police transcripts of the interviews, Mayfair to poison him with polonium-210, slipped the pair went into the bar on the ground floor and into the tea. sat at a corner table.

But Litvinenko, while in intensive care, described in his own words how the final meeting with his alleged murderers was a hit-and-miss, even casual, encounter rather than a carefully crafted assassination.

Litvinenko also told officers in his deathbed interviews that Lugovoi introduced him to his eight-year-old son – they even shook hands – after he had drunk the tea. His description of how Lugovoi encouraged his son to greet Litvinenko raises questions about the claim that the former had, just moments earlier, poisoned the latter with a highly radioactive substance.

Litvinenko did, though, tell officers that Vladimir

Lugovoi said that they had 10-15 minutes to talk about a meeting the next day before he would leave for a football match at Arsenal with his son.

Some small glasses, several mugs and a tea pot were on the table. A waiter approached, and Lugovoi asked Litvinenko whether he wanted anything.

Litvinenko said, no.

Litvinenko told police: “He said: ‘Okay, well, we’re going to leave now anyway, so there is still some tea left here. If you want to, you can have some.’

And then the waiter went away, or, I think, Andrei asked for a clean cup, and he brought it.

“He left, and I poured some tea out of the tea pot,

Eastern Europe February 6, 2015

although there was only a little left in the bottom and it made just half a cup.”

Litvinenko told officers that the green tea had no sugar and was already cold, so he did not like it.

“Maybe in total I swallowed three-to-four times. I haven’t even finished that cup,” he added.

businessneweurope I Page 13

Exaro revealed, in the preliminary stages of the inquiry, how Marina joined with Lugovoi, the police’s prime suspect and former KGB bodyguard, to battle for disclosure of sensitive files held by British intelligence agencies.

Kovtun joined them to discuss the next day’s meeting. No more tea was drunk.

The other officer, Detective Sergeant Chris Hoar, asked Litvinenko whether Lugovoi had insisted that he drunk the tea.

Litvinenko replied: “He said it like that, you know, ‘If you want something, order something for yourself, but we’re going to be leaving soon. If you want some tea then there is some left here, you can have some of this.’”

He added: “I could have ordered a drink myself but he kind of presented in such a way that it’s not really needed to order. I don’t like when people pay for me, but in such an expensive hotel, forgive me, I don’t have enough money to pay that."

Lugovoi left the meeting, then returned with his son.

Litvinenko, whose nickname was Sasha, recalled: “He said: ‘This is uncle Sasha, shake his hand.’ We shook hands, and he left.”

Marina, Litvinenko’s widow, is due to give evidence on February 2 at the inquiry. She says that at the time of his death her husband was carrying out work for the British Secret Intelligence Service, better known as MI6.

Litvinenko, a KGB officer who turned Kremlin critic, later claimed asylum in the UK. Diamond Sponsor

Lugovoi and Kovtun deny any responsibility for Litvinenko’s death. Russia also denies any role, and has refused to extradite the pair.

Silver Sponsor

Eurasia February 6, 2015

businessneweurope I Page 14

Uzbek government unveils ambitious privatisation plan Jacopo Dettoni in Almaty The Uzbek government has launched an ambitious privatisation plan aiming at opening up one of the world’s most rigid economies, but there is little sign that things will turn out any different from the series of unsuccessful sell-off plans announced in recent years.

“The Uzbek government has been unveiling privatisation plans nearly every year in the past decade but the anticipated large inflow of private capital has yet to happen,” Lilit Gevorgyan, Russia and CIS analyst at HIS Global Insight, told bne IntelliNews.

This time authorities plan to auction off about 1,000 state-owned facilities in order to reduce the number of enterprises with state involvement from 534 to 147 over the next two years. The government also plans to reduce state stakes to 51% in 203 existing enterprises by issuing additional shares to the tune of UZS450bn (nearly $185mn at the official exchange rate).

A number of similar plans were announced in recent years, reportedly resulting in the sale of some profitable state assets to quasi-private local firms, but failing to lure international investors.

“The new plans of privatisation are unlikely to break away from the already set trend of failing to attract investors,” Gevorgyan said. “There are longstanding issues, such as the difficult business environment and the absence of a level playing field for all economic actors. These problems have been accentuated by corruption scandals involving large foreign companies as well as the troubles of the Russian telecommunications firm MTS in recent years.”

local and international investors. The country ranks 149th out of a total of 185 countries for ease of doing business, according to World Bank figures. At the same time, Uzbekistan features at the bottom of the 2015 economic freedom ranking produced by the Heritage Foundation – 160th out of 178 countries. Uzbekistan’s total FDI was $1,077mn in 2013, well below other neighbouring, resourceright countries such as Kazakhstan ($9.739mn) and Turkmenistan ($3,061mn), another champion of the state-dominated economic model in the region, according to figures from the United Nations Conference on Trade and Development (UNCTAD).

Yet the local economy is showing some economic dynamism. Largely supported by public investments, annual GDP growth was 8.1% in 2014, basically stable from 2013, at least according to official government figures. The country has large potential for hydrocarbons, minerals, cotton and textile. Besides, its young and growing working population presents a “window of opportunity for increased economic growth”, as highlighted by the World Bank in a report published on February 2.

However, “despite sustained rapid growth on the back of high commodity prices and relative stability, the underlying foundations of Uzbekistan’s economy are weak,” according to the Heritage Foundation’s 2015 Economic Freedom report. “The rule of law is weakly enforced, a holdover from the Soviet past. Investment is restricted in many industries, and financial markets are shallow, preventing the capital accumulation necessary for sustained growth. The state-owned banks and industries tend to respond to the government’s political priorities.”

Uzbekistan’s highly centralised economy has a poor Some international investors familiar with doing track record in terms of attracting purely private business in emerging, risky countries are still

Eurasia February 6, 2015

trying to tap Uzbekistan’s potential, mostly in high-yielding sectors. Chinese state oil firm China National Petroleum Corporation (CNPC) is investing $800mn alone in the Uzbez stretch of the fourth Central Asia-China gas pipeline. Back in 2011, Chinese authorities pledged to invest some $5bn in the development of local infrastructure and the mining sector.

A group of South Korean companies is investing up to $3.9bn in the development of the Ustyurt gas chemical complex in the western autonomous Karakalpakstan region. Global firms such as Gazprom and Rio Tinto are actively investing in the country to tap its recognized potential for hydrocarbons and minerals.

businessneweurope I Page 15

country’s long-term future. If the population’s young average age will add an edge to the local job market in the coming years, an ageing elite casts a shadow of uncertainty over the future. Most notably, Karimov, who has run the country since its independence in December 1991, turned 77 on January 30. He is braced to run and win a new term in the presidential elections slated for March, but a succession strategy still appears up in the air. As long as doubts over Karimov’s successor are not cleared, long-term investment thinking will be difficult.

“There are assurance by Uzbekistan’s authorities for great business opportunities for foreign investors, but little light is shed on overall economic policy direction in the next decade […]

The telecommunications sector also attracted Also whilst the leadership change is increasingly several foreign investors, but rather than paving inevitable, there is little expectation of dramatic the way for other foreign investment to come economic policy change as the current highly though, they damaged the country’s image as they centralised political system with a converged became embroiled in big corruption scandals. business and political elite at the top is unlikely to Besides, foreign investors lack visibility on the change anytime soon,” Gevorgyan said.

Mongolian text message referendum flops

Terrence Edwards in Ulaanbaatar Simon Cowell and Mongolia both cheered when a deal was made last year to bring the Got Talent TV show to the formerly remote Soviet satellite.

But Mongolian voters were less than enthused when Mongolia's new prime minister, Chimed Saikhanbileg, took a page from Cowell's book by asking citizens to take to their phones to vote how they think he should run the country.

Only 10.3% of the 3.3 million mobile phone subscribers bothered to respond. The poor turnout may be a sign of cynicism among voters who have turned out in high numbers for official elections – even though those figures too are steadily declining. Some 74% of voters went at the polls for the 2008 parliamentary elections and 65% in 2012, compared with 98% for the first election in 1990.

Eurasia February 6, 2015

businessneweurope I Page 16

In the vote, Monglolians chose the less painful option of reinvigorating the mining sector vs more budget cuts. Mongolia is attempting to recover from an 85% collapse in foreign investment between 2013 and 2014, according to Independent Mongolian Metals & Mining Research. The vote gives Saikhanbileg guidance on how his government should act to survive what looks to be another difficult year for foreign investment and economic growth.

growth in 2011 compared with an expectation for around 7% this year (the Mongolian government has not yet released the necessary data for a concrete statistic). Although Mongolia has repealed laws that deterred investing, a dispute with diversified miner Rio Tinto over the Oyu Tolgoi mine lingers on and has put a drag on investment.

Oyu Tolgoi is one of the biggest mines for copper in the world and the country's largest mine outright.

Referendum participants who responded by texting “1”, voted for government to work with private partners to get the country's largest mining projects growing again. That includes launching work on a $5.4bn expansion project for the Oyu Tolgoi copper mine. The second option rejected that path, instead calling for budget cuts and savings.

Rio Tinto owns 66 percent of Oyu Tolgoi through its majority owned subsidiary Turquoise Hill Resources, while the government owns the remaining 34%.

Oyu Tolgoi missed a fourth deadline in two years on December 31 for a $4bn project financing package to fund construction of a underground mining network that is needed to extract most The low turnout, however, made the vote virtually of the resources there. The project financing is irrelevant. considered one of the largest in the world and is paid for by institutions such as the World “It's a text message. It's so unworthy of this,” said Bank's International Finance Corporation and Zoldelger Khulan, a 23-year-old who works in the European Bank for Reconstruction and marketing. “I'm not relying on it, that's why I didn't Development. vote.”

The lenders need to see some resolution to the The vote also favoured people wealthy enough to dispute with the government before they can lend, own multiple mobiles, who are also more likely to however. vote in favor of building the mining sector back up.

Erdene Lkhagva, one of the producers that is “I don't think he actually conducted this survey bringing Got Talent to the Mongol TV network, said to really get public opinion,” said Gan-Erdene they were still trying to figure out how they will Tsendmaa, a 26-year-old office manager, about implement their own voting system and prevent Saikhanbileg's plan. “He just needed support for tampering. He, too, wondered about the veracity doing something confidently, but lots of people of the government poll. are really sceptical about what he's doing and how he'll improve the economy.”

“We haven't figured it out yet on Got Talent, but I am very skeptical on the SMS poll,” he The economic downturn that prompted the said. “These kind of impromptu involuntary poll referendum is largely an effect of troubles in sampling will only get the responses from the the mining sector, which drove 17.5% economic crazies and most radical.”

Central Europe February 6, 2015

businessneweurope I Page 17

Orban and Merkel clash over 'illiberal democracy'

bne IntelliNews Chancellor Angela Merkel attempted to shore up Hungary's wavering support for the European Union's stance towards Russia during a half-day visit to Budapest on February 2, but also criticised Prime Minister Viktor Orban's increasingly authoritarian rule.

Facing the media after more than an hour of talks, both leaders firmly ruled out supporting any military solution to the conflict raging in the more distant regions of Hungary's eastern neighbour. "Germany does not support a military solution, it is not possible," Merkel answered in response to a journalist's question. Orban's response was a curt "No!" Speaking of the conflict in Ukraine, he stressed that "200,000 [ethnic] Hungarians" live in the country, and Hungary was dependent on the gas transmission pipelines across its territory.

"Both homes and industry are dependent on gas: our reliance in this respect is much greater than that of Germany, ... and our gas supply contract expires this year. This is the biggest problem of the year, and must be solved, or households and industry won't function," Orban said. The Hungarian premier has been lukewarm in his backing for sanctions on Russia and has strengthened his country's energy dependence on Russia.

The chancellor noted that Germany itself relied on Russia for 30% of its gas, but she welcomed and supported Hungary's need to diversify supplies,

while stressing the importance of Hungary's reverse gas flow facility to supply gas to Ukraine.

Flanked by tricolours of their respective nations - EU flags were noticeably absent - Orban welcomed "not just the German, but a European leader", insisting that Hungary had "finished its homework set in 2010" by setting its economy to rights, and was grateful for the considerable help from German investment on the way.

"Some 6,000 German companies provide 300,000 workplaces directly in Hungary," while hitting a 22-year record in terms of employment, Orban said.

Merkel, after praising Hungary for its "milestone" role in opening its borders in 1989, along with its economic progress, emphasised the need for predictable conditions for investment, in a clear reference to Orban's populist measures against foreign banks, utilities, telecoms and retailers.

She underlined that "loyal investors" were the result of a "stable and predictable" environment.

Most controversially, she strongly hinted that all was not well with democracy, the role of civil society and the rule of law in Hungary, clearly pointing to concerns about Orban's governance since taking power in elections in 2010. Merkel's CDU is joined with Orban's Fidesz in the European People's Party in the European Parliament, and has been conspicuously silent on this issue up to now.

"Even with as large a majority as the Hungarian

Central Europe February 6, 2015

prime minister has, it is important to see the role of the opposition, civil society and media. This is [the case] in Germany, and Hungary should follow this kind of model," she said.

Responding to a question on the meaning of "illiberal democracy", a phrase used by Orban, Merkel said she was flummoxed that the two words went together, and appeared shocked at Orban's retort that "not every democracy is liberal".

businessneweurope I Page 18

Jozsef Tobias, the Socialist party president, said in a statement that Merkel and Hungary's leftwing had "identical opinions" on democracy, while Orban had again rejected a social system built on basic human rights.

Orban should take note of Merkel, said Bernadett Szel, of the green LMP, because his take on "illiberal democracy" was not universally accepted.

But Peter Kreko, an analyst with Political Capital, a Budapest think tank, played down concerns about Hungary's internal political problems, saying the primary reason for the visit was the need for a common stance on Russia and its aggression in Ukraine.

Merkel said democracy, and her CDU party was based on liberalism. Germany and her party, the CDU "have three roots: Christianity, socialliberalism and conservativism. This is what makes "It was a pretty tense press conference, especially us a people's party," she said. at the end, with quite some disagreement, .. but the most important point for her visit is the To this, Orban responded with: "The Hungarian Russian-Ukrainian situation, and Merkel is trying point of view, my point of view, and I always hold to this, is that not every democracy is necessarily to guarantee that no member state will veto a decision on the sanctions in the future," Kreko liberal. If somebody wants to say that democracy has to be liberal, then he is demanding a privilege told bne IntelliNews. for a certain ideology, which we cannot give," he said.

He said it was certain that issues with German companies hit by Orban's erratic legislative decisions - including the heavy taxes levied on As the website index.hu commented, Merkel's companies in energy, telecoms and media - "were face in reaction to that comment probably meant on the table, behind closed doors", during the it was a good idea to end the press conference at discussions, but "by far" the most important issue that point. was how to deal with Russia.

While the government side played down the rift, "Merkel wants Orban to present the minimum stressing the successes of German-Hungarian cooperation, opposition politicans pointed to the needed, and this is not to break the consensus [in the European Union," Kreko said. differences as evidence that Germany, like the United States, had deep concerns about the state of Hungary's democracy under Orban.

Central Europe February 6, 2015

businessneweurope I Page 19

Chevron hammers another nail into Polish shale gas coffin

Tim Gosling in Prague Chevron announced on January 31 that it is to quit its hunt for Polish shale gas. The last but one energy major to traipse out of the country, the US giant looks to have put the final nail in the coffin of Warsaw's dreams of leveraging its shale reserves to transform regional gas markets.

Mirroring moves by other US majors over the past couple of years, Chevron Polska said it will give up its licences in Poland due to failure to produce commercial flows. "The opportunities here no longer compete favorably with other opportunities in Chevron's global portfolio," the company said in a statement.

Like its peers, Chevron has been hit by falling global gas prices. The company shut shale gas operations in Lithuania last year, and it's operations in Romania and Ukraine look uncertain. The recent plummet in oil prices is putting pressure on investment across the sector.

ConocoPhillips remains the last energy major hunting shale in Poland.

Chevron's exit will hugely disappoint Warsaw. A Polish energy conference last month appeared to agree it was "a funeral ceremony for shale gas".

"There is a question of whether we have to freeze the whole idea," added Boguslaw Sonik, a former member of the European Parliament for Poland's ruling Civic Platform party.

Chevron had been standing tall in Poland despite the exit of most other energy majors that crowded into the country in 2010 on the back of estimates of massive unconventional deposits. Seized with enthusiasm, the government was soon eulogizing

about a future game changing role on European gas markets.

However, enthusiasm soon waned as reserve estimates were slashed and test drilling disappointed. Exxon Mobil, Total and Marathon Oil have all halted shale gas exploration in Poland over the past three years.

A confused government strategy has hardly helped either. Long delays on producing clear regulations and a tax regime infuriated potential investors.

Following the first wave of exits, Warsaw shunned foreign investors, and turned to put the country's state-controlled energy utilities into harness to explore for shale gas.

However, concurrent demands for huge investment in new power capacity made that a struggle. Warsaw turned on the charm to try to tempt the international players back in 2014, but the continued absence of commercial flows means interest has been muted.

Chevron signed a JV with state gas company PGNiG in March. While the pair insisted that they were clubbing together in order to accelerate the hunt, the move always smacked of desperation in the face of the difficult geology.

Environment Minister Maciej Grabowski was drafted in to spearhead a renewed push for foreign experience with drilling for shale gas and cash, which essentially means from the US. However, exploration concessions continue to retreat, dropping to only 56 from a high of 115 in 2012.

Southeast Europe February 6, 2015

businessneweurope I Page 20

Macedonian opposition leader charged with coup attempt

bne IntelliNews Macedonian opposition leader Zoran Zaev was charged on January 31 with plotting to overthrow the government after he threatened to release taped conversations he claims will discredit Prime Minister Nikola Gruevski’s administration.

Zaev, the leader of Macedonia’s main opposition party, the centre-left Social Democratic Union of Macedonia (SDSM), and three others including former intelligence chief Zoran Verusevski were charged with "espionage" and "violence against representatives of the highest state authorities”.

Zaev has since been released after surrendering his passport, but Verusevski, his wife and a local official from Strumica, an east Macedonian town where Zaev is mayor, remain in police custody.

The Macedonian interior ministry confirmed on January 31 that it had prevented a coup attempt.

“For the first time in the history of independent Macedonia [the authorities had uncovered an] attempt to endanger the constitutional order and undemocratic takeover or suspension of the will of the citizens,” the ministry said.

compromising material from taped telephone conversations unless Gruevski agreed to the establishment of a technocratic government.

Opposition leaders have been calling for Gruevski to step down and a technocratic government to be put in place pending snap elections ever since Macedonia’s April 2014 parliamentary elections.

The SDSM claims the elections, which resulted in a victory for Gruevski’s VMRO-DPMNE party, were rigged. Most SDSM MPs have boycotted the parliament since the election.

Zaev told the prime minister that he had obtained recorded conversations of Gruevski and other top government officials in cooperation with an unnamed foreign intelligence service.

“He told me about parts of the conversations, some of which were authentic, others partially true, and some incorrect... Even though the conversations were not entirely accurate, the fact that some of them were, showed the seriousness of the situation," Gruevski told journalists.

According to Macedonian news agency MIA, for On January 26 local media reported that Verusevski several months Zaev and other SDSM leaders had been detained for possession of child have claimed to hold files - dubbed “the bomb” pornography and illegal weapons. However, it now - that they say could bring down Gruevski’s appears his arrest was in connection to the alleged government. coup attempt.

Gruevski is one of several South East European Gruevski told a press conference on January leaders, along with Hungarian Prime Minister 31 that he had held four meetings with Zaev Victor Orban and Turkish President Recep Tayyip between September and November 2014, during Erdogan, to be accused of “Putinisation” as they which the opposition leader threatened to publish tighten their grip on power.

Southeast Europe February 6, 2015

The 2014 presidential and parliamentary elections were a double victory for VMRO-DPMNE, which is the senior partner in Macedonia’s ruling coalition, alongside the ethnic Albanian Democratic Union for Integration. The vote, which gave VMRO-DPMNE a clear lead over Zaev’s SDSM, enabled Gruevski to return to office for a fourth term.

Freedom House has reported a fall in political freedom in Macedonia. The latest Freedom in the World report, released by the NGO in January, rates Macedonia as only “partly free”, while most European countries are considered “free”. On a scale of 1 (highest) to 5 (lowest), “Macedonia’s political rights rating declined from 3 to 4 due to serious shortcomings in the April general elections and a related legislative boycott by the opposition", the report says.

At the same time, VMRO–DPMNE has taken an increasingly conservative stance on social issues. In January, the parliament approved a constitutional amendment banning gay marriage. This follows the rushed adoption of a controversial abortion law at a parliamentary session in 2013. Most opposition members boycotted both votes.

Zaev’s arrest has caused concern among international observers, who fear potential unrest or at least an increase in tensions within Macedonia’s already troubled political

businessneweurope I Page 21

environment.

A January 31 statement from the European Union calls for “an independent and transparent investigation ... with full respect of the rights of the defendants in accordance with the law and international standards, including the principle of presumption of innocence.

“The EU also reiterates its concern about the deterioration in political dialogue in the country.

Political parties must refrain from actions which would further undermine the situation,” it adds.

Meanwhile, a January 31 statement from the Russian foreign ministry says it hopes that a thorough investigation will be carried out “in order to ensure stability and security in Macedonia”.

“Loosening of the situation in friendly Macedonia may cause the danger of exacerbation of existing ethnic tensions,” the statement warns.

Ethnically fuelled protests are a frequent occurrence in Macedonia. The latest threat to stability came in July and August 2014, when violent protests broke out in Skopje and other Macedonian towns after six ethnic Albanians were sentenced in connection to the executionstyle killings of five ethnic Macedonian fishermen in 2012.

Southeast Europe February 6, 2015

businessneweurope I Page 22

Kosovo considers debt write-off

Clare Nuttall in Bucharest The Kosovan government is considering following the examples of Croatia and Macedonia in launching a debt write-off. The move, which would apply to debts dating from before independence in 2008, appears to be an attempt to soothe growing tensions within the country.

The government agreed on February 5 to set up an executive commission to review the possibility of forgiving debts incurred before December 31, 2008. As well as individuals, the commission will consider writing off the debts of companies, including state-owned enterprises, and state institutions.

"We will also consider that after 31 December 2008, to review the possibility to forgive the penalties and interest on debts that citizens and businesses have not paid during this period, in order to have a new beginning, of doing business and better life in the Republic of Kosovo," Hoti added.

The move comes at a time of heightened tensions within Kosovo, which in late January saw the worst unrest since independence. This has put pressure on Kosovo’s new government, which took office in December, following six months of political deadlock. Three opposition parties had expected to form part of the new government 2008 is the year when Kosovo, which broke away alongside Mustafa’s Democratic League of Kosovo from Serbia after a war of independence in 1998- (LDK). However, in an attempt to break the 1999, became independent. So far the country has deadlock, the LDK instead struck a coalition deal been recognised by 108 countries worldwide, but with the Democratic Party of Kosovo, which has Serbia remains adamant it will not recognise its been in power since independence. former province.

Mass protests took place in Pristina on January 24 Preliminary estimates of debts to government and 27, with violent clashes breaking out between agencies and utilities companies will be drawn up protesters and police. Police were attacked within a month, a government statement said. with rocks and Molotov cocktails on January 27, according to a government statement, and “We see that it is necessary to have a fresh start newswires reported that at least 37 people were now with the new government, to leave the past, injured. and to deal with the future," said Finance Minister Avdullah Hoti told journalists after the government Protesters demanded the sacking of Aleksandar meeting.

Jablanovic, one of three ethnic Serb ministers

Southeast Europe February 6, 2015

in the Kosovan government. Jablanovic angered many Kosovans when he slammed a group of Albanians who tried to stop Serb pilgrims visiting a monastery during Orthodox Christmas as “savages”.

businessneweurope I Page 23

by its poorest citizens. Debts of up to HRK35,000 will be written off for social security recipients and low-income households earning less than HRK1,250 a month. Property owners and those with savings will not be eligible for the debt write off. Around 60,000 Croatians are expected to On February 3, Prime Minister Isa Mustafa benefit from the move, adopted in advance of announced that Jablanovic had been removed parliamentary elections towards the end of this from the post of communities minister, promoting year, with creditors footing the bill. opposition leaders to call off the protest planned for the following day.

The write off applies to bank debts as well as outstanding debts to state-utilities companies While Jablanovic’s sacking has pleased many and state broadcaster HRT. Creditors including Kosovans, it has angered the country’s Serb banks, utilities, telecoms companies and several municipal governments have signed agreements minority. Fellow Serbian ministers within the Kosovan government have threatened to withdraw with the governments to write off money owed in solidarity. Members of the Serb list were not

by Croatia’s poorest citizens. On January 28, present at the February 5 parliamentary session. the government also decided to include the tax administration in the write-off scheme.

Tensions also increased in mid-January as the parliament prepared to vote on a new law on As in Kosovo, there was a compelling political motive for the Croatian debt write-off. public enterprises, which would have paved the way for Pristina to take over the giant Trepca Parliamentary elections are due to take place in Mining, Metallurgical and Chemical Combine, on November 19. The move was fiercely opposed Croatia at the end of this year, and the defeat of its

by Kosovan Serbs as well as the Serbian candidate, incumbent Ivo Josipovic, in the recent government, which also claims ownership of presidential elections has put the ruling Social the Trepca complex. Prime Minister Isa Mustafa Democrat party on the defensive. The party is backed down at the last minute, informing the now looking for ways to rally support and take the parliament on the day of the vote that the draft law focus off the country’s six-year recession. had been removed from the agenda.

By contrast, in Macedonia, the first country in the While the recent clashes had an obvious region to carry out a debt write-off, the VMRO– ethnic motivation, poverty, corruption and DPMNE had recently won a double victory in the high unemployment are is also at the root of April presidential and parliamentary elections. the unrest in Kosovo, one of Europe’s poorest Nonetheless, in September Skopje launched its countries. According to the UN, around 30% programme to write off the debts of the country’s of the population were living in poverty as of poorest citizens after striking agreements with banks and major companies including state November 2014. television broadcaster MRT. Vulnerable citizens Pristina’s consideration of a debt-write off follows including the disabled, long-term unemployed steps in two other former Yugoslavian countries to and recent widows and widowers were eligible lift the debt burden from vulnerable citizens. for the debt write off.

On February 2, Croatia launched a scheme to write off around HKR2.1bn (¤273mn) of debt owed

Opinion February 6, 2015

businessneweurope I Page 24

MOSCOW BLOG:

Ukraine home truths

Ben Aris in Moscow There is talk that the US is seriously considering sending "defence weapons" to Ukraine, as the fighting escalates and President Francois Hollande and Chancellor Angela Merkel head to Moscow for a last ditch attempt to resuscitate the Minsk ceasefire agreement. We are sliding towards a full-scale war in Ukraine that could spill out and engulf other countries in Europe.

other and any equipment that gives an advantage to one side will lead to more deaths. Furthermore, amongst the "defensive weapons" on the proposed shopping lists are US-made armour piercing Javelin rockets, a shoulder-mounted antitank missile system that will look pretty offensive to anyone on the receiving end.

Even if the US sends this materiel to Ukraine it Its time to face some hard truths about the won't end the fighting; as the very term "defence" situation in Ukraine, and relations between Russia implies, it will prolong it and ultimately lead to and the West. yet more bloodshed. President Vladimir Putin is guaranteed to meet any improvement in the The first is the talk of arming Ukraine is not Ukrainian army's weaponry with increased necessary. We take it as axiomatic that if the supplies of better and heavier Russian arms and more regular Russian soldiers on the ground. answer to the question "Is it conceivable that the current clash can be resolved by diplomatic Another obvious truth is that the Ukrainian army means?" is "yes", then military options should remain nothing more than a threat, and no action is incapable of defeating the rebels in the face of should be taken. (as is increasingly obvious) Russia supplies and regular Russian troops (estimates run between The Kremlin was signalling before the Christmas 1,000 and 9,000 fighting in East Ukraine). Ukraine holidays that it was open to talks but this offer was has been an economic basket case for 20 years not taken up. The West mistrusts the Kremlin, and its army is in a terrible state, whereas Russia with plenty of justification, and has been taking has been actively rearming for at least three years an increasingly hard line. But as Eric Berglof, and its army was in better shape to begin with. former chief economist at the European Bank Moreover, Russia's army is at least 10 times the size of Ukraine’s, so no amount of "defensive" for Reconstruction and Development, said at the recent bne IntelliNews debate: "We should be weapons will undo these advantages. concentrating our efforts on finding a way to walk this conflict backwards." And that is not happening. The government in Kyiv has said that it will increase defence spending to 5% of GDP to create Secondly isn’t "defence weapons" just a piece of "the best army in Europe" and has already spent rhetoric designed to make the supplier of these at least $1bn on military equipment. This ambition weapons feel good about themselves? While better is a fantasy: it is twice what any European country radar and secure communication gear don’t kill is spending and more than both the US and people directly, armies are in the field to kill each Russia spend.

Opinion February 6, 2015

And that is before considering the fact that the country is all but bankrupt, is struggling to meet social spending needs, must cut gas subsidies according to the deal with the IMF, and desperately needs investment into almost every corner of the economy. Ukraine can't ramp up spending on its military, let alone devote 5% of GDP to defence spending.

The Ukrainian government is already facing deep public discontent. On February 3 hundreds of protestors gathered outside the presidential palace in Kyiv waiving a symbolic call-up card and demanding the resignation of Ukrainian President Petro Poroshenko. These young Ukrainians don’t want to go to the east to fight the Russians. The Western reporting of the conflict is all in "them and us" terms: Ukraine vs Russia. But there is no unity amongst the Ukrainians themselves; the latest polls show more Ukrainians are unhappy with the performance of the new government than are pleased with it.

The young government is being put in an impossible position. It is draining away resources into a military conflict it can neither win nor afford, calling on its people to serve, although a significant proportion of them don’t want to fight.

Moreover, the government is burning up political capital it needs, as it will have to impose painful austerity under the terms of the IMF programme on people who are already seeing their quality of life deteriorate.

If the West is serious about protecting Ukraine from Russian aggression and clearing the Donbass of separatist rebels, then the obvious solution is the US or Nato has to send in troops.

However, that is off the table; no Western democracy will risk a European war (although the command at Nato might) as no Western country could sustain a long fight.

Yet sabre-rattling on both sides risks leading to an accidental escalation to conflict. Russia has already stepped up air and sea incursions into or close to Nato territory. In 2014 Nato aircraft intercepted Russian planes more than 400 times,

businessneweurope I Page 25

three times as many as in 2013. On 28 January UK Eurofighter Typhoons and French Dassault Mirage jets even intercepted Russian bombers over the English Channel.

For its part Nato has already stationed more air and ground forces in the three small Baltic states to bolster their defences. On February 5 it agreed to increase forces substantially in Poland and Romania, and set up command units, staffed with national and Nato soldiers, in Poland, Romania, Bulgaria, Latvia, Lithuania and Estonia as part of a new strategy in response to the Ukraine crisis.

Heavy Western armament in Ukraine itself may require Western ‘advisers’ to show it should be operated. It is not hard to see how those advisers could become embroiled in the conflict, pushing the West and Russia closer to global war.

With no alternative to sanctions and frustrated by the current efforts to deter Putin or improve the situation on the ground in the Donbass, the west is slowly sliding towards increasing military pressure as there is little else it can do.

Russian President Vladimir Putin holds several trump cards in this conflict. He knows the West won't attack and Ukraine can't win so he can keep the Donbass unstable for as long as he likes. He knows there is dissent amongst the long-suffering Ukrainian population that will boil up if he only spins the conflict out. He doesn’t need to formally invade or occupy the territory, which could precipitate a real war with the West if he did.

So if the West won't fight what can it do? Actually it can do nothing other than negotiate for a deal. But the West can't be seen to do nothing, so sanctions have been imposed, which are as much about being seen to act by domestic voters as they are about punishing Russia. Sanctions have a utility as they act as bargaining chips, but as a diplomatic tool designed to bring an end to the conflict in its own right, sanctions are more than useless – they are in several ways actually counter-productive.

If the goal of sanctions is to force the Kremlin to

Opinion February 6, 2015

back down over Ukraine and withdraw military support for the rebels, then numerous studies have shown that sanctions are an ineffective tool when it comes to forcing policy changes. If anything they force leaders to dig in and generate support from the population for a harder line, as all the recent polls in Russia show is happening there.

If the goal of sanctions is to reverse the prosperity in Russia, undermine Putin's popularity and ferment either a coloured revolution or a palace coup, then this is simply naïve. The impact of sanctions on domestic politics has been to destroy the nascent opposition by making it totally irrelevant, and to make the elite close ranks around Putin at a time when the slowing economy made him vulnerable for the first time in his 14 years at the helm.

businessneweurope I Page 26

half of Tajikistan's GDP is made up of Russianbased remittances.

Thirdly, thanks to Russia's large currency reserves, low external debt and triple surplus of trade, current account and federal budget, it can weather a lot of economic pain – the current thinking is reserves will be enough for at least two years and possibility longer. Moreover, the Kremlin is as unlikely to cave into financial sanctions as it is to economic sanctions, as both are seen as bullying, and Putin will take it down to the wire, risking a full economic crisis rather than give in.

An economic collapse of Russia would be bad news for everyone on the Continent.

The only way to end the conflict and stop the inevitable escalation in bloodshed is to go back to If the goal of sanctions is to punish Russia the negotiating table. The West needs to concede that Russia today is not the same as Russia in economically and push it to the edge of an economic crisis, again forcing Putin to back down, 1991 or even Russia in 2000, but has emerged as a then they are unlikely to work. So far, despite the major European power and has its own interests it double whammy of sanctions coming on top of the is determined to protect. The concessions Putin is fortuitous (from the West's point of view) collapse of asking for should not be hard to accept. the oil price, the Kremlin has made no concessions whatsoever, but it has responded in kind with a The Kremlin has asked for "100% guarantee" that Ukraine does not join Nato, and western leaders painful ban on European agricultural goods. have already conceded that Nato membership is not and never was on the cards. Merkel’s Undermining Russia's economy is a very dangerous game to play. First, because Russia's government was visibly alarmed by Poroshenko’s economy is increasingly integrated with the rest plan to hold a referendum on Ukraine joining Nato, of Europe and, as the second largest retail market seeing it as a dead end that would only inflame in Europe, a Russian slowdown inflicts economic tensions with Russia. France is also against pain on the rest of Europe at a time when allowing Ukraine into Nato.

Europe's economies are so sick the ECB has been The Kremlin has said that any Ukraine-EU trade forced to launch its own quantitative easing. deal needs to be a three-way discussion that takes Second, because Russia is so big it has become Russia's interests into account; Merkel has already an investment node in the region and to bring conceded that a trade deal between the EU and the Russia's economy down would be to bring down Eurasian Economic Union (EEU) is achievable. the economies of the entire Commonwealth of Independent States (CIS). The main channels are So a diplomatic deal is still possible. The problem is both sides are in a game of diplomatic chicken through trade, banking and massive remittances of guest workers – including millions of Ukrainians and so far no one is reaching for the steering – sending their wages home. In per capital wheel. The chances of a head on collision are terms pay in Russia ($24,114 in 2013) is just under rising fast as the road separating the West and three times higher than that in Kyiv ($8,790) and Russia is running out.

Survey February 6, 2015

businessneweurope I Page 27

CAPITAL MARKETS SURVEY:

2014 in CEE/CIS proves rich in risk, relatively poor in rewards Guy Norton in Zagreb 2014 proved to be an extremely testing one for issuers, lead managers and investors in the Central and Eastern Europe/Commonwealth of Independent States (CEE/CIS) region, dominated as it was by the political-economic fallout from the bitter standoff between the US and Europe on the one side and Russia on the other side over the bloody events in Ukraine. Add in one-off fears about the general health of the global economy, the plummeting price of oil, uncertainty over the continued use of quantitative easing and renewed concerns over the fate of the embattled Greek economy, and the capital markets environment in 2014 ultimately proved to be as challenging as when the credit crunch and associated global economic slowdown hit home in 2008-2009.

As such issuers, lead managers and investors in CEE/CIS had to have their wits about them if they were to be successful. Arguably a crystal balllike ability to read which way the political winds were blowing and having nerves of steel proved to be every bit as important as having a strong credit story to tell when it came to capital markets success.

to proceed with a deal, which although it just failed to achieve the landmark issue volume of $1bn, did nevertheless actually make it to market, which a great number of mooted Russian issues singularly failed to do.

Although the share issue that valued the company at $4.3bn was priced at the lower end of the Lenta's indicative price range of $9.511.5 per global depository receipt, the deal nevertheless reaped a decent return for the selling shareholders – private equity groups TPG Capital and VTB Capital, alongside the European Bank for Reconstruction and Development (EBRD).

And although for most of the year the issuance environment for Russian equity issuers proved to be less than ideal, Russian stock market operator Micex and Qiwi, the operator of Russia’s largest instant payment system, both managed to launch sizeable additional share offerings in 2014 following on from the success of their IPOs in 2013.

Elsewhere, new issue activity was fairly limited.

However, Georgia’s TBC Bank capitalised on the good reputation of the Georgian banking sector Nowhere was that more true than in the equity markets, where the decision to press ahead with to join Bank of Georgia on the London Stock Exchange with a deal worth $256mn. And after a a landmark initial public offering (IPO) at a time of rising chaos in Ukraine paid off for the selling number of botched privatisation sales, Romanian shareholders in Russian supermarket chain power company Electrica’s IPO on the London Lenta, which yielded the largest equity market and Bucharest bourses proved a highlight from issue of the year from the region. On the basis a country which also spawned follow-on issues that fortune favours the brave, bookrunners Credit by real estate developer New Europe Property Suisse, JPMorgan, VTB Capital, Deutsche Bank Investments and energy company Romgaz. Finally, and UBS were arguably vindicated in their decision towards the end of the year insurer AvivaSa

Survey February 6, 2015

Emeklilik ve Hayat provided some welcome diversification with a relatively rare IPO from Turkey.

Overall, though, 2014 proved to be a disappointing year on the equity front, principally due to the cancellation of a large number of potential deals from Russia, and the prime issue this year will be whether those offerings can be resurrected if sentiment towards Russia improves.

Sentiment in the syndicated loan market in 2014 remained relatively robust for entities from CEE/ CIS, with a wide range of borrowers from the region able to secure jumbo-sized transactions.

Although with the honourable exception of mobile operator VimpelCom, sizeable syndicated loans from Russia were notable by their absence, but borrowers from other countries tasted success.

Sovereigns Bulgaria and Turkmenistan took advantage of improving sentiment towards them to launch landmark deals, while well-known oil and gas companies from the region, including Hungary’s MOL alongside Poland’s PKN Orlen and PGNiG, also secured sizeable transactions with deals that ultimately proved well timed given plummeting commodity prices at the end of the year. As did Turkey’s Star Rafineri, which offered syndicated lenders a relatively rare opportunity to grab a large slice of Turkish corporate risk.

businessneweurope I Page 28

able to issue the biggest corporate Eurobond of the year out of CEE/CIS, with the launch of a $1.5bn offering in the wake of the popular sovereign deal.

Although both Russian Railways with a brace of deals totalling over $1.4bn and Gazprom with a $1bn equivalent issue were able to access the international bond markets, Russian issuers as elsewhere in the capital markets were largely starved of market access in 2014. Whether that continues in 2015 – and with few signs of the Western sanctions being removed anytime soon, most likely it will – will have a major influence on corporate bond issuance volumes this year.

Other issues of note beyond a flurry of benchmark issues from Central European energy companies from Poland, Slovakia and the Czech Republic included Turk Telekom offering up a rare opportunity for investors to access Turkish corporate Eurobond risk with a $1bn issue.

In terms of financial sector issuance, Turkish banks proved to be the pick of a bunch, launching a series of well-received transactions from wellknown and respected lenders such as Garanti Bankasi, which kicked off the bank funding party for the country’s lenders with a $750mn deal in April. While Russian banking titans Gazprombank and Sberbank both raised over $2bn apiece in the first half of the year, the combination of the On the sovereign Eurobond front, 2014 witnessed deterioration in investor sentiment towards Russia some notable successes, with Slovenia taking and the imposition of sanctions on banks from the advantage of improving sentiment towards the country in the second half of the year meant that country after it successfully averted a meltdown by 2014 once again proved to be a disappointment securing close to $6bn in funding, while Poland, from a Russian perspective. arguably the safe haven play of choice in the region, raised just under $7.5bn.

That ultimately proved to be the principal leitmotif in the capital markets in CEE/CIS in 2014, and the While other regular issuers such as Hungary, multi-billion-dollar question this year is whether Turkey, Romania and Slovakia all tasted success, that theme will be reversed or not. Only time will the return of Kazakhstan to the international bond tell. markets after more than a decade with a $2.5bn issue was undoubtedly one of the highlights of the For the full survey please go to: year. The success of that offering was undoubtedly http://issuu.com/businessneweurope/docs/bne_ key to state oil and gas firm KazMunaiGas being spr_02_15_4402cfd439c71d/0

Weekly Lists February 6, 2015

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 29

bne: Infrastructure

Motorway operator Autoceste FBiH, running in Bosnia’s Federation, said it has received 21 pre-qualification bids in a tender for the construction of two lots of the Pocitelj–Medjugorje stretch of its key A1 motorway. The total length of the two stretches is 11 km and their construction cost is estimated at ¤100mn.

Bosnia gets 21 bids for two stretches of key A1 motorway construction

Ten companies have filed bids for the first lot from Pocitelj interchange to Pocitelj bridge, while eleven have applied for the second lot from Pocitelj bridge to Megjugorje interchange. Autoceste FBiH will evaluate the placed bids and the shortlisted companies will be invited to file final bids. The contracts for the construction and supervision services are expected to be awarded in June.

bne IntelliNews

In January, Autoceste FBiH said it hopes to complete the construction of the A1 motorway, part of the EU-defined corridor Vc, by 2020. It runs from the Hungarian capital Budapest through Croatia, Bosnia and ends again in Croatia, at its Adriatic town and major seaport of Ploce.

Russia in rush to build "Turk Stream" gas pipeline bne IntellinNews

If the offer made by Russian President Vladimir Putin last December to re-route his South Stream gas pipeline through Turkey came as a complete surprise to Ankara, then the offer made by Gazprom CEO Alexei Miller on January 27 to deliver the first gas to Turkey by the end of next year appears to have convinced Ankara of Russia's serious intent. Commenting on the offer, Turkish Energy Minister Taner Yildiz suggested discussions over the project would now continue at a more serious level. The venture is not without its risks, though.

Developing major international gas pipelines takes years of planning before a single pipe is welded. Promising to lay close on 900 kilometres of pipeline through the inhospitable and surprisingly deep Black Sea in order to deliver gas within two years implies seriousness verging on desperation.

Weekly Lists February 6, 2015

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 30

bne:TMT

Telekom Srbija has invited interested companies to participate in the long anticipated tender to provide consultancy services for its pending privatisation.

Telekom Srbija opens tender for privatisation advisor

The consultant should help the Telekom Srbija select the best privatisation model, the company said in a tender invitation published on February 4. The bidding deadline expires on March 6 when the submitted offers will be opened.

bne IntelliNews

The consultancy contract will be awarded within 25 days of the end of the tender.

In January, Economy Minister Zeljko Sertic said that the tender for the privatisation of Telekom Srbija will be opened by the end of the summer or in early autumn.

Poland's Netia to form strategic partnership with P4 bne IntelliNews

Poland's Netia has signed a strategic partnership agreement with P4, the fixed line telecom and ISP announced on February 2.

The country's largest alternative fixed-line telecom operator will work with mobile operator brand Play, whilst winding up parallel negotiations with Polkomtel.

Netia said the strategic partner will allow it to offer convergence services to accompany its online fixed-line base. In October, leading media broadcaster TVN reached a similar deal with T-Mobile Polska.

At the turn of Q3/Q4 2015, Netia plans to offer a wide array of convergence and package solutions combining access services, data centre and cloud services for corporate customers as well as mobile internet access tariffs.

Russia's VimpelCom closes deal to sell 51% stake in Algerian subsidiary

Russian mobile operator VimpelCom announced on January 30 that it has closed the deal to sell a 51% stake in Omnium Telecom Algeria (its Algerian subsidiary operating under the "Djezzy" brand name) to the Algerian National Investment Fund for $2.6bn.

bne IntelliNews

The deal, which was first announced in April last year, will allow VimpelCom to maintain operating control over Djezzy and continue consolidating the subsidiary's operations in its financials while settling the company's disputes with the Algerian government.

Weekly Lists February 6, 2015

bne:Banker Turkey seizes Bank Asya in new crackdown on Gulen movement 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 31

Turkish banking officials have seized control of Bank Asya, an Islamic bank believed to be controlled by supporters of US-based Turkish cleric Fetullah Gulen, while on the same day Turkey's foreign ministry confirmed that Gulen's Turkish passport had been cancelled.

Turkey's banking regulator, the BDDK, announced in a statement issued late on February 3 that it had authorised the seizure of 63% of the equity of Asya Katilim Bankasi (Bank Asya) by Turkey's Savings and Deposits Insurance Fund (TMSF), the body that guarantees bank deposits, on the grounds that Bank Asya does not have "transparent and clear partnership structures and organisation schemes" allowing effective auditing of the institution.

According to disclosures made on February 4 to the Istanbul stock exchange (BIST) by Bank Asya, the TMSF has taken over the rights of 120 unnamed shareholders and appointed a new board to administer the bank.

Moody's warns on Russian banks bne IntelliNews

Moody's Investors Service warns that Russian banks will become lossmaking in the protracted high interest rate environment, estimating that given the current key interest rate of 15% and the pace of bad loans growth, the banking sector will post RUB1 trillion ($14.6bn) of losses in 2015. In 2013 banking profit declined by 40% to RUB589bn, mostly because of reserves for bad loans, and previously Central Bank of Russia (CBR) officials have said it expects a RUB200bn-RUB300bn banking profit in 2015.

The rating agency sees the key interest rate of more than 12% as negative for the banking system, and believes that if the rate stays above that level for two quarters it will seriously undermine banking indicators. At a 15% key interest rate, interest income of banks is seen declining to RUB1.5 trillion and revenues to RUB2.3 trillion, which would not be sufficient to cover the need for bad loans reserves and administrative expenses, Moody's believes.

Weekly Lists February 6, 2015

bne:Credit Inflation in Russia hits 15% in January 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 32

Russia’s consumer price index growth continued to hit new highs in January, rising to 15% y/y and 3.9% m/m in January 2015, beating December's rises of 11.4% y/y and 2.6% m/m. Inflation accelerated across all categories, with the main driver as previously being the prices of food, which soared by 21% y/y in January due to the continued imports embargo. The inflation figures in January were unexpected, with the median estimate of 15 economists surveyed by Bloomberg being 13.5%.

Last week the Central Bank of Russia decreased the key interest rate from 17% to 15%. The head of the Central Bank of Russia, Elvira Nabiullina, reiterated her support for the interest rate cut, commenting to Reuters that even should headline inflation exceed its main policy rate of 15%, this would be a normal situation in the short term. She recalled that previously at the 5.5% key interest rate, inflation also exceeded the rate in some months.

Kazakh foreigncurrency deposits rise 72.2% y/y in 2014

Deposits in foreign currency at Kazakh banks jumped by 72.2% y/y to KZT6.5tn ($35.5bn) in 2014, according to the latest figures from the National Bank of Kazakhstan. The trend illustrates the population's concerns about an imminent devaluation of the tenge.

bne IntelliNews The central bank said the total deposit base increased by 15.9% y/y to KZT11.7tn, while deposits in the national currency fell by 17.7% y/y to KZT5.2tn. Retail deposits went up by 12.5% y/y to KZT4.4tn last year. Tenge-denominated retail deposits fell by 35% to KZT1.443tn, while retail deposits in foreign currency increased by 72.3% to KZT3tn.

The falling price of oil and the weakening Russian ruble are putting enormous pressure on the tenge. Following a 19% devaluation of the tenge in February 2014, which caused public protests, the central bank has tried to reassure investors and the population that it will not allow "sharp fluctuations" of the tenge in 2015.