bne:Newspaper - March 13, 2015

Content: 2 Top Stories 4 The Regions This Week 10 Eastern Europe 13 Eurasia 16 Central Europe 18 Southeast Europe 21 Opinion 24 Lists 24 Lists

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Ukraine begins debt restructuring talks after IMF approves loan bne IntelliNews Buoyed by confirmation of a crucial $17.5bn IMF loan, Ukraine's government was due to start talks with its creditors on restructuring the country's debt on Friday, March 13, Finance Minister Natalie Jaresko said.

of the IMF bailout depends largely on a a speedy and positive conclusion of those restructuring talks, firm progress on reforms by the Ukrainian government, and maintaining the ceasefire with pro-Russian rebels, the IMF noted.

Ukraine is expected to receive an up-front tranche of $5bn in the next few days to kickstart urgent measures to rescue its economy. But the success

See page 2

Third Hungarian brokerage loses licence as scandal spreads bne IntelliNews Hungary's central bank has revoked the licence of brokerage Quaestor and appointed a state supervisor, in an escalation of the scandal enveloping Hungary's financial services market.

Regulators have expressed concern that the company may have issued bogus bonds worth hundreds of millions of euros. At the same time, political pressure is building. Quaestor is the

third Hungarian brokerage to have its licence suspended within a few weeks.

The Magyar Nemzeti Bank (MNB) said on March 10 that it had discovered irregularities that forced it to suspend Quaestor's licence during a probe that it launched on March 9. The same See page 3

Top Stories March 13, 2015

Ukraine begins debt restructuring talks after IMF approves loan

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but analysts believe the move would likely target bondholders.

"As far as I understand the finance ministry will enter negotiations with private creditors," Oleksandr Valchyshen, chief economist at Investment Capital Ukraine, told AFP.

"The programme faces exceptionally high risks," the IMF said in an extensive analysis of the economy and the prospects of the program released on the same day as the scheduled talks.

Ukraine's debt is made up mainly of $17bn in bonds. In addition to Russia's $3bn in Eurobonds , up to $8bn reportedly owned by Franklin Templeton, a US investment firm.

Apart from worries over the renewal of fighting, the Fund said the debt talks themselves may not be easy, re-emphasising the importance of the negotiations to the approval of the bailout package.

Ukraine should complete the debt restructuring

by June to ensure the new bailout operation can stabilize the country's finances and help restore economic growth next year, the IMF said.

The National Bank of Ukraine said on March 2 that the country’s sovereign and sub-sovereign debt reached 71.5% of GDP at the end of 2014, effectively breaking the terms of the $3bn in bonds sold to Moscow in December 2013. This was the first time Kyiv has officially admitted exceeding the 60% limit that Moscow set on Ukraine’s debt-to-GDP ratio.

Meanwhile, it forecasts that Ukraine's debt-toGDP ratio will reach 94% in 2015, from 72% at the end of 2014 and 41% the prior year. However it is expected to decline to 71% by 2020.

Russia has previously said that it regards Ukraine as being in breach of the bond covenant. However, Finance Minister Anton Siluanov added that Russia does not intend to exercise the right to early redemption.

Speaking at a briefing in Kyiv on March 12, Jaresko said Ukraine would begin consultations with creditors with the goal of "easing pressure" on the budget and saving $15bn over the next four years. "We will listen to their point of view over several weeks," she said. "We have to find solutions ... I hope we find a solution within two months," to meet the June deadline set by the IMF. Asked about the $3bn of Russian money among the debt, Jaresko said that Kyiv "does not distinguish between nationalities" of its creditors and would consul with everyone.

The finance minister did not provide any details as to which debt she wanted to renegotiate terms of,

Whether it does so or not will become clear in the near future. "It remains to be seen whether Russia would agree (to a restructuring)," Valchyshen said to AFP. "Probably they would try to block it."

Ukraine's plight regarding the bonds is reminiscent of the situation in Russia in September 2008, some analysts have noted, when after sharp devaluation it “technically defaulted” on its Eurobonds and actually extended payments by five years. It is regarded as likely that Jaresko is considering doing the same, allowing Ukraine to claim it did not “technically default”, thus preserving its cashflow, which is now the top priority.

Top Stories March 13, 2015

Third Hungarian brokerage loses licence as scandal spreads

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reported. Buda-Cash has been accused of similar offences.

However, the ongoing scandal is becoming a political hot potato, meaning regulators will be wary of offering too much detail. "It is too early to speak about financial damage, as we don't know if the value of assets covers the value of bond day, Quaestor Financial Hrurira - a group member issuance," Windisch pointed out. established to issue bonds - filed for bankruptcy, citing a lack of financial resources to repay bonds. After the Fidesz government took effective control The MNB says the firm may have issued over over the central bank in 2012, the MNB took over HUF200bn (¤650mn) in bonds, despite an issuance the role of financial markets regulator. That has programme limiting it to HUF60bn. Many clients prompted criticism from the opposition. However, are reported to have requested the firm redeem the government and MNB claim that the Budadebt following the recent scandals at two other Cash scandal developed under the previous local brokerages.

Socialist administration, even though Fidesz has been in power for the last five years.

On February 24, the MNB suspended the licence of Buda-Cash, saying the brokerage could not account for about HUF100bn (¤327mn) of client cash. Days later, the licences of four banks linked to the brokerage were also revoked. On March 6, the MNB partly suspended the licence CHANGES ARE GOOD of brokerage Hungaria Ertekpapir due to “irregularities”.

"Due to abuses and criminal offences at BudaCash Brokerage the confidence in financial service providers has taken a critical hit," Quaestor said in a statement to Portfolio.hu. 'The Buda-Cash scandal has triggered such a panic on the security market that made normal operation of the market impossible. This situation was further aggravated by the case of Hungaria Ertekpapir.”

Speaking to the parliament’s economic committee, MNB deputy governor Laszlo Windisch said Quaestor could have issued HUF150bn worth of fictitious bonds. In a bid to tighten regulation, the MNB will push for more frequent probes, larger fines, and other measures, Windisch said.

The central banker said Quaestor could have issued HUF150bn worth of fictitious bonds. He also suggested that the company is suspected of doctoring IT systems, local news portal hvg.hu

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The Regions This Week March 13, 2015

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Central Europe Czech President Milos Zeman stars in a new video game. The online "PussyWalk" – a reference to the head of state's expletive-ridden rant about Russian agitprop group Pussy Riot – tasks players with steering a drunken old man from one side of a room to the other, before falling into "Propadliste Dejin", which roughly translates as "History's Shithole."

between Czech energy company Energo Pro and Tbilisi. Prague is worried over the potential knock on effect of the ¤55mn tax demand on the Czech Export Bank. Energo Pro is one of the biggest debtors to the state lender.

Hungarian deflation slowed in February, handing a dilemma to rate setters. The improved inflation picture comes alongside signs deflation pressure The bidding war for listed Polish broadcast is subsiding in the EU. However, the MNB is group TVN continues. Reports this week claim US thought likely to offer a small rate cut – around media group Scripps is now the leading contender. 20bp – on March 24.

German group Bauer, and Time Warner and Discovery from the US have also been put forward The Czech government is reportedly seeking to as favourites recently. weaken the powers of President Milos Zeman, in a move that will likely trigger further rows Czech coalminer NWR says its cost-cutting drive between the institutions. The government wants has been so successful that it may be able to to give the Senate the right to vet central bankers keep the Paskov mine open. The planned closure nominated by the head of state, and tighten rules caused a political storm before the last Czech over the president’s power to appoint a cabinet. general election in 2013. NWR has a deal with Prague to keep the mine operating until 2018 Zagreb and Hungary's MOL will launch new in return for ¤22mn in state aid, but could now negotiations over Croatian oil firm INA at the extend the life of the company. end of the month with the help of an international mediator. However, the statements accompanying RBI confirmed the Polish financial regulator is the announcement suggested little compromise is threatening its voting rights at Polbank. The on the cards in the long running stand off.

Austrian bank angered the KNF earlier this year when it announced it wants to sell the unit. The Key Latvian industrial plant Metalurgs is set regulator complains that commitments made to resume production in April, it confirmed when the Austrians bought the bank in 2012 have this week. The resumption of production comes still not been met. almost a two years after Metalurgs declared bankruptcy. Before it went under, Metalurgs was Slovakia has taken over the operation of stateone of Latvia's largest exporters, accounting for owned Gabcikovo hydropower plant from 1.2-1.5% of GDP. In October, the plant was bought Slovenske Elektrarne (SE), and will now seek

by Ukraine's KVV Group for ¤107mn. ¤350mn from the utility, after a court ruled the lease contract is invalid, PM Fico says. The move Hungary denied reports that the EU has blocked is just the latest pressure applied by Bratislava on its ¤12bn nuclear deal with Russia. The FT claims SE, in which Italy's Enel is trying to sell its 66% Brussels has rejected a fuel deal on the Paks stake. plant. If accurate, it seems Budapest and Moscow would need to renegotiate the exclusive supply The Czech Republic is reportedly dragging contract. its feet in approving Georgia's Association Agreement with the EU over a tax dispute

The Regions This Week March 13, 2015

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Southeast Europe The IMF said on March 9 that Western Balkan countries have undergone major economic transformations over the past 15 years, but need to complete their transition to market economies to lay the ground for sustainable growth. States in the region still lag behind EU new members in terms of economic transformation and income levels, the IMF said.

The parliament approved the appointment of Deputy Prime Minister Rumyana Bachvarova as Bulgaria’s new interior minister on March 11. 139 of Bulgaria’s 240 MPs voted in favour of Bachvarova’s appointment.

Bulgaria's Bulgargaz has proposed a reduction of the natural gas price by slightly more than 13%. The price cut by the state-owned natural gas supplier has to be approved by state energy regulator SEWRC and will become effective from the beginning of April.

The mayor of the Croatian capital Zagreb, Milan Bandic, has again been detained by police on suspicion of attempting to influence a witness, Croatia's anti-graft agency USKOK said. Bandic was first detained in 2014, on allegations of abuse of office and corruption.

The EBRD has reduced its stake in Croatia’s Atlantic Grupa to 5.98%. The EBRD became a shareholder in the Croatian consumer goods producer and distributor in July 2010 to support its acquisition of Slovenian food processing company Droga Kolinska.

A European parliament resolution calling on all EU member states to recognise Kosovo was adopted

by MEPs on March 11. Currently, all EU member states except Cyprus, Greece, Romania, Slovakia and Spain are among the 108 countries worldwide to have recognised Kosovo as an independent state.

Moldova’s government has approved an agreement to borrow ¤120mn from the European

Investment Bank to support fruit producers. The loans will be used under the government-funded Livada Moldovei (Moldovan Orchard) programme.

Creditors of Aluminium Plant Podgorica (KAP) have asked Uniprom owner Veselin Pejovic, to pay ¤10mn of the remaining ¤24mn he still owes for the purchase of the Montenegrin smelter, despite the ongoing court trial over its ownership.

A Cyprus court has banned the sale of KAP’s assets at the request of the company's former owner, Russia's En+ Group.

Romania’s economy used 11% less electricity y/y in January 2015, while exports soared by 75% y/y, according to the statistics office. Of the 5.9TWh electricity produced in January, 28% was produced in hydropower plants and 18% was by the country’s sole nuclear plant.

Bucharest metro operator Metrorex has reportedly picked Spanish firm Construcciones y Auxiliar de Ferrocarriles (CAF) to provide between 43 and 51 trains for a new route to be commissioned in early 2017. This is the largest acquisition contract in the Romanian metro operator’s history.

The long-term effects of age-related public spending and the government’s exposure to financial sector risks are two important issues not adequately tackled by Romania’s authorities when drafting long-term fiscal projections, the IMF concluded in its Fiscal Transparency Evaluation published on March 11.

Belgrade has launched preliminary talks with the five qualifying bidders in the tender to manage the operations of Serbian steel mill Zelezara until the company is ready for another privatisation attempt. Serbia launched the tender for professional management of Zelezara in February after announcing that privatisation talks with US group Esmark had been unsuccessful.

The Regions This Week March 13, 2015

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Eastern Europe Russia remained the world's second largest exporter of arms in 2014, trailing only the US, by earning $10bn from the sale of military equipment, up 9% year-on-year. The largest customers were China ($2.3bn), India ($1.7bn), and Venezuela and Vietnam ($1bn each). The global arms market was worth $64bn in 2014.

Russia's Investigative Committee arrested five people on suspicion of assassinating Russian politician Boris Nemtsov, all linked to Chechnya, and a sixth blew himself up with a grenade when police tried to detain him in the Chechen capital of Grozny.

Putin said he told senior security officials of a decision to annex Crimea just hours after embattled Ukrainian President Viktor Yanukovych abandoned power in February last year, according to a trailer for a documentary to be shown on Russian TV. The president of the European Commission JeanClaude Juncker suggested that the European Union should establish its own army to counter Russia on Sunday. The idea was slammed by the UK, but Germany's Chancellor Angela Merkel was on board, although she said such an army was a long way off.

Ukrainian President Petro Poroshenko requested the country’s parliament to allow foreign troops into the country to participate in international military exercises in 2015. Several countries have offered to train Ukraine's soldiers.

Just over 80% of Russians now see the US negatively, a record post-Soviet high, according to the independent Levada Centre pollster. The poll also found that 42% of Russians see the US and Russia as "hostile" or as "enemies," depending on the translation.

Singer/songwriter Polina Gagarina will represent Russia at the Eurovision song contest

with a song called "Amn Voices”, this year.

The first semi-final is scheduled for March 19.

Russia last won the event with Dima Bilan's song "Believe" in 2008.

Russians’ fear of being fired has declined in recent months as the economic situation stabilises but 32% of Russians say they are still seeing colleagues being fired or expect them to be fired, according to a poll published by the independent Levada Centre, down from 42% in December. Another 18% expect to be fired, and another 22% expect their salaries to be cut in coming months.

Sakhalin Governor Alexander Khoroshavin was arrested on charges of accepting a $5.5m bribe.

A search of his house found $16m in cash and a pen worth $600,000. The ruling United Russia party has suspended his membership. The bribe was connected to a construction project and Khoroshavin faces 15 years in prison if convicted.

Oligarch Mikhail Fridman’s attempt to buy a North Sea gas field for $5.4bn was been questioned by British authorities, because of concerns that potential additional sanctions on Russia could curb oil and gas production from the fields. Fridman complained he was not under sanctions and the deal is being reviewed.

Swiss trader Glencore is to take a 49% stake in Russian oil producer RussNeft owned by oligarch Mikhail Gutseriyev, RussNeft also owes Glencore $984mn, according to Glencore's results for 2014.

A USA Today report said that one in five of the 900-member Ukrainian "volunteer" Azov Brigade admits to being Nazi sympathisers in a report this week. Both Amnesty International and Human Rights Watch have issued reports saying both sides have committed atrocities in the fighting in East Ukraine.

The Regions This Week March 13, 2015

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Eurasia Remittances Uzbekistan received from Russia amounted to $4.66bn in the first three quarters of 2014, down from $4.95bn in the same period of 2013, according to the Bank of Russia. The Russian slowdown is weighing on the flow of remittances Central Asian migrants working in Russia send back home. Remittances to Tajikistan and Kyrgyzstan fell by respectively 8.3% y/y to $3.9bn and 1% to $2.33bn in 2014. Remittances were equivalent to 45.6% of 2014 GDP in Tajikistan and 33.6% of 2014 GDP in Kyrgyzstan.

Sales of cars produced by GM Uzbekistan fell by 56% y/y in Russia in January-February. The company sold 3,654 vehicles in the period against 8,254 units in January-February 2014. Total Uzbek car exports fell to 55,000 cars in 2014 from the peak reached in 2011, when sales in Russia alone stood at 92,778 units. Exports to Russia fell by 38% y/y to 37,695 units in 2014.

Turkmenistan’s natural gas production grew by 5.2% y/y in January-February, according to government figures. Exports of Turkmen natural gas increased by 76% y/y in the period.

Turkmenistan produced over 76bn cubic metres (cm) of natural gas in 2014, and exported 45bn cm, whereas 2015 production is expected to increase to 80bn cm, according to government figures.

Kyrgyz authorities need to invest as much as $895mn to upgrade inefficient heating technology and infrastructure in the capital city, Bishkek, and Tokmok, according to the World Bank. Heating in the Kyrgyz cities is supplied through ageing district heating networks built in Soviet times. In Bishkek alone, the thermal output of the city’s power plant is currently 39% below original designed capacity, and its electricity output is 89% below original capacity.

Mongolia posted net foreign direct investment (FDI) outflows to the tune of $88.1mn in January.

That confirms the ongoing disinvestment in

Mongolian assets carried out by foreign investors.

Net outflows of reinvested earnings amounted to $31.1mn in the month, and another $57.5mn of net outflows were classified as “other capital” investments.

Official car dealerships in Kazakhstan sold 9,194 cars in February, a 17.95% increase m/m but an 18.0% decrease y/y. A total of 16,989 vehicles were sold in January-February, a 20.7% decrease y/y.

The m/m increase in car sales was thanks to a reduction in prices with many official dealership offering 10-50% discounts and free-of-charge servicing for several years, as well payment in instalment without interest.

Kazakhstan's trade with Eurasian Economic Union member states fell by 7.8% y/y to $1.27bn in January. Exports fell by 41.2% to $256.7mn, while imports increased by 7.8% to $1.01bn. The weak ruble is depressing Russian demand for Kazakh exports as Astana is reluctant to devalue the tenge despite the low price of oil and the falling ruble. In contrast, the Belarusian ruble lost 36% in value against the dollar and the Armenian dram lost 14% against the greenback in the past year.

A free-visa travel agreement between Georgia and Brazil will enter into force in April. The agreement will allow Georgian citizens to stay in Brazil visa-free for 90 days in any 180-day period.

Georgia already applies similar rules to citizens of Brazil.

Azerbaijan’s state energy company, SOCAR, issued eurobonds worth $750mn with a 15year maturity and 6.95% interest amid declining oil prices. The placement fell short of market expectations of $1bn at 7% rate. It is SOCAR’s third bonds release, following the $500mn placed in 2012 and the $1bn issued in 2013.

bne Chart March 13, 2015

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Despair Index 2015: Russia feels the squeeze In December, bne Intellinews published its Despair Index – a combination of inflation, unemployment and poverty – to survey the relative prosperity of various countries, with surprising results.

Adding poverty to the established ‘Misery Index’ – a combination of inflation and unemployment – saw many emerging market nations stand toeto-toe with their Western counterparts. Indeed, even with sanction-led inflation increases, Russia was only marginally worse off than the US and UK. Since then, however, continued sanctions and low oil prices have seen Russia’s score worsen

considerably, from 24.1 to 31.5 – more than a 30% increase since the year began.

Ukraine, too, has continued to suffer as the conflict in the east shows little sign of ending.

Its 2013-2014 score rocketed over 113% from 16.5 to 35.2, and has worsened by a further 32% to 46.5 in the three months since December.

Rapidly rising inflation levels have seen to this.

While the Despair Index would suggest that the prognoses of Russia and Ukraine are far from rosy, one promising result is that the overall emerging market Despair Index score fell from 36.2 to 33.6, despite Kyiv and Moscow’s continued woes.

Sources: World Bank; Statistics Estonia; Eurostat; State Statistical Committee of the Republic of Azerbaijan; National Statistical Office of Mongolia; CIA World Factbook; Trading Economics

bne Despair Index: 2015 update

Despair Index Score

46.5

EU Russia

40.0

37.3

37.5

37.1

32.9 30.0

EM average

30.5

28.1

26.9

26.2

23.6

36.6

29.9 28.7 23.6

30.0

30.2

26.7

26.3

26.1 21.5

20.0

17.2 2009

2010

2011

2012

Ukraine

36.2

36.8

35.2

33.6 31.5

United Kingdom United States

27.0 25.9 21.9

24.1

24.4

22.9

21.6 16.5 2013

20.6

2014

2015

Countries t.. Multiple Values

Ukraine component scores

20

10 % population below nation..

Year

2015

Despair Ind.. 11.2

61.3

Select cou..

Ukraine

% unemployed

Inflation (CPI)

Eastern Europe March 13, 2015

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Donbas separatists threaten to adopt ruble

bne IntelliNews The self-proclaimed leaders of the East Ukraine separatist entities Donetsk People's Republic (DPR) and Luhansk People's Republic (LPR) have called on Germany and France to pressure the Kyiv government for its "failure" to implement a peace accord signed in Minsk on February 12.

the contact group on February 12,” said the joint appeal. It was signed by DPR leader Aleksandr Zakharchenko and his counterpart in LPR Igor Plotnitsky.

The Verkhovna Rada (Ukrainian Parliament) had not even begun formal considerations of The Russian-backed rebels also said the ill effects the demands for autonomy rights for the two of an "economic blockade" of their region by regions, the document maintains. “This is despite the fact that the 30 days set aside for Kyiv contravenes the Minsk agreements reached in February, and may cause them to use the ruble implementing this decision according to the 'road alongside the hryvnia as legal tender, thereby map' laid out in the complex of measures for strengthening ties to Russia. implementing the Minsk agreement will expire tomorrow, March 14,” it added.

Under the peace agreement, Ukraine's parliament has to pass a resolution by March 14 listing Ukraine originally passed a law on "special order for individual districts in Donest and territories in East Ukraine to be given special autonomy status, allowing them to be run by the Luhansk regions" on September 16, after an initial ceasefire agreement was reached in Minsk separatist authorities, their leaders claim. between the warring parties on September 5.

In the cited "complex of measures", an annex to Stressing that the Russian ruble could be introduced in retaliation for the Kyiv's alleged the peace accord signed in Minsk on February 12 by France, Germany, Ukraine and Russia, economic blockade, the rebel leaders invoked Ukraine undertook to award such special status to earlier international offers to help the war-torn these districts in its eastern Donetsk and Luhansk East recover. regions. But Ukraine is not yet showing any signs of doing so, the rebels say.

“Germany and France promised to help in rebuilding the bank infrastructure in our region.

But Kyiv, on one hand, refuses your assistance, “We are forced to appeal to you [France and Germany] as guarantors of the Minsk agreements and on the other – has failed to undertake anything itself to ensure the banking system in our with the request to exert pressure on Ukraine up to and including the introduction of personal and republic restarted work," the appeal continued. economic sanctions, to force its leadership to Zakharchenko and Plotnitsky acknowledged the implement the complex of measures confirmed by disastrous economic state of the territories they

Eastern Europe March 13, 2015

control, blaming it squarely on the blockade and Kyiv's "military aggression".

“Our republics' [Donestk and Luhansk] economy is on the verge of collapse, pensions and other social benefits are not being paid, and there is such a deficit of hryvnia that citizens and small business are already conducting transactions in euro, dollars and rubles,” they said.

The appeal called upon France and Germany to send specialists to revive the banking system on their territories, and to introduce sanctions

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against Ukraine for violating the peace deal.

Separately, the DPR's deputy head of finance Oksana Tarana told a press conference that due to the deficit of hryvnia, the region would allow use of the ruble, dollar and euro alongside the hryvnia as legal tender. She also said that an experimental system of wire money transfers to and from the members of the Commonwealth of Independent States would be introduced in the week starting March 16. Luhansk region officials this week said the same.

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Eastern Europe March 13, 2015

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Ukrainian bank insolvencies cost 9% of GDP in 2014-15

bne IntelliNews Ukraine's bankers stole UAH58bn from their banks in 2014-2015, state refunds to depositors of bankrupt banks were equivalent to 10% of total budget revenues, while total losses from bank insolvencies comprised 9% of GDP. These are just some of the disastrous figures Valery Gontareva, head of the National Bank of Ukraine, intended to tell Ukraine's parliament on March 6 in a speech.

But rowdy behaviour from deputies from populist Oleh Lyashko's Radical Party, professing outrage at the meltdown of the hryvnia, brought Gontareva close to tears. Pressing in around her on the tribune and chanting "shame, shame!" and "resign, resign!'"they forced her to abort the speech, which she later published online.

Ukraine's banking system continues to be wracked by fraud, Gontareva had intended to tell the unruly deputies. Indeed she even wanted to thank them for a new law passed on March 2 increasing the liability of bank owners and managers for damage to depositors and the state.

psychological factors such as the war in East Ukraine and statements by populist politicians.

“If we had had such an instrument [as the new law] earlier, the amount [stolen] would have been significantly less, since shareholders and managers would have to think twice before siphoning off assets and blaming [subsequent insolvency] on the crisis,” she wrote in the prepared speech.

A total of 44 banks have gone bust since 2014, she added, forcing the government to pay out UAH50bn ($2.1bn) to retail depositors covered by the state individual depositors' insurance fund – a sum equal to 10% of total state revenues, she said. Total losses arising from insolvencies since 2014 run to UAH200bn ($0.85bn), or 9% of GDP. On March 3, the NBU announced the insolvency of Ukraine's fourth largest bank, Delta Bank, after the bank had followed a "high-risk expansions strategy", according to the NBU.

Outright theft from the banking system is only one Since 2014, illegal actions by shareholders and part of the problem, Gontareva wrote in the speech. managers caused a total of UAH58bn losses Ukraine's banking system has been hit by massive ($2.5bn), prompting 239 criminal investigations, deposit outflow since 2014. On one day alone, she wrote in the speech.

February 23 2015, depositors withdrew UAH2.2bn ($100mn) in savings, apparently converting most of Gontareva blamed “the actions of owners of banks this to dollars, causing the currency to crash, and which have been removed from the market” forcing the NBU to effectively close the interbank for the recent wave of devaluation, alongside market and freeze the exchange rate.

Eastern Europe March 13, 2015

Gontareva said that depositors had withdrawn UAH126bn ($5.41bn) in 2014, with the outflow continuing unabated in 2015. Depositors withdrew UAH18bn ($0.7bn) in the first two months of this year, she said.

This despite the fact that the NBU prohibits banks from selling more than UAH3,000 ($130) to individuals per day, or paying more than the equivalent of UAH15,000 ($650) per day to depositors on foreign currency accounts, both of which measures are designed to slow the mass conversion of bank accounts into hard currency cash.

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forex market, thus putting pressure on the hryvnia rate to the dollar. “The volumes of refinancing [loans] have not put any pressure on the forex or financial markets,” she said. “Each hryvnia of refinancing loans given to banks currently gets directed straight to deposit outflows – the NBU exerts strict control over this – every bank that received refinancing is supervised by a curator from the NBU,” she wrote.

Ironically, given that Gontareva's speech was aborted under pressure of populist critics such as Oleh Lyashko, part of the speech aimed to protest against the very populism of those who criticise the NBU whatever it does.

“This outflow is largely the result of panic, and we cannot fail to help banks meet their legal “They accuse us of giving banks too many obligations towards people – to return them their refinancing loans, and then declare that we are savings,” Gontareva said. destroying the banking system by not give enough loans (...) They say we have abandoned the forex This means the NBU has to provide refinancing market to its fate, and at the same time blame loans to banks, but it does so sparingly and us for not letting the market reach equilibrium. transparently, Gontareva assured, saying that it (..) They blame us for not controlling the forex was natural that the bulk of the refinancing went market and then shout that the NBU has imposed to “the largest bank in the country, with 26% such restrictions that the forex market cannot of all deposits", meaning Privat Bank, owned function,” Gontareva lamented in the written by aviation-to-oil oligarch, and governor of version of the speech that populists did not allow Dnipropetrovsk region, Ihor Kolomoisky. her to make.

She also denied that refinancing loans had been used by the recipient banks to speculate on the

Eurasia March 13, 2015

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Kazakh president ends speculation by announcing will stand for re-election

Naubet Bisenov in Almaty Kazakh President Nursultan Nazarbayev, who has ruled the Central Asian nation with an iron fist for more than a quarter of a century, has agreed to his Nur Otan party's nomination to stand for another term. The 2007 amendment to the Kazakh constitution abolished term limits for Nazarbayev, as first president, technically allowing him to stay in power for life.

eldest daughter Dariga, 51, the deputy speaker of parliament's lower chamber, that his silence about the election had given rise to. Observers believe that the proposal to hold the election first floated by the Assembly of Kazakhstan's People, a forum for the country's minorities appointed by the president, could not have been possible without authorisation from Nazarbayev himself.

Nur Otan convened an unscheduled party conference in Astana on March 11 to nominate Nazarbayev as presidential candidate. This followed a request in February for the president to call a snap presidential poll to re-elect him in the face of a "new wave of the financial and economic crisis" and "serious geopolitical tension" in the region caused by Russia's annexation of Crimea and support for rebels in eastern Ukraine.

Kazakhstan will go to polls on April 26.

The presidential poll was brought forward from 2016 because analysts believe the authorities are afraid that Nazarbayev's re-election would have been hampered by the deepening economic crisis in the country and potential social discontent over falling living standards. Kazakhstan is currently facing serious economic challenges caused by the low price of oil and rising pressure to devalue the currency, the tenge, from the weakening Russian ruble since Moscow annexed Crimea a year ago. Russia is Kazakhstan's main trading partner, accounting for a third of its imports.

"I've come here to speak to you and perhaps agree with your nomination of my candidacy with only one aim of proposing [to solve] new tasks, complicated tasks that we are facing," Nazarbayev, 74, told the party conference. "As to the question of how to be president and who should be president I've said that a person should go for election if you have a set of programmes and goals through which you want to improve the life of your people. If there is no such goal or objective, there is no need to go there."

Nazarbayev's consent to stand for re-election will end talk about his possible campaigning for his

Since the near 50% drop in the value of the ruble and the price of oil since 2014, the central bank has come under increasing pressure to devalue the tenge, but the government has put off the move. The National Bank of Kazakhstan devalued the tenge twice – by 25% and 19% – in 2009 and 2014, both times in February. The currency is now trading at slightly over KZT185 to the dollar, but in January Morgan Stanley predicted the rate will fall to KZT260 by the end of the first half of 2015.

The announcement of the snap poll has postponed a decision on devaluation until at least after

Eurasia March 13, 2015

the election and possibly until even after the inauguration, as it would be hard for Nazarbayev to sell his re-election as a guarantee of prosperity and stability to the population if people's savings had been wiped out.

The re-election will give the president a vote of confidence at a time when the ruling elite is afraid that the growing deterioration of society's mood could undermine support for the president.

Nazarbayev, who was re-elected in 2011 with 95.5% of the vote on a 90% turnout, is expected to be re-elected with a similar share of the vote: anything lower than his performance in the previous election will be seen as a drop in popular support for the ageing president. Kazakhstan has never held any election judged free and fair by the Organisation for Cooperation and Security in Europe.

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The other key reason for the early election is the complicated international situation caused by the Russia-West standoff. Nazarbayev's re-election should help dispel concerns over the mediumterm foreign policy course of the country.

The silence that enveloped Nazarbayev's election plans since the announcement of the election on February 25 had given rise to rampant speculation in the commercial capital, Almaty, that Nazarbayev might campaign for Dariga.

The suicide of her former husband, Rakhat Aliyev, one of the most hated figures in the Kazakh establishment, has reduced objections to keeping the presidency within the family. However, Dariga's lack of executive experience – she has never been appointed regional governor or held a government post – would have still made her a controversial choice.

Death of Tajik opposition leader sends chilling message

bne IntelliNews For some, there’s no doubt who was to blame for the murder of the Tajik tycoon and opposition leader Umarali Quvvatov. A banner unfolded during Quvvatov’s funeral at Istanbul's Kilyos cemetery on March 9 read: "The killer of Tajik opposition leader, martyr Umarali Quvvatov, is dictator Emomali Rahmon”.

on March 1, which were overwhelmingly won

by Rahmon's ruling party but judged by the Organisation for Security and Co-operation in Europe (OSCE) as failing to meet basic democratic standards. So it was no surprise that the political opposition has labelled the assassination as "political".

The timing of the businessman's murder, on an Istanbul street on the night of March 5, coincided with the parliamentary elections in Tajikistan

The country's main opposition party, Islamic Revival, drew parallels between Quvvatov's killing and the recent violent deaths of Russian and

Eurasia March 13, 2015

Kazakh politicians. "Like Quvvatov, oppositionminded Russian politician Boris Nemtsov and Kazakh [the president's former son-in-law and opposition leader] politician Rakhat Aliyev have lost their lives in the former post-Soviet space, and regardless on whose orders they were killed, these events blacken the political atmosphere in their countries," the leader of Islamic Revival, Muhiddin Kabiri, told the Asia-Plus news agency.

On March 6, Amnesty International said Quvvatov and his family had previously told the Londonbased human rights group that they had received threats and "there had been 'orders' to harm them, allegedly from the highest levels of the Tajik government.

"Umarali Quvvatov’s killing sends a chilling and extreme message to Tajikistani political dissenters both at home and abroad. The Turkish authorities must lead an impartial, effective and prompt investigation into his unlawful killing, reveal the full truth, and bring the perpetrators to justice,” Denis Krivosheev, Amnesty International’s deputy Europe and Central Asia programme director, said in a statement. "We have received reports of death threats and attempted assassinations of dissenters from Tajikistan in foreign countries in recent years, but this is the first actual killing of a Tajikistani political activist. It begs the immediate question: how many more are at risk?"

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After that Quvvatov moved to Turkey where he was jailed in December for violating visa rules. He was released on February 4 and killed a month later.

Together with Sohibov, Quvvatov had been involved in supplying fuel and lubricants to Nato forces in Afghanistan between 2001 and 2012, but a conflict with his partner forced him to leave the country.

In 2012 he set up the Group 24 opposition movement, which the Supreme Court of Tajikistan labelled as "extremist" and banned its activities in the country in October. The movement called for large-scale protests against the Tajik authorities on social media. Quvvatov was also accused of fraud, kidnapping and misappropriation of property.

On March 4 a court in the Tajik capital, Dushanbe, sentenced a member of Group 24, Umedjon Salihov, to 17.5 years in prison on charges of extremism and insulting the president.

Quvvatov was killed by an identified man at 22:30 local time in Istanbul's Fatih district. According to RFE/RL, Turkish police have detained three Tajik men on suspicion of involvement in the murder.

Quvvatov, a businessman and one-time associate of the president's son-in-law Shamsullo Sohibov, had been living abroad since 2012, when he left the country first for Russia and then for the United Arab Emirates. Tajikistan requested his extradition from the UAE in 2012 on suspicion of committing fraud, and he was detained in Dubai and spent 10 months in prison in 2013, but was not extradited to Tajikistan. UAE law does not allow extradition to a country where a defendant can be tortured or killed.

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Central Europe March 13, 2015

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Poland to boost national service against Russian threat

bne IntelliNews Poland is following Lithuania in building up its reserve army to face the threat of Russian aggression following Moscow's intervention in Ukraine.

Polish Prime Minister Ewa Kopacz signed an executive order on March 10 that widens the range of those that can be called up for national service in Poland.

The Polish defence ministry said recently it wants to develop a territorial force of 20,000 to supplement the Polish army, which now stands 100,000 strong. The details of Kopacz's proposal are not yet clear.

However, PAP reports that under the order, all men deemed capable of military service, including those who have no prior experience of military service, may be drafted for military exercises.

Previously, only reservists with a stint in the armed forces could be called up.

the bill, Lithuania intends to draft the first shift of recruits this autumn to counter what it sees as Russia's aggressive posture in the Baltic region. About 3,000-3,500 men between ages of 19 and 26 should be drafted every year.

However, given the realities on the ground - Lithuania's armed forces include only about 8,000 professional troops - the move would hardly keep Moscow awake at night should it actually be planning any invasion. While Vilnius and Poland have both pledged to raise defence spending closer to the 2% of GDP recommended

by Nato, the international alliance is unlikely to be overly impressed with the return of conscription either, as it prefers fully professional armies.

The move is more of a nod to domestic - and perhaps Russian - political audiences, suggests Czech-based think tank the Centre for European Security.

"While portrayed by the Lithuanian authorities The move at this stage has no legislative as a matter of national security, re-introducing substance and will need to pass through stages of conscription can also be interpreted as a negotiation within the government, as well as the symbolic gesture directed at Lithuanian as well ministry of defence, armed forces, and parliament, as Russian audiences," it wrote in a recent according to Gazeta Wyborcza. However, the report. "A message for the Lithuanian public that message it sends is clear: Poland is taking the their government 'is doing something' to counter “Russian threat” seriously. the Russian threat."

Polish defence chiefs welcomed Lithuanian plans to reintroduce conscription announced in late February. If the parliament in Vilnius approves

While Poland has a standing army of around 100,000, a move towards expanding the draft is unlikely to give Russia nightmares

Central Europe March 13, 2015

either. Rather, as in Lithuania, the idea of conscription clearly plays to the domestic audience and its growing sense that Russian intervention in Ukraine could spread to other neighbouring countries. A survey in September 2014 by Gazeta Wyborcza showed increasing numbers of Poles favouring a return to national service.

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When Poland ditched conscription in 2008 and moved to creating a professional army, opinion polls showed 54% of the population backed the idea. The same poll also showed that 24% of Poles now feel the end of conscription has contributed to a decline in national security, compared to just 14% six years ago.

EU launches in-depth probe into Hungarian advertising tax bne IntelliNews The European Commission has launched a probe into Hungary’s advertising tax over concerns that it may breach EU state aid rules, the EU executive announced on March 12. Pending the results of the "in-depth investigation", the commission said it has ordered Hungary to suspend the levy.

The Hungarian government controversially introduced a progressive advertising tax on media companies last year. The rate of the tax ranges from 0%-50% based on revenue. The 50% levy applies only to RTL Klub, the country's largest commercial TV station, which is owned by German giant Bertelsmann.

Under pressure from Brussels - as well as German Chancellor Angela Merkel, according to reports - the Hungarian government already said earlier this year it will adapt the progressive tax to a flat levy. Officials have suggested Budapest plans to implement a charge of 3%-5%, however, it will still be based on revenue. Media companies maintain that the tax still hits media freedom.

Local media has also suggested that the climbdown followed a behind-the-scenes deal agreed in January with RTL, just ahead of a visit

by Merkel to Budapest. The government reportedly offered to cut the tax in return for less critical news coverage from Hungary's top commercial “A progressive tax based on turnover places larger broadcaster. This should help the ruling party prop players at a disadvantage, unlike a progressive up support, with approval ratings having plunged tax based on profits, which can be justified by the in recent months amid unpopular measures and higher burden-bearing capacity of very profitable corruption allegations. companies,” the commission said in a statement.

It added that the commission’s investigation does The removal of RTL Klub CEO Dirk Gerkens not call into question Hungary's right to introduce was also reportedly part of the deal, which all an advertisement tax, but has “to verify that such parties have vehemently denied has ever been a tax does not selectively favour certain companies discussed. However, this week, the company over their competitors". announced the highly outspoken channel chief has left. A temporary replacement is holding the The EU investigation follows a complaint by RTL. fort while the German company searches for a The company said earlier this month that its fulllocal executive to take over, "in order to further year net profit plunged 25% partly because of the strengthen RTL group's ties with Hungarian Hungarian tax. society".

Southeast Europe March 13, 2015

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Serb central bank cuts key repo rate as IMF deal restores investor confidence bne IntelliNews The National Bank of Serbia (NBS) cut its key repo rate for the first time in four months on March 12 to 7.5% from 8.0%. The move was expected by market analysts following the recent approval of a ¤1.2bn stand-by deal with the International Monetary Fund and after annual inflation touched a historic low in January.

The executive board expects that annual inflation will return in the target band of 2.5%-5.5% around mid-2015 as the disinflationary effects of low food production costs weaken and the government hikes administered prices. It already quickened to 0.8% in February from January's all-time low of 0.1%.

Previously, the NBS kept the rate unchanged at 8.0% for three months in a row after cutting it unexpectedly in November by half a percentage point, in the first rate change since last June.

Prior to the NBS decision, analysts from Societe Generale (SG EM) said in an emailed note on March 11 that the Serbian monetary authority has "ample room for manoeuvre, in the context of the mild inflation outlook and weak growth prospects". The economy is expected to shrink by another 0.5% in 2015 following the 1.8% contraction last year when the country was hit by the worst floods in its history.

The NBS said in a statement that when taking the decision its executive board was encouraged by several factors, including the ongoing fiscal consolidation and structural reforms at home and the end-February approval of the IMF deal, which helped increase investor interest in Serbia amid the ample global liquidity unleashed by the quantitative easing of the European Central Bank.

The NBS noted that the declining risk premium and the increasing demand of non-residents for Serb government securities already signal that investor interest in the country is on the rise.

"These movements, as well as inflation expectations which have been revolving around the 4% target, have opened up the room for monetary policy to contribute to long-term sustainable recovery of the domestic economy," the statement said.

According to the SG EM analysts, the NBS might deliver with caution a cumulative easing of 150bp of its key rate by the end of 2015 as the main factors to watch will be linked with the external rebalancing and the progress on the government's fiscal reforms.

"With headline inflation running at 0.1% yoy and core plunging to 1.7% yoy, valuations in Serbian fixed income are the most attractive in EMEA," the analysts concluded.

The NBS' next rate-setting meeting will take place on April 9.

Southeast Europe March 13, 2015

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EU threat to suspend Bosnian trade privileges collides with drive to revive accession talks bne IntelliNews In a sign that Brussels officials in charge of foreign policy, enlargement and trade don’t always talk to each other, the EU is planning to suspend trade preferences to Bosnia-Herzegovina. This move could undermine recent efforts to revive the long-stalled EU accession process for the fractious multi-ethnic country that emerged out of the ashes of the 1990s wars in the Western Balkans.

The initiative, championed by the European Commission’s directorate for trade, was endorsed

by Members of the European Parliament (MEPs)’s trade committee just the day after EU foreign policy chief Federica Mogherini’s visit to Sarajevo on February 23. Mogherini came to support the Bosnian parliament’s adoption of a series of reforms aimed at helping the divided country prepare the ground for EU accession talks.

Dramatic floods last year cost the country 2% of its national income. Pervasive corruption, latent ethnic tensions, wide-scale poverty and unemployment levels at 25% of the working population was the breeding ground for violent popular protests in 2014.

to leave CEFTA, the regional agreement that facilitates trade in the Balkans. Croatia is Bosnia’s neighbour and biggest trading partner, absorbing 40% of Bosnian exports to CEFTA and providing 60% of its imports from the bloc before 2013.

But Croatia’s EU accession means it no longer enjoys duty free access to Bosnia’s market, which Zagreb is not happy about. But although it still enjoys extended quotas to Croatia via the EU’s preferences, Bosnia is now shut out of the food market because it now needs to comply with EU’s costly sanitary standards. Its underdeveloped agricultural sector is not prepared for this.

Croatian farmers now benefit from the EU generous agricultural subsidies while Bosnian farmers don’t.

The EU wants Bosnia to adopt its view on how to change the Interim Agreement, arguing its proposed amendment is purely technical. In return for Bosnia extending its own import quotas on goods from the entire EU at a level that corresponds to its imports from Croatia prior to EU accession, the EU would increase its own quota to Bosnian imports according to the same method.

Changes to the EU’s trade preferences for Bosnia would mainly involve products such as meat, dairy, and certain fruit and vegetables. To avoid these preferences being suspended, Sarajevo would need to accept a change to the treaty that binds it to the EU, the so-called Interim Agreement of 2008.

All other Western Balkans countries have already accepted similar changes to their bilateral deals with Brussels after Croatian’s EU absorption in 2013. There is no reason why Bosnia should be treated differently, so say the EU trade authorities.

The text certainly needs adapting. Croatia’s accession to the EU mid-2013 meant that it had

Sarajevo disagrees and wants the Interim Agreement to be renegotiated. It says Bosnia

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risks being flooded with EU agricultural imports that could destabilise its largely rural economy.

“Opening our market to the 28 EU member states and destroying our agricultural sector production would affect the livelihood of more than 30.000 people,” says Igor Davidovic, Bosnia’s ambassador to the EU. Bodo Weber, an analyst at the Democratization Policy Council (DPC), a think-tank in Berlin that specialises in the Balkans, thinks the EU’s position is mostly about taking sides with Croatia.

Under the proposed arrangement, Croatia would continue to enjoy access to Bosnia’s market, but at an even more advantageous competitive position than before 2013.

In Weber’s view, the EU has not been consistent in applying its so-called ‘conditionality’ to Bosnia – a carrot-and-stick method the EU generally employs with candidate countries, offering them market access, money and EU membership prospects in return for reforms.

Instead, Brussels has accepted that Bosnia’s elites undermine the fragile central state born in the years following the 1995 Dayton Agreement, which brought peace by partitioning the country into two ethnic-based entities, and postpone crucial reforms to the police, justice system, administration and economy. This has bred a system of ethnic patronage along Bosnian Croat, Bosniak Muslim and Bosnian Serb lines, says Weber.

The role of Mirolad Dodik, president of Republika Srpska, stands out. Dodik harbours separatist ambitions, has sought political and financial support from Russia, which doesn’t want Bosnia to join the EU and is increasingly vocal about it.

Despite the Bosnian elite’s reluctance to accede to EU reform requests, about ¤600mn worth of EU

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funds have kept flowing to Bosnia over the last six years.

The latest EU move to revive the Bosnia’s accession talks is no break with the past.

Brussels, says Weber, has accepted the need to tone down the key human rights condition that led to the latest breakdown of accession talks.

That demand was that Sarajevo apply a 2009 European Court of Human Right ruling demanding reforms to its constitution, which bars members of Bosnia’s Roma and Jewish communities from political life.

Yet in the trade preference case, Weber’s views converge with Sarajevo’s. The European Commission’s argument that its proposed change is purely technical does not bear scrutiny: “whereas legal changes are needed, it is absolutely not prescribed how you make these arrangements,” says Weber.

If Brussels follows through with its threat, Weber says “it would be the only case in which it beats [Sarajevo] down. This is the usual ‘standard procedure’ thinking of the EU, but they really don’t understand the context. The EU has never followed through on conditionality with Bosnia, and now they are really tough on an issue that is not really relevant to the EU’s accession policy.”

There is still room for adjustment and negotiation, as preferences would only be suspended starting early 2016. “I cannot imagine the EU Commission suspending the agreement, because this would really hurt their EU’s Bosnia initiative,” says Weber.

A lot will ultimately depend on whether Bosnia will be able to form a new government, which it has failed to do since elections were held last October – and on whether EU officials finally start talking to each other.

Opinion March 13, 2015

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Where is Putin?

Ben Aris in Moscow Moscow is gripped by the disappearance of Russian President Vladimir Putin, who hasn’t been seen in public for a week. Is he dead? Is there a palace coup underway? Perhaps he has sneaked off to marry his girlfriend, or he is just undergoing another round of Botox injections and his face is so swollen he won't go out in public. These are just some of the theories being put forward.

Kremlinologists have gone to town on the news (or lack of it in this case) with op-eds entitled "Putin's disappearance implies a Russian dictatorship" or "The Sick Man of Moscow: Vladimir Putin may well be seriously ill, or worse”.

"Either he is fine and furiously working behind the scenes to calm the clan warfare that has emerged in the wake of the [Boris] Nemtsov assassination," wrote Brian Whitmore in a blog for Radio Free Europe/Radio Liberty. "Or Putin is truly sick and incapacitated and the recent turbulence we have witnessed – from the assassination to the muddled narratives in the investigation to the open conflict between the Federal Security Service (FSB) and Chechen leader Ramzan Kadyrov – are symptoms of a highly personalised system that has lost its head."

The speculation began earlier this week when Putin unexpectedly cancelled his trip to a summit in the Kazakh capital Astana, where he was due to meet fellow leaders of the newly minted Eurasian Economic Union (EEU) – Belarus President

Alexander Lukashenko and Kazakh President Nursultan Nazarbayev.

The air of mystery was heightened by Putin's spokesman Dmitry Peskov’s comment: "We are not giving any explanations as to the reasons. This was the decision of the leaders."

Pundits immediately assumed that there must be something wrong with Putin to cancel the meeting. However, relations between the members of the Customs Union, which was transformed into the EEU at the start of this year, have been bad, as the economic crisis that Russia is suffering spills over into its neighbouring markets. Both Nazarbayev and Lukashenko have publicly complained that the free trade agreement is a lot freer when it comes to letting Russian goods enter their countries than when their goods are trying to enter the Russian market.

Peskov has since been desperately trying to play the story down. "The president feels fine," he said in an attempt to quash the first reports that Putin's no-show was due to ill health, but without saying where Putin was, adding that the president's handshake was still so strong it could “break your hand”.

Journalists got more suspicious when the Kremlin posted several pictures online that turned out to be more than a week old. Peskov only made matters worse by announcing that Putin would

Opinion March 13, 2015

not be appearing at a meeting with the Federal Security Service on March 12, which he often attends. "I think Putin would rather miss his own wedding than skip a meeting with the FSB," said one well-known commentator.

Finally, on March 13 the Kremlin announced on the presidential website that Putin would meet with Kryrgyz President Almazbek Atambayev on the following Monday, March 16.

Chechen connection All this talk has led to speculation that a palace coup is underway, which may have been sparked by the murder of opposition politician Boris Nemtsov on February 27.

While everyone is speculating on what is going on, as there are no hard facts available, I will add my two cents worth.

Firstly I don’t believe there is a palace coup. The clique surrounding Putin has too much invested in his rule to want to oust him. If Putin were replaced, then all the oligarchs that have benefited the most from the last decade and a half of Putinism would be the first to be thrown in jail as the new guard coming in made a grab for their companies and cash.

Moreover, thanks to Putin's sky-high popularity, any replacement would spark widespread popular demonstrations and possibly even spark a the “coloured revolution” that many in the West still hope will eventually oust Putin. His personal popularity makes Putin more-or-less untouchable politically.

However, Nemtsov's killing clearly has created waves, and those have mainly been focused on Chechnya. The authorities have been quick to arrest five men from the Caucasus; a sixth killed himself during the arrest. The case against them has rapidly fallen apart. The most significant of the six was Zaur Dadayev, a friend and former lieutenant of Chechen leader Ramzan Kadyrov, who surprisingly publicly spoke out for Dadayev's

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character following his arrest. It now appears that Dadayev was tortured and he has since withdrawn his confession.

There have also been several reports of a clash between Kadyrov and the FSB, the successor agency to the KGB, and here there really does seems to be a power play in progress.

Putin recently awarded Kadyrov one of Russia's highest honours, the Medal of Honour, as he has been a loyal servant since he was appointed.

Kadyrov was instrumental in bringing peace to the region following the Second Chechen War in the 1990s and more recently he delivered a 100% vote (actually 102% according to some reports) for both Putin’s United Russia party in the 2011 parliamentary elections and for Putin personally in the 2012 presidential elections. These results were key, as especially in the Duma elections the Chechen votes allowed United Russia to just scrape over the 50% threshold and win an outright victory.

But Kadyrov is also clearly a brute and runs the region with an iron fist. Human rights groups have accused the former rebel of using death squads to enforce his authority. Also when a Kremlin aide visited Chechnya to see how $1bn sent to Grozny to finance its economic redevelopment was being spent, he said in a report leaked to the press at the time that he didn’t see any evidence of the investment at all.

More ominously, the Chechens have been accused of the killing of opposition journalist Anna Politkovskaya in 2006 as well as several other gangland-style killings in Moscow. Politkovskaya was murdered at the same time as Kadyrov was suing her paper, Novaya Gazeta, for running a series of articles accusing him of kidnap and murder.

Kadyrov has been operating with impunity for most of the last decade, but just suppose, as a matter of pure speculation, that he is somehow connected with the Nemtsov slaying. If so, given that the Kremlin would almost certainly be

Opinion March 13, 2015

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enraged by this killing, then all the recent press surrounding him – in state-controlled media that usually have clear orders to write these sorts of political pieces – suggest that he is being sent a very clear warning: you are not untouchable and you can be replaced.

case how Kadyrov's removal would play out, if it came to that point. Chechnya is calm as it is repressed, but the constant attacks in towns like Nalchik suggest it is still seething under the surface. A change of guard could easily end up sparking a third Chechen war.

The Chechen "clan" remains extremely powerful in Moscow, as it could in theory turn the insurrection back on. And if Kadyrov is under attack, then he will push back with everything he has got. Putin's removal from circulation at this time would only add to Kadyrov’s nervousness, as in Putin's Russia a direct appeal to the president is the only way to take the heat off.

The bottom line is that this scenario is possible, and the fact that I can write a piece like this, or my colleagues can offer their own palace coup versions of the same, all testify to the central role that Putin plays in Russian politics and this is not a good way to run a country. Most likely, the real explanation is that he has simply run off to the Maldives for a week to recover from some more plastic surgery and to celebrate his honeymoon, after finally marrying former gymnast Alina Kabaeva.

As I said there is no evidence for this – or any other – theory. Nor is it clear in this hypothetical

Weekly Lists March 13, 2015

bne: Infrastructure Montenegro to draw ¤689mn Chinese loan for Bar-Boljare highway bne IntelliNews

Croatia to sign deal for LNG terminal feasibility study by year-end bne IntellinNews

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

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

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Montenegro’s government expects to receive a ¤689mn loan from China’s Exim Bank to finance construction of part of the BarBoljare highway in the near future. Construction of the highway will be the main driver of growth in the Balkan country this year.

The loan is one of several extended by Chinese state-owned banks for Balkan infrastructure projects. Beijing has hiked its support for road and rail projects in the region after Cosco Pacific took over the management rights to part of Greece’s Piraeus port.

Beijing appears keen to fund construction of new road and rail links through the region that will connect ports including Bar and Piraeus to major markets in Central and Southeast Europe. The loan agreement for the Bar-Boljare highway segment was signed in November 2014.

Croatia will commission a feasibility study for a planned liquefied natural gas (LNG) terminal on the island of Krk by the end of this year, paving the way for a decision to be made on the project in early 2016, Economy Minister Ivan Vrdoljak said on March 10.

Construction of the LNG terminal has become a priority for Zagreb after the outbreak of the Ukrainian conflict put supplies of Russian gas supplies to Europe - delivered via Ukraine - at risk. This became more urgent after Moscowcancelled the planned South Stream gas pipeline project, which would have transported Russian gas to Southeast Europe, bypassing Ukraine.

The terminal would provide an alternative source of gas for both Croatia and neighbouring countries.

Croatia is also looking at plans for a gas pipeline along the Adriatic coast to Montenegro, which would connect to the Trans Adriatic Pipeline (TAP) that will transport gas from Azerbaijan into Central Europe.

Weekly Lists March 13, 2015

bne:TMT Polish portal looks to banish gloom on Warsaw bourse bne IntelliNews

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

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

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Despite subdued valuations on the Warsaw Stock Exchange - as on other equities markets in the region - one area that could experience increased activity is the Polish media and IT sector, market players claim.

"Now is very positive for tech internet IPOs in Western Europe and the US, and I expect this trend to accelerate also on the Warsaw Stock Exchange," private equity MCI Management's Tomasz Czechowicz told bne IntelliNews. Czechowicz said on March 10 that MCI would partially exit Wirtualna Polska (Wp.pl) should it list in Warsaw, as is expected in the coming weeks.

"The situation on the stock market suggests that such an offer may be successful in Poland," he said, according to Reuters. He claimed Poland's biggest web portal is potentially worth more than PLN1bn (¤241mn).

Russian investigative paper Novaya Gazeta set to shutter print edition

Novaya Gazeta, Russia's best known and most highly regarded investigative newspaper, may end its print issue this summer or even close down entirely, the newspaper's editor said according to local reports.

bne IntelliNews

"It is perfectly possible that after celebrating Victory Day in May with a special edition we will stop our print edition," editor-inchief Dmitry Muratov told television station Dozhd, the Moscow Times reported on March 12. He did not comment on what would happen to the online edition. Muratov said that the paper could not compete with the state-backed rivals.

Weekly Lists March 13, 2015

bne:Banker Bank sales come at bad time for Turkey but are no mass exit bne IntelliNews

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

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

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News that the National Bank of Greece (NBG) will in April reduce its stake in Turkey's Finansbank from 99.8% to 60% would be guaranteed to attract attention even in the most stable of investment climates. After all, public offerings in big Turkish retail banks are far from common.

But NBG's decision generated more interest than would normally be the case, coming as it does only three months before a Turkish general election in which the future of the country's parliamentary system is apparently at issue, in the midst of a rancorous spat between the country's currently non-executive president and the nominally independent Turkish central bank, ahead of a widely anticipated US interest rate rise that is expected to impact especially emerging markets, and only a week after Citibank announced it was selling its 9.9% holding in Turkey's Akbank.

However, while the timing of the sales could be construed as panicked exits, the root cause of both is internal issues faced by both banks rather than any sudden loss of faith in the Turkish banking market.

Polish banks make CHF loans proposal bne IntelliNews

The Polish Banking Assocation (ZPB) issued proposals on resolving the issues surrounding Swiss franc mortgages on March 11, as the government mulls how to help Poland’s 600,000 mortgage borrowers holding CHF loans. Since the Swiss central bank dropped its cap on the currency in January, Polish borrowers have seen their monthly payments soar by around 20%.

The association floated solutions based on two pillars.The creation of a mortgage restructuring fund (FWRKH) to support borrowers facing difficulties in loan repayment due to unforeseen circumstances and a sector stabilization fund (SFS), to support borrowers who decide to convert CHF loans into zloty.

FWRKH, it suggests, should be financed not only by the banks (50%), but also by the state. SFS would be financed by banks (33%), the bank guarantee fund (33%) and the National Bank of Poland, it added. SFS would offer borrowers with earnings below the average the possibility to convert loans at CHF rate 5-20% below the current market rate.

Weekly Lists March 13, 2015

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bne:Credit

The Central Bank of Russia (CBR) on Friday March 13 made a 1% cut in the key policy rate, lowering it from 15% to 14%, the regulator said.

Russian central bank cuts interest rates to 14%

The CBR believes the step will reduce pressure on the financial sector without posing an additional threat of increased inflation, the high level of which in recent weeks was caused by ruble depreciation and external trade restrictions, it said: “Their impact is short-term and will be exhausted before the end of 2015," the bank added.

bne IntelliNews

According to the CBR's forecast, the current monetary policy and low economic activity “will be conducive to the slowing of annual consumer price growth to 9% over the year (March 2016 on March 2015) and to the target of 4% in 2017.” The regulator also said that as inflation risks abate it will be ready to continue cutting the key rate.

Montenegro probes investors’ interest for new Eurobond issue bne IntelliNews

Representatives of Montenegro’s finance ministry and of the central bank will meet potential investors, banks and funds in London, Munich, Frankfurt and Vienna to tap waters for a new Eurobond issue, news service CDM reported. It quoted ministry’s statement as saying that following the meetings the government will place a new Eurobond issue on the international markets.

According to Reuters, the government has already set the final yield on a five-year euro benchmark-sized bond at 4% and the demand exceeds ¤1.3bn.

Montenegro has so far placed three Eurobond issues, a ¤280mn five-year bond in May 2014 and two other issues, totalling combined ¤380mn, in 2010 and2011. The government has hired Citigroup, Deutsche Bank, Erste Group and Societe Generale for the new issue.