bne:Newspaper - March 27, 2015

Content: 2 Top Stories 6 The Regions This Week 11 Eastern Europe 14 Eurasia 18 Central Europe 21 Southeast Europe 23 Opinion 26 Lists 24 Lists

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Poroshenko turns on Ukraine’s most powerful oligarch Graham Stack in Dnipropetrovsk Ukrainian President Petro Poroshenko has fired Ihor Kolomoisky, the powerful governor of the Dnipropetrovsk region, on March 25, amid a rapid escalation of tensions that threatens to undermine Ukraine's already fragile government.

Kolomoisky, up till now a crucial ally of Poroshenko in containing the armed conflict in East Ukraine, is also the crisis-ridden

country's most powerful oligarch, running a business empire comprising banks, aviation, media, metallurgy and energy, headquartered in the south-eastern Dnipropetrovsk region.

The firing marks the first major rift in the coalition of pro-Western forces that took See page 2

Row exposes tensions within Turkey's ruling party Kivanc Dundar in Istanbul A war of words between two senior AKP politicians has demonstrated that President Recep Tayyip Erdogan’s plans to extend his powers are not only polarising the country but are also creating fractures within the ruling party, with potentially serious consequences for the government ahead of the crucial June parliamentary elections.

On March 23, Deputy Prime Minister Bulent Arinc publicly accused the mayor of Ankara, Melik Gokcek, of corruption and embezzlement.

Arinc’s accusations came after the mayor claimed that Arinc was collaborating with Fethullah Gulen, Erdogan’s US-based ally-turned-foe, in order to undermine the president and the government.

See page 4

Top Stories Marxh 27, 2015

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Poroshenko turns on Ukraine’s most powerful oligarch

“Today it is not time for Maidan but for elections,” Sviatoslav Oleinik, Dnipropetrovsk deputy governor, wrote on Facebook. “But I invite everyone to the demonstration for unity,” he blogged.

power in February 2014 following the ousting of former president Viktor Yanukovych by opposition protests.

"It was not we who organised the Illovaisk pocket," Oleinik said in another post, referring to the defeat of Ukrainian army units by Russian-backed forces in the Donetsk region in August 2014. Criticism of Poroshenko's conduct of the military operations in East Ukraine is likely to play a major role in any Kolomoiskybacked opposition to the president, according to analysts.

Poroshenko fired Kolomoisky in the early hours of March 25, five minutes after signing into law a bill effectively depriving Kolomoisky of backdoor control over the state oil company Ukrnafta. The bill closes a corporate governance loophole that gave Kolomoisky control over the company's finances, despite the state holding 50% plus one share.

Kolomoisky-linked media reported that he had resigned and that Poroshenko had accepted his resignation.

The head of Ukraine's SBU security service Valentin Nalivaichenko warned Kolomoisky on TV in the evening of March 24 against “playing

CHANGES ARE GOOD

Kolomoisky had tried to resist Kyiv's moves to reassert control over key state assets by deploying armed personnel at the headquarters of Ukrtransnafta and Ukrnafta during March 19-22. The rifle-toting men were reportedly fighters from an irregular battalion of volunteers the billionaire has financed to combat pro-Russian separatists in East Ukraine. Other sources said that the men in fatigues were from a private security company.

Kolomoisky's allies are now threatening to go into political opposition to his fellow tycoon Poroshenko, demanding decentralisation of power in Ukraine.

They have called for a Maidan-style popular gathering on the evening of March 25 in Dnipropetrovsk. Other reports speak of plans for a demonstration to be held on March 28 in support of Ukrainian unity and Kolomoisky's “patriotic team”.

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Top Stories Marxh 27, 2015

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out any show” in Dnipropetrovsk, saying that state security organs would stop this.

“Separatists won't come to help you,” he said.

charismatic, good person who fully backs Ukraine's freedom from Russia. And he wasn't fired – he resigned,” Melnik said.

The industrial hub of Dnipropetrovsk borders the Donetsk region, a large part of which is controlled by Russian-backed separatists.

“The state has proved that it is the state,” blogged Serhiy Fursa, an analyst at Dragon Capital. “Otherwise we would have turned into a collection of feudal barons.”

Kolomoisk is credited with turning Dnipropetrovsk into a bulwark against separatism, following his surprise appointment as governor after the ousting of Viktor Yanukovych.

However, Poroshenko's choice of successor to Kolomoisky shows that personal and business networks still play a crucial role in stitching Ukraine together: Poroshenko said he would appoint a personal ally and former business partner, Valentyn Reznichenko, “He made sure things didn't turn out here currently governor of the south-eastern as they did in Donetsk,” Sergei Vinikul, an insurance salesman, hurrying to work on March Zaporizhzhya region, to head Dnipropetrovsk.

25 in Dnipropetrovsk, told bne IntelliNews.

Reznichenko is a longstanding business Despite the implications of the Poroshenkopartner of Boris Lozhkin, head of Poroshenko's Kolomoisky rift, daily life continued as normal presidential administration. Reznichenko and in the city. Hours after Kolomoisky's sacking Lozhkin built up leading print media publisher was announced, comings and goings of black Ukraine Media Holding before selling it in 2013 jeeps with tinted windows at the regional to Serhiy Kurchenko, a frontman for officials in administration building suggested top-level the administration of Yanukovych, for at least activity behind the scenes. ¤160mn.

Pavel Melnik, a fatigues-clad volunteer Poroshenko partnered Lozhkin and supporting the Kolomoisky-financed Dnipro Reznichenko in print media until 2013, when batallion, called the local leader's firing a Lozhkin bought him out in the run-up to the “catastrophe” as he turned up for duty Kurchenko acquisition. at the building. "He is a strong leader, a

Top Stories Marxh 27, 2015

Row exposes tensions within Turkey's ruling party

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Erdogan, who generally makes comments on everything, has kept silent. The AKP will take disciplinary action against those who damage the credibility of the party, particularly on the eve of parliamentary elections, Hurriyet Daily News quoted the premier as saying on March 24. Davutoglu only criticised the way Arinc and The row began on March 20 when Erdogan, who Gokcek handled this spat, however, and he did not say anything about Gokcek’s alleged regards himself as the architect of the peace process with the Kurdish guerillas, opposed the wrongdoings. This row between the two figures from the same party is over now, declared the establishment of a monitoring committee to premier on March 25, dismissing the existence oversee the negotiations with the PKK to end the decades-long conflict. Erdogan claimed that of any divisions within the party. he did not know anything about the monitoring Erdogan is still the most skilled, most powerful, committee, because the government did and maybe the most ambitious, political figure not inform him about its plan to create such in Turkey now. He survived the anti-government a team. The idea of forming a monitoring committee is totally useless, said the president. protests that swept across Turkey in 2013 and a massive corruption scandal later that year.

Erdogan now wants to move Turkey to a formal Arinc, a veteran politician and one of the founding members of the AKP, who will not run presidential system after the June elections. in the June elections, reacted to the president’s But for this to happen, the AKP needs to score a decisive victory in the parliamentary comments, saying that Erdogan should stop elections. interfering. “We love our president, he is the people’s hero, but there is a government in Erdogan appears almost every day in live this country”, said Arinc. Erdogan’s comments broadcasts on TV channels, and on every undermine the government led by Prime possible occasion he talks about the benefits Minister Ahmet Davutoglu, which faces a challenging parliamentary election in June, said of the presidential system. He recently said he wants to see at least 400 AKP deputies in Arinc, adding that conducting talks with the the 550-seat parliament so that the ruling PKK is the government’s responsibility. party could have the majority to rewrite the constitution without a public referendum.

Gokcek, a staunch Erdogan loyalist, could Securing 400 seats is almost impossible but not help himself; he bombarded Arinc with this rhetoric shows how ambitious Erdogan is. a series of tweets (31 tweets in total and a link to a two-page letter), basically calling the The party’s internal divisions may be a more deputy premier a traitor for his alleged ties serious threat than the opposition. When he to the Gulenist network. Davutoglu should won the presidential election in 2014, Erdogan immediately dismiss Arinc, said Gokcek. On picked then foreign minister Ahmet Davutoglu March 23, Arinc, who is also the government spokesperson, responded to the mayor, calling as his successor, hoping that it would be easy him dishonourable. He also threatened to reveal for him to work with Davuoglu, a former scholar who lacks Erdogan’s charisma. However, Gokcek's alleged wrongdoings after the June apparently Erdogan is now not very happy with elections. the way the Davutoglu-led government deals with economic and political issues, including After the row burst into the open, Davutoglu the peace process with the PKK. Erdogan has met separately with Arinc and Gokcek, while

Top Stories Marxh 27, 2015

already chaired two cabinet meetings since he was elected president, showing that he calls all the shots in Ankara.

Davutoglu, meanwhile, has avoided any public confrontation with the president. When Erdogan criticised the central bank for failing to cut interest rates fast and deeply enough, sending the lira to record lows against the dollar, Davutoglu did not defend the bank’s governor Erdem Basci. Or when the president opposed the government’s proposal for the creation of the monitoring committee for the PKK negotiations, Davutoglu did not challenge Erdogan.

According to some commentators, Arinc’s comments, directed at Erdogan over the peace

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process, may be the first signs of growing frustrations among AKP ranks over Erdogan’s relentless efforts to maintain and extend his powers. “The exchange of words between Erdogan and Arinc is over the Kurdish issue only on the surface. Actually, it was about the powers of the president and the government”, wrote the respected political commentator, Murat Yetkin, on March 24 in Hurriyet Daily News. “Whose words should be taken into account to understand what Turkey says: the president or the government?” asked Yetkin, adding this issue is what Davutoglu needs to clarify - not only in rhetoric but also in practice - for the sake of the predictability and thus credibility of the Turkish government.

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The Regions This Week March 27, 2015

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Central Europe Lithuania's PM dampened hope for an advance of gay rights as he said he will not back a proposed bill on same-sex partnerships. Algirdas Butkevicius suggested the draft bill from members of his own Social Democrat party will be quashed. Estonia passed similar legislation in 2014, while Latvia has Europe's only openly gay minister since Foreign Minister Edgars Rinkevics came out in November.

Budapest plans to review the special taxes on the telecommunications sector, Economy Minister Mihaly Varga said on March 25. The announcement comes after last month the government agreed to cut the tax burden on the banking sector and said it will lower the controversial advertising tax.

Slovakia has tripped itself as it rushes through more pension reform. Legislation to introduce a new minimum pension means low-income earners can keep their savings with private funds with little risk to their eventual payout, scuppering Bratislava's bid to claw back payments. Lawmakers are now scrambling to rewrite the bill.

The EU has launched infringement procedures against four CEE states over land purchase restrictions. Bulgaria, Hungary, Lithuania and Slovakia are accused of restraining free trade with their restrictions on agricultural land acquisitions.

PM Fico urged Enel to complete the Mochovce nuclear plant before selling Slovenske Elektrarne. The call is just the latest piece of pressure on the sale from Bratislava, with the Italian utility hoping to get 造1bn for its 66% stake.

It set a May 9 deadline on binding bids last week.

Budapest rejected insider trading allegations stemming from the foreign ministry's withdrawal of cash from brokerage Quaestor - the last of three brokerages shuttered in recent weeks just days before it filed for bankruptcy protection.

Prime Minister Viktor Orban said he had ordered Having been cheered through the Baltics and ministries to exit brokerages, fearing a domino Poland, the "Dragoon Ride" will be closely effect from the earlier collapse of Buda-Cash. watched as it enters the Czech Republic on March 29. The convoy of US troops and tanks Poland and its CEE peers secured a delay to the is snaking its way through the region in a bid EU's reform of its carbon markets on March 25. to reassure Nato allies over fears of imperialist The Market Stability Reserve (MSR), designed to ambition in Moscow. However, some Czech support prices by removing surplus emissions protests are expected, mirroring the country's permits, will now not come online until 2024 after somewhat ambivalent geopolitical stance.

CEE lobbying.

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Southeast Europe The European Union may invest up to ¤1bn into regional infrastructure projects in the Western Balkans, European Commissioner for Enlargement Johannes Hahn told a ministerial conference in Pristina on March 25. Transport ministers from the region agreed to create a pan-regional network connecting capitals and major economic centres.

starting price at ¤8.55mn, ¤950,000 lower than in the previous attempt.

The volume of overdue loans held by Romanian banks dropped by 25% y/y to RON25.3bn (¤5.7bn) at the end of February, the country’s central bank announced on March 25. In euros, the contraction was 24% y/y.

The Sofia City Court has approved the appointment of two lawyers as temporary receivers for Bulgaria’s Corporate Commercial Bank, which was taken under central bank administration in 2014. On March 18 the parliament adopted amendments to the law on bank insolvency, which allowed the appointment of temporary receivers.

Romania’s government endorsed the revised Fiscal Code, which includes significant tax rate cuts, on March 25. The bill will be submitted to the parliament, and if approved will come into effect in January 2016.

Sofia is planning to privatise the 50.05% stake in the Bulgarian Stock Exchange (BSE) in state hands. Investment intermediaries and banks own 21.73% of the BSE, with the remaining shares held by other legal entities and individuals.

All three mobile operators in Serbia are ready to start providing 4G services to their customers following the February auction of additional frequencies, Serbia's telecommunications regulatory agency Ratel said on March 25. The operators have received permits to operate frequencies in the 1710-1785/1805-1880MHz band.

Police have arrested 77 people in several countries across Europe in a trans-national operation against a network smuggling Kosovan migrants into the European Union. Police in Hungary and other EU countries worked with non-EU member states including Kosovo to break up the people smuggling network.

Moldova’s political and economic development continued to be hampered by systemic and highlevel corruption, according to an EU staff working document on the implementation of the European Neighbourhood Policy in Moldova, published on March 25. Corruption remains a major cause of concern in critical areas such as the judiciary, customs, public procurement, health, the social sphere and education.

The fourth attempt to privatise Montenegro’s mining firm Rudnici Boksita will most probably fail because of the high starting price, trade union leader Borisav Bojanovic has warned. The bankruptcy trustees at Rudnici Boksita set the

Albania signed a ¤32.1mn loan agreement with the World Bank on March 23 to support a project to reform country’s healthcare sector. The focus of the project is on improving management and governance in state hospitals, improving the way healthcare is financed, and introducing new information systems to raise the quality of healthcare.

Croatia has sent a preliminary draft of proposed package of reforms to Brussels aimed at correcting macroeconomic imbalances, according to Deputy Prime Minister Branko Grcic. The EC will decide in May whether to activate the excessive imbalance procedure for Croatia.

The Kosovan government approved a package of reforms to the country’s tax system at a meeting on March 24. The aim of the reforms is to ensure a more equitable distribution of the tax burden, as well as improving conditions for business, Prime Minister Isa Mustafa told the meeting, according to a government statement.

The Regions This Week March 27, 2015

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Eastern Europe Russia’s Prosecutor’s Office and Investigative Committee says it will seize Ukrainian businessman Ihor Kolomoisky’s stake in Russia's Evraz steel and mining giant.

Two senior Ukrainian officials were arrested during a cabinet meeting in front of TV cameras as part of an anti-corruption crackdown.

The head of Ukraine's state emergencies service, Serhiy Bochkovsky, and his deputy Vasyl Stoyetsky were arrested on charges of taking illegal kickbacks involving procurement contracts.

year, he has been accused of accepting $750,000 in lecture fees from Skolkovo that he never delivered.

US State Department spokesperson Jen Psaki appeared on Russian socialite Ksenia Sobchak’s talk show and told her: "We don’t see Russia as an opponent."

52% of Russians believe they are one people with Ukrainians, down from 56% one year ago, according to a Leada poll

The younger son of Ukraine's former President Russia's hard currency reserves rose by $1.2bn Viktor Yanukovych drowned in Lake Baikal when the minibus he was driving broke through this week for the first time in four months. Total the ice. The other five occupants escaped. He reserves were $352.9bn, according to the CBR. was buried two days later in Crimea. The death is only the latest in a string of strange deaths Canada signed into law its own version of the so-called Magnitsky law that sanctions Russian amongst former Ukraine ruling party deputies. officials for domestic human rights violations in a JSC Information Satellite Systems Russia’s unanimous vote by the House of Commons. leading satellite manufacturing company will launch a total of 19 spacecraft into orbit this The rights to Russian vodka brand Stolichnaya must be returned to the Russian state, a Dutch year, the company’s director general said. court ruled. Spirits International, which sells Stoli in the West also has to pay unspecified damages French oil giant Total is seeking up to $15bn in Chinese financing for a major Russian energy plus a fine of ¤50,000 per day for each day it project after US sanctions on Moscow blocked doesn’t return the rights. access to dollar funding, chief executive Patrick Pouyanne told The Wall Street Journal. Pouyanne A Russian TV station has offered Jeremy said Chinese lenders could grant the company Clarkson a job after the BBC's former Top Gear the equivalent of $10bn to $15bn in euros host got sacked this month. The Zvezda (Star), and yuan to fund Yamal LNG, a $27bn liquefied TV channel run by the Russian Defence Ministry natural gas mega project in Russia's Arctic. suggests Clarkson could host a similar car program on its own station that reaches "75 Moody’s agency downgraded Ukraine’s longregions and 960 cities and villages”. term issuer and government debt rating to Ca from Caa3 with a negative outlook, the agency Liberal opposition leader and MP said in a statement on March 24. "The key driver Ilya Ponomaryov has been accused of corruption and Russia's investigation Committee of the downgrade is the likelihood of external private creditors incurring substantial losses as has asked for his parliamentary immunity to a result of the government's plan to restructure be withdrawn. A Duma deputy of the opposition party Just Russia and the only man to abstain on the majority of its outstanding Eurobonds," the vote to allow Crimea to "return" to Russia last Moody’s said.

The Regions This Week March 27, 2015

Eurasia

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largest city. The price increase is explained by a jump by 17-20% in wholesale prices of diesel SouthGobi Resources has lost an appeal against produced by Russian refineries due to a seasonal increase in demand connected to spring field a tax evasion ruling in Mongolia. The company works. In addition, exchange rate fluctuations also rejected the appeal verdict, saying "grave impact the price of fuel in Russia and Kyrgyzstan. procedural errors" had been made by a lower At the same time, the price of petrol did not court that found it guilty of tax evasion. It claims the initial and appeal rulings were reached "on the change in Kyrgyzstan. basis of the same erroneous and false reports and it has been demonstrated that there is a complete Kazakhs spent $2bn on online shopping in 2014.

Turnover of Kazakhstan’s e-commerce totalled lack of evidence to support both verdicts". $700mn which means that Kazakh citizens spent only 29% of the total on purchases in the The Mongolian government's budget posted domestic market, up from 10% in 2012. The USa deficit to the tune of MNT886bn (¤412mn) based online traders accounted for 39% of total or 4.06% of GDP, in 2014. Overall government transactions, followed by the EU (12%), Russia revenue increased by 2.6% to MNT6,145bn (11%), the UK (6%) and other (3%). and expenditure by 14% to MNT7,031 in 2014.

The country's nominal GDP increased by 7.8% Kazakh individuals prefer to keep deposits in in real terms and 14.3% in nominal terms to foreign currency (mainly the dollar) to the tenge.

MNT21,800bn in 2014.

As of March 1, the total volume of retail deposits in Kazakh banks amounted to KZT4,326bn (¤21bn).

Tajikistan's national currency has depreciated Retail time deposits in the national currency stood by 7.84% against the dollar in 2015 so far. The at KZT1,045bn, while in foreign currency they were exchange rate stood at TJS5.3074 against the dollar at the beginning of 2015 and at over TJS5.7 KZT2.83tn. Foreign currency deposits accounted now. Because of the artificially low rate, exchange for 73% of total time deposits. offices are selling at a higher rate of TJS6.6 to Georgia’s foreign trade totalled $1.43bn, marking the dollar. Even then it is hard to buy dollars in Dushanbe because the sale of foreign currency at a 9% decrease y/y, in January-February. Exports stood at $324mn, down by 26% y/y, and imports a rate significantly exceeding the rate set by the central bank is regarded as speculation and is an at $1.10bn, down by 2% y/y, resulting in a negative trade balance of $786mn. Foreign trade with the administrative offence.

European Union amounted to $385mn, down by 2% y/y, and accounted for 27% of the total – 33% The National Bank of Kyrgyzstan has sold in exports and 25% in imports. Turkey, Azerbaijan $44.5mn on the local stock exchange to support the national currency in March so far. The central and China are other top trading partners with $224mn, $147mn and $112mn respectively. bank said it sold $11.4mn on March 25 and $8.4mn on March 24. Earlier, on March 16, it Azerbaijan’s state oil company, Socar, is seeking sold $24.7mn. Despite the interventions in the to secure an AZN1bn (¤881mn) loan from the currency market the national currency slid from KGS61.8 to KGS63.4 between March 16 and March Central Bank to kick start building a new oil and 26. The som depreciated by 7.1% between January gas processing petrochemical facility. The project, estimated to cost about ¤6.4bn, will feature three 1 and March 26. processing enterprises and a thermal power plant. The new facility will increase annual oil The price of diesel fuel went up by KGS1 to refinery capacity to 8mn tonnes of crude from the KGS37.5 (¤0.56) in the Kyrgyz capital, Bishkek, current 6mn tonnes. and to KGS40 (¤0.60) in the country's second

bne Chart March 27, 2015

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Political apathy rife among Ukrainians A recent poll by Kyiv-based sociological researchers R&B Group has revealed an overwhelming sense of political apathy among Ukrainians.

As the first bne:Chart shows, a meagre 13.2% rating was enough to see President Petro Poroshenko’s ruling bloc lead the party polls, yet this figure fell short of the 23.1% who said they would not vote for any of the parties or the 24.1% who were undecided.

With 19.2%, Poroshenko also led the poll for individual candidate popularity when

respondents were asked whom they would vote for were an election to be held in March.

As the second bne:Chart shows, even this rating fell short of the 20.1% who said they would not vote for any of the current potential candidates. 23.9% were undecided.

Of those polled, only 8% said that they trust political parties in Ukraine, while 81% said they do not. 79% of those polled considered the political situation in Ukraine to be unstable, with only 5% considering it to be stable.

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Bonnie and Clyde accused of looting Ukraine's stricken Delta Bank

Graham Stack in Kyiv Ukraine's failed fourth largest bank Delta Bank suffered massive siphoning off of funds in the run-up to its collapse on March 2, local media reported, citing sources in the National Bank of Ukraine (NBU). Delta Bank's insolvency was the second biggest ever in Ukraine, although it was among scores of banks to fold since 2014.

According to the Zerkalo Nedeli weekly, prior to its collapse, the bank made suspect loans totalling some UAH4.3bn ($272mn) to 12 local companies that appear to be shell companies – one of which bore the telling name of notorious bank robbers “Bonnie and Clyde”.

The Ukrainian shell companies then moved the funds to UK and British Virgin Island shell companies in a time-honoured fashion used by numerous market players: as advance payment for import contracts, a common means of moving funds out of the country in contravention of currency regulations.

Delta Bank also on paper held nearly $0.5bn on correspondent accounts in Austrian banks, nearly all of which had to be written down in DecemberFebruary as having been pledged against loans to the bank. UAH4bn on a correspondent account in Ukraine's Privatbank was also written down after claim to the funds were reassigned to unknown third parties, according to Zerkalo Nedeli.

Also in the months prior to Delta's collapse, the volume of retail deposits of less than

UAH200,000, which are guaranteed by state deposit insurance funds, grew from UAH13.4bn to UAH16.7bn as corporate deposits were apparently broken up and re-categorised as belonging to individuals.

Delta Bank was declared insolvent on March 2 and the insolvency announced by the NBU on March 3. The timing is significant: Later on March 2, Ukraine's parliament passed a law increasing criminal liability of bank owners and management in the case of funds being siphoned from banks, but any irregularities associated with Delta Bank's insolvency will likely not fall under the new law.

In a speech that NBU head Valeriya Gontareva tried to deliver to parliament on March 6, but which had to be aborted after heckling by critics, she said that since 2014 illegal actions by shareholders and managers had caused a total of UAH58bn in losses ($2.5bn), prompting 239 criminal investigations.

Her speech did not specifically mention Delta Bank, which has denied any wrongdoing. “We did not siphon off any assets from the bank,” Mykola Lagun, Delta's founder, chairman and majority owner, said in a March 18 interview.

Gontareva blamed “the actions of owners of banks which have been removed from the market” for the recent wave of devaluation, alongside psychological factors such as the

Eastern Europe March 27, 2015

war in East Ukraine and statements by populist politicians.

“If we had had such an instrument [as the March 2 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 speech, which was later published on the NBU website.

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In a report on Ukraine published on March 15, the International Monetary Fund warned that “opaque ownership structures and lending schemes have made it difficult for the NBU to limit effectively banks’ exposures to insiders".

The "balance sheets of intervened banks turned out worse than the books indicated", and as a result, “little value has so far been recovered from the assets of failed banks", it added. The IMF put the cost of Ukraine's bank restructuring in 2014-2015 at 9.25% of GDP.

Support for Ukrainian government plummets bne IntelliNews Support for Ukraine's pro-Western government is plummeting, with nearly 70% of Ukrainians believing the country is going in the wrong direction, one year after the change of regime in Kyiv. The plunge in confidence mirrors the economic collapse in the wake of the conflict in East Ukraine and rising tensions with Russia.

Two thirds (66.9%) of respondents in a poll

by Kyiv's Razumkov Center believe the leadership is incorrectly handling developments, with only 17.5% supporting government policies.

Only 19.4% of Ukrainians would now vote for President Petro Poroshenko, less than half of the 55% that swept him to a landslide first round victory in elections on May 25, 2014. The elections followed the ousting of former president Viktor Yanukovych after the Maidan protests.

Only 12.6% of respondents now say they fully support the tycoon-turned-president, while 39.9% take the opposite view.

While percentages differered considerably, because of a different ranges of options, the overall turnaround in support for Poroshenko was confirmed by a second poll conducted by

Research & Branding Group: 58% of respondents disapprove of his performance, and only 33% of respondents expressed approval.

The precipitous drop in support is reminiscent of the fate of Poroshenko's mentor, former president Viktor Yushchenko, who came to power in 2005 after a pro-Western revolution. His initial ratings were over 60% but he garnered only 5% of ballots when he ran for re-election in 2010.

Neither poll covered Crimea, annexed by Russia in March 2014, or parts of the Luhansk and Donetsk regions currently held by Russian-backed separatists.

Poroshenko's key ally, Prime Minister Arseny Yatsenyuk, fares even worse in the polls, 13 months after becoming premier when Yanukovych fled in February 2014.

According to the Razumkov Center poll, 56.7% of people do not support Yatsenyuk at all, with only 7.8% expressing full support. In the survey

by Research & Branding, 68% disapproved of Yatsenyuk, and 24% gave their approval. Less than 5% of respondents fully supported the work of the government, despite it being formed by a coalition

Eastern Europe March 27, 2015

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of parties that together took around 70% of the vote in parliamentary elections in October.

2015. Ukraine's hryvnia has devalued by 66.5% since the start of 2014.

"If the government loses the support of society now, its reforms will be ineffective," said Razumkov Center director Vasil Yurchishin.

The economic collapse has largely resulted from the fighting in the eastern industrial heartlands, as well as financial imbalances accumulated over years. Indicatively, only 12.7% of respondents are now ready to further “tighten their belts” for the good of reforms in the country, the Razumkov Center poll showed.

The government is now facing local elections in October 2015, prior to which constitutional reform should devolve extensive powers to local government.

One consolation for Poroshenko and Yatsenyuk is that their collapse in approval is not matched by a surge in support for the opposition. The opposition, which largely succeeded Yanukovych's former governing Party of Regions, is weak and fragmented after losing key strongholds in Crimea, Luhansk and Donetsk, and through its association with deadly violence by Yanukovych's administration against protestors in February 2014.

The plummet in support for Poroshenko and Yatsenyuk is even more significant since they have benefited from largely benign media coverage. Poroshenko himself is the owner of a major TV network, while other top officials such as (recently fired) Dnipropetrovsk governor Ihor Kolomoisky and Andriy Sadoviy, head of the third largest party in the ruling coalition, also control key networks.

Another 30.7% of respondents fear Ukraine's economy will utterly collapse, leading to mass closures of firms, unemployment, national default, and another dramatic devaluation of the hryvnia currency. A quarter see the crisis deepening in 2015, and only 29.4% expect the economy to stabilise by the end of the year.

Gloom reflected in the polls is marginally relieved

by Ukrainians' EU membership aspirations, which provides some light at the end of the tunnel, according to another poll conducted by the Kyiv International Institute of Sociology (KIIS).

Russian aggression towards Ukraine has apparently pushed more Ukrainians away from Moscow and towards the EU, with 47% of respondents wanting union membership, up from 41% in September 2013. But 27% of respondents now do not want to join either camp.

The number of Ukrainians wanting to join Other major media owners such as gas oligarch the Russian-led Eurasian European Union Dmitro Firtash and metals oligarch Viktor has dropped to only 12%, down from 35% in Pinchuk also lent their support to the Poroshenko September 2013, according to the KIIS poll. administration, since the ongoing conflict in East Its survey included the rebel-held Donbas area of Ukraine has diminished their readiness to criticise East Ukraine, but not Crimea. the 'wartime' government, the media watchdog Telekritika said.

“Positive signs of support for Ukraine from the international community are now crucial to This means the government's collapse in ratings propping up the government's reform path,” is probably a result of Ukraine's disastrous says Volodoymr Fesenko of the Penta think tank. economic situation rather than politics, say According to Fesenko, this could include financial analysts. Ukraine's GDP collapsed by 6.8% in support as well as a decision in favour of a visa2014, according to official statistics, with the free regime between the EU and Ukraine. government anticipating a further 5.5% fall in

Eurasia March 27, 2015

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Eurasian Economic Union complicates Kazakhstan's final WTO accession bid

Iana Dreyer in Brussels, Mike Collier in Riga Hopes revived last summer that Kazakhstan would be able to join the World Trade Organization (WTO) in early 2015 risk being dashed.

Remarks by the WTO Director General Roberrto Azevedo made at a Stockholm School of Economics campus in the Latvian capital Riga on March 24 reveal that Kazakhstan’s membership in the Eurasian Economic Union (EEU) – which involves being in a customs union with Russia, Belarus, Armenia and soon Kyrgyzstan – makes the process more complicated than expected.

The Central Asian oil-dependent economy is one of the few countries in the world – consisting mostly of petro-states or very weak or failed states – still outside the Geneva-based multilateral trade body.

Formally, Kazakhstan’s bid is well advanced.

The country has signed most bilateral accession protocols with individual WTO members required before the WTO’s Accession Party – the group of WTO members overseeing accessions – formally agrees to accept a new member. Kazakhstan filed a new “legislative action plan” at the WTO last July, which is being revised in Geneva. “We're having some added difficulties in the process of [WTO] accession and it [is] clearly the case of Kazakhstan which is closer now to finalisation,” Roberto Azevedo told his audience in Riga.

The most difficult issue encountered last summer when talks were accelerated were the exact terms of Kazakhstan’s membership in the EEU, which came into force on January 1. The WTO’s accession working group has organised several “transparency sessions” to figure out the exact tariff levels and other trade-related rules Kazakhstan has signed up to as an EEU member.

Sanitary and phytosanitary rules (‘SPS’ in WTO jargon), such as those regarding veterinary certificates for food imports, have emerged as a key sticking point. Lack of clarity over Kazakhstan’s and EEU competence over the matter has complicated talks.

Kazakhstan also needs to agree to new import tariff reductions, especially in the area of agriculture. As a result of its accession to the customs union in 2010 with Russia and Belarus that preceded the EEU, Kazakhstan increased more than half its import tariffs.

Kazakh leaders “had undertaken with the other WTO members some commitments and promised that they would undertake a tariff profile which by the time they then decided to join the customs union – as you know a customs union requires uniformisation of the tariffs. Then that changed what they had already previously negotiated with the other members, which they were not very happy about,” the WTO director general explained.

Eurasia March 27, 2015

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Because it is part of a customs union, WTO members are negotiating not only with Astana on this matter, but also with the central authority of the Russia-led trade bloc, the Eurasian Economic Commission. In practice this mostly means talking to Moscow, the most powerful EEU member. Russia is not keen on liberalising import tariffs, nor on accepting WTO scrutiny on EEU SPS practices.

dispute settlement mechanism. Apart from obliging members to commit to a reasonably liberal trade regime, WTO membership makes a country’s trade rules more predictable, stable and enforceable. As a result, joining the WTO is considered a useful tool to attract investors.

Accession talks with Kazakhstan have revealed how much of a headache the EEU is posing to WTO members.

Russia is a WTO member and supposed to apply the body’s SPS Agreement. Though Moscow denies this, frequent import bans on food products from countries with which it is in political disagreement are often considered as politicised and contravening WTO norms.

The prospect of joining the EEU has meant for WTO members Armenia, Kyrgyzstan and Tajikistan that they increase tariffs. WTO rules require that compensation is given in the form of tariff liberalisation by the customs union. These talks are extremely challenging.

Kazakhstan’s bid to join the WTO was launched in 1996. But a slowdown in reforms in the second half of the last decade amidst high oil prices, and Russia’s insistence it join the WTO before Kazakhstan, meant Astana took the backseat.

Talks were virtually dead between 2008 and 2012.

“Now what we're trying to do is figure out a way of allowing Kazakhstan to harmonise its tariffs with Russia and the other members of the customs union in such a way that would still allow for this new tariff profile to be acceptable to the other members,” Azevedo said.

The Ukraine crisis has revived Astana’s desire to deepen its ties with key partners outside the region, such as China, the US and EU. The recent plunge in the oil price has also highlighted the need for Kazakhstan to undertake economic reforms.

“Of course it involves a bunch of compensations and negotiations which are very line by line, very specific, and my understanding is that after several months, maybe a couple of years, of negotiations we're beginning to see the light at the end of the tunnel,” Azevedo concluded.

The WTO sets basic global rules for trade in goods and services and provides a strong

Eurasia March 27, 2015

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Armenia veers back toward authoritarianism

Monica Ellena in Tbilisi On the face of it, Armenian President Serzh Sargsyan won a significant victory. On March 5 Gagik Tsarukyan, founder and leader of the opposition Prosperous Armenia party and one of the richest men in the country, resigned from politics, leaving Armenia’s already fragile opposition even more demoralised. With no other rivals of a similar stature to oppose him, Sargsyan’s grip on power has grown even stronger.

The magnate’s capitulation came at the end of a tumultuous few weeks. On February 12, Sargsyan effectively declared war on Tsarukyan, a former ally, labelling him as an “evil” politician with “low intellectual capacity” in a speech to his party.

That followed disagreements over a constitutional reform package that would have strengthened Sargsyan’s Republican Party’s hold on power for the next several years, and enabled the president to stay in power beyond the 2018 presidential election.

The only party that could have opposed him – Prosperous Armenia – is now in no shape to do so.

Prosperous Armenia, which is the second largest party in parliament, and a couple of smaller opposition parties announced mass protests to bring down the government later that month and Tsarukyan visited Moscow in February courting Russia’s support. Indeed, some analysts suggest that Moscow’s reluctance to support Tsarukyan highlights the depth of its support for Sargsyan, and reinforces his position even further.

“The harsh rhetoric of his speech was going beyond the ethical norms,” explains Haykak Arshamyan, history professor at Yerevan State University. “Moreover, the leader of Republican Party was actually guiding the speaker of the parliament, the PM and the finance minister and security agencies to start a political persecution against the leader of Prosperous Armenia. The speech also was a message for the other members of the Republican Party, who began to detract and criticise [Tsarukyan] and his team members in different formats and venues.”

Action soon followed words. Tsarukyan was expelled from the National Security Council, a government advisory panel on national security, and investigations were launched into the tycoon’s alleged tax-dodging and failure to attend parliament sessions. Then came his dismissal from the post of chairman of the Armenian State Institute of Physical Training under a premier’s decree, as well as from the governing boards of various universities. Other members of Prosperous Armenia also left the party, including some members of parliament and the mayor of Armenia’s second biggest city, Gyumri.

With Tsarukyan’s capitulation, the government hopes it will be less likely to be confronted by any of the country’s oligarchs who dominate the country’s economy. However, others aren't so sure it will be so straightforward.

“Waves of protest activity have been a constant feature of Armenia’s political life,” states Mikayel The manner of the president’s victory says much about the workings of Armenian politics, in which the Zolyan, political analyst at Regional Studies Centre, a Yerevan-based think-tank. “So it would ruling party uses state resources to its own ends.

Eurasia March 27, 2015

be extremely dangerous for Armenia’s rulers to assume that by removing Prosperous Armenia from the scene they have stabilized the regime.

In fact, by doing that they removed a valve which had channeled the negative attitudes existing in the society in a way that was relatively safe for the political system. With the economy in tatters and social inequality as high as ever, the absence of such a valve may prove very dangerous.”

Armenia’s socio-economic situation may indeed change the so far carefully maintained balance.

The economy is over-monopolised and stagnant, and closed borders with Turkey and Azerbaijan heighten the country’s reliance on Russia.

However, the economic downturn in its key ally from the Western sanctions and low oil price has had a huge knock-on effect on Armenia.

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Some worry that Sargysan’s victory over Prosperous Armenia is the beginning of a new phase of authoritarianism in Armenia – particularly in light of Armenia’s membership of the EEU. But it is hard to know how far it will go.

The country’s large diaspora and an increasingly weaker economy make it dependent on the West to a greater degree than other post-Soviet states. Escalating tensions with Azerbaijan over the oil-rich neigbour’s breakaway region of Nagorno-Karabakh keep the country on a constant, nerve-breaking state of alert. Armenia also lacks the energy resources that have fuelled authoritarianism elsewhere. And popular protest is well entrenched in people’s minds, suggesting they would not roll over easily.

At root, the problem is that the political system is closed, says Richard Girogasian, director of the Regional Studies Centre. “Opposition parties Remittances from abroad, which accounted for 21% of GDP in 2013, have been steadily falling and propose little by way of alternative policies,” in January were down by 34.8% on year. Thousands he explains. “Instead, they represent rival elite of migrant workers have returned to Armenia from factions consumed by the fight for power.”

Russia, allegedly because of contravening Russian immigration laws. The country suffers high levels Yet change is brewing outside the of corruption – it ranks 94 out of 175 countries established political frame. In 2013 a new in Transparency International’s Corruption political platform was set up with the aim of Perceptions Index – and poverty. pulling down Sargysan and his elite. While the driving force behind Civic Contract (CC) is the outspoken journalist and opposition figure Politically, Armenia is yoked ever closer to Russia Nikol Pashinyan, the majority of the governing through the Eurasian Economic Union, which it formally joined on January 1. Yet that appears to be board members are young civic activists with no former political affiliation. CC has so far bringing more problems than it solves. Armenian remained a grass roots movement, gaining exporters have benefitted little from increased support by the day among the young both the trade with Russia. And cumbersome rules and smartphone-yielding in central Yerevan and the poor intellectual property rights could actually threaten some sectors, such as Armenia’s thriving disenfranchised in the poorer regions. But the mood is changing.

IT sector, which contributed 5% of GDP in 2013.

The falling value of the dram, the Armenian currency, has led to inflated commodity prices, making life harder for ordinary people in the street. And when people have taken to the streets to voice their frustrations, as they did following the murder of six Armenian family-members in Gyumri in January, the government’s heavyhanded reaction is alienating them further.

Pashinyan, a harsh critic of the constitutional reforms designed to transform the country into a parliamentary republic with a powerful prime minister, announced that CC is ready to enter mainstream politics. The target is running in Armenia’s next parliamentary and presidential elections due in 2017 and 2018 respectively.

Central Europe March 27, 2015

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Hungary claims revised nuclear fuel deal meets EU demands

bne IntelliNews Hungary has reached an agreement with Brussels fuel supply contract ... on the basis of the Finnish model," Lazar announced. and Moscow over Russian fuel supplies to the Paks nuclear plant, the Prime Minister's Office claimed on March 25.

Under the agreement, Russia will supply fuel for the plant for the first 10 years, Lazar added. Under the original deal signed with Moscow in January If true, the deal could remove a key obstacle to 2014, Russia would have supplied fuel for the new Budapest's landmark deal with Moscow, under reactors for 20 years. which Hungary will borrow ¤10bn from Russia to expand the country's sole nuclear plant with Russian technology.

“We have succeeded in finding a solution with the help of which Hungary wins and the EU law also comes to effect,” Lazar added. He claims the new However, the European Commission said talks deal is also acceptable to Russia. between Hungary and the European Union's Euratom Supply Agency are still ongoing.

Hungary tore up an international tender just over a year ago to hand Russia a contract to expand Media reports earlier this month had suggested Paks in return for the funding. Hungary then that the EU nuclear agency was blocking the signed the contracts to design, build and maintain fuel supply deal on the grounds that other fuel the two new MW1,200 reactors with Russian state suppliers were excluded. The wider Russian deal nuclear energy agency Rosatom in December. with Hungary is also still under investigation in Many details were not publicised due to "national Brussels. Budapest now claims that at least the security" concerns. first obstacle has been removed.

"All obstacles have been removed from the way of solving the issue of the fuel supply contract necessary for the extension of the Paks nuclear power plant," the head the Prime Minister’s Office Janos Lazar told state news agency MTI. The PM's Office said in a statement that Lazar spoke following consultations with EU Commissioner for Climate Action and Energy Miguel Arias in Brussels.

"Hungary has adopted the European Commission’s observations and we will settle the

The EU remains extremely tight-lipped on whether the wider deal satisfies its rules, suggesting only that it likely did not abuse state procurement regulations. However, the December contracts have provoked probes, according to press reports.

The European Commission is examining whether the project meets rules on state aid. Meanwhile, according to the Financial Times, Euratom had refused to approve the fuel deal, insisting other players besides Rosatom be allowed to ship fuel to the plant in the future. Budapest staunchly denied

Central Europe March 27, 2015

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the report and said that it will file a lawsuit against the EU look to block it. Brussels' opposition to the the paper. contracts signed by member states - including Hungary - on Moscow's giant gas pipeline project led to it being pulled the same month.

Meanwhile, with the stand-off with Russia only deepening, political opposition to the wider deal is at a peak in the EU. Prime Minister For his part, Orban - who has also recently signed Viktor Orban has drawn sharp criticism in a new gas deal with Moscow - is vigorously Brussels over concern that the project will deepen opposing Brussels' bid under the auspices of the the bloc's dependence on Russian energy.

"Energy Union" for a bigger say in member states' energy talks with Russia. It is joined by the likes of Germany in resisting the EU's broader effort Budapest expressed worry as it was signing the contracts with Russia in December that the Paks to integrate the bloc's energy market and reduce energy dependence on Moscow. project could go the way of South Stream should

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Central Europe March 27, 2015

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RBI warns it may make another loss this year

Robert Anderson in Prague Raiffeisen Bank International (RBI) warned on March 25 that following a tough 2014 it may record another loss this year.

Announcing its audited results, the Austrian bank confirmed it made a consolidated net loss of ¤493m in 2014. In large part that was because of a 49% increase in net provisions to ¤1.716bn, including ¤533m for its Ukrainian operation.

RBI, the second largest lender in Central and Eastern Europe, said it expects net provisioning for impairment losses to remain elevated in 2015, although below 2014’s level. The bank's stock fell 1.5% in Vienna to close at ¤12.10. Its shares have more than halved in value over the past nine months.

In February, RBI announced plans to sell its Polish and Slovenian operations, and to scale back in Russia and Ukraine in order to build up its capital buffers. It now says it will also announce a new business plan for its struggling Hungarian business when it releases first quarter results in May. The bank also revealed it is in talks to sell a minority stake in its lossmaking Ukraine unit

to the European Bank for Reconstruction and Development this year.

CEO Karl Sevelda told an analysts’ conference call on March 25 that the sale processes in Poland and Slovenia and of Czech-Slovak internet bank Zuno are progressing well. A final decision in Slovenia should be made in the next few weeks, he added.

Sevelda reiterated that RBI would fulfil its commitment to Polish regulator KNF to list its Polish unit Polbank in Warsaw by 2016. “We do not see an IPO requirement as an obstacle to this transaction,” he told analysts.

By the end of 2017, RBI aims to cut gross riskweighted assets by ¤16bn, compared to the ¤68.7bn on its books at the end of last year. It also plans to cut its ¤3bn cost base by 20% by the end of 2017. The Austrian bank said the majority of costs involved in the restructuring (expected to amount to ¤550mn overall) will be booked in 2015.

Following the restructuring, RBI is targeting a return on equity before tax of 14% and a fullyloaded tier one capital ratio of 12%, up from 10% at the end of 2014.

Southeast Europe March 27, 2015

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Moldova fires regulators as parliament probes massive bank fraud

bne IntelliNews The Moldovan government is to dismiss deputy central bank governor Emma Tabirta as well as Artur Gherman, head of the National Financial Market Commission (CNFP) regulator, amid ongoing banking fraud investigations.

Vlad Filat, the leader of Moldova’s senior ruling party, the Liberal Democratic Party of Moldova, announced the decision on March 24 after a meeting of a parliamentary committee set up to investigate the alleged bank frauds. The committee also decided to make public the government’s decision, made in December, to guarantee emergency loans to three troubled banks currently under special administration.

Moldova’s third largest bank, Banca de Economii a Moldovei (BEM), and the smaller Banca Sociala were both placed under special administration on November 29. A month later, the central bank took similar measures at the country’s fifth largest bank Unibank.

The central bank cited unusually large deals involving the three banks. The size of the resources transferred was around MDL17.8bn (¤937mn) - more than 10% of the country's GDP. The three banks account for a combined total of around 30% of Moldova’s total banking sector assets.

Moldovan news portal deschide.md revealed on March 24 what it claims to be a leaked report on the bank frauds, which was either drafted by the parliament committee or submitted to the committee by the central

bank. The committee’s debates and the report are officially classified at the moment.

The document quoted by deschide.md appears to explain how frauds were carried out in a three-stage process by BEM, Banca Sociala and Unibank.

According to the document, in the first stage, the three banks borrowed large amounts of money amongst themselves and from other Moldovan banks in October and November. The inter-bank placements were not guaranteed.

In the second stage, the three banks placed large amounts of money at four Russian banks - ZAO Metrobank, ZAO Alef Bank JSC, OAO Gazprombank and ZAO Interprombank - at zero interest rates, again with no guarantees. In the third stage, the three Moldovan banks issued loans to Moldovan companies Caritas Grup, Provolirom, Voximar Com and Drucard.

These loans are guaranteed with deposits, supposedly made by the borrowers at the same four Russian banks. However the value of these deposits match the value of the money placed by the three Moldovan banks, the report reads. The loans therefore look as if they are guaranteed with the banks' own deposits rather than any collateral, and are therefore effectively unsecured.

The deposits made by the three Moldovan banks in the Russian banks and the loans to Moldovan companies were also significantly larger than the limits set under Moldovan

Southeast Europe March 27, 2015

banking regulations for single deposits or loans.

On March 24, the Moldovan parliament approved a proposal from the government to extend the statutory special administration regime for troubled banks from four months to one year, Moldovan news site Unimedia reported. The bill was supported by the minority ruling coalition and the

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Communist Party of Moldova just four days before the four-month moratorium was due to expire.

The moratorium implies postponement of creditor claims and a ban on the transfer of assets. Banks are also banned from deposit taking and new lending, though they are allowed to continue managing their existing loan portfolios.

Albanian ‘assassination plot’ MPs arrested

bne IntelliNews Two Albanian MPs suspected of falsely accusing parliamentary speaker Ilir Meta of plotting their assassination were arrested on March 26.

Tom Doshi, who made the accusation against Meta on March 2, was arrested at his home, while fellow MP Mark Ffroku was arrested at a bar owned by his family, Albanian news site Albeu reported.

The Albanian Prosecutor’s Office said on March 20 that it suspected Doshi and Frroku had invented the alleged assassination plot. Prosecutors say the two are suspected of false testimony, and if found guilty they could face up to five years in prison.

Doshi publicly claimed on March 2 that Meta had hired a hitman to kill him and Frroku. He said that Frroku had told him about the plot - a claim that Frroku denies.

The arrests were made after the Albanian

parliament voted earlier on March 26 to lift immunity for the two MPs. A majority of Albania’s 140 MPs voted in favour of lifting parliamentary immunity for Doshi and Frroku, at a session boycotted by most of the opposition, Reuters reported.

Doshi was a member of the ruling Socialist Party until he was expelled earlier this month by Prime Minister Edi Rama, while Frroku is a member of the Christian Democratic Party.

In addition to Meta, the case has embroiled several other top politicians. Rama, Interior Minister Saimir Tahiri and former president and prime minister Sali Berisha were all summoned to give statements to prosecutors.

The opposition Democratic Party sought to benefit from the scandal, organising a mass rally in Tirana on March 12 to demand the government’s resignation.

Opinion March 27, 2015

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Ukraine’s Catch 22 over its oligarch class COMMENT:

Mark Adomanis in Philadelphia As the Soviet Union collapsed in both Russia and Ukraine, small groups of extremely clever and even more ruthless men “privatized” (or if you prefer less exalted language “stole”) all of the prize industrial assets. Virtually overnight, these formerly mid-ranking bureaucrats and functionaries became billionaires, some of the very wealthiest people in the entire world.

They owned giant steel mills, oil refineries, nickel smelters and other vestiges of the Soviet Union’s hard-won prowess in heavy industry. And having won wealth and the political power that it brought, they set out to defend their turf, to hold on to what they had won.

In Russia this “family” of oligarchs, comprised of people like Mikhail Khodorkovsky, Vladimir Gusinsky, and Boris Berezovsky, largely ran the show during the Yeltsin years, particularly as old Boris’ health deteriorated and left him increasingly bed-ridden. They were the people who chose Vladimir Putin as Yeltin’s successor, believing that he would be a compliant yesman who wouldn’t do anything to shake up the previously established rules of the game. They made a disastrous choice. With the lack of sentimentality and clear-eyed ruthlessness that they had employed in creating their business empires, President Putin set about bringing them to heel.

Putin imposed a new deal: the oligarchs would be allowed to keep their money – ever the realist, Putin recognized their value as managers and business leaders – provided that they stayed

out of politics. Stay out of politics and their wealth would remain safe. Indeed, they would be given every chance to prosper. Many like Oleg Deripaska and Mikhail Prokhorov did exactly this, and rode Russia’s decade-long boom to everhigher positions on the Forbes list of the world’s wealthiest people. Those who blanched at the deal, however, were crushed. By the early 2000’s Russia’s political system (while still possessing a very long list of faults) was no longer “captured” by the oligarchs: they were an important political constituency, but they weren’t calling the shots.

In Ukraine this reassertion of state control never took place. The government remained effectively captured by varying groups of oligarchs.

Accordingly, the Ukrainian government was not as repressive or heavy-handed as Russia’s, and this was reflected in all of the varying democracy indices, but it was also a lot less effective at governing: its economic practices remained appalling, as did its tax collection, fiscal policy and service delivery.

In Ukraine, then, one can say that the most important political fight was not between the state and the oligarchs, as was the case in Russia during Putin’s early years, but rather between different groups of oligarchs.

Much of Ukrainian politics was, in fact, a struggle between politicians who, rather than representing grass-roots constituencies, represented the interests of rival oligarch groups.

Ousted president Viktor Yanukovych was the creation of one these oligarchic clans, as were

Opinion March 27, 2015

the Orange Revolution leaders Yulia Tymoshenko and Viktor Yushchenko.

To a significant extent the Maidan uprising reflected popular exasperation with oligarchic misrule. Yes, the varying groups on the Maidan had different values and different goals, but there was genuine outrage among the educated middle and upper middle classes at the fact that Ukrainian politics had so consistently been dominated by a small group of unelected oligarchs. One of the main demands of the pro-European parties was thus the overthrow of the oligarchy and its replacement by a “civilized” version of European social democracy.

Precisely how this was going to work was never made clear (the Maidan movement has never been particularly concerned with the practical implementation of its agenda), but there was agreement on its general necessity.

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were all kinds of privately funded militias doing battle against pro-Russian forces, and they were able to keep the “separatists” from making any gains outside of Donetsk and Lugansk oblasts.

While this was an understandable decision given the horrible financial and military constraints facing the Ukrainian government, allowing the oligarchs to run their own private armies was always going to end in disaster. It’s easy to give someone a gun; it’s a lot harder to take it away.

Recently, the tensions that have previously been buried in a cloud of nationalist enthusiasm and determination to confront Russian aggression have exploded to the surface.

Since mid-March, the Ukrainian government has faced off against one its putatively biggest supporters, the aforementioned Ihor Kolomoisky.

The details of the dispute can be a bit baroque, but essentially Kolomoisky is angry that the The problem, however, is that this confrontation of the oligarchs had never happened. In fact, the government tried to replace people whom he Ukrainian government, which is now led by Petro had installed within the upper management of a state-owned pipeline operator. When “his” people Poroshenko, widely regarded one of the wiliest were fired, Kolomoisky responded by sending a and most capable of the lot, was forced to come bunch of his hired guns to the company’s office to an early accommodation with the oligarchs in Kiev. Men in masks and camouflage raiding due to the rapidly escalating military standoff with Russia. In the aftermath of the annexation of a corporate office: it was a scene shockingly reminiscent of Russia during the late 1990s or Crimea, against which a demoralized Ukrainian early 2000s. government was able to offer no effective resistance, Russian Special Forces began infiltrating into East Ukraine and doing their best As of now, it's not clear how the situation will be resolved. Poroshenko fired Kolomoisky to sow chaos there. There was a risk that the entire eastern half of the country could collapse. in the early hours of March 25, five minutes after signing into law a bill effectively depriving Kolomoisky of backdoor control over the state oil The Ukrainian government was left scrambling company Ukrnafta. Two days before, he warned to find an adequate solution to this infiltration. that no governors would be allowed to keep a Knowing that its armed forces were in no "pocket army" and, in another formulation that condition to be used in such a “hybrid war”, reeks of early 2000's Russia, he pledged that all it decided to use the only people with the armed formations would be subordinated to a organizational expertise and financial heft "clear-cut military vertical". capable of mounting an effective defence: the oligarchs. Kyiv thus installed several oligarchs, like Ihor Kolomoiksy, as governors of the eastern But even if the current standoff is resolved peacefully, and there are a million ways it could oblasts and essentially gave them carte blanche turn violent, the Kolomoisky-Poroshenko fiasco to get the situation under control. Soon there

Opinion March 27, 2015

highlights the awkward fact that a revolution that was aimed at weakening oligarchic control of the government has succeeded in further empowering the oligarchs. Ukraine desperately needs to find a way to subordinate these powerful financiers and businessmen to the state, to deny them the effective control over the government that they have wielded for the past two decades.

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pass muster with Ukraine’s Western creditors.

Some kind of more peaceful, law-based approach is thus necessary. However, the oligarchs (who are obviously not very keen on the prospect of being deprived of power!) have countless levers at their disposal to thwart, water-down, delay and otherwise undermine any such attempt.

Maybe some politician of unique foresight, brilliance and skill will appear to engineer such a compromise, one that would deprive the I have no idea how this will happen. Due to the oligarchs of their political power while allowing Maidan movement’s emphasis on grass roots them to keep their business empires. But so democracy and “European values”, a Putinfar it seems that Ukraine faces a Catch 22: the style crackdown on the oligarchs is off limits: options available to it won’t work, and the options even if Poroshenko could somehow marshal the requisite force needed for such a step, it wouldn’t that will work aren’t available to it.

Weekly Lists March 27, 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 26

bne: Infrastructure

The European Commission (EC) has sent a statement of objections to wholly state-owned Bulgarian Energy Holding (BEH), informing it of its preliminary view that BEH “may have breached EU antitrust rules by hindering competitors access to key gas infrastructures in Bulgaria”.

European Commission makes initial finding against Bulgaria's state-owned gas holding

Margrethe Vestager, EU Commissioner in charge of competition policy, said that the EC must ensure fair access to the infrastructure is available, enabling competition on the Bulgarian gas supply markets. The EC noted that the vertically integrated BEH supplies gas and its subsidiaries own or control Bulgaria’s gas transmission network, the sole gas storage facility in the country, as well as the capacity on the main gas import pipeline into Bulgaria.

bne IntelliNews

Poland closes in on Yamal pipeline company bne IntelliNews

Warsaw is on the verge of victory in the long battle for control of the Polish stretch of the Yamal pipeline, the only mainline overland route carrying Russian gas to Europe that bypasses Ukraine.

State-controlled gas company PGNiG and subsidiary Gas Assets Management (GAM) have asked UOKiK to give the green light to its takeover of Gas Trading, the anti-trust office announced on March 20.

Gas Trading, a subsidiary of Polish industrial investment group Bartimpex, holds an all-important 4% stake in EuRoPolGaz, the operator of the Polish section of the pipeline. PGNiG and Russia's Gazprom each own 48% in EuRoPolGaz. That leaves the stake held

by Gas Trading with the deciding vote.

Weekly Lists March 27, 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 27

bne:TMT

A controlling stake in Vivacom, Bulgaria's largest telecom by revenues, has been sold by fugitive tycoon Tsvetan Vassilev to Belgian investor Pierre Louvrier for ¤1.

Vassilev sells stake in Bulgaria's largest telecom for ¤1

The deal has sparked controversy in Bulgaria as Vassilev is still living in exile in Serbia after fleeing the country last year during the collapse of Corporate Commercial Bank (CCB), Bulgaria's fourth largest bank. He is being investigated over BGN206mn missing from the bank and Bulgarian authorities have been trying to have him extradited.

bne IntelliNews

Louvrier's Luxembourg-registered special purpose vehicle LIC33 has agreed to buy a 43% stake in Vivacom and majority stakes in five other Bulgarian companies owned by Vassilev for a token price of ¤1, while taking on ¤900mn of debt.

Turkcell shareholders approve first dividend payout in five years bne IntelliNews

Turkcell, Turkey’s largest mobile operator, said on March 26 that its shareholders approved the payment of dividends totalling TRY3.93bn ($1.5bn) at a general assembly meeting held for the first time in five years. Russian oligarch Mikhail Fridman is locked in a battle with Turkish billionaire Mehmet Emin Karamehmet, which had prevented shareholders of the company from being able to convene a general shareholders' meeting to discuss dividend distributions.

The payout is equivalent to 42.5% of Turkcell’s net profit accumulated between 2010 and 2014.

Under a complex shareholding structure, Friedman’s Alfa Group holds a 13.2% stake in Turkcell, Karamehmet’s Cukurova Holding controls 13.8% and Sweden’s TeliaSonera has 38%, while 35.88% of the company’s shares are traded on the Istanbul Stock Exchange.

Weekly Lists March 27, 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.

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bne:Banker

Polish financial watchdog KNF said on March 24 that it would seek to block dividend payouts at banks with large portfolios of CHFdenominated mortgages.

Polish watchdog warns banks with CHF mortgages against paying dividends

"Those banks will in April 2015 receive individual recommendations on not paying dividends," KNF said in a statement. The banks with large portfolios of Swiss franc mortgages include Getin Noble Bank, PKO BP, BPH, BZWBK, mBank, Millennium and Raiffeisen Polbank.

Their share prices dropped after the statement.

bne IntelliNews

The Swiss central bank's removal of the cap on the franc in January has hit the 550,000 or so Poles with CHF loans. The government has recently suggested it won't force lenders to help out, but there is clear political pressure for them to lend a hand to help borrowers, while the government is also keen to see consumers continue to spend. “[The KNF’s] stance is widely viewed as trying to push banks to reach a more comprehensive compromise with CHF borrowers on their own,” Commerzbank wrote in a note.

BCP sells Bank Millenium stake for ¤304m bne IntelliNews

Portugal’s Banco Comercial Portugues (BCP) is set to sell the full 15.41% stake offered in Warsaw-listed unit Bank Millennium via an accelerated book build, BCP announced on March 26. However, it was forced to accept a price of PLN6.65 (¤1.62) per share, as it launched the sale on a shaky market.

The price will see the Portuguese parent reap PLN1.24bn (¤304mn). The discounted deal saw Bank Millennium shares fall to their lowest level since September 2013 on the Warsaw Stock Exchange.

The European Bank of Reconstruction and Development (EBRD) had announced on March 25 as the offer was opened that it would support the deal by taking a 3% stake.

Weekly Lists March 27, 2015

bne:Credit Central Asian growth to slow in 2015, says Asian Development Bank bne IntelliNews

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

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

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The economies of Central Asian countries are expected to slow down because of the ongoing geopolitical tensions and the recession in Russia, the region's major trading partner, according to the Asian Development Bank's Asian Development Outlook 2015 report.

Kazakstan’s growth is forecast to slow to 1.9% in Kazakhstan in 2015, it says. "This reflects slumping oil prices, economic weakness in the Russian Federation, and tenge appreciation against the ruble, which has hurt the competitiveness of Kazakh exports and boosted imports from the Russian Federation."

In Kyrgyzstan, growth is likely to slow further to 1.7% in 2015, reflecting recession in Russia, sluggish performance in Kazakhstan, and a further drop in gold production as the quality of extracted ore declines, the ADB said. In Mongolia, GDP growth is forecast to slow to 3.0% in 2015 as falling prices of exports are felt and as monetary and fiscal policy are tightened to contain inflationary and balance of payment pressures, the ADB said.

In Turkminstan GDP growth is projected to slow to 9.7% in 2015 and 9.2% in 2016, reflecting lower public investment, while in Uzbekistan GDP growth is forecast at 7.0% in 2015 and 7.2% in 2016, reflecting economic difficulties in Russia and historically low international commodity prices, the ADB said.

Hungary kicks off new monetary easing cycle bne IntelliNews

Hungary kicked off a new monetary policy easing cycle on March 24 as it cut its benchmark by 15bp to a record low of 1.95% and flagged that more loosening is on the way to fight deflation.

The monetary policy council of Hungary's Magyar Nemzeti Bank (MNB) was widely expected to return to easing this month after an eight-month hiatus. The country has had deep and prolonged deflation on the back of the plunge in oil prices and cuts in household energy bills.

The rate cut was slightly smaller than the 20bp reduction expected by economists polled byPortfolio.hu. “Given the modest nature of today’s cut, we suspect that a few more small reductions may follow,” Capital Economics wrote in a note. Analysts at Erste see the main rate going down to 1.5% by the end of the second quarter.