bne:Newspaper - October 24, 2014

Content: 2 Top Stories 5 The Regions This Week 11 Eastern Europe 13 Eurasia 16 Central Europe 20 Southeast Europe 24 Opinion 26 Lists

bne:Newspaper Follow us on twitter.com/bizneweurope October 24, 2014

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Sweden calls off hunt for submarine in return to Cold War scares bne In a return to Cold War-era scares, Sweden has been gripped all week by the search for a suspected Russian submarine in the Stockholm archipelago near the capital. The search was finally called off on October 24.

The Swedish submarine search reawoke memories of a similar search during the height of the Cold War in the 1980s, one that also failed to bring to the surface the alleged Russian culprit.

The scare further ratcheted up tension in the Baltic region. Also this week Estonia accused a Russian jet of intruding into its airspace on October 23, in what was said to be the most serious incident since the end of the Cold War.

"At eight o'clock on Friday morning the main part of the marine intelligence operation carried out in the archipelago since last Friday ended," See page 2

Hungary steps up battle with West bne

Hungary announced on October 23 that it is now ready to press criminal charges against the distributor of Norwegian NGO funds.

The move is the latest in a series apparently designed to enrage the EU and US, in a bid to show that Budapest will follow its own path.Â

Budapest's government control office KEHI said in a statement to newswire MTI that its lengthy probe into the Norway-funded NGOs has revealed "irregularities" in 61 of 63 projects.

KEHI announced it will now submit a criminal report against Okotars Foundation, which is See page 4

Top Stories October 24, 2014

Sweden calls off hunt for submarine in return to Cold War scares

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vehicle and it could be divers that don't have any business on our territory."

Sweden's armed forces had issued a statement on October 18 saying that there was a naval search operation underway in the Stockholm according to a statement by the Swedish military, archipelago. "At the moment we are conducting an intelligence operation in the archipelago of reported by Swedish television network SVT. Stockholm with optical reconnaissance as well as with naval vessels equipped with qualified For a week Sweden deployed battleships, underwater sensors," armed forces spokesperson minesweepers, helicopters and more than Erik Lagersten said in the statement. "The 200 troops to scour the coastal waters of the operation is conducted in order for the armed Stockholm archipelago, with the most likely suspect country of origin of the alleged intruding forces to establish if there are or has been foreign underwater activities in the area," he added. vessel believed to be Russia.

Reports and photos from locals had triggered fears of activity by a foreign, probably Russian, submarine or other underwater vehicle. Swedish media also suggested a submarine had sent out a distress signal.

In a press conference on October 19, Sweden's rear admiral Anders Grenstad said it appeared probable that an unspecified foreign power is involved in “underwater activities” in the coastal waters of the Stockholm archipelago near Sweden's capital.

Grenstad showed a photo taken of a suspicious object taken early on October 19. Grenstad said the unnamed photographer had “seen something on the surface, and after he took the picture it sunk down again,” as quoted by Swedish English-language publication The Local. The photos showed what appeared to be a vessel or large creature breaking the surface before submerging again.

Grenstad said on October 19 that there had been three separate sightings apparently of the same object in waters near Stockholm on October 17 and October 20.

"It could be a submarine, or a smaller submarine," Grenstad said. "It could be divers using some form of moped-like underwater

Both Lagersten and rear admiral Grenstad however refused to confirm or deny media reports that Sweden was searching for a Russian submarine, possibly in distress.

Swedish daily Svenska Dagbladet said the hunt began after a radio transmission in Russian on an emergency frequency was intercepted, and that further encrypted radio traffic was intercepted after the hunt began. Grenstad denied any knowledge of a distress signal.

Swedish media have also reported that a Russian vessel equipped for submarine search operations is currently heading for Swedish waters.

Russia denied that any vessel was involved in an emergency situation. "Russian Navy ships and submarines are fulfilling their duties in the world ocean waters in accordance with the plan," a defence ministry spokesman said, as quoted by Interfax. "There are no extraordinary, let alone emergency, situations involving Russian warships.

Russia suggested a Netherlands submarine had triggered the submarine hunt, a claim rejected by the Netherlands.

The episode focused attention on the low level of Swedish military spending, the country's lack of anti-submarine helicopters, and possible accession to Nato.

Top Stories October 24, 2014

Hungary steps up battle with West the main disburser of the money, "on suspicion of mismanagement, budget fraud, forgery of private documents and unauthorised financial activity".

The investigators were joined by senior government officials. The powerful head of the PM's office, Janos Lazar, who has been driving the case, told a press conference that Okotars "failed to do its job" and violated Hungarian laws. He also lamented that the NGO had "abused the trust of the Norwegian government".

Hungary has been investigating Otakars since the government blocked the funds in the spring, claiming the distribution was biased on political lines and went to "left leaning" causes.

The case has provoked anger in Oslo, Brussels and Washington, which are wary of Prime Minister Viktor Orban's claim to be building an "illiberal" democracy modelled on the likes of Russia and China.

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Following that meeting on September 22, Hungary promptly halted reverse gas supplies to Ukraine, which is struggling to agree a deal with the Russian state giant following a cut-off in June. Meanwhile, Gazprom agreed to raise supplies to Hungarian storage facilities in what appears a classic play by Moscow to pick off individual EU states from bloc policy.

Hungary now appears to be bolting from the stable, as relations with the West nosedive, and Budapest has been hit for its digression. The case against the NGO's is seen as symbolic of the "intimidation of civil society," as expressed

by US President Obama.

A scandal erupted in mid-October when Washington announced it had banned six government officials from entering the US due to corruption concerns. It is the only reported instance of a travel ban placed on a Nato ally.

CHANGES ARE GOOD

In July, Orban called the foreign-funded NGOs "paid foreign activists". That invited comparisons to a crackdown on NGOs by Moscow last year. The Kremlin launched inspections at thousands of groups to identify those that receive foreign funding and engage in "political activity". They are now required to register as "foreign agents". That's hardly a fashionable comparison right now in Brussels or Washington.

However, that appears to be the point. The ruling Fidesz government has spent years bickering with the EU, but since a meeting last month between Orban and Alexei Miller, CEO of Russian gas giant Gazprom, Budapest looks to be going out of its way to enrage Brussels and Washington.

YOUR BUSINESS PARTNER. www.rbinternational.com

Top Stories October 24, 2014

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Meanwhile, EU officials and parliamentarians have raised discussion over the state of democracy in Hungary under Orban, and the country's candidate to the new European Commission was rejected earlier this month because of concern over his role in introducing controversial changes to judicial, media and human rights legislation in Hungary.

However, Orban has turned criticism from outside Hungary into a foundation of his strong

mandate at home, where Fidesz won a second constitutional majority in April. The PM now appears ready to go toe to toe with the West. A day ahead of announcing the charges against the NGOs, a senior official said Hungary is preparing legislation that would allow it to bypass EU oversight on construction of its section of the South Stream gas pipeline. The EU has ordered all work halted on the giant scheme to bring more Russian gas into the bloc.Â

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The Regions This Week October 24, 2014

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Eurasia Kazakhstan has reduced its economic growth forecast from 6% to 4.3% for 2014. Nominal GDP is expected to total KZT41 trillion ($225bn) this year against KZT35.3 trillion ($229bn) last year. The delay in oil production at the giant Kashagan field spoiled government plans to produce 83m tonnes this year. It now expects it to stand at last year's 81.3m tonnes.

Kazakhstan is working to improve investment climate in the mining sector to make it easier for foreign investors to tap into its riches. It plans to award up to 100 exploration licences early next year. Investment in the mining sector is expected to total $30bn between 2015 and 2017.

Azerbaijan's economy posted a 2.5% growth year on year to AZM44.1bn ($56.5bn) in January-September 2014. The non-oil sector increased by 6%, while the oil sector fell by 2%.

Industry accounted for 44.3%, the construction sector 11.9% and farming for 5.4%. The share of services stood at 31.2% of GDP, including transport accounting for 4.7%, trade and paid services for 9.8%, telecoms for 1.7% and social and other services for 15%. Investment increased by 0.5% to AZM10.5bn ($13.5bn), of which 70.4% was domestic investment and 62.9% was placed in the non-oil sector.

About 42% of Armenia’s population lived below the poverty line in 2013, according to an opinion poll. That is they had less than $2 per person per day. The share of people living in extreme poverty with less than $1 per person per day was 10%. Only half of people living below the poverty line said they considered themselves poor, while only 2% said they were rich.

Mongolia's central bank purchased 9.5 tonnes of gold between January and October against 5.2 tonnes in the same period of last year. The bank plans to buy 15 tonnes of gold this year.

Turkmenistan is carrying out over 2,000 projects with a total investment of $45bn, according to President Gurbanguly Berdymukhamedov. The country completed around 240 investment projects to the tune of $4bn in the first nine months of this year. Among the projects are a north-south railway line linking Kazakhstan and Iran, the development of oil and gas fields, major gas pipelines, airports, roads and bridges.

Turkmenistan plans to complete the fourth line of the Turkmenistan-China gas pipeline in 2016. The line, known as Line D, will lie through Uzbekistan, Tajikistan and Kyrgyzstan. It also plans to start the construction of a Turkmenistan-AfghanistanPakistan India (TAPI) gas pipeline next year.

Turkmenistan sits on the world's fourth largest reserves of natural gas.

Kyrgyzstan's parliament has adopted Russianstyle anti-gay propaganda amendments in first reading. OSCE Representative on Freedom of the Media Dunja Mijatovic urged Kyrgyz MPs to reconsider legal provisions criminalising LGBTrelated information. She said the amendments were so vague and open for interpretation that, if adopted, they would damage the freedom of expression and media freedom situation in the country.

Uzbekistan's GDP increased by 8.1% year on year in January-September. Industrial production went up by 8.4%, agricultural output by 6.8% and construction by 18.9%. Total volume of investment increased by 10.7% in the given period, including foreign investment by 22.3% in January - September, with the volume of direct foreign investment up by 22.3%.

Ebola panic is spreading in former Soviet countries. In response to text messages warning about the transfer of the Ebola virus, authorities in Kazakhstan issued a denial that bananas don't transfer Ebola. Meanwhile, passengers threw out a black French citizen from a bus in the Georgian capital, Tbilisi, fearing he was infected with Ebola.

The Regions This Week October 24, 2014

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Central Europe Following sector levies on utilities, the banks, telecoms and advertising, Hungary said it plans to start taxing the internet next year. Following huge protests, Budapest backed down somewhat, promising the levy will be capped.

Latvia's ruling parties have a week to set up a new government, President Andris Berzins said on October 23. The incumbents have struggled to agree a new cabinet in the wake of elections three weeks ago.

Poland hopes to start importing LNG from the US by next year, ambassador to Washington Ryszard Schnepf claimed this week, although Washington has yet to approve exports to the country. The companies developing Poland's first LNG terminal added that they have signed a deal to expand the project, the first phase of which should launch in 2015.

Slovak gas distributor SPP hopes to boost Russian gas supplies and secure a price cut, it said. Bratislava has reported a 50% drop in deliveries since September, as Moscow presses EU states to halt reverse flows to Ukraine.

Lithuania is bulking up its diplomatic presence to promote new export markets as it seeks to compensate for lowered Russian trade. The country will raise its profile in China, Kazakhstan, South Africa, Turkey and the US next year. South East Asia, Central Asia and the Persian Gulf are also on the agenda.

Czech MPs refused to debate the defence minister's role in a TV series, in which he allegedly cast an unfavourable light on the country's military. The opposition claimed Martin Stropnicky – a professional actor who joined the government this year as part of the Ano party - harmed the military by presenting soldiers as murderers and drug dealers.

Estonia's finance minister said he could quit over comments he directed at a Russian-born peer. Jurgen Ligi said Education Minister Jevgeni Ossinovski, as "a son of an immigrant" should watch his words concerning Estonia's Soviet past.

Estonia continues to be wary of provocation from Moscow of its large Russian minority.

Donald Tusk denied that Vladimir Putin suggested that Poland and Russia carve up Ukraine on October 24. The former Polish PM spoke in the wake of a political spat sparked by an interview given by Radek Sikorski. The former FM and current speaker quickly got himself into a mess as he tried to backtrack, with the opposition calling for his head.

Six Hungarian officials have been banned from entering the US, over suspicion of corruption.

Although US officials called the move "a warning to clean up," it is clearly part of the West's Slovakia will sign a new deal on oil sales and reaction to Budapest's authoritarian turn and transit with Russia in November, Moscow said support for Russia. The ban is the first of its kind this week. Bratislava is nervous of interruptions from Washington against a Nato ally. to supply, with the country heavily dependent on deliveries on the Druzhba pipeline which runs Reports Riga has dropped talks on buying a through Ukraine.

47% stake in Latvijas Gaze are "not correct," insisted Latvia's PM. Laimdota Straujuma told Lithuania sold ¤1bn of bonds at record-low TV on October 22 that Latvia cannot afford the yields on October 21. The 12-year notes, the ¤220m E.ON is demanding for the 47% stake in nation's longest-ever maturity, were priced to the gas utility. The PM did not offer details of the yield 100bp above the benchmark swap rate, as denial, saying only that ongoing work on market Vilnius looks to leverage the window of demand liberalization will be important in the context of and its upcoming adoption of the euro.

Latvijas Gaze shares.

The Regions This Week October 24, 2014

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Southeast Europe Albanian Prime Minister Edi Rama has postponed a visit to Belgrade until later in November after a brawl at a football match between the two countries sparked a diplomatic row. Rama’s visit to Belgrade, originally due to take place on October 22, will now be delayed until November 10 to allow tensions to calm.

New European Commission President Jean Claude Junker says he will consider measures to resolve a dispute over Turkish oil and gas exploration off the Cyprus coast. The Greek Cypriot government said that a Turkish vessel had entered its waters in a "provocative and illegal" action.

The Slovenian government plans to sell off telecoms operator Telekom Slovenje in early 2015, Finance Minister Metod Dragonja told a conference on October 22. There has been speculation over whether Slovenia’s new Prime Minister Miro Cerar would go ahead with the privatisation.

Russia has banned meat imports from Moldova on the grounds of health, following a downturn in bilateral relations in the run up to Moldova’s parliamentary elections in November. The head of Russian watchdog Rosselkhoznadzor said on October 22 that the agency had discovered meat imports from Moldova that were “unsafe products from the veterinary and sanitary point of view”.

Russian President Vladimir Putin received an unequivocally warm welcome in Serbia on October 17. The visit served to cement ties between Russia and Serbia in the diplomatic and military spheres, despite the latter’s prioritising of EU membership.

Romanian Prime Minister Victor Ponta has suspended three senior members of the ruling Social Democratic Party (PSD). Ponta said he had suspended the three, who include PSD vice president Dan Sova due to their involvement in scandals that could harm the party in the run-up to the November presidential elections.

The Serbian government hopes to sign a new stand-by agreement with the International Monetary Fund (IMF) by the end of this year, Prime Minister Aleksandar Vucic said October 21. Much of the work towards securing the IMF deal was completed during a recent visit by Serbian officials to the IMF headquarters in Washington.

The European Investment Bank (EIB) is to issue a ¤150m loan to Romania’s third largest bank, Banca Transilvania. The loan will support lending to SMEs, as well as larger companies in the industry, services, agriculture and infrastructure sectors.

Kosovan Foreign Minister Enver Hoxhaj said October 23 that Kosovo and Serbia must sign a peace agreement before Serbia enters the EU, and called on Serbia to recognise Kosovo as an independent state.

Serbia has not yet responded to Hoxhaj’s comments.

The Romanian government has signed a deal with China General Nuclear (CGN) to build two new reactors at the Cernavoda nuclear power plant. The project is expected to cost around ¤6.45bn.

The Romanian government has issued ¤1.5bn of Eurobonds. The 10-year bonds have been issued with a record low yield of 2.97%, reflecting lower sovereign borrowing costs for Romania.

Serbia has set up a national committee on investments, which will focus on major infrastructure projects. Serbia is the first country in the region to set up this type of committee, according to Minister without portfolio for European Integration Jadranka Joksimovic.

The International Olympic Committee has given provisional recognition to the Kosovan Olympic committee. The decision by the IOC’s executive board could enable Kosovan athletes to take part in the 2016 Rio Olympics, despite opposition from Serbia.

Irish businessman Greg Turley and his brothers are planning to invest ¤250m in a bio-fuel plant in Macedonia, alongside US-based DuPont. The plant in Macedonia’s Pelagonia region will supply cheap ethanol to the European market.

The Regions This Week October 24, 2014

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Eastern Europe When Russian President Vladimir Putin cut off European Union imports of agricultural products earlier this year one of the rationales was to give a boost to the badly underdeveloped domestic sector – and it seems to working. Russia's agricultural production soared by 16.8% year-on-year in September, according to Rosstat, but retail and Just over half of Russians (52%) and some 69% of Muscovites fear the international sanctions on Russia investment numbers were down. could spark another financial crisis, according to a Russian real wages dropped for the first time since poll by the National Agency for Financial Research.

October 2009 as the sanctions on Russia begin Russians have withdrawn $5bn from their bank to bite. Commentators have pointed to economic accounts in recent months. pain on the average Russia as one of the goals of Ukraine has lodged a complaint at the WTO against the sanctions regime, on the assumption that this Russia's agriculture products import ban. Russia's will undermine Putin's popularity. However, wages agricultural watchdog Rosselkhoznadzor temporarily would have to fall a long way and unemployment banned agriculture imports from Ukraine this week. rise from its current historical lows for this strategy to work, and both these things are far from close to Ukrainian exports to the EU have increased by 23% happening. thanks to trade preferences for Kyiv, the European Russian businessman Arkady Rotenberg is Commission said Thursday. suing the EU for imposing sanctions on him and confiscating his property in Europe. The case Russia's leading supermarket chain Magnit turned should be an interesting one as personalized in an extraordinary 54% increase in profits in the third quarter. Selling to the lower half of the market sanctions clear break the principle of "innocent mainly in Russia's regions, Magnit has been investing until proven guilty”,which is at the heart of the European justice system. and expanding throughout the crisis as thanks to rising incomes the man in the street has yet to be Having cut itself off from most European agricultural badly affected by the economic slowdown. imports, Russia's agricultural ministry admitted that Russia loses 30% of harvested vegetables and 55% A study by Russia's Public Chamber found that just of fruits and berries each year because of flaws of 3.4% of Russia's small and midsized businesses survive for more than three years. However, almost the country's logistic system.

90% of businesses which received state support Russia's Finance Ministry has decided to drop made it past the three-year threshold. a bill regulating operations of Bloomberg and Reuters terminals. Earlier in October he said the 70% of Ukrainians think there is war between bill, which aimed at splitting organisations which are Russia and Ukraine, while only 26% of Russians the operators of critical infrastructure into several believe that, according to the Levada Centre groups, was almost ready. in Russia and the Kyiv International Institute of Sociology in Ukraine. In addition 63% of Ukrainians American boxer Mike Tyson will become a member say Russia is to blame, while only 27% of Russians agree with that. Instead, in Russia, three out of every of the Union of Russian Writers, on October 27 after presenting his memoir "Undisputed Truth”. So that four respondents say Russia was not to blame, and only 17% of Russians say their country is responsible. makes him a writer now, right?

The number of Russians who have a negative attitude to the US and Europe has hit an all time high, says the independent pollster Levada Centre: 82% of Russians view the US with hostility and 66% don’t like the EU – by far the highest numbers in a decade of polls.

bne Chart October 24, 2014

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Is Russia still an "ethical" investment?

Is Russia still an ethical investment? bne sources say some fund managers have been pulling their money out of Russia, afraid of reputational risks or simply because they don’t want to support a military aggressor on principle.

Reporters without Boarders and the World Bank, in our interactive chart below (use the pull down menu to change the parameters).

So just how does Russia stack up against its emerging market peers for things like business freedoms, corruption, free press and so on?

Certainly the Russian stock market is being punished by this sort of thinking: the RTS index broke out of its 1,110-1,400 range at the end of October on the downside on the back of more Russian war games in the Baltics, amongst other bad news.

Last first: we averaged all these indicators together to give an overall score to every country that includes things like press freedoms, property rights, corruption and so on. On this (admittedly somewhat arbitrary) basis Russia comes out in the middle of the range, but slightly ahead of all its BRICS peers, bar South Africa. Russia's overall score was 49.9 out of 100, versus China's 50.9, India's 56.9 and Brazil's 57.3. South Africa was far ahead 63.6 (where 100 is best) putting it on a par with many European countries.

This week's bne:Chart attempts to shed some light on the question by comparing a raft of indices from organisations like Transparency International,

Other notable countries that did well include Kazakhstan (61.1) and the stand out of Georgia (71.8) that is on a par with the leading economies

bne Chart October 24, 2014

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Is Russia still an "ethical" investment? (cont.) in western Europe. The other noteworthy result was Ukraine (50.6), which is slight worse than Russia, yet is seen to be good enough to receive an invitation to partner with the European Union.

Flicking through the various subcategories and as might be expected Russia score card is mixed. It does badly on property rights (25), corruption (22), and financial freedoms (30). But in none of these is it that much difference from its peers (and on corruption it is again better than Ukraine, which Transparency International dubbed "the most corrupt country in Europe).

However, in other categories Russia does pretty well compared to its peers. On press freedoms Russia (57.2) easily beats China (27) and Turkey (54.1), which currently has the most journalists in jail in the world. And in a few categories like fiscal freedoms (85.6) Russia scores better than many developed world countries. For example,

Russia is in the global top ten for the quality of its tax administration – a function of the extremely simple flat tax regime it adopted.

Putting the question the other way round: if investors exclude Russia as an unethical investment then they would probably have to exclude all emerging markets as they all suffer from more-or-less the same problems.

The final question to pose is if Russia should be excluded for its unprovoked military invasion of Ukraine. However, if this were taken as a grounds to withdraw investment then fund managers would have be very specific about defining this criteria as if the only criteria is invasion without provocation they may be forced to withdraw their investments in the US as well which has started several wars this decade.

See the interactive version here. Use the pull down menu to change the parameters.

Eastern Europe October 24, 2014

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Ukraine requests ¤2bn from EU to pay for gas as talks with Russia falter bne Ukraine has asked for a ¤2bn loan from the European Union to cover the cost of gas imports from Russia, including payment of arrears and advance payments on new supplies, the European Commission confirmed on October 21, after trilateral talks between Russia, Ukraine and the EU in Brussels on October 21 failed to lead to signing of an agreement.

The European Union could provide Ukraine with a bridge loan so that Kyiv can make advance payments to Russia's gas company Gazprom for winter gas, German Chancellor Angela Merkel said later on October 24 at a European Union summit.

caused by an ongoing Russian-backed insurgency in the east.

Oettinger said that the three parties had agreed that Ukraine would pay Russia's state-owned energy giant Gazprom $385 per thousand cubic meters, under condition of advance payment, during the winter months. Oettinger said that the next meeting on October 30 should enable the parties to finally sign a deal.

But even if the EU of IMF agree to provide additional funding for Ukraine, it is not clear whether any progress was reached on another thorny issue: whether the new price for Ukraine of $385 per thousand cubic meters will be News of the request came after a trilateral calculated as the market price agreed between meeting in Brussels on October 21 between Ukraine's energy company Naftogaz and Ukraine, Russia and the EU failed to resolve the pricing and payment arrears dispute between Kyiv Gazprom, or as a unilateral concession made by the Kremlin to Ukraine, and reached through and Moscow.

Russia's waiving export tax payments on the gas. Ukraine has opposed the latter option, European Energy Commissioner Guenther Oettinger mentioned "the financial gap" as the key which it says means that Russia can revoke the concession at any time. current stumbling block, at a press conference following the talks.

Prior to the meeting in Brussels on October 21, Ukraine's Naftogaz said in a press release that Russian energy minister Alexander Novak Kyiv had established a common position with the explained that Russia wanted to know exactly EU that called for "obligatory signing of binding where Ukraine would find funds to pay Gazprom. documents between Naftogaz and Gazprom” that "We haven't received these assurances, either “should exclude the possibility of any of the parties from Naftogaz and Ukraine or the European to unilaterally change the conditions”.

Commission," he said, according to newswires.

Russian President Vladimir Putin earlier openly called on the European Union to help Ukraine pay arrears and advance payments for winter gas supplies, following talks in Milan on October 17. Moscow previously agreed to reduce its debt demands against Ukraine from $5.3bn to $4.5bn, which is still a massive sum of money for the country struggling with an economic collapse

The Russian side is insisting "that gas for Ukraine should cost $485 per thousand cubic meters, less the $100 per thousand cubic meters discount granted by the Russian government," said Oleksandr Paraschiy of Kyiv brokerage Concorde Capital. "This is at least one and for sure the most critical difference between the Ukrainian and Russian sides."

Eastern Europe October 24, 2014

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Rosneft demands half of national welfare fund after tightening of Western sanctions bne Russia's largest oil company, state-owned Rosneft, has filed a request for more than RUB2 trillion ($49bn) from the National Wealth Fund, a sovereign wealth fund, Finance Minster Anton Siluanov told RIA Novosti on October 22. The request follows a tightening of sanctions on Rosneft and other Russian state-owned companies in September, as a result of Russian support for separatist fighters in Ukraine.

The RUB2 trillion sum marks a RUB500bn ($12bn) increase on a request made to the National Welfare Fund in August before the latest round of sanctions. At the time, ministers from the government's financial bloc indicated that Rosneft would receive only around $3.9bn, alongside gas producer Novatek, also hit by sanctions.

Energy minister Alexander Novak said on October 22 that his ministry had approved requests from both Rosneft and gas producer Novatek, without specifying what sums had been approved.

Also this week, Rosneft CEO Igor Sechin. Said Rosneft may buy a 43% stake in oilfield services company Saipem, currently held by Italian energy giant Eni. Eni has said it could divest the Saipem stake to focus on core activities, but its plans are not yet clarified.

Saipem counts as one of the top oil service companies. Western sanctions in response to alleged Russian aggression in Ukraine have banned Western companies from supplying oil field services to Russia for Arctic offshore and shale gas projects, and the acquisition of a stake in Saipem The latest sum named by finance minister Siluanov, might be a way to circumvent this. regarded as a fiscal hawk, comprises more than half of the RUB3.2 trillion currently held in the National Welfare Fund.

He also said that a 19.5% stake in Rosneft, slated for privatisation by 2016, should be sold for at least Western sanctions have cut off Rosneft's access to $16.7bn. Sechin said the stake should be sold for western capital markets, just as Rosneft has to pay the same share price as paid by British energy down $20bn in debt in the last quarter of 2014 and company BP in 2012 for its stake in Rosneft: $8.12 first quarter of 2015, much of which was borrowed per share. This would put the total price of the 19.5% stake slated for privatisation at $16.7bn, to fund the acquisition of oil company TNK-BP in according to analysts, against current market value 2013. Rosneft is also faced with a falling oil price, for the stake of $11.3bn. down to $85 a barrel for Brent crude. Rosneft is formally claiming funds from the national welfare fund to finance large-scale investment projects, not to pay down its debt. Among the investment projects needing funding are a project to build a refining complex in the Russian far east, and to develop gas fields in eastern Siberia.

Sechin, a close associate of Russian president Vladimir Putin, has been seen to push against the deal, and analysts speculate that the very high price he named for the stake was intended to sabotage privatisation plans.

Eurasia October 24, 2014

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Central Asian states try to damp down currency fears bne Authorities across Central Asia are rushing to damp down concerns over the state of health of their respective currencies, with Kyrgyzstan's central bank reasserting the soundness of the country's foreign currency reserves right on the heels of its Kazakh and Turkmen counterparts.

“There is no shortage of US dollars in the Kyrgyz market,” Kyrgyzstan's central bank said in a statement. “Commercial banks have sufficient amount of foreign currency to meet the demand of the population.”

Central Asian currencies have been under pressure throughout the whole of 2014, largely mirroring the troubles of Russia's sanction-hit economy and the ruble. Kazakhstan's tenge devalued by 19% devaluation against the US dollar back in February, the Tajik somoni has lost around 5% against the greenback, and local press in Turkmenistan reported currency exchange shops not selling dollars any more earlier this month. Kyrgyzstan is no exception.

The som lost 13.12% against the dollar year-to-date and one dollar is now traded at 55.64 soms.

"The growth rate of the dollar to the som can be explained by its continued exposure to external factors (global trend to strengthen the dollar, imposed sanctions against Russia over the situation in Ukraine, the fall in oil prices since the beginning of the year) and internal factors (increase in demand due to the need to pay for imported goods, which may be due to the planned accession of Kyrgyzstan to the Eurasian Economic Union), " the central bank said in a statement.

Russia's economic troubles and the plunging ruble are particularly hitting the flow of remittances Kyrgyz citizens working in Russia send back home, which make up more than 30% of the country's GDP, the World Bank estimates. Total remittances

fell for the first time in five years in the first quarter of 2014, the European Bank for Reconstruction and Development said in a statement in September.

Kyrgyzstan economic growth is expected to slow down to 4.1% in 2014, down from 10.1% a year earlier, yet way higher than the average 0.8% forecast for the whole Commonwealth of Independent States's (CIS), according to figures from the IMF. “The outlook remains sensitive to regional developments, namely a further slowdown in Russia,” the IMF stated at the conclusion of a mission to Bishkek in July.

In a push to address the challenging economic cycle and shore up the som/dollar exchange rate, Kyrgyzstan's central bank has been actively involved in the currency market and carried out net sales of more than $309mn since the beginning of 2014.

The bleak outlook of the Russian economy and the oil market worldwide is taking a toll on the Kazakhstan economy too, with the government's economic growth forecast for full 2014 now at 4.3% from a previous 6%. Concerns over a new devaluation of the Kazakh tenge have spread throughout the local business community.

“I believe there is no reason for concern. The cushion given [to the tenge] by the February devaluation is very powerful," Kazakh news outlet Tengrinews quoted Kairat Kelimbetov, head of Kazakhstan's central bank, as saying on October 21.

On the other side, Turkmenistan's president Gurbanguly Berdimuhamedow addressed the issue of a supposed shortage of US dollars on October 20 by stating that the country intends to maintain the currency exchange rate in the currency market - the manat/dollar rate has been left untouched since early 2009.

Eurasia October 24, 2014

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Kazakhstan appoints Tasmagambetov defence minister

bne Imangali Tasmagambetov, former mayor of the Kazakh capital, Astana, has been appointed defence minister, while former defence minister Adilbek Dzhaksybekov in turn becomes mayor.

The appointments were announced on the Kazakh president Nursultan Nazarbayev's Twitter account.

Tasmagambetov, who had previously held posts of prime minister and mayor of Almaty, has been tipped off as one of the potential successors to Nazarbayev. Given the importance of the defence minister's job in the wake of Russia's annexation of Crimea and support to rebels in eastern Ukraine, Tasmagambetov's appointment as defence minister will be seen as a promotion and a sign of Nazarbayev's trust.

The Kremlin's annexation of Crimea has given rise to fears in Kazakhstan that Moscow may use the rights of ethnic Russians and Russian speakers in northern and eastern Kazakhstan as a pretext to annex parts of Kazakh territory in the future.

In a televised interview on August 24 Nazarbayev tried to quell these fears. "Some fear that Russia will again invade us. But this is not true," he said, warning that Kazakhstan should be careful in promoting the Kazakh language at the expense of Russian.

More than 90% of Kazakhstan's 17.3m citizens are able to speak Russian, but only around twothirds claim to speak Kazakh. Kazakhstan's constitution designates Kazakh as a state language, while Russian serves as a lingua franca and is allowed in official use.

"If we adopt laws to ban all languages but Kazakh, we will turn into a Ukraine," he said in reference to the Ukrainian parliament's revocation of the official status of Russian in eastern and southern regions following the ousting of former president Viktor Yanukovych.

On August 29 Russian President Vladimir Putin, when asked by a student at a youth forum whether Kazakhstan would see a repeat of the "Ukrainian scenario" should it diverge from its current pro-Russian policy, Putin said Nazarbayev was a "very wise" leader who knew perfectly well that a "vast majority of Kazakh citizens favour the development of relations with Russia�. At the same time, Putin made what appeared to be a veiled threat about the fragility of Kazakh nationhood. "He [Nazarbayev] made a unique thing. He has created a state on a territory where there had never been a state," Putin said. "Kazakhs didn't have statehood."

Modern-day Kazakhstan was established as an autonomous republic of the Russian Soviet Federative Socialist Republic in 1920 and was

Eurasia October 24, 2014

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promoted to a Soviet republic in 1936, finally Kazakh regions on the border with Russia winning independence only on the dissolution of have sizeable ethnic Russian populations. the Soviet Union in 1991.

In the Kostanay and North Kazakhstan regions, ethnic Russians outnumber ethnic The Kazakhs need the Moscow-led CU and EEU, Kazakhs, who account for just over a third of Putin continued, "because this is beneficial for the population. Ethnic Russians constitute 42.1% and 50% respectively. In the northern them to develop the economy and to remain in the space of a great Russian [speaking] world�. Pavlodar and Akmola Regions ethnic Kazakhs account for about 50% of the population, with ethnic Russians making up 34.5% and 37.3% Ethnic Russians accounted for 21.5% of respectively. In East Kazakhstan Region, ethnic Kazakhstan's 17.3m population at the Kazakhs are an absolute majority at 58.4%, but beginning of 2014, according to the Kazakh Statistics Committee. The northern and eastern the share of ethnic Russians is 38%.

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Eurasia Europe Central October 24, 2014

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Polish PM under pressure as EU agrees environmental package

bne The EU agreed a package to cut greenhouse gas emissions by 40% below 1990 levels by 2030 at its energy summit early on October 24. The deal was passed despite opposition from Central European states, and threatens to put huge pressure on Polish Prime Minister Ewa Kopacz.

Bohuslav Sobotka said on October 23 that Prague will pledge to boost renewables as long as it does not lead to a significant hike in energy prices, and does not restrict decision-making on the country's energy mix. That appears to be a nod towards plans to expand the country's nuclear capacity.

The agreement was hammered out after lengthy negotiations, according to press reports, and also includes commitments to raise renewable energy output to 27% of demand, as well as improving energy efficiency.

In the face of crumbling support from the neighbours, Kopacz was speculated to be backing down. Local press reported as she arrived for the summit that the PM feared a veto would simply see the limits pushed through under EU directives, and that she would instead concentrate on sweetening the deal.

The passage of the deal is a blow to coal-rich Poland, which is struggling to keep its coal mining industry afloat and had threatened ahead of the summit to use its veto. The Polish leader has been under huge pressure at home to protect the country's struggling miners since she took on the job in September.

That appears to be the route she took. "It was not easy, not at all, but we managed to reach a fair decision," said European Council President Herman Van Rompuy, according to AP. "It sets Europe on an ambitious yet cost-effective climate and energy path."

Poland argues that CEE states need more time than those to the west to restructure industry, and that the deal will hit the developing economies.

The country is heavily dependent on coal for electricity generation, and has a huge programme to build more coal-powered power plants as it bids to raise energy security.

Van Rompuy said poorer EU member states would get help reaching the targets. He pledged "extra support for lower-income countries, both through adequate targets and through additional funds to help them catch up in their clean-energy transition."

However, Warsaw's attempts to rally fellow CEE member states to help it put up stiff opposition flopped under pressure. In the lead up to the summit, the likes of the Czech Republic had signalled they may accept the deal. Prime Minister

Kopacz did her best to insist the deal will not hit Poland hard, despite the fact that the government is already scrambling to find ways to protect its miners from low prices and competition from cheap imports from the likes of Russia. Warsaw

Eurasia Europe Central October 24, 2014

is currently mulling a plan to restructure the industry. "I said that we will not return from this summit with new [financial] burdens, and indeed there are no new burdens," Kopacz told Polish reporters.

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month during regional elections. "Polish business must come first," PiS spokesman Adam Hofman thundered ahead of the summit.

The EU deal will hardly help Kopacz, who succeeded predecessor Donald Tusk in September, stamp her authority on the However, unless she has something mightily centrist Civic Platform party before next year's impressive up her sleeve, the PM is set to parliamentary elections. She has staked her face huge pressure once she gets home. The nationalist opposition Law and Justice (PiS) will be reputation on a policy built around domestic and foreign policy safety, something which a steep keen to press home her failure to block the deal, increase in power prices would undermine. with Kopacz facing her first electoral test next

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Central Europe October 24, 2014

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Latvia struggling to break Russian grip as it drops bid for gas utility

bne Latvia has halted talks with E.ON over buying a 47% stake in national gas utility Latvijas Gaze because the price is too high, the country’s prime minister said on October 21. The move illustrates how Riga continues to struggle to gain any traction in freeing its gas market from Russian control.

Latvia's government announced in September that it had submitted a non-binding offer to the German company for the stake. However, confirming local press reports, Prime Minister Laimdota Straujuma said in a television interview that the price for the asset is too high and that Riga cannot afford the deal. "We cannot continue talking about this process further," Straujuma said, according to Reuters. "The price [asked by E.ON] is what we cannot offer."

reported last month that several US companies are willing to stump up ¤175m. Meanwhile, infrastructure investment fund Marguerite, owned by European development banks, is also said to be interested.

Another reported suitor is oil trader Vitol, which owns 49.98% of Latvian oil terminal operator Ventspils Nafta, reported Reuters.

The company opened an office recently in Riga, and said Latvia's capital will become its regional trade centre, the newswire adds.

Described as "a mystery even to many in the oil business”, it's unclear exactly who is included in the Netherlands-based company's private ownership.

Closer to home, and offering the greatest potential for moving Latvia towards freeing Earlier this year, it was reported that E.ON was seeking as much as ¤220m for the stake. Latvian itself from 100% dependence on Russian gas media reported recently that Riga's offer - coming supplies, are two Lithuanian state-owned companies - Lietuvos Energija and EPSO-G under pre-emption rights - came to just ¤116m. which have also submitted non-binding offers.

That was always unlikely to tempt E.ON, despite its drive to divest assets because of EU pressure The pair were created earlier this year when to unbundle or split ownership of suppliers Vilnius bought E.ON and Gazprom out of and pipelines. Until recently, it controlled the Lithuania's gas utility company and pipeline gas markets across the Baltic states alongside operator. Those acquisitions followed a long and Russian giant Gazprom. However, it has recently bitter fight against the Russian gas supplier, sold its stakes in both Estonia and Lithuania. and were the key step in Lithuania's plan to launch a floating LNG platform by the end of In Latvia, the German company is reported to this year. Vilnius already secured a price cut have a bevy of suitors willing to join Gazprom on Russian gas thanks to the leverage it has which holds 34% in Latvijas Gaze - and Russian gained. independent gas trader Itera (16%). Local media

Central Europe October 24, 2014

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Gas from the "Independence" platform is already being sold through Lithuania pipelines.

However, Vilnius wants to turn the facility into a regional hub. To sell gas to Latvia, it must break the grip of Gazprom over the country's pipelines.

Latvia hosts Incukalns - the only gas storage in the region - which is a strategic asset for any gas trading in the Baltics. However, with Incukalns also serving western Russia and the enclave of Kaliningrad, Gazprom is unlikely to give up control without a fight, and Latvia is falling behind its neighbours. Estonia failed to buy E.ON out of Eesti Gas in the summer - Finland's Fortum, which is partly owned by Gazprom, clinched the deal to raise its stake to 51.4%, with Gazprom and Itera holding the rest - but Tallinn has demanded the

country's pipelines are unbundled by the end of the year. Despite some political talk on unbundling, Riga has yet to take on Moscow. Latvia is traditionally seen as the closest of the Baltics to Moscow, and hosts Gazprom's regional HQ. However, with Estonia now pushing to follow in Lithuania's footsteps, Latvia needs to act soon, independent energy consultant Andres Mae told bne. "As the last of the Baltics to break Gazprom control of its networks, Latvia will be left exposed to increased leverage and potential price hikes," he states. At the same time, Riga has a tougher task, he adds. "Russia may not have fought too hard for small markets like Lithuania, but Incukalns is a strategic asset."

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Southeast Europe October 24, 2014

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Turkey's energy ties with Iraqi Kurds behind decision to allow passage for Peshmerga David O'Byrne in Istanbul Turkey has performed a volte face and confirmed that it is allowing Kurdish Peshmerga forces to pass through Turkey to help defend the northern Syrian town of Kobane, under siege by militants of the Islamic State organisation (IS ). Those Peshmerga forces are under the control of the Kurdistan Regional Government of northern Iraq, with whom Turkey has been building crucial energy interests, thus self-interest is likely behind the decision.

Previously, Turkish police have acted with no little force to prevent Kurds from northern Syria who had fled to Turkey to escape IS from returning across the border to help in the defence of the besieged town. This prompted allegations that Turkey was prepared to allow the town to fall into the hands of IS in preference to it remaining under the control of Syrian Kurdish political party, the PYD and its armed wing, the YPG.

Ankara maintains that the YPG is closely allied to the Kurdistan Workers Party (PKK), which has Turkish foreign ministry officials confirmed on for the past 30 years been conducting a guerrilla October 20 that the movement of Peshmerga war in the mainly Kurdish populated southeast forces from the Kurdistan Region of northern of Turkey, and which is recognised as a terrorist Iraq through Turkey to Kobane has already group by both the EU and US. begun, despite Turkish Foreign Minister Mevlut Cavusoglu stating at a press conference earlier in The PKK in mid-October ended its 18-month ceasefire, prompting Turkish fighter planes to the day that discussions were still ongoing. attack its positions in mountain areas of south east Turkey.

Cavusoglu did not elaborate on who the talks were being held with – the Kurdistan regional The Peshmerga Kurdish forces being allowed Government (KRG), the international coalition, through Turkey to Kobane are under the or both – however the speed with which an control of the Kurdistan Regional Government agreement appears to have been reached of northern Iraq, with which Turkey has been indicates that Turkey realised that it needs both maintaining surprisingly good relations, to take the threat posed to its own security by despite the presence of PKK bases in the KRG IS seriously, and to be seen to be doing so by its controlled region. Both sides have good reason allies. for being friends in spite of obvious ethnic tensions.

Cavusoglu commented that Turkey has been in full cooperation with the international coalition The KRG-controlled region contains vast with respect to Kobane and that Turkey had never wanted the town to fall under the control of reserves of both crude oil and natural IS. "We want the region to be clear of threats," he gas. Having all but officially separated from the rest of Iraq with which it has poor said.

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relations, the KRG needs Turkey as the sole export route through which it can monetise its hydrocarbons.

valued at around $1.5bn and that over the past few months flow has more than doubled to a current 240,000 b/d.

Turkey, for its part, has the 1.5m barrel a day (b/d) Kirkuk-Ceyhan oil pipeline, which has been running at a fraction of capacity since Iraq's 1990 invasion of Kuwait; since December last year, the KRG has been exporting crude through Turkey, via the Kirkuk-Ceyhan line. In addition, Turkey has an urgent need for more gas both to meet growing domestic energy demand and as a source of revenue through export on to markets in Europe.

Last year also saw Turkey and the KRG sign a number of gas export agreements, the details of which have not been made public.

However, Turkey's environment ministry in September published the environmental impact study for a new gas pipeline that will connect the existing gas transit grid of Turkey's state gas importer Botas to the Turkey-Iraq (KRG) border, with a capacity of around 20bn cubic metres a year – in effect a major import line with more than enough to meet Turkey's growing demand and leave plenty more for transit to Europe.

Speaking on Turkish TV on October 20, Turkish Energy Minister Taner Yildiz confirmed that to date 18m barrels of KRG oil have been exported

Southeast Europe October 24, 2014

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Croatian heavyweight Milan Bandic floored by corruption charges

bne county and Zeljko Sabo, the former mayor of the The Croatian media is agog at the arrest of Milan Bandic, the mayor of Zagreb, and at least 15 of his eastern Croatian city of Vukovar. closest associates on corruption charges.

The arrest of Bandic and a large part of the senior leadership of Zagreb, which is home to over 20% After months of investigations by police and of Croatia’s 4.3 million population and accounts Croatia’s anti-graft agency Uskok, Bandic and for more than 40% of the country’s gross domestic a slew of city officials from the Croatian capital budget, is arguably the most dramatic operation were taken into investigative custody on October 19 on suspicion of corruption, abuse of office and undertaken by Uskok to date and could possibly set the stage for similar operations in other trading in influence, according to a statement Croatian cities. issued by Uskok on its website.

Local media reports suggest that the allegations against Bandic include the embezzlement of public funds to support his failed bid to become Croatian president in 2009 as well as the award of public procurement contracts during his more than decade long reign as the undisputed ruler of the Croatian capital.

Among the other suspects arrested during the ‘Action Agram’ police operation– named after the old moniker for Zagreb – were Slobodan Ljubicic, chief executive of Zagrebacki Holding, the public agency that manages Zagreb municipal services, and Peter Pripuz, chief executive of CIOS, a privately owned waste management company which it is alleged to have been illegally awarded lucrative contracts by Zagrebacki Holding.

The arrests represent the latest stage in a concerted anti-graft campaign in Croatia, whose other high profile targets have included former prime minister Ivo Sanader, Marina LovricMerzel, the former prefect of Sisak-Moslavina

Commenting on the arrests Dragan Zelic, head of civil rights organisation Gong, told state news agency Hina: "This case not only illustrates the importance of the fight against corruption, but also the prevention of corruption at all levels. Everything needs to be done to ensure that nothing like this happens again and we need to ensure that there is the lowest possible level of corruption. No expense should be spared in the battle against corruption. It should be remembered that there are very serious allegations against the mayors in Zadar and Dubrovnik and all such cases need to be addressed.”

As the long-serving mayor of Zagreb, Bandićć is certainly no stranger to controversy. In 2002 during his first term at the helm of Zagreb, Bandić fled from the scene of a car accident while under the influence of alcohol and was forced to tender his resignation as a result.

Nevertheless he managed to engineer his

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re-election as mayor in 2005 and has been a permanent fixture of the political landscape in Croatia ever since. Now in his fourth term as mayor, ahead of his arrest there was widespread speculation that he was planning to establish a coalition with a number of other political heavyweights, including former economy minister Radomir Cacic, to contest the next parliamentary elections scheduled for the end of 2015.

An unashamed populist and undisputed king of the photo-opportunity, Bandic enjoys widespread support among the electorate in Zagreb, managing to attract support from both left and rightwing voters which has proved instrumental in his being able to secure a record four terms as mayor.

Under his aegis Zagreb has witnessed an explosion of shopping centre developments, which have transformed the Croatian capital into a regional Mecca for both domestic and international retailers. He is also widely credited with showing enthusiastic support for minority groups in Croatia such as the Roma community.

However, according to local media no less than 250 civil and criminal charges have been levelled against Bandic, although to date no serious charges have stuck. Whether Croatia’s ‘Mr Teflon’ can shake off Uskok’s serious allegations remains to be seen, but given his reputation as a skilled political operator it is highly unlikely that Bandic will relinquish his grip on power without a fight.

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Opinion October 24, 2014

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EM central bank credibility comes into sharp focus COMMENT:

Dr Nicholas Spiro of Spiro Sovereign Strategy Volatility in global financial markets is surging as investors fret about the state of the global economy. The CBOE’s Volatility Index, commonly known as “Wall Street’s fear gauge,” is now at its highest level since May 2012 when markets feared the Eurozone was about to break up.

The benchmark 10-year US Treasury yield has been driven down to 2.1% as investors rush into perceived safe havens while the S&P 500 Index has fallen 7% over the past month.

If there was ever a time when emerging market (EM) central banks ought to be reassuring investors about the conduct of monetary policy, it is now. Yet even central banks in some of the most creditworthy and stable EMs are in danger of losing credibility as a result of erratic policymaking and confusing signals.

Poland’s central bank, which has long prided itself on its conservative approach to policymaking, has once again caught investors off guard – never a good thing for institutions that, ideally, are supposed to be predictable and transparent.

On October 8, the National Bank of Poland (NBP) surprised investors by cutting its benchmark reference rate by a sharper-thanexpected 50 basis points to 2% and, more importantly, slashing its Lombard rate – which sets the maximum rate banks can charge for loans – by 100 basis points to 3%.

aggressively – not least given that the central bank had been resisting rate cuts during the summer months when Poland was already experiencing deflation and the recovery began to lose steam.

The credibility of the NBP is being further undermined by sharp differences of opinion on the conduct of monetary policy even within the dovish camp of the central bank’s rate-setting Monetary Policy Council (MPC).

Still, at least markets and the NBP are on the same page: investors expect and are pricing in further rate cuts because of the deflationary conditions in the economy, with forward markets betting on another 50 basis points of rate cuts in the next three months.

Even in Hungary, whose central bank has thrown caution to the wind by cutting interest rates aggressively over the past two years, the return of deflation in September after two months of meagre rises in consumer prices justifies keeping rates at exceptionally low levels – although not as low as Poland’s given Hungary’s significantly weaker underlying fundamentals.

Of far greater concern is the conduct of monetary policy in Turkey and Russia.

In Turkey, the central bank has been a dove in hawk’s clothing ever since it raised rates in Investors had been pricing in rate cuts in Poland, but they didn’t expect the NBP to act so an extremely aggressive manner in January to

Opinion October 24, 2014

shore up the wilting lira.

Despite a surge in inflation to 9.4% in April (up from 7.4% at the end of last year and nearly double the central bank’s target), the central bank began cutting interest rates, squandering the inflation-fighting credibility it had gained earlier this year. While Turkey’s central bank has at least stopped cutting rates, it took a sharp deterioration in sentiment towards EMs in September to force its hand.

The damage is already done. Even before October’s turmoil in global markets, Turkish assets were under renewed pressure partly because of the lack of confidence in monetary policy. The yield on 10-year Turkish local debt shot up 100 basis points in September to 9.8% (but has since fallen back to 9%), while Turkish stocks have dropped a whopping 15% over the past three months (compared with declines of 3-4% in Poland and Hungary).

In Russia, meanwhile, the central bank has seemingly lost control of the ruble as the sharp decline in oil prices, the fallout from the toughening of the West’s sanctions regime against Russia and the general deterioration in sentiment towards EMs render the central bank’s frequent interventions to prop the currency – already some $13bn since September – wholly ineffective.

While Russia’s huge stockpile of foreign reserves and its strong public sector balance sheet provide a degree of reassurance, the steep decline in oil prices is severely testing the credibility of the central bank at a time when it is preparing to let the ruble float freely.

The whiff of further rate hikes – the last thing Russia’s depressed economy needs right now – has been in the air for some time already.

Much now hinges on the extent to which the current growth scare that is gripping markets turns into something a lot more frightening.

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The fact that investors are now pushing back their expectations of the first US interest rate hike – the key catalyst for last year’s EM sell-off – is not helping sentiment towards developing economies one bit. EM equities are down 3.5% in October alone, with Emerging Europe stocks performing the worst.

The region’s central banks are about to face their sternest test yet.

Weekly Lists October 24, 2014

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

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

businessneweurope I Page 26

bne:Investor Total CEO killed in plane crash in Moscow bne

The head of French oil and gas major Total, 63-year-old Christophe de Margerie, was killed in Moscow late at night on October 20, when his business jet collided with a snow plough at Moscow's Vnukovo International Airport.

Three of the plane's crew and the snow plough driver also died while the jet was trying to take off. Civil aviation authorities said an investigation had been launched into the crash. Initial reports from the investigation said that the snow plough driver had been drunk, a revelation likely to embarrass Russia, struggling under the image of a country hostile to foreign investors.

De Margerie is believed to have attended a meeting between Russia's government and leading foreign investors on October 20, and given the breakdown in relations between Russia and the West his death will be seen as symbolic for everything that can go wrong, going wrong, for Russia at the moment.

Kazakh government to offer 30% cash back to boost investments Marcus Booth and Henry Kirby in London

The government of Kazakhstan has confirmed plans to provide generous financial incentives to foreign investors in newly-formed firms, while pledging to reduce state involvement in the broader economy.

Cash-backs of up to 30% will be available for firms investing in entities less than a year old in 14 core sectors – including mining/ metallurgy, construction, agriculture and pharmaceuticals – according to Kazakh officials speaking at an investment conference in London.

Sagadiyev and his colleagues outlined new legislation to encourage both domestic and foreign investors in Kazakhstan over an 8-10 year period – including up to 30% investment cash-backs, corporation and property tax exemptions and visa-free entry for foreign workers. To qualify, investments must exceed $20mn with recipient firms formed less than 12 months before and based outside Kazakhstan’s existing special economic zones. While some incentives were introduced in July, specific tax assistance will be valid from January 1, 2015.

Weekly Lists October 24, 2014

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

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

businessneweurope I Page 27

bne:Deal Russia's MTS looking for partner for Ukrainian subsidiary

Russian mobile telecoms giant MTS has put its Ukrainian subsidiary up for sale, according to business daily Vedomosti. In the second quarter of 2014, MTS Ukraine contributed nearly 8% to MTS overall profits, and was the second largest telecom in Ukraine by subscriber base.

bne According to Vedomosti, the motivation for the sale of MTS Ukraine is the political situation in Ukraine, and hostility towards Russian business following Russian aggression in Crimea and the Donbass. In particular, it is looking unlikely that MTS Ukraine will be allowed to participate in an upcoming government auction for a 3G licence, thus crippling the company's competitiveness going forward. Ukraine's government seems likely to exclude companies with over 50% Russian ownership from participating in the auction, according to statements by Ukraine's prime minister Arseny Yatsenyuk.

MTS is not planning on leaving Ukraine, said company representative Dmitry Solodovnikov, as quoted by Vedomosti. MTS is interested in developing busuness and infrastructures, including 3G networks.

Solodovnikov declined to comment on the possibility of a sale of a stake of MTS Ukraine to an investor.

Korean Air agrees to participate in Czech Airlines capital hike bne

Korean Air will participate in the capital hike of struggling flag carrier CSA Czech Airlines, the Central European airline said on October 23. CSA, which is fighting once more to stabilise itself, has been pressing the Asian company, which holds a 44% stake, to put its hand in its pockets for close to two months.

Noting a "huge shift" in negotiations, CSA said in a statement that the "board received a decision by Korean Air to financially contribute to CSA's stabilisation and also a proposal for a contribution to its capital”.

However, the statement offered no other details of the commitments, saying only that the CSA board will study the Korean Air offer. Holding company Cesky Aeroholding has said the carrier will need a financial boost of around $20m (¤15.8m) in the next six months.

Weekly Lists October 24, 2014

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

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

businessneweurope I Page 28

bne:Banker CEE bad loans may make Austrian banks struggle in stress tests bne

Around a dozen Eurozone banks have failed stress tests and will need to find new capital, the European Central Bank will reveal on October 26, a report claims. Two Austrian banks with strong connections to Central and Eastern Europe may be included in that group.

Erste was namechecked by EFE, and its share price dropped 1.4% in Vienna around midday. However, insistence by Erste that the report was false, backed by analyst suggestions that the bank should pass, enabled the shares to trim the loss to 0.85% by the close.

An Austrian banking source told bne earlier this month that Volksbank was most at risk. Formerly Austria's fourth largest lender, all that remains is the domestic rump following three rounds of state aid since 2008.

Russian insurer feels the Pinchuk Nick Kochan in London

Documents related to a Moscow arbitrage court hearing seen by bne allege there is a ¤145m hole in the finances of a now-bankrupt Russian insurance company that was controlled by Ukrainian oligarch Victor Pinchuk. The RUB7.6bn (¤145m) loss at Rossiya is the subject of a Moscow Arbitrage court hearing, set to take place on November 11.

The loss arose from a deal between Cypriot-registered Svatozar Enterprises Ltd, which is controlled by the Pinchuk group EastOne, and the Russian insurance company Rossiya, which in turn is 76% owned by Svatozar Enterprises. Rossiya’s temporary administrators, appointed by the Russian regulator, the Federal Financial Markets Service (FFMS), have found that RUB7.6bn had been transferred from Rossiya to Svatozar Enterprises in exchange for promissory notes. The money arrived at Svatozar Enterprises, but the promissory notes to Rossiya were never honoured.

Weekly Lists October 24, 2014

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

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

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bne:Credit Russian markets on tenterhooks over possible S&P junk rating

Russia's traders are on tenterhooks ahead of a review of the country's sovereign credit rating by agency S&P scheduled for October 24, with speculation that S&P could lower the rating to junk status.

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“Following the oil price drop, which has put the vulnerability of Russia’s public finances to oil price shocks under a spotlight, we think a two-notch sovereign rating downgrade would not be a complete surprise,” Tatiana Orlova, an economist at Royal Bank of Scotland in London, wrote in a report, according to Bloomberg.

S&P has been the most bearish of leading credit agencies on Russia from the start of the crisis over Ukraine, downgrading Russia's status to the lowest rung before junk grade as early as March, after Russia's annexation of Crimea. Downgrade to junk status would force global investment funds en masse to drop Russian paper, putting further pressure on the ruble, stock market and corporates, some analysts believe.

Plummeting FDI and poor governance end Mongolia's honeymoon bne

Once the darling of foreign investors, Mongolia has struggled to live up to expectations and clouds have now gathered over its horizon as foreign investments are plummeting and authorities seem unable to fix lingering issues such as the multi-billion expansion of flagship mine Oyu Tolgoi.

"The decline in FDI inflows coupled with the contraction in exports in 2012 and 2013 have contributed to a rundown in foreign exchange reserves, a weakening of the currency and an increase in vulnerability to external risks," credit rating agency Moody's said in a credit opinion on October 23. Moody's reasserted its B2 rating and negative outlook over the country's $1.5bn, 10-year bond issued in November 2012.

Foreign direct investments (FDI) have been decreasing sharply after peaking at $4.6bn and $4.4bn in 2011 and 2012, which were staggering figures for a $10bn economy. Total FDI did not go beyond $640mn in the first eight months of 2014, from $1.6bn during the same period last year, according to figures from the country's central bank.

Weekly Lists October 24, 2014

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

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

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bne:Stocks Kyrgyzystan considering delisting Centerra Gold shares bne

Kyrgyzstan may seek a delisting of Centerra Gold to prevent its shares being seized through international court and arbitration judgements. There is already an injunction on part of the state’s shareholding in Centerra from a dispute with junior Canadian mining firm Stans Energy over a $118mn claim.

Toronto-traded Centerra Gold owns and operates the Kumtor gold mine, which makes up around 10% of Kyrgyzstan’s GDP and is considered the cash-strapped country's only valuable asset abroad and thus a natural object of desire for foreign companies looking for damages such as Stans Energy. The state is the largest shareholder in Centerra with a 32.7% stake through state gold mining firm Kyrgyzaltyn.

Stans Energy locked horns with the government over a 20-year licence at the Kutessay-II heavy rare earth elements mine in the Talas province. The government revoked the licence after a parliamentary recommendation in 2012. Stans Energy decided to bring its claims before an arbitration court at the Moscow Chamber of Commerce & Industry, where it obtained a $118.2mn award against the Kyrgyz republic in July.

Creditors demand Ukraine investigates Mriya shareholders' private deals bne

International creditors and minority shareholders in financially troubled grain producer Mriya, one of Ukraine’s largest agribusinesses, have called on the president and government to investigate suspicious behaviour by its controlling shareholders, alleging asset stripping Grain producer Mriya - founded and controlled by Ivan Huta and his family, who deny any wrongdoing - has entered restructuring talks with creditors after defaulting on Eurobonds. Creditors demanded early repayment of a $400m Eurobond and loans totalling ¤49m on October 14, after the company failed to make payments on its debt.

In an open letter addressed to Ukraine's president, government, and other authorities, the creditors said that the goal of such an investigation would be "to safeguard the legitimate rights and interests of creditors and minority shareholders in the company, as well as to preserve its assets and prevent possible abuse”.