Bne:Newspaper January 23, 2015

January 23, 2015 www.bne.eu

Poland, Croatia rush to help Swiss franc borrowers

Russian-backed rebels have reportedly repulsed a Ukrainian attempt to recapture Donetsk Airport, inflicting heavy losses on Ukrainian government forces, according to reports on social networks. Meanwhile, in Berlin, progress was made towards establishing a demarcation line for a ceasefire.

Facebook posts by volunteer supporters, who supply food and non-lethal equipment to fighters

Rebels repulse Ukrainian attempt to recapture Donetsk Airport

Croatia and Poland are planning to lend a helping hand to hundreds of thousands of increasingly worried borrowers with mortgages denominated in Swiss francs, following the surge in the value of the franc after the Swiss central bank ended the peg to the euro. Elections are due in both countries this year.

The Croatian government plans to freeze the

exchange rate used to calculate the Croatian kuna value of personal loans taken out in Swiss francs, according to Croatian Prime Minister Zoran Milanovic.

The exchange rate will be fixed at HRK6.39 to the franc for one year, if the planned amendment to

on the front line, say that heavy Ukrainian losses came when rebels seized the first and third floors of the airport's new terminal, and used explosives to cause a ceiling to collapse on government forces on the second floor, on January 20.

George Tuka, head of the People's Home Front

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Content: 2 Top Stories 6 The Regions This Week11 Eastern Europe13 Eurasia16 Central Europe18 Southeast Europe20 Feature24 Lists24 Lists

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volunteer group, wrote on Facebook that 37 Ukrainian fighters had died as a result, others were captured or pulled out. Other volunteers writing on Facebook mentioned the same number of casualties. Videos posted by rebels on the Internet and Russian TV footage showed around 20 captured Ukrainian soldiers, including a commander, forced to kneel on the ground.

Dmitro Yarosh, MP and leader of the Right Sector ultra-nationalist group, was reported wounded in the fighting, in which Oleksandr Turchinov, head of Ukraine's national security and defence council, was also said to have been present.

The reported failure to retake the airport would mark Ukraine's biggest military set-back since losing around 200 men near the town of Ilovaisk, at the end of August, after they were encircled and decimated by artillery fire, reportedly from Russian units following a cross-border incursion. Ukraine subsequently agreed to a ceasefire.

According to reports, after the airport was seized by rebels on January 16, Ukraine’s General Staff launched a counter-attack, planning to surround the airport and seal off the rebels, and then push other rebels units farther back from it. This involved a large-scale artillery bombardment of the district on January 18, and clashes between Ukrainian troops and rebels in Donetsk itself.

But the plan ran into trouble in the airport itself, when separatists seized the first and third floors of the airport’s new terminal, according to Tuka. Ukrainian troops remained on the second floor, but when the ceiling above them collapsed some of the soldiers were killed, Tuka said. Others were

captured by insurgents or withdrew from the airport, he added.

The ministry of defence disputed January 22 that the battle for the airport had been lost. “Part of the buildings and part of the territory of the airport remain under the control of Ukrainian forces. Fighting is continuing,” the defence ministry said in a press release.

Ukrainian presidential adviser Yury Biryukov wrote on the evening of January 20 that thick fog had frustrated Ukraine's attempt to retake the airport, after losing control of it on January 16. Units moving in on the airport buildings across the runways got their position wrong and ran into a strong force of rebels, with ensuing casualties and eight were taken prisoner.

Other volunteers said that wounded Ukrainians had been finished off by 'Chechens' fighting on the rebel side.

Ukraine has repeatedly said that Russian units were fighting alongside the rebels, while Russia has refuted this. Western officials have not yet backed official Ukrainian statements that regular Russian army units are currently involved in fighting, but have instead spoken of a large concentration of Russian forces on the Ukrainian border.

Angered commentators also blamed the apparent failure of the operation to retake the airport on mistakes made by commanders of Ukraine's army, in particular chief of staff Viktor Muzhenko, who was reported to have taken personal charge of the operation. “He personally bears responsibility for all tactical operations around the airport starting January 16,” frontline military commentator Yury Butusov wrote on Facebook. According to Butusov, Muzhenko had previously removed a number of experienced commanders from their posts.

Muzhenko had previously attracted criticism for the actions of his associate and deputy of many

Rebels repulse Ukrainian attempt to recapture Donetsk Airport

January 23, 2015 businessneweurope I Page 2

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years standing, former head of Ukraine's “anti-terrorist operation” Vyacheslav Narkin, whose brother is a Russian army general. Nazarkin was removed from this post and reportedly charged with gross neglect of duty in September."To the question, which is more dangerous for us, the external or the internal enemy, my answer is the internal", volunteer leader Tuka wrote on Facebook.

The apparent failure of Ukraine's attempt to regain control of the airport may now pave the way to a resumption of ceasefire talks.

Foreign ministers from Ukraine, Russia, France and Germany - the so-called 'Normandy-format' countries - met in Berlin on January 21 for talks on the conflict. Agreement was reached that the conflicting sides in Donbass would pull heavy weaponry back from the demarcation line, as it was agreed in September in the so-called Minsk Agreements, which was meant to put an end

to fighting across the whole of East Ukraine's conflict-torn Donbass region.

Under the Minsk peace accords, all sides would withdraw heavy weaponry 15 kilometers back from the demarcation line.

The Russia-backed rebels have repeatedly claimed that the Minsk Agreements gave Donetsk Airport to them, a claim disputed by Ukraine's foreign minister Pavlo Klimkin on January 21.

"Today we have finally agreed that the demarcation line mentioned in the Minsk agreement is the line from where the withdrawal of heavy weapons needs to take place now," German Foreign Minister Frank-Walter Steinmeier told media late on January 21, as quoted by AP. "A lot depends on the question if that what we have agreed on will not only remain printed paper, but will also change the situation on the ground," he added.

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In Poland, the most affected country, the government is putting pressure on banks to pass through negative interest rates to their customers. Ewa Kopacz, Poland’s prime minister, asked financial supervision authorities on January 20 to look into whether banks are changing loan agreements to take account of the Swiss National Bank’s new benchmark rate of minus 0.75%. Most Polish loans – unlike those in Hungary – have floating rates pegged to the SNB benchmark. Borrowers faced with larger repayments because of the depreciation of the zloty agains the Swiss franc, would get some relief if the banks passed on the lower interest rates.

Adam Jasser, head of the government’s competition watchdog, said his agency would take a close look at how banks were treating their customers. “In our opinion, that is a potential violation of regulations,” he said. “From our point of view it is key that consumers not be harmed.”

Poland, Croatia rush to help Swiss franc borrowers

the law on consumer loans is approved by the parliament under a fast track procedure. This was the exchange rate immediately before the Swiss central bank’s surprise decision to abandon its ceiling of CHF1.20 to the euro on January 15. The Swiss franc has been trading at around HRK7.6 in the days since the franc’s peg to the euro was scrapped.

Financial institutions will bear the cost of the exchange rate freeze, Milanovic told a press conference following meetings with the finance ministry, the Croatian central bank and commercial banks, according to the Croatian government website.

"Over the next year we can sit down to talk about converting loans pegged to the franc into kuna value but that will require the consent of the Croatian National Bank because that is not exclusively in the government's authority," Milanovic added.

However, the Croatian Banking Association (HUB) has asked parliament to reject the government proposal. Such a decision can only cause additional problems and possibly transfer the total cost to Croat taxpayers, HUB said in a statement. The banks have proposed to fix the exchange rate for a period of three months during which a permanent solution should be found.

Loans in Swiss francs in Croatia amounted to some HRK23.7bn (¤3.1bn) at end-September, of which the majority were mortgage loans. According to civil society organisation Franak, quoted by news agency Hina, banks have extended 60,000 loans denominated in the Swiss currency, so the franc’s strengthening will affect up to 300,000 Croatians among the country’s total population of 4.2m.

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Jasser met during the day with Mateusz Szczurek, Poland’s finance minister, as well as other senior officials to try to come up with a solution to the crisis. The zloty fell from about 3.55 to the franc last week to the 4.28 it was trading at on Tuesday. The sagging zloty is causing enormous pain to the 550,000 Poles with mortgages denominated in the Swiss currency.

Such loans were very popular before the economic crisis because Switzerland’s interest rates were substantially lower than those in Poland. However, banks, customers and regulators largely underestimated the risk being taken by borrowing in a foreign currency. Although very few new franc mortgages have been issued in recent years, they still account for 37% of outstanding housing loans.

With parliamentary elections scheduled for October, the franc has quickly become a political

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issue. The opposition Law and Justice party is proposing allowing clients to repay at the rate before the Swiss central bank decision. The government wants to lessen the immediate pain, mindful of the example in Hungary, where Viktor Orban won power in 2010 partly on the promise to help Hungarians trapped by expensive foreign currency mortgages.

“Sharp zloty depreciation may trigger renewed political pressure to support private Swiss franc borrowers, especially as 2015 is an election year in Poland and the Hungarian precedent (at the time considered highly unorthodox) may be used as a populist argument,” writes Artur Szeski of Fitch, the ratings agency.


The Regions This Week

Following the terror attacks in France, Czech intelligence services will get a funding boost, the PM said. Prague is also mulling allowing BIS to access bank and telephone details.

Latvia repaid ¤1.2bn of its 2008 bailout loan to European Commission on January 16. Riga also plans to pay the World Bank ¤60mn this year, which was also part of the ¤7.5bn rescue.

PPF bought less than the 1% of O2 CR it had targeted in a buyout offer to minorities, the closely-held Czech financial group announced on January 16. PPF has steadily raised its holding in the country's largest mobile operator to around 83% since it bought a 66% stake from Telefonica in January 2014. It is feared PPF wants to shrink dividends and delist the company.

Polish police arrested six following an attack by "hundreds" of hooligans on a train. Several were hospitalised after masked thugs smashed windows before boarding the train to Gdynia. Police suggested the fight was connected to a feud between rival hooligan groups. The train was also carrying around 100 martial arts fans.

Hungary's PM continues his populist blast against immigration. Despite Hungary being a source of net emigration, Orban leapt on the issue in the wake of the Paris attacks. Now he is calling for the EU to tighten asylum laws.

Andrej Babis wants to alter the Czech coalition agreement. Locked in a background power struggle, the powerful finance minister is looking to raise the pressure on PM Sobotka as his CSSD party summit approaches. The PM's attempt to revive a move to raise corporate taxes is the trigger for the call from the leader of Ano.

Central EuropePolish industrial production growth hit its fastest rate in three years in December. With the ECB's ¤1.1tn QE programme on the other side of the equation, the MPC's sharp debate on further rate cuts continues.

Hungary will welcome Russian President Putin on February 17, and is ready for energy talks the foreign minister announced. The controversial visit – and potential deals over gas – will only increase US and EU suspicion over PM Orban's lean towards Moscow.

Slovakia will give the second pillar another kick, PM Fico announced on January 22. Claiming pension payouts are below expectations, he said savers will be offered the chance to opt out of the private scheme altogether to switch all contributions to the state fund.

A tender for the expansion of Czech nuclear power is not likely to be launched this year, the CEO of CEZ said on January 22. Industry minister Jan Mladek said the same day that Prague wants CEZ to set up a JV with the winner of the planned tender to finance the project.

Europe's best hotel is in Budapest, a survey by Trip Advisor suggests. The Four Seasons Gresham Palace was praised for its service and location as it came fourth in the world. Gili Lankafushi Maldives topped the poll.

Central European assets firmed after the ECB unveiled its ¤1.1bn QE programme. The forint, koruna and zloty all rose strongly against the euro; all have struggled against turmoil on global markets recently. The strengthening opens space for potential rate cuts in Hungary and Poland.

businessneweurope I Page 6January 23, 2015

Southeast EuropeThe Turkish central bank lowered its main interest rate by 50bps to 7.75% on January 20, citing slowing inflation and declining commodity prices. Increased political pressure, especially from President Recep Tayyip Erdogan, probably is another reason for the rate cut.

Slovenian Sovereign Holding says it has received binding offers for the state's 100% stake in Slovenian lender Nova Kreditna Banka Maribor (NKBM). Local media speculate that Hungarian bank OTP, US private equity fund Apollo and US billionaire Wilbur Ross might end up among the qualifying bidders.

Serbia plans to build 160km of roads in 2015 and renovate at least 100km of rail tracks, Transport Minister Zorana Mihajlovic said on January 21. These include the Nis-Dimitrovgrad motorway, which will be completed soon.

Turkish President Recep Tayyip Erdogan has started a 12-country Africa trip with the aim of boosting trade and economic ties. In January 2013, Erdogan said Turkey aimed to increase its trade with Africa to $50bn by 2015.

The Romanian energy sector needs investments of around ¤100bn in the next 20 years, according to the National Energy Strategy currently being discussed, Minister of Energy and SMEs Andrei Gerea said on January 21. Finalising the long-term energy strategy is one of the government’s priorities for 2015.

Meanwhile, Turkey has seen a rapid increase in energy consumption and the country needs to invest as much as $120bn in energy projects by 2023, President Recep Tayyip Erdogan said on January 20. Turkey is determined to develop nuclear energy as well as renewable energy.

The popularity of the ruling Serbia Progressive Party (SNS) has climbed to 51.2%, while support for opposition parties has plunged to 20%,

according to a Faktor Plus survey. If elections were held today, only one opposition party would pass the 5% threshold to take parliament seats.

Limak Holding has obtained a bridging loan worth ¤750mn for the project to build a third airport in Turkey’s largest city Istanbul. Limak is part of the consortium that won the tender to construct and operate Istanbul's third airport for 25 years with a ¤22.15bn offer.

The Albanian economy expanded in 2014 thanks to the positive contribution of exports during the second half of the year, which compensated for the weak GDP performance in the first two quarters, the World Bank said in its South East Europe Regular Economic Report.

Croatian shipping company Tankerska Plovidba plans to raise around $40mn from the IPO of its Tankerska Next Generation unit on the on the Zagreb bourse. Capital raised will be used to buy ships as well as for general corporate purposes.

Kosovo's economic growth is estimated to have slowed to 2.5% in 2014 due to delays in forming a new government after the 2014 elections, said the World Bank. Political uncertainty, coupled with the failure to privatize Post and Telecommunications of Kosovo in 2013, weighed on economic growth in 2014.

Romanian chemicals company Oltchim, which has been under insolvency procedures for several years, is expected to have a new recovery programme endorsed in March after the latest attempt to sell its core assets failed in January amid lack of interest from bidders.

Montenegro’s budget deficit shrank 78.39% y/y to ¤38.21mn in 2014, underpinned by strong revenue growth that offset a mild spending increase, data from the finance ministry showed. The budget deficit equalled 1.1% of the full-year GDP projection, down from 3.8% a year ago.



Eastern EuropeRussian capital flight nearly tripled in 2014 to its highest level ever of $151.5bn, up from $61bn in 2013 and exceeding the previous record of $133.6bn set in 2008 during the global financial crisis.

Renaissance Capital predicts Russia reserves will shrink by $40bn this year if oil averages $60 thanks to the freeing of the ruble. The current account will remain in surplus and the federal budget deficit will expand to no more than 2% of GDP under all oil scenarios the bank said. The IMF is predicting oil average prices of $56.73 in 2015.

One in five of world's distressed bonds are Russian and Vnesheconombank (VEB) holds 43% of Russia's $4bn in distressed debt it was reported. There have been few defaults so far but those may start in the second half of this year, say experts.

International banks lending to Russia was down in 2014 by $11bn, or 19%, to $196bn, according to the Bank for International Settlements. Lending to Ukraine was down more by $7bn in the year to the end of September, or 28%, to $17.7bn, the BIS data showed.

The currency crisis may lead to Russia's oil production falling by 1mn barrels a day from the current record production of 10.6mbd, Deputy Prime Minister Arkady Dvorkovich said at Davos. Russia has no plans to cut production to support the price, which is about $50 a barrel.

Russian companies aren’t planning to renege on borrowings from foreign investors as the country faces having its debt rating cut to junk, VTB Group chief Andrey Kostin said.

Russia's Duma passed a bill in the first reading that will ban any "undesirable" foreign companies or organizations. The targets any foreign entity that "presents a threat to the defence capability or security of the state, or to

public order, or to the health of population." It can also ban companies on moral grounds.

Russia's inflation will remain in double digits all this year, at about the same level it was in 2014, Economic Development Minister Alexei Ulyukayev said on Wednesday. Consumer prices rose 11.4% in annual terms in December. Inflation is likely to peak in January at 13%, or slightly higher, before falling back in the second quarter.

Russia's economic contraction will be 4.3% if oil averages $60 a barrel this year as expected, says Renaissance Capital. The ruble will trade at RUB56.4 to the dollar. If the oil price falls to $40 then GDP will be -7.2% and at $80 it will be -1.7% the bank said.

Over the New Year's holiday Duma deputies Aleksandr Sidyakin and Oleg Savchenko got lost in the Antarctic while trying to plant a Russian flag on top of the highest mountain in the region. The deputies from the ruling United Russia party hoped to scale Mt. Vinson and are now being questioned as to how they financed their expedition.

A Muscovite is suing his local McDonald's for the "stench" of frying chips and noisy food deliveries at night. Russian health authorities inspected over 200 of the 451 restaurants last year and closed a dozen on health grounds.

International financial ratings agency Moody's cut Russia's credit rating to one level above junk late January 16 and warned the country was under review for a further downgrade. Moody's said the sharp decline in oil prices and in the ruble would further erode Russia's economic growth in 2015 and the economy will contract by 5.5%.

Russian Prime Minister Dmitry Medvedev stated that over RUB185bn ($2.8bn) will be allocated towards the agriculture development program in 2015.



EurasiaThe Uzbek part of Line D of the Central Asia–China gas pipeline (CACGP) will cost some $800mn, according to China National Petroleum Corporation (CNPC), which is developing the project with local state-run oil and gas company Uzbekneftegaz. CACGP's Line D will link Turkmenistan's giant gas fields with western China through Uzbekistan, Tajikistan and Kyrgyzstan. With a total length of around 1,000km, Line D is going to be the shortest stretch of the CACGP network - the other three existing lines take a northeastern route through Uzbekistan and Kazakhstan.

Turkmenistan's foreign trade increased by 3.6% year on year to almost $33bn in 2014. Exports, almost exclusively made up by hydrocarbons and, to a smaller degree, cotton, grew by 4% year on year to $17.8bn in 2014. In particular, natural gas exports increased by 11.2% year on year.

Kyrgyzstan’s real annual GDP growth decelerated to 3.6% in 2014 down from 10.9% in 2013. Nominal GDP amounted to KGS397.3bn ($6.63bn) in 2014. Industrial production decreased by 1.6% year on year in 2014, and foreign trade deficit increased by 6.4% year on year to $3.61bn in 2014. The slowdown in industrial output is blamed on the Kumtor gold mine, the single largest contributor to GDP, which decreased by 5.45% year on year to nearly 568,000 ounces in 2014.

Tajikistan's central bank foreign reserves grew by 12.5% year on year to TJS2.55bn ($476.6mn) in 2014. The central bank also increased its gold reserves by buying 0.5 tonnes of gold in 2014 and raising its total gold holdings to just over 11 tonnes.

Tajikistan's exports of cotton fell by 30.2% year on year to $132.1mn in value and 24.5% year on year to 86,400 tonnes in volume in 2014. The major reason for the fall in volumes is crop diversification, with farmers shifting part of their production to grain and forage crops.

Turquoise Hill Resources, a Rio Tinto- subsidiary operating Mongolia's giant copper and gold mine Oyu Tolgoi, produced 148,400 tonnes of copper, up by 93.5% year on year, and 589,000 ounces of gold, up by 275.2% year on year, at the mine in 2014. The company expects to further increase production at Oyu Tolgoi to between 175,000 tonnes and 195,000 tonnes of copper and 600,000 ounces to 700,000 ounces of gold in 2015.

The low price of oil and slowdown in Russia is taking its toll in Kazakhstan as the government plans to revise the budget for 2015. The country's education authorities have announced that they will postpone a switch to a 12-year education system due to a lack of funding. The switch was expected in 2015.

National companies run by Kazakhstan's sovereign wealth fund Samruk-Kazyna will cease their charity and sponsorship programmes as a result of nationwide belt tightening. Samruk-Kazyna said that the companies would now provide financial assistance only to WWII veterans ahead of the 70th anniversary of the end of the war.

Azerbaijan is developing a new concept for breeding sturgeons. The aim is to meet the increasing demand for both fish and black caviar and tame the poaching of the sturgeon in the Caspian Sea. The Caspian Sea is home to 80-85% of the world sturgeon, whose roe is used to produce black caviar, and its population is rapidly shrinking.

Seven companies will compete for a tender to design and build a new Anaklia deep-water port on the Black Sea. In August 2014, the Georgian government called on potential investors to submit expressions of interest to develop the mixed-cargo port on a build, operate and transfer basis. The work on the 1,000-acre facility should start in June 2016.



bne Chart

bne IntelliNews' interactive forex tracker shows that few countries in Central and Eastern Europe/Commonwealth of Independent States (CEE/CIS) have escaped from the current currency fracas. Almost all have seen their currencies devalue in the last year, and three of them have crashed. In many cases, the fall has as much to do with the rising value of the dollar as with any problems at home, but exchange rates remain extremely volatile at the moment.

The only currency to escape so far has been the Azerbaijani manat. Thanks to the level of control its government holds over the economy, its currency has been the most stable in the region.From the rest a few currencies stand out as big losers. Anticipating the problems in Russia, Kazakhstan unilaterally devalued its tenge in February 2014 to give itself some wiggle room and it has managed to keep the exchange rate

stable after that. However, analysts in Astana say almost all the benefits of that devaluation have been used up and the tenge is under pressure again due the double whammy of falling oil prices and the collapsing Russian ruble, and may have to devalue again soon.

No currency has plunged more than the Russian ruble, which has lost about half its value over the past year. The only other currency that comes remotely close to doing as badly as the ruble is Ukraine's hryvnia, which has fallen as much as the ruble in several large stepdowns over the last year.

The other currency that really stands out is the Belarusian ruble. As the Belarusian economy remains heavily dependent on Russia as its biggest export market, Russia's problems spilled over into Belarus in January and its currency went into a tailspin and has yet to stabilise.

CEE/CIS currencies tank


"We will consult with the council of directors of the IMF about the country's [Ukraine's] request," the IMF's permanent representative in Kyiv subsequently said in a press release late on January 21, adding: "After receiving approval from the council of directors of continuing to work in this direction, the mission of the fund currently in Kyiv will start considering an economic programme to back up the request. Discussion are currently being held on securing official financial support from Ukraine's international partners."

Ukraine’s finance minister Natalie Jaresko was later quoted by newswires as saying that Ukraine would start talks with sovereign bondholders “with a view to improving medium-term debt sustainability,” language usually implying a pending restructuring of sovereign debt. Jaresko added that the IMF request would “provide the financial support Ukraine requires to jump-start its economic recovery while yielding acceptable outcomes for all of our stakeholders”.

“The IMF and western bilateral creditors probably were not able to bring enough new money to the table, hence the move to try and talk to private sector creditors about ‘reprofiling’, and sharing the burden a bit,” said Tim Ash, economist at Standard Bank, in a note.

Eastern Europe

Ukraine seeks IMF Extended Loan Facility, potential debt restructuring

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Ukraine has asked the International Monetary Fund for an Extended Fund Facility - a larger and longer-term bailout programme than its existing Stand-By Facility - in view of its worsening economic and financial crisis. It is also set to start talks with holders of sovereign debt, suggesting debt restructuring is being considered.

Christine Lagarde, IMF managing director, met with Ukraine's President Petro Poroshenko at the World Economic Summit in Davos, on January 21. After the meeting she said that Poroshenko had requested a “multi-year arrangement with the fund, supported by the Extended Fund Facility”.Media had previously reported that the IMF has identified a $15bn gap in Ukraine’s finances for 2015, after agreeing in 2014 a $17bn Stand-By Agreement, augmented by $10bn from other donors.

An Extended Fund Facility is a longer term program intended to run over three-four years and support deep-rooted structural reform measures, while having a longer payback term. It is reserved for cases of severe macro-economic distress requiring extensive political efforts to tackle. Lagarde said she would submit Kiev’s request to the IMF’s executive board, which would “convene as soon as possible. I will propose to support it,” she said, as quoted by the Financial Times.


Eastern Europe

imported medicines, the cost of which has soared due to the ruble's devaluation.

Putin requested at the meeting that the government specify the source of funding for a number of proposed measures, according to Kommersant.

Deputy prime minister Arkady Dvorkovich said that budget expenditure in 2015 could be cut by 10-15% over all, “probably by 10%", he said, as quoted by Interfax. A significant amound of funding for the anti-crisis plan will come from these planned budget cuts, say analysts. Funds will also be drawn down from the National Welfare Fund, a sovereign wealth fund.

Some measures previously considered in the course of the week have already been rejected, according to media reports, such as the creation of a 'bad bank' to deal with non-performing loans.

The finance ministry criticised the overall plan as developed by the economy ministry, saying that the plan should aim at achieving structural change in the economy, rather than catering to problems in individual branches, according to documents seen by Vedomosti. Previous reports say that the proposed plan could cost as much as RUB2 trillion.

Russia prepares RUB1.375 trillion anti-crisis plan

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Russia's President Vladimir Putin has approved the provisional version of an anti-crisis plan drawn up by the government. According to media reports, the plan involves recapitalisation of banks, provision of state guarantees, support measures for state development bank VEB and diverse sectors, changes to state procurement laws and procurement to facilitate import substitution, support for small business, and tax rebates.

First deputy prime minister Igor Shuvalov estimated the cost of the plan at RUB1.375 trillion, or around $20bn, and said some measures would have to be rejected since they would put too much strain on the budget. “We can't run a deficit of 15% of GDP, the parameters have to be reasonable,” he said. “They will of course be more than we had planned, but they will be less than in 2009,” he said, as quoted by business daily Vedomosti. In 2009, the budget deficit ran to 5.9% of GDP, financed from Russia's sovereign wealth funds.

The largest expenditure items in the current anti-crisis plan include RUB250bn recapitalisation of banks, to be taken from the National Welfare Fund, RUB50bn in funds for support of agriculture, RUB20bn in state guarantees for industry, RUB16bn in funding for purchase of


on these measures will be reached, I hope, at the end of January they will officially announce measures which will make it possible to defuse all tension," the source said.

When the National Bank of Kazakhstan (NBK) devalued the national currency from about KZT155 to KZT185 to the dollar in February 2014, it cited uncertainty about the exchange rate of the Russian ruble, which had begun weakening at the end of 2013, and the need to maintain balance of payments amid growing imports as reasons for the devaluation. In early September Kelimbetov said that the tenge, "will be fine at the ruble's rate of 40-42" to the dollar. His former adviser, Olzhas Khudaybergenov, suggested in October that "the next critical level is RUB52 to the dollar".

Chairing a special crisis meeting in Astana on January 15, Kazakh President Nursultan Nazarbayev noted that notwithstanding all the difficulties, the economy managed to achieve growth of 4.3% in 2014. However, he urged the government to monitor the situation in Russia and the EU to prevent "social tension in neighbouring countries" from spilling over onto Kazakhstan. "We should not allow this," Nazarbayev warned, ordering the government to have "clear plans for all possible cases" by the time of the next government meeting he will attend in late January or early February.

At the same January 15 government meeting, Kelimbetov boasted that the country had managed to build up a "significant" cushion for the economy in 2014, with its gold and foreign currency reserves at $102bn.

Eurasia

Kazakhstan maintains tenge rate despite falling oil price, ruble – but for how long?

Naubet Bisenov in Almaty

Falling oil prices and the currencies of its major trading partners are piling pressure on Kazakhstan's national currency, but against all the odds the tenge seems to be holding. Despite reassurances by the Kazakh government about its ability to maintain financial stability and defend the currency within its trading corridor, this might not last long, as it has become customary for the government to devalue the tenge in February, by 19% in 2014 and 25% in 2009.

Oil, which together with other raw materials accounts for 17% of Kazakhstan’s annual GDP and four-fifths of its exports, has more than halved to around $50 per barrel since the summer of 2014. This drop in the oil price has devastated the currency of its neighbour Russia, which at one point in December had hit an all-time low of RUB80 to the dollar.

The euro is also trading at nine-year lows against the greenback on fears of a "Grexit" and the European Central Bank's quantitative easing plans. The EU and Russia are Kazakhstan's major trading partners, accounting for 30% and 13% respectively of the country's total foreign trade in 2013. Russia is Kazakhstan's largest supplier, accounting for a third of Kazakh imports in money terms last year.

Despite central bank chief Kairat Kelimbetov's public denials last year, the Kazakh government is now frantically discussing various measures to come up with a response to the falling oil price and weakening ruble, a source close to government circles tells bne IntelliNews on condition of anonymity. "As soon as a compromise


The oil exporters in the Caucasus and Central Asia are also affected by the decline in oil prices that affects their budgets and their balance of payments, Ahmed said. Combined oil export losses in 2015 are expected to reach about $35bn or 8% of GDP in the CCA oil exporters, which are expected to result in current account surpluses in previous years turning into deficits of 2.7% of GDP, according to the update.

The IMF believes that a one percentage point decline in Russia's GDP growth is estimated to cut growth in CCA oil exporters (Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan) by 0.15 percentage points and in CCA oil importers (Armenia, Georgia, Kyrgyzstan and Tajikistan) by 0.4 percentage points. As a result, growth forecasts for the CCA region were cut from 5.6% (in the October update) to 4.9% (in the January update), for oil exporters from 5.7% to 4.9% and for oil importers from 4.9% to 4.4%.

Eurasia

IMF cuts growth forecast for Central Asia, Caucusus

bne IntelliNews

A sharp slowdown in Russia and the depreciation of its currency have weakened the growth prospects for Caucasus and Central Asian (CCA) countries because of close ties through trade, remittances and foreign direct investment, requiring CCA countries to exercise greater exchange flexibility and near-term fiscal easing and to speed up reform, according to the IMF.

In the Regional Economic Outlook Update published on January 21, the IMF said lower oil prices and increased geopolitical tensions would result in the Russian economy contracting by 3% in 2015. “This much weaker outlook obviously has a direct and strong impact on its neighbouring countries in the Caucasus and Central Asia which are connected to Russia both through trade, through remittances as well as through foreign direct investment,” Masood Ahmed, IMF director for the Middle East and Central Asia department, said presenting the outlook the same day.

Analysts question the decision of the Kazakh central bank to devalue the tenge in February 2014 when the price of oil hovered around the $100 mark, but to resist the call to do so now. "The NBK is afraid that letting the tenge float would create a vicious cycle between expectations of devaluation, panic and actual devaluation. That is one way to rationalise the actions of the NBK," Sabit Khakimzhanov, head of research at Almaty-based investment bank Halyk Finance, tells bne IntelliNews. "But one can only guess why the NBK devalued [the tenge] in February [2014] when the oil price was high and resists at such high costs to the economy now, when the oil price is so low."

With sufficient tools at hand to maintain the level or trajectory of the exchange rate, Khakimzhanov believes the central bank can keep the tenge strong for as long as it sees it fit. "But in order to achieve that, it would have to sacrifice reserves, the stability of interest rates, financial stability and competitiveness – usually in that order," he says.Since the February 2014 devaluation, the NBK has operated in the area of a trade-off between forex reserves and interest rates. "Financial stability is not yet at stake. But at some point the central bank will have to choose between devaluation, letting banks fail or capital controls," Khakimzhanov suggests.


a cautious approach to fiscal policy, because a prolonged period of lower oil prices would ultimately require significant adjustment in most countries,” the IMF cautioned.

Ahemd believes that the persistent decline in oil prices increases the urgency for most oil exporters to step up structural reforms aimed at accelerating economic diversification away from oil. “Facing simultaneous external shocks, these countries are advised to allow greater exchange rate flexibility and maintain adequate reserve buffers,” Ahmed told bne IntelliNews.

Some CCA oil importers are expected to gain from lower oil prices in 2015: Tajikistan about 2.5% of GDP, Georgia 2.25% and Armenia 1.75% of GDP (Kyrgyzstan less than 1%), the IMF forecasts. However, “the benefits to most CCA oil and gas importers have been limited in the near-term since their oil and gas imports are based on longer-term contracts,” Ahmed told bne IntelliNews. “If lower oil prices persist, they will benefit through reduced energy import bills.”

At the same time, in some Caucasus and Central Asia countries, however, transport costs for oil and fuels are high, and local markets lack strong competition to push down prices.

“Overall, the effects of the deepening recession in Russia far exceed any relief from lower oil prices, leading to a downward revision of growth and fiscal and external current account balances in the CCA oil importers,” he said. “The sharp depreciation of the ruble, together with the slower economic activity in Russia, has depressed the value of exports, remittances, and FDI from Russia, which account for a significant share of some CCA economies.”Remittances, mostly from Russia, make up 42.1% of Tajikistan’s GDP, 31.5% of Kyrgyzstan’s and 21% of Armenia’s.

Eurasia

Asked by bne IntelliNews what CCA countries should do to sustain economic growth amid the falling price of oil, Ahmed said that they should use “the buffers that they have built up” to ensure that the reduction in the price of oil doesn’t have an immediate disruptive effect on government spending in the short term. The region’s two largest economies – Kazakhstan and Azerbaijan – have oil funds that have respectively accumulated $73bn and $27bn.

“The second thing that they can do – however, which is more of a medium term objective for them – is to ensure that they encourage the diversification of their economies by improving the business environment for the private sector,” he said, adding that the degree of private sector involvement and activity outside of the oil sector is still relatively small in these countries.

While advising oil exporters to use the oil fund money to avoid sharp cuts in public spending, the IMF suggested that oil exporters “should prudently treat the oil price decline as largely permanent and adjust their medium-term fiscal consolidation plans so as to prevent major erosion of their buffers and to ensure intergenerational equity”.

The IMF welcomed plans by the Azerbaijani and Kazakh governments, which are facing the twin shocks of lower oil prices and the deepening recession in Russia, to increase government spending and provide fiscal stimulus to the economy.

“By contrast, Turkmenistan and Uzbekistan intend to maintain their earlier spending plans because prices for their gas exports have not been affected by the decline in oil prices,” the update says. “Although fiscal stimulus in response to adverse developments may be appropriate in some cases, countries would be well advised to maintain


Polish government retreats on coalmine closure plan

The remaining healthier coalmines will be taken over by a new entity, known as Nowa Kompania Weglowa (New Kompania Weglowa) that will be 100% owned by Weglokoks. This is pretty much the only leftover from the original plan of the government, which hopes that the new company will be strong enough not only to supply coal for the domestic market, but also able to compete internationally. Nowa Kompania Weglowa will be established by September 30, the agreement stipulates. Following the agreement, the government also pledged that it would try to reach out for EU money to help carry out the restructuring programme.

The agreement signed on January 18 marks an end to an important battle for the future of Poland’s coalmining industry. It is leaving PM Kopacz weakened: her tough stance on how KW could not continue business as usual melted in confrontation in what is perhaps last bastion of strong unions in Poland.

The PM is paying a political price for announcing the plan without proper consultations and amidst fear-mongering that KW would collapse as soon as January, were it to continue business as usual. But the plan galvanized unions quickly, with local authorities and people joining in protests and – surprisingly for the government – public opinion siding very much with miners too. A poll carried out by Millward Brown for TVN and TVN24 TV stations on January 12 showed that more than 68% of surveyed Poles supported the miners.

Unions can boast a success now, although they have taken on some responsibility for the success of the restructuring programme that they say themselves will involve some “tightening of belts”, as one of the unions leaders put it.

Central Europe

Wojciech Kosc in Warsaw

After a week and a half of tug-of-war between the Polish government and mining trade unions about how to save the heavily indebted Kompania Weglowa (KW) from having to declare bankruptcy, an agreement was signed on January 17 that both sides presented as their success. The fact is, however, that PM Ewa Kopacz’s militant rhetoric from earlier this month seems now just a disguise for poorly designed and poorly communicated plan for one of Poland’s key industries.

The plan’s main proposal was to close KW’s four worst performing coalmines - Piekary, Bobrek-Centrum, Sosnica-Makoszowy and Brzeszcze - and move others to a new entity. Roughly 5,000 jobs would be lost, being compensated with pay-offs, the original plan stipulated.

The agreement signed on January 18 turned out to be a near-complete U-turn on the original. The deal stipulates that no mine will be closed down. Instead of being liquidated, the four worst coalmines will undergo a programme to improve their performance. The programme’s details and its implementation will have to be agreed with unions.

Everyone employed in administration and other non-mining roles in the four weakest coalmines will have guaranteed jobs unless they want to quit, in which case they will receive a pay-off. Mining jobs will be kept.

Following the restructuring programme, the four coalmines in question will be up for grabs for investors. The investors have not been officially named, but Polish industry press speculates that interested companies include state-owned coal exporter Weglokoks or Tauron Polska Energia, a major power generation company. Tauron has said it is preliminarily interested in taking over the Brzeszcze coalmine.


to talk over the issue. “The conversation was a readable and clear communication that this issue is important for the prime minister and that she treats it as a priority,” government spokeswoman Iwona Sulik told reporters.

Poland has complained about the new law to the European Commission, joining with the UK, Romania, Hungary and the Baltic countries. Polish radio reports that Brussels has already sent a query to Berlin to see if the regulation violates EU rules.

“We have to do everything possible to stop the adoption of such strange rules,” said Grzegorz Schetyna, Poland's foreign minister.

The minimum wage question is very important to German labour unions, which want to keep German workers from being undercut by cheaper competition from central Europe. However, it is also vital for Kopacz as she gears up for parliamentary elections this autumn.

Polish truckers are already threatening to go on strike if the German minimum wage law is upheld, adding to wider labour grievances. Polish coal miners recently went on strike to blunt a government plan aimed at shutting down lossmaking mines, and the Solidarity labour union has threatened a national strike over the coal issue.

Central Europe

Jan Cienski in Warsaw

One of Poland's core competitive advantages has been its cheap but well qualified labour force, which is why the Polish government is reacting with alarm to a new German minimum wage law that may affect foreign transport companies transiting Germany.

The German law, which came into effect at the beginning of this year, calls for a minimum wage of ¤8.50, a regulation that also applies to foreign companies operating in Germany. The German regulation also seems to encompass foreign companies whose lorries use German autobahns to carry loads across Europe.

German officials say that the goal is to prevent “price dumping” by cheaper foreign operators, but that is just what is worrying the Poles. Poland, which has the EU's second largest transport sector, pays truck drivers about ¤3 an hour, and transport companies say that the additional cost could drive them out of business.

“Germany's action is aimed at limiting the competitiveness of Polish businesses. If Polish entrepreneurs are forced to pay ¤8.50 an hour, that will end the domination of the Polish transport sector and of Polish shipping companies on the German market,” Sebastian Paluch, head of the Polish Transport Forum, an industry grouping, told Poland's TVN television.

Ewa Kopacz, the Polish prime minister, called German Chancellor Angela Merkel on January 21

Poles fight to keep on trucking in Germany


Southeast Europe

Kosovo drops plans to take over Trepca mining complex

On January 18, Marko Djuric, the director of the Serbian government’s Office for Kosovo-Metohija, the Serb-dominated area of northern Kosovo where Trepca is located, said that Belgrade would not accept a unilateral takeover of the mining complex, according to the Serbian government website. Djuric added that Trepca’s majority shareholder was the Development Fund of the Republic of Serbia.

Trepca was one of the largest companies in Yugoslavia. While the bulk of its resources were in modern day Kosovo, where lead and zinc mines, smelters and processing facilities are located, it also spanned parts of what are now Serbia and Montenegro. Most of the vast complex has been inactive since Kosovo’s war of independence from Serbia in the late 1990s, and has fallen into disrepair.

The Kosovan government is believed to have backed down following pressure from the international community. Pressing ahead with the plans would have jeopardised progress on the 2013 Brussels agreement, under which the two countries agreed to work towards normalising relations - a pre-condition for EU accession.

It would also most likely have led to unrest in Kosovo-Metohija, where according to Djuric around 4,000 ethnic Serbs depend on Trepca for their livelihood. On January 19, around 800 people turned out to demonstrate against the Kosovan government’s plans, according to Kosovan news service Kosova Press.

bne IntelliNews

The Kosovan government has backed down over plans to take over the Trepca mining complex, a move that would have worsened its already tense relations with Serbia.

A new law on public enterprises, which would have paved the way for Pristina to take over the giant Trepca Mining, Metallurgical and Chemical Combine, was due to be discussed in the Kosovan parliament on November 19.

However, Prime Minister Isa Mustafa informed the parliament that the draft law had been removed from the agenda. Mustafa told MPs that while the government was still committed to “creating conditions for the reorganisation of Trepca”, the draft law was “faced with very specific problems”, according to a statement on the parliament website.

Pristina is now proposing that the Kosovo Privatisation Agency, which currently controls Trepca, be given a further three years to restructure the company, Reuters reported.At an extraordinary government meeting later in the day, ministers approved changes to the draft law amending existing legislation on public enterprises. This includes a proposal to give special status to Trepca.

The plans to take control of Trepca had angered Serbian officials, with Serbian Prime Minister Alexandar Vucic warning on January 16 that the move would pose a serious threat to attempts to normalise relations between Serbia and Kosovo.


Southeast Europe

know by end of the first quarter if the company will continue [its talks] with the Belgian company [bpost] that was the only potential bidder.”

However, he added that three other companies within FP’s portfolio - Constanta Port, Bucharest Airports and salt monopoly Salrom - are considered good candidates for IPOs, based on their size and financial results. FP is working with the government to reach decisions on the future of the three companies.

Clare Nuttall in Bucharest

No major state-owned companies are expected to hold IPOs on the Romanian stock exchange in 2015, the manager of Romania’s Fondul Proprietatea (FP) said on January 21.

Earlier there had been speculation that hydropower producer Hidroelectrica and coal power producer Complexul Energetic Oltenia could list on the exchange this year. FP, which was set up to compensate Romanians whose property was confiscated in the communist era, holds minority stakes in both companies.

"Unfortunately from companies that are now in our portfolio, it is very unlikely that there will be any IPOs. This will be the first year since 2013 without any new listings on the stock exchange unless they are from private companies,” Greg Konieczny, executive vice president of Templeton Emerging Markets Group and manager of FP, told a press conference to mark the fourth anniversary of the fund’s listing on the Bucharest stock exchange.

Given that Hidroelectrica is still under insolvency procedures, Konieczny told journalists that even an IPO in 2016 “could be very challenging”.

Meanwhile Oltenia is no longer considered a suitable candidate for an IPO, he added.

The news follows a series of IPOs of major state-owned power companies in 2013 and 2014, which substantially boosted turnover on the Romanian exchange as well as attracting international investors.

Konieczny also indicated problems with the sale of Romanian postal operator Posta Romana. “We will

No big IPOs expected in Romania this year

5 & 6 February 2015 - Tbilisi, Georgia

www.conventionventures.com

2nd AnnualSouth CaucasusInfrastructureNew EnergyInvestment Summit

&Ministry of Regional Development and Infrastructureof Georgia

Ministry of Energy and Natural Resources of Georgia

UNDER THE AUSPICES OF:

**


Feature

Graham Stack in Kyiv

The apparent shelving of charges against notorious figures linked to Ukraine’s previous corrupt regime is seen as shedding light on deals cut behind the scenes during the ousting of Viktor Yanukovych in 2014 that continue to shape the ‘new Ukraine’.

A statement of criminal charges leaked from the Office of the General Prosecutor of Ukraine, obtained by bne IntelliNews, accuses Oleksandr and Serhiy Katsuba, top managers from 2010 to 2014 at Ukraine's state energy company Naftogaz, of channelling around $60mn from the company in one single deal signed in 2012. But the charges have seemingly been put on the backburner by Ukraine's post-revolution prosecutors.

The unsigned statement of criminal charges notifies Oleksandr of charges against him as the suspect in Naftogaz paying UAH449mn (at the time about $55m) to a dubious supplier of gasoline in 2012-2013, which investigators allege never supplied the fuel despite receiving the funds.

"I see this document for the first time and can say for 99% that it's a fake," Serhiy Katsuba tells bne. Serhiy is the elder brother of Oleksandr, who was only 26 when in 2012 he was made deputy head of the sprawling energy company that owns the transit pipelines that supply Russian gas to Europe and is the country’s main gas producer.

According to Serhiy Katsuba, prosecutors did not present him with any such document on his last

visit to them. "I think someone wants to make a new scandal against us," he claims, denying any wrongdoing.

Oleksandr Katsuba echoed his elder brother in saying that the document was fake, and requesting that it not be published. He argued that it had been drawn up with the purpose of blackmailing the brothers during a time of turbulence in Ukraine. "If this document actually existed, they would have to take me into custody immediately," he says.

bne sources vouch for the authenticity of the document, which is dated October 2014, but has not been signed into effect. The charges as laid out appear to have evolved from a criminal investigation into the whereabouts of the gasoline owned on paper by Naftogaz, ordered by a judge in March 2014, according to Ukraine's register of litigation. The press service of the Prosecutor General declined to comment on the authenticity of the document.

The statement of charges formally names only Oleksandr as the suspect in the case, referring to a separate criminal investigation into Serhiy's activities. Serhiy left Naftogaz in late 2012 to enter parliament, and his position was taken by younger brother Oleksandr. Serhiy during his time at Naftogaz masterminded the controversial acquisition by Naftogaz of two $400mn offshore drilling rigs for the Black Sea, he acknowledged to Forbes Ukraine.

Ukraine puts criminal cases against 'wizards of gas' on backburner


Feature

According to the unsigned statement of charges, Oleksandr Katsuba was the official on the Naftogaz board who supervised the gasoline purchase agreement in 2012-2013, after his elder brother Serhiy, deputy head of Naftogaz 2010-2012, had set up the deal in August 2012.

The deal for Naftogaz to buy gasoline from GazUkraina-2020 was clearly fraudulent, according to the unsigned statement of criminal charges – which claims that GazUkraina-2020 was a 'fictive,' or sham, company, with no facilities of its own, no tender was held as required by law, payment for the gasoline was made in advance, the director of GazUkraina-2020 was a straw man with no connection to the company, and his signature on the contract was faked.

"Katsuba concluded the contracts not with the aim of acquiring gasoline for the company's further profit, but with the aim of removing UAH 449,963,820 from the company's accounts," the statement of charges reads.

According to the document, the deal was structured so that the fraud would remain hidden: GazUkraina-2020 also contracted to store the gasoline after selling it to Naftogaz, until the point in time that Naftogaz required its physical transfer. This date at which the fuel was to be transferred to Naftogaz was then deferred, with the gasoline thus on paper remaining in GazUkraina-2020 storage.

Oleksandr Katsuba acknowledged that such a deal between Naftogaz and GazUkraina-2020 took place in 2012-2013. "But it is not true that Naftogaz never received the fuel. This would have been impossible, because the tax service would have discovered this," he tells bne.

According to Katsuba, GazUkraina-2020 even tried to buy the petrol back from Naftogaz a year later in 2013. "Oleh Makhnitsky, [the prosecutor general newly appointed after the revolution in February 2014], stated publicly that law enforcement had confiscated the gasoline," says Katsuba,

suggesting it had been subsequently stolen after being confiscated, and the charges were part of a cover-up.

"The decision [to enter the contract] was taken by the board, not by me alone, and I would have been fired if I had not implemented it," Katsuba says, explaining how the deal came to fruition in 2012. "Such a contract in fact has to be approved by 10 to 15 different departments in Naftogaz, which is a very bureaucratic company, and it would have been impossible for me alone to take such a decision without such approval," he said.

Not mentioned in the statement of charges is that GazUkraina-2020 was one of a string of allegedly sham companies – firms lacking premises and employees, and with straw men for directors and owners – that were controlled by a mysterious frontman, Ukraine's so-called 'wizard of gas,' Serhiy Kurchenko, who like Oleksandr Katsuba at the time was only 26 years old.

Kurchenko's rags-to-riches rise during the Yanukovych presidency while only in his mid-20s has come to symbolize the endemic corruption in the country, just as much as Yanukovych's extravagant private residence at Mezhyhirya near Kyiv.

Since Yanukovych's ouster, Ukraine's prosecutor general has charged Kurchenko with grand larceny, he has been placed on the Interpol wanted list, and his assets have been frozen in the EU. Kurchenko fled apparently to Russia following the ouster of Yanukovych.

Katsuba said that he only learnt later from press reports that Serhiy Kurchenko was linked to GazUkraina-2020. "Naftogaz has many such contracts, and it is impossible to meet directly with the guys involved on the other side," he says.

But while Kurchenko has attracted media attention, he is widely believed to have been a frontman that implemented fraudulent schemes for government and state company officials. But who were his masters?


Feature

Katsuba denies his family were ever partners or patrons of Kurchenko. "We do not have any companies where we are shareholders together with him or his family, and never were in joint companies with him," he says.

But the 2012 gasoline deal was not the younger Katsuba's first encounter with Kurchenko-linked structures: before moving to the board of Naftogaz in late 2012, Katsuba had worked as deputy head of Naftogaz’s Black Sea drilling subsidiary Chornomornaftogaz. During Katsuba's watch at the Crimean company, locally-registered sham firms, listed by journalist investigations as controlled by Kurchenko, won over $110mn worth of tenders, according to state tender databases.

Katsuba acknowledges a longstanding acquaintanceship with Kurchenko."We are the same age, and from the same city – I have known him since we were both about 20," he says. Katsuba adds, however, that Kurchenko was not the type of friend with whom he might go to the beach or play soccer together, but simply acquaintances who had met each other 10-15 times over the years.

Katsuba says Kurchenko has been misunderstood. "He is very talented, very smart and very hardworking, I don't know anything about his links to the Yanukovych family," he says.

According to Katsuba, Kurchenko like everyone else had simply been forced to play by the rules of what he called "the system" at the time. "Kurchenko [has become] not the name of a guy so much as the term for the system that was working," he says.

As bne wrote in 2011-2012, TOV Business Consult – another sham firm linked to Kurchenko and registered at the same address as GazUkraina-2020 – received payments ostensibly for supplying equipment to a joint venture with Naftogaz operated by Tekhprojekt, a company once owned and run by the Katsubas. "We no longer owned the company at the time," Katsuba counters.

A recent Reuters investigation also showed that Kurchenko – via another sham company – had traded gas imported to Ukraine by oligarch Dmitro Firtash, a close ally of former energy minister Yury Boiko, in turn an ally of the Katsubas. "I have never met Dmitro Firtash," Katsuba says.

A third investigation by journalist Anna Babinets found documents that apparently showed an offshore run by Kurchenko had ordered four bespoke suits from an Italian tailor for a certain "Mr Kacuba" at a cost of $15,000 each. Katsuba said he believed many negative press reports were politically or financially motivated.

While the Yanukovych 'family' from Donetsk have mostly fled Ukraine, and on January 12 appeared at long last onInterpol’s international wanted list, many of the controversial figures formerly around Naftogaz – with the exception of the 'front man' Kurchenko – remain at large and some even entered parliament in the elections held on October 26.

The parliamentary group of the largest opposition party, Opposition Bloc, is now headed by former energy minister Yury Boiko, regarded as the informal head of the 'Naftogaz' clan. His long-term ally, head of Naftogaz 2010-2014, Evhen Bakulin, also entered parliament for the party.

Bakulin was in fact spectacularly detained immediately following Yanukovych's ouster, with Serhiy Katsuba seen to be in close attendance. The new interior minister of the time, Arsen Avakov, publicly accused him of allowing $4bn worth of fraud to take place at Naftogaz. But Bakulin was later released, and allowed to run for parliament.

These contrasting fates may shed light on deals cut behind the scenes during the ousting of Yanukovych in 2014, which continue to shape what the government is trying to bill as the ‘new Ukraine’: As the New York Times described in a recent investigation, Yanukovych's power melted so rapidly because he found himself deserted by


Feature

key allies during the winter of 2013-2014, leaving him no option but to flee the country on February 22, 2014. "The president was not so much overthrown as cast adrift by his own allies," the report claimed.

The 'Naftogaz clan’ may have become disillusioned with Yanukovych in the run-up to his ousting, in particular after Boiko's removal as energy minister in December 2012 and his replacement by a close Yanukovych associate called Eduard Stavitsky. "The [post-revolution] government had to rely on the compliance of former Yanukovych people, both to keep order in the regions and to boost parliamentary power. This facilitated shifts in the parliament that helped the new government gain and maintain a majority," says Teneo Intelligence vice-president Otilia Dhand. "Between February 18 and 25, Yanukovych lost his parliamentary majority and that is what in effect broke his neck.”

Deals struck between the leaders of the Euromaidan protests and former Yanukovych supporters could have included promises not to prosecute, analysts say. As a result, "there has been mounting evidence that the current government has been negligent in its attempt to criminally prosecute its predecessors," according to Concorde Capital political analyst, Zenon Zawada.

Prosecutors' slow progress in bringing figures from the Yanukovych era to account has already sparked calls for the firing of current prosecutor general, Vitaly Yarema, a close ally of President

Petro Poroshenko. 127 MPs signed a resolution calling for his firing on January 14, claimed MP Egor Sobolev from the Sampomich party, a member of the government coalition.

Meanwhile, the Katsuba family are back to business in the new post-Euromaidan reality – despite negative press coverage over Oleksandr's reportedly extravagant wedding at a Paris chateau in July, and recent drone footage of their palatial family home near Kyiv. "We have always had our own business and means, this hasn't come out of thin air," Oleksandr tells bne, referring to the family home. "When I was six years old, we already lived in an eight-bedroom house.”

Forbes Ukraine recently even profiled Oleksandr in his new calling as IT venture capitalist - with no mention of his controversial energy past. Forbes Ukraine was acquired in 2013 by none other than Serhiy Kurchenko.

According to the newly launched website of the Katsuba Corporation, their declared assets are mostly in construction materials, commercial real estate and agriculture in their native Kharkiv, as well as an online retail credit start-up.

The only mention of gas on the Katsuba Corporation website is a blog written by Serhiy, in which he gives Ukrainians clever tips on how to cut energy consumption – and thus ease pressure on the state budget: switch off heating in unused rooms, and don’t use hot water to clean your teeth. "Save energy, save Ukraine!" is the motto of his new campaign, without a hint of irony.


bne: Infrastructure

Weekly Lists

Beijing-Moscow railway would reduce journey time to two days bne IntelliNews

China and Russia will build a 7,000km high-speed rail connection to link Beijing to Moscow, costing 1.5 trillion yuan, or $242bn, Beijing’s municipal government said in a statement on social networks on January 21, reports Bloomberg. The rail line, to pass through Kazakhstan, will reduce travel time to two days, and will boost the Eurasian land route, the post said.

The plan was first aired in November 2014 by Alexander Misharin, first deputy head of Russia's state-owned railway operator Russian Railways. He said the route would cost $60bn to build to Russia’s border, and should cut travel times between Beijing and Moscow from five days to 30 hours. Misharin compared the new route to Egypt's Suez Canal, and said it would take 8-10 years to build. Misharin said that China would fund around 60% of the total cost of the project. Russia and China signeed a memorandum of co-operation in the sphere of high-speed rail in mid-October in Moscow.

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.

Schlumberger buys into Russia's largest oilfield services group bne IntellinNews

Schlumberger, the leading global oilfield services group, will acquire a 45.65% stake in its largest Russian counterpart, Eurasia Drilling Company, the US company announced on January 20. Schlumberger said it would pay $22 per share, bringing the total cost of the acquisition to approximately $1.7bn, and there is a call option for Schlumberger to buy out the company entirely within three years.

The acquisition is Russia's biggest ever oilfield services deal and comes despite the backdrop of collapsing oil prices and Western sanctions against Russia, including those on the oil industry.


Allegations that Russian mobile operator Vimpelcom bribed to win telecom licences in Uzbekistan are merely “the tip of the iceberg”, and the company and one of its main shareholders Telenor of Norway have used corruption systematically to expand in the former Soviet Union, claims an anonymous whistleblower in an email sent to the Norwegian government. Vimpelcom's licence acquisition is currently under investigation by American, Swiss and Dutch authorities.

Telenor has rebutted the bribery allegations, claiming that "there is no indication in the [Vimpelcom's] board materials or protocols that the board was aware or made aware that Takilant’s beneficial owner had any connection to anyone associated with Uzbekistan’s president," the company stated in a letter sent to the Norwegian Trade, Industry and Fisheries Ministry in November and disclosed on January 16.

Vimpelcom has also denied wrongdoing in the past, but refused to comment on the whistleblower’s new allegations.

Weekly Lists 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.

Telenor's Uzbekistan bribery allegations only 'tip of the iceberg', whistleblower claims bne IntelliNews

Slovakia announces tender for broadband frequencies bne IntelliNews

Slovakia's telecommunications regulator TUSR launched a tender on January 19 for the allocation of licenses for three blocks of broadband data frequencies in the 3,400-3,600 MHz band.TUSR is offering two 8x5 MHz FDD and TDD blocks and one 4x5 MHz TDD block, it said. One operator may apply for a maximum of 40MHz. Interested bidders can place their offers by February 18.

The Slovak telecommunication market is dominated by Deutsche Telekom's Slovak Telekom, France Telecom's Orange and O2 Slovakia, a unit of O2 Czech Republic.

bne:TMT



Weekly Lists

EBRD says prepared to raise stake to protect Moldovan bankbne IntelliNews

The European Bank for Reconstruction and Development (EBRD) said on January 19 that it is prepared to increase its stake in Moldova’s Victoriabank in an attempt to restore effective corporate governance at the bank. By stepping in to protect Victoriabank, the EBRD hopes to send out a strong message that it will not stand by while non-transparent shareholders run one of Moldova’s largest banks.

The EBRD, which currently owns 15.06% of Victoriabank, is planning to acquire a large enough stake to allow it to call an extraordinary general shareholders’ meeting and re-establish corporate governance at Moldova’s third largest bank. The EBRD said on January 19 that it has applied for and received regulatory approval to acquire up to 50% of Victoriabank shares.

Erste’s Slovak unit eyeing RBI’s internet bank Zuno bne IntelliNews

The internet banking unit of Raiffeisen Bank International (RBI), Zuno is attracting interest from several investors, including RBI's Austrian rival Erste, local media reported on January 21.

Erste unit Slovenska Sporitelna is mulling a bid for Zuno, which operates in Slovakia and the Czech Republic, spokesman, Stefan Frimmer told Hospodarske Noviny. Slovak millionaire Pavol Krupa, owner of investment group Arca Capital, also said he is interested in acquiring the loss-making unit.

RBI presented potential suitors with an offer to sell a 100% stake in Zuno in the middle of January. It expects to receive bids by mid-February. After that, selected candidates will be invited to perform due diligence.

bne:Banker



Weekly Lists

Russia and Ukraine to contract by 5% in 2015, says EBRD bne IntelliNews

Russia's economy will contract by 4.8 % in 2015, according to a new forecast by the European Bank for Reconstruction and Development – putting it just behind the forecast of a 5% recession for Ukraine. The EBRD forecast is based on an oil price of $56 per barrel, although oil is currently just below the mark of $50 per dollar, implying plenty of downside risk to the forecast.

Ukraine is heading for a 5% slump in 2015 – but in contrast to Russia, which had an estimated 0.4% growth in 2014, Ukraine's slump comes on the back of a disastrous 7.5% GDP plunge in 2014, mostly as a result of the conflict in East Ukraine's Donbass region.

Belarus is also to suffer a contraction in 2015, but at 1.5% a relatively mild one compared to its two larger neighbours, according to the EBRD. The sharp fall in oil prices is hurting Central Asian and Caucasus energy exporters. But the region's energy-importing nations are also feeling the pain as demand for their exports and remittances from Russia are declining, the EBRD says.

Ukrnafta shareholders threaten to sue Ukraine for $5bn bne IntelliNews

Three shareholders of oil and gas company Ukrnafta that are believed to be controlled by Ukraine's powerful Privat group have threatened to sue the Ukrainian government for $5bn.

The three Cypriot-registered firms allege in a letter to Ukraine's energy ministry, published by Zerkalo Nedeli weekly, that Ukraine has violated the European Energy Charter with regard to private investment in Ukrnafta in three respects: forcing Ukrnafta to sell its produced natural gas at a price below production costs for the 'needs of the population' during 2006-2014, not allowing the company to sell “surplus” gas in 2006-2007, and misappropriating Ukrnafta’s gas in 2006-2010. The letter also alleges that government decisions to significantly hike royalty payments for oil and gas extraction in 2014 have breached the charter.

bne:Credit


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Bne:Newspaper January 23, 2015

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