bne:Newspaper - March 6, 2015

March 6, 2015 www.bne.eu

Ukraine's hryvnia steadies after rate hike

Tens of thousands of Muscovites turned out to mourn the death of Boris Nemtsov, the flamboyant opposition leader who was gunned down outside the walls of the Kremlin late on February 27. The mood was grim as somewhere between 50,000 and 100,000 demonstrators marched in almost total silence along the embankment of

Moscow mourns Nemtsov's death

Ukraine's floundering hryvnia strengthened to UAH21.7 to the dollar on March 4 after opening at UAH24.4. The strengthening follows a tightening of monetary policy by the National Bank of Ukraine (NBU) and could mark a crucial upturn in the hryvnia's rollercoaster ride of the past year.

Sliding from UAH8 to the dollar in February 2014 to UAH16 at the start of 2015, the currency

then plummeted to UAH32 to the dollar on February 26, striking panic into the population.

UAH 21.7 is the exchange rate on which the state budget for 2015 was based when parliament passed a package of amendments on March 2-3. Ukraine is currently waiting for approval

the river Moskva and then onto the bridge where Nemtsov was shot in the back. Originally the opposition movement was planning to hold a protest march on March 1; however, after its leader's murder, the event was cancelled and changed to a funeral procession in honour of Nemtsov.

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Ben Aris in Moscow

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Content: 2 Top Stories 4 The Regions This Week 9 Eastern Europe12 Eurasia14 Central Europe17 Southeast Europe20 Opinion25 Lists24 Lists

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"Size of today's Moscow march suggests Nemtsov murder galvanised rather than intimidated. An encouraging sign," tweeted New York City University professor Mark Galeotti. The marchers carried thousands and thousands of Russian flags all topped with a long black piece of cloth to mark the death of one of Russia's most outspoken and long-serving public figures. "Nemtsov's death is a wake-up call for Russia. People don't want to live in a country like this," former prime minister Mikhail Kasyanov told bne IntelliNews. Kasyanov will take over the mantle as the most senior opposition figure following Nemtsov's death. However, Kasyanov stopped short of accusing the Kremlin of ordering Nemtsov's death, but expressed hope that his murder will act to politicise the bulk of Russia's society, which has remained largely apathetic apart from a few demonstrations in recent years. The authorities were quick to acknowledge the importance of the event by giving the go-ahead within hours of the opposition leaders' calling for a funerary march in the centre of the city. The original protest march had only been given permission on the outskirts of the city. Russian President Vladimir Putin was extremely quick to react to the news of Nemtsov's death, calling it a "provocation" and has said that he will personally oversee the investigation. A criminal investigation has already been launched - with the authorities saying they are pursuing possible links to Islamic extremism following Nemtsov's condemnation of the Charlie Hebdo shootings - but they have not linked his death to his political activities, causing

much ridicule in the press. Likewise, while the international press were out in force at the march, very little if anything appeared on state-run TV. The death of a senior Russian politician who was once nominated by former president Boris Yeltsin as a possible successor has been extremely embarrassing for Putin. The state media apparatus is more likely to continue the job of obfuscation in order to ensure that no blame is attached to the Kremlin. While the Western press has been fast to link the Kremlin to the killing, on the basis of no evidence, the Russian authorities have been just as fast to link the killing to pretty much everything else that is remotely plausible. Talking on the Rossia state television channel, Russian MP and former State Duma Speaker Gennady Seleznyov described the killing as "a serious and I am sure provocation operation

Moscow mourns Nemtsov's death

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carried out by Western intelligence services to create instability in Russia again, so there are more radicals on the streets, and more radical statements and actions". While it remains unlikely that the Kremlin itself ordered Nemtsov's death, the most likely possibility floated so far is that some fraction within the Kremlin or the security services took matters into their own hands. What happens next remains unclear. The size of this March 1 march is the biggest since the rebirth

of Russian politics with the protests on Bolotnaya Square in December 2011. Those protests followed a fixed Duma election and marked the first significant popular protests since Putin took power in 2000. However this protest, like the previous ones, remains confined to Moscow, and the effective smothering of the news by the state media means that the high emotions in Moscow are unlikely to spread far into the regions. Indeed while St Petersburg held a similar march, marches in other regional capitals were refused.

the banking system, thus relieving pressure on the exchange rate.

The measures comprised hiking the policy rate to 30% from 19.5%, increasing reserves requirements for banks, and reducing the monetary base increase scheduled for 2015.

"A 30% discount rate is not good for the economy but it's aimed at addressing extreme exchange rate volatility, which is not good either," writes Concorde Capital's Oleksandr Paraschiy. "A temporary hike in the discount rate is justified in order to smoothen the hryvnia exchange rate," he adds.

The NBU will also refrain from transferring advance payments on profits to the government, regarded as a traditional channel for hryvnia printing, which has in the past put pressure on the exchange rate.

Ukraine's hryvnia steadies after rate hikeof the budget's amended parameters by the International Monetary Fund in order for an extended funding facility of $17.5bn to be approved. Ukraine urgently needs the funds to avoid default on foreign debt payments.

President Petro Poroshenko had already predicted on March 3 that the currency would now shift to the level set down in the budget, thanks to joint action by the NBU and the finance ministry.

"We are taking decisive steps to allocate additional resources and return the hryvnia exchange rate to UAH 20-22 per $1," Poroshenko said, as quoted by Interfax Ukraine. "I am confident we won't allow any panic in exchange offices or banks."

The hryvnia strengthening follows a sharp tightening of monetary policy by the NBU on March 3, aimed at taking hryvnia liquidity out of

Marxh 6, 2015 businessneweurope I Page 3

The Regions This Week

Tesco is mulling the sale of its operations in Central Europe, Slovak media reported on March 2, citing unnamed sources. The UK retailer is looking to sell in Slovakia, the Czech Republic and possibly Poland, SME reported.

Central Europe manufacturing continued its strong push against headwinds in February. PMI readings remained robust in the region, despite the Russian slowdown and sanctions and the sluggish Eurozone economy. That healthy picture likely reflects the rise of domestic demand across the region, making up for the slack in exports.

Poland has asked the EU to let its coal mine rescue through, according to unnamed sources. A month after apparently caving in to mining unions’ demands over the restructuring of its ailing coal mines, the Polish government is reportedly calling on the EU loosen its rules on state subsidies to allow its new plan to rescue the industry.

Hungary’s bad bank will be opened up to market funding, an MNB official says. Asset manager MARK was set up to buy toxic commercial property loans and foreclosed real estate from banks to clean up their balance sheets and encourage lending. It is scheduled to be launched in the first half of 2015 with initial capital of HUF30bn (¤985mn). Assets will be bought at market value, the official also noted.

Hungary has put its nuclear deal with Russia under wraps for the long term. The parliament approved on March 3 a bill that will classify data relating to the expansion of the Paks nuclear plant

Central Europefor 30 years. The EU is reportedly looking into details of the agreement, which includes ¤10bn in financing from Russia. The Hungarian opposition says the info blackout will cover up corruption.

Hungarian retail sales recorded their strongest growth in a decade in January. Strong rises in real wages are driving the expansion, while measures on forex loans are also thought to be offering a boost.

Polish rail firm PKP has received at least 10 bids for it power arm, the state-controlled company claims. Polish and foreign suitors - both strategic and financial investors – have made preliminary bids for the privatisation of energy subsidiary PKP Energetyka, via which PKP hopes to raise up to PLN2bn. The rail operator hopes to close a deal by the end of the year.

With rivals looking set to retreat in CEE, Carrefour plans to expand in Poland, it claimed on March 4. While the UK's Tesco is reported to be pulling back and other competitiors struggle with deflation and pricing wars, the French retailer says it will open two hypermarkets, five to 10 supermarkets and at least 120 franchise stores in Poland in 2015.

The Czech Republic has offered to hand Poland 909 acres in a bid to resolve a border dispute bequeathed by Communist times. Soviet pressure saw a stretch of the border altered in the 1950s. Poland, which has previously refused financial compensation, will now mull the offer. The location of the land remains secret to ward off land speculation.

businessneweurope I Page 4March 6, 2015

Southeast EuropeThe Bank of Albania decided on March 4 to maintain its key interest rate at the record low of 2.0%, citing low inflationary pressure. Central bank governor Gent Sejko said the bank expects inflationary pressure to increase gradually and that inflation will return to target within the medium term.

Bulgarian banking system assets edged down 0.2% y/y to BGN86.2bn (¤44.1bn) at end-January, after falling by 0.7% y/y at end-December, central bank data showed. In monthly terms, the total asset stock increased by 1.2% in January, after rising by 5.8% in December.

Zagreb mayor Milan Bandic, who has been charged with misuse of public funds, will decide whether to hold early mayoral elections in the Croatian capital. Bandic said that early elections are necessary as he is dissatisfied with the pace of project implementation while he is suspended from performing his mayoral duties.

Kosovo will draft legislation on the write-off of outstanding debts incurred before December 31, 2008. The bill will be included in Kosovo’s 2014 legislative programme, and will be submitted to the government for its review within the next three months.

European Commission vice-president Federica Mogherini and Johannes Hahn, EU commissioner for European neighbourhood policy and enlargement negotiations, have called for the resolution of the political crisis in Macedonia. Almost all MPs from Macedonia’s biggest opposition party SDSM have boycotted the parliament since the April 2014 general elections.

Montenegro’s commercial banks recorded a combined net profit of ¤23.78mn last year, up by ¤21.57mn from 2013, according to the latest financial statements issued on the central bank website. The local unit of Erste Bank posted the highest profit of some ¤6mn, up by 12.6% y/y.

Montenegro’s privatisation council said that it has signed a deal to sell 100% of arms trading firm Montenegro Defence Industry, formerly Yugoimport Mont, to a consortium comprising Israeli firm A.T.L.-Atlantic Technologies and Serbian company CPR-IMPEX for ¤680,000.

Romania’s energy ministry has drafted amendments to the renewable energy law which, if adopted, will enable international trading of renewable energy and amend the existing green certificate scheme. Investments into Romania’s renewable energy sector have slowed significantly since generous incentives, based on tradable green certificates, were cut back.

US firm Esmark says it is still interested in managing Serbian steel mill Zelezara Smederevo even though its negotiations with the government on the company's privatisation failed last month. Belgrade has since launched a tender to find professional management for Zelezara.

The World Bank has allocated $619mn for Serbia in 2015, including two budget support loans each worth $200mn, Reuters reported on March 4. The disbursement of the funds, however, will depend on the country's ability to implement key public sector reforms as agreed with the International Monetary Fund.

Serbia is interested in cooperating with Albania on regional projects, in particular bilateral projects in infrastructure, energy and tourism sectors, Serbia’s First Deputy Prime Minister and Foreign Minister Ivica Dacic said on March 2. Despite “existing differences” between the two countries, Serbia is committed “to developing diverse relations with Albania as a neighbouring country on the basis of common interests”, Dacic told Albania’s Ambassador to Belgrade, Ilir Bocka.

Bosnia’s economic growth will accelerate to 2.5% in 2015 from an estimated 0.7% last year, the central bank forecast. The forecast is well below the government’s projection of 3.4% growth this year that has been included in its 2015-2017 economic reforms programme.



Eastern EuropeUkraine's notorious nationalist Aidar battalion was formally disbanded and reorganised into the 24th Separate Assault Battalion of the Ukrainian Ground Forces in order to put them under "juridical regulation and to prevent illegal activities by Ukrainian volunteer fighters”. Amnesty International and other human rights organizations publicly slammed Aidar for "widespread abuses, including abductions, unlawful detention, theft, extortion, possible executions”.

Ukraine has unofficially entered into a period of hyperinflation after the currency’s value tumbled 70% since the start of 2014, which has pushed inflation up to 272%, according to unofficial estimates.

Ukrainian President Petro Poroshenko has signed a decree setting up a constitutional commission to prepare amendments to the country’s fundamental law. He has been pushing to undo the return to the 2004 constitution and return more power to the office of president from the Rada.

Oil prices should return to $100 per barrel by the end of 2015, a vice president of Russian oil giant LUKoil, Leonid Fedun, said on Tuesday during a telephone conference with investors.

The Kremlin was playing tough cop/nice cop with Ukraine this week after Russian Energy Minister Alexander Novak warned that Ukraine’s Naftogaz owes $2.4bn in arrears, including $200mn in penalties, for gas deliveries. But went to suggest Kyiv could get a discount on gas deliveries for the second quarter of 2015, without naming any conditions.

US President Barack Obama extended some sanctions on Russia that were first imposed in March and December 2014 for one year.

A Russian government commission passed a bill to ratify the cooperation agreement to deliver

Russian gas to China via the Eastern route (aka the Power of Siberia pipeline), which connects Russia's fields in eastern Siberia with northeast China through the city of Blagoveshchensk in the Russian Far East. The first deliveries are due in 2018.

US Secretary of State John Kerry said on Twitter on March 2 that he had just held a "frank" conversation with Russian Foreign Minister Sergei Lavrov on the most vital issues of international affairs. This was the second meeting between the top Russian and US diplomats in 2015.

The Russian Navy will receive 50 vessels of different kinds by 2050, including a new aircraft carrier as part of the country's ongoing military build-up, Navy Commander Viktor Chirkov reported. The navy intends to continue building ships capable of carrying out missions across all sea types.

Russian businessman Vladimir Potanin is Russia's richest man, according to the latest Forbes rating. He is worth $14.8bn, which also ranks him the 60th richest man in the world. He owns the Norilsk Nickel mining enterprise, and is also president of the InterRos Holding.

About 1,000 miners participate in a protest by Ukraine’s parliament demanding their overdue wages are settled and the coal mining industry is supported. The demonstration comes only a week after another demonstration in front of the National Bank of Ukraine demanding the sacking of the governor after the collapse of the hryvna and inflation that has soared into triple digits.

Thirteen aircraft of the Russian Armed Forces’ strategic aviation will be modernised in 2015, Russian Defence Minister Sergey Shoigu said on March 2. By 2020, around 70% of aircraft will be modernised, Shoigu added. Russia continues to spend heavily on modernising its armed forces.



EurasiaUzbekistan has secured a package of German investment, credit agreements and trade contracts worth a total of $2.8bn. The resources will go towards developments in industries such as chemicals, machinery, electronics, textile and food industries, and construction materials. Uzbekistan also agreed on investment worth $3.8bn from Japan and $120mn from the United Arab Emirates.

The Tajik government has launched a tendering process for the development of the controversial 3,600MW Rogun dam project on the Vakhsh river. It is seeking to award four major contracts: supply, installation and commissioning of four hydro-power turbines with a capacity of 600MW each; construction of the main dam; construction of right bank facilities; construction of left bank facilities.

A Dutch arbitration court granted Canadian mining firm Khan Resources a $100mn award as compensation for the Mongolian government's cancellation of the firm's uranium licences. The award is “final and binding” and is now due from Mongolia’s government and state mining firm Monatom. Khan Resources held mining licences for Dornod with estimated reserves of 22,000 tonnes of uranium.

The number of chickens in Georgia is at all-time high, according to the National Statistics Office of Georgia. The annual survey of agriculture and livestock numbers showed that in 2014 livestock – cattle, pigs, and sheep, and goats – reached a seven-year high. Preliminary figures showed there were 7.36mn chickens in 2014 – up by 9% y/y – 1.6 for person in the country.

Armenia’s jewellery output amounted to AMD521.8mn in January 2015, dropping 17% y/y. The industry produced 25.3kg of jewellery against

to 54.2kg last year and diamond production stood at 2,503 carats, down from 4,815 carats in January 2014. Armenia’s diamond industry is a significant part of the country’s manufacturing and exports: exports of refined diamonds accounts for about 10% of Armenian exports and is valued at $1bn.

Kazakh businessman Kenes Rakishev has sold his remaining stake in embattled BTA Bank to Kazkommertsbank (KKB), the country's largest lender, as part of a merger of the two banks. KKB bought 304,187,299,781 ordinary shares of BTA Bank at a price of KZT0.24162 ($0.0013) per share. As a result, KKB increased its share in BTA from 47.415% to 94.83%. Taking into account the Samruk-Kazyna sovereign wealth fund's 4.26% stake that KKB manages, the bank is now in control of 99.09% of ordinary shares of BTA.

A high court in France has upheld a ruling on the extradition of fugitive Kazakh banker Mukhtar Ablyazov to Russia. Ablyazov chaired BTA Bank in 2005-2009. BTA charges that "billions of dollars" had been misappropriated by Mr Ablyazov during his tenure as chairman. There are legitimate concerns that if France extradites Ablyazov to Russia he will eventually be sent to Kazakhstan which brought charges of fraud and fomenting violence in the western oil town of Zhanaozen in December 2011 in which security forces killed at least 15 people. Ablyazov denies the charges as "politically motivated".

The flag carrier Uzbekistan Airways is investing $40mn in building a hangar for the maintenance of two Boeing-787-800 Dreamliner it will start flying in 2016. The works will wrap up in 2017, right after the airline will be delivered the two Dreamliners it ordered in 2008. Financing for $28mn is proceeding from the Fund for Reconstruction and Development of Uzbekistan, and the remaining $12mn from the company’s budget.



bne Chart

A series of recent polls by Russia’s Levada Center has cast an interesting light on major issues surrounding Russia, such as Russians’ views on the conflict in eastern Ukraine, the effects of continued Western-led sanctions, and the general popularity of the government.

UkraineAs the first bne:Chart shows, despite claims that it has been Moscow’s intention to annex East Ukraine from the outset of the conflict, only 19% of respondents felt the same, with 60% of respondents preferring East Ukraine to gain either full or partial independence from Kyiv. Only 4% of those polled would want East Ukraine to remain a part of Ukraine.

As well as preferring the formation of new states rather than the absorption of the region within Russia’s borders, those polled also saw the latter as a highly unlikely conclusion to the conflict, with only 6% of respondents predicting it would take place.

26% believe that the Donetsk and Luhansk People’s Republics (DNR and LNR, respectively) will become independent states within Ukraine’s existing borders, while only 8% envisage the DNR and LNR becoming part of Russia. 33% believe the conflict will continue and spread to other parts of Ukraine.

SanctionsDespite Western-led sanctions fast approaching the one-year mark, the majority of respondents said that sanctions have not created serious problems for them and their families. 57% of respondents said that sanctions have either not created any problems for them at all, or have not created any serious problems.

When asked whether they believe sanctions could yet pose serious problems for them, the responses were slightly more varied, with 47% saying that sanctions may yet create either serious or somewhat serious problems. This would suggest that despite Russia’s economic ability to weather sanctions, continued efforts by the US and EU to financially squeeze Moscow could still hurt Putin, by disillusioning his supportive electorate.

While obviously aware of the potential negative long-term effects that sanctions could have on them, respondents seemed doggedly supportive of Russia’s current retaliatory stance. As the second bne:Chart shows, a third of respondents supported one or any of a combination of: reciprocal sanctions; the strengthening of economic and military ties with the Middle East, China and India; or ignoring sanctions altogether in an attempt to weather the storm.

Russians’ latest reactions to Ukraine, sanctions and Putin


statement that he “would be minded to require" arrangements for a further sale of the stakes in the fields to a third party, out of concern for their continuous future operations. The implication was that LetterOne could potentially become a target of expanded Western sanctions against Russia, which would potentially halt the operation of the fields.

If the UK goes ahead with the requirement to extract the British assets from Dea and sell them to a third party, LetterOne said it would seek a judicial review, including compensation for any damage following from a revaluation of the assets.

Jonathan Muir, CEO of LetterOne, said that RWE and LetterOne were “deeply disappointed and concerned”, given the “extensive efforts” they had made to meet the concerns over the British assets. Reportedly LetterOne and RWE had pledged to keep the assets separate for a number of years and committed the German energy company to buy them back should any sanctions be imposed on LetterOne's owners by the EU or US.

Eastern Europe

Fridman and Khan buy RWE oil and gas assets despite UK objections

bne IntelliNews

German utility RWE has completed the $5.6bn sale of its oil and gas unit Dea to LetterOne investment fund, which is controlled by Mikhail Fridman and German Khan, the Russian billionaires behind Alfa Group. However, serious doubts remain whether British North Sea assets owned by Dea will be included in the deal, after objections by the UK government.

Mikhail Fridman, chairman of LetterOne, hopes to use Dea as a springboard for creating an international oil and gas extraction company. He has recently appointed Lord Browne, former CEO of BP, to head LetterOne's $10bn energy fund L1 Energy. Fridman and Browne were longtime shareholder rivals at Russian oil producer TNK-BP until the oligarchs sold their shares for $14bn in 2013, and BP sold out to Rosneft.

However, L1 Energy's plans for the North Sea have been thrown in jeopardy by UK Energy Secretary Ed Davey's refusal to approve the sale of 12 natural gas fields, which represent about 20% of Dea's assets. Davey said in a


Eastern Europe

has already said that it wants full repayment. Moscow has sent out conflicting signals on whether it will demand early repayment.

Ukraine's unicameral parliament was draped in patriotic banners during the vote, reminders that the hunger strike of Ukrainian volunteer fighter Nadiya Savchenko, imprisoned in Moscow, had reached 80 days. The Rada also held a minute of silence for Boris Nemtsov, the Russian opposition figure shot dead in Moscow on February 27.

Adding to the tension, in the run-up to the vote, the populist Radical party, a member of the governing coalition, said it would not support the package of laws unless NBU head Valeriya Gontareva resigned. Radical Party leader Oleh Lyashko blamed Gontareva for the ongoing meltdown in the value of the hryvnia, down 40% since the start of the year. Lyashko later dropped the demand.

The package of laws significantly altered the budget, which had been originally passed controversially at 4am after a night session of the Rada at the end of 2014.

Ukraine's ongoing economic collapse meant that the IMF required changes to the budget's parameters: the inflation forecast was increased from 13.1% to 26%, the forecast drop in GDP in 2015 increased from 4.3% to 5.5%, and the predicted exchange rate increased from UAH17 to UAH21.7 to the dollar – although

Ukraine amends budget to win IMF approval for release of bailout funds

Graham Stack in Kyiv

Ukraine's parliament has voted through a package of budget amendments required by the International Monetary Fund (IMF) before Kyiv can receive a $17.5bn bailout.

"Passing this package of laws and accepting the decisions of the International Monetary Fund will enable us not just to get loans we need to pay foreign debt and replenish our foreign currency and gold reserves. It will also unblock $3.5bn in loans for direct investment in Ukraine's economy [from the World Bank and European Investment Bank]” Prime Minister Arseny Yatsenyuk told parliament.

The IMF has agreed a $17.5bn Extended Funding Facility for Ukraine, of which up to $10bn could be disbursed as a first tranche, enabling Ukraine to continue servicing foreign debt. Ukraine's hard currency reserves have fallen to around $6bn, providing only three weeks import cover.

Underlining how urgently Ukraine requires the funds, Ukraine's National Bank announced in the run-up to the voting that the national debt has reached 71.5% of GDP, up from 40.3% one year ago. This entitles Russia to demand early repayment of a two-year $3bn Ukrainian sovereign eurobond Moscow bought up in December 2013, as part of a bailout package referred to by critics as a 'bailbond'.

Ukraine is preparing for talks with foreign bondholders on restructuring, but Russia


Eastern Europe

market levels many times higher than current subsidised tariffs. The budget amendments included UAH12.5bn in targeted support for the poorest households to cushion the effects of the utilities price hike.

Despite these measures, analysts criticised the budget as based on unrealistic expectations of budget revenue growth. “More hryvnia printing with extra pressure on the exchange rate looks inevitable over the upcoming months,” wrote Concorde Capital analyst Oleksandr Paraschiy in a research note. “Still, IMF support with extra [international financial institution] funding might prevent further hryvnia decline if the funds are large enough and cooperation with IFIs goes smoothly,” he added.

the current exchange rate is at UAH26.7 to the dollar.

Accelerating inflation and devaluation have helped the government reduce the budget deficit without the sort of politicially difficult budget cuts seen in Greece and Latvia: without indexation of state expenditure for inflation, inflation cuts nominal budget expenditure relative to revenues, and with major state revenues flowing in hard currency from exporters, devaluation boosts revenues relative to expenditure.

Thus on paper, the austerity budget incorporated an increase in budget revenues by 3.9%, thanks to the inflation and devaluation factors, and a 5.7% increase in expenditure, as reported by business daily Delo. “This means we are proposing to increase budget spending,” the finance ministry said in a release. The budget amendments also boosted royalties payable on natural resource extraction.

Ukraine's TV news largely covered the story as an increase in budget spending, reducing the political costs to the government.

Some controversial nominal cuts were nevertheless required – in particular, a 15% cut in the pensions paid to Ukraine's nearly 3mn so-called working pensioners: pensioners who continue working after starting to draw their pension, often motivated by the small size of the pensions.

Only at the fifth attempt, late in the evening - after the prime time news - was the budget amendment on pensions passed. “Parliament has passed its test of responsibility,” Rada speaker Volodymyr Hroisman declared. 238 MPs voted in favour, with a majority of 226 needed to pass the bill.

The other potentially painful measure was a decision to increase tariffs for gas and electricity charged to households towards

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The election campaign had been marred by numerous irregularities and there were concerns that the votes would be rigged on election day. Tajikistan has never held parliamentary or presidential elections regarded as free and fair by the OSCE. Despite opposition parties and candidates' participation in the election, it took place in a restricted political space and failed to provide a level playing field for candidates, the OSCE Office for Democratic Institutions and Human Rights (OSCE/ODIHR) Election Observer Mission said on March 2.

“Engagement by various political forces in this campaign was, unfortunately, not enough to result in truly competitive elections. Uneven treatment by the authorities and remaining legal restrictions limited the space for debate on the real problems facing Tajikistan,” said Marietta Tidei, the Special Co-ordinator and leader of the short-term OSCE observer mission. “The voters, many of whom I was pleased to speak with yesterday, deserve more genuine discussion about the future of their country.”

“I was pleased to observe that the vote took place in a calm and peaceful manner, however significant shortcomings, including multiple voting and ballot box stuffing, and disregard of counting procedures meant that an honest count could not be guaranteed,” said Norbert Neuser, head of the European Parliament delegation. “I encourage the authorities to introduce the changes necessary to make the voting procedure transparent and credible.”

Eurasia

Main Tajik opposition parties fail to clear threshold to enter parliament

bne IntelliNews

Tajikistan's main opposition parties have failed to clear a 5% threshold to enter parliament on party lists, and President Emomali Rahmon's party has won an absolute majority with 65.2% of the vote at the elections on March 1.

The Central Commission for Elections and Referenda said on March 2 that 3.8mn voters out of registered 4.3mn took part in the election, a turnout of 87.7%.

According to preliminary results published by the electoral authorities, the ruling People's Democratic party received nearly 2.5mn votes and claimed 16 seats out of 22 available on party lists. The pro-presidential Agrarian party received three seats (11.8% of the vote), the Economic Reform party two seats (7.6%) and Socialist party one mandate with 5.5% of votes cast for parties. To enter parliament parties should clear a 5% electoral threshold.

The main opposition party – the Islamic Revival party - failed to clear the hurdle as, according to the Central Commission for Elections and Referenda, it received only 87,112 votes, or 2.3% of the total. Another party critical of the government – the Social Democratic party - got 18,875 votes or 0.5%. The Communist party and Democratic party could not get elected to parliament either with 2.3% and 1.7% of the vote respectively.

In the outgoing parliament, which was elected in 2010, the Islamic Revival party held two seats and the Communist party had one seat.


He said his party would not contest the results of the election because the law enforcement agencies and judiciary were dependent on the president. "We will not complain to anyone because all courts and prosecutors are subordinate to the head of the country, our President Emomali Rahmon, himself," the leader of the Communists said.

In addition to 22 seats in the lower chamber of the Tajik parliament, the Majlisi Namoyandagon or Assembly of Representatives, 182 candidates from political parties and independents are contesting parliamentary seats in 41 single-mandate constituencies.

Eurasia

Indirectly pointing to the election being a foregone conclusion, the leader of the Communists, Shodi Shabdolov, said after the announcement of the results that the central commission had denied that his party would get only 3% of the vote, the Asia-Plus news agency reported on March 2. "[Commission chairman] Shermuhammad Shohiyon told us that this was just rumours and we would get our mandate in parliament. This way he simply forced us to keep meeting voters so they go to the polls," Asia-Plus quoted Shabdolov as saying. "I don't know who gives such advice to the president but it is a mistake and it will have a negative impact."

Centerra Gold shares, as allowed by international arbitration conventions.

Some 6.5mn Centerra Gold shares worth $20.5mn were seized on March 4 when the Ontario Supreme Court enforced an arbitration award granted to Latvian oligarch Valeri Belokon, whose local bank Belokon was expropriated on money-laundering charges in 2010.

Another 47mn Centerra Gold shares were frozen by the Canadian court in 2014 awaiting a definitive ruling over a $118.2mn lawsuit brought by Canadian mining firm Stans Energy – a final ruling is expected in 2015. Local authorities revoked a rare earth mining licence Stans Energy owned in 2012.

Additional 3.5mn shares were seized in 2013 to compensate Turkish company Sistem for the expropriation of a hotel the company built and used to run.

Krygyzstan loses more Centerra Gold shares in arbitration award

bne IntelliNews

As many as 57.5mn Centerra Gold shares owned by Kyrgyzstan have now been seized or frozen by the Ontario Supreme Court because of a number of legal proceedings brought by international investors against the Kyrgyz government, according to a report on local news website Kabar.kg, quoting Kylychbek Shakira, chairman of Kyrgyzaltyn, the state mining company that legally owns those shares.

The seizure represents 72.4% of Kyrgyzaltyn’s shares in Centerra Gold, the Canadian mining firm that operates Kumtor, the country’s largest gold mine and the state’s most valuable asset.

Several international arbitration courts have awarded international investors big compensation for having their licences or assets revoked or expropriated. As the local government refused to enforce the awards, the investors turned against assets Kyrgyzstan holds abroad, specifically


Estonia's Reform party wins election but will have to broaden coalition

Ukraine. The Centre party’s electorate consists largely of ethnic Russians. Roivas, 35, ruled out a coalition with the Centre party on election night.This means that Reform is likely to look to a former coalition partner, the conservative IRL party, which, however, is the biggest loser of the election. The party came in fourth with 13.7% of the vote, or 14 seats – a reduction of nine in comparison to 2011.

Following the election, speculations were rife whether either of the two newcomers to the parliament – the conservative-leaning Free party (8.7%, 8 seats) or the nationalist Conservative People’s party of Estonia (8.1, 7 seats) – could fit into the coalition jigsaw.

The arithmetic of the 101-seat parliament are, however, that it would take both newcomers to join in – making the coalition government less manageable.

According to the Estonian media, the two most likely coalitions were therefore liberal-conservative ones with a leftist tilt. This would be the Reform party, the Social Democrats and the Free party with 53 seats, or a coalition of the Reform party, the Social Democrats and the IRL, with a slightly more solid majority of 59 seats.

The election campaign had focussed on different visions of how to make the post-crisis growth more inclusive. Estonia’s security, following Ukraine’s conflict with Russia, was also an important issue.

Central Europe

Wojciech Kość in Warsaw

Estonia’s ruling liberal Reform party finished ahead of the Centre party in elections on March 1, but it will need to build a three-party coalition to remain in power.

Prime Minister Taavi Roivas’s Reform party won 27.7%, which will translate into 30 seats in the 101-seat parliament, the Riigikogu. This is a drop of 3 seats compared to the 2011 vote.

The Centre party of former premier Edgar Savisaar, which had topped the last opinion poll before the election, came second with 24.8% of the vote to win 27 seats, up one seat from the previous election.

The left-leaning Social Democrats, the junior partner in the ruling coalition, was third with 15.2% or 15 seats, down by four from 2011.

Despite the possibility of early voting and e-voting, the election turnout came in at a not-so-impressive 63.7%.

With both coalition partners losing seats, they no longer have a majority in the Riigikogu and will be forced to seek a third partner.

Who might join in is unclear. A grand coalition of the Reform party and the Centre party is general considered unlikely, though they have been in the same coalition in the past and are in the same group in the European Parliament. But the relationship has been soured by criticism of Savissar’s stance on Russia's incursions into


complaints of Moscow officials that Estonia and other neighbouring countries are oppressing their ethnic Russian communities,“ Paul A. Goble, former special advisor for Soviet Nationality and Baltic Affairs at the US Department of State, wrote for the Quartz magazine on 16 February.

Overall, Estonians themselves do not seem too concerned with the Russian threat. According to one poll, only 5% of the Estonians fear that a war will break out between their country and Russia, while 21% believe it is possible. Six Estonians in 10 (61%) and almost all of the Russian-speakers (92%) do not believe there will be open conflict between Tallinn and Moscow.

Central Europe

With a substantial Russian minority, there are fears in Estonia that Putin would like to replicate the Ukrainian scenario of coming to the rescue of compatriots, who Russia claims are the victim of discrimination.

Estonia’s Russians, however, have shown no desire to agitate for Russian rule or to emigrate to Russia.

“Over the last two-year period for which statistics are available, only 37 ethnic Russians moved from Estonia to the Russian Federation. This, despite the latter’s programme for resettling those it calls “compatriots,” and the regular

prices will probably fall on average this year.

Marek Belka, the bank’s governor, said after the announcement that there would be no more cuts in the near future, with many having expected two 25 bps rate cuts this half year. "The motivation behind a deeper than expected cut was probably a desire to stem market expectations for a rate cut cycle," Adam Antoniak, senior economist at Bank Pekao, told Reuters.

"The decision on cutting interest rates at the present meeting means an end of the monetary policy easing cycle," the bank said in a statement.Falling global oil prices fed into a 1.3% year–on-year fall in Poland’s CPI in January, far below the bank's 2.5%+ target band, though still strong

Polish central bank cuts rates by 50bps to fight deflation

bne IntelliNews

Poland’s central bank surprised markets by cutting its benchmarket seven-day interest rate by 50 basis points to an historic low of 1.50% at its monthly meeting on March 4.

A statement from the council pointed to falling consumer prices as the key reason for the cut, with the ECB's quantative easing programme also a factor. Poland’s CPI fell to -1.3% in January from -1.0% in December, its seventh consecutive month of deflation. Inflation has been below the NBP's target of 2.5% for 26 months.

Both the central bank and the finance ministry have revised downward their predictions for inflation. The ministry had been predicting inflation of 1.2% in 2015, but said in February that


to hold rates in January and February, after a previous bigger than expected ease of 50bps in October.

Polish stocks fell on the news, rebounding slightly before the close, with banks worst hit. The zloty also fell on the news, pushing down to record lows, down 0.3% versus the euro. The yield on the two-year government bond fell 5 basis points to 1.58%.

The NBP also cut the deposit rate by 50 basis points to 0.50%, the lombard rate to 2.50% and the rediscount rate to 1.75%.

Central Europe

growth had reportedly disinclined some members of the rate setting council from any cuts in rates.

Poland's manufacturing sector grew strongly in February and employment is growing, on the back of 3.3% GDP growth in 2014. Poland's gross domestic product grew by 0.7% in the fourth quarter of 2014 with annual growth of 3.10%, down from 3.3% in the third quarter.

Despite the cut, Poland's rates still remain higher that in the eurozone and the US, where they are close to zero.

The cut is seen by some as making up for inaction in previous months, after the central bank opted

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

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


Southeast Europe

Ocalan calls for historic peace agreement with Turkey

Kurdish conflict, including a new constitution.

Erdogan also wants a new constitution, to move Turkey to a formal presidential system. However, Erdogan can achieve his dream only if his ruling AKP scores a decisive victory in the upcoming elections.

HDP delegations have recently paid several visits to Ocalan and the PKK headquarters in the Qandil Mountain in northern Iraq to coordinate negotiations. The HDP has decided to contest the upcoming elections as a party instead of fielding independent candidates as it did in the past.

This is a huge gamble, because the HDP may fail to pass the 10% threshold to enter parliament. According to opinion polls, public support for the main Kurdish party is hovering around 7-8%. If the HDP fails to enter parliament, its votes will be redistributed and the AKP will have an even larger presence.

In order to increase its vote in the June elections, the HDP recently sought an alliance with Turkey’s radical left. The co-chairman of the HDP, Selahattin Demirtas, has held meetings with several non-parliamentary socialist parties, leftist groups and representatives of the Alavi communities. It was also hoping that some sections of the social democrats fed up with the main opposition party CHP’s ineffective tactics could vote for the HDP this time.

However, after Ocalan’s call on February 28, an

Kivanc Dundar in Istanbul

PKK’s jailed leader Abdullah Ocalan has asked his Kurdish guerillas to take a strategic and historic decision to lay down their arms. He has called for an extraordinary PKK congress this spring at which the guerilla movement could take up electoral politics and end the conflict that has claimed more than 40,000 lives since 1984.

President Recep Tayyip Erdogan welcomed Ocalan’s call but urged caution, pointing out that the PKK has in the past failed to deliver its promises, while Prime Minister Ahmet Davutoglu said the PKK leader’s call marked the beginning of a new phase in the peace process.

Sirri Surreyya Onder, a deputy from the main Kurdish party HDP, read out a message from Ocalan on February 28 at a joint press conference with deputy premier Yalcin Akdogan and other senior government officials. The press conference, broadcast live on TV, was the first time the government had allowed the HDP to convey a message from Ocalan directly to the people in the presence of senior officials.

In 2013, Ocalan called for a ceasefire, which was largely observed by the insurgent group, but the peace talks faltered in late 2013 when the PKK suspended pulling out its armed militants from Turkish soil, accusing the government of not fulfilling its promises.

Ocalan’s statement, made public on February 28, included a 10-point framework to solve Turkey’s


Southeast Europe

amendments to the internal security law.

Reaction from the opposition parties differed. The centre-left CHP’s leader Kemal Kilicdaroglu said disarmament would bring peace to Turkey, but the nationalist MHP, which is critical of the peace negotiations, not surprisingly accused the government of treason.

There have been no media reports about Kurds celebrating Ocalan’s call for disarmament on the streets. Maybe, this is because of Kurds’ deep suspicion of the government. In October 2014, dozens of Kurdish protestors were killed during street protests over the government’s attitude towards Syrian Kurds.

electoral alliance between the radical left and HDP looks less likely because Turkey’s socialists and radical left reject any kind of deal with the AKP government.

The KCK, PKK’s umbrella organisation, said that disarmament depends on the concrete steps the government will take. The organisation called for the withdrawal of the controversial internal security bill as an indication of the government’s good faith. “Work should start immediately so that direct negotiations can begin, with delegations and monitoring bodies being established”, the KCK said in a statement carried by Hurriyet Daily News. Pervin Buldan, a prominent lawmaker from the HDP, said that he is optimistic that the government will reconsider and make necessary

international markets to sell €1.25bn in eight-year Eurobonds, above the target of €1bn.

“The [ministry of finance] made good use of the favourable market environment, securing record cheap funding and substantially decreasing financing risks for the remainder of 2015, as the focus now shifts to local demand (this is likely to be the sole Eurobond this year, unless some pre-financing is done ahead of the upcoming election period), where we see very limited risks of negative surprises,” Erste analysts wrote on March 5.

Barclays, Erste Group, JP Morgan and UniCredit managed the Eurobond issue. Croatia

Croatia makes successful Eurobond issue despite shaky economy

Clare Nuttall in Bucharest

Croatia sold €1.5bn worth of 10-year Eurobonds on March 4, attracting robust investor demand despite forecasts of a slow exit from recession and political uncertainty as elections approach towards the end of this year.

Demand for the issue was around €6.5bn. The bond priced at a yield of 3.25% - mid-swaps + 255 bps compared to initial pricing guidance set at mid swaps + 287.5 bps - according to an analyst note from Erste Group, which points out that robust investor demand allowed for the hefty issue size and more favourable pricing.

The yield was almost one percentage point lower than in May last year when the country returned to


Southeast Europe

Europe, is likely to be the primary factor for voters in the upcoming election.

Despite the positive Q4 2014 figures from DZS, forecasts for 2015 are mixed. The European Commission’s winter forecast, published on February 5, reveals that for the first time since 2007, all EU member states will show positive growth, but at just 0.2% Croatia’s growth forecast is the lowest in the 28-country bloc.

Both the European Bank for Reconstruction and Development (EBRD) and the World Bank forecast in January that Croatia’s economy would expand by 0.5% this year. However, Erste analysts expect the economy to contract by 0.5% in 2015. “We have to reckon with a recession in Croatia,” Erste Group Bank CEO Andreas Treichi told a February 27 press conference.

is rated BB by Fitch, Ba1 by Moody's and BB by Standard & Poor's.

Zagreb announced on February 27 that the economy emerged from recession in the final quarter of 2014, when GDP was up 0.3% y/y, according to a preliminary estimate from the national statistical office (DZS). This followed 12 consecutive quarters of falling GDP. However, DZS’s estimate also shows that GDP contracted by 0.4% for the full year 2014.

"I am pleased to see it, given that it is difficult to build on rotten foundations. Quarters and quarters of stagnation are behind us. There have been some downs, while before that a sharp downturn was registered in 2008, 2009 and 2010," Prime Minister Zoran Milanovic commented on February 27, state news agency Hina reported.

Milanovic’s Social Democrats came to power in 2011, replacing the previous government led by the Croatian Democratic Union (HDZ), which is now the main opposition group.Parliamentary elections must be held by February 2016, and the election is expected to be towards the end of this year, though a date has not yet been announced.

The vote will pit the Social Democrats against the HDZ, whose candidate Kolinda Grabar-Kitarovic scored a surprise victory over incumbent Ivo Josipovic in the January 2015 presidential elections.

With the presidential election seen as an indicator of public sentiment ahead of the more important parliamentary election, Josipovic’s defeat does not bode well for the Social Democrats. Milanovic’s government has sought to woo voters with recent decisions such as a write-off of debts for the country’s poorest citizens and the freezing of the exchange rate used to calculate the Croatian kuna value of personal loans taken out in Swiss francs.

However, the performance of the economy, which is lagging behind others in Southeast and Central

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Opinion

Ben Aris in Moscow

This is so depressing. First a proxy war that has expanded into the worst geopolitical showdown in 20 years. Then a crisis that has led to stagnation and a steep fall in the ruble. And now the murder of one of Russia's best-known opposition politicians. Russia is not a happy place today.

The last time I sat down with Boris Nemtsov was in October 2010 when we had a long conversation about the future of Russia. Russian President Vladimir Putin had been in power for a decade and Nemtsov had just released a damning report accusing him and his cronies of fleecing the country.

I had followed Nemtsov's career for more than a decade and a half since he sprang to prominence as the dynamic liberal governor of Nizhny Novgorod in the 1990s. This time we met in his extremely modest office on the small, leafy Zoologicheskaya Ulitsa, across the road from the Moscow City Zoo. Outside were some young activists practising slapping large protest stickers over the windscreens of a moving car – what they intended to do to drivers who were breaking the law.

The office was a classic Russian apartment on the first floor bare of anything other than a few cheap chairs and a desk with a computer. A bunch of people were smoking in the kitchen. Nemtsov looked out of place. He was a tall, well-built man with a penchant for designer jeans and expensive leather boots. He commanded the room with his rugged good looks, deep basso

voice and emanated a powerful charisma. But he looked out of place in an office that was obviously not somewhere he spent a lot of time – it was devoid of personal touches, paperwork or the detritus of a normal work routine.

Nemtsov was obviously a sincere opponent of Putin and proponent for radical reform. He had just released a report, "10 years with Putin", that was filled with chapters like "Corruption is Eating Russia Up", "The Country is Dying Out", "Dead-End in the Caucasus", and "A country of screaming inequality".

It was promptly banned by the authorities on the risible grounds that it was "extremist literature". Most of the report was a dull statistical account of Russia's economic development over the previous decade, all of it scrupulously researched and based on official statistics, even if it lacked the shocking insider-dealing details that investor-turned-Kremlin nemesis Bill Browder used to dish up when still living in Moscow.

Throughout the years, Nemtsov's message did not change; his complaints then were the same as those he made on the eve of his assassination: "After 10 years, the people are tired of Putin. One of his key claims to success is that he has ended the instability in the North Caucasus, but during his regime the number of terrorist attacks has gone up six-fold," Nemtsov told me. "At the same time, the corruption in Russia is on a par with Africa."

OBITUARY: Nemtsov's death and the opposition's failure to change the regime


Opinion

After talking we travelled across town to the square by the Chistye Prudy metro where Nemtsov sat at a small trestle table to sign copies of his report. A queue quickly formed of people that included not just impoverished babushkiwho have borne the brunt of the Soviet collapse, but also middle-aged men carrying children, teenage girls who whipped out digital cameras to snap a selfie with Nemtsov and a knot of Asiatic men, probably Kazakh as the embassy is just round the corner – normal people basically.

Nemtsov scrawled his name in the report's flysheet and reduced one old woman to schoolgirl giggles as he bantered with the small crowd. Two policemen on the other side of the square looked on, but did nothing despite the fact that distributing the report was technically illegal.

Nemtsov was no stranger to arrest and fines as part of his Charter 31 meetings, amongst many other protest activities (the number refers to the article in the constitution that guarantees the right of assembly, which is routinely denied by the authorities).

It seems that Nemtsov had everything to challenge Putin: the looks, the brains (a PhD in Physics), the oratory skills and most importantly – and almost uniquely amongst the opposition leaders – the experience: he was appointed a first deputy prime minister in 1997 by former president Boris Yeltsin, who also said Nemtsov was a potential presidential replacement.

So why didn't Nemtsov become president? In fact, why are all Russia's opposition leaders doing so pathetically in the polls. The independent pollster Levada Center reaffirmed the opposition’s poor showing on February 27; only 15% of Russians support opposition leaders of any hue, including Nemtsov. Putin's popularity remains ridiculously high.

Nemtsov, like most other opposition leaders, failed to connect with the common man. His association with Yeltsin, which gives him so

much creditability in the West, is a distinct disadvantage in Russia where the majority of people associate the 1990s with economic misery and the rise of government-sponsored kleptocratic oligarchs. Nemtsov's money and business connections also set him apart as belonging to the elite. His cheap apartment on Zoologicheskaya Ulitsa jars with the high-end Bosco restaurant where he dined with Anna Duritskaya, a 23-year-old Ukrainian model, on the night of his death.

Nemtsov was clearly a sincere opposition figure and liberal reformer who worked tirelessly since he quit his job in the executive a few days after the 1998 ruble crisis erupted. But he was no Nelson Mandela figure either.

Nemtsov was the star "young reformer" of the 1990s, rising through his dynamic efforts to reform Nizhny Novgorod where he previously studied physics before being made regional governor by Yeltsin. The late president then brought him to Moscow – a bad thing for a would-be presidential candidate.

"He was one of the brightest and most dynamic of the team of reformers at that time including Yegor Gaidar who passed away a few years back. Those reforms ultimately failed, and ended in Putin's rise to power in 1999," says Tim Ash, head of emerging market research at Standard Bank. "Nemtsov struggled to regain popularity across Russia due to Russians' memories of the failed reforms under Yeltsin and a widespread impression that they benefited only oligarchs and the West ultimately by further weakening Russia."

Another problem today's opposition leaders face is that many of them have been tainted by corruption allegations. Fellow opposition heavy hitter and former prime minister Mikhail Kasyanov was dubbed "Misha 2%" while serving as finance minister, for allegedly earning a commission each time he changed the order Russia intended to pay off its Soviet era debts.


Opinion

Duma deputy and member of the Just Russia parliamentary fraction Ilya Ponomarev is another leading light in the opposition (the only member of the Duma to not vote in favour of the annexation of Crimea last year). But he is also tainted by association with oligarchs – he used to work in the IT department at the oil company Yukos of Mikhail Khodorkovsky between 1996 and 1998, during that oligarch’s notorious corporate governance abusing period. More recently, Ponomarev was caught up in a lecture fee scandal after accepting $750,000 from the government-sponsored Skolkovo foundation in fees.

Nemtsov was tainted by the same sort of allegations. He was embroiled in a book fee scandal in 1997 along with another leading "young reformer" Anatoly Chubais, when the investigative newspaper Novaya Gazeta published a telephone transcript allegedly showing Nemtsov asking for a $100,000 book advance. More recently, in the noughties Nemtsov explained an income of several million dollars as coming from speculating on soaring Gazprom shares after the so-called ring fence was removed, special rules that precluded foreign investors from owning the stock directly. This is despite the fact that Nemtsov had been an academic in the 1980s and was a public servant until 1998 and a politician ever since.

Nemtsov also suffered from his close association with several of the leading oligarchs from the 1990s. One of his first political parties – the Union of Right Forces (SPS) set up in 1999 together with other former members of Yeltsin’s team – was closely linked to the privatizations of the 1990s, a time when the oligarchs were resisting Putin's attempts to rein them in. In particular Alfred Kokh was the head of the State Property Committee when Norilsk Nickel was privatized in oligarch Vladimir Potanin's favour during the notorious loans-for-shares scam, and went on to become SPS' campaign manager. Likewise, Khodorkovsky is on record as one of the financial backers of SPS.

A prominent club promoter told bne IntelliNews during this period that he organised several parties at Potanin's dacha, attended by Nemtsov, that consisted of "a DJ, a PA and a whole lot of girls." Potanin's former aide de camp, who went to work for Sberbank, confirmed these stories separately.

In this light, Nemtsov is seen by Russians as less of an icon of probity and more like an Eastern Europe politician cut from the same cloth as former Ukrainian prime minister and Orange Revolutionary leader Yulia Tymoshenko – dubbed the "gas princess" for her murky ties to the corrupt gas trading business despite her liberal credentials.

In Russia corruption allegations are not necessarily a death knell for a political career, because graft is deeply woven into the fabric of Russian public life, from the imperial era through communism and to the present day. All the people of Eastern Europe, not just Russia, expect their leaders to steal. The West hates Putin partly because of the allegations that he has stolen massive amounts as well as enriching his friends. But what it misses is that Putin's popularity is based on the massive rise in incomes over the last decade. Given the legacy of centuries of corrupt autocracy, Russians simply don’t expect anyone, including opposition leaders, to do anything different.

Russia's opposition has had many opportunities to take the lead and prove their credentials to the


Opinion

people. Unfortunately most of these have been fluffed. In the 1990s, the early opposition leaders such as Grigori Yavlinsky and Irina Khakamada vied with each other for the mantle of Russia's liberal alternative to Yeltsin. However, internecine fighting and intellectual arrogance prevented them from ever working together, relegating them to the fringes of the political spectrum and eventual obscurity.

This was the community out of which Nemtsov emerged, however he too was a victim of the intensely fissiparous nature of liberal politics and ended up being a member of a dizzying number of parties and movements during his long career.The young reformers were given a golden opportunity to make a material change to the way that Russia was run at the end of Yetsin's administration. In 1997 Nemtsov was elevated to first deputy prime minister along with Anatoly Chubais, who was put in charge of the electricity giant UES. At the start of 1998, Yeltsin created a “dream team” by appointing Sergei Kiriyenko as prime minister. But this group had no time to make a difference, as by August that year the country went into financial meltdown. Nemtsov quit the government soon after.

The next best chance of a liberal alternative appeared in 1999 when then Moscow mayor Yuri Luzhkov and former prime minister Evgeny Primakov joined forces to fight against the government of then prime minister Putin, creating the Fatherland-All Russia party to stand in the 1999 parliamentary elections. Going into the polls, the new party had a decent chance of actually taking power. However, the vote was fixed by the active lobbying of oligarch Boris Berezovsky, who at the time was the main agent promoting Putin, and the party was eventually hijacked by the Kremlin to become the now ruling and Kremlin-backed United Russia party.

Since then, new players have come to the fore, most notably corruption blogger Alexei Navalny and former chess world master Gary Kasparov – both of whom have come from outside the

system. But neither of them has managed to capture the popular imagination or unite the fractious liberal opposition around any sort of meaningful platform.

As time goes on, ousting Putin becomes increasingly difficult because he's so entrenched. Now the economy is in decline, Putin has replaced rising incomes with a rising sense of national pride. For all his many flaws, Putin has proved himself to be a consummate politician with a fine sense of what the Russian people want. Quashing the opposition's access to any kind of platform to voice their views has obviously helped.

The entire spectrum of conspiracy theories have been put forward as to who is behind Nemtsov's killing, from Islamic terrorists through the CIA and on to a personal order from Putin. It has even been suggested that Nemtsov's murder is analogous to Stalin's assignation of Kirov that cleared the way for his purge, the Terror of the 1930s, and three decades of despotism.

The trouble with all these theories is that Nemtsov, and all the other opposition leaders, are simply not important enough that his death will make much material change to Russia's domestic politics. The failure of the opposition to unite in the late 1990s or the early years of Putin's reign has meant the opposition appeal has progressively atrophied.

But whoever killed Nemtsov, Putin and his


Opinion

government must share some of the blame. As New York University professor Mark Galeotti wrote in his blog: "My working hypothesis is that Nemtsov was killed by some murderous mavericks, not government agents, nor opposition fanatics. But the reason they felt obliged to go and gun down a frankly past-his-peak anti-government figure is highly likely to be precisely because of the increasingly toxic political climate that clearly is a product of Kremlin agency."

Nemtsov's death presents the opposition with another opportunity to get its act together. Ex-PM Kasyanov told bne IntelliNews during the funerary march for Nemtsov on March 1 that his

death was a "wake-up call" for the people and pointed out that all three of the major opposition parties were present at the demonstration to honour Nemtsov.

Moreover, with the economy stagnant, Putin is more vulnerable than at any other time in his 15-year rule. The euphoria of Russia's resurgence on the world stage will wear off eventually and Putin will need to return the country to growth to maintain his popular appeal. This chance for the opposition has been paid for in blood and while that will drive the wedge in Russian politics in deeper, it is probably not enough to incite the people to act.


bne: Infrastructure

Weekly Lists

Montenegro to call tender for €23.5mn local roads upgrade in Q2 - EBRD bne IntelliNews

Montenegro should launch a tender for upgrade and construction of local road stretches estimated to cost a total of €23.5mn in Q2 this year, the European Bank for Reconstruction and Development (EBRD) said in a procurement notice. The bank will finance the project.

The government will call a tender for the upgrade of a 11.5km road stretch from Lubnice to Jelovica, construction of a new 1.4km stretch between Jelovica and Jezerine, as well as new realigned 3.5km section between Jelovica and Jezerine, which includes a new 2.9km tunnel and a 100m long bridge. The goal of the project is to upgrade the roads to regional road status.

The EBRD plans to invest €100mn in projects in Montenegro this year, up from €76mn in 2014. The bank’s total amount of investments reached €400mn so far in energy, agriculture, trade, industry and tourism projects.

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.

Slovenia mulls selling minority stake in sole Adriatic port Luka Koper

bne IntelliNews

Slovenian Prime Minister Miro Cerar said on March 2 the government is considering selling part of its holding in the country's sole Adriatic port Luka Koper in order to finance a project for a second rail line along a key route that links the port with the mainland, news wire SEEbiz reported.

Cerar told the parliament that the government plans to soon invite foreign investors to express their interest in the construction of the 27km Koper-Divaca rail line under a public-private partnership. It is possible that the government will offer potential bidders a small stake in Luka Koper, which holds a concession to operate the port until 2043.


The O2 Czech Republic board has approved a spin-off of its mobile and fixed-line infrastructure, the largest Czech telecom company announced on February 27.

The assets due to be allocated to the new company, Ceska Telekomunikacni Infrastruktura, are valued at CZK46.9bn (€1.7bn). Under the plan, which was also approved by the supervisory board but still needs the nod from shareholders, shares in the new company will be distributed on a ratio of 1:1 for O2 CR shares.

As part of the spin-off, the registered capital of O2 CR will be reduced from CZK27.6bn to CZK3.1bn. Shares with a nominal value CZK87 will cut to CZK10 and those with a nominal value of CZK870 will be reduced to CZK100. Following the separation, O2 CR will provide voice and data services as well as television. Shares in the new infrastructure company will not be listed.

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.

O2 Czech Republic to hive off infrastructure assets bne IntelliNews

Telekom Slovenije signs deal to acquire 100% of local telecommunications firm Debitel

bne IntelliNews

Telekom Slovenije said it signed on February 27 an agreement to acquire 100% of Debitel Telekomunikacije from local firms ACH, Adria Mobil and Svema Trade at an undisclosed price.

With the purchase, Telekom Slovenije wants to strengthen its synergy with Debitel and continue providing high-quality services to the latter's 90,000 users.

Ljubljana-based Debitel was founded in 1998 and offers mobile and fixed-line telephony, and internet. It has stable operations and no debt, Telekom Slovenije said.

The acquisition is part of Telekom Slovenije's domestic market strategy based on cross-selling services, developing new services and subscription models, and offering exclusive content. At the same time, the company says it will continue improving the user experience, and providing standardized cloud and ICT services.

bne:TMT



Weekly Lists

Erste rules out acquistions as it reports record lossRobert Anderson in Prague

Austria's Erste Bank will put acquisition activity on hold over the next two years and concentrate instead on costs, after it reported a record full-year loss of €1.44bn on February 27.

"Our long-term plan is to add Poland to our group but for the next few years this is a clear no-go for us," Andreas Treichl, the longstanding CEO of the third largest bank in Central and Eastern Europe by assets told a conference call with analysts. "We have a lot to do [to improve efficiency] and no intention to enter international acquisition deals in 2015-2016."

Erste was expected to be amongst the bidders for a raft of banks in Poland. The market is a huge gap in its portfolio in the region. Four or five lenders are for sale, including Austrian peer Raiffeisen's subsidiary Polbank, General Electric's BPH, Carlo Tassara Group's stake in Alior Bank, and Abris private equity fund's stake in PBOP. Bank Millennium, owned by Portugal's BCP, has also been the subject of rumours for years.

Ukraine's fourth largest bank collapses

Graham Stack in Kyiv

Delta Bank, Ukraine's fourth largest bank by assets, has been declared insolvent by the National Bank of Ukraine. Delta Bank is the biggest bank to fail since the pro-EU revolution in February 2014 and the ensuing military and economic pressure from Russia. The NBU categorises Delta Bank as of systemic importance, as it holds nearly 6% of retail deposits.

Delta's failure does not come as a surprise – depositors trying to get their money have been queuing outside its branches for months, as bne IntelliNews reported in September 2014. Around half a million retail depositors will now have to wait to receive their deposits up to UAH200,000 from the state Deposit Guarantee Fund, Delta Bank said in a press release.

bne:Banker



Weekly Lists

Kosovo to prepare law on debt write-off bne IntelliNews

The Kosovan government has approved recommendations to draw up a draft law writing off outstanding debts incurred before December 31, 2008. At a meeting on March 4, the cabinet agreed to consider plans for a debt amnesty for individuals, companies, state institutions and public enterprises.

A draft bill on the forgiveness of old debts will be included in Kosovo’s 2014 legislative programme, and will be submitted to the government for its review within the next three months, a statement on the prime minister’s website said.

The government agreed on February 5 to set up an executive commission to review the possibility of forgiving debts incurred before the country gained its independence from Serbia. It is not yet clear whether the government or creditors will bear the cost of the debt write-off.

The move appears to be an attempt to soothe tensions within the country, which in late January experienced the worst unrest since independence. While the recent clashes had an obvious ethnic motivation, poverty, corruption and high unemployment are also at the root of the unrest in Kosovo, one of Europe’s poorest countries. According to the UN, around 30% of the population were living in poverty as of November 2014.

Two other Balkan countries - Croatia and Macedonia - have already launched debt amnesties. On February 2, Croatia launched a scheme to write off around HKR2.1bn (€273mn) of debt. This followed Skopje’s September 2014 decision to launch a programme to write off the debts of the country’s poorest citizens.

Romania prepares new Eurobondbne IntelliNews

The Romanian government has sent out a request to banks for proposals for new euro denominated bond, Reuters reports quoting unofficial sources.

Romania last tapped the bond market in October 2014, when the sovereign issued a €1.5bn 10-year bond with a 2.875% coupon, at a yield of 2.97% (185bps above mid-swap) - the lowest cost in the 25-year post-communist period.

In January, the Treasury considered a new Eurobond issue in H1, but as it is not yet under cash flow pressure, it has since said that the issue could be delayed until H2 depending on market circumstances. The government is also considering cutting the €7bn buffer and using part of it to finance the budget until better financing terms are available on foreign markets.

bne:Credit


Documents

bne:Newspaper - March 6, 2015