Archives for July 2014

RIA Novosti/Ruslan Krivobok

The European Union has imposed sectorial sanctions on five Russian banks, including the country’s biggest, Sberbank, as part of economic steps that Europe, along with the US, have taken against Moscow over the crisis in Ukraine.

EU adds 8 individuals, 3 Russian companies to
sanctions list over Ukraine crisis

The list, published Thursday, includes Sberbank, VTB Bank,
Gazprombank, Vnesheconombank (VEB) and Russian Agriculture Bank
(Rosselkhozbank).

These financial entities will be banned from raising capital on
the EU’s capital markets.

The sanctions – targeting banks with state ownership of over 50
percent – enter into force on August 1 and will be valid for one
year. The decision can be reviewed after three months.

“In order to restrict Russia’s access to EU capital markets,
EU nationals and companies may no more buy or sell new bonds,
equity or similar financial instruments with a maturity exceeding
90 days, issued by major state-owned Russian banks, development
banks, their subsidiaries outside the EU and those acting on
their behalf. Services related to the issuing of such financial
instruments, e.g. brokering, are also prohibited,” the EU
Council said in a statement.

Agreed restrictive measures in view of #Russia‘s
role in Eastern #ukraine now
published in the EU official journal: http://t.co/a5qkjM6OXT

— EU Council Press (@EUCouncilPress)
July 31, 2014

It excludes EU subsidiaries of the Russian banks.

Only three of the banks on the sanctions list have subsidiaries
in Europe: Sberbank, VTB and Gazprombank. Sberbank Europe AG
(former Volksbank International) operates a network of banks in
Central and Eastern European countries.

Sberbank is the largest bank in Russia and Eastern Europe, and
the third-largest in Europe. The bank caters to over 106 million
customers in Russia alone, while over 11 million people use its
services abroad.

Sberbank’s majority shareholder is Russia’s Central Bank.

The bank is the key lender to the Russian economy. According to
the bank’s estimates, as of the end of 2013, Sberbank is the
biggest receiver of deposits in Russia, with 43.3 percent of
retail deposits, 32.7 percent of retail loans and 32.1 percent of
loans to corporate customers.

In 2013 Sberbank was ranked the world’s 63rd most valuable global
brand by Brand Finance. The Sberbank brand was valued at $14.16
billion and is recognized as the most valuable brand in Russia.

Gazprombank said in a statement that the new sanctions do not
affect the bank’s financial stability and work. The bank
continues to operate as usually providing services to both
individuals and legal entities and transactions both in roubles
and foreign currencies proceed without delays. The measures taken
by the EU are almost the same as those imposed earlier by the US,
the bank said.

“In these circumstances, Gazprombank continues to completely
fulfill its liabilities to investors, depositors and
creditors,” the statements published on the bank’s website
reads.

In response to the sanctions, VTB said that it strongly
disapproves of the EU’s decision, adding that the bank and all
its subsidiaries will continue to operate as usual.

“Such actions contradict Europe’s democratic values, showing
they have gone against their own interests to do the bidding of
their senior colleagues from across the ocean,” the bank
said in a statement. “These decisions are incompatible with
the core principles and values of the free market, and
discriminate against VTB as well as international investors.
European authorities have de facto granted themselves the right
to decide for investors where they may invest their own
funds.”

Earlier this week, Washington added new names to its list of
sanctioned Russia-affiliated entities, including Russian
Agriculture Bank and VTB, the second largest bank in the country.
Sberbank was left untouched by the Americans.

Russia’s Central Bank promised Wednesday to support financial
institutions hit by Washington sanctions. On Thursday, as the EU
made its announcement, the regulator said it was ready to offer
hand to banks facing restrictions from the EU.

“Banks affected by the EU sanctions are capable of coping
with problems on their own,” the Central Bank’s press
service told Itar-Tass. “Their foreign currency position is
well-balanced. But if there are extra risk factors, the [Central]
Bank of Russia is ready to offer liquidity under the existing
instrument.”

Arms, equipment exports imports targeted

Additionally, the EU imposed an embargo on the import and export
of arms and related material to and from Russia.

Also, exports of “certain energy-related equipment and
technology” to Russia will be subject to prior authorization
by EU authorities.

“Export licenses will be denied if products are destined for
deep water oil exploration and production, Arctic oil exploration
or production and shale oil projects in Russia,” the EU
said.

The sanctions will only apply to new contracts and will not
affect deals finalized before August 1.

The French contract with Russia on the construction and shipment
of the Mistral helicopter carrier warships will not be canceled
under the new restrictions, since it was signed in 2011.

The EU Committee of Permanent Representatives approved its
toughest yet sanctions against Russia on Tuesday. On Thursday,
the package was adopted by the EU Council and published in the Official Journal of the
28-member state union.

Moscow slammed the move, saying it was disappointed by the
EU’s inability to act independently from the US in the
international arena.

“We feel ashamed for the European Union who, after long
searching for a unified voice is now speaking with Washington’s
voice, having practically abandoned basic European values,
including the presumption of innocence,” the Russian Foreign
Ministry said in a statement Wednesday.

Article source: http://rt.com/business/177088-eu-sanctions-banks-sberbank/

Reuters / Maxim Shemetov

Russian mobile network MegaFon has decided to place 40 percent of its cash in Hong Kong dollars to diversify and de-dollarize. The move is also a preventative move to protect against Western-led sanctions.

Dollar-based assets are a risk for the company, Chief Financial
Officer Gevork Vermishyan told Bloomberg News in a phone interview.

Hong Kong offers a simple alternative to the US dollar since the
Hong Kong dollar has been pegged to the US currency since 1983.
Its value mirrors the US dollar, and has never fluctuated beyond
1 percent above or below the US currency.

The rest of the company’s cash is kept in rubles, according to
Vermishyan. As of June 30, MegaFon had $1.3 billion in cash and
cash equivalents.

MegaFon is owned by Russia’s richest man Alisher Usmanov, and has an estimated value is $6
billion.

One of Russia’s largest mobile carriers, MegaFon previously kept
its foreign holdings in US dollars and euros, according to the
company. It is working to lessen its dependence on foreign
currency, Vermishyan said.

“Keeping money in Hong Kong dollars is essentially equivalent
to keeping it in US dollars because of the currency peg,”
Vladimir Osakovsky, chief economist for Russia and the CIS at
Bank of America Corp in Moscow, told Bloomberg.

To date, MegaFon hasn’t been put on the US or EU sanctions list,
but the company says it is “well-prepared” for any
adversity the sanctions may bring.

“For Russian companies it’s much safer from the standpoint of
sanctions,” Osakovsky said.

The US and EU unleashed ‘Tier 3’ sanctions against Russia this
week, which aim to hurt energy, finance, and arms technology
sectors.

READ
MORE: EU and US impose new round of sanctions on Russia over
Ukraine

If sanctions progress, the US may limit derivatives trading and
short-term loans for Russian companies. Restrictions on money
market financing and derivatives could be imposed if tougher
sanctions are necessary, according to a US Treasury Department official. At
present, US businesses and individuals are allowed to trade
derivatives and debts with sanctioned Russian firms.

Several of Russia’s top banks are now banned from raising funds
in European capital markets, and they are only allowed to get
short-term (under 90-day) loans from US banks.

Sanctions are meant to punish Russia for its alleged hand in
Ukraine’s separatist movement and the downing of flight MH17.

READ MORE: Malaysia Airlines MH17 plane crash in
Ukraine LIVE UPDATES

The West is also going after companies that have investment and
trade with Crimea, which rejoined Russia in March. Although
MegaFon hasn’t formally entered the Crimean market, it is
considering it.

In mid-June, MegaFon competitor MTS began selling Russian SIM
cards in Crimea, becoming the first Russian operator to work in
the region. MTS and MegaFon also cancelled long distance fees for
calls to and from Crimea and Russia, and now only charge domestic
rates.

Article source: http://rt.com/business/177012-hong-kong-megafon-dollars/

Eric Thayer/Getty Images/AFP

Argentina’s credit rating was downgraded to “selective default” by Standard Poor’s as the South American country missed Wednesday’s deadline for a grace period during ongoing negotiations with holdout debt holders.

Wednesday is the cutoff for Argentina to make good on a $539
million payment to bondholders, which was placed on hold by US
judge Thomas P. Griesa’s order tying that payment to ongoing
litigation by vulture funds which refused the country’s original
cents-on-the-dollar debt restructuring offer and purchased the
distressed debt from secondary markets.

Analysts generally do not believe that a default by Argentina
will have the same consequences as in 2001.

“An Argentina default is expected to be short-lived at this
point and shouldn’t have any major implication for the
country,” said Mauro Roca
to Bloomberg, a senior Latin America economist at Goldman Sachs
in New York.

“There’s the expectation that a deal with holdouts will be
worked out soon.”

The country’s Economy Minister Axel Kicillof arrived in New York
this week to engage in negotiations with holdout creditors. The
talks have been overseen by a mediator appointed by the US judge
who placed its payment on hold.

Speaking during a press conference on Wednesday evening Kicillof
told reporters that the so-called vulture funds had refused a new
offer proposed by Argentina.

Kicillof further stated that upon the country’s request for a
stay to process the existing payment to 90%-plus of bondholders,
the judge responded that only the holdout vulture funds could
grant that request. The Argentinian minister said that the hedge
funds did not comply to a stay.

“We will not sign anything that puts at risk the future of
the Argentinian people,” said Kicillof. “Argentinians
can rest easy. The country will continue forward. But have no
doubt that we are open to further dialogue, just as long as it is
under reasonable conditions.”

Argentine banks had, meanwhile, attempted to put together a
proposal to purchase the debt held by the hedge funds and avert a
default. Highlighting how close a deal may have been, news had
broken in Buenos Aires that a deal had been reached, though
ultimately several sources confirmed to Reuters that it had
collapsed.

The country has been unable to access international financial
markets since its massive $100 billion default in 2002, and
despite its ability to deal with the so-called Paris Club of
creditors, the ongoing litigation by the holdout funds still
prevents the country from fully emerging to global credit markets
after more than a decade.

“Unfortunately, no agreement was reached and the Republic of
Argentina will imminently be in default,” Daniel Pollack,
the mediator appointed by Judge Griesa, said in a statement on
Wednesday.

Kicillof, during an extensive press conference which included
questions by reporters, defended Argentina’s position, and seemed
to blame both the court’s lack of impartiality and unreasonable
expectations by the vulture funds for the country’s inability to
pay the majority of its bondholders.

“Argentina paid, it has money, it will continue to pay the
next installments because we want to do so and because the money
is available,” he said.

“This money is there. If it were a default, there would be no
money.”

As far as Buenos Aires is concerned, any move to capitulate to
holdout bondholders would trigger a clause that could leave the
country vulnerable to additional claims worth hundreds of
billions of dollars who already accepted the restructured debt
agreements.

Article source: http://rt.com/business/176848-argentina-technical-default-crisis/

Reuters / Toby Melville

The US and EU have banned the export to Russia of hi-tech oil equipment needed in Arctic, deep sea, and shale extraction projects. This will leave Western companies, which have an estimated $35 billion invested in Russian oil, in a bind.

New stage three sanctions won’t immediately slash
Russian oil production, which at 10.55 million barrels per day is
the world’s largest, but could derail future foreign investment
in Russia’s oil industry. Russia is home to the largest combined
oil and gas reserves in the world.

The US and the 28 EU countries hope to influence Moscow’s foreign
policy in eastern Ukraine.

READ
MORE: EU and US impose new round of sanctions on Russia over
Ukraine

New restrictions “will make it more difficult for Russia to
develop its oil resources over the long term,” President
Barack Obama said as he unveiled the new tough regime.

The sanctions will hit the heart of Russia’s economy- oil, but
not touch the gas sector. Together, the two make up more than 50
percent of revenues for the Russian state. Russia has an
estimated $7.5 trillion in oil and gas resources, many of which
require Western oil technology to extract.

Obama said he wanted the sanctions “to bite.”

The sanctions won’t only bite at Russia, but Western oil
companies like BP and ExxonMobil, and equipment suppliers may
fall victim to the oil technology ban.

Introduction of EU sanctions against the Russian energy sector
will drive up European energy prices, the Russian Foreign
Ministry warned on Wednesday.

BP

BP is one of the most exposed to the Russian market, after the
UK-based company bought a 19.75 percent stake in the state oil
company Rosneft, a company already on Obama’s sanctions list.

Previously, BP insisted it was “business as usual” with Russia, but
the sectorial sanctions could derail the company’s strategy in
Russia, where it sources nearly one-third of its global oil
production.

“Any future erosion of our relationship with Rosneft, or the
impact of further economic sanctions, could adversely impact our
business and strategic objectives in Russia, the level of our
income, production and reserves, our investment in Rosneft and
our reputation,” BP said on Wednesday, before the
heavy-handed sanctions were announced.

The same day, the British energy company reported a big bump in second quarter
profits, which rose 25.3 percent to $3.23 billion.

In June, Rosneft agreed to supply BP with up to 12 million tons
of oil and oil products over 5 years. The deal assumes a
prepayment of at least $1.5 billion.

ExxonMobil

ExxonMobil has been present in the Russian market for over 20
years. In partnership with Rosneft, the Texas-based oil major has
many projects in Russia underway- including the $500 billion
exploration of the Bazhenov oil field in Western Siberia, and a
$15 billion liquefied natural gas terminal in Russia’s Far East.

If forced to quit Russia, Exxon could pull out as much as $1
billion in funds intended to go to offshore Arctic and fracking
projects in Siberia, Bloomberg News reported.

After the sanctions were announced, Rosneft Chairman Alexander
Nekipelov said ExxonMobil may suspend cooperation with Rosneft,
but only in an extreme situation.

“As far as we know, Exxon does not have plans to stop
cooperation with Rosneft, and we hope the situation will not go
that far,” Nekipelov said.

“We are assessing the impact of the sanctions,” Alan
Jeffers, an Exxon spokesman, told Bloomberg News via email.

Nekipelov said the American company doesn’t want to give up its
joint projects with Rosneft- it has already invested too much.

In May, the two companies agreed on four Arctic exploration projects.
Additionally, ExxonMobil and Rosneft will operate a new joint
offshore drilling rig in the Kara Sea, where the two companies
have rights to over 11.3 million acres of Russia’s Pacific Ocean
waters. The company also has a substantial stake in the Far East
Sakhalin oil project, which covers 85,000 acres.

Exxon CEO Rex Tillerson hasn’t made any official comment on the
new sanctions.

Total

France’ oil major and largest company, Total, has huge operations
in Russia, its fourth largest market. The morning after the
sanctions, the group’s stock dipped 2.66 percent in Paris. On
Wednesday, the company reported an estimated second quarter net
profit drop of 12 percent

Total owns about 18 percent of Novatek, Russia’s second largest
gas producer, which was affected in the previous round of US
sanctions.

“We stopped buying shares in Novatek the day of the airplane
accident after considering all the uncertainty that it
created,” the French company’s CEO said in the earnings call
on Wednesday.

Novatek leads the $27 billion Yamal LNG project with Total, along
with China’s CNPC. The South-Tambeyskoye field has an estimated
492 billion cubic meters of proven gas reserves.

Russia is “a great oil and gas country and we’ll have to wait
and see the nature of these new sanctions first,” the CEO
said on Wednesday, adding it was a “crucial” market.

The project is highly dependent on US technology and will
experience serious difficulties if sanctions are imposed.

Total expects its hydrocarbon production in Russia to rise to
400,000 barrels a day from 207,000 barrels in 2013.

Halliburton and Schlumberger

Blocking the exports of specific goods and technology to Russia
is going to squeeze the world’s largest oil service and equipment
companies- both US-based- which depend on Russia for sales.

Halliburton relies on Russia for 4-5 percent of global sales, and
Schlumberger generates 5-6 percent, according to an estimate by
RBC Capital Markets.

Both oilfield service groups, which provide Russia with
horizontal drilling and hydraulic fracturing technology, could
lose sales because of sanctions, but they won’t be driven out all
together.

The stock price has dropped for both companies after the
sanctions were announced- Halliburton is down 1.95 percent, and
Schlumberger dipped 0.70 percent.

Dick Cheney, former US Vice President, and avid Russia critic,
served as Halliburton’s CEO through 2000.

Article source: http://rt.com/business/176760-sanctions-russia-bp-exxon/

AFP Photo / Justin Sullivan

McDonald’s could share responsibility for violations by some of its franchise operators, said the US National Labor Relations Board (NLRB). Labor advocates applaud the ruling, which the fast-food chain vows to contest.

The ruling published Tuesday said the world’s
biggest fast-food chain could be determined as a joint employer
for workers at some of its franchise restaurants.

The labor regulator’s ruling comes in response to 181 unfair
labor practice complaints, filed by McDonald’s workers since
November 2012. The employees allege their bosses took punitive
measures against them, after they had participated in protests
for higher wages and better working conditions.

Forty-three of the cases have so far been found to have merit.

“If the parties cannot reach settlement in these cases,
complaints will be issued and McDonald’s, USA, LLC will be named
as a joint employer respondent,” says NLRB’s Tuesday ruling.

The statement has been keenly welcomed by labor groups, which
have long campaigned for McDonald’s to assume responsibly for its
franchise operated restaurants.

The Service Employees International Union (SEIU) on Twitter
described the decision as a “huge victory”.

HUGE victory for labor fast food workers! @McDonalds ruled joint
employer by NLRB: http://t.co/9Tv7MRx56Q #1u pic.twitter.com/ogMIMh4bfv

— SEIU (@SEIU) July 29,
2014

“There’s really no doubt who’s in charge,” said Micah
Wissinger, an attorney who brought a case on behalf of McDonald’s
workers in New York City.

The business community thinks otherwise. McDonald’s has described
the decision as wrong and has promised to fight it.

“McDonald’s also believes that this decision changes the
rules for thousands of small businesses, and goes against decades
of established law regarding the franchise model in the United
States,” senior vice president of human resources for
McDonald’s USA, Heather Smedstad, said in a statement.

In the US, 90% of more than 14,000 McDonald’s restaurants are
owned and operated by franchisees. The same is true for many
other restaurant chains or retailers which have been infuriated
with the NLRB ruling.

The International Franchise Association, which represents
franchisees, has opposed the possibility of McDonald’s qualifying
as a joint employer.

“If franchisors are joint employers with their franchisees,
these thousands of small business owners would lose control of
the operations and equity they worked so hard to build,” the
Association’s statement reads.

Worker groups argue that McDonald’s has its franchised
restaurants under much tougher control than it officially admits.

The US fast food industry has lately witnessed a wave of protests with participants demanding a raise in the
minimum wage to $15 per hour and a right to form unions.

McDonald’s and other companies have argued wages and working
conditions were set up by their franchisees and thus distanced
themselves from the rallies, something they might not be able to
do in future, if NLRB’s decision is upheld.

Article source: http://rt.com/business/176588-mcdonalds-liable-workers-franchisees/

image from Russia Wendy’s Facebook page

The latest blow to Russia’s fast food industry is the exit of Wendy’s, America’s third-largest hamburger restaurant chain, which will close eight restaurants and leave Russia altogether after only 3 years.

The country’s eight Wendy’s outlets are being shut down, Bob
Bertini, a spokesman for the company told Bloomberg News.

The chain is famous for its square-shaped hamburgers and entered
the Russian market in 2011 and planned to open 180 restaurants over a 10-year
period, but plans went south once there was a change in the
company’s franchise ownership.

According to the spokesman, Wenrus Restaurant Group has already
closed four restaurants and will close the remaining four in the
coming weeks. There was a change in Wenrus’s ownership and
management in the past year, and the decision to leave the
country had nothing to do with politics, Bertini stressed.

“Unfortunately, the new leadership of Wenrus has not
expressed interest in growing the Wendy’s business in Russia, nor
shown they have the resources to successfully operate the
existing restaurants on a long-term basis,” Bertini told
Bloomberg.

“As a result, we have decided not to continue business in
Russia at this time,” Bertini said.

Ohio-based Wendy’s first opened in the US in 1969, and has
branded itself as a wholesome traditional-style restaurant that
offers its diners customizable burgers with the slogan
‘Quality Is Our
Recipe’.

Several American fast food chains have expanded business into
Russia since 1990, when McDonald’s opened its first restaurant,
and tens and thousands queued to get a taste, the most in the
restaurant’s history.

Political tension between Russia and the West over Ukraine has
caused a shake-up in the former-Soviet fast food industry.

McDonald’s was hit with an investigation on Monday by Russia’s
consumer watchdog, which claims some of the cheese used at the
restaurants may contain antibiotics. The cheese is
imported from Germany and the Czech Republic.

Last week, it faced a lawsuit over misrepresenting caloric and
nutritional value in some of its cheeseburgers, Filet-O-Fish,
milkshakes, and ice cream products.

In April, McDonald’s announced that it was closing three
restaurants in Crimea, which were later replaced by competitor
Burger King and a new player, Rusburger, a small Russian-based
fast food chain which presents itself as ‘anti-McDonald’s’,
serving juice instead of soda and claims to source all meat
locally. McDonald’s has over 400 restaurants in Russia, and plans
to expand and open at least 100 more in lesser-developed markets,
across the Ural mountains in Siberia and the Far East.

Several American chains successful operate in Russia- from KFC
and T.G.I. Friday’s to Dunkin’ Donuts and Starbucks Coffee.

Article source: http://rt.com/business/176356-wendys-leaves-russia-bloomberg/

ARCHIVE PHOTO (Reuters/Sergei Karpukhin)

Tags

Conflict, Court, Crime, Energy, Europe, Law, Natural resources, Oil, Politics, Russia, Russia and the global economy, Russian economy

The Hague’s arbitration court was not legally empowered to view the case of Yukos Oil Company v. Russia, and the court’s “one-sided” ruling disregards previous Strasbourg court decisions on the issue, the Russian Finance Ministry said in a statement.

READ
MORE: ‘Mega-arbitration’: Court orders Russia to pay $50bn in
Yukos case

Viewing the case, filed by shareholders of former Russian oil
giant Yukos against the Russian government, was not in the
jurisdiction of the Permanent Court of Arbitration (PCA) in the
Hague, as Russia has not ratified the Energy Charter Treaty, the
ministry said on Monday.

The statement, following the court’s sensational
Monday ruling that ordered Russia to pay $50 billion in damages, also provided a
detailed list of issues, which, according to the ministry, make
the decision “opportunistic” and “politically
biased.”

First of all, The Hague court ignored the previous decisions of
the Strasbourg-based European Court of Human Rights (ECHR), which
in September 2011 ruled that the Russian authorities had carried
out “legitimate” and not politically motivated actions
against Yukos “to counter the company’s tax evasion,”
the ministry noted. The ruling contradicted Yukos shareholders’
claims that the company’s assets were purposefully expropriated
by Moscow.

The Russian Finance Ministry meanwhile blasted the arbitration
ruling as based on “one-sided investigation with one-sided
application of evidence.”

The Hague court in effect reviewed the decisions of Russian
courts on Yukos “as if the arbitration court was an
additional authority for appealing the court orders,” the
ministry said. It has made “theoretical speculations not
supported by evidence” over the motivation of the Russian
authorities’ actions in the case of Yukos, it added.

The international body failed to note that the people who
controlled Yukos, including the oil tycoon Mikhail Khodorkovsky
released from jail in December, were apparently aware of
financial machinations aimed at a mass-scale tax evasion in favor
of the company, the ministry stressed. The tax evasion scheme,
which involved the creation of numerous bogus companies, was not
properly considered in the court.

The arbitration court went as far as to judge “what Russian
tax legislation should be like” as opposed to what it
required in reality, the ministry said. The court refused to pass
several controversial issues on taxes for review by Russian, UK
or Cyprus competent authorities despite relying on the Energy
Charter Treaty that outlines a need for such reviews, it added.

While in effect saying The Hague court decision was not legally
binging for Moscow, the ministry added that “the Russian
Federation will challenge the arbitration court’s decisions in
the courts of the Netherlands.”

According to the ministry, “the arbitration court failed to
approach the adjudication with common sense, which is required
from the judges in such situations,” which resulted in an
unobjective and biased decision.

“Such an approach undermines the authority of the Arbitration
court and the Energy Charter Treaty, which are being applied in
increasingly politicized manner and, as in this case, have become
the objects of abuse on behalf of domestic investors trying to
evade taxes,” the ministry said.

ECHR is expected to announce a fresh decision on Yukos’
multi-billion dollar claim against Russia on Thursday, as the
defunct company’s shareholders have filed a separate application
with the Strasbourg court, Reuters reported.

Article source: http://rt.com/business/176200-moscow-hague-yukos-ruling/

ARCHIVE PHOTO: The Yukos office building (RIA Novosti / Vladimir Vyatkin)

The International Arbitration Court in the Netherlands has ended a decade long case brought by shareholders in the defunct Yukos oil company, and ordered Russia to pay about $50 billion in damages.

READ MORE: Hague court had no authority in Yukos
case, ruling politicized – Moscow

The official ruling published on Monday said
Russia violated the EU
Energy Charter when it redistributed the company’s assets and
“took steps equivalent to expropriation of the claimants’
investment in Yukos.”

The Hague’s Permanent Court of Arbitration ordered Russia to
compensate the plaintiffs with $50 billion – less than half the
initial $114 billion demanded by the former shareholders. Russia
has also been ordered to pay about $65 million in legal costs.

“This is the biggest arbitration award in history,” as
ITAR-TASS quotes Emmanuel Gilyard, a lawyer at the Shearman
Sterling bureau, who underlined that the case became a
‘mega-arbitration’.

As part of the case,
three separate lawsuits by former Yukos shareholders were filed
by Hulley Enterprises Limited (Cyprus), Yukos Universal Limited
(Isle of Man) and Veteran Petroleum Limited (Cyprus).

The court ruled that $39.97 billion of the compensation should go
to Hulley Enterprises, $1.85 billion to Yukos Universal and $8.2
billion for Veteran Petroleum Limited. The Veteran Petroleum fund
acts in the interest of former Yukos employees and should receive
another $8.2 billion.

The claim was lodged by Gibraltar-based Group Menatep Limited
(GML) – the company used by Russia’s once richest man Mikhail
Khodorkovsky to manage Yukos.

Russia has until January 2015 to pay the compensation; otherwise
it will start being charged interest. The country’s Finance
Ministry said it would appeal the decision in the Netherlands.

“I am delighted to confirm that those final awards, which
were unanimous, are very favorable to the claimants,” Tim
Osborne, director of the GML group of shareholders which brought
the action, told Reuters.

Former Yukos shareholders said on Monday they had not ruled out
the possibility of a lawsuit against Rosneft and its
shareholders, including BP, for their role in the redistribution
of Yukos’ assets. Osborne had previously said that if the Russian
state refuses to pay the compensation, then the shareholders
could file a lawsuit against BP as a Rosneft shareholder.

“There is no reason to think Russia will not fulfill its
international obligations. But if this were to happen, the New
York Convention, which obligates 150 signature states to work
together to ensure the arbitration ruling is upheld – would come
in effect,” said Osborne

Rosneft released a statement on Monday following the ruling,
saying that it does not consider itself liable in the Yukos case
as it acted in accordance with Russian law in its acquisition of
the company’s assets.

“Rosneft does not bear any responsibility in the published
ruling,” said the statement. “Rosneft believes that its
acquisition of Yukos’ assets was conducted in accordance with the
applicable laws.”

The Yukos saga

The downfall of Yukos began with the arrest of its CEO Mikhail
Khodorkovsky on fraud charges in 2003. The company’s assets were
frozen while the investigation was carried out.

Several months later, Moscow said Yukos owed the government $27
billion in tax. The oil giant’s shares plummeted and it was sold
off to other Russian companies. The decimated Yukos finally filed
for bankruptcy in July 2006.

Soon after the bankruptcy the company’s shareholders applied to
The Hague International Arbitration Court claiming $100 billion
in compensation.

With the bankruptcy of Yukos its assets were absorbed by the
state oil company Rosneft.

A year ago, the European Court of Human Rights ruled the case
against Mikhail Khodorkovsky and Yukos was not
politically-motivated.

Mikhail Khodorkovsky spent more than a decade behind bars before
President Putin granted him an early release.

READ MORE: Ex-oil tycoon Khodorkovsky leaves
prison after pardon

However, Eric Kraus, a political risk analyst, told RT The Hague
Court’s ruling appears biased.

“It strikes me as a very political decision. The West manages
to create this illusion of a fair play rule of law, of fairness
of judicial process and this is a bad joke,” he said.

Mr. Kraus said Khodorkovsky was found guilty by both Russia and
the European Court of Human Rights.

“It is outrageous that anyone should imagine that Russia is
going to pay $50 billion to these criminals,” Kraus said.

Article source: http://rt.com/business/176064-yukos-russia-50bn-damages/

AFP Photo / John D. Mchugh

The EU plans to widen economic sanctions against Russia, but London, already on rocky ground with the EU, would be hit the hardest if tougher restrictions are slapped on Russia’s big state banks.

If agreed, EU sanctions would apply to all Russian banks that are
more than 50 percent state-owned. Sberbank, VTB, the country’s
two largest lenders, are both listed on the London Stock Exchange
and have offices there.

If Russian banks get hit the ripples will be felt across the
English Channel and in the heart of the world’s financial center-
the City of London.

Between 2004 and 2008, Russia’s top two lenders raised $16.4
billion in floatations, and a ban would cost London hundreds of
millions of pounds, The Times reports.

“The real question is, why is so much of the burden — even if
it is not a massive one — falling on the UK? France and Germany
might be talking tougher, but they do not quite seem to be
following through with actions,” Raoul Ruparel, a senior
analyst at Open Europe, a think-tank, told The Times.

London has more than 50 companies that have operations in Russia
on its $3.6 billion Stock Exchange. Russian companies often
choose London for their initial public offerings, and borrow debt
from London-based banks.

“The impact on Russia would likely be mixed. It would force
companies to shift to much shorter financing and force the state
to back them up even further. Russia might also respond to try to
keep capital in Russia inside some of these companies. In any
case, there would be a hit but it wouldn’t be a killer
blow,” Ruparel said.

The new proposed sanctions also include a ban on ‘sensitive
technologies’, arms sales and energy, which Germany, France, and
Italy are closer tied to. But Britain has the most intimate
financial relationship with Moscow.

“Much of it all depends on
international cooperation. If other countries join in on shutting
off capital markets then it could be effective. But €7.5 billion
of bonds to be sold elsewhere is not a huge amount if Singaporean
and Hong Kong markets are still open to them,” Ruparel explained.

In preparation for more Western sanctions, some of Russia’s
biggest players have been setting up shop in the East. Gazprom,
the country’s largest producer of natural gas, set up Singapore listing in June.

Russia’s ambassador to Britain, Alexander Yakovenko, said
expanding sanctions to major banks in Moscow will have a
contagion effect on London, and the world economy.

More sanctions “will trigger a long anticipated endgame of
the present global crisis”, and called them “illegal,
unreasonable and counter-productive,” said Yakovenko.

In Brussels on Thursday, ambassadors discussed more sanctions
against Russia over its involvement in Ukraine, and announced
they extended the sanctions black list to 15
individuals and 18 companies.

The UK is already on the brink of making a very public exit from
the European Union after Jean-Claude Juncker was appointed President at the European
Commission, much to UK Prime Minister David Cameron’s annoyance.The UK has threatened to leave the
EU, and will hold a referendum on the matter in 2017.

Article source: http://rt.com/business/175576-eu-sanctions-uk-russia/

A front of the atrium of the European Union Council Building (AFP Photo)

The European Commission added new names and companies to its blacklist on Thursday over the Ukrainian crisis, according to diplomats. However, ‘stage three’ economic sanctions against Russia have again fallen flat.

The diplomats who spoke
to Reuters did not specify the names of the people and companies
on the extended sanctions list, and said they would resume
discussions on Friday morning.

It’s a further delay of
sectoral, or economic, sanctions against Russia after EU foreign
policy chief Catherine Ashton announcedon Tuesday the EU would outline
tougher sanctions to hit Moscow on Thursday,if it failed to comply with the
Malaysian Air Flight 17 crash investigation.

The new proposed sanctions included a ban on Russian capital
markets, sanctions against Russia’s weapons industry and
‘sensitive
technologies’, which would include Russia’s critical energy
sector, the Financial Times (FT) reports.

EU officials are
considering sanctions that would bar Russia from using European
lending institutions and, conversely, ban Europeans from buying
new debt from Russia’s largest banks, many of which are
state-controlled.

“Restricting access to capital markets for Russian
state-owned financial institutions would increase their cost of
raising funds and constrain their ability to finance the Russian
economy,” a 10-page memo presented to the European
Commission, said, as reported by Bloomberg News. The memo was sent to all 28
EU ambassadors prior to Thursday’s meeting.

If adopted, EU sanctions would apply to all Russian banks that
are more than 50 percent state-owned. Sberbank, VTB, the
country’s two largest lenders, as well as Vnesheconombank, and
Gazprombank (already sanctioned by the US) would fall into this category.

“It would also foster a climate of market uncertainty that is
likely to affect the business environment in Russia and
accelerate capital outflows,” the document said.

According to the memo, €7.5 billion of €15.8 billion of bonds
issued by Russian public financial institutions were sourced from
EU markets, FT says.

Blocking European clients from Russian markets would exacerbate
capital flows out of the country, which in 2014, have already
reached $80 billion, and could prove to be a crippling drain on
the economy, which isn’t expected to grow more than 1 percent
this year.

The US has been pushing
the EU to step up sanctions against Russia, but European
countries have much more to
losein cutting ties
with Russia than their Western allies.

Europe’s biggest
economic heavyweights- Germany, France, and Italy- have
significant investment and trade ties with Russia. For example,
one in every four foreign German companies operates in
Russia.

About a quarter of European countries completely rely on Russia
for gas or oil supplies.

Many also doubt the practicality of economic sanctions, which so
far have had little effect on the Russian economy, and haven’t
changed the course of events in Ukraine.

Article source: http://rt.com/business/175280-eu-sanctions-russia-delay/