Archives for October 2014

AFP Photo/Joe Klamar

The EU won’t provide any new funds for Ukraine to pay off its gas debt to Russia, and Moscow has no guarantees should Kiev use agreed funding elsewhere, said the EU Energy Commissioner’s spokeswoman Marlene Holzner.

The European Commission is allocating €760 million ($954 million) of financial aid to Ukraine earlier than scheduled to help it pay for gas deliveries, said Mrs. Holzner on Friday, adding some light on the agreements reached in Brussels, TASS informs.

She explained that the EU isn’t proposing to step in and pay if the Kiev government can’t.

“The EU is not paying new money or additional money to help Ukraine pay its gas bills,” she said. “And the EU is not giving any guarantee to Russia in case Ukraine says it cannot order an extra amount of gas or it cannot pay.”

However, in case Russia breaches the price terms agreed in Brussels, the European Commission will interfere, according to the letter sent to Ukraine on Friday.

“The results of the negotiations in Brussels were recorded in the following documents…a letter from the President of the European Commission, Jose Manuel Barroso, to the President of Ukraine, Petro Poroshenko, in which the head of the EC secured guarantees of the European Commission to Ukraine regarding financial support in case Russia doesn’t fulfill its obligations on gas prices, as well as the willingness of the EC to stimulate reverse-flow deliveries of gas to Ukraine from the EU Member States,” RIA quotes from the statement.

On Friday, Ukrainian Prime Minister Arseniy Yatsenyuk instructed the country’s finance ministry, National Bank of Ukraine and Naftogaz to start paying off the gas debt to Russia. This applies to both paying the debt for Russian gas and prepayment for new supplies, which must be provided before the end of 2014, RIA reports.

Russia says it hasn’t seen any specific documents confirming Kiev has funds for prepayment.

“…but officials confirmed that the funds will be found,” Russian Energy Minister Aleksandr Novak told Rossiya 24 TV channel after trilateral talks on October 30.

He explained that the money is expected to come from international financial institutions, the European Union and Naftogaz’s own funds. “Ukraine has enough funds to pay off a $3.1 billion debt,” the minister added.

Gazprom head Aleksey Miller also said it was difficult to answer the question of where Ukraine was going to take the money from.

“Ukraine has assumed guarantees and put its signature on the documents also guaranteed by the European Commission,” Miller told Rossiya 24.

Aleksey Grivach, deputy head of the Russian National Energy Security Fund, said in an interview with TASS that the agreements have certain risks.

“The issue of providing assistance to Ukraine hasn’t been fleshed out, it remains hanging in the air,” Grivach said. He noted that the scheme of paying the first tranche of debt shouldn’t cause problems, but “when the time of paying the second tranche comes, there can be no money.” Grivach warned it could end up in another crisis.

Russia, Ukraine and the EU agreed four basic sources of financing for Ukraine to repay its gas debt, outgoing EU Energy Commissioner Gunther Oettinger said after the three-party gas talks in Brussels on Thursday.

“First, there is an operating program of the IMF. The Fund provides money to cover the country’s general needs, and then it can be used to pay bills for gas,” Oettinger said.

Secondly, the EC is planning to “create a special fund of $3.1 billion to pay off the debt to Gazprom,” the commissioner said.

The third option means Naftogaz could use its revenues, as it is a commercial company.

Finally, the EU “will continue funding Ukraine in the framework of European aid program.”

Russia, Ukraine and the European Commission signed a legally binding tripartite agreement, fixing the winter gas plan. The plan suggests resuming gas supplies from Russia to Ukraine and ensuring uninterrupted transit to Europe during the winter. Ukraine’s has to repay $3.1 billion of its $4.5 billion debt by the end of the year, and purchase from Gazprom additional gas on a prepay basis.

Article source: http://rt.com/business/201187-eu-russia-no-guarantees/

Reuters/Sergei Karpukhin

The Russian government has won court approval to seize shares in Bashneft, the country’s fifth largest oil company, after the CEO of the holding company was accused of illicitly privatizing the company’s assets.

Moscow’s Arbitration Court ruled in favor of prosecutors who said the privatization sale of Bashneft to local authorities in the early 2000s was illegal, along with the subsequent sale in 2009 to Russia’s largest publicly traded company the AFK Sistema conglomerate, controlled by tycoon Vladimir Yevtushenkov.

Billionaire Yevtushenkov’s AFK Sistema must return the shares to the state following the court’s decision on Thursday. The ruling will come into effect in a month unless Sistema appeals, in which case it will go to a higher court.

“The court granted the lawsuit by the Prosecutor General’s Office on returning 71 percent of Bashneft shares to state ownership,” the presiding judge, Olga Alexandrova, said following the hearing, TASS reports. The seized shares will be transferred to Rosimushchestvo, the Federal Agency for State Property Management.

The billionaire is accused of acquiring shares in oil producer Bashneft by criminal means and was under house arrest in September, which caused shares in both Bashneft, and its holding company Sistema, to hemorrhage.

READ MORE: Investors losing billions as head of Russia’s biggest holding put under house arrest

Sistema acquired the shares in Bashneft in April 2009 from Ural Rakhimov. They were allegedly illegally obtained while his father, Murtaza Rakhimov, was the president of the Bashkiria region from 1993 until 2010. Between August 2002 and December 2006 Ural Rakhimov and other business associates allegedly stole 209 billion rubles worth of company shares that Sistema later purchased.

The investigative committee suggests the Bashneft shares were bought with at a $500 million discount.

Both Yevtushenkov and Sistema deny the allegations.

A Moscow court froze Bashneft’s stock as part of a money laundering investigation in July.

Bashneft produces, refines, and distributes oil and petroleum products both in Russia and abroad.

Bashneft’s daily oil production reached a 20-year high, according to third quarter results published on October 21. Oil production is up 11.2 percent compared to the same period last year and petroleum increased 1.5 percent year-on-year. The majority of output is sourced from Russia’s Ural and Volga regions.

Article source: http://rt.com/business/201107-oil-giant-state-ownership/

RIA Novosti/Vitaly Belousov

The key lender raised its key rate to 9.5 percent, a 1.5 percent jump from the last increase in July. The bank said the decision greatly weighed on external conditions, such as low oil prices, sanctions, and the weakening ruble, changed “significantly.”

“In September and October, the external conditions have changed significantly: the price of oil sharply dropped amid several individual countries have imposed stricter sanctions on a large number of Russian companies. Under these conditions the ruble is weakening, and the introduction of the import ban on certain foodstuffs in August has led to further acceleration in consumer prices,” the Russian Central Bank (CBR) said in a press release Friday.

The rate went up 150 basis points. The last time the bank increased the rate was in July, when it was hiked 50 basis points to 8 percent. In April, the bank unexpectedly raised its key rate to 7.5 percent.

The key interest rate is a tool central banks uses to balance inflation and economic growth. Inflation significantly increased in Russia to 8.4 percent in September and October, far above the 5.5 percent target. The bank expects inflation will remain above 8 percent through the first quarter of 2015. Although increasing the interest rate can help trim inflation, it also means that loans become more expensive, which can slow down economic growth.

Shortly after the announcement, the ruble appreciated against the dollar and euro. The ruble traded at 41.48 per US dollar at 13:30. Since the beginning of 2014, the Russian ruble has lost more than 25 percent against the dollar.

On Thursday evening in anticipation to the bank’s rate hike the ruble gained 5.1 percent, the highest jump since 2003.

READ MORE: 6 useful things you need to know about the rapid descent of the Russian ruble

Although increasing the interest rate can help trim inflation, it also means that loans become more expensive, which can slow down economic growth.

In September Russia’s GDP growth accelerated to 1.1 percent which marked an economic revival from the flat growth last year.

Challenges to the Russian economy

Central Bank chairwoman Elvira Nabiullina said three external challenges had led the bank to raise its interest rates; oil prices, the weak ruble, and sanctions against Russia.

Low oil prices threaten the Russian economy, as revenue from oil and gas exports account for more than half of the country’s budget. The Kremlin’s 2015 draft budget assumes Russia’s key export blend, Urals, at $100 per barrel. WTI, the main North American blend, and Brent, European, have both lost more than 20 percent in value since the summer peak price of $116. Prices hit a four-year low in mid-October. WTI is trading at $80.44 per barrel, and Brent at $85.30 per barrel at 3:00pm MSK on Friday.

READ MORE: Oil prices won’t recover above $100 – Russian Finance Ministry

One bonus of the weak ruble is that it act as a buffer to lower oil prices, since costs are in rubles, but revenue in dollars.

The Kremlin’s response to Western sanctions, a one-year food import ban, has added 1.3 percent to inflation, and weakened the ruble, according to the Central Bank.

The Russian Central Bank has the world’s third largest foreign currency reserves, which stand at just over $439 billion, a four-year low. The Ukraine crisis and massive capital outflow have forced the bank to spend over $60 billion to prop up the ruble this year, and $28 billion just in October.

Last week, the Central Bank announced it was going to start a $50 billion repurchase agreement exercise, which will allow it to balance the Russian ruble, but will not use reserve currencies. The bank hopes to abandon its intervention strategy and have the ruble free floating next year.

Article source: http://rt.com/business/201171-central-bank-rate-increase/

Important step for shared #energy security on European continent.No reason now for people in #Europe to stay cold this winter. #Gasdeal

— José Manuel Barroso (@BarrosoEU) October 30, 2014

Ukraine will be able to receive the needed volumes of Russian gas until the end of March based on a pre-payment plan at a price of $378 per 1,000 cubic meters, Oettinger said during the press conference.

Speaking at a briefing after the signing of the deal, Oettinger assured that Ukraine said it is ready to pay $1.451 billion of its gas debt to Russia “immediately.”

According to Oettinger, Kiev will be able to pay back $3.1 billion of its gas debts before the end of the year. However, he added that the final figure will depend on the decision of the international Stockholm court of arbitration on the gas debt dispute.

Ukraine will get the money it is lacking with the help of the International Monetary Fund (IMF) and the European Union, the EC official announced. Oettinger expects that the promised financial assistance from the IMF and the EU will be used by Kiev to pay for Russian gas.

“The advantage for Ukraine is that it confirms the role of a reliable partner in the center of Europe and IMF and EU’s programs of assistance would be used correctly to pay its gas debts,” Oettinger stressed.

Gazprom will not enforce take-or-pay mode for Ukraine from November to March, Novak said, adding that Russia has given Kiev a discount of $100 per 1,000 cubic meters of gas.

“The Russian side is providing a discount during this period in the amount of $100 per 1,000 cubic meters…which would allow the price for November and December be around $378 per 1,000 cubic meters,” Novak said. “Also, it was agreed that the take-or-pay mode would not be implemented during this period.”

Novak stressed that summer gas prices for Ukraine were not discussed during the meeting in Brussels. He stated that the figures announced by Ukrainian Prime Minister Yatsenyuk earlier must have been a forecast.

Novak explained that unless a new deal is negotiated on the summer price for Ukraine, from April onwards Gazprom will be charging Kiev in accordance with the contract – which is $485 per 1,000 cubic meters of gas.

“We proceed from the fact that the contract is still valid. No one has erased it. So unless some talks on the price take place, starting from April 1 the price will simply be in effect in conformity with the contract,” the minister said.

Russian Energy Ministry confirmed the agreement on necessary documents for the winter package of Russian gas supplies to Ukraine.

Ukraine’s Energy Minister Yury Prodan also stated that the gas agreement on supplies of gas to Ukraine between Russia, Ukraine and the European Commission has been reached.

Thursday’s meeting in Brussels was another attempt to settle the gas dispute between Russia and Ukraine. The parties have been struggling to agree on the final gas price and the payment schedule.

While Novak said earlier on Thursday that key parameters of the gas deal, including a $385 price, had been agreed, it had remained unclear where Ukraine was going to get money.

READ MORE: Basic parameters of gas deal agreed – Energy Minister

Before the deal was reached, Gazprom left Brussels insisting Ukraine and the EU must first agree on the financial points between themselves. Russia rejected all payment schemes proposed by the EU, saying all of them were a hidden form of another gas loan to Ukraine.

Having smooth gas supplies from Russia is crucial for both Ukraine and the EU.

Kiev needs around 4 billion cubic meters of Russian gas to survive the coming winter, and over 15 percent of Russian gas to Europe travels via Ukraine.

Article source: http://rt.com/business/200951-gas-russia-ukraine-deal/

The two-day summit was organized by the Organization for Economic Cooperation and Development (OECD) and the Global Forum on Transparency and Exchange of Information for Tax Purposes. It was hosted by German Finance Minister Wolfgang Schauble and held in Berlin.

“Banking secrecy, in its old form, is obsolete,” German Finance Minister Wolfgang Schaeuble said in an interview in Bild on Wednesday.

The practice is “no longer appropriate at a time when people can transfer their money all over the world at the press of a button via the internet,” said Schaeuble.

Germany is a staunch opponent of Bank secrecy by geography. On its southern border lie historically secretive Austria and Switzerland, and on the western frontier is Luxembourg, also known for its tight-lipped financial institutions.

Members like the Cayman Islands, the Virgin Islands and Liechtenstein – all notorious for being tax havens, signed the agreements.

Asset hideouts like Austria, Switzerland, and the Bahamas didn’t sign the agreement itself, but promised to join the initiative by 2018.

Almost 6 trillion euro is stashed away in tax havens around the world, which means that governments are losing more than 130 billion a year in taxes.

FATCA legislation, signed into law in 2010 and enacted on July 1, 2014, requires overseas financial institutions to identify their American customers to the IRS. The law applies to any account with more than $50,000.

However, FATCA only applies to individuals, and not corporations.

“A US citizen has to declare anything over $50,000 held outside the US. At the same time Google paid 1/16 of one percent on $37 billion last year in taxes. It doesn’t seem to make sense,” Brian Bagdasarian, a former trader and asset manager, told RT.

Article source: http://rt.com/business/200883-banking-secrecy-obsolete-berlin-tax/

Reuters

Chinese giant PC producer Lenovo has completed the $2.9 billion acquisition of the handset unit in the iconic mobile maker Motorola Mobility, fortifying its positions in the US and other developed markets.

Beijing-based Lenovo Group bought Motorola from Google, the deal elevating it to the world’s third largest smartphone producer, moving Xiaomi Corp., another Chinese smartphone maker better known in the West as ‘Mi’, to the fourth position.

“By building a strong number three and a credible challenger to the top two in smartphones, we will give the market something it has needed: choice, competition and a new spark of innovation”, Lenovo CEO Yang Yuanqing said in a statement on the company’s website.

The $2.9 billion deal also adds to a squall of activity aimed at transforming Lenovo, the world’s number one PC manufacturer, into a major producer of smartphones and wireless devices.

Yuanqing says Motorola provides a shortcut for entering mature markets and will make the Chinese company “a global player.”

Rick Osterloh, President of Motorola Mobility, will remain in his role. And the company, with its total of 3,500 employers, will become a fully-owned subsidiary of Lenovo, but will continue to be headquartered in Chicago. Lenovo has headquarters in Morrisville, NC, Beijing, and Singapore.

Google acquired Motorola in 2012 for $12.4 billion, but failed to bring the iconic mobile maker back to growth. Lenovo claims it would revive the firm within the next 18 months, as it expects to sell about 100 million devices this year.

Meanwhile, the company retains ownership of the bulk of Motorola’s patent portfolio, with Lenovo having an option to license patents. Some 2,000 patents and a large number of patent cross-licensing deals will go with Motorola to Lenovo.

Article source: http://rt.com/business/200875-lenovo-buys-motorola-mobile/

Reuters/Luke MacGregor

The number of billionaires in the world has more than doubled to 1,646 since the financial crisis of 2009, with inequality reaching new extremes, according to a new Oxfam report on inequality.

The combined wealth of today’s billionaires has grown by 124 percent in the last four years to $5.4 trillion, says the report published as part of Oxfam’s “Even It Out campaign”.

The 85 richest people saw their fortunes increase by around $240 billion over the past year, and own as much as the poorest half of the world’s population – the equivalent of $668 million per day or almost half a million dollars per minute.

While the number of super-rich is skyrocketing, one million women have died in childbirth due to lack of basic health care, and 57 million children do not receive any form of education.

Oxfam estimates that 16 billionaires live in Sub-Saharan Africa alongside 358 million people living in extreme poverty, while inequality in South Africa is higher than it was at the end of apartheid.

“In a world where hundreds of millions of people are living without access to clean drinking water and without enough food to feed their families, a small elite have more money than they could spend in several lifetimes”, Oxfam’s chief executive Mark Goldring said.

“The consequences of extreme inequality are harmful to everyone – it robs millions of people of better life chances and fuels crime, corruption and even violent conflict. Put simply, it is holding back efforts to end poverty.”

If the world’s billionaires were taxed at just 1.5 percent on their wealth over one billion dollars, it would raise more than $70 billion a year, enough to fill the annual gap of funding needed for basic medical care and education in the poorest countries.

The charity called on governments to follow a plan to restrain inequality by tackling tax evasion, introducing equal pay legislation, shifting taxation from labor and consumption towards capital and wealth and providing adequate safety nets for the poor, including a minimum income guarantee.

Andrew Haldane, the Bank of England’s chief economist warned in May that capitalism risked destroying itself if bankers failed to realize they have a moral obligation to create a fairer society, The Independent says.

“Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself,” he said.

In response to Oxfam’s report Haldane said that the charity not only speaks to the interests of the poorest people but also the wider collective interest.

“There is rising evidence that extreme inequality harms, durably and significantly, the stability of the financial system and growth in the economy. It slows development of the human, social and physical capital necessary for raising living standards and improving well-being. That penny is starting to drop among policymakers and politicians,” he added.

Article source: http://rt.com/business/200751-billionaires-number-world-double/

Russia’s Energy Minister Alexander Novak (AFP Photo/Kirill Kudryavtsev)

Ukraine and Russia have agreed on the framework conditions for supplying gas in EU-brokered talks on Wednesday, Russian Energy Minister Aleksandr Novak said. But to resume gas deliveries Russia needs a clear payment plan from Ukraine, the minister said.

“The basic terms to resume deliveries to Ukraine in winter are reached, ” Novak said at a government meeting Thursday.

He said an additional package of documents still needs to be prepared.

This will include additions to the existing contract between Naftogaz and Gazprom that will stipulate technical features connected with daily delivery volumes, the minister explained.

On Wednesday Ukraine and Russia failed to reach a gas deal in EU-brokered talks in Brussels, as Russia refuses to resume gas deliveries to Ukraine until it pledges to prepay for supplies. Negotiations will continue into Thursday.

“No written guarantees have been provided. In this regard, the risks over whether there will be money or not, are offset by the prepayment system. If there is money, there will be gas,” Novak said Wednesday,as quoted by RIA Novosti.

“The negotiations are not yet over, we’ve just finished a long discussion on documents that must be prepared based on the results of the talks.”

The head of Gazprom, Aleksey Miller, said that Russia will only sign the document if Ukraine and the EU agree how to finance debt and future supply payments to Russia. Ukraine plans to buy $1.54 billion worth of gas (4 billion cubic meters) from Russia this winter to keep the heat on, according to Russian Energy Minister Aleksandr Novak.

READ MORE: Ukraine’s multibillion-dollar gas debt: Who pays?

The Russian energy minister was in Brussels with his Ukrainian counterpart Yuri Prodhan to finalize a long-awaited gas agreement that will continue supplies to Ukraine and guarantee flows to Europe in the winter months. The talks were mediated by EU Energy Minster Gunther Oettinger.

All three parties, Russia, the EU, and Ukraine met in Brussels on October 20th and confirmed Kiev will pay $385 per 1,000 cubic meters (bcm) for Russian supplied gas through the end of March. Before Ukraine can start purchasing gas, it needs to pay off $1.45 billion in debt.

Ukraine annually consumes 50 bcm, will need 20 bcm of gas to survive the winter, according to energy ministers in Kiev. Currently 15 bcm of gas is in storage.

Article source: http://rt.com/business/200507-gas-deal-ukraine-russia-eu/

taff working at Prirazlomnaya ice-resistant oil platform for processing oil from Prirazlomnoye field in the Pechora Sea. (RIA Novosti/Maksim Blinov)

Gazprom Neft, the oil subsidiary of Russian state gas company Gazprom, has filed a claim with the EU Court of Justice, the EU’s highest court, to review the economic sanctions against it introduced in September.

The court will need to be provided with evidence of Gazprom Neft’s involvement in the “illegal annexation of Crimea and the deliberate destabilization of Ukraine,” the reason the European Commission has given for sanctioning Russian companies and businessmen.

The claim was registered on October 24.

Gazprom Neft, along with Rosneft, Lukoil, Transneft and Surgutneftegaz, have been sanctioned by the EU, which has banned technology and equipment needed for deep sea, Arctic, and shale oil projects in Russia.

The companies are also blocked from long-term borrowing from Western capital markets. Sanctions were levied in an attempt to punish Moscow for its perceived meddling in the Ukraine conflict.

The court hears cases that challenge the legality of actions by the institutions of the European Union, such as in this case sanctions. In the past, EU sanctions have been successfully challenged, most notably by Iranian banks last September when the court ruled that the EU couldn’t prove the banks were tied to Iran’s nuclear program or were state-owned.

Any final review of the claim won’t be processed in less than two years, a court representative told TASS on Wednesday.

“It all depends on each individual situation, but not less two years – in the best case,” the court representative said.

Other Russian individuals and companies have also demanded the EU cancel the economic sanctions.

Rosneft, the country’s largest oil company, and Russia’s four largest banks, Sberbank, VTB Bank, Gazprombank and Vnesheconombank, along with billionaire Arkady Rotenberg have also filed claims with the European Court of Justice.

Article source: http://rt.com/business/200471-gazprom-neft-eu-court-sanctions/

View of the Moscow International Business Center. (RIA Novosti/Evgeny Biyatov)

Russia is now ranked 62nd in the World Bank’s new 2014 Doing Business report, which measures the ease of doing business in 189 countries worldwide. The country climbed 30 positions from 92nd spot in 2013.

Russia is ahead of Moldova in 63rd place and behind Greece in 61st.

Singapore, New Zealand, Hong Kong, Denmark, and South Korea are the top five countries in terms of ease of doing business in this year’s report.

The 189 economies are evaluated on how close their business regulations compare to the best global practices, with a higher score for a more efficient business climate and stronger legal institutions.

Russia’s steep improvement to 62nd place is due to the report changing its methodology in determining the rating by adding new indicators, such as ease of property registration and starting a new business, as well as the availability of credit, protection of minority shareholders, and bankruptcy procedures.

Starting a business in Russia is easier today than a year ago, thanks to two major reforms, the report said, as Russia has streamlined the process for startups by cutting red tape.

The two major reforms Russia enacted in the last year eliminate the requirement for a company’s founder to deposit the charter capital before incorporation, and Russia has made transferring property smoother by speeding up property registration as well as axing the need for notarization. It also axed the requirement for companies to notify authorities before opening a bank account.

This year the report measured two cities from Russia, China, the US, Japan, Brazil, India, Mexico, Indonesia, Nigeria, Pakistan, and Bangladesh. St. Petersburg was measured along with Moscow, China added Beijing to Shanghai, and the US added Los Angeles to New York, and so on.

In 2012 Russian President Vladimir Putin set the goal of raising the country’s position in the Doing Business ranking to number 20 by 2018.

Last year, Russia jumped to 92nd place from 112th, which was considered a key breakthrough for the world’s eighth largest economy by gross domestic product.

The world’s second largest economy, China, only ranked number 90 amongst the 189 countries evaluated. The US, the biggest economy, ranked 7th. Tajikistan, Benin, Togo, Côte d’Ivoire, Senegal, Trinidad and Tobago, the Democratic Republic of Congo, Azerbaijan, Ireland and the United Arab Emirates improved their ratings the most.

Next year’s report will continue to add more elements and indicators in the assessment process, including the ease of obtaining construction permits, registering property, connectivity to electric grids, the execution of signed contracts, and tax structures.

Article source: http://rt.com/business/200383-russia-doing-business-ranking/