Archives for March 2015

RIA Novosti / Ramil Sitdikov

Russia’s Gazprom has paid $1billion to the consortium of Germany’s Wintershall, Italy’s ENI, and France’s EDF for their stakes in South Stream Transport.

Gazprom reportedly paid Italy’s Eni, which owned 20 percent of South Stream approximately $390 million, and about $290 million each went to France’s EDF and Germany’s Wintershall, who both had a 15 percent share of the project. The Russian company was not obligated to buy the stakes as they all shared the project risks. However, Gazprom is interested in saving South Stream Transport’s pipeline construction contract with Italy’s Saipem.

The pipe-laying fleet Saipem mobilized to build South Stream is still in the port of Burgas and Gazprom is paying hundreds of thousands of euro per day, waiting for the work on Turkish Stream to start.

READ MORE: South Stream halt is ‘casualty of sanctions’

The South Stream project was agreed in 2012, and was seen as an important step towards energy security for Europe, as it would bypass politically unstable Ukraine, and reduce the reliance on gas from North Africa. However in December, Russia was forced to withdraw from the project due to the EU’s unwillingness to support the pipeline. The EU Commission has been pressuring member states to withdraw from the project, with the Bulgarian government saying it will not allow Gazprom to lay the pipeline without permission from Brussels.

The project has been replaced by Turkish Stream, an alternative gas pipeline from Russia, under the Black Sea to Turkey, and on to the Greek border, giving Russia access to the Southern European market.

READ MORE: Russia and Turkey agree on Turkish Stream onshore route

Unlike South Stream Russia will no longer be responsible for the pipeline within Europe. It will only build up to the Turkish-Greek border.

The redemption of shares belonging to European South Stream shareholders has several positive aspects in addition to costs, as Gazprom becomes the sole owner of all the property and assets of the project, the head of Russia’s National Energy Security Fund Konstantin Simonov told Gazeta.ru.

“Firstly, the pipes that have been already purchased might be used in the construction of the Turkish Stream. Secondly, a feasibility study on South Stream has been already conducted, meanwhile three-quarters of the route coincides with the Turkish Stream route,” Simonov was quoted as saying.

Article source: http://rt.com/business/245621-gazprom-partners-debt-shares/

Trains are loaded with sea salt at a salt production facility at the Sasyk-Sivash lake, Ukraine (Reuters / Pavel Rebrov)

A third of Ukraine’s gross domestic product lies in the Donetsk and Lugansk People’s Republics, Ukrainian Interior Ministry Arsen Avakov said.

“It is difficult to speak about reforms when 30 percent of GDP has been left in the territories [of the self-proclaimed republics – Ed.]. It is difficult to speak about reforms when society is engulfed by military operations in the east,” Avakov said at the Stress Test expert forum Tuesday, TASS reported.

Ukraine’s eastern industrial base is a large chunk of the country’s GDP, about 16 percent according to Investment Capital Ukraine. Lugansk and Donetsk regions account for 25 percent of industrial goods and services. Many of these industries, such as coal mining and energy, have been shut down due to the conflict.

The loss of key industries in the country’s eastern province is worrying for Ukraine, a country already on the brink of financial disaster as the war drags into a second year.

Between lost industry and war expenses, the conflict between pro- and anti-government forces has already wiped out 25 percent of Ukraine’s economy in the first 3 months of 2015. Finance Minister Natalia Yaresko has said 30 percent of next year’s budget would be spent on defense and debt obligations.

READ MORE: Conflict in Ukraine wipes out 25% of country’s economy

Ukraine’s economy shrank 6.8 percent in 2014 and is expected to contract another 5.5 percent, according to the IMF’s latest forecast. At the end of 2014, the country’s GDP was 1.5667 trillion hryvnia, or about $121 billion. The Standard Poor’s ratings agency forecast Ukraine’s GDP will shrink to $99 billion in 2015, and in a worst case scenario put forward by the Economist to $70 billion.

When calculating the country’s GDP in 2014, Ukrainian officials excluded Crimea, that reunited Russia in 2014, or the Donbass conflict area.

READ MORE: The Cost of War: Ukraine’s economy to pay heavy price for offensive in the east

During the coming year, Ukraine will receive an additional $10 billion from the International Monetary fund, part of a $17.5 billion recovery plan, and bringing total aid to around $40 billion. The first tranches of money will be used to prop up the country’s beleaguered currency and foreign reserves. The Ukrainian hryvnia has lost 60 percent of its value in the last year and has dropped to 23.44 to the dollar, far weaker than the 21.75 per dollar limit envisioned by the IMF.

Foreign currency reserves stood at $5.6 billion at the end of March, compared to the $36 billion level in 2011. The lack of foreign currency reserves, among other factors, guided Moody’s ratings agency to slash Ukraine’s sovereign debt rating to one level above junk status.

Ukraine is asking foreign bondholders – from the Russian government to American hedge funds- to agree to a $15.3 billion debt restructuring plan, which in short, would mean debt forgiveness.

Article source: http://rt.com/business/245597-ukraine-donbass-third-of-gdp/

RIA Novosti / Maksim Bogodvid

Economists in Russia and the US agree the worst is over for Russian economy, with Bloomberg changing its tone praising it as an ‘underrated land of opportunity’. Experts agree President Putin’s economic team managed to turn around a pressing environment.

Russia’s economy is recovering from last year’s panic following the slump in oil prices, according to experts.

With the Russian Central Bank’s currency reserves increasing last week for the first time since July, and all of the major economic indicators improving, Western governments should be convinced that economic sanctions have no discernible effect, a Bloomberg View contributor, Leonid Bershidsky said in his article published on March 27.

The managers of the Russian economy, especially at the Central Bank and the Finance Ministry managed to keep Russia’s economy open in a difficult environment, he said.

“We see that the Government has strongly opposed the imposition of any restrictions on the free movement of capital, thus reaffirming the commitment to the course of economic openness,” Aleksandr Prosviryakov, Treasuries Commodities Manager at PWC, told RT.

Chief economist at BCS Financial Group, Vladimir Tikhomirov agreed, telling RT by phone that the government managed to keep the economy going despite all the risks, including currency risk.

Russia held $131.8 billion of US debt in 2014, according to Bloomberg. While reserves as a whole dropped 23.9 percent in 2014, the holdings of US debt fell 37.6 percent, to $82.2 billion, as Russia started cutting its holdings of the US currency amid the sanctions standoff.

READ MORE: Russian ruble continues 8-day winning streak

READ MORE: Russia’s ‘junk’ bonds paying off handsomely

The Central Bank decided to start easing its benchmark interest rate, cutting the rate from 17 percent to 14 percent. This helped Russia to become an attractive carry trade destination, Bloomberg economists suggest.

Russia is now one of the most attractive countries in terms of risk/return ratio, Prosviryakov said, adding that there was a significant inflow of foreign investment to the Russian market in the last few weeks. He believes the trend will continue.

Global investors also appear to be optimistic about the future of Russian corporations as the country’s economic performance provides evidence to recovery. Around 78 percent of enterprises represented in the MICEX index showed a greater increase in sales than their counterparts around the world.

The growth of quotations for the main Russian financial assets suggests that interest towards Russia is gaining momentum, including from international investors, according to Prosviryakov.

Meanwhile, the Russian government’s forecasts point to a full-year contraction in gross domestic product of about 3 percent in 2015. Bloomberg economists expect a 4 percent drop, while Goldman Sachs predicts a decline of 2.7 percent. The Russian economy will shrink 3-4 percent according to Vladimir Tikhomirov’s forecasts.

Sanctions and restrictions

Russia remains a major market economy that cannot be “derailed by a few timid restrictions,” the Bloomberg analyst wrote in his article, adding that Russia has been named one of the top markets for equity performance this year, along with the US, China and India.

READ MORE: Russia’s MICEX this year’s best performing stock index

Russian economists say Western sanctions had a double effect on the country’s economy. Restrictions imposed by some trading partners, on the one hand, hampered the business relationship between the companies in these countries with their Russian counterparts, but on the other hand, they have opened up new opportunities for friendly companies, Prosviryakov told RT. Meanwhile, Tikhomirov suggests that Russia’s food embargo also caused problems for the economy with the following wave of inflation.

New business opportunities

Russia has a lot of new business opportunities with different countries that are now mostly coming from Asia. Moscow and Beijing plan to extend their strategic partnership in finance, aviation and space, as well as improve trade and economic cooperation. The two countries decided to switch to local currencies in trading settlements and also to create a joint rating agency. Russia and China have been boosting cooperation in various fields, including the energy sector in which the countries signed a huge $400 billion gas deal.

Moscow is also looking forward to trade in national currencies with Turkey. The countries are working on completion of the Turkish Stream pipeline which is to deliver 15.75 billion cubic meters (bcm) of gas to Turkey, and another potential 47 bcm to Europe via Greece.

Next week Greek Prime Minister Alexis Tsipras is visiting Moscow to hold talks as Russia and Greece want to boost cooperation and strengthen ties.

Article source: http://rt.com/business/245237-russia-economy-government-success/

Greek Prime Minister Alexis Tsipras (Reuters / Alkis Konstantinidis)

Western anti-Russia sanctions are a “road to nowhere” while dialogue and diplomacy is the way to find solutions for major problems, Greek Prime Minister Alexis Tsipras told TASS.

The Greek premier says economic war is a “dead-end policy,” according to TASS which interviewed Tsipras ahead of his visit to Moscow on April 8.

“We do not agree with sanctions. I believe that this is a road to nowhere. I support the point of view that there is a need for a dialogue and diplomacy, we should sit down at the negotiating table and find the solutions to major problems,” Tsipras was quoted as saying.

READ MORE: Russian food ban takes huge bite out of Greek fruit growing industry

The prime minister said that right after he won the election he received a message from European Council President Donald Tusk who almost took for granted Greece’s position in favor of sanctions. The newly-elected Prime Minister then told the EU Council and the EU foreign policy chief that the situation had changed, and they should ask the new Greek government before taking decisions.

New level of cooperation

There is a chance of bringing the trade between Russia and Greece to a new level, Tsipras suggests, saying that substantial cooperation would allow Greece to export its agricultural goods to the Russian Federation. Trade relations between the two countries have been ruined as previous Greek governments were involved in the sanctions policy. Russia was Greece’s biggest trading partner outside the EU with turnover in excess of €5.7 billion in 2013. However, the Greek economy has been seriously damaged as a result of the food embargo last year. Greek producers estimated losses from fruit and conserves at more than €178 million over the course of the year.

READ MORE: Who is hit hardest by Russia’s trade ban?

Relations between Greece and Russia have great potential, especially in terms of energy and tourism, Tsipras told TASS. The two countries have close links mainly through tourism; about 1.2 million Russians visited Greece on holiday in 2012.

2016 which will be a cross promotion year for Russia and Greece, and is a great opportunity according to Prime Minister Tsipras.

Meanwhile, this year Greece along with Russia will be celebrating the 70th anniversary of the end of the World War Two which is of great historical importance to both the Russian and Greek people, the Greek Premier underlined.

Bridge between West and Russia

The Greek prime minister’s visit to Moscow will lay a new foundation for Russian-Greek relations that have been “frozen” recently.

“It is a real opportunity to make a restart, give new impetus to Russian-Greek relations that have very deep roots in history and are forged in the common struggle of our people,” Tsipras told TASS.

READ MORE: Russia seeks to privatize its suffering ‘friend’ Greece

Russia and Greece are currently in a general risky geopolitical situation with common challenges that need to be considered thoroughly together, according to premier. “We have to consider how our nations and countries can actually cooperate in multiple fields, such as the economy, energy, trade, agriculture… We should explore how our collaboration can be constructive as I really believe that Greece, as a member of the EU, can be a bridge, a bridge between the West and Russia,” Tsipras said.

Article source: http://rt.com/business/245497-greece-russia-premier-cooperation/

Reuters / Todd Korol

US crude production increased to 1.2 million barrels per day (mbpd) to 8.7 mbpd in 2014, the largest volume rise since 1900, the date the US Energy Information Administration started keeping records.

This is the sixth consecutive year that the US, with the help of horizontal drilling and fracking, has increased crude production.

Surges in output hailed from fracking states such as North Dakota, Texas, and New Mexico, the EIA’s report, published on Monday, said. The US shale revolution has made the US a net exporter and not an importer of oil. This major change in output level has had a downward trend on oil prices, which lost more than 50 percent in 2014 due to the global supply glut.

In terms of the growth rate, US oil production was up 16.2 percent last year, the biggest increase since 1940 and the largest yearly rise in more than six decades.

“Annual increases in crude oil production regularly surpassed 15 percent in the first half of the 20th century, but those changes were relatively less in absolute terms because production levels were much lower than they are now,” the report said.

OPEC, the group of 12 Gulf State oil producing nations, led by Saudi Arabia, has forecast a possible decrease in shale production by the end of 2015, since tight oil production is more vulnerable to low, recently slashed oil prices.

READ MORE: US shale boom may be over by end of 2015 – OPEC

Weak global oil market prices have forced several US oil companies to either close down rigs, or worse, file for bankruptcy. In March 2015, there were 734 less active oil rigs in the US, according to Texas-based oil service company Baker Hughes. This compares with the total of 66 lost internationally. The next rig count will be published on April 2 at 1:00pm EST.

Article source: http://rt.com/business/245485-eia-us-oil-growth/

Reuters/Yannis Behrakis

The Greek government reportedly plans to negotiate a possible reduction in gas prices from Russia and the lifting of the embargo on certain types of Greek products.

Relief from the food embargo would particularly cover fresh fruit, reported Der Spiegel on Sunday.

It will be put to the Russian government by Greece’s Industrial Reform Minister Panagiotis Lafazanis and Syriza MP Thanasis Petrakos during their two-day visit to Moscow on March 30 and 31.

READ MORE: Hungary, Cyprus and Greece first to return to Russian market after sanctions lifted – watchdog

“This visit is very important for Greece. We intend to deepen our relationship with Russia in the energy sector and thereby hope to gain a significant advantage,” said Petrakos as quoted by Spiegel Online.

READ MORE: Russia might bailout Greece – finance minister

“The prepared reforms primarily contain a number of administrative changes, organizational and managerial changes in the state, which, however, will bring great financial benefits,” said Vernardakis as quoted by RIA.

Article source: http://rt.com/business/245209-greece-russia-economic-help/

Russian flag (Reuters/Maxim Zmeyev) and Turkish flag (Reuters/Murad Sezer)

​Turkey’s Ministry of Economy is to consider using local currency, either the Russian ruble or Turkish lira, in major investment projects with Moscow.

“We would like payments in rubles and lira to be introduced at least for the larger investment projects in Russia and Turkey,” Turkey’s Deputy Economy Minister Adnan Yyldyrm, said at a joint Russian-Turkish business council meeting, TASS reported.

Yyldyrm said Turkey is now waiting for Russia to take reciprocal steps to set up a platform for settlements in rubles and lira. The countries are discussing allowing Russian tourists in Turkey to use rubles, according to Russia’s Chamber of Commerce and Industry (RCCI), Georgy Petrov.

Trade between Russia and Turkey reached $32.7 billion in 2014, making Turkey Russia’s eighth largest trading partner, while Russia is Turkey’s second largest trading partner, after the European Union.

In February, Russia’s Sberbank and its Turkish subsidiary Denizbank announced plan to settle payments in national currencies.

READ MORE: Moscow and Ankara to trade in national currencies – DenizBank

Banknotes aside, Moscow and Ankara have been growing closer on a plethora of issues, from a new gas pipeline deal, to Turkey possibly joining the Russia-led Eurasian Economic Union.

READ MORE: Turkey and Russia discuss Customs Union collaboration

The two countries share no land border but both border the Black Sea, where the new Turkish Stream pipeline will be routed, delivering 15.75 billion cubic meters (bcm) of gas to Turkey, and another potential 47 bcm to Europe via Greece.

Turkey joining Russia, Belarus, and Kazakhstan in the newly forced Eurasian Economic Union has been floated by both Moscow and Ankara. Turkey has been in a formal Customs Union agreement with the European Union since 1995, but has made little progress in joining the bloc.

Article source: http://rt.com/business/245277-turkey-russia-currency-trade/

Georges Soros (Reuters/Ruben Sprich)

US hedge fund billionaire George Soros said he will invest $1 billion in Ukraine provided the West improves investment conditions, and warned there is no such thing as a ‘benevolent investor’.

“I stand ready. There are concrete investment ideas, for example in agriculture and infrastructure projects. I would put in $1 billion. This must generate a profit. My foundation would benefit from this … Private engagement needs strong political leadership,” the hedge fund manager said in an interview with the Austrian newspaper Der Standard, as quoted by Reuters.

A long-time advocate for more Western aid to Ukraine, Soros has openly called on Europe and the West to string together a $50 billion rescue package for Ukraine, on par with the Marshall Plan Germany received after World War II.

READ MORE: George Soros makes hush-hush trip to Kiev

He recently blamed the EU for paying too much attention to Greece, which the philanthropist and billionaire believes has a one in three chance of leaving the eurozone, last week he predicted the odds at 50:50.

Greece has received €240 billion in two bailouts, whereas Ukraine has only been promised $40 billion, led by the International Monetary Fund.

In a article penned himself on the website Project Syndicate, Soros argues that Ukraine’s situation is more pressing than Greece’s, and that Europe shouldn’t be so preoccupied with Greece.

“Yet Europe treats Ukraine like another Greece. That is the wrong approach, and it is producing the wrong results,” Soros wrote.

READ MORE: EU offers $2bn in unused funds to Greece

“The West can help Ukraine by increasing the attractiveness for investors. Political risk insurance is necessary. This could take the form of mezzanine financing at EU interest rates — very close to zero,” he said in the interview, published Monday. Earlier in January, Soros said an ‘easy money’ policy would only worsen inequality in Europe.

Soros said he considers agriculture and infrastructure profitable investments.

Once called the “breadbasket of the Soviet Union,” Ukraine’s economy is heavily reliant on agricultural exports. Wheat, corn, dairy, sunflower oil, and other main export crops account for about 25 percent of the country’s total exports.

More and more, Ukraine has allowed foreigners to buy up agriculture land, which is the second biggest in all of Europe at 41.5 million hectares, or about 70 percent of the total country.

Industry in Ukraine has been on the decline since the country entered recession in 2012, and has only gotten worse with the ongoing war in the east, where the bulk of industry and manufacturing is located. In the past, the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) have funded rail projects, road construction, and shipping and port industry.

Article source: http://rt.com/business/245193-george-sorros-ukraine-billion/

Chairman of the Board of Russian energy company Gazprom Alexey Miller. (RIA Novosti/Mihail Mokrushin)

Russian gas monopoly Gazprom has asked the government to consider extending its discount on gas supplied to Ukraine for three more months, said the head of the company Aleksey Miller.

“We consider the period of three months is optimal. First, because a spring-summer period is coming and also because we see a high dynamic of change in the gas prices in foreign gas markets,” said Miller in an interview with Rossiya 24 TV Channel.

READ MORE: Ukraine’s Naftogaz suggests Gazprom extend ‘winter gas package’

“Such a discount was provided at the end of October last year as a result of negotiations between Ukraine, Russia and the European Commission. The discount was provided for five months and its period will end tomorrow, on March 31,” he said. Miller added that the provision of a gas discount is part of the current gas supply contract signed by Ukraine in 2009, and making this sort of decision is fully within the remit of the Russian government.

Russia is now “formulating its position,” Kremlin spokesman Dmitry Peskov said on Monday, adding that “the issue relates to Gazprom and perhaps the Energy Ministry.”

The ministry head, Aleksandr Novak, later confirmed that the government received the European Commission’s proposal to consider extending a gas price discount for Kiev with regards to customs duty. “The Russian government will work on the decision in the nearest future,” Novak said.

In turn, Russia expects the EU to offer financial support to Ukraine so that it can pay for the Russian gas, should such need arise, the energy minister said in an interview with Rossiya 24 channel. “We expect the European Commission’s counteraction,” Novak said, mentioning possible financial support for Kiev.

Earlier this month, Novak said that if the discount is approved, it would cover gas supplies for the second quarter of 2015, with further reviews after that period subject to global market price volatility.

Ukraine has accused Russia of charging unreasonably high gas prices. Russian Energy Minister Aleksandr Novak said earlier Ukraine will be charged $348 per thousand cubic meters of gas from April 1. In the first quarter of 2015 Ukraine paid $329 per thousand cubic meters for Russian gas.

Article source: http://rt.com/business/245229-gazprom-naftogaz-gas-discount/

RIA Novosti/Vladimir Astapkovich

Beijing is interested in funding Russia’s first high-speed rail line between Moscow and Kazan. China would invest a total of $5.2 billion (300 billion rubles) in the project.

The bulk of the investment, $4.3 billion at current exchange rates (250 billion rubles) will come in the form of 20-year loans from Chinese banks, and the other $860 million would come as an equity payment from the Chinese company in charge of the project, RIA Novosti reported Sunday, citing sources familiar with the proposal.

Train travel from Moscow to Kazan, the capital of the Tatarstan republic, will be shorted to just 3 and a half hours instead of the more than 14 hours it takes now. The train will be able to reach speeds of 400 kilometers per hour. It will also reduce the travel time between Kazan and Nizhny Novgorod, Russia’s third largest city, to just ninety minutes from the more than 10 and a half hours it currently takes.

Map showing route from Moscow to Kazan

The plan was developed to better link mid-size Russian cities by improving transport, and therefore the mobility, of people.

China has embarked on an ambitious program to expand its rail connections, with plans to lay thousands of miles of new track in the coming years.

The world’s fastest passenger train is also in China, the Shanghai Maglev Train can reach speeds of over 430 kilometers per hour.

READ MORE: China opens 32 high-speed rail routes in grand expansion

Next stop, China?

In addition to Kazan, the TranSiberian railway already connects Beijing and other Chinese cities with Russia and Europe, and the Chinese reportedly recently proposed an idea to build a 2-day train from Moscow to Beijing via Kazakhstan.

“Chinese investors are willing to invest in the high-speed rail project between Moscow and Kazan, and Chinese builders can offer the most advanced high-speed railway technology. They are waiting for a decision from the Russian government,” a representative from the High Speed Rail Lines, a subsidiary of Russian Railways, said at the meeting in Sochi.

According to the representative, the Moscow-Kazan project isn’t just an investment for China, but a means to improve communication and trade with Russia and Europe.

Russian Railways is also considering a transport corridor that would link eastern Russia with the United states, via Alaska. This project has long been discussed and is called the Trans-Eurasian Belt Development high-speed link, but no official details have been released by the Russian transport giant.

In October 2014 Russia and China signed a memorandum of understanding over a high-speed railway connection.

Article source: http://rt.com/business/245125-china-invest-russia-train/