Archives for March 2015

Reuters / Gleb Garanich

Ukraine’s Naftogaz has written to Gazprom suggesting extending the terms of the ‘winter package’ deal until the fall–winter period of 2015. There will be a trilateral meeting of Russia, Ukraine and the European Union in mid-April over the gas dispute.

“Naftogaz welcomes the European Commission’s proposal to discuss the follow-up of the Binding Protocol signed by Russia, the European Commission and Ukraine on October 30, 2014 in Brussels, which would last at least until the end of the next winter period. In support of this proposal and to ensure cooperation between the companies, Naftogaz has sent Gazprom a letter in which the company expresses support for extending the “winter package,” says a statement Monday.

The Vice President of the European Commission in charge of Energy Union Maros Sefcovic said the European Commission was ready to hold a trilateral meeting of the EC, Russia and Ukraine in Brussels in mid-April. Naftogaz said it’s willing to participate and discuss the proposals.

Since February 27 Naftogaz has been prepaying Gazprom in sums of $15 million. Ukraine currently ows $2.477 billion for gas already delivered including penalties.

Ukraine’s inability to pay for larger amounts of gas signals that its ailing economy is far from stabile. The country’s foreign exchange reserves were at an 11-year low of $5.6 billion in February, while the inability of Ukraine to pay off its debt to Russia puts into question the full implementation of the IMF’s bailout program.

READ MORE: Ukraines’s $3bn debt to Russia puts multibillion dollar IMF package at risk

Ukraine is currently preparing to start negotiations with creditors over restructuring its debt. The probability of failure followed by imminent default is estimated at 30 percent by analysts queried by Bloomberg.

The Moody’s rating agency has estimated the probability of Ukraine’s default at nearly 100 percent.

Large-scale restructuring of Ukraine’s debt is provided by the bailout program approved earlier this month by the International Monetary Fund (IMF). The restructuring of Ukraine’s bonds should save the country $15 billion over the next 4 years.

Naftogaz is also planning to open a permanent office in Brussels to ensure contact with the European Commission, European regulators and suppliers.

Preparations for opening the office are in their final stages, and it should be ready in April, TASS reports Monday citing sources familiar with matter who also said the office won’t be involved in commercial activities.

On March 20, Ukrainian Minister of Energy and Coal Vladimir Demchishin said that Kiev might refuse Russian gas supplies from April as the Ukrainian government finds the price of its gas unreasonably high.

Ukraine is expected to sign a so-called “summer package” gas deal on April 13-14 during the next trilateral meeting of Russia, Ukraine and EC in Berlin. Kiev didn’t intend to ask for discounts on Russian supplies and hoped that in the second quarter Russian gas would cost Ukraine $250 per thousand cubic meters.

Russian Energy Minister Aleksandr Novak has said the price Ukraine is charged for gas would be $348 per thousand cubic meters from April 1. By that time, the Russian government will have discussed the possibility of providing discounts of $100 per one thousand cubic meters.

In the first quarter of 2015 the gas price for Ukraine was $329 per thousand cubic meters.

Article source: http://rt.com/business/245129-naftogaz-gazprom-gas-deal/

Reuters / Brendan McDermid

International ratings agency Fitch has downgraded Greece’s sovereign rating from B to CCC ahead of the agency’s next scheduled review, amid worries that the country is defaulting on its sovereign debt.

Fitch also downgraded Greece’s short-term foreign currency issuer default rating (IDR) from B to C, the agency said in a press release on Friday. The ratings agency revised the country’s ceiling as well, lowering it from BB to B-.

The downgrades came earlier than the scheduled review on Greece which was scheduled for May 15. The agency explained that “developments in Greece warrant such a deviation from the calendar.”

Fitch cited several key ratings drivers, stating that a “lack of market access, uncertain prospects of timely disbursement from official institutions and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding.”

“We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but the heightened risks have led us to downgrade the ratings. The damage to investor, consumer, and depositor confidence has almost certainly derailed Greece’s incipient economic recovery,” the agency said.

READ MORE: Germany wants Greece in eurozone, but demands more reforms

Fitch also revised the country’s growth forecast to 0.5 percent – down from 1.5 percent in January 2015 and 2.5 percent in December 2014. It added that the liquidity conditions faced by firms have worsened substantially due to “increased government arrears to suppliers and bank funding strains.”

Greece received two bailouts from the EU in 2010 and 2014, totaling €240 billion (US$261 billion). Following austerity measures, Greece saw its economy lose a quarter of its value.

In February, Athens and eurozone finance ministers struck a deal to extend the Greek bailout by another four months, with the newly-formed Greek government agreeing to present a list of structural reforms and to fulfill its obligations to repay the existing debt.

In March, Greece’s Prime Minister Alexis Tsipras and European leaders held talks on the EU-IMF bailout. Following the meeting, the European Commission made $2 billion in unused funds available to Greece to help the country avert bankruptcy.

Article source: http://rt.com/business/244905-fitch-downgrades-greece-rating/

Reuters / How Hwee Yong

Russia decided to apply to join the China-led Asian Infrastructure Investment Bank (AIIB), the country’s Deputy Prime Minister Igor Shuvalov said on Saturday.

“I would like to inform you about the decision to participate in the AIIB,” which was made by Russian President Vladimir Putin, Shuvalov said at the Boao Forum for Asia.

Shuvalov added that Russia welcomes China’s Silk Road Economic Belt initiative and is happy about stepping up cooperation.

“We are delighted to be able to step up cooperation in the format of the Eurasian Economic Union (EEU) and China…the free movement of goods and capital within the EEU brings economies of Europe and Asia closer. This is intertwined with the Silk Road Economic Belt initiative, launched by the Chinese leadership,” he said.

READ MORE: Switzerland, Luxembourg apply for China-led infrastructure bank

#XiJinPing at #BoaoForumpic.twitter.com/Es7yd8Sq99

— Bert Hofman (@berthofmanecon) March 28, 2015

AIIB has 30 founding members with applications still coming in, according to China’s Finance Ministry. Australia has recently applied to join the bank.

The application deadline has been set for March 31. Other nations will still be able to join the AIIB after the deadline expires, but only as common members, Chinese Finance Minister Lou Jiwei said last week.

China wants to see the AIIB operational before the end of 2015.

READ MORE: Washington ‘shifts tone’ towards China-led infrastructure bank

Washington recently shifted its tone towards the AIIB, which is seen as a rival of the US-led World Bank, the International Monetary Fund (IMF), and the Manila-based Asian Development Bank (ADB) which is dominated by Japan and the US.

The China-led infrastructure bank is expected to launch with an initial subscribed capital of $50 billion and focus on financing infrastructure projects across Asia – including energy, transport and telecommunications infrastructure, urban and rural development, and the environment.

The 2015 annual Boao Forum is being hosted by China under the title of ‘Asia’s New Future: Toward a Community of Common Destiny.’ The central goal of the conference is promoting solidarity and cooperation among Asian nations.

Topics of discussion include macroeconomy, technological innovation, politics, security, industrial transformation, and regional development.

Article source: http://rt.com/business/244805-russia-join-aiib-china/

Reuters / David Gray

Washington is questioning Beijing’s latest restrictions limiting the sale of foreign technology to Chinese banks, claiming the measures would hurt global trade, according to a filing with the World Trade Organization.

The China Banking Regulatory Commission’s (CBRC) guidelines for IT security equipment used in banks has raised new trade concerns with the United States, according to a document published by the World Trade Organization on Thursday. The concerns were made public during the first Technical Barriers to Trade (TBT) Committee meeting of 2015, when the US was supported by the European Union and Canada. They claim China’s new rules announced in December go beyond the usual practice for the regulation of information and communication technology equipment in the commercial banking sector.

READ MORE: US business groups alarmed over China’s new ‘intrusive’ cybersecurity regulations

Chinese banks have a restriction on the use of foreign information technology, all foreign companies operating in China are also required to install Beijing-approved encryption, and submit private source code for government inspection.

The US argued that China’s banking regulations would discriminate against foreign tech firms. Meanwhile, WTO rules prohibit countries from favoring domestic companies over foreign competitors.

READ MORE: NSA spied on Chinese govt and telecom giant Huawei – Snowden docs

China says it’s promoting cyber security as rapid development of global information technology and financial innovation had brought new challenges to the banking sector, and all governments have “to strengthen security to protect public interests.” The country also assures its restrictions are consistent with international practice and contribute to the stability of the global financial system.

Vague terms

However, the US, EU and Canada insist that the measures will hurt global trade. Washington requested clarification on what China meant by saying its banking security rules were intended to ensure “secure and controllable” banking technology. The US argued such a definition could cut out many foreign products. According to Chinese regulations, all new computer servers, desktop computers and laptop computers and 50 percent of new tablets and smartphones bought by the banking industry must meet “security and controllability” requirements.

Chinese rules also encourage “indigenous innovation,” and the US requests clarification. “The requirement for a product to be ‘indigenous’ would allow for little involvement by foreign companies,” the US Delegation said. The Delegation also asked China to explain if the country excluded the possibility that foreign-developed technology might provide a “better security solution than a technology developed indigenously.”

Cyber security has become a sensitive issue between the US and China, following leaks from National Security Agency (NSA) contractor Edward Snowden on US international spy programs that targeted a number of Chinese institutions. China called on banks to stop using IBM servers and replace them with locally made machines, fearing the country’s financial security might be compromised. At the end of 2014 Beijing approved its cyber security policy with new regulations excluding foreign technology.

Article source: http://rt.com/business/244589-usa-china-wto-cybersecurity/

Screenshot from meerkatapp.co

Tags

Corporate news

The newest tech fad snatched up $14 million in funding, and its backers say is going to change the way people use the internet forever.

The new app lets users stream and share videos in real time and automatically sends them to Twitter.

“We are all about re-inventing shared experiences,” the company says on its website.

Announcing our funding. https://t.co/hW1hUZuLnS

— Meerkat (@AppMeerkat) March 26, 2015

Meerkat is expected to be used for on the ground reporting, as well as socially, between friends to share personal moments. The platform has more than 120,000 users and is one of the fastest growing social apps.

Introduced last February by San Francisco-based Life on Air, the live streaming service is already in the top 25 social networking downloads in Apple’s App Store, according to App Annie, which tracks application metrics.

Like Snapchat, content is only available in real time- no reruns. Each user’s content will be saved to his/her device, but not on a general cloud. Snapchat, which is only four years old, values itself at $19 billion. The company is rumored to be considering an IPO.

27-yeard old Ben Rubin, Meerkat’s chief executive officer, uploaded his own video on Thursday March 26 to announce the $14 million in funding. Investors include Chad Hurley, co-founder of YouTube and Hollywood actor Jared Leto. Financing was led by Greylock Partners.

The app is competing head to head with Twitter-backed Periscope, which is similar to Meerkat, but has the advantage of tapping into Twitter’s data.

Twitter went public in a $1 billion IPO in October 2013.

Article source: http://rt.com/business/244621-meerkat-funding-twitter-14-million/

Russian President Vladimir Putin.(RIA Novosti / Alexei Druzhinin)

Russia has the highest number of internet users in Europe and e-commerce makes up about 10 percent of the country’s GDP, said President Vladimir Putin at a meeting with Russian internet startups.

“As to the number of Internet users, Russia surely ranks first in Europe, with 60 million using the service,” Putin said at Friday’s presentation.

“This area of activity [Internet related business – Ed.] has gained huge momentum for our country; about 10 percent of GDP… this is a very solid figure,” he added.

Putin stressed the Russian Internet Initiatives Development Fund (IIDF), created in 2013, “was not stillborn, but, on the contrary, actively developing.” IIDF has put in place 150 projects, which makes it the most successful in Europe, he added. The Fund controls business worth more than $100 million (6 billion rubles).

The creation of IIDF was initiated by President Putin in November 2012, and in July 2013 it began to work. The Fund is responsible for providing expert and financial support for internet startups, working with venture capitalists, developing the legal framework of internet entrepreneurship and venture capital investment in Russia.

Putin says internet entrepreneurs should be more actively involved in providing security for defense organizations, such as Roscosmos and Rosatom, as the country’s defense industry receives “serious funds” estimated at some 20 trillion rubles ($347 billion) and up to 3 trillion rubles is envisaged for re-equipment of the armed forces.

The president talked about a recent meeting with young scientists “who have achieved brilliant results in the defense sphere,” and that internet entrepreneurs should also cooperate closely with them.

“This defense sector which receives great funds needs to have access to civilian business. This gives a remarkable synergistic effect when all this is functioning together,” he said.

Article source: http://rt.com/business/244649-putin-russia-internet-startups/

Reuters / Wolfgang Rattay

Lufthansa, Europe’s biggest airline, will have to compensate the relatives of the 144 passengers who died aboard Germanwings flight 9525. It may also face lawsuits for negligence after the pilot allegedly deliberately flew the plane into the French Alps.

According to the French prosecutor in the case co-pilot Andreas Lubitz intentionally crashed the plane into the mountains after locking the other pilot out of the cockpit. This ‘accident’ doesn’t fall under the general insurance, which covers inclement weather and mechanical failures but under a separate war risk policy.

READ MORE: Germanwings co-pilot appears to have crashed plane deliberately – prosecutor

A $6.5 million claim for the loss of the plane itself was paid on Wednesday, Reuters reported, citing industry sources. Under the Montreal Convention of 1999, the airline will be liable for an additional $175,000 for each passenger or a total of $25.2 million for the 144 passengers on board the Airbus flight from Barcelona to Dusseldorf. In addition to the passengers, there were 6 crew members onboard.

AirAsia, which lost a plane and 162 passengers en route from Indonesia to Singapore, has already racked up £310 million in claims.

However, the $175,000 compensation is a starting point; families can go after the company for more if they sue for negligence. Lawyers suggest they may have a strong case in this instance, since the pilot was left alone in the cockpit, or wasn’t properly screened by the airline. Reports are emerging that pilot Andreas Lubitz had a history of psychiatric treatment, and may have been concealed from his employer. If the crash is prove to be caused by ‘negligence’ the 6 crew members could receive similar compensation, otherwise it will be logged as a workplace death, which has a different compensation regime.

As this isn’t the first time a pilot has committed suicide and brought passengers down with himself, relatives may have a stronger case.

Germanwings’s Flight 9525: A tragedy in the Alps http://t.co/1mni1OMyWB via @TheEconomistpic.twitter.com/C4CpD2ab7X

— michael mackenzie (@michaellachlan) March 24, 2015

Allianz is the lead insurer for Lufthansa, which owns the budget carrier Germanwings. Part of the cost will be paid out by underwriter AIG Aerospace, which covers war, hijacking, and terrorism, as well as costs associated with passenger loss of life and third party damage, which could be interpreted to include payouts to family and relatives. Reuters also reported that Cathedral, a subsidiary of Lancashire Holdings, is in charge of the war policy in the Germanwing’s case.

The search for black boxes, aircraft fragments, and passenger remains is a costly expense. The search is being led by Germany, France, and Spain, who may late file a claim with the airline.

Before the plane descended into the mountains killing all aboard, the German airline had a clean safety record. The last major incident was in 1993 when a crew member and passenger died on the Warsaw tarmac after the Airbus burst into flames during takeoff. The other five crew members and 63 passengers survived.

More than two

In response to the loss of 150 lives in the Alps, many airlines are now implementing a two person cockpit rule, to protect against a repeat scenario.

In the US it is already mandated that the pilot cannot be left alone in the cockpit without another crew member, as well as with Ireland’s Aer Lingus and Ryanair, UK airlines Jet2 and Flybe, as well as Canada’s Porter.

Air Berlin, Air Canada, easyJet, Monarch, Virgin Atlantic, Norwegian Air Shuttle, Air Transat, Westjet, and Thomas Cook have all changed their policy in light of the Germanwings crash.

Aviation insurance

On March 26, Lloyd’s insurance market reported a £310million loss, the largest on record since 2001 and the 9/11 attacks.

Lloyd’s said that 2014 “witnessed some sizeable risk losses, notably the tragic events impacting the aviation sector.”

Lloyd’s of London was founded in 1688 and is the world’s biggest insurance market with gross written premiums of £25.3 billion.

Last year was a particularly costly year for aviation insurers with a record number of disasters that ranged in motives and causes.

Timeline of crashes in last 365 days

March 8, 2014: Malaysia Airlines Flight MH370 disappeared

July 17, 2014: Malaysia Airlines Flight MH17 brought down over E. Ukraine

July 23, 2014: TransAsia Airways Flight 222 crash landed in Taiwan

July 24, 2014: Air Algerie Flight 5017 crashed in Mali

August 10, 2014: Sepahan Airlines Flight 5915 crashes after takeoff from Tehran

December 28, 2014: Indonesia AirAsia Flight 8501 crashed into Java Sea

February 4, 2015: TransAsia Airways Flight 235 crash-landed into river in Taiwan

March 5, 2015: Delta Airlines Flight 1086 veered off NYC runway

March 24, 2015: Germanwings Flight 9295 crashed into French Alps

In addition to mid-air tragedies, insurance companies also provide coverage for airports. Fighting at the Donetsk airport in Ukraine has all but destroyed the $1 billion airport built just 3 years ago for the European Cup, and rival militias in Libya have also caused significant damage to Tripoli airport. The damage to the Ukrainian airport has been ongoing since war broke out last year, and the Tripoli airport was hit hardest by a militia attack in July.

Article source: http://rt.com/business/244597-cost-germangwings-lufthansa-insurance/

Reuters / Yorgos Karahalis

Deposits in Greek banks have declined by around €7.6 billon in February as customers started pulling out their money with fears growing the country may possibly exit the eurozone.

Private and business deposits dropped to €140.5 billion in February, which is the lowest level in 10 years, data from the Bank of Greece showed Thursday, according to Financial Times. The withdrawals were lower than in January. About €20.4 billion was pulled out in the two months before Athens reached an agreement with the Eurogroup to extend its €172 billion bailout until June.

READ MORE: Greece, eurozone officials agree to extend bailout by 4 months

The standoff and failure to reach agreement between Greek government and the eurozone creditors accelerated capital flight. Almost €800 million was being withdrawn from Greek banks every day before the extension deal was reached, according to EU officials. Meanwhile, the banks depend entirely on the European Central Bank emergency loans for liquidity, as does the government for public funding.

It was massive withdrawals that forced the Greek government to push towards an extension deal, Dutch Finance Minister Jeroen Dijsselbloem told the Financial News.

“Mainly, the situation in the banks was becoming very urgent, and that was the biggest driver,” Dijsselbloem said. “If you have large outflows from your banks, you can do that for a couple of weeks, but there becomes a point where it becomes too critical.”

Deposits returned to the banks after the deal was reached last month, Greece authorities said. However, growing fears that Athens was running out of cash to pay its bills have triggered withdrawals again in recent weeks.

While EU authorities are trying to keep Greece in the single currency block, the risk of a serious political accident that could see Greece out of the euro is growing. The European Central Bank increased the emergency funds available to Greek lenders by $1.1 billion to $77.8 billion on Thursday, in an attempt to avoid the so-called ‘Grexit’.

The Greek government has €463.1 million of IMF loans to be repaid in early April and another €768 million falling due in May. Greece needs to show by Monday it can deliver detailed reform proposals to get the next €7.2 billion tranche in bailout funding.

The ECB would have to end its practice of emergency loans allowing banks to fund their everyday operations if the withdrawals increase in a way that Greek banks are deemed insolvent. Greece then would have to start printing its own currency.

Article source: http://rt.com/business/244517-greece-bank-deposits-low/

Reuters / Francois Lenoir

Ukraine’s $3 billion debt to Russia could undermine the IMF’s four-year multibillion dollar bailout program. If the debt is considered official, it will breach the terms of providing financial assistance, said IMF spokesperson William Murray.

The Ukraine debt includes $3 billion in Eurobonds lent by Russia to the country’s previous government in December 2013. IMF rules say a bailout cannot be provided to a country if it defaulted on a loan from a state institution.

“We have a non-tolerance policy,” William Murray told reporters at a news conference on Thursday, adding that Ukraine’s debt to Russia should be considered state debt.

“If I’m not mistaken, the $3 billion Eurobond comes from the Russian sovereign wealth fund, so it’s official debt,” he said.

READ MORE: IMF approves $17.5bn bailout package for Ukraine

However, the IMF hasn’t yet clarified its attitude towards the whole matter, Murray said.

READ MORE: Russia will not restructure Ukraine’s $3bn debt – finance minister

Earlier in March the IMF approved a $17.5 billion loan to Ukraine as part of the four-year bailout program in exchange for the economic, budget and monetary reforms. The country has received an initial $5 billion payment.

The fund has repeatedly warned that violations of the ceasefire in Ukraine’s south-east, along with its failure to reschedule the debt to private lenders could also pose a substantial risk to the implementation of the bailout program.

There are two possible ways Ukraine can save the situation with its debt – either to renegotiate the Russian loan through the Paris club of creditor nations, or sell it on the secondary market, so that it would no longer be owed to Russia.

Article source: http://rt.com/business/244501-ukraine-russia-imf-loan/

Reuters / Yannis Behrakis

The European Central Bank has increased the emergency funds available to Greek lenders by $1.1 billion, in an attempt to keep Greece in the eurozone. But, euroarea officials have told Greece they have zero trust in its ability to deliver effective policy.

The European Central Bank on Wednesday increased the amount of money Greek banks can borrow under its emergency lending program to $77.8 billion, Bloomberg reported. The increase is the biggest this month since lenders lost access to normal ECB funding lines in February. The EU is currently holding back crucial financial aid as the European Commission has made $2 billion of unused funds available to Greece to help the country avert a cash crunch.

The ECB told Greek banks late Tuesday not to buy any more Greek government debt. The so-called Troika of lenders, the ECB, IMF and European Commission require the country to stick to the austerity measures already agreed upon and complain Prime Minister Alexis Tsipras hasn’t convinced them his economic plan can meet their requirements. Greece needs to show by Monday it can deliver detailed reform proposals after finance ministry deputies reviewed the situation on a Wednesday conference call.

The international lenders are trying to keep Greece in the single currency block; however, the risk of a serious political accident that could see Greece out of the euro is growing.

“It would be tragic if Greece gives up the reform process now and its achievements are thrown away,” ECB council member Jens Weidmann, the Bundesbank chief, was cited by Bloomberg as saying in Munich on Wednesday.

READ MORE: Grexit: Win for both EU and Greece?

European Central Bank council member Yannis Stournaras urged the Greek government to act quickly to agree on reforms with the country’s creditors as he thinks that a Greek exit from the euro isn’t an option and wouldn’t help the country’s economy in the long-term.

“Grexit would deliver no benefit but a lot of pain. The new Greek government has a unique opportunity to implement bold structural reforms, which would be backed by a large majority of the political forces in the country,” Stournaras said in London, according to Bloomberg.

The Greek government is facing a serious challenge with a $501 million of IMF loans to be repaid in early April and another €768 million falling due the next month. Greece has to begin €1.5 billion monthly pension and salary payments this week. Meanwhile, European officials say Greece could run out of funds within weeks.

Greece should act faster for its actions to be more effective, suggests Jeroen Dijsselbloem, who heads the eurozone finance ministers’ group. “The main problem is the same in every country in Europe: getting things done,” Bloomberg reported him as saying in Rotterdam on Wednesday.

Article source: http://rt.com/business/244337-ecb-greece-extra-funding/