Archives for September 2015

Next year, contraction will slow down to 0.6 percent, while in 2017 the Russian economy will recover to a 1.5 percent growth rate, according to World Bank’s latest Russia Economic Report, issued Wednesday.

The bank also expects the Russian ruble to strengthen to 58.2 rubles (about 13 percent) to the US dollar in 2017, with capital outflow reduced to $67 billion.

The report praised the Russian authorities for successfully stabilizing the economy and called for sustained structural reforms. There is an opportunity for Russia to benefit from a structural transformation of its economy in the longer term, according to the report.

“The policy response by the authorities successfully stabilized the economy. Monetary policy prevented costly delays in relative price adjustments, highlighting the importance of the central bank’s commitment to inflation targeting in the context of a flexible exchange rate regime,” the World Bank lead economist for the Russian Federation and the main author of the report Birgit Hansl said.

Maintaining fiscal sustainability will become an especially pressing challenge in the light of low oil prices, according to the report. This will also be necessary for the proposed 2016 budget.

READ MORE: Russia’s Nabiullina named Central Bank Governor of the Year

“In the short-term, strong signals indicating the government’s commitment to regulatory discipline and to policies that facilitate the macroeconomic adjustment process would speed up the recovery of private sector confidence and promote investment despite tight financial conditions,” said the report.

Growth in the Russian economy is possible even in the fourth quarter of 2015, Russia’s Deputy Prime Minister Igor Shuvalov told journalists on Wednesday. He added that the Russian government is more interested in sustainability than statistics.

“We are concerned about a steady pace of growth so that we could come out of recession and move to the phase of growth. The rates of growth in 2016 are surely important, but sustained growth is more important for us,“ said the minister.

Article source: http://www.rt.com/business/317063-russia-recovery-wb-report/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

The loss could have been more than €1 billion without the Egyptian deal and push France’s budget deficit up to €556.7 million.

“Excluding the sale to Egypt, France would have to cover costs of around €1.1 billion. If the deal with Egypt goes through, the cost may be reduced to €200 to €250 million,” the French newspaper La Tribune cited a statement from the committee.

Paris intends to sell the warships to Egypt for €950 million, which includes the costs of training 400 Egyptian sailors in France. The Mistrals are expected to be delivered in March 2016 after Egypt agreed to buy the carriers earlier this month.

The cost is the same amount of money Paris paid Moscow as compensation for cancelling the Mistral deal. However, there was also a penalty clause in the contract if France failed to deliver the ships on time. So France is expected to lose more than the official €250 million.

READ MORE: Confirmed: France canceled Mistral deal with Russia under pressure from NATO

France and Russia signed a $1.3 billion contract for the Mistral ships in 2011. The contract specified the two helicopter carriers would be delivered to Russia, the first in 2014 and the second in 2015. Russia was to partly manufacture the hulls and provide its own electronic equipment for the warships. Later, the French government decided not to hand the vessels over to Moscow, following Crimea’s reunification with Russia and the outbreak of the armed conflict in eastern Ukraine.

On Tuesday, members of French Senate’s International Affairs Committee admitted that France pulled out of the Mistral deal with Russia because of the external pressure from NATO.

The Mistral ships can carry helicopters, tanks and hundreds of troops, and are equipped with a sophisticated command-and-control system

Article source: http://www.rt.com/business/317023-france-mistral-sale-losses/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

“The Competition Commission has opened investigation against two Swiss banks, UBS and Julius Baer, as well as against the foreign financial institutions Deutsche Bank, HSBC, Barclays, Morgan Stanley and Mitsui,” the watchdog said in a statement on Monday.

The banks are suspected of colluding in the trade of gold, silver, platinum and palladium, according to the regulator.

“We think they could have manipulated the price of these precious metals,” the deputy head of COMCO Patric Ducrey told AFP.

This is not the first probe into commodity market manipulation. In February, the US Department of Justice included top ten international banks in its investigation of precious metals trade fixing.

The Swiss regulator FINMA included its metals rigging investigation into another settlement with UBS Group over currency rate manipulation, saying there was a “clear attempt to manipulate fixes in the precious metal market” by the bank. UBS later pled guilty and agreed to pay $545 million in combined fines.

READ MORE: Goldman Sachs, HSBC, BASF sued in first US metals price manipulation case

Last year, four major international banks (Goldman Sachs, HSBC, BASF and Standard Bank) were accused of manipulating platinum and palladium prices for eight years. The banks’ manipulation reportedly cost purchasers millions of dollars.

Until recently, gold, silver, platinum and palladium prices were set by a century-old process where a small number of banks would meet for daily or twice-daily conferences. That process was overhauled last year with the help of the London Bullion Market Association. Now, an electronic, auction-based system serves as a regulatory structure for market prices.

Article source: http://www.rt.com/business/316875-swiss-banks-probe-rigging/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

“Visa announced that from October 1 it does not guarantee the processing of authorization requests for local operations [in Russia – Ed.],” the Russian daily Kommersant cited an unnamed source. In effect, Visa is avoiding the responsibility for refusing to process transactions, for which it would have to pay a new guarantee fee to Russia’s Central Bank, the source added.

Visa confirmed it had notified the banks, according to Kommersant.

READ MORE: Visa may avoid huge Russian fines over data compliance as regulator eases terms

All Russian banks have to switch to Russia’s national system of payment cards (NSPC) by October 1. As for international payment systems, those who want to work in Russia, have to transfer local processing operations to NSPC.

The system was established in 2014 to ensure smooth operation of electronic payments across Russia, after Visa and MasterCard blocked specific US-sanctioned Russian banks from using their payment systems.

MasterCard transferred the processing of Russian operations to the country’s national payment system on time, thus avoiding penalties. Visa, however, failed to meet the deadline and had to pay a guarantee fee, which was later returned. The official size of the fee was not disclosed but experts estimated the sum at $50 million.

READ MORE: ​National Russian card payment system established

Since then, Russian banks have been working with Visa in two ways – directly and through NSPC. Nevertheless, according to the law, all card payments in the country should be made through NSPC starting next month.

The officials at NSPC along with market participants are confident that Visa’s new approach won’t lead to crashes in the system, according to Kommersant. A disclaimer of warranties from Visa “will not disrupt card holder’s transactions”, NSPC said.

Visa press service responded by reasuring its Russian cardholders, saying that Visa cards will continue to work in Russia as usual, before and after October 1.

Article source: http://www.rt.com/business/316862-russia-visa-payments-system/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program,” Director of Shell Upstream Americas, Marvin Odum said in a statement. “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the US. However, this is a clearly disappointing exploration outcome for this part of the basin.”

The decision also reflects the high costs associated with the project and challenging regulations, according to Shell. The explorer which drilled to a depth of 6800 feet beneath Alaska’s Chukchi Sea, has already spent $7 billion. The balance sheet carrying value of its Alaska position is about $3 billion, with additional future contractual commitments of about $1.1 billion, the statement said.

READ MORE: Shell gets final approval for Arctic oil drilling

Shell got final Arctic oil exploration approval in August. It came when the US government included Russia’s Sakhalin 3 project in its sanctions list. The project is a joint one for Russia’s Gazprom and Shell as the companies signed agreements to develop a strategic alliance in the gas sector. Under US sanctions new gas exploration activities on Sakhalin Island have been restricted. Industry experts saw the US approval for Alaskan exploration was a consolation prize to Shell after sanctions forced the company out of the Sakhalin project.

READ MORE: US includes Gazprom’s field on sanctions list

The area approved for Shell’s drilling in the Arctic was expected to contain about 15 billion barrels of oil. The company at the time said drilling there could become a “game changer” for US domestic production. The company had been waiting for more than 7 years for approval after obtaining the leases in the Chukchi Sea in 2008.

READ MORE: Greenpeace bridge danglers and ‘kayaktivists’ delay Shell icebreaker in Portland

Environmental groups condemned the approval for drilling in the Chukchi Sea. They have held a number of protests, citing climate change concerns and fears that Shell’s efforts could wreak havoc on the Arctic’s fragile environment worse than the 2010 BP oil spill in the Gulf of Mexico.

Article source: http://www.rt.com/business/316726-shell-alaska-drilling-halt/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Beijing will launch the world’s largest emissions trading program in 2017. The market will serve the interests of top CO2 greenhouse gas emitting industries, including fossil fuel burning electric power generation, cement and steel production.

A joint announcement from Chinese President Xi Jinping and US President Barack Obama says the effort would contribute much to slashing carbon emissions.

“China’s ‘green dispatch’ system will prioritize power generation from renewable resources, and establish guidelines to accept electricity first from the most efficient and lowest-polluting fossil fuel generators,” the statement says.

READ MORE: Global CO2 emissions stall for first time in 40 years as economy grows

China is the world’s largest greenhouse gas emitting nation, estimated at 23 percent of the world’s total in 2008. The US, with a population more than four times less than in China, is number two in the greatest polluter list, with 19 percent.

“Today, China — one of the largest providers of public financing for infrastructure worldwide — agreed to work towards strictly controlling public investment flowing into projects with high pollution and carbon emissions both domestically and internationally,” the statement said.

The Obama administration finalized its Clean Power Plan Environmental Protection Agency (US EPA) this August.

According to the plan, the US intends to slash carbon emissions from electric power plants by 32 percent from 2005 levels by 2030.

“I issued our Clean Power Plan to reduce America’s carbon emissions,” President Obama told reporters at a news conference at the White House. “China will begin a market-based cap-and-trade system to limit emissions from some of its largest sectors.”

President Obama has also said a climate agreement could be reached in Paris in December as the two nations have a joint “ambitious vision” on climate change.

In turn, President Xi Jinping announced his country is adopting a “green dispatch approach” in electric power supply, which is expected to enable China to make its electricity production 20 percent renewable by 2030.

READ MORE: China to slash coal consumption by 160mn tons in 5 years

In a pledge China submitted to the UN in June, Beijing expressed its commitment to reduce its greenhouse emissions by as much as 65 percent. This ambitious plan requires doubling China’s wind power generating capacity and nearly quadrupling its solar energy production by 2020.

Article source: http://www.rt.com/news/316582-china-carbon-emissions-trader/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

Following rounds of trilateral and bilateral negotiations over the past few months, the EU Commission, Moscow, and Kiev have agreed on terms for gas supplies to Ukraine for the upcoming winter period. From the 1st of October through the end of March 2016, Kiev is expected to buy 2 billion cubic meters.

READ MORE: Kiev pays for Russian gas with ‘negotiations’ – Ukraine finance minister

“After the [initialed protocol] document is signed, Ukraine will start buying our gas. We expect the purchase to begin on October 1,” Russian energy giant Gazprom’s chief executive, Aleksey Miller, said after Kiev and Moscow initialized the binding protocol.  

Russian Energy Minister Aleksandr Novak and Ukrainian Energy Minister Volodymyr Demchyshyn have agreed that Kiev will pay a reduced price of $232 (€207) per thousand cubic meters of gas during the period covered by the agreement. Russian Prime Minister Dmitry Medvedev earlier signed a resolution dropping the gas price for Ukraine from $252 per thousand cubic meters.

The EU has agreed to allocate $500 million to Ukrainian Naftogas in the near future to ensure gas stores of 2 billion cubic meters, Novak told reporters early on Saturday.

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“The European Commission continues its efforts towards organizing, through European and international financial institutions, the necessary financing for gas purchases by Ukraine during the winter period, as part of which at least 500 Million US $ should be available by the end of this year,” the European Commission said in a statement.

According to the Wall Street Journal, the tentative deal was also made possible by a $1 billion financing package provided by international financial institutions led by the World Bank in order to help Ukraine and its energy giant OAO Naftogaz fill up its natural gas-storage facilities.

After the Friday talks, the document was submitted to the respective governments for confirmation. Another major development is expected next week, when a trilateral agreement involving the European Commission is due to be signed separately. Demchyshyn told reporters that it might be signed “sometime next week.”  

Under the initial protocol, the Ukrainian side commits to re-establish natural gas transit through its territory to the EU, “including via injecting 2 bcm of natural gas into underground storage still [sic] in October 2015,” the European Commission’s statement said.

“The Russian Government commits to lowering the gas price to Ukraine, by means of decreasing the export duty, to a competitive level comparable to the neighboring EU countries both in the 4th quarter 2015 and in the 1st quarter 2016,” according to the statement.

Ukraine needs extra winter funding – Gazprom CEO

The Ukrainian government hopes that the 2 billion cubic meters agreed on will last until the end March. However, Gazprom’s CEO has warned that it may run out of gas before the period agreed upon ends.

“Our assessment is that Ukraine will need anywhere from 5 to 7 billion cubic meters [bcm] of gas from October 1 to March 31,” Miller said.

There is a possibility, according to Miller, that Ukraine “may receive extra funding of up to $800 million,” TASS news agency reports.

“But even that sum is not enough for getting through an unusually cold winter,” Miller said.
The European Commission estimates that Ukraine will require an additional 9 – 12 billion cubic meters of gas this winter.

“It will depend on consumption, and consumption will depend on temperatures. According to last year’s experience, Ukraine next winter may need an extra nine to twelve billion cubic meters of gas. But it will all depend on the weather,” an exclusive source in the European Commission told the news agency.

“The other amounts of gas will be determined by Ukraine’s Naftogaz on the basis of market economy principles,” he added.

The news agency has also learned from the same source that the European Commission and “international financial institutions by the end of the year would lend Ukraine an extra $500 million.”

Moscow suspended gas flows to Ukraine in July after Gazprom said Kiev had failed to make prepayment for future supplies. Around half of Russia’s gas exports to Europe pass through Ukraine. The current deal would thus also ensure safe gas transit to Europe during winter period.

READ MORE: Nord Stream expansion to Europe will leave Ukraine in $2bn hole – PM Yatsenyuk

Article source: http://www.rt.com/business/316562-ukraine-russia-gas-winter/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

The pullout of money from the country exceeded the previous record of $124.62 billion in July, Bloomberg’s so-called “hot money” gauge showed. It is an estimate of the sum of foreign exchange purchases by banks and the change in foreign exchange deposits to measure flows into and out of the country.

READ MORE: China stages biggest currency devaluation in 20 yrs to revive exports

The outflow accelerated in August following China’s shock devaluation of the yuan. The Central Bank of China has cut its daily reference rate by 1.9 percent, its biggest downward adjustment in 20 years. The aim, it said, was to revive faltering exports.

Beijing has ramped up efforts to support the slowing economy and an almost 40 percent stock market drop since late June. The government cut interest rates for the fifth time since November and pledged to support the market by buying shares. However, the measures did not stop factory activity contraction, which hit a six-and-a-half year low in September, the worst result since March 2009. Concerns over the world’s second biggest economy slowing down made investors turn to safer assets.

Meanwhile, experts have different forecasts on the issue.

“My worry is that, given the relatively large economic downward pressure, as China is opening up the capital account, it means more money will leave China,” a PBOC adviser and Peking University economics professor Huang Yiping was cited as saying by Bloomberg. “If there’s an overall capital outflow in the future, it will bring depreciation pressure.”

“The current capital outflow is just a temporary market reaction,” said Sheng Songcheng, head of the PBOC’s statistics and analysis department. He claimed that China’s economic slowdown, rising debt level and stock market swings all can cause short-term panic for investors, adding that the yuan will not depreciate continuously.

Article source: http://www.rt.com/business/316561-china-record-outflow-devaluation/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

A ‘selective default’ occurs when a borrower fails to pay one or more of its payment obligations, but continues to meet others.

SP: Ukraine Foreign Currency Ratings Lowered To ‘SD’ (Selective Default) On Distressed Debt Restructuring

— Jamie McGeever (@ReutersJamie) September 25, 2015

The main reason for the downgrade was that on September 23, the country failed to make a $500 million repayment, according to SP.

Ukraine’s government then suspended all the payments on its external debt, following the restructure agreement with creditors. Kiev is exchanging its old bonds for new ones, to be completed by December 1. The new bonds include a 20 percent debt write-off and extended maturity through till 2019.

“Ukraine’s invitation constitutes the launch of what we consider to be a distressed debt restructuring. We view an exchange offer as tantamount to default,” as the offer implies that “the investor will receive less value than the promise of the original securities,” the agency’s report said. The offer is distressed, rather than purely opportunistic, it added.

READ MORE: Kiev should ‘walk away’ from $3bn debt to Moscow – US senator

The list of non-payments doesn’t include the $3 billion owed to Russia. The debt to Moscow is due to be repaid in December. Russia insists it wants to receive the full amount.

According to the Ukrainian government website the restructuring applies to the $3 billion Eurobonds purchased by Russia.

READ MORE: Moody’s downgrades Ukraine heralding imminent default 

In March, the Moody’s rating agency downgraded the long-term issuer rating of Ukraine to the second lowest grade, leaving the outlook negative with a high possibility of imminent default.

The agency then said one of the reasons for downgrading Ukraine’s rating was that foreign private lenders were expected to incur substantial losses due to the government’s plan for restructuring the bonds it had issued or guaranteed.

Article source: http://www.rt.com/business/316521-standardpoors-ukraine-selective-default/?utm_source=rss&utm_medium=rss&utm_campaign=RSS

The French oil giant Total, Russia’s Novatek and China National Petroleum Corp. are developing a joint $27 billion Yamal liquefied natural gas (LNG) project in the Kara Sea. While most of the project’s western financing was cut off due to Western sanctions against Russia, the partners have turned to Chinese state banks for loans, Pouyanne told the Wall Street Journal. They want to attract some $12 billion.

READ MORE: Chinese banks to invest over $10bn in Siberian LNG project

Earlier this month, Chinese $40 billion Silk Road Fund acquired 9.9 percent stake in Yamal LNG, the price of the purchase was not disclosed. Chinese state-owned infrastructure fund will thus join the project as part of China’s contribution, according to Total CEO.

“This project is part of an intergovernmental agreement between Russia and China,” Pouyanne told WSJ, adding that Yamal partners are still seeking investments from Chinese banks.

The Yamal LNG project involves the construction of a plant with a capacity of 16.5 million tons of LNG per year. The launch of the first stage is scheduled for 2017. Novatek has a 60 percent share in the project, while France’s Total and China’s CNPC have 20 percent each.

Russia’s National Wealth Fund has contributed $1.4 billion to the project, with the remaining tranche of around $1 billion to be released soon, Pouyanne said.

READ MORE: Total to raise $15 billion in China for Russian projects

He added that $3-4 billion in funds are still expected from the Russian banks while up to $5 billion from export credit agencies in Asia and Europe.

In March, Pouyanne said he expects Russia to become his company’s most important region for oil and gas production by 2020, with an output of around 400,000 barrels per day. Total’s stake in Russia’s largest independent gas producer Novatek currently stands at 18.9 percent and the company has plans to buy up to 19.4 percent in future.

Article source: http://www.rt.com/business/316477-china-russia-investments-arctic/?utm_source=rss&utm_medium=rss&utm_campaign=RSS