October 23, 2014

October 23, 2014
This is bne's Southeast Europe daily newsletter, a list of the top stories from the
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SE TOP STORIES
1. Russia bans Moldovan meat imports
2. CEE struggles may help sink Austrian banks in stress tests
3. New European Commission President to Mull Over Turkish Exploration Works off
Cyprus Coast
4. Romania borrows EUR 1.5 bln from international markets at record low costs
5. Slovenia aims to sell Telekom, cut deficit -finance ministry
6. Turkey: New security bill may result in draconian social media measures
STORIES FROM WEBSITE
7. Russian insurer feels the Pinchuk
8. Spat over LNG terminal symptomatic of Baltic struggle to counter Russian
influence
9. Ukraine crisis sparks renewed Russian interest in aging Trans-Mongolian Railway
SE RESEARCH & COMMENT
10. Romania: Nuclearelectrica (SNN RO): CEO’s statements for the media – negative
(zf.ro)
11. Visegrad countries push for more gas imports in 2030 deal
SE MACRO
12. Bulgaria has the second lowest public debt in the EU
13. Croatia: Unemployment rate up for first time after six months
SE OTHER NEWS
14. Bulgaria audit points to bad business practices at Corpbank
15. EBRD AND MOLDOVA JOIN FORCES TO IMPROVE INVESTMENT CLIMATE
16. IOC to discuss possible Kosovo Olympic recognition: spokesman
17. Large real estate investors in Romania ponders euro-bond issue
18. Romanian PM suspends three high profile leaders from ruling party
19. Russia May Limit Meat Imports From Montenegro: Watchdog
20. Telekom Austria to get Telekom Slovenije Macedonia unit
21. Turkey plans to build third nuclear plant with own resources
22. Turkish Central Bank to pay interest on lira reserves to support growth
SE TOP STORIES
1. Russia bans Moldovan meat imports
bne
October 23, 2014
Russia has banned meat imports from Moldova on the grounds of health, following a
downturn in bilateral relations in the run up to Moldova’s parliamentary elections in
November.
Sergei Dankvert, head of Russia’s Federal Service for Veterinary and Phytosanitary
Surveillance (Rosselkhoznadzor) said on October 22 that the agency had discovered
meat imports from Moldova that were “unsafe products from the veterinary and
sanitary point of view”. Meat imports would therefore be banned from October 27.
"In certain instances meat from Moldova has come from unidentified sources and is
unsafe by veterinary-sanitary measures," Dankvert told Russian news agency TASS.
The agency is also considering a ban on imports from Belarussian companies that
use unprocessed meat from Moldova, unless Belarus also agrees to ban Moldovan
meat imports.
The deputy director of Moldova’s National Agency for Food Safety, Grigore Porcescu
told state news agency Moldpres on October 22 that no official notification from
Rosselkhoznadzor had been received by the government, which received the news
from the Russian embassy in Chisinau. Porcescu added that the agency did “not
know what the grounds for the prohibition would be”.
Moscow, acting through Rosselkhoznadzor, frequently uses its economic leverage in
an attempt to force former Soviet states such as Moldova or Georgia to remain
within the Russian sphere of influence.
In June,http://www.bne.eu/content/story/georgia-moldova-set-ink-euagreementsMoldova signed</a> an Association Agreement and Deep and
Comprehensive Free Trade Agreement (DCFTA) with the EU, firmly cementing its
path towards European integration. Prime Minister Iurie Leanca has since said that
he plans to apply for EU membership in 2015.
Three weeks after Moldova signed the two agreements, Rosselkhoznadzor announced
bans on imports of most fruits and vegetables from Moldova, as well as introducing
import duties on meat and other products. A ban on Moldovan wine imports has been
in place since 2013.
Moscow has been irked by a recent decision by the Moldova constitutional court that
declares promoting any political course other than European integration to be
unconstitutional. Russian officials have voiced concerns that the ruling would allow
Moldovan political parties who advocate entry to the Russian-led Customs Union
rather than the EU to be banned.
Russia’s Foreign Ministry has criticised the ruling, saying in
ahttp://www.mid.ru/brp_4.nsf/0/692E1A47BA21ED4E44257D79005CEE0Cstatement
on October 22 </a> that attempts by the court to explain the reason for the verdict
were "inconsistent". "How can this ruling by the country’s supreme judicial authority
be characterised as anything other than the de facto outlawing of political groups
advocating an alternative path for the country’s development that differs from the
priorities of the parties of the present ruling coalition?" the ministry says.
The November 30 election will be critical for Moldova, as it will determine whether
the country stays on the pro-EU course it has pursued under Leanca. However, if the
ruling Liberal Democratic Party-led coalition is ousted by the Communists, which
have the largest number of seats in the current parliament, this could be reversed.
Communist MP Grigore Petrenko has already filed a bill denouncing the EU
Association Agreement that Leanca signed in June.
Moldova has already been hurt economically by the July ban on fruit and vegetable
exports, even though EU has overtaken Russia as its top trading partner. Russia
remains the country’s second biggest trading partner, accounting for around one
quarter of total trade. Until the recent ban, Russia was a particularly important
market for Moldovan fruit, absorbing between 70% and 90% of fruit exports and
almost all the country’s apple exports, according to
anhttp://www.osw.waw.pl/en/publikacje/analyses/2014-07-23/russias-embargomoldovan-goods-extendedOSW study</a>. In 2013, Russia imported around $85m
worth of Moldovan fresh and processed fruit and vegetables.
Since the ban came into force, Moldova was forced to search for new markets for its
2014 harvest, looking to Europe and the Middle East. It has had some success, for
example in exporting to Belarus, which has ignored pressure from fellow Customs
Union member Russia to join the ban.
2. CEE struggles may help sink Austrian banks in stress tests
bne
October 23, 2014
Around a dozen Eurozone banks have failed stress tests and will need to find new
capital, the European Central Bank will reveal on October 26, a report claims. Two
Austrian banks with strong connections to Central and Eastern Europe may be
included in that group.
Citing unnamed sources, Spanish news agency Efe reported on October 22 that at
least 11 banks, from six countries, are set to fail the check on the levels of capital at
Eurozone banks. Those of the 130 banks tested whose buffers fall below required
ratios to withstand another economic crunch will need to raise new cash. The stress
tests come ahead of a November 4 takeover of banking regulation by the ECB.
Three banks in Greece, three Italian lenders and two Austrian banks are among
those that preliminary data showed had failed the tests, Efe said, according to
Reuters. It gave no details of how much capital the banks would have to raise and
said this could yet change as numbers could be revised at the last minute.
The risk that two Austrian banks may fail rings alarm bells in CEE, where Raiffeisen
Bank International (RBI) and Erste are the second and third largest lenders.
Erste was namechecked by EFE, and its share price dropped 1.4% in Vienna around
midday. However, insistence by Erste that the report was false, backed by analyst
suggestions that the bank should pass, enabled the shares to trim the loss to 0.85%
by the close.
Others were not so lucky as the report sparked selling across European banking
stocks. RBI finished the day with a 1.4% loss. The euro also fell on the report, while
the ECB has yet to comment.
After a pair of massive state bailouts in 2008 and 2009, Erste carried out a rights
issue to raise €660m in July 2013. However, it's still struggling with bad loans particularly in South Eastern Europe. Alongside other lenders it's also facing huge
losses in Hungary, where it is being forced to refund borrowers for practices deemed
"unfair" by the government, as well as local and European courts. In June, Erste
posted a quarterly loss of €1.03bn, and predicted a full-year loss of €1.6bn.
RBI, which also raised capital recently, warned in September that it faces its first
ever annual loss this year due to the costs in Hungary, and also the deterioration in
loan quality in Ukraine.
The pair is facing similar - though smaller - problems in struggling markets in the
region, with the likes of Romania, Croatia and Serbia the major sources of bad loans.
Berenberg analysts estimated recently that "there are €8bn of hidden losses on retail
[forex] loans in CEE that may crystallise ahead of the ECB (testing)," with Erste the
most exposed with expected losses of €0.9bn. RBI is likely to be hit for €0.6bn, they
suggested.
Should Volksbank fail the test it would be less of a shock. An Austrian banking source
told bne earlier this month that Volksbank was most at risk. Formerly Austria's fourth
largest lender, all that remains is the domestic rump following three rounds of state
aid since 2008. The final round saw it taken over by Vienna in 2012. Meanwhile, it
sold its large CEE bank network to Russian state giant Sberbank, and continues to
seek to spin off smaller businesses such as insurance across the region.
The Vienna-based Sberbank Europe (formerly Volksbank International) and fellow
Russian state giant VTB Bank will have to pass the ECB test from next year.
3. New European Commission President to Mull Over Turkish Exploration
Works off Cyprus Coast
RIA Novosti
October 23, 2014
New European Commission President Jean Claude Junker told reporters on
Wednesday that he is going to mull the measures to resolve the issue concerning
Turkey's oil and gas exploration works off the Cyprus coast.
Read more here: http://en.ria.ru/politics/20141022/194450929/New-EuropeanCommission-President-to-Mull-Over-Turkish.html
4. Romania borrows EUR 1.5 bln from international markets at record low
costs
Romania Insider
October 23, 2014
Romania’s Finance Ministry has drawn EUR 1.5 billion from international markets
with an issue of state bonds denominated in euro.
The bonds have a 10-year maturity and the yield on these bonds, which reflects the
borrowing costs for the state, is 2.97%, which is a new all-time low, according to
Mediafax newswire.
Read more here: http://www.romania-insider.com/romania-borrows-eur-1-5-blnfrom-international-markets-at-record-low-costs/134075/
5. Slovenia aims to sell Telekom, cut deficit -finance ministry
Reuters
October 23, 2014
Slovenia expects to sell Telekom Slovenia, the most valuable company on its
privatisation list, in early 2015, state secretary at the finance ministry Metod
Dragonja told reporters on Wednesday.
Read more here: http://www.reuters.com/article/2014/10/22/slovenia-telekomidUSL6N0SH2EA20141022
6. Turkey: New security bill may result in draconian social media measures
Hurriyet Daily News
October 23, 2014
The “domestic security package” that the government is expected to submit to
Parliament in the coming days may introduce unprecedented new measures on social
media, including special prison sentences for Internet users who call for protests,
government sources have told Hurriyet.
Read more here: http://www.hurriyetdailynews.com/new-security-bill-may-result-indraconian-social-media-measures.aspx?pageID=238&nID=73354&NewsCatID=339
STORIES FROM WEBSITE
7. Russian insurer feels the Pinchuk
Nick Kochan in London
October 22, 2014
Documents related to a Moscow arbitrage court hearing seen by bne allege there is a
€145m hole in the finances of a now-bankrupt Russian insurance company that was
controlled by Ukrainian oligarch Victor Pinchuk. Although this is not yet a criminal
case, a previous statement from the temporary administrator of Rossiya Insurance
Company supports suspicions that serious wrongdoing has occurred.
That Pinchuk’s business empire, which spans metals, finance and media, has been in
some financial difficulty is not in doubt. As the civil war in eastern Ukraine drags on
and the country’s economy collapses, many Ukrainian businesses are hurting. In
August, bne reported that Pinchuk’s main asset, the pipeline maker Interpipe, is
close to defaulting on its bonds.
The RUB7.6bn (€145m) loss at Rossiya is the subject of a Moscow Arbitrage court
hearing, set to take place on November 11. The loss arose from a deal between
Cypriot-registered Svatozar Enterprises Ltd, which is controlled by the Pinchuk group
EastOne, and the Russian insurance company Rossiya, which in turn is 76% owned
by Svatozar Enterprises.
Read more here: http://www.bne.eu/content/story/russian-insurer-feels-pinchuk
8. Spat over LNG terminal symptomatic of Baltic struggle to counter Russian
influence
bne
October 22, 2014
With Russia playing cat-and-mouse with Europe over gas deliveries, the need to
diversify energy supplies has never been greater. However, the deadlock over the
planned pan-Baltic liquefied natural gas (LNG) terminal demonstrates how difficult it
is to win broad international agreement, especially when the economics are uncertain
and Russia holds many of the aces.
Cut off from European gas networks because of their Soviet history, and thus fully
dependent on Russia for gas, the Baltics have long been earmarked for an EU-backed
LNG terminal.
Under the EU’s first stress tests for the energy sector released this October, which
anticipate the potential impact of Russian gas supply disruptions, Finland and Estonia
were named as the most exposed, even though neither was affected by the RussiaUkraine gas wars that cut off several eastern EU states in 2006 and 2009.
However, disagreement over the location of the LNG terminal has prevented
progress towards this goal, forcing Estonia, Latvia and Lithuania to turn to Brussels
to make the decision in 2012. "Estonia or Finland" came the reply. That only opened
the door to more bickering between Tallinn and Helsinki.
Read more here: http://www.bne.eu/content/story/spat-over-lng-terminalsymptomatic-baltic-struggle-counter-russian-influence
9. Ukraine crisis sparks renewed Russian interest in aging Trans-Mongolian
Railway
Terrence Edwards in Ulaanbaatar
October 22, 2014
The Trans-Mongolian Railway badly needs an overhaul if it is to operate as an
effective trade route between Russia and China. That could finally happen now both
of Mongolia's powerful neighbours have good reasons for doing so, which would have
the added effect of opening up more of Mongolia's vast mineral wealth to foreign
investors.
The Trans-Mongolian Railway is 1,800 kilometres of 1950s-era track bisecting the
landlocked country between China and Russia. It is slow and can only haul a little
over 20m tonnes of cargo across the country a year. The direct route across
Mongolia also fails to reach the valuable mineral deposits that are peppered
throughout the country.
Russia is a 50% partner with Mongolia of Ulaanbaatar Railways, which owns and
maintains the rail route. But Russia has shown little interest in the joint venture in
the years since it cut Mongolia loose when the Soviet Union broke apart. But now
Russia’s disputes with the West have put Mongolia in an enviable position to facilitate
trade between Russia and China as well as step up its own trade in goods such as
meat products.
Read more here: http://www.bne.eu/content/story/ukraine-crisis-sparks-renewedrussian-interest-aging-trans-mongolian-railway
SE RESEARCH & COMMENT
10. Romania: Nuclearelectrica (SNN RO): CEO’s statements for the media –
negative (zf.ro)
Raiffeisen
October 23, 2014
* Average price on the competitive market for 2015 is seen below 2014 level and
consumers are still reluctant to enter long term contracts; renewables continue to
put a downward pressure on prices; our estimate for the average (net) price in 2014
is 154.7 RON/MWh while for 2015 we were estimating an increase of 1.2% to 156.6
RON/MWh.
* Raiffeisen group has been selected as an advisor for a potential M&A deal
regarding Enel assets in Romania; Enel is waiting for nonbinding offers by October
31.
* We see the news as negative considering the downbeat view on prices.
Alexandru Combei
11. Visegrad countries push for more gas imports in 2030 deal
Bankwatch CEE
October 22, 2014
The Visegrad plus 2 countries (Poland, the Czech Republic, Hungary, Slovakia,
together with Romania and Bulgaria) have all included a strong statement of support
for the Southern Gas Corridor into their comments to the drafted EU 2030 Council
conclusions to begin in Brussels this Thursday.
The Southern Gas Corridor is a set of planned projects meant to bring gas into
Europe from the Caspian region, including three major pipelines: South Caucasus,
Trans Anatolian and Trans Adriatic.
In the „energy security" section of the draft Council conclusions, each of the
submissions of the six countries from Central and Eastern Europe contains an
identical paragraph which states the need for the Southern Gas Corridor projects to
be expedited:
„Member States and the Commission will ensure that the implementation of the
critical projects of common interest in the gas sector identified in the European
Energy Security Strategy, in particular the North South Gas Corridor and the
Southern Corridor, will be completed in expedite manner, bearing in mind the
necessity of increasing the energy security of the most vulnerable Member states."
This paragrah is a totally new addition that each of the V4+2 countries have made to
the Council conclusions since their meeting September 30th when they coordinated
their positions in order to get more out of the bargain with the rest of the EU
member states.
During his European Parliament hearing last week, Slovakia's EU Commissioner
designate Maros Sevcovic, the future EU Commission Vice-President for Energy
Union, indicated his support for the realisation of the Southern Gas Corridor projects.
„V4+2 countries seem keen on shooting themselves in the foot with this one,"
comments Ondrej Pasek, Bankwatch energy campaigner. „They strongly argue for
energy security, but instead of pushing for financing of high energy efficiency and
renewable targets to help their own citizens and companies get rid of dangerous
energy dependency, they just want to put more money in pipelines. Yet the Southern
Gas Corridor can only source gas from politically problematic regions, such as the
Caucasus or the Middle East. Can this be called security in any sense?"
A 2030 energy efficiency target for the EU of 30 percent would reduce gas demand in
Europe by as much as 20 times the import volumes that would be coming through
the Southern Gas Corridor, making this new piece of mega-infrastructure redundant.
In their coordinated positions, V4+2 countries are all calling for a non-binding 25
percent energy efficiency country for the whole block (not for each individual
country).
A study published on the 20th of October by the World Resources Institute shows
that more investment in renewables and energy efficiency in three sectors (housing,
industry and power generation) can cut natural gas imports to the European Union
by 50% and CO2 emissions by 49%.
For Thursday's summit, Sweden and Denmark have been pushing for at least 30%
binding energy efficiency target, with Germany, Luxembourg and Portugal supporting
the 30 percent figure (not more). From the Western European countries, only Cyprus
and the UK advocate for no energy efficiency target at all. There is no mention of the
Southern Gas Corridor in the comments of the countries wanting a higher energy
efficiency target.
„In their positions, the Visegrad countries are not only turning against many Western
European countries who would want a more ambitious energy efficiency target, but
they are also cannibalising EU efforts to build a strong internal power market,"
comments Bankwatch's energy campaigner Kuba Gogolewski. „This is because they
are suggesting financing for more gas pipelines should be given priority over
investments in power interconnectors which would help to integrate the European
energy market and especially allow countries to share their renewables."
Comments of V4+2 countries on the draft conclusions of the EU Summit explicitly
ask to delete a sentence asking the Union and Member States to secure adequate
financing for interconnectors.
"An ambitious EU climate and energy policy for the period after 2020 would
essentially eliminate the need for massive investments in natural gas import
pipelines such as the Southern Gas Corridor or LNG terminals," concludes Kuba
Gogolewski. „By not adopting ambitious climate policies and giving in to the
Visegrad group pressure, the EU would only turn the mantra of gas companies, that
we 'need' more gas, into a sef-fulfilling prophecy."
SE MACRO
12. Bulgaria has the second lowest public debt in the EU
Invest Bulgaria Agency
October 23, 2014
Bulgaria has the second lowest public debt in the EU, according to the latest revised
data to Eurostat. At the end of 2013 the debt of the EU-28 amounted to EUR 11.55
trillion or 85.4% of GDP and grows compared to previous years.
Read more here: http://investbg.government.bg/en/news/bulgaria-has-the-secondlowest-public-debt-in-the-eu-967.html
13. Croatia: Unemployment rate up for first time after six months
Dalje
October 23, 2014
The unemployment rate in Croatia has increased from 17.5% in September to
17.7%, which is the first time it has gone up after declining for six months, the
national statistical office said on Wednesday.
Read more here: http://dalje.com/en-croatia/unemployment-rate-up-for-first-timeafter-six-months/525766
SE OTHER NEWS
14. Bulgaria audit points to bad business practices at Corpbank
Reuters
October 23, 2014
An audit into Bulgaria's Corporate Commercial Bank (Corpbank) points to unusually
bad business practices carried out by its management, the central bank said on
Wednesday.
Read more here: http://www.reuters.com/article/2014/10/22/bulgaria-bankingidUSR5N0P601120141022
15. EBRD AND MOLDOVA JOIN FORCES TO IMPROVE INVESTMENT CLIMATE
EBRD
October 23, 2014
The European Bank for Reconstruction and Development (EBRD) has agreed a range
of activities to support the government of Moldova to reform the business
environment, encourage the development of the private sector and promote good
governance.
Under a Memorandum of Understanding signed by Moldova’s Prime Minister Iurie
Leancă and EBRD President Sir Suma Chakrabarti the two parties will join efforts to
enhance the work of the EBRD-backed Economic Council to the Prime Minister;
support the establishment of an independent mechanism to address concerns and
complaints by businesses about instances of ill-treatment or unfair competition;
develop alternative dispute resolution as well as arbitration procedures; and create a
single, transparent registry of shares of Moldovan banks.
Read more here: http://www.ebrd.com/pages/news/press/2014/141022.shtml
16. IOC to discuss possible Kosovo Olympic recognition: spokesman
Reuters
October 23, 2014
The International Olympic Committee will discuss the possibility of granting Kosovo
Olympic recognition at its Executive Board meeting this week, an official said, a
move that has angered Serbian Olympic officials.
Read more here: http://uk.reuters.com/article/2014/10/22/uk-olympics-kosovoidUKKCN0IB14620141022
17. Large real estate investors in Romania ponders euro-bond issue
Romania Insider
October 23, 2014
South-African investment fund New Europe Property Investments (NEPI), one of the
largest real estate investors in Romania, plans to issue euro-denominated corporate
bonds to attract financing.
Read more here: http://www.romania-insider.com/large-real-estate-investors-inromania-ponders-euro-bond-issue/134094/
18. Romanian PM suspends three high profile leaders from ruling party
Romania Insider
October 23, 2014
The Social Democratic Party (PSD), Romania’s largest political party, which is led by
incumbent Prime Minister and presidential candidate Victor Ponta, has been shaken
up by several scandals and power struggles in recent months. This determined Ponta
to take action and to suspend from all executive positions in the party some of its
high profile members, who have been at the core of these scandals.
Read more here: http://www.romania-insider.com/romanian-pm-suspends-threehigh-profile-leaders-from-ruling-party/134052/
19. Russia May Limit Meat Imports From Montenegro: Watchdog
RIA Novosti
October 23, 2014
Russian agriculture watchdog Rosselkhoznadzor said Wednesday it may impose
temporary restrictions on imports of meat from Montenegro due to the possible
reexport of embargoed European goods.
Read more here: http://en.ria.ru/russia/20141022/194433686/Russia-May-LimitMeat-Imports-From-Montenegro-Watchdog.html
20. Telekom Austria to get Telekom Slovenije Macedonia unit
Reuters
October 23, 2014
Telekom Austria will expand in Macedonia by merging its Vip Operator unit with
Telekom Slovenije's One unit there, bringing together the country's second- and
third-biggest mobile operators, the Austrian group said Wednesday.
Read more here: http://www.reuters.com/article/2014/10/22/telekom-austriatelekom-macedonia-idUSL6N0SH3TY20141022
21. Turkey plans to build third nuclear plant with own resources
Hurriyet Daily News
October 23, 2014
Turkey plans to start building its third nuclear power plant with its own means by
2018-2019 after it has acquired quality human resources, Prime Minister Ahmet
Davutoglu said late on Oct. 22, after a three-hour meeting with representatives from
the Energy Ministry.
Read more here: http://www.hurriyetdailynews.com/turkey-plans-to-build-thirdnuclear-plant-with-own-resources-.aspx?pageID=238&nID=73326&NewsCatID=348
22. Turkish Central Bank to pay interest on lira reserves to support growth
Hurriyet Daily News
October 23, 2014
Turkey’s Central Bank said on Oct. 21 it will begin paying interest on financial
institutions’ required lira reserves from November, in a bid to support growth and
domestic savings.
The Bank said earlier this year that it may take such a step to boost liquidity in the
financial system and help counter any economic slowdown. It stopped paying
interest on lira reserves in 2010, when Turkey was flooded with cheap funding that
threatened to overheat its economy.
Read more here: http://www.hurriyetdailynews.com/turkish-central-bank-to-payinterest-on-lira-reserves-to-supportgrowth.aspx?pageID=238&nID=73290&NewsCatID=344