November 27, 2009 October 10, 2014

November
October 27,
10, 2014
2009
This is bne's Central Europe
daily newsletter, a list of the
top stories from the region. You can receive the list as a plain text or html email or
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CE TOP STORY
1. CEZ plays "double or quits"
2. BALTIC BLOG: Nazi death squad leader: The musical
3. Estonia first Eastern European state to give legal status to same-sex couples
4. Europe Poised for Gas Storage Boost Amid Diversification Push
5. Former Latvia PM approved for top role in Europe
6. Poland to Oppose Tough Greenhouse Gas Targets at EU Summit
CE STORIES FROM WEBSITE
7. EU enlargement reports show mixed progress
8. Firtash to take Ukraine to court over gas ban
CE RESEARCH AND COMMENT
9. CEE nuclear folly
10. Election in Latvia overshadowed by ethnic divides
11. GEM Equity Fund Flows Weekly - EM funds lose gloss
12. House prices stable in the euro area; Up by 1.7% in the EU
13. Hungarian rate setters pause on external factors
14. Latvian shadow economy shrinks to 24.7% of GDP, claims study
15. Moody's upgrades NWR's CFR to Caa3 and PDR to Caa3-PD/LD; outlook stable
16. Projected Leverage Increase of Polish Utilities Incorporated into Ratings
17. US the "Locomotive" of Global Economic Growth for First Time since Being
Derailed by Great Recession, IHS Chief Economist Says
CE MACRO
18. Czech inflation retreats more than expected in September
19. Estonian external trade sinks in August
20. Slovakia Trade Surplus Rises In August
CE OTHER NEWS
21. European Commission to cut number of regulated telecoms markets
22. Hungary remains a "paradise" for banks, claims economy minister
23. Lithuania to peg LNG prices to benchmark in London
24. Row over Krakow's Russian POW memorial
25. Slovakian Firm Says Flying Car Design Is 'Production Ready'
26. US Department of State Approves Sale of 350 Guided Missiles to Estonia
CE TOP STORY
1. CEZ plays "double or quits"
Robert Anderson in Prague
October 10, 2014
CEZ, the largest power group in post-communist Central Europe by market
capitalisation, is reacting to the serious challenges it faces by playing "double or
quits" with a possible large acquisition.
Power prices are expected to stay near current lows, the EU is putting together a
tougher carbon credit regime and CEZ's foreign investments have soured, yet
nevertheless the state-owned Czech group is planning to bid for its Slovak
counterpart Slovenske Elektrarne and build new nuclear reactors at home.
Martin Novak, finance director, admits that the short-term outlook for power prices
(and CEZ profitability) is unpromising. "We don't see any signs of significant change
[in prices]," he says in an interview, pointing out that forward contracts for next year
- CEZ is almost sold out - are barely above the current low price of around €35 per
megawatt hour (MWh).
According to some analysts, this price level will soon make CEZ cash-flow negative.
"If your generating portfolio is a bunch of large inflexible power plants [like CEZ's],
you will not make much money," says Jan Ondrich of Candole Partners, a Praguebased consultancy.
CEZ used to make big profits from electricity exports to Germany when prices were
high, exploiting its low-cost installed base of lignite-burning and nuclear power
stations. Since the global financial crisis, howere, power demand has fallen back - a
shift accentuated by improvements in the energy efficiency of industrial companies
and "non-market mechanisms" introduced by governments to boost renewable
power, Novak says.
The power price has also slumped because of low coal prices and a glut of carbon
credits. CEZ continues to benefit from a generous allocation of carbon credits
secured from its government owners, which it has been able to sell for a profit in the
market. However, the European Commission now plans to tighten the carbon credit
regime, which could threaten the viability of CEZ's lignite plants in the long term.
Novak argues that the lignite plants are being retrofitted to extend their life and
make them cleaner, and that in the shorter term CEZ will actually benefit from an
increase in the carbon credit price and the knock-on effect on power prices. He says
CEZ will receive carbon credits for free until 2020, and any rise in the price of credits
will therefore boost its profitability. "For our profitability, the higher the carbon credit
price the better," he says.
Another splurge
During the boom years of high prices, CEZ used its cash pile to go on a spending
spree in Southeast Europe, snapping up distribution companies in Bulgaria, Romania
and Albania, and building Europe's largest onshore wind farm in Romania. Many of
these investments, made from 2005 onwards, went sour after the global financial
crisis as local energy regulators intervened to cut power prices to struggling
households, and governments made renewable energy subsidies less generous.
Ondrich blames CEZ for what he calls "terrible value destruction" and compares its
speed of reaction to the changing market unfavourably with E.ON of Germany. "E.ON
recognised things were going wrong sooner and acted," he says. "CEZ was reluctant,
so they sat on the assets."
CEZ has recently reached a settlement with the Albanian government to sell its
distribution company back for the €102m it paid, but it is still in dispute with Bulgaria
and Romania over issues such as the investment commitments it made, as well as
the level of domestic power prices or subsidies for renewable energy.
Novak blames the global financial crisis for the group's woes. "There was a big
portion of bad luck," he says, before adding that most of the investments were
relatively cheap anyway. He says that all of CEZ's investments are Ebitda positive
now, but admits that "some generate profits lower than expected."
"I would not look at it negatively. We learned a lot," he insists.
Undaunted by this record, or the unpromising outlook for power prices, CEZ now
plans to bid for the 66% of Slovakian utility Slovenske Elektrarne that Enel of Italy
has put up for sale. Novak argues that the cultural and technical similarities of the
two companies - which were once united in the former Czechoslovakia - offer
substantial synergies. "There is nothing that would better suit us," he says, though
he stresses that the shape of the sale is still unclear. "It is all about price and risksharing... Are we obsessed with it? I don't think so."
The Czech centre-left government so far appears divided over the merits of such an
acquisition. Social Democrat Economy Minister Jan Mládek is a supporter, but Andrej
Babis, the powerful finance minister and leader of the centrist ANO party, has
questioned it on the basis of CEZ's troubled acquisition record. Babis, whose ministry
controls the government's 67% stake in CEZ, recently cleared out the group's
supervisory board to tighten his grip on the country's flagship state-owned
enterprise.
Some analysts fear that acquiring Slovenske Elektrárne (and its debt and nuclear
liabilities) could endanger CEZ's A- credit rating. "Acquisition of whole SE would
probably lead to lower dividends and negative market reaction," commented Petr
Bartek of Erste Bank Group in a recent note.
Patrick Hummel of UBS has estimated that Slovenske Elektrarne has an enterprise
value (equity plus debt) of up to €4bn, plus nuclear liabilities of a further €3bn, and
that there would be a risk that CEZ would have to issue new equity or hybrid debt to
pay for it.
Novak dismisses such concerns, arguing that CEZ remains one of the most profitable
(in terms of Ebitda margin) and least indebted utilities in Europe, and points out that
the company recently announced plans for a 16% cut in costs over the next two
years. He says the group could buy Slovenske Elektrarne without needing to raise
equity. "An equity increase is one of the last things we would do," he says.
Nuclear horizons
Looking longer term, CEZ remains keen on expanding the nuclear power stations at
Temelin and Dukovany, which would maintain security of supply - and make the
country more energy independent - when the ageing lignite plants eventually have to
close as lignite supplies dwindle.
However, CEZ had to cancel the tender for a partner for Temelin in April after
Brussels began a probe into whether a similar investment contract between EDF of
France and the UK government to build Hinkley Point C was illegal state aid. A
settlement between the UK and Brussels has now been reached, which could enable
the Czech tender to be reopened.
CEZ continues to push for the project, but Novak admits that without some kind of
power price guarantee it will not fly. "Without this kind of support, nobody would be
able to take the risk of building the plant," he says, though he insists that it will
happen one day.
Economy Minister Mladek also remains keen on the project, pointing out that "the
Ukraine crisis supports the case for building nuclear power in the Czech Republic," as
the country needs to become more energy independent, though he says that
perhaps a fully state-owned entity might have to build the plants. The government
should publish a new nuclear power strategy by the end of the year.
Novak admits that both acquiring its Slovak counterpart and expanding its nuclear
plants would keep CEZ's asset portfolio focused on generation, at a time when other
struggling European utilities are trying to move away from this. But he points out
that CEZ is also diversifying by investing into renewable energy, gas supply, small
co-generation plants and customer services such as telecommunications. CEZ's
strong fundamentals mean, he contends, that "there can be growth through
acquisitions to extend our business further."
2. BALTIC BLOG: Nazi death squad leader: The musical
Mike Collier in Riga
October 9, 2014
If you are constantly battling to try and disprove Russian claims that your state is
essentially neo-Nazi, it doesn't help if an evening of musical entertainment then pops
up giving Nazi death squads the razzle-dazzle of a Broadway musical.
That's exactly what has happened in Latvia where - in a move absurdly reminiscent
of Mel Brooks' classic spoof The Producers - a musical opens on October 11 about
Herberts Cukurs, deputy commander of the genocidal "Arajs gang" that slaughtered
around 25,000 people, as far as historical records show without the benefit of tap
dance routines.
Apparently, it's a musical biography titled "Cukurs. Herberts Cukurs." (as in "Bond.
James Bond.") and will premiere in Cukurs' home town of Liejapa. A preview clip
posted to YouTube contains a generic power ballad promising to tell a tale of "the
heavens where my name is written."
After finding fame as a pioneering aviator in the 1930s, Cukurs volunteered for the
notorious "Arajs Kommando" during the Nazi occupation of Latvia. His high profile
meant he was an instantly recognisable figure in the grim testimony of Holocaust
survivors which catalogued murder, assault and sex crimes full of nauseating detail.
At the war's end he went on the run so never faced trial and was eventually
assassinated by Israel's Mossad secret service when they ran him to ground in
Uruguay in 1968.
Protests
A group of just five Latvians have written an open letter calling on their government
to condemn the performance.
"Cukurs' presence or personal participation in various Nazi massacres - including the
mass killing of some 25 thousand inmates of Riga Ghetto in November-December
1941 - is frequently mentioned by Holocaust survivors," says their open letter. "We
turn to the international public to join us in expressing our outrage at this attempt to
present a member of a death squad as a national hero."
Speakng to bne, one of the signatories, historian Olga Procevska says: "I don't think
one needs a special reason to protest against the glorification of a Nazi collaborator.
But the trigger was my Jewish friend's attempt to organise a protest. No one seemed
to care and I thought this is ridiculous and shameful."
Latvian Foreign Ministry spokesman Karlis Eihenbaums tells bne: "It is totally
unacceptable to portray such people as heroes," and that Latvia "has consistently
condemned war crimes and crimes against humanity committed during the time that
Latvia was occupied."
Official investigations of Cukurs' alleged crimes continue to this day, he added, but
since Latvia "is a democracy and therefore supports freedom of speech and freedom
of expression," the people behind the production would be "fully responsible for it."
Publicity materials for the musical describe Cukurs as "the most famous Latvian in
the world. He gained fame with his selfless and audacious flight from Riga to Gambia
in 1933-1934, in a single-engine plane that he built with his own hands. Because of
this heroic deed, the press all around the world wrote about Herberts Cukurs." No
mention is made of his later activities.
The letter came a day after Efraim Zuroff, the world's most famous Nazi-hunter, in
his role as director of the Jerusalem office of the Simon Wiesenthal Center said he
was "utterly disgusted" by the prospect of "a brazen attempt to rehabilitate the
image of one of the most notorious mass murderers of Jews in the Baltics during the
Holocaust."
The show's producer Juris Millers has defended his production advising Zuroff to
watch the musical before making up his mind. "I am perfectly aware that the musical
is provocative because it deals with a controversial and tragic period in Latvian
history. Our task is not to exonerate or convict Herberts Cukurs - our aim is to
initiate a discussion," Millers told the Latvijas Avize newspaper on October 6.
3. Estonia first Eastern European state to give legal status to same-sex
couples
Rapsi
October 9, 2014
The Estonian parliament passed a law on civil partnerships, including those of samesex couples, which evoked negative response from the majority of citizens, RIA
Novosti reports on Thursday.
Forty members voted for the law, 38 members voted against and ten abstained. The
Estonian parliament has a total of 101 members. The law will take effect on January
1, 2016.
The law will allow couples, regardless of gender, to officially register their
relationship and to exercise marriage related property and inheritance rights. To
register a partnership, the couple will need to sign a notarized agreement. As a
result, same-gender couples in Estonia will be able to officially register their
relationship and adopt the children of one of the partners. However, the couples will
not be allowed to adopt other children.
This Wednesday, the parliament rejected a proposal by Pro Patria and Res Publica
Union, a national conservative party, to hold a referendum on civil partnerships. IRL
was the only one of four parliamentary parties to oppose the law. Still, there were
supporters and opponents in each of the parliamentary parties.
Last week, TNS Emor, a public survey company in Estonia, published results of a poll
on the legal recognition of gay families. The poll was commissioned by the Family
and Traditions Foundation and was conducted between September 16 and 29. One
thousand people aged 15 to 75 participated. The survey found that 67% of Estonians
do not support the legalization of same-sex marriages.
4. Europe Poised for Gas Storage Boost Amid Diversification Push
Bloomberg
October 9, 2014
Europe is set to boost natural gas storage capacity in the coming years as markets
liberalize and nations seek to reduce reliance on Russian fuel, according to the
International Center for Natural Gas Information.
There are currently 44 billion cubic meters (1.6 trillion cubic feet) of storage sites
being built or expanded globally, 50 percent of which are in Europe, Cedigaz, as the
Paris-based center is known, said in an e-mailed statement. The region plans
another 55 billion cubic meters, or 59 percent of proposed global capacity.
To read the full story http://www.bloomberg.com/news/2014-10-08/europe-poisedfor-gas-storage-boost-amid-diversification-push.html
5. Former Latvia PM approved for top role in Europe
Baltic Times
October 9, 2014
The European Parliament has approved former Latvian Prime Minister Valdis
Dombrovskis as vice president of the European Commission.
Latvian MEP Dombrovskis, who stepped down as Prime Minister last year following
the collapse of a supermarket roof in Latvia, would take charge of he euro and social
dialog as part of his new role.
A total of 73 MEP's voted for Dombrovskis whilst 25 voted against, four abstained.
During the three-hour hearing, Dombrovskis answered questions about the Latvian
government's measures to mitigate the consequences caused by the economic crisis.
To read the full story
http://www.baltictimes.com/news/articles/35662/#.VDarc2S1ZTF
6. Poland to Oppose Tough Greenhouse Gas Targets at EU Summit
WSJ
October 9, 2014
Poland will strongly oppose tough greenhouse gas emission targets at the upcoming
European Union summit in Brussels later this month, Prime Minister Ewa Kopacz said
Thursday.
Speaking to reporters after meeting with German Chancellor Angela Merkel, Ms.
Kopacz stressed that the 2030 EU climate and energy package is a "very difficult"
topic. Polish officials have argued that Poland, which joined the EU 10 years ago, has
already strongly cut carbon emission levels compared with the 1990 levels.
"I want to come back to Warsaw from the EU summit and say that I succeeded in
protecting electricity prices and that nothing has changed," she told reporters during
a joint briefing with Ms. Merkel.
To read the full story http://online.wsj.com/articles/poland-to-pursue-toughgreenhouse-gas-emissions-targets-at-eu-summit-1412870368
CE STORIES FROM WEBSITE
7. EU enlargement reports show mixed progress
Clare Nuttall in Bucharest
October 9, 2014
The EU enlargement reports showed very mixed progress, with Albania, Kosovo and
Serbia all making breakthroughs towards EU integration in the last year, while
progress has stalled in both Bosnia & Herzegovina and Macedonia.
Across the region, the European Commission's annual reports on Turkey and six
countries from the Western Balkans identify a need for more progress on the rule of
law, in areas including fighting corruption, ensuring freedom of expression and public
administration reform.
"Five years ago, we set out to strengthen the credibility and the transformative
power of enlargement policy. We put a particular emphasis on three pillars: rule of
law in 2012, economic governance in 2013 and this year, we're setting out new ideas
to support public administration reform, and strengthening of democratic institutions.
Today, this approach is bearing fruit," said EU Enlargement Commissioner Stefan
Fule on the launch of the reports on October 8.
The last year has marked a turning point for Serbia on its road towards EU
membership, with the accession negotiations process formally launched in January
2014.
To read the full story http://www.bne.eu/content/story/eu-enlargement-reportsshow-mixed-progress
8. Firtash to take Ukraine to court over gas ban
bne
October 9, 2014
Dmitry Firtash, the Ukrainian gas and chemicals oligarch, is to take Ukraine's
government to court over its decision on September 29 to prohibit his chemical
giants from using gas from underground storage or domestic production during the
winter.
Boris Krasniansky, executive director of Firtash's holding company Group DF, said
the company would win the case, since the government decision "is absolutely illegal
and infringes private ownership". "It's the same as if the government told you: you
can't live in the apartment you own this winter, so if you want to live in an
apartment, buy a new one," he said, as quoted by newswires.
Group DF owns around 4bn cubic meters (bcm) of gas held in Ukraine's vast
underground storage facilities, a quarter of all gas stored, which the government
order prevents him from now using for chemical production during the winter. Firtash
owns four of Ukraine's largest chemical plants, producing mostly fertilisers - Stirol,
Severodonetsk Azot, Cherkasy Azot and Rivneazot - of which the former two located
in East Ukraine have stopped production because of the war with Russian-backed
rebels.
To read the full story http://www.bne.eu/content/story/firtash-take-ukraine-courtover-gas-ban
CE RESEARCH AND COMMENT
9. CEE nuclear folly
Energy Transition
October 9, 2014
Politicians from Central and Eastern Europe use wrong assumptions to justify new
nuclear power in their region. They base their pro nuclear stance on an expected
significant increase in domestic power demand and increasing wholesale prices.
To read the full story http://energytransition.de/2014/09/cee-nuclear-folly/
10. Election in Latvia overshadowed by ethnic divides
OSW
October 10, 2014
There were no radical changes in the makeup of Latvia's Saeima following the
parliamentary election on 4 October. The opposition left-wing pro-Russian party
Harmony were the most popular grouping. They have entered parliament with no
major changes in the number of seats they previously had, as did the centre-right
coalition which governed the country before the election. The centre-right coalition
stands the greatest chance of forming the government again. The probable new
cabinet will be led by Laimdota Straujuma, the previous prime minister; and this
means that Latvia's pro-Euro-Atlantic policy will be continued.
The outcome of the election has proven that ethnic Latvians share the concern of the
centre-right government coalition that Russia could make efforts to destabilise Latvia
- mainly by using pro-Russian forces and the Russian minority - and do not want any
changes in the country's policy even though they are dissatisfied with the
achievements of the previous centre-right government. In its latest campaign,
Harmony relinquished its image of a party seeking reconciliation between ethnic
Latvians and the Russian-speaking minority. At present, it is an openly pro-Russian
party. It no longer conceals its political alliance with United Russia, which is a proKremlin party, and it is standing more and more firmly for the rights of the Russian
minority, including granting the status of second official language to Russian.
According to Latvia's centre-right parties, if this grouping took power in the present
geopolitical situation, this could pose a threat to the country's security.
The conflict between two political visions: maintaining the pro-Euro-Atlantic policy on
the one hand and decreasing criticism of the Kremlin and developing economic cooperation with Russia on the other was the core of the election campaign. This is
widening the political and ethnic divides among the residents of Latvia.
The election results
The Social Democratic Party Harmony received the largest share of the vote in the
recent parliamentary election in Latvia. This was the first time when it acted as an
independent entity - previously it was part of a coalition of groupings representing
the interests of the Russian-speaking population called Harmony Centre. The party is
led by Nil Ushakov, the mayor of Riga. He is an ethnic Russian. Harmony will have 24
out of the 100 seats in Latvia's parliament; Harmony Centre won 7 seats more in the
previous election in 2011 (see Appendix). The next most popular groupings were the
three centre-right parties which had thus far formed the government coalition: Unity,
who Prime Minister Laimdota Straujuma belongs to, won 23 seats, the Union of
Greens and Farmers won 21, and the National Alliance "All for Latvia!"-"For
Fatherland and Freedom"/LNNK garnered 17 seats. In total, they will have 14 seats
more than previously. Since the parties which formed the government coalition
before the election will jointly have 61 votes, the president is likely to entrust
Straujuma with the mission to form the new government. The coalition may gain 8
seats more if the new grouping, Latvian Association of Regions, decides to join it.
Thus the representatives of the Russian-speaking minority will remain in opposition
as before the election.
Solvita Aboltina, the leader of Unity (the coalition's main grouping), who served as
parliamentary speaker until recently, and a few other members of this party lost
their seats. This came as the greatest electoral surprise and is also proof of the
waning confidence in this party: although Unity has led Latvia through the economic
crisis, it has failed to resolve the country's other serious problems. In this election,
Latvians showed that they do not want their country to adopt a more radical stance
in the present international situation. One proof of this is the growing popularity of
the Union of Greens and Farmers, which often wavers between the pro-Western
option and co-operation with Russia.
The durable divide in Latvia
The parliament's makeup reflects the ethnic and political divides existing in Latvia,
which are deep and durable. So-called "Russian-speaking" people form 35% of
Latvia's population (26% are ethnic Russians). This group includes 13% of Latvia's
permanent residents (280,000 out of around 2 million of the country's residents)
who do not have Latvian citizenship and have no right to vote. These people have
either failed or chosen not to undergo the naturalisation procedure because, for
example, they are unable to pass the examination in Latvian. Most of them live in
Latgale, a region which borders Russia and Belarus. Russian speakers account for
almost 60% of the region's population (over 70% in the region's capital city,
Daugavpils). Another major agglomeration of this minority - de facto a majority - is
Riga, 55% of whose residents are speakers of Russian. The interests of the Russianspeaking population, even those who are not Latvian citizens, are represented by
political parties whose members include both radical anti-Latvian politicians, such as
MEP Tatiana Zhdanok, who constantly accuses Latvia of human rights violations, and
those who advocate for minority rights, declare loyalty to the state and want cooperation with Latvian parties (Nil Ushakov). Russian organisations are supported
(including financially speaking) by the Russian embassy, and are backed by the local
Russian-language media, mainly newspapers and Internet portals, as well as Russian
TV, which is available in Latvia.
The ethnic divide overlaps to a great extent with the political divide, namely the
choice between the Western and the Eastern options. Latvia's Russian-speaking
residents and ethnic Latvians hold different views on the country's Soviet past, which
is officially recognised as occupation, and also on the present government's policy,
on which Russian speakers have hardly any influence despite their active
participation in the country's political life and even electoral victories (they are
boycotted by Latvian groupings). The only tangible political success of the Russian
minority was Ushakov's victory in the election for mayor of Riga. Russian speakers
were opposed to Latvia's accession to Euro-Atlantic structures, they protested
against the introduction of the euro, they resist the presence of NATO troops in
Latvia, and only 8% of them condemn the recent Russian aggression against
Ukraine.
The disillusionment of ethnic Latvians
Despite the broad and politically diversified representation in the Saeima, ethnic
Latvians have for a long time seen a vast gap between the actions taken by the
political elite and how voters' interests are dealt with. The political system in Latvia is
quite unstable. There are no traditional political parties which have existed since
Latvia regained independence. Instead, new entities are constantly being formed,
albeit often by the same politicians and in various political configurations. To a great
extent government coalitions in the country are often formed to support the political
interests of the leaders and their groupings and not based on the similarity of their
agendas and shared visions for the development of the country. The frequent
scandals and falls of government have been a manifestation of the bitter rivalry
between oligarchs, the businessmen who built their fortunes owing to controlling the
privatisation process in the early 1990s and then gaining hold of all areas in the
state, including politics. As a consequence of widespread corruption and the unstable
banking system -which Russian capital has a significant share in - Latvians have
suffered especially strongly from the economic crisis of 2008. This has deepened
their disillusionment with the political elite and has provoked mass protests against
how the state is being appropriated by oligarchs and politicians who represent their
interests. In 2011, Latvians dissolved parliament in a referendum, but the new
parliament has failed to meet their expectations. The Reform Party, a new grouping
which won the election owing to promises to combat corruption and the oligarchs,
did not survive as an independent entity, and the centre-right coalition was forced to
accept the grouping led by the oligarch Aivars Lembergs - the Union of Greens and
Farmers - once again in order to maintain a stable majority.
Although, Latvia has become Europe's fastest developing country following the
economic crisis and the socially painful spending cuts and reforms, its economic
growth has recently slowed down to 2.3% of GDP. Many residents of Latvia have
chosen to emigrate: 21,000 of them have left Latvia since January 2013. According
to estimates by Latvian experts (Latvian institutions are not monitoring this process
fully), between 50,000 and 120,000 residents of Latvia (up to 5% of the productive
age group), including a large group of Russian-speaking people, have left Latvia for
good since it joined the EU in 2004.
Pro-Euro-Atlantic Unity opposes Russian influence
Russia's military intervention in Ukraine and the increasing threat from Russia have
contributed to a consolidation within the centre-right government coalition. This
became focused on the need to enhance Latvia's integration with the EU and NATO.
Although Latvia is a member of the Euro-Atlantic structures, Russian capital is still
dominant it its economy, and its influence is in many cases non-transparent. This
has been clearly seen in particular in the banking sector - the Latvian bank
supervision authorities have been criticised by international organisations for
ineffectively combating the laundering of dirty money, as a consequence of which
Latvia has become one of the major loops in the international transfer of illegal
funds. Latvia has also been delaying reform the energy sector and curbing the
dominance of Russian companies, such as Gazprom, unlike the Lithuanian and
Estonian governments, for whom this has been a priority task for a long time now.
The sense of threat from Russia is causing the grouping which forms the core of the
coalition, Unity, to make attempts to catch up on these tasks. Straujuma's
government, with President Andris Berzins's approval (his future re-election depends
on support from the coalition) has backed an alliance with the USA. One
manifestation of this are the government's decisions to sell shares in two strategic
entities to US companies: Citadele bank (which was formed following the collapse of
the popular Parex bank, which was nationalised thus contributing to the
destabilisation of Latvia's budget in 2008) and Latvijas Gaze (gas distribution, gas
grids and the only gas tank in the Baltic region); this was opposed by the opposition
Harmony party. The government has also promised to spend more money on
defence and wants a more intensive presence of NATO troops in the Baltic region.
The opportunities and threats for the pro-Russian option
Left-leaning voters and members of the Russian minorities could choose between
two groupings this year: Harmony, which this time promoted itself not only as a
minority party but also as a social democratic and left-wing alternative to the centreright government (20% of the votes for this party were cast this year by ethnic
Latvians), and a new party named For Latvia from the Heart. The latter party was
formed in 2014 following the Riga supermarket catastrophe (Prime Minister Valdis
Dombrovskis from Unity resigned due to this) by the former head of the Inspection
Office, Inguna Sudraba. While Harmony does not hide its links with the pro-Kremlin
party United Russia, in the case of Sudraba's party there is only speculation that
funds for its campaign originated in Russia and that she has private contacts with
pro-Kremlin elites. Sudraba has also criticised the Latvian political elite for the
preservation of the ethnic divide and its inability to build political co-operation based
on common goals. Since this party entered parliament, Harmony, which has
previously been deprived of potential coalition partners and has in fact been
alienated, now may gain a coalition partner, and in the future might even form a
parliamentary majority with the Union of Greens and Farmers, who are willing to cooperate with Sudraba, if the centre-right coalition disintegrates. At present, it
appears impossible that the president could entrust Harmony with the mission of
forming the government. For Ushakov, who has once again won the greatest number
of seats and remains in opposition, this may mean that the Russian-speaking
electorate will no longer be interested in supporting a grouping which wins elections
but is unable to take power. In an attempt to retain voters' support, Harmony might
radicalise its manifesto further still and might thus have a destabilising effect on
Latvia's domestic politics (by exacerbating the conflict between the opposition and
the government). If Harmony is yet again overlooked as a government coalition
partner, this may provide another argument for the Kremlin's propaganda that the
voice of the Russian minority is suppressed in Latvia.
11. GEM Equity Fund Flows Weekly - EM funds lose gloss
Renaissance Capital
October 10, 2014
Over the week to 8 October, EM funds recorded outflows equivalent to 0.4% of AuM.
Outflows were mostly equally split between active and passive funds, at 0.25% and
0.7% of AuM, respectively.
Diversified funds suffer the most
Over the past week, GEM funds lost 0.7% of AuM in withdrawals, with the largest
outflows in absolute terms among the major regions. Asian (ex. Japan) funds
reported outflows of just 0.03% of AuM. Latin American funds stayed negative, with
outflows of 0.9% of AuM. EMEA funds saw positive flows, of 0.04% of AuM, thanks to
continued passive inflows into Russia. Within the EMEA region, Russian funds
recorded positive flows of 1% of AuM. South African funds lost 1.7% of AuM over the
past week. Turkey-dedicated funds also faced withdrawals, of -0.9% of AuM.
EMEA names brought down by GEM outflows
Based on global fund allocations, including GEM and BRIC funds, Russian equities
saw outflows of 0.2% of AUM. SA shares recorded outflows of 0.6% of AuM. Turkish
stocks also faced outflows, equivalent to 0.5% of AuM. Both Nigerian and Kenyan
names lost assets, with withdrawals of 0.4% and 0.3% of AuM, respectively.
In gold we trust
Over the past week, gold funds attracted another chunk of sizeable inflows, at 2.8%
of AuM. Over the same period, the gold price was up by 0.6%, to $1,221.1/oz.
Hungary slightly above zero
Over the week to 8 October, the only index under our observation that saw some
growth was the MSCI Hungary Index (+0.1%). The worst three performers of the
week were the MSCI Czech Republic (-3.5%), MSCI Egypt (-2.7%) and MSCI Turkey
(-1.8%) indices.
12. House prices stable in the euro area; Up by 1.7% in the EU
Eurostat
October 9, 2014
House prices, as measured by the House Price Index (HPI), remained stable in the
euro area and rose by 1.7% in the EU in the second quarter of 2014 compared with
the same quarter of the previous year. These figures come from Eurostat, the
statistical office of the European Union.
Compared with the first quarter of 2014, house prices rose by 0.9% in the euro area
and by 1.4% in the EU in the second quarter of 2014.
House price developments in the EU Member States
Among the Member States for which data are available, the highest annual increases
in house prices in the second quarter of 2014 were recorded in Estonia (+14.5%),
Ireland (+12.5%) and the United Kingdom (+10.2%), and the largest falls in
Slovenia (-9.8%), Italy (-4.8%) and Romania (-3.8%).
The highest quarterly increases were recorded in Ireland (+6.8%), Lithuania
(+4.1%), Denmark and the United Kingdom (both +3.9%), while falls were observed
in Slovenia (-2.6%), Romania (-1.3%) and Italy (-0.5%).
13. Hungarian rate setters pause on external factors
RBS
October 9, 2014
We recently returned from Budapest where we met with the Central Bank to discuss
the current economic situation in the country and the effect of the global
environment on its monetary policy. Our main focus was the impact of recent ECB
actions, expected Fed tightening, Euro zone stagnation, Russia food embargo and
Hungary's much talked fx loan conversion. Here are our key conclusions.
Hungary's economy is clearly picking up, it saw strong GDP data throughout 1H 2014
with increasing support from domestic demand and accelerating growth in real
activity indicators. GDP growth is still expected to stay strong but moderate in 2015
on the back of lower net exports.
Inflationary pressure is not present yet as the rise in consumption seems to be offset
by the Euro zone stagnation and lowflation. The 3% target is expected to be
achieved in the medium term.
The Euro zone stagnation and Russia food embargo present downside risks to
Hungary's growth and inflation. However, an earlier than expected tightening from
the Fed could become an even more serious concern.
The exchange rate is not a worry for the central bank as long as it does not affect
inflation. Taking into account that the pass through rate is small, the NBH believes
that it should not become a concern.
The process of the fx loan conversion should be completed in two to three years
time. There should not be an adverse impact on the HUF as the Central Bank will
provide the foreign currency to pay for it, without endangering reserves.
Furthermore, there are talks about introducing a "bad bank" for non performing
loans.
Overall we see Hungary's economy stable and do not expect a change in monetary
policy yet. Before taking any action we believe the NBH will wait for more clarity in
the monetary stance of policy by the Fed and ECB.
14. Latvian shadow economy shrinks to 24.7% of GDP, claims study
Leta
October 9, 2014
Currently, the shadow economy in Latvia is at approximately 24.7% of gross
domestic product (GDP), according to calculations by Dr. Friedrich Schneider from
the Johannes Kepler University of Linz, reports LETA.
According to the calculations, shadow economy in Latvia has reduced during the past
couple of years. The study reveals that shadow economy in Latvia in 2014 was
24.7% of GDP, in 2013 - 25.5%, in 2009 - 27.1% of GDP.
Schneider's study indicates that shadow economy in Latvia is slightly lower than in
Lithuania and Estonia, where it is said to be 27.1% of GDP. The average level of
shadow economy in Europe (based on calculations for 25 countries) is 18.5% of GDP.
The lowest shadow economy is in Austria - 7.8% of GDP, followed by Netherlands 9.2% of GDP, and Great Britain - 9.6% of GDP.
To read the full story http://www.baltic-course.com/eng/analytics/?doc=97400
15. Moody's upgrades NWR's CFR to Caa3 and PDR to Caa3-PD/LD; outlook
stable
Moody's
October 9, 2014
Moody's Investors Service (Moody's) has today upgraded the corporate family rating
(CFR) of New World Resources N.V. ('NWR') to Caa3 from Ca, and its probability of
default rating (PDR) to Caa3-PD/LD from Ca-PD/LD, following the company's
announcement of the completion of its consensual restructuring process, with the
distressed exchange of the old notes with new debt instruments. Moody's expects to
remove the "/LD" (limited default) indicator after approximately three business
days. The rating agency has also assigned a Caa2/LGD3 (31%) rating to the new
EUR 300 million senior secured notes due in 2020, which have been exchanged
against the EUR 500m senior secured notes due in 2018. At the same time, the
agency has withdrawn the Caa2 rating of the senior secured notes due in 2018 and
the C rating of the senior unsecured notes due in 2021, as these obligations are no
longer outstanding following the recent closing of the distressed exchange. The
outlook on the ratings is stable.
RATINGS RATIONALE
The upgrade of the CFR to Caa3 reflects (i) Moody's estimate of an average recovery
rate of approximately 50% across NWR's debt structure following the completion of
the consensual restructuring plan, and (ii) the rating agency's expectation of a still
very high risk of default for the company in the near future, given the restructuring
does not address the main fundamental weakness of the company - its high
vulnerability in a protracted low coal prices environment which Moody's is assuming
as its central scenario across the coal industry. Under this assumption, where the
current depressed prices for both coking and thermal coal persist in the short term,
NWR will continue to remain loss making and burn cash, and hence remains exposed
to the possibility of a new liquidity crisis over the next 12 to 18 months. This is
mainly due to the high fixed cost nature of its mining operations, in spite of cost
cutting and efficiency initiatives already being effectively implemented by
management, as well as relatively high maintenance capex NWR needs to invest
every year (in the region of EUR 80 million to EUR 90 million) in order to efficiently
run its operations -- mainly ageing deep underground mines with an average of 10
years of residual life, based on the most recent reserve estimates as of March 2014.
However, Moody's notes that under a new potential scenario of default following the
completion of the restructuring, the recovery prospects for creditors are moderately
improved. This is because the new capital structure is characterized by less debt in
absolute amount (EUR 255 million less, equivalent to a 31% reduction compared to
the aggregate size of financial debt before the restructuring), and more equity,
following the recent closing of the rights issue and equity placement worth in
aggregate EUR 150 million.
The one-notch upgrade of the probability of default rating (PDR) to Caa3-PD/LD
reflects the completion of the reorganisation process with the distressed exchange
of the old senior secured and unsecured notes as the last milestone of the process.
Given the loss suffered by the bondholders, the exchange is considered as a default
according to Moody's definition of default. The assigned PDR reflects Moody's
assessment of the post-exchange probability of default, which remains high, in spite
of the improved capital structure following the restructuring due to the reasons
outlined above.
The company's liquidity remains weak, until at least 2015 under Moody's central
scenario of weak coking coal prices in the range of US$120/t to US$140/t, as
internally generated cash flows are not sufficient to cover the main scheduled cash
outflows related to capex. Moody's notes that in a scenario of persisting weak coal
prices, the EUR 40 million of minimum unrestricted cash covenant in the new super
senior credit facility could be breached already at its first testing date as at 31
October 2015, and may lead to an acceleration of the ECA Facility and to a
subsequent cross acceleration event for all of the remaining debt of NWR, in
absence of an equity cure, which the super senior loan documentation allows only
once for the entire two-year duration of the facility. Liquidity however is supported
by (i) the EUR 150 million of new equity raised as a condition of the restructuring,
(ii) the new EUR 35 million committed super senior facility, fully drawn after the
closing of the restructuring, (iii) the rescheduled debt maturity profile of the EUR
50m ECA facility, with amortization starting only in 2016, and (iv) the PIK toggle
feature of the new notes, which would allow the issuer to elect to accrue the
interests on its notes, instead of paying them cash when due, based on its projected
cash balance.
The Caa2 rating assigned to the new EUR 300 million senior secured notes due in
2020 reflects their senior position in the new capital structure, with very limited
amount of contractually more senior debt -- chiefly consisting of the EUR 35 million
super senior facility, based on the terms of the intercreditor agreement -- and the
cushion offered by more junior debt in the capital structure, represented by both the
new EUR 150 million unsecured mandatorily convertible notes and the EUR 35
million unsecured contingent value rights, which Moody's considers as a deeply
subordinated debt instrument ranking below the senior secured notes and the
unsecured mandatorily convertible notes.
The stable outlook anticipates that modest improvement in met coal fundamentals
will drive modest quarterly improvement in operating results and that the
company's liquidity, albeit weak, will be sufficient to support mining operations at
least over the next 12 months.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure on the ratings is currently unlikely. Nonetheless, Moody's could
upgrade NWR's ratings following an improvement in market conditions, and, in
particular, the currently depressed coal prices. Such improvements would result in a
recovery in the company's cash generation and its liquidity profile, making the
company more able to sustain the required capital expenditure plans to maintain
and expand its mining asset base. In turn, this would result into an extension of the
average life of the mines, above the current estimate of 10 years.
Conversely, negative pressure on the ratings would result if the weak liquidity of
the company deteriorates further, with an acceleration of the cash burn and, from
the 31st October 2015 testing date onwards, an increased likelihood of breaching
the minimum cash buffer maintenance financial covenant required to be tested
quarterly according to the terms of the super senior facility.
16. Projected Leverage Increase of Polish Utilities Incorporated into Ratings
Fitch
October 9, 2014
Fitch Ratings says in a new report that the ambitious 2014-2020 capex plans of the
four largest Polish utilities will result in substantial funding needs and an increase in
financial leverage, which is currently low compared with western European utilities.
Projected leverage increase of up to 3x (defined as funds from operations (FFO)
adjusted net leverage) has been incorporated into ratings.
The PLN114bn (EUR27bn) 2014-2020 capex will be focused on electricity generation
(55% of total capex), including several new coal-fired power plants already under
construction, and distribution networks (37%).
We estimate that about PLN65bn or 57% of total capex could be funded from
operating cash flows if the companies fully implement their plans by 2020. The
remaining PLN50bn would be funded from external sources, mainly debt. In addition,
about PLN15bn of outstanding debt will need to be refinanced by 2020.
The PLN114bn capex includes only limited spending of about PLN1bn in 2014-2016
on preparatory works for the planned construction of the first nuclear power plant in
Poland (construction decision expected in 2017).
Fitch expects the FFO adjusted net leverage of TAURON Polska Energia S.A. (Tauron,
BBB/Stable), ENERGA S.A. (Energa, BBB/Stable) and ENEA S.A. (Enea, BBB/Stable)
to increase to around 3x in 2016 and that of PGE Polska Grupa Energetyczna S.A.
(PGE, BBB+/Stable) to about 2x in 2016. Net leverage could temporarily exceed 3x
for some utilities in 2017-2018 until new generation units come on stream,
increasing cash flows and reducing leverage. This leverage increase is already
reflected in the ratings of the four utilities.
A sustained increase in net leverage to above 3x, for example, due to weaker-thanexpected operating cash flows alongside full or higher capex implementation, would
be negative for the ratings. We assume the utilities have some flexibility to reduce
capex should cash flows be below expectations, for example, if the profitability of
conventional generation fails to recover. This supports the Stable Outlook for the
companies.
We do not expect funding to present a challenge for the four utilities, given
successful funding activity in recent years, including debut eurobond issues and
domestic bond issues by Energa and PGE, and committed bank funding obtained by
Tauron and Enea. The utilities plan to issue more bonds. Funding sources also
include loans from domestic and international banks.
The report, entitled 'Polish Utilities Intensify Capex' contains an overview of the
capex plans of the four largest Polish utilities, our projections of leverage, comments
on capex funding and increasing importance of bonds. It is available at
www.fitchratings.com or by clicking the link above.
17. US the "Locomotive" of Global Economic Growth for First Time since
Being Derailed by Great Recession, IHS Chief Economist Says
IHS
October 9, 2014
The U.S. economy - the world's largest - is the "locomotive of global growth for the
first time since the Great Recession," and boosting exports from around the globe,
says IHS Chief Economist Nariman Behravesh in a preview of a presentation to be
made at the Global Economic and Country Risk Conference November 11-12 in
Washington, D.C., hosted by IHS Inc., (NYSE: IHS), the leading global source of
critical information and insight.
Bottom Line
The U.S. economy is on solid footing, while the rest of the world - except for the
U.K. which is also doing well - is struggling.
Global average growth will hit 2.5 percent, while U.S. will be at about 3.0 percent.
Strengthening domestic demand is driving U.S. expansion and rising U.S. oil and
gas production is cutting energy prices.
China's domestic demand is decelerating, the lingering effect of its real estate
crash.
The U.S. dollar is at a four-year high, while the euro is steadily weakening, the
Japanese yen is at its lowest level in six years, the Russian ruble has fallen 20
percent since January, and the Brazilian real is at its lowest level against the dollar
since 2008.
"The pendulum seems to have swung back from an environment in which (just five
years ago) emerging markets were the darlings of the global economy," says
Behravesh. "While the locomotive role of the U.S. is less powerful than it was a
couple of decades ago ... it has regained its role as a (and possible THE) major driver
of global growth."
Though strengthening domestic demand is propelling the U.S. expansion,
international trade is still a drag on the economy, a factor Behravesh notes which is
helping economies in the rest of the world. The diverse nature of U.S. imports has an
impact on a large group of countries, developed and emerging alike.
Oil and gas production in the U.S. has surged about 30 percent since 2010, spurring
job growth, providing a competitive stimulus to manufacturing, an inflow of foreign
investment, and a much smaller drag from trade.
Additionally, Behravesh notes, there are also significant benefits to the rest of the
world. Rising U.S. production is a major force in stabilizing global energy markets,
offsetting turmoil and disruptions caused by conflicts in Syria, Iraq, Libya, and
between Russia and Ukraine. Increased domestic oil production in the U.S. has also
been a major factor in driving down the cost of petroleum - Brent crude has fallen
from around $125 per barrel in early 2012 to around $92 in early October - providing
an important boost to oil-consuming countries around the world, Behravesh says.
CE MACRO
18. Czech inflation retreats more than expected in September
KB
October 9, 2014
Consumer prices declined 0.2% mom in September which is 0.1pp stronger decline
than the market expected. Yoy dynamics moved slightly up to 0.7% from August's
0.6% in line with our expectations. Food prices surprised us with their slight increase
by 0.1% mom although a strong seasonality called for downward move. After
seasonal adjustment the food prices jumped 0.6% which is a third month of growth
in a row. Thus, we do not see the effect of Russian sanctions on food imports from
EU yet. However, their effect can materialize with a lag in coming months. Fuel
prices grew by a marginal 0.1% mom (+0.4% SA). Administered prices recorded a
growth of one percent (even after seasonal adjustment). In contrast, the core prices
experienced an unexpected drop. They trimmed 0.2% mom SA which represents
their first decline since October 2013. Their yoy growth slowed down to 0.9% from
1.1% in August.
In the third quarter, inflation stood 0.2pp above the central bank's forecast. On its
last meeting, the CNB board identified slightly anti-inflationary risks to its forecast
despite higher realized inflation. Worse external development plays the main role.
Both the economic growth and inflation has slowed down in the euro area. In
September, core inflation in the euro area surprised markets with an unexpected
drop to 0.7% yoy. Headline inflation stood at 0.3% yoy. Given the weak economic
growth, demand pressures into inflation are low. Due to a worsening growth outlook
of the EMU countries, we cannot expect emergence of the demand pressures in the
near future.
Czech core inflation (which is the best indicator of demand pressures) grew until now
due to higher import prices as a result of koruna's depreciation. Its mom decline
reflects the slowdown of core inflation in the euro area as well as weak domestic
demand pressures. The CNB will wait with the exit from the intervention regime until
precisely these demand pressures emerge and push the core prices up. The
acceleration in wage growth supported by lower unemployment is of key importance.
From above mentioned reasons, we do not expect the change of CNB's FX
commitment. It still holds that the CNB will defend the level 27 CZK/EUR until 2016.
The inflation rate is expected to remain low both for the rest of this year and 2015,
which should provide a good impetus for household consumption. Inflation stood at
zero in June, which was this year's low. Inflation should avoid negative territory,
which is the aim of the CNB's intervention strategy. We expect the inflation to stand
at 0.7% at the end of the year, accelerating to around 1.2% at the end of 2015.
According to the CSO, a contrary effect on the overall consumer price level in
September owed to a rise primarily in 'clothing and footwear', where prices of
clothing went up by 1.9% and footwear by 4.5%. In 'miscellaneous goods and
services', the increase in prices of financial services by 2.5% was shown. In 'alcoholic
beverages and tobacco', prices of spirits increased by 0.9%, wine by 0.7%, while
prices of beer declined (-0.6%). In 'housing, water, electricity, gas and other fuels',
prices of electricity rose by 0.2%. In 'food and non-alcoholic beverages', prices of
vegetables cultivated for their fruit were higher by 34.6% in September compared
with August, citrus fruit by 14.3%, cheese by 1.1%, other milk products by 1.2%,
chocolate and chocolate-based products by 2.3%. As the new school year started,
fees in kindergartens increased by 1.7%, in after school care centres by 4.4%,
school-fees at public universities by 7.8%. Similarly, in 'restaurants and hotels',
prices in school canteens rose by 1.5%, accommodation services of boarding schools
by 0.7% and in university colleges by 0.9%.
19. Estonian external trade sinks in August
Statistics Estonia
October 10, 2014
According to Statistics Estonia, in August 2014, exports of goods decreased by 3%
and imports by 6% at current prices compared to August of the previous year. The
decrease in exports and imports was mostly influenced by the trade of mechanical
appliances, electrical equipment and agricultural products and food preparations.
In August, exports from Estonia amounted to nearly 1 billion euros and imports to
Estonia to 1.1 billion euros at current prices. The trade deficit was 80 million euros
and it decreased by 31 million euros compared to August 2013.
The biggest share in Estonia's exports was held by electrical equipment (22% of
Estonia's total exports), followed by mineral products (11%), wood and products
thereof and agricultural products and food preparations (9%). The fall in exports
compared to August 2013 was due to the significant decrease in the exports of
mechanical appliances (down by 20 million euros), textiles and products thereof
(down by 8 million euros), electrical equipment, and agricultural products and food
preparations (both down by 6 million euros). The biggest increase occurred in the
exports of mineral products.
In August, the main commodities imported were electrical equipment (18% of
Estonia's total imports), mineral products (13%) and agricultural products and food
preparations (11%). Compared to August 2013, the biggest decrease occurred in the
imports of mechanical appliances (down by 18 million euros), electrical equipment
(down by 17 million euros) and agricultural products and food preparations (down
by 10 million euros). At the same time, the imports of textiles and products thereof
increased the most.
The top destination country of Estonia's exports in August was Sweden (18% of
Estonia's total exports), followed by Finland (16%) and Latvia (11%). Electrical
equipment and wood and products thereof were the main commodities exported to
Sweden; electrical equipment and agricultural products and food preparations were
the main commodities exported to Finland; mineral products and agricultural
products and food preparations were the main commodities exported to Latvia. The
biggest decrease occurred in exports to Russia (down by 23 million euros), to Latvia
(down by 6 million euros) and to Lithuania (down by 4 million euros). In exports to
Russia, the decrease was the highest in the dispatches of agricultural products and
food preparations (incl. cheese, milk and cream, butter, whey, spirits) and
mechanical appliances. In exports to Latvia, there was a decrease in the dispatches
of textiles and products thereof and agricultural products and food preparations (incl.
milk and cream, butter, cheese). In exports to Lithuania, the dispatches of electrical
equipment decreased. Compared to August 2013, the increase was the biggest in
exports to the USA.
The main countries of consignment in August were Finland (15% of Estonia's total
imports), Germany (12%), Lithuania (10%) and Sweden (10%). The main
commodities imported were mineral products and electrical equipment from Finland,
mechanical appliances and mineral products from Germany, mineral products and
agricultural products and food preparations from Lithuania, and electrical and
transport equipment from Sweden. Compared to August 2013, there was a decrease
in imports from Sweden (down by 20 million euros), from the United Kingdom (down
by 18 million euros) and from Poland (down by 11 million euros). There were
decreased imports of electrical equipment from Sweden, decreased imports of
mechanical appliances from the United Kingdom, and decreased imports of transport
equipment from Poland. The increase was the biggest in imports from Germany.
In August compared to July 2014, exports decreased by 3% and imports by 8%.
20. Slovakia Trade Surplus Rises In August
RTT
October 9, 2014
Slovakia's trade surplus in August increased from a year ago, figures from the
Statistical Office of the Slovak Republic showed Thursday.
The trade surplus came in at EUR 232.8 million in August, which more than the EUR
205.2 million surplus recorded in the same month of the previous year. In July, the
surplus was EUR 413.2 million.
During the January to August period, the country registered a trade surplus of EUR
3.19 billion versus EUR 3.11 billion in the same period last year.
To read the full story http://www.rttnews.com/2395031/slovakia-trade-surplusrises-in-august.aspx
CE OTHER NEWS
21. European Commission to cut number of regulated telecoms markets
European Commission
October 9, 2014
Today the European Commission - in agreement with Member States - decided that
two telecom markets should no longer be subject to regulation in Europe, and that
two more should be redefined to reflect market and technology developments. The
rules take effect immediately.
The two liberated markets are: a) the retail market for access to fixed telephony;
and_b) the wholesale market for fixed call origination.
The Commission will also redefine two broadband markets, in order to limit
regulatory burdens to what is strictly necessary for competitive broadband access
and investment.
The Commission is increasing its focus on the distinct needs of business users, to
make sure that competitive connectivity can unleash growth across the economy.
European Commission Vice President @NeelieKroesEU says: "I am delighted to
announce this cut in telecoms red tape. It is the result of increased competition in
telecoms markets and it takes us a step closer to a real Connected Continent".
Why were the fixed telecoms markets liberated?
There has been a decrease in volume of fixed calls as customers have turned to
alternative solutions, such as voice-over-IP (VoIP) and mobile calls, but also to
alternative providers, like over-the-top (OTT) players. Also Those customers who still
use fixed telephony are now able to purchase fixed access from a number of different
platforms, such as traditional telephone network, fibre or cable networks, and also
from alternative operators offering broadband and voice services over unbundled
local loops, so competition has been increased.
Why do some markets remain regulated?
Because some telecoms markets continue to have very high entry barriers and
competition is unlikely to occur in the foreseeable future.
This Recommendation redefines the boundaries of the broadband markets, which
consist of wholesale products needed for the provision of retail broadband services
(new markets 3a, 3b and 4 replacing markets 4, 5 and 6 of the 2007
Recommendation). The new rules recognize that "virtual access products" can be
considered substitutes to physical unbundling when they fulfil certain characteristics.
22. Hungary remains a "paradise" for banks, claims economy minister
Portfolio.hu
October 9, 2014
When solving the problem of foreign currency loans the Hungarian government has
managed to find the point of equilibrium where the functioning of the banks is not
put at risk but the "serious debt" of the banking system towards customers can still
be settled, Economy Minister Mihály Varga told commercial television channel TV2 on
Thursday.
Varga undelined that the one trillion forints (cc. EUR 3 bn) banks will have to refund
to customers for lending practices deemed unfair by the government and courts and
which the banks consider to be a "burden" is actually money taken from borrowers
unfairly. He referred to a ruling by the Curia (Supreme Court) which established that,
adding that the cabinet is in talks with the Hungarian Banking Association to see how
the compensation can be taken care of the quickest way.
Varga reminded that the settlement law will enter into effect on 1 November, when
banks will need to start calculating how much money they owe their borrowers.
Asked whether any of the banks indicated an intention to exit Hungary Varga
responded that "quite the contrary, I keep reading in statements that Hungary
remains a bank paradise because every bank wants to stay here."
To read the full story
http://www.portfolio.hu/en/economy/hungary_remains_a_paradise_for_banks_ecom
in_varga.28501.html
23. Lithuania to peg LNG prices to benchmark in London
Xinhau
October 10, 2014
Rokas Masiulis, new Minister of Energy of Lithuania, revealed on Thursday that gas
prices from new liquefied natural gas (LNG) terminal in Klaipeda will depend on
international prices.
According to Masiulis, former CEO of Klaipedos nafta, the developer of the LNG
terminal project, LNG prices from the new terminal will be determined by
"transparent and clear British benchmark and not by oil".
"If benchmark plunges, our gas price decreases as well. But it will depend on global
oil prices," said Masiulis in an interview with radio station Ziniu radijas.
Lithuania, which is fully dependent on natural gas supplies provided by Russia's
Gazprom, pays the price pegged to oil prices. The Minister says that Lithuania's
agreement with energy company Statoil on gas supplies to LNG terminal has
decreased the country's dependency on Russian gas pricing policy. "The agreement
with Statoil was based on pricing formula different from that we have with Russia's
Gazprom," said Masiulis.
To read the full story http://www.globalpost.com/dispatch/news/xinhua-newsagency/141009/lithuania-peg-lng-prices-benchmark-london-0
24. Row over Krakow's Russian POW memorial
Polskie Radio
October 9, 2014
Polish authorities have objected to Russian calls for a large scale Krakow memorial
commemorating Soviet prisoners of war who died during the Polish-Bolshevik War of
1919-1921.
In late September, the Russian Embassy in Warsaw submitted a request to Poland's
Council for the Protection of Struggle and Martyrdom Sites (ROPWiM) concerning the
prospective monument, which would be erected at the historic Rakowicki Cemetery
in Krakow.
However, ROPWiM secretary Professor Andrzej Kunert has told Polish Radio that the
proposed monument is "unacceptable", and that the governor of the Malopolska
region is likewise opposed to the concept.
To read the full story http://www.thenews.pl/1/10/Artykul/183725,Row-overKrakows-Russian-POW-memorial-#sthash.94ZyUeof.dpuf
25. Slovakian Firm Says Flying Car Design Is 'Production Ready'
The Blaze
October 9, 2014
It might sound like an episode of "The Jetsons," but Slovakian firm AeroMobil said it
plans to reveal its first "production ready" flying car design in Vienna, Austria Oct.
29.
It has its flaws. For example, the wings fold into the backseat behind the driver while
it's on the ground. However, the company said the new model, called Aeromobil 3, is
"stylish, comfortable for both the driver and passenger, and exceptionally combines
the performance of a sports car with qualities of an ultralight."
To read the full story http://www.theblaze.com/stories/2014/10/08/slovakian-firmsays-flying-car-design-is-production-ready/
26. US Department of State Approves Sale of 350 Guided Missiles to Estonia
Ria Novosti
October 9, 2014
The US Department of State has approved the sale of 350 Javelin anti-tank missile
systems worth $55 million to Estonia, the press service of the Estonian Defense
Ministry stated on Thursday.
"The State Department of the United States has approved the sale of anti-tank
missile systems Javelin to Estonia for $55 million," the defense ministry said.
Estonia intends to buy 350 Javelin systems from the United States, including spare
and repair parts, support equipment, personnel training and training equipment, and
technical and logistics support services, as well as other related logistics support.
The Javelin anti-tank missile system saw its development in 1986 and was adopted
by the United States Army in 1996. The fire and forget missile system allows the
operator to seek shelter or to change the position right after the missile launch, thus
increasing the chances of survival of the operator and the system as a whole. Each
system has the effective firing range of 75 to 2,500 meters and costs about
$250,000.
It has been approved for sale to 13 foreign countries and is currently used by
Bahrain, France, Israel, Qatar, Saudi Arabia, the UK, the UAE and a number of other
countries.