Russia to Cut Oil Supplies to Europe In Response to Sanctions
August 31, 2008
Russia’s government may prompt at least one oil company to cut supplies of crude oil to Europe in response to the threats to impose sanctions in the wake of the conflict with Georgia.
It is rumored that supplies via Druzhba pipeline that meets oil requirements of Poland and Germany will be probably reduced and that the LUKOIL leadership has been given the notice.
The reduction might happen already starting from September 1, the sources speculate. People in LUKOIL, however, say they know nothing about the plans to cut down supplies, and people in the Kremlin declined to comment.
French Foreign Minister Bernard Kouchner declared yesterday that the EU was deliberating whether to impose sanctions on Russia in the wake of events in South Ossetia and Georgia. Russia’s Foreign Minister Sergei Lavrov called the idea the product of deformed imagination, while the RF Envoy to the EU Vladimir Chizhov warned that the sanctions could negatively affect the EU and the extent will be equal or event bigger than for Russia.
Source: Kommersant, August 2008
www.kommersant.com/p-13142/Sanction_supplies/
Russian Public Worried About Economy, Not Caucasus
August 28, 2008
RFE/RL Russian Service correspondent Kirill Kobrin spoke with Dmitry Travin, deputy editor in chief of the St. Petersburg business weekly “Delo,” about the impact of the Georgia war on the Russian economy and the business community’s attitude toward recent events.
RFE/RL: What are the main consequences of the events in Georgia for the Russian economy?
Dmitry Travin: The events in the Caucasus are having a fairly serious impact on the Russian economy. The stock market has fallen catastrophically. And this looks particularly strange considering Russia’s high economic-growth rate and its oil and gas reserves, which theoretically should be attracting capital. But capital is running away.
But I don’t think that [Prime Minister Vladimir] Putin is seriously worried about this because it won’t have an impact on the day-to-day lives of ordinary Russians. The public has shown considerable support for the Kremlin’s actions in the Caucasus, since it was a short, victorious war. People aren’t thinking much about the economy right now.
The problem of entering the World Trade Organization [WTO] is a very serious one. Inflation, which has been a problem in Russia for the last year, can be brought under control in part by boosting international competition and, to do that, WTO membership is essential. But the general public doesn’t understand such complex economic connections. Moreover, international organizations, including the WTO, have bad reputations in Russia. People think, “why should we join the WTO?” They think the WTO will undermine the competitiveness of Russian producers. Therefore, Putin can make harsh, even reckless foreign-policy decisions without worrying too much about the economy.
RFE/RL: But there is the business community. Share prices — that is their work and their profit. How are they going to react? Will this undermine their solid support for the government?
Travin: Business’s support for the government is a very strange thing. After the case of [former Yukos owner Mikhail] Khodorkovsky, everyone became obedient. They are constantly swearing their loyalty to the authorities. But when you start speaking to people privately, it is hard to find anyone who does not hate this regime and the position in which it has placed Russian business. I don’t think anything is going to change in this regard. If the regime is weakened, business will be the first segment of society to stick a knife in its back. But until the regime is weakened politically, business has to play by the rules of the of the game that were laid down in October 2003 during the Khodorkovsky case.
RFE/RL: So, are you saying that the authorities, by destabilizing the foreign-policy situation, are risking instability at home?
Travin: I think this risk is pretty small. The stability of the authorities rests on oil, gas, economic growth, and the expectations of the public, which are more or less satisfied at present. But if economic growth disappears and real incomes cease to grow, or if public expectations become so great that even oil and gas cannot satisfy them, then affection for the authorities will wane. But this does not depend to a great extent on the current events in the Caucasus.
Source: RFE/RL, August 2008
www.rferl.org/content/Russian_Public_Worried_About_Economy_Not_Caucasus/1194610.html
Russia Fails to Win Support of Asian Alliance
August 28, 2008
Russia’s hopes of winning international support for its actions in Georgia were dashed Thursday, when China and other Asian nations expressed concern about mounting tensions in the region.
The joint declaration from the Shanghai Cooperation Organization, or SCO, which includes China, Russia, Tajikistan, Kyrgystan, Kazakhstan, and Uzbekistan, said the countries hoped any further conflict could be resolved peacefully through dialogue.
“The presidents reaffirmed their commitment to the principles of respect for historic and cultural traditions of every country and efforts aimed at preserving the unity of a state and its territorial integrity,” the declaration said, The Associated Press reported. Read more
SCO Supports Russia’s Role in South Ossetia
August 28, 2008
Members of the Shanghai Cooperation Organisation have signed a declaration in support of Russia’s peacekeeping mission in South Ossetia. The member states expressed support for Russia’s peacekeeping efforts, but pointed out any solution must be based on the principle of territorial integrity.
The declaration is a direct response to President Dmitry Medvedev’s call to support Russia’s role in the Abkhazia and South Ossetia independence dispute. Speaking at the SCO summit in Dushanbe, Medvedev thanked the SCO members for their understanding and objective evaluation of Russia’s peacekeeping mission.
“Unfortunately, we have to state that attempts are being made to secure certain interests using force, not the principles of strict observance of international law and denial of confrontational bloc thinking,” said the President.
“A fine example of such irresponsible criminal actions is Georgia’s aggression against South Ossetia. It is well-known who connived with the Georgian authorities and even incited them, pursuing their own profit. Such behavior is unacceptable and should be stopped. In such an extreme situation, we remained reserved and continued our responsible and predictable policy.
“We are confident that the position of SCO member states will produce an appropriate resonance through the international community, and I hope this will give a serious signal to those who are trying to justify the aggression that was committed,” Medvedev added in his address to SCO national leaders.
Link to Story:
www.russiatoday.com/news/news/29593
Link to Video:
www.russiatoday.com/news/news/29593/video
Source: Russia Today, August 2008
Putin Says No Advantages For Russia From WTO
August 25, 2008
Prime Minister Vladimir Putin has said Russia sees no advantages to World Trade Organization (WTO) membership and should freeze some commitments made during entry talks in a sign Moscow is pulling away from the West after its conflict with Georgia.
Quoted by Russian news agencies during a government meeting, Putin, said Russia’s economy would incur a heavy burden in meeting WTO membership requirements and that some of these demands were against the country’s interests.
“We propose continuing negotiations within the framework of the working group on WTO accession, but informing our partners of the need to exit some agreements that currently oppose the interests of the Russian Federation,” Putin said.
“We don’t feel or see any advantages from membership, if they exist at all. But we are carrying the burden,” he said. Agriculture was particularly affected, Putin added.
Russia, the world’s 10th-largest economy, is by far the biggest country still outside the WTO and has been negotiating membership since 1995.
It had previously been thought a deal could be reached by year-end, but First Deputy Prime Minister Igor Shuvalov said there was no prospect of joining within the coming year and suggested political motives were delaying accession talks, Interfax said.
The Kremlin has faced strong Western criticism for crushing Georgia’s attempt earlier this month to take back by force the rebel province of South Ossetia and continuing to exert pressure on key oil, gas and trade transit routes in its former vassal.
“Judging by the rhetoric of the last few days, it seems things are moving toward a sharp confrontation between Russia and practically the whole of the rest of the world,” says Vladimir Osakovsky, an analyst at UniCredit.
“That has every chance of spilling out into real action from both sides. Perhaps the halting of the WTO accession process could be the first real step, a real consequence of the war.”
Confrontation
Other analysts say Putin’s statement raised questions over the economic program set out during the choreographed handover of the presidency to Dmitry Medvedev in May this year.
“It’s another reason for investors to question the government’s commitment to not just the reform agenda but the whole economic program that was set out as part of the political transition,” says Chris Weafer, chief strategist at Uralsib brokerage in Moscow.
“The main concern for investors from all these recent events is that the program could be materially changing, i.e. perhaps less emphasis on the diversification and the openness.”
U.S. President George W. Bush has said the war with Georgia was hurting Russia’s efforts to join modern global economic and security institutions, and his Commerce Secretary Carlos Gutierrez suggested Russia’s WTO bid was now at risk.
Accession depends on Russia settling outstanding issues such as export duties on timber, farm subsidies, and the role of state-controlled enterprises such as natural-gas producer Gazprom.
Candidate countries must also reach agreement with all 153 members, handing WTO member Georgia leverage over Russia’s candidacy.
Tbilisi objects to Russian support for Georgia’s rebel South Ossetia and Abkhazia regions, saying it cannot control customs on their borders with Russia. It is blocking formal negotiations on Russian accession while allowing informal talks to continue.
Source: RFE/RL, August 2008
www.rferl.org/content/Putin_Says_No_Advantages_For_Russia_From_WTO/1193734.html
Key Georgian Rail Line Reopens After Explosion
August 25, 2008
Georgia’s main east-west railway was reopened overnight following a fuel-train explosion on the line west of the central town of Gori, Georgian Railways has said.
Railways spokeswoman Irma Stepnadze said damage to the line was limited. “Railway traffic has been restored,” she said.
The explosion, which police said they believed was caused by a land mine, occurred on the main track of the railway line linking eastern and western Georgia — a route used by oil exports from Azerbaijan to European markets.
Azerbaijani officials said on August 24 that oil cargoes were being held up at the border with Georgia following the explosion.
Russian troops left Gori, a key town in the Russia-Georgia conflict over breakaway South Ossetia, on August 22 after a 10-day occupation. The explosion occurred near an abandoned Georgian military base.
On August 16, an explosion downed a bridge on the line further east near the town of Kaspi. Russia denied Georgian accusations that it was behind the attack.
Oil exports were disrupted, but Azerbaijan said Georgia had offered a smaller, disused rail bridge for use until the damaged bridge was repaired.
Source: RFE/RL, August 2008
www.rferl.org/content/Key_Georgian_Rail_Line_Reopens_After_Explosion/1193565.html
Weekly market Watch: Aug 18 - Aug 22, 2008
August 23, 2008
Stock and Bond Markets
Last week the Galt & Taggart Index (GTI) fell by 3.97% to 480.1 in GEL terms on a trading volume of GEL 68,519. Three blue chip stocks traded on the Georgian Stock Exchange: Bank of Georgia (GEB, Buy, down 4.71%), Galt & Taggart Capital (GTC, Buy, unchanged) and People’s Bank of Georgia (AMB, up 6.67%). Blue chip stocks accounted for 100% of the total weekly trading volume.
Last week Bank of Georgia ’s global depositary receipts (GDRs) rose by 5% on the London Stock Exchange (LSE: BGEO) to US$ 13. Total of 389,083 GDRs traded on LSE last week.
Economy
The Georgian government is seeking $1 billion to $2 billion in aid to repair and develop infrastructure after its conflict this month with Russia , the head of the U.S. government aid agency said on Friday. According to Henrietta Fore, the administrator of USAID, Georgian government proposed setting up a Phoenix Fund, which will be somewhere between 1 (billion) and 2 billion dollars.
The Deputy Treasury Secretary Robert Kimmitt said that the US and its international partners were going to do all that they can to provide Georgia with short-term humanitarian aid and long-term reconstruction aid. Kimmitt also called on Russia to reopen transportation links in the country. Kimmitt’s comments came as the US Treasury Department is considering providing Georgia with more than US$ 1bn in reconstruction aid. US lawmakers are set to vote on the aid package sometime in September-October this year. Earlier the World Bank, IMF and EBRD all issued strong statements in support of Georgia and its government, with the World Bank and EBRD both pleading funding for country’s full recovery.
Theodore Ahlers, World Bank vice president for Europe and Central Asia, said Georgia’s economic fundamentals were strong but the economy was dependent on foreign investment, and growth would likely be affected by the war with Russia .
“At the government’s request the bank will assist the authorities in assessing the toll of the damage and reconstruction needs with international partners and other stakeholders through a follow up mission,” Ahlers said in a statement released in Washington on 21 August. In this task, the Bank will focus on the infrastructure, environment, and agriculture sectors and on the needs of the internally displaced population. It will also assist the authorities in setting up a multi-donor trust fund for reconstruction investment to ensure a speedy recovery from the conflict and to ease the suffering of all of its victims.
The Group of Seven leading industrialised nations is ready to support the Georgian economy following its conflict with Russia , G7 finance ministers said on Wednesday.
” Georgia has solid economic fundamentals as a result of economic reforms and sound policies and we are committed to helping Georgia continue on this path,” the ministers said in a statement. The statement reads that the G7 countries stand ready to support Georgia and to promote the continued health of the Georgian economy and maintain confidence in the Georgian financial system, and support economic reconstruction.
Since 7 August 2008, the Georgian banks have operated with minimal interruptions (other than in South Ossetia, Upper Abkhazia and several other areas where the Russian troops were stationed at the time) and no queues or mass deposit withdrawals have been reported. However, the banks saw a 10% reduction in deposits on average since the conflict began. The Financial Supervisory Agency (FSA) ordered the banks to suspend, until 18 August 2008 all lending activities and to disable the online banking services as a precautionary security measure and imposed on 12 August 2008 a one-day bank holiday due to security concerns. On August 18 lending restrictions have been largely lifted and banks continued to operate in usual fashion.
The National Bank of Georgia cut its benchmark interest rate by one percentage point to 11% to promote economic growth and increase liquidity following the Russian incursion. The bank has raised its benchmark one-week certificate of deposit rate by a total of 5 percentage points since November in an effort to slow inflation. Inflation has declined in the past four months, falling to 9.8% in July from 12.3% in March. The bank’s monetary policy committee is scheduled to meet again on September 17, according to the statement.
FX Market
Last week GEL/US$ exchange rate was unchanged. The weekly turnover on the Tbilisi Interbank Currency Exchange (TICEX) was US$ 49.2mn, US$ 74.1mn less than in the previous week. The National Bank of Georgia’s (NBG) net sales were US$ 33.4mn.
Source: Galt and Taggart Securities, August 2008
Gulf Emirate to Develop Free Economic Zone in Poti
August 23, 2008
The Georgian government will sign on April 15 an agreement with the Investment Authority of the UAE’s Ras Al Khaimah (RAK) emirate on the development of a free economic zone in Georgia’s Black Sea port of Poti.
The Georgian government announced a tender on leasing Poti Port and 400 hectares of adjacent land for 49 years so as to create a free economic zone last October. Twelve companies made bids initially and four were shortlisted in January.
PM Lado Gurgenidze said on March 27 that a preliminary agreement had been reached with RAK’s investment fund.
The initial terms of the tender were also revised, as RAK reportedly was buying 51% of the port with the Georgian government retaining the remainder.
The prime minister also said that in addition RAK would build a new port terminal on a 100 hectare site in Poti. He said USD 200 million would be invested in the development of the project in the next three years.
Speaking at a meeting with local residents in Ozurgeti in western Georgia on April 14, President Saakashvili said the free economic zone in Poti would foster “a revival” of all of western Georgia.
“Tomorrow we will launch a free economic zone in Poti. What does this project mean for me? This project is not simply one more investment for me. I know for sure that this is the revival of western Georgia and Poti itself,” Saakashvili said. “We will hardly recognize Poti in a few years – there will be skyscrapers in Poti like in Dubai, there will be new docks and the railway will be expanded, tens of thousands of new jobs will be created in Poti. For me, Poti means helping Guria, Adjara, especially several mountain regions, and Samegrelo out of poverty once and for all.”
Source: Civil.Ge Online Magazine, August 2008
www.civil.ge/eng/article.php?id=17577
Bank of Georgia: Recent Events Awareness for Economic Investors
August 21, 2008
Bank of Georgia (BGEO LI) and its subsidiary Galt & Taggart Securities are committed to providing our clients and investors with the most up-to-date and unbiased version of news available on the conflict in Southern Ossetia .
Given that the situation has stabilized and moved into the political forum we have decided to make our updates on a weekly basis but will continue report on events as they happen in our daily.
Galt & Taggart and Bank of Georgia would like to also thank everyone for their support during this challenging time. We would especially like to single out our friends at KP Media (KPME UZ), XXI Century Investments (XXIC LI), Business New Europe and Chris Fowler International among others for their help and support of Bank Georgia ’s humanitarian efforts in Georgia .
Events of 18-21 August:
· In a telephone conversation with French President Nicolas Sarkozy, Russian President Medvedev promised that all but a 500-men contingent of Russian peacekeepers would leave Georgian soil by Friday August 22.
· Over the weekend Russian soldiers attacked the civilian port of Poti , sinking Coast Guard ships and taking 20 police man assigned to guard the port hostage. The civilian owners of the port have announced plans to sue the Russian government for the attack.
· US lawmakers are scheduled to vote on a US$ 1bn (roughly 8% of Georgia ’s GDP) infrastructure aid package for Georgia .
· International aid organizations like Human Rights Watch and an official report by a Russian investigative committee in South Ossetia put the number of South Ossetians killed in the conflict at 133 people, undermining Moscow ’s original claims of Georgian genocide in the first days of the conflict and countering South Ossetian rebel claims that over 2,000 civilians had been killed.
· Human Rights Watch has also alleged that Russian used cluster bombs aimed at civilian areas in its attacks on the city of Ruisi and Gori. `
· The UN’s High Court is scheduled to hear a Georgian complaint against Russia for human rights violations on September 8-10.
· The UN’s humanitarian mission is calling on the Russian forces to open humanitarian corridors into the territories they control as currently they are having trouble getting supplies the victims of the conflict.
· The OSCE has announced that it will send in 100 unarmed observers to the borders of the Georgian conflict zone to ensure that the cease-fire is up kept.
· G7 Finance Ministers pledged to be actively involved in supporting Georgia ’s economy help it recover from the Russian invasion.
Bank of Georgia :
· The Bank saw withdrawals of GEL 165mn (roughly 10% of deposits), during the conflict, but since the end of hostilities the situation has stabilized.
· Bank of Georgia is currently assessing the impact that this conflict has had on asset quality. The bank has no assets in South Ossetia and only about US$ 2mn of exposure in the town of Gori . However, impact of recent events on corporate clients is likely to be more significant. According to various estimates the damage to the country’s civilian infrastructure was about US$ 1bn, or 8% of Georgia ’s projected 2008 GDP.
· The Bank is working actively with international organizations like the IFC and EBRD to help rebuild infrastructure in Western Georgia and help the victims of the conflict.
BGEO LI trading in London :
As the situation has calmed and market participants are waiting for additional news and updates, volumes have been substantially lighter this week, trading just $ 1mn in the first 3 sessions. This compares to nearly US$ 50mn in the same period last week. The price has stayed up at US$ 13 through Thursday morning.
Why you should buy BGEO LI now:
At US$ 13.0 the stock continues to represent an excellent risk/reward metric, because of the clear floor established in the 12s, a stock price of just over 5x earnings, and a P/B of 0.8. In the very near term we expect the price to rebound to at least book value. The hostilities did not have a major effect on BoG business.
Bank of Georgia Group Humanitarian Effort:
Galt & Taggart Securities is pleased to announce that our parent company Bank of Georgia (BGEO LI) has established a fund to support the victims of the conflict in South Ossetia and has made an initial contribution of GEL 1 million. The use of funds will be supervised by a special monitoring group established by Bank of Georgia, which will work in close collaboration with the Ministry of Labor, Health and Social Affairs of Georgia and Mayor’s Office of Tbilisi which are coordinating the humanitarian assistance for the victims of South Ossetia conflict. All contributions to the Fund will be highly appreciated.
We encourage everyone who is interested to take part (see below bank account details). We thank you in advance for your support.
For transfers in US$:
Beneficiary Bank
Citibank N.A., New York , US
Swift: CITIUS33
Beneficiary
Bank of Georgia, SWIFT: BAGAGE22
3 Pushkin Street, 0105 Tbilisi, Georgia
Corr.Account: 36204072
Details of Payment
Account: 45118404300400000030
For: the Fund to Support the Victims of South Ossetia
For Transfers in EUR:
Beneficiary Bank
Commerzbank, Frankfurt , Germany
Swift: COBADEFF
Beneficiary
Bank of Georgia, SWIFT: BAGAGE22
3 Pushkin Street , 0105 Tbilisi, Georgia
Corr. Account: 400 88 81 054 01EUR
Details of Payment
Account: 45119784300400000005
For: the Fund to Support the Victims of South Ossetia
For more details please contact:
Macca Ekizashvili
Head of Investor Relations, Bank of Georgia
+995 32 444 256
Source: Galt and Taggart Securities, August 2008
Aliyev: Georgia Crisis Hits Azeri Exports
August 21, 2008
Azerbaijan’s limited export capabilities have been further damaged by the recent crisis in Georgia, Ilham Aliyev, the President of Azerbaijan, said.
“The recent developments in Georgia are certainly threatening the economic interests of each country [in the region],” Azerbaijan’s state-run news agency, Azartac, reported on August 20 quoting Aliyev as saying after meeting with the Turkish Prime Minister, Recep Tayyip Erdogan, in Baku.
“According to the latest data, export potential of Azerbaijan has suffered a certain loss. Our transport capabilities have been limited. As you know, as a result of blowing up of a bridge in Georgia, the volume of Azerbaijani export has significantly decreased,” Aliyev said.
In what appeared to be an attempt to take a balanced line in the current crisis, Aliyev said: “As you know, Russia and Georgia are neighbors of Azerbaijan. We have borders with the both countries. We have friendly relations with the both of these countries.”
He, however, also pointed out that “the norms of international law should be observed, by all means.”
“Azerbaijan recognizes the territorial integrity of all countries. We believe that all conflicts can be resolved through negotiations, peacefully, based on the international law,” he added.
Source: Civil.Ge Online Magazine, August 2008