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Plus, the Russian co-owner of Montenegro’s huge aluminum plant sues the government and Brussels shifts gears on Bosnia.by S. Adam Cardais, Sarah Fluck, and Karlo Marinovic 14 March 2014
Austria has arrested a Ukrainian oligarch wanted by the United States in an evident move to put pressure on Russia over the political standoff in Ukraine.
One of Ukraine's richest men, Firtash owns the holding company Group DF and is a major player in the Russian-Ukrainian gas trade, the Financial Times reports. He was arrested following an eight-year FBI investigation.
In Kyiv, the FT points out, the move was seen as a warning by the U.S. to President Vladimir Putin that his allies would face sanctions if he did not withdraw Russian troops from Ukraine's eastern region of Crimea, which is expected to hold a successful referendum 16 March on joining Russia.
In a note to investors quoted by the FT, Standard Bank analyst Timothy Ash called the arrest "an absolutely seismic development on so many different levels." He said Firtash has close ties to Russia via the energy sector, and possibly even Putin himself.
“[I]t sends a strong message to Russia that the West is willing to go down the financial sanctions route – unless it backtracks over Crimea and over broader policy toward Ukraine."
Group DF, which controls much of Ukraine's chemical industry, countered that the arrest was a "misunderstanding" that would be resolved quickly. There is no connection to the crisis in Ukraine, it said, according to the FT.
Firtash has close ties to officials who held top posts in the government of former President Viktor Yanukovych, including the former energy minister. He was not on a list of EU sanctions targets drawn up last week, but it is reportedly being expanded.
Firtash's arrest came just as Russia announced new military operations near the Ukrainian border. U.S. Secretary of State John Kerry and German Chancellor Angela Merkel warned Moscow that it would face serious consequences if Russia acts on the upcoming referendum in Crimea.
With European dependence on Russian natural gas complicating Brussels’ reaction to the Crimean crisis, the gas fields of Azerbaijan are looking more attractive, EurasiaNet.org reports.
While not “a proper alternative for Russian energy sources,” Azerbaijan is “a major point in Europe’s efforts to decrease its dependence on Russian gas,” Elhan Shahinoglu, director of the Atlas research center in Baku, told EurasiaNet.org.
The EU gets more than one-third of its natural gas from Russia, with six countries, including Bulgaria and Lithuania, completely dependent on it, according to The Wall Street Journal.
Azerbaijan’s energy minister, Natig Aliev, last month put the country’s gas production in 2013 at 29 billion cubic meters, of which roughly 62 percent counted for tradable gas, according to EurasiaNet.org. Production is expected to rise by 2 billion cubic meters this year.
The Shah Deniz gas field, Azerbaijan’s largest, is expected to pump 10 billion cubic meters of gas per year to Albania, Greece, and Italy in 2019, EurasiaNet.org writes.
Shahinoglu said the EU would probably now support two additional pipelines out of Shah Deniz to bring more gas to southeastern Europe. SOCAR, Azerbaijan’s state energy company, said 12 March that it is ready to give additional countries access to the gas infrastructure, EurasiaNet.org reports, citing the Tura news agency.
Supplies could start as early as this year. “If the EU will finance the construction of a short, 180-kilometer interconnector [112 miles] between the gas distribution networks of Turkey and Bulgaria” Bulgaria could receive 2 billion cubic meters of gas from it in 2014, energy expert Ilham Shaban told EurasiaNet.org
After Russian troops took control of Crimea, the EU suspended talks on two Russian pipeline projects that would increase natural gas deliveries to Europe. EU officials have so far not commented on Azerbaijan’s prospects, EurasiaNet.org writes.
The former majority owner of the KAP aluminum plant in Montenegro has sued the government, charging Podgorica’s illegal interference in the business resulted in bankruptcy for the plant, once the country’s largest single employer, Balkan Insight reports.
Central European Aluminum Company (CEAC) filed a request for arbitration with the Vienna International Arbitral Center 11 March, seeking 600 million euros ($835 million) in compensation for losses it suffered with the shuttering of the plant.
CEAC, owned by Russian tycoon Oleg Deripaska and based in Cyprus, requested the arbitration after the government invited bids for KAP’s assets in December, two months after the bankruptcy declaration.
“CEAC considers that the actions of Montenegro break the agreements [between the company and the government] and it requests compensation for all the damage and losses suffered, including reimbursement for illegal expropriation of CEAC's investments,” the company said in a statement, according to Pobjeda.me
The government of Montenegro, which now holds a majority stake in KAP, rejects the claims, arguing that poor management caused the plant to go into debt to the tune of 350 million euros, Balkan Insight reports. Podgorica says the bankruptcy procedures were “in line with” domestic and international laws, BNE reports.
After its 2005 acquisition of 65.4 percent of KAP's shares, CEAC “suffered recurring interference and obstruction of its investment,” according to Pavel Priymakov, the company’s general counsel. He cites hidden debts of KAP discovered by CEAC's accountants in 2006 and the arrest of KAP's chief financial officer, Dmitry Potrubach, over alleged electricity theft.
One analyst told BNE the government could be looking for a chance to close down an unsustainable business far enough ahead of the next elections to minimize the political fallout from the loss of about 1,000 jobs. “The International Monetary Fund, for example, has already this year recommended the government close KAP. Meanwhile, subsidies to state companies will become more of an issue as the country moves further toward joining the EU,” according to the magazine.
At its peak in the 1970s, the plant employed more than 5,000 people.
The arbitrage request is the latest in series of the similar complaints filed with international tribunals
In 2008, CEAC filed a claim with an arbitration panel in Germany after failing to reach a compromise over prices for electricity, which quadrupled in 2007, according to BNE.
In early 2013 the company went to Vienna to accuse Montenegro of breaching a 2010 agreement in which the company gave up some of its equity in the plant in exchange for government guarantees on about 130 million euros of KAP's debt, Balkan Insight reports.
In November, CEAC launched arbitration proceedings in Vienna to seek at least 100 million euros over its removal from an operating role without any compensation, according to BNE.
The European Union is changing its focus in Bosnia following years of stagnation and a month of the worst unrest the country has seen since the 1990s conflict, Balkan Insight reports.
After meeting with political and civic leaders in Sarajevo 12 March, EU foreign policy chief Catherine Ashton said the focus should now be on economic reform, welfare, and the judiciary – not constitutional change that has gone nowhere after repeated ultimatums from Brussels and, in 2013, a severe economic sanction.
Ashton's remarks come one month after protests erupted in Tuzla, Sarajevo, Mostar, and other towns over widespread poverty, double-digit unemployment, and years of stagnation due to political infighting.
"People have been clear in expressing their ambitions and concerns," Ashton said in Sarajevo. "They want employment opportunities and a growing economy, they want social welfare which works, the rule of law, and an efficient justice system."
Saying the EU would do its part to help, Ashton put the ultimate responsibility on Bosnia's political leaders, who she said need to move beyond rancor and ethnic division to address the country's needs, including economic reform, Balkan Insight reports.
Her remarks reflect a significant shift in the EU's Bosnian policy, long-focused on the so-called Sejdic-Finci ruling by the European Court of Human Rights. Last month, EU Enlargement Commissioner Stefan Fuele slammed Bosnian leaders for again failing to implement the 2009 ruling in favor of minority groups who complained that the constitution violated their rights by reserving certain top political posts for members of the Serb, Croat, and Bosniak communities.
Afterwards, Fuele effectively washed his hands of the matter and said the EU would prioritize economic reforms.
Images of the abysmal conditions at the largest university dormitory in Skopje have set the Internet abuzz, Balkan Insight reports.
Thousands of commenters have taken to social media to slam the squalor of the Goce Delcev dorm, including moldy walls, filthy toilets, and rooms damp from broken pipes. The images were released as part of a student protest called Operation Dorm that has gone viral on Reddit and Facebook and drawn international media attention.
"Hells of residence: Inside Macedonia's horrifying student accommodation – where the walls are green and the food is black," reads a 12 March headline from The Independent.
Basic amenities like hot water, electricity, and heat are also scarce, students say. They launched the Internet protest to agitate for better conditions after their complaints fell on deaf ears.
"We are raising our voice because this is not acceptable anymore!" the students' movement said in a statement, according to Balkan Insight. "The Students Union and Student Parliament have been explaining to us that … if we do not like it we should leave, that we should be silent, because either way we cannot change anything."
Housing more than 1,200 students, the dorm in question hasn't been renovated since being built in 1970, according to Balkan Insight, which cites one of its architects. Skopje vowed action after an elevator collapsed in 2011, but students say nothing has been done.
Responding to the protest movement, the Education Ministry said it would begin renovations after the upcoming elections in April.
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