News & Current Affairs

December 25, 2008

Gazprom to control Serbia’s oil

Gazprom to control Serbia’s oil

NIS archive)

Serbia is being offered a secure gas supply in return for its oil monopoly

Russia and Serbia have signed a controversial energy deal that will hand Russian gas giant Gazprom control of NIS, Serbia’s oil monopoly.

Under the deal, Gazprom is to build a gas pipeline through Serbia and an underground gas storage facility there.

Russia’s President Dmitry Medvedev and his Serbian counterpart Boris Tadic signed the agreement in Moscow.

The plan is for Serbia to host part of a new pipeline called South Stream, to deliver Russian gas to southern Europe.

Gazprom is taking a 51% stake in NIS for 400m euros (£380m; $560m), officials say.

Diplomatic tensions

Both countries signed an energy co-operation agreement in January, but the details have only just been finalised. Belgrade had delayed signing because a small party in Serbia’s ruling coalition had argued that the terms on offer to Gazprom were too generous.

Critics say Russia’s pledges to build South Stream by 2015 are not firm enough, given the current economic downturn.

South Stream is designed to take Russian gas under the Black Sea to Bulgaria and then to Serbia for transit towards the lucrative markets of southern Europe.

Washington and the European Union are backing a rival pipeline project called Nabucco, to bring gas from Central Asia, which would bypass Russia.

Correspondents say the planned pipeline could undermine the European efforts, which aim to reduce European dependency on Russian gas.

Serbia’s energy diplomacy is complicated by the fact that Nabucco has EU backing – yet Serbia wants to join the EU.

Political tensions over Kosovo are also a complicating factor, with the EU supporting Kosovo’s independence, while Belgrade and Moscow insist the territory remains part of Serbia.

Graphic showing Nabucco and South Stream pipeline routes
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September 5, 2008

Pakistan ‘needs help’ on economy

Pakistan ‘needs help’ on economy

Asif Ali Zardari, head of the ruling Pakistan People's Party

Asif Ali Zardari faces huge challenges if he becomes president

Pakistan needs a “substantial” injection of external funds if it is to improve its worsening economic situation, an IMF official has said.

Mohsin Khan said Pakistan had not yet requested help from the IMF, which some economists have called for, to address a growing balance of payment crisis.

A falling rupee, soaring inflation and dwindling currency reserves are among Pakistan’s mounting economic problems.

Mr Khan said ministers planned to cut borrowing and tap donors for support.

Economic distress

Stabilizing Pakistan’s faltering economy will be one of the main priorities for Asif Ali Zardari, who is widely expected to be elected president following elections this weekend.

Pakistan’s public finances have deteriorated in the past 18 months amid political instability and violence which culminated in the resignation of former President Musharraf last month.

It seems the government is not getting its act together
Yang-Myung Hang, Lehman Brothers

The rupee has fallen to a record low against the dollar while currency reserves have shrunk from $16.5bn ten months ago to $9.38bn.

The soaring cost of oil imports has eaten into the country’s reserves while the spiraling rate of inflation, which has risen to 25%, has sparked public anger.

Growth in the economy, which performed strongly in the early years of the Musharraf era, is expected to fall to a six-year low this year.

Pakistan’s fragile coalition government is pursuing a range of options to bolster confidence in the economy, including seeking $1bn in loans from the World Bank and the Asian Development Bank.

It is also in talks with Saudi Arabia to defer payment on an estimated $5.9bn of oil it has purchased.

Policeman in Lahore

Security concerns have put off some investors

Some economists believe it is inevitable Pakistan will have to turn to the IMF for help should it find itself struggling to pay its creditors.

Such a move could prove unpopular as any IMF funding would likely require undertakings to slash government borrowing and spending.

On the other hand, such a scenario is unlikely to materialise given the level of US financial and logistical support for Pakistan, a key ally.

Seeking stability

The IMF said it was encouraged that the government was committed to measures to improve its financial position, including privatizing assets and raising funds from the international markets.

“If measures outlined are implemented and sufficient financing is secured quickly,” Mr Khan – director of the IMF’s Middle East and Central Asia Department said, “the authorities could stabilize the economy this year and start to build up reserves.”

Despite attempts by the country’s central bank to reassure foreign investors, concerns remain about the new government’s ability to tackle multiple security and economic challenges.

“It seems the government is not getting its act together, making it difficult to actively address the decline in forex reserves,” said Yang-Myung Hang, a sovereign rating analyst at Lehman Brothers.

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