Wednesday, May 7, 2014

Ukrainian financial strait jackets updates May 7 , 2014 - Following the funny money , obligations and debt involving IMF / Russia and Ukraine version of the Troika ( US / EU / IMF ) ...... Consider the IMF loan , which is a 17 billion Two Year " Stand - By Arrangement " but only 3.2 billion made available Wednesday 5/7 - If Gazprom is owed 3.5 billion as of the end of April in arrears , where does the 5 billion come from to pay IMF loans coming due - part of 9 billion in foreign currency debt coming due this year ? ) Having lost Crimea and its tax revenue as well as prior Russian port payments , how does the IMF loan get serviced ? Well , for that you have to wait until the May 25th Presidential Election , when the West's selected Oligarch candidate gets voted in .... then we'll see the tax increase , pension cuts , privatization moves and job cuts to allow the IMF and Creditor loans to always be paid first !

( Note the IMF loan is not USD but is in Special Drawing Right ... )

IMF Loan to Ukraine in SDR, not US Dollars

This is the first that we know of a loan by the IMF, headquartered in Washington, DC, as specifying a loan in SDR (Special Drawing Rights) rather than in the customary US Dollar.  As with most policy changes from Washington, they ease changes into existence, this seems to be the start in the use of SDR’s.
If this is the start in the use of SDR’s, then in return it’s also the start in not using the US Dollar for IMF loans, which are essentially US Goverment loans.
The IMF Ukrainian loan press release is viewable
We should not take this change lightly as this is a strong indicator and precedent of future IMF loans, and perhaps how the US Government will begin conducting business - being once again that IMF loans are indistinguishable from US Govternmen loans. 
In a deeper view, several points should be clear:
  1. Ukrainian debtors, such as Gazprom and by de-facto, Russia are willing to accept SDR’s 
  2. IMF is willing to write the loan in SDR’s
  3. US Government is complying with its usage in place of the US Dollar
This being true, we have to consider the fact that the dollar is no longer sought after and considered as valuable worldwide, and perhaps won’t be of the same value during the course of the loan as it is today.
Furthermore, the world would be haording US Dollars and demanding loans in US currency if they thought its value would be increasing.  However, the opposite is occurring. If these countries are avoiding the US Dollar, then what are they doing with their stockpiles of US currency – buying hard assets.  From the Forbes article below China has been purchasing gold.
What can you learn from this transitional monetary situation  - China views gold as more valuable than US Dollars, Russia views SDR’s as less risk than US Dollars.  Russia sees more value in converting its oil revenue into gold, which is a dynamic financial twist in that the US Dollar has been used for all oil trades as the petro-dollar.  Consider that the IMF, China, and Russia are avoiding the US Dollar, and that these countries are converting revenue typically in US Dollars into gold.  For yourselves – consider the same conversion into goldsilver, and bitcoin and any other hard asset you are comfortable holding as a safe haven.
Doug Casey of Casey Research summarizes this situation very well:

IMF loan approved - but consider the strings attached and the hanks already outstretched for the IMF loan proceeds ! 

The IMF goes to war in Ukraine

Pepe Escobar is the roving correspondent for Asia Times/Hong Kong, an analyst for RT and TomDispatch, and a frequent contributor to websites and radio shows ranging from the US to East Asia.
Published time: May 07, 2014 08:24
AFP Photo / Sergey Supinsky
AFP Photo / Sergey Supinsky
The IMF has approved a $17 billion loan to Ukraine. The first $3.2 billion tranche has arrived on Wednesday.
It’s essential to identify the conditions attached to this Mafia-style “loan.” Nothing remotely similar to reviving the Ukrainian economy is in play. The scheme is inextricably linked to the IMF’s notorious, one-size-fits-all “structural adjustment”policy, known to hundreds of millions from Latin America and Southeast Asia to Southern Europe.
The regime changers in Kiev have duly complied, launching the inevitable austerity package – from tax hikes and frozen pensions to a stiff, over 50 percent rise on the price of natural gas heating Ukrainian homes. The “Ukrainian people” won’t be able to pay their utility bills this coming winter.
Predictably, the massive loan is not for the benefit of “the Ukrainian people.” Kiev is essentially bankrupt. Creditors range from Western banks to Gazprom – which is owed no less than $2.7 billion. The “loan” will pay back these creditors; not to mention that $5 billion of the total is earmarked for payments of – what else – previous IMF loans. It goes without saying that a lot of the funds will be duly pocketed – Afghanistan-style – by the current bunch of oligarchs aligned with the “Yats” government in Kiev.
The IMF has already warned that Ukraine is in recession and may need an extension of the $17 billion loan. IMF newspeak qualifies it as “a significant recalibration of the program.” This will happen, according to the IMF, if Kiev loses control of Eastern and Southern Ukraine – something already in progress.
Eastern Ukraine is the country’s industrial heartland – with the highest GDP per capita and home of key factories and mines, mostly in the Donetsk region, which happens to be largely mobilized against the neo-fascist/neo-nazi-aligned regime changers in Kiev. If the current conflagration persists, this means both industrial exports and tax revenues will go down.
So here’s the IMF prescription for the oligarch bunch – some of them actively financing Right Sector militias: As long as you’re facing a popular rebellion in Eastern and Southern Ukraine, relax; you will get additional IMF cash further on down the road. Talk about a crash course in disaster capitalism.
Supporters of the right wing party Pravyi Sector (Right Sector) protest in front of the Ukrainian Parliament in Kiev on March 28, 2014. (AFP Photo / Genya Savilov)
Supporters of the right wing party Pravyi Sector (Right Sector) protest in front of the Ukrainian Parliament in Kiev on March 28, 2014. (AFP Photo / Genya Savilov)

We want you to invade

Meanwhile, the Obama administration’s juvenile delinquent school of diplomacy remains on track: the plan is to entice Moscow to “invade.” Benefits would be immense. Washington would destroy once and for all the emerging strategic partnership between the EU, especially Germany, and Russia, part of a more organic interaction between Europe and Asia; keep Europe perennially under America’s thumb; and boost Robocop NATO after its Afghan humiliation.
Well, they are not juvenile delinquents for nothing. Yet this brilliant plan forgets a key component: enough competent troops willing to apply Kiev’s designs. The regime changers dissolved the Berkut federal riot police. Big mistake – because they are pros; they are unemployed; and now, holding a monster grudge, amply supporting Ukrainians in favor of federalization.
What the Ministry of Truth script imposed on all Western corporate media insists on labeling “pro-Russian separatists” are in fact Ukrainian federalists. They don’t want to split. They don’t want to join the Russian Federation. What they want is a federalized Ukraine with strong, autonomous provinces.

Meanwhile, in Pipelineistan…

Washington is actively praying that the confrontation between the EU and Russia on the gas front spirals out of control. Natural gas will amount to 25 percent of the EU’s needs up to 2050. Since 2011 Russia is the number one supplier, ahead of Norway and Algeria.
The bureaucrat-infested European Commission (EC) is now concentrating its attacks on Gazprom on the South Stream pipeline – whose construction starts in June. The EC insists that the agreements already struck between Russia and seven EU countries infringe the laws of the EU (how come they didn’t find that out earlier?). The EC would like South Stream to become a“European,” not a Gazprom project.
Well, that depends on a lot of serious diplomacy and the internal politics of various EU member states. For instance, Estonia and Lithuania depend 100 percent on Gazprom. Some countries, such as Italy, import over 80 percent of their energy; others, such as the UK, only 40 percent.
Employees stand near pipes made for the South Stream pipeline at the OMK metal works in Vyksa in the Nizhny Novgorod region April 15, 2014. (Reuters / Sergei Karpukhin)
Employees stand near pipes made for the South Stream pipeline at the OMK metal works in Vyksa in the Nizhny Novgorod region April 15, 2014. (Reuters / Sergei Karpukhin)

It’s like the EC suddenly woke up from its usual torpor and decided that South Stream is a political football. G√ľnther Oettinger, the EU’s energy commissioner, has been blaring the horn of EU competition laws called “the third energy package” – which would essentially require Gazprom to open South Stream to other suppliers. Moscow filed a complaint to the World Trade Organization (WTO).
Rigorous application of recently unearthed EU law is one thing. Facts on the ground are another. South Stream may cost up to 16 billion euros – but it will be built, even if financed by Russia’s state budget.
Moreover Gazprom, in 2014 alone, has already signed extra deals with German, Italian, Austrian and Swiss partners. Italy’s ENI and France’s EDF are partners from the start. Germany, Italy, Bulgaria, Hungary and Austria are deeply involved in South Stream. No wonder none of them are in favor of more sanctions on Russia.
As for any substantial move by the EU to find new supply sources, that’s a process that should take years – and should involve the best possible alternative source, Iran, assuming a nuclear deal with the P5+1 is struck this year. Another possible source, Kazakhstan, exports less than it could, and that will remain the case because of infrastructure problems.
So we’re back to the Ukrainian tragedy. Moscow won’t “invade.” What for? The IMF’s structural adjustment will devastate Ukraine more than a war; most Ukrainians may even end up begging Russia for help. Berlin won’t antagonize Moscow. So Washington’s rhetoric of “isolating” Russia is just revealed for what it is: juvenile delinquency.
What’s left for the Empire of Chaos is to pray for chaos to keep spreading across Ukraine, thus sapping Moscow’s energy. And all this because the Washington establishment is absolutely terrified of an emerging power in Eurasia. Not one, but two – Russia and China. Worse: strategically aligned. Worse still: bent on integrating Asia and Europe. So feel free to picture a bunch of Washington angry old men hissing like juvenile delinquents: “I don’t like you. I don’t want to talk to you. I want you to die.”


Ukrainian Deputy Finance Minister Vitaliy Lisovenko in an interview last week said the loan will help turn around investors’ sentiment over a shrinking economy and may enable a return to international debt markets later this year. The government has to meet $9 billion in foreign-currency debt payments due this year, he said.

Gazprom bill hits 3.5 billion.....

Gazprom: Ukraine fails to pay its April gas bill

Published time: May 07, 2014 16:03
Edited time: May 07, 2014 20:39

Reuters / Gleb Garanich
Reuters / Gleb Garanich
Gazprom says Kiev has failed to pay its mounting gas bill, which now has hit $3.5 billion. This means that in June Ukraine might receive Russian gas only on the condition of advanced payment.
"The deadline has passed, no payment has been received," said Sergey Kupriyanov, the company's representative. Earlier the company said that if the deadline was not met, Gazprom would issue an advance bill for June gas supplies on May 16.
Naftogaz, Ukraine’s state-owned oil and gas company, has a long record of late payments and unpaid bills to, a problem which has only gotten worse as Ukraine has slipped into revolution and civil unrest.
The debt as of May 7, 2014 stands at $3.508 billion, Gazprom said Wednesday, up from the $2.2 billion tab at the end of April. The sum is contested by Ukraine. Moscow, Kiev and the European Commission plan to hold a new round of talks to negotiate the debt; its date will be discussed on May 12, Russia's Energy Ministry said.
The missed payment came the same day Ukraine received its first tranche of $3 billion from the International Monetary Fund (IMF). Out of that sum, Naftogaz may be eligible to use up to $2.16 billion to pay off its massive debts to Russia, according to documents prepared by the fund. If the money isn't used to pay to Gazprom, Russia's gas company has the right to ask for advanced payments.
Gazprom supplies Europe with 30 percent of the continent’s natural gas. Half of these Russian supplies are shipped through Ukraine.

Price Wars

Later on Wednesday, the prime minister of Ukraine’s coup-imposed government, Arseny Yatsenyuk, said that Kiev will quickly repay its Russian debt if Gazprom agrees to return the gas price to $268.50 per 1,000 cubic meters, the price the country enjoyed under ousted President Viktor Yanukovich. Moscow ended the discount in April, raising gas prices nearly 50 percent.
“Once such price is established and the respective additional agreement signed, Ukraine will pay back its debt within ten days,” Yatsenyuk said, cited by Interfax.
But this will only happen if Gazprom realizes that using “gas as a political weapon is unacceptable,” he added.
Naftogaz CEO Andrey Kobolev said if the pricing conflict is not resolved, his company will take the case to the Stockholm Arbitration Council.
Meanwhile, Russia and the West found a compromise in setting the future cost of gas for Ukraine. The IMF believes that Kiev will receive gas this year at the average European price of $380 per 1,000 cubic meters, a price the IMF took into account when calculating Kiev's lending program, Kommersant reported.
The first gas hike came in after Gazprom cancelled the Yanukovich discount after the first quarter of 2014 and bumped prices up to $385.50 per 1,000 cubic meters. The second $100 gas hike came in April when Russia canceled its Black Sea Fleet host agreement with Ukraine after Crimea voted to join Russia. Moscow said Kiev owes $11.4 billion for all the discounts it received since the 2010 deal.

Situation is 'Critical'

Russian Energy Minister Aleksandr Novak warned over the weekend that the situation with gas transit through Ukraine had reached a “very critical point” as the gas supplies in underground storage facilities have dropped to a point where they can’t guarantee supplies from Russia to Europe.
In 2009, Moscow was forced to turn off supplies through Ukraine over pricing disputes, but even after this “trigger” Gazprom didn’t demand that Kiev start a prepayment contract.
State-owned Naftogaz is on the brink of bankruptcy because it has been selling gas domestically for only a fraction of the import price.
Ukraine’s economy contracted 1.1 percent in the first three months of 2014, a poor performance that puts the economy on track to slow 4 percent overall in 2014. This year, the hryvna has already slumped nearly 30 percent. The Central Bank, which is running dangerously low on foreign exchange reserves, may not be able to prop it up for much longer.
The country is likely to default before the end of the year, Standard & Poor ratings agency says.

( Ukraine running out of road ...... June 1 could be the cutoff date. ) 

Kiev ready to pay gas debt to Russia within 10 days at $268

 May 08, 0:41 UTC+4
Russian Energy Minister said, that Ukraine had no right to revise the price of gas from Russia unilaterally
© ITAR-TASS/Vitaly Grabar
KHARKOV, May 07. /ITAR-TASS/. Ukraine is ready to pay the debt for Russian gas within ten days if its price is set at $268.5 per 1,000 cubic metres, parliament-appointed Prime Minister Arseny Yatsenyuk said on Wednesday, May 7.
“We have sent a proposal to Russia’s Gazprom to extend the contract at a price of $268.5 per 1,000 cubic metres as in the first quarter of 2014. As soon as this price is set and an additional agreement is signed, Ukraine will be prepared to pay all debts within ten days, including the debts of the previous government,” Yatsenyuk said.
Russian Energy Minister Alexander Novak said, however, that Ukraine had no right to revise the price of gas from Russia unilaterally.
He said the issue of gas price had been raised by the Ukrainian delegation at the trilateral consultations in Warsaw on May 2. “We did not want to discuss this issue at the consultations because we think that there are no grounds for discussing it,” Novak said.
He recalled that the contract signed 2009 was still in force. “The contract has been in effect for five years and has been implemented. Ukrainian Energy and Coal Industry Minister Yuri Prodan reaffirmed this yesterday,” he said.
Under the contract, the price of gas supplied to Ukraine is determined by the formula that is pegged to the price of oil. “This formula is used everywhere in the world for pipeline gas supplies. Therefore there are no grounds to discuss the price today and especially unilaterally offer the first quarter price of $268 per 1,000 cubic metres as the Ukrainian authorities are doing,” Novak said.
Parliament-appointed acting President Alexander Turchinov on May 1 instructed the Ministry of Energy and Coal Industry to secure gas supplies from Russia at the price that was in effect in February and March 2014. If Russia disagrees to meet the demand, the relevant Ukrainian ministries and agencies have been instructed to “file a corresponding lawsuit with an international court of arbitration within a month of the receipt of the notice”.
Prodan said Ukraine was ready to pay its debt to Russia’s Gazprom for gas supplies at a price of $268.5 per 1,000 cubic metres. “Ukraine is ready to pay the debt. But we cannot pay the price Gazprom set from April 1. It is unjustifiably high and is about 500 U.S. dollars. We are ready to pay under our obligations,” the minister said.
He disagreed with price of gas set by Gazprom which put Ukraine’s debt for gas at $3.5 billion. Yatsenyuk also reiterated that Ukraine was prepared to pay the price of $268 per 1,000 cubic metres of Russian gas.
This is 45% below the established price of gas. If Moscow disagrees, Kiev will be prepared to contest its debt in court, he said.
Gazprom spokesperson Sergei Kupriyanov said Ukraine had so far not paid the gas debt. “The deadline for payments for April has passed. Nothing was paid. Ukraine’s overdue debt for the Russian gas has increased to $3.508 billion, he said.
Now that the debt has not been paid, Gazprom will start supplying gas to Ukraine against advance payments from June.
Russian Energy Minister Novak said this was not a restriction but an option stipulated by the contract between Gazprom and Naftogaz of Ukraine. “If no payment for the gas supplied is made on May 7, Gazprom on May 16 will issue a preliminary bill for the supply of gas in June. Ukraine will have an opportunity to pay this bill by May 31, in which case the amount of gas to be supplied in June under the advance payment will not exceed the volume paid for until May 31,” Novak said.