Inflation risk in the Baltics

I would like to present you with an article writen by Mr Vadimas Titarenko on the status of the Baltic economies.  Mr Titarenko works for the NROD/DnB bank.Most of Lithuania’s statistical indicators for 2007 seem in pretty good shape. Annual GDP growth accounted for 9 percent in the first three quarters of 2007, leaving year-end growth at a forecast 8.3 percent. Average earnings rose by almost 20 percent in the same period. Unemployment is very low at 4 percent and the fiscal indicators are looking good. Which leaves inflation…

International financial experts all too often see the three Baltic countries as a unified region. A lot of criticism has been directed at Latvia – justifiably, since the macro indicators there are quite poor – but unfortunately what happens in Latvia also reflects badly on Lithuania where the indicators are in fact quite healthy. What the experts tend to criticize is that the bulk of the growth so far seen in the Baltic countries is based on household consumption.

Household expenditure is indeed growing very fast – the gap between consumption growth and GDP growth is getting wider. There is an even bigger disproportion between the pace of expansion in the domestic trade sector and the income growth of the population, which means that today households are living on future consumption.

It looks as though consumers here want to rapidly catch up on those in Western Europe – at the cost of living on loans.The dynamics on loan portfolio growth do indeed show that consumers are still taking loans. In the last nine months, Lithuania has been the leader in the Baltic states in terms of consumer loan growth.

The fast growth in consumption has inevitably had an impact on the economy. Over the last couple of months alone inflation has accelerated very much. In 2005, annual CPI growth was 2.7 percent. By June 2007, it had risen to 4.8 percent. In November 2007, it was 7.8 percent – inflation’s highest level since 1997.

The worrisome part is that inflationary expectations are created. To diminish them is a difficult process, especially since a great deal of the inflationary pressures are caused by external factors.On a global scale, poor crop yields and increasing biofuel production have led to 15.4 percent annual growth in the price of food products in Lithuania.

There are also increases in energy prices to contend with. Energy prices in Lithuania are still lower than they are in Germany and other Western European countries, but that is about to change.Gazprom is raising natural gas prices from January 1, 2008, and the Lithuanian authorities have already announced that prices for households are going to increase by 70 percent. 

Read rest of the article on www.alfa.lt 

Lithuania in 2008, predictions

As the BNS reported the professional and amateur forecasters vying for the title of the Oracle of the Year 2008 established by the Verslo Zinios business daily see Lithuania’s economy growing in the range of 2.5-15 percent next year.The majority or 40 % of forecasters, which include economists, politicians and entrepreneurs, sees the country’s gross domestic product (GDP) growing by 6-6.99 % in 2008. Some 16 % project the growth of 4-5.99 %, another 16 % – 7-7.99 %, and yet another 16 % – by 8-9 %, the Verslo Zinios reports.

Some, however, are projecting the growth of 4.5 % or even 15 %.

About 28 % expect the annual inflation to reach 6-6.99 % next year, with another 28 % projecting the annual inflation of 8-9.99 % for 2008. Some 16 % of respondents believe that the inflation might breach the 10 % threshold and might reach as high as 11.5 %.

The forecasters also made projections as to which political party will take the power over in Lithuania in 2008, the year of parliamentary elections. Some 68 % of forecasters are projecting the election victory for Social Democratic party (LSDP) with Christian Democrats.

Nevertheless, as the BNS noted the potential forming of a coalition between Liberal Democrat Party led by impeached former Lithuanian President Rolandas Paksas together with Labour Party lead by Viktor Uspaskich, accused of corruption, following the fall parliamentary elections would put Lithuania in danger of a fiscal misbalance, the international credit rating agency Fitch Ratings warns.

The agency notes that having again chosen as leader the Russian-born Uspaskich, who had been in hiding from Lithuania’s judiciary system, the Labour Party could score one of the best positions in the parliamentary elections to take place in Oct. of next year. The prospects of Liberal Democrats are also assessed as considerably good as this party succeeded in municipal elections in February of this year, when they obtained the votes of almost 13 % of all the cast votes.

However, Fitch Ratings believes that the Social Democrat Gediminas Kirkilas’ led minority coalition is “likely to remain in power until scheduled parliamentary elections in 2008, as neither the Social Democrats nor the Conservatives would necessarily benefit from an early poll”, the report says.

According to the agency, “parliamentary elections are likely to yield another coalition government and Fitch believes another Social Democrat-led coalition is likely. However, the return to Lithuania from Russia of the founder of the Labour Party, Russian-born businessman Viktor Uspaskich, is a factor which could affect the outcome of parliamentary elections”.

Should the Social Democrats retain control over the Cabinet following the elections, and should Kirkilas win in the presidential elections in 2009, the agency notes that this “could lead to a weakening of the checks and balances in the Lithuanian political system”.

Lithuania sends vast number of observers to Georgia’s presidential elections

As the BNS informed a European Parliament Member (MEP) will join the other of Lithuanian observers in Georgia’s premature presidential elections.

Lithuanian MEP Sarunas Birutis will join a specialist delegation formed of seven Europarliamentarians, which is to commence activity on Thursday. Birutis is to monitor Georgia’s premature presidential elections on Saturday together with his colleagues.

At the time of the visit, MEPs will meet with representatives of such international organizations as the Organization for Security and Cooperation in Europe (OSCE); the Council of Europe Parliamentary Assembly and OSCE’s Office for Democratic Institutions and Human Rights.

A meeting with Georgia’s resigned former president Mikhail Saakashvili and Prime Minister Lado Gurgendidze is also on the agenda.

The delegation of MEPs is to present the election monitoring report and hold a press conference Sunday.

A group of Lithuanian MPs, diplomats together with a vast number of students and junior politicians are also going to participate in election monitoring in Georgia.

The Seimas Administration has delegated MPs Arminas Lydeka, Skirmantas Pabedinskas, Jonas Cekuolis, Jadvyga Zinkeviciute and Henrikas Zukauskas. They will observe the elections together with OSCE Parliamentary Assembly’s delegation.

A total of 29 Lithuanian diplomats, Seimas and Pesident’s office employees are to accompany OSCE on the mission to Georgia.

The largest group of observers from Lithuania will be made up of representatives of Vilnius University Institute of International Relations and Political Science (TSPMI) students, junior Social Democrats, Conservatives, Liberals, Lithuanian Atlantic Treaty Association and Council of Lithuanian Youth Organizations.

Russians preparing a provocation against Lithuania

As the BNS reported discussions of what type of provocation to organize against Lithuania, which supposedly has become the headquarters of “anti-Russian extremism”, taking place in the highest-ranking levels in Russia, Lithuanian daily Kauno Diena says.

Two weeks ago, Baltic special services with Lithuania among them, received unprecedented acknowledgement and compliments from the Kremlin.

“In 2007 secret services of foreign countries, especially those of the Baltic States, have become more active”, Director of Russia’s Federal Security Service (FSB) Nikolai Patrushev said in a meeting with journalists. The security official insinuated the presence of Lithuanian among other intelligence in Russia.

The daily’s sources in Russia note that the idea of Lithuania becoming one of the main opponents in the intelligencer battles is becoming more prevalent in FSB headquarters in Kremlin.

“Russian Ministry of Foreign Affairs and the secret services have it that Vilnius is becoming the “outpost nr. 2 of anti-Russian extremism” after London”, one high ranking Kremlin official told the daily.

Kauno Diena says Russia is certain that Lithuania’s authorities and secret services are encouraging the activity of anti-Russian groups and actively collaborates with the secret services of the US and Great Britain.

Lithuania’s Ministry of Foreign Affairs is also receiving signals that the Kremlin’s outlook on Vilnius has plummeted to a high extent.

Foreign Minister Petras Vaitiekunas has often insinuated this fact. According to Kauno Diena, some of his statements could be perceived as public letters to Russia written in order to diffuse the hostile attitude of some of Kremlin’s officials.

Kauno Diena has it that information in Russia’s press about a potential entrenchment attempt against Russia’s President Vladimir Putin is also a source of anxiety. Analytics are certain that these are games of the Russian secret services and this scandalous information has come under the veil of the report of US strategic investigations.

The daily predicts that Lithuania might be entangled in these inner battles as well.

According to Kauno Diena, a few sources note that the FSB is especially active in dissemination of talks about the murder attempt. Secret documents of the Russian secret services mention that such an attack could be launched by Chechnyan rebels and financed by Boris Berezovsky who is currently in hiding in London. The daily says that the officials that have seen these documents remind that the FSB and other organizations in charge of security are currently active in trying to induce that Lithuania has become the headquarters of Chechnyan rebels.

“They are convinced in Moscow that Lithuania is the largest and one of the most active Diasporas of the Chechnyans. The secret services are emphasizing in their reports that Lithuanian authorities do not interfere with the activity of “extremist groups” and arrive at a conclusion that it is in fact the opposite case scenario – such activity is promoted. More over, the reports in question state the groups of “Chechnyan extremists” are actively collaborating with Lithuania’s secret services”, the daily cites unnamed “well-informed individuals”.

Russia’s Foreign Intelligence Services (SVR) bestows specific attention upon the fact that the family of the deceased first President of Chechnya Dzohar Dudajev found refuge in Lithuania. In the opinion of SVR, Dudajev’s sons could at the very least consolidate the emergence of Chechnyan resistance.

Moscow also suspects that Boris Berezovsky has also become more active in Lithuania. A film was recently shown in the country about Alexander Litvinenko, friend of the oligarch. Its director Andrej Nekrasov presented the film endorsed by Berezovsky.

Regardless of whether an attempt against Putin will take place or will be enacted and “disclosed”, the FSB has enough information to find a “Lithuanian footprint”. An informational attack of a high extent would be in forecast for Vilnius, followed by certain political actions of Moscow, Kauno diena says.

The paper’s sources say that Russia’s secret agencies are also actively pursuing discrediting information about the EP member Vytautas Landsbergis, who still holds a considerably powerful position in Lithuania. They are seeking to connect the politician, who is regarded as a personal enemy of the FSB, with the controversially acclaimed Italian Mario Scaramella who is mentioned in Litvinenko’s case. It is affirmed that Scaramella supposedly sought contact with the EP member through people in the latter’s closest surroundings. Therefore, should the Russian secret services together with the General Prosecution Services turn Scaramella into the “hero of the anti-Russian intelligence scandal”, the standing of Landsbergis could also suffer in the eyes of the West, Kauno Diena says.

Some 10,000 Lithuanians read Bible via mobile phone

As the BNS reported more and more Lithuanians are using a modern technologies get Bible software or reader programs, and a total of 10,000 have Scripture readers in personal cell phones.

Bible program downloads have surged 70 percent in Dec. compared with June of the same year; according to statistics of mobile applications portal www.getjar.lt the mobile Bible has been downloaded by Lithuanians 1,000 times last month.

The website’s statistical data shows that mobile phones replace traditional prayer books not for Christians alone. Islam’s Koran mobile programs have also drawn attention. In September, a time of Ramadan for the Muslims, the Koran was sent to mobile phones of Lithuanian inhabitants 100 times.

I would like to remind you that Lithuania has one of the highest mobile penetrations in the world.

LEO LT’s set to become a giant of the Baltics (II)

I would like to present you with a more updated version of the article from the Lietuvos Rytas

As the BNS informed the Lithuania is set to merge three state-owned and private electricity companies to create an energy giant with an authorized share capital of 5 billion litas (EUR 1.45 b) for building a new nuclear power plant and implementing other multi-billion-litas energy projects.

If the parliament gives the go-ahead for the merger, Leo LT, the new holding company, will be the largest company ever established in Lithuania in terms of the authorized share capital.

The state’s initial investment in the establishment of Leo LT will amount to almost 310,000 litas. The government has not decided yet from what source the money will come. Possible sources include the Privatization Fund, the government’s reserve fund and others.

Two power stations owned by the power transmission grid operator Lietuvos Energija (Lithuanian Energy) will be included into Leo LT at the initial stage but will go back into the government’s hands in two years’ time for a symbolic price of 1 litas. Based on the government’s estimates, the two plants are worth 1.5 billion to 2 billion litas.

The government’s agreement with NDX Energija, a privately-owned firm that is controlled by the owners of Vilniaus Prekyba, on the privatization of VST, the western half of Lithuania’s energy grid, will be terminated.

All this is provided for in two new agreements between the government and NDX Energija and in Leo LT’s articles of association.

The basic provisions of these documents, as well as amendments to a law on the planned new nuclear power plant, were submitted on Saturday to the parliament for approval. The legislature is expected to endorse them in mid-January.

It is believed that the agreements could be signed by the end of January.

Leo LT’s shareholders agreement will be in effect until Jan. 1, 2015. It is expected that by that time, Lithuania’s three key energy projects — the planned new nuclear power plant and energy links to Poland and Sweden — will have been launched.
The three strategic projects are among the key goals set out in the agreements on the creation of the energy giant.

“All the main projects must be underway by 2015,” Saulius Specius, an aide to Lithuania’s prime minister, told BNS.

Leo LT, which will be created by merging the state-owned shares in the distribution grid operator Rytu Skirstomieji Tinklai (RST) and in Lietuvos Energija with NDX Energija’s shares in VST, will have an authorized share capital of 5 billion litas on the day of closing the transaction. The share capital will be divided into 500 million ordinary registered shares with a nominal value of 10 litas per share.

However, the authorized share capital at the foundation of the company will be 0.5 million litas, with a nominal value of 10 litas a share. The government will contribute 308,500 litas in cash and will hold 61.7 percent of the shares, and NDX Energija will contribute 191,500 litas and will hold 38.3 percent.

Under the draft agreement on the establishment of Leo LT, the company will issue 499.95 million new shares on the day of closing the transaction. The issue price of the shares with a nominal of 10 litas will be 14.28 litas per share.

The government will contribute 664.701 million shares in Lietuvos Energija, accounting for 96.4 percent of the system operator’s voting shares, and 351.316 million shares in RST, accounting for 71.34 percent of the voting shares in the grid company. It will also subscribe for 308.469 million new shares in Leo LT. NDX Energija will contribute 3.61 million shares in VST, accounting for 97.1 percent of the voting shares in the grid company, and will subscribe for 191.481 million new shares in Leo LT.

The two power generating subsidiaries of Lietuvos Energija — the Kruonis Hydro Pump Storage Plant and the Kaunas Hydro Power Plant — will be spun off into separate companies within 24 months after the deal is finalized. The government will then take over the ownership of the plants for a symbolic price of 1 litas.

The shareholders’ agreement envisages that Leo LT will pay out 40-60 percent of its net profits in dividends every year.

The draft agreement also calls for seeking an immediate listing of Leo LT’s shares on the blue chip Main List of the Vilnius Stock Exchange (VSE).

The document does not set out the amount of shares to be made available for public trading on the bourse, but Darius Nedzinskas, the CEO of NDX Energija, has said that there are plans to float up to 0.4 percent of the shares.

NDX Energija will not be able to sell 33.34 percent of shares in Leo LT without the government’s consent for two years after the closing of the deal. The government will have the right to request that NDX Energija sell it 5 percent of shares in Leo LT in the first half of 2014 at the latest. That would raise the state’s shareholding in the energy company to 66.7 percent.

The draft articles of association envisage that Leo LT will hire five professionals to sit on its management board — three of them will represent the government and two will represent NDX Energija — and will appoint a managing director, who will not have the power to make key decisions on the management of the company. Leo LT will also have an 11-strong supervisory council.

It is expected that the process of establishing the energy holding company will take around three months to complete. With a market capitalization of 7.139 billion litas at current market prices, it will be the largest company listed on the Baltic stock exchange.

It is planned that, at a later stage, Leo LT and its partners from Latvia, Estonia and Poland will set up joint ventures for the nuclear power plant and energy link projects.After having been postponed twice, the talks between the government and NDX Energija on the establishment of the so-called national investor company started on November 30.

The government initially proposed to create the national energy utility based on the model set by the law, but NDX Energija insisted on setting up a new parent company, saying that that would allow avoiding the effects of contracts between Lietuvos Energija and Russia’s energy monopoly RAO UES.