Saturday, 27 October, 2012 LONDON AGENCIES Tougher measures imposed by the Euro- pean Union and the United States have tightened the screws on Tehran, which relies on its shipping trade for many imports in- cluding food, consumer and industrial goods. Many foreign companies, including shipping firms, have pulled out for fear of losing business in the U.S. and due to the complexities of arranging non-sanctioned deals. Despite the setbacks, industry sources say producers in Ukraine are providing Iran with coking coal, also known as metallurgi- cal coal, and coke - key steel ingredients. “Iranians used to buy a lot of coking coal from Australia to make their own coke but that has stopped now as the big companies there don’t want to do it as they are too ex- posed,” a British-based coal trade source said. “So Iran went to buy coke from Ukraine,” he added, referring to the concen- trated coal used in blast furnaces. While coal is not directly targeted as a commodity, the European Union imposed a ban on steel sales to Iran last week, making the Islamic Republic’s coal needs more pressing because it now must produce more steel itself. “Iran is one of the fastest-growing coun- tries in terms of steel production so they need more steel raw materials,” a European based trade source said. “They need to im- port more (metallurgical) coal and coke,” he said. Lured by a trade worth nearly $25 mil- lion a month, suppliers in Ukraine are aim- ing to take advantage. “The US and EU sanctions programs currently in place against Iran are complex and include sanctions against the indispen- sable marine insurances,” said Jakob Larsen with BIMCO, the world’s largest private ship owners’ association. “As is often the case, for those who are willing and able to take the risk, the rewards are more likely to be high. In such a market the risk-taker segment will try to find a way out.” Sources say the trade is complex involv- ing often multiple brokers and diverse pay- ment arrangements including a mix of currencies such as Russian roubles. “We have been approached to sell some (metallurgical) coal to Iran and they have been buying more lately,” one Ukrainian metallurgical coal producer said. “We have done some business but not directly, through another country — Syria and Lebanon,” he said, without providing further details. Even those looking to do deals with Iran from Ukraine are having to find creative ways to trade, other sources said. “One of the ways around it being looked at is barter. We’ve been approached several times but haven’t done any deals yet to do barter of coal for steel of equivalent value, that way no money needs to change hands,” a raw materials trader said. IRAN’S FLEET: A Black Sea based trade source also reported receiving multiple en- quiries in recent weeks from Iran. “It isn’t easy, it’s very complicated to deal with Iran,” the source said. “To do some business there you must use a bank with specialist knowledge, not the usual banks or Russian banks. I would use a Lebanese bank instead, which has represen- tative offices in Tehran and acts as an agent between the mills and suppliers.” Trade sources said it was unclear who the ultimate Iranian end-users of imported material were because of the involvement of agents and middle men and the desire to conceal purchases. “Anybody who is doing this kind of busi- ness is not going to say who the buyers are,” another Ukrainian coal source said. Another Black Sea based industry source familiar with the shipments said car- goes were being routed from the cargo port of Nikolayev, not far from Ukraine’s larger terminal of Odessa. “Exports have been going on a constant basis already for two years, and there are around two to three cargoes a month,” the source said. “Iranian vessels come into the port, pick up the coal and then head for home.” A Nikolayev port spokeswoman said: “There were no coal shipments to these di- rections (the United Arab Emirates and Iran) during the past four weeks,” without giving further details. Official data from Ukraine’s Statistics Service showed overall exports to Iran in the period from January to August of this year rose 10 percent to $800 million compared with the same period last year. Coal exports in the period reached $421 million, just over 20 percent lower than in the same period last year. Trade sources say the figures do not re- flect the full extent of the trade and between 170,000 to 200,000 metric tonnes a month of coal are exported from Ukraine, especially using vessels belonging to Iran’s top cargo firm, the Islamic Republic of Iran Shipping Lines (IRISL). “IRISL vessels work out cheaper than using foreign ship owners, who are charging massive premiums for to Iran,” the second Black Sea trader said. “IRISL increasingly is finding it has fewer trade options, so it works out for Iran well.” An IRISL official in Tehran said: “Maybe sometimes we have some offers on coal for factories in Iran.” IRISL has been on a Western blacklist of sanctioned entities for years, accused of transporting weapons, which it denies. It has tried to dodge sanctions by using various tactics including changing its flags, and set- ting up front companies, the U.S. Treasury and the European Union have said. Other tactics have included changing ownership of ships and flags and falsifying cargo documents in a bid to become more invisible, the U.S. Treasury has said. IRISL’s chief said this week that if sanc- tions pressure continued the carrier, which is receiving state help, would face grave problems. It has already had $50 million dollars blocked by the central bank — re- flecting the acute shortage of U.S. currency and underscoring the problems with trades involving Iran’s fleet. Iranian President Mahmoud Ah- madinejad has faced growing criticism over his handling of the economy, especially after the Iranian currency plunged by more than a third in recent weeks. “The regime has reason to be concerned about the budget and being able to support subsidies in the long term as its earnings from trade continue to diminish,” said An- thony Skinner of risk analysts Maplecroft. “President Ahmadinejad has received a lot of blame for the state of the economy and economic mismanagement partly explains the dire state of affairs.” Iran’s coal shipping trade booms despite Western heat Using shadowy middle men, multiple bank accounts and a fleet of ghost ships, Iran’s coal trade is quietly booming as the Islamic Republic tries to sidestep Western sanctions and prevent its industrial economy from crashing ISLAMABAD ONLINE Policymakers and bankers need to make a clear commitment to act now and lift the debilitating uncertainty plaguing the global financial system, International Monetary Fund (IMF) Manag- ing Director (MD) Christine La- garde has said. In a speech to the Canadian International Council in Toronto, Lagarde said the world’s financial system remains weak and policies in the major advanced economies have not been sufficient to re- build confidence. Change in the global finan- cial structure is not visible yet, in part because policymakers and bankers have delayed im- plementation of reforms in some places—intentionally or unintentionally—and because some reforms are meeting re- sistance. In setting out the challenges facing policymakers and bankers, Lagarde said banks are still weak in many countries. As a result, many borrowers still face very tight borrowing condi- tions. This creates a feedback loop of tight credit that stifles investment and growth. At its recent Annual Meet- ings in Tokyo, the IMF released its latest Global Financial Sta- bility Report which said risks to financial stability have in- creased and financial markets remain volatile as the crisis in Europe continues. Lagarde urged action on the financial reform agenda given the high price the crisis has taken on economic growth. “The financial sector?the source of this crisis?is holding down the recovery in key parts of the global economy,” said Lagarde. “Considering the staggering economic and human costs over the past six years, we must do whatever it takes to make sure this does not happen again.” The IMF recently assessed reform progress as part of the Financial Stability Report, and found that reforms are heading in the right direction, but they have not yet delivered a safer fi- nancial system. Also, IMF staff recently con- ducted a study on the costs of regulatory reform and found that the likely long-term in- crease in borrowing costs would be about one quarter of one per- centage point in the United States, and lower elsewhere. Lagarde said Canada has one of the strongest financial sectors in the world. While it faces its own challenges, there are important lessons the coun- try can teach the rest of the world about how to build a stronger, safer financial system. “You can speak with credi- bility based on your own finan- cial sector success, but you are also regarded as a leading mul- tilateralist,” said Lagarde. “Abroad, Canada is identified by its values of coordination and consensus building, which have given your country influence be- yond its years.” Let’s revamp the financial sector! BRUSSELS AGENCIES Excerpts from the International Monetary Fund (IMF) report were presented to the Eurogroup Working Group (EWG) – junior finance ministers and treasury of- ficials who prepare meetings of euro zone finance ministers. “It is clear that Greece is off track and there is no chance they will cut the debt to 120 percent of GDP in 2020 as envisaged. It will be rather 136 percent, and this would be under a positive sce- nario of a primary budget sur- plus, a return to economic growth, and privatization,” a euro zone official, who insisted on anonymity, said. “New prior actions will be needed, on top of the existing 89,” the official said, referring to a list of already agreed reforms that need to be in place before any new tranches of euro zone and IMF emergency loans to Greece can be paid. Apart from the debt projec- tions, representatives of the IMF, the European Commission and the European Central Bank - known as the troika - have been calculating how much more money Athens will need if it is given until 2016 rather than 2014 to reach a primary surplus of 4.5 percent, as agreed in February. A primary surplus or deficit is the budget balance before the gov- ernment services its debt. In Greece’s case, it would mean gov- ernment tax revenues exceeding spending, meaning Athens is be- ginning to get on top of its budget- deficit problems. The two extra years would give the fast-contracting Greek economy some welcome respite, allowing it to return to growth sooner and therefore increasing the chances the country would eventually be able to make its debt sustainable. “Additional financing needs for Greece are now seen at around 30 billion euros ($39 billion),” the official said after the EWG meet- ing. Estimates from various offi- cials since July varied from 13 billion to 30 billion and on Thurs- day another official estimated the financing needs at 16-20 billion euros. The critical question is where the additional money would come from. “The IMF is pushing for OSI (Official Sector Involvement) in Greece, Germany is strictly against. And they are not the only ones,” the euro zone official said. The IMF has long advocated that the euro zone should restruc- ture the loans that euro zone gov- ernments extended to Greece, in what is called OSI, to reduce the debt servicing costs for Athens. The restructuring could take the form of a further reduction of the interest rate on existing loans to Greece and an extension of their maturities, but while that would reduce financing costs, alone it would not fill the funding gap. Another option is to bring for- ward some payments from the IMF that would be granted to Greece at a later date, thereby bridging its immediate funding gap, but again that is not be fully sufficient. Also under consideration to reduce the Greek debt pile, and its servicing cost, is a debt buy back, taking advantage of the deep dis- count Greek debt is currently trading at. But more direct funding for Greece from euro zone member states looks inevitable. Any new money would have to come from the euro zone’s perma- nent bailout fund, the European Stability Mechanism, and is likely to face opposition from countries such as Finland, the Netherlands and Germany. ECB ASSISTANCE NEEDED: The euro zone official said that further assistance from the ECB, in the form of new liquidity sup- port to Greek banks, would be needed. Greece will be further dis- cussed at the next EWG meeting on Monday. Apart from the funding issue, talks on granting Athens the two- year extension on its primary sur- plus target are hindered by the opposition of some parties in the ruling Greek coalition on labor market reforms, seen as necessary by the Troika. Greek Finance Minister Yan- nis Stournaras told parliament on Wednesday that Greece had al- ready been granted the two-year extension, but several top euro zone officials, including European Central Bank President Mario Draghi and German Finance min- ister Wolfgang Schaeuble, said they were not aware of that. If an agreement with Athens is reached in time, a decision on the extra money could be taken at the next meeting of euro zone finance ministers in Brussels on Novem- ber 12. Despite disagreements over how it will be done, it has become clear in recent days that a two- year extension will be granted and therefore some way will be found to finance it. Greek debt to badly miss target: euro zone official Greek debt will be above the target of 120 percent of GDP in 2020, a preliminary report by the IMF showed on Thursday, and Athens will need more reforms before emergency credit from international lenders can start flowing again 18-Business Pages- 27 October_Layout 1 10/27/2012 12:32 AM Page 1