30/05/2014 World Business Report

financial news with Aaron Heslehurst in World Business Report.

Gas warfare. Russia threatens to turn the taps off on Ukraine's gas

supplies unless it pays a multi`billion dollar debt Plus,

rekindling the spark, can a new government pull India out of its

worst economic slowdown in a quarter of a century?

Welcome to World Business Report. I'm Aaron Heslehurst. Let's take a

look at the world of business and money and the big challenges facing

India and the new government shortly. How about the stark

reminder of the power Russia can wield through its vast gas reserves.

Russia's state gas company Gazprom has told Ukraine it will cut off its

gas supplies on Tuesday unless it pays billions of dollars it says is

owed. Let me take a look and show you the numbers. Gazprom says that

by the end of next week Ukraine will owe $5.2 billion. It's a figure Kiev

disputes and can't afford to pay. It signed a contract back in 2007 that

locked it into buying gas at $485 per thousand cubic metres. That's

the highest price paid by any country in Europe. Russia slashed

the price by almost half when Viktor Yanokovich, Ukraine's pro`Russian

former president, rejected a trade deal with the EU last year. But when

he was ousted in February, Russia tore up the deal, reinstating the

original price. The EU is brokering talks in Berlin today between the

two sides. It's also worried about the knock`on effect. Europe is still

heavily reliant on Russian gas, and half of it still comes via Ukraine,

making up about a sixth of Europe's total supplies. Chris Weafer is

Senior Partner at Macro Advisory Limited and joins me from Moscow.

Many people may be watching and thinking, Ukraine signed a

contract, it signed a deal, it used the gas, it simply must pay. At its

core, it is a dispute about an unpaid utility bill. It is highly

politicised. It isn't as simple as that. The original contract that

Ukraine signed was at $486. That was discounted by $100 per thousand

cubic metres to pay for the lease of the Sebastopol naval base in Crimea.

Now, Crimea is part of Russia, clearly that complicated the deal.

Additionally, Ukraine says that it is most unfair to the original

contract, which required it to buy a minimum volume of gas, which it

doesn't need any more and won't need in future. It is committed to buying

gas but it doesn't need it at a higher price and essentially,

Ukraine is holding out to renegotiate a new gas contract. That

is at the core of the dispute, rather than whether or not it should

pay for the arrears. Ukraine did receive $15 billion from the IMF,

the EU, US and others. What are we expecting to hear today? Do you

think the deal, do you think they will stump up half what they open

`` they owe? Ukraine has received just over 3 billion of that plus

additional money from Europe. It has about $5.5 billion at its disposal.

The EU and the Germans particularly are trying to broker a peace deal.

They are pushing for Ukraine to pay about half of the amount it owes,

about $2.5 billion and, in exchange, there will be an agreement to

renegotiate the terms of the contract at the European average

price of around $380 and perhaps the elimination of the mill and ``

minimum cost. This is a test case as to whether or not we can expect that

Matic relationship between Ukraine and Russia going forward. Should

Europe be worried? Not for a few months. In summer there is a lot of

gas in storage. If the gas is cut off, it could be a few weeks before

we see an effect. At this stage, the signs are that disruption will be

minimal. Thank you for joining us. To India now, where official growth

figures may underline the challenges faced by the country's new

government and PM Narendra Modi. They are likely to show India's

stuck in its worst economic slowdown in a quarter of a century. Let's

take a look at the numbers. India's economy is expected to have grown at

an annual rate of 4.8% in the three months to March, barely up on the

previous quarter. That would mean two years in a row of growth below

5%, the worst run in 25 years. 5% growth might sound good if you are

in Europe or the US. But ten million young Indians enter the workforce

each year. At that rate, it simply can't create enough jobs. India need

vast investment to improve its infrastructure. Political deadlock

last year meant $105 billion worth of investment was put on hold. So,

can Narendra Modi's government do what it takes? From Calcutta, Yogita

Limaye reports. He is working on the only order they

have here at the moment. This factory makes ovens and mixers to

produce biscuits. There isn't much right news. Without demand from

inside India, they are just about getting by on some small orders from

abroad ``bright. 10% profit is very difficult because raw material

prices have increased 60%. Labour costings have increased. They have

doubled. The salary of my people, two years ago was different. It is

double now. It has been the same story for manufacturers around

India. They are all going through a slump that has been particularly bad

over the past year. In the months running up to the election, things

had virtually come to a standstill around the country. Businesses has

stopped expanding and consumers had stopped buying. Everyone was waiting

and watching to see what the result would be. Now, India has a new

government. It is led by Noranda Modi, whose party swept elections

with a strong majority. `` Narendra Modi. Their promises of speeding up

growth makes many hopeful that the months ahead will be better. The

first priority from the government and the expectation is that growth

sees some revival. Investment projects that have been stuck

because of lack of clearances, start to see a revival. The ease of doing

business in India which has been slowing down, begins to pick up.

They cannot afford to neglect inflation, especially over food

prices, a main reason the last government was voted out. Rain this

year is expected to be below normal, so the new government will

need to strike the right balance between keeping the cost of living

down and getting growth to pick up. To Japan, where there's been good

and bad news in the Government's battle to boost the economy. Last

month, consumer prices rose at an annual rate of 3.2%. That's the

highest inflation since February 1991 and represents a strong

recovery from a two`decade spiral of falling prices. The problem is,

Japanese household spending fell sharply, by down by 4.6% in April, a

figure that was much worse than expected. It seems shoppers are

being deterred by higher prices after a big rise in sales taxes at

the beginning of the month. Rupert Wingfield Hayes reports on the

dilemma facing the Japanese government. The French bank, BMP,

could have to pay $10 billion to settle a US probe into sanctions

busting one of the largest fines ever imposed on a bank, according to

two separate reports. BNP is facing allegations of violating sanctions

against Iran, Sudan and other countries. Neither the bank nor the

US Justice Department would comment on the reports when contacted by the

BBC. You can follow me on Twitter. I will

be back with Sally to look at the headlines from around the world

shortly. Thank you Aaron. He will be back

soon to look at the papers. The Childrens' charity The NSPCC

says it's