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TT Business Intelligence Report - CE/SEE & FSU Vol. 3, No. 72
Business Intelligence, Crime, Corruption in C&E/SE Europe and the FSU
UPCOMING CONFERENCES
EUROPEAN FINANCE CONVENTION FOUNDATION'S "BANKING AND FINANCE IN CENTRAL, EASTERN & SE EUROPE, RUSSIA, AND THE CIS 2004 AND BEYOND"
This event will take place on 6-7 July 2004 at the Conrad Hotel Brussels, Belgium. For further information, please contact Claudio Cassuto, tel: +44 (0)20 7381 9291; fax: +44 870 1340 064; email: cassuto@euroconvention.com; W: www.euroconvention.com
WRA'S "CENTRAL AND EASTERN EUROPEAN REFINING AND PETROCHEMICALS - 7th ANNUAL ROUNDTABLE"
This event will take place on 18-20 October 2004 in Prague, Czech Republic. For further information, please contact Sapna Khimani, tel: +44 (0)20 7067 1800; fax: +44 (0)20 7430 9513; email: marketing@theenergyexchange.co.uk; W: www.wraconferences.com
BELARUS
MINSK HOPES TO AGREE ON GAS SUPPLIES WITH GAZPROM IN JUNE
Belarusian First Deputy Prime Minister Uladzimir Syamashka told journalists on 25 May that the government expects to reach an accord on gas supplies with Russia's Gazprom in the first half of June, Belapan reported. Gazprom stopped gas supplies to Belarus at the beginning of 2004, demanding a higher price for deliveries and favorable terms in the potential purchase of a controlling stake in Belarus's gas-pipeline operator Beltranshaz. Syamashka noted that Russia's Sibur, the company that has been supplying Belarus with gas over the past several months on the basis of short-term contracts, is only formally independent from Gazprom. "This means Gazprom is supplying us with gas again," he said. According to Syamashka, the only unresolved issue between Minsk and Gazprom is the fee for Russian gas transport across Belarus. In January, Belarus unilaterally set this fee at $1.02 per 1,000 cubic meters per 100 kilometers, while Gazprom reportedly wants this charge to be set at $0.46 if Belarus is to continue receiving Russian gas at the current price of $46.68 for 1,000 cubic meters. (RFE/RL 26.v.04)
GOVERNMENT SET TO NATIONALISE 30.9% IN MOBILE DIGITAL COMMUNICATIONS
The Belarussian government is reportedly set to nationalise 30.9% in the cellular operator Mobile Digital Communications (MTsS, Velcom trademark's owner). The Cypriot SB TELECOM owns 49% in the operator, leaving BELTEKHEXPORT with 20% and the state with 31%. According to a government source, 20.9% from the SB TELECOM stake and 10% from BELTEKHEXPORT's share will be transferred to the state free of charge. Although grounds for the hand-over are not clear, companies that stand to lose part of their property will hardly counter the government, market players said. (NewsBase 21.v.04)
BULGARIA
PRIVATISATION AGENCY EXTENDS APPLICATION DEADLINE FOR 67% STAKE IN BULGARIA'S POWER UTILITIES
The Privatisation Agency has extended the deadline for submitting final applications for the privatisation of a 67% stake in Bulgaria's power utilities until July 9. The investors that will take part in the privatisation had asked for the extension in order to prepare better judicial and investment analyses of the seven electricity distribution companies. At the end of May all five bidders for Bulgaria's electricity distribution companies were sent final documents in a step that moves the sales closer to the final decision. Italy's ENEL, Germany's E.ON, Czech CEZ, Greece's PPC and Austria's EVN are expected to submit binding offers for the three equity pools by July 9. Candidates can bid for all three pools, but can acquire only one. The investor must acquire at least 51% of each package, and the remainder can be taken in concert with a financial institution. (NewsBase 03.vi.04)
CROATIA
I'M OK, YOU'RE OK
Formerly bitter foes, Serbia and Croatia have begun a new era that will benefit the entire Balkans, their leaders agreed last week. In the first visit of a head of state of Serbia and Montenegro to Zagreb since Croatia's bloody war for independence a decade ago, Svetozar Marovic held cordial talks with Croatian President Stipe Mesic. Mesic stressed that "the time of changing borders is behind us. What we can change is the cooperation between the states. This is Croatia's interest regarding Serbia and Montenegro, as well as Bosnia." The talks gave added impetus to strengthening ties as the presidents agreed that the remaining open issues should be solved as soon as possible. "In the past year President Mesic and I have made first steps that have both symbolically and actually showed our commitment to the future of this region, our friendly and European relations," Marovic said. The groundbreaking symbolic gesture took place during Mesic's first visit to Belgrade in September as the two leaders exchanged apologies for all "evils" committed on both sides during the conflict. Relations have been gradually warming in the past few years with relatively moderate governments ending the authoritarian regimes of Franjo Tudjman in Zagreb and Slobodan Milosevic in Belgrade. The temporary liberalization of visa rules last year led to a return of Serbian tourists to Croatia's Adriatic coast. Although still a trickle compared with the total of 7 million foreign tourists who visited Croatia in 2003, their number tripled from a year before to more than 80,000. For many in Serbia, though, where the economy is struggling to recover from years of isolation, the Adriatic has become too expensive. Trade between the two neighbors reached $300 million last year and should get a further boost following implementation of a free trade agreement signed in January. Some Croatian firms, including the food-and-beverage company Agrokor, the country's biggest private enterprise, are already making acquisitions in Serbia. (TOL 31.v.04)
CZECH REPUBLIC
CENTA PROPERTY AGENCY CLOSES DUE TO FINANCIAL DIFFICULTIES
One of the largest Czech property agencies, Centa, is facing financial difficulties and has been closed since Friday, the daily Mlada fronta Dnes reported on June 2. The company's principal owner Stanislav Kindl confirmed the problems. "I cannot say much about it, the situation is more difficult and is being solved by lawyers," Kindl told the daily. Former trade director and the owner of 10% of Centa shares Petr Vosmik told the daily that the company was in a bad situation. "I don't know exactly what is going on and unfortunately I only communicate with my partner through lawyers,"Vosmik said. Vosmik had problems when some of the company's real estate brokers left Centa and set up a new real estate company, Ceskomoravska realitni, with different partners in February. The departure of a large number of dealers has probably made existing problems in Centa worse. It is a common practice that clients interested in the purchase or lease of a flat pay an advance payment of about 10%. Centa last year sold 20 flats and eight houses or plots of land and leased roughly 80 flats a month. It was one of the first large Prague-based real estate agencies to open offices outside the Czech capital, where most real estate deals still take place, the daily said. (NewsBase 03.vi.04)
WORLD BANK REPORT CRITICIZES CZECH BUSINESS ENVIRONMENT
A new report by the World Bank (WB) on the business environment in countries around the world criticizes the Czech Republic on a number of points, including the lengthy process involved in setting up a business in the country and inefficient bankruptcy proceedings. The process for establishing a company in the Czech Republic is far too lengthy compared to that in Western Europe or neighboring countries, the WB’s Simeon Djankov told journalists in Prague. In Australia, for example, a company can be set up in a mere two days, while the average for OECD member states is 25 days, and in Slovakia it takes 52 days. In the Czech Republic, however, the same process takes some 88 days, according to Djankov. The WB report is also critical of the bankruptcy system in the CR. According to the study, bankruptcy proceedings take an average of over 9 years to complete, compared to just 5 months in Ireland, an average of 18 months in OECD countries, and five years in Slovakia. The report shows the CR also lagging behind in terms of efficiency of bankruptcy proceedings, with creditors getting just 37 cents of every dollar invested back. That stands in contrast to the Finland, for example, where the level of return is 95 cents on every dollar invested, or 94 cents in the Netherlands. WB officials recommend a greater role for creditors in bankruptcy proceedings as part of the remedy, a step Prime Minister Vladimir Spidla has also backed. Parliament is expected to discuss a new bankruptcy bill this fall. (Interfax 28.v.04)
GEORGIA
ABKHAZ PM REJECTS UNIFIED GEORGIAN-ABKHAZ STATE
Abkhaz Prime Minister Raul Khajimba has rejected a proposal from Georgian President Mikhail Saakashvili to unite in a single Georgian state. The Georgian president made this proposal to the breakaway republics of Abkhazia and Ossetia. "There can be no discussion of unification between Abkhazia and Georgia in a single state," Khajimba told Interfax on Wednesday. "Abkhazia has finally established its status. The republic has adopted the constitution of an independent state and the status of Abkhazia cannot and will not be subject to discussion," the Abkhaz prime minister said. "As regards the wishes of the Georgian side, wishes do not always correspond with reality," Khajimba said. "Sukhumi does not believe the address from Georgian President Mikhail Saakashvili to the people of Abkhazia about friendship and peace, made with tanks looming in the background," Abkhaz Foreign Minister Sergei Shamba told Interfax on Wednesday. Earlier that day,Saakashvili called on Abkhazia to begin negotiations on Abkhazia's status as part of Georgia during a military parade marking Georgian Independence Day. "Such a statement made against the background of a military parade is perceived as an attempt to use psychological pressure to offer Sukhumi a totally unacceptable model of its political status," Shamba said. Abkhazia "has refused many times to discuss the issue of its political status because this issue has already been resolved by the people of Abkhazia and has been confirmed in a referendum. Abkhazia's position is firm: to preserve its independence," he said. "The Georgian leaders are not drawing any conclusions and continue to talk about peace against a background of threats and psychological pressure," Shamba said. "In earlier years, the Georgian authorities spoke about strengthening peace and trust. However, at the same time they sent saboteurs into Abkhazia," he said. "Only dialogue with Georgia on further peaceful coexistence is possible, for which we now need to begin restoring trust between the sides," Shamba said. (Interfax 28.v.04)
HUNGARY
DAM SECURES THREE SUITORS
Three investors have entered bids in the latest tender to take over debt-ridden DAM Steel Rt, the company's appointed liquidator, Janos Kovacs said yesterday. DAM was first put on the block last December after its Italian owner went bankrupt, but the only bidder Eszakvas Kft offered a mere Ft 1 billion instead of the Ft 5 billion minimum price. This time around the steel foundry was put up for sale at a Ft 5.3 billion asking price. One of the three unnamed contenders is reported to have made two alternative price offers depending on whether or not it is bound to retain all the 1,100 workers. (BBJ 02.vi.04)
CREDIT LYONNAIS HUNGARY RENAMED CALYON BANK
As a result of the friendly merger between French banks Credit Lyonnais SA and Credit Agricole SA in 2003, the investment and corporate banking arms of both banks have been fused together and will trade worldwide under the new name Calyon Bank. In keeping with that, Credit Lyonnais’ Hungarian corporate banking operation has been renamed Calyon Corporate and Investment Bank Hungary Rt. Calyon Hungary’s strategy will remain unchanged, said Olivier Joyeux, chairman of the local bank’s board of directors and also its managing director. "Credit Agricole, CA Indosuez and CL corporate banking activities up till now had rather identical strategies, so the merger creates a situation where product lines are strengthened," he said at a press conference in Budapest on Friday, May 28. "There is no new strategy as a result of the merger and name change, rather a new ambition." The Hungarian bank closed 2003 with total assets of Ft 124.79 billion, more than double the Ft 58.49 billion at the end of 2002. The bank recorded pre-tax profit of Ft 1,106 billion, a little less than 2002’s Ft 1,157 billion. As in earlier years, the bank is paying out its net income – Ft 815 million in 2003 – as dividends to shareholders. The name change and merger came about following the friendly buyout of CL by CA in 2003. On April 30, 2004, shareholders of CL approved the partial transfer of CL’s corporate and investment banking arm to Credit Agricole Indosuez, the corporate and investment arm of the CA Group. Those two arms together created Calyon. Backed by the credit rating and financial strength of the CA Group, the global Calyon – and all its members – enjoy the same long-term ratings as their ultimate parent, CA. Those include Aa2 from Moody’s, AA- from Standard and Poors and AA from Fitch. The global Calyon has equity capital of E2.98 billion and shareholders’ equity of E10 billion. It has offices in over 60 countries. In Central and Eastern Europe, Calyon has branches in Poland, Slovakia, Hungary, the Czech Republic, Ukraine and Russia. Calyon has been present in Hungary under its previous name since 1992. It provides wholesale financial services to corporate customers, large corporations, joint ventures, subsidiaries of multinationals, and financial institutions. (BBJ 31.v.04)
MATAV STRONGLY LINKED WITH TELECOM MONTENEGRO BUYOUT
Matav Rt’s acquisition of Telecom Montenegro would be a small step in the right direction, but would need to be followed by larger acquisitions, analysts said last week in response to reports. According to reports in Podgorica newspaper Vijesti, representatives of Matav have visited Podgorica twice and are said to be very interested in buying Telecom Montenegro. Zoran Sekulic, head of Montenegro’s privatization agency, was quoted in Vijesti as saying that Matav emerged after talks as the most likely buyer of the predominantly state-owned company. The government holds 89%, while the rest is in the hands of employees. Matav, which is faced with a lack of growth potential on the Hungarian market due especially to market liberalization, needs to expand outside Hungary to grow its revenues,according to the broad consensus of analysts. Szabolcs Szikszai, an analyst at Takarekbank Rt, welcomed Matav’s potential acquisition of a telecom company in an emerging market with strong growth potential. He added that Matav may be readying a bid to buy Serbian Telecom. "Matav’s primary target could be Serbian Telecom. The sale of Telecom Montenegro is likely to reveal potential buyers of Serbian Telecom," Szikszai said. Serbia has a population of approximately 10 million, while Montenegro has just 620,000 inhabitants. The number of fixed lines in Montenegro grew by 2.3% in 2002 over the preceding year, and came close to 195,000, according to a telecom report from the federal government of Serbia and Montenegro. Matav was earlier believed to be holding talks with Serbian Telecom, but a source close to the issue said that the company withdrew when Serbian Prime Minister Zoran Djindjic was assassinated in March 2003. ConCorde’s Mihalicza said he does not expect Matáv to make a move for Serbian Telecom. According to a Montenegrin government telecom report in 2002, an attempt was earlier made to privatize Telecom Montenegro through an international tendering process geared toward attracting a foreign strategic partner. Telecom Montenegro owns 100% of the Macedonia’s second mobile operator, Monet. At the end of 2002, the number of active customers with SIM cards in Montenegro was 445,040, a very high penetration rate in the Balkans. (BBJ 31.v.04)
KAZAKHSTAN
KAZAKH METALS GIANT PLANS IPO
Kazakhstan's copper monopoly Kazakhmys said Tuesday it targeted higher refined copper output this year and planned an initial public offering in London within eight to 10 months. Kazakhmys, which produces more than 90 percent of Kazakhstan's copper and is among the world's top 10, also said it would bid for Russia's giant Udokan copper field, but was ready to offer no more than $100 million for the license. Kazakhmys, headquartered in Dzhezkazgan in central Kazakhstan, said it plans to produce 425,000 tons of refined copper this year and next, compared to an earlier target of 418,000 tons set for 2004. Last year's output was 417,400 tons of refined copper. "We have sufficient reserves to produce 430,000 to 450,000 tons per year, maybe even 500,000 tons of copper in five years," Kazakhmys board chairman and president Vladimir Kim told a presentation at the Moscow Metals Summit. Kazakhmys sells its copper mainly to the European Union and China. Kazakhmys, which opened the 100,000-ton-per-year Balkhash zinc smelter last year, said it also planned to produce 70,000 tons of refined zinc this year and 90,000 tons in 2005. Kazakhstan's zinc output totaled 294,965 tons in 2003. Kim said the 25 percent IPO would include 12.5 percent owned by one of the company's current shareholders, with another 12.5 percent in new shares. Kazakhmys shares are now traded on the Kazakhstan Stock Exchange, or KASE. Kazakhmys said its earnings before interest, taxation, depreciation and amortization, or EBITDA, are set to rise to $800 million in 2004 from $385 million last year. The company's 2005 EBITDA is estimated at $700 million. Kim said Kazakhmys had no outstanding obligations, but it could also issue eurobonds at any time of its choosing, if need be. He did not elaborate. Kim said Kazakhmys processes annually over 40 million tons of thin ores with average copper contents of 1 percent. As of Jan. 1, 2004, the company's own copper reserves were worth 30.5 million tons, and Kazakhmys was ready to bid for Russia's mammoth Udokan field, but not at any price. A senior Russian metallurgy official said earlier Tuesday that the tender for the field, with estimated reserves of 20 million tons of copper, might be announced by the end of June. Udokan, in Western Siberia, contains an average of 2.5 percent of copper in its ore and is estimated to account for 58 percent of Russia's total potential reserves. Kazakhmys is partly owned by South Korean conglomerate Samsung Corp. and its subsidiary Samsung Hong Kong Ltd. (The Moscow Times 02.vi.04)
LITHUANIA
PM: LITHUANIA SHOULD NOT HURRY TO REPLACE LITAS WITH EUROS
Lithuanian Prime Minister Algirdas Brazauskas has said that Lithuania should not hurry to replace its national currency, the litas, with the euro. "I am not very enthusiastic about the speedy introduction of the euro in Lithuania, as some others are," Brazauskas said in an interview with Lithuanian public radio. "We have to strenghten our economy first, to create better living conditions for our people, to increase their income and only then discuss the introduction of the euro," Brazauskas said. He added that the experience of other EU members showed that prices climbed after joining the eurozone. Lithuania became a member of the EU on May 1st and is seen as a leading candidate to join the eurozone as soon as 2007. The Lithuanian economy grew by 7.5% in the first quarter of 2004 from the same period in 2003, according to official figures. The Lithuanian government and the central bank had earlier said the country would start negotiations to join the eurozone immediately after EU accession. The Lithuanian currency, the litas, has been pegged at a rate of 3.4528 litas to one euro since February 2002. Brazauskas, a reformed Communist, may be seeking to win popular support given that many Lithuanians are fearful of major price increases for foods and consumer items. (NewsBase 02.vi.04)
MACEDONIA
PRESIDENT UPBEAT ON MACEDONIA'S CHANCES FOR EU MEMBERSHIP
President Branko Crvenkovski said in his keynote speech to a forum on 26 May dedicated to the country's future EU membership that "Macedonia is not and cannot be isolated from the main paths of development of modern Europe," MIA reported. Crvenkovski added that Macedonia's future lies in the EU, but he added that it must meet its obligations "without any calculations and exemptions and continue on the road to democratization, economic development, and improvement of the rule of law." According to the president, Macedonia can expect that its institution-building efforts will be supported by twinning programs, technical assistance, and the chance to participate in some EU programs. (RFE/RL 27.v.04)
POLAND
BELKA'S DAYS SEEM INCREASINGLY NUMBERED
Marek Belka will personally engage in talks to find a parliamentary majority to support his government in the vote of confidence. However, Polish Social Democracy (SDPL) deputies seem to have given up hope of reaching an agreement with Belka. Andrzej Celinski, an SDPL leader said that the Friday vote on the final report of the Rywin commission proved that the Democratic Left Alliance (SLD) is an unreliable partner and no political agreement is possible. Jolanta Banach from SDPL added that the vote showed that power has now passed to the opposition parties and any government formed by SLD will have problems with virtually everything. Civic Platform leader Donald Tusk also believes that the events in the Sejm on Friday will make finding support for Belka's government in Parliament even less possible. Only Marek Dyduch, the SLD secretary general, said he still hoped that some deputies would change their minds after the election to the European Parliament and decide to support Belka. (WBJ 01.vi.04)
PKN ORLEN CONTINUES FINALIZING PURCHASE OF 63% STAKE IN CZECH UNIPETROL
Top Polish fuel firm PKN Orlen and the Czech Republic's National Property Fund (FNM), which oversees state asset sales, are in the final stage of completing the sale of Czech petrochemical holding Unipetrol, FNM executive committee Deputy Chairman Pavel Kuta told Interfax in Prague Thursday (May 27). According to Kuta, signature of the sale contract is now a question of days, rather than weeks. The FNM had originally announced that the sale contract would be signed on May 26. Kuta now says that date was based on preliminary estimates and was not binding. PKN Orlen will pay 10 % of the total purchase price, or CZK 1.31 bln, on the day the contract is signed, says Kuta. The balance is to be paid upon the transfer of shares to PKN Orlen and approval of the deal by the European Commission (EC), he adds.
Orlen plans to close the entire transaction in the third quarter of 2004. The Czech government decided to sell its 63% stake in Unipetrol to PKN Orlen for CZK 13.05 bln in late April. PKN Orlen made its bid independently. However, it signed a preliminary agreement with ConocoPhillips in January. At the end of 2003, PKN Orlen signed a cooperation agreement with Agrofert, which had won a previous tender for Unipetrol, but failed to come up with the EUR 361 mln for the deal in 2002. The Unipetrol group consists of 100 %-owned subsidiaries Chemopetrol, Kaucuk, and Benzina, and the majority-owned subsidiaries CeRa (51%), Paramo (74%) and Spolana (80%). (Interfax 31.v.04)
VODAFONE MEMO HIGHLIGHTS FDI DILEMMA
Vodafone's four-page missive sent to the European Commission and senior Polish officials underscores the fears of foreign investors when they step foot in Poland - especially when they have already invested millions of zloty here. The letter, besides specifically pointing out four areas of contention, concerns the draft telecoms law and generally highlights the dire position of the country's law making body - something that has received negative attention in both Warsaw and Brussels. Vodafone owns a 19.6 percent stake in the firm and has expressed interest that, along with TeleDanmark (also an owner of 19.6 percent), it would like to gain majority control of the nation's number three operator. The UK-based operator had this stake in mind when it sent the letter late last Wednesday, stating: "Vodafone would like to express its utmost concern regarding development in Poland concerning the regulation of the electronic communications sector." The letter went on: "As investors, Vodafone would wish and expect to be able to rely on a regulatory environment that is harmonized across the EU, including new member countries such as Poland." On four counts the company protests the draft law, which was being debated in the Sejm as the Business Journal went to press, saying it is not in line with EU regulations. Thus was the letter sent to Gunter Verheugen, EU commissioner for enlargement, Marek Belka, prime minister, and Krzysztof Opawski, infrastructure minister, among other senior figures. The memo spotlights a major problem in Poland across all industries, according to Bob Creamer, analyst at CDM Pekao: "The telecom law is a mess." Vodafone, however, declined to comment further for this article. Creamer, though, says that in the telecoms sector in particular, the lawmakers are too inexperienced to produce an adequate law, chalking up the law's inadequacy to incompetence rather than any political wranglings that often kneecap the legislative process. Taking that into account, Vodafone's move does not come as a shock. Vodafone's action should also concern some of Polkomtel's other state-owned share-holders, namely KGHM, PKN Orlen, PSE, TelBank and Tel-Energo, as sources close to the Polish shareholders expressed concern that Vodafone's dissatisfaction with the Polish legal process could make gaining a majority stake in the mobile operation a less attractive prospect. Thus, the price of the whole company could fall. Creamer adds to the debate by saying the telecoms law itself could also put downward pressure on valuations of mobile phone companies because a new law could open up the doors to mobile virtual network operators (MVNO). Should the law be strict enough, MVNOs could steal some business from the country's existing three operators - something Vodafone would probably like to prevent. (WBJ 31.v.04)
TRIAL OF DISGRACED SLD POLITICIANS IMPLICATED IN STARACHOWICE SCANDAL OPENS
Three former Democratic Left Alliance (SLD) deputies, Andrzej Jagiello, Henryk Dlugosz and Zbigniew Sobotka appeared in a court in Kielce yesterday. They have been charged of having hampered a police raid on a Starachowice criminal ring, with which local deputies from the party were linked. The accused all pled not guilty. It took several hours for the prosecutors to read out the long list of accusations. The basis of the accusations is confidential. Zbigniew Sobotka, who was a minister responsible for supervising the police, has also been accused of releasing state and official secrets. The first day of the trial began with the testimony of Henryk Dlugosz. (WBJ 26.v.04)
ROMANIA
OMV OIL COMPANY CHOSEN AS SOLE BIDDER FOR 51% STATE-OWNED STAKE IN PETROM
The Romanian Trade and Economy Ministry has selected Austria's OMV as the sole bidder for a 51% stake in state-owned oil and chemicals group Petrom. In a statement the Romanian government said its decision to back OMV's bid was made in accordance with the recommendation of its privatisation advisers - investment banks Credit Suisse First Boston (CSFB) and ING Barings. The Romanian state owns 93% of Petrom and it launched the company's privatisation process in October. Petrom, which owns two refineries, a number of oilfields and some 600 petrol stations, has an estimated market value of up to $2bn. Its privatisation is one of the conditions set by the European Union (EU) for awarding Romania "functioning market economy'' status, which is expected later this year. The award of this status is needed for Romania to qualify for EU membership in 2007. (NewsBase 25.v.04)
RUSSIA
GAZPROM KEEN ON BUYING YUKOS ASSETS
Gazprom plans significant expansion into oil production and is prepared to bid for Yukos assets should the oil major go bankrupt, top executives at the gas giant said Tuesday. "Until now we have been focusing on natural gas production. But the situation is to change," CEO Alexei Miller told the German business daily Handelsblatt on Tuesday. Gazprom plans to boost its oil output from 10 million tons per year currently to up to 40 million tons per year in the next few years, Miller told the newspaper. He also said that Gazprom plans to create a subsidiary especially to edge into the domestic oil sector. Entering the oil sector means that Gazprom also might start shopping for oil-producing assets, including those currently controlled by embattled Yukos, Vlada Rusakova, head of Gazprom's strategic development department, told reporters Tuesday. Her comments appear to have contributed to the sharp drop in Yukos' share price Tuesday afternoon, with the oil major's stock losing 10.6 percent and closing below $7. Usually tightlipped Gazprom executives have raised expectations that the firm will abandon the company's two-tier share trading system, which prohibits foreigners from buying company shares at low domestic prices. The government holds 38.37 percent of Gazprom and has said it wants to boost the state's stake to a controlling majority of at least 50 percent plus one share before lifting the so-called ring fence. It is still unclear how the state can achieve this goal. If shares are traded on the market, the government would need to cough up $5 billion to gain a controlling majority, said Olga Pavlova, head of Gazprom's department of property management and corporate relations. The high price tag suggests it is unlikely that the ring fence system will come down this year. Meanwhile, the company has plans to push ahead its gas business. Gazprom is considering building a new gas pipeline to the Yamal peninsula, said deputy chairman of the board Alexander Ananenkov. He said the firm is looking into ways to attract financing for pipelines from independent gas producers, whose share of production is expected to grow. Russia will produce 730 billion cubic meters of natural gas per year by 2020, the company said, with Gazprom providing 590 bcm, or 80 percent, and independent producers the rest. Gazprom also said it plans to increase its share of Israel's gas market from the current 1 percent to 25 percent by 2025. The firm is in talks to participate in construction of the country's gas distribution system. (The Moscow Times 02.vi.04)
LOCAL BANKS: WHERE THE RISKS LIE
There exist a limited number of efficient investment projects available in the Russian market today. At present, banks can only invest in projects that pay off quickly, such as construction of trade centers. Without state support or any defined governmental policies to back them up, banks are limited to short-term projects that bring profit within two to three years. Executive authorities do not seem to have a clear strategy regarding investment projects. On the one hand, much is being said about doubling the GDP, on the other hand, the initiatives put forward by private businesses are caught up in the web of bureacracy. Besides the absence of state guarantees, the risks are aggravated by the poor conditions of the country's industry and technology, said Viktor Titov, executive director of the North-Western Bank Association. Apart from the simple fact that borrowing western money is cheaper than borrowing money in Russia, the level of science and technology developed in the West also helps to guarantee investments. This is why large companies often prefer to purchase western technologies using western loans, Titov said. Another barrier to Russian banks' involvement in investment projects is the low level of their capitalization. When financing is required for large-scale projects, loans are usually provided by foreign banks, Titov said. To Russian banks, a loan of several million dollars is already a problem, he added. The problem could be solved by syndicated loans, but here again - the country lacks clear regulations on syndicates. "There are probably no more than a dozen banks taking part in syndicates - this is nothing in comparison with the American market. The practice is slightly more developed in Moscow. In St. Petersburg, syndicates are formed only with the participation of foreign banks," Titov said. (The St. Petersburg Times 01.vi.04)
WIFE OF FORMER DEPUTY FINANCE MINISTER PURCHASES DIAMONDS FOR $60 MILLION
The wife of Federation Council representative for Penza Oblast Andrei Vavilov, Marina Tsaregradskaya, has purchased two unique diamonds of 55 and 59.5 carats for $60 million, RBK reported on 28 May. The stones, which had previously been on display in museums in New York and Rome, appeared on the market a year ago. The news agency reported that, according to its unnamed sources, some $70 million in taxes should be paid on the purchase of the diamonds. Vavilov served as first deputy finance minister from 1992 to 1997. In January 2003, the FBI briefly detained and questioned Vavilov after forcing his private plane to land at an airport in northern California. Vavilov and his wife were in on their way to Aspen, Colorado, for a vacation when they were forced to land at the request of federal prosecutors. Vavilov has been named in numerous corruption investigations stemming from his time in office under former President Boris Yeltsin. (RFE/RL 01.vi.04)
MEZHPROM TO CREATE $2Bln CONGLOMERATE
Sergei Pugachyov's Mezhprombank is separating its banking and industrial businesses by establishing a managing company that will control $2 billion of its assets, a senior bank official said Monday. The bank refused to make any official comment. By splitting its businesses, Mezhprombank would be following in the steps of the country's other top league financial and industrial groups, such as Mikhail Fridman's Alfa Group and Roman Abramovich's Millhouse Capital. The source declined to provide the name of the new managing company, which he said was registered in Russia. He said the director for the new company has not been identified but will be announced by the end of the week.The bank itself is ranked No.6 with capital of 27.6 billion rubles. The bank's assets include 100 percent ownership in Beliye Nochi and Aki-Otyr oil companies, as well as minority stakes in blue-chip oil companies which all together are worth about $450 million, the source said. Mezhprombank owns 50 percent of New Programs and Concepts holding, which in turn controls St. Peterburg shipyard Severnaya Verf, now busy completing a $1.4 billion contract for two destroyers for the Chinese navy. New Programs and Concepts also holds 14 percent of Sukhoi design bureau. It also has assets in the coal industry and is negotiating a purchase of assets in the transportation sector. (The Moscow Times 01.vi.04)
RUSSIAN DM - ADMISSION OF BALTIC STATES TO NATO THREATENS NORTHERN EUROPE
Russia's restraint on the issue of NATO enlargement does not mean that Moscow is not worried about the process, Russian Defense Minister Sergei Ivanov said. At a meeting attended by defense ministers from Russia and Nordic countries in St. Petersburg on Tuesday, he said: "One cannot help but notice the restraint demonstrated by Russia in its reaction to NATO enlargement and the deployment of foreign troops along its borders, even though this naturally worries us." "Clearly, this question first and foremost concerns the Baltic states which after their accession to NATO pose a serious problem to regional security in Northern Europe due to the deployment of foreign troops on their territories when these states are not parties to the CFE treaty," Ivanov said. "Military stability and security in any region, including Northern Europe, is a two-way street and we sincerely hope that during this forum, specific ways will be mapped out for further rapprochement in tackling regional security problems," Ivanov said. He said Russia regards cooperation with Nordic countries as an important factor of European and global stability. "We are ready to participate in developing an effective regional security model in our unique region that would be fully compatible with the common European architecture," he said. Ivanov noted that Russia has done a great deal over the past few years to strengthen the status of Northern Europe as a region of stability and security. "It is sufficient enough to note our unprecedented unilateral troop reduction initiatives in the Leningrad military district and the Kaliningrad region," he said. (Interfax 28.v.04)
FOUR CIS PRESIDENTS VOW TO PROCEED WITH CREATION OF SINGLE ECONOMIC SPACE
The presidents of Russia, Ukraine, Belarus, and Kazakhstan -- Vladimir Putin, Leonid Kuchma, Alyaksandr Lukashenka, and Nursultan Nazarbaev, respectively -- pledged in Yalta on 24 May that they will proceed with the implementation of the treaty on the creation of the Single Economic Space (SES) they signed in September, international media reported. "The primary objective of the next stage in the evolution of the [SES] is to formulate as quickly as possible a workable regulatory and legal basis for economic cooperation," Interfax quoted Putin as saying in Yalta. The four governmentsare to present 61 draft agreements in extension of the SES treaty during the next SES summit in Astana in September. Putin proposed that the first package of agreements include documents on foreign trade, customs tariffs, and the business environment. Nazarbaev recommended beginning the development of the SES by establishing a customs union, while Kuchma suggested a free-trade zone (see also End Note below). "Russia, which is by far the dominant player in the new body, has been seeking increasingly to reestablish its influence in the former Soviet Union, in competition with the United States," "Business Week" commented in its 31 May issue. (RFE/RL 25.v.04)
EU BACKS RUSSIA'S BID TO JOIN THE WTO
The European Union has thrown its weight behind Russia's bid to enter the World Trade Organization in exchange for a promise from Moscow to gradually liberalize gas prices and trade and perhaps ratify the Kyoto Protocol. "The EU has met us halfway in talks over the WTO and that cannot but positively affect our position on the Kyoto Protocol," President Vladimir Putin told reporters after the two sides signed a more than 400-page trade deal at a summit Friday. "I cannot say 100% how things will be, because ratification is not an issue for the president but for parliament," Putin said of the 1997 Kyoto Protocol on global warming. The trade deal is vital because the EU, which recently increased from 15 to 25 members, is Russia's top trading partner, accounting for more than half of the country's foreign trade. Bilateral trade talks began six years ago, though the bulk of the work took place in the last two years. They grew increasingly intense over the past month, after European Trade commissioner Pascal Lamy and Economic Development and Trade Minister German Gref met in Luxembourg on April 27 as negotiators scrambled to get something ready to sign at Friday's summit. The resulting compromise clearly pleased the two sides. Under strong pressure from the EU to raise low domestic gas prices for industrial users, Russia agreed to increase the price to $37-$42 per 1,000 cubic meters by 2006 and $49 -$57 by 2010, from the current $28. But Gazprom will remain the export monopoly, while the EU will gain limited access to Russian pipelines, not transit rights. Export duties on gas will be capped at 30 percent. Despite the wishes of recently reinstated Telecommunications Minister Leonid Reiman, Rostelekom will lose its monopoly on long-distance telephone calls by 2007. Russia will by 2013 revise the fees that EU airlines pay to fly over Siberia, which the EU calls discriminatory. Russia secured a seven-year transfer period for lowering tariffs on new cars, although the complete details have yet to be worked out, Interfax reported, citing unidentified officials at the Economic Development and Trade Ministry. Russia agreed not to exceed tariff levels of 7.6 percent for industrial goods, 11 percent for fishery products, 13 percent for agricultural goods and tariff rate quotas of 600 million euros ($720 million) on meat and poultry. It also said it would cut industrial import tariffs from 18 percent to 8 percent within eight years. But Russia made only vague promises to liberalize telecommunications, transportation, construction, tourism and financial services sectors and refused to lift a ban blocking foreign banks from opening branches. The Europeans promised to defend Russia's demand to keep subsidizing its farmers to the tune of $13 billion per year. The centerpiece of the summit, however, was the agreement on gas prices - although here, too, Russia did not appear to give up much. Noncompetitive domestic firms say low gas prices help offset the higher costs of doing business in Russia, including dealing with crumbling infrastructure, a colder climate and greater transport distances. Russia hopes to secure a seat at the WTO table by the time the trade body next meets in 2005. It still needs to sign bilateral agreements with China and the United States. (The St. Petersburg Times 25.v.04)
FSB CRITIC JAILED FOR FOUR YEARS
Lawyer Mikhail Trepashkin was sentenced to four years in prison on Wednesday in a move that he and human rights advocates decried as retribution for his investigation into allegations linking the Federal Security Service to the 1999 apartment bombings that helped to prompt the second war in Chechnya. After a seven-month closed-door trial the Moscow Military District Court found Trepashkin, a former FSB lieutenant colonel, guilty of divulging state secrets and illegal possession of ammunition. The charges are based on a search that turned up 26 cartridges in Trepashkin's apartment in January 2002 and a report from a former FSB agent that Trepashkin showed him classified documents he had kept from his time in the service. Speaking in a quiet, subdued voice from the defendant's cage to reporters, who were allowed into the court a few minutes before the judge pronounced sentence, Trepashkin said: "I don't expect anything good. The case was filed on someone's orders and doesn't stand up to criticism from a legal point of view." "It's linked to my work with Sergei Kovalyov's commission," he said, referring to the Terror 1999 commission investigating the 1999 apartment bombings on Ulitsa Guryanova and Kashirskoye Shosse and the 2002 Dubrovka Theater hostage-taking, headed by the then-State Duma Deputy and human rights advocate. With his security service background, Trepashkin was an important member of the commission who could provide valuable information through his contacts and experience, said Alexander Podrabinek, editor of the Prima News human rights news service, after the sentencing. Trepashkin had a theory that the FSB could have had a hand both in the 1999 apartment bombings and the Dubrovka hostage-taking blamed on Chechen rebels, an allegation the FSB had denied. The apartment bombings were part of the reason why then-Prime Minister Vladimir Putin ordered federal forces back into Chechnya in 1999, a resumption of the war that sent his popularity ratings sky-high. Despite the FSB's denial, Wednesday's verdict shows that "the authorities are clearly afraid of an open and independent investigation of the 1999 bombings and Dubrovka," Podrabinek said. Trepashkin's misfortunes began after he first publicly voiced the apartment bombings allegation, even before joining Kovalyov's commission, on Ren-TV television in late 2001. Shortly after the interview aired, police found the ammunition in a sewingbox in clear view on a shelf in Trepashkin's apartment,Glushenkov said. The lawyer said the ammunition was planted. (The St. Petersburg Times 21.v.04)
SERBIA AND MONTENEGRO
SERBIAN LEADER CALLS FOR BETTER ECONOMIC TIES WITH RUSSIA
Prior to leaving Belgrade for Russia, Serbian Prime Minister Vojislav Kostunica told ITAR-TASS on 1 June that he wants bilateral economic relations to become as vibrant as their "friendly and close" political ties. He specifically thanked Moscow for its diplomatic support on questions relating to Kosova. Meanwhile in Sochi, an unnamed "source in the administration" of Russian President Vladimir Putin told ITAR-TASS on 2 June that Moscow wants to "strengthen" the joint state of Serbia and Montenegro and promote social and economic stability in Serbia. Kostunica and Putin will meet in Sochi on 3 June, and Serbia and Montenegro's Foreign Minister Vuk Draskovic will visit Russia on 9-10 June. Serbian critics of relations with Moscow say that Russia offers warm words and symbolic gestures but drives a hard bargain in business deals. Even nationalist Serbian public opinion generally recognizes that Serbia's economic future lies in joining the EU and not in some special relationship with Russia. (RFE/RL 02.vi.04)
EU GIVES WARNING ON SERBIAN PRESIDENTIAL ELECTION
EU foreign- and security-policy chief Javier Solana said in Brussels on 24 May that Tomislav Nikolic, who is the candidate of the Serbian Radical Party (SRS) in the 13 June Serbian presidential elections, does not have the support of the EU, RFE/RL's South Slavic and Albanian Languages Service reported. Polls suggest that Nikolic will place first in what is expected to be a first round of voting. His main opponents are Boris Tadic of the opposition Democratic Party and Dragan Marsicanin of the governing coalition. The campaign has been overshadowed in recent days by a bitter exchange of accusations between several prominent Democratic Party politicians on the one hand and some leaders of the governing coalition on the other. Some of the latter have suggested that the Democrats brought organized crime into Serbian politics and were responsible for the 12 March 2003 killing of their own leader, Prime Minister Zoran Djindjic. Some observers suggest that the main effect of the mudslinging could be to further increase voter disgust and apathy, dpa reported. (RFE/RL 25.v.04)
SLOVAKIA
SLOVAK POLICE FIND BOMB NEAR SITE OF NATO PARLIAMENT MEETING
The Slovak police on Thursday discovered two explosive devises in the vicinity of the building where NATO’s parliamentary assembly will be held Friday, Interior Ministry spokesman Boris Azaltovic told the CTK news agency. A bomb disposal squad defused the plastic explosive devises which were hidden in a plastic bag, according to Azaltovic. One bag contained the Czechoslovak explosive Permonex 19 attached to a fuse system, while the other contained the Yugoslav explosive Pentrit. The director of the Office for the Protection of Constitutional Officials, Jan Packa, says the devices were too far from the site of the meeting to have posed a threat to the participants of the NATO meeting. The authorities have not released any information on possible suspects. (Interfax 28.v.04)
MINFIN REFUSES TO CUTE FUEL AND PETROL TAXES DESPITE RISING OIL PRICES
Faced with rising fuel prices in Slovakia caused by rising crude prices on world markets, consumers had been hoping for some relief from the Finance Ministry in the form of a cut in excise taxes on petrol. However, the ministry has said it will not lower the tax rate, at least in theimmediate future, the daily Sme reported on May 21. With state revenues showing a healthy trend, such a cut, although small, cannot be ruled out in coming weeks, analysts said. (NewsBase 24.v.04)
UKRAINE
UKRAINIAN PROSECUTORS LAUNCH BRIBERY CASE AGAINST OPPOSITION LEADER
The Prosecutor-General's Office has instituted criminal proceedings against lawmaker Yuliya Tymoshenko, leader of the eponymous opposition bloc, on charges of attempting to bribe a judge following a complaint from Volodymyr Borovko, Ukrainian media reported on 20 May. Earlier this week, Borovko said that journalists that Tymoshenko had given him $125,000 to give to the judge in order to influence the court's decision and release her former business partners from custody. Borovko said the partners included Hennadiy Tymoshenko (her father-in-law) and Antonina Bolyura, former executives at the UnifiedEnergy Systems, which Yuliya Tymoshenko headed from 1996 to 97. Borovko claimed he failed to fulfill Yuliya Tymoshenko's request and that she is now threatening him and demanding the money back. Tymoshenko has denied the accusations as "totally wrong" and provocative. On 20 May, police reportedly arrested Bolyura, who was hospitalized, and took her into custody. (RFE/RL 21.v.04)
NATO SECRETARY URGES UKRAINE TO SPEED UP MILITARY REFORM
NATO Secretary General Jaap de Hoop Scheffer has called on the Ukrainian government to speed up its armed forces reform. De Hoop Scheffer said at a news conference on Tuesday following a meeting with Ukrainian Prime Minister Viktor Yanukovych at the NATO headquarters in Brussels that the meeting had been productive. The two discussed Ukraine's cooperation with the alliance and also questions that will be considered at a meeting of the NATO defense ministers in Warsaw on June 6-7, he said. Asked whether the NATO member-states have come to a unanimous opinion on Ukraine's participation in the upcoming NATO summit in Istanbul, de Hoop Scheffer said that no decision on this has been made yet, but that this should be done in the near future. Yanukovych said at the news conference that he was satisfied with the meeting with de Hoop Scheffer. He said the two had discussed the disposal of ammunition in Ukraine and reached a preliminary agreement that NATO would provide technological assistance to Ukraine for this effort. Talking about reforms to the Ukrainian armed forces, the prime minister said he hopes the parliament will soon pass relevant legislation. (Interfax 19.v.04)
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