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*** Due Diligence *** Business Intelligence *** Asset Retrieval *** *** Debt Recovery *** Disappearance Response ***  TT Business Intelligence Report Vol. 2, No. 59, 13 November 2003 Business Intelligence, Crime, Corruption and Debt in C&E/SE Europe and the FSU UPCOMING CONFERENCES PBJ'S "THE DEFENSE INDUSTRY - REFORM OF THE ARMED SERVICES IN NATOMEMBER COUNTRIES" This event will take place on 19 November 2003 at the Best Western Kampa Hotel, Prague, Czech Republic. For further information, please contact Veronika Habrová, tel: +420 246 086 557; fax: +420 246 086 543; email: [email protected]; W: www.pbj.cz/events IPC'S "NEW DEVELOPMENTS IN ANTI-MONEY LAUNDERING MEASURES" This event will take place on 25-26 November 2003 at the Radisson SAS Daugava Hotel, Riga, Latvia. For further information, please contact Judith Halliwell, tel: +44 (0)20 8943 4903; fax: +44 (0)20 8977 7150; email: [email protected]; W: www.ipc-conferences.co.uk LVA'S "12th INTERNATIONAL TRANSPORT FORUM OF THE C.I.S. & BALTIC STATES" This event will take place on 8-14 December 2003 in London and Liverpool, United Kingdom. For further information, please contact Tessa Abrahams, tel: +44 (0)20 8795 2970; fax: +44 (0)20 8795 2977; email: [email protected]; W: www.lva.co.uk EUROMONEY'S "CENTRAL/EASTERN EUROPEAN ISSUER AND INVESTOR FORUM" This event will take place on 14-15 January 2004 at the Hotel Inter-Continental, Vienna, Austria. For further information, please contact Jane Colwill, tel: +44 (0)20 7779 8968; fax: +44 (0)20 7779 8795; email: [email protected]; W: www.euromoneyconferences.com BELARUS BELARUSIAN PRESIDENT WARNS MOSCOW AGAINST SWALLOWING HIS COUNTRY President Lukashenka said in a prerecorded television program broadcast by Russia's NTV on 31 October that the Kremlin's purported proposal that Belarus accede to the Russian Federation as its 90th subject is unacceptable, Belapan reported. According to Lukashenka, Russian President Vladimir Putin made such a proposal during their last meeting, in Sochi in mid-September. "I told Vladimir Vladimirovich [Putin]: Do you want to get another Chechnya in the west of the country, our former Fatherland?" Lukashenka said. (RFE/RL 03.xi.03) BOSNIA AND HERZEGOVINA BOSNIANS CHALLENGE HIGH REPRESENTATIVE Republika Srpska Prime Minister Dragan Mikerevic said in Banja Luka on 6 November that the government will go ahead with its plans to raise the minimum wage and pensions despite statements by High Representative Paddy Ashdown that there is no money for the projects, RFE/RL's South Slavic and Albanian Languages Service reported. Mikerevic stressed that money will be found for the increases, which he called an essential part of ongoing reforms. In Sarajevo, the governing board of Bosnian public television rejected a demand by Ashdown to quickly approve a reorganization program. (RFE/RL 07.xi.03) BULGARIA SIMEON SUFFERS HEAVY LOSSES Bulgarian Prime Minister Simeon Saxecoburggotski suffered a heavy blow in the 26 October local elections, as the ex-king’s National Movement Simeon II (NDSV) lost major positions across the country. The ruling party won only 10 percent of the vote in its first local elections. This is its biggest loss since coming to power in June 2001. The victors, the Bulgarian Socialist Party (BSP), took home around 30 percent of the seats, followed by the Union of Democratic Forces (SDS) with 21 percent. Despite extensive campaigning to get the vote out, the 40-percent voter turnout was the lowest in recent Bulgarian history. In 1999, voter turnout for the local elections was 52 percent. Voters elected mayors in 68 municipalities during the first round of voting in October, and run-offs were held on 2 November in 186 municipalities. Mayors in the major cities of Varna, Russe, and Kurdjali were elected in the first round, representing the BSP, SDS, and the ethnic Turkish Movement for Freedoms and Rights (DPS), respectively. Saxecoborggotski said he would not resign as prime minister. Government spokesperson Dimitar Tzonev played down the party’s losses, telling local media on 27 October that NDSV and its junior coalition partner, DPS, won 20 percent of the vote altogether--not a bad result in comparison with the SDS and BSP percentages. (TOL 04.xi.03) CROATIA MOL TO RAISE CAPITAL INVESTED IN INA OIL FROM $500 MILLION TO $2.1 BILLION MOL (Hung) has recommended raising the amount of capital to be invested in INA oil (Cro) as part of a programme running until 2007 by $500 million to $2.1 billion, according to president and CEO Zsolt Hernadi. INA's owners approved a $1.6 billion four-year investment plan in 2002 to support its oil exploration activities as well as to modernise two of its refineries. However, MOL's management believes that the firm needs an additional $500 million in order to meet EU standards. MOL recently acquired a 25% stake in INA for $505 million. The deal was sealed on Monday following approval by the Hungarian and Croatian competition authorities. "Now the aim is to make INA an efficient company producing quality products," said Hernadi, who has become the head of INA's supervisory board. MOL wants INA to become a major oil company in southern Europe, Hernadi said. However, MOL sees a need to invest more in INA's network of filling stations, environmental protection and information technology, Herndi added. INA would be able to finance an investment programme of such a size on its own, Hernadi said, but added that MOL would readily contribute to the programme if necessary. According to recent estimates, MOL controls 40% of the market in Slovakia, 44% in Hungary and 60% in Croatia. (NewsBase 13.xi.03) IS CROATIA'S GENERAL GOTOVINA STUCK IN THE EU'S THROAT? As the 23 November parliamentary elections draw near, the center-left ruling coalition is locked in a too-close-to-call race with opposition nationalist parties, as both sides campaign on promises of European Union integration. A record 5,119 candidates have entered the race, with 34 candidates competing for each parliamentary seat. In the last elections nearly four years ago, 27 candidates vied for each seat. Though the rivalry is tough, the political atmosphere is far less charged than in previous parliamentary elections, and so far the campaigning has largely been clean. The parties’ platforms vary widely on how to tackle unemployment and the growing debt, but on the subject of foreign policy, everyone seems to agree that the top priority is EU membership. The latest polls show that the opposition nationalist Croatian Democratic Union (HDZ) is the single most popular party. HDZ led Croatia to independence from Yugoslavia in 1991. Party leader Ivo Sanader has promised that the HDZ will boost living standards and bring the country into the EU and NATO. "We guarantee the reduction of taxes, economic growth, a higher employment rate, better living standards, and membership in both the EU and NATO," Sanader told the press at the beginning of campaign season. The road to Brussels, however, is a rocky one. Zagreb submitted its membership application in March but has still not gained candidate-member status. Despite that, Croatian officials are promising the public that the country will join the EU in 2007, along with Bulgaria and Romania. (TOL 10.xi.03) CZECH REPUBLIC SOBOTKA PROPOSES SPEEDIER PRIVATIZATION OF CZECH TELECOM Finance Minister Bohuslav Sobotka would like to speed up the privatization of largest domestic telecom carrier Czech Telecom and sell the state's 51 percent stake next year. Informatics Minister Vladimir Mlynar reportedly supports Sobotka's stand. The government has pledged to privatize the company by the end of 2005. It is yet to be decided on the manner of privatization; the FNM yesterday rejected the variant of selling a part of the state stake along with a minority stake of 27 percent held by TelSource. There are other variants of the state keeping the infrastructure and selling off only fixed mobile lines, or selling only a certain part of the majority stake. (PBJ 13.xi.03) NEW CZECH CHRISTIAN DEMOCRAT LEADER WILL NOT SEEK CABINET SEAT Miroslav Kalousek, who was recently elected as new leader of the junior coalition Christian Democratic Union-People's Party (KDU-CSL), told the daily "Mlada fronta Dnes" on 10 November that he does not intend to seek a seat on the cabinet headed by Prime Minister Vladimir Spidla, Reuters reported. Kalousek, who chairs the Chamber of Deputies' Budget Committee, said that he wants to concentrate instead on leading the KDU-CSL in a successful 2006 electoral campaign. In an interview with the daily "Hospodarske noviny" the same day, Kalousek said the ministers representing the KDU-CSL on the cabinet -- Foreign Minister Cyril Svoboda, Environment Minister Libor Ambrozek, and Transportation Minister Milan Simonovsky -- continue to enjoy the party's full trust. (RFE/RL 12.xi.03) CEZ REOPENS PRIVATISATION TENDER ON SLOVENSKE ELEKTRARNE Energy company CEZ is entering the reopened privatisation tender on the Slovak electricity utility Slovenske Elektrarne (SE), the company confirmed on Friday. Recently elected CEZ management board chairman Petr Voboril confirmed that the company had sent the privatisation advisor PriceWaterhouseCoopers an official confirmation of interest. Voboril declined to specify whether CEZ is interested in the SE as a whole, including nuclear energy sources. Slovak economy minister Pavol Rusko said recently that the applicants being interested in the SE as a whole may be preferred. Friday was the deadline for potential bidders to submit their expression of interest. In the first tender in September 2002, later cancelled, there were eight companies interested, including Germany's E.ON, Electricite de France, Belgian company Electrabel, Italy's Enel and Verbund from Austria. All of them preferred buying SE without nuclear parts. The final number of bidders should be announced early this week. (NewsBase 11.xi.03) GEORGIA GEORGIAN OPPOSITION TO PRESENT ULTIMATUM TO PRESIDENT The opposition National Movement will send an ultimatum demanding that President Eduard Shevardnadze accept the movement's victory in last Sunday's parliamentary elections, the movement's leader Mikhail Saakashvili said on Wednesday at an opposition rally being attended by over 5,000 people at the State Philharmonics building. "If he does not, we will demand the president's resignation," Saakashvili said. "The opposition's statement made yesterday has already yielded fruit. Shevardnadze received very tough warnings from Washington and other allied countries yesterday," he said. "Another result is that the Central Elections Commission head announced that the Burdzhanadze-Democrats bloc [led by Parliamentary Speaker Nino Burdzhanadze] passed the 7% threshold to join parliament," Saakashvili said. (Interfax 5.xi.03) HUNGARY TAX LAWS APPROVED Parliament approved tax regulations for 2004, easing the tax burden on large businesses and increasing financial strain for individual taxpayers. The effect of lower income tax rates will be counteracted by fewer income tax breaks, and car tax and VAT on foods are also set to rise. Good news for companies includes a drop in corporate tax from 18% to 16% and a raise of the revenue cap for SME's eligible for the simplified entrepreneurial tax (EVA) system from Ft 15 million to Ft 25 million. (BBJ 11.xi.03) LIFE BEYOND THE EU There’s a lot to learn from the EU’s Comprehensive Monitoring Report on Hungary, released last Wednesday. But most of the lessons are not the ones printed in the report. In anticipation of the news value of the report, both the government and the opposition organized press conferences with obvious goals. The government was seeking to lessen the damage by saying it agrees with the EU’s criticism, and hopes to further amplify the achievements the EU acknowledged. The opposition was preparing to jump on any negative statements, in hopes of highlighting the incompetence of the incumbent government. As for the EU, it was trying to use the reports it prepared on all the ten acceding countries as a double-edged sword. It apparently wanted to show the newcomers that it takes a tough stance on any slips the countries might make as they progress toward full membership. At the same time, it wanted to reassure the existing member states that the new boys are likely to reach the required entry level. All these publicity efforts were handicapped by the fact that the report simply failed to attract much interest among professionals covering EU accession issues. This might suggest that, at least for them, the report serves more as a political statement than a true analysis of the country’s status. Or, considering that the underlying research was closed on Sept. 30, the analysts might have thought the report was unlikely to present them with any surprising new developments. And there is a third possible explanation – that the report concerns areas that are of secondary strategic importance. In fact, the main lesson to be learned from the EU’s report is just how unimportant such reports are, with Hungary this close to EU membership. While the report called for increased attention to things like the macroeconomic situation, administrative reform, public procurement and the fight against corruption, it only highlighted four areas that need "immediate and decisive action." And all are in the field of agriculture, a sector that only accounts for 5% of Hungary’s GDP. (BBJ 10.xi.03) KAZAKHSTAN KAZAKH FOREIGN MINISTER SAYS PIPELINE IS TOP PRIORITY IN RELATIONS WITH UKRAINE Qasymzhomart Toqaev told his Ukrainian counterpart Konstyantyn Hryshchenko in Astana on 4 November that the completion of the Ukrainian Odessa-Brody oil pipeline and its extension to the Polish port of Gdansk is a top priority in Kazakh-Ukrainian relations, Kazinform and khabar.kz reported. Hryshchenko heard a similar message from Kazakh President Nursultan Nazarbaev the same day. Both Toqaev and Nazarbaev assessed the current state of bilateral relations in the oil-and-gas sphere positively. Kazakhstan is hoping to use the Odessa-Brody pipeline to export oil to Europe. Toqaev noted that the extension of the pipeline to Poland is also in the European Union's development plans. (RFE/RL 05.xi.03) LITHUANIA LITHUANIA: PRESIDENT AND FRIEND OF THE MAFIA? Could Lithuania’s president be in league with Russian organized crime? The possibility, raised by a State Security Department (VSD) report, has brought Lithuania its worst scandal since independence and could lead to the president’s impeachment. The report indicates that a key advisor has close links to alleged members of Russian crime organizations. It also indicated the possibility that, in exchange for financial backing, the president had promised favors to a Russian businessman at the center of allegations of illegal arms deals. The scandal overshadowed a European Commission report that gave Lithuania the second-best grade in making progress towards meeting EU standards of any accession country. The scandal also raises the specter that Russian organized crime might be seeking to use Lithuania as a springboard into the EU. The secret-service report says that Lithuania is used for money laundering and as a transit country for "the trade and distribution of arms as well as forbidden and dual-use materials." The report was first presented to parliament on 30 October, and a copy was then passed on to the newspaper Respublika, which produced a special Saturday issue on 1 November devoted to the report. In an extraordinary session of parliament on 3 November, the head of the VSD, Mecys Laurinkus, said that "as far as I know, the president has not been influenced by international criminal organizations, but attempts have certainly been made." Just days before the report was published, the president had begun moves to remove Laurinkus from his post. Paksas, who has been office only since January, denies any wrongdoing, and has suspended his national security adviser Remigijus Acas pending the conclusions of a special parliamentary committee set up on 4 November. It will announce its findings on 1 December. Prime Minister Algirdas Brazauskas and Parliamentary Speaker Arturas Paulauskas have said no moves towards impeaching the president could start until the commission reports. (TOL 10.xi.03) POLAND ING GROUP AND CITIGROUP TOLD TO REDUCE STAKE IN SUBSIDIARIES BY 2004 ING Group and Citigroup have until the end of 2004 to reduce their stakes in key Polish subsidiaries - Bank Handlowy and ING Bank Slaski, said the Banking Supervision General Inspectorate (GINB) president Wojciech Kwasniak. The US bank has accumulated a 89.3% stake in Handlowy, Poland's former foreign trading bank in a friendly takeover promising to cut its voting stake in the Warsaw-based company to less than 75%. ING owns an 88% stake of the former Silesian Bank following the merger with its other local subsidiary and has made a similar pledge to GINB. According to analysts, the sale of Handlowy and ING BSK are both expected to sell some of their shares either to Polish mutual funds or to other institutional investors. (WBJ 12.xi.03) ILL-PREPARED POLAND FALLS OUT OF FAVOR Last week's flood of negative news on the state of this country's economy and its preparations for European Union membership, has drawn mixed responses from some of this country's top bankers. Worried about the rising costs of issuing and servicing debt, market watchers see Standard & Poor's downgrade of the zloty-denominated Treasury bonds from A to A- as more significant than the scathing report released last week by the European Commission (EC). While hitting the headlines, the EC assessment of this country as the worst prepared of all accession states seems to have had a relatively minor impact on the thinking of investors. "I think that investors really consider Poland a part of the EU already," says Pawel Gricuk, president of JP Morgan Chase, adding that the negative calls from Brussels would have little effect on investors this late in the day. While the report's strong wording is uncharacteristic of the Commission's diplomatic approach, many investors will fail to spot the full significance of this, as they are not aware of the complexities of the negotiating process. That is not, however, to say that it does not contain potentially explosive elements. The report is highly critical of this country's court system, drawing attention to its "conspicuous inefficiencies". As Gricuk points out, investors might be spooked to find out how court cases can hinder their operations, especially in bankruptcy proceedings. The report, the last before the May 2004 accession, is a regular evaluation of all the accession countries' progress towards legislative and practical alignment with the Union. This month's report, released last Tuesday, takes a broad sweep at all this country's shortcomings, expressing concern that the largest of the ten new members is also the least prepared for accession. Bankers agree that it contains few surprises for anyone with even a basic knowledge of the local conditions, citing the charge that the progress on the path of reform has practically stopped since autumn of last year. (WBJ 10.xi.03) ROMANIA FORMER ROMANIAN GOVERNMENTAL ADVISER CHARGED IN CORRUPTION CASE Former governmental adviser Virgil Teodorescu was charged by the National Anticorruption Prosecution on 6 November with accepting a $95,000 bribe from a Switzerland-based Romanian businessman, Romanian Radio reported. According to prosecutors, Teodorescu demanded $2 million from businessman Octavian Ionescu to secure EU funding for his plans to build a winter resort in the Carpathian town of Busteni. The prosecutor confronted Teodorescu with Ionescu, who launched the complaint after the project was not approved. Ionescu claims 10 other local Busteni officials accepted bribes from him and subsequently failed to deliver on their promises regarding the project. Teodorescu was dismissed last month following the complaint. (RFE/RL 07.xi.03) RUSSIA DERIPASKA STEPS DOWN AS RUSAL CEO After orchestrating a hotly contentious and occasionally violent campaign to forge the aluminum industry's choicest assets into a single global giant, Oleg Deripaska is moving on. Deripaska will step down as Russian Aluminum, or RusAl, CEO "within days" to concentrate on managing his rapidly growing pool of assets, including 75 percent of RusAl, the company said Wednesday. RusAl's chief operating officer, Alexander Bulygin, will take over for Deripaska, who will likely become chairman of the board. Deripaska's holding company, Base Element, or BasEl, last month paid an estimated $2 billion for half of fellow billionaire Roman Abramovich's 50 percent stake in RusAl. The company was formed in 2000, when Deripaska agreed to merge his metal industry assets with those of Boris Berezovsky's Sibneft. Abramovich later took control of Sibneft and merged it with his other holdings into Millhouse Capital, which still controls 25 percent of RusAl. The RusAl board, which includes Deripaska, will make the changeover official within the next few days, the company said. Relations between Deripaska and Abramovich have been at times strained as the two titans competed for control of RusAl and other companies in the 1990s. Unlike Deripaska, however, Abramovich decided to liquidate his holdings in Russia to focus on London football club Chelsea, which he bought this summer. In the last several months, Abramovich has sold stakes in RusAl, flagship airline Aeroflot, oil major Sibneft and auto industry holding Ruspromavto. He still controls a 26 percent stake in newly merged YukosSibneft. For Deripaska, relinquishing day-to-day control of his prized asset signifies a change in roles, from being an executive to being an investor, Prokofyeva said. BasEl owns stakes in about a dozen companies involved in everything from metals and automobiles to aviation and insurance, according to the company web site. Industry analysts polled Wednesday agreed that Deripaska's decision to quit as CEO made sense, considering all the other businesses he is involved with. They said, however, that it was hard to say what it will mean for RusAl itself, since the company, which is not public, is largely opaque. The company has said that it wants to go public, and wants to place 25 percent of its shares by 2007. (The Moscow Times 13.xi.03) STATE PROPERTY MINISTRY WANTS TO SELL 40% OF IRKUTSKENERGO SHARES The State Property Ministry wants the government to sell 40% of IRKUTSKENERGO shares in the first half of 2004. The stake in a leading power company may be of interest to RUSSIAN ALUMINUM and SUAL, which have portfolio investors and some control over IRKUTSKENERGO, and who may subsequently try and sell the stake to their advantage. ATON investment company analysts say a reasonable starting price for the stake would be between $250m and $270m. (NewsBase 12.xi.03) WELL-KNOWN JOURNALIST/PUTIN CRITIC SEVERELY BEATEN OUTSIDE HIS HOME Well-known journalist and economist Otto Latsis was severely beaten outside his home on the evening of 10 November, Ekho Moskvy reported the next day. Latsis, 69, sustained a serious head concussion but was in satisfactory condition in a Moscow hospital late on 12 November. Latsis's cell phone and money were taken, so investigators' first theory is that Latsis was robbed. However, Igor Yakovenko, general secretary of the Union of Journalists, is not excluding the possibility that the primary rationale for the attack was Latsis's activities as a journalist. Latsis worked as a deputy chief editor at "Novye Izvestiya" and most recently as deputy chief editor at "Russkii kurer." In a commentary for "Novye Izvestiya" last year, Latsis said the era of President Putin has been characterized by a laudably liberal approach to economic policy combined with a creeping authoritarianism. He added that the "elements of fascism are already a hard fact of life [in Russia], particularly in Chechnya". (RFE/RL 12.xi.03) COURT REJECTS BAIL FOR KHODORKOVSKY In a closed hearing on 11 November, a Moscow city court rejected a request for the release from pretrial detention of former Yukos head Mikhail Khodorkovskii, Russian and international media reported. The decision confirmed a lower-court ruling and as a result, the embattled oligarch will probably remain in custody until 30 December. Prosecutors, who were granted their request to hold the hearing behind closed doors due to state secrets, argued that Khodorkovsky could seek to influence witnesses if allowed to go free on bail. Khodorskovsky's lawyer, Anton Drel, pointed out that Khodorkovsky is charged with eight counts of economic crime, not violent offenses. Drel submitted several petitions from politicians and prominent cultural and business figures asserting their support for Khodorkovsky's release on bail, with one signed by 40 State Duma deputies, including Union of Rightist Forces leader Boris Nemtsov and Yabloko leader Grigorii Yavlinskii. Ekho Moskvy reported that several Duma deputies were among the audience forced to leave after the hearing was declared closed. State-run national television networks ORT and RTR reported the 11 November court decision near the end of their respective nightly newscasts. (RFE/RL 12.xi.03) POLLSTERS: 54% OF RUSSIANS WANT PUTIN AS PRESIDENT AFTER 2008 Pollsters say that 54% of Russians would like Vladimir Putin to remain president even after 2008, the year his second term of office will expire if he is re-elected in 2004, that 34% are against this, and that 12% are undecided. The desire for Putin's post-2008 presidency is particularly common in the Northwestern Federal District, the Regional Political Studies Agency said after a poll last week. The higher one's income the less one tends to want Putin to remain in the Kremlin after 2008. The idea of his serving a third term is particularly unpopular among Communist and Liberal Democratic followers as supporters of various political parties go. But, naturally enough, most followers of United Russia are in favor. Fifty-two percent would not like an amendment to the constitution to extend a president's term of office to seven from five years, 42% would welcome such an extension, and the rest are undecided. The more educated one is the less one is prone to approve of the idea. Such a reform would be more popular among women than men. As for supporters of individual politicians, followers of Communist leader Gennady Zyuganov form the largest opposition to the idea. The agency questioned 1,500 people. (Interfax 11.xi.03) LUKOIL DENIES TALKS ON STAKE SALE TO U.S. MAJOR LUKoil, Russia's second-biggest oil company, denied a Financial Times report that it is in talks to sell as much as 15 percent of the company to U.S. giant ConocoPhillips for $2.5 billion. The Financial Times reported that ConocoPhillips had discussed buying 10 percent to 15 percent of LUKoil for $1.7 billion to $2.5 billion, without saying where it got the information. ExxonMobil and ChevronTexaco have also approached LUKoil about a partnership, the newspaper said. "We don't have talks with any companies on the sale of a stake in LUKoil," Dmitry Dolgov, a LUKoil spokesman, said by telephone. He also denied that the company had held talks with either ExxonMobil or ChevronTexaco about a stake sale. Western oil companies are looking for new business opportunities in Russia, which is the world's No. 2 oil producer after Saudi Arabia. This year, BP agreed to pay $7.7 billion to merge its Russian assets with a partner to form the country's third largest crude producer. Yukos also held talks with ExxonMobil about the sale of a stake, President Vladimir Putin has said. ConocoPhillips and LUKoil have been in talks since at least 1999 over a $1.5 billion joint venture to extract oil in the Arctic as part of their plan to develop energy resources in Russia and Venezuela. The Timan-Pechora region contains fields with estimated reserves of 990 million barrels of oil and 63 billion cubic meters of natural gas. "Joint exploration and production efforts are a more likely scenario than ConocoPhillips buying a minority stake," Troika Dialog brokerage said in a morning comment. "However, given the uncertainty surrounding Yukos and arguably higher taxation risks, any potential cross border deal is likely to be put on hold." Investors and analysts have been raising concerns that the government investigation of Yukos may affect interest in Russia and cause cash flow from the country. Last month, Putin sought to reassure officials from Citigroup, Morgan Stanley and other international companies that he is committed to free market policies after prosecutors froze some of Yukos assets. (The Moscow Times 11.xi.03) MORE SIGNS THAT SIBNEFT COULD BE NEXT In a fresh indication that the state might be planning actions against large companies other than Yukos, Britain's "Sunday Times" on 9 November quoted "a senior official" at Russia's Audit Chamber as saying that inspectors have ordered a "review" of oil giant Sibneft's "unethical" tactics for minimizing tax payments. "This is a threatening act by the state to show who is boss," the unnamed official told the newspaper. Shortly after the arrest of Yukos shareholder Platon Lebedev in early July, Russian media reported that the Prosecutor-General's Office and the Tax Police had launched a probe of Sibneft, which is controlled by Chukotka Autonomous Okrug Governor Roman Abramovich and which is merging with Yukos. At that time, Audit Chamber Chairman Sergei Stepashin reportedly informed the government that major energy companies had underpaid their taxes by 10 billion rubles ($3.3 billion) over an unspecified period of time. Stepashin also denounced Abramovich's purchase of Britain's Chelsea football team as "an arrogant and demonstrative challenge to Russia". State Duma Deputy Vladimir Yudin (Fatherland-Unified Russia) recently asked the Prosecutor-General's Office to investigate the privatization of Sibneft. (RFE/RL 10.xi.03) S&P TO MONITOR RUSSIAN RATING AT YEAR'S END Standard & Poor's will monitor Russia's rating at the end of this year, Alexei Novikov, general director of the international rating agency's Russia office, has said. S&P does not think it can yet assign Russia an investment rating, like Moody's, another rating agency, did at the start of October, owing to fundamental risks like the economy's low diversification, weak banking system, lack of administrative reform and weakness of political and legal institutions, Novikov told Monday's Nezavisimaya gazeta newspaper. "All these risks are factored into the rating. We have left the rating intact, and are not planning to change it either way for the time being," Novikov said. He also said S&P was concerned about the Yukos affair and thinks that the freezing of the oil major's shares "increases the uncertainty caused by the criminal and tax investigations against key figures at the company and the recent arrest of Mikhail Khodorkovsky [the Yukos CEO], and which also gives rise to concerns about lack of protection for ownership in Russia, where the political and legal environment are opaque and unpredictable, and where laws are being applied more and more selectively." This is why S&P has put the Yukos long-term corporate credit rating of BB on CreditWatch with negative implications and revised the CreditWatch implications on its B+ long-term corporate credit rating on Sibneft, in which Yukos owns 92% of the shares, to developing from positive. S&P "will have to assess the risks attached to management, finances and operations that could arise as a result of the investigations and tactics of the prosecutors before removing the companies from the CreditWatch," Novikov said. "During the analysis we will be looking in particular at the extent to which the activity of management at Yukos and Sibneft is being interfered with and at management's capability of controlling financial and other assets," Novikov said. He also said S&P would be "examining licenses to oil fields, the right of ownership over key subsidiaries, taxes, opportunity to trade on the financial markets, liquidity and any changes in the financial policy, shareholder structure and management structure at both companies." (Interfax 03.xi.03) SERBIA/MONTENEGRO SERBIAN PRESIDENTIAL CANDIDATE VOWS EARLY PARLIAMENTARY VOTE In an apparent concession to the opposition, the Serbian presidential candidate of the governing Democratic Opposition of Serbia (DOS) coalition said in Belgrade on 9 November that he will seek early parliamentary elections if he wins the 16 November ballot, Reuters reported. "When there is division in parliament, elections are the only solution," Dragoljub Micunovic said. "Democracy does not have any other procedure except elections to solve a political crisis." The DOS has a shaky legislative majority and has sought to delay new parliamentary elections as long as possible. Former Yugoslav President Vojislav Kostunica, whose Democratic Party of Serbia (DSS) leads most recent political popularity polls, has repeatedly called for an early vote. (RFE/RL 10.xi.03) SERBIA PRIVATISES 940 COMPANIES SO FAR Serbia has privatised 940 companies so far, raising over 1.2bn euros in sell-off revenues, said Serbian Privatisation and Economy Minister Aleksandar Vlahovic, adding that buyers pledged investment of 667.5m euros and social welfare programmes of 261m euros. At the same time, the Serbian Share Fund sold state-held equity in 150 companies, reaping revenues of 150m euros. The government is facing a big challenge to privatise local banks and restructure and sell large public companies, said Vlahovic, stressing that all socially-owned firms will be in private hands next year. Serbia expects to raise 150m euros in sell-off receipts next year and attract substantial foreign direct investments. In the past three years, 15 large multinationals have made inroads into Serbia, the minister said and added he expects big international companies to send even higher investment Serbia's way next year. (NewsBase 06.xi.03) SLOVAKIA HEWLETT PACKARD TO OPEN NEW EUROPEAN CUSTOMER SERVICE CENTRE IN SLOVAKIA Hewlett Packard (HP), a provider of IT-systems and services, will open a new European customer service centre in Slovakia, which should be fully functional from the beginning of the next year, according to HP marketing manager Danica Balazova. The expected cost of the initial investments into the project is several millions of US dollars and from early 2004 the first twenty professionals will work in the Slovak customer service centre providing services for customers from Europe, the Middle East and Africa. Hewlett Packard has planned for a long time to establish its branches in countries with developing economies and has been deciding to choose a location for its new delivery centre from among five European countries. The Czech Republic, Hungary, Poland, Romania and Slovakia were among the short-listed countries, said Miroslav Koutny, director of the newly set up centre. The main criteria of the selection were the presence of labour force with good language and professional skills, the overall economic standard and political stability of the country, the quality of telecommunications and computer network systems and the total costs of the investment. "We think that Slovakia has advantageous conditions for building centres for customer support," added Koutny. (NewsBase 10.xi.03) EC ISSUES SLOVAKIA "FOUR SERIOUS WARNINGS" The European Commission included "four serious warnings" in its final regular monitoring report on Slovakia published Wednesday. Surveying the country's preparations for entry into the European Union next May 1, the EC found four "red" issues: one in economic competition and three in agriculture. Regarding the EU law chapter on economic competition, Slovakia was hauled up for not observing production quotas on steel made by US Steel Kosice. As for the agriculture chapter, there are warnings for delay in setting up the agricultural payment agency, applying the integrated administrative and control system (IACS), and modernising food production in line with EU directives on hygiene. Slovakia must take "immediate and decisive" measures to remove shortcomings in these areas in order to be fully ready for EU accession, the report says. If steps are not taken to meet the agreement on quotas for USSK, the company could lose state aid hard won by Slovakia in talks with Brussels. A functioning payment agency and IACS are required for farmers to receive direct subsidies, while food companies will face closure if they do not meet the EU's rigorous hygiene standards. Slovakia also received less serious "yellow" warnings in 15 of the 30 chapters of EU law, and is told to "make an increased effort" to remove the shortcomings. These issues include the law on chain-stores (said to violate rules on the free movement of goods), the recognition of diplomas, the lack of anti-discrimination legislation, industrial pollution, and protection of the EU external border. The text of the monitoring report is highly critical mainly due to the fact that the EC focused on shortcomings in preparations for EU membership. Unlike earlier reports, its main goal was not to compare developments with previous years, but to compare the real situation with the ideal. (NewsBase 07.xi.03) UKRAINE KIEV WILL WEIGH SINGLE ECONOMIC SPACE ONLY AFTER SETTLING WITH MOSCOW Ukrainian Foreign Minister Kostyantyn Hryschenko told journalists in Kyiv on 6 November that Ukraine will consider the ratification of an agreement on the formation of a Single Economic Space with Russia, Kazakhstan, and Belarus only after resolving the dispute over the construction of a dam in the Kerch Strait by Russia, Interfax reported. Hryshchenko asserted that Ukraine is interested in determining the status of the Azov Sea and the Kerch Strait as soon as possible on the basis of international law. Asked if Russians have to pay large fees for passing through the Kerch Strait, Hryshchenko said the Ukrainian state does not apply any duties, as all fees go to the Kerch port authority. He said the fees are not large, adding that the issue is not serious enough to be raised in talks with Moscow. (RFE/RL 07.xi.03) KIEV FACES BATTLE OVER BREAD PRICES Ukraine must deal carefully with rising bread prices or its government could face panic among the people and a spike in inflation that would throw its yearly forecasts off-course, analysts said Wednesday. They said the government had been forced to increase its inflation forecast for 2003 to 7.2 percent from a target of 6 percent because of rising food prices fuelled largely by the country's worst wheat harvest since independence. But even then, the new goal of 7.2 percent could be missed if the government failed to deal with future bread price increases smoothly and calm a population fearful of facing a cold winter without its staple food. "Six percent -- that was a completely unrealistic figure, considering the tendency at the moment," said Alexiy Bakun, an economist at the International Center for Research Perspectives. "We are seeing very serious pressure on consumer prices and by the end of the year we expect to see between 7 percent and 8 percent," he said. Protests against increased bread prices have all but stopped in the capital Kiev after a panic in June was eased when the authorities stepped in to control bread costs. But worries simmer and on Wednesday a few hundred bakers demonstrated outside the mayor's office to protest against the set bread price, saying they could not make a profit due to spiraling flour costs. According to the State Statistics Committee, the cost of bread rose 13.2 percent in the first 10 months of the year while that of flour grew by 63.7 percent. "The authorities have two choices -- to keep a hold on prices until the last, or make sure an increase in bread prices does not happen in every region at the same time," Bakun said. (The Moscow Times 06.xi.03) INFORMATION PROVIDERS - For either a free trial, or for further information on the services of our Information Providers, please contact: NEWSBASE NewsBase is a leading provider of business and economic news and intelligence from Russia, Central Europe and the FSU. Daily bulletins and industry specific weekly reports backed by an archive containing over 10 million words combine to provide a comprehensive service to a global blue chip client base. Contact: Jon Laurijssen T: +44 (0)131 478 8537 F: +44 (0)131 478 7001 E: [email protected] W: www.newsbase.com, www.newsbaseworldmonitoring.com INTERFAX Interfax News Agency is part of Interfax Information Services Group. Interfax is a provider of accurate and reliable general news as well as financial and industry specific news and data from the emerging markets of Europe and Asia. Contact: Roland Hewes T: +44 (0)20 7467 2734 F: +44 (0)20 7486 1826 E: [email protected] W: www.interfax.ru/english NEW WORLD PUBLISHING New World Publishing is a primary source of business-related information for Central Europe, through its publications the Prague and Budapest Business Journals. Contact: Mark Child T: +420 2 4608 6524 F: +420 2 4608 6501 E: [email protected] W: www.ceebiz.com, www.pbj.cz, www.wbj.pl, www.bbj.hu THE MOSCOW TIMES The Moscow Times offers readers an independent and precise view of the political, economic and business life of Russia. 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