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*** Due Diligence *** Business Intelligence *** Asset Retrieval *** *** Debt Recovery *** Disappearance Response ***  TT Business Intelligence Report Vol. 2, No. 58, 30 October 2003 Business Intelligence, Crime, Corruption and Debt in C&E/SE Europe and the FSU UPCOMING CONFERENCES THE ENERGY EXCHANGE'S "OIL AND GAS TRANSIT AND SUPPLY IN CENTRAL AND EASTERN EUROPE AND THE BALKANS" This event will take place on 23-24 October 2003 at the Radisson SAS Palais Hotel, Vienna, Austria. For further information, please contact Steve Church, tel: +44 (0)1242 529 090; fax: +44 (0)1242 529 060; email: [email protected]; W: www.theenergyexchange.co.uk 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 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 MINSK OFFERS GAZPROM ITS PIPELINE After admitting that abandoning stalled talks with Russia to create a merged state was tantamount to political death for him, Belarussian President Alexander Lukashenko on Friday said he was ready to make some concessions. In particular, Lukashenko offered Gazprom a controlling stake in Belarussian gas pipeline monopoly Beltransgaz in exchange for allowing it to extract 10 billion cubic meters of Russian gas per year for export to Belarus. But he reiterated his insistence that he would not sell the company at an unfair price. Lukashenko had previously put the estimated price of the company at about $5 billion. Gazprom uses Belarussian pipelines to transit gas to its customers in West European markets and has been pressuring Lukashenko for some time to privatize the network. Lukashenko also said Minsk has been in talks with Moscow for three years to set up a joint oil company to produce oil in Russia, "but here we bump into a wall. And the same is true for gas." He said if talks failed, Belarus would find alternatives to Russian energy imports. One option is to import oil from Turkmenistan, an issue that will be discussed during Turkmen President Saparmurat Niyazov's upcoming visit to Belarus, he said. Relations between the neighboring states have been steadily deteriorating since the planned introduction of the Russian ruble in Belarus was indefinitely delayed earlier this year. On Friday, Lukashenko said there is no longer any need to introduce the ruble for non-cash operations in Belarus, which was originally planned to take place July 1. Belarussian authorities have recently taken a series of steps against Russian property, including the seizure of a stake that Russian oil major Slavneft. (The Moscow Times 27.x.03) BOSNIA AND HERZEGOVINA HAS FRANCE OVERCOME U.S. OBJECTIONS TO EU'S BOSNIA MISSION? London's "Financial Times" reported on 29 October that "the French Government this week assured American diplomats that any EU-led peacekeeping force in Bosnia would be planned and operated through NATO, a stance likely to ease U.S. objections to an alliance handover to European Union troops by the end of next year." The daily added that "at meetings in Paris, Robert Bradtke, one of the State Department's top Europe hands, was promised France would ensure any EU operation would use the new 'Berlin Plus' agreement. This allows the EU to access NATO assets but forces it to use the alliance's planning and operational structure to carry out operations." The EU is currently in charge of international police efforts in Bosnia. Several U.S. officials previously said it is too early to discuss NATO's exit from the Balkans, where many Muslims and ethnic Albanians trust the United States but not the EU. Many in Washington also have doubts about the EU's ability to manage the security situation in Bosnia and about the EU's ultimate goal in building up a military bloc without the participation of the United States. (RFE/RL 29.x.03) CENTRAL EUROPEAN STATES TO PROMOTE STABILITY IN BOSNIA Meeting in Graz, Austria, defense ministers of the seven-member group known as Central European Cooperation in Peace Support Operations (Cencoop) agreed to take an active role in 2004 in Bosnia to improve the administration, promote the democratization of society, and raise living standards, Vienna's "Die Presse" reported on 25 October. The defense ministers of Austria, Hungary, Slovenia, Croatia, Romania, Slovakia, and Switzerland stressed that Bosnia plays a key role in the stabilization of Southeastern Europe. They pledged to commit up to 700 people to the project, the first such effort that Cencoop has undertaken. General Roland Ertl, who heads the Austrian General Staff, said the mission could be placed under either NATO or EU command. (RFE/RL 27.x.03) BULGARIA BULGARIA OPENS TENDERS FOR SEVEN STATE-OWNED POWER DISTRIBUTION FACILITIES Bulgaria on Friday opened tenders for the sale of 67% of seven state-owned power distribution utilities to liberalise the energy sector and boost its efficiency, the privatisation agency announced. Deputy Prime Minister and Economy Minister Lidia Shuleva told a news conference that only power industry companies would be allowed to bid for control of the Balkan country's utilities. "We would not allow shadowy businesses to take control of Bulgaria's circuit-breaker. Only strategic investors could bid directly for at least 51% of the utilities," Shulev said. There is a deadline for submitting indicative bids of January 30th, 2004, the privatisation agency's executive director Ilia Vassilev told the same news conference. If strategic investors bid for a control stake of below the offered 67% and are selected as exclusive buyers, financial institutions will be allowed to bid for the remaining minority stake, Shuleva said. Vassilev said strategic investors that can participate should have equity capital of at least 700 million euros last year, annual power sales of 7,000 gigawatts in 2002, investment-grade credit rating and at least a 5% share in another partially liberalised power market. Under a sell-off strategy approved by parliament, the seven power utilities were grouped in three packages, each of which has annual electricity sales of some eight billion kilowatt hours and will be sold through three two-stage public tenders. (NewsBase 28.x.03) CROATIA WAR CRIMES TRIBUNAL WARNS CROATIA OVER PARLIAMENTARY DECISION Florence Hartmann, a spokeswoman for the Hague-based international war crimes tribunal for the former Yugoslavia, has cautioned the Croatian government not to implement a parliamentary decision extending state legal assistance to indicted army members, the "Southeast European Times" reported on 20 October. Hartmann said the Croatian government has good legal advisers and knows the 17 October parliamentary decision is illegal. Under tribunal procedure, documentation may only be given to those defendants and their lawyers who have appeared before the court. In one of its last acts before dissolving itself, parliament obliged the government to grant such access also to indictees and suspects who refuse to turn themselves in, such as retired General Ante Gotovina. "The government will implement the parliament's decision, but what it will mean for Croatia's relations with the...tribunal is another matter," Prime Minister Ivica Racan said. (RFE/RL 21.x.03) CZECH REPUBLIC CEZ TO SEEK NEW HEAD IN A TENDER CEZ will probably seek its new head in a tender, but it seems that the current chief of Skoda Holding, Martin Roman, could be a likely candidate for the post, a source close to the government told the daily Pravo. "There will be a tender, but there are not many people with qualifications for managing a giant like CEZ. So we can hardly be surprised that it is already now being talked about who might be chosen," the source said. CEZ is controlled by the state and so it is almost certain that it the trade and industry and finance ministries will choose the method for picking the new chief. He will then be named by the supervisory board. According to sources who talked to Pravo, CEZ could have a new chief in around two months, although the possibility cannot be ruled out that it could take longer. (NewsBase 30.x.03) CESKY TELECOM TO BECOME SOLE OWNER OF EUROTEL Fixed-line carrier Cesky Telecom will become the sole owner of its lucrative mobile arm Eurotel by end-November, according to Telecom CFO Juraj Sedivy. At that time, Telecom should comply with the last conditions precedent of a contract with the Atlantic West consortium, the owner of a 49% minority in Eurotel, he added. Analysts have said Telecom's 850-million euro, 27.3-billion crown, loan for the purchase of Eurotel is the biggest loan drawn in a post-communist country in central Europe. Telecom is to pay $1.05 billion, some 28.9 billion crowns, to Atlantic West, a grouping of AT&T and Verizon Communications, for its share, and besides the loan it wants to cover the sum from its own resources. Sedivy said Telecom would manage to pay the investment in three to five years without any problems. Eurotel has not fixed any dividend policy for the following years, but it is probable that money the company will not use on investment will go to the parent firm, he added. Telecom has picked Citibank, Belgium's KBC with its Czech unit CSOB, Bank Austria Creditanstalt, JP Morgan and Italian bank Sanpaolo as the chief managers of the loan. On October 1st, Eurotel paid out $405.5 million in dividends. Atlantic West received $200 million-worth of the dividend, which means its income from the investment in Eurotel has reached $1.25 billion. Eurotel is the largest Czech mobile operator with 4.02 million clients at end-September. The Czech Republic with with a population of 10.2 million has nine million mobile phone users registered. (NewsBase 28.x.03) NEW VAT DRAFT BILLS SPARKS FRESH CONFUSION A new draft VAT bill approved by the government last week sparked debate and confusion over which areas of the bill contradict the relevant EU directive. It has also become the target of fierce lobbying by different interest groups, with businesses seeking to have their products or services in the lower VAT rate. The most controversial point is a proposal to move cable TV services down from the upper VAT rate of 22 percent to 5 percent as of EU accession on May 1, 2004. Cable TV services were moved to the upper rate in the VAT bill approved in July-due to take effect in Jan. 2004-and the Ministry of Finance said last week the change was a mistake. Tax specialists said there were a number of potential pitfalls in the new bill, such as the definition of intellectual property, and that if the bill was approved by Parliament, changes must be made to related laws before accession. While the bill moves some foodstuffs such as sweets down to the 5 percent rate, it moves items such as cosmetics, hairstyling and waste removal to the 22 percent rate. Analysts at Volksbank estimated the changes would cost the average family Kc 6,700 ($245) per year. (PBJ 27.x.03) HUNGARY MOL, PKN MERGER DISCUSSED BY POLES Polish and Hungarian ministers will meet Friday to discuss the possibility of merging the two countries' biggest oil companies, Polish daily Puls Biznesu reported, without saying how it obtained the information. Polish Treasury Minister Piotr Czyzewski will fly to Budapest for a meeting with Hungarian Finance Minister Csaba László to discuss the merger of Poland's PKN Orlen with Hungary's MOL Rt, Puls said. The paper said this would be followed by talks between the management of PKN and MOL on Nov. 19. Czyzewski said earlier this month that Poland, which has a blocking minority of 28% in PKN, supports a merger. (BBJ 30.x.03) ERSTE BANK ACQUIRES FIVE ACCOR HOTELS A syndicate led by the Erste Bank Group won a recent tender to buy five Accor hotels in Budapest for about ?80 million, David Sylberg, CFO of Accor-Pannonia Hotels Rt, told the BBJ last week. The deal was closed in mid-October. Accor-Pannonia Hotels will lease back the buildings and continue to operate the hotels, according to the hotel operator's earlier announcement. The money the hotel group saves by financing the property under a sale and lease-back structure will be used to purchase or build new hotels in Central Europe, probably in Hungary, Sylberg said earlier. Last year the Accor-Pannonia group sold the Sofitel Atrium Budapest (then called Hyatt Regency Budapest) to HVB Leasing Hungary Rt, a subsidiary of Bank Austria Creditanstalt Leasing GmbH, and operates the hotel under a 22-year lease agreement. In March 2003, the French hotel group called for a tender to sell and lease back five Budapest hotels: Hotel Emke, Hotel Korona, Hotel Mercure Buda, Hotel Metropol, and Hotel Ibis on Ráday utca. According to court of registry files, Accor transferred ownership of the five buildings into a separate firm, which was purchased by AT Kft. AT Kft was created as a special vehicle for the transaction, but the real owner is the tender-winning Erste Bank Group, Sylberg said. Erste's Hungarian leasing company, Immorent Kft, financed the deal, said Immorent Managing Director Sándor Kovács, who refused to disclose the name of the other participants of the syndicate. Press reports earlier mentioned leasing firms, real estate funds and Hungarian banks among companies taking part in the tender. (BBJ 29.x.03) KAZAKHSTAN KAZAKH PRESIDENT'S DAUGHTER NAMED HEAD OF NEW POLITICAL PARTY At a congress in Almaty on 25 October, the Asar (All Together) public movement transformed itself into a political party and unanimously elected Darigha Nazarbaeva, eldest daughter of Kazakh President Nursultan Nazarbaev, the party's leader, Interfax-Kazakhstan and ITAR-TASS reported. The congress was attended by 1,300 delegates, who also selected a seven-person leadership council and adopted a party platform. At a news conference following the congress, Nazarbaeva rejected claims that she has presidential ambitions. "There is no alternative to [President Nazarbaev]" for the next 10 years, she said, and advised his opponents not to waste resources on presidential campaigns, saying that if they try to unseat him, "they will lose." The next presidential election is due in December 2006. She added that, although she regards pro-presidential parties as Asar's natural allies, her party will actively compete against them in the parliamentary elections scheduled for autumn 2004. (RFE/RL 27.x.03) LITHUANIA LITHUANIA, RUSSIA CONTINUE TALKS ON OIL-DRILLING THREAT During their meeting in Moscow, Lithuanian Prime Minister Brazauskas and Russian Prime Minister Kasyanov agreed to prepare a bilateral agreement on cooperating to clean up accidents, an environmental-monitoring program, and compensation for possible damages from activities at the D-6 oil-drilling site in the Baltic Sea, BNS reported on 21 October. Kasyanov told the press after the meeting that the agreement will be signed only after "exploitation works at the deposit are opened." On the previous day in Moscow, Brazauskas met with LUKoil President Vagit Alekperov and agreed to prepare an agreement on compensation for damages in the event of oil spills at the company's D-6 deposit near Lithuania's Baltic Sea coast. (RFE/RL 22.x.03) POLAND BRE BANK SET TO PURCHASE 50% STAKE IN GERMAN EUROHYPHO AG BRE Bank has signed a letter of intent with German financial institution Eurohypo AG, for the purchase of a 50% stake in mortgage lender, Rhein hyp-BRE Bank Hipoteczny, BRE announced on Tuesday. The final contract is envisaged to be concluded by November 30. If the contract comes to fruition, BRE will hold a 100% stake in Rheinhyp-BRE BH. Rheinhyp Bank Hipoteczny is the largest mortgage bank operating in Poland. By the end of the third quarter of 2003, the bank has granted loans of the total value of zl.1.8 billion and by year end their value is envisaged to increase a further zl. 200 million and to 2.8 billion by 2004. (WBJ 29.x.03) QUESTIONS RAISED OVER THE FUTURE OF PBK INWESTYCJE PBK Inwestycje, one of the few locally incorporated private equity funds, is going through a period of restructuring while the industry is buzzing with speculation that the fund's liquidation is likely. The fund's president Aleksander Mokrzycki believes that "liquidation is not going to happen," though he concedes that, "in theory you cannot rule out any scenario. To my knowledge, it is not really an option." Mokrzycki goes on to say that he could not disclose any details of the fund's strategy or plans for the future until "we have finalized the analysis of our situation," which is likely to be at the end of November or in December. The analysis is not "done internally," he adds. "A vehicle under the name of PBK Inwestycje, or under a different name, will exist," he says. "Its construction will, however, be different." Mokrzycki says that he is unable to specify what changes are likely, as "it does not actually depend on me." He merely states that the model for financing the fund's activities "will have to change. The current model, decided on by the bank at the outset, is not sustainable." The fund is currently more than 70 percent financed through debt instruments, an unusual model for a private equity fund. Capital Partners, the only other institution on the local market to use a similar financing structure, has also recently modified its strategy, opting to act as a corporate finance consultant rather than as an active investor itself. While work on such legislation is in progress, it is likely that PBK Inwestycje will not live to see them put in place; at least, not in its current form. (WBJ 27.x.03) ROMANIA WINNING VOTES, LOSING MINISTERS Prime Minister Adrian Nastase and his Social Democrat government took nearly as many blows as they won accolades last week. A day after Romanians voted in constitutional changes on 18-19 October, promoted by the government as a necessary step toward European integration, the prime minister announced the resignations of three controversy-plagued ministers. Both moves were linked, in the eyes of independent observers and some members in the opposition. The three ministers, European Integration Minister Hildegard Puwak, Health Minister Mircea Beuran, and head of the secretariat of the executive branch, Serban Mihailescu, had each been embroiled in allegations of engaging in or failing to stop corruption. Puwak's replacement is chief EU negotiator Vasile Puscas. The head of the government's control body, Ionel Blanculescu, took over the health ministry, and state protocol chief Eugen Bejenariu replaced Mihailescu. The announcement took some of the shine off the government's victory in the referendum on constitutional changes held on 18-19 October. Voters approved a number of changes to bring the country's legal system closer to EU practices, including guaranteeing private property, making the judiciary independent of the government, and allowing ethnic minorities to use their own languages in court. Although all three ministers had been hounded by the media for months, few expected their resignations. Many observers felt the timing of the resignations, just a day after the referendum, was not coincidental. Beuran allegedly plagiarized French medical textbooks; Puwak was in office and supervising EU funds when companies controlled by her husband and son won about $150,000 in EU grants; and two of Mihailescu's personal councilors were arrested on charges of corruption. Some observers were willing to give Prime Minister Nastase the benefit of the doubt. A group of organizations led by Transparency International Romania hailed the move the next day, stating that "a precedent has been set in Romania: members of the cabinet took upon themselves the political responsibility for acts that lack morality, transparency, and integrity." (TOL 27.x.03) ROMANIAN SENATE CHAIRMAN REJECTS DISCUSSING PRM MOTION ON CORRUPTION Senate Chairman Nicolae Vacaroiu on 20 October rejected a motion submitted the same day by the opposition Greater Romania Party (PRM), Mediafax reported. The motion, entitled "The mishandling of EU funds by the PSD government must be stopped," called on authorities to immediately investigate all recent mishandling and corruption charges. Vacaroiu argued the requests formulated in the motion couldn't be put in practice, as the Court of Accounts cannot start an investigation on its own, and asked PRM senators to reformulate their motion. (RFE/RL 21.x.03) RUSSIA STATE DUMA DEPUTY REQUESTS INVESTIGATION OF SIBNEFT PRIVATIZATION State Duma Deputy Vladimir Yudin has asked the Prosecutor General's Office to check the legality of privatisation of SIBNEFT oil and consider its possible re-nationalisation. The deputy claims that the Omsk oil refinery, NOYABRSKNEFTEGAZ and OMSKNEFTEPRODUKT, all part of SIBNEFT, were privatised for virtually nothing. On October 28, the Prosecutor General's Office released a note on the case of Mikhail Khodorkovsky and Platon Lebedev, implying that the re-nationalisation of YUKOS cannot be ruled out. Analysts say that this is the first attack by the law-enforcement agencies on the company's property, rather than its owners. (NewsBase 30.x.03) VOLOSHIN WANTS OUT OF KREMLIN Presidential chief of staff Alexander Voloshin tendered his resignation Saturday in protest of the arrest of Yukos CEO Mikhail Khodorkovsky, but the bargaining still seemed to be going on late into Tuesday evening over whether President Vladimir Putin would accept his request, analysts said, citing sources in the Kremlin administration. A Kremlin source said in a telephone interview that as of Tuesday evening Voloshin was continuing to carry out his duties. He could not say, however, whether that might change on Wednesday. He said he could not comment on whether Voloshin had actually tendered his resignation because that was "a personal matter." Ekho Moskvy, citing Kremlin sources, reported at 5:15 p.m. that Voloshin had tendered his resignation, but five minutes later retracted the report. Other news sources reported heavy traffic and a lot of cars with sirens around the Kremlin on Tuesday evening, a sign something big was afoot. If true, a decision by Voloshin to tender his resignation would dramatically up the stakes for Putin in the Yukos affair. If Voloshin steps down, it could seriously destabilize the political situation, heavily tipping the scales in a political system that so far has been based on Putin balancing two opposing Kremlin clans against each other, analysts said. A move by Voloshin out of the Kremlin at a time when parliamentary elections are looming in December could damage the Kremlin's election campaign, they said. Voloshin has been the wily strategist behind the Kremlin machine ever since his appointment to the post by President Boris Yeltsin in March 1999 took the political establishment by surprise. Everyone then predicted the previously little-known financier would not stay long, but Voloshin ended up outlasting all of his predecessors. As a former close associate of Boris Berezovsky, Voloshin has always been seen as the main protector of the interests of the so-called Family, the group of oligarchs and politicians who gained vast wealth and power during Yeltsin's rule. The onslaught against Yukos that culminated this weekend with the arrest of Khodorkovsky has been seen as part of a fight for position ahead of Putin's second term between the Family and a new Kremlin power group, the siloviki, which came to power on Putin's coattails and appears hungry for more power. Rumors have been swirling around Voloshin's impending resignation ever since the Yukos scandal first broke this summer with the arrest of core shareholder Platon Lebedev. Other observers predicted that Putin would try to keep him until at least after the State Duma elections. Lilia Shevtsova, senior political analyst at the Carnegie Moscow Center, said that if Putin decides to try to persuade Voloshin to stay on board and "restore balance, he will have to make concessions to the Yeltsin group." But others said it could prove impossible for Putin to back down now, especially on the Yukos affair. If Voloshin goes, Khodorkovsky could find himself with less protection if the state attempts to use his jailing to gain control of his Yukos stake. Stanislav Belkovsky, the man seen as one of the forces behind the Yukos attack by the publication of his June report that Khodorkovsky was launching a creeping coup to take over the Duma, said Voloshin's resignation would be "a good thing for the country." (The Moscow Times 29.x.03) CONCEPT OF COMMON ECONOMIC ZONE TO BE PRESENTED TO RUSSIA-EU SUMMIT? Moscow hopes that the creation of a common economic zone will be considered at the upcoming Russia-EU summit in Rome in early November, Russian Foreign Minister Igor Ivanov told a news conference in Moscow on Tuesday following his meeting with the European Union Troika. "We are pleased to note that the work on setting up a common economic zone has been successful. We hope the concept will be presented to the heads of state at the upcoming summit," he said. A report on an energy dialogue will also be presented at the summit, Ivanov said. His Tuesday meeting also covered international issues, such as Iran, Iraq, North Korea and the nonproliferation of nuclear weapons. "Russia and the EU's positions on key issues are either close or the same," he said. (Interfax 29.x.03) PRO-KREMLIN PARTY PURGES ITS RANKS OF YUKOS OFFICIALS Unified Russia has excluded State Duma Deputy Vladimir Dubov, former Deputy head of Yukos-Moscow, from its party list, "Nezavisimaya gazeta" and "Vedomosti" reported on 28 October. According to "Vedomosti," the party's General Council removed Dubov during a meeting on 24 October, and the question of excluding him was first raised more than a week ago. Other Yukos representatives are included on the party's party list, and unidentified party sources told the daily that a decision about their possible exclusion has not yet been made. Also on 28 October, REN-TV reported that the Natural Resources Ministry has sent a telegram to its employees in the oil-rich region of Khanty-Mansii Autonomous Okrug asking them to investigate whether all of Yukos's enterprises are complying with the terms of their license agreements. According to the station, such inspection are carried out routinely. However, the ministry's telegram told officials to carry out the Yukos inspections in tandem with local prosecutors. (RFE/RL 29.x.03) RUSSIAN COMPANIES COULD INVEST $4 BILLION IN IRAQ Deputy Prime Minister Yurii Fedotov told an international donors conference in Madrid that Russian companies might invest up to $4 billion in Iraq's economy, ITAR-TASS reported on 24 October. Russian investors, he said, are ready to do more if contracts signed under the oil-for-food program that are due to expire on 21 November are renewed. Iraqi reconstruction will be successful if security and honest rules are guaranteed for companies working in Iraq and if economic aid is transparent and stable, Fedotov said. On 17 October, President Putin called the UN resolution on Iraq passed unanimously the previous day a step in the right direction, but said it did not expand the UN's role in Iraq sufficiently to warrant Russia providing either peacekeepers or funds to help the country rebuild, Interfax reported. (RFE/RL 27.x.03) RUSSIAN INTERIOR MINISTER: ORGANIZED CRIME CONTROLS SOUTHERN OIL SECTOR Organized crime groups control a significant part of the oil sector in Russia's southern federal district and channel the proceeds to bandit formations in Chechnya, Interior Minister Boris Gryzlov said on Wednesday. "It is not a secret that the overall oil and gas complex, in particular its facilities in the southern federal district, are among the most crime-permeated sectors of the economy," Gryzlov said at an Interior Ministry meeting. "Organized groups and criminal organizations control a considerable amount of these facilities and receive huge revenues from the illegal extraction and sale of oil," he said. "Illegal sales of oil and its products remain a source of financing illegal armed formations in the Chechen republic," he said, adding that such sales "are taking place en masse in the region. The number of unlawful cut-ins into oil pipelines continues to grow." Gryzlov emphasized the importance of state control over the oil sector in the south to ensure "the economic development of Russian districts and political stability in the region." "The region's oil and gas facilities are of strategic importance for the whole country. Large amounts of high-quality oil are extracted and processed there. Export pipelines pass through the territory," he said. "However, the sector, the region and the state are incurring considerable economic losses as a result of the theft of oil and its products," he said. "Besides the direct economic damage, such actions are seriously aggravating the ecological situation," he said. "We are dissatisfied" with the interior agencies' work in the region, he said. "At present, we have to not only analyze the situation thoroughly and uncover the reasons behind the poor results of the work being done, but also have to determine specific measures aimed at drastic improvements," he said. (Interfax 24.x.03) TELEVISION STATIONS BACK AWAY FROM ANNOUNCED PLANS TO TAPE DEBATES Spokesmen for state-owned RTR and of state-controlled ORT television said on 16 October that the channels might change their position regarding a decision announced the previous day that they would tape debates between candidates for the State Duma rather than broadcast them live, RBK reported. Igor Burenkov, director for public relations at ORT, said a final decision has not been made. All-Russia State Television and Radio Company (VGTRK) Deputy Chairman Andrei Bystritskii said his company has also not yet made a final decision about the debates. According to Andrei Przhedomskii, co-chairman of a nongovernmental, nonpartisan supervisory council for monitoring the elections, 18 proposals from political parties and election blocs have been submitted. According to Przhedomskii, many of those who have submitted "applications" to take part in the debates have asked for Unified Russia, the Union of Rightist Forces (SPS), and/or Yabloko to be their opponents. According to ITAR-TASS, the debates are tentatively scheduled to start on 10 November. (RFE/RL 24.x.03) RUSSIAN BANKING SYSTEM'S ASSETS TO REACH 45% OF GDP BY 2006 The assets of the Russian banking system are expected to reach 45% of the country's GDP and its capital is expected to reach 7% of the GDP by 2006, First Deputy Chairman of the Russian Central Bank Andrei Kozlov has said. "We expect that these indicators will reach this level if favorable economic conditions and the consistent implementation of the banking sector development's strategy are provided," Kozlov said speaking at the first session of the Federation Council's Interregional Banking Council. As of September 1, 2003, the aggregate assets of Russian banks reached 5 trillion rubles, which is 16.7% more than at the beginning of the year. (Interfax 23.x.03) SERBIA AND MONTENEGRO EPS TO SPIN OFF EIGHT NON-CORE BUSINESSES INTO 12 SEPARATE ENTITIES Serbian state power utility Elektroprivreda Srbije (EPS) said it will spin off eight non-core businesses into 12 separate entities in the first restructuring stage. The company, which earlier divested its underground coal exploitation unit employing 5.4k workers, also said it will shed around 13k jobs as part of the restructuring. Over the past three years, EPS has received E492m in one-off aid to refurbish its electric power system and a further E375m in soft loans, while state subsidies amounted to E80m. Power cuts have been eliminated, coal production stabilised and winter electricity imports reduced from 3.3k GWh in 2000 to a projected 980 GWh this winter. Its Jan-June 2003 electricity output went up by 3% year-on-year, with revenues rising 20% to E510.9m. (NewsBase 29.x.03) OSCE WITHDRAWS FUNDING FROM SERBIA'S BROADCASTING COUNCIL The international community's suspension in August of financial aid to Serbia's newly created Broadcasting Council came as a shock to most. The denial of funding means that the council, intended to remove political interference from the media, will now be dependent on the very government from which it is supposed to be independent. Some 300,000 euros earmarked for the Broadcasting Council--mostly coming from the European Bank for Reconstruction and Development (EBRD)--was withdrawn in August at the request of the Organization for Security and Cooperation in Europe's (OSCE) mission in Belgrade. The OSCE's move represented a sudden shift in the institution's position on the Serbian Broadcasting Council, which it had supported, despite certain controversies, throughout its formation. Since the reign of Slobodan Milosevic, media in the former Yugoslavia has served largely as the government's mouthpiece. When the Democratic Opposition of Serbia (DOS) coalition ousted Milosevic in October 2000, it promised serious reform. A new Public Information Law and an independent Broadcasting Council--a regulatory body intended to ensure, among other things, the fair allocation of frequencies to radio and televisions stations--were the keys to that reform. Serbian Parliament passed that new Public Information Law, which laid down regulations governing the council, on 22 April. But the new law did nothing to alleviate the confusion and controversy surrounding the media--ambiguity that was only compounded by the OSCE's surprise withdrawal of funding. The OSCE's financial pullout also coincided with a report (largely ignored by the Serbian media) of the resignation of OSCE media chief Giovanno Porta. In a scathing resignation letter published by the weekly Nedeljni telegraf, Porta cited the OSCE's "double standards" and "lack of transparency." (TOL 22.x.03) SLOVAKIA J&T TO POSSIBLY ACCEPT BID FROM MOL FOR SLOVNAFT SHARES Financial company J&T is deciding whether to accept a bid from Hungarian oil giant MOL to buy shares of refiner Slovnaft after MOL submitted the new bid to the Financial Market Office (UFT) on Monday, Sme reported. "At the moment we are considering whether to keep the shares or sell them under the terms published in the takeover bid," J&T spokesman Maros Sykora said. According to Sykora, the new takeover price of 1,379 crowns per a share is in line with the law; however, it is not a gesture of a fair investor. "Roughly a year ago, MOL valued Slovnaft shares at 2,200 crowns," Sykora noted. The Financial Market Office on Tuesday confirmed it has obtained the new draft of a mandatory bid to buy Slovnaft shares from MOL. (NewsBase 30.x.03) SLOVAKIA DENIES SUPPLYING WEAPONS TO NORTH KOREA The Slovak Foreign Ministry said on 24 October that it has not received any requests to export military equipment to North Korea in the past five years, TASR reported. The statement came in response to an article published on 23 October in the British daily "The Guardian," which cited South Korean Defense Ministry sources as saying North Korea has imported about $400 million worth of materiel from Slovakia, including used fighter planes, submarine equipment, helicopters, and tanks. The Foreign Ministry said licensing for military exports is granted by the Economy Ministry, but noted that the Foreign Ministry has veto powers over such deals and would have exercised that veto in line with Slovakia's international commitments. Economy Minister Pavol Rusko said he is unaware of the alleged exports and has requested information from the Foreign Ministry and South Korea's Defense Ministry. Rusko said he neither rules out the possibility that such exports took place nor that an "intelligence game aimed at damaging [the reputation of] our country" is being played out. Despite the ban, North Korea has also imported military equipment from Russia, China, Germany, Austria , Belgium, and Japan over the past five years, according to the British daily. (RFE/RL 27.x.03) UKRAINE KUCHMA DISMISSES PROSECUTOR FOR FAILING TO COPE WITH GRAFT Ukraine's President Leonid Kuchma fired the prosecutor general on Wednesday following a wave of criticism of his failure to stamp out graft in the country rated as one of the world's most corrupt countries. Olena Hromnytska, Kuchma's spokeswoman, said the president had signed a decree to sack Svyatoslav Pyskun, who was appointed just over a year ago. She gave no other details. Senior officials from Ukraine's corruption watchdog called on Kuchma earlier on Wednesday to sack Pyskun, accusing him of failing to achieve any notable success in tackling corruption. "We suggested to the president that he sack Prosecutor General Svyatoslav Pyskun because he violated several laws and carried out disgraceful actions," Olha Kolinko, head of the watchdog committee, was quoted by Interfax-Ukraine news agency as saying. The committee, grouping senior officials from the prosecutors' office, tax authorities, SBU secret service and the Interior Ministry, also accused Pyskun of abusing his power, promoting his own political image and misusing budget funds. Pyskun was not immediately available for comment on Wednesday, but has previously denied the allegations and said he was doing his best to stamp out corruption. Ukraine, which will neighbor the European Union when Poland, Hungary and Slovakia join next year, is rated as one of the most corrupt states in the world by Berlin-based graft watchdog Transparency International. Promises to battle corruption are a perennial theme in public affairs but little has been done in a country where the black economy is about the same size as the official one and capital flight is common. Pyskun has been also criticized by opposition parties for his inability to investigate Ukraine's most notorious case -- the murder of reporter Heorhiy Gongadze in 2000, who had been critical of Kuchma and other senior officials. (The Moscow Times 30.x.03) UKRAINE AND RUSSIA: IN DIRE STRAITS Relations between Russia and Ukraine plunged to their record-low last week after a long-simmering territorial dispute spiralled wildly and unexpectedly out of control, with both sides mooting the use of force to make their point. The island of Tuzla, a tiny but strategically placed stretch of sand in a narrow strait separating the two countries, suddenly became the epicenter of an angry stand-off, which eased somewhat after urgent high-level talks, but still threatens to flare up again. Moscow agreed on 24 October to suspend the construction of a causeway from the Russian coast towards the Ukrainian-controlled island, which Kiev claimed was part of a Kremlin strategy to claim sovereignty of Tuzla. But the unprecedented row is a cold shower for proponents of the closer integration of both countries, coming as it did just weeks after Ukraine appeared finally to yield to years of Russian pressure to join a Moscow-dominated economic union. Seven kilometres long and a mere 600 meters wide, Tuzla sits in the Kerch Strait between the Black Sea and the Sea of Azov. Whoever owns it controls not only the rich fishing grounds and oil deposits of the surrounding Azov shelf, but also the only navigable channel between the two seas. Once the tip of a narrow spit stretching westwards from Russia's Taman peninsula, Tuzla became an island after a furious storm in 1925 washed away the narrow strip of sand connecting it to the Russian mainland. What happened next has been the source of much bad blood between Russia and Ukraine, since the break-up of the Soviet Union. In addition, still outstanding is the issue of the maritime border in the Azov Sea. Russia, which currently pays Ukraine more than $10 million a year for right-of-passage in the Kerch Strait, wants only the sea floor to be divided. Ukraine, which does not want to lose a lucrative source of income, wants a clear border on the surface as well. But with both sides unwilling to budge, the dispute slowly faded into the background of generally improving relations. 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