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*** Due Diligence *** Business Intelligence *** Asset Retrieval *** *** Debt Recovery *** Disappearance Response *** *** TT Meerkat 500 ***  TT Business Intelligence Report - CE/SEE & FSU Vol. 3, No. 67, 25 March 2004 Business Intelligence, Crime, Corruption and Debt in C&E/SE Europe and the former Soviet Union UPCOMING CONFERENCES THE EUROPEAN FINANCE CONVENTION'S "2nd e-FINANCE CONGRESS FOR CENTRAL, EASTERN & SOUTH EASTERN EUROPE" This event will take place on 29-30 March 2004 at the Hotel Lev, Ljubljana, Slovenia. For further information, please contact Claudio Cassuto, tel: +44 (0)20 7381 9291; fax: +44 (0)870 134 0064; email: [email protected]; W: www.euroconvention.com THE ENERGY EXCHANGE LTD'S "CIS OIL & GAS SUMMIT" This event will take place on 30 March - 1 April 2004 at the Langham Hilton Hotel, London. For further information, please contact Jivko Gadjourov, tel: +44 (0)20 7067 1800; fax: +44 (0)20 7430 9513; e-mail: [email protected]; W: www.theenergyexchange.co.uk THE EBRD'S 2004 BUSINESS FORUM "COMING OF AGE: OPPORTUNITIES OF AN EVOLVING REGION" This event will take place on 18-19 April 2004 at the Hilton London Metropole (HLM), London, UK. For further information, please contact Georgie Walker, tel: +44 (0)20 7338 6625; email: [email protected]; W: www.ebrd.com/am EVENTICA'S "7th ANNUAL RUSSIAN ECONOMIC FORUM" This event will take place on 18-20 April 2004 at the Queen Elizabeth II Conference Centre, Westminster, London, UK. For further information, please contact Edward Cowell, tel: +44 (0)20 7510 2560; fax: +44 (0)20 7510 2561; email: [email protected]; W: www.eventica.co.uk BELARUS BELARUSIAN PRESIDENT PLEDGES COMMITMENT TO INTEGRATION WITH RUSSIA President Lukashenka met with Russian State Duma Chairman Boris Gryzlov in Minsk on 17 March, Belarusian Television reported. "If an impression has been formed [in Russia] that Belarus is opposing the course we have been pursuing together,... it is absolutely untrue," Lukashenka told Gryzlov. "We are following the same path that we chose 10 years ago, which leads not only to friendship but to unity with the Russian Federation and the formation of a union state." The same day, Gryzlov was elected to head the Belarusian-Russian Parliamentary Assembly. The assembly approved a draft budget for the Russia-Belarus Union that calls for the allocation of a combined 2.65 billion Russian rubles ($93 million) by the two governments for some 30 joint programs. (RFE/RL 18.iii.04) BOSNIA AND HERZEGOVINA EU REPORTEDLY DETERMINED TO TAKE OVER BOSNIAN PEACEKEEPING The EU wants full control over international peacekeeping in Bosnia once NATO's mission there ends later in 2004, as will probably be announced at the alliance's June Istanbul summit, the "Frankfurter Allgemeine Zeitung" reported from Brussels on 16 March. The EU is reportedly willing to allow a NATO Sarajevo office to train the Bosnian military, as is the case in Macedonia. But the EU opposes a U.S. demand that the alliance remain responsible for dealing with terrorism and indicted war criminals in Bosnia, the daily added. Germany and France reportedly oppose what they call NATO "parallel structures" in Bosnia for "military and political reasons," calling instead for a "clear demarcation" of roles between the EU and NATO. According to the Frankfurt daily, unnamed U.K. officials do not share the views of their colleagues from Paris and Berlin, arguing that the EU and NATO can work side by side. Supporters of the Franco-German position note that the EU can be active in civilian as well as military fields, adding that the EU needs opportunities to show that it can deal with European problems. The Bosnian authorities have requested a continued U.S. military presence. (RFE/RL 16.iii.04) BULGARIA BULGARIAN MINISTER WARNS GOVERNMENT OVER EU ENTRY DATE Minister for European Integration Meglena Kuneva said on 18 March that Bulgaria must reform its judiciary in keeping with EU recommendations, as the country cannot afford to exacerbate skepticism over its possible EU accession, Bulgarian media reported. Kuneva's comments came in response to EU Enlargement Commissioner Guenter Verheugen's warning on 17 March that Bulgaria and Romania must reform their judiciaries or face postponement of their EU memberships. Verheugen urged Bulgaria and Romania to speed up judicial reforms to keep their EU efforts on track, adding that while he does not expect them to have perfect administrative systems; they still must meet the Copenhagen criteria for EU accession. Kuneva also said she agrees with Verheugen's statement that talks over Bulgaria's budgetary framework might not be finalized by the end of this summer. (RFE/RL 19.iii.04) CROATIA CROATIAN PRESIDENT PRESSES FOR EU MEMBERSHIP The "Frankfurter Allgemeine Zeitung" on 12 March quoted Croatian Prime Minister Ivo Sanader as saying on a recent visit to Berlin that his country hopes to join the EU in 2007 or 2008. In response to suggestions from some individual EU officials that all remaining former Yugoslav republics should wait to join the EU at the same time, Sanader argued that Croatia should be judged on its own merits -- as was Slovenia, which will join the EU in May. He noted that Slovenia has served as a positive example for its southern neighbors, arguing that Croatia can do the same. The Croatian leader declined to answer a question about how his government views possible Turkish EU membership, saying that Croatia is a candidate and not a full EU member. Referring to his own plans for economic reform, Sanader said that one model he is studying is that of Slovakia, which recently introduced a 19 percent flat-rate tax. (RFE/RL 12.iii.04) CZECH REPUBLIC CZECH GOVERNMENT TO SELL 46% STAKE IN OKD COAL MINE The state-owned minority stake in black-coal mining company OKD will be sold to its majority owner Karbon Invest, which will pay 2.25 billion crowns for the 46% stake, the government decided on March 23. The sale of black-coal mining company OKD was started in mid-November, when the cabinet opened exclusive talks with Karbon Invest, which holds a stake of 50.02%. The company then submitted a bid which it later raised by 800 million crowns to 2.25 billion. OKD posted a profit of 220 million crowns last year, having mined 11.04 million tonnes of coal, down 0.6 million from the year before. It employed 17,500 people in 2003, down 1,200 from 2002. The Karbon Invest group includes the second largest Czech black-coal mine, Ceskomoravske doly. (NewsBase 25.iii.04) ZAPADOCESKA ENERGETIKA (ZCE) POWER DISTRIBUTOR TO SELL 10.3% STAKE IN ALIATEL Czech power distributor Zapadoceska energetika (ZCE) plans to sell its 10.3% stake in Aliatel telecoms this year, ZCE spokesman Vaclav Fremr said on Wednesday, March 17th. "An expert team has recommended that we abandon this operation because ZCE does not have specialists able to deal with such a fast developing sector," said Fremr, adding that ZCE wants to focus on electricity supplies. ZCE's management is now assessing the stake together with an auditor but does not expect the price to be high. Aliatel, with a workforce of 360, has been present on the Czech market since 1996 and has share capital of 3.3 billion crowns. 60% of Aliatel is owned by six power distributors, and the rest by German RWE. Three of the power distributors, ZCE, Severoceska energetika (SCE) and Severomoravska energetika (SME), holding a combined 30% stake in Aliatel, are majority-controlled by CEZ. (NewsBase 19.iii.04) CZECH OFFICIALS VOW CONTINUED PARTICIPATION IN IRAQ A host of senior Czech officials and other politicians said on 15 March that they are not considering a withdrawal of Czech soldiers from Iraq in the wake of the 11 March bombings in Madrid, CTK and local dailies reported. "I would not think of such an alternative because I am sure that it is in Europe's interest to stabilize the situation in Iraq. Our participation helps the affair," Prime Minister Vladimir Spidla said, according to CTK. Foreign Minister Cyril Svoboda and Interior Minister Stanislav Gross echoed Spidla's statement. Gross questioned whether the new Spanish government's vow to withdraw Spanish troops from Iraq would not send the wrong signals to terrorist groups. The shadow defense minister for the opposition Civic Democratic Party, Petr Necas, said he believes a withdrawal of troops would represent a victory for terrorists. Senior members of the Communist Party of Bohemia and Moravia were virtually alone in praising the Spanish Socialists' warning of a troop withdrawal from Iraq, according to local media. The Czech Republic has deployed dozens of military-police officers to Iraq, has peacekeepers in Kosova, and is currently dispatching troops to Afghanistan. (RFE/RL 16.iii.04) GEORGIA A SECOND ROSE REVOLUTION IN BUD? Brinkmanship is becoming the stock-in-trade of Georgia's new president, Mikheil Saakashvili. In November, he led tens of thousands of Georgians from the streets and into Tbilisi's parliament building, facing down government troops and removing President Eduard Shevardnadze. He now appears to be using the same tactics to remove the leader of the largely independent region of Ajaria, Aslan Abashidze. The rewards of last week's victory over Abashidze in the largest crisis that Saakashvili has faced since becoming president in January could be a crushing victory in parliamentary elections on 28 March -- and even the ouster of one of the most powerful politicians in Georgian politics over the past decade. Long before he became president, Saakashvili had made it clear that he regarded Ajaria's leader as "a medieval feudal lord" and his transformation of the region's autonomous status into de facto independence from Georgia as unacceptable. Abashidze has for years withheld taxes and customs duties from the central government in Tbilisi and has been pushing for the region to be made a free-trade zone. Opposition has been stifled, international election monitors have been refused entry, and these unmonitored elections have returned figures showing over 90 percent support for Abashidze and his backers. Last week's confrontation between Abashidze and Saakashvili had been brewing for weeks. Georgian prosecutors, who have been investigating the finances of relatives of Shevardnadze and others in the former political elite, have started to turn their attention to the business activities of relatives of Abashidze. In Ajaria, opposition activists and a journalist had been attacked and newspapers closed. Attempts by Georgian politicians to campaign in the region had also been thwarted. The Organization for Security and Cooperation in Europe also tried to bring the two sides together. In comments made on 19 March, Solomon Passy, the foreign minister of Bulgaria, which currently holds the presidency of the OSCE, pointed to a fundamental breakdown in communication between the Georgian and Ajarian leaders. Passy told a conference of heads of post-communist states in the Slovak capital, Bratislava, that in the run-up to the crisis Abashidze had been angered by televised comments made by Saakashvili. Passy had responded by asking Abashidze why he used television as a medium for communication. Meanwhile, Georgian authorities continued to ratchet up the pressure on Abashidze, on 16 March ordering the arrest of six Ajarian officials, including a senior minister, for harassing journalists and opposition supporters. With tensions mounting, Georgian Parliament Speaker Nino Burdzhanadze flew on 17 March to Batumi for an eight-hour meeting with Abashidze. The result was a promise from Abashidze to meet Saakashvili the next day, 18 March. Symbolically, Saakashvili chose to follow the same route he had tried to take just four days earlier. Speaking at the Bratislava conference, Saakashvili said that throughout his hour-long journey from the Ajarian border to Batumi there had been "a huge number of people on the road with roses in their hands," symbolizing their desire for a "rose revolution" in Ajaria such as the rest of Georgia had experienced in November. Journalists report a less triumphal procession, pointing to the gun-carrying Abashidze supporters who mixed with the crowds. But once in Batumi, Saakashvili was able to meet crowds of supporters, some of them chanting "Misha, Misha," a diminutive of Mikheil. When he emerged from three-and-a-half-hour-long talks with Abashidze, he claimed victory, telling a cheering crowd of thousands on Batumi's main square that "we have resolved all the issues" and that "nothing can separate me from you, my friends." Saakashvili agreed to lift Georgia's blockade of Ajaria, promised talks on constitutional changes to give regions greater autonomy, and gave Abashidze "a promise that [the Georgian authorities] won't arrest him -- not real immunity but no immediate prosecution." In return, Saakashvili won promises from Abashidze to lift the state of emergency, allow Saakashvili and other government officials access to the region, introduce a more transparent system of control over the region's finances, and give the government in Tbilisi control over Batumi's customs offices. Critically, he promised to allow the 28 March vote to go ahead. Abashidze, long a thorn in Shevardnadze's side, allied himself with Shevardnadze shortly before the president's ouster and continues to view the results of November's parliamentary elections as valid. He had therefore been opposed in principle to holding a new vote. (TOL 22.iii.04) HUNGARY TOP DRUGMAKERS BOYCOTT MINISTRY PRICE AGREEMENT Forty-two drug producers representing 15% of the Hungarian market signed an agreement with the National Health Fund Administration (OEP) by last Tuesday under which they will pay 15% of their revenues from the sale of subsidized drugs into the OEP, announced Mihaly Koekeny, the minister of health, social and family affairs. The 138 companies who did not agree will be subjected to forced price reductions, Koekeny added. The government will lower producer prices by 15% for subsidized and non-subsidized drugs, whether they be prescription or over-the-counter products, made by companies that fail to accept its offer. The regulated prices will be effective for six months, a period that starts from April 1. According to Koekeny, budget pharmaceutical spending exceeded the planned amount by 36.6% in 2002 and by 15.67% in 2003, growing to Ft 251 billion (?990 million). The minister said the revenue increase of drug makers from sales of subsidized drugs was 20% last year. He noted that in EU member countries, the average revenue increase on such products was 5%-8%. Another extra source of revenue for producers was that prices of non-subsidized products have gone up by a degree significantly surpassing inflation, he added. Koekeny noted that the present government did not allow the 6.3% average price increase promised by the previous government, thus the retail price increase was 3.4% last year. He said pharmaceutical producers reacted by increasing sales incentives, using aggressive promotion and influencing doctors in prescribing drugs. This led to a shift in drug consumption towards more and more expensive products, he claimed. The only country where people spend more on drugs than Hungarians is Slovakia, Koekeny stated. He cited World Health Organization figures that show that drug spending in Hungary accounts for 30.7% of total healthcare expenditure, while the equivalent figure is 14.3% in Germany and 15.5% in Austria. According to Koekeny, generally 25% of a drug's price is made up of promotion and sales incentives, 20% is research and development, 15% is the profit of the manufacturer, 19% is the production cost, 16% is the margin of drugstores, and 5% is the margin of wholesalers. (BBJ 22.iii.04) TELECOMS FINED Fixed-line telecom provider Invitel Rt is to take court action against a Ft 55 million (?217,000) fine imposed on it last week by the Competition Office for taking unfair advantage of its dominant market position. The ruling, issued March 11, refers to a summer promotion Invitel ran between July 19 and Aug. 31 last year. During the period, Invitel charged subscribers a flat rate of gross Ft 45 per call on all local and long-distance calls within its concession areas on weekends. The fee applied to calls of any length and was also offered on the public holiday of Aug. 20. The office noted in a press release that subscribers who did not wish to take the offer had to dial 1767 before making calls. Dialing 1767 would mean that a standard tariff was charged. According to the office, most subscribers did not dial the four-digit code, as they forgot to do so. This generated an extra Ft 18 million in revenue for Invitel, it said. Therefore, in charging a flat rate during that period, Invitel was misleading consumers, the office concluded. In another development the week before, the National Telecommunications Office (NHH) imposed a Ft 50 million fine on mobile firm Pannon GSM Rt for missing the deadline to file its RIO (reference interconnection offer). According to its statement, the NHH ordered Pannon GSM and its competitor Westel Mobile Rt to submit their offers for interconnection charges by March 1, as prepared under the LRIC cost calculation model. This requirement was laid down by the Electronic Communications Act that came into effect on Jan. 1 this year. Pannon GSM failed to submit in time, but requested that the deadline be extended. The NHH said that it will fine any telecom that breaks the law. The Ft 50 million fine is twice as big as the maximum that could be applied by the NHH's predecessor, the Telecommunications Supervision (HIF). (BBJ 22.iii.04) MOL: NABUCCO GAS PIPELINE CONSORTIUM FOUNDS PROJECT COMPANY The partners of the Nabucco consortium, including Hungary's MOL Natural Gas Transmission Company Ltd, have established a project company to develop a financial model for the construction of the Nabucco pipeline, Austria's OMV announced Friday. Nabucco Company Pipeline Study GmbH will be based in Vienna. The pipeline, which could start deliveries as early as in 2009, is planned to bring natural gas from the Caspian Sea region to Europe. Members of the consortium are Botas, Boru Hatlari ile Petrol Tasima AS (Turkey), Bulgargaz EAD (Bulgaria), and SNTGN TRANSGAZ SA (Romania) - in addition to MOL's gas transmission subsidiary and OMV Erdgas GmbH. The Nabucco pipeline will be an important alternative supply of gas for Hungary and for Europe, MOL spokesperson Bea Lukacs commented to Interfax. The Nabucco consortium was founded in October 2002 to research a natural gas pipeline connecting the Caspian region and the Middle East with Europe. The company will be led by managing director Reinhard Mitschek, who will be supported by five senior representatives from each consortium partner. The company will develop the financial model for construction, design appropriate incentives for investors, coordinate marketing activities, and enter into negotiations on transportation contracts with potential shippers, OMV said. With the establishment of the company, substantial progress has been made towards a Nabucco feasibility study, the statement stresses. The parties also signed a contract with the technical general subcontractor to study all issues concerning the design of the new pipeline route, which will accelerate the decision making process. Interim reports show very promising results, and highlight the need for the pipeline. The major phases of the study are scheduled to be finalized by the end of this year. The new pipeline route will increase the importance of all countries involved in gas transit to central and Western Europe, the statement stresses. (Interfax 15.iii.04) KAZAKHSTAN KAZAKH PARLIAMENT PASSES MEDIA BILL Kazakhstan's Senate approved a parliamentary conciliatory commission's amendments to a new bill on media on 18 March, Interfax-Kazakhstan reported. Since the Majilis, or lower house, passed the amendments on 17 March, the bill has now cleared its last parliamentary hurdle and now lawaits President Nursultan Nazarbaev's signature. The bill, which was drafted by Kazakhstan's Information Ministry, has drawn harsh criticism from free-speech advocates. As recently as 16 March, Yevgenii Zhovtis, director of the Kazakhstan office of the International Bureau for Human Rights, told Interfax-Kazakhstan that the draft law fails to meet international standards and will enable the authorities to extend their control over the media. (RFE/RL 19.iii.04) LITHUANIA COURT RULES THAT BORISOV NOT TO BE DEPORTED The Vilnius District Administrative Court ruled on March 22, that the Migration Department was premature in ordering the expulsion of Yuri Borisov, Lietuvos Zinios reported on March 23. Borisov, an ethnic Russian, was the most important financial supporter of embattled President Rolandas Paksas during his presidential campaign, and later was granted Lithuanian citizenship at the president's request, sparking controversy and impeachment proceedings against Paksas. The court ruled that the Migration Department based its January 9 decision too heavily on the State Security Department declaration of Borisov as persona non grata, and stated that his expulsion order should be reviewed. "I think that the people of Lithuania can breath easier again since justice, nevertheless, exists," Borisov said of the ruling. "If the court had made another decision, I would have thought that this is not a law-based, but a police state." (NewsBase 25.iii.04) POLAND YUKOS SEES PRIVATIZATION AS KEY TO WESTWARD EXPANSION Yukos, the Russian oil giant, has announced it is ready to take part in the privatization of domestic oil companies, should this finally happen. Currently supplying 40% of all oil on the domestic market, the company also holds a strong position within the country's refinery market. However, now, on the eve of Poland's accession to the EU, it hopes future purchases in this country will help it expand into the Western oil market, which is seen as being of vital importance to the company as the new Russian government intends to raise taxes on raw material exports. Last year, Yukos produced 80 million tones of oil, 70% of which was sold abroad. At the moment, it estimates that the price of one barrel of oil needs to be at least $25 for its sales to be profitable, with the amount of oil it extracts being dependent on negotiations with the Russian authorities. It is hoped though that Yukos will not prove to be like Gazprom, which recently halted gas supplies to the country as a result of internal problems. (WBJ 24.iii.04) COALITION INSIDER URGES POLISH PREMIER TO STEP DOWN Deputy parliamentary speaker Tomasz Nalecz of the Labor Union, which governs in coalition with Prime Minister Leszek Miller's Democratic Left Alliance (SLD), told Polish Radio on 23 March that Miller should resign. "A politician who is negatively assessed by 90 percent of society cannot head a government, even if someone feels this is an unfair evaluation," Nalecz said. The previous day, SLD Deputy Chairman and Interior Minister Jozef Oleksy called on the SLD to withdraw its support for Miller and thus force him out of the prime minister's post, PAP reported. Also on 22 March, Jan Rokita, the leader of the opposition Civic Platform, said early parliamentary elections should take place as soon as possible, adding that each day under Miller's government is a "day lost for Poland." Rokita said the end of Miller's government and an anticipated split within the SLD would represent "the ultimate end of communist Poland." "This [would mark] the final step of the Solidarity revolt, the one omitted in 1990 and 1991, when no one outlawed the communists," PAP quoted Rokita as saying. (RFE/RL 23.iii.04) POLAND SEEKS TO CREATE NATIONAL FINANCE GROUP Poland will seek to create a national financial group in a move to retain Polish, including state, control over a segment of the nation's financial system, Treasury Minister Zbigniew Kaniewski told MPs on Friday (March 19). "The key task vis-a-vis the financial sector is to retain the share of the Polish stake [in the sector] at today's levels at least," Kaniewski told MP's during a heated Parliamentary debate on privatization. "And the key element in creating such a situation is ownership transformation of [state savings bank] PKO BP and [insurer] PZU," Kaniewski added. Plans to create such a national financial group will not impede this year's planned partial privatization of the savings bank, Kaniewski told reporters on the sidelines of the debate. "PKO BP is set for privatization this year," he added. Talk of such a union between the nation's largest bank and largest insurer is not new. In line with their party's passion to restructure and consolidate before considering privatization, Kaniewski's predecessors (three had held the post in the current government before Kaniewski took the job in January 2004) have mused the strengths of such a tie-up. At ministerial prompting, the two institutions began preparing a joint bancassurance offer early in 2003. Kaniewski's promises to avoid delays might apply less directly to PZU, where delays have plagued privatization over the course of the past several years and have now led Poland into an international arbitration dispute. PZU's privatization is caught up in a shareholder wrangle between the government and pan-European insurer Eureko, which filed the case against Poland for allegedly reneging on a 2001 deal that would have allowed Eureko to buy an additional 21% stake, thus taking majority control with its local banking partner. All bets are off concerning the most likely timeline for that sale or the connected initial public offering (IPO). Kaniewski would not say when his plan for a PKO BP - PZU union would be ready, nor would he say what degree of integration could be expected. He did stress that he will not rush the creation of the new group, though he will start moving to bring the companies closer together. "Nothing by force," Kaniewski said of the plan. (Interfax 22.iii.04) CITIGROUP LEADS THE RUNNING IN RACE TO ADVISE TREASURY ON PKO SELL-OFF Four companies have currently applied for the rights to advise the Treasury Ministry on the privatization of PKO BP. Of the four, Citigroup Global Markets is tipped to be the leading contender, with Credit Suisse First Boston, HSBC Investment Services Polska and the Polish Advising Consortium also in the running. According to Deputy Treasury Minister Przemyslaw Morysiak, as soon as the tendering commission finishes the necessary analysis the adviser will be chosen by the end of the week, with an appeals period following thereafter. PKO BP's debut on the stock exchange this year is still uncertain, although Treasury Minister Zbigniew Kaniewski hopes that it will happen in November. Analysts estimate that the privatization of the bank will raise between zl. 4-5 billion in revenues. (WBJ 16.iii.04) ROMANIA EU REITERATES NEED FOR ROMANIA TO SPEED UP REFORMS EU Ambassador to Romania Jonathan Scheele on 17 March said the EU is ready to help Romania in reforming the country's public administration, judicial system, and in combating corruption, but urged the country to speed up reforms, Mediafax reported. He said that criticisms contained in a recent European Parliament country report on Romania should be considered as a guide to overcome existing problems. Scheele warned, however, that if Romanian reform efforts and negotiations with the EU are not accelerated, the country's accession process could be delayed. Meanwhile, Interior and Public Administration Minister Ioan Rus on 17 March said public-administration reform should focus on granting greater autonomy to local administrations, Romanian media reported. (RFE/RL 18.iii.04) RUSSIA IFC MAKES FIRST RAIL INVESTMENT The International Finance Corp. signed off on a $40 million loan to Severstaltrans Group on Wednesday, making its first investment into the capital-hungry rail sector. Severstaltrans, part of Alexei Mordashov's Severstal Group steel empire, will receive an eight-year loan for upgrading rolling stock and locomotives, Alexander Nazarchuk, company financial director, said at the signing ceremony. Severstaltrans plans to buy 30 new locomotives and significantly upgrade its fleet of tanker cars. Both locomotives and tanker cars will be produced domestically, Nazarchuk said. "This financing will allow us to make our market position more flexible, including oil and petroleum transportation and providing better service to our clients." Severstaltrans, one of the country's largest private transportation groups, currently has a fleet of 17,000 tanker cars and five locomotives. Last year it reported earnings of $966 million. The IFC loan will be a part of a larger Severstaltrans investment program into rolling-stock development. Last year the company invested $250 million and budgeted the same amount for this year, including the IFC loan and $110 million in a credit-linked note. Since 1993, IFC has approved investments in Russia worth over $2.3 billion, financing nearly 90 projects across a variety of sectors, including banking, IT, agriculture, retail and glass. IFC is the private-sector lending arm of the World Bank. It expects investments of $500 million to $600 million into Russia this year, IFC director for Central and Eastern Europe Edward Nassim told reporters. IFC made its first investment into the transportation sector with a loan of nearly $30 million to the Volga-Dnepr airline to help finance construction of a 10th giant An-124 cargo plane. By June, IFC will provide up to $150 million in more loans to the transport and logistics sectors, including railways, air cargo and shipping, said Francisco Tourreilles, director of the infrastructure department at IFC. "By supporting a private Russian transportation company, this investment will help to facilitate the ongoing sector-reform program, which separates government regulatory functions and rail infrastructure from commercial operations," he said in a statement. Last year the government approved a national transport development strategy through 2025 that requires investments of 60 billion rubles ($2.1 billion) per year, most of which will come from the private sector and international lenders. Before being appointed the new transportation and communications minister in the government shakeup earlier this month, Igor Levitin worked as deputy general director of Severstaltrans overlooking railway operations. (The Moscow Times 25.iii.04) NAVY CHIEF MAKES EXPLOSIVE REMARK The commander of the Navy, Admiral Vladimir Kuroyedov, sent international news agencies scrambling Tuesday morning when he said the Pyotr Veliky, the nuclear-powered flagship of the Northern Fleet, was in such bad shape it could explode "at any moment." A few hours later, he retracted his statement, which appeared aimed at shifting blame for a series of accidents in the Northern Fleet ahead of a meeting with President Vladimir Putin. The 19,000-ton cruiser, which was designed to battle U.S. aircraft carrier groups and was commissioned in 1998, has two nuclear reactors and 10 Granit cruise missiles that could be equipped with nuclear warheads. Kuroyedov said he personally discovered the "faults" when on board the ship in open sea last Wednesday to witness a ballistic missile launch from a submarine, and he ordered the ship docked for three weeks so the crew could fix the problems. The Navy chief blamed the ship's commander, Vladimir Kasatonov, and the commander of the Northern Fleet, Gennady Suchkov, for the condition of the Pyotr Veliky, Gazeta.ru reported. Last year, the cruiser was declared the best-maintained and readiest of all the Northern Fleet's vessels. As international news agencies moved urgent news items with Kuroyedov's statement and reporters bombarded the Navy press service with calls, he retracted his statement, saying the nuclear power unit of the Pyotr Veliky cruiser was safe and that he was unhappy only with "the living quarters and noncombat sections." When reached by phone Tuesday, a Navy spokesman said the press should focus only on Kuroyedov's afternoon statement, as the one from the morning was "made on the sidelines" and "was not meant for the press." He would not elaborate. Kuroyedov had made his explosive remarks while taking questions from reporters in a smoking room at the Defense Ministry's downtown headquarters ahead of a meeting of the top brass, attended by Putin, to discuss housing issues, Gazeta.ru reported. In reality, however, Kuroyedov did not discover any glaring hazards during his inspection of the Pyotr Veliky last week, according to Gazeta.ru, which said it had obtained a list of the problems uncovered during the inspection. These included fire extinguishers that were not checked and poorly equipped crew's quarters. The Navy chief was outraged by overfilled ashtrays, Gazeta.ru said, citing sources in the Northern Fleet. He also was unhappy that paintings were badly hung in the crew's quarters, NTV reported Tuesday evening. Kuroyedov's alarmist remarks were aimed at discrediting his former deputy, retired Admiral Igor Kasatonov, the uncle of the cruiser's commander, and also Suchkov, according to Gazeta.ru and NTV. (The Moscow Times 24.iii.04) PUTIN SEEKS POVERTY SOLUTION IN OIL Less than a week after winning re-election in a landslide, President Vladimir Putin announced the primary economic mission of his second term - fighting poverty - and gave the Cabinet its strict instructions. The share of Russians living below the poverty line should be halved in three years, Putin said. The means to achieve this goal, he said, include increasing taxation on the oil industry and reducing the tax burden on other sectors to help the economy diversify and grow faster. "The tasks that are being set should be more ambitious," Putin told Economic Development and Trade Minister German Gref at a meeting Friday with staff from his ministry and the Finance Ministry. Other government officials also attended the meeting, parts of which were shown on state television. Putin quickly proceeded to extract a promise from Gref that the share of the population living below the poverty line would shrink from the current 20.4 percent to 10 to 12 percent in three years. The poverty line for the last quarter of 2003, the latest State Statistic Committee data available, stood at 2,143 rubles, about $75. Despite the impressive economic growth of the past five years, consumption has only just now exceeded the 1990 level. Before 1999, growth in gross domestic product was registered only once, in 1997, and even then it was under 1 percent. Russia's GDP grew by 7.3 percent last year, the fifth consecutive year of growth. The government forecasts 5.8 percent GDP expansion in 2004, although observers believe the figure will be higher. In particular, Putin on Friday once again stressed that the oil industry should be squeezed for more money in times of high oil prices. Under the government's plan, a new system of taxes and export duties would add $2 billion per year to the federal budget if the price of oil averages $27 per barrel, Finance Minister Alexei Kudrin said. The new taxation system, though consistent with what Kudrin and Gref have said before, appears to be much milder than proposals voiced just weeks ago by some members of the previous Cabinet, which called for up to an additional $6 billion a year to be squeezed out of the oil industry. The other side of Kudrin's plan to fine-tune the tax system would give a boost to other industries by slashing the starting rate for the progressive unified social tax from the current 35.6 percent to 26 percent as of 2005. The government has already reduced the value-added tax from 20 percent to 18 percent, and also has got rid of the sales tax, which in many regions reached up to 5 percent. According to Kudrin, the reduction in the unified social tax would save employers across the country some 280 billion rubles ($9.8 billion). (The St. Petersburg Times 23.iii.04) LUKOIL TO ISSUE 6BLN RUBLES IN FIVE-YEAR BONDS Lukoil plans to place a second issue of five-year bonds worth 6 billion rubles, in line with a decision made by the company's board of directors on Monday, the company said in a press release. Lukoil will issue 6 billion rubles in interest-bearing, non-convertible bonds to bearer, with mandatory centralized storing. The bonds will be placed on the Moscow Interbank Currency Exchange in a closed subscription at a par value of 1,000 rubles. No preferential right for acquiring these bonds is envisioned. The interest on the first coupon will be defined at a tender on the first day of placement. The bonds will be redeemed at their par value on the 1820th day from the beginning of the placement. The broker company Rezerv-Invest will act as underwriter of the issue. The first issue of 3 billion rubles in Lukoil four-year bonds was redeemed in July 2003. (Interfax 23.iii.04) IRKUT TO SELL 23.3% OF ITS SHARES IN PUBLIC OFFERING The Russian aircraft building corporation IRKUT is to sell its 23.3% of shares in a public offering on March 26. Shares will be placed on Russian stock exchanges RTS and MICEX but IRKUT experts hope to interest foreign companies. The company is holding a road show in London, Milan, Amsterdam and other European cities. IRKUT intends to gain $110-140 million from the stake. The corporation disclosed details on its property structure just before placement. As of now, ten IRKUT managers are beneficiaries for 70.64% of shares, IRKUT president Alexei Fyodorov holds 26.77%. A further 6.16% are controlled under a cross holding scheme. Major owners' shares will soon be cut to 50.3%. Incumbent shareholders are to place 23.3% of their shareholdings and then buy out a further 10% of additionally issued shares. (NewsBase 22.iii.04) 4 GUILTY OF YUSHENKOV SLAYING A jury convicted four of six defendants, including Liberal Russia party co-chairman Mikhail Kodanev, for their involvement in the murder of State Duma Deputy Sergei Yushenkov. Liberal Russia co-chairman Yushenkov was killed near his apartment building in Moscow on April 17, 2003. The Prosecutor General's Office accused Kodanev of ordering Yushenkov's murder so he could take control of the party's funds. The other defendants include Kodanev's aide Alexander Vinnik and Republic of Komi residents Igor Kiselyov, Alexander Kulachinsky, Anton Drozd and Vladislav Palkov. Kiselyov was convicted of acting as an intermediary between Vinnik and the killer, who he gave all information on Yushenkov. Kulachinsky was found guilty of committing the murder, for which he received money and a car. Kodanev, Kulachinsky, and Vinnik were also convicted of the illegal purchase and possession of firearms. Drozd and Palkov were acquitted of the charges against them. (The St. Petersburg Times 19.iii.04) DERIPASKA BUYS INTO ANGLO-DUTCH STEELMAKER Metals magnate Oleg Deripaska may be interested in buying the aluminum division of Corus after he acquired a small stake in the Anglo-Dutch steel company, a close associate of Deripaska said Wednesday. David Geovanis, managing director of Basic Element, a company which handles Deripaska's main business interests, said an entity linked to Basic Element had bought a stake of less than 3 percent of Corus for an undisclosed sum. Basic Element owns 75 percent of RusAl, Russia's largest aluminum producer and one of world leaders in the industry. Sibneft tycoon Roman Abramovich owns the remainder. He said Corus was considering selling off its aluminum interests and Basic Element might be interested in buying them. Corus produced 250,000 tons of primary aluminum in 2002 and operates two smelters, one in the Netherlands and the other in Germany, according to the company's web site. It also has rolling mills in Germany, Canada and Belgium making aluminum plate, sheet and coil. Geovanis said Basic Element, in making its investment in Corus, was not acting in concert with Russian businessman Alisher Usmanov, who owns 11.03 percent of Corus, but supported Usmanov's bid to win a seat on the Corus board. Earlier on Wednesday, the Financial Times had quoted Geovanis as saying, "I understand Mr. Usmanov is out there calling on other oligarchs to take stakes in Corus and lining up forces to put pressure on the company." Usmanov, Corus' second-biggest shareholder, said last week he wants a seat for his investment company, Gallagher Holdings. Corus shares have surged fivefold in the past year as the company benefited from higher steel prices. Its market value is now at 1.8 billion ($3.3 billion). Cyprus-based Gallagher holds 489 million shares and Usmanov has said he may buy more. Usmanov also controls Russia's Lebidinsky Iron Ore Mine and Oskolsky Special Steel and has a stake in Alinogorsky Iron Ore Mine. The companies are ready to supply Corus with steel slabs and iron ore, said Usmanov, who separately runs the investment arm of Gazprom, the state-controlled natural gas producer. Geovanis said Russian businessmen, who own some of the world's biggest steel companies, were interested in playing a part in the global consolidation of the industry. "I would say an example is the Severstal acquisition of a U.S. company," he said, referring to Russian steelmaker Severstal's recent purchase of the bankrupt Rouge Industries Inc., a supplier to the U.S. car industry. "As Russia becomes integrated in the world market it would make sense for Russian companies to expand overseas," he said. Basic Element and Usmanov are joint owners of Nosta, a major Russian steel producer. Both have stakes in electricity monopoly Unified Energy Systems. Geovanis and Usmanov sit on the board of UES. (The Moscow Times 18.iii.04) RUSSIA, EU MAKE PROGRESS IN TALKS OF EU ENLARGEMENT Some progress has been made in Russia-EU talks on the terms and rules of applying the Agreement of Partnership and Cooperation to the EU's new members, Deputy Foreign Minister Vladimir Chizhov said following talks with Irish Ambassador to Russia Justin Harman and Richard Wright, head of the Delegation of the European Commission to Russia. "The parties stated that during the talks some progress was made on taking into account Russia's concerns about the European Union's enlargement. This strengthens the possibility of reaching timely and mutually-related agreements on the terms and rules of applying the Russia-EU Agreement on Partnership and Cooperation to the European Union's new members," the Russian Foreign Ministry said in a release. "The talks also dealt with the schedule and content of the upcoming meetings within the framework of the Russia-EU political dialogue, and with Russian-Irish relations, the Foreign Ministry said. (Interfax 15.iii.04) COURT FREEZES SWISS BANK ACCOUNTS OF YUKOS OFFICIALS At the request of the Russian Prosecutor General's Office, Moscow's Basmanny Court on Friday froze the Swiss bank accounts belonging to Yukos co-owners and shareholders and other Russian citizens involved in the Yukos case. Thus, bank accounts worth about $5 billion belonging to Mikhail Khodorkovsky, Platon Lebedev, Leonid Nevzlin, Vladimir Dubov, Mikhail Brudno, Alexander Temirko and other Russian citizens - in total, 20 people - have been frozen. On Thursday, the Prosecutor General's Office announced that the Swiss Prosecutor's Office, at its request, had blocked the personal bank accounts of the persons involved in the Yukos case with five Swiss banks, worth 6.2 billion Swiss francs (about $5 billion). The freeze applies to the personal bank accounts of 20 Russian citizens, among them the Yukos oil company's top managers involved in the Yukos case. It does not apply to shares, assets or other securities, the Prosecutor General's Office reported. (Interfax 15.iii.04) SERBIA AND MONTENEGRO SERBIA: OUT FOR VENGEANCE At least 3,600 Serbs displaced, 30 Serbian churches destroyed, seven Serbian villages and some 350 houses torched: this was the result of what NATO is calling a wave of ethnic cleansing in Kosovo. It was three days of explosive violence by Albanian mobs that left as many as 28 people dead and more than 800 injured. The behavior by crowds of angry Albanians was "in reality ethnic cleansing, which must not continue. That is why we have come to Kosovo," said Admiral Gregory Johnson, NATO commander for South-Eastern Europe, speaking in Pristina on 18 March, the day after violence broke out. On 17 March, Albanian TV reported that three Albanian children had drowned in the Ibar river, near the northern Kosovo town of Kosovska Mitrovica, after being chased by Serb children. This version of the story, which was based on an interview with a fourth Albanian child, "was never corroborated nor confirmed," said the UN's chief of police for northern Kosovo, Barry Polin. Thousands of Albanians didn't need anything more than the child's account. After hearing the story, angry crowds crossed the Ibar river into northern, Serb-populated Kosovska Mitrovica and began clashing with the local population. UN and NATO forces were outnumbered and unprepared. In dozens of Serb localities, as well as multiethnic towns and villages, thousands of Albanians went on a rampage, burning houses and churches, and attacking Serbs. UN police and NATO KFOR troops were seemingly stunned at the intensity of the violence, as the mobs turned on them and began destroying their vehicles. Throughout the first day and night of violence, UN and KFOR officials acknowledged several times that they had lost control of the situation in several regions of Kosovo. Clashes between Albanians and international troops throughout the provinces lasted for hours. By early Thursday, the situation seemed to have calmed down somewhat. Then, a second wave of attacks began. In the Serb village of Svinjare, near Mitrovica, members of the international press corps witnessed the burning of all 130 houses in the village, with Albanian flags left waving on some charred remains. Albanian youths were seen looting what was left untorched, and many domestic animals were butchered and left lying in the streets. Churches were also a prime target. Some thirty Serb Orthodox churches and monasteries were burned or razed during the attacks. Among them, jewels of medieval architecture, such as the 11th-century Bogorodica Ljeviska, the 14th-century St. Archangel in Prizren, and the 14th-century Devic monastery in the central Drenica region. All six of Prizren's orthodox churches--home to the medieval Serb, Tzar Dusan--were destroyed. According to the UN, 24 people died and 831 people were injured during the three days of violence. More than 50 KFOR troops and about 100 police were injured. Seven Serb villages and more than 350 houses were burned. In Pristina, the capital of Kosovo, KFOR evacuated every Serb--all the families living in the only Serb building in town and the head of St. Nicholas church, who was found hiding in the basement of the burning church building. (TOL 22.iii.04) SLOVAKIA MINISTER SEES NO PROBLEM IN SLOVAKIA JOINING EMU AHEAD OF CZECHS While the Czech Republic is likely to reduce its public budget deficit in the coming years and meet conditions for adopting the euro, Slovakia's possible entery to the European Monetary Union (EMU) without the CR would not pose any problems, Slovak Finance Minister Ivan Miklos told the CTK news agency. Slovakia's strategy is to do what's best for the healthy development of its economy, and if the country can adopt the euro ahead of the CR, it will do so, says Miklos. Data from the EU's statistical office Eurostat shows that Slovakia has managed to cut its public budget deficit to 3.6 % of GDP, while the CR's public finance deficit rose to 12.9 % last year, among the highest of the candidate countries. According to EU rules, a country's public finance deficit must be less than 3 % of GDP before it can adopt the common currency. Slovakia has set a target date for meeting the euro criteria of 2006 or 2007. Some analysts say the CR will not meet the requirements by that time. (Interfax 19.iii.04) STATE PRIVATISATION AGENCY FNM TO DECIDE WHETHER TO SELL STAKES IN 6 HEAT AND POWER COMPANIES The state privatisation agency FNM must decide whether to directly sell the stakes it controls in six heat and power producing companies or maintain the possibility for them to receive grants from the EU's ISPA funds. Privatisation would mean that the government would have to forego all potential ISPA grants, the Slovak Economy Ministry said in its most up-to-date outline of further privatisation of the state's strategic companies. FNM must now choose between acquiring privatisation revenues which would go to the state budget on one hand, and non-recurring financial aid offered by the EU on the other. However, this does not apply to Zilinska teplarenska (the Zilina combined heat and power plant/CHP), since the government approved a financial memorandum entitling this company to draw nine million euros (360 million crowns) from ISPA sources earlier this month. Under this decision, the FNM must ensure that the ownership or voting rights in Zilinska teplarenska remain unchanged for at least five years after the final signing of the financial memorandum. Besides Zilinska teplarenska, FNM controls 100% stakes in CHP plants in Bratislava, Trnava, Martin, Zvolen and Kosice. The Economy Ministry's outline states that the optimal form of CHP plant privatisation is to sell 51% stakes to strategic investors while the remaining 49% should be transferred, free of charge, to the respective municipalities. But the municipalities involved claim the FNM should transfer the entire stakes to them. (NewsBase 17.iii.04) UKRAINE PRESIDENT KUCHMA PROPOSES LEGALISING ILLEGAL CAPITAL Ukrainian President Leonid Kuchma has proposed the possibility of legalising shadow capitals of Ukrainian citizens in 2004, Interfax-Ukraine news agency reported. In a corresponding letter to parliament, Kuchma said that iron-hand methods used against the shadow economy may be effective only in the short-term perspective. Kuchma estimated the size of Ukraine's shadow economy at 35% of GDP. Kuchma said that amnestying shadow capitals would not only bring financial effect, but also contribute to the formation of "economics of trust". (NewsBase 22.iii.04) FORMER UKRAINE PM ON TRIAL IN U.S. Pavlo Lazarenko, a former prime minister of Ukraine, currently stands trial in federal court on suspicion of laundering at least $114 million of an illegally obtained fortune through banks in the United States. Lazarenko, the first former head of government to be tried in the United States since Manuel Noriega of Panama, contends he neither siphoned funds nor accepted bribes from big business in exchange for government contracts. Lazarenko claims he earned the fortune legitimately, in a burgeoning and nearly lawless free-market economy left to fend for itself after the Soviet Union's collapse. He also says he planned to use the money to unseat Ukrainian President Leonid Kuchma, the man who made him prime minister in 1996 and fired him a year later. According to the 53-count indictment filed by U.S. prosecutors here, Lazarenko used his political clout to set up an international underground network of bank accounts to launder profits made through clandestine schemes involving natural gas, agribusiness, housing and other businesses in Ukraine. Authorities and experts aren't sure where all his money went. A former economic adviser to Ukraine, Anders Aslund, estimated Lazarenko siphoned off as much as $1 billion. "He was the leader of a culture of pervasive corruption," said Aslund, now a scholar at the Carnegie Endowment in Washington, D.C. "I never encountered anyone who was as crudely corrupt as Lazarenko." If convicted, Lazarenko could face 20 years or more in prison. (The St. Petersburg Times 16.iii.04) 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. 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