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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. 70, 06 May 2004 Business Intelligence, Crime, Corruption and Debt in C&E/SE Europe and the former Soviet Union UPCOMING CONFERENCES ADVANTIX'S "RAISING FUNDS ON THE LONDON STOCK EXCHANGE ON AIM" This event will take place on 2 June 2004 at the London Stock Exchange, London, UK. For further information, please contact Arthur Poliakov, tel: +44 (0)20 8429 0920; fax: +44 (0)20 8429 0912; email: [email protected]; W: www.advantix.co.uk/target-invest ADVANTIX'S "ALTERNATIVE FUNDRAISING OPPORTUNITIES FOR GROWING RUSSIAN AND CIS COMPANIES" This event will take place on 3-4 June 2004 at The Grosvenor House Hotel, London, UK. For further information, please contact Arthur Poliakov, tel: +44 (0)20 8429 0920; fax: +44 (0)20 8429 0912; email: [email protected]; W: www.advantix.co.uk/target-invest EUROPEAN FINANCE CONVENTION FOUNDATION'S "BANKING AND FINANCE IN CENTRAL, EASTERN & SE EUROPE, RUSSIA, AND THE CIS 2004 AND BEYOND" This event will take place on 6-7 July 2004 at Conrad Hotel Brussels, Belgium. For further information, please contact Claudio Cassuto, tel: +44 (0)20 7381 9291; fax: +44 870 1340 064; email: [email protected]; W: www.euroconvention.com BELARUS IN CARDS, LUKASHENKO IS A JOKER A deck of cards has appeared in Belarus, with President Alexander Lukashenko as a joker and other figures reviled by tightly controlled country's political opposition as aces, kings and queens. "Ten years in power. Wants to send Belarus to its death," reads the text on the Lukashenko card in the deck. The ace of spades in the deck is the country's chief prosecutor, Viktor Sheiman, who is accused in the text of the card of initiating the disappearances of opposition politicians who have gone missing in Belarus in recent years. Central Elections Commission chief Lidia Yermoshina is depicted as the queen of spades and accused on the card of falsifying vote results in Lukashenko's favor. Officials have not commented on the decks, which bear no information indicting where they were printed or by whom. Insulting the president and other officials is a crime in Belarus. Early in last year's war in Iraq, the U.S. military presented a list of the 55 most-wanted Iraqis as a deck of cards, with Saddam Hussein as the ace of spades. Several months later, the Kommersant newspaper and NTV television teamed up to release Russian decks of cards of the leaders of Russia and the United States. Unlike those three decks, the cards in Belarus include the office phone numbers of those depicted. (The Moscow Times 06.v.04) ONE MORE DOWN Belarus's secret service has jailed Mikhail Marynich, a prominent opposition figure. The authorities claim he was carrying classified documents from state agencies, two unregistered firearms, and more than $90,000 when he was seized on 26 April. Critics believe that the arrest of Marynich--Belarus's external economic relations minister from 1994 to 1998-- is the latest in a lengthening list of politically motivated arrests of former high-ranking Belarusian officials who have defected to the opposition or who have simply dissented from the line set forth by the country's strongman president, Alyaksandr Lukashenka. Opposition figures immediately denounced the arrest as politically motivated, linking it to this autumn's parliamentary elections. Marynich was expected to be on the list of candidates put forward by the opposition the opposition coalition Five Plus. "What is going on is the clearing of the political arena," Anatol Lyabedzka, one of the leaders of the coalition that unites most of the country's major opposition parties, said in a statement. "The regime has selected some figures for elimination. The tactics chosen for their neutralization are different, but the objective is common--to remove the most influential people from the process," he added. Lyabedzka himself is under criminal investigation on charges of defaming Lukashenka. In the summer of 2001, Marynich resigned as Belarus's Riga-based ambassador to Latvia, Estonia, and Finland to run against Lukashenka in that autumn's presidential race. In his resignation letter to Foreign Minister Mikhail Khvastow, Marynich said that he planned to work against dictatorship and toward democratic changes. Lukashenka reacted angrily to the very public defection, saying, "Don't you remember you sang me songs and swore allegiance and loyalty? Now you have put yourself forward [as an opposing candidate]." Marynich failed to get on the ballot when the central election commission ruled that he had not collected the 100,000 voter signatures required to be registered as a candidate. Marynich said that he had gathered the necessary signatures but that the Lukashenka government wanted him out of the presidential race. In the city of Minsk, where he was mayor from 1990 to 1991, Marynich gathered more ballot access signatures than any other of the approximately 20 presidential aspirants, including Lukashenka. (TOL 03.v.04) BOSNIA AND HERZEGOVINA EU TO SEND ADVANCE UNIT TO BOSNIA IN MAY The EU will send an advance technical unit to Sarajevo on 1 May, the "Frankfurter Rundschau"reported on 26 April. Quoting a confidential EU document, the daily reported that a conference will be held in June to decide on the strength of the future EU-led peacekeeping mission in Bosnia-Herzegovina. Some 7,000 EU troops, dubbed EUFOR, are to replace the current NATO-led SFOR troops. Germany will provide the strongest contingent in the new peacekeeping mission. The EU is planning to ask the UN Security Council for a mandate for the mission in July, according to the report. (RFE/RL 28.iv.04) BULGARIA A CONSORTIUM OF NINE COMPANIES CONSIDERS 40% STAKE IN MOBILTEL A consortium of nine companies is considering a 40% stake in Bulgarian mobile operator MobilTel, but Jeremy Hughes of Citigroup, which is overseeing the sale, refused to name the companies. On April 20, the Commission for the Protection of Competition (CPC) agreed to the sale of some of MobilTel equity to BidCo AD and then to merge with the company. A consortium of leading world banks, headed by US financial giant Citigroup is to acquire the minority package. The consortium also includes ABN Amro, Ing Bank and a number of smaller European investment funds. Citigroup will continue to advise MobilTel's owners on the sale until it is finalized. (NewsBase 23.iv.04) CROATIA CROATIA LIKELY TO BE GRANTED EU CANDIDATE STATUS IN JUNE In an interview for the Croatian daily "Vecernij list" of 26 April, EU foreign- and security-policy chief Javier Solana said he expects Croatia to be granted EU candidate status in June. "That does not mean automatically that a specific date for the opening of negotiations will be fixed," he said. "It is important to underline that the 'Avis' is just the first step in a long process." Solana stressed, "Additional efforts are needed on all the essential issues, such as cooperation with ICTY [the International Criminal Tribunal for the former Yugoslavia], protection of minority rights, refugee returns, judicial reform, regional cooperation, and [the] fight against corruption" (RFE/RL 27.iv.04) CZECH REPUBLIC CESKA FINANCNI CANCELS TENDER FOR SALE OF SPOLCHEMIE MAJORITY STAKE Ceska financni (CF), a subsidiary of the Czech bailout agency Ceska konsolidacni agentura (CKA), has cancelled a tender for a 53.73 % stake in the Czech chemical producer Spolek pro chemickou a hutni vyrobu (Spolchemie) called on 28 January 2004, CKA spokesman Jiri Pekarek told Interfax Wednesday. The main criteria for the sale were the final solution of CF's financial obligations to the creditor Fores, and the value of the offered price. The tender was cancelled because none of the bidders proposed an acceptable method of handling the possible risks attached to the transfer of assets to the buyer, says Pekarek. The bidders were Ceska typografie, Dehtochema Bitumat, and the Via Chem Group. CKA says CF remains interested in selling the Spolchemie stake to a suitable investor. It will make public the method and conditions of the new sale as soon as it makes final decision. Spolchemie saw its sales rise 25 % yr/yr to CZK 631 mln in the first quarter of 2004. Spolchemie expects sales to rise 30 % this year. The firm expects to post a loss of up to CZK 71.5 mln, after a profit of CZK 835,000 in 2003, mainly due to the suspension of work at the firm's resins plant, which was damaged by fire in 2002. The plant should begin operating again this fall. CF controls 53.73 % of Spolchemie, the National Property Fund (FNM) has a 12 % stake, and small shareholders control 15 %. (Interfax 30.iv.04) CR AND UKRAINE SIGN AGREEMENTS ON COOPERATION IN KIEV The Czech Republic and Ukraine have signed intergovernmental agreements on economic, industrial, scientific and technical cooperation, as well as on mutual recognition of work to assess correspondence of national standards, Interfax Ukraine reports. The agreements were signed on Friday, following the 8th joint meeting of the Ukrainian-Czech intergovernmental commission for trade and economic cooperation in Kiev. Ukraine's Deputy Economics and European Integration Minister Andriy Berezny expects a decline in direct trade turnover between the two countries at the outset of Czech membership in the EU, owing to changes in customs duty and the EU's antidumping proceedings against the supply to the Czech Republic of eight kinds of Ukrainian metallurgical and chemical products. However, Berezny is an optimist concerning long-term cooperation, according to Interfax Ukraine. At the meeting, Czech Deputy Minister of Industry and Trade Miroslav Somol called for an effective search of compensatory measures for losses of Ukrainian and Czech partners within EU mechanism frames. Somol also said he believed there would be more mutual investments in the future. The next meeting of the Ukrainian-Czech intergovernmental commission for trade and economic cooperation will be held in the Czech Republic next year. (Interfax 23.iv.04) ESTONIA TELIASONERA'S BID TO BUY STAKE IN EESTI TELEKOM HAS BEEN REJECTED A bid by the Scandinavian telecommunication conglomerate, TeliaSonera, to buy the state's stake in Eesti Telekom has been rejected, with government officials saying they wanted significantly more cash for the strategic asset, the Baltic Times reported on Thursday, April 22nd. TeliaSonera, which already owns 48.8% of the company, approached the government with an offer to buy the state's 27.2% holding for 268 million euros, or 111.3 kroons (7.1 euros) in cash for each A-share and 11,130 kroons in cash for the B-share in Eesti Telekom. In addition, TeliaSonera proposed to pay out 8 kroons per share before accepting the takeover offer, offering a premium of 12.3% over Eesti Telekom's weighted-average share price during the last 12 months. The government said the offer was "below expectations." (NewsBase 23.iv.04) GEORGIA GEORGIAN PRESIDENT ISSUES NEW ULTIMATUM Georgian President Mikheil Saakashvili again denied in Tbilisi on 1 May that the Georgian government plans any military aggression against Adjaria, Interfax reported. Following the destruction of the two border bridges, Saakashvili said late on 2 May that Abashidze has 10 days in which to comply with his earlier demands to disarm all illegal armed groups in Adjaria and "to return to within the framework of Georgia's constitution," Reuters and Caucasus Press reported. If Abashidze fails to comply with those demands, Saakashvili continued, he will avail himself of his constitutional right to dismiss the Adjar leadership and schedule new elections to enable the population of the autonomous republic to select a new leader democratically, Caucasus Press reported on 3 May. At the same time, Saakashvili stressed that he will not abolish Adjaria's autonomous status within Georgia. (RFE/RL 03.v.04) HUNGARY HEINEKEN INCREASES BID FOR BRAU UNION Heineken NV increased its bid for the shares it doesn't own of Hungarian unit Brau Union Hungária Rt. The beer maker is now offering to pay as much as Ft 564 million, or Ft 12,297 per share, for the 6.8 % of Brau Union it doesn't own. Heineken raised the bid after Hungary's financial-markets regulator ordered the company to submit an improved offer because other shareholders said in court the bid was too low. The new offer is the same as the 180-day weighted average price of Brau Union stock on the Budapest exchange, according to the Dutch brewer. (BBJ 05.v.04) MERGER DEADLINE PASSES, BUT MOL-PKN TALKS GO ON Despite missing a May 1 deadline for ending merger talks, Hungary's MOL Rt and Poland's PKN Orlen SA issued a joint press release last Friday saying that talks continue and both parties would like to merge. Speaking at MOL's AGM on April 30, Chairman Zsolt Hernádi said MOL and PKN held "very good" talks and decided that a full merger offers the most benefits. No agreement was reached, he said, citing "outside reasons." Kornél Sarkadi Szabó, lead analyst at Raiffeisen Securities Rt, said Hernádi's statements and the joint press release came as little surprise to the market. The closure last week of the tender for the privatization of Czech oil company Unipetrol SA signaled that further talks would take place, he remarked. "The fact that MOL pulled out of the Unipetrol sale to leave PKN as the only company to submit a binding offer suggested that the merger was still under discussion," he said. He explained that it would have made no sense for MOL to bid in competition with a company it wanted to merge with. However, he added that even if the merger does not happen, there could be room for MOL to cooperate with PKN in the Czech Republic. Sarkadi Szabó said the likely purchase of Unipetrol strengthens PKN's hand in the merger talks, but MOL has the more dominant position, something he said would be a key factor in any final agreement. PKN started negotiations with MOL in November about a partnership which, according to statements at the time, could take the form of a merger, a joint venture, or the two companies taking a stake in each other. The Polish government holds 28% of PKN. Political upheaval in Poland has been the main obstacle to the merger, according to Tamás Pletser, an equity analyst at Erste Bank Investment Rt. He added that for the incoming Polish government, this is not an urgent issue. Raiffeisen's Sarkadi Szabó said the upcoming deadline for bids for the privatization of Romanian oil company Petrom SA will give clues as to the likelihood of the merger going ahead. He added that it is not just the purchase price of Petrom that will be expensive. Also at MOL's AGM last week, shareholders approved the board's proposal to pay a dividend of Ft 55 per share and approved MOL's consolidated balanced sheet, prepared according to Hungarian accounting standards. It shows total assets of Ft 1,356 billion (?5.42 billion) and after-tax profit of Ft 155 billion. Sarkadi Szabó said that with the merger postponed, the market will start to look at MOL's financials again, and will find a bullish picture. The hitherto troublesome gas division will deliver around Ft 35 billion in profit this year, he predicted. Investor confidence in MOL has built steadily over the last six months, he added. (BBJ 03.v.04) KAZAKHSTAN KAZAKHSTAN TO OPEN UP NEW OIL ROUTE TO CHINA China National Petroleum Corp. and KazMunaiGaz, Kazakhstan's state-owned oil company, plan to extend an oil pipeline from Kazakhstan to China to allow shipments to eastern Chinese provinces, including imports from Russia. China, which overtook Japan last year to become the world's second-largest oil user, has been urging Russia to build its first direct pipeline to China as Asian nations seek to reduce their dependence on Middle Eastern oil. Russia has said it favors a competing pipeline to the Pacific coast that is backed by Japan. CNPC and KazMunaiGaz, who have agreed to build a 1,300-kilometer pipeline from Atasu, in central Kazakhstan, to the Chinese border town of Alashankou, are now developing plans to extend that link beyond Dashanzi in Xinjiang, a province in western China, said Kazakh Foreign Minister Kasymzhomart Tokayev. Landlocked Kazakhstan, which plans to triple oil production to about 3 million barrels per day by 2015, is seeking new routes to take crude to international markets. Russia probably became the world's biggest oil producer this year, overtaking Saudi Arabia, which restrains output to bolster international prices. Yukos, Russia's biggest oil exporter, is increasing rail deliveries to China after Russia stalled plans to build an oil pipeline to China from Siberia. The company's project to build a $2.8 billion link to Daqing faces competition from a counteroffer by Japan to help fund a pipeline from Siberia to the Pacific port of Nakhodka. Pipeline monopoly Transneft, which backs the Nakhodka plan, says it needs more time to study pipeline routes in Siberia. The Nakhodka link may cost $10 billion, the Financial Times reported last month. The future Kazakhstan-China pipeline will be connected to Transneft's network in eastern Kazakhstan by connecting it with a pipeline from Karaganda, Kazakhstan, to the Omsk refinery in western Siberia, the Russian pipeline operator said on its Web site. The companies may need to invest $700 million to build the stretch inside Kazakhstan, Interfax reported, citing Murat Buldekbayev, a Kazakh government spokesman. Construction may start this year and would take two years to complete. The pipeline may be expanded later to 1 million bpd, Kairgeldy Kabyldin, the managing director for transport and infrastructure at KazMunaiGaz, said last October. (The Moscow Times 23.iv.04) LITHUANIA FORMER PRESIDENT VALDAS ADAMKUS ANNOUNCES INTENTION TO RUN FOR HEAD OF STATE After months of personal reflection, former President Valdas Adamkus has announced his intention to run in the early elections called to fill the vacancy left by impeached head of state Rolandas Paksas. Adamkus, 77, said he made his decision based on a desire to act "in the interest of Lithuania" and pledged to remain a non-partisan candidate. Although he had previously said he would not run, shortly after the April 6 removal of Paksas, Adamkus, who served as president from 1998 until 2003, said he would "have no choice but to run" if Paksas entered the race. Paksas, who defeated Adamkus for the presidency in January 2003, declared his candidacy on April 19 despite having just been impeached. The first round of presidential elections will be held on June 13. (NewsBase 30.iv.04) POLAND NEW TREASURY MINISTER MAINTAINS HIS STANCE ON ROLE OF BOURSE IN PRIVATIZATION Jacek Socha, the current Treasury Minister and previously the chairman of Securities and Stock Exchange Commission (KPWiG), has not changed his earlier tack of calling for the acceleration of the privatization processes through the use of the stock exchange. "Privatization has to be carried out in a clear and transparent way," he says, adding that privatization through the bourse is, in his opinion, one of the key elements of the capital market and economic transformation. He did not reveal the details of the projects that will soon come up for his scrutiny, but stressed that he would tackle, among other issues, the thorny issue of the Czestochowa steel mill's privatization. "The dynamics of the government will be revealed after we get through the vote of confidence," announced Dariusz Jadowski, a spokesperson for the government. (WBJ 05.v.04) WILL BELKA'S GOVERNMENT SECURE PARLIAMENTARY SUPPORT? On Sunday, May 2, President Aleksander Kwasniewski accepted the resignation of Leszek Miller's government. At 2.30 pm Marek Belka was formally appointed by the president as prime minister designate, and by 4 pm Belka revealed his cabinet line up. One of Belka's first decisions was to divide the Ministry of Labor, Economy and Social Policy, through the creation of a new Ministry of Social Policy. Belka's cabinet does not contain any real surprises, and seven ministers have stayed on from Miller's government. The key ministers are as follows: Deputy PM Izabela Jaruga-Nowacka (UP), Foreign Minister Wlodzimierz Cimoszewicz (SLD), Defense Minister Jerzy Szmajdzinski, Finance Minister Andrzej Raczko, Ireneusz Fafara as Health Minister and Jacek Socha as Treasury Minister. However, all the daily papers question if Belka's this team will secure a Parliamentary vote of confidence scheduled for Friday, May 14. (WBJ 04.v.04) PKO PROMISES TO ISSUE PRIVATIZATION PROSPECTUS PRESENTLY The management of PKO BP promised that it would present a share issue prospectus within three months, while the privatization of the bank will probably take place in Q4 2004. "I believe that a realistic deadline for submitting a prospectus to the Securities and Stock Exchange Commission (KPWiG) would be July this year," said Andrzej Podsiadlo, PKO BP's president. He also added that the bank would pay out dividends once it has been privatized as the institution was planning to further improve its results. PKO BP's net profit amounted to zl.408 million in Q1 2004 and was over 23% higher than for the same period of the previous year. The bank plans to carry out various investments before being privatized, including the takeover of Kredyt Bank's Ukrainian operation. "We are also looking for other targets in the region," Podsiadlo revealed. (WBJ 23.iv.04) ROMANIA ROMANIAN PREMIER PROMISES HIGHER WAGES AND PENSIONS Speaking in the southern Romanian city of Pitesti, Romanian Prime Minister and ruling Social Democratic Party (PSD) Chairman Nastase said on 1 May that the PSD's four-year program provides for higher salaries and pensions, subsidies for pupils to continue their studies, and the modernization of the country's health-care system, Mediafax reported. He claimed that a consolidated business environment could lead to a doubling of the average wage within four years. Nastase added that his party is pushing for an increase in pensions, such as a doubling of the lowest pensions and a 50 percent rise in mid-level ones. Nastase is widely expected to run for president in the elections in November, but has not yet announced his candidacy. (RFE/RL 03.v.04) ROMANIA'S ANTICORRUPTION BODY CHARGES LEGISLATOR The National Anticorruption Prosecution (PNA) announced on 22 April that it is charging ruling Social Democratic Party (PSD) Senator Vasile Duta with accepting bribes to have charges against a businessman dropped, Reuters reported. The PNA said Duta asked for $10,000 to intervene on the businessman's behalf and received $3,000 from him. Duta told Reuters, "It looks like a scapegoat was needed and one had to be found," asking rhetorically whether it is he who is responsible for Romania's large-scale corruption. If found guilty, Duta faces a prison term of between two and 10 years. (RFE/RL 23.iv.04) RUSSIA FOREIGN MINISTER RULES OUT SENDING TROOPS TO IRAQ Sergei Lavrov, who is in New York for a meeting of the so-called quartet to discuss the situation in the Middle East, said on 4 May that there is no draft UN Security Council resolution on Iraq under discussion and that the dispatch of "Russian troops to Iraq is out of the question in the present situation." Lavrov said that the most important thing at this stage is the formation of a legitimate government in Baghdad that will be recognized by Iraq's neighbors and by the international community. "This must be done on a transparent basis," he added. UN Secretary-General Kofi Annan on 3 May called on Russia, France, Germany, and other countries to contribute troops to the U.S.-led international coalition currently occupying Iraq. Meanwhile, Deputy Foreign Minister Yurii Fedotov on 5 May said that the UN Commission for Human Rights should investigate recent allegations that coalition forces abused Iraqi prisoners, Western and Russian media reported. The commission has been critical in the past of Russian human rights abuses in Chechnya. (RFE/RL 05.v.04) FAVOR FOR LUKOIL CRITICIZED Local fuel industry operators this week filed complaints in the City Prosecutor's Office and the local anti-monopoly committee, asking City Hall to be stopped from handing over 60 sites for new gas stations to LUKoil, which allegedly financed Governor Valentina Matviyenko's election campaign last year. City Hall denies that Matviyenko received money from the oil giant. The gas-station sites are to be allocated to LUKoil without any tenders, said representatives of the city's Oil Club, which represents gas station operators. Not holding tenders is in violation of the Land Code and would break a promise Matviyenko made at the end of last year, the club said. "All the architectural plans we made to develop sites that were scheduled to be offered at open auctions were taken off us a few days ago and, as we recently found out to our outrage, most of them are going to LUKoil," club president Oleg Ashikhmin said Wednesday in a telephone interview. "City Hall has an incentive to give them to LUKoil because it says it will invest $300,000 in infrastructure development of each of the 60 sites within the next four years," Ashikhmin said. "But if the plots were put up for auction, they would have been bought by St. Petersburg companies that had plans to construct gas stations within the next four or five months; they would start paying taxes to the city in just five months," Ashikhmin said. Matviyenko and LUKoil president Vagit Alekperov last week signed an agreement that the oil company will invest up to $100 million in the local fuel market development until 2007, and spend another $30 million renovating the Stieglitz Palace at 68 Angliiskaya Naberezhnaya. Legislative Assembly lawmaker Alexei Kovalyov, a member of the Union of Right Forces faction, said last week that Matviyenko's declaration that some palaces could be privatized was influenced by LUKoil seeking to own the grandiose palace. The city has 260 gas stations with the St. Petersburg Fuel Co. having 29 percent of the market, Faeton has 14 percent of gas stations, Neste St. Petersburg and Slavneft have 10 percent each and LUKoil has 9 percent, according to the local industry. The remaining gas stations are operated by small fuel companies. National media reported this week that City Hall plans in the near future to hand over 250 sites to federal fuel companies such as LUKoil, Sibneft and Tatneft. Matviyenko also made offers to Sibneft and Tatneft, companies that have a vertical structure of management which is subordinate to the Kremlin, Melnikova added. "The interesting thing is that small operators, which receive their suppliers from such big companies, support the City Hall's policy, saying they would also accept such offers if only the city government was not violating the law by making them. LUKoil has pledged to pay 900 million rubles ($31 million) to the city budget in 2004 and up to 7 billion rubles ($241 million) in 2007 if the oil business goes well, the agreement says. In addition, the oil operator has promised to invest $1 million in social programs in the city in the next three years. Vice Governor Mikhail Oseyevsky has promised that City Hall will not abandon auctioning construction sites for gas stations for small fuel companies. Such companies will have a chance to compete for 28 sites that are going to be put up for auction by the end of May, he said. Izvestia wrote Tuesday that LUKoil's expansion on the local market will push up the price of sites for gas stations in the city. The average price could go up from last year's $400,000 to $600,000, the paper said. But the Oil Club says LUKoil will face problems realizing its plans. Melnikova said the Oil Club should not expect any significant moves from the local anti-monopoly committee because it is closely linked to the city government. (The St. Petersburg Times 30.iv.04) STOCKS PLUNGE ON UES FEARS, POTANIN RUMORS The market suffered its steepest decline since the October arrest of Mikhail Khodorkovsky on Thursday after the government moved to renationalize Russia's largest hydro plant and rumors spread that an arrest warrant had been issued for businessman Vladimir Potanin. Spooked investors traded more than $600 million in stocks on the dollar-denominated RTS and the more liquid MICEX, driving both bourses' indices down more than 5 percent. Prosecutors denied widespread rumors that they either had arrested or intended to arrest Potanin, but that did not stop the decline of his metals giant, Norilsk Nickel, which closed down 10 percent. Ekho Moskvy radio reported late Thursday that the billionaire had indeed been called in for questioning Wednesday before flying to Israel to watch his basketball team play, but the company denied the report. The sell-off began Wednesday evening after news broke that the government plans to reclaim the Sayano-Shushensk dam from national power grid Unified Energy Systems. UES shares fell 9 percent on the day. Adding to the onslaught was a government announcement that shareholders in the electricity monopoly will not, as promised, receive pro-rata stakes in the new generating companies that are to be spun off in the revamp of the energy giant, according to Interfax. The Potanin rumor may not have been the reason for the sell-off, but it certainly did not help, market players said. Other factors blamed for the decline included an expected interest rate hike in the United States, which generally lures money from emerging markets, falling global commodity prices and Russian investors cashing out to pay taxes, said Sam Barden, head of equity sales at Trust investment bank. Wider renationalization fears triggered by the UES development, however, may continue to haunt the market. UES owns 79 percent of the Sayano-Shushensk dam, which sells most of its electricity to one client -- metals giant Russian Aluminum. Deputy Prime Minister Alexander Zhukov's order to take back control of the plant came after the East Siberian Federal Arbitration Court ruled its privatization in 1992 was illegal. The suit was filed by the administration of the republic of Khakasia, where the facility is located, after UES raised energy prices last year. Under the terms of the privatization, it had agreed to charge what amounted to the lowest rates in the country for 10 years. Sayano-Shushensk accounts for an estimated 5.5 percent of UES's total generating capacity. State-controlled UES said it would appeal the Siberian court's decision, and although most analysts expect it to win, it is the government's clumsiness that has irked investors the most. "As usual, the government's handling of this case is shockingly poor and the market is bound to suffer consequences," UFG said in a note to clients. "The federal government controls the station through UES, so it has no reason to nationalize it," said Andrei Zubkov, energy analyst and vice president of Trust, adding that the government's response to the court decision had been "poorly thought out." Zubkov said it was likely that officials in Khakasia, which relies on a RusAl subsidiary for most of its budget revenues, may have been acting on behalf of RusAl's holding company, Basic Element, which is thought to own 10 percent of Sayano-Shushensk. (The Moscow Times 30.iv.04) STATE MOVES TO SEIZE SIBERIAN HYDROELECTRIC PLANT The government has ordered the seizure of the Sayano-Shushenskaya Hydroelectric-Power Plant in Eastern Siberia, Reuters reported on 28 April. The dam and power plant, which are located in the Republic of Khakasia, were transferred to the control of Unified Energy Systems (EES) in 1993, but that deal was overturned earlier this year by a regional court following a complaint from Khakasia President Aleksei Lebedev. Deputy Prime Minister Aleksandr Zhukov on 23 April ordered Economic Development and Trade Minister German Gref to implement that court decision immediately. Seventy-five percent of the huge complex's electricity is used to power a massive Rusal aluminum smelter. "This is the beginning of de-privatization," an unnamed EES source told the news agency. EES is planning to appeal the Siberian court's decision. (RFE/RL 29.iv.04) PUTIN CALLS FOR CONTINUED STATE CONTROL OF PIPELINES Russian President Vladimir Putin has spoken put against ending state control of pipeline transportation. "At the moment I consider that there are no grounds for the state to give up its control over pipeline transportation. But this does not hinder private investment, which will be welcomed," Putin said in Salekhard on Thursday. "How to resolve the issues of ownership and management [of pipeline transport] - this is another problem, but it is solvable," the president said. The president said that "private investment is possible with continued state control and state ownership of pipeline transport, given that private investment is possible if business is interested in this." "If so desired, this interest may be created," the president said. The president said that the state currently owns a controlling stake in Transneft. As regards gas pipelines, the president said that Gazprom currently has the monopoly here. Putin said "Gazprom is a joint stock company, with foreign participation, and not a wholly state owned company." (Interfax 29.iv.04) EU STEEL QUOTAS TO BE INCREASED Quotas to supply steel to the European Union in 2004 will be increased by 438,000 tonnes, Maxim Medvedkov, head of the trade negotiations department at the Economic Development and Trade Ministry, said. Medvedkov was commenting on the signing of a joint declaration on EU enlargement and Russian relations with the EU in Luxembourg on Tuesday. Medvedkov said that the quota increase was calculated based "on the historical principle of supplies to the 10 countries joining the EU, plus a slight premium." He also said that in 2005 the quota for supplying steel to the EU "will not be lower than in 2004." Medvedkov said that the current quota agreement for supplies of Russian steel to the EU involves exprots this year of about 1.2 million tonnes. (Interfax 28.iv.04) DUMA UPS OIL TAXES SHARPLY The State Duma passed new oil taxes Friday that will boost revenues when crude prices are high and will dent oil company earnings already this year. The new export duties, set to take effect in August, will work on a sliding scale that hands the state the lion's share of any gains in the oil price over $25 per barrel. Russia's main export crude, Urals blend, now fetches some $30 per barrel. At that price, companies would pay $7.25 per barrel in export duties, compared to $2 previously. Add an increase in the oil extraction tax taking effect from Jan. 1 and other changes, and the budget would be ahead by $3.3 billion per year if oil prices stay where they are now. The bill's rapid passage, with 395 votes for and just 12 against in all three required readings, surprised some analysts who had expected the tax hikes to take effect later, and led them to downgrade forecasts of oil company earnings this year. Earnings forecasts for 2004 would have to be cut by 4 percent for LUKoil, 3 percent to 3.5 percent for Yukos, 3 percent to 4 percent for TNK-BP, 3 percent for Sibneft and 4 percent for Surgut, he said. The tax hikes demonstrate the strength of President Vladimir Putin, who won re-election by a landslide in March and can count on a loyal parliament to rubber-stamp key policy initiatives. Increased receipts from Russia's vast oil industry will help Putin finance planned cuts in payroll taxes aimed at creating jobs outside the resources sector and doubling the size of the economy within a decade. Roland Nash, an analyst at Renaissance Capital, said the tax hikes would not, however, take the gloss off high oil prices and new reserves recently reported by Russian majors. But with oil companies under close scrutiny over their past use of tax optimization schemes, Nash said the higher tax bill may not be the last word. Yukos is fighting a $3.5 billion bill for back taxes, while its main shareholder Mikhail Khodorkovsky languishes in jail awaiting trial on tax evasion and fraud charges. Oil trade sources said the tax increases would have a mixed impact on exports: "The move will not affect quantities through [pipeline monopoly] Transneft, though the economics will of course worsen," a trader said. LUKoil, Russia's biggest oil producer, said the government should use some of the extra funds raised to improve the nation's state-run oil pipelines. Export pipeline capacity shortfalls are costing Russia about $5 billion per year in transport costs, which curb profit more than taxes, Fedun said. Producers have to ship crude by rail to bypass bottlenecks, which is more expensive than shipping oil through the pipeline network operated by Transneft. Russia's booming oil exports hit a new post-Soviet high of 8.95 million barrels per day in March. Of this, only 4.09 million bpd moved through Transneft, leaving an export capacity shortfall shippers have tried to plug by using railways. Russia's rail system carried a record 2.05 million bpd in 2003, mostly to key Black Sea ports for onward export by sea. The increase in the resource extraction tax, which takes effect on Jan. 1, 2005, could ruin the economics of producing for the home market, one industry executive warned. (The St. Petersburg Times 27.iv.04) PRIVATIZATION PLAN TO SAVE OLD PALACES More than 2,000 historical buildings in the center of St. Petersburg, including several dozen dilapidated palaces, will be privatized within the next few years, Governor Valentina Matviyenko says. Privatization is the only way to save the historical center because the state does not have the money to save the buildings, she added. Matviyenko ordered officials to draft a law that would allow the city to sell historical buildings. "Today it is impossible to renovate the architectural memorials without private investments," Vladimir Averchenko, head of the Federal Agency for Construction and Communal Services, said Tuesday. The first buildings scheduled for privatization after the law comes into force are on the Znamenka estate located on the Peterhof highway, 27 kilometers from the city center and currently occupied by a hotel and recreation area. Other sites due to be privatized first include the Kochubei Palace at Tsarskoye Selo, where a restaurant is located, and Fontany Dom, which houses the apartment-museum of Anna Akhmatova. The "most priceless monuments," including the State Hermitage Museum, the State Russian Museum, the Kunstkamera, St. Isaac's Cathedral, the Peterhof Museum and the Peter and Paul Fortress will remain state owned, Averchenko said. According to the city's architectural memorial protection committee, the plan is to sell historical buildings for only half their market value. New owners will be obliged to renovate the buildings and provide public access several times a year. Matviyenko will send her bill on privatization to the State Duma, which will have to amend existing legislation to allow buildings under federal jurisdiction to be privatized. A law that blocked the privatization of such buildings was passed in 2001 on the initiative of Moscow Mayor Yury Luzhkov and then St. Petersburg governor Vladimir Yakovlev, according to Legislative Assembly deputies. Maxim Kalinin, a partner at law firm Baker & McKenzie, welcomed Matviyenko's idea, but pointed out investors would face significant expenses renovating architectural monuments. Legislative Assembly lawmaker Alexei Kovalyov, a member of the Union of Right Forces faction, said it would have been better if Matviyenko used existing federal laws to save architectural monuments. Those laws allow tenants to have a rent holiday if they invest in renovations, he said. The Civil Code does not enable the authorities to have full control over the new owners' actions because it says privatization is irreversible, he said. Vagit Alekperov, head of LUKoil, confirmed his company's interest in a palace at 68 Angliiskaya Naberezhnaya during a ceremony Thursday to sign an agreement of cooperation with City Hall for 2004-2007. According to the agreement, LUKoil will invest $30 million over the next two years on renovation of the palace and a yard behind it. At the moment the company has a 49-year lease with City Hall to use the palace, which is known in the city as the home of Baron Stiglitz, a famous St. Petersburg trader who donated 1 million silver rubles to organize the Russian Painting Academy in 1876. Matviyenko said the renovations will begin after the amendments are introduced to federal legislation, in other words, after the palace is handed over to LUKoil ownership. (The St. Petersburg Times 23.iv.04) PRODI SAYS RUSSIA CAN JOIN WTO BY YEAR-END European Commission President Romano Prodi considers it realistic for Russia to joint the WTO by the end of 2004. Speaking at Moscow's Tretyakov Gallery on Friday, Prodi said work was continuing on achieving the realistic aims set at the EC- Russia summit in Rome. Russia's accession to the WTO is a top priority in EU-Russia economic relations and a priority for the WTO, Prodi said. How can the WTO carry the name of a world organization if Russia is not a member, he added. Some difficult unresolved issues remain between Russia and the EU in the context of WTO accession, but the political will exists to resolve these, Prodi said. (Interfax 23.iv.04) SERBIA AND MONTENEGRO SERBIA AND MONTENEGRO REGRETS NOT BEING EU CANDIDATE Vuk Draskovic, the foreign minister of Serbia and Montenegro, said in Belgrade on 1 May that EU enlargement is a "historic" development, but added that it is regrettable that the country has not yet entered the dynamic for EU accession, RFE/RL's South Slavic and Albanian Languages Service reported. In related news, Council of Europe Secretary-General Walter Schwimmer said in Podgorica on 1 May that it is too early for Serbia and Montenegro to think about EU membership. Reinhard Priebe, who is responsible for the western Balkans at the European Commission, said in Belgrade on 30 April that no time must be lost in carrying out structural reforms in Serbia and Montenegro that are necessary for integration in European institutions, Mina reported. (RFE/RL 03.v.04) PLJEVLJA COAL MINE TO ISSUE 12.7 MILLION SHARES Pljevlja coal mine in Montenegro is to issue 12.7m shares in an attempt to boost its capital to 72.7m euros from the current 21.4m euros, said Pljevlja senior official Velimir Janjic. According to Janjic, the management has decided that recapitalisation by a strategic partner is the only way to ensure much needed investment and revive the struggling mine. He recalled that 3.5k small shareholders own 69% of the coal mine, while the remaining 31% is held by the state. The official also hinted at the possibility of a merger with some of the firms operating as part of the Montenegrin national power utility Elektroprivreda Crne Gore. (NewsBase 26.iv.04) SLOVAKIA RWE ENERGY INTERESTED IN EXTENDING ITS 49% STAKE IN VSE ELECTRICITY RWE Energy of Germany, which has owned 49% of eastern Slovak electricity distributor VSE since 2003, is interested in more than the extra 2% stake that it's entitled to based on an option in the privatisation contracts. Slovakia's ruling parties agreed in December to complete the privatisation of several strategic companies, previously limited up to 49% by law. If the government proceeds with its plan to sell a further 39% stake in the case of VSE, the German investor will be bidding for as many shares as possible, according to Harry Roels, chairman of the Board of Directors in the mother company RWE AG. The remaining 10% should be reserved for sale on the stock exchange under the government's plan. Unlike in previous years, RWE does not envisage any giant projects worth billions of euro. However, Roels said the company was prepared to invest when it identifies wothwhile projects - for instance, in the water or gas markets. VSE distributes electricity of more than 4.5 TWh to 600,000 customers in eastern Slovakia, and has a market share of 22% in Slovakia as a whole. (NewsBase 29.iv.04) GASARPOVIC TROUNCES MECIAR IN FINAL ROUND OF PRESIDENTIAL VOTING Former speaker of the Slovak parliament Ivan Gasparovic sailed to a resounding victory over controversial former prime minister and head of the Movement for a Democratic Slovakia (HZDS), Vladimir Meciar, in the Slovakia's runoff presidential vote held on Saturday. Gasparovic defeated Meciar handily, winning 60 % of the vote, or 1.08 mln votes. Gasparovic swept the balloting in all eight of Slovakia's regions, according to election statistics, defeating Meciar even in his traditional strongholds in Trencin, West Slovakia and in the northern region of the country. Gasparovic's overwhelming victory came as something of a surprise to analysts, who had predicted a much tighter contest. While not a right-wing politician, right wing regions came out to support Gasparovic as the lesser of two evils, in order to ensure that Meciar was defeated. In the traditional right-wing voting center of the Bratislava region, Gasparovic took nearly 73 % of the vote. He also swept the Kosice region of eastern Slovakia with over 63 % of the vote and the Trnava region of western Slovakia with over 61 %. Slovakia's ruling coalition government expressed readiness to work with Gasparovic. Parliamentary chairman and leader of the Christian Democrats Pavol Hrusovsky described Gasparovic's victory as a final blow to the Meciar era. "This marks a final defeat of Meciar's policies. I think voters have sent a clear message to all politicians and parties that there is no will to collaborate with the leader of the Movement for a Democratic Slovakia," Hrusovksy told Slovak Television. Gasparovic will be officially sworn in to replace outgoing Slovak President Rudolf Schuster on June 15 of this year. (Interfax 23.iv.04) SLOVENIA ISTRABENZ ENERGETSKI SISTEMI ENERGY GROUP BUYS POWER VERTRIEBS Istrabenz Energetski Sistemi, a company that makes up part of the Istrabenz tourism and energy group, has acquired all of Austrian Power Vertriebs (APC) in a deal worth of 8.345 million euros. The company was purchased from the Austrian energy group Verbund and is Austria's second-biggest power distributor for large customers, boasting a 14% share on the Austrian market with 5,000 customers. Verbund had to sell its subsidiary in line with EU anti-trust legislation and has committed itself not to compete with APC. The deal still needs to be approved by the European Commission. Istrabenz energetski sistemi will take over APC on June 1st and projects revenues for APC of 165 million euros this year and annual revenues of 260 million euros by 2009. The APC purchase is part of the Istrabenz group's plans to become a major player in the electricity market of central and south-eastern Europe. (NewsBase 06.v.04) UKRAINE UKRAINIAN PRESIDENT SAYS COUNTRY'S PLACE IS IN EU Leonid Kuchma has congratulated the leaders of Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia on joining the EU, Interfax reported on 4 May, quoting the presidential press service. "Ukraine has always welcomed the process of EU enlargement as a logical and inseparable component of [the policy of] strengthening common European values [and] expanding the area of stability, security, prosperity, and democracy on the European continent," Kuchma said in a congratulatory telegram. "At the same time, we are convinced that the large-scale project named 'United Europe' that is being implemented today will not acquire a logical completion without Ukraine." (RFE/RL 05.v.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. Contact: Jon Laurijssen T: +44 (0)131 478 8537 F: +44 (0)131 478 7001 E: [email protected] W: www.newsbase.com, www.newsbaseworldmonitoring.com INTERFAX Interfax News Agency is part of Interfax Information Services Group. 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