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*Due Diligence, Business Intelligence, Asset Retrieval, Debt Recovery* TT Business Intelligence Report Vol. 2, No. 52, 07 August 2003 Business Intelligence, Crime, Corruption and Debt in C&E/SE Europe and the FSU UPCOMING CONFERENCES PISEC's "5th WORLD PRODUCT AND IMAGE SECURITY CONVENTION" This event will take place on 20-22 October 2003 at Marriott Prague Hotel, Prague, Czech Republic. For further information, please contact David Phillips, tel: +44 (0)20 8846 2706; fax: +44 020 8846 2801 email: [email protected]; W: www.pisec-europe.com WORLD REFINING ASSOCIATION'S "CENTRAL AND EASTERN EUROPEAN REFINING AND PETROCHEMICALS 6th ANNUAL ROUNDTABLE" This event (co-hosted with both SNP Petrom and The Rompetrol Group), will take place on 6-8 October 2003 at the Bucharest Marriott Grand Hotel, Bucharest, Romania. For further information, please contact Claire Pallen, tel: +44 (0)1242 529 090; fax: +44 (0)1242 529 060; email: [email protected]; W: www.wraconferences.com EUROMONEY'S "SOUTH EAST EUROPE: THE 3rd REGIONAL FINANCE & INVESTMENT CONFERENCE" This event will take place on 21-22 October 2003 at the Hotel Croatia, Dubrovnik, Croatia. For further information, please contact Susie Teuton, tel: +44 (0)20 7779 8366; fax: +44 (0)20 7779 8795; email:[email protected]; W: www.euromoneyconferences.com BELARUS BELARUSIAN PRESIDENT THROWS DOOR OPEN TO EXTENDED TENURE President Alyaksandr Lukashenka announced on 1 August he will consider extending his tenure if the opposition creates a threat of instability, Belapan reported. Lukashenka made the comment during a visit by about 70 journalists from 30 regions of Russia. Lukashenka described the Belarusian opposition as "dangerous people" who "are sharpening an axe" and deciding who among the current authorities "should be axed, who should be hanged, who should be caged." "Can I take it easy and be indifferent to the fates of the people that are with me [in power]?" he asked. The opposition has long argued that Lukashenka is paving the way to extending his tenure in office, despite a constitutional limit of two terms for presidents. Lukashenka said last year that he will consider a third term if Belarusians back him in a referendum. "If I think it possible to run in the next elections, [a referendum] will be an absolutely constitutional way," he stressed. Under the 1996 constitution adopted in a referendum that is widely believed to have been fraudulent, the country is ruled almost exclusively by presidential decree. (RFE/RL 04.viii.03) BOSNIA AND HERZEGOVINA ELEKTROPRIVREDA’S CONTRACT WITH DEBIS NOT TO BE ANNULLED In his address to the press on Friday in Mostar, BiH President Dragan Covic stated that the contract on electricity supply between Elektroprivreda BiH and the German company Debis will not be abolished. He turned to the information from the previous week that confirmed Elektroprivreda’s announcement to cancel its contract relations after both sides failed to agree on revising the price for the electricity sales after the devaluation of the US dollar. According to Covic, the contract’s termination could drive back foreign investors and on the other hand it causes damage to the Mostar-based Aluminij company, which Debis provides with electricity. He said that the state is in a position to use its mechanisms for obstructing the breach of an international agreement when the interests of a region or state in terms of life means are questioned. (IntelliNews 04.viii.03) BULGARIA KOC HOLDING PRESENTS DETAILS ON ITS BID FOR STATE TELECOM BTC Koc Holding held a press conference in Sofia yesterday presenting details on its bid for the state telecom BTC and aiming to improve its media campaign in the tender. Koc Holding participates in the privatisation tender for 65% of BTC in consortium with Turk Telekom. The company confirmed that it would seek US financing for the deal but participation of US investors in the consortium would be negotiated only in case of winning the tender. The consortium intends to finance the acquisition with its own resources and debt. These resources would account for some 45% of the total financing. Koc Holding also blamed the other contender Viva Venture for manipulating the public opinion with claims that the only possible decision for the supervisory board of the privatisation agency would be to confirm the draft contract with Viva Ventures. According to Koc Holding, the offer of Viva Ventures was not fully consistent with the sale strategy. The statement implies that the Turkish consortium would most likely appeal possible decisions in favour of Viva Ventures before the Supreme Administrative Court. (IntelliNews 06.viii.03) CROATIA EU ADVANCES $56.8M TO CROATIA FOR POST-WAR RECONSTRUCTION The European Investment Bank (EIB), the European Union's financing institution, is advancing a 50 million euro loan to Croatia, via the ministry of finance and the ministry of public works, reconstruction and construction (PWRC) to support post-war reconstruction in Croatia, the bank announced in a statement. The proposed Framework Loan is for the financing of small to medium-sized municipal infrastructure projects in Areas of Special State Concern, those areas in Croatia most devastated by the wars in the 1990's and amongst the poorest and least developed in the country. The operation is aimed at reversing the negative economic consequences of the recent conflicts, accelerating the return of the displaced population, stimulating demographic and economic progress, and ensuring a more balanced development of the ASSC when compared with the rest of the country. During the period 2003-05, the ministry's overall rehabilitation investment expenditure in the ASSC areas is expected to amount to some 450 million euros. (NewsBase 07.viii.03) LENAC EMPLOYEES TO INTENSIFY PROTEST IF WAGES ARE NOT PAID OUT The employees of the Viktor Lenac shipyard, who are on strike since last Friday, said they would take it to the streets of Rijeka on Aug 8, if due wages are not paid by then, the shipyard’s union leader Damir Bacinovic stated. According to Bacinovic, the only solution for this problem would be for the cabinet and the majority shareholder Giancarlo Zacchello to pay out the agreed sum of total USD 4.7mn and for subcontractors to release company bank accounts. Subcontractors froze the shipyard’s accounts some 10 days ago. The shipyard requires around USD 1.5mn for wages each month and the employees are currently on strike, because wages in May and June are still not paid out. The agreement between the cabinet, creditor banks, and major shareholders was to provide an additional USD 28.7mn to the shipyard, however the funds would most likely not be available till October. The shipyard would not be able to function till then, and the cabinet proposed additional agreement to the creditor banks, though so far there has been no reply to that proposal. (IntelliNews 06.viii.03) CZECH REPUBLIC PRESIDENT KLAUS ACCEPTS RESIGNATION OF JUSTICE MINISTER President Vaclav Klaus accepted the resignation of deputy PM and Justice Minister Pavel Rychetsky yesterday, the President’s office announced. Today, Klaus is to appoint Rychetsky as constitutional court judge and assign PM Spidla temporarily with some of the functions of Justice Minister until a successor is found. The search for successor has recently come back to the very start after South Bohemian lawyer Vladimir Papez has declined the offer of PM Spidla to assume the post after a massive media campaign against him. The press has attacked Papez for having caused a road accident under the influence of alcohol, and has even wrote that he allegedly visits brothels in Ceske Budejovice. Among the rumoured successors of Rychetsky are Education Minister Petra Buzkova, Chamber of Deputies deputy speaker Jitka Kupcova, Chamber of Deputies constitutional and legal committee deputy head Zdenek Koudella and the MP Stanislav Krecek. (IntelliNews 06.viii.03) INVESMART TO FILE ARBITRATION PROCEEDINGS AGAINST CZECH REPUBLIC Yesterday the majority stakeholder of bankrupt Union banka, Invesmart, announced that it will go ahead with two arbitration proceedings against the Czech Republic if it does not arrive at a settlement agreement with the Finance Ministry within six months. Invesmart claims that the Czech Republic did not abide by the investment protection agreement when it let Union banka go bankrupt and took away its license. The Finance Ministry does not yet know about the mentioned arbitration proceedings and is not aware that the Czech Republic failed to uphold the investment protection agreement. (PBJ 06.viii.03) CZECHS DO NOT HAVE TO APPROVE EUROPEAN CONSTITUTION Czechs do not have to approve the European Constitution in a referendum, Foreign Minister Cyril Svoboda said at a meeting with senators from the European integration committee on Thursday, Mlada fronta Dnes reported. He added that the EU Constitution would not affect the rights to such an extent that it demanded calling a referendum. Svoboda admitted that a possible rejection of the EU constitution in plebiscite would mean "fundamental complications." He also pointed to the high costs of a referendum. On the other hand, he stressed that he was not completely against the idea of referendum. The opposition Civic Democrats (ODS), who rather support the idea of a more looser EU, demand a referendum on the EU Constitution to be held. The ODS is now leading popularity polls well ahead of the senior ruling Social Democrats (CSSD). However, even Prime Minister Vladimir Spidla (CSSD chairman) admitted the possibility of calling a referendum on the EU Constitution. Senate European integration committee head Jiri Skalicky (Freedom Union-DEU) said that the EU Constitution should be approved by parliament. He pointed out that if it were approved in a referendum, plebiscites would have to be called in case of any future amendments to the EU Constitution as well. (NewsBase 04.viii.03) HUNGARY K&H LODGES FURTHER COMPLAINTS K&H Bank Rt has lodged further criminal complaints with the National Police (ORFK) in connection to a case of suspected money laundering at its brokerage arm, K&H Equities (Hungary) Rt, the bank said yesterday. Current evidence shows a likelihood that amounts missing from the accounts of the 60-70 clients were siphoned to off-shore companies by using false transfers and entry commissions as well as false securities purchase contracts. K&H Bank said it will continue to fully cooperate with the police. (BBJ 07.viii.03) VISEGRAD FOUR TO JOIN THE SCHENGEN TREATY AS SOON AS POSSIBLE The Czech and Hungarian interior ministers want to consider opening the question of the Visegrad Four joining the Schengen Treaty as soon as possible, Hungarian Interior Minister Monika Lamperth said after her meeting with her Czech counterpart Stanislav Gross on Thursday. Gross was on a one-day official visit to Hungary. The Visegrad Four is made up of the Czech Republic, Hungary, Poland and Slovakia. The Schengen Treaty signed in 1985 sets the conditions for the free movement of people in 13 of the current 15 EU member states. All of the Visegrad countries are set to join the EU in May of 2004. Both states will do everything possible to become members of the Schengen Treaty in 2006 or by January 1st, 2007 at the latest, Lamperth said according to Magyar Hirlap. Gross said that the Visegrad Four need to work together to convince the European Union to allow for the fastest accession to the Schengen Treat which would mean easier crossing of borders. Lamperth also said that she and Gross agreed to work together in the fight against terrorism, organised crime and the drug trade. She also said that both sides agreed to strengthen police co-operation, operations in limiting illegal migration, in crisis management and on the local level. (NewsBase 04.viii.03) ELECTROLUX TO BUILD NEW PLANT IN HUNGARY The board of the Electrolux group, a multinational producer of electrical appliances, decided last Wednesday to build a new refrigerator factory in Nyíregyháza, eastern Hungary, investing €65 million. The building of the new factory will begin in January 2004. Production is expected to start a year later in early 2005. The factory will employ 600 people and produce 560,000 refrigerators with built-in freezers annually. The new capacity will complement Electrolux’s facility in Jászberény, eastern Hungary, where the group already produces four million refrigerators, freezers and vacuum cleaners annually. The refrigerators produced in the new facility will be exported to Western and Eastern Europe, including Russia and Ukraine. The new investment is part of the group’s strategy to grow production in Eastern Europe, according to Wolfgang König, CEO of Electrolux Home Products Europe, the company responsible for the group’s household appliance production and sales in Europe. "Our experiences with Hungarian production are positive. We are satisfied with the quality of the workforce, and conditions are favorable in terms of expenses, quality and suppliers," he said. The Electrolux group is the world’s largest producer of kitchen, bathroom, cleaner and outdoor appliances. The new factory will make Hungary its largest base for refrigerator and freezer production in Europe. The Electrolux group sells 55 million products in 150 countries annually. In 2002 it had revenue of 133.2 billion Swedish kronor (€14.3 billion) and employed 82,000 people worldwide. The company owns such well-known brands as AEG, Zanussi, Frigidaire, Eureka and Husquvarna. (BBJ 04.viii.03) KAZAKHSTAN BANKTURANALEM NAMED BEST STATE SECURITIES TRADER BankTuranAlem has been named the best state securities trader in Jan-Jul with a 14% share, KASE informed. Some 35 participants, including banks, dealers pension funds and non-banking financial organisations, were evaluated on the basis of their share in total sold and purchased volume of state securities. ATF Bank followed suit with a 12% share. Eurasian Bank came in third with an 8% share. State Pension Fund and RG Securities were next with a 7% share each. Nurbank and ABN AMRO Kazakhstan had approx. 5% share each. The state securities transaction volume stood at USD 1bn in Jan-Jul, or hiking by 38% y/y. In year 2002 it totalled USD 1.9bn. In July alone the state securities transactions grew 1.6 times m/m or 2.4 times y/y up to USD 174mn and comprising 6% of total KASE transaction volume. (IntelliNews 06.viii.03) KAZAKH HEALTH MINISTRY DENIES ZHAQIYANOV HAS TUBERCULOSIS Kazakhstan's Health Ministry has denied that imprisoned opposition leader and former Pavlodar Oblast Governor Galymzhan Zhaqiyanov has contracted tuberculosis in prison, Interfax-Kazakhstan reported on 1 August. Zhaqiyanov's lawyer and his wife have told journalists that he has exhibited symptoms of the lung disease, and the story has spread through the international human rights community. A Health Ministry official identified as Dusenbai Dzhanabaev was quoted as telling a news briefing in Astana that Zhaqiyanov's most recent chest X-ray, taken on 30 June, showed no sign of tuberculosis. Zhaqiyanov was sentenced in 2002 to seven years in prison for alleged abuse of office in Pavlodar. He was a co-founder of the opposition Democratic Choice of Kazakhstan movement in 2001. (RFE/RL 04.viii.03) LATVIA LESS THAN HALF OF LATVIANS SUPPORT EU MEMBERSHIP Released by pollster Latvijas Fakti on 30 July, the opinion survey poll showed a drop in support for EU membership to 49.6 percent, compared with 57 percent in June. Opposition to membership gained substantially, rising from 24 percent to 34 percent. Some politicians and observers blame the lack of enthusiasm for the EU on a simplistic and one-sided information campaign. Similar complaints from both pro- and anti-EU groups have been heard throughout the region this year. Political analyst Artis Pabriks said that Latvians' support for membership has always fluctuated. The head of the information drive, former Culture Minister Ramona Umblija, said there were no grounds for alarm, as the most intensive phase of the campaign was yet to begin. According to Latvia's unusual referendum law, the vote could succeed or fail on the opinion of less than 14 percent of the electorate. The amended constitution, approved by parliament in May, states that in order for a referendum to be valid, the total number of voters casting ballots must be at least half the number that took part in the previous election. Because 995,085 of the electorate of 1,797,487 took part in the last parliamentary election, just 497,543 voters will need to cast ballots on 20 September to validate the referendum. The outcome will be decided by a simple majority. Maris Riekstins, state secretary in the Foreign Ministry, told the BNS news agency on 31 July that the negative attitude toward the EU may reflect dissatisfaction with the government's spending priorities. While membership in both the EU and NATO has remained at the top of budgetary agendas, spending on social issues has fallen. Ahead of their 14 September referendum, some 41 percent of Estonians opposed EU membership, while 53 percent were in favor, according to a July poll, Interfax reported. A deeper analysis of opinion on integration was given in an article by Janis Skapars, a former member of parliament, in the Diena newspaper on 31 July, where he argued that Latvians' views on the EU are strongly shaped by the nation's dramatic, often tragic, historical turning points: "It has been a relatively short period since Latvia regained independence, and part of the population worries that joining EU may be another loss of independence." (TOL 04.viii.03) LITHUANIA SEVEN LITHUANIAN DIPLOMATS OUSTED IN CROOKED VISA SCHEME New allegations of corruption in the consular service could slow Lithuania's full integration into the European community. The suspicions came into the open recently when the Foreign Ministry demanded the resignations of six consular officials and the head of the ministry's consular department, Gediminas Siaudvytis. Foreign minister Antanas Valionis said the seven were suspected of "collaboration with so-called tourism companies"--which was taken to mean that they accepted bribes in return for issuing visas. Two of the six consular officials worked in Belarus and four in Russia, where one was consul in Sovetsk, a city in the Kaliningrad exclave just over the Lithuanian border. The consulate there, Lithuania's second in the exclave, opened in June to help process visa requests from Russians traveling between Kaliningrad and Russia proper under a new travel regime that went into effect on 1 July. The investigation was initiated by the State Security Department (VSD). No details have been disclosed on grounds of protecting state secrets, a situation that roused the ire of some parliamentarians. Some Liberal Democrats blamed Valionis for protecting the disgraced diplomats from legal proceedings, and Conservatives were disappointed that they were allowed to resign and thus were not barred from future diplomatic jobs. Valionis assured the critics that the seven would not be able to work in the sector again. The foreign minister told the daily Lietuvos rytas that the scandal was a great shock for the entire diplomatic service. Although it is not known whether the state will seek to bring criminal charges, Valionis suggested in a 30 July press release that some of the visa-booking firms involved in the scandal "might have problems." Independent Baltic analyst and former Central Europe Review writer on Baltic affairs Mel Huang said the bribery affair could seriously delay Lithuanian efforts to join the Schengen group when it becomes a full European Union member next May. The Schengen agreement abolished border checkpoints and controls between member countries. Membership of the group has a major impact on a country's trade, immigration policy, and border-control efforts. The Foreign Ministry says it will try to reduce the scope for corruption by changing the visa regimes with neighboring countries so that long-term visas can be issued only by consulates, rather than by private firms, as is now the case. For many Lithuanians, though, already surfeited with a string of scandals in recent months, the affair of the crooked consuls--on top of last month's firing of four allegedly corrupt judges and reports that a nonexistent firm won SAPARD rural development money from the EU--may be one scandal too many. (TOL 04.viii.03) POLAND PARKIET MEDIA SHARE ISSUE MAY BE TAKEN OVER BY TP INTERNET The 5.5-6.6 million share issue being planned by the publisher of Parkiet daily, Parkiet Media (PM), will probably be taken over by TP Internet, its current major shareholder. TP Internet has an option of selling the firm over the next two years to concentrate on IT services. TP Internet's spokesperson, Radosław Żuk, confirmed rumors that the firm is negotiating the sale of an 82.76% stake in Parkiet Media, with several potential investors. He added that finding an investor was not an easy task and during this period TP Internet would continue investing in PM. PM's president, Grzegorz Haftarczyk, told Rzeczpospolita daily that the majority of financial resources generated from the issue would be earmarked for loan conversion. The remaining sum would support the financing of marketing projects aimed at upgrading the position of Parkiet. (WBJ 05.viii.03) POLISH SOURCE LEAKS PRIVATIZATION PLANS Polish privatization should yield around 9.2 billion zlotys ($2.4 billion) in 2004, according to a copy of a report circulating within the government and obtained by PAP, the news agency reported on 1 August. In the report, "Privatization Directions in 2004," around 7 billion zlotys in privatization revenues are earmarked to finance the budget deficit, PAP reported. The Treasury Ministry intends to sell around 100 companies in 2004, according to a government source who is also quoted as saying the government has not yet determined which enterprises' shares will be put on the selling block. "It may be [state-run insurance company] PZU, [savings bank] PKO BP, or the power sector," the same source said. Treasury Minister Piotr Czyzewski has already announced that a 20 percent-25 percent stake in PKO BP will be sold in a public tender. (RFE/RL 04.viii.03) POLAND AND UKRAINE SIGN AGREEMENT FOR OIL PIPELINE Ukraine and Poland finally signed an agreement to complete an oil pipeline from the Ukrainian border town of Brody to the Polish city of Plock, located near the Baltic Sea, according to a report in the Ukrainian Weekly newspaper. The agreement comes after extensive discussion and debate across Europe, as well as in Russia and central Asia regarding the financial viability of an oil transport corridor from the Caspian Sea to the Baltic. The United States gave new impetus and perhaps the last-needed push for the project when its ambassador to Ukraine, Carlos Pascual, noted at the beginning of July that an oil pipeline from the Caspian Sea to Central Europe would not only help Ukraine but would be a positive development for the global need for diversified sources of oil. A report by a major international accounting firm at the end of spring, in which it reported that the oil pipeline through Ukraine could be economically viable, also helped move the project along, as did official support from the European Union. Developers and the governments of both countries hope that the pipeline will be the final link in an oil transport corridor that will take oil from the Caspian Sea through Russia, Ukraine and Poland via pipeline and eventually to central and western Europe via the Baltic Sea. (NewsBase 03.viii.03) ROMANIA BUCHAREST MAYOR INDICTED The National Anticorruption Prosecution (PNA) indicted Bucharest Mayor Traian Basescu on 1 August on charges of abuse of power related to the sale of 16 state-owned ships when he was transportation minister in 1992. Basescu has denied any wrongdoing and continues to call the charges "politically motivated." He said the indictment is an attempt to conceal the illegalities committed between 1993-96 by the ruling Social Democratic Party itself. Mediafax cited Basescu as saying it is "regrettable" that President Ion Iliescu and Premier Nastase are using the PNA as an instrument to wage a political struggle against their adversaries. Two other former transportation ministers, Aurel Novac and Paul Teodoru, are also being investigating on suspicion of illegally selling Romania's state-owned maritime fleet. (RFE/RL 04.viii.03) RUSSIA YUKOS FLOUTS RAID, VOWS HUGE PAYOUT Yukos brushed off a new police raid at the offices of a key affiliate on Wednesday and pledged to pay its investors huge dividends after it buys smaller Sibneft. Yukos said its core shareholders, led by Russia's richest man Mikhail Khodorkovsky, had agreed with Sibneft's investors that the combined firm would spend at least 40 percent of its annual profit in dividends. The announcement came as authorities on Wednesday again broadened their probe of Yukos by searching the offices of a computer firm that works with the oil giant on information technology projects. Yukos' press office said that authorities were combing through the Moscow offices of its sister company Sibintek, which develops software and programs for Yukos. Sibintek was spun off from Yukos in 1999 and is controlled by Group Menatep, Yukos' holding company. Armed men clad in combat fatigues took position outside Sibintek's offices as the search went on, Interfax reported. The Prosecutor General's Office and other law enforcement agencies made no immediate comment on the search. Yukos spokesman Alexander Shadrin said the company could not comment on the reasons for the search, saying only that it was "another direct attack on the company." The software maker, known by its Russian acronym Sibintek, is 51 percent owned by Group Menatep, which holds 61 percent of Yukos. The raid came the same day a Moscow court rejected Yukos' lawsuit against prosecutors who searched the company's offices last month. Yukos claimed prosecutors broke the law while carrying out the searches, but the court ruled that it was done within the law, Interfax reported. The investigation into Yukos began July 2 with the arrest of one of Yukos' top shareholders, Platon Lebedev, who was charged with defrauding the state in a 1994 privatization deal and tax evasion. That was followed by a search of Yukos' archives and a criminal investigation into several murder and attempted murder cases of officials and businessmen who had conflicts with Yukos. Rumors that a planned gigantic payout was in the offing pushed Yukos shares up 5 percent on Tuesday. They rose slightly on Wednesday. Yukos is due to acquire Sibneft, led by billionaire and English soccer club owner Roman Abramovich, by the end of 2003 in a complex cash and equity deal worth $12 billion to $15 billion. Half of the new firm will belong to Khodorkovsky's team, the blocking 25-percent stake will be held by Abramovich's team with the remaining 25 percent being freely traded. Yukos and Sibneft said Wednesday that they were fully committed to close the deal soon and the dividend decision was another step forward despite Yukos' current problems. The statement said an annual dividend exceeding $2.2 billion should be approved at a special core shareholders meeting. (The Moscow Times 07.viii.03) ALFA-GROUP BUYS 25.1% IN ANOTHER MOBILE MAJOR MEGAFON Alfa-group bought holding company LV Finance, the owner of a 25.1% stake in telecom major MegaFon. Experts say the price of MegaFon’s stake alone reaches about USD 250mn. Thus, having accomplished the TNK-BP feat, Alfa-group’s owner Fridman now controls blocking stakes in Russia’s 2nd and 3rd largest mobile operators Vimpelcom and MegaFon. Local analysts say the acquisition would lead to serious changes on the domestic telecom market. Alfa-group might try to merge Vimpelcom and MegaFon, to create a major rival to Russia’s largest mobile carrier MTS. The latter now has more than 12mn clients in Russia, the Ukraine and Belarus. Vimpelcom has 8.5mn clients, while MegaFon boasts over 4mn users. (IntelliNews 06.viii.03) FIGHTER JET DEAL INCLUDES COSMONAUT A $900 million deal for Malaysia to buy new warplanes from Russia includes a plan to put a Malaysian cosmonaut into space in 2005, Malaysia's defense minister said Tuesday. Under the agreement -- which was due to be signed by President Vladimir Putin and Malaysian Prime Minister Mahathir Mohamad on Tuesday -- Malaysia would pay cash for 18 Russian-built Sukhoi Su-30 fighters to be delivered in batches of six in 2006-07. Russia would in turn guarantee that about 60 percent of the cost would be offset by other benefits, including training a Malaysian cosmonaut, other technological concessions and signing contracts to buy more than 1 billion ringgit ($270 million) in palm oil, Defense Minister Najib Razak said. The two leaders were expected to sign a deal for 18 Sukhoi Su-30MKs, deliverable to Malaysia in 2006. Military experts say the Su-30MK will be the most powerful combat aircraft ever operated by a Southeast Asian country. The Su-30MK's air-to-air missiles outrange all enemies' and the aircraft has unusually powerful radar, experts say. Russia has sold similar versions to China and India, and a less advanced version to Vietnam. Indonesia is buying the aircraft, too. The Su-30MK is regarded as superior to Lockheed Martin's F-16s, operated by Singapore, Indonesia and Thailand. Putin said building trade ties with members of the 10-member Association of Southeast Asian Nations and within the Asia Pacific Economic Cooperation forum "contributes to the strengthening of peace and stability" globally.He said Russia firmly believed in an international framework to oversee global trade, and that obligations agreed to in forums such as the United Nations and the Group of Eight should be complied with. Putin's two-day visit to Malaysia is the first by a Russian leader in 35 years of bilateral relations, and follows a visit by Mahathir to Moscow in March 2002. (The Moscow Times 06.viii.03) PUTIN, BERLUSCONI DISCUSS RUSSIA'S INTEGRATION WITH EUROPE President Vladimir Putin met in the Kremlin on 29 July with Italian Prime Minister Silvio Berlusconi, whose country currently holds the rotating EU Presidency, Russian and international media reported. The talks reportedly covered a broad range of bilateral and Russia-EU issues, concentrating particularly on ways of successfully launching the Russia-EU Partnership Council, which was agreed to at a Russia-EU summit in St. Petersburg in May. Speaking to journalists following the talks, Berlusconi said the specific question of a timetable for Russia's accession to the EU was not discussed, but that he personally supports Russia's eventual membership of the union, as well as those of Turkey and Israel. He advocated the intensification of Russian-EU relations in all spheres and praised Putin's "pragmatic and workable approach," ITAR-TASS reported. Berlusconi also held out hope that Putin will meet with Pope John Paul II when he visits Rome in November. The latest talks were the fourth meeting between the two men in the last six months, "Nezavisimaya gazeta" reported. (RFE/RL 05.viii.03) INTERROS BUYS OUT SMOLENSKII BANKS Vladimir Potanin's Interros holding company announced in a 28 July press release that it paid $200 million for Aleksandr Smolenskii's banking business -- six banks with a total of 350 branches nationwide, a credit-card processing center, and an armored-car company. The core asset, the Mutual Credit Society (OVK) bank group, rose from the ashes of Smolenskii's SBS-Agro bank, which failed during the 1998 financial crisis in a spectacular miasma of bad debts and disgruntled customers. SBS-Agro came to symbolize the perilous fragility of Russia's pre-1998 financial system, and its successor never quite overcame the inherited stigma. Central Bank Deputy Chairman Andrei Kozlov told "Kommersant-Daily" of 29 July that the acquisition, the largest in the history of Russian banking, is the "beginning of a trend toward bank consolidation." Some analysts felt that the addition of OVK could catapult Interros's Rosbank, currently the country's ninth-largest bank in terms of assets and capital, into fifth place, "Vedomosti" reported on 29 July. The price tag also raised eyebrows. Troika Dialog's Andrei Ivanov told "The Moscow Times" of 29 July, "Interros paid a steep premium"; and "Gazeta" reported the same day that experts felt that Interros forked over double for a business it estimated in May to be worth $100 million. Taking a step back to evaluate the big picture, Mikhail Matovnikov, head of the banking department at Interfax Rating Agency, told "Finansovye izvestiya" that the acquisition made for a good match, with Interros needing a retail infrastructure and OVK having "an infrastructure and staff, but problems with a reputation that scared clients away." (RFE/RL 05.viii.03) MOSCOW CITY PROSECUTOR STEPS DOWN AMID SCANDAL IN HIS OFFICE Prosecutor-General Ustinov on 31 July accepted the resignation of Moscow City Prosecutor Mikhail Avdyukov, Interfax and other Russian media reported. Avdyukov has been named an adviser to Ustinov and will begin working in his office on 4 August, a spokeswoman for the Prosecutor-General's Office was quoted as saying. Also on 31 July, representatives of the Moscow Prosecutor's Office met with representatives of the Prosecutor-General's Office to discuss the results of an audit of the Moscow office that found legal violations and incompetence. According to the spokeswoman for the Prosecutor-General's Office, the audit found "massive" violations of the law, particularly concerning the registration of crime reports. "I can say that a definite system of the mass concealing of crimes was developed," the spokeswoman said, according to newsru.com on 31 July. The report also alleges that city prosecutors have done a poor job of overseeing the work of the Moscow police, "Izvestiya" reported on 31 July. Gazeta.ru reported that Avdyukov was asked to step down quietly in the spring, but refused to do so. (RFE/RL 05.viii.03) TAX MINISTRY TO PRESENT A BILL FOR LIQUIDATING INOPERATIVE ENTERPRISES By the end of the third quarter of 2003, the Russian Tax Ministry is to present the government with a bill on a simplified procedure for liquidating inoperative enterprises. The document establishes a procedure for liquidating enterprises that have no tax arrears to the budget and were registered before July 1, 2002, but will have not provided data about themselves for inclusion on the single state register of legal entities by July 1, 2004. Information about such entities will be published in the mass media. After that any interested party can open bankruptcy proceedings against the relevant entity. If no bankruptcy case is opened, an entity will be automatically liquidated within six months. (NewsBase 04.viii.03) FIGHTING RAGES NEAR SOUTHERN CHECHEN VILLAGE Fighting raged for hours in a Chechen town on Friday, and a total of 29 servicemen and Chechen police were killed in the region over a 48-hour period, an official in the Moscow-backed administration said. There were conflicting reports about fighting around the village of Dyshne-Vedeno in southern Chechnya. Itar-Tass, citing officials responsible for the military operation in Chechnya, reported that Russian and Chechen security forces had freed 23 residents of Dyshne-Vedeno and a neighboring village who were taken hostage by gunmen late Wednesday or early Thursday. The administration official, however, said rebels clashed with police in Dyshne-Vedeno early Thursday and occupied two houses on the outskirts of the village at one point during the fighting, which lasted several hours. The official, who spoke on condition of anonymity, said four rebels were killed and the rest fled. A clash between rebels and Chechen police late Thursday on the outskirts of Argun left two police dead and two wounded. Two servicemen also died, while three rebels were killed and one was detained, the official said. The town east of the capital Grozny was sealed off Friday, and federal forces were searching for rebels and sympathizers. In all, 19 servicemen and Chechen police officers were killed over the past 24 hours, the official said Friday. On Saturday, the official said 10 soldiers were killed and 15 were wounded in clashes with rebels and a mine explosion over the past 24 hours. Meanwhile, the Defense Ministry said Sunday that an Mi-24 military helicopter made an emergency landing a day earlier in the rugged Itum-Kale district of Chechnya. The crew was safely evacuated and no one was injured in the incident, the ministry said. The Defense Ministry blamed a technical malfunction. Local news agencies earlier reported that the helicopter crashed in the region near neighboring Georgia. Also Sunday, pro-Moscow Chechen leader Akhmad Kadyrov formally announced his intention to seek the post of president in Chechnya's fall vote. Kadyrov chose a meeting of several hundred Islamic leaders gathered in Chechnya's Gudermes region to formally announce his bid to run in the Oct. 5 contest, Interfax reported. Kadyrov said he will submit his official registration bid to the Chechen elections committee on Monday, Interfax said. He joins at least four other declared candidates. (The Moscow Times 04.viii.03) REVENUES FIVE TIMES MORE DEPENDENT ON WORLD OIL PRICES Russian budgetary revenues are currently five times more dependent on world oil prices than they were before the 1998 default, Goohoon Kwon, an IMF permanent representative to Russia has stated. The oil industry currently secures 80% of the overall budget revenue growth. A Russian economy investigation made by Kwon denies a wide-spread standpoint that Russia owes its success in recent years to the tax reform, political stability and economic growth. Kwon believes that a gradual increase of non- interest expenditures after the 1998 crisis is at the bottom of a growing Russian budget dependence on oil exports. If oil prices dropped to $12 per barrel in 2003 as they did before the 1998 crisis, the budget could miss R400 billion in revenues ($13 billion), or 3% of Russia's GDP, a sum nearly equal to foreign debt payments due in 2004. (NewsBase 03.viii.03) SERBIA / MONTENEGRO SERBIAN PM ZIVKOVIC OFFERS SERBIAN PEACEKEEPERS FOR IRAQ Serbian state-run television reported on 5 August that Serbian Prime Minister Zoran Zivkovic offered to send 1,000 troops to Iraq as peacekeepers during his recent visit to the United States. Zivkovic's office and the Defense Ministry declined to comment on the story. In related news, Jacques Klein, who heads the UN mission to Liberia, asked Serbia and Montenegro's Foreign Minister Goran Svilanovic during his recent U.S. visit to send peacekeepers to Liberia, Tanjug reported. According to the state-run news agency, Svilanovic replied that his government is interested in principle, but the Supreme Defense Council alone can make such a decision. Belgrade is anxious to improve its international standing following the 12 March killing of Serbian Prime Minister Zoran Djindjic. "The Washington Times" on 6 August nonetheless quoted Zivkovic as saying on his recent U.S. trip that "there are three things Serbs cannot stand: an independent Kosovo, NATO, and the United States." (RFE/RL 07.viii.03) BIDDING DEADLINE FOR BEOPETROL EXTENDED The Serbian privatisation agency decided to extend the deadline for the sale of Beopetrol, the largest Serbian oil retailer, from Jul 28 to Aug 7. Reportedly, the privatisation agency was not entirely satisfied with the expressed interest so far and wished to have some more time to receive better bids. The stake offered for sale is 70%, with Beopetrol having over 160 gas stations all over the country. Unofficially, the candidates for Beopetrol include MOL (Hungary), Petrol (Slovenia), Hellenic Petroleum (Greece) and Lukoil. Nevertheless, there could be some delays in the sale, which probably is affecting investor interest. Croatia’s oil and gas company INA claims part of the assets of Beopetrol, as the two companies were very closely related during the times when Yugoslavia still included Croatia. Nevertheless, the issue is quite complicated and probably the issue will be resolved through a lengthy lawsuit. This has probably made potential investors cautious, as INA officials have threatened they could require international arbitration, which is likely to be very costly. (IntelliNews 06.viii.03) SLOVAKIA FINANCIAL MARKET OFFICE (UFT) REFUSES PUBLIC BID BY MOL TO BUY SHARES OF SLOVNAFT In new administrative proceedings, the Financial Market Office (UFT) has refused the draft of a public bid to buy shares of crude-oil refiner Slovnaft, submitted by Hungarian oil company MOL, who immediately appealed the UFT's verdict. UFT spokesman Marek Kacmar said that MOL had delivered the appeal to the office on August 1st, adding that the office had already made a decision on the takeover bid on July 18th. On July 10th, the UFT announced it was again dealing with MOL's public takeover bid for Slovnaft shares. On June 25, the UFT Council cancelled the initial verdict of the office from April 8th, which turned down MOL's takeover bid proposal. Therefore, the UFT Council returned the issue to the first instance, making it again possible that MOL's bid would be accepted. In April the UFT refused MOL's proposal because it did not follow the rules of the Securities Act. When calculating the average price of Slovnaft shares, MOL failed to include a transaction from March 20th, making its bid a mere 1,200 crowns per share to minority shareholders. This March transaction increased the average share price for the previous six months from 1,100 to 1,380 crowns. The average price is decisive in determining the amount that MOL should pay to minority shareholders in the mandatory takeover bid. (NewsBase 06.viii.03) EXCISE TAX ON TABACCO, BEER, AND MINERAL OILS INCREASED Excise tax on tobacco, beer and mineral oils increased on August 1st, and the higher taxes should bring in about 3.7 billion crowns to the state budget this year. According to finance ministry calculations the price of one half-litre bottle of beer should rise by about 1 crown, smokers should pay 9 crowns more per pack of cigarettes. The higher excise tax on mineral oils should increase the price of motor fuels by 2.7-3.5 crowns per litre, excluding VAT. The finance ministry had proposed increasing some excise taxes from August 2003 to patch up a hole in the state budget caused by a 3.8-billion-crown uncovered shortfall in 2003 state budget revenues. Parliament adopted the amendment to the laws on excise taxes introducing the increase in late June. However, President Rudolf Schuster signed into law only the amendments increasing excise taxes on tobacco and beer. He vetoed the amendment on the higher excise tax on mineral oils, but deputies readopted the amendment on July 10th. (NewsBase 05.viii.03) UKRAINE UKRAINE NOT INTERESTED IN CURRENCY UNION WITH RUSSIA AND BELARUS According to NBU governor Tyhipko, Ukraine is not interested in participating in a currency union with Russia and Belarus. He elaborated that Ukraine’s primary objective is to start negotiations with the EU on accession. Consequently the country is looking to integrate itself into the European structures as quickly as possible and this makes a currency union cantered around the Russian ruble unattractive. Tyhipko, however, underlined that he does not see the Ukrainian position as choosing either EU, or Russia. Pragmatic relations with Russia should be preserved as 11mn ethnic Russians are living in Ukraine, he said. Meanwhile, Ukraine hopes to receive technical aid which will prepare it to achieve a candidate country status, the foreign ministry press service announced. President Kuchma has also ordered the preparation of a report on the possibilities of working out an association agreement with the EU. The strive for integration with the EU and WTO, endorsed by all high government officials, is a clearly positive sign that Ukraine intends to pursue market-friendly policies and implement further structural reforms in order to become a functional market economy. (IntelliNews 05.viii.03) JOURNALIST ATTACKED IN KIEV Oleh Yeltsov, editor of the Internet publication "Criminal Ukraine", was attacked and severely beaten by two unknown assailants on 24 July in the hallway of his apartment building, according to Interfax. Yeltsov was reportedly taken to the hospital for treatment of severe blows to the head -- apparently inflicted with a metal pipe carried by one of the assailants -- and burns on his arm from an electric-shock device. Yeltsov said he suspects the attack was provoked by articles he published on his website exposing corruption among government officials and police in Ukraine, according to Interfax. In an interview published on 25 July by "Ukrayinska Pravda", Yeltsov said he suspects the attack might have been a warning to him not to publish compromising articles rather than a random criminal attack. Yeltsov was released from the hospital on 25 June. (RFE/RL 05.viii.03) ELECTRICITY PRODUCER ENERHOATAM ACCUSED OF TAX EVASION The tax police in Kiev have started a criminal investigation into the activity of major electricity producer Enerhoatom, the police press service informed. The company illegally declared higher production and material costs thus lowering down taxable profit. Only by accounting nuclear fuel purchases at higher than actual prices, the company saved UAH 8mn of corporate income tax. All in all Enerhoatom evaded paying corporate income taxes of UAH 36mn and VAT of UAH 105mn. Earlier, the company was indicted by the Kiev Economic Court to pay UAH 133.9mn to a group of seven creditors. The court also dismissed the head of asset management and limited his authority on the basis of irresponsible accounting. 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