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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. 65, 26 February 2004 Business Intelligence, Crime, Corruption and Debt in C&E/SE Europe and the former Soviet Union UPCOMING CONFERENCES SACHS-BLOOMBERG "8TH ANNUAL CONFERENCE INVESTING IN RUSSIA & CIS" This event will take place on 18 March 2004 at the Plaza Hotel, New York City, USA. For further information, please contact Pernilla Hellsten, tel: +44 (0)20 7405 5544; fax: +44 (0)20 7405 4411; email: [email protected] ; W: www.sachsforum.com THE EUROPEAN FINANCE CONVENTION'S "2nd e-FINANCE CONGRESS FOR CENTRAL, EASTERN & SOUTH EASTERN EUROPE" This event will take place on 29-30 March 2004 at the Hotel Lev, Ljubljana, Slovenia. For further information, please contact Claudio Cassuto, tel: +44 (0)20 7381 9291; fax: +44 (0)870 134 0064; email: [email protected]; W: www.euroconvention.com THE EBRD's 2004 BUSINESS FORUM "COMING OF AGE: OPPORTUNITIES OF AN EVOLVING REGION" This event will take place on 18-19 April 2004 at the Hilton London Metropole (HLM), London, UK. For further information, please contact Georgie Walker, tel: +44 (0)20 7338 6625; email: [email protected]; W: www.ebrd.com/am BELARUS GAZPROM STRIKES BACK In a move that underlines once again just how much the once close Belarusian-Russian relationship has deteriorated, Russia's Gazprom turned off the gas tap for Belarus on 18 February. The company, which is Russia's largest natural gas producer and the owner of all export pipelines, explained that Belarus had fully consumed contracted amounts of gas and had not signed new supply contracts, and accused Minsk of siphoning off Russian gas bound for third countries. Just under 24 hours later, the government-controlled Gazprom announced that gas supplies had been resumed, after an independent company, TransNafta, signed a temporary supply contract with Minsk lasting until the end of February. But in between, Belarusian leader Alyaksandr Lukashenka, who had sworn everlasting friendship with Moscow, accused the Russian leadership of blackmail and terrorism, and Russian officials, usually delicate, expressed what they really thought of their western neighbor. The worst-ever gas row between the two nations, widely perceived as the closest of allies, stemmed from Lukashenka's directive that his government hold out for continuation of the terms of an earlier interstate agreement. That agreement, signed in April 2002, provided for Gazprom deliveries to Belarus at the same price applied in western Russia. That agreement, however, also envisaged the establishment of a joint company that would control Belarus' Beltransgaz gas pipeline network. Russia interpreted that as the acquisition by Gazprom of a controlling stake in Beltransgaz. Talks between the two sides are stalled because Minsk says Gazprom is offering too little. (TOL 23.ii.04) BOSNIA AND HERZEGOVINA BOSNIAN PARLIAMENT ADOPTS DECLARATION ON NATO, EU The leaders of the political parties represented in the Bosnian lower house on 19 February signed a declaration in support of that country's bid for membership of NATO's Partnership for Peace program and the EU, Fena reported. Parliamentary speaker Nikola Spiric, who initiated the declaration, said after the signing that "it is up to the leaders of the political parties to insure that what they signed today results in laws...that will bring us closer to the European Union." The international community's high representative in Bosnia, Paddy Ashdown, welcomed the declaration and congratulated Spiric on his initiative. "This joint platform that brings [Bosnia's] leading governing and opposition parties together for the first time gives hope to the millions of...citizens who have been longing for their political leaders to set aside narrow party-political differences in the interests of the citizens of [Bosnia] as a whole, and a more prosperous future." (RFE/RL 19.ii.04) ROW OVER PROPOSED BOSNIAN DEFENSE MINISTER Bosnian Prime Minister Adnan Terzic said in Sarajevo on 17 February that he called on Borislav Paravac, who is the Serbian member of the Bosnian Presidency, to withdraw the nomination of Branko Stevic for the post of defense minister and propose someone else. Terzic argued that Stevic could cause unspecified problems for Bosnia in seeking to join NATO's Partnership for Peace program at the Istanbul summit later in 2004. Paravac demanded that Terzic explain his charges against Stevic. The establishment of a unified military structure under a single command is one of the prerequisites Bosnia must meet to join NATO's program. Muslim, Serbian, and Croatian political leaders recently agreed on a division of top military and intelligence posts among members of their respective communities. (RFE/RL 18.ii.04) BULGARIA 65% STAKE IN BULGARIAN TELECOM COMPANY SOLD TO ADVENT INTERNATIONAL (US) The total value of the sale of a 65% stake at Bulgarian Telecom Company, which has been bought by Advent International (US), will bring in over 1.1 billion euros, Vassilev told a local radio station on Saturday, February 22nd. The deal is somewhat complex, and some critics claim the government got less than it might have done. A mobile licence is included in the deal. Viva Ventures has agreed to keep 20,530 jobs at the company for the next three years, developing a scheme of natural staff reduction, Minister Vassilev said. The US investment group Advent International, represented by its Austrian subsidiary Viva Ventures, acquired the stake in Bulgaria's telecom monopoly on Friday after months of delays. BTC's privatisation, which began in 2002, had become a high-profile test for the conservative government, AFP commented, with the International Monetary Fund and other institutions urging Sofia to finalise a deal or risk damaging its reputation. An initial agreement was signed in March 2003 with Viva Ventures, but the privatisation agency later cancelled the deal, saying Advent was in a partnership with offshore companies, and that large-scale layoffs would follow. Once the privatisation is finalised, which is expected within the next six months, 20% of the remaining BTC shares are to be floated on the Sofia Stock Exchange. Advent is believed to have been attracted by the possibilities in mobile telephony. Mobile penetration in Bulgaria stands at about 25%. (NewsBase 24.ii.04) CROATIA EU CALLS ON CROATIA TO SPEED UP REFORMS EU foreign and security policy chief Javier Solana told reporters in Zagreb on 17 February that Croatia must improve its cooperation with the Hague-based war crimes tribunal if it expects to make progress in membership negotiations with the EU. "The sooner you establish a solid, transparent, [and] constructive relationship with the international [Hague-based] tribunal, the better. I will have to tell you very frankly that I will see great difficulties, great difficulties, if that relationship with the tribunal is not clearly established before [negotiations begin]," he said. Solana called on the government to do more and talk less about plans to arrest indicted war criminal and former General Ante Gotovina. Prime Minister Ivo Sanader stressed that his government is working hard to meet all the conditions for EU membership. It has become virtually an article of faith among all mainstream political parties that Croatia needs to join the EU by 2007. (RFE/RL 18.ii.04) CZECH REPUBLIC 11 COMPANIES PLACE BIDS IN TENDER FOR ADVISER IN THE CESKY TELECOM PRIVATISATION Eleven companies have placed bids in a tender for adviser in the privatisation of former fixed-line monopoly operator Cesky Telecom, National Property Fund (FNM) spokeswoman Petra Krainova said on Friday, February 20th. She declined to name the bidders. The FNM is due to pick the adviser by end-May. The adviser will then recommend the privatisation method by end-June. The government may either sell Telecom directly to a single bidder or place a public share offering on capital markets. The privatisation should start in the second half of the year and end probably in 2005. Ministers will probably allow both telecom firms and financial investors to place bids. Danish operator TDC with Goldman Sachs, Czech investment group PPF and Swiss operator Swisscom with CVC Partners have shown unofficial interest in the giant operator. In 2002, the government tried to sell Telecom to a grouping of TDC and Deutsche Bank, but the attempt failed after a minority owner selling its stake together with the state rejected the price. Telecom runs 3.6 million fixed lines and owns Czech mobile leader Eurotel which has more than 4.2 million clients. (NewsBase 24.ii.04) CZECH EUROPEAN COMMISSIONER RESIGNS Milos Kuzvart, who was appointed earlier this month as Czech representative on the European Commission, resigned on 20 February, citing insufficient domestic support, CTK and international news agencies reported. Kuzvart cited a comment Foreign Minister Cyril Svoboda reportedly made after European Commission President Romano Prodi approved acceding EU members appointments to the European Commission last week. Svoboda's purported comment that "to push someone through with a party shovel is as much use in the EU as a hole in the head,"reportedly came in response to media speculation that Kuzvart, an opponent of Prime Minister Vladimir Spidla in the ruling Social Democratic Party (CSSD), owed his appointment to the prime minister's wish to see him leave the domestic political scene. Svoboda denied making the statement and said, "if everyone left when others fail constantly to sing their praises, people would be resigning all the time." The European Commission said Kuzvart's resignation is "regrettable, but we respect his decision," AFP reported. The commission also said Prodi will discuss the situation with Spidla. (RFE/RL 23.ii.04) INTERNATIONAL INVESTMENT BANKS SAYS CZECH CROWN OVERVALUED International investment banks are launching a campaign against the Czech crown, which they say is overvalued, and are recommending that investors sell the currency in favor of the euro, reports the daily Lidove noviny (LN). Analysts from the Goldman Sachs investment bank, for example, say that the Czech crown is overvalued by some 5%. The investment bank Morgan Stanley holds a similar opinion, says LN. Goldman Sachs, Morgan Stanley and BNP Paribas are all recommending investors sell their crowns in favor of the euro, according to the daily. The primary reason for the lack of confidence in the Czech currency is the country's ballooning current account deficit. Analysts also point to the low interest rates in all of the EU accession countries. Goldman Sachs analysts say there is little chance that the high levels of foreign direct investment in the CR seen in 2001 and 2002 will be repeated again. This is another factor that should weigh on the Czech currency, according to the daily. The crown, however, appears undaunted thus far. The Czech currency posted moderate gains on Tuesday, the daily notes. What's more, Czech analysts believe the crown will continue to appreciate over the longer term. The Czech currency closed the day Tuesday at CZK 32.68/EUR and CZK 25.45/USD. Analysts from Morgan Stanley, however, says the crown should fall to CZK 33.50/EUR. Goldman Sachs analysts are even more skeptical, saying that the crown should hit CZK 33.50/EUR within three months and slide to CZK 33.80/EUR within six months. Ceska sporitelna analyst Helena Horska says the outlooks of Morgan Stanley and Goldman Sachs are too pessimistic. (Interfax 20.ii.04) GEORGIA SAAKASHVILI SAYS RUSSIAN RELATIONS WILL IMPROVE GRADUALLY Georgian President Mikhail Saakashvili said that after his visit to Moscow, "there will be no breakthrough and no one-day miracles in relations between Georgia and Russia, but they will begin to improve and become more friendly. Saakashvili told a press conference in Tbilisi that "the first signs of change from the negative tendencies can already be seen." He added that "Georgia's rapprochement with Russia does not interfere with the country's course towards partnership with the U.S." "More than that, I think that, taking into account the present relations between Washington and Moscow, Georgia's rapprochement with Russia is beneficial for stabilizing the region and for an improvement of Russian-American relations," he said. Saakashvili said that consultations are underway in connection with his future visit to Washington, and that "people there should welcome the improvement of Georgian-Russian relations." Saakashvili made his first official visit to Moscow on February 11-12. (Interfax 13.ii.04) HUNGARY ABOLITION OF LOCAL BUSINESS TAX OPTION The government is considering allowing businesses to write off the local business tax in 2005 or 2006 in a bid to create a more attractive business environment for capital investments, economics minister Istvan Csillag said. To guarantee local government revenues, the government could compensate local councils by redistributing to them a larger share of profit taxes. Csillag noted that businesses can already write off 25% of their local business tax from their profit tax base, and that is the path the government wants to follow. He said the government would see if a simpler tax system with a range of 19-25% would give the country an edge. (BBJ 25.ii.04) PM DENIES RESIGNATION RUMORS Prime Minister Peter Medgyessy rebuffed press rumors about his dismissal, saying; "those whose death is predicted live long and healthy lives." Quoting unnamed leaders of the Socialist Party (MSzP), Magyar Hirlap reported yesterday that more and more party members were dissatisfied with the PM's performance and want to see Chancellery Minister Peter Kiss, Sports Minister Ferenc Gyurcsany or Culture Minister Istvan Hiller in the post. (BBJ 25.ii.04) HUNGARY RULES OUT STATE SHARE SWAP IN POTENTIAL MERGER OF MOL AND PKN ORLEN Miklos Kamaras, the CEO of Hungarian privatization agency APV, stated unequivocally on Thursday (February 22) that the state body will not use its shares in a swap with the Polish state in the event of a merger between Hungarian oil giant MOL and its Polish counterpart PKN Orlen. "The PKN transaction is MOL's transaction -- not the state's or APV's," said Kamaras. The comment may be seen an attempt to dash persistent reports of a potential state share swap between the Hungarian and Polish states in a possible merger of the two national champions. Some Polish equity analysts have even been quoted as saying that APV's sale on Tuesday (February 20) of a 10.5% stake in MOL portends poorly for a potential merger, since the state will have fewer shares to swap. The two companies are currently holding talks, set to expire at the end of April, regarding the potential for strategic cooperation. Maciej Gierej, the chairman of Orlen's supervisory board and head of Poland's fuel-sector privatization agency, said Wednesday (February 21) that there had been little progress in the talks between the two companies, which are still stalled at the level of "general conceptions." Orlen vice-president Slawomir Golonka was quickly reported as saying talks were proceeding as planned, and MOL executive chairman Zsolt Hernadi responded Thursday by saying: "Negotiations are ongoing; the work is ongoing." Orlen and MOL signed on November 20 a memorandum of understanding on strategic cooperation and a possible merger. Such a link-up would create an oil, petrochemicals and gas group stretching from the Baltic to the Adriatic seas. Orlen's foreign holdings include 500 service stations in northern Germany whereas MOL has bought Slovakia's and Croatia's top fuel companies. Orlen and MOL are also in the hunt -- separately so far -- for the Czech Republic's Unipetrol and Romania's Petrom. (Interfax 23.ii.04) THIRD COHESION REPORT OUTLINES FUNDS GOING TO NEW MEMBERS The EU's new architecture for cohesion policy is in harmony with Hungary's long-term development goals, economists and government officials said last week. "One of the government's main concerns was to keep the whole country under Objective 1 of the EU's regional policy, which facilitates the convergence of underdeveloped regions. The new draft policy observes that," said Katalin Nagy, responsible for EU-related issues at Kopint-Datorg Rt. Areas under Objective 1 receive approximately 70% of the money coming from the structural funds, according to information on the EU's official website. Those under Objective 2 - aimed at supporting economic and social transition in member states - get approximately 11% of the total funds. The EU's third cohesion report was officially presented by the Commission in Brussels last Wednesday. It outlines a new architecture for cohesion policy based on three main priorities: convergence; regional competitiveness and employment; and European territorial cooperation. The third report contains concrete recommendations on how these resources should be used in order to narrow the economic gaps between member states and regions, and achieve faster growth and more sustainable development. Other important areas for Hungary are the support available for cross-border cooperation and research and development (R&D) schemes, said Peter Heil, deputy chairman of the National Development Office (NFH). According to Heil, Hungary's cohesion funding will increase substantially in the 2007-2013 period, thanks to a relatively high limit proposed by the report on structural assistance. (BBJ 23.ii.04) KAZAKHSTAN JOURNALISTS' CONGRESS CALLS ON PARLIAMENT NOT TO ADOPT NEW MEDIA LAW The third congress of journalists of Kazakhstan ended in Atyrau on 20 February with the adoption of an appeal to the parliament not to adopt a controversial draft law on the media that is making its way through the legislative system, khabar.kz reported. The appeal asserted that neither the government drafters of the bill nor the legislators took account of important changes to the draft that were proposed earlier by journalists. The congress called on parliament to retain the current media law and merely to amend it to reflect the current needs of journalists. Congress participants cited examples of government interference with the media. Darigha Nazarbaeva, head of the Khabar media group and daughter of President Nursultan Nazarbaev, was re-elected chairwoman of the congress. (RFE/RL 23.ii.04) LITHUANIA PRESIDENT ONE STEP CLOSER TO IMPEACHMENT Removing Lithuanian President President Rolandas Paksas from office continues to look like more of a question of "when" than "if." Last week, a committee appointed by parliament unanimously approved all six charges against the president -- who is accused of endangering national security through his alleged ties to the Russian underworld -- and set the stage for an impeachment vote in as little as a month. The 12-member committee, which contains six members of parliament and six lawyers, announced its findings on 19 February, which were based on interviews with dozens of witnesses and documents from the security services and General Prosecutor's Office. Julius Sabatauskas, deputy leader of the impeachment panel, told a press conference that all of the charges -- which include leaking state secrets, engaging in influence peddling, and impeding an official investigation -- had been sufficiently proven: "They are supported by evidence and they are serious." The scandal emerged in late October after a State Security (VSD) investigation found evidence of ties between Paksas' national security adviser, Remigijus Acas, and Russian crime groups. The investigation also found evidence that Paksas promised to appoint Russian businessman Yuri Borisov, suspected of involvement in illegal arms sales, as an adviser in return for a large campaign contribution. Paksas was elected in January 2003, unexpectedly defeating incumbent President Valdas Adamkus. Early in December, after reviewing the evidence and interviewing the president, a parliamentary commission ruled that Paksas or his aides did have links to the Russian mafia and secret services and that "the president was and remains vulnerable, which poses a threat to the national security of Lithuania." In December the Constitutional Court also ruled that Paksas had violated the constitution -- by granting citizenship to Borisov after the security services warned the president that Borisov's company was suspected of illegally trading weapons to Sudan. (TOL 23.ii.04) POLAND LNM GROUP WINS POLISH STEEL TENDER The LNM Group, the world's second-largest steel producer, has won atender for buying selected production assets of Poland's Huta Czestochowa steel works beating Ukraine's Industrial Union of the Donbas, the Polish and Ukrainian press reported on 23 February. The announcement immediately created a stir in the Ukrainian media and raised questions of possible improprieties in the tender process. Two articles on the "Ukrayinska pravda" website on 24 February hinted that bribery might have been involved and argued that the selection was a defeat for pro-Western forces in Ukraine. Last October, the LNM Group bought the biggest Polish steel company Polskie Huty Stali for $1.6 billion beating out US Steel. The LNM Group is registered in the Dutch Antilles and has facilities in 12 countries. In 2003, revenues exceeded $12 billion. It has steel-making interests in Kazakhstan, Romania, Algeria, the Czech Republic, and South Africa. (RFE/RL 25.ii.04) ANDRZEJ BRACHMANSKI NOMINATED AS NEW DEPUTY INTERIOR MINISTER Polish Radio has learnt that the leader of the Democratic Left Alliance (SLD) in the Lubuskie voivodeship, deputy Andrzej Brachmanski, might become the new deputy interior minister. According to sources, the nomination was to be given to him on Monday, which would mean that he would replace Zbigniew Sobotka who left the Ministry in disgrace following the Starachowice affair. For months SLD politicians were stressing that Brachmanski was the best man for the job, as at the same time he presides over the Sejm interior affairs commission and he earlier worked for the Sejm Special Forces commission. (WBJ 20.ii.04) PRIVATIZATION OF PKO BP PUT ON HOLD The privatization of PKO BP, the country's largest bank, could be delayed until Q1 next year, said Treasury Minister Zbigniew Kaniewski. Southern Energy Concern (PKE) privatization could also be delayed, he said. The ministry insists, however, that initial public offerings of the school textbook publisher WSiP, chemical producer Ciech, and Polmos Bialystok vodka producer will go ahead this year, as planned. The announcement could spell the end of hopes to meet this year's privatization revenue target of zl. 8.83 billion. "I am obliged to follow the guidelines set in the budget," the minister added. "It is, however, possible that the full amount will not be raised. I will try and get as close to the target as possible." As of February 18, the ministry had raised zl. billion, mostly due to a sale of its remaining stake in Silesian Power Plant. (WBJ 19.ii.04) ROMANIA ROMANIA IS SLAMMED BY EUROPARLIAMENT COMMITTEE The European Parliament's Foreign Affairs Committee on 19 February stopped short of recommending the suspension of accession negotiations with Romania, but issued a stern warning that Bucharest must speed up democratic reforms to stand any chance of meeting the 2007 accession target, AP and Mediafax reported. The committee's draft resolution is to be submitted to the Europarliament's plenum for debate in March. The draft report says "Romania faces serious difficulties fulfilling the [membership] requirements...and becoming a member in 2007 is impossible unless Romania fully implements" further reforms. The draft says Bucharest must do more to fight corruption, end political interference with the justice system, ensure media freedom and prevent police brutality. The draft also expresses concern over the apparent continuation of international adoption of Romanian children, on which a moratorium was imposed on 2001. Europarliament rapporteur for Romania Baroness Emma Nicholson said: "If Romania is serious about EU membership...the trade in children must stop completely." (RFE/RL 20.ii.04) TERMOELECTRICA TO RE-LAUNCH TENDER FOR GALATI SELL-OFF State-owned Termoelectrica power producer said it would re-launch an international tender for the sell-off of its Galati branch, following one single bid from Indian steel giant LNM. Termoelectrica set a starting price of 100m euros for Electrocentrale, the main power generator of the Danube port of Galati and service company Termoserv. Under the contract, the potential buyer should invest $60m in development of the two companies. Electrocentrale Galati has a share capital of Leu 1.3 trillion, while Termoserv has a share capital worth Leu 8.1bn. LNM holds Romania's largest steel mill Sidex, steel pipe makers Tepro and Petrotub and a second steel mill Siderurgica Hunedoara. (NewsBase 18.ii.04) RUSSIA KAMAZ INKS IRAQI BUS DEAL Top truckmaker KamAZ said Wednesday that it had struck a deal with the Iraqi Governing Council to deliver 195 buses to the war-ravaged country. Five of the company's NefAZ models are already en route to the Arab peninsula's most populous country, currently under U.S. occupation, and another 190 will soon follow, KamAZ spokeswoman Irina Bystrova said by telephone from the company's headquarters in Tatarstan. Bystrova declined to put a price tag on the deal, which would be worth some $10 million at domestic retail prices. Unlike their Russian counterparts, the desert-bound passenger vehicles, to be used for suburban routes, are equipped with special heat-resistant tires and air conditioning units. "This is our first postwar shipment, but our largest ever," KamAZ general director Sergei Kogogin said in a statement posted on the company's web site. "And if nothing gets in the way this will be the beginning of our return to Iraq in a major way." U.S. bombs put KamAZ's booming Iraqi business on hold last year. Saddam Hussein's government was one of KamAZ's best overseas customers, buying more than 4,000 KamAZ trucks through the UN-sponsored oil-for-food program in 2002 alone. Bystrova said KamAZ, which continues to sell to Iraq through the global body, still has a network of service stations in the country. KamAZ is among dozens of Russian companies that had good relations with Hussein's Iraq and are keen to re-establish economic ties with the new regime. Iraq ordered 5,000 Volga taxis from automaker GAZ last year, but the deal was delayed by the U.S.-led invasion. At the time of the invasion, GAZ said it thought the estimated $25 million contract was doomed, but the company managed to renegotiate the contract with the country's new administration through the Russian Foreign Ministry. It filled its last shipment earlier this month. But the biggest deal of all, LUKoil's multibillion-dollar contract to develop the giant West Qurna oil field, signed in 1997, is still up in the air despite aggressive lobbying by the government. (The Moscow Times 26.ii.04) PUTIN FIRES KASYANOV 19 DAYS BEFORE VOTE President Vladimir Putin suddenly fired Prime Minister Mikhail Kasyanov and his Cabinet on Tuesday, saying he will appoint a new team that will reflect his vision for Russia in the second term he is all but guaranteed to win. Deputy Prime Minister Viktor Khristenko will serve as acting prime minister until a new prime minister is appointed. Few expect him to be anything more than an interim figure. Under the Constitution, the Cabinet is dismissed together with the prime minister, but it is likely that many of the 30 government ministers may be reappointed. In the meantime, they will stay on as acting ministers. The heads of more than 30 federal agencies and committees, including the Federal Security Service, are unaffected. The timing for the change of government may have come as a surprise, but the departure of Kasyanov does not. As the last high-ranking vestige of former President Boris Yeltsin's team, Kasyanov was widely expected to be replaced after the election as a way for Putin to decisively close the chapter on a previous era. Kasyanov reportedly met with Putin for three hours Monday night and was likely one of the few with advance notice of his own departure. Members of the outgoing Cabinet said the decision caught them off guard. They seemed unfazed by the shake-up, though. Finance Minister Alexei Kudrin, who said he got the news from Putin's television address, called the move "correct, brave and fair." Tax Minister Gennady Bukayev told reporters in televised remarks that Putin "is leader of the government, it's his right." Deputy Prime Minster Boris Alyoshin, who oversees the administrative reform project, also said he only learned of Putin's decision on Tuesday. This is the first time Putin has used his constitutional right to dismiss the government -- something for which Yeltsin was famous. Of his five prime ministers, only Putin was not fired. Within two weeks, Putin must send his nominee for prime minister to the State Duma, which has one week to approve or reject his proposal. With United Russia having control of the Duma, there is little doubt that Putin's nominee will be approved. This means that a new government, named by the new prime minister in consultation with Putin, may well be installed before the country goes to the polls. Kudrin and Defense Minister Sergei Ivanov, who is seen as a close friend and confidant of the president, have long been named as the two most likely choices for the next prime minister. (The Moscow Times 25.ii.04) GERMANY TO HOST PIPELINE Russia sought German support on Friday for a new pipeline that would transport natural gas across the Baltic Sea to northern Germany and, ultimately, to the east coast of Britain. Gas monopoly Gazprom has been pushing the idea since 2002 in a bid to expand its position in lucrative markets in Western Europe and to give it leverage over Belarus and Ukraine, two countries that have siphoned off gas meant for European consumers in the past. This week, Gazprom accused Belarus of failing to pay for its gas and illegally taking gas intended for Poland and Lithuania. Russia temporarily cut off all gas supplies to Belarus, but restored them Thursday. However, the dispute sparked one of the greatest crises in relations between the ex-Soviet neighbors and highlighted Gazprom's vulnerability. Gazprom's proposed North European Gas pipeline is expected to cost $5.7 billion and would carry up to 1,059 cubic feet of gas per year on a direct route to the West. Russia's energy minister, Igor Yusufov, said Friday that Moscow and Germany are preparing a bilateral accord that pledges to encourage development of the line. He said it will be along the same lines as an agreement signed with the British government in June. Yusufov acknowledged, however, that interest from investors has so far been tepid. Gazprom officials have said they hope the gas could begin flowing by 2007. Russia's efforts to secure German support came as the chiefs of German gas companies met Friday with Russian Prime Minister Mikhail Kasyanov, the ITAR-Tass and Interfax news agencies reported. Gazprom, the world's biggest gas producer, supplies more than a quarter of Europe's natural gas. The company depends heavily on exports because domestic prices are capped low and many Russian regions and factories cannot pay their bills. (The St. Petersburg Times 24.ii.04) MOSCOW SAYS EU, NATO ENLARGEMENT MUST NOT HARM ITS INTERESTS Russia insists that its lawful interests must be taken into account during EU and NATO enlargement, Deputy Foreign Minister Vladimir Chizhov said at a conference on common foreign policy objectives and challenges of Russia and the EU in Berlin. "We insist and will continue insisting that in the process of their [EU and NATO] enlargement and interaction, the lawful interests of the Russian Federation will be taken into account," Chizhov said in his speech, which was posted on the Foreign Ministry's website. "This stance is quite justified from the viewpoint of European and international law and is the only correct one considering our national interests," he said. "While regarding EU enlargement as an objective process of integration, but considering the admission of new East European members to NATO counterproductive, we are not trying to influence the way relations between these organizations in security and defense will evolve," he said. (Interfax 24.ii.04) FINANCE AND ECONOMIC DEVELOPMENT MINISTRIES AGREE TO CUT PAYROLL TAX Russia's finance and economic development ministries have agreed to radically cut payroll tax (or a single social tax, YeSN). They are to alter the existing regressive scale for the tax as of 2005. Under the planned scale, an annual pay of R30,000 to R300,000 will be taxed at 19.5%, R300,000 to R600,000 at 12% and over R600,000 at 2%. At the moment, a yearly pay of under R100,000 is taxed at 35.6%, R100,000 to R300,000 at 20%, R300,000 to R600,000 at 10% and over R600,000 at 2%. As a result of the reform, the majority of enterprises will be taxed at 19.5% (in 2003, for example, Russian yearly wages averaged R66,000). To avoid a Pension Fund deficit expected from easing the fiscal burden, officials suggest financing the accumulative part of pensions at the expense of employees, not employers. The original plan was going to require employees to pay a 13% income tax and transfer another 4% of income to their personal accumulative accounts with the Pension Fund. MERT now proposes another scheme, under which 2% of the planned 4% increase will be deducted from personal income tax and the other 2% "will be compensated via rises in wages." (NewsBase 20.ii.04) MILITARY TESTS NEW BREED OF WEAPON Russia successfully tested a prototype new weapon that can penetrate any prospective missile defenses during this week's military exercise, a senior general said Thursday. Colonel General Yury Baluyevsky, the first deputy chief of the General Staff, said the prototype of a new hypersonic vehicle had proved its ability to maneuver in orbit -- a quality he said would allow a weapon based on such a craft to dodge an enemy's missile shield. "The flying vehicle changed both the altitude and direction of its flight," Baluyevsky said at a news conference. "During the experiment conducted yesterday, we proved that it's possible to develop weapons that would make any missile defense useless." Baluyevsky's remarks followed a statement by President Vladimir Putin on Wednesday that experiments conducted during the military maneuvers had proven that Russia could build new strategic weapons that would be unrivaled in the world. Baluyevsky said Russia has no intention of immediately deploying new weapons based on the experimental vehicle. He said the new vehicle had "ceased to exist" after the experiment -- presumably burning up in the atmosphere -- and emphasized that its flight did not jeopardize any country. He refused to comment on what kind of engine the vehicle had, how long its flight lasted. (The Moscow Times 20.ii.04) WORLD BANK: OIL AND GAS RELIANCE DANGEROUS The economy is nearly three times more dependent on oil and gas than official statistics indicate, making the country much more vulnerable to oil price swings than previously thought, the World Bank said Wednesday. The State Statistics Committee does not properly account for the tax avoidance schemes used by oil and gas companies, the bank concluded in its annual report on the Russian economy. But if it did, the numbers would show that oil and gas accounts not for 9 percent of gross domestic product, but 25 percent, and that services account for just 35 percent of GDP, not 55 percent. Russia's purported shift to a service-driven economy is "mythical," said Christof Ruehl, the World Bank's chief economist for Russia and the author of the report. "The government shouldn't expect services to take the lead in economic growth." Ruehl said he recalculated official figures to negate the affect of transfer pricing - when an oil or gas company sells to a trading affiliate at knock-down prices to minimize profit taxes. The new figures show that the oil and gas sector, despite employing less than 1 percent of the workforce, makes up half of all industrial production. Transfer pricing also artificially inflates the services sector, a major component of which is trade. Oil and gas production is statistically disguised as trade when producers sell to affiliated traders who turn around and sell abroad at an enormous profit, with the difference considered "value added" in the services sector. This non-market, or public, services sector also depends on subsidies, which in turn depend on oil prices, he added. The government has moved to close transfer-pricing loopholes, but that's no guarantee that the practice will not continue, he said. That the economy is over-reliant on oil is not disputed - oil and other natural resources account for 80 percent of all exports, and taxes on the oil and gas sector generates two-fifths of all government revenues. And a forthcoming study by Peter Westin, chief economist at investment bank Aton, found that the oil and gas sector accounts for up to 30 percent of GDP if measured by world prices. The State Statistics Committee uses domestic prices, which are much lower, in its calculations. International debt rating agencies Standard and Poor's and Fitch consistently cite Russia's vulnerability to oil price swings among their reasons for not raising Russian debt to investment grade. (The St. Petersburg Times 20.ii.04) YUKOS PLAN BAIL OUT OF EX-CHIEF A group of shareholders that control Russia's largest oil company, Yukos, have offered their stock to the government in exchange for the release of Mikhail Khodorkovsky, Yukos' former chief. Leonid Nevzlin said that he and other core shareholders of Group Menatep - a holding company - had offered to turn over their stake in Yukos to the government if it agrees to let Khodorkovsky out of jail. Khodorkovsky, who resigned as Yukos chief shortly after his Oct. 25 arrest on fraud and tax evasion charges, has remained in custody awaiting trial. Courts have repeatedly dismissed petitions by lawyers of Khodorkovsky to free him on bail, and his supporters have alleged his arrest was politically motivated. Group Menatep is believed to own 44 percent of Yukos. It is not clear how much stock individual members of the group own. Nevzlin said the offer applied to shares in Yukos and other companies held both directly and indirectly by the Group Menatep partners. Nevzlin said the offer was conditional on Khodorkovsky and another shareholder, Platon Lebedev, first being released. After their release, Nevzlin and the other shareholders will surrender their shares, he said. He declined to say which specific government officials had been approached about the offer. He did, however, add that the shareholders were willing to forfeit all of Group Menatep in addition to just the Yukos shares to ensure Khodorkovsky's and Lebedev's freedom. Nevzlin was quoted by Interfax as saying the decision to make the offer was made a week ago but there had been no response from the government. Khodorkovsky's arrest and the ensuing freezing of about 40 percent of the Yukos stock by prosecutors have marked a peak in the long-running official investigation, which is widely seen as a Kremlin-orchestrated attempt to curb Khodorkovsky's clout. President Vladimir Putin has denied any political undertones to the inquiry and sought to present it as part of the government's anti-corruption efforts. Nevzlin is living in self-imposed exile in Israel, along with fellow Menatep shareholder Vladimir Dubov. All of Menatep's shareholders face criminal charges, mainly relating to alleged fraud and tax evasion. (The St. Petersburg Times 17.ii.04) SERBIA AND MONTENEGRO NEW SERBIAN GOVERNMENT REPORTEDLY TO BE NAMED IN MARCH Serbian Prime Minister-designate Kostunica is expected to present his government to the parliament on 2 March, RFE/RL's South Slavic and Albanian Languages Service reported from Belgrade on 23 February. The cabinet reportedly will include new ministries for Kosova and for the diaspora, while the ministries dealing with transportation and construction will be consolidated into a single Ministry for Capital Investment. In related news, the "Frankfurter Allgemeine Zeitung" reported on 24 February that the Democratic Party might seek new talks with Kostunica now that its new leadership under Boris Tadic no longer includes two bitter rivals of the prime minister-designate, namely Zoran Zivkovic and Cedomir Jovanovic. (RFE/RL 24.ii.04) MONTENEGRO MAKES SECOND ATTEMPT TO SELL 57.99% STAKE IN ZELJEZARA STEELWORKS The Montenegrin government has invited international and domestic companies to bid for a 57.99% stake in its steelworks Zeljezara from Niksic in what marked its second attempt to sell the financially strained company. Zeljezara is having difficult times due to outdated equipment, lack of investment and years of illiquidity and losses, said Zeljezara Board of Directors Chairman Savo Radulovic. In order to maintain production until it finds a new owner, the company will continue cooperating with Neksan, a local firm which supplies Zeljezara with key raw materials, said Radulovic. Neksan CEO Miodrag Davidovic has recently announced that a five-member international consortium is ready to invest over E1m in Zeljezara. The first tender for the sale of the steel plant flopped in 2003 after the sole bidder, Bulgaria's Still Group Investment, failed to submit a necessary bank guarantee. (NewsBase 23.ii.04) SLOVAKIA MAJORITY STAKE IN POSTOVA BANKA ACQUIRED BY LOCAL INVESTMENT GROUP ISTROKAPITAL A majority stake in Slovakia's Postova banka (PB) has been acquired by local investment group Istrokapital through a capital increase, the central bank (NBS) confirmed on Wednesday, February 18th. Istrokapital required NBS approval in order to raise its stake in the post-office bank to 55%. The group increased PB's registered capital by 800 million crowns, thus reducing the stake of state-owned factoring agency SKo from 55.2% to 37.1%. The stake held by state-owned postal service SP fell from 6.9% to 5%, but SP still has the right to call an extraordinary meeting of shareholders. (NewsBase 20.ii.04) EC COULD IMPOSE SANCTIONS IF SLOVAKS DON'T SPEED APPROVAL OF EU LAWS Twenty new laws, covering a range of issues from lobbying to health insurance, may not take effect until after Slovakia joins the EU in May, which could lead to sanctions by the European Commission (EC). Slovak Deputy Premier Pal Cskay's office on Thursday published the list of laws that may be delayed. They include legislation on lobbying, protection of personal information, health insurance, energy, and a new commercial code. Cskay spokesman Martin Urmanic told the CTK news agency it was "premature" to make a statement on the subject. He did not say what sort of sanctions Slovakia might face. According to Urmanic, the only solution is to speed parliamentary passage of the laws. In order to be approved on time, they would have had to have gone before parliament on February 13, but most of the laws have yet to go to Cabinet. This issue is the second snag the country has hit recently on the road to the EU. The other is its failure to reach an agreement on over-production of steel by the steelworks in Kosice, East Slovakia. (Interfax 20.ii.04) UKRAINE ODESA-BRODY OIL TRANSPORT MAY BEGIN IN APRIL-MAY Ukrainian Fuel and Energy Minister Serhiy Yermilov told Interfax Ukraine on 25 February that oil for the Odesa-Brody pipeline might begin entering the pipeline in April-May. Yermilov noted that Poland and Ukraine have reached an agreement about transporting oil by rail from the present end of the pipeline in Brody to Polish refineries. According to Yermilov, between 1 million and 5 million tons of oil would be transported to Poland by rail annually. Confirming Yermilov's statement, Faouzi Bensarsa, a representative of the European Commission, confirmed that contracts exist for the purchase of Caspian oil by Ukraine, Interfax Ukraine reported on 24 February. The agency also reported that ChevronTexaco is awaiting clarification from Ukraine concerning tariff rates to be charged for the Odesa-Brody pipeline. (RFE/RL 25.ii.04) POLL: OVER 30% OF UKRAINIANS WANT TO EMIGRATE One out of three Ukrainians would like to emigrate from Ukraine, a poll conducted by the Democratic Initiatives Foundation and the Kyiv International Institute of Sociology between January 23 and February 1 shows. An estimated 33.8% of respondents would emigrate given the chance, 61.5% would stay in Ukraine and 4.7% said they were undecided about what they would do. Of those who would emigrate, 7.7% said they would move to Russia, 7.4% to Germany, 3.9% to Canada, 3.8% to the U.S., 1.8% to France,1.2% to the UK, 1.2% to Israel, 0.9% to a different former Soviet Republic and 6% said they would move anywhere in the world. Most of those saying they would emigrate were young people and people with university degrees. For example, 82.1% of respondents with incomplete high school education said they would stay in Ukraine, while 59.6% of respondents who had completed high school and 49.8% with university degrees said they would stay. Among respondents aged 18-19, 37% said they would stay in Ukraine. Among respondents aged 40-49, this figure was 58% and among respondents older than 80, 91%. The poll surveyed 2,011 people. 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