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* Due Diligence * Business Intelligence * TT Total Intelligence * * TT Meerkat 500 * Disappearance Response * Debt Recovery * * Asset Retrieval * Technology Services *  TT Business Intelligence Report - CE/SEE & FSU Vol. 3, No. 73 Business Intelligence, Crime, Corruption in C&E/SE Europe and the FSU UPCOMING CONFERENCES 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 the 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 *** TT BUSINESSINTELLIGENCE REPORT SUBSCRIBERS HAVE BEEN ALLOCATED TEN FREE PLACES ON A FIRST COME FIRST SERVED BASIS *** WRA'S "CENTRAL AND EASTERN EUROPEAN REFINING AND PETROCHEMICALS - 7th ANNUAL ROUNDTABLE" This event will take place on 18-20 October 2004 in Prague, Czech Republic. For further information, please contact Sapna Khimani, tel: +44 (0)20 7067 1800; fax: +44 (0)20 7430 9513; email: [email protected]; W: www.wraconferences.com BELARUS HUNGER STRIKE IN MINSK SPAWNS 'FOR JUST ELECTIONS' INITIATIVE Uladzimir Kolas, chairman of the Council of Belarusian Intelligentsia, proclaimed the formation of a For Just Elections movement in Minsk on 15 June, Belapan and RFE/RL's Belarusian Service reported. According to Kolas, the movement intends to contribute to the consolidation of democratic forces in Belarus and work toward preventing election rigging by the authorities. The proclamation took place at a news conference in front of the house where three Belarusian lawmakers -- Syarhey Skrabets, Valery Fralou, and Uladzimir Parfyanovich -- and a group of opposition activists were on strike for the 13th consecutive day. "We are at one with you in your demands to amend the election legislation in order to shield the [17 October parliamentary] elections from falsification," Kolas read from a special appeal to the lawmakers adopted by the Council of Belarusian Intelligentsia, the Belarusian Helsinki Committee, and the Belarusian Social Democratic Party (Popular Assembly). In view of the deteriorating health of the hungeriking deputies, Kolas asked the protesters to halt the hunger strike and take the lead of the For Just Elections initiative. "We will take that lead," Fralou responded. (RFE/RL 16.vi.04) BOSNIA AND HERZEGOVINA SPLASHING OUT ZURICH, Switzerland -- Seven state-level institutions in Bosnia embezzled nearly 12.5 million euros in taxpayers' money last year, according to a report by the Bosnian State Audit Bureau. Last week the bureau named the tripartite Bosnian presidency -- comprised of Bosniak, Bosnian Croat, and Bosnian Serb members -- as the leading offender. The report was completed in mid-May and leaked to the media a few days before its official release on 9 June. According to the report, the presidency alone spent nearly 530,000 euros over and above the 2003 budget of 2.8 million euros on unauthorized luxury items and lavish diplomatic gifts. Some of that money, the State Audit Bureau says, was used to buy luxury cars and designer suits for members of the presidency. All three members bought Audis for 80,000 euros each, the report said, adding that Bosniak member Sulejman Tihic also spent 16,000 euros of state budget money to repair his Audi. The three cars were purchased without the proper authorization. In the past four months, two expensive presidency vehicles have been stolen. The report also lists a number of other dubious purchases including a 7,000-euro spending spree on diplomatic gifts, which turned up, among other things, a 1,000-euro fountain pen. The audit bureau has passed the report on to the Bosnian parliament and the State Prosecutor's Office, which will determine what, if any, legal steps will be taken. But the public outcry is intensifying as the report makes its way through the local and international media. Nikola Spiric, Vice President of the Bosnian parliament, called the spendthrift presidency "shameful" at a time when the majority of Bosnians are barely making ends meet and the country is experiencing 40 percent unemployment. "Also, it is amazing that three persons are spending more money than the Bosnian intelligence agency, which employs more than 200 people," Spiric told TOL. Dragan Kulina, the bureau's deputy chief auditor, said at a 9 June press conference that the main problem illustrated by the report was a lack of internal budgetary controls and a disregard for the public tender process. The audit bureau had given the presidency a deadline to respond to the report's findings and to explain the authorized purchases. Two weeks after the deadline, Kulina said, the presidency sent in dozens of pages of explanations, bills, and receipts. But the explanations were far from satisfactory, he said. The report also noted some irregularities in relation to purchases made by a member of the state office for cooperation with the Hague-based International Criminal Tribunal for the former Yugoslavia (ICTY). According to the report, the small, Bosniak-run office in The Hague paid 120,000 euros in rent for 2003. Some questionable bonuses for the office's four employees were also noted, with employees receiving three times more than their legal entitlement. Such examples of unnecessary and unauthorized expenses were found in every institution covered in the report. Now that the report has been completed and passed on to the parliament, the pressure has been taken off the audit bureau, which is no doubt relieved that this enormous, and potentially dangerous, job is finally done. The bureau has received substantial financial support and technical assistance from the Swedish government. (TOL 11.vi.04) BULGARIA BULGARIA TO COMPLETE SALE OF SEVEN POWER UTILITIES BY AUGUST Bulgaria plans to complete the sale of its seven power utilities by the end of July. Five indicative bids have been submitted for the privatisation of 67% stakes in Bulgaria's electricity distribution companies, Vesselin Bliznakov, head of the parliamentary energy commission, said on June 11. Italy's ENEL, Germany's E.ON, Czech CEZ, Greece's PPC and Austria's EVN are expected to submit binding offers for the three equity pools by July 9. Candidates can bid for all three pools, but can acquire only one. The investor will acquire at least 51% of each package, and the rest can be shared with a financial institution. (NewsBase 15.vi.04) EU WRAPS UP BULGARIAN ACCESSION NEGOTIATIONS The European Union on 14 June formally decided to wrap up accession negotiations with Bulgaria, which is expected to join the 25-member bloc on 1 January 2007, international news agencies reported. Irish Foreign Minister Brian Cowen told journalists in Luxembourg that despite the end of the accession negotiations, the European Commission may decide to postpone the accession date for one year if it deems there is a "serious risk" that Bulgaria might be unable to implement on time the remaining necessary reforms, AFP reported. Cowen also said that "progress has been made with Romania" in the negotiation process. "A real momentum has been established, and we shall continue to work with Romania right up to the last day of our presidency to close the energy and services chapters" in the acquis communautaire, he said. Ireland currently holds the rotating EU presidency. Romania has thus far closed 24 chapters in the negotiations with the EU. (RFE/RL 15.vi.04) CZECH REPUBLIC SOCIAL DEMOCRATS (CSSD) HEAVILY DEFEATED IN EUROPEAN ELECTIONS The first-ever elections to the European Parliament in the Czech Republic at the weekend resulted in a devastating defeat for the government coalition led by the senior government Social Democrats (CSSD), according to results from the Czech Statistics Office. The CSSD finished a dismal fifth in the voting, which was won by the opposition Civic Democrats (ODS) who received 30% of the vote and won nine of the Czech Republic's 24 seats. The Communist Party (KSCM) finished second with 20% of the vote and six seats. The extra-parliamentary Independents Association - European Democrats (SNK-ED) finished third with 11% and three seats, followed by the junior government Christian Democrats (KDU-CSL) with 9.5% and two seats. The CSSD scored only 9% of the vote and won two seats, slightly more than the Independents (NEZ), who had 8% and two mandates. Turnout was 28.32%, well ahead of Poland's 20% and Slovakia's 17%. (NewsBase 16.vi.04) GOVERNMENT APPROVES SALE OF KRALOVOPOLSKA TO BRASS The Czech Cabinet approved the sale of the state's nearly 100 % stake in the engineering firm Kralovopolska to the Brass firm for CZK 36.6 mln, ministers announced after the Cabinet's meeting on Wednesday. Industry and Trade Minister Milan Urban says he expects the new owner to stabilize the situation at Kralovopolska. The firm's loss has continued to rise and it is facing bankruptcy and dismissals, says the minister. Finance Ministry spokesman Marek Zeman says Brass has agreed to observe the terms of the purchase contract, including a call option of the state for land and a pledge to maintain staff. Kralovopolska Ria, the original winner of the tender, which offered CZK 500,000 more than Brass, failed to go through with the deal as it ultimately failed to agree on the terms of the contract. Brass originally offered CZK 36 mln for the state-owned stake and later it increased its bid to CZK 36.6 mln. Brass, which employs some 300 people, specializes in metalworking, and has an annual turnover of some CZK 500 mln. (Interfax 11.vi.04) GEORGIA THREE SENIOR ABKHAZ OFFICIALS RESIGN Sergei Shamba has resigned as foreign minister of the unrecognized Republic of Abkhazia, Vice President Valerii Arshba told Interfax on 15 June. Shamba, together with First Deputy Prime Minister Astamur Tarba and State Security Service head Givi Agrba, submitted their resignations to protest the assassination last week of Garri Ayba, a leading member of the opposition Amtsakhara movement. Arshba did not say whether the resignations of Tarba and Agrba have been accepted. Also on 15 June, abkhaziya.info quoted Shamba as calling for the entire cabinet to step down and for the creation of a new "government of popular trust" that will remain in power until the presidential elections due in October. The Georgian daily "Mtavari gazeti" predicted on 16 June that Shamba will contest that ballot; Shamba himself said in February he had not yet decided whether or not to do so. (RFE/RL 16.vi.04) GEORGIA WARNS SOUTH OSSETIA ON SEEKING RUSSIA'S RECOGNITION The attempts of the self-proclaimed republic of South Ossetia to seek recognition of its independence from Russia may cause a new aggravation of the situation in the Georgian-Ossetian conflict zone, Tbilisi says. "Tskhinvali's address to the Russian State Duma to recognize the independence of South Ossetia only exacerbates the situation in the conflict zone, is fraught with a new of aggravation, and prompts groundless illusions," Georgian Minister for Separatist Conflicts Georgy Khaindrava told Interfax-Military News Agency on Tuesday. "Everyone should realize that South Ossetia is Georgian territory," he said. Meanwhile, Duma speaker Boris Gryzlov said that deputies are ready to consider the message from the South Ossetian parliament as soon as the Duma receives it. "The State Duma has not officially received it," he told reporters on Tuesday. "The current situation in South Ossetia undoubtedly arouses special interest among Russian citizens," he said. He accounted the interest to the fact that many Russian nationals live there. Gryzlov said that questions arising in relations between Tskhinvali and Tbilisi are being considered by the four-sided commission of South Ossetia, North Ossetia, Georgia and Russia, which met a few days ago. On Monday, the South Ossetian parliament adopted a message to the Russian Duma, asking it to recognize the region's independence and take steps to protect Russian nationals living there. "In the past few days, developments around South Ossetia have threatened to provoke a new seat of armed conflict," the message says. Murad Jioyev, foreign minister of the self-proclaimed republic, said in a telephone interview with Interfax: "In the present situation, this is a step forced upon us." "Officials in Georgia regularly announce plans for returning South Ossetia by force to Georgian jurisdiction, even though for over 12 years, South Ossetia has lived in conditions of de facto independence. Therefore, we are compelled to ask Russia to protect its nationals, who constitute the majority of residents of our republic," he said. (Interfax 11.vi.04) HUNGARY KPMG AND ABLON IN LEGAL BATTLE Big four auditing firm KPMG Hungary and real estate developer the Ablon Group are in a legal dispute over the revision of a lease contract,industry insiders and market sources told the BBJ last week. The dispute, the first of its kind in Hungary, concerns an 8,000 square-meter space that houses KPMG's headquarters, located in the BC 99 office building, which is held and managed by Ablon. According to the sources, property consulting firm Cushman & Wakefield Healey & Baker is involved in the process as an independent expert acting on behalf of both entities. "We can confirm that litigation is going on between KPMG and Ablon," William Curley, finance and IT director of KPMG Hungary, said last week. "Legal proceedings are underway between Ablon and KPMG," confirmed Adrienn Lovro, managing director of Ablon, last Thursday. Lovro said Ablon denied the existence of a rent revision clause in the lease contract signed between Ablon and KPMG, in 2000, "in case KPMG claims the existence of such a clause when talking to the BBJ." She did not disclose any additional information or explanation. Curley also declined to disclose further information about the nature and current stage of the proceedings. He said it is KPMG's policy not to comment about pending legal issues. (BBJ 14.vi.04) MATRAHOLDING GETS FOUR BIDS FOR DAM Four valid bids were made for the assets of DAM Steel Rt, business weekly HVG reported last Thursday. DAM Steel went into liquidation in March 2003. The assets of the troubled company were offered for sale for the third time in May 2004. Liquidator Matraholding Rt is expected to select a winner within a few days. Matraholding requested Ft 5.3 billion for the assets offered, but not even the highest bid, which unconfirmed reports say was from Ukrainian company Danko AO, is believed to have exceeded Ft 2.5 billion. Danko is reportedly interested primarily in the steel rolling facility, and would operate only a part of the foundry. Danko is a member of the Donbass group, which HVG noted will soon finalize its purchase of steel works Dunaferr Rt in a consortium with the Swiss Duferco. Two of the other three bids were made by companies owned by local businessman Kalman Mudra. The two companies took part in the previous two tenders for DAM Steel. The fourth bidder, reportedly offering the lowest bid, is Germany's Max Aicher, owner of Ozd Steelworks Kft. None of the four bidders said they would keep on DAM Steel's entire workforce, according to HVG. Borsod Steel Manufacturing Kft (BNA), which has been operating DAM Steel's assets since May 2003, employs a workforce of 1,200. It was set up with Matraholding as majority owner. (BBJ 14.vi.04) MKB SHAREHOLDERS APPROVE KONZUMBANK MERGER AGREEMENT An extraordinary general meeting of the Hungarian Foreign Trade Bank (MKB) approved the draft agreement for the merger of Konzumbank into MKB, as well as the combined balance sheet of the merged banks, MKB announced Wednesday. MKB, majority-owned by Bayerische Landesbank, bought Konzumbank and its Budapest headquarters in November 2003 for HUF 10.8 billion. MKB's total assets will increase by HUF 96 billion to HUF 1.237 trillion as a result of the merger. The merged bank will have shareholders' equity of HUF 90.985 billion, HUF 171 million less than before the merger. MKB's registered capital will rise minimally to HUF 11.52 billion. (Interfax 07.vi.04) KAZAKHSTAN CRIME AND POLITICS IN KAZAKHSTAN Thirty minutes before hearings began in the largest Foreign Corrupt Practices Act (FCPA) case in U.S. history last Thursday, defendant James Giffen sat quietly at the back of the courtroom flanked by three members of his prominent legal team as an assortment of high-powered oil industry lawyers, public relations advisers, and Kazakh opposition interests filed into the wood-paneled courtroom. After a massive four-year Department of Justice investigation, they had come to hear arguments on pretrial motions submitted by attorneys for Giffen, 63, the CEO of Mercator Corp., a small New York-based merchant bank charged with paying $78 million in bribes between 1995 and 2000 to former Prime Minister Nurlan Balgimbaev and Kazakh President Nursultan Nazarbaev. The investigation, dating to a 1999 Swiss money-laundering probe, has stretched from Kazakhstan to the British Virgin Islands and has unearthed nearly one million pages of documents from oil companies, high-end jewelers, and financial institutions worldwide. The highly anticipated pretrial hearing addressed two key issues: whether Giffen, who became in effect a Kazakh national through his close advisory role to President Nazarbaev, should be exempt from U.S. prosecution and whether the courts will compel the release of classified documents from the CIA and National Security Council that Giffen's attorneys say will reveal de facto approval of his actions. U.S. District Judge William Pauley also heard arguments on whether federal prosecutors should provide witness and evidence lists, and reveal the identities of three unnamed co-conspirators to Giffen's attorneys in advance of the trial. He is expected to issue a ruling on the motions in the next several weeks. The judge also arraigned Giffen on new charges of tax fraud brought in a March 2004 indictment to which Giffen plead not guilty. An additional pretrial hearing has been scheduled for 29 July. Giffen is the target of an investigation alleging a multiyear conspiracy involving some of the largest oil companies in the United States, including Mobil (now ExxonMobil), Texaco (now ChevronTexaco), Phillips Petroleum (now ConocoPhillips) and Amoco, (now BP) in connection with the purchase of oil and gas rights in the 1990s. (TOL 11.vi.04) LITHUANIA ONE KNOWN QUANTITY, ONE BIG UNKNOWN Across Central Europe, apathy prevailed during the region's first European Parliament elections, but Lithuania was different, with turnout on 13 June at around 48 percent. The reason was simple: The country's legislators had done a smart thing and scheduled presidential elections for the same day. And as anyone following the events in this small Baltic nation knows, feelings about the presidency have been anything but apathetic over the past half-year. In the presidential elections, five candidates were battling to fill the political vacuum left by former president Rolandas Paksas. Ending a six-month saga, the Lithuanian parliament had voted by a narrow margin on 6 April to impeach Paksas, who had been accused by the security services and a parliamentary commission of having ties to Russian organized crime and of participating in influence peddling and other unsavory activities. For weeks, it looked like the fallen president -- the first head of state ever impeached in Europe -- would likely run again, and his supporters had high hopes that Paksas would again sweep to victory on the strength of his popularity in the countryside and small cities. However, on 25 May, the Constitutional Court ruled against his participation. The constitution itself does not clearly impose such a ban, the court reasoned, but a president who was impeached for violation of his presidential oath has no right to run for the presidency again because it contradicts the "spirit of the constitution." With the field clear of one of his main rivals, former president Valdas Adamkus -- a 77-year old non-party man who spent most of his life in exile in the United States -- came in first with 30 percent. He was supported by the center-right Union of Liberals and Centrists. In second place with 21.5 percent was 61-year old Kazimira Prunskiene, leader of the center-left Union of Farmers' and New Democracy Parties. Rounding out the field were the country's former chief EU negotiator, Petras Austrevicius, who used the backing from two rival parties -- the populist Labor Party and the center-right Homeland Union -- to gain 19 percent; Vilija Blinkeviciute, currently Social Liberal minister for social welfare and labor, who took 17 percent; and Social Democrat Ceslovas Jursenas, the interim parliamentary speaker, who finished with 12 percent. (TOL 14.vi.04) POLAND A MAD DASH FOR EU JOBS They were young, old, and middle-aged. Some had a university degree, others only a few years of schooling, some none at all. They came from big cities, small towns, and rural villages. But they all believed that if they left Poland they would have a better life. So within a month of Poland's accession 1 May to the EU, according to the Polish Foreign Ministry, 15,000 Poles had left the country and scattered to Britain, Ireland, and Sweden. In the United Kingdom, at least, their arrival was not unexpected. After his meeting with Polish President Aleksander Kwasniewski on 6 May in London, British Prime Minister Tony Blair declared that "British society is getting older and older and we need young, educated people to work." He added that "a lot of Poles" meet Britain's employment needs and criteria. The sound ofa starting gun could be heard from Sczcecin, on the country's German border, to Brest, on Poland's border with Ukraine. Most Poles arrived in the United Kingdom hoping simply to find a minimum-wage job, which pays £4.50 ($8.24) per hour. But that proved too ambitious for 8,000 of them, who returned to Poland within a matter of weeks, courtesy of a bus or train ticket that in some cases was paid for by the Polish consulate in London. Not surprisingly, the quickest returnees were those who didn't speak English. The Polish newspapers have been full of articles offering advice to people who want to start a new life in the U.K. "If the only person in England you know is Prince William (from television), don’t go there," wrote the Metro newspaper, a regional edition of the national daily Gazeta Wyborcza. Other media have cautioned U.K-bound Poles that it is critical to know someone who is already living and working there, even if they're doing so illegally. (TOL 16.vi.04) NAFTOBAZY MAY END UP GOING PUBLIC BY YEAR'S END The management board Nafta Polska wants to float the largest domestic fuel logistics company Naftobazy on the bourse, an option which is very much supported by Naftobazy itself. "I believe this would be possible in December. However, I am afraid that political turmoil might delay the date until the middle of 2005," said Jerzy Malyska, the president of Naftobazy. He also stressed that the scenario of entering the bourse is much better than choosing a sector investor. At the same time, the attempt to create an integrated logistics operator (ZOL) have not been given up as, "We are still in negotiations with Orlen, PERN and Naftoport," said Malyska. He admitted that these will be difficult due to problems with evaluating the value of the partners' assets and thus their share in the new entity. (WBJ 15.vi.04) IT'S BELKA OR AN AUGUST GENERAL ELECTION On Friday President Aleksander Kwasniewski will again nominate and swear in Marek Belka as Prime Minister. The Democratic Left Alliance (SLD) and the President agree that there are two solutions to the current political impasse - either Belka will run the government until spring 2005, or a general election would be held in August, as the SLD rejected the idea of a November date. Belka will face a vote of confidence at latest by June 25, which if he fails, would mean the general election would take place on August 8. (WBJ 09.vi.04) PKN ORLEN TO FINALIZE BUY OF 63% STAKE IN CZECH UNIPETROL Top Polish fuel firm PKN Orlen signed a contract with the Czech National Property Fund (FNM) to buy a 63% stake in Unipetrol, the biggest Czech downstream oil firm, for EUR 417 mln, Orlen said in a market statement on Friday (June 4). The Polish fuel firm promised to pay CZK 13.05 bln (EUR 417 mln) for Unipetrol, 9.76% of its subsidiary Spolana and receivables owed to some of the companies in the Unipetrol group. However, the agreement allows the buyer to adjust the price after an audit, down by as much as 25% and up by as much as 15%. The Polish firm will acquire over 114 mln bearer shares in Unipetrol. PKN Orlen will pay 10 % of the total purchase price, or CZK 1.31 bln, within 15 days of the contract's signing, said FNM spokeswoman Petra Krainova. The balance is to be paid upon the transfer of shares to PKN Orlen and approval of the deal by the European Commission. The transaction is expected to close by the end of the third quarter of 2004. Following the acquisition of Unipetrol, PKN Orlen will launch a mandatory tender offer to acquire the interests of minority shareholders in Unipetrol and its listed subsidiaries, Spolana and Paramo. PKN Orlen has also agreed to sell some of Unipetrol's assets to global oil and gas company ConocoPhillips and to Agrofert, the Czech Republic's No. 2 chemical group. While Agrofert will buy non-core assets, such as agricultural commodity, pesticide and chemical firms, ConocoPhillips will buy one-third of the petrol stations currently owned by Unipetrol subsidiaries. The ConocoPhillips and Agrofert transactions are expected to close by end-2005. The Czech government decided to sell its 63% stake in Unipetrol to PKN Orlen in late April. PKN Orlen made its bid independently. However, it had signed a preliminary agreement with ConocoPhillips in January. At the end of 2003, PKN Orlen signed a cooperation agreement with Agrofert, which had won a previous tender for Unipetrol, but failed to come up with the EUR 361 mln for the deal in 2002. The Unipetrol group consists of 100%-owned subsidiaries Chemopetrol, Kaucuk, and Benzina, and the majority-owned subsidiaries CeRa (51%), Paramo (74%) and Spolana (80%). (Interfax 07.vi.04) ROMANIA ROMANIAN INTERIOR MINISTER RESIGNS Ioan Rus resigned on 13 June in order to concentrate his efforts on his bid to win the 20 June runoff for mayor of Cluj, Mediafax and international news agencies reported. In the runoff, Rus is facing Emil Boc, a candidate of the National Liberal Party (PNL)-Democratic Party alliance. Rus said his move is aimed at "dispelling reservations" that he might abandon the post of mayor, if he won it, and return to a governmental post. Since early March, he has been a state minister, which is the equivalent of a deputy prime minister. In the 6 June first round, Rus garnered 41 percent of the vote, as against Boc's 34 percent. PNL-Democratic Party alliance co-chairmen Theodor Stolojan and Traian Basescu said the move by Rus was a gimmick aimed to "save his image." (RFE/RL 14.vi.04) FIVE COMPANIES EXPRESS INTEREST IN ACQUISITION OF STATE-OWNED ELETRICA OLTENIA AND ELECTRICA MOLDOVA Five foreign companies are interested in the acquisition of two Romanian power distribution companies, a Trade Ministry statement announced. The statement claimed that AES (US), Public Power Corporation (Greece), CEZ (Czech Republic), E.ON (D) and Union Fenosa International (Spain) had sent letters expressing interest in state-owned Electrica Oltenia and Electrica Moldova. A consortium led by Bank of America Securities is the governmental advisor for this privatisation. Electrica Moldova has 1.3 million customers, while Electrica Oltenia has 1.3 million subscribers. Earlier this year, Enel (It) lodged a binding bid for another two power distributors, Electrica Banat and Electrica Dobrogea. (NewsBase 04.vi.04) RUSSIA GAZPROM FORMS ALLIANCE WITH MARCO INTERNATIONAL IN BID TO BUY STAKE IN ROMANIA'S GAS DISTRIBUTION COMPANIES Gazprom has found an unexpected partner in the Romanian gas distribution company privatisation campaign. Instead of Germany's WINTERSHALL, which has long been offering co-operation in this project, Gazprom has decided to form an alliance in which it will have a controlling stake with the metallurgical group Marco International. The latter controls the Romanian Conef gas trader, which annually buys 1.5 billion cu m of gas from GAZPROM, and also the Alro Slatina-Alprom aluminium holding company. The Romanian government plans to sell this year 51% stakes in Distrigaz Nord and Distrigaz Sud, which together control about 90% of the national gas market. (NewsBase 17.vi.04) PUTIN BACKS ALKHANOV AS CHECHEN PRESIDENT Chechen Interior Minister Alu Alkhanov announced Tuesday that he will run to replace assassinated President Akhmad Kadyrov, and the Kremlin threw its support behind his candidacy by publicizing a meeting with President Vladimir Putin. Alkhanov, who was unofficially nominated by allies of Kadyrov last week, told Putin he is taking leave from his post to run in the Aug. 29 election. Their meeting in the Kremlin was given lavish coverage on state-run Rossia television, clearly indicating that Putin favors Alkhanov as a replacement for Kadyrov, whose death was a blow to Kremlin efforts to control Chechnya. Putin said that as Chechnya's top police official, Alkhanov "was able to establish order in the republic and at the same time treat people with solicitousness," Interfax reported. Kadyrov, the Kremlin-appointed chief administrator who was elected president of Chechnya in a widely criticized vote last October, was killed along with five other people by a bomb blast at a stadium in Grozny on May 9. His powerful son Ramzan Kadyrov -- who is too young to run for the presidency -- and other allies made it clear last week that they favored Alkhanov as a replacement. Alkhanov, 47, was against Chechnya's independence drive in the mid-1990s and has fought against rebels in both of the wars in the region in the past decade, according to Russian media. He had been chief of the transportation police in Grozny since 2000 before being named interior minister in April 2003. Moscow-based Chechen businessman Malik Saidullayev is the other big name expected to run. He had led Kadyrov in opinion polls ahead of the October vote but was shut out of the election after a court invalidated some of the signatures collected in support of his candidacy. (The Moscow Times 16.vi.04) STATE TO KEEP BLOCKING STAKE IN SVYAZINVEST The government expects to keep a sizable stake when privatizing the country's telecoms holding Svyazinvest, Information Technologies and Communications Minister Leonid Reiman said Tuesday. "I think that selling 50 percent minus two shares is most realistic," Reiman told reporters. "This leaves the blocking stake with the government. The remainder could be sold at a second stage. I consider selling such a stake optimal, since the government can still hold a blocking stake and it would be possible to introduce the 'golden share' mechanism," he said. A blocking stake is at least 25 percent of shares. The government holds 75 percent in Svyazinvest after a sale of 25 percent of the company to financier George Soros in 1997 for $1.9 billion. Soros later said it was his worst investment and sold the stake this year to Russian businessman Len Blavatnik for $625 million. The government slated 25 percent minus two shares of Svyazinvest for privatization last year but later said investors had underestimated the cost of the shares. The State Property Fund said last month the sale should not be expected this year because there was no agreement in the government on its size. He also said it is necessary to improve the way Svyazinvest and its subsidiaries are managed, since the company's market share has fallen to 40 percent from 90 percent in the last four years. (The Moscow Times 16.vi.04) BATTERED YUKOS FINDS UNLIKELY OFFERS The Lithuanian Prime Minister blasted the Russian government over the Yukos affair Thursday, when a notorious corporate raider proposed purging the company's management as a means to stave off bankruptcy. "It would be a huge act of nonsense by Russia's government to drive such a company to bankruptcy," Lithuanian Prime Minister Algirdas Brazauskas said at a news conference in Vilnius, Bloomberg reported. Brazauskas' comments came after Yukos CEO Simon Kukes made his first public statement on the possibility of bankruptcy. He warned the situation could sharply deteriorate as early as this week, when a Moscow court is due to hear Yukos' appeal against a $3.4 billion tax bill. "If on the 18th we lose in the worst possible fashion... it will generate difficulties and things will accelerate," Kukes told The Wall Street Journal. Yukos shares plunged 6.4 percent, bringing down the RTS index by more than 3 percent Thursday following Kukes' comments. The company has had its assets frozen while the tax claim is being fought out in court, and two of its major shareholders are on trial on tax evasion and fraud charges. Yukos controls Mazeikiu Nafta, Lithuania's largest company and the only oil refinery in the Baltics. Russian observers viewed Brazauskas' comment as a diplomatic gaffe, especially at a time when the European Union is striving to create a common foreign policy. In the past, however, the EU has often voiced concern about the legal case against Yukos, insisting it be handled in a "fair, proportioned and non-discriminating way." In the newspaper interview, Kukes seemed to indicate that there was no possibility for an out-of-court settlement. A loss in court could lead Yukos to abandon its $1.9 billion capital expenditure program, Kukes said, which means the company would not be able to boost output by 10 percent this year as planned. The company is already showing signs of cutting capital expenditures, with first quarter output up just 9.3 percent vis-a-vis the same quarter last year, said Anton Zatolokin, oil and gas analyst at MDM Bank. By comparison, first quarter output last year was 22.6 percent higher than in 2002. Analysts are raising red flags about Yukos' cash flows, saying that with world oil prices at a record high, the company should have more money than it says it does. Some observes suspect that large shareholders, connected to Group Menatep, have begun redirecting the cash flow. Late on Wednesday Boris Jordan, the president of Sputnik Group, sent a letter to large minority shareholders calling for separate talks with the government that would bypass Yukos management and major shareholders. Jordan presided over oil firm Sidanco's bankruptcy in 1999 and acted on the state's behalf to take over NTV in 2001. Though he would not say how the management purge could be carried out, Peter Clateman, general counsel at Sputnik, said that there has been a "tremendous positive response" from Yukos minority shareholders. Yukos rejected Jordan's role as a middleman. "We don't need his services," said Hugo Erikssen, a Yukos spokesman. (The St. Petersburg Times 15.vi.04) PUTIN: NO MASS PURGES OF BANKS President Vladimir Putin moved to calm nerves in a financial market still shaken over the sudden revocation of Sodbiznesbank's license, telling Central Bank chief Sergei Ignatyev on Friday that there should be no mass purges of the banking system. His comments came at the end of a tense week in which banks began closing some credit lines to each other and interbank lending rates soared amid fears the Central Bank could be on the verge of a witch-hunt to rout out problem banks. The Central Bank also moved to ease the situation Friday, pumping liquidity back into the interbank lending system by cutting the refinancing rate by one point to a new post-Soviet low of 13 percent and lowering reserve requirements on corporate deposits from 9 percent to 7 percent. Putin's remarks and the Central Bank's measures should start to defuse a growing crisis of confidence in the banking system, which remains plagued by oversight problems, analysts said. The jitters began last month when the Central Bank for the first time flexed the powers of new money-laundering laws and revoked the license of Sodbiznesbank, a medium-size bank that the Central Bank alleged was involved in legalizing illicit funds. The Central Bank said about $1 billion in "suspicious transactions" was made through the bank last year. Police suspect it of accepting funds for a ransom payment in the kidnapping of and murder last year of two executives from KamAZ, the truckmaker. Sodbiznesbank denies any wrongdoing. A bank believed to have close ties to Sodbiznesbank, CreditTrust, closed its doors shortly after Sodbiznesbank. Both banks failed to make bond payments last week, possibly marking the first defaults since the August 1998 financial crisis. Analysts said other banks were spooked by the Central Bank's sudden action to revoke Sodbiznesbank's license because it left them unsure about the legality of some banking operations. Many banks offer "exotic services" allowing clients to pull money out of accounts without requiring them to report how it is used, an analyst said, speaking on condition of anonymity. These services range from relatively innocent practices such as enabling companies to underreport spending on advertising to blatant tax evasion. Putin's remarks Friday aimed at calming things down. But they left it unclear whether there is political will to clean up the sector, said Al Breach, chief economist at Brunswick UBS. (The Moscow Times 15.vi.04) RUSSIA NOT TO PARTICIPATE IN MULINATIONAL FORCES IN IRAQ Russia is not planning to participate in the multinational forces in Iraq, a high-ranking Russian diplomat has said. "This issue is not under consideration," Deputy Foreign Minister Yury Fedotov said in a Wednesday interview with Interfax. Resolution 1546 unanimously passed by the UN Security Council "fully resolves the issue of multinational forces in Iraq and provides them with a mandate, and the mandate of the multinational forces complies with political objectives that will have to be achieved in the transition period," Fedotov said. "The multinational forces will stay in Iraq under U.S. command, but these multinational forces will have to report to the UN Security Council on a regular basis, at least once every three months," he said. "The reports will be considered by the Security Council, and if need be, the Security Council will have the opportunity to make certain decisions if the situation calls for it," he said. Moreover, "the resolution also takes into account an exchange of letters between the U.S. and Iraqi government stipulating the procedures the multinational forces will follow in conducting operations, and the Iraqi authorities will have the right to influence decisions made on military and security issues." The mandate of the multinational forces "is determined by the objectives of the transition period, and their presence will continue until the political process in the country come to full completion, which will happen in December 2005," he said. (Interfax 11.vi.04) HOUSING-REFORM BILLS SPARK DUMA DRAMA Discussion on the floor of the State Duma of a package of housing-reform bills prompted the Communist and Motherland factions to walk out of the 10 June session, Russian news agencies reported. Communist Party leader Gennadii Zyuganov and Motherland faction member Oleg Shein told reporters that their factions are categorically against the bills, characterizing them as an attack on citizens' social rights. After the factions left the hall, deputies voted to pass the draft Housing Code in its first reading by a vote of 337-10, newsru.com reported. Deputies also passed a number of bills amending various laws, such as the Budget Code, Tax Code, Civil Code, and laws on mortgages, mortgage insurance, the basics of federal housing policies, housing owners' associations, payments for land, and privatization of the Russian Federation's housing fund, lenta.ru reported. Unified Russia and government experts worked together to draft the Housing Code. According to ITAR-TASS, the code is a framework document for the package of 27 draft laws aimed a creating an affordable housing market. State Duma Speaker Boris Gryzlov told ORT that the goal of the legislation is to reduce housing prices and spark demand for new construction. (RFE/RL 11.vi.04) ROSBUSINESSCONSULTING DECLARED INVESTOR SAFE Investors jittery about the risk-fraught Russian media sector need not be wary of buying into RosBusinessConsulting as its news coverage is too dull for the Kremlin to care, RBC CEO German Kaplun said Friday. Previewing RBC's second roadshow later this month, Kaplun said the software, information technology and business television specialist will offer 15 million new shares to help fund expansion, in an emission expected to raise up to $20 million. Russia's answer to Bloomberg, RBC is an information agency that started as a news wire, opened up an IT department that now accounts for a third of its revenues and last year opened the country's first dedicated 24-hour business television channel. RBC also recently teamed up with U.S. business channel CNBC in a joint programming venture. Hoping to finance the purchase of an undisclosed IT firm with its second share emission, Kaplun told investors not to worry about state interference in RBC. "We're safe because we never comment on political affairs," he said. RBC TV is gradually garnering viewers, mainly by cable in Moscow and St. Petersburg. Last year, television accounted for 12 percent of RBC's $3.7 million net profit, on sales of $48.5 million. In 2004, the company predicts earnings of $10.8 million on sales of $71.13 million. With a core audience of 1.6 million, RBC says its ambitions are not great enough to warrant an NTV-style takeover. "We have a niche audience and we'll never become a channel of national importance," Kaplun said. The company's five core shareholders will place 11.16 million existing shares with selected Russian and international investors at the same time as 15 million new shares are issued, of which the core shareholders will receive 11.16 million. The shares will be priced June 16, with the trading of newly placed existing shares beginning the next day. The percentage of RBC's free-float shares will rise to 36.1 percent from 26.5 percent, the company said. RBC's shares were down 3.5 percent at 55.50 rubles late Friday. RBC became the first Russian company to go public on local bourses in 2002 when it raised $13 million on the RTS and MICEX exchanges. (The St. Petersburg Times 08.vi.04) SERBIA AND MONTENEGRO DOMESTIC AND INTERNATIONAL BANKS TO SUBMIT BIDS FOR SALE OF 88% STAKE IN JUBANKA Domestic and international banks have until June 18 to submit bids in an international tender for the sale of an 88% stake in Jubanka, said Finance Minister Mladjan Dinkic, noting that the tender was launched on May 28. The government took over the majority stake in Jubanka after it swapped the bank's debt to the Paris Club of sovereign creditors into state-held equity, said Dinkic, adding that the bank's capital has been valued at around E116m. The state expects to acquire between E115m and E118m in the Jubanka sell-off, said central bank governor Radovan Jelasic, noting that the funds will settle the London and Paris club debts, repaying citizens' hard currency savings and strengthening the banking system. Serbia's banking sector privatisation, advised by French BNP Paribas, will continue with the sale of a 12% stake in Belgrade-based Eksim banka and a 1.5% stake in AIK banka from Nis. (NewsBase 10.vi.04) SERBIA WANTS TO RESUME ARM TRADE WITH RUSSIA Serbian Prime Minister Vojislav Kostunica said Serbia should resume its arms trade with Russia. "Our countries had good military-technical connections," Kostunica told journalists following a meeting with Russian President Vladimir Putin in Sochi. "Serbia is interested in continuing this cooperation with respect to international and political regulations that Serbia and Montenegro are currently subject to," he said. Kostunica suggested sending a delegation to Russia to negotiate on the issue. At the same time, he said that a visit of a ministerial delegation could precede a visit by arms traders. He said that Serbia and Montenegro's debt to Russia was discussed at the meeting, as was the issue of clearing Russia's debts to Belgrade. "We came to the conclusion that this question should not only be resolved: it should become one of the main ways of reinforcing our trade and economic connections," Kostunica said. Putin said that Russia's cooperation with Serbia in the fuel and energy sector and in banking shows promise. Kostunica said that Serbia is interested in attracting Russian companies. (Interfax 04.vi.04) SLOVAKIA RUHRGAS ENERGIE ISSUES PUBLIC OFFER FOR OIL AND GAS COMPANY NAFTA GBELY Germany's Ruhrgas Energie issued a compulsory public offer for shares in Slovakia's oil and gas company Nafta Gbely, on Monday. Last month Ruhrgas acquired a stake of 40% in the company from another German firm, RWE, and it is now offering 1,259 crowns (31.5 euros) for each of the remaining shares. Nafta Gbely is 56% owned by Slovakia's gas utility SPP, in which Ruhrgas and Gaz de France each hold stakes of 24.5% and wield management rights after SPP's partial privatisation in 2002. Nafta Gbely's main business is gas storage and in this area it expects revenues for 2004 at least to match last year's 2.9 billion crowns. Gas and oil extraction activities are expected to be down by 10% on the year. Overall, the company expects an annual profit after two years in the red. (NewsBase 09.vi.04) UKRAINE UKRAINIAN TYCOONS WIN TENDER FOR STEEL GIANT State Property Fund head Mykhaylo Chechetov announced in Kyiv on 14 June that the Investment-Metallurgical Union won the tender for the sale of a 93.02 percent stake in the Ukrainian steelmaker Kryvorizhstal, which accounts for some 20 percent of the country's steel output, Ukrainian news agencies reported. Chechetov said the union paid 4.26 billion hryvnyas ($800 million) for the stake, which was offered at a starting price of 3.8 billion hryvnyas. The Investment-Metallurgical Union represents the interests of the Interpipe corporation -- owned by Viktor Pinchuk, President Leonid Kuchma's son-in-law and a parliament deputy -- and of the System Capital Management company, which is controlled by Donetsk-based businessman Rynat Akhmetov. (RFE/RL 15.vi.04) NATO ENLARGEMENT: A TRIUMPH OF HOPE AND HYPE Ukraine is abuzz with anticipation over NATO's upcoming summit, to be held in Istanbul on 28-29 June. An observer reading the pro-government media would believe that Ukraine's chances of joining the Atlantic alliance will be significantly bolstered by the summit. The hype in Ukraine over this upcoming NATO event is symptomatic: Kiev seems to be using the NATO summit as a public-relations exercise. But NATO statements make it apparent that rather than backing Ukraine's bid, the alliance is instead gently demanding improvements in a wide range of areas before membership becomes an option. Kiev does have some modest grounds for its current enthusiasm. The summit will include a meeting of the NATO-Ukraine Commission, attended, unusually, by heads of state. Secondly, the mere fact that President Leonid Kuchma has been invited to attend the Istanbul summit is progress. This invitation is in stark contrast to the November 2002 NATO meeting held in Prague, when, despite being told publicly by NATO officials that he was not welcome, Kuchma journeyed to Prague anyway, creating a diplomatic incident. NATO organizers, not to mention attending heads of state, were flabbergasted, particularly when it became clear that the alphabetic seating plan would place Kuchma next to U.S. President George W. Bush and Britain's Prime Minister Tony Blair, both of whom were disgruntled at evidence that Ukraine had sold high-tech radar systems to Iraq, which the United States and Britain were busily preparing to invade. (TOL 11.vi.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. Interfax is a provider of accurate and reliable general news as well as financial and industry specific news and data from the emerging markets of Europe and Asia. Contact: Roland Hewes T: +44 (0)20 7467 2734 F: +44 (0)20 7486 1826 E: [email protected] W: www.interfax.ru/english NEW WORLD PUBLISHING New World Publishing is a primary source of business-related information for Central Europe, through its publications the Prague and Budapest Business Journals. 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