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Baltic Report: January 23, 2002

23 January 2002, Volume 3, Number 2
The statistics institutions of the Baltic states announced that in the third quarter of the year the GDP of Latvia grew by 6.3 percent while those of Estonia and Lithuania rose by 5 percent, BNS reported on 29 December. GDP growths for the first nine months of 2001 were 7.9, 5.3, and 5.1 percent, respectively. On the other hand, Latvia also had the highest current account deficit, $193.9 million or 10 percent of anticipated GDP. Estonia had a deficit of $79.6 million or 6 percent of anticipated GDP while Lithuania had $13.75 million or 0.4 percent of anticipated GDP.

The start of operations at the Russian Primorsk harbor in the Gulf of Finland could decrease significantly the exports of oil through the Baltic states, BNS reported on 3 January. A report by Russia's Rosbalt news agency asserted that routing oil from the Tyumen-Pechora and western Siberian oil fields to the new terminal at Primorsk would reduce by $2 per ton the current costs of transport through Latvia's Ventspils facility.

Fulfilling the pledge made in December, Prime Minister Mart Laar handed the resignation of his government to President Arnold Ruutel on 8 January, ETA reported. Ruutel has two weeks to name a candidate for prime minister, who in turn has two weeks to present a cabinet to the parliament for approval. It was expected that the new government would be formed with a coalition of the Center Party and Reform Party as its core, but in a surprise move Center Party Chairman Edgar Savisaar invited the leaders of the People's Union and the Moderates for consultation the next day on forming a new coalition. Moderates Secretary-General Tonu Koiv has said his party will not cooperate with the Center Party as long as it is led by Savisaar, but the party's board will meet on 10 January to discuss the proposal. Reform Party Chairman Siim Kallas, who is considered to be the most likely next premier, said he was surprised by Savisaar's offer to the other parties, but even though the three parties have similar world outlooks their coalition would mean too abrupt a turn to the left.

The government canceled its agreement with the U.S. firm NRG Energy on the privatization of the Narva Elektrijaamad (Narva Power Plants) because it failed to sign a loan agreement for 285 million euros ($258 million) for renovating the power stations by the 31 December 2001 deadline, ETA reported. Prime Minister Laar said that the six-year negotiations with NRG Energy had actually benefited Estonia, as it had facilitated the drafting of the energy sector's development plan. The Economy Ministry has been given three months to submit alternative proposals for the plants' renovation.

Arnold Ruutel held talks on 9 January with the leaders of nine political parties about the political situation following the resignation of the three-party coalition, ETA reported. The chairmen of the Center Party (Edgar Savisaar), People's Union (Villu Reiljan), and Pro Patria Union (Mart Laar) advocated new elections, while the leaders of the other parties said early elections would go against Estonia's interests. Ruutel stated that he favors the formation of a new coalition "because if we now fail to form a new government, the people will be even more disappointed in power." In response to Savisaar's invitation to hold talks on forming a coalition, Moderates Deputy Chairman Eiki Nestor sent a statement saying: "The prerequisite for talks over any government coalition lineup is President Arnold Ruutel's decision on naming a candidate for prime minister." Nestor also claimed that he thinks talk of a new coalition is just a trick to show voters that the Center Party is not rushing to form a coalition with the Reform Party.

Center Party Chairman Savisaar told the Kanal 2 TV channel on 5 January that he cannot understand why People's Union Chairman Reiljan is stating that the 2002 state budget would not allow his party to join a coalition with the Center and Reform parties, BNS reported. Savisaar noted that the current ruling coalition has made significant revisions to the budget drawn up by the previous government of Mart Siimann and that a new coalition could do the same. Reiljan has expressed his dissatisfaction that the budget provides too little support for local governments. He also mentioned Savisaar had not yet contacted him about joining the new coalition.

Arnold Ruutel signed the controversial 2002 state budget bill on 7 January, ETA reported. The budget of 33.13 billion kroons ($1.9 billion) approved by the parliament on 19 December, is 11.2 percent greater than the 2001 budget, but foresees lower allocations for local governments. Ruutel said he signed the bill with a heavy heart for this reason, but expressed the hope that the government will work together with local municipalities to address the interests of Estonia's regions.

The Estonian government on 8 January endorsed the Latvian-Estonian agreement on preventing double taxation and tax evasion, BNS reported. The agreement replaces a similar 1993 agreement that Latvia decided to ignore last year after Estonia abolished its corporate income tax on reinvested profits. Latvia started taxing Estonian companies doing business in Latvia with local taxes beginning on 1 June 2001. In December 2001 the Latvian government approved the new agreement, which the two countries agreed to apply beginning 1 January 2002.

The Tallinn city government approved on 3 January a new 2002 city budget, which is 700 million kroons ($39.6 million) lower than the 5.2 billion-kroon budget proposed in November by former Mayor Tonis Palts of the Pro Patria Union, ETA reported. New Mayor Edgar Savisaar said the amount of planned loans will be reduced from 1.5 billion kroons to 395 million kroons. Other changes to the budget include the reduction of funds for the renovation of schools from 339 to 207 million kroons, and for road repairs from 226 to 116 million kroons, while funding for housing construction will be increased from 48 to 145 million kroons.

The Estonian Genome Foundation, the EGeen company, and the U.S.-registered EGeen International Corporation (EGI) signed agreements on 31 December on the financing of a genetic database pilot project, ETA reported on 2 January. EGI pledged to cover the estimated $2.5 million cost of the project in five parts, and made the first $100,000 payment after the signing. Health data and tissue samples of 10,000 donors will be first collected in the counties of Saaremaa, Laane-Virumaa, and Tartumaa to test the developed model of the project and the security and quality of the processes. The Genome Foundation project aims to study the genes of Estonians by taking blood samples from as many volunteers as possible. Genetic cards will be created for all participants and this information will be used to improve the health situation of Estonians by taking hereditary data into consideration.
* Russian Ambassador to Estonia Konstantin Provalov proposed to President Ruutel during a 45-minute meeting on 8 January that he send a special representative to Moscow to prepare a meeting with Russian President Vladimir Putin, ETA reported the next day. The last official meeting of these presidents took place in the Kremlin in the summer of 1994, when Presidents Lennart Meri and Boris Yeltsin signed the agreement on the withdrawal of Russian troops from Estonia.
* Ilmo Au, the head of the Interior Ministry Department of Religious Affairs, said that the dispute over the registration of the Russian Orthodox Church in Estonia is apparently coming to an end, Aripaev reported on 10 January. The ministry will agree to register it as the Estonian Orthodox Church of the Moscow Patriarchate while the church will amend its statutes to rule out the interpretation of the Moscow Patriarchate Church as part of the Estonian Apostolic Orthodox Church.
* Preliminary figures of the Finance Ministry indicate that the revenues collected in 2001 totaled 30.38 billion kroons ($1.71 billion), or 102 percent of planned receipts, BNS reported on 2 January. Expenses were only 29.54 billion kroons, yielding a surplus of 839 million kroons.
* The Estonian Statistics Office announced on 8 January that the consumer price index increased by 0.2 percent in December compared to November, and 4.2 percent compared to December 2000, BNS reported. The costs of goods increased by 0.3 percent, and those of services fell by 0.1 percent.
* The Customs Board announced on 28 December that exports in November were 6.51 billion kroons ($367 million) and imports 8.09 billion kroons, BNS reported. The foreign trade deficit of 1.58 billion kroons was significantly lower than the 2.44 billion-kroon deficit in October, due to a decline in imports of 857 million kroons.
* The Tallinn city budget collected 3.36 billion kroons ($190 million) of income in 2001 or 79.1 million kroons (2.4 percent) more than planned, ETA reported on 4 January. City expenditures were 3.16 billion kroons, including loan repayments and interest in the sum of 329 million kroons.
* Education Minister Tonis Lukas rejects claims by local governments that they do not have enough money to pay for the planned 15 percent increase in the salaries of teachers, noting that the state budget had assigned an additional 200 million kroons ($11.4 million) for them, BNS reported on 8 January.
* Amphenol Eesti, a subsidiary of the U.S. cable maker Amphenol, opened its new Tallinn plant in December with 300 employees, ETA reported on 31 December. The construction of the plant was begun in July. The company had earlier operated under the name MicroLink Elektroonika. It expects to raise the number of workers in the plant to 700.
* The confederation of Estonian medical workers' trade unions ETTAL considers the minimum hourly pay of 12 kroons offered to hospital attendants by the association of hospitals to be too small and is sticking to its earlier demand of at least 13.5 kroons, BNS reported on 28 December.

Latvian Social Democratic Workers Party (LSDSP) faction Chairman Egils Baldzens and deputies Risards Labanovskis, Janis Leja, Peteris Salkazanovs, and Imants Burvis announced on 7 January that they are leaving the LSDSP and forming a new faction, LETA reported. Baldzens told a press conference that they will form a new party, which will be called the Social Democratic Union. One of the main factors influencing their decision was their dissatisfaction with increasingly intimate relations between the LSDSP and the leftist For Human Rights in a United Latvia (PCTVL), whose leaders, they say, "deny democracy, the national state, and the Latvian nation." Baldzens asserted that the dissenters hope the views of most LSDSP members on state language, citizenship, education, voting rights to noncitizens, and NATO membership are cardinally different from those of the PCTVL.

Judge Inara Steinerte of the Riga Regional Court completed reading out the more than 1,000-page verdict in the Banka Baltija fraud trial on 28 December, LETA reported. She started reading the sentence on 19 December. The verdict found former Banka Baltija board Chairman Aleksandrs Lavents and President Talis Freimanis guilty of intentionally leading the bank to bankruptcy, the establishment of fictitious companies for taking out loans, and large-scale embezzlement. They were handed prison sentences of nine and six years respectively, and their property was confiscated. Alvis Lidums, the head of the law office Birojs L&A was sentenced to three years and three months in prison for embezzlement, but was released because he has already served that time. The court satisfied the civil claim by Latvenergo electricity utility company of 8 million lats ($12.55 million) from the defendants, but rejected a claim by the Banka Baltija liquidator for 26 million lats, saying a separate claim can be filed through a civil proceeding. Banka Baltija, once Latvia's biggest bank, went bankrupt in 1995, and charges were brought against the defendants in 1996.

The State Treasury announced on 3 January that preliminary calculations indicate that the state budget for 2001 will have a deficit of only 74 million lats ($116 million), BNS reported. A budget deficit of 91.5 million lats was originally planned, but was later reduced to 79 million lats in an agreement with the International Monetary Fund. The main reason for the reduction was better-than-expected results in the social insurance sphere in 2001, in which revenues were 513 million lats and expenditures 525 million lats. A deficit of 28 million lats had been anticipated.

Defense Minister Girts Valdis Kristovskis said on 9 January that the ministry's plans to build a NATO-capable radar system manufactured by the U.S. firm Lockheed Martin in the Audrini district of the eastern Latvian county of Rezekne may be changed due to protests by local residents, BNS reported. He said experts from the joint Baltic airspace control project BALTNET determined that the district is the best location to provide maximum radar coverage of the airspace over the Baltic states and some 350 kilometers beyond their borders because of the area's relief and access to a nearby military airfield. Ignoring explanations that the radar would not have any negative effects on human health and the environment, Audrini residents have vehemently opposed the construction of the radar station. Kristovskis plans to visit Audrini on 19 January to calm the population's fears, but admitted that the radar site could be moved some 10-20 kilometers away from Audrini. However, he said such a move would increase costs since the area would need access roads and electric power and telecommunications lines.

Latvian ports handled 56.9 million tons of cargo in 2001, or 9.8 percent more than in the previous year, LETA and BNS reported on 10 January. The direction of the cargoes was clearly one-sided; outgoing cargoes totaled 54.4 million tons while those coming in were 2.5 million tons. An important factor in the increase was a record-breaking level of crude oil (17.7 million tons) and oil product (13.7 million tons) exports. About two-thirds of the cargoes (37.9 million tons) went through the port of Ventspils, but the greatest increase in turnover (11.5 percent) was in Riga, the country's second-largest port, which handled 14.9 million tons.

The Food and Veterinary Service restored export certificates to the European Union for five dairies: Limbazu piens, Vidzemes piens, Preilu siers, Rigas piena kombinats, and Rigas piensaimnieks on 4 January, LETA reported. The service suspended the certificates of nine dairies in early December after European Commission experts found shortcomings in milk sorting. Export certificates were not restored to the dairies Tukuma piens, Valrit, Bauskas piens, and Pampali because they only plan to address the EU's concerns later this spring.
* Ex-Riga Mayor Andris Argalis, currently a deputy on the Riga City Council, withdrew from For Fatherland and Freedom/LNNK (TB/LNNK), LETA reported on 28 December. He wrote in a letter to party Chairman Maris Grinblats that TB/LNNK had come under the influence of sponsors and schemers and did not work for the "good of the nation." In a newspaper interview the next day, Argalis blamed Grinblats for keeping the party in opposition after the municipal elections and said that he cannot agree with the formation of the new party Jaunais Laiks (New Era).
* In its accession talks with the European Union, Latvia has asked that fishing quotas in the Gulf of Riga be given only to ships which have a history of operating in that area, BNS reported on 3 January. Estonian Environment Ministry fish stocks department head Ain Soome said he cannot accept the proposal asserting, "Ships account for only 20 percent of the catch of Baltic herring whereas 80 percent is caught with pound nets."
* Ventspils Mayor Aivars Lembergs has sent a letter to Prime Minister Andris Berzins proposing that the subsistence wage be raised to 94 lats ($147) a month from 1 April and indexed each year according to the inflation rate in the preceding year, LETA reported on 8 January. He noted that the subsistence rate was set at 38.23 lats in 1994 and has not been changed since. The rate is important since the law on social assistance states that an individual is recognized as indigent when the monthly income per family member is below 75 percent of the subsistence wage and that municipalities should provide assistance to indigent persons.
* The Latvian Central Statistics Office announced on 9 January that the CPI in December rose by 0.4 percent compared to November, and 3.2 compared to December 2000. During the year the price of goods rose by 3.7 percent and of services by 1.6 percent.
* Minister of Finance Gundars Berzins said that the current social tax rate of 35 percent (employers pay 26 percent and employees 9 percent) could be reduced by 1 percent from 1 July 2002 and another 1 percent from 1 January 2003, "Dienas Bizness" reported on 8 January.
* The Constitutional Court has ruled that the prison regulations, approved by the Correctional Institutions Administration, not allowing some prisoners to receive food parcels from friends and relatives did not comply with Latvia's Constitution, LETA reported on 2 January. It noted that the regulations would discriminate against prisoners whose relatives did not have the possibility for sending money.
* The parliament deputies of the LSDSP on 9 January elected LSDSP Deputy Chairman Valdis Lauskis as the new chairman of the faction, replacing Egils Baldzens who left the party a few days earlier, LETA reported. Party Chairman Juris Bojars also announced that the faction will have one deputy chairman instead of the current two.
* Latvia's Russian Language School Support Association has sent a letter to President Vaira Vike-Freiberga, urging her to propose to the parliament and government that every child should have the right to obtain an education in his/her native language, LETA reported on 9 January. The association's board chairman Igors Pimenovs wrote that the transition to education in the state language, while acceptable at university level, should not be implemented in primary and secondary schools.

Recently elected Russian Trade and Industry Chamber Chairman and former Russian Prime Minister Yevgenii Primakov stated during a private visit to Vilnius on 5 January that he does not want Lithuania to receive an invitation to join NATO at the Prague summit in November, BNS reported. He said such a move could threaten the international campaign against terrorism. Primakov asserted that there "are no obstacles" for the Russian State Duma to ratify the 1997 border agreement with Lithuania, and if new visa requirements are established should Lithuania become a member of the European Union, "Lithuania will suffer more because for each Kaliningrad resident crossing the Lithuanian border there are four Lithuanians going to Kaliningrad." An article in "Lietuvos rytas" on 7 January questioned this, noting that the Lithuanian budget would actually gain from stricter requirements since many Lithuanians only travel to Kaliningrad to purchase cheaper gasoline, alcohol, and sugar.

Mazeikiai Oil announced on 2 January that its losses in the first 11 months of 2001 were 189.5 million litas ($47.4 million), or 43.4 million litas more than the losses generated during the same period last year, even though the volumes of all its operations were greater, ELTA reported. The refinery processed more than 6 million tons of crude oil in the first 11 months, a 43 percent increase compared to the same period in 2000. The Birzai pipeline pumped 28.3 million tons of oil, or 6.1 million tons more than in 2000. The amount of oil shipped through the Butinge terminal increased by 1.9 million tons to 5.1 million tons. The company remained Lithuania's largest taxpayer, paying a total of 1.8 billion litas in the 11-month period, including 1.01 billion litas for value-added taxes and 686 million litas for excise taxes

Jose Pons Irazazabal, who resides in Copenhagen, informed Lithuanian officials during his four-day visit to Vilnius about the priorities Spain has set for its six-month presidency of the European Union in the first half of 2002. In separate meetings on 10 January he told President Valdas Adamkus and Prime Minister Algirdas Brazauskas that Spain's main priorities include EU enlargement, economic stability and social welfare, increasing the EU's influence in the world, and the fight against international terrorism, ELTA reported. Irazazabal stressed that his country favors Lithuania's admission into the EU as soon as possible and that Prime Minister Jose Maria Aznar, whose flight to Vilnius was canceled by the terrorist attacks of 11 September, plans to visit Lithuania in the first half of the year. He noted that the political decision to open a Spanish embassy in Vilnius has been made, but the country's Finance Ministry must resolve financing difficulties.

The cabinet decided on 3 January to establish a Crisis Prevention Committee as another step in implementing an effective crisis management system that meets NATO standards, BNS reported. The committee will consist of deputy defense, interior, social security and labor, environment, agriculture, foreign, economy, and finance ministers. The committee will meet at least once a month to discuss information on hazardous phenomena and potential threats. The Lithuanian Crisis Management Center, whose headquarters in central Vilnius began functioning on 1 January, will operate 24 hours a day and provide information to the committee. The Crisis Management Committee, which was created by the government at the end of last year and is made up of defense, interior, foreign, economy, and finance ministers, is the leading institution in Lithuania's new crisis management system. It will have the authority to make decisions and develop measures to head off disasters, as well as to present recommendations for further action to the president, prime minister, and parliament chairman.

Former Prime Minister Rolandas Paksas and nine other deputies from the Liberal Union announced on 7 January the formation of a new faction to be called the Independent faction, "Lietuvos rytas" reported the following day. Former Economy Minister Eugenijus Maldeikis was elected chairman of the new parliamentary faction with former Environment Minister Henrikas Zukauskas as his deputy. Deputy Juozas Raistenskis, who had also declared he was leaving the Liberal Union, decided to join the ruling Social Democratic Party.

On 8 January, parliament Chairman Arturas Paulauskas signed the amendments to the Higher Education Law approved by the parliament in December, ELTA reported. The previous day, President Adamkus asserted that the amendments contained evident flaws but decided not to veto them because such a move would have led to a confrontation with the parliament. The amendments, which will go into effect beginning January 2003, introduce a uniform tuition fee of 500 litas ($125) per semester. As defined by the amendments, half of the daytime and one-third of evening students receiving the highest grades will be exempt from paying tuition, while others will be entitled to low-interest loans with 15- to 20-year payment plans. Prime Minister Brazauskas expressed doubts as to whether the funds required by the amendments will be found, as the real costs for each student is about 5,000 litas per year, "Lietuvos rytas" reported on 9 January.

The Vilnius City Council by a vote of 38 to six, with three abstentions, approved on 9 January a draft agreement on leasing the city's heating system for 15 years to the French utility Dalkia, "Lietuvos rytas" reported the next day. Dalkia has promised to invest about 700 million litas ($175 million) into the heating network while retaining the existing heating fees until 2004. The agreement has been very controversial and its terms modified following comments by the Prosecutor-General's Office, the Finance Ministry, and the State Audit Office. After talks on 8 January with Economy Minister Petras Cesna, Vilnius Deputy Mayor Algimantas Vakarinas, and the head of the National Energy Association Leonas Asmantas, President Adamkus suggested that the Vilnius City Council should delay voting on the draft agreement until all parties concerned "arrive at a common consensus."
* Deputy Health Minister Vidmantas Zilinskas and his Belarusian counterpart Vitaly Kliuchenovich signed a bilateral agreement on cooperation in health care in Vilnius on 28 December, BNS reported. The agreement outlines a procedure for providing necessary medical aid to the nationals of both countries staying in the territory of the other state in cases of emergency and accident.
* Among 162 countries listed in the United Nations Human Development report, Lithuania raised its index from 0.789 in 2000 to 0.803 in 2001 and rose from 54th to 47th position, BNS reported on 9 January. The index is calculated from average life expectancy, education, income, and social conditions. Estonia and Latvia were ranked 44th and 50th, respectively, with indices of 0.812 and 0.791.
* Lithuania's CPI edged up by 0.3 percent in December compared to November, and by 2.0 percent compared to December 2000, BNS reported on 9 January. The largest increases during the year were 21.1 percent for communication costs and 6.2 percent for food and nonalcoholic beverages, which were eased by a decrease of 10.9 percent in transportation costs and of 2.9 percent for clothing and footwear.
* Preliminary data from the Finance Ministry indicates that the central government collected 6.38 billion litas ($1.595 billion) in revenues in 2001, 127 million litas or about 2 percent less than foreseen, BNS reported on 3 January. The budget deficit of 735 million litas was below the projected level of 906 million litas.
* The flow of foreign direct investment grew by 11.5 percent or 1.08 billion litas ($268 million) in the first nine months of this year and totaled 10.41 billion litas as of 1 October, BNS reported on 28 December. The largest investments during the year came from Denmark, Sweden, Estonia, Germany, and the U.S.
* The Ignalina nuclear power plant produced 11.29 billion kilowatt-hours (kWh) of electricity in 2001, 34.1 percent more than in 2000, BNS reported on 28 December. While internal consumption of electricity decreased by 7 percent, its export increased by nearly 4.5 times.
* The power utility Lietuvos Energija (Lithuanian Energy) sold 44 million litas ($11 million) of the outstanding debt for electricity owed by the Belarus state-owned utility, Belenergo, to four buyers for 24.3 million litas, BNS reported on 29 December. Belenergo still owes Lietuvos Energija $34 million. The utility resumed electricity exports that day to Russia's Kaliningrad region and Belarus after the first reactor of the Ignalina nuclear power plant was put back into operation following a shut down for unscheduled repairs on 29 December.
* The State Food and Veterinary Service announced on 2 January that in 2001 exports of poultry to foreign markets were 1,146 tons or double those of last year while exports of beef and pork were 3,140 and 669 tons, respectively, ELTA reported.
* The Supreme Court on 28 December rejected all appeals by pro-Soviet communist officials convicted of plotting and attempting to overthrow the Lithuanian state on 13 January 1991, ELTA reported. It let stand the sentences passed by lower courts against Mykolas Burokevicius, 75, Juozas Kuolelis, 69, Leonas Bartosevicius, 74, and Stanislavas Mickevicius.
* On 7 January Pope John Paul II accepted the resignations of three bishops who had reached the mandatory retirement age of 75 and appointed Jonas Boruta, Jonas Kauneckas, and Rimantas Norvilas as the new bishops of the dioceses of Telsiai, Panevezys, and Vilkaviskis, respectively, BNS reported.
* Lithuania paid on time its financial obligations to the UN for the first time during its 10 years of membership in the organization, BNS reported on 29 December. In 1991 it had been set a membership fee of 0.15 percent of the total fees of all the member states, based on the share the USSR had paid previously. The fee was lowered in 1998 to 0.045 percent of the main UN budget, in 1999 to 0.022 percent, and in 2000 to 0.015 percent.