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Russia: Government Pressure On Gazprom To Pay Taxes May Bring Results

Moscow, 3 July 1998 (RFE/RL) -- As government, parliamentary leaders and observers this morning nervously expected the results of a Kremlin meeting between President Boris Yeltsin and the chief executive of gas giant Gazprom, Rem Vyakhirev, to give further indications on developments of a showdown between the cabinet and the country's main tax debtor, the shocking news that an influential legislator and outspoken Yeltsin critic had been shot dead in his country house risked creating even more confusion in Moscow's hypersensitive political circles.

However, just a few hours later, the situation, concerning both the acute conflict between the government of Prime Minister Sergei Kiriyenko and Gazprom and the abrupt death of retired general Lev Rokhlin, seemed to be clarifying.

Interior Ministry spokesman Evgeny Ryabtsev said that Rokhlin's wife, Tamara, "had admitted" she had killed her husband "by one shot in the head last night with the general's own Makarov-system pistol." And federal Security Service officials said that there was no reason to suspect, as some influential Duma members had claimed early this morning, that the killing had a political motivation.

Rokhlin had led the opposition to the Kremlin military reform, saying it would destroy Russia's armed forces and damage the image of Russia internationally. Rokhlin had urged servicemen to disobey Yeltsin's orders. His political movement, Movement to Support the Army, sets as its main goal Yeltsin's ouster.

If confusion and possible dangerous developments surrounding Rokhlin's murder seemed to subside rather quickly, only several top level meetings this morning made clear to the Gazprom leadership and to observers that Yeltsin was fully backing the government's effort to collect taxes from companies from tax dodgers.

In an attempt to set a powerful example and send an important signal to investors, who for weeks have been fleeing Russia's markets with possible dire consequences for Russia's economy and political system, Kiriyenko's government yesterday threatened to seize Gazprom assets and break an agreement under which Vyakhirev manages a 35 percent state-owned stake in the powerful and politically influential gas monopoly unless Gazprom promptly agreed to pay millions of dollars in back taxes.

Gazprom is the worlds largest gas producer and should contribute 25 percent of the country's tax revenue. Officials said that making sure that the company pays timely and in full is crucial for the government, if it wants to fill budget holes and overcome the crisis on its financial market.

Following a day of confusing reports that accompanied hours of convulsive negotiations, Gazprom agreed to a protocol stipulating that the company agrees to pay 4 billion rubles (some $680 million) in unpaid taxes by Monday, July 6, and also to begin paying regularly the same amount on a monthly basis.

The government, for its part, agreed to take steps to ensure that budget-funded organizations pay Gazprom what they owe for gas deliveries. Gazprom, as Russia's other monopolies, has difficulties paying its taxes, because it cannot collect tax payments from customers, many of which are government-funded organizations, including the armed forces, hospitals and schools.

Gazprom officials acknowledged that the company owes the budget 12 billion rubles in back taxes, but the government owes Gazprom 1 billion rubles more in unpaid bills of state customers. Deputy Prime Minister Boris Nemtsov had convened the collegium of state representatives in Gazprom on 2 July to draft the protocol. Nemtsov said, "despite the rather stormy nature of the discussions, an agreement has been reached.

However, the fact that Vyakhirev was in Austria and not in Moscow yesterday, coupled with the tax service threat to seize "ruble and currency accounts of debtors, as well as planes, yachts, boats, cabins, swimming pools and sport facilities," contributed to fueling speculation that the government was cracking down on the company, using Soviet era methods.

Interviewed by NTV, a private network in which Gazprom owns a 30 percent stake, an angry Vyakhirev called the government crackdown "a real circus" and compared it to a "guerrilla operation of the Chechen war."

The Kremlin press service, for its part, yesterday said Yeltsin was "fully aware" of the tough negotiations under way, but spokesman Sergei Yastrzhembsky said the president and Kiriyenko had not talked about seizing Gazprom property or replacing Vyakhirev.

Confusion surrounding the government's crackdown on Gazprom continued until late Thursday evening and only after Yeltsin's meeting with Vyakhirev Gazprom shares, that yesterday had dropped by more than 13 percent, started recuperating on Russia's domestic market, indicating that investors were slowly believing that the government moves could get results.

Vyakhirev had also described the tax controversy as a "provocation" and had charged that the confrontation benefits those who would like to see Russian markets collapse and money flow out of Russia and Gazprom.

In contrast, Kiriyenko told outraged deputies in the state Duma during an unscheduled meeting yesterday evening, that the move was taken for precisely the opposite reason. He said that the crisis on financial markets "is based on one main reason: the belief that the Russian state is unable to implement its decisions."

Kiriyenko had been forced to appear in front of deputies, after Speaker Gennady Seleznev had been forced to call him by angry deputies, who assailed the prime minister with accusations of wanting to liquidate the Russian federation and being part of a Western plot to break up one of the world's largest companies.

In a statement directed at deputies, but also at worried observers from political and financial organizations, Kiriyenko told deputies that "as long as this government is in office there will be no break up of Gazprom and natural monopolies. But as long as this government is in office, the government will work to reinforce its control on properties it controls. As a Duma member correctly said, Gazprom is not a small private stand-shop, but the country's most important industry. If Gazprom does not pay its taxes, nobody will pay them and this will be the end of the state."

Kiriyenko explained to the deputies that the government could proceed with the measures it had announced, because a clause of the trust agreement with Gazprom, concluded last year, with Vyakhirev, when Kiriyenko was energy minister, makes full and timely tax payments a condition of the trust. And Kiriyenko said that Vyakhirev had been fully warned that the government could take control of Gazprom directly, dissolving the agreement, if the company would not comply.

Kiriyenko told deputies that the company leadership had threatened to stop gas supplies to cities and industries, to "see how the government would react" to the show of power. He added that the government "had come to the conclusion to react normally, using legal means in its possession." Kiriyenko concluded that "everybody must pay taxes. The government will allow no blackmail."

During his meeting with Vyakhirev today, Yeltsin appeared to have taken a tougher stance then yesterday. He backed the government's firm commitment against tax dodgers and to throw his weight behind Kiriyenko, whom he appointed only three months ago to replace Gazprom's long-standing strongman, Viktor Chernomyrdin .

Chernomyrdin is a staunch defender of the company's "untouchable" and privileged status and some Russian media today suggested that Yeltsin, bringing Gazprom under tighter state control, may also have wanted to undermine the company's already announced commitment to support Chernomyrdin in the year 2000 presidential election.

In remarks broadcast on Russian television networks, Yeltsin instructed Vyakhirev during a 15-minute meeting to break the "circle of non-payments" in the economy. Yeltsin said that "all companies, large, medium, small, and monopolies, too, must pay their full share of taxes, regardless of what is paid to them." He added that "payments to the budget may be made in full, irrespective of whether Gazprom has been paid in full." He also said that "there was and agreement in this sense between the company and the government, but he [Vyakhirev] again did not pay in full."

After the meeting, Vyakhirev told journalists that "somebody is behaving unfairly in this case." He charged that the government had not provided Yeltsin with full information regarding Gazprom's debts to the budget.

Following his meeting with the president, Vyakhirev also held talks with Kiriyenko. News agencies quoted Kiriyenko's press secretary, Konstantin Voitsekhovich as saying that Vyakhirev agreed to the protocol signed yesterday at the collegium of state representatives in Gazprom and that Kiriyenko had confirmed the government commitments to take steps to ensure that budget-funded organizations pay Gazprom what they owe for gas deliveries.

However, Tax Service chief Boris Fedorov has made clear that the order to seize Gazprom property has not been canceled, but merely suspended until 1 August.

Most observers in Moscow say that Kiriyenko and his government have, maybe, won a battle, but by no means have they have won the war against tax dodgers.

The Duma yesterday rejected a law to change the income tax scale, which was a key part of the government's anti-crisis plan. The law would have maintained a 12 percent tax on all annual incomes below 20,000 rubles. The tax on annual incomes greater than 100,000 would have been reduced from 35 percent to 30 percent. Incomes between 20,000 and 100,000 rubles would have been taxed at a rate of 2,400 rubles plus 20 percent of all income above 20,000 rubles. The law would also have banned widespread tax dodging schemes, such as paying people's "real salaries" in cars, housing or in the form of interest on bank deposits or with insurance policies. These practices are not taxed under the current fiscal legislation.

And today, deputies approved in the third reading a law that would require a medical exam for the president if doubts arose about his health. The constitution states that the president's term ends early in case of "persistent inability to carry out his duties" but does not outline a mechanism for determining the president's fitness. The law, supported by 316 votes, would allow either house of the parliament to ask the Supreme Court to consider the president's health. Since 1995, Yeltsin has periodically spent weeks or months away from the Kremlin recovering from health problems. He is certain to veto the law if it is approved by the Federation Council.

Last night, following the Gazprom controversy, rumors started appearing in Moscow that Yeltsin had been once again hospitalized. But the rumors were dismissed by news agencies reports read loud during late evening news broadcasts, quoting unnamed government officials who called the rumors "provocations." Overall, news coverage on media controlled or linked to Gazprom powerful "Gazprom Media" holding portrayed the government's actions in an unfavorable light, suggesting that inexperienced cabinet members led an attack against Gazprom management but ultimately backed down from the confrontation.

NTV commercial television, part of the Media Most empire of Vladimir Gusinsky, broadcast a friendly interview with Vyakhirev. Gazprom purchased a 30 percent stake in NTV in 1996, and a high-ranking executive from Media-Most, Sergei Zverev, recently became Vyakhirev's deputy, in charge of heading Gazprom-Media The daily newspaper "Segodnya," which also is part of Media-Most group, today criticized the government's "gas attack against Gazprom" as well.

The same day, "Nezavisimaya gazeta" termed the events surrounding Gazprom "Sergei Kiriyenko's last mistake" and a "multibillion-dollar stupidity." CIS Executive Secretary Boris Berezovsky is the main financial backer of "Nezavisimaya gazeta."