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Baltic Report: July 17, 2000

17 July 2000, Volume 1, Number 25
President Lennart Meri has called for an extraordinary session of the parliament on August 28 to formally debate his 30 June dismissal of Estonia's armed forces chief, Lieutenant-General Johannes Kert, Reuters and BNS reported 6 July. Meri took the action after a meeting of the national defense council (which met for the first time in 18 months) to discuss the growing public controversy concerning Kert's resignation. Under Estonia's constitution, only the parliament can change the commander of the country's defense forces. Defense council members said they were satisfied with Meri's explanations, but they declined to disclose any details.

With the backing of the national defense council, President Lennart Meri has formed a working group to help the council with the planning and implementation of a reformed command system for the Estonian defense forces, BNS reported on 6 July. Defense Minister Juri Luik will chair the group which includes Lieutenant General Johannes Kert, Brigadier General Mart Tiru, Riigikogu defense committee chairman Tiit Tammsaar, and Urmas Reinsalu, director of the president's office. This arrangement could allow Kert to apply his recent overseas training to help restructure the country's defense forces.

The head of Eesti Energia (Estonian Energy), Gunnar Okk, said on 6 July that the board of the state-owned utility will not sign the government-negotiated contract to sell U.S. based NRG Energy a minority stake in the country's power plants, "Eesti Ekspress" reported. Claiming that the terms of the contract would lead the company to bankruptcy, Okk said, "It is unlikely anyone will put us into prison for causing a loss to Estonia, but we may have to run from inquiry to inquiry in the future." BNS reported that refusal to sign the privatization contract may lead to the dismissal of the Board of Eesti Energia according to Economics Minister Mihkel Parnoja.

Estonian Prime Minister Mart Laar and Russian Deputy Premier Valentina Matviyenko took part in a two-day session of the Intergovernmental Russian-Estonian Commission in St. Petersburg, but they failed to reach an agreement to reduce discriminatory Russian import duties against Estonian goods, Itar-Tass and AP reported on 4 July. The co-chairs, however, did sign agreements liberalizing aviation and road transport between the two countries, and they hope to lift the double tariffs at the commission's next meeting this fall. Viktor Andreyev, leader of the Estonian United People's Party, told BNS on 4 July that Matviyenko had linked economic cooperation issues to the situation of Russian-speakers in Estonia.
* Government ministries began to submit their fiscal year 2001 budget requests 3 July. The cabinet will discuss the assembled draft budget on 1 August and submit it to the Riigikogu by 12 September, ETA reported on 4 July. Finance Ministry advisor Daniel Vaarik said that the budget drafting process has clear limits this year because the law prohibits a deficit budget, except for the financing of the pension reform. Budget experts had expected government spending to be 29 billion kroons ($2.3 billion) next year but ministries have been advised to cut back their budget requests, following the parliament's vote to reduce VAT rates.
* The Defense Ministry on 4 July proposed cutting the length of military service for most conscripts from 12 to 8 months, BNS reported. The draft legislation also names categories of conscripts who will serve 11 months: soldiers with communications and technology training, those serving in the navy and those appointed to NCO positions.
* On 6 July the new labor law expanding protections for the unemployed came into effect. The law, passed by parliament on June 14 and signed by President Lennart Meri, entitles all unemployed from the age of 16 through retirement to labor market services in seeking employment. It also abolishes the 60 day waiting period for unemployment benefits for those who left their jobs rather than being terminated by their employers.
* The Estonian government's chief negotiator for EU membership, Alar Streimann, told BNS on 5 July that Estonia's biggest problem in negotiations with the EU is the delay in the adoption of a law on debt obligations which would regulate the legal relationship between the consumer and provider of services. Streimann also said that problems in the fishing industry have delayed EU accession talks.
* The Estonian Social Democratic Labor Party (ESDTP) said that Estonia is not ready to join either the European Union or NATO, Itar-Tass reported on 4 July. Party Secretary-General Viano Pildes said that membership in NATO would be particularly disastrous because it would boost the countries defense spending to two percent of GDP at a time when the "social crisis is steadily growing."
* Oleg Morozov, a leader of the Tallinn Russian Citizens'Union, is again refusing to apply for a residence permit in Estonia, BNS reported on 7 July. Morozov has declared that he intends to do nothing to legalize his relationship with the Estonian state. He has been jailed for five days in the middle of June for failing to register; he may soon be deported. Some 320,000 non-citizens have applied and received residence permits in Estonia over the last five years.
* ETA reported on 3 July that the number of foreign tourists coming to Estonia fell by 17 percent to 211,400 persons in the first quarter year-on-year, according to the Statistics Office of Estonia, while domestic tourism grew by 22 percent in the first quarter to 13,200 persons. 89 percent of the foreign tourists came for one day or less, mostly from neighboring Finland.
* Police in Tallinn have arrested two boys for allegedly making bomb threats against the Pirita Selver supermarket in Tallinn on 28 June, BNS reported on 6 July. The two suspects have confessed, but because the minimum age for indictment in Estonia is 13, charges of malicious hooliganism can only be filed against the older of the two boys. The boys will have to settle a civil suit for 12,000 kroons filed by the supermarket.
* Estonia's government plans to quit using paper during cabinet meetings by switching over almost entirely to digital multimedia technology, DPA reported on 6 July. Linnar Viik, the prime minister's advisor on Internet and technology issues, said that the cabinet's new meeting room is being wired for both Internet and video-conferencing. Those unable to attend a meeting can participate through monitors in the middle of the room. Sessions of the parliament already are broadcast over the Internet, new laws are published immediately on-line, and an initiative is underway to digitally link all of Estonia's 250 municipal governments.
* Siemens president Heinrich von Pierer discussed the possible merger of the Estonian and Latvian energy companies and the Estonian-Finnish undersea power cable project with Economy Minister Mikhel Parnoja, ETA reported on 4 July. Von Pierer urged Estonia to join the western power grid as soon as possible and promised support from the EU in the expansion of the Baltic Sea energy circle which could be completed in two years. Siemens is a German-based electronics giant which ranks among the ten largest electronics firms in the world.

Janis Kononovs, the head of Latvia's Zemessardze, the national guards, submitted his resignation, saying he was doing so because of "the management's attitude towards an officer," BNS reported on 5 and 6 July. Kononovs did not elaborate. On 5 July, however, Defense Minister Girt Valdis Kristovskis said that Kononovs had resigned because of housing problems in Riga, but later Kristovskis added that "[p]ersonal qualities of Commander Kononovs [including an inability to speak English] prevent him from being sufficiently frank and energetic." Commander of Latvia's Armed Forces, Janis Graube, said that Kononovs was an exemplary officer but suggested that he "broke down psychologically."

Nearly 1,000 Latvian farmers blocked two customs checkpoints 5-6 July to protest the government's agriculture policy, AP and BNS reported. The planned one-day protest grew into two as farmers parked dozens of tractors, combines and other vehicles along the narrow two-lane roads at the customs stations 60 miles south of Riga on the Lithuanian border. The checkpoints at Meitene and Grenctale were blocked with farmers only allowing police and ambulances to cross on Thursday. The farmers were demanding an increase in annual state subsidies from 2.6 percent to 3 percent of the state budget, a rise of 2.4 million lats ($4 million) LETA reported. The protest ended on 6 July when the government promised to increase agricultural subsidies retroactively.

Government prosecutors have demanded severe punishments in the Banka Baltija criminal trial, BNS reported on 7 July. Prosecutor Juris Peda called for 13 years imprisonment for ex-banker Alexander Lavent, nine years in prison for former BB president Talis Freimanis, and six years imprisonment for bank employee Alvis Lidums. All three are charged with large-scale embezzlement, forgery of documents, and undermining Latvia's monetary system. The bank's collapse in 1995 affected 1.8 million people.
* President Vaira Vike-Freiberga and Prime Minister Andris Berzins denounced the 3 July vandalism at a Jewish memorial on the site of the former Riga synagogue where during World War II, German occupation forces burnt down the synagogue with 2,000 Jews locked inside on July 4, 1941. The prime minister asked the Minister of Internal Affairs Mareks Seglins to pay special attention to the protection of Jewish memorial places and to regularly report about the investigation and its results, BNS reported.
* Latvia awarded its highest state honor on 4 July to four nationals who rescued Jews during the Nazi occupation of WW II, dpa reported. Latvia's Three Star Order went to Bruno Rozenthals, 74, Olga Kruzmane, 83, Jadvija Arcehovska, 76, and Juris Berzins, 75. It was the first time Latvia has honored people who took such actions during the Holocaust, Rozenthals noted, adding that during the Soviet occupation, "these deeds were never taken into consideration." Grigorijs Krupnikovs, head of Latvia's Jewish community, said the recipients had "risked their lives 24 hours a day for months during the war" and fully deserved the honor.
* Latvian anti-corruption specialists told a seminar sponsored by the Latvian Corruption Prevention Center that inadequate laws, lack of political will and an insufficient number of experts to investigate corruption and money laundering are the main obstacles to the government's anti-corruption efforts, BNS reported on 7 July. Eriks Zvejnieks, High Prosecutor of the Prosecutor General's criminal law department noted that the Prosecutor General's Office does not have the right to make any legislative proposals, and that Latvia still has not ratified the European Anti-Corruption Convention it signed 18 months ago.
* Riga City Council Chairman Andris Argalis fired Sarmite Reinsone, the acting head of the Riga Housing Privatization Commission, on 7 July, LETA reported. The Latvian prosecutor's office had asked for Reinsone's dismissal because he is charged with granting rental and property rights for two apartments through fraudulent means, and also abuse of power. The crimes took place between 1994 and 1996 when Reinsone was the head of the Riga Central District Housing Department. On June 8, Argalis fired Riga Housing Privatization Commission Chairman Janis Rupkus, and Reinsone was appointed acting head. Argalis has now named Dags Auzuleja temporary acting head at the commission.
* The Kurzeme regional court sentenced Jevgenijs Savenko to two years in prison for crimes of genocide committed during World War II when he was an official of the USSR security institutions. Time spent in custody will reduce Savenko's actual prison term to18 months. The prosecutor had asked the court to sentence Savenko to five years in prison. Savenko has apologized to his victims.
* The Citizenship and Migration Administration told LETA on 7 July that 503,462 non-citizens were registered in Latvia and that 93 percent of them have valid documents. An estimated 22,000 non-citizens have not yet exchanged their former USSR passports for Latvian non-citizen passports.
* The Economic Research Institute in Latvia reported on 6 July that 71.2 percent of Latvian residents do not have health insurance coverage. The percentage increases to 82.7 for rural residents, while in Riga the number declines to 61.8 percent.
* The German-based Siemens AG will grant scholarships to several Latvian students to study at German universities according to the company's president Heinrich von Pierer, BNS reported on 3 July. In talks with Latvian Prime Minister Andris Berzins, von Pierer called on German businessmen to play a more active role developing information technologies in Latvia.
* A new high-speed passenger train built in Riga under a Latvian-German joint venture, arrived in Tbilisi, Georgia from Riga, Itar-Tass reported on 4 July. The train will shuttle between Tbilisi and Batumi. It has 350 seats and Mercedes engines. This is the third passenger train bought by Georgia from the Latvian-German venture.
* The Russian oil company LUKoil has increased the volume of oil handled at the Ventspils port in the first half of 2000, LETA was told by LUKoil Baltija R president Haims Kogans on 7 July. In the first six months of this year, "LUKoil" loaded 1,655,000 tons of crude oil or 430,529 tons more than last year at the port. Kogans said that the increase came in the first quarter, but in the second quarter the company cut back supplies by 585,000 tons of crude. Kogans decline to forecast volumes for the last half of the year at the port.
* LETA reported on 7 July that 33 participants of the Latvian School Children's Song and Dance Festival in Riga have come down with salmonella poisoning. Twenty of them are still hospitalized. The Riga Environmental Health Center reported that the youths are between the ages of 12 and 18, and all appear to have eaten egg-fried pork chops and chicken fillets on the final day of the festival.

The Lithuanian parliament on 4 July passed a controversial change to the national electoral system in advance of the October 8 vote, Reuters and AP reported. The change affects the 71 parliament seats under the single-mandate system, which are now decided by a first-past-the-50 percent mark system. The election law change would allow candidates to win with a plurality and avoid a run-off between the two top vote-getters. The change is thought to favor incumbents in the parliament, ELTA reported. The 70 multi-mandate parliamentary seats are unaffected by the changes in the electoral law. The ruling Homeland Union-Conservative Party estimates that the change will save the Lithuanian taxpayer five to six million litas ($1.25-1.5 million) in election costs. Some opposition parties have blasted the change, while members of the parliamentary opposition party, the LDDP, abstained from voting for the changes. The Social Liberals and other members of a new self-described center electoral coalition are urging President Valdas Adamkus to veto the legislation.

Lietuvos Energija (Lithuania's Energy) renewed electricity exports to Belarus on 4 July, ELTA reported. Company executives said that they hope to export 30 million kWh to Belarus in July alone. The electricity is being purchased by the Russian utility company, Energia, through a barter agreement signed on 16 May. Energija will pay for the electricity by providing Russian-made nuclear fuel for the Ignalina nuclear power plant. Belarus still owes over $80 million to Lietuvos Energija for electricity provided in 1998 before Lithuania terminated the exports over $100 million in non-payments. Controversy continues in the Lithuanian government over how to collect that debt. State Controller Jonas Liaucius sent a letter to Prime Minister Andrius Kubilius on 4 July ELTA reported objecting to the government's plans to transfer the Belarusian debt to private firms at a discount. The controller argued that Belenergo, the Belarus state energy monopoly, has acknowledged its energy debt to Lithuania and that former middle-man for energy sales to Belarus, Baltic-SHEM, has not yet been taken to court to recover the $80 million debt to Lietuvos Energija. The same day, the board of Lietuvos Energija appealed to the Economics Ministry to give the right to collect the Belarusian debt to competing Lithuanian and foreign companies.
* Lithuania celebrated its "Day of State" marking the coronation of Lithuania's Grand Duke Mindaugas as the country's first and only king on July 6, 1253. Events to celebrate the historic date include a reception hosted by President Valdas Adamkus where the government would bestow awards to almost 400 persons who contributed to Lithuania restoring its independence, BNS reported on 5 July. A Lithuanian flag measuring 1,300 square meters was to be hung from the Vilnius TV tower on Saturday setting a new record in the country's book of records.
* President Valdas Adamkus said on the Day of the State on 6 July that he saw "no outside threats for the country," ITAR-Tass reported [BNS and ELTA did not cover the speech]. "I cannot agree with the idea that Lithuania has enemies in the East and in the West who are waiting on our borders for a chance to attack us, " Adamkus said. Adamkus' comments are seen by many as an indirect criticism of parliament speaker Vytautas Landsbergis who has advocated an assertive policy in defense of Lithuania's national interests. Landsbergis on 5 July told BNS reporters that since the adoption of the law seeking compensation from the Russian Federation for the Soviet-era occupation, "there is more clarity in our relations in Russia and this is not a bad thing." Landsbergis characterized the recent law as increasing "transparency" in the relationship between Lithuania and Russia. In early June the Russian Ministry of Foreign Affairs issued a statement rejecting the Russian government's 1991 public acknowledgement of the illegality of the Soviet occupation of Lithuania.
* The Foreign Affairs Committee of the Seimas on 4 July voted unanimously to call on President Valdas Adamkus to convene a meeting of the Presidential Foreign Affairs Coordination Council in order to allow for a discussion of recent changes in Russian military and foreign policy doctrine, as well as growing tension in Lithuania-Russia relations, BNS and ELTA reported. In 1998, when the council was formed it convened three times, but last year Adamkus called it into session only once and no meetings have been held this year
* The Vilnius Area court formally suspended the war crimes trial of accused Nazi collaborator Alexandras Lileikis after a medical panel diagnosed the 93-year old defendant unfit to participate in court hearings even via video link from his sick bed, BNS and ELTA reported 3 July. Court appointed doctors are obligated to inform the court about Lileikis' health on a monthly basis and notify the court about any possibilities for the defendant to again participate in proceedings through closed circuit video. Lileikis remains at the Vilnius University Hospital where he was rushed on 24 June 20 minutes into the court proceedings.
* Another signatory of Lithuania's March 11, 1990, Act to restore the country's independence has refused to accept the Independence Medal from President Valdas Adamkus, BNS reported. MP Algirdas Patackas, a member of the Christian Democratic parliamentary faction, said he objects to the method by which the President's office chooses recipients for the award. Patackas read a statement at a press conference Tuesday which said, "They are often and methodically given to people having nothing to do with honor." Patackas joins independence signatory Algirdas Endriukaitis and former member of the Restoration Seimas Ruta Gajauskaite who refused to accept the honor. Controversy has swirled around the President's office since February when well-known Soviet-era dissident Nijole Sadunaite criticized Adamkus for giving the awards to a former Soviet security colonel and a KGB collaborator.
* Lithuanian residents have yet to feel any signs of recovery in the economy, the Lithuanian Statistics Department reported to ELTA on 4 July. Cash income of local residents dropped by seven percent in the first quarter of 2000 with the income of hired labor dropping by eight percent and business income slumping by 21 percent from the year before. Average monthly income per household member was 330.5 litas ($82.62) for the first three months of 2000, which was 24.8 litas ($6.20) less than the first quarter of 1999.
* The government issued permission to Lietuvos Avialinija (LAL), Lithuania's state-owned airline, to receive a $7.5 million loan from the Lithuanian-based Industry Bank on 5 July, ELTA reported. Transportation Minister Rimantas Didziokas said that a share of the loan would pay for the company's debt for the lease of its Boeing 737-300. As of 18 May LAL owed $2.6 million on the lease from the US-based International Lease Finance Corporation. Last year net losses of LAL were 24.6 million litas ($6.15 million), while first quarter losses were 14.5million litas ($3.625 million). The balance of the current government guaranteed loan will cover operating expenses for LAL and is to be repaid within seven years.
* A small hydroelectric power plant of 1.2 megawatts capacity, constructed by a joint Lithuanian-Norwegian venture called the Scandtrade Construction Group, officially opened in the Kedainiai district on 5 July, ELTA reported. The newly constructed power plant is the biggest in Lithuania and will supply electricity to the country's energy grid. The cost of the project exceeded one million litas ($250,000). Scandtrade intends to build seven additional small hydroelectric power stations in the Kedainiai district over the next few years.
* Visiting Siemens AG president Heinrich von Pierer told Lithuania's Economy Minister Valentinas Milaknis that Siemens intends to expand its company, Baltijos Automobiliu Technika (Baltic Automobiles Technology) in the port city of Klaipeda and take part in the Lithuanian government's project of building an energy bridge to Western Europe, ELTA reported 5 July. Siemens has already invested over $18 million in Lithuania.
* A meeting between Lithuanian government Chancellor Petras Austrevicius and leaders of associations of farmers, milk processors and the agricultural chamber on 4 July concluded that the previous week's strike by farmers ended in failure. Approximately 20 percent of milk producers, mainly small-scale farmers, boycotted the milk processing plants in hopes of forcing the government to renew milk subsidies raising a guaranteed price for a liter of milk to 55 cents. The boycott was called off by its organizers, the Peasants' Party and the Association of Farmers, on 3 July because only 30 percent of milk was being withheld by producers. The Ministry of Agriculture has recently announced that farmers with only 1 or 2 dairy cows will be eligible for a support grant, while large-scale farmers will soon be eligible for the European Union's SAPARD program and credits from other international lenders.
* Crude processing volume at the Mazeikiu Nafta refinery increased by 64 percent in June for a total of 453,083 tons in June compared to the volume refined in May, ELTA reported on 5 July. Mazeikiu Nafta stood idle for ten days in May because of a shortage of crude oil from its suppliers. The total for the first six months of 2000 is 2,434,749 tons of crude which is still 10.5 percent less as compared with the first half of 1999.
* The city council of Lithuania's second largest city, Kaunas, has repealed a 1993 ordinance banning smoking on the city's main boulevard, Laisves Aleja (Freedom Boulevard), BNS reported 4 July. This was the only street where such a ban existed and violators could be fined 50 litas ($12.50). The city council decided to retain the smoking ban in the public square of the Vytautas the Great Military Museum located at one end of the boulevard where the eternal flame burns on the grave of the unknown soldier. City council members were afraid that undisciplined youths would desecrate the national monument by lighting their cigarettes from the eternal flame.

Estonian Businessmen Fight Back

by Mel Huang

Estonia is currently experiencing a phenomenon rare in central and east Europe -- its home-grown businessmen are challenging their foreign counterparts.

For most of the last decade, foreign companies have dominated the Estonian big business scene, making heavy investments and winning the privatization of many large companies. Fields as diverse as textiles, heating utilities, alcohol production and banking are now controlled by foreign -- mostly Swedish and Finnish -- investors. The money invested into Estonia often has brought rapid development within the specific industry and society in general. Unfortunately, this foreign investment sometimes has led Estonians to conclude that they are simply the backyard of their Nordic neighbors.

But now, even though foreign companies continue to play a major role in the local economy, Estonian businessmen are making their mark across the economy. Acting in fields as diverse as the hotel/hospitality sector, oil transit, as well as construction and security, these native businessmen are challenging foreign involvement in the two largest privatization deal of the year -- Narva Elektrijaamad (Narva Power Plant) and Eesti Raudtee (Estonian Railways), casting their arguments in terms of national protectionism.

The first of the two involves the sale of a minority 49 per cent stake of Narva Elektrijaamad (NEJ) -- the power plants that produce over 90 per cent of Estonia's electricity -- to U.S. company NRG Energy. After more than four years of negotiations, the government and NRG agreed to various conditions including guaranteed electricity purchase by the state for 15 years. Such conditions are offset by the hundreds of millions of dollars promised by NRG for investments into the power plants' efficiency and environmental control. But the deal is bitterly opposed by some of the country's strongest business interests.

Various Estonian businessmen and business associations, as well as the power utility Eesti Energia (Estonian Energy, EE) have condemned the deal, arguing that the ensuing electric tariffs hike would stymie growth in the Estonian economy. The most vocal of the critics is Juri Kao, the chairman of EE's supervisory board and also the chairman of the Association of Industry and Employees. He is backed by other powerful businessmen, such as Toomas Luman, chairman of the Estonian Chamber of Commerce and Industry (also a member of the EE supervisory board), and Aadu Luukas, chairman of the Estonian Business Association, among others.

These three powerful individuals signed a letter calling for the deal with NRG to be quashed, saying it is against the national interests of Estonia. Instead, the deal's opponents proposed that the refurbishment and investments into NEJ come from within the country. Another part of this debate concerns the proposed merger of EE and its Latvian counterpart, Latvenergo. Some in Tallinn are concerned that with the sale of NEJ, EE would lose most of its negotiations leverage with Latvenergo since the main goal of the Latvian side is to secure supply (Latvia, dependent on hydroelectricity, is a net importer; Estonia, using domestic oil shale, is a net exporter). The businessmen also argue that the guaranteed price agreed to by the two sides in the NRG deal would make electricity artificially high-priced. The latter scenario would end the possibility of export to Scandinavia by a yet-to-be-built undersea power link.

Despite the intense lobbying by the businessmen, who have a lot of clout with the current pro-business administration, the government has all but given an ultimatum for EE to sign the deal. But regardless of the outcome, it was a major move by the country's home-grown business community to assert itself in large-scale projects.

This assertiveness again manifested itself in an unprecedented joining of 30 of the country's most powerful businessmen to take part in the privatization of the country's railways, Eesti Raudtee. The new consortium, named the People for Railways Privatization (RER), joins together the "who's-who" of Estonian businessmen, even those in competition with each other. The group's investment advisor said that the firms represented by the group are responsible for 15-20 per cent of the nation's GDP.

The group is mounting a strong challenge in the opening round of the railway's privatization. Many foreign firms, including Finnish and American concerns, have expressed interest in the privatization. Originally several of the Estonian businessmen first became active in the scene over fears that Finnish transit concerns -- which is seen as a direct competitor of Estonia for Russian transit -- could win the privatization bid. This "dream team" of Estonian businessmen is also appealing to sentiments less than financially-driven, saying infrastructure as important as the nation's railways must remain Estonian.

In both cases, Estonia's business community has shown that it is ready -- both financially and organizationally -- to take part in the largest deals involving Estonian companies. Though such tactics may result in a slowdown of foreign investment, it is also a sign that the business community has moved beyond the transition stage and is now maturing into a major player.

Compiled by Asta Banionis, Martins Zvaners, and Mel Huang