Baltic Report: September 1, 2000

ESTONIA AND NRG SIGN POWER PLANT DEAL.
U.S.-based NRG Energy has signed an agreement with representatives of the state-owned utility Eesti Energia (Estonian Energy) and the Estonian government to buy a 49 percent minority share in Narva Elektrijaamad (Narva Power Plants), the country's main power plants, AP and BNS reported on 25 August. The package includes the basic terms of the sale and the shareholders' agreement, an investment plan, electricity purchase and thermal power purchase agreements, and the shareholders' agreement for Eesti Polevkivi (Estonian Oil Shale), the primary supplier of oil shale to the plants. Economics Minister Mihkel Parnoja said that the transfer of shares in Narva Elektrijaamad will happen only after all the agreements are concluded, which could take up to 12 months. Center Party chairman and deputy Edgar Savisaar, a leader of the opposition, told BNS that his party will continue to oppose the sale. The latest public opinion polls show only 8 percent of the population support the deal and 67 percent are against it. (See "End Note" below.)

U.S. MILLIONAIRE SPONSORS DIVE TO 'ESTONIA' WRECKAGE.
On 22 August, U.S. millionaire Gregg Bemis and a team of divers made a controversial dive to the wreckage site of the ferry "Estonia," which sank in the Baltic Sea on 28 September 1994, claiming 852 lives. Bemis says that this dive attempt, which has been condemned by the governments in the region, is part of a broader effort to prove wrong the conclusions drawn by an international panel on the cause of the sinking, BNS reported. Swedish coast guard officials boarded Bemis' vessel, "One Eagle," on 24 August to try to talk Bemis out of the dive, which earlier had been complicated by rough seas, dpa reported. Bemis told Reuters on 26 August that his crews are only filming the exterior of the vessel and will not enter the ship. The divers are investigating a claim that a bomb explosion led to the sinking of the vessel. Estonia, Finland, Russia and Sweden, have signed an international agreement to protect the wreckage as a mass grave.

OSCE COMMISSIONER PRAISES ESTONIAN INTEGRATION...
OSCE High Commissioner for Minorities Max van der Stoel commended Estonia for its progress in integrating its minorities during a farewell visit to Tallinn on 23 August, ETA reported. Van der Stoel said that Estonia has made remarkable progress since his first visit in 1993 and acknowledged the government for bringing the language law into full compliance with international standards. Van der Stoel's term expires in December.

...BUT 'REPATRIATION' STUDY PROVOKES CONTROVERSY.
A draft proposal from an Interior Ministry official promoting the repatriation of Russian citizens to Russia is sparking controversy in Estonia, BNS reported on 23 August. The document, drafted by the head of the ministry's department dealing with aliens, Jaak Valge, proposed that those aliens ill-adjusted and not integrated into Estonian society could be repatriated with funding assistance from the state. Populations Minister Katrin Saks said "it is not a serious document." Deputy Interior Ministry chancellor Tiit Sepp confirmed that the proposal is not the ministry's official policy and condemned the leak. And Prime Minister Mart Laar said: "on those papers there is nothing in common with the government's policies," "Postimees" added. Laar's government has earmarked no money for the migration fund for next year, preferring to channel the money into integration efforts.

* The Russian Foreign Ministry issued a statement on 24 August rejecting scrapping the present simplified border crossing procedure between Russia and Estonia, BNS reported. The Estonian and Russian governments have been negotiating to meet an 11 September deadline set by the Estonian government to introduce a full visa regime, as required by the European Union, if Estonia is to qualify for membership in the organization. The Russian government objects because of what it says will be new burdens on the 10,000 to 15,000 residents of the border areas who frequently need to cross. The Russian government is proposing a "soft" transition to a visa regime which would entail the two countries' border checkpoints keeping lists of residents until annual multiple-entry visas can be issued to everyone who needs them. The council of elders of the Setu Congress, which unites ethnic Estonians inhabiting the area in the far southeastern corner of Estonia and the Pechory district of Russia on both sides of the present Estonian-Russian demarcation line, sent a letter to the Estonian government protesting the decision to switch to a full visa regime with Russia, BNS reported on 26 August.

* Russian Ambassador to Estonia Aleksei Glukhov criticized Estonian policies towards its Russian-speaking minorities and called on the EU to put pressure on Estonia to change its course, "Postimees" reported on 25 August. Glukhov accused the "nationalistic" government of trying to break all links with Russia and Russians "despite our common history," adding that this has made life for ethnic Russians "unbearable." He specifically criticized the government's plan to merge the Russian-language schools into the education mainstream later this decade. The leader of the Russian Baltic Party in Estonia, parliament deputy Sergei Ivanov, however, criticized Glukhov's statements for being confrontational and non-diplomatic. BNS reported on 25 August that Glukhov will resign his post as ambassador this fall and retire from Russia's foreign service.

* Energy sector cooperation topped the agenda of Finnish Foreign Trade Minister Kimmo Sasi during a working visit to Estonia on 24 August. Sasi and Estonian Economics Minister Mihkel Parnoja discussed ways to cooperate in the sector, including the plan to build an underwater power line between the two states--in effect linking the Baltic power grid to that of the rest of Europe, ETA reported. "Aripaev" added that the decision on whether or not to build the underwater cable will be made as early as September or October.

* Georgian Foreign Minister Irakli Menagarishvili met with Prime Minister Mart Laar, Foreign Minister Toomas Hendrik Ilves, and other officials during a visit to Estonia 21-23 August. Laar stressed that "Estonia will continue supporting Georgia in international relations," ETA reported. Ilves and Menagarishvili signed a bilateral customs agreement. Estonia offered to train Georgian border guards and police officers, based on earlier requests by Georgia that its officers study at the Baltic Defense College in Tartu. Menagarishvili also pledged his government's assistance in relieving the difficult situation of ethnic Estonians living in Abkhazia, BNS reported on 22 August. About 500 Estonians have resettled in Estonia from Abkhazia since the early 1990s when Abkhazia broke away from Georgian control with the help of Soviet troops. Many of the remaining residents lack internationally recognized travel documents.

* The Estonian government decided to drop a plan to impose a 26 percent income tax on interest paid on bank deposits, ETA reported on 22 August. The government had little choice after the Moderate Party joined other parties in the ruling coalition in opposing the tax proposal on 21 August, BNS reported. The new tax, which was expected to raise 50 million kroons ($2.9 million) annually in additional revenue for the government, had drawn considerable criticism from the country's banks, who charged that the tax would depress domestic savings and be expensive to administer.

* The average monthly wage in Estonia reached a record in the second quarter of 2000, breaking the 5,000 kroon ($288) barrier for the first time. In the quarter, the average monthly wage was 5,031 kroons, rising by 10.5 percent from the second quarter of 1999, according to the Statistics Department. Among professions, financial mediation remained the best paying at 220 percent the average, while hunting and farming remained lowest at 55.4 percent and 55.7 percent of the average. In the second quarter of 1995, the average wage was 2,395 kroons. Estonia's currency has been pegged at 8 kroons to the Deutschmark since 1992.

* Trade unions, the government, and the employers' association failed to reach agreement on raising the minimum wage at their meeting on 24 August and will continue their negotiations in September, ETA reported. The trade unions want the minimum monthly wage to be raised to 1,650 kroons ($97) from the current 1,400 kroons ($88), citing increases in the average wage, inflation, and increases in productivity. The government has proposed raising the monthly minimum wage to 1,500 kroons while the employers favor a 1,470 kroons level combined with raising the tax-exempt amount.

* On 1 September, a total of 15,547 children will start their first year of school, about one-third fewer than started school in 1995 when nearly 24,000 children entered the first grade, ETA reported on 25 August. The Ministry of Education projects that in 2005 the number of first graders will drop to around 12,000. A total of 210,648 children will attend elementary and secondary school this year. The reduction in the number of school children will inevitably lead to the closure of some small rural schools. This year 20 have been closed.

* Robert Lepikson, the controversial governor of Viru county, submitted his resignation on 18 August to Interior Minister Tarmo Loodus, citing slow progress in administrative reform as the reason, "Eesti Paevaleht" reported. Lepikson is the champion of the idea of "Greater Viru," which would merge several counties in the south to form a larger unit. Minister for Regional Affairs Toivo Asmer defended the government's record on regional reform, telling "Postimees" that the number of local governments will be cut from the current 247 to about 70 by the next local elections in 2002. Lepikson, a former cabinet minister with a track record of scandal and controversy, is one of the 30 businessmen taking part in the privatization of the country's railway company Eesti Raudtee.

* BNS reported on 24 August that 658 of the 1,500 members of the Coalition Party have left it and plan to form a new right-of-center party headed by Ulo Nugis, also a former member of the Coalition Party. The Coalition Party was a leading force in the previous government.

* The Pro Patria Union, the largest of Estonia's ruling coalition parties, expressed support to the Belarusian opposition parties and invited their representatives to the Pro Patria Union congress, BNS reported on 22 August. Jaanus Reisner, foreign secretary of the Pro Patria Union, told BNS that "the situation in Belarus is similar to that in Estonia 10-12 years ago." This summer Reisner twice spoke at seminars held by the united opposition in Belarus.

* Estonia is among the world's 20 leading countries in Internet usage according to a report by McConnell International, a technology consulting company, BNS reported on 22 August. The report says that 28 percent of Estonia's population uses the Internet and 90 percent of public sector employees in Estonia use computers at work. Government information as well as Estonia's parliamentary debates are readily available via the Internet.

* Member hotels of the Estonian Union of Hotels and Restaurants increased their turnover in the second quarter of this year by 21.3 percent to 231.1 million kroons ($13.6 million) the union reported to ETA on 21 August. The average occupancy rate of the hotels was 66.3 percent in the second quarter, reaching as high as 74.7 percent in June. Year-on-year, the occupancy rate has increased 3.4 percent. The bulk of the guests came from Finland and Sweden, with Estonians making up less than 10 percent of the total number of guests. The turnover of restaurants increased 23.1 percent year-on-year and amounted to 58.3 million kroons in the second quarter of 2000. Founded in 1992, the Union of Hotels and Restaurants has 51 members in Estonia.

* The Estonian Ornithological Society has filed a court case against the Kihelkonna Council for approving the preliminary plans for the building of the Undva Bay deepwater port in northwestern Saaremaa, BNS reported on 22 August. This is the first case of a non-governmental environmental organization taking legal action against a local government in Estonia. The environmentalists charge that the council incorrectly evaluated the effects on the environment which would endanger a rare bird species, the Steller's eider, which uses the bay as a wintering area and the risk to the neighboring Vilsandi National Park, which is Estonia's oldest nature reserve.

LATVIAN LANGUAGE REGULATIONS SPARK CONTROVERSY.
The Latvian government on 22 August approved regulations implementing the language law adopted in December 1999, BNS reported. Justice Minister Ingrida Labucka said that the 11 rules are in line with all international standards and recommendations from experts were taken into consideration. The regulations, which deal with language proficiency for professional employment and the spelling of transliterated names, have drawn fire from the left-wing parliamentary opposition and Russian activists. The regulations and law itself goes into effect on 1 September. OSCE officials have said they will refrain from commenting until they examine a certified English translation of the regulations, LETA added. The Russian Foreign Ministry issued a statement charging that some of the rules "give broad possibilities for arbitrariness," ITAR-TASS reported on 25 August. The statement also said that the actions of Latvian authorities are the result of "silent obsequiousness of several foreign partners to the discriminatory policy of the Latvian government towards the national minorities."

RIGA EXPLOSION PROMPTS CALLS FOR REGIONAL COOPERATION AGAINST TERRORISM.
In the wake of the Riga and Moscow bombings, regional leaders have called for expanded cooperation in the fight against terrorism, BNS reported on 20 August. In his message of condolence to Latvian President Vaira Vike-Freiberga, Russian President Vladimir Putin offered Russian assistance in combating terrorism. Lithuanian Prime Minister Andrius Kubilius said there was an "urgent need for the Baltic states to unite in the campaign against terrorism and organized crime." Latvia has asked 11 countries for help in investigating the 17 August bombing, Reuters reported on 25 August. No one has claimed responsibility for the blast, nor has anyone been charged. The State Police Headquarters received 13 false bomb threats in various Riga locations since the bombing at the "Centres" shopping center, LETA reported on 25 August.

RIGA BOMBING TAKES FIRST LIFE.
Maija Pusmucane, a 53-year old clerk at the baggage check counter of the shopping center bombed in Riga on 17 August, died on 21 August from wounds suffered in the explosions. Pusmucane, who was being treated at the special Karolinska Hospital burn unit in Stockholm, had burns on almost 60 percent of her body, BNS reported. Two other seriously injured victims remain in serious but stable condition in Norway, while 10 more victims remained in Riga hospitals as of 21 August. Police are continuing a thorough investigation into the bombings, and have released several composite portraits of both possible perpetrators and vital witnesses. Prime Minister Andris Berzins cut his French holiday short to return to Latvia. On the day of the blast 130 soldiers from the National Armed Forces "Baltbat" unit at the Adazi training base donated blood to the victims at the State Blood Donors Center, LETA reported on 21 August. The shopping center "Centrs" has reopened.

* U.S. Ambassador to Latvia James Holmes said in an interview published in the newspaper "Lauku Avize" on 24 August that Latvia must keep moving towards the West but that its government always has to be prepared for the moment when Russia is ready to normalize relations. He assured Latvia of U.S. support in implementation of such a policy because "everybody understands that the slow pace in building bilateral relations is due to Moscow because it is Russia which keeps silent and fails to respond to Latvia's efforts."

* The new Latvian National Guard commander, Juris Kiukucans, took office at an official ceremony on 21 August, during which his predecessor, Janis Kononovs, handed over to Kiukucans the National Guard flag, BNS reported. The ceremony in the National Guard headquarters in Riga was attended by National Armed Forces Commander Raimonds Graube, a Defense Ministry representative, National Guard brigade and battalion commanders, as well as foreign military attaches. Kiukucans is a graduate of Riga Polytechnical Institute and has served in the National Guard since 1992. He has studied at the U.S. Marshall Center for Military Sciences and Defense Economics College. In September 1997, he was appointed the Latvian Defense Ministry's military representative to NATO.

* On 23 August, the Latvian National Guard, also known as the Home Guard, celebrated its ninth anniversary at its headquarters, LETA reported. Flowers were placed at the Monument to Mother Latvia in the Brethren Cemetery at 9 am by the new National Guard commander, Juris Kiukucans, and at 11 am national guardsmen who had distinguished themselves in service were honored in a ceremony at the War Museum, which was attended by Minister of Defense Girts Valdis Kristovskis and National Armed Forces Commander Raimonds Graube. Currently, about 16,000 men serve in the five brigades of the National Guard.

* Only 20 people gathered outside the Russian Embassy in Riga on 23 August for a picket to protest the Molotov-Ribbentrop Pact which was signed on that day in 1939 and led to the division of Europe for a half century, BNS reported. The protest action proceeded calmly and featured posters which said "Russia's duty--to compensate what USSR did to the Baltic states and peoples." The Fatherland and Freedom/LNNK Party sponsored a procession and rallies outside the Russian and German embassies.

* Latvian parliamentary deputy Janis Adamsons announced on 21 August that he will file a civil lawsuit against both "Diena" and the Prosecutor-General's Office, BNS reported. Adamsons would not explain to BNS the exact specifics of the complaint, but many observers in Riga believe it to be linked to the so-called "pedophilia scandal," in which Adamsons in February publicly named three high-ranking government officials as being involved. The Prosecutor-General's Office has asked the parliament to lift Adamsons' immunity for libel against the three. "Diena" editor in chief Sarmite Elerte said: " I hope that Mr. Adamsons at last will stop cowardly hiding behind his lawmaker's immunity and stand before legal investigation like any Latvian citizen in this case should do," adding that she hopes the public move by Adamsons would not dissuade lawmakers from lifting his immunity.

* The prosecutor in charge of the criminal case against Ainars Eisaks, the former head of the Mrs. Latvia beauty pageant office in Riga, who is charged with pedophilia and sexual perversity, asked the court to sentence the defendant to seven years in prison, BNS and LETA reported on 24 August. Defense lawyer Juris Moculskis told the press that the charges against his client had not been proved and asked the court to acquit. The court also has the discretion to apply an amnesty law to the case which would cut the sentence in half.

* A survey by the Riga Drugs Prevention Center found that 75 percent of youths in the Latvian capital have tried drugs at least once or are using them on a regular basis, BNS reported on 23 August. Only 25 percent have never used drugs. The widespread use of drugs in Riga is promoted by low prices of narcotic substances that, on average, are four times lower than in Sweden, said the center's director, Janis Strazdins.

* The Cabinet of Ministers approved raising teacher salaries in stages starting on 1 September this year, followed by increases twice a year for the next three years, LETA reported on 22 August. A total of 44.92 million lats ($70 million) is needed for the salary increases over three years.

* The Latvian Privatization Agency will turn over the joint-stock utility Latvenergo (Latvian Energy) to the Ministry of Economy by the end of August, LETA reported on 25 August. The authority for the state-owned utility is being returned to the ministry in compliance with legislation adopted by the Latvian parliament to rescind the decision to privatize the utility. According to the amendments passed by the Saeima to the Energy Law, Latvenergo must remain state property and be managed by the ministry.

* The Latvian Privatization Agency issued a statement on 24 August urging the creation of a government unit to promote development of a resort sector in the Latvian economy, LETA reported. LPA said that when it was privatizing the state-owned Kemeri Sanatorium and other Jurmala resort buildings it lacked any guidance for the privatization contracts, nor was there any national strategy for resort development. On 27 July, LPA nullified its 1997 contract with Ominasis Italia, a foreign investor who bought the sanatorium, claiming the firm was not complying with the terms of the contract to invest two million lats ($3.2 million) per year for five years. Omar Salek Al Hamdy, President of Ominasis Italia, disputes the LPA's action and said he is ready to bring an action against the LPA in an international arbitration court, LETA reported on 23 August. Al Hamdy said that his firm had already invested over $6 million in the sanatorium and that the total investment in the project is $35 million.

* Minister of Finance Gundars Berzins told reporters on 24 August that rate fluctuations in the euro have negatively influenced Latvia's exports of forestry products to Europe, LETA reported. Revenues from wood products have decreased by 2 percent due to the euro rate fluctuations and cut into the profit of exporters. Berzins also met with representatives from the association of non-alcoholic beverage producers to discuss a proposal to apply excise taxes on soft drinks, LETA reported on 24 August. Berzins said that the excise tax on alcohol is already too high and is hindering the development of that industry.

* In the first half of 2000, 4 percent more passengers passed through the Riga Airport than in the first six months of 1999, LETA reported, based on data supplied by the Central Statistical Bureau on 23 August. The number of passengers using Latvian airlines also increased by 10.5 percent in the same period. But the number of railroad passengers plunged to only 9 million for the first six months of this year--a 29.4 percent decrease over the same period in 1999.

* A poll conducted by the SKDS polling agency showed that 52.1 percent of Latvia's residents believe people can influence the government to make favorable decisions by engaging in rallies, strikes, pickets, and petition writing, LETA reported on 22 August. The number of people agreeing to that statement has increased by 3.8 percent since a comparable poll was done in July 1999.

* "Latvijas Neatkariga televizija" (Latvian Independent Television) was the most watched television station in Latvia in July, capturing a 27 percent market share according to a survey conducted by BMF Gallup Media, LETA reported on 23 August. Latvian Television ranked second with 13 percent, followed by TV3 and Russian Public TV, both at a 9 percent market share. Other stations made up the balance.

* A documentary film made at the Juris Podnieks studio in Latvia about the fate of refugees from the Baltic states during World War II was aired on television stations in Latvia, Lithuania, and Estonia on 23 August, BNS reported. Entitled "The Baltic Saga," the film is about the people who fled over the Baltic Sea to Sweden and other countries. Information for the film was provided by the UN High Commissioner for Refugees as well as film and photo archives in various countries.

BANKRUPTCIES BECOME SERIOUS PROBLEM.
The number of bankrupt and insolvent firms in Lithuania this year alone is playing havoc with the economy and society, as liabilities of the nearly 700 bankrupt companies is close to 3 billion litas ($750 million), ELTA reported on 22 August. The report also stated that wage arrears have risen to nearly 100 million litas, capped by several high-profile protests and hunger strikes by unpaid workers. The deputy director of the bankrupt companies management department of the Economics Ministry, Jonas Satkus, attributed some of the problems to a stagnant real estate market, as companies in trouble are reluctant to sell off property to pay off debts.

OSCE WON'T MONITOR LITHUANIAN ELECTIONS.
A visiting OSCE delegation announced that it is not recommending monitors for the upcoming October parliamentary elections in Lithuania, BNS reported on 23 August. The Lithuanian Central Electoral Commission received the report, which states that "an Election Observation Mission to Lithuania is not justified as public confidence in the elections and institutions as well as conditions for democratic elections are well established," adding that the EU ended its monitoring for Lithuanian elections in 1997. The OSCE team visited Lithuania on 9-11 August, and in their report suggested that "Lithuania's political landscape is characterized by the downfall of the established parties, the rise of a bloc of centrist parties, and the ascent of far-right parties and movements due in part to voters disenchantment with the economic effects following the 1999 Russian economic crisis."

* Lithuanian Prime Minister Andrius Kubilius hosted his Latvian counterpart, Andris Berzins, in the town of Birzai in northwest Lithuania on 24 August to discuss bilateral issues. The two heads of government agreed on the terms for establishing a joint customs procedure for transit, allowing for freight destined for third countries to escape customs declaration at the countries' common border, ELTA reported. The two also discussed possibilities in a joint Baltic auction of third-generation mobile phone licenses, as well as ongoing disputes in fisheries. But Kubilius surprised Berzins when he offered to lease or sell Latvia the thermal power plant in Mazeikiai, saying this could solve Latvia's chronic energy shortage, BNS added. Berzins called the proposal "interesting" but said he could not comment on the offer.

* National flags draped with black ribbons were raised in Lithuania on 23 August to mark the 61st anniversary of the Molotov-Ribbentrop Pact between the Soviet Union and Nazi Germany which divided Europe and assigned Lithuania, Latvia, and Estonia to the Soviet Union, BNS reported. No special events were planned in conjunction with the national day of mourning. The Lithuanian Union in Russia's Siberia, a group of former Lithuanian deportees still living in Siberia, said that it had received access to lists of Lithuanians deported by Soviet authorities to the Altai region of Siberia over 50 years ago, ELTA reported on 25 August. The organization's leaders pledged to work with other Lithuanians to get access to lists from other areas in Siberia as well.

* Lithuanian Deputy Defense Minister Romas Kilikauskas told BNS on 26 August that Lithuania will receive M-113 armored personnel carriers from Germany next week. Kilikauskas and Walter Stutzle, the German Defense Ministry's state secretary, signed the document on donating the 67 APCs in Berlin on 31 March. The repaired APCs will be given without armaments. The Lithuanians will install armaments on most of the vehicles, leaving the remainder for spare parts.

* The Lithuanian State Security Department urged all state institutions, political organizations, members of parliament and local government leaders to strengthen their resolve and efforts to prevent the spread of national socialist ideas in the country, BNS reported on 24 August. The statement issued by the department was in response to recent criticism by several national politicians and state officials that the law enforcement institution was failing to take action to ban the national socialist organizations after they staged several rallies in Vilnius, Kaunas, and Siauliai in recent weeks. The department noted that "The legislators have prohibited the communist party since 1991, but to this day failed to pass any law to assess the activities of extremist and Nazi movements," although one has been drafted. The statement also noted that the prolonged economic crisis in the country was making individuals susceptible to Nazi and other extremist sentiments.

* The weekly magazine "Veidas" published a poll on 24 August showing a quarter of Lithuanians living in large cities did not object to national socialist ideas, while about two-thirds of respondents voiced opposition to Nazi rhetoric, BNS reported. From Lithuania's five largest cities, 27.1 percent of respondents voiced varying levels of support for the policies promoted most noticeably by the unregistered National Social Union. The report added that the highest level of support came from Kaunas and Siauliai. The mayor of Kaunas, Vytautas Sustauskas, head of the Freedom Union, has been known to make anti-Semitic remarks, while the National Social Union is based out of Siauliai. The National Socialists and the Freedom Union staged rallies in both cities over the last month.

* Visiting defense policy experts from the United States have told Lithuanian authorities that if they can prove that some political forces in the country propagating fascist and neo-Nazi ideas are financed from abroad, then this would be a serious cause for concern to both Lithuanian and U.S. political leaders, for it would be evident that certain foreign forces are trying to compromise Lithuania's bid for NATO membership, BNS reported on 25 August. Philip Peterson of the U.S.-based Potomac Foundation said: "Lithuania doesn't have to prove that pro-fascist forces compromising this country are being supported by any specific country. To confirm these allegations, Lithuania has to prove that the financing of the activities of these forces does not come from within this country."

* The Lithuanian parliament decided to delay consideration of laws previously vetoed by President Valdas Adamkus until the end of August, ELTA reported on 22 August. Among the controversial laws are changes to the pay scales for judges, civil servants, and elected officials, the law establishing a free port at Klaipeda, a law establishing an inspectorate for pornographic publications, and a law on the use of polygraphs on public officials.

* The Lithuanian government adopted new requirements to register and certify large families that are taking care of orphaned children, ELTA reported on 23 August. A string of scandals earlier this year, which included cases of physical child abuse, shook the country's child care institutions. Some of the families had even been endorsed by former President Algirdas Brazauskas. Currently there are over 50 families in Lithuania acting as foster parents to over 300 orphans. The foster families receive 500 litas ($125) per month per child, and either one or both foster parents are also paid a salary for the work as care-givers.

* The Lithuanian Department of Statistics reported that investments in Lithuania for the first half of the year totaled 1.942 billion litas ($485.5 million), which was 11.8 percent less than in the same period a year ago. The state sector received 39 percent of the amount with 61 percent of the investments going to the private sector. The chief source of the financing, 73 percent, was from companies' own resources, i.e., self-financing; foreign loans made up 13 percent of the total, 8 percent came from non-budgetary funds, 2 percent from the national budget, and 4 percent from other various sources. The bulk of the investment funds, 57.6 percent, were used for construction and maintenance, 42.2 percent was used for business acquisitions and the balance was used to cover other expenses.

* The Lithuanian Economics Ministry said on 24 August that despite economic growth, wages are down. Citing the Statistics Department, the report said that GDP in the first half of 2000 grew by 2 percent compared to the same period in 1999. However, real wages in the same period dropped by 3.6 percent, ELTA reported. The sales of industrial output dropped by 0.8 percent in the same period, with sale of utilities output dropping by a large 9.9 percent. On the upside, exports rose by 26.1 percent in that period, while imports rose by 10.3 percent.

* The Lithuanian Labor Exchange released data showing that employers were hiring more people under short-term labor contracts in an effort to save funds because of their unstable financial situation, ELTA reported on 24 August. More than one-third of the unemployed hired for a job last month were employed under short-term contracts, while in July 1999 only 19 percent of new hires were under such conditions. Some 260 companies and 10,500 employees worked only part-time in July 2000. An additional 26 percent of companies reported insufficient demand for their goods or services which could lead to further layoffs or part-time work schedules.

* Lithuanian border police seized a truck belonging to a private company registered in the southern Lithuanian town of Vilkaviskis for carrying contraband sugar on 24 August, BNS reported. The Lithuanian driver of the truck on its way from Kaliningrad told Lithuanian customs officers that the vehicle was empty, but after the inspection the officers found 35 tons of sugar manufactured in Poland and documents confirming the purchase of only 20 tons of sugar together with a certificate of quality. This is the first large consignment of contraband sugar confiscated this year.

* The Ministry of Agriculture promised to transfer in the near future an additional 7.5 million litas ($1.8 million) of subsidies to the country's three sugar refineries for the sugar beets purchased from farmers last year, ELTA reported on 22 August. This decision was made according to the agreement negotiated between the government and striking farmer organizations earlier this summer to speed up payments. In 1999, the total amount of Lithuanian sugar processed was 103,800 tons and the government subsidy was 80.9 million litas ($20.4 million) or 93 litas per ton to farmers for the 1999 sugar beet harvest.

* Lithuanian energy distributor Lietuvos Energija has been fulfilling its April agreement to repay its past debts to the Ignalina nuclear power plant by the end of 2001, ELTA reported on 25 August. During the second quarter of this year, Lietuvos Energija paid Ignalina 50 million litas ($12.5 million). A spokeswoman for Lietuvos Energija said that another 30 million litas ($7.5 million) will be paid by 30 September and that half of that had already been transferred to the Ignalina account. The outstanding debt as of 25 August is 230 million litas ($57.5 million). Lietuvos Energija has stayed current with all payments for energy supplied by the nuclear power plant this year.

* The Vilnius Regional Court dismissed an appeal by Ali Ay, a Swedish citizen of Kurdish ethnicity, seeking to end his preventive detention by Lithuanian authorities, BNS reported on 25 August. The court's ruling says that Ay's detention was well founded and that he was arrested on the basis of the European Convention on Extradition. Turkey and several other countries have been looking for Ay through Interpol. Ay, 38, was arrested at the Vilnius Airport on 11 August after the local Interpol bureau confirmed that he was wanted by Turkish, German, and Dutch police on charges of drug smuggling, terrorism, and money laundering.

* The suspect in the shooting of four security guards has confessed to police in a case that shocked Lithuania. Vladmiras Vladimirovas, a security guard with the company "Senukai," confessed to slaying four of his security guard colleagues in the company's Kaunas warehouse a week ago, ELTA reported on 22 August. Ammunition, silencers, and personal items of the victims were found at the residence of the suspect, leading the police to the arrest. Investigators believe the motive was to seize his colleague's weapons, BNS added.

A VICTORY FOR THE ESTONIAN GOVERNMENT

By Mel Huang

After four years of talks, the Estonian government and NRG on 25 August signed a deal under which the government will sell its 49 percent stake in Estonia's main power plants to NRG. Earlier delays reflected both the difficulties of the sale and the change in the Estonian government after the March 1999 election, but in the last few weeks, the deal's prospects had been clouded as opposition emerged from some unexpected sources.

Speaking on Estonian Independence Day in February, Estonian President Lennart Meri appeared to come out against the sale. And finding this unexpected ally, the parliamentary opposition stepped up its efforts to torpedo the deal. But the greatest challenge to the sale came when the country's business elite, long the most staunch supporter of the current government, also came out against the deal.

The parties of the center-right ruling coalition have traditionally favored economic liberalism and pro-business policies, and in return businesses have been generous supporters of the parties. During the 1999 general election campaign, the largest donor to the Pro Patria Union of current Prime Minister Mart Laar was the large seatbelt-maker Norma. And following the vote, it was natural for big business and government to be on friendly terms--especially when the Laar government, despite budget woes, moved to eliminate the corporate tax soon.

The first great confrontation came when local big business in Estonia queued up against the NRG deal--the largest single foreign investment into Estonia at about $70.5 million for the purchase price alone--plus hundreds of millions of dollars in promised investments over the next 15 years. The supervisory board of the electric utility Eesti Energia, appointed by the government to serve as its proxy in the state-owned company, began to voice strong opposition to the deal. The head of the supervisory board is Juri Kao, who besides being the chairman of the Estonian Association of Industry and Employers, was coincidentally the chairman of Norma Group.

Kao, along with Toomas Luman--chairman of the Estonian Chamber of Commerce and Industry (also a member of the supervisory board) and Aadu Luukas--chairman of the Estonian Business Association--argued that the terms of the deal would result in a significant rise in electricity tariffs and would stifle economic growth. Both cited terms in the deal on a guaranteed electricity purchase, concerned with both its price and term length, as a big minus for Estonian manufacturing and big business. Instead, they argued that the investments needed to keep the plants functioning could be funded domestically. But proposals to keep the power plants fully in domestic hands would entail drastic changes, such as the possibility of switching to imported natural gas instead of utilizing indigenous oil shale as fuel.

Kao and other big businessmen in Estonia likely saw another scenario. At the same time as the debate over NRG and the power plants was heating up, a controversial deal was being discussed between Estonian and Latvian officials on merging the two state-owned power utilities: Eesti Energia and Latvenergo. Latvenergo is by far a larger company, the biggest company in the Baltics in fact, but its main weakness is lack of generation. Latvia is dependent on precipitation, as hydroelectric plants on the Daugava River generate most of its electricity. Latvia therefore is a net importer of electricity, and any talk with Eesti Energia on merger would involve the generation capacity question. Without full control of the power plants, Eesti Energia would have been relegated to nothing more than a very junior partner without that key leverage.

This issue soon became moot when the Latvian population pushed through--by means of a petition--legislation to stop the privatization and restructuring of Latvenergo, effectively killing the planned merger. Soon after that, the business community's opposition to the NRG deal suddenly became less vehement. Instead of being solidly against the deal, Kao and others called on better terms for Estonia as a condition for supporting it. NRG relented and after weeks of media frenzy and uncertainty, Kao and the supervisory board members dropped their opposition and Eesti Energia's CEO, Gunnar Okk, who had been part of the vigorous opposition, participated as one of four signatories of the deal on 25 August.

Thus everyone appears to have come out ahead, but especially the government. It asserted itself despite the high-profile opposition from a key benefactor and showed who is in command, while the business community showed its independence by challenging the government and protecting its own narrow interests. But both sides also came to realize that they are inevitably linked, as the business community is naturally a constituent group of the parties of the ruling coalition. And all the squabbling in the press actually helped Estonia to obtain better terms for itself in the deal with the U.S. company.