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Business Watch: December 18, 2001

18 December 2001, Volume 1, Number 23

The next edition of "RFE/RL Business Watch" will appear on 27 December.
A Slovak privatization committee suggested that Russia's second-largest oil producer Yukos be allowed to buy a minority stake and management rights in oil pipeline Transpetrol, Reuters reported. The Slovak government is selling 49 percent and management rights in Transpetrol, which operates a pipeline carrying Russian crude to Western Europe. Although small in terms of revenues at 1.15 billion Slovak crowns (roughly $24 million) in the first half of 2001, Transpetrol is seen as a potentially important segment in the transit system for crude oil from the Caspian Sea to Western Europe. Transpetrol is one of the key energy companies the government hopes to sell by mid-2002. The winning bid exceeded rough estimates by analysts that had put the 49 percent stake's value at around $50 million. Apart from Yukos, another bidder for the stake is Slovak oil refiner Slovnaft. With earnings before interest, taxes, depreciation, and amortization (EBITDA) of around $149 million in January-June, Slovnaft is much smaller than Yukos, whose first-half EBITDA totaled $2.2 billion. Originally, six companies expressed interest in acquiring Transpetrol, including Czech Ceska Rafinerska, U.S. ChevronTexaco, and two other Russian firms, Rosneft and Surgutneftegaz. (TSK)

Russia's LUKoil and Greek Latsis Group are preparing a joint bid in a tender for a 23 percent stake in the Greek state oil company Hellenic Petroleum, RosBusiness Consulting reported. According to LUKoil President Vagit Alekperov, 70 percent of the stake would belong to LUKoil and 30 percent to Latsis. The cost of Hellenic Petroleum was estimated at $1.6-1.8 billion. The second round of the tender will be held in February 2002. (TSK)

Belarus is considering privatizing its oil-refining sector, and nine Russian oil companies have already placed bids, Reuters reported. According to the deputy head of the presidential administration, Leonid Kozik, "We have many offers from Russian oil companies worth a total of about $1 billion for five years." "We are satisfied with the number of bids and would like to have even more to get better profits while privatizing the oil-refining sector," Kozik said. He added the government is ready to sell controlling stakes in refineries if investors offer sufficiently attractive terms. (TSK)

Russia's Atomic Energy Ministry excluded the possibility that any weapons-grade nuclear material can be stolen from Russian enterprises, Interfax reported. "A guaranteed multi-step system has been created in Russia to control and register nuclear materials that can be used for military purposes," Deputy Minister Bulat Nigmatulin stated, commenting on media reports that a group was in the Moscow region for a suspected attempt to sell about 1 kilogram of weapons-grade uranium. "In the entire history of the Russian nuclear power industry, there have been no facts of uncontrolled movement or theft of weapons-grade uranium [90 percent enriched]." The group the media referred to tried to sell "uranium tablets 2.44 percent enriched. Those tablets can have nothing to do with weapons-grade uranium even theoretically," Nigmatulin said. He added it is permitted to export from Russia uranium with a maximum enrichment degree of 5 percent. (TSK)

Russian President Vladimir Putin and Greek Prime Minister Costas Simitis agreed to broaden economic relations in the oil and natural gas sectors, dpa reported. "In cooperating with Russia, Greece will not only be self-sufficient in the energy sector, but can also become a partner with Europe in the energy sector," Putin stated. Greece is keen on participating in future energy-related projects in the Balkans, and both countries discussed increasing natural gas supplies through a pipeline operated by Russia's Gazprom since 1999. Putin and Simitis also discussed the completion of an overland pipeline to carry Russian oil from the Bulgarian port of Bourgas to Alexandroupolis in Greece. Although talks on energy took center stage, Putin and Simitis also discussed defense trade, the situation in the Balkans, and Russia's relations with the European Union and NATO. "Greece has always supported closer cooperation between NATO and Russia. Russia is a major element of Europe, and we must not go back to East-West divisions," said Simitis. Both countries signed six bilateral agreements in shipping, air transport, energy, culture, justice, and police. (TSK)

Lithuania's fledgling natural gas importer Dujotekana announced that Gazprom would soon become its majority shareholder, Reuters reported. "There is an agreement that, after all the formalities are over, Gazprom will have a controlling stake [in Dujotekana] with the remaining shares to be owned by Lithuanian investors," said Dujotekana spokesman Ricardas Jarmalavicius. "The exact size of their holdings will be announced after the formalities are over," he added. Dujotekana will become the country's largest gas importer next year, having signed an 11-year gas supply agreement with Gazprom to import at least 1.5 billion cubic meters of natural gas annually beginning in 2002. That will make up around half of Lithuania's planned gas imports next year. (TSK)

Gazprom has received a proposal to participate in developing gas fields in Iraq, Prime-TASS reported. According to board member Aleksandr Ryazanov, Gazprom has not decided on its participation in the project. Earlier this year, Iraq said it was interested in the participation of Gazprom and petrochemical company Sibur in developing a gas deposit in southern Iraq. The field has estimated reserves of 115 billion cubic meters of gas. Ryazanov said Gazprom and Sibur are currently considering a joint-project proposal to process associated gas at Iraqi oil fields. He did not provide further details. (TSK)

Russian Defense Minister Igor Ivanov said Moscow is ready to supply arms and provide military training for the new government in post-Taliban Afghanistan, Kyodo reported. Ivanov made the pledge after a meeting in Tajikistan with the foreign minister-designate of the incoming interim Afghan government, Abdullah Abdullah. Russia, which has supplied arms to Abdullah's Northern Alliance in its war against the Taliban, apparently intends to use the supply of weapons to make its presence felt in Afghanistan, as major powers jostle for influence following the collapse of Taliban power. According to the source, Russia would not join a proposed UN-mandated peacekeeping force in Kabul, but is wary of Western influence in post-Taliban Afghanistan. (TSK)

Government payment agent Vneshekonombank posted a net profit of $106 million from January to September under international accounting standards, compared with $10 million for all of 2000, Prime-TASS reported. According to Vneshekonombank, its pretax profit amounted to $175 million in the first nine months of 2001. No comparative data was available for the last year. The bank's assets rose 30.9 percent from the beginning of the year to $3.403 billion, while the volume of the securities portfolio declined 10.1 percent to $605 million in the period. (TSK)

Alfa Bank has signed a $20 million syndicated loan, marking another step in the rehabilitation of Russia's banking sector, Reuters reported. Alfa Bank is paying interest of 375 basis points over LIBOR on the unsecured loan. The loan, which was arranged by Standard Bank London, will set a new pricing benchmark for pure Russian risk, bankers say. Alfa Bank also announced that it intends to follow its loan up with a Eurobond next year. The new loan will be used to finance trade-related projects for Alfa Bank's customers. The facility, which is guaranteed by Alfa Bank Holdings, matures 180 days from the date of signing and may be extended for a further 180 days. (TSK)

Russia's Finance Ministry said it had paid interest of $73.44 million on a Eurobond and transferred another $24.5 million to the International Monetary Fund (IMF) as it continues to meet foreign-debt repayments this year, Reuters reported. A Finance Ministry spokesman said the funds for the 2003 Eurobond coupon were transferred to payment agent Citibank. The IMF cash was sent two days ahead of a 9 December due date. (TSK)

An informal meeting of the Commonwealth of Independent States (CIS) heads of state will be held on 1 March 2002, Prime News Agency reported. The meeting will be organized following a personal invitation of Kazakh President Nursultan Nazarbaev. According to CIS Executive Secretary Yuri Yarov, "these informal meetings are very important" because they "highlight major perspectives for future [cooperation]." "The [informal] summits are focused on the current world issues which are important for the CIS and each of its members." "They [the summits] allow to develop a joint work strategies," Yarov stressed. (TSK)

Aiming to become a major oil producer over the next decade, Kazakhstan has no plans to cut its crude output, Reuters reported. Although Russia agreed to slice its oil production by 150,000 barrels per day (bpd) to help the Organization for Petroleum Exporting Countries (OPEC) stabilize world oil prices, Kazakhstan, pegging its hopes of future prosperity to developing the lucrative energy sector, thinks otherwise. "So far we have received no official OPEC requests to cut oil production," Economy Minister Zhaksybek Kulekeyev stated. "We are not going to undertake any obligations [to cut output]. On the contrary, we plan to increase production to 46 million tons [920,000 bpd], including gas condensate, next year." He said this year's output was likely to total 40 million tons of crude and gas condensate, around 30 million tons [600,000 bpd] of which would be exported. "I believe OPEC's interest in Kazakhstan will remain subdued, so to say, until we start exporting 50 million tons of oil a year," Kulekeyev said. "At the moment we are not among the serious players on the international oil market." Kazakhstan holds an observer status in OPEC. (TSK)

Russian Prime Minister Mikhail Kasyanov has called on Canadian companies to sign more deals in Russia and expressed concern about stagnating trade between the world's two largest countries, Reuters reported. At the talks with Canadian Prime Minister Jean Chretien in Ottawa, Kasyanov called for immediate steps to improve the bilateral trade relationship that was worth $550 million last year. Kasyanov said he was dismayed that some Canadian-Russian projects had stalled and said the two governments should set up a monitoring mechanism to ensure that all major joint deals were completed. This and other topics will be further discussed during a major trade mission that Chretien is due to lead to Russia in February 2002. Critics question the need for the trip, citing evidence of corruption and the chaotic state of corporate governance in Russia. "We have had some problems [in Russia] which always get more news [coverage] than problems elsewhere. But there are always difficulties with investments," Chretien said. "I believe...that the climate for investment in Russia is much better now than it was five or 10 years ago," he stated. In 2000, Canada exported C$200 million worth of goods to Russia, mainly oil and gas equipment, building products, tobacco, and pork products. It imported C$666 million worth of Russian crude oil, iron, steel, base metals, precious metals, fish, and seafood. (TSK)

A reluctant Russian conscript used his last day before military service to good effect. When the teenager heard he still had 24 hours before the arrival of the train that was to take him to a military unit for two years, he went off, got married, and adopted a small child, the daily "Izvestia" reported. By becoming a father the unnamed would-be recruit from the Siberian city of Yakutsk received an automatic two-year suspension of service. And if he has a second child in the next two years, he will never serve at all. Compulsory army service is widely unpopular with young Russians who often go to great lengths to dodge the draft. (TSK)

Due to understaffing and poor management, Sheremetyevo II international airport in Moscow ranks among the worst in the world, "Russia Journal" reported, quoting the results of a public opinion survey. "You can spend up to two hours queuing," said Benedict Hopkins, who flies in and out of Moscow two to three times a month. He rated the airport as "very bad -- even Sheremetyevo I is better." Like many other respondents, Hopkins cited the check-in procedure and boarding process as adequate, but said there is room for improvement in a whole host of other areas. "The airport itself is shabby, dirty, poorly lit, and gives a bad impression," he said. "If we rate the airport to some third-world airports, it doesn't score too badly. If we rate it to European airports, it is definitely last." Others highlighted a lack of services for sick and elderly passengers or nursing mothers, along with lack of seating in the arrivals hall and poor ventilation as being at the top of the list of areas that need improvement. (TSK)

The European Commission is planning to increase its funding of the TRACECA (Transportation Corridor Europe-Caucasus-Asia) projects, Prime News Agency reported. The volume of the European Commission funds "might be doubled," and "it proves Europe's interest to the development of its transport communications with Asia through Caucasus," stated Georgian Transport and Communications Minister Merab Adeishvili on the sidelines of the TRACECA Interparliamentary Commission meeting in Tbilisi. Adeishvili stressed that the commission is expected to discuss and approve a number of documents aimed at "increasing the efficiency and the TRACECA transports corridors." The minister added that all participants of the TRACECA projects must jointly create the most favorable conditions for functioning of Europe-Caucasus-Asia transport routes. (TSK)

On 5 December, Russia's Federation Council voted 150 to two with four abstentions to overwhelmingly support Sergei Mironov, a St. Petersburg politician practically unknown in Moscow, to replace Yegor Stroev as the Council's speaker. On the one hand, very few doubted that the third position in the government, at least according to the formal hierarchy, would be granted to a St. Petersburg native, "Novaya Gazeta" speculated. However, the majority thought it would be given to Deputy Prime Minister Valentina Matvienko. On the other hand, none of Mironov's former colleagues believed that he would climb to the very top of the political ladder. Analysts say Mironov's candidacy was backed by President Vladimir Putin's administration in its bid to secure the president's grip on power by installing loyalists to all key posts in each branch of power, UPI reported. Officially, the proposal to nominate Mironov came from the Council, but there is little doubt that the move was orchestrated by the Kremlin. Following the Federation Council election, the leader of the Union of Rightist Forces, Boris Nemtsov, was quoted as saying, "A man that nobody knows should not have been elected to the number-three post in the country." He also warned that Putin made many appointments "on the principle of loyalty, creating a certain 'clanship.'" These days, various media sources are trying to uncover examples of Mironov's loyalty to Putin.

According to "Profil," Mironov was born near St. Petersburg in 1953. Mironov's family shared a tiny corner in a mansion which, according to legend, was granted to Tsar Nikolai II by the Queen of England. After spending his childhood years in the mansion's half-ruined park, Mironov got involved in geology. In the late 1970s, he graduated from Leningrad Mining Institute. Eventually, he received four university degrees including a technical, a state service, and a law diploma. After receiving his first degree in geology, Mironov worked for over a decade at Rudgeofizika Research Institute, which was shut down after the demise of the Soviet Union. Mironov chose a business career, and in two years he became executive director of a construction company called St. Petersburg Revival. Soon, Mironov realized that legislative changes were needed to make business prosperous. With this in mind, he offered his candidacy to the St. Petersburg Legislative Assembly. Shortly thereafter, he helped to draft some of the first laws providing tax relief to entrepreneurs.

When elected as deputy chairman of the Assembly, Mironov organized a Mariinskaya faction with a pro-Sobchak (the former mayor of St. Petersburg) orientation. Basically, "Profil" said, Mironov became Anatolii Sobchak's official representative to the Assembly. Mironov often held consultations with Putin, who was then St. Petersburg's deputy mayor, "on strategic issues." According to a number of sources, one political endeavor orchestrated by Mironov, Putin, and apparently Sobchak, yielded far-reaching consequences for the new Federation Council speaker, and probably ensured him this post. Mironov became a central figure in the 1996 mayoral elections in St. Petersburg, initially scheduled for 16 June. According to the plan, however, elections had to be held one month early: This would not provide sufficient campaign time to Sobchak's primary opponent, Vladimir Yakovlev. The decision to reschedule elections needed approval from the Legislative Assembly. On the day of the vote, pro-Yakovlev deputies tried to sabotage Mironov's plan. With 33 deputies missing, a quorum could not be achieved. However, Mironov manipulated votes and declared a quorum -- and the mayoral elections were rescheduled. Mironov later "explained" that those 33 missing deputies were actually present, but they "did not push the buttons on the vote panel in time." Ironically, it did not help Sobchak to win, but Putin never forgot Mironov's loyalty.

In June 2001, Mironov became a representative of the St. Petersburg Legislative Assembly to the Federation Council. According to some rumors, Putin called St. Petersburg Mayor Yakovlev and asked him to commission Mironov to the Federation Council instead of Sergei Tarasov, chairman of St. Petersburg Legislative Assembly. The governor accepted the president's suggestion and paved Mironov's way to the Federation Council. According to "Kommersant," a publication owned by Boris Berezovsky, the end of Stroev's reign in the Federation Council signaled the end of the epoch of regional freedom. "Kommersant" added that the Council will turn into the institution that Putin has desired: obedient, predictable, and appointed. Putin has remained consistent with a pledge to implement state power reforms, which he announced immediately after his inauguration. One of the key elements of these reforms is restructuring the Federation Council.

On the second day in office, the newly elected speaker told RIA-Novosti that, "under the present conditions, a four-year presidential term in Russia is not sufficient." He said the Federation Council will forward initiatives aimed at changing the legislation. Mironov did not call for the immediate revision of the entire constitution, although he warned that such a move is just a matter of time. For now, quoted Mironov as saying, "life goes on. New ideas and projects appear, and many of them could be realized through a change in legislation." Daily "Novye Izvestia" speculated that if an appropriate constitutional amendment is passed, Putin could hold on to power for 17 years. According to the paper, the amendments would allow for two seven-year successive presidential terms, and Putin's first three years of tenure as president wouldn't count, since they occurred before the constitutional changes. Some policy makers oppose this move, saying the extended presidential tenure would plunge Russia into stagnation similar to that during the 18-year rule of Leonid Brezhnev. Others seem to like it. Among those supporters is ultranationalist Vladimir Zhirinovsky, who stated that Mironov is only voicing the idea that he [Zhirinovsky] broached years ago when he suggested that Russia follow the examples of countries like France or Kazakhstan and introduce a five- or seven-year presidential term.

Clearly, Mironov has jumped into the job with both feet and has proven fearless in taking on controversial issues. (TSK)

Although recent indicators show that the Belarusian economy is attempting reforms, it is at odds with the Soviet-style policies pursued since the mid-1990s by President Alyaksandr Lukashenka, described as "Europe's last dictator."

Belarus has strengthened its Soviet-style government. It has been criticized by the West for suppressing opposition, threatening international organizations, preventing free and fair elections, and inhibiting the growth of democratic and market principles. President Lukashenka has retained control over the government, economy, banking, and military with all the trappings of a Soviet dictator -- and, at least until recently, has signaled no plans to loosen his grip on power.

The Heritage Foundation Index of Economic Freedom describes Belarus as a "repressed economy." The county ranks 146th in the world for its lack of economic liberalization. The Foundation gave Belarus a 4.25 ranking this year, a decline from 4.10 in 2000 and a steady decline from 3.70 in 1995, when a Soviet-style political-economic regime was reinstalled. The Foundation gave its worst ratings to Belarus monetary policy, which is highly regulated by the government.

Taras Kuzio, a research associate at the Center for Russian and East European Studies at the University of Toronto, contends that President Lukashenka promised after his re-election in September to "open the floodgates for the development of transparent and fair entrepreneurship." Lukashenka recently told his "pocket parliament" that the new government must ensure macroeconomic and financial stability, reforms in the state sector, and development of entrepreneurship. He promised to give Belarusian entrepreneurs the right to choose before state enterprises are transformed into joint-stock companies under privatization. The 2002 government program provides for economic liberalization, creation of a favorable investment climate, an eased tax burden, and less restrictive licensing. Lukashenka also canceled his November 1999 decree allowing government confiscation of property without court authorization. What is really behind these dramatic pronouncements? Is it real or mere window dressing to garner renewed support from the International Monetary Fund (IMF) and the World Bank?

Less than six months ago, Belarus appeared to be heading in another direction when it announced its five-year plan. On 17 May, Belarus unveiled a draft plan that outlined the need for strong state control over the economy. The five-year plan predicts annual growth of between 6.2 percent and 7 percent, industrial growth of 28 percent to 32 percent over the next five years, and advocates preserving social welfare structures, Reuters reported. The document claimed growth would come from the country's modernized metal- and oil-processing plants. The plan did not address privatizing key industries and implementing private ownership of land or attracting foreign capital. Belarus continues to come under fire from the West. In April, the European Bank for Reconstruction and Development (EBRD) threatened to suspend access to funds unless presidential elections in autumn were free and fair. The IMF froze its lending to Belarus in 1996. Contacts have been resumed and a memorandum of understanding for future loan negotiations has been agreed.

Kuzio believes that the stated reforms came along for the following reasons. First, the Belarusian economy is in a downturn when other Commonwealth of Independent States (CIS) member states are showing signs of economic growth. In 2000-01, some 1,961 Belarusian enterprises posted losses. The country's inflation rate, highest in the CIS, was reported at 27.9 percent. According to official statistics, year-on-year gross domestic product (GDP) growth was reported at 3 percent in the first half of 2001, compared to 6 percent in 2000. Industrial output is also lower than in 2000.

Secondly, Belarus has to bring its customs, banking, monetary, and budget laws in line with those of Russia as one of Moscow's conditions for the realization of the Russia-Belarus Union.

Thirdly, economic reforms are needed to meet the conditions of the World Bank and the IMF. So far this year, the Belarusian government has failed to fulfill a six-month IMF monitored program, which is a precondition for a standby loan in 2002. This program was aimed at achieving microeconomic stability through tight monetary policy, increased foreign-exchange reserves, and strict fiscal discipline. Another part of the program was to cut subsidies to housing services and transport and raise VAT on imported and domestic products, as well as hike excises and profit taxes. The target budget deficit was 1.4 percent of GDP.

The World Bank has promised to finance projects in Belarus after the government liberalizes its monetary and pricing policies. In March 2002, the Bank will consider a new strategy for cooperation with Belarus for 2002-04, Kuzio stated. It is ready to allocate up to $140 million. That figure can be increased to $240 million if "favorable conditions for economic development" are created. A new strategy of the EBRD toward Belarus will reflect the country's poor record in human rights and the rule of law. It will also consider the recommendations given by the Organization for Security and Cooperation in Europe (OSCE) and the Council of Europe, according to which the 2000 parliamentary and 2001 presidential elections were not free and fair. The EBRD has frozen its public-sector projects until progress is achieved in democratic reforms in Belarus. Policies toward economic liberalization will not cover a deteriorating agricultural sector, which, according to Lukashenka, does not need reform but "improvement." With 1.1 trillion Belarus rubles ($720 million) of debt in the agricultural sector, the number of collective farms operating at a loss continues to grow and now accounts for 57 percent of the total, an increase from 1,185 to 1,400 between 2000 and 2001.

Kuzio concluded that tentative steps toward economic reforms represent a volte-face for Lukashenka's Soviet-admiring ideology. The OSCE described last September's parliamentary elections in Belarus, which were boycotted by the opposition, as neither free nor fair. The OSCE has said it hopes to train and field 14,000 election monitors at polling stations for the presidential ballot, Reuters reported. Lukashenka said in March he would ban the training of election observers by non-Belarusian bodies.

Clearly any liberalization within the economic domain of Belarus may be interpreted as an attempt to address its poor economic record. But this may not be the full story. Russian insistence on economic reforms and pressure from international financial organizations aside, there is no indication that President Lukashenka is ready to liberalize the Belarus political system, which can multiply the positive effects of any economic reform.

Can the apparent change in Belarus's five-year economic plan announced in May -- versus the new pledges of economic liberalization -- be attributed solely to international pressure and desires for greater economic improvement? An important question must be asked: Have the tectonic events of 11 September and warming U.S.-Russia relations contributed to this apparent economic thaw? If so, what other events might shift the atmospherics of economic change in Belarus back to the centralized political instincts of "Europe's last dictator?" (PJ)