Friday, May 6, 2011

Narcotics and Armed Conflict: Interaction and Implications

ARTICLE Svante E. Cornell, "Narcotics and Armed Conflict: Interaction and Implications", Studies in Conflict and Terrorism, vol. 30 no. 3, 2007.

The paper can be downloaded from this link.. 

Thursday, May 5, 2011

Palestinian reconciliation: Nudge it along

The West and Israel, for their own good, should encourage Palestinians to get together

Published by "The Economist", May 5th 2011

AMID the joy of the Arab awakening, the most stubbornly insoluble of all the Middle East’s problems, the argument between Jews and Arabs over the Holy Land, seemed almost forgotten and perhaps better shelved for the next few years. No more. The upheavals elsewhere in the Arab world are affecting even the Palestinians—and by extension the Israelis. On May 4th the two main Palestinian factions, Fatah and Hamas, bloodily at odds for many years, signed an historic agreement to support a national-unity government in the Palestinian territories: the Gaza Strip, now ruled by Hamas, and the West Bank, ruled by an authority under the sway of Fatah.

The Israeli government under Binyamin Netanyahu has rubbished the Palestinian deal, declaring that it will shun any Palestinian administration that includes or is backed by the Islamists of Hamas, because it doggedly refuses to recognise Israel. If he sticks to his word, the prospect of meaningful Israeli-Palestinian negotiations in the near future is zero. Mr Netanyahu’s loathing of Hamas is understandable, yet he is wrong to scorn Palestinian reconciliation. The Hamas-Fatah deal is good news, because peace between Palestinians could be a stepping stone on the road to peace with Israel. Read more...

Renewed Calls To Close Metsamor Nuclear Power Station

Publication: Eurasia Daily Monitor Volume: 8 Issue: 77
April 20, 2011 06:41 PM Age: 15 days
By: Fariz Ismailzade

After the earthquake and tsunami in Japan and its disastrous impact on the Fukushima nuclear plant, the international community is once again raising concern about the Metsamor Nuclear Power station in Armenia. On April 11, National Geographic ran a powerful story, entitled “Is Armenia’s Nuclear Plant the World’s Most Dangerous?” ( The article cited the European Union’s envoy as calling the facility "a danger to the entire region" and the United States government, calling the plant "aging and dangerous." The forty year old plant is the only one of five first-generation water-moderated Soviet units that is located in the seismic zone. Despite the fact that it is long past its retirement age, the Armenian government refuses to shut it down. In 2004, it even refused the EU’s offer of a 200 million Euros ($289 million) loan to finance its closure. The magazine interviewed Antonia Wenisch of the Austrian Institute of Applied Ecology in Vienna, who calls Metsamor “among the most dangerous” nuclear plants still in operation.  Read more... 

Wednesday, April 1, 2009

Memorandum of Understanding between Gazprom and SOCAR: No Shah-Deniz Gas for Nabucco?

Turkey’s improper conditions for transit of Azeri gas from Shah-Deniz field vie its territory and the lack of unique stance and the commitment by EU on the proposed Nabucco project encouraged Russia to feel confident in its strives to gain control over Azeri gas export. The recent Memorandum of Understanding signed by Gazprom and SOCAR is basically seen as Azerbaijan is seeing no better alternative than going to negotiation with Russia.

On March 27, 2009, Rovnag Abdullayev, president of SOCAR (Azerbaijani State Oil Company) and Alexei Miller, chief of Gazprom came together to discuss the terms of deliveries of Azeri gas. The Memorandum of Understanding, signed by the two says the first delivery was projected for January 2010 on DAF conditions (Delivered on Frontier). According to the Memo, Gazprom and SOCAR will perform technical inspection of gas pipeline system at the Baku – Nova-Filya sections, through which Azerbaijani gas will be supplied to Russia. There was no reference to the volume of gas to be delivered. What was known was the intended supply of gas to Russia’s Dagestan, in southern border.

Russian newspapers presented the March 27 Memorandum as a victory of Gazprom as a result of recent Russian-Western confrontation over the oil-rich Caspian region. Citing Tatyana Mitrova, Director of the Centre for the Study of the Global Energy Markets at the Russian Academy of Sciences, Interfax reported that Gazprom’s grip of Azeri gas would reduce the probability of sufficient gas for Nabucco.


Azerbaijan is growingly disposed to have unfailing transport route for exporting its gas. Baku always seemed to have preferred EU-supported Nabucco. In president’s level, Azerbaijani authorities have publically endorsed the Nabucco. The Active participation of Azeri President Aliyev in Budapest summit of Nabucco and the recent visits of high level officials from European countries were seen as Azerbaijan has made Nabucco a priority. However, following ambivalent philosophy of European Union and Turkish obstruction, Azerbaijan is going to find much profitable alternative routes.

The gas to be transported through Nabucco pipeline in the EU-planned Southern Corridor for gas export to Europe is being blocked by Turkey through unilateral demands that are not acceptable both the EU and Azerbaijan. During his Brussels and Moscow visits early this year AKP leaders went further outlining their government’s position as trying to press the EU on this project, in order to speed up Turkey’s accession negations with EU (Eurasia Daily Monitor, March 16). In the meantime, Turkish government was asking Baku to pay the prices for Ankara’s idealistic dreams. Ankara insists on having a right to purchase 15 percent of the Azerbaijani gas but paying less than European netback prices for that lift-off portion. Through its inappropriate conditions, Ankara is holding back the export of natural gas from Azerbaijan to European consumers. Moreover, Turkey’s postponing maneuvers hamper Azerbaijan’s direct access to European market through Nabucco project.

Along with Turkey, EU has not displayed unique stance with regard to the proposed pipeline. While this ambivalence of EU became manifest in the Budapest summit, where EC, after difficult political bargaining, had managed to allocate €250 million as a start-up credit to help launch the project (although project’s estimated cost is €8 billion), the recent statement by German chancellor Angela Merkel deepened those beliefs about EU’s cautiousness. Merkel has taken a stance against proposals to use EU funds to finance Nabucco pipeline project, during the EU’s informal summit of heads of state and governments on March 1 in Brussels (Eurasia Daily Monitor, March 9). German Chancellor argued there has been no need for EU to finance Nabucco: “Nabucco’s problem is where gas would come from – not an insufficiency of investment funds.” Although the arguments of Merkel are rather disputable and seem inaccurate, the views on Nabucco among EU countries are pretty fragmented.

It is true that Baku understands Nabucco’s importance in increasing Azerbaijan’s role as a gas supplier playing a momentous role in Europe’s energy security. However, seeing the project is not moving forward due to above mentioned hindrances, Azeri government, who takes the position that gas export is a business project, is going to seek other alternatives. In this respect, Gasprom’s offer to buy Shah-Deniz at netback prices is seen much lucrative and commercial for Baku. As Baku-based political expert Rasim Musabeyov maintained, Azerbaijan is interested in the economic aspects of the project: “The more gas markets are available the more Azerbaijan benefits.” Besides, other sub-factors are forcing Azerbaijan to feel enthusiastic in his deal with Gazprom. Azerbaijan bought gas from Gazprom until 2007. Following Gazprom’s raising the gas prices and BP-led fields’ beginning production that year Azerbaijan became a gas exporter and refused importing gas from Russia. According Ilham Shaban, Director of Oil Researches Centre, the pipeline, through which Azerbaijan exported gas from Russia until 2007, is still useless and Azerbaijan loses much from that. Selling gas to Gazprom Azerbaijan would ensure to reuse that pipeline. Another reason why Shaban makes optimistic statement on SOCAR-Gazprom agreement is his belief in chances of Azerbaijan to expand geography of gas export in a short run.

Russia-hosted Nagorno-Karabakh talks: Background motives

Joint declaration signed

Armenian and Azerbaijani Presidents met in Moscow on November 2 at the invitation of Russian President Dmitry Medvedev to discuss ways to resolve the Nagorno-Karabakh conflict. The trilateral summit was ended with signing joint declaration on peaceful resolution of the long-standing dispute. This is a first document signed by the two countries on the issue after 1994 ceasefire agreement.

In the resolution, Azerbaijani and Armenian Presidents pledged to intensify negotiations to end the dispute. “The presidents of Azerbaijan and Armenia decided to continue their work to agree on a political settlement to the Nagorno-Karabakh conflict”, Medvedev said. He further added that the presidents instructed their foreign ministers to activate the negotiation process, in collaboration with the co-chairs of the OSCE Minsk Group.

The Presidents “state that they will promote improvement of the situation in the South Caucasus and provision of establishment of stability and security in the region through political negotiation on the basis of the principles and norms of international law […] in order to create favorable conditions for economic development and comprehensive cooperation in the region”, ITAR TASS reported.

Aliyev, Sagsyan and Medvedev “confirmed the importance of continuation of the mediation effots by the OSCE Minsk Group co-chairs”.

The Presidents further agreed that “attainment of the peaceful solution must be accompanied by legally binding international guarantees of all its aspects and stages”.

The last paragraph of the resolution says that the presidents “consider it important to encourage creating conditions for taking steps to strengthen trust in the context of efforts on resolution”.

Russia’s interests

The Western Media commented Russian push as seeking to underline its influence in the Caucasus. It is regularly reported that Moscow has been vying for influence with Washington in Azerbaijan, a key energy exporter that ships oil and gas through Western-backed pipelines through Georgia and Turkey, bypassing Russia. Medvedev’s proposal was seen as a renewed Kremlin effort to strengthen its influence in the Caspian region following Russia’s brief war with U.S.-allied Georgia in August which raised tensions throughout the region. The War between Russia and Georgia in August appears to have lent new impetus to diplomatic efforts to resolve the Nagorno-Karabakh conflict, with Russia trying to show it can act as a broker for “frozen conflicts” in the former Soviet Union. “Georgia’s August attack on South Ossetia had underlined the need to settle complicated issues only on the basis of international principles and negotiation”, said Medvedev.

Yerevan-based U.S. analyst Richard Grigosian sees Medvedev’s initiative as intended to counter and challenge a bid by Turkey to promote itself as a guarantor of stability in the Caucasus. But even more important, Grigosian says, is Moscow’s clear commitment to working together with Washington to achieving a solution to the conflict. “It is a sign that Russia remains committed to the ongoing OSCE Minsk Group peace process seeking solution to Nagorno-Karabakh and, most importantly, despite the fact that this presidential summit is being hosted by the Russians, it is a demonstration and affirmation that the U.S. and Russia still share the same goals of pursuing the Minsk Group process and trying to negotiate a solution to this last frozen conflict in the South Caucasus”. “The U.S. and Russia do have areas of cooperation, do have areas where they could work together, and in many ways it is in Russia's interest to maintain at least the status quo regarding Nagorno-Karabakh," Giragosian adds, "and both the U.S. and Russia remain committed to preventing any new escalation or outbreak of hostilities, especially to prevent Azerbaijan from trying to solve this unresolved conflict militarily." For this point of view, therefore, simply hosting the summit may be perceived in Moscow as more important than any actual outcome.

Speculation about the imminent breakthrough in the peace process

The Russian President-mediated talk fueled rumors about a sooner resolution of the conflict. First, while all sides have publicly affirmed that the August war between Georgia and Russia has demonstrated the futility and risks inherent in trying to resolve conflicts on the territory of the former Soviet Union by military force, the Armenian and Azerbaijani negotiating positions still remain far apart on several key points.
A second problematic issue is that of Karabakh's future status. But the 200-word declaration avoided the main sticking point -- the status of Nagorno-Karabakh itself -- and did not go into detail about ways to resolve the conflict. Azerbaijani President Ilham Aliyev reiterated on October 24 during his inauguration for a second presidential term that Azerbaijan will never agree to concede part of its territory. "Karabakh will never be independent," news agencies quoted him as saying. "Azerbaijan will never recognize it. Neither in five years, nor in 10, 20 years. Never." Aliyev's Armenian counterpart Serzh Sarkisian, for his part, told Armenian Public Television on October 27 following a visit to Nagorno-Karabakh during which he toured the heavily militarized Line of Contact between Armenian and Azerbaijani forces east of the NK that "a resolution of the Nagorno-Karabakh conflict is possible if Azerbaijan recognizes the right of the people of Nagorno-Karabakh to self-determination; if Nagorno-Karabakh has a land border with Armenia; and if international organizations and leading nations guarantee the security of the people of Nagorno-Karabakh."

Speculation about a breakthrough in the peace process has focused not on the status issue, but the question of deploying international peacekeepers in the Lachin Corridor and the regions of Azerbaijan bordering the NK that are currently controlled by Armenian forces. Some analysts have suggested Russia could insist that its 58th Army take on those responsibilities. But Armenian Defense Minister Colonel General Seyran Ohanian told the Armenian newspaper "Iravunk-De Facto" on October 31 that any peacekeeping force will not be 100 percent Russian. Meanwhile, concern is growing in Armenia that Sarkisian might be constrained to make a major concession, possibly on the withdrawal of Armenian forces from occupied Azerbaijani territory, without securing any tangible benefits in return. The Armenian Revolutionary Federation-Dashnaktsutiun (HHD) released a statement on October 31 warning that it will quit the coalition government if Sarkisian betrays "national interests" by agreeing to cede those territories.

Monday, March 30, 2009

Evolution of Transnistrian External Trade: Prospects of Conflict Settlement

Despite its unrecognized status, unsustainable nature of foreign trade volume and also prevalence of centrifugal drifts in politico-economic landscape, Transnistria’s external trade is on surge. It is mostly due to the fact that after ownership privatization new business elite – local entrepreneurs and foreign investors – have been formed in the region. Apart from it, normalization (or legalization) of customs regime accelerated the process of Transnistrian economic development. The main challenge for the new elite to expand their businesses, using huge industrial capacity of the region, is the problem of recognition, which is wholly resulted by the hesitant position of ruling government. Thus, the evolution in economy with emerging of new business elite and normalization of customs regime call for sooner removal of status-quo in settlement process, solution of the legal status of PMR to legalize rising businesses and expand its coverage (being part of international economic relations), which can also be explained as getting a move on going to feasible compromises in ‘Transnistrian issue’.

Transnistria’s external trade

The conflict between Moldova and its most developed region – Transnistria has exceeded the limits of intrastate confrontations and epitomized regional constituents. The economic concerns have at all times lain behind the flare-up of “Transnistrian issue” and since outburst of the conflict, this underlying principle has been ever building up to the vanguard. Two encouraging historical phenomenon can critically back up this postulation:[1] First, After demise of Soviet Union, there was a wide acceptance that Transnistria’s striving for secession has been motivated to a great extent by economic grounds of the would-be displaced elite group. Indeed, first move of Transnistria heading towards breakaway from MSSR and shaping a separate administrative unit was the resolution of local deputies on founding a “Transnistrian Free Economic Zone”. Eventually, these interests have been toughened by monetary privatization (since 2002) with immense participation of both regional elite and foreign investors (mostly from Russia).

However, the unclear legal status of Transnistria, which made it impossible for local economic actors to enjoy equal rights with other players in the international economic relations, has shaped a specific nature of the Transnistrian economy. The limited potential of the local market gave rise to extreme openness of economy and dependence on the regional and international market. The excessive openness and dependence resulted in non-competitiveness of market and increased import of a variety of products, mostly of food-processing industry. Hence, external trade exposes the situation in the real sector of the Transnistrian economy and diametrically encroaches on the economy.[2]

If one analyzes external trade of Transnistria, one can come to the conclusions that (a) export-import turnover are unsustainable and depends strongly on changing conditions; (b) commodity composition of export is pretty limited; (c) external trade is relatively well diversified.

Unsustainable external trade volume: Though Transnistrian external trade volume increases, from year to year, export and import turnover becomes more unsustainable. From 1995 until 1997, there was a registered debit balance in trade. However, this practice has not carried on and import embarked on exceeding export until 2006. Beginning from 2006, export started again surpassing import. So, the rise in the foreign trade volume of the region is pretty paradoxical: while export during the last ten years doubled up, the import reduced twofold. (See: Graph 1 and 2).

Graph 1. Dynamics of Transnistrian Export and Import in 1995-2007 years, with Mio US$[3]

Limited commodity composition of export: Commodity composition of export is pretty limited. In 2005 and 2007 years, basically, share of four commodity groups – metallurgical products, products of light industry, products of machine-building sector and cement – in Transnistrian export comprised 93%. 65% of export counts on metallurgical product produced by Moldovan Metallurgical Works in Rybnitsa. The second place is occupied by the products of light industry with 17%. (See Graphs 3 and 4).

Graph 2. Structure of Transnistrian Commodity Export in 2007, with Mio MDL[4]

Relatively well diversified external trade: Though trade relations, in general, are unsustainable and dependent, Transnistria tries to expand geography of external trade. In 2005, Transnistria carried out foreign trade relations with about 100 countries (In 2000, it was 70 countries).[5] CIS countries, mostly Russia, Ukraine, Belarus, Kazakhstan and Uzbekistan are traditional external trade partners of Transnistria, of which share in external trade is quite high. However, as can be seen from the below graph, Transnistria managed to diversify its external trade orientation beginning from 2007. While share of EU countries in Transnistrian export was 32% in 2005, it exceeded 38% in 2007. (See: Graph 3)

Graph 3. Structure of export of Transnistria for 2005 – 2007 years, with Mio MDL[6]

New rules for transport of goods: Legalization of the Transnistrian foreign trade activities

Entry of Moldova into WTO in 2001 and forthcoming entry of Russia and Ukraine (Ukraine is already member of WTO since May, 2008) into the same organization created new prospects for both Transnistrian external trade and “Moldo-Moldovan” (Moldova and Transnistria) relationships. Control over state borders to legalize external trade activities turned out to the most important issue.

First agreement on harmonizing customs legislature and liquidation of internal customs posts was reached in 1996. At that time Transnistria managed to legalize its external trade by getting the customs seals of the Republic of Moldova, while performing export-import operations. In 2001, when Moldova was admitted into WTO, the situation was changed. In the same year, Moldova introduced new rules which ceased giving customs stamps to Transnistria. Transnistria was deprived of the right which was granted to the region by Moldova in 1996. The region responded the new changes very quickly. They protested it mentioning Moscow Memorandum, which grants rights to the foreign economic operations to Transnistria.[7] 20% customs duty was introduced to the import of all Moldovan goods and migration control was set up for foreign citizens.[8] The reaction of Ukraine was rather late, as its economic agents were actively involved in traffics in Transnistria. The Protocol on recognition of shipping, commercial and customs documents was signed in May 2003. However, despite the official protocol between Moldova and Ukraine, Ukraine carried on recognizing old customs stamps from Moldova as valid. Further, in July 2003, Moldova introduced new resolution (#712). Under this resolution, the economic agents of Transnistria could execute documents necessary for export-import transactions only after temporary registration at the State Registration Chamber of Moldova.[9] The consequences of the new rules were: accesses of Moldovan goods to Transnistrian market were pretty restrained: special customs duty increased up to 100%; Regional market “was given” to Ukraine, of which goods are not subject to levying of duties.[10]

In July, 2004, Moldovan Government issued a decree that any economic agent from Transnistria may only perform export-import operations within internationally recognized borders of Moldova in accordance with national legislation and international norms. As a result, EUBAM Mission started to operate along Moldovan-Ukrainian border in December, 2005. Though the export of economic agents of the Left Bank was expected to swing down after this decree, as it can be seen from the Graph 1, in 2004-2005 years, foreign economic transactions of Transnistria have been growing.

In August, 2005, Decree on regulation of traffics, performing foreign trade transactions, was issued by Moldovan Government, through which Moldovan Registration Chamber was charged to introduce Transnistrian enterprises in the State Registry (temporary) to obtain “C”-type certificates of origin and “CT-1”-type for export to Ukraine. “A”, “CT-1”, “RM” and “EUR”-type certificates of origin can be given to those enterprises which registered permanently. This regulation was taken effect since March, 2006. Indeed, Transnistria opposed new changes: first, TD authorities recommended region’s enterprises not to register in Moldovan authorities; and later conducted quite an effective PR-campaign against “economic blockade”. The aim was to get political and economic support from Russia. Despite Transnistria’s authorities claimed that the region’s budget and Ukrainian economic agents could loose daily 2 Mil. US$ from the “new border and customs regime”, the official figures show differing scene. If one analyses the official statistical data issued by the Ministry of Reintegration, one can see the foreign export of the region increases even faster than it did until March 2006. (See: Graph 4). For example, volume of export products from Transnistria for the first half of 2008 increased 62,3% and 52,9% as against the appropriate period of 2005 and 2007 respectively.[11]

Since introduction of new regulation up to July 1, 2008, 441 economic agents of Transnistria were registered in the State Registration Chamber of the Republic of Moldova. 156 out of them are permanent and 285 are temporary.[12]

Graph 4. Dynamic of export and import of Transnistria since 2006, with EUR[13]

Prospect of settlement of the conflict

The biggest business group of the region is Sheriff. According to US Institute of Peace, in 2005 the annual turnover of this holding company was about 2 billion USD, while Transnistrian budget was estimated to the amount of 85 million USD.[14] The Sheriff Group became the biggest taxpayer in Transnistria in 2006, having contributed US$31.3 million to the regional budget, or 11.2% of it.[15] There is a wide acceptance that “if publicly Smirnov remains unchallenged, influence of Sheriff on political and economic life cannot be denied. The population depiction of PMR has also shifted from ‘Papina I maja respublika’ towards ‘Sheriff Republic’”.[16] Together with its entrepreneurial activities, political ambitions of Sheriff have also grown. With the backing of Sheriff, Renewal movement was established. In the parliamentary elections of 2005, it won the majority which challenged pro-Smirnov Republican Party. Growing towards both political and economic power in the region, Sheriff has not agreed with the isolation of the region. It is true that the official policy of Renewal is international recognition, but some local and international politicians bring an argument that within certain framework, Sheriff is ready to yield Transnistria’s independence demands to get its business legalized.[17]

Deployment of EUBAM and Moldovan-Ukrainian Agreement of March 2006, which strengthened border control and requested Transnistrian enterprises to register in the respective bodies of Moldova, threatened Smirnov’s patrimonial rule. Legalization of borders pushed him to worry about to strengthen his internal position in this difficult economic situation. That is why he recommended Transnistrian enterprises not to register in Moldovan authorities, trying to convince them that Moldova attempts ‘to take them out from Transnistrian “legal area” and financial-budgetary system’.

So, normalization of situation by the tightened border control with coming of the EUBAM to the region, as well as by the customs agreement of March 2006 and economic growth with emerging new business elite produce optimistic judgement that the conflict can find its solution in the near future (?).

[1] Anatol Gudum, “Transnistria: Conflicts and Pragmatism of the Economy”, CISR.
[2] CISR: “Transnistrian Market and its impact on Policy and Economy of the Republic of Moldova”, 2005. pp.12
[3] Export data for 1995-2005 were taken from “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, CISR, Chisinau 2007, pp. 5, which cited to “Статистический ежегодник ПМР”. Data for 2006 and 2007 were collected from EUBAM Monthly reports
[4] Official data of the Ministry of Reintegration of RM for 2007
[5] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, CISR, Chisinau 2007, pp. 4
[6] Official data of the Ministry of Reintegration of RM for 2007
[7] Anatol Gudum, “Transnistria: Conflicts and Pragmatism of the Economy”, CISR.
[8] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, CISR, Chisinau 2007, pp. 34
[9] Ibid, pp. 34
[10] Ibid, pp. 34
[11] Official data of the Ministry of Reintegration of RM for the first half of 2008
[12] Ibid.
[13] Data were collected from EUBAM Monthly reports
[14] Daria Isachenko and Klaus Schlichte, “The crooked ways of state-building: How Uganda and Transnistria muddle through the international system”, Working Papers Micropolitics No 4/2007, pp. 22, cited to Profil, Austrian Magazine, “The Dollars from Sheriff” business, 14 March 2005
[15] Infotag, 17.05.2007
[16] Daria Isachenko and Klaus Schlichte, “The crooked ways of state-building: How Uganda and Transnistria muddle through the international system”, Working Papers Micropolitics No 4/2007, pp. 23
[17] Ibid, pp. 22

Research findings on “Privatization and privatized enterprises in Transnistria”

Transnistria with its command-administrative economy entered a tremendously hysterical stage of transformation. The privatization in the industrial sector, which is still sensitive and delicate issue in the Transnistrian-Moldovan relationships, mainly aimed at foreign investors, mostly from Russia.

Origins of Moldovan and Transnistrian privatization initiatives go back to 1990, when Supreme Soviet of MSSR took a decision on transition to market economy, and subsequently, on the necessity for the changes in ownership and form of economic management mechanisms. In 1991, it was adopted a low on ownership and privatization in both Moldova and Transnistria. The drama lies in the fact that those laws and decisions were not supported by a concrete privatization programme in Transnistria. In 1997, Supreme Soviet of PMR issued a special regulation which suspended the privatization as “a predatory and anti-nation action”.[1] However, in the meantime, private persons, on the basis of orders and ‘special decisions’, could get the right of disposal and management of certain enterprises. The largest industrial enterprise of the region, Moldovan Metallurgical Plant, in the form of exclusion, was already privatized in 1998.[2] So, during the past ten years ‘red leaders’ of the region benefiting from shadow economy persisted in a system with a strong state regulation of macroeconomic indices. It means an emphasis was granted to the state and collective enterprises with the condition that: “Private ownership should be in live. But it should be labor private ownership”[3]

At the beginning of ownership privatization process, it was mostly small-scale privatization of service providers, construction in progress, housing, and state property located outside of the region. In this period, the process was developed “on your own”, in the absence of mechanisms for the transformation in ownership issues, and its different schemes were developed. This situation was mostly characteristic for processes where the borders among state, corporative and private forms of ownerships are not defined. Consequently, the situation was resulted with freezing of the process of privatization in the region, and without removal of violations and introducing new programme, all attempts to establish “market economy” based on state ownership failed. The reason is absence of complex model, appropriate infrastructure (real estate market, open market), and closed-based conversion of enterprises into joint - stock companies.

Several problems, like the need to foreign investors (mostly from Russia) and legitimization of property rights of the ruling elites, budget deficits necessitated privatization in the region. However, process was accompanied with a range of problems: Moldova claimed on the right to dispose state property objects in the regional territory; some (even larger) enterprises did not honor their privatization commitments, set forth in the privatization contracts, which consequently, threatened cancellation of privatization contracts. Now the key problem of Transnistrian privatization is its recognition by RM. It doesn’t mean that the process is illegitimate. For example, two groups of American advocates researched the legitimacy of Transnistrian privatization in 2006, from the view of international law. The answer was nevertheless at odds: first – yes, it is legitimate, second – it is illegal.[4]

Privatization: Incentives and the process

Mass wave of privatization in Transnistria started rather later than in the adjacent countries. First attempts of “large-scale privatization” were made in 2002 – a decade later than in Moldova. In the same year asset of Bender Corn-remanufacturing Combinat “Tigina” was sold to OOO “Sheriff” at the price of US$ 600 thousands.[5] There were several reasons and incentives for an outburst of privatization in Transnistria:[6]
Transnistrian authorities searched for the economic stability of large industries by attracting investor funds. Transnistrian authorities were mainly striving to attract Russian investment to the region that would obviously doubled as ‘a shield, protection against claims of Moldova on the right to dispose state property objects in the regional territory’;
Privatization revenues are now viewed as one of the main sources of funding the republic’s budget deficit;
Privatization would serve as a safeguard of ownership rights within a ‘common state’. It means to secure, “legitimize” local elite (administration, entrepreneurs) property rights in regional enterprises until ‘a common state’ with the Republic of Moldova could be created. (It was times when Kozak Memorandum was intensively discussed).

Since privatization signifies one of the most important priorities of social-economic policy, in 2003-2006 its normative/legal base, regulating issues related to ownership in Transnistria, were also modified. New laws were adopted: Law on de-nationalization and privatization (07.2003), stock market (2003), State Programme on de-nationalization and privatization in PMR for 2001-2004 years (12.2003), Law on joint-stock companies (02.2004), and valuation activity (03.2004), etc. New Law on Privatization was adopted in 2006. This Law facilitated Tiraspol authorities to ask for the cancellation of the contracts favouring expropriation in case deviation from privatization contracts is revealed. Under the law, the "Transnistrian state" is entitled to recover the assets from owners who do not invest fixed assets during more than a year, admit reduction of production volume up to 40% from the moment of privatization, or downsize by 50% the number of employees over the first three years after signing the privatization contract. Tiraspol was enabled to expropriate enterprises in case owners to not manage to cover the loan debt.[7]

The first Transnistrian stock exchange was held in August 2003. The state share holding (15.6%) of the Moldovan Metal Works put up for sale and was sold to El Energy Investment and Management Corporation registered in Lichtenstein at the price of US$ 2.6 million. The starting price of the plant was set at US$ 10 million when it was presented for privatization. [8]

According to the official data of 2007, at least 125 enterprises were privatized in Transnistria until this time with incomes estimated at 108 million dollars.[9] Enlivenment in privatization in the first years of privatization (2002-2003) is mostly associated with the wish of Transnistrian authorities to define owners of the enterprises on the threshold of the “common state” with the Republic of Moldova. The privatization programme for 2001-2002 included 55 enterprises, and even 75 more for the following years. In 2002 – 2 enterprises, in 2003 – 12 and 2004 – 16 were privatized.[10] In 2003, there were privatized Bendery enterprises – Danastr (the 100% of share holders of the Shoe factory “Danastr” was sold to an Italian company “Damtan SA” for US$ 200 thousand), Moldavkabel “Oil-Extraction Plant” (Bender factory “Moldavkabel” – 100% share holding – was acquired by AO “Sevkabel” from Saint Petersburg, Russia), and the state share holding in the Moldovan Metallurgical Plant was sold.[11] Privatization of ten industrial enterprises among which are Moldowskaja Power Plant, “Tigina” and “Floare” shoe factories, “Odema” clothes factory and several other enterprises of machine-building, light and food industries in Tiraspol, Bender, Dubassar and Grigoriopol. In 2005, 41 state enterprises and 171 objects of municipal properties were privatized. US$ 35 million from privatization were transferred to the regional budget. So, by the end of 2005, 68 state enterprises were sold, for which development it was invested US$ 114.3 million.[12] In 2006, Transnistria sold 52 out of 64 enterprises, planned to be privatized, and earned US$27 million out of the planned $40 million.[13] In 2006, Wine and Cognac Complex “KVINT” were sold to OOO “Sheriff” for US$ 21.7 Million. The budget-2007 included privatization earnings at $13.4 million, which the regional authorities hoped to get from the sale of about 80 enterprises.[14] In 2007, Bender-based commercial river port was purchased by the Russian Gazprombank for US$ 365 thousand,[15] and the contest of privatization of the silk factory from Tighina Benderskii Sholk, at the initial price of 2 million 761 thousand dollars were announced.[16] Russian investor bought Transnistrian TV-radio centre.[17]

Russian capital

As far as Russian investment concerned, it already exists in Transnistrian market, in the form of financial and technical loans to enterprises. ITERA Russia purchased the 2/3 shares of region’s largest Metal Plant – Rybnita Metal Works. In certain contexts, the participation of Russian companies in the privatization contest (for example, in the contest of Moldowskaja Power Plant) is explained by both their strategic orientation at the Balkans and the agreement on joint work at the CIS energy markets. Russia included seven Transnistrian companies in the production cooperation programme between Republic of Moldova and Russia, which demonstrated its interest in stabilizing and “codifying” its ties with the region.[18] Russian capital was going to be present in Transnistria in the form of ownership and co-ownership. Willingness to attract investors in the wine and tobacco sectors led to lifting ban on foreign companies’ operation in the sectors. Aroma, Russia, which is the main exporter of Bouquet of Moldova’s products to Russian market, now is the new owner of this winery. Now Russia owns majority of strategic enterprises in Transnistria. It includes metallurgy, machine-building, winemaking, energy and light industry. At the same time, Russia purchased several important Moldovan enterprises (Moldovan Shopping House “Aroma”, “Salute”). This fact – Russia’s interests in both sides of Nistru – can play as a good base for a search of consensus in a very complicated issue – politicized Transnistrian privatization “problem”.

Problems with privatized enterprises

In the first half of 2007, the downswing was registered with 40 Transnistrian enterprises (out of 130). 26 enterprises have not begun their activities at all. According to the TD Ministry of Economy, the Tiraspol baby food factory, privatized in 2006, the Bender vegetable oil refinery, the soft drink factory, the Vetbiofarm and the Camenca grain procurement were idle. In Dubasari the tobacco fermentation factory, meat factory and bakery do not function. The Camenca cannery decreased its output in January-July by 90.4% against the same period of 2006, the Odema clothing factory - by 63.3%, the Metlax footwear company - by 61.4%, the Bendertex clothing factory - by 58.8%, the Evrostil furniture factory - by 37%.[19]

The data reveal the fact that while considerable growths were detected in the heavy industry sectors, there was a downswing in the light industry in Transnistria. The decrease was also noticed in other sectors of industry and influenced the process of fulfilment of their privatization commitments. In 2007, the Prosecutor’s office reported that 4 out of 13 enterprises, privatized in 2003, did not fulfil their commitments. These are Moldavkabel, the Bender oil extraction factory, the coal and oil products base, the Moldovan Regional Power Station. There were six such enterprises out of 14, privatized in 2004, 17 out of 21 in 2005. Dossiers of the most persistent defaulters were sent to the court. Several enterprises have been already returned to the state by the court verdict, in particular, the Grigoriopol poultry factory.[20] According to the results of the inspection of the objects, privatized in 2002-2006, it was revealed that almost one third of the owners did not fulfil their commitments. To start control at private enterprises, the standing committee for Policy, Budget and Finance of the TD Supreme Council approved amendments to the Law on Privatization, which tightened the responsibility of enterprises’ new owners for the non-fulfilment of purchase-sale agreements’ terms.[21] Soon after TD privatization authority started to check the way owners follow the requirements of privatization. Inspections were held in shoe factories – “Tighina” and “Floare”, Factory of Milk products from Bender, the Meat production factory from Tiraspol, privatized in the periods of 2003-2004. Transnistrian Privatization Department asked Tiraspol Court of Arbitration to cancel privatization contracts for the Bender-based Oil Extraction Plant and Tiraspol-based Founding Machine Production Plant. "The enterprises did not honor their privatization commitments, set forth in the privatization contracts ", regional Minister of Economy, Elena Cernenco, stated. (Tiraspol-based Founding Machine Production Plant was sold in 2005 to Transnistrian company Tirimpex for US$1.3 million, while the Oil Extraction Plant was purchased in 2003 by WJ Holding Limited with US$1 million.)[22]

Contradictory approach of Moldova towards the privatization in Transnistria

Overall approach of Moldova towards the privatization in Transnistria was pretty contradictory. Moldova did not demonstrate unique stance in this issue, which has partially held (Western) investors back.

When Moldovan Metallurgical Plant was sold in 1998 Moldova approached it quite calmly and without any kind of protest. Chisinau, without any further condition, signed the Protocol on Guarantees for Attraction and Protection of Foreign Investments and Cooperation in the Field of Investment Activity (2001), which says that “the activity of foreign investors and entrepreneurs on the territory of Transnistria is guaranteed by the laws of the Republic of Moldova, Transnistria and international laws”.[23] From this protocol, it became clear that the right of Transnistrian Administration to carry out privatization basing on its own legislation in force was recognized.
However, when in 2002-2003, the privatization process was perked up in Transnistria, Chisinau started to display incompatible reaction. Official Chisinau stated that it has supported “legal privatization” (?), at the same time speaking about likely outcomes for the investors who have already privatized some property in Transnistria the Moldovan Government does not exclude that some problems may arise if the buyers had not consulted the Moldovan authorities beforehand.[24] In this stance of Moldova it is not clearly specified what kind of investors my have problems: the local or foreign ones.
Transnistria demanded of Moldova to recognize privatization in the region legitimate as a condition for its further participation in the Joint Constitutional Commission. Therefore, in 2003, Tiraspol officials demanded to sign an Act on Ownership, which should legally guarantee the absence of pretensions of Chisinau to Transnistrian ownership.
In 2004, Parliament adopted Law of the Republic of Moldova on Privatization of Enterprises in Settlements of the Left-Bank of Dniestr River and Municipality of Bender. The Law did not recognize the fact of privatization of Transnistrian enterprises, proposed new privatization procedures and declared invalid the privatization of enterprises, carried out with violation of the current law provisions and other legislative acts of the Republic of Moldova, from the date of conclusion of the privatization agreement.[25]
However, in the official documents of 2005, the results of privatization are officially recognized, which were carried out until the adoption of Basic Principles of the Status of Transnistria.
In 2006, the Government of RM stated that all properties owned by the population of the region and the production capacity used by the economic agents of the region are not and cannot – be subject of pretensions by the official authorities of the Republic of Moldova. The Government of Moldova guarantees property rights to those legal and physical persons from Transnistrian region who were registered in the appropriate bodies of RM. By this, permanent-based registration was rigorously/unsystematically correlated with privatization and was possible if deed of ownership was issued by the appropriate bodies of Transnistria by the end of July, 2005 (on this day the Law on the Basic Principles of the Status of Transnistria had to take effect) and reissued in the cadastral bodies of RM within 90 days from the time when the law (on Basic Principles of the Status of Transnistria) took effect. Otherwise, based on the list of Registration Chamber, the enterprise goes to state ownership (of RM) and its take-over/alienation is not recognized.[26]
In 2007, President Voronin stated that “Moldova guarantees the inviolability of the ownership rights of all Transnistrian real and legal persons”.[27] President further voiced that a special procedure of recognizing Transnistrian property was worked out. According to the President, this procedure has a character of law and is based on the statement principles. Voronin, however, stressed that this law “can only be adopted in a package with the adoption of a full-fledged legal status for Transnistria - neither sooner nor later”


Privatization of industrial objects, flow of foreign investment and reinforcement of private sector will make it unavoidable for ‘red directors’ of Transnistria to go transition from planned-economy to the market one. This process can produce indispensable preconditions for a peaceful resolution of Transnistrian conflict on the economic basis

Involvement of investors will accelerate the settlement of the conflict. Russian capital, which is present in Transnistria already in the form of ownership or co-ownership, can be seen as potential conflict prolonging factor. However, it is a fact that Russia purchased several enterprises in Moldova, and therefore, interests of Russian companies in both sides of Nistru River can be a good base for a search of consensus in politicized Transnistrian privatization.

Contradictory (still not formulated) stance of Moldova towards ownership privatization in Transnistria does not help solve both economic and political problems as soon as possible rather aggravate tensions. Such approach by Moldova has partially held Western investors back from privatization in Transnistria and facilitated Russia to get hold of more economic power in the region.

[1] Anatol Gudim, Centre for Strategic Studies and Reform: “Privatization in Transnistria”.
[2] RAO Gazprom (“Itera International Energy Group L.L.C.”) became owner of 70% of shares, 15.6% remained in state ownership, 14.4% in ownership of physical person.
[3] Igor Smirnov, „PMR President“, in Anatol Gudim, Centre for Strategic Studies and Reform: “Privatization in Transnistria”.
[4] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, Centre of Strategic Studies and Reforms, Chisinau 2007, pp. 41
[5] “Ibid, pp. 38.
[6] “Research Paper on Transnistria“, Centre for Strategic Studies and Reforms, 2003. pp. 14
[7] BASA-Press, 20.03.2007
[8] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, Centre of Strategic Studies and Reforms, Chisinau 2007, pp. 39
[9] BASA-press, 10 July 2007
[10] Official data of Ministry of Economy of PMR
[11] “Research Paper on Transnistria“, Centre for Strategic Studies and Reforms, 2003. pp. 16
[12] Informatsionnoe Aqentstvo „Noviy Region“, 06.07.2006
[13] Infotag, October 3, 2007
[14] Infotag, 03.10.2007
[15] 24.04.2007
[16] BASA-Press, 10.07.2007
[17] Infotag, 03.10.2007
[18] “Research Paper on Transnistria“, Centre for Strategic Studies and Reforms, 2003. pp. 16
[19] But, the industrial growth by 54.3% up to 3.656 billion rubles is observed in TD. This growth was provided by 64 enterprises, incl. the Bender brewery- 3.4 times, the Rybnitsa Cement-sheeting Plant - 2.6 times, the Moldovan regional power station - twice, the MMZ - by 83.5%, the Moldavizolit - by 47.3%, the Tiraspol KVINT wine and cognac enterprise - by 31.5%.Infortag, 28.08.2007
[20] Infotag, 24.04.2007
[21] Infotag, 14.05.2007
[22] Both investors assumed investment commitments worth several million dollars. Tiraspol authorities are asking for the cancellation of the contracts based on a Law adopted by Transnistrian lawmakers in 2006, favoring expropriation in case deviation from privatization contracts are revealed. Under the law, the "Transnistrian state" is entitled to recover the assets from owners who do not invest fixed assets during more than a year, admit reduction of production volume up to 40% from the moment of privatization, or downsize by 50% the number of employees over the first three years after signing the privatization contract. BASA-press, 20.03.2007
[23] The Protocol on Guarantees for Attraction and Protection of Foreign Investments and Cooperation in the Field of Investment Activity, 16.05.2001, Tiraspol
[24] “Research Paper on Transnistria“, Centre for Strategic Studies and Reforms, 2003. pp. 17
[25] Parliament of the Republic of Moldova. Law on Privatization of Enterprises in Settlements of the Left-Bank of Dniestr River and Municipality of Bender, October 14, 2004.
[26] “Moldovskaja i Pridnestrovskaja ekonomiki – ot konflikta k perspektivam mirnoqo razvitija”, Centre of Strategic Studies and Reforms, Chisinau 2007, pp. 35
[27] Infotag, Moldpres, 24.10.2007