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

The Budapest summit of Nabucco: Opportunities and Challenges

The Budapest summit of January 26 and 27, where the stakeholders and institutional backers of the Nabucco gas transport project came together, has exposed indispensable problems such as high costs, lack of sufficient financial support, where gas would actually come from, reluctant suppliers, perceived Russian resistance, etc.

Rationale behind the fervor to Nabucco[1]
The Budapest conference opens in the wake of gas dispute between Russia and Ukraine that affected about 20 European countries. Although the Budapest meeting had been announced well before the Russian gas cutoff, the series of these events should dynamically spur realistic decisions at the meeting on the Nabucco project. Moscow’s unprecedented, two-week cutoff of gas supplies to Ukraine and Europe opened the window of opportunity for Nabucco project even wider. The suspension displayed Russia’s unreliability, the risk of dependence on Moscow, and the inevitability for Europe to diversify its supply sources by securing alternative routes like a direct access to Caspian gas through the Nabucco project. Hence, the goal of the summit was to demonstrate support for all players in terms of political backing, capital investment, supply commitments for Caspian gas to Europe.

EU Energy Commissioner Andris Piebalgs said that the European Union may propose in so far as 200 million Euros as initial funding. The European Investment Bank may finance some 25 percent of the 8-10 billion euro pipeline, Chairman Philippe Maystadt said. Czech Prime Minister Mirek Topolanek, whose country holds EU’s rotating presidency, said that the EU must seriously begin to act after a “deplorable lack of progress”: “Nabucco is of paramount importance for the freedom of the continent. … The more we are dependant on one source… the more susceptible we are to blackmail and the narrower our political options become”. Representatives from the supplier countries – Azerbaijan, Turkmenistan, Kazakhstan, who attended the summit, may determine the fate of Nabucco.

Meanwhile, Russia’s invasion of Georgia and world financial crisis spurred EU into some real action on Nabucco. The invasion made it evident that the South Caucasus Corridor is inevitable for energy delivery to Europe and it should be developed to prevent Russia’s control. Seemingly, investor confidence in this transit corridor got back following the invasion, against Russia’s estimations. Besides, the crisis on financial markets showed that leaving strategic energy security projects at the thorough pleasure of Russia is nothing than myth or erroneous belief. Additionally, Russia’s recent initiative to assemble a league of gas-exporting countries, possibly ‘to impose terms on Western consumer countries, pushed EU into taking tangible actions. Given that Central Asian and Caspian gas reserves are outside the reach of the proposed league, it is urgent for the West to open direct access to them. In the meantime, a prospective step forward for Nabucco and the Southern Corridor cropped up in Turkmenistan. The recent Gaffney Cline audit of Turkmen gas deposits reported immense reserves of 4 trillion cubic meters of gas at the low estimate, 6 trillion at the best estimate, and 14 trillion cubic meters at the high estimate at the South Yoloten-Osman fields alone (James Town, January 22, 2009).

Challenges for launching to Nabucco

1) Lack of sufficient financial support
However, the Budapest meeting made it pretty obvious that there are still causal challenges precluding the multilateral agreement to kick off the construction works. It is true that the Nabucco consortium has received a pledge of partial funding through the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB). As EU Energy Commissioner (EC) Andris Piebalgs told, the EU may provide as much as 200 million Euros. But this is insufficient, according to Hungarian government’s project coordinator, Mihaly Bayer. In addition, the EBRD and EIB funding, the Nabucco’s consortium’s companies also need more substantial funding from the EC. At the present time, the need for such intervention is ever more understood in Brussels and elsewhere in Europe as regards infrastructure and energy projects. But that understanding has not yet translated into EU funding for Nabucco.
Meanwhile, the banks have doubts even more about the investment benefits if they agree to allot funding for Nabucco. According to delegates attending the Budapest summit, energy experts inside and outside the EC are suspicious of a project that could finish up being heavily subsidized by the tax payer. During the conference, big European banks made only nebulous commitments to finance Nabucco. The presidents of EBRD and the EIB said they would consider providing funds.
Several EU governments, including Germany, France and Italy, which have long-term gas contracts with Gasprom, are not persuaded about the need for such a pipeline. German chancellor, Angela Merkel has hardly ever told about Nabucco in her any energy-related speeches. Two weeks ago, when Vladimir Putin paid an official visit to Germany, Merkel emphasized the significance of the Russian-German Nord Stream pipeline for European security.

2) Russia’s resistance
Meanwhile, pipeline backers may face another problem: perceived Russian resistance. Formally Russia behaves as if it doesn’t oppose the project. Very recently, Russian Foreign Minister Lavrov announced that Russia would not oppose the construction of the Nabucco pipeline: “If there is gas to fill the pipeline, why not to sell it?” Besides, Deputy Prime Minsiter Zubkov said Russia has “no aversion” to the planned Nabucco pipeline from Central Asia to Europe, and the builders have yet to secure sources for the link: “Natural gas transport routes to Europe must be diversified. ... Without gas supplies Nabucco can be a great monument to giant ambitions and not thought-out action. Russia has vast reserves to serve all pipelines.”
Russia developed rival projects to Nabucco that are the planned Nord Stream link, which would run from Russia to Germany under the Baltic Sea, and the South Stream (which would ship about 30 billion cubic meters of the gas essentially the same route as Nabucco) pipeline from Russia to Italy and Austria. At the moment, Russia supplies Europe with about a quarter of its oil and gas needs. Russia’s share of EU gas imports is 40 percent.
“Europe cannot escape dependence on Russian or Iranian gas,” said Michael Klare, author of “Rising Powers, Shrinking Planet, the New Geopolitics of Energy.” “Between them they have something like 40 percent of the world’s gas supplies.”

3) Iran
Iran could play a key role to reduce the European Union’s energy dependence on Russia, a senior European parliamentary official told (EurasiaNet, January 26, 2009). According to Ona Jukneviciene, a top European official, the EU could not limit its options on Nabucco, if it hopes to achieve its long-standing aim of diversifying its sources of energy. However, EC Energy Commissioner Andris Piebalgs and EC President Jose Manuel Barroso told that Iran’s participation in the Nabucco project is a non-starter.
Even if EU officials demonstrated joint desire to have Iranian participation in Nabucco, several important barriers remain in the way of energy cooperation between Brussels and Tehran. Firstly, the EU and US are locked in a stand-off with Iran over Tehran’s nuclear program. In addition, existing U.S. economic sanctions against Iran ensure that Washington would remain strong opposed to Iranian participation in Nabucco.
Notably Iranian officials were absent from Budapest, who did not receive an invitation to attend the summit even though Mohammed-Reza Ne’matzadeh, the managing director of Iran’s national oil company, has identified the Islamic Republic as Europe’s “sole option” for filling the Nabucco line. Erdogan also urged the EU to work with Iran to secure Nabucco’s economic viability.

4) Turkey
In Budapest summit, the Turkey reiterated its support to Nabucco. Turkey’s Energy and Natural Resources Minister Hilmi Güler said that Turkey has long been a supporter of the project as a partner country: “Turkey’s stance is quite clear. Turkey can work very fast in the project as long as other partners get a move on it.” However, there was a dispute with Turkey over Ankara’s demand to get a net 15 percent of the gas that would be shipped through the pipeline. Other consortium members want Turkey to serve as a transit country. Besides, Ankara as a member of Nabucco consortium continues to seek arduous concessions - like accession negotiations with EU - for allowing Azerbaijani gas to move westward to Europe. Turkish energy official said Ankara expected to settle this and other outstanding issues in Budapest this week.

5) Reluctant suppliers (Azerbaijan)
Nabucco faces other problems. Even its supporters recognize that it will be hard to reach its annual transport capacity of 31 billion cubic meters that amounts to only 5 percent of EU’s annual gas consumption. Besides, the potential suppliers are reluctant to sign up until the pipeline has been built. Turkmenistan and its neighbors ‘are courted by Gazprom’. Negotiations with Ashgabat are ongoing at both diplomatic and commercial level.

Azerbaijan’s participation in the project is not clear. It has several options like selling gas to Russia’s OAO Gazprom. In the summit, president Ilham ALiyev said that Azerbaijan would decide on joining in Nabucco based on the prices it will get. Aliyev further said that Azerbaijan would to commit gas resources to Nabucco once the questions over financing, transit fees, and the timetable for the construction of the pipeline are resolved: “Today, when the transit issues are not resolved, when the construction of Nabucco or any other transportation routes is not resolved and we do not know when it will happen or whether it will happen, to talk about Azerbaijani commitment is premature”.
European backers of the project have have not induced Azerbaijan making any commercial proposal to Baku, unlike Russia’s Gazprom offered in June 2008 to buy all Azerbaijan’s gas export volumes at European netback prices be produced during the second stage of the Shakh-Deniz project. With regard to Gazprom’s offer the Azerbaijani president said Baku has been “considering” Gazprom’s offer. “Price is an important issue here.” He said adding that stronger competition for gas benefits the supplier.

Azerbaijan is firmly committed to Nabucco in line with the Western orientation of the country. However, in case of insufficient EU support, Turkish obstruction, or some other reasons, Azerbaijan may find it difficult to resist Russian incentives and pressures. For pressures, Russia is currently arming Armenian military while playing the Karabakh card with Azerbaijan. Loyalty to Nabucco may mean that Azerbaijan loses short-term commercial opportunities to sell gas to Russia while irritating Moscow politically. The EU needs to resolve this dilemma soon.
[1] Nabucco involves laying a 3,300 km pipeline from Turkey to Baumgarten of Austria, transiting Bulgaria, Romania and Hungary, to carry 31 billion cubic meters of natural gas. The project cost is estimated at 8-10 billion Euros. Construction has been tentatively scheduled to begin in 2010. The planned pipeline, Turkey-Bulgaria-Romania-Hungary-Austria, is to be supplied mainly from Azerbaijan (first phase) and Turkmenistan (follow-up phase) via Georgia and would connect with Germany.

The Gagauz Diary

When the plane was about to land at the Chisinau Airport, I have been feeling like returning back to Baku after 2 years European tour. These feelings grew stronger once I was entering into the city, watching typical “Chrushovka” or other Soviet style blocks of Chisinau. However, the last several years’ construction boom in Baku was not being observed here.

After 3 months assignment in the Conflict Prevention Centre of the OSCE, the first task assigned me in the Mission to Moldova was to support Political Advisor in dealing with Gagauz issue. It was within my responsibility to observe the pre-election situation in Gagauz Autonomous Unit of the Republic of Moldova and come up with regular updated information and findings from observation of the situation.

Gagauzia has ever been an uncommon and atypical place to us. This is not because of its far-off location, but because it has hardly ever been mentioned in both scholastic literature and public media in Azerbaijan. Honestly, I have never felt like searching out something about this beyond recall Turkic nation even from boundless internet. Within the second assignment period of the JPO Programme, in the Mission to Moldova I had this incredible chance.

Gagauz is the fourth largest ethnic group in Moldova, however, this minority group doesn’t insist on independence unlike the remaining ethnic population – Russians, Ukrainians. Gagauz, a total of 153.000, resided in the southern Moldova. They are the descendants of Turkic Oğuz tribes converted to the Orthodox Christianity. The rural Gagauz were largely russified nation during the Soviet reign and still Russian language is mostly used in the enclave. This small Turkic ethic group has been affected by “Russification” policy much more than Azeri Turks and other Central Asian Turkish Countries. Language at the universities, schools, state and private institutions are Russian. I found it amazing that 70-80 percent of Gagauz reported Russian as their second language, while very few – 4 percent of Gagauz said they were fluent in Moldovan.[1]

Cultural and language problems are supposed to be partially linked to the social troubles as well. Gagauz is assumed to be one of the most indigent ethnic populations of Moldova. Small trip from the north to the south is enough to behold the wretched living of the Gagauz people. The roads taking to different villages of Gagauzia seem to be repaired last time in Soviet period. One faces here locals using still horses and carriage as ubiquitous transport. Not only common people, but also local authorities suffer from the lack of financial resources. A good proper example I discovered during the elections to the People’s Assembly of Gagauzia. Because of financial problems, the Gagauz Central Election Commission was able to print out ballot papers only in Russian, although they had to be published in Gagauz and Moldovan languages. Probably, it is a result of low social condition that the prices here are pretty cheap. If you want to visit Gagauz History Museum you need to spend just 2 Lei (about 0.12 EUR). The local leadership sees the reason of poverty in the negligence of Chisinau to the sufferings of autonomy. Some Gagauz newspapers write that even international assistance is not usually equally distributed among all Moldovan citizens. Recently, local newspapers were questioning why Rumania’s aid has not been delivered to disadvantaged Gagauz people. International community lacks to render direct assistance to the region as well. Turkish Government is a single country having realized some assistance projects, inter alia, water pipe construction, road network repair, etc. Most recently, Russian Federation delivered humanitarian aid to Gagauzia, to help out poor locals suffered from last year’s draught. Nonetheless, the Moldovan government imposed a ban on the Russian aid arguing that delivery of external aid during pre-election period would have fortified the image of Gagauz leadership.

After the downfall of Soviet Union, the Gagauzia proclaimed their independence from Moldova, which resulted with an outbreak of conflict in the late 1980s. The dispute in Gagauzia and Transnistria are fully at odds, at least, in terms of their duration, political importance and the level of external support. While Transistrian conflict has linguistic roots, Gagauz conflict was a typical ethno-territorial conflict. Interestingly, despite its ethnic trait conflict in Gagauzia has not lasted long and been settled with granting the region a special autonomous status in the late 1994, whereas Transistrian conflict still keeps going. The other difference between them is that in Transnistria’s case, demand to remain under Soviet (later Russian) administration broke out the conflict. In Gagauz’s case, the dispute was caused mainly by the concerns about the future of Gagauz culture after the ruin of Soviet Union and the alleged neglect of Chisinau to Gagauz problems.

The political atmosphere in Gagauzia is pretty difficult to grasp although it is a small ethnic group. Gagauz nationalism flourished in 1980s was basically, intellectual movement. This movement strengthened when Moldova voiced wishes to reunite with Romania. The question is why so-called Gagauz nationalism was worried about “Romanization” policy of Moldovan nationalists, while having displayed more loyalty to Russia, the country which practically pursued terrible “russification” policy in Gagauzia. There can be quite different approaches: a) having suffered from “russification” policy Gagauz intellectuals was concerned about its replacement with the new wave of “romanization” movement; b) global changes in the world political map, including national liberation movements in other Turkish countries motivated Gagauz intellectuals to be concerned about the future of Gagauz people; c) neighbouring Transnistrian experience played a good inspiring role. The Gagauz nationality has positive (constructive) and challenging facets. The most prominent aspect of Gagauz nationalism is that it isn’t eager for any sort of separatist paradigm, rather reflects on the very considerable conception of “strong autonomy – strong republic”. The challenging moment of the Gagauz nationalism is the likelihood of abuse of those national values or ideas by certain groups for own purposes. For instance, two political “clans” in Gagauzia, presenting them as if they were fighting for the strong Gagauz autonomy, were in fact in conflict with each other.

It is already high time for Gagauz to solve their long-lasted problems. Surely, they need support to solve them as quickly as possible. While the first support should come from Chisinau, the second but the most important one should come from all Gagauz people. If they want strong autonomy having wide-ranging powers, they should drift away from fighting each other. The external assistance (Russian or Turkish) to Gagauzia is very appreciable moment, but it should keep Gagauz away from thinking about its determinative role in resolving internal problems.
[1] King, Charles: „The Moldovans“, Hoover Institution Press, 2000, p. 213