AMBASSADOR'S 3/27 MEETING WITH FINANCE MINISTER

C O N F I D E N T I A L MOSCOW 001354

SIPDIS

SIPDIS

STATE FOR EUR/RUS, EEB/CBA, NEA/I
STATE PASS USTR FOR DWOSKIN, DONNELLY
TREASURY FOR BAKER/ALIKONIS
NSC FOR KLECHESKI AND MCKIBBEN
USDOC FOR 4231/IEP/EUR/JBROUGHER

E.O. 12958: DECL: 03/28/2017
TAGS: EFIN ECON ETRD RS
SUBJECT: AMBASSADOR'S 3/27 MEETING WITH FINANCE MINISTER
KUDRIN

REF: A. MOSCOW 1333

B. MOSCOW 1210

Classified By: Charge d'Affaires Daniel A. Russell: 1.4 (b/d).

Summary
--------------


1. (C) In a March 27 meeting with Finance Minister Kudrin,
the Ambassador pushed for Russian progress on remaining
problem areas in WTO talks and raised our concern over
pending legal action against PricewaterhouseCoopers. There
are no plans to revoke the audit license of
PricewaterhouseCoopers, and he continues to monitor
developments in the legal case involving PwC audits of Yukos.
Kudrin looked forward to discussing Russia's WTO
negotiations on the margins of the spring World Bank-IMF
meetings in Washington. He also summarized the status of
debt negotiations with Afghanistan (ready for signature),
Iraq (technically ready, pending discussions with the GOI),
and North Korea (still the subject of interagency
discussion). Kudrin plans to invite Secretary Paulson to
participate in the St. Petersburg Economic Forum in June.
End Summary.

WTO Talks
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2. (C) The Ambassador raised WTO accession talks and pushed
Kudrin on the need for Russia to move more decisively on
remaining problems in agriculture and other areas (along the
lines of the conversation a day earlier with Gref reported in
reftel A). "Russia needs help with WTO accession," Kudrin
noted. Putin has placed a high priority on concluding the
multilateral negotiations and signing the accession agreement
-- ideally by this fall -- but certainly before the end of
his presidency next year. Kudrin may call on Members of
Congress during the upcoming World Bank/IMF meetings (April
14-15) to explain Russian positions and elicit support for
accession. Ambassador reminded Kudrin that House Foreign
Affairs Committee Chairman Tom Lantos had pledged recently to
lead an effort in Congress to repeal Jackson-Vanik.

PwC's Audit Case
--------------


3. (C) The Ambassador raised our concerns over pending legal
action against PricewaterhouseCoopers and the potential
implications for Russia's own economic reputation. Kudrin
was very familiar with PwC's case, knew that the Yukos audit
contracts had been declared void by the court last week, and
that PwC had been ordered to pay the government its auditing
fees plus administrative fines (Reftel B). Ambassador asked
if the Finance Ministry planned to revoke PwC's license.
Kudrin said that there was no basis for PwC's license to be
revoked. He was careful to note that the Finance Ministry
was not a party to the court case and had not seen the
documents the tax inspectorate attorneys had submitted "at
the last minute." He has asked Deputy Finance Minister
Shatalov to review the court's written decision (still
pending) and apprise him if further deliberations on the
licensing issue are necessary. Kudrin added that the Finance
Ministry was drafting legislation to clarify the roles and
responsibilities of auditors.

Paulson Invitation
--------------


4. (C) Kudrin intends to invite Treasury Secretary Paulson
to participate in the St. Petersburg Economic Forum in June.
He laid out his vision for Forum to become a "stronger
platform" for discussions on common economic interests as
well as broader global economic trends. The Forum would
benefit from Secretary Paulson's participation, which would
underscore the importance of the bilateral economic
relationship.

Debt Relief Talks
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5. (C) Afghanistan. The GOR is assessing Afghanistan's
suggested edits to the debt relief proposal that had been
provided to Kabul in late February. There were no serious
concerns, and the process was on track.



6. (C) Iraq. Kudrin said that the GOR's preference would be
to announce debt relief at the time the Iraqi Government
confirms the renewal of Lukoil's license for the West Qurna
field. The Russian government is sensitive to appearing to
have rewarded Iraq without having taken steps to secure
Russian interests at the same time. He suggested that the
GOI's passage of legislation addressing foreign investment in
the oil sector last month meant the dual announcement could
be made soon. The Ambassador cautioned that the GOI would
need considerable time to implement this law before it would
be in a position to confirm an individual license, and he
urged the GOR to see debt relief as an early, well-placed
investment in bilateral relations with Iraq. Kudrin
committed to reviewing the GOR's plans on Iraqi debt.


7. (C) North Korea. The work of the bilateral commission is
still in its preliminary stage. In Moscow, the Finance
Ministry's work with the Foreign Ministry has largely focused
on evaluating options regarding debt negotiations with North
Korea. The GOR has made no official decisions on how to
proceed. Kudrin confirmed that preliminary calculations
suggest that the amount on the table is in the $8 billion
range.

Budget Reform
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8. (C) Kudrin seemed pleased that the government had
approved not only his proposal for a three-year budget but a
non-oil, non-gas budget as well. His goal is to minimize the
budget's exposure to the oil and gas sectors. The non-oil
budget proposal was in line with last year's capital account
liberalization. He stressed that the proposal was a key
component of plans to diversify the economy and to enhance
the competitiveness of Russian industry. The GOR also had
agreed in principle to the establishment of the non-oil
budget's Future Generations Fund, which will use the
investment income from accumulated oil and gas revenue to
fund budget obligations. Exactly which obligations, he
conceded, was still the subject of hot debate inside the GOR.
RUSSELL