Identifier
Created
Classification
Origin
08CHISINAU68
2008-01-25 14:44:00
CONFIDENTIAL
Embassy Chisinau
Cable title:  

TRANSNISTRIAN POLITICAL ECONOMY: THE CASE OF MMZ

Tags:  ECON PBTS PGOV PREL MD 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHCH #0068/01 0251444
ZNY CCCCC ZZH
R 251444Z JAN 08
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 6177
INFO RUEHBM/AMEMBASSY BUCHAREST 4270
RUEHKV/AMEMBASSY KYIV 0581
RUEHMO/AMEMBASSY MOSCOW 3257
C O N F I D E N T I A L CHISINAU 000068 

SIPDIS

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 01/25/2018
TAGS: ECON PBTS PGOV PREL MD
SUBJECT: TRANSNISTRIAN POLITICAL ECONOMY: THE CASE OF MMZ

REF: CHISINAU 48

Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d)

C O N F I D E N T I A L CHISINAU 000068

SIPDIS

SIPDIS

STATE FOR EUR/UMB

E.O. 12958: DECL: 01/25/2018
TAGS: ECON PBTS PGOV PREL MD
SUBJECT: TRANSNISTRIAN POLITICAL ECONOMY: THE CASE OF MMZ

REF: CHISINAU 48

Classified By: Ambassador Michael D. Kirby for reasons 1.4(b) and (d)


1. (C) SUMMARY: Despite the economic and political challenges
of doing business in Transnistria (TN),Moldova Metal Works
(MMZ) managed to produce a record volume of steel in 2007.
The case of MMZ highlights the complicating role that
economic interests play in negotiating a resolution to the TN
conflict. Chisinau has honored its commitment to facilitate
legal trade for registered TN companies. Moldovan export
controls have caused MMZ to lose money. On the political
front, the TN Supreme Soviet (parliament) will soon review
"President" Smirnov's line-item veto of the 2008 TN budget.
The outcome of this dispute between the TN legislature and
executive may indicate who has more power (and Moscow's
support) inside Transnistria. END SUMMARY.


2. (C) On January 18, econoff met with Andrei Yudin, MMZ
General Director and a member of the Transnistrian Supreme
Soviet, to discuss the company's performance, internal TN
economic and political conditions, and relations with
Chisinau. As in previous meetings, Yudin was frank and open.
Although econoff had no problems entering TN (having
informally "notified" Tiraspol of the visit),Yudin commented
that the meeting had prompted inquiries to him from the TN
authorities.

THE BUDGET BATTLE FROM THE INSIDE
--------------


3. (C) The Supreme Soviet's refusal to approve spending
increases for the Executive in the 2008 budget, and the
securing of Russian financial assistance by Supreme Soviet
Speaker Shevchuk, have widened the political divide between
the Supreme Soviet and Smirnov (reftel). Yudin, an
independent member of the Supreme Soviet aligned with
Shevchuk's Obnovlenie Party, said he supported cutting
appropriations for the Executive, citing TN's economic
hardships and, most importantly, his company's interests. He
said he could not support an increase for the Executive when
TN had suspended payments to state workers and pensioners,

the drought had wiped out most crops, and inflation continued
to mount. Asked about Smirnov's line-item veto of the 2008
budget, Yudin said the Supreme Soviet would review the budget
law at the end of January. He agreed that Obnovlenie had
sufficient votes (a 2/3 majority) to overcome the president's
veto, but commented that Shevchuk was negotiating with
Smirnov because political life must go on.

CALCULATING TRANSNISTRIAN TAXES: NOT AN EXACT SCIENCE
-------------- --------------


4. (C) Yudin said that MMZ paid about USD 26 million in taxes
in 2007, making the company one of the largest sources of tax
income for Tiraspol. He believed that, because the company
had paid a dividend in 2007, the TN authorities would
increase his taxes for 2008 to USD 30 million. Yudin argued
that TN's Soviet-style tax system needed to be modernized and
revenues spent in a more rational manner. He opined that
mounting social costs, a declining population, and declining
income from privatizations, which had traditionally comprised
about half of TN's yearly budget, would continue to be major
concerns for TN's economy.

MMZ'S PRODUCTION INCREASES, CHISINAU FACILITATES TRADE
-------------- --------------


5. (C) Yudin confirmed that 2007 was a record year for MMZ,
noting that industry sources were amazed at the aging mill's
ability to increase production and maintain high quality. In
2007, MMZ produced 965,198 tons of rolled and finished steel
(split between reinforcing bars and steel wire rod),a 43%
increase compared to 2006. MMZ exported 934,000 tons of
steel products in 2007, sending 53% to CIS countries and 47%
to other markets, mostly the EU. However, Yudin noted that
the mill needed major capital investments for maintenance and
new equipment.


6. (C) When asked about relations with Chisinau, Yudin
acknowledged that the Government of Moldova (GOM) had kept
its promise to facilitate trade for registered TN
enterprises. He said politicians in Chisinau enjoyed lauding
their own efforts, but refused to recognize the additional
costs or uncertainty of the situation. Yudin complained that
MMZ had paid an estimated USD 15 million in additional rail
transportation costs because of Chisinau's efforts to control
TN exports. Also, because of a lack of dialogue between
Chisinau and Tiraspol, he'd been forced to solve political
problems. For example, following Chisinau's demand to
control production inputs for products bound for the EU with
Moldovan certificates of origin, Yudin claimed he discreetly
invited Moldovan Customs officials to his plant for an
inspection. MMZ and Chisinau negotiated a reporting
mechanism that combined paper and electronic notification of
import documents with physical inspections of exports
transported via right-bank controlled territory in order to
satisfy the GOM's demands.


7. (C) COMMENT: Yudin remains willing to engage with us and
comment on the challenges of doing business in Transnistria.
He's an outsider who admits he's only involved in local
politics at the behest of MMZ's Russian and Ukrainian
investors. He asked several times about our opinion of
Shevchuk, noting that he was a young leader who wanted to
improve TN's economy. However, Yudin said that Shevchuk was
often constrained by internal TN politics and that he (Yudin)
had offered to be a surrogate in the Supreme Soviet,
proposing controversial economic reforms on Shevchuk's
behalf. Yudin acknowledged that Chisinau had honored its
promises to facilitate trade for registered companies.
However, Yudin seems to have little trust in Chisinau
authorities. He noted that Chisinau could impose new demands
at a moment's notice that would impede his ability to do
business. We don't sense that Chisinau officials have
succeeded in gaining the confidence of TN's business leaders.
END COMMENT.
KIRBY