Identifier
Created
Classification
Origin
09CHISINAU41
2009-01-22 06:56:00
UNCLASSIFIED
Embassy Chisinau
Cable title:  

PRIVATIZATION PROCEEDS FOR THE CAMPAIGN

Tags:  EAID ECON EFIN PREL MD 
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VZCZCXYZ0008
RR RUEHWEB

DE RUEHCH #0041/01 0220656
ZNR UUUUU ZZH
R 220656Z JAN 09
FM AMEMBASSY CHISINAU
TO SECSTATE WASHDC 7531
UNCLAS CHISINAU 000041 

STATE FOR EUR/UMB

SIPDIS

E.O. 12958: N/A
TAGS: EAID ECON EFIN PREL MD
SUBJECT: PRIVATIZATION PROCEEDS FOR THE CAMPAIGN
WAR CHEST?

UNCLAS CHISINAU 000041

STATE FOR EUR/UMB

SIPDIS

E.O. 12958: N/A
TAGS: EAID ECON EFIN PREL MD
SUBJECT: PRIVATIZATION PROCEEDS FOR THE CAMPAIGN
WAR CHEST?


1. (SBU) SUMMARY: In December 2008 the
Government of Moldova (GOM) decided to amend the
2008 state budget by increasing revenues,
expenditures and the deficit. This followed an
announcement in November that revenues from
privatization had exceeded expectations and that
the GOM would sell additional assets worth MDL 4
billion (USD 400 million) from a total of 89
companies and direct the additional funds to
economic projects and development. The opposition
questioned whether the additional funding would
serve the targeted purposes or supplement the
ruling Party of Communists' (PCRM) campaign war
chest for the 2009 spring elections. The lack of
transparency in privatizations, the sudden
announcement of tenders with short deadlines for
bidding and the apparent failure of privatizations
to achieve market-value bids have led to
accusations by opposition parties of corruption.
END SUMMARY.

2008 BUDGET AMENDMENT IN DECEMBER
--------------


2. (U) On December 8, 2008, at an extraordinary
meeting, the GOM decided to recommend amending the
2008 state budget due to surplus revenue from
privatization during the year and plans for
additional sales. The GOM proposed increasing
budget revenues by Moldovan lei (MDL) 570.2
million (USD 55 million),expenditures by MDL
965.3 million (USD 93 million, and the deficit by
MDL 495 million (USD 48 million). The GOM
submitted this proposal to the Parliament for
consideration on December 9 and Parliament
approved the amendment on December 19, 2008. The
supplementary funding primarily targets economic
development. It allocates MDL 369.5 million to
the transportation sector (including Giurgiulesti
port on the Danube River and the construction of a
railroad line from the port to the town of Cahul),
MDL 98.6 million to agriculture, and MDL 92.6
million to the energy sector. The amendment also
increases funding for education, health, culture,
sport and youth; for public order and national
security; for national defense; for servicing the
state debt; and for support of local budgets.

PRIVATIZATION AND OPPOSITION PROTEST
--------------


3. (SBU) In late November, the GOM announced the
sale of 89 companies with assets worth MDL 4

billion (USD 400 million),including 14 companies
fully owned by the state and 44 companies in which
the state had a majority share. On December 17,
the opposition party Our Moldova Alliance (AMN)
protested in downtown Chisinau outside the
government's headquarters against the "groundless"
privatization of state property. About 100
protesters carried banners saying "Stop the
Privatization of State-Owned Assets," "No
Corruption," "The Communists are Plundering the
State," and "The PCRM is Like the Bird Flu." At
the protest, AMN members claimed that the money
received from the sale of state assets would be
used by the PCRM for its electoral campaign in the
spring. They noted that the GOM had elected to
privatize additional assets during the world
economic crisis, although the GOM would likely
have earned more by waiting for better economic
times.

4. (U) At a press conference on December 16,
2008, Prime Minister Zinaida Greceanii had stated
that the GOM was not going to suspend the
privatization program and not a single object
would be privatized at an under-rated price.
Regarding two major assets of the GOM, she noted
that "we are not going to put up Banca de Economii
(savings bank) or Moldtelecom for privatization -
until good conditions are ripe for this and until
attractive offers come to us."
PRIVATIZATION DEALS OR STEALS?
-------------- _


5. (SBU) The GOM recommended a seven-hectare site
in the city center of Chisinau on Vasile Lupu
Street to the U.S. Embassy for a new embassy
compound (NEC). Emboffs and GOM officials have
been discussing the possibility of the USG's
acquiring the site for months. On December 30,

2008, Embassy staff discovered that the Public
Property Agency had posted the site on its website
for privatization on December 29, 2008. The
announcement requested submissions by January 30,
2009 and contained a requirement that the minimum
accepted price was MDL 88.6 million (USD 8.8
million) and a bank guarantee had to be submitted
when bidding. The timing of the announcement was
particularly suspicious, since the GOM shut down
for holidays from January 1 to January 11, 2009.
Many businesses followed suit and closed for the
first eleven days of January 2009. Interested
bidders could only seriously begin preparation of
the documentation required, including securing
financing, for a bid on January 12, 2009, unless
they had prior knowledge of the tender and began
preparing before the announcement.


6. (SBU) The GOM added the Codru Hotel complex
in downtown Chisinau to the list of assets subject
to privatization on November 12. The GOM
announced the sale of the Codru Hotel to Daranian
Holding company, registered in Cyprus, for MDL
50.3 (USD 4,8 million)on December 23, 2008.
According to the GOM, three bidders competed for
the tender. In an interview published on January
11, 2009, Mihai Ghimpu, the president of the
Liberal Party, accused the government of selling
property worth billions of lei at ridiculously low
prices to obscure firms that could be controlled
by the Party of Communists. He noted that the
most recent example was the sale of the Codru
Hotel at a price ten times below its fair market
value. He lamented that the government was
stealing property in a country where people got
the lowest salaries and pensions in Europe.


7. (SBU) On December 26, 2008, an opposition
party, Moldova Noastra Alliance (AMN) accused the
GOM of corruption in the privatization of state
assets in a statement read in Parliament. The AMN
statement said, "[t]he sales of assets of the last
six months tell of the fact that we're witnessing
a new 'prihvatization' (a pun implying theft which
was often used by the Communists in the late 90s)
on a big scale, and well managed by the mafia clan
ruling the country."
COMMENT
--------------


8. (SBU) The recent, large privatization of the
Codru Hotel and the lack of transparency in the
sale of governmental assets continue to fuel
speculation of corrupt privatizations and of funds
ending up in the PCRM's campaign war chest for
upcoming elections. The GOM claimed that current
budget revenues were above projection because of
additional proceeds from privatization, taxes and
fees. The revenue in 2008 from privatizing public
property totaled MDL 934 million (USD 90 million)
and exceeded planned receipts for 2008 by a factor
of five. The budget for 2009 foresees income of
only MDL 350 million from privatization. The
significant increase in privatization revenues in
2008 and the fact that the report on the 2008
state budget will not be publically available
until summer 2009 support accusations of
corruption against the GOM in its privatization
program.


9. (SBU) Local observers had expected the PCRM to
do everything possible to ensure for itself a
sizable victory in the upcoming national
parliamentary elections. That expectation seems
to have been realized: the ruling party is
harassing opposition parties to decrease their
chances of winning; media, especially broadcast
media, carry little information about opposition
politicians; and the proceeds from privatization
may be enriching the PCRM.
CHAUDHRY