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) 
 
¶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