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RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHCH #0112/01 0370549
ZNR UUUUU ZZH
R 060549Z FEB 08
FM AMEMBASSY CHISINAU
TO RUEHC/SECSTATE WASHDC 6229
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 CHISINAU 000112 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EUR/UMB 
 
E.O. 12958: N/A 
TAGS: PREL PBTS ELTN PINR MD
SUBJECT: BUDGET LOSSES RESULT IN PERSONAL PROFITS 
 
 
Sensitive But Unclassified.  Please Protect Accordingly. 
 
¶1. (SBU) Summary: One of the issues that will be on the agenda in 
any comprehensive Transnistrian (TN) peace settlement will be the 
resumption of railway traffic.  TN authorities recently presented a 
railroad initiative, which appears to be a response to President 
Voronin's October 2007 proposal that Moldovan and Transnistrian 
experts work together to re-establish full operation of the 
railways.  The TN initiative offers resumption of travel, while 
seeking recognition for TN property rights over the left-bank assets 
of Moldova Railways.  Chisinau is willing to grant left-bank profits 
to Tiraspol, but insists it will not concede ownership.  Though both 
sides are losing money from the current freeze in railroad traffic, 
the status quo appears to generate lucrative illicit private profits 
for some members of Transnistria's inner circle.  End Summary. 
 
Losses for Both Sides... 
------------------------ 
 
¶2. (SBU) Local newspapers reported that TN Supreme Soviet 
(Parliament) Speaker Shevchuk presented a railway initiative to EU 
Special Representative Kalman Miszei during their January 21 
meeting.  The railway documents were also passed to Minister for 
Reintegration Vasile Sova.  This initiative appears to be the TN 
response to President Voronin's October 2007 confidence-building 
proposal that Moldovan and Transnistrian experts work together to 
re-establish full operation of the railways.  Tiraspol proposed 
resuming cargo transportation on the Causeni-Bendery-Cuciurgan rail 
line, which would allow passage of Moldovan goods to Ukraine through 
Transnistria.  Tiraspol also suggested opening the Bendery and 
Tiraspol railroad terminals for freight handling, allowing freight 
movement under a free-of-charge regime.  However, this TN proposal 
calls for establishing economic relations between two distinct 
economic and legal entities, thus implying recognition of divided 
railway assets. 
 
¶3. (U) In a long interview published on January 29 in "Nezavisamaya 
Moldova (Independent Moldova)," the Director General of Moldova 
Railways, Miron Gagauz, categorically rejected the TN initiatives, 
labeling them as a "provocation" designed to appeal to the 
uninformed.  Gagauz said that he was ready to negotiate joint 
management by Chisinau and Tiraspol of the railways on the both 
banks, but that the TN proposal to establish economic relations 
between Moldova Railways and the Transnistrian railroad entity, 
which had seized Moldovan railway property, was unacceptable. 
 
¶4. (U) With Transnistria's 2004 seizure of railroad locomotives, 
cars and administrative facilities in the left bank, Chisinau lost 
effective control over Moldovan national railway assets in TN. 
Transnistrian authorities then suspended all railway transportation 
in 2006, in reaction to the enforcement of a new customs regime, 
while claiming it was Chisinau's fault.  The suspension of railway 
traffic lasted for six months until the fall 2006 signing of 
temporary agreements between Moldovan, Ukrainian and Russian railway 
operators.  The agreements allowed partial resumption of transit 
cargo and passenger trains. 
 
¶5. (SBU) Under the current rail transportation regime, shipment of 
cargo from Transnistria is impossible, and a 100% TN cargo tax makes 
it impractical for Moldovan economic entities to ship goods across 
TN by rail.  The majority of Moldovan goods bound for Ukraine and 
points east use the northern railroad line through Ocnita or Otaci 
and bypass TN and its 100% tax.  Transnistrian heavy industries, 
Ribnitsa Steel Plant and Ribnitsa Cement Plant, have cut their own 
separate deals with Moldova Railways, and ship their product in 
privately owned railway cars, but at greatly increased expense. 
Chisinau has appealed to Tiraspol to negotiate TN's share of railway 
profits, either on the basis of a 2004 agreement on joint management 
of Moldova Railways, or by reaching a new agreement.  The status quo 
is clearly damaging the economic interests of both sides, but so far 
no solution can be found.  Chisinau will not accept division of its 
railway company, and Tiraspol will not give up claim to the property 
it seized. 
 
...But Personal Gains for the Inner Circle 
------------------------------------------ 
 
¶6. (SBU) Financial interests form the foundation for the railway 
dispute.  Though Transnistrian businesses are suffering from 
increased transportation costs, the TN administration supports the 
continued economic division of the railway system because it is in 
the personal economic interests of certain members of Smirnov's 
inner circle.  Some of our Moldovan contacts have claimed that 
Smirnov's daughter-in-law, Marina Smirnova, Smirnov's Deputy 
Alexandr Koroliov and Security Council Deputy Secretary Yuri Soukhov 
own Odessa-based intermediary companies that allow them to earn 
personal profits of some 600,000-800,000 USD monthly, with only 
minimal payments to the TN budget. 
 
 
CHISINAU 00000112  002 OF 002 
 
 
Comment 
------- 
 
¶7. (SBU) While discussions on the resumption of railway traffic 
currently seem to be in a deadlock, this issue is one that will need 
to be solved in the context of 5+2 talks and any comprehensive TN 
settlement.  The current railway transportation regime provides 
minimal passenger transportation and the transport of cargo is 
effectively blocked, causing significant financial losses for both 
left- and right-bank businesses.  This is not the first time that 
Smirnov's inner circle sacrifices the good of the people in 
Transnistria for its own personal gain. 
 
KEIDERLING