Sheriff forced to pay $250mn "donation" to Transnistria’s budget

Sheriff forced to pay $250mn
By Iulian Ernst in Bucharest October 14, 2016

Transnistria’s largest holding company Sheriff will have to return $250mn (25% of GDP) to the state budget under a bill endorsed by the breakaway Moldovan republic’s parliament on October 13. 

The surprisingly quick endorsement came a couple of days after Russian Deputy Prime Minister Dmitry Rogozin toured Transnistria in an attempt to address the economic collapse and political turmoil.

President Yevgeny Shevchuk and his government asked Sheriff via the bill to help public finances under a “social and public partnership” at a time when the country’s economy is in dire straits, by returning a quarter of the tax allowances the holding company received when the economy was in better shape.  

The funds Sheriff will have to repay represent 25% of the tax allowances received between 2007 and 2011, novostipmr.ru reported. The “$250mn bill” drafted by the president recalls that in the period from 1997 to 2011, Sheriff was granted unprecedented allowances, which contributed to the creation of monopolies in many areas. In particular, in connection with its status as a "special importer" between 1997 and 2011, the company received benefits worth more than $1bn, and from 2006 to 2015 it received subsidies in the form of cheap energy in excess of $135mn.

The timing of the bill was rather surprising, since Shevchuk is running in the December 1 presidential elections against parliament speaker Vadim Krasnoselsky who is backed by Sheriff’s political arm Obnovlenie, which has had a parliamentary majority since last autumn’s elections. 

Obnovlenie has launched a broad campaign, including among the Russian officials that play a key role in the Moldovan separatist republic, to discredit Shevchuk. Obnovlenie has accused Shevchuk of embezzling some of the Russian economic aid to Transnistria. Aid to the republic was allegedly siphoned to offshore companies through gas and power trader Energokapital, according to Alexander Harichkov, head of a Russian investigation committee supervising important matters related to the pro-Russian separatist republic, quoted by media centre Rosbalt-Moscow.

Rogozin’s intervention resets the electoral battle, after Obnovlenie had seemed to be Russia’s protégée in the conflict with Shevchuk. There were previous indications that Russian officials were taking a neutral vis-à-vis the two camps in Transnistria, and Shevchuk’s recent visit to Moscow appeared to confirm this. 

As stressed by Rogozin during his visit to Tiraspol, Russia wants stability in Transnistria and tighter economic ties with Russia. Transnistria essentially depends on the economic support given by Russia, namely the free gas it supplies. However, without an economy to process the gas, the financial aid is not worth much. Furthermore, Transnistria’s exporters have gradually re-oriented toward Europe which, in economic terms, means some of the Russian economic aid is re-exported.  

Politically, the approval of the bill indicates a ceasefire between Shevchuk and the parliament. However, the conflict between Shevchuk and Obnovlenie is clearly not completely at an end. Presidential spokesman Vladimir Bodnar claimed after the vote that the bill was deliberately endorsed in violation of the constitution, and amended so as to make it not applicable. Under the constitution, a bill has to be endorsed in two readings on different dates, whereas the lawmakers have endorsed the bill in a single day. Beside the ambiguous amendments, this would allow Sheriff to challenge the bill in court, Bodnar implied.

If Sheriff consents to return 25% of the benefits it previously received to the republic’s government, the money will be used to increase pensions by 20% and public sector wages by 10%, and to pay the arrears accumulated towards suppliers of medicine and food subsidies. The money will also be used to replenish the central bank’s reserves in order to defend the fixed exchange rate.

The bill also requires all firms to donate their profits in excess of 10% of sales to a fund that will be used to support small and medium-sized enterprises.

The budget and the exchange rate will rank high on the electoral agenda ahead of the December 11 presidential elections, where Shevchuk wants to get a second term. The president took a head start when endorsing the 2006 referendum on joining Russia earlier this month, expecting to gain voters’ support. However, the move had a fairly cool reception from the Russian authorities, which would prefer Transnistria to have special status while remaining part of Moldova. The president’s recommendation to revise local legislation in line with Russia’s laws was ridiculed by lawmakers, who pointed out that even Crimea - which was annexed by Russia in 2014 - has not taken such steps.

In early September, the government headed by Shevchuk drafted the budget for 2017, based on an exchange rate of 12.5 to the US dollar for the local Transnistrian ruble (thus envisaging some depreciation from the current fixed rate of 11.3), and sent it to the parliament. However, lawmakers have repeatedly turned down the central bank’s request to allow the local currency to depreciate in order to balance the market.

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