Transnistria’s president recommends forcing Sheriff to give back $250mn to state budget

By bne IntelliNews September 23, 2016

Sheriff, the largest holding company in the Moldovan separatist republic of Transnistria, could be forced to return 25% of the allowances it received between 2006 and 2011 - around €250mn - to the state budget under a bill issued by President Evgheni Shevchuk. 

The request is unexpected and probably part of the campaign for the upcoming presidential elections, since the tensions between Shevchuk and the giant Sheriff holding have mounted in recent years. However, to enter force the bill would have to be approved by the parliament where the opposition Obnovlenie party has had a majority since last autumn’s elections.

Sheriff is the sponsor of Obnovlenie, which has own candidate for the presidential elections, and MPs from the party have accused Shevchuk of siphoning off Russian funds for the breakaway republic. In his turn, Shevchuk has accused Sheriff of having benefitted from preferential treatment in the past, when it paid low import duties under a special regime.

The 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, reported on September 21. 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.

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 wages by 10%, and to pay the arrears accumulated towards suppliers for medicine and food subsidies. The money will be also 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 would be used for supporting 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 received only moderate endorsement 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 Crimea 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. 

Furthermore, the government projected budget revenues of 2.37bn Transnistrian rubles ($210mn) and expenditures of 4.74bn Transnistrian rubles. The deficit of around $210mn is equivalent to roughly 20% of the unrecognised republic’s GDP. The government hopes to finance the deficit from the natural gas it receives virtually for free from Russia, which is then sold to local firms. However, this depends on the industrial activity in the region, which has significantly lost ground in 2015-2016. Furthermore, the budget envisages no wage or pension increases. 

The parliament is likely to return the budget to the government after its first reading, with a request to reduce the deficit. Last year, lawmakers increased the revenue target by 1bn Transnistrian rubles above the level set by the government and endorsed the budget with a smaller deficit. Now, faced with below-target revenues, the government has to reduce expenditures in line with its own initial projections, and even more since the revenues from the sales of natural gas have decreased on the back of shrinking economic activity.

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