Transnistrian president to force companies to finance budget, central bank

Transnistrian president to force companies to finance budget, central bank
By bne IntelliNews January 10, 2017

Companies in the Moldovan separatist republic of Transnistria that are, or have been, recipients of state allowances and those that generate “excessive profits” will be compelled to finance the state by either grants or loans, under a bill drafted by President Vadim Krasnoselsky. Since Krasnoselsky’s party Obnovlenie holds a majority in parliament, the bill is likely to be enacted quickly.

This is a revised version of the bill drafted by Krasnoselsky’s predecessor Evgheni Shevchuk, under which Sheriff economic holding, which controls Obnovlenie, was supposed to donate $250mn to the state in return for the $1bn import duty allowances it received in the past. Under the new version, the burden is shared between Shreiff and other profitable companies in the breakaway republic. 

Obnovlenie had prevented the implementation of the original bill in advance of the December 11 presidential elections. 

The revised version of the bill includes all the companies that were or are recipients of allowances (of an unspecified nature) and those who operate at high return on equity margins. Firms that reported profits in excess of 50% of their equity in 2015-2016 will be required to donate their earnings above this threshold. The return on equity is defined as the ratio of net profit to the average value of the equity capital of the enterprise. The treatment given to the allowances received by Sheriff before 2012 is unclear. 

The state expects to collect $187mn from companies and use the money to fund the 2017 budget, but this is rather an estimate of the government’s financing needs than an evaluation of the revenues to be generated when the bill enters force.

The nature of the allowances, the size of the support and the procedures are not detailed in the law, which leaves the door open for ad-hoc decisions by the government, which is under the president’s control. If the $1bn allowances received by Sheriff are included, the holding will have to make the largest contribution. However, this remains in limbo as the government explores ways to derive revenues from other companies as well.

Thus, recipients of allowances will be required to finance the state on interest-free terms, to pay their current dues on time and to “provide charitable assistance to state for social security spending” and “assist citizens at retired age in any form”, the bill stipulates. 

The state will also take steps to recover illegally spent funds from the so called “gas fund” from former state officials. The fund is formed from the money paid by firms and households in the republic for the Russian gas it receives. Transnistria’s gas operator does not pay its Moldovan peer for the Russian gas, instead using the revenues to finance its budget.  

The use of the money to be collected under the bill is clearly specified. The funds will be spent on increasing the minimum pension by 20% from January 1, 2017, which requires the equivalent of $49mn. From the same date, public sector wages will be raised by 10%, at a cost of $19mn. Paying benefits arrears will cost a further $20mn. 

An additional $50mn will be used as a buffer for other social security spending, while $30mn is needed to replenish the foreign exchange reserves of the Transnistrian Republican Bank in order to align the official and market exchange rates. Finally, $10mn has been allocated to purchase housing for veterans and other categories of citizens, such as public sector employees and military personnel. 

 

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