Transnistrian presidential rivals compete for Russia's support

Transnistrian presidential rivals compete for Russia's support
Transnistria already owes around $5bn (five times GDP) for Russian natural gas.
By Iulian Ernst November 8, 2016

The outcome of the presidential elections in the Moldovan separatist region of Transnistria remains unpredictable one month before the first round of voting on December 11, and the way out of the Russian-dominated region's crippling economic problems looks extremely difficult.

The last poll showed Vadim Krasnoselski, the candidate for the opposition Obnovlenie party, the political arm of Sheriff economic holding,  leading incumbent President Evgheni Shevchuk by 24% to 11%. But that poll was conducted in June and the situation is so fluid that any forecast is risky.

The president of Transnistria heads the government as well, which makes the election particularly important. Whoever wins will first have to tackle the region's severe exchange rate and budgetary crises, and will need the support of its sole ally, Russia. 

Shevchuk won the presidential elections in 2011 after Russia withdrew support for the republic's first president, Igor Smirnov.  He is also alleged to indirectly control the mysterious EnergoKapital company that handles the Russian gas imported for Cuciurgan power plant and the electricity exported by the plant to Moldova, making significant profits in the process.   

His rival is the candidate backed by Sheriff group, best known abroad for its football club Sheriff FC, which already controls the parliament through its political arm Obnovlenie, besides large parts of the country’s economy.

Krasnoselski retired as parliament speaker to run for president and he is backed by his comrades in the parliament. They include deputy speaker Galina Antiufeeva, president of Obnovlenie party and wife of Vladimir Antiufeev (a.k.a. both Vladimir Aleksandrov and Vadim Shertsov), the vice-premier of Ukraine’s separatist region Donetsk.

There are other several candidates, of which a couple are likely to drain voters from Krasnoselski’s electoral base: former Minister of Interior Ghenadi Kuzmiciov, a close partner of Shevchuk, and the incumbent Minister of Justice Alexandr Deli. Neither would be running without Shevchuk’s consent.

Economic woes are worsening in Transnistria, which already owes around $5bn (five times GDP) for Russian natural gas. The exchange rate is artificially maintained by the parliament, resulting in dual exchange rates. The government had to defer payment of part of the public wages and pensions as budget revenues shrank violently last year. It paid the arrears from loans contracted earlier this year, but the budget remains under pressure.

Krasnoselski’s electoral programme is a list of promises including free utilities, natural gas included, for households, but it is unclear how the measures would be financed.

Nevertheless Piotr Oleksy of the European Culture Institute of Adam Mickiewicz University in Poznan said in an interview with Radio Free Europe in October that Obnovlenie’s candidate and his team might be better able to handle the economic challenges. The Obnovlenie team includes managers, he reasoned, that are ready to negotiate and might be more flexible should Russia advocate Transnistria becoming part of a federalised Moldova. Shevchuk, meanwhile, advocates for Transnistria’s unification with Russia. 

“$250mn bill”

However, Olesky admitted that the changes in Transnistria’s internal and external policies are unpredictable, since Obovlenie has so far been focussed on fighting against Shevchuk. And indeed, Obnovlenie’s position on key economic matters, such as the exchange rate, has been far from reasonable. Maintaining the exchange rate despite fundamental pressure for devaluation can be explained only by Sheriff’s economic interests. How Obnovlenie would decide to handle the issue of the unsustainable exchange rate once in power is impossible to predict.  

One of the main topics of the electoral campaign is the $250mn (25% of GDP) that Shevchuk wants to confiscate from Sheriff to finance the budget deficit. The president wants to use the money to balance the budget and support economic growth. He also wants to devaluate the local currency, in line with the central bank’s recommendations. The $250mn is, Shevchuk explained, one quarter of the subsidies received by Sheriff due to its preferential tax and import duties regime before 2012.

The “$250mn bill” drafted by the president points out 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 bill drafted by the government on Sheriff’s “donation” was approved by the parliament in October, but Shevchuk and his government have complained about the amendments introduced by lawmakers, which reportedly make the bill inapplicable as well as vulnerable to an adverse ruling from the Constitutional Court. Despite the bill being already endorsed by lawmakers, its enforcement has been deferred and will likely depend on the outcome of the presidential elections.

Meanwhile, before the election, the government must return a $27mn loan contracted earlier this year from Sheriff in order to pay the arrears on public wages and pensions.

Russia’s role in Transnistrian politics remains paramount, as shown by the earlier replacement of Smirnov by Shevchuk. However, during his visit in September, Russia’s special envoy Dmitry Rogozin expressed no preference or support for either of the two camps. 

As stressed by Rogozin during his visit to Tiraspol, Russia wants stability in Transnistria and tighter economic ties. Transnistria essentially depends on the economic support given by Russia, namely the free gas it supplies. Nevertheless, Transnistria’s exporters have gradually re-oriented toward Europe which, in economic terms, means some of the Russian economic aid is re-exported.

Both candidates are loyal to the Russian authorities and both will depend on Russia’s economic support for coping with the severe economic challenges, but there are still nuances between the two. Essentially, Shevchuk advocates quick unification with Russia; Krasnoselski and particularly the holding he represents, Sheriff, is broadly expected to be more flexible in negotiations with Moldova, Russia and Ukraine.

Presidential elections are also underway in Moldova, with the second round of voting due to take place on November 13. The likely winner is Igor Dodon, the pro-Russian leader of the Socialist Party. 

Twin victories for candidates more accommodative to Russia’s plans in the region on both sides of Dniester could potentially result in a smooth re-unification of the country under a federative structure. This could have a big influence on Moldova’s EU and Nato integration, though it might delay it if Transnistria's population is roused to resist re-unificiation or even begins to agitate for complete independence.