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Economy

Komstroy ready to recover Moldova’s contested energy debt by all means, including in the US

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Komstroy intends to recover Moldova’s energy debt from 1999-2000 by “all legally available means”, the company’s lawyers from AGG wrote in an email to Moldova.org.

Even though an appeal decision might be made by the Paris Appeal Court at the end of this month, Komstroy is not constrained to wait for the court’s decision and could enforce the D.C. Court decision from 23 August 2019 in the United States:

Accordingly, Komstroy has full right to enforce judgment of the U.S. court in the United States against relevant Moldovan assets. Moreover, under U.S. law, Komstroy has full right to demand disclosure of financial information from financial institutions and business partners with which Moldova maintains commercial relations.

Responding to Moldova’s Justice Minister calling the $58 million claim a typical “scheme” to milk the state budget, Komstroy’s lawyers insisted that its predecessor, LLC Energoalliance, provided electrical energy in the context of harsh economic conditions for Moldova:

It is unfortunate that Energoalliance’s contribution to Moldovan economy is now questioned. Komstroy strongly denies that there was anything illegal with its power supply structure.

In addition, Komstroy calls the Moldovan government to the negotiating table.

Back in 2013, an ad-hoc arbitration tribunal concluded that Moldova had violated an investment commitment under the Energy Charter Treaty (ECT) by not paying debts owned to Komstroy’s predecessor (LLC Energoalliance- based in Ukraine) on the deliverance of electric power in 1999-2000. Thus, the Moldovan government was allegedly owing around $46,5 million. The tribunal’s decision was disputed by the Moldovans at the Paris Court of Appeal, which subsequently ruled in 2016 that the ad-hoc tribunal “misinterpreted the subject debt as an “investment” under the ECT” (Case No. 14-cv-01921 (CRC)).

According to sic.md, LLC Energoalliance is associated with the more-than-controversial oligarch Veaceslav Platon and his involvement in the even more famous Russian Laundromat.

Here are the full answers from Komstroy’s lawyers to Moldova.org’s questions:

Economy

The Chicu government was criticised for its intention to introduce taxes on digital giants. Expert’s opinion

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The Government of Moldova led by Ion Chicu was criticised for the proposal of Ministry of Finance, made after the draft state budget for 2020 was made public, to oblige multinational digital companies such as Facebook, Google, Apple, Amazon, Netflix or Airbnb to register legal entities in Moldova and pay VAT on the revenues they earn from Moldovan users.

However, “going alone against the companies that rake in colossal revenues by any standards can undermine the efficiency of the whole enterprise and even affect our relationship with the United States,” it is opinated in a study, which has Vladislav Kaim, the member of the UNCTAD Youth Network and a master student in Economics at Lund University, as the author.

According to the Ministry of Finance estimations, such measures of taxation would bring additional 100 million lei in the state budget. Still, the experts community, political opposition and public reacted rather sceptically and, as a result, the Government had to postpone the entering of the decision in force from 1 January to 1 April, as it is mentioned in the study.

In the context of a union-wide digital services tax, which is aimed to be implemented by the EU in 2020, but also the disagreements between countries with different interests, “Moldova as a small market with no current stake in the future of digital economy even more so cannot afford to act unilaterally,” claimed Kaim.

“The presence of Google, Facebook and other digital giants in the life of Moldovans is ubiquitous. Thus, it is the duty of the government to make sure that our citizens get a fair deal from it, but unilateral measures imposed by a small and one of the poorest countries in Europe against the behemoths who thrive on effects of scale an global reach have a very limited potential of achieving that. Their potential impact on our relationship with the US should also be considered.”

The expert suggested two more strategies for the Moldovan government to choose from, instead of going alone against digital giants without leverage. First, to delay the adoption of the new tax until January 1, 2021, until the EU would establish a permanent solution. “Thus, the Moldovan digital taxation regime will match the one of the biggest single market in the world, which can generate beneficial spillover effects in other spheres – for example, a faster obtaining of the GDPR adequacy decision,” Vladislav Kaim claimed.

In case the executive wants to adopt a more proactive and regional strategy, it could come up with an initiative of a joint Eastern Partnership task force on digital taxation, comprised of representatives of the ministries of economy, fiscal bodies and antitrust regulators. “Aiming for an EaP wide digital service tax in coordination with the processes in the EU will likely be supported by the office of Margrethe Vestager, the vice-president of the European Commission whose mandate lies in this sphere,” specified the author of the study.

The study was produced within the project “Fostering the Adoption and Implementation of Key Reforms”, implemented with the support of National Endowment for Democracy and Watch Dog Moldova.

Photo: DAMIEN MEYER/AFP/Getty Images

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Economy

Expert-Grup: economic forecasts for Moldova in 2020

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The experts from the Expert-Grup Independent Analytical Centre have given the forecasts for the Moldovan economy in the year 2020. According to them, the bank fraud will still affect the economy of the Republic of Moldova in 2020, along with this year’s presidential elections and the adopted budgetary policy.

In 2020, the biggest challenge for the economy of the Republic of Moldova will represent the expansionary budgetary policy, which includes a budget deficit of over 3% of GDP and has unclear funding sources.

The analysts emphasised that the risk is related to the increased amount of the possible loans taken by the Government from the commercial banks. “Before elections, governments usually focus on increased budgetary spending with unclear financial coverage and this year is no exception. In the context of worsening relations with development partners, including with the International Monetary Fund, the Government could more intensely resort to domestic loans taken from commercial banks. This will hit the economy again because the banks will prefer to credit the Government rather than the real sector, affecting the investment activity and the economic growth,” stated the Executive Director of the Expert-Grup Centre, Adrian Lupuşor, for Ziarul de Gardă.

Another important challenge is the electoral context, namely the presidential elections that create a high level of uncertainty and instability, the Expert-Grup representatives said. “That is the main fear of an investor, especially in such countries as Moldova. This means that during the election period the level of uncertainty is high and it is risky for someone to invest. This affects the activity of the enterprises, the creation of jobs and the general economic growth. […] These factors create risks for the macro-financial stabilisation,” Lupușor said.

The Moldovan bank fraud scandal, which occurred in 2014, will still affect the economic development of the country in 2020. “In 2018, the Republic of Moldova experienced a shameful evolution in investigations related to the bank fraud. Now that we have a new leadership in the General Prosecutor’s Office, we have certain expectations again,” the expert claimed.

Still, experts of the centre said that  there are no premises for a possible crisis in the foreign exchange market of the Republic of Moldova, even though there will be certain trends with pressures on the national currency in the new year. “They are about reducing exports, remittances, foreign assistance and foreign direct investment. All of it will put pressure on the balance of payments, because the main sources that ensure the inflow of foreign currency in the country will be affected. Still, the National Bank has sufficient foreign exchange reserves to avoid excessive fluctuations in the exchange rate and to face the economic challenges mentioned above,” explained Lupușor.

The Expert-Grup Independent Analytical Centre noted, in a press release, that among the most important challenges for 2020 are the planned budget deficit for 2020, a low capacity to implement public investments with external financing, supplying the country with natural gas, ensuring the legal and decision independence of the National Bank, investigating fraud in the banking sector, but also the worrying developments in the labour market.

Photo: expert-grup.org

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Economy

East vs. West// The exports of the Republic of Moldova to the CIS and the EU countries – a comparative analysis

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The Republic of Moldova is a former soviet country, having tight commercial relationships established with all countries forming the Commonwealth of Independent States (CIS) –  a regional intergovernmental organisation of ten post-Soviet republics in Europe and Asia, that formed after the dissolution of the Soviet Union in 1991.

On the other hand, Moldova signed the Association Agreement with the European Union in June 2014 and has benefited from a preferential trade within the Deep and Comprehensive Free Trade Area (DCFTA) with the EU, that meaning reduced or eliminated tariffs for goods, increased services market and better investment conditions, as the official website of the European Commission states.

Statistical data and newly signed trade agreements are often publicly mentioned when wishing to emphasise one or another relationship as the most strategic one for the Republic of Moldova. But how is it in reality?

Moldova and the EU

On December 19th, 2019, the Council of the EU has formally endorsed an agreement granting Moldovan farmers and SMEs additional preferential export opportunities to the EU, following the agreement signed between the EU and the previous government led by Maia Sandu, to broaden the degree of trade liberalisation for specific agricultural products under the DCFTA, according to a statement of the European Commission.

The agreement provided that the Republic of Moldova will be granted additional duty-free tariff rate quotas to export table grapes (of double the current amount) and plums (of a 50% increase on the current volume), as well as a new duty-free quota for cherries (of 1.500 tonnes). The EU exporters will also gain additional duty-free access to the Moldovan market.

Moreover, the thresholds triggering the anti-circumvention mechanism (a mechanism that provides for the possibility of reintroducing the customs duty when imports of certain agricultural products and processed agricultural products exceed a given threshold) for wheat, barley, maize, sugar and processed cereals have also been raised, taking into account the trade patterns over the last few years.

Generally, the Association Agreement between the EU and the Republic of Moldova provides Moldova with a framework for boosting trade and economic growth through improved access to the EU market and mechanisms for aligning its trade-related laws and regulations to EU’s standards.

According to the official statistics of the European Commission, the Moldova’s exports to the EU grew by 62% between 2014 and 2018. Between 2017 and 2018, it increased by 16%, from €1.6 billion to €1.9 billion.

source: ec.europa.eu

The European Union is Moldova’s biggest trade partner, as around 70% of its exports are sent to the EU, followed by Russia (8%) and Belarus (3%). Key EU imports from Moldova are mainly machinery and appliances, vegetable products, textiles and textile articles and base metals.

Moldova and the CIS

Russia is one of the most important eastern partners for the Republic of Moldova. Usually, the good news about the export of Moldovan products to this country come from the president of the Republic of Moldova, Igor Dodon. This December, he already made 2 announcements regarding the extension of fruit and vegetable exporters’ list who are allowed to export on the Russian market starting the next year. First, the list was extended from 130 to over 350 Moldovan companies, and then 150-200 other companies obtained such permission recently.

“It was agreed to extend the list of categories of goods that are exported to the Russian market without customs duties for another five product categories: beef, sunflower seeds, sugar, ethyl alcohol and furniture from January 1st, 2020. I mention that so far the export taxes for five categories have been excluded: vegetables; apples, pears and fresh quinces; apricots, cherries and sour cherries; canned vegetables; wines,” informed Dodon on his Facebook page.

Additionally, the Minister of Agriculture asked the Russian profile institutions to inspect 33 wineries and four canning companies from Moldova, in order to grant them access to the Russian market. All in all, the Russian Federation will issue 16,000 transport authorisations for Moldovan carriers in the next year.

A prohibition of export for Moldovan companies was set up after a decision of the Government of the Russian Federation, on December 29th, 2018, which forbid to import Ukrainian products and products transiting Ukraine, including those from Moldova.

At the begging of 2019, Russian customs authorities forbid to import large quantities of goods produced in the Republic of Moldova and the Transnistrian region.

The Russian portal Regnum.ru was writing, at that time, that the majority of Moldovan exporting companies affected by the Russian Government decision are precisely those for which, in the following half of 2019, Russia cancelled the import duties, such as producers of fresh and preserved fruits and vegetables, as well as wine products. According to the Russian publication, the measure to support Moldovan businesses was an act of political support of the Moldovan president, Igor Dodon, in the upcoming parliamentary elections, which became possible after a meeting between Dodon and the Russian president.

Nowadays, more and more companies from Moldova are granted gradually back access to the Russian market, President Dodon announcing that every time on his page or at press conferences. Let’s not forget that Moldova expects new presidential elections in 2020.

All in all, the statistics of the CIS presented a total export value of $416 million in 2018, as compared to $463 million in 2017. From January to September 2019, Moldova’s exports to CIS countries amounted $301.8 million, that decreasing by 1.6% as compared to the same period in 2018.

source: cisstat.com

National statistics

When looking at the whole picture, it can be observed that in 2006, the Moldovan exports to the EU countries exceeded for the first time the exports to the CIS countries, the difference between the exports to the two destinations starting to be bigger and bigger, as the National Bureau of Statistics of Moldova (NBS) displays.

Data source: statbank.statistica.md

Still, the most important trading partners for Moldova remained such European countries as Romania42.54% ($ 792.137 million) of the total exports to the EU countries, Italy16,62% ($ 309.606 million) of the total exports to the EU countries and Germany11.81% ($ 219.902 million) of the total exports to the EU countries, as well as such CIS countries as Russia, the exports to which represented 52.55% ($ 218.571 million) of the total volume of exports to the CIS countries in 2018.

Photo: statistica.gov.md

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