Russia will do deals on debt

1 February 2002

Russia's debt to Bulgaria will be discussed at the next meeting of the intergovernmental economic cooperation commission, due to take place in Sofia on February 21-22.

Bulgarian deputy prime minister and economics minister Nikolay Vasilev said his country's government sees relations with Russia as strategically important and is poised to develop them.

With regard to fuel, Vasilev said that Russia supplies a large portion of the country's fuel, "but the final decision will depend on the results of talks with the European Union." Russian deputy prime minister and finance minister Aleksey Kudrin said both Russia and Bulgaria "have a political will" to settle Russia's debt, and stressed that this year's budget earmarked $10 million in credit for upgrading Kozloduy.

• A web of intrigue surrounds a shady transaction, where Russian power monopoly Unified Energy Systems (UES) borrowed $800 million to buy part of Russia's debts to the Czech Republic. The debt was bought from Czech firm Falkon, which had itself bought $2.5 billion of Russian debt for only $550 million from the Czech government.

UES received $1.35 billion in budget money from the government for buying the $2.5 billion debt from Falkon. UES then settled $65 million of its own tax debts to the government; loaned $340 million to Gazprom and $170 million to Rosenergoatom; and loaned 65 of its 73 subsidiaries $775 million for the purpose of settling their debts to Gazprom ($605 million) and Rosenergoatom ($170 million).

Gazprom and Rosenergoatom then used the loans from UES and the payments from the UES subsidiaries to settle their own tax obligations. To add confusion to the deal, instead of loaning the money directly to its subsidiaries, UES funnelled the $775 million through an organisation called the Center for Support of Energy Reforms, the existence of which cannot be verified. Similarly UES paid its debts to Gazprom and Rosenergoatom via this organisation.



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