index.1.jpg (3032 bytes) Note 13 – November 2004 

Privatization in Transnistria: Risks and Profit
by Vissarion Ceºuev

Transition to privatization of the industrial potential in Transnistria, in our opinion, means easing of one more fundamental factor of tension of relations between the Republic of Moldova and the region. Along with the “politically-linguistic reason” of the region separation from Moldova in 1990 there were and economic reasons, i.e. unwillingness of the working population to follow the path of formation of market economy based on private property and denial of privatization. That was reflected in the first self-name of the region – the Transnistrian Moldovan Soviet Socialist Republic. 

Now when fifteen years passed only one reason out of all others actually exists and is acknowledged by the both parties – ownership. All other circumstances - ethnic, political, and linguistic, have faded into the background.   

The denial of privatization in Transnistria lasted for a short time. A year of independence was enough to recognize the necessity of private ownership institutionalization and in December 1991 Transnistria’s Law on Privatization was adopted. It stipulated for the following:

·         preferential right of labor collectives to choose the form and procedure of privatization;

·         combination of refundable and non-refundable ways of transfer of property rights;

·         equality of the rights of citizens to obtain a share of property subject to refundable and non-refundable privatization;

·         openness and public control over privatization. 

This concept envisaged non-refundable transfer of 51% of a privatized company to the members of the labor collective, possibility of leasing the company by the labor collective with the right to redeem the property of the company by the labor collective. The privatization principles used in industry fully applied to the property of collective farms, consumer cooperatives and interfarm associations. 

It was announced that a more detailed description of the privatization procedures would be formulated in the Privatization Program, which, however, was not published during the following five years. Moreover, in 1997 the Supreme Soviet of the TMR stopped privatization by a special decree. Meanwhile, in practice transfer of the right to use and manage a number of companies to private individuals continued on the bases of some orders and special decisions.  

By 2002 in Transnistria appeared a new conceptual base for a radical transformation of ownership and this process was promoted in 2002-2004. The philosophy of the new privatization concept completely differs from a so-called law of 1991. First of all it refers to the right of ownership of the population of Transnistria. The right to obtain a nonrefundable share of property by every citizen or member of a labor collective during privatization is stipulated neither in the amount of 51% of the statutory capital nor in any other form. The provision on principles of privatization of collective farms, consumer cooperatives and interfarm associations was also extracted. The main principle became the market one: if you have money you are the owner. The reason is the necessity to replenish the TMR budget and the Development Fund. 

In accordance with the new Law on Privatization the property right appears only as a result of a contest or auction, i.e. in the presence of not less than two candidates. However, in 2002-2004 there were not uncommon cases when property rights transferred in the presence of only one candidate.  That is why there is always a possibility to cancel property rights that appeared in such circumstances. These conditions are so obvious that it is most unlikely that the organizers of privatization, individuals arrogating the right to give property to other individuals, are not aware of them.  It is necessary to understand the logic of behavior of organizers of such privatization and its participants as well.  We are speaking of the risks assessment. 

Everything can be explained by the mentality of minions. All the involved parties understand that sooner or later the defined property rights may vanish into thin air that is why it is difficult to provide a long-term future of a privatized company (a joint stock company).  All attempts to replenish the working capital of such a company by placing shares in the secondary market will be hopeless. It is rather doubtful that there is a bank, which accepts illegal property as a long-term pledge.  

It is obvious that neglecting interests of both labor collectives and administration of the privatized companies will also have painful effects. The possibility of strikes, serious conflicts between the staff at all times considering their companies as “a second home” (at the emotional and psychological levels) and new owners is very high. There are such examples already: Tighina company (Benderi), Metallolitography company (Tiraspol), and others. 

The economic base of the rights of the labor collectives to obtain a share of property of their companies constitutes the fact that for many years the staff of the companies received as salaries not more than 10% of surplus product. It is a well-known fact of the planned economy era.  That is why even if a Transnistrian company will be announced a branch of a foreign company having all legal requisites in its country, for example in Russia, overcoming the resistance of the working collective will require emergency methods.  It is risky and ungrateful. 

If proceed from the fact that the new owners have understood the real situation, the most logical conclusion could be that industrial privatization in Transnistria is carried out with one short-term objective: to take a risk and to receive capital both from production and sale of stock of equipment, raw materials and other parts of fixed assets. 

The issue on property in land is not solved either. The regional referendum on this issue held in 2003 gave a negative result. It was a result of a longstanding social aim of the population at the inevitability of misfortune which property in land brings.  Meanwhile, agriculture in the region is already a disaster as a result of a complete bankruptcy of the kolkhoz-system, which, as it is known, cannot operate effectively without non-economic compulsion to work and financial benefits. 

The way out was found in rather exotic actions: in autumn 2004 in accordance with the decree of the president of the TMR collective farm Parcani in Slobodzia was abolished as a legal entity. Its land (more than 6,500 hectares), buildings, facilities, other asserts were let to lease to one of Transnistrian businessmen for 99 years, i.e. nearly forever. It was nothing else but assignment of a landlord and proclaiming hundreds of villagers, former collective farmers, landless on their own land. In history of Moldova this fact probably has no precedent. Neither the tsarist government in the end of 19th century, no Romanian government in 1920-1921, when carrying out the land reform in our region, dared to leave those who worked on the land without it, i.e. without any hope.  

It appears from this that impetuous actions on privatization in Transnistria are unconvincing so far and outside the region they are not perceived as legitimate enough. What is the solution of the problem?  As yet there are two approaches. 

The first one: not to recognize any results of privatization and to press for an unconditional return of the economic potential of Transnistria to the legal field of the Republic of Moldova. With the help of the international society to establish control over all the territory and carry out re-privatization  in accordance with legislation of the Republic of Moldova.  This process for sure will be accompanied by opposition of new owners of Transnistrian companies including sale of asserts of privatized companies that looks like scorched earth tactics.  This risk, this option of developments, cannot be excluded.  

The second one: to follow the principles of “Dmitrii Kozak’s Memorandum” where, among others, there was included a paragraph on recognition of property rights that appeared during the period of the PMR existence.  In this instance, the population of the right-bank will not be able to realize their property right in the territory of the left-bank.  Meanwhile, as is well known, whole Moldova participated in building up the left-bank area potential.  Besides, in1993-1995 about 150 thousand residents of Transnistria participated in privatization of the right-bank territory potential.  At present many of them collect dividends from their shares that were bought for national patrimony bonds.  Thus, in the press of the RM in September-October 2004 “Agrofond” and “Dividend” placed regular advertisements for dividend payment with the address particulars at which the residents of the left-bank could collect their dividends.   

If to adhere to the principle of “everything which is on our land is ours” then one might get to a point when rights of joint property with foreign companies ought to be annihilated.  All these issues are not simple and require a cautious solution taking into account interests of the parties on the reciprocal basis.   

Therefore, we believe that the third approach to be more productive: to regulate property relationships and legalize the enterprises privatized in Transnistria by a special scenario that takes into account both Transnistria realia and the outlines of a recently adopted law of the RM on left-bank enterprises privatization (October 2004).  This scenario may include to following steps:

1.      to inventory and appraise the assets value by internationally recognized methods on the basis of experience gained e.g. by the Association of Appraisers of CIS countries;

2.      to document the real investment made into the enterprise of the Investor that gained entrance to it in the course of Transnistrian privatization;

3.      to coordinate the size of property distributed among working collective members and the state property share assigned on certain conditions to the state with its further distribution among other citizens;

4.      to secure registration of the securities of privatized enterprises (stock and shares) in the National Committee on Securities of the Republic of Moldova and their admission to the stock exchange of Moldova and as a pledge assets in the banking area;

5.      to hold joint stock companies stockholders’ meetings, to pass the foundation documents in accordance with the current legislation.  

In other words, it is proposed not to consider those who invested their funds into the left-bank potential to be the opponents.  They should not be personally blamed for the current legal confusion in such a delicate issue.  Yet they spent their funds i.e. they expended their undeniable private property.  This should be taken into account quite benevolently.  This is the advantage of privatization in Transnistria to all the inhabitants of Moldova.   

A well-weighed approach based on a respect of private property will make it possible to solicit the international financial organizations for opening a special credit line for a revival of economic potential of Transnistria.  And if new owners of the privatized enterprises in the region take into account the conditions stipulated by the government of the RM, the latter could step forward as a guarantee of such loans.  Then, the confrontation could eventually be over and it would be possible to proceed together to reconstruction of the economy of the “common state”.



International seminar
“Frozen conflicts in the post-soviet area in a new geo-political context”
Institute of Public Politics

Chisinau, December 3-4, 2004