Anatol Gudim, Center for Strategic Studies and Reforms

Privatization in Transnistria: Risks and Profit

International Workshop “Frozen Conflicts of the Ex-USSR Area in a New Geopolitical Context”,
organized by Institute for Public Policies, Moldova, Chisinau, December 3-4, 2004

Transnistria, a ‘stormy region’ of the Republic of Moldova and its command-administrative economy, entered an extremely dramatic phase of transformation. Eventually and here, perhaps later than anywhere else in the post-soviet area, privatization campaign in industrial sector mainly aimed at foreign investors was launched.

The drama lies in fact that for more than one decade the region administration, red-directors’ corps and ‘leaders’ of shadow economy stood comfortably within the bounds of a local know-how – ‘a system with a strong state regulation of macroeconomic indices’[1]. Formally a priority was given to the state and collective enterprises with the reservation that: ‘Private ownership should be in live. But it should be labour private ownership’ (I.Smirnov, the President of Transnistria/ PMR).

Firstly, in this region as well as it was in the Republic of Moldova, so-called law on privatization was adopted (December 1991), which was not supported by a concrete programme of privatization though.  Later on in 1997 a special regulation issued by the Supreme Soviet of PMR suspended the privatization as ‘a predatory and anti-nation action’. Meanwhile, on the basis of orders and ‘special decisions’ a right of disposal and management of certain enterprises was still being transferred to private persons. Experiments that took place in1999-2000 with private farming based on land leasing from kolkhozes and sovkhozes did not prove to be a success. Then, a referendum on introduction of private ownership in land (April 2003) was declared void ‘due to low-level voting of the population’.

As a result of those events a soviet type of employment pattern was preserved there. Thus, in this region in year 2000 according to the statistics services of PMR 64.9% of employed population fell on the share of state and municipal enterprises and institutions; 8.6% - on joint-stock companies and collective enterprises; 14.6% - on kolkhozes and sovkhozes, and only 7.1% fell on private and leasehold enterprises.[2]

At last things are moving! The privatization programme for 2001-2002 included 55 enterprises, and even 75 more for the following years.  There were privatized: in 2002 – 2 enterprises, in 2003 – 12 and in 2004 - 16[3].  Among them there are the greatest donors to the regional budget – Moldovan Metallurgical Works (Ribnita), Moldovan Regional Electric Power Station (Dnestrovsk), enterprises of machine-building, light and food industries of Tiraspol, Bender, Dubassar and Grigoriopol. 

What happened then? What are the reasons for an outburst of the privatization activities? There are several such reasons or incentives:

·        a tendency to secure, ‘legitimize’ local elite (administration, entrepreneurs) property rights in regional enterprises until ‘a common state’ with the Republic of Moldova could be created;

·        striving to achieve economic sustainability of large-scale industrial enterprises by attracting investors’ funds for reconstruction of the enterprises and liquidation of their debts;

·        desire to form an additional source of revenue for the regional budget (formally – for social issues and the PMR Development Fund);

·        attempt to legalize ‘a grab of the state property’ made by structures of shadow economy including those from outside of the region;

·        striving to attract to the region foreign investments mainly from Russia that would serve as a shield, protective means against claims of authorities of the Republic of Moldova on the right to dispose the state property objects in the regional territory.

Meanwhile, the official attitude of the Republic of Moldova towards the privatization in Transnistria is quite contradictory. From the beginning it became apparent because of its connivance of privatization of extremely profitable Moldovan Metallurgical Works (Ribnita) by a subsidiary of RAO Gasprom (ITERA/ EI Energy Investment and Management Corporation); then it showed in the Protocol Chisinau – Tiraspol of 2001 (‘foreign investors and entrepreneurs’ activity in the territory of Transnistria is guaranteed by the legislation of the Republic of Moldova, Transnistria and the standards of international law); finally followed the Law of the Republic of Moldova on Privatization of Enterprises in Settlements of the Left-Bank of the Dnestr-River and Municipality of Bender (October 2004)[4], which confirmed that the local enterprise employees obtain a priority in privatization. The Article 3 of the Law demonstrates social justice for them: ‘Privatized enterprises are transferred gratis into private property for participants of privatization’. As for all the previous acts of privatization, then in accordance with the Article 12 they are now declared out of law: ‘Privatization of enterprises carried out with violation of the current law provisions and other legislative acts of the Republic of Moldova is declared invalid from the date of conclusion of the privatization agreement’.[5]  

It seems that such an emotional reaction of official Moldova towards the privatization in Transnistria is not quite justified. Indeed, if to compare the risks and profit resulting from privatization then the latter prevails. 

Risks for PMR (the budget and population): ‘money from the privatization will be wasted and the enterprises - lost’; it is possible that the employment will reduce if new owners of the enterprises restructure them (elimination of hidden unemployment); social protests of working collectives could be expected.  

Risks for the RM: discomfort and humiliation caused by temporary loss of its property right in the ‘rebellious region’.  

Risks for new owners of enterprises: uncertainty of the property right legitimateness.   

Profit for everyone and first of all for the enterprises is that each privatized enterprise will get a concrete owner, receive investments and the business activity will recover. As for interests of the RM and PMR they will certainly be considered in the framework of ‘a common state’ with bringing together their property rights. Besides, this issue was already mentioned in the Memorandum of Basic Principles of a Common State Structure (Articles 14.8 and 14.9)[6]. Furthermore, reconciliation of interests is possible on basis of V.Cheshuiev’s algorithm within the framework of October (2004) law of the RM on privatization of enterprises in Transnistria.[7]

The main thing is that privatization of productive potential of Transnistria and formation and strengthening of its private sector position will inevitably undermine the foundation of command-administrative economy of PMR and create the necessary prerequisites for a peaceful and quite civilized settlement of ‘Transnistrian problem’ on a new socio-economic basis.