07MOSCOW1354, AMBASSADOR’S 3/27 MEETING WITH FINANCE MINISTER

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Reference ID Created Released Classification Origin
07MOSCOW1354 2007-03-28 10:55 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0005
PP RUEHWEB

DE RUEHMO #1354/01 0871055
ZNY CCCCC ZZH
P 281055Z MAR 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 8693
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 001354 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS, EEB/CBA, NEA/I 
STATE PASS USTR FOR DWOSKIN, DONNELLY 
TREASURY FOR BAKER/ALIKONIS 
NSC FOR KLECHESKI AND MCKIBBEN 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
 
E.O. 12958: DECL: 03/28/2017 
TAGS: EFIN ECON ETRD RS
SUBJECT: AMBASSADOR'S 3/27 MEETING WITH FINANCE MINISTER 
KUDRIN 
 
REF: A. MOSCOW 1333 
     B. MOSCOW 1210 
 
Classified By: Charge d'Affaires Daniel A. Russell: 1.4 (b/d). 
 
Summary 
------- 
 
1.  (C) In a March 27 meeting with Finance Minister Kudrin, 
the Ambassador pushed for Russian progress on remaining 
problem areas in WTO talks and raised our concern over 
pending legal action against PricewaterhouseCoopers.  There 
are no plans to revoke the audit license of 
PricewaterhouseCoopers, and he continues to monitor 
developments in the legal case involving PwC audits of Yukos. 
 Kudrin looked forward to discussing Russia's WTO 
negotiations on the margins of the spring World Bank-IMF 
meetings in Washington.  He also summarized the status of 
debt negotiations with Afghanistan (ready for signature), 
Iraq (technically ready, pending discussions with the GOI), 
and North Korea (still the subject of interagency 
discussion).  Kudrin plans to invite Secretary Paulson to 
participate in the St. Petersburg Economic Forum in June. 
End Summary. 
 
WTO Talks 
--------- 
 
2.  (C) The Ambassador raised WTO accession talks and pushed 
Kudrin on the need for Russia to move more decisively on 
remaining problems in agriculture and other areas (along the 
lines of the conversation a day earlier with Gref reported in 
reftel A).  "Russia needs help with WTO accession," Kudrin 
noted.  Putin has placed a high priority on concluding the 
multilateral negotiations and signing the accession agreement 
-- ideally by this fall -- but certainly before the end of 
his presidency next year.  Kudrin may call on Members of 
Congress during the upcoming World Bank/IMF meetings (April 
14-15) to explain Russian positions and elicit support for 
accession.  Ambassador reminded Kudrin that House Foreign 
Affairs Committee Chairman Tom Lantos had pledged recently to 
lead an effort in Congress to repeal Jackson-Vanik. 
 
PwC's Audit Case 
---------------- 
 
3.  (C) The Ambassador raised our concerns over pending legal 
action against PricewaterhouseCoopers and the potential 
implications for Russia's own economic reputation.  Kudrin 
was very familiar with PwC's case, knew that the Yukos audit 
contracts had been declared void by the court last week, and 
that PwC had been ordered to pay the government its auditing 
fees plus administrative fines (Reftel B).  Ambassador asked 
if the Finance Ministry planned to revoke PwC's license. 
Kudrin said that there was no basis for PwC's license to be 
revoked.  He was careful to note that the Finance Ministry 
was not a party to the court case and had not seen the 
documents the tax inspectorate attorneys had submitted "at 
the last minute."  He has asked Deputy Finance Minister 
Shatalov to review the court's written decision (still 
pending) and apprise him if further deliberations on the 
licensing issue are necessary.  Kudrin added that the Finance 
Ministry was drafting legislation to clarify the roles and 
responsibilities of auditors. 
 
Paulson Invitation 
------------------ 
 
4.  (C) Kudrin intends to invite Treasury Secretary Paulson 
to participate in the St. Petersburg Economic Forum in June. 
He laid out his vision for Forum to become a "stronger 
platform" for discussions on common economic interests as 
well as broader global economic trends.  The Forum would 
benefit from Secretary Paulson's participation, which would 
underscore the importance of the bilateral economic 
relationship. 
 
Debt Relief Talks 
----------------- 
 
5.  (C) Afghanistan.  The GOR is assessing Afghanistan's 
suggested edits to the debt relief proposal that had been 
provided to Kabul in late February.  There were no serious 
concerns, and the process was on track. 
 
 
6.  (C) Iraq.  Kudrin said that the GOR's preference would be 
to announce debt relief at the time the Iraqi Government 
confirms the renewal of Lukoil's license for the West Qurna 
field.  The Russian government is sensitive to appearing to 
have rewarded Iraq without having taken steps to secure 
Russian interests at the same time.  He suggested that the 
GOI's passage of legislation addressing foreign investment in 
the oil sector last month meant the dual announcement could 
be made soon.  The Ambassador cautioned that the GOI would 
need considerable time to implement this law before it would 
be in a position to confirm an individual license, and he 
urged the GOR to see debt relief as an early, well-placed 
investment in bilateral relations with Iraq.  Kudrin 
committed to reviewing the GOR's plans on Iraqi debt. 
 
7.  (C) North Korea.  The work of the bilateral commission is 
still in its preliminary stage.  In Moscow, the Finance 
Ministry's work with the Foreign Ministry has largely focused 
on evalua
ting options regarding debt negotiations with North 
Korea.  The GOR has made no official decisions on how to 
proceed.  Kudrin confirmed that preliminary calculations 
suggest that the amount on the table is in the $8 billion 
range. 
 
Budget Reform 
------------- 
 
8.  (C) Kudrin seemed pleased that the government had 
approved not only his proposal for a three-year budget but a 
non-oil, non-gas budget as well.  His goal is to minimize the 
budget's exposure to the oil and gas sectors.  The non-oil 
budget proposal was in line with last year's capital account 
liberalization.  He stressed that the proposal was a key 
component of plans to diversify the economy and to enhance 
the competitiveness of Russian industry.  The GOR also had 
agreed in principle to the establishment of the non-oil 
budget's Future Generations Fund, which will use the 
investment income from accumulated oil and gas revenue to 
fund budget obligations.  Exactly which obligations, he 
conceded, was still the subject of hot debate inside the GOR. 
RUSSELL

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