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. Last Updated: 07/27/2016

Moscow, Prague Ink $3Bln Debt Pact

PRAGUE, Czech Republic ? The Czech Republic and Russia have agreed on settlement of Russia?s debt from the Soviet Union era on Monday in a deal that could set a precedent for Russia?s debt talks with other former communist countries.

Prime Minister Mikhail Kasyanov told a news conference after meeting Czech Prime Minister Milos Zeman that the Czech Republic would forgive Russia part of the $3.6 billion debt and spread out the payments of the rest.

?The part of the debt which we were due to pay a long time ago will be lowered, and the rest will be restructured until the year 2020,? he said.

Czech Deputy Finance Minister Ladislav Zelinka told reporters the Czechs agreed to sell a $2.5 billion portion of the debt to a private company, Falkon Capital, for slightly over 20 billion crowns ($547 million).

The remaining part of the debt will be paid between now and 2020 in cash, goods and into a guarantee fund for Czech exports to Russia.

The Czech Republic, a successor to former Soviet Union satellite Czechoslovakia, is not a member of the Paris Club of Russia?s sovereign creditors.

Zelinka said Falkon Capital, a little-known company, would pay its dues to the Czech government by the end of this year. The government inked 20.4 billion crowns from Russian debt repayment into the 2002 budget draft.

In Moscow, a Finance Ministry source said the Czech debt constitutes a large part of the $14 billion debt to COMECON states, but declined to give an exact breakdown as much of the debt had not been verified or reconciled.

?Such a restructuring will set a very important precedent. We have the principle of the equal treatment of all creditors, which means a restructuring with one state sets an example for other countries,? the source said.

Russia?s total foreign debt burden is around $140 billion.

Alexei Zabotkine, chief economist at Moscow?s United Financial Group brokerage, said the Czech terms were ?pretty good? for Russia as it meant Russia was bringing greater clarity to its debt management.

?From a long-term perspective, it is important because if Russia reconciles and restructures COMECON debt, it will have the moral right to buy its debt from the market openly, through open tenders, not stealthily, as it is doing now. Efforts will be joined to manage the debt burden more effectively.?

n?Kasyanov said Tuesday that Russian firms were interested in large gas and chemicals privatizations in the Czech Republic.

The Czechs are offering majority stakes in chemicals and natural gas groups, which may become additions or footholds for foreign groups building a presence in central Europe.

?Many Russian companies have a very lively interest in Czech privatization, of Unipetrol and Transgas,? Kasyanov said after a meeting on debt and economic cooperation with Zeman.