Companies Switch From Rubles to U.E.

In a throwback to the turbulent 1990s, some real estate companies and car dealers are repricing their fees in "conditional units" instead of rubles.

While conditional units — known as u.e. in Russian — were originally a euphemism for the U.S. dollar during the period of the ruble's instability in the 1990s, it has since come to represent values ranging from the dollar to the euro to a ratio between the two.

The government, fueled by complaints from confused buyers and pride in the then-robust ruble, initiated a crackdown on conditional units from 2004 to 2006. But a loophole provided by two competing pieces of legislation suggests that there is room to maneuver.

Companies are maneuvering as they scramble to minimize losses from the depreciating ruble, which has lost nearly 20 percent of its value since November. The Central Bank said Thursday that it had "finished" with the devaluation of the ruble.

Real estate developer PIK Group began listing its prices in conditional units at the beginning of January, spokeswoman Natalya Konovalova said. The company calculates the mean of the dollar and the euro based on Central Bank rates, and clients pay the company the equivalent amount in rubles.

"The use of conventional units was around four years ago, and now because of the economic downturn a lot of builders are using this form of measurement again," she said.

Most developers are quoting prices in dollars or conditional units these days, she said.

The use of conditional units is appearing in other sectors as well. Advertising agency Begun has started selling online ads for 2 to 50 conditional units apiece. The trend is also popular in the auto sector, where foreign cars produced by BMW, Toyota, Mazda and Mitsubishi are priced in conditional units based on euro or dollar rates, Autonews.ru reported.

Natalya Orlova, chief economist at Alfa Bank, said that other sectors were also likely to return to conditional units if the ruble remained volatile.

"If the ruble exchange rate doesn't stabilize at a level of 30 to 33 rubles a dollar in the coming two or three months, then I think a lot of companies will think about using" pricing such as conditional units, Orlova said.

So far, the re-emergence of conditional units appears to have occurred primarily in the real estate sector, one of the hardest hit by the financial crisis. Property firm DSK-1, which like PIK received bailout loans from Vneshekonombank, announced this week that it would begin pricing apartments in conditional units after Feb. 1. DSK-1 refused to comment on the decision Thursday.

The real estate sector has a history of pricing in dollars, and it was only briefly during the first half of 2008 that landlords began switching to the ruble, betting that the currency would appreciate, said Alexei Yazykov, a real estate analyst for Renaissance Capital.

The practice of pricing in conditional units used to be popular with hotels, airlines, restaurants and supermarkets.

In 2006, a U.S. lawyer sued Hyatt, Radisson and Marriott for using unfair conditional unit exchange rates in Moscow. Radisson and Marriott said they had not decided to use conditional unit prices again, but one hotelier said it would be a good idea.

"Today the hotel is losing quite a bit due to the exchange rate. What the government needs to do is allow [businesses] to go back to either conditional units or euro rates," said Michel Stalport, area vice president for the Rezidor Hotel Group's Russian SAS Radisson hotels.

He said he believed that the hotel was required to quote its prices in rubles. Other businesspeople said they could use conditional units. The confusion stems from two separate pieces of legislation: the Law on Protection of Consumer Rights, which states that the price of goods and services must be displayed in rubles, and Article 317 of the Civil Code, which allows parties to agree on prices in conditional units as long as the payment is in rubles.

Travel agencies, for one, have never fully switched to rubles.

"Airline tickets are still linked to foreign currency, even though these are tickets sold in Russia," Orlova said. "This means there is clearly a way to recalculate all prices on a daily basis based on a foreign currency."

All International Air Transport Association members fix prices at an international exchange rate set by IATA every Wednesday. This week's rate is 43.5 rubles per euro.

The government has long pushed for the demise of the conditional unit. Critics of the conditional unit, such as State Duma Deputy Valery Galchenko, have labeled the use of the measurement unpatriotic, and then-President Vladimir Putin issued a decree in March 2006 forbidding state officials from quoting prices in currencies other than rubles.

Oleg Zamulin, assistant professor at the New Economic School, said companies are unlikely to flock to the conditional unit because it would be disadvantageous for them to switch currency rates individually when competitors are still using ruble rates.

Entire industries switching to the conditional unit would take years, Zamulin said.

"It took a long time for companies to switch from using conditional units, and it will take a long time for them to switch back," he said.