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. Last Updated: 07/27/2016

Privatization Official: Voucher Plan Has Failed

A top Russian privatization official said Monday that the country's privatization voucher plan had failed, and he proposed that state-owned firms be handed over to managers and employees.

Vladimir Kluchnikov, deputy chairman of the State Property Fund was speaking before a parliamentary hearing when he made the proposals, which would effectively kill the government's plan to sell off state property for privatization vouchers.

Kluchnikov's property fund is controlled by the parliament, and opposes many aspects of the cabinet's privatization program.

"Hustlers are buying these vouchers cheaply, which they will be able to use to buy major enterprises, and it will be another hoax against the people", Kluchnikov said.

But Deputy Prime Minister Anatoly Chubais, the minister in charge of privatization, has said the plan will merely solidify the control of directors over their firms, while not guaranteeing that chronically ineffective state-run firms will improve their performance.

"The hoax will be against those who are worse off now", Chubais said last week. "The main goal of the people who worked out this option is to destroy the process of privatization".

Kluchnikov's remarks were the latest salvo in an ongoing struggle between the government's reformist ministers, who see privatization as the pathway to a market economy, and conservatives in the legislature who fear that the sale of large firms to Russia's new capitalists will spur an outbreak of social unrest.

Kluchnikov on Monday urged legislators to rewrite the current privatization law to include what has become known as the "fourth option" -- a reference to the three options in the cabinet's plan. Kluchnikov's proposal, which many legislators support, would allow employees and managers to buy off enterprises without vouchers for the enterprise's preinflation, 1991 price -- or 15 to 20 times less than what the company is worth today.

Employees and managers could use the firm's profits over the next five years to buy off the shares, under the plan.

Workers would not own the shares individually, but as a collective -- meaning that a worker planning to leave a company would have to give up his shares at the door.

Many legislators argue that this approach is the only way to guarantee that firms remain in the hands of competent directors and that Russia avoids a sharp rise in unemployment.

Parliament is scheduled to discuss amendments to the privatization program within the next two weeks.

By contrast, the government's program ensures an influx of new investors. Under the scheme, management and employees of a factory that is going private:

o Can acquire 25 percent of a firm's shares for free, with an option to buy 15 percent more for a special discount.

o Can buy 51 percent of the shares at 1. 7 times the share price.

o Can delay privatization for up to two years while the firm gets its finances in order, after which time they can acquire up to 20 percent of the shares.

The government began issuing the checks last October as part of a plan to give citizens the chance to become shareholders in over 5, 600 large and medium firms.

But the vouchers, which have a nominal value of 10, 000 rubles, have been trading for under 5, 000 rubles since the beginning of the year.

The State Property Fund acts as a holding company for government-owned enterprises that are in the process of being privatized.