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. Last Updated: 07/27/2016

Luzhkov Cancels City Ban on Privatization

Moscow Mayor Yury Luzhkov, taking a partial step back in his battle with the federal government over privatization in the capital, canceled a decree that halted the sell-off but maintained his ban on the sale of land. The new resolution, obtained by The Moscow Times on Tuesday, annulled an April order that forbid Moscow companies from turning themselves into joint-stock companies, the first step before privatizing. It also raised by about 10 times the price paid by privatized companies for the buildings they buy from the city but introduced a discount system for companies who pledge to invest in reconstructing the buildings they buy. Luzhkov has over the past six month sharply criticized the voucher privatization program and Anatoly Chubais, head of the State Property Committee. The mayor has demanded that the federal government allow the city to privatize its enterprises for money instead of vouchers. More than half of Moscow enterprises have yet to convert into joint-stock companies, lagging far behind other major regions of Russia. The conflict heightened last week when Luzhkov signed a decree banning the sale of land in the capital, contradicting the newly adopted constitution that guarantees the right to buy and sell for all Russian citizens. Both decisions elicited angry responses from top government officials, including Prime Minister Viktor Chernomyrdin, who ordered Luzhkov to resume privatization. The new resolution was signed May 30, several days after the prime minister's order to restart privatization but unveiled only this week. Mechaslav Klimovich, the chairman of Moscow Property Fund, played down the conflict between Luzhkov and Chubais, saying it had largely been inflated by the press. "We are not against privatization," Klimovich said, adding that Luzhkov's decisions were economically justified. "We simply do not want to hurry and try to watch closely the results of each of our steps." Klimovich said that 6,000 enterprises in Moscow qualified under the resolution to purchase the buildings they currently lease from the city. He also said that about 2,000 enterprises have already bought their buildings. The resolution applies to enterprises in which the government holds no more than a 25-percent interest and whose privatization plans included the right to buy buildings they now lease. He said that the new resolution did not lift existing restrictions on the sale of land in the city. "It does not apply to the land under enterprises," he said. Klimovich said that one square meter of commercial space in an apartment building will now cost an average of 1 million rubles ($515), while a stand-alone commercial building will cost 1.35 million rubles per square meter.The particular rates for each enterprise will depend on location and the condition of the buildings, said Klimovich. Under the plan, different prices will be charged in each of 13 different regions the city has created. Although Klimovich refused to provide the details, he said prices would be considerably higher in the center. "This is expensive and each enterprise would have to decide whether they want to continue leasing the buildings or if they prefer to own them," Klimovich said. He also said that the city could offer discount rates for those companies which plan to invest in the reconstruction of a building. He also declined to say what the discounts would be. While the rates are tied to "an average market price of identical buildings," and the resolution orders that city rates be no more than 70 percent of a market rates, real estate executives said that such a market did not exist because very few companies have bought their buildings. Filipp Bogdanov, commercial property director at real estate firm Oster & Co. said, however, that he was aware of purchases of buildings in Moscow with the price per square meter ranging from $1,500 to $3,000 per square meter