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. Last Updated: 07/27/2016

Kazakov: State to Reclaim Some Shares

The government plans to return to banks a portion of the credits it received in last year's controversial loans-for-shares program, thus regaining some of the stakes in key enterprises it handed over to investors to manage, Russia's new privatization chief told a newspaper.


Alexander Kazakov, appointed head of the State Property Committee (GKI) two weeks ago, also said the criticisms leveled at last fall's auction process would lead to a change in the methods of state sell-offs.


"The government is simply obligated to return part of the [loans-for-shares] credits, otherwise it will simply be expropriation," Kazakov said in an interview with Kommersant Daily. The business newspaper added: "Obviously what is meant is the expropriation of state property by the winners of the loans-for-shares auctions."


The new GKI head's comments came as the debate over Russia's privatization program intensifies, with government officials and deputies in Russia's new parliament alike calling for a re-examination of the results of some of last year's property transfers.


The loans-for-shares scheme last fall saw the government bring in more than $1 billion in loans from commercial banks in return for the right to manage state share packets in key enterprises, including metals giant Norilsk Nickel and the Yukos and Sidanko oil companies.


Under the scheme's rules, if the government does not repay the loan by this September, the banks have the right to sell the shares and keep 30 percent of any capital gains, with the remainder going to the state.


It was widely assumed that the government would not "buy back" the stakes.


Kazakov's comment raised one immediate question: Where will the government find money to repay the loans?


"This sort of credit was not planned for in the [1996] budget," said Pavel Teplukhin, an expert with the Russian-European Center for Economic Policy. "So where this money should come from -- this is unclear. ... I don't actually see how the government can implement this possibility of taking shares back."


The allocation of the share packets was determined in a series of auctions last fall. Some of the losing banks charged that the outcomes were fixed -- the result of collusion between the banks, prominently, Uneximbank and Menatep -- that organized and won a number of key auctions, and the government.


Kazakov said in the Kommersant interview that last year's auctions "evoked a mixed reaction in society and business circles, and therefore we should not carry out the auctions in their previous form."


The interview, which will be published in full in a future edition, suggested that the loans-for-shares process is under heavy attack.


"We will be forced to settle for what we have -- God willing, to see through to the end those auctions which have already taken place," Kazakov said.


Deputies in the new parliament, a majority of whom are hostile to economic reform, and top government officials have recently been taking aim at the privatization process.


The general director of Norilsk Nickel, a 38 percent stake of which was auctioned last November to Uneximbank for $170.1 million, offered to fully compensate Uneximbank if it returns the shares to the state.


The offer, which was made last Friday during a debate in the State Duma, the parliament's lower house, was backed by most deputies.


For its part, Uneximbank said it does not plan to return the shares to the state before the management period for the shares ends in September, Segodnya reported Wednesday, citing an Uneximbank source.


Uneximbank and Norilsk are currently locked in a struggle over who will control the management and direction of the huge metals producer.


Alexander Livshits, President Yeltsin's economic adviser, said Tuesday he is optimistic the dispute can be resolved. If the two sides reach an agreement, he said, "a giant financial-industrial group, comparable to the largest financial-industrial groups in the West, including the U.S., might be shaped," Interfax reported.


Last month, following the forced resignation of economics czar Anatoly Chubais, President Boris Yeltsin criticized the privatization process, which Chubais spearheaded, for handing over stakes in key enterprises "for a song."


Moscow Mayor Yury Luzhkov called for an investigation by the Public Prosecutor's office into "privatization activities" carried out under Chubais, saying that to ignore them would be to "deceive the expectations of society."


In an article published this week in Moscow News, Luzhkov stepped back somewhat, saying that court proceedings against those who had "illegally" received property might create more problems than they solve.


Luzhkov wrote, however, that "those energy complexes which comprise the basis of heavy industry and were sold for a song should be returned to the state."


Prosecutor General Yury Skuratov said Monday his office plans to carry out an "intensive verification" of the privatizations of several key Russian enterprises, including Norilsk Nickel.


"I think we shall have a lot of grist for the mill that should keep the prosecutor's office busy, right up to the filing of criminal charges," Interfax reported him as saying.