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. Last Updated: 07/27/2016

Officials to Tighten Controls on Tenders

In an attempt to boost the reputation of its oft-criticized privatization program, the Russian government will tighten control over the way investment tenders are carried out, top privatization officials said Thursday.

So far, investments made under the tenders have fallen far short of target, while several noisy disputes have drawn negative attention to them as instruments of privatization.

As of June 1, investors had made only 61 percent of the investments pledged, according to information released at a news conference called by the Federal Property Fund. During the past four years, the fund has carried out a total of 147 tenders, while its regional branches have carried out another 1,219.

In an investment tender, the winner of a stake in a company being privatized must agree to make additional investments over a three-year period on top of the price paid for the equity stake.

A poor compliance record and numerous local disputes have turned the question of the investment tenders into a touchy political issue.

Alexander Kazakov, the deputy prime minister in charge of privatization, said the problem has now considerable "sociopolitical significance."

"It is no accident that this question was raised not only at the government meeting that examined the results of last year's privatization, but has also appeared in practically all of the numerous inquiries into privatization that have been thrown at the State Property Committee and the Federal Property Fund," he said.

Kazakov said the government is now preparing several documents that will increase control with the way investment tenders are implemented, "up to the point of declaring them void, if they are not fulfilled in a correct manner." They should be ready for the government to review next month.

An order issued jointly by the State Property Committee and the Federal Property Fund on June 19 aims to remove several potential stumbling blocks in relations between investors and the companies whose shares are tendered.

Under the order, the company whose stake is tendered will be obliged to register the shareholding of the winner of the tender. The order will also more clearly demarcate the responsibilities of the investor and the company involved, and give the Federal Property Fund increased authority to directly control the way in which the investment program is carried out, the officials said.Investigations of the privatization process have been launched this year by the State Duma, the Prosecutor General's Office and the Audit Chamber, an oversight and investigative body of the parliament.

In 65 of 147 tenders carried out at the federal level, at least one of the parties involved has filed claims with the Federal Property Fund, said Vladimir Mukhachov, head of the fund's control department. Fourteen have ended up in arbitration court, and nine have been declared void.

In several instances, disputes over the outcome of investment tenders have mushroomed into full-blown public scandals.

Last year a group of three banks, led by Inkombank, accused Menatep bank of not complying with the terms of several tenders it had won.

In a prominent case involving a foreign investor, the British company Illingworth Morris is mired in a battle to keep a controlling stake in the Bolshevichka garment factory in which it won an investment tender three years ago. The management at Bolshevichka, with the support of the State Property Committee, contends that the British company has not fulfilled its investment obligations.