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. Last Updated: 07/27/2016

Privatization Back in Vogue in Yeltsin's Kremlin

The government approved a draft plan Thursday to forge ahead with sell-offs of key oil and telecommunications firms, dismissing talk of renationalization that dominated much of the recent presidential election campaign.


Alfred Kokh, deputy head of the State Property Committee, said it was highly unlikely the government would seek to renationalize any enterprises already sold into private hands, an idea that both the parliament and the government floated last spring.


"The idea of nationalization [is] absurd from the economic point of view," Kokh told a news conference, reflecting the government's new attitude toward privatization after President Boris Yeltsin's re-election victory.


"We have created a large and significant private sector that accounts for more than half of the GDP, which is an enormous success and can hardly be overestimated," he said.


Kokh also outlined a plan to offer convertible bonds in some enterprises in advance of their sell-off dates, confirmed plans for a second tender for the telecommunications holding company Svyazinvest and said the government still aimed to raise the budgeted 12 trillion rubles from privatization this year.


One Western fund manager said the shift in attitude reflected the appointment of the former privatization chief Anatoly Chubais as head of the presidential staff -- just six months after Yeltsin fired the liberal reformer amid accusations he had mishandled the privatization program.


"Bearing in mind that he hasn't been involved in the administration in the previous six months, one can detect the hand of Chubais," said the manager, who did not wish to be identified.


Viktor Levashov, deputy director of the Institute of Social and Political Studies, said talk about nationalization was largely driven by election rhetoric.


"From the very start, this nationalization campaign in the mass media was propaganda. There are no grounds to believe that there would be a huge wave of re-nationalization," he said.


Ivan Grachev, deputy head of the committee on property and privatization in the State Duma, said the government plan is unlikely to face very strong opposition, even though the body is dominated by Communist deputies who sharply criticized privatization during the election campaign.


The change in atmosphere was reflected even in the prominence Kokh assumed in announcing the changes. Just this past spring, after an investigation by parliament's Audit Chamber, the Prosecutor General's Office was asked to consider criminal charges against him.


The office announced Thursday it was dropping that investigation, although it would continue to pursue charges against Kokh's former boss, Pyotr Mostovoi, Interfax reported.


Under the new government program, each eligible enterprise will be evaluated by its financial results in a quarter preceding the date when a privatization plan is approved. The value of many enterprises that went up for sale recently was based on their performance in 1992, Kokh said.


He said the program also would seek to end abuses of privileges that went with shares acquired at a discount by workers in privatized enterprises.


"[It] was indeed a fake privilege because workers did not get any role in management anyway," Kokh said, adding that the bulk of capitalization went "to speculative structures" on the secondary market.


He said the government would try to sell enterprises only when they reach high market values. That is an apparent move to avoid future criticism that state property was being sold off for a song.


Kokh rejected contentions that some of Russia's most profitable companies were sold for a fraction of their actual worth.


"You may want to get tens of billions dollars for your company, but if there is no buyer willing to pay that money, the price you have in mind is unrealistic," he said.


Interfax quoted Interior Minister Anatoly Kulikov as saying during the government session Thursday that privatization was "wrecking the country's defense ability."


But it seemed clear that such opposition to privatization was in the minority.


Kokh said he agreed that it was necessary to review cases where laws were broken during privatization, but he added that "only a court can decide whether there was a violation or not."


He said the best way to raise the value of a company was to ensure that shareholder rights were protected and international accounting and financial disclosure standards were met.


Kokh said the government also planned to re-launch the sale of the Svyazinvest telecommunications giant, one of the biggest privatization deals. The sale collapsed last year in a last-minute dispute over terms between the government and the Italian state telecommunications company Stet, which had won a purchase tender.


According to Kokh, Svyazinvest's value would rise if it became an independent operator and was granted a general license for telecommunications services.


But the Communications Ministry insists Svyazinvest should remain a financial holding company that would coordinate the investment policy of regional telecommunication companies, Kokh said.


"I think that in the long run we'll strike a compromise with the Communications Ministry, but in any case the budget will suffer because this will reduce the price of the package," Kokh said.


To help the cash-strapped budget, the privatization agency is planning an issue of secondary securities that could be exchanged for the shares in the state package when the government's ownership expires.


"We think this package should stay now in the hands of the state, but we also plan to sell it after the term is over," he said, adding the Fuel and Energy Ministry supported the idea.