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. Last Updated: 07/27/2016

Government Must Collect For Its Shares

Those involved with last year's loans-for-shares privatization scheme will not want to be reminded that Sept. 1 is supposed to be a crucial date for them.


The government decided on the loans-for-shares scheme late last year as a politically acceptable and quick method of selling huge stakes in Russia's state-owned companies such as Norilsk Nickel, Yukos and Surgutneftegaz.


The goals of then deputy prime minister for economics Anatoly Chubais were always a mixture of economics and politics -- raising money for the budget and taking shares out of state control as a precaution against a communist State Duma and presidential election victory, handing them instead to politically sympathetic banks.


The financial structure of the deals was complicated and little understood at the time. Control of the various parcels of shares was sold at auctions that were rigged to ensure that only "friendly" banks could win.


Moreover, because of the public opposition to privatization, the government did not feel bold enough to simply sell the shares.


The winner of each auction won the shares in trust and in return gave the government a loan. But in theory, the government could reverse the deal, repay the loan and pay a trifling rate of interest.


That is where the Sept. 1 deadline kicks in. The government has until Sunday to declare if it wants to pay back the loan and take back control of its shares.


The fact that the Sept. 1 deadline is passing with barely a whimper suggests that despite public protestations, the government never treated the money it received from the scheme as a loan. To all intents and purposes the auctions last December amounted to selling the shares.


But the crucial fact is that the shares were not sold. The government still retains an interest. At some time over the next three years, the shares were supposed to be sold publicly and the government to keep most of any profits.


The problem is that with the government and the big banks now so incestuously related, their interests are becoming increasingly confused. Significantly, one of the biggest banks in the loans-for-shares deal was Uneximbank, whose president Vladimir Potanin now holds Chubais' former post.


The banks now are clearly jockeying to take permanent ownership of the shares, having no intention of selling the shares or sharing any profits with the government.


The banks are arguing that they are doing the government a favor by restructuring the companies in which they have won shares. All very well, but at the end of the day the government will be owed money, and it must collect it.