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. Last Updated: 07/27/2016

Kremlin Pledges Fair Oil Auctions

Television viewers surfing through the Russian channels in the next few weeks could well stumble upon a television game they haven't seen before: top government officials with inscrutable faces solemnly unsealing envelopes and announcing winners.


The audience won't be your typical game-show fare because the prize, in this case, will be a highly lucrative stake in the Eastern Oil Co.


The format was the brainchild of government officials who, stung by allegations of insider dealings and favoritism in past sell-offs, are more anxious than ever to create an aura of fairness.


"There will be a greater accent on procedure, its cleanness and openness," said Maxim Boiko, head of the State Privatization Ministry, which is in charge of the auction. "I think its results should be summed up in front of TV cameras. It should be a live broadcast so that no one has any doubts."


Though the televised bid opening might lack the frivolity of "Ugadai Melodiyu," or "Name That Tune," there should be plenty of tension. In one auction, 34 percent of Eastern will be on the block in an investment tender at a starting price of about $103 million. Bidding also is under way in another cash auction for 50 percent minus one share in the company.


No date has been set, but if bidding deadlines hold, the envelopes should be ready for opening later this month.


The tenders for Eastern Oil Co. are only two of a half-dozen auctions of government stakes in major companies due by the end of this year.


Other chunks of federal property about to go on the block include 19.68 percent of the Slavneft oil company, 0.96 percent of oil giant LUKoil, 48.68 percent of Tyumen Oil and 16.97 percent of the Lenenergo utility.


Boiko did not say whether any of the other bid openings would be televised, or what the broadcasts would actually do to ensure a fair procedure.


But he underscored the importance the government attaches to orderly and profitable sales of state assets.


The government has been sharply criticized by its opponents for its handling of previous sell-offs, including the notorious loans-for-shares scheme in 1995 in which major banks and their allies snapped up major enterprises at bargain-basement prices from the cash-strapped government.


A dispute over the sale last summer of the $1.9 billion sell-off of a major stake in the state telecommunications giant Svyazinvest sparked open warfare when the losers accused the government of playing favorites.


Among those crying foul was business tycoon Boris Berezovsky, reported to have been part of a consortium that lost the auction. He accused First Deputy Prime Minister Anatoly Chubais of cutting an insider deal with the winners despite Chubais' insistence that the auction had been open and fair.


President Boris Yeltsin finally fired Berezovsky last week from his post as deputy secretary of the government's influential Security Council, reportedly at the behest of Chubais.


The sell-offs also figure prominently in the government's chronic financial problems. Boiko conceded that the reason for the forthcoming spate of sell-offs is to offset "lower-than-planned tax collection" by the government. The miserable tax-collection record has laid the Kremlin open to sharp criticism for its failure to pay wages, pensions and military salaries on time.


In all, the government hopes these sales will further increase its considerable earnings from privatization this year. In the first 10 months of this year, Boiko said, privatization has generated a total of more than 12 trillion rubles, 10 times the amount for all of 1996.


"This is a very large sum." Boiko said, adding that privatization proceeds amount to the equivalent of about 10 percent of the Russian government's' overall tax revenues.


He emphasized that high minimum prices being set for bids should protect the government from underbidding. "We do not intend to sell anything too cheaply," Boiko said.


Boiko said he did not think the current turmoil on world and domestic financial markets would derail the government's privatization plans, though he acknowledged there was potential for problems.


He said that the involvement of long-term strategic investors remained strong and, given the overall stable economic situation in Russia, even "portfolio investors will overcome their present state of fear and panic."


Boiko spoke glowingly of prospects of increased competition because of new rules allowing more open participation by foreign investors, but he also made it clear that the lifting of a 15 percent limit on foreign investment in oil companies will only apply to the recently announced tenders for state shares in Slavneft and LUKoil.


That effectively renders meaningless last week's presidential decree that initially was seen as throwing participation wide-open to foreign investors in oil tenders, said Mikhail Surtsukov, an oil analyst with the United Financial Group. "At a time when one needs to boost investors' confidence, just the opposite has been done."