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. Last Updated: 07/27/2016

Privatization Plan Draws Flak

Russia's largest insurance agency, Rosgosstrakh, has taken the first step in its long-overdue privatization with a controversial offer that would allow employees to snap up 50 percent of the company at 2 percent of the price offered to outside investors.


Rosgosstrakh officials said Thursday that 20 percent of the shares had already been subscribed by 55,000 employees for a mere 2.13 billion rubles ($350,000).


Managers at the firm will receive a 30 percent stake either late this year or in 1997 at a price of 3 billion rubles, according to Rosgosstrakh spokeswoman Irina Aristova. Izvestia reported Thursday that this group of managers will consist of 232 people.


The remaining 50 percent of the company will be sold to the public this year for at least 250 billion rubles.


Rosgosstrakh is one of two firms created in 1992 when the Soviet-era behemoth Gosstrakh was split. The company reported 55 million policy holders in 1996 with about 2.7 billion rubles in insurance premiums.


The lopsided deal has drawn flak from deputies in the State Duma, the lower house of parliament, who are threatening to block the sale. First vice-premier Vladimir Potanin has also expressed concern about the sale, the newspaper Kommersant Daily reported.


But Rosgosstrakh officials and industry observers said a parliamentary move to stop the privatization was unlikely to be effective.


"There is no way any Duma resolution could prevent this privatization from going through," Aristova said. "Everything about it is legal. In fact, it would be illegal if the Duma tried to stop it."


State Property Committee officials conducting the privatization could not be reached for comment.


The rock-bottom price for a company with a charter capital of 28 billion rubles and 1996 revenues of $500 million was calculated using its charter capital three years ago, when the privatization law was passed, Izvestia reported. Rosgosstrakh's capital then stood at 2 billion rubles, a considerable sum at the time.


Aristova defended the privatization scheme, noting that the 525 rubles per share paid by the employees were much higher than the nominal cost.


"It is unclear how much the shares could fetch on the open market," she said, adding that the 250 billion to 300 billion ruble sum the company is aiming to get from the public share offering is merely an estimate.


"The only discount employees are getting is that the price of the shares they buy is fixed, while in the open market [the share price] could vary," she said.


Although the privatization scheme left much to be desired, the process will probably be completed because it is being done in accordance with existing laws, said Mikhail Safronov, head of the ZurichRus insurance company.


"The law was enacted at a time when there was a need to stimulate privatization," said Safronov. "But I think it needs to be revised now."


Kommersant Daily had earlier quoted Rosgosstrakh head Vladislav Reznik as saying privatization would allow Rosgosstrakh and its 80 subsidiaries to continue functioning effectively while bringing much-needed funds to the federal budget.


Company management would be able to buy its 30 percent stake at "a higher coefficient," he said, according to Kommersant.