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. Last Updated: 07/27/2016

Kokh Freezes Insurer's Sell-Off

State Property Committee officials have suspended the privatization of Russia's biggest insurer, Rosgosstrakh, amid allegations that workers and managers are unfairly taking 50 percent of the company.


An order signed Thursday by committee chairman Alfred Kokh gives a fresh turn to the company's privatization saga, seen by most as blatantly lopsided as it has allowed employees to snap up 50 percent of the company for 2 percent of the price offered to outside investors.


The battle, however, appears far from over as all sides claim that, eventually, victory will be theirs.


And in a strange twist, even Kokh reportedly views the privatization as legal and is resigned that Rosgosstrakh managers will successfully appeal his suspension of the privatization, according to a spokeswoman for the committee, known by its Russian acronym GKI.


"Mr. Kokh has signed the order because of all the controversy around the process," spokeswoman Victoria Virgilskaya said. "This way, he shows his unbiased position on the issue."


The decision comes midway through the first phase of Rosgosstrakh's privatization. Already, 20 percent of the company has been placed in the hands of employees for a mere 2.13 billion rubles ($366,000), with a further 30 percent earmarked for 232 managers at a price of 3 billion rubles.


In contrast, a tender for 50 percent of the firm later this year is expected to raise 300 billion rubles, considered to be one of the government's largest privatization projects in 1997, on par with telecom holding Svyazinvest and oil holding firm Rosneft.


Should Rosgosstrakh sue the GKI to resume the privatization, it would in all probability win its case, Virgilskaya said.


"Our employees who purchased shares will force me to file a case," Rosgosstrakh's president, Vyacheslav Reznik, was quoted by Reuters as saying. "I am confident of victory."


But opponents to the privatization, mainly Soviet-era policy holders and State Duma members, the lower house of parliament, took a different view.


"The gentlemen from Rosgosstrakh will be surprised if they expect to win their case," said Sergei Burkov, an analyst with the Duma's Audit Chamber, which strongly recommended halting the privatization.


Among the violations by GKI that Burkov cited is a 1994 decree mandating that all privatizations involving more than 200 million rubles or 50,000 employees be sanctioned by presidential decree. GKI also erred in allowing the privatization proposal to go forward without a vote by Rosgosstrakh's 80 subsidiaries, he said.


Rosgosstrakh officials have always maintained the legality of the privatization, having chosen one of three methods prescribed by law, but one which experts say is intended for company's faced with bankruptcy.


Under the program, managers are provided shares at lower prices as a reward for putting the company back on its feet. But opponents say Rosgosstrakh, with $500 million revenues in 1996, does not fall in this category.


Burkov said even using this method, certain employees had grabbed more than their due. "We received letters from employees from the provinces who did not get any shares at all," he said, adding that about 100 employees snapped up 2,000 shares. "Most employees will be pleased" with Kokh's order, he said.


The Duma has been especially upset about the privatization and has petitioned the president for its cancellation.


"We are in favor of privatizing Rosgosstrakh," said a Duma privatization committee official who asked not to be named. "But the stake should be sold at the market price so that a small group doesn't benefit at the expense of ordinary citizens."