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. Last Updated: 07/27/2016

Rosgosstrakh Lashes Out Over Canceled Sell-Off

The president of Russia's largest insurance company Monday slammed the State Property Committee and the State Duma's Audit Chamber for what he termed the sudden and "mysterious" cancellation of the firm's privatization.

"[The privatization of Rosgosstrakh] is obviously not in someone's interests," Rosgosstrakh president Vyacheslav Reznik said. "It is incredible how, at a mere political whim, all economic principles are thrown to the winds."

Reznik also blamed the Audit Chamber's "incompetence," adding that its "baseless accusations have helped deprive the government of at least 300 billion rubles ($52 million)."

Reznik's angry comments follow Friday's decision by Property Committee Chairman Alfred Kokh to suspend Rosgosstrakh's privatization in the face of intense opposition from the Duma and former policy holders who say they are owed money.

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.

But in May, a group of experts from the Audit Chamber cited legal irregularities surrounding the privatization and recommended that the government halt the process. Reznik said he was never given a chance to answer the allegations.

The chamber claims that the privatization method chosen by Rosgosstrakh is meant for companies facing insolvency and therefore is not suitable for the insurer, which had $500 million in revenues last year. But Reznik justified the method, saying that when the decision was made, company revenues had plunged from $600 million in 1991 to a mere $2 million in 1995.

He also disputed claims that a majority of the company's shares were grabbed by a fraction of the employees. Each employee, he said, received a minimum of 500 shares.

Reznik predicted that the State Property Committee soon will be hit by "thousands of lawsuits" from individual shareholders, as well as a case from a group of company managers.

Rosgosstrakh has also dashed off petitions to President Boris Yeltsin, the Prosecutor General and the government. A hotline has been set up to field the "hundreds of calls" the company has been receiving from distraught shareholders, he said.

Rosgosstrakh, a descendant of Soviet insurance giant Gosstrakh, provides various types of insurance, including life, medical, fire, and aviation, and has reinsurance arrangements with several Western companies.

It is also one of the wealthiest insurance companies with 55 million policy holders and 1996 premiums totaling $700 million. Rosgosstrakh is among seven Russian companies in line for World Bank loans in 1997.

"All this drama has its roots in political vested interests," Reznik told The Moscow Times in an interview. "I know a number of people in the government, in the property committee as well as in business circles who did not wish the employees to get shares at a lower price." He refused to give any names.

Despite Reznik's claims of political gamesmanship, many analysts believe the Rosgosstrakh saga to be an indication that the government finally is getting tough on privatization, using the process to raise budget funds rather than sell companies to influential insiders.

"Given the present situation with the arrears and deadlines, the government obviously wants to raise privatization receipts," said Yaroslav Lissovolik, an economist at the Russian-European Center for Economic Policy. "The government has a record of not meeting budget predictions, but the constraints are getting hotter now."

Lissovolik said that apart from the need for additional revenues, both the government and populace are more sensitive to insiders grabbing large stakes in companies.

Reznik said he is mystified at the attention being paid to Rosgosstrakh while "one person controls 35 percent of Gazprom," a reference to Gazprom chairman Rem Vyakhirev, who is entrusted with 35 percent of the government's stake in the gas monopoly.

"In what way are our employees worse than those at companies like Norilsk Nickel?" Reznik complained, speaking of previous privatization instances when stakes were sold to employees at rock-bottom prices.