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. Last Updated: 07/27/2016

Yeltsin Blasts Kokh for Bias in Privatizations

President Boris Yeltsin slammed outgoing privatization chief Alfred Kokh on Friday, hinting he had sacked him for favoring some banks over others in recent sell-offs of billion-dollar stakes in state companies.

"The scandal around Svyazinvest and Norilsk Nickel is connected to the fact that a number of banks are closer to Kokh's soul," Yeltsin said in remarks broadcast on national television. "That is not the way it is done. Everything must be honest, open and built on legal principles."

Kokh resigned Wednesday following an uproar surrounding auctions for a 25 percent state stake in telecommunications holding company Svyazinvest and a 38 percent stake in metals giant Norilsk Nickel.

Uneximbank, headed by former first deputy prime minister Vladimir Potanin, led the consortia that won the tenders, sparking accusations of favoritism.

Yeltsin said he was replacing Kokh with Maxim Boiko, also a close ally of Chubais, because "he has no weakness for any bank." The president said that under Boiko's leadership the privatization process would be opened up. "Let any banks, not just the largest ones, take part in the auc Chubais after his dismissal.

Chubais denied Thursday that Kokh's removal was in any way connected to the recent auctions, saying Kokh had wanted to leave the government long ago. "Someone would like to interpret these events to their own benefit, linking them to the latest developments in privatization," Chubais said. "But these are inventions."

As head of the State Property Committee, Russia's privatization ministry, Kokh played a key role in the government's controversial loans-for-shares program in 1995, which allowed a handful of insider banks to snap up stakes in prized enterprises at heavily discounted prices.

This year, Kokh was charged with implementing the government's new policy of maximizing the state's revenue from privatization.

The sale of Svyazinvest for $1.9 billion was widely viewed as relatively fair by Russian standards, but Alfa and MOST banks, which lost out, launched a media campaign to overturn the deal after Potanin was announced as the winner.

Kokh's sacking has apparently placated the rival bankers, who complained at Uneximbank's successes. MOST Group president Vladimir Gusinsky on Thursday publicly abandoned his attacks on the Svyazinvest deal and praised Chubais.

Prime Minister Viktor Chernomyrdin also made an abortive, last-minute attempt to halt the sale of Norilsk Nickel a week later, after the prosecutor general and a key minister criticized the terms of the auction as unfair.

Incoming privatization minister Boiko has pledged that future sales will be "honest, effective and open," but he has defended the Svyazinvest sale as fair.

Analysts said Yeltsin's apparent decision to dismiss Kokh and scold him for recent auctions was an attempt to placate Uneximbank's rivals and defuse tensions among Russia's financial elite. "Someone had to take the blame," said Yury Korgunyuk, an analyst at the INDEM think tank. "The one who left had to be named as the guilty one."

While Kokh was replaced with a Chubais ally, several analysts speculated that Chernomyrdin had engineered Kokh's dismissal. Chernomyrdin and Chubais are rivals for control of economic policy.

"Chernomyrdin was the person who was not happy with Svyazinvest and Norilsk," said one analyst who asked not to be identified. "This could be the beginning of a big battle between Chernomyrdin and Chubais."

A day before the winners of Svyazinvest were announced, Chernomyrdin publicly reprimanded Kokh at a Cabinet meeting, complaining that "almost every auction has caused a scandal."

Kokh defended his record Friday, saying the scandal surrounding Svyazinvest was an unavoidable consequence of the growing competition among banks. "Competition on the Russian market has taken a new turn," Interfax quoted him as saying. "The government will continue to come up against such scandals."

Kokh said he is leaving to set up his own firm -- not affiliated with any of the banking groups -- to take part in the privatization process. He urged Chernomyrdin not to rush ahead with the sale of a major stake in state oil company Rosneft, which is expected this fall.

Meanwhile, a top Kremlin official said Friday that a decree is being prepared that would require Yeltsin to sign off on all major sales of state property and spell out the rules under which auctions are held.

"Sales of big state stakes, comparable in size to Svyazinvest and Norilsk Nickel, should be carried out only on the basis of presidential decrees," said Alexander Livshits, deputy head of the presidential administration. He said the decree would outlaw companies that are linked to auction organizers from bidding.

It is unclear why the draft decree is needed as it contains many of the same elements as a new privatization law that Yeltsin signed late last month. The law spells out a comprehensive framework for privatization in what government officials have described as an attempt to clean up messy rules for state sell-offs caused by haphazard decrees and government resolutions.