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. Last Updated: 07/27/2016

Sell-Offs Back on Duma Agenda

Russia's new privatization law has given the State Duma a newfound voice in the sell-off of state property, acting as a catalyst for deputies to scrutinize past auctions and arming them with the legal tools to put their stamp on future sales.


Since 1993, the lower house of parliament has generally taken a backseat role in the sale of state assets. Russia's new law "On Privatization of State Property," which came into effect Aug. 2, could be changing that.


In its most recent action, the opposition-dominated Duma has set up a committee to review recent controversial sell-offs of state assets, apparently using what legal experts say is a vague clause of the new privatization law that allows sales to be overturned.


On Sept. 12, the Duma voted to establish a committee drawn from a range of parliamentary factions to probe whether the sales of state shares in telecoms holding company Svyazinvest, oil company Sibneft, metals giant Norilsk Nickel and Tyumen oil company complied with existing legislation.


The auction of a 25 percent stake in Svyazinvest last July was deemed one of Russia's fairest auctions to date, but it has been the center of a storm of media criticism orchestrated by the losing bidders. Consortia led by Russia's powerful Uneximbank won separate tenders for Svyazinvest and Norilsk, leading to accusations of foul play.


The Duma committee, which will announce its findings Nov. 1, is charged with examining the starting prices of the state shares, procedures for the sales and the role of state officials in the auctions.


The committee appears to be using Article 29 of the new privatization law that allows sales to be overturned in the courts if legal violations are found.


But legal experts say the article contains numerous loopholes. "It is very vague," said Anastasia Yefimova, a lawyer at Chadbourne & Parke in Moscow.


According to the law, a privatization can be declared invalid if there has been:


?a violation of existing privatization law;


?acquisition of property by "an individual who does not have the right to it";


?use of illegal means of payment;


?conspiracy between the seller of the property and the buyer, including lowering the price;


?benefits or advantages granted to the buyer over other buyers; or


?"other grounds envisioned by legislation of the Russian Federation."


Most lawyers point out that the article is only a slight improvement over a similar clause in the 1991 privatization law. "From a policy point of view, the main question is once a transaction has been completed, is it a stable decision or can it be turned back?" said William Simons, a lawyer with Pepper, Hamilton & Scheetz and a faculty member at Leiden University's Institute for East European Law and Russian Studies in the Netherlands.


Simons said there should be a mechanism to deal with violations of the law, but the provision's lack of clarity only creates uncertainty for a property's new owners. Article 29 mentions nothing about shares that were auctioned off and then resold to third parties, nor does it clearly spell out a statute of limitations that would set a deadline for taking legal action.


"The new law doesn't provide enough protection either for shareholders who got their shares in an auction, or downstream shareholders, who are totally innocent," Simons said.


The ambiguity may help Duma deputies investigating recent sell-offs prove their case, but Russian courts may tread more carefully, legal experts say.


The Duma's hand in the privatization process also is likely to be more visible in determining the government's list of enterprises to be privatized in a given year. The new law requires the government to submit a privatization program to the Duma along with the budget every year, and Russia's new privatization chief, Maxim Boiko, has signaled his desire to work with legislators.


But what if the Duma tries to stonewall privatization? Deputies have objected to the sale of transportation-related enterprises on the grounds of national security, as well as a host of other "sensitive" sectors, such as defense.


Although President Boris Yeltsin could try to veto any Duma obstruction and push ahead with an auction on the basis of a decree, the deputies have the ability to cast doubt on a sale and therefore have the upper hand.


"No informed buyer would put money up if there is an argument about the list," Simons said.