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. Last Updated: 07/27/2016

Chubais Takes On Hot Seat At UES




Anatoly Chubais has fulfilled his wish to enter the corporate world as head of electricity company Unified Energy Systems, but analysts said Monday that he faces a tough battle to reform the vast and inert monopoly.


While Chubais' appointment will no doubt draw fire from the opposition-minded State Duma, or lower house of parliament, many said the move could mark the renaissance of a reformer tainted by scandal last year when he admitted receiving $90,000 for a book he had not yet written.


"This is a big challenge for Chubais the professional," said Andrei Piontkovsky, director of the Center for Strategic Studies. "If he succeeds here, it will be a major political and economic coup, which may allow him to return to the political arena."


Investors and analysts, long given to viewing Chubais' fate as a bellwether of market reform, have said that a post at UES would counterbalance Chubais' loss of his position as first deputy prime minister last month. The company is 53 percent state-owned and controls most of Russi a's utilities.


Given its position in the economy, the fate of UES is tightly interwoven with that of Russia's debt-ridden industry and the cycle of nonpayments that has plagued efforts to stimulate economic growth.


"UES is one of the most influential companies in Russia," said Hartmut Jacob, an energy analyst at Creditanstalt Investment Bank in Moscow. "Every step it takes has repercussions for the country's economy."


Some politicians welcomed Chubais to UES, including Moscow Mayor Yury Luzhkov, who described him as "a man we can do business with" despite previous calls for the dismissal of the monopoly's former reformist head, Boris Brevnov. Chubais said at a news conference that the appointment had come about despite his rivals' attempts to scupper the move.


But whether the 42-year-old former first deputy prime minister, sacked by President Boris Yeltsin in March along with the rest of the Cabinet, can maintain reforms in the electric grid is open to question -- enough so that Prime Minister Sergei Kiriyenko gave him until autumn to prove himself.


"If he can cope, then he will keep working," Kiriyenko said at a Kremlin news conference after the appointment was announced Thursday. "If he can't cope, he will be removed."


Chubais' enemies, who include the Communist faction in the parliament and financier Boris Berezovsky, will be watching his every move as he attempts to reform a company that has resisted previous attempts to improve its inefficient ways. His predecessor, Brevnov, made some progress but was undermined early this year by an attempted boardroom coup and accusations of corruption.


"I would not question Chubais' managerial ability, but he is not familiar with the industry," said Alex Kazbegi, Russia analyst at Salomon Smith Barney. "And politically, this is a dangerous position, where you cannot get a lot of [political] dividends."


Piontkovsky stressed that the development must be seen in light of Berezovsky's recent appointment as secretary of the Commonwealth of Independent States.


"This is a classic example of using the system of counterbalances," Piontkovsky said. "Yeltsin was forced to appoint Berezovsky to the CIS, and to balance this he gave another important position to Berezovsky's sworn enemy, Chubais."


Chubais sought to downplay the political implications of his appointment.


"For me, the appointment is not a political move," Chubais was quoted by Prime-Tass as saying. "It is an opportunity to make serious efforts and introduce order to this vital area."


The appointment -- made by a snap board vote on the eve of the May Day holiday -- appeared timed to defuse any immediate reaction. Nonetheless, it is likely to draw howls of protest from a parliamentary opposition still hurting from its downclimb on the appointment of Sergei Kiriyenko as prime minister.


The parliament's Audit Chamber, an investigatory arm with no enforcement powers, has already declared the appointment null and void. "This is a blatantly illegal act," said Valery Meshalkin, the chamber's head inspector, on national television last week. "Like everything that Chubais does, it is surrounded by illicit activity."


One victim of Chubais' appointment could be a draft tax code currently before the Duma and seen as key to luring much-needed investments. "My feeling is that we may now see some changes to the tax code or the budget in return for accepting Chubais as the head of UES," Kazbegi said.


Foreign investors, who hold 30 percent of the company's shares, said they were delighted with the decision to put the controversial reformer atop UES. UES shares closed up 4.5 percent Thursday from the previous day on news of the appointment.


"This is very good news," said Jacob of Creditanstalt. "The appointment is reason to believe that the reforms initiated by Brevnov will be continued."


As the previous chief executive, Brevnov was instrumental in cleaning up the company's finances: He moved UES accounts from more than 50 banks to one centralized account in Sberbank, appointed Price Waterhouse to audit the books and forced regional utilities to pay cash for electricity they bought from the UES-controlled wholesale market.


But Brevnov lasted just one year, brought down by more conservative managers at the utility. Kazbegi said it is unrealistic to expect tangible results from Chubais by autumn, as it would take a minimum of five years to reform UES.