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. Last Updated: 07/27/2016

President Approves TV, Radio Overhaul

President Vladimir Putin gave the green light Friday to a sweeping restructuring of the nation's vast state-owned television and radio network that could result in its partial privatization.

Putin gave his stamp of approval to the proposal by the press and communications ministries to revamp the All-Russian State Television and Radio Co., or VGTRK, and ordered the ministries to draft the documents needed to implement it.

"We decided on the issue of the transmission network: the creation of a joint-stock company, equal conditions for all [market players] and the creation of a competitive environment," Press Minister Mikhail Lesin said in a telephone interview after meeting with the president.

Lesin said he and Communications Minister Leonid Reiman, who attended the meeting, will draw up the paperwork requested by Putin and present them to the Cabinet at the end of January.

Prime Minister Mikhail Kasyanov also took part in Friday's talks.

VGTRK is the massive and rapidly aging network that owns most of Russia's transmission towers as well as broadcasters such as the RTR and Kultura television channels and Radio Rossii, as well as regional television and radio companies.

The company answers to the Press Ministry, which also licenses broadcasters. The Communications Ministry owns the Ostankino tower in Moscow and licenses transmitters.

Lesin said VGTRK will be split into two companies, one controlling the transmission facilities and the other the broadcasting studios.

A 49 percent stake in the company overseeing the transmission network could later be sold to private investors who would fund desperately needed upgrades, Lesin said.

The network consists of about 100 regional centers with 15,000 outdated transmitters and satellite uplink stations.

A presidential decree would have to be made allowing such a sell-off. The Kremlin banned the privatization of transmission assets in 1998, effectively preventing them from raising funds from loans or direct investment.

"In 1998, there were huge expectations of growing advertising budgets and elections were looming," said Lesin, who served as a deputy head of VGTRK at the time. "Then, it was important to consolidate state media property. Now the situation is different."

Lesin said the Communications Ministry will grant licenses to other companies interested in setting up transmission facilities in a bid to provide a level playing field for competition in an industry that has to date been mostly a state monopoly.

The value of the proposed transmission giant has not yet been determined, Lesin said, adding that $350 million to $400 million in investment is needed to replace outdated equipment.

UES, Gazprom and LUKoil are being considered investors in a possible sell-off.

The Communications Ministry has been at loggerheads with the Press Ministry over control of transmission facilities for months. Putin moved the Ostankino television tower in Moscow from the Press Ministry to the Communications Ministry after a blaze broke out in the tower last August.

The Communications Ministry refused Friday to comment on the meeting with Putin.

But Lesin said the two ministries would now work together and present a mutually agreed upon VGTRK program to Putin.

What will happen with the broadcast companies was less clear Friday.

Lesin firmly reiterated an earlier statement that RTR will not be privatized.

But sources in the Press Ministry said that a restructuring of government-owned broadcasters is also looming. Companies like RTR and Radio Mayak, which could be profitable, are likely to continue to receive government subsidies to send their broadcasts to remote areas. But other money losers such as Kultura and Radio Rossii may get a legal status akin to theaters and museums in which they are directly financed by the state budget.

The prospects of finding private investors for any privatization remains unclear. The transmitting network is owed millions of dollars by national broadcasters like No. 1 station ORT and RTR. At the same time, it owes millions of dollars for electricity.

Furthermore, broadcasters are billed for transmission through a tariff scheme imposed by the Anti-Monopoly Ministry. Industry players have long complained that the tariffs lag behind the growth of their costs.

Only a handful of the transmission facilities are currently profitable.

A high-ranking source at VGTRK said that energy giants such as power utility Unified Energy Systems, gas monopoly Gazprom, and oil companies Sibneft and LUKoil, are being considered as potential investors.

Lesin said that he would prefer to see a investor who could supply technical assistance win a tender for the stake.

"We already have an offer from Sony, for example," he said.

However, a sell off may never materialize and the shares could remain in the state's hands, he added.

Industry sources cautiously welcomed the idea of the transmission system's privatization, but said much will depend on how it is implemented.

"It is a revolutionary decision and it is yet unclear how it will affect the industry," said Anna Kachkayeva, media analyst with the Radio Liberty and Moscow State University. "If they manage to create conditions for competition, one can only welcome it. But it is hard to believe it. So far, only the legal form of the monopoly appears to be changing."

Alexander Ponomaryov, general director of TV6 television, said that he is most concerned whether the new system will contain guarantees of equal rights and fair tariffs for government and non-government broadcasters alike.

"It is not just a matter of equal tariffs," Ponomaryov said. "It is a matter of equal tolerance toward nonpayments. Today, if RTR or ORT have a debt, it is fine, but TV6 has to pay at any cost."