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. Last Updated: 07/27/2016

Chubais Defends UES Against Audit Accusations

Unified Energy Systems chief Anatoly Chubais on Friday defended the national power company from Audit Chamber accusations that shares were illegally sold to foreigners, saying the action was tied to this week's government crack down on a number of the country's powerful top businessmen.

The Audit Chamber, parliament's budgetary watchdog, said Thursday that UES had been involved in several financial irregularities, chiefly that the company illegally sold 15.2 percent of its shares to foreigner investors in exchange for privatization vouchers meant for Russian citizens.

Chubais shot back on Friday, telling reporters the Audit Chamber has no basis for making its accusations. "The basis for nullifying sales of shares in UES are comical and legally untenable," Interfax reported Chubais as saying. "But this is political logic, and that's more than just serious."

Sergei Stepashin, a former prime minister and now Audit Chamber chief, said Friday that the body would launch a monthlong investigation into its accusations against UES.

The chamber said Thursday that it would send a letter outlining its findings to the Prosecutor General's Office, which has been at the heart of a series of government moves against a number of the country's oligarchs f powerful businessmen who amassed huge fortunes during last decade's scandal-ridden privatization schemes.

Former Privatization Minister Chubais, a Yeltsin-era reformer icon, oversaw last decade's privatization programs, now under fire from various government agencies.

Analysts say the moves against privatized firms are part of a promised attempt by President Vladimir Putin to centralize central power and crack down on rampant crime and corruption. Critics say the president wants to institute authoritarian rule.

In its accusations, the Audit Chamber said that in 1992, 10.38 percent of UES shares allocated to Russian citizens were actually sold to foreigners, while 4.82 percent were sold to Russian corporates.

Foreign shareholders own about 33 percent of UES shares, even though a 1997 law caps the figure at 25 percent. That level is important because, under UES's company charter, the firm's chief executive can be replaced only if shareholders representing 75 percent of the company's equity vote in favor of the move. UES's foreign investors would likely block any move to sack Chubais.

The UES chief on Friday met with Audit Chamber officials. "I don't know if the Audit Chamber can reach a sensible decision," he said after the meeting.

UES shares plunged 5.4 percent on the Moscow Interbank Currency Exchange on the news in late trading Thursday, and continued to fall Friday.

That sharply contrasted with trading earlier Thursday, when shares rose 7 percent f before falling on the Audit Chamber's news. The morning climb was largely a response to an offer by Chubais to follow a new restructuring plan for UES.

While foreign investors have been happy that the cash component of its revenues has risen substantially under Chubais' tenure, they have been at the center of a bitter struggle over the energy grid operator's future. They oppose a Chubais plan to split the behemoth's generation units from its distribution business and effectively sell off regional electricity providers.

Some foreign investors welcomed Chubais' Thursday concessions, which include consolidating regional energy companies and national power plants into around 15 interregional utilities.

"We consider the news very positive for UES and for regional energos," United Financial Group, a UES shareholder, wrote in a market report Friday. "It should solve the principal differences between the shareholders and the management."

However, UFG analyst Mikhail Seleznyov said he was cautious about the concessions, saying they are not as large as news reports have made out.

Renaissance Capital investment bank also voiced doubts in its own Friday market report. "It is still a bit early for minority shareholders to proclaim victory in the battle to improve the restructuring program," it said.

Minority shareholders are still worried one key demand f that restructuring will only go ahead if approved by 75 percent of shareholders f will not be met, Interfax reported.

Meanwhile, UES spokesman Alexei Trapeznikov deflected questions about the Audit Chamber's actions. "I don't know how they're tied to the restructuring plan," he said.

UFG's Seleznyov disagreed. "It's additional pressure on Chubais," he said. "It's clear he doesn't have the support of the government."

Kommersant newspaper on Friday wrote that the Audit Chamber's Thursday actions gave authorities a strong lever with which to pressure UES and that the ball was now in prosecutors' hands. Tycoon Boris Berezovsky, Chubais' archrival, controls the paper.

"An agreement with foreign shareholders is not the most important goal," the paper wrote of Chubais. "It's much more important for him to smooth out relations with the power structures."

Renaissance Capital analyst Kim Iskyan disagreed. "The Audit Chamber's accusations are problem No. 2. More important are the problems Chubais faces in restructuring," he said. Attempts to query foreign ownership have risen many times in parliament, Iskyan said, and Thursday's accusations did not represent a new front of attack.

Chubais on Friday accused Audit Chamber auditor Veniamin Sokolov of being behind the chamber's accusations and of having "decided to try to ruin the Russian state," Interfax reported. Chubais said UES was one of the country's largest companies, whose shares make up 45 percent of the stock market.

The UES chief also accused the "middle level of Russian bureaucracy" of being responsible for this week's crackdown against several companies, which have included the country's top automaker, its No. 1 oil company, its only independent media holding and a top metals producer. The companies are accused of financial irregularities such as tax evasion and illegal privatizations.

"All court cases concerning [privatization] auctions proved there were no violations of the law," Chubais said.