RUSSIA: ‘Rigged’ Privatisation Row Will Not Die Down

By IPS Correspondents Reprint | | Print |

Andrei Ivanov and Judith Perera

MOSCOW, Aug 20 1997 (IPS) - The Russian government is still considering legal action to reverse what one Moscow daily called “the obviously rigged” sale of the state’s 38 percent stake in the giant Norilsk metals combine, the world’s largest producer of nickel.

The sale rounded off Russia’s recent dishonourable history of careless privatisation of state assets, as the cash-starved Russian government first mortgaged the firms to Russian banks, then had to stand by powerless as the banks then sold them off to themselves.

Russia’s powerful Oneximbank, which held the Norilsk stake for the government in trust against a 1995 loan, organised an auction and then sold the stake at near half price to its own subsidiary, having ruled out serious competition from the bidding.

Oneximbank officials were part of the auction’s tender committee; the government were powerless to stop them.

Now the prosecutor-general’s office, on the government’s behalf, is being pressed to dispute the results in court, a draft presidential decree is being prepared to prevent such deals from happening again and the responsible official, Alfred Kokh, deputy head of the State Property Committee, has resigned.

“Sales of big state stakes will be governed by presidential decrees, which will approve not only the fact of sales, but also their terms and rules,” president Boris Yeltsin’s deputy chief of staff, Alexander Livshits, said last week.

The decree draft also says that companies linked to the organisers of an auction will not be allowed to participate. “In cases where a deal has taken place and it emerges that such links existed,” he said, “then this is a case for the office of the prosecutor-general to challenge, and there the game stops…”

Too late, say critics of the country’s discredited privatisation campaign. All this amounts to shutting the stable door after the horse has bolted. And it was the prosecutor-general who allowed the auction to go through in the face of an order to the contrary from prime minister Viktor Chernomyrdin.

“In a series of amateurish and obviously rigged auctions,” snapped a Moscow Times editorial, “state stakes in Russia’s biggest industrial companies were handed over in trust and then sold outright to insider banks at a fraction of their market price.”

Kokh’s critics accused him and his boss, deputy prime minister Anatoly Chubais, of allowing Oneximbank president Vladimir Potanin a free hand with the cobalt, copper and nickel giant, which produces a fifth of the world’s nickel and 90 percent of Russia’s supply.

Officials have said Potanin’s similar purchase of a 24 percent stake in the AO Svyazinvest national telecoms giant was fair and raised 1.87 billion dollars for the state. But the Norilsk sale may have raised no more than 77 million dollars for the government.

“Such work will not do,” Yeltsin said after Kokh’s resignation. “The scandal around Svyazinvest and Norilsk Nickel is connected to the fact that some banks are likely to be closer to Kokh’s soul. Everything must be honest, open and legal”.

The government says it will now start to sell its property in fair, transparent auctions, where the prime consideration will be to raise the maximum amount of cash to ensure the federal budget can guarantee pensions and cover the massive wages arrears bills in remaining state concerns.

Yeltsin has ordered the government to pay off 7.7 trillion roubles (1.3 billion dollars) in unpaid salaries to state employees by 1998, including 5.2 trillion roubles to the armed forces alone before Sep. 1.

Potanin’s next target is Rosneft, an oil company that could be worth up to a billion dollars and the sale of another 24 percent stake in Svyazinvest.

“Privatisation should be honest, effective and open,” Kokh’s successor Maxim Boiko told a news conference on appointment. He said the privatisation process should make sure that “tender rules are known in advance and all potential participants are properly informed,” the Russian news agency Interfax reported.

Boiko defended the government’s recent sell-offs and said the cash proceeds from Svyazinvest sale were already in the federal budget account. Igor Lipkin, the head of the State Property Fund, told Interfax that a final payment of 737 million dollars should be transferred to the budget by Oct. 13.

“Kokh’s sacrificial removal is clearly an attempt to defuse some of the controversy surrounding recent privatisation deals,” said the Moscow Times.

Boiko, it noted, though a close ally of Chubais, was “not tainted in the same way as Kokh by personal involvement in the loans-for-shares shambles.

For others it was not the incompetent Kokh but the rapacious Potanin that was the problem. “Today, more and more crudely, the relations between one of my former colleagues and the government are crossing acceptable boundaries,’ media tycoon Vladimir Gussinsky said last week in a comment clearly targeted at Potanin.

“Openly and directly some politicians are helping him to obtain economic goals. When one player is in a more advantageous position, and part of the government is cooperating with him for political ends, then that is oligarchy.”