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Russia: Conference Highlights Concern Over Corruption

  • Michael Lelyveld

Concerns about corruption, taxes and investment in the energy sector dominated the last day of a conference on Russia held at Harvard University in the United States. The Itera Group of gas companies faced questions about its ownership, and Anatoly Chubais, the head of the EES energy systems utility, again tried to dispel allegations of corruption made by a U.S. congressional committee. Our correspondent attended the gathering and filed this report:

Boston, 9 October 2000 (RFE/RL) -- The president of Itera Group, the fastest-growing energy company in Russia, was hammered with questions about the firm's ownership Saturday (Oct. 7), the last day of a Harvard University conference on Russian investment.

Itera, which has taken over a series of Russian gas deals and developments, has been at the center of concerns about Gazprom, the Russian monopoly which is the world's biggest gas company.

Since its first experience with the gas business in Turkmenistan in 1994, Itera has expanded its operations to include 120 subsidiaries in 24 countries. Most frequently, it has been known as the marketing partner of Gazprom, handling sales and transport of Russian gas to other CIS countries.

But Western analysts and Russian reformers have repeatedly questioned whether that growth has been the result of asset transfers from Gazprom to hide profits. The issue is critical because Gazprom, which generated 8 percent of Russia's gross national product in 1998, is 38 percent owned by the state.

This month, the Audit Chamber of the Russian State Duma launched a full-scale review of Gazprom's finances, but previous probes involving Itera have so far been unable to get at the facts.

Western analysts have also been stymied in their efforts to find out who owns Itera and why Gazprom has apparently turned over so much of its business to the company, which has corporate offices in the U.S. southern state of Florida.

Stephen O'Sullivan, the head of research for the United Financial Group of Moscow, spoke at a panel at the Harvard conference. He told the group that Itera had come from nowhere to be a major player among the world's most closed gas markets. O'Sullivan says that while Gazprom's production has fallen, Itera's has risen. He says that while Gazprom may deny that there are links between the two companies, investors don't believe them.

Those doubts were echoed in audience questions from analysts of the investment firm Troika Dialog, who asked about Itera's ownership.

Valery Otchertsov, the president of Itera Holding Limited, also appeared on the panel. He told participants that Itera is 100 percent privately owned, meaning that the Russian government does not have a stake in the company. He also said that Gazprom does not have a stake in Itera or in any of the 120 companies that comprise it.

The friction between Itera's management and investment firms marked one of the few moments of open discord during the three days of the U.S.-Russia Investment Symposium, organized by Harvard's John F. Kennedy School of Government in conjunction with the British newspaper The Financial Times. But the issues of what are called Russia's "natural monopolies" and legal reform in the country came up often in remarks by participants.

On Friday, the international financier and philanthropist George Soros was asked by RFE/RL whether monopolies like Gazprom, the EES electricity system, and the Transneft pipeline network should remain under state control. Soros said, "not necessarily." He said he thinks the Russian government needs a large share to preserve the national interest, but that the rest should be broken up or privatized and sold to investors.

On Saturday, Mikhail Khodorkovsky, the chief executive of Russia's giant Yukos Oil Company, made a plea for further reform of the tax system in conjunction with the government's efforts to crack down on transfer pricing schemes. The schemes involve selling products at low prices from one company to another in order to avoid high taxes.

Also speaking Saturday, by video link, EES chief executive Anatoly Chubais, promoted his restructuring program for the electricity system. Unless it is implemented, he says that EES will not be able to attract over $5 billion in investment that is needed for 10 projects to modernize power generation. He says the result will be that Russia will become an electricity importer by 2005.

At the meeting, a Chubais aide also made a point of distributing hundreds of copies of a letter to U.S. congressman Christopher Cox, who recently released a report claiming the CIA has information on corruption among top officials including Chubais, a former first deputy prime minister. In his letter, Chubais said he has "never been involved in any corrupt act," adding that he is prepared to meet those responsible for the allegations "in a court of law."