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Russia: Plans To Restructure Energy Sector Raises Doubts

  • Michael Lelyveld

An outcry over alleged asset transfers at Russia's electricity monopoly has renewed questions about Anatolii Chubais, the author of the notorious 1995 loans-for-shares scheme. A plunge in the shares of Unified Energy Systems (EES) has endangered plans to restructure the country's power sector as lawmakers prepare to vote on the reform program in October.

Boston, 27 September 2002 (RFE/RL) -- The head of Russia's EES, Anatolii Chubais, has vowed not to repeat his infamous loans-for-shares scheme in selling pieces of the electricity monopoly, but the assurance may only be a measure of how much investors' suspicions have grown.

Speaking at a conference in Moscow on 25 September, the EES chief executive and former privatization minister fought off accusations that a 60 percent drop in the utility's shares had opened the door for a new asset giveaway.

Chubais has been dogged by distrust ever since 1995, when he secretly traded stakes in state-owned enterprises for loans to support former President Boris Yeltsin's re-election campaign. The result was a new class of super-rich oligarchs and what may have been the biggest transfer of wealth in Russian history.

On 25 September, Chubais promised that history would not be repeated in the EES restructuring, saying, "There will be no shares in exchange for loans," "The Moscow Times" reported. The Reuters news agency also quoted Chubais as saying, "There are no secret management plans for asset sell-offs." EES is 51 percent owned by the Russian state.

Following his speech, EES shares rebounded by 8.6 percent, mainly on the strength of Chubais' promise to halt asset sales until they could be evaluated. But on 26 September, the recovery stalled. The world's largest electricity company now has a market value of a little over $3.7 billion.

The concerns have been prompted not only by Chubais' past but by reports that he planned to do much the same thing at EES, which is trying to attract capital to renew the nation's run-down electricity system. The government's reform plan calls broadly for separating the finances of the power grid from regional generating companies and restructuring them by bringing in investors.

But the plans are so complex that only the most studious shareholders and lawmakers understand them. The State Duma has already sent the package of restructuring laws back once for its own repair work and may do so again. On 26 September, Duma Speaker Gennadii Seleznev said the chamber will consider the controversial plan in first reading on 9 October, RIA-Novosti reported. In the meantime, EES under Chubais has reportedly taken preliminary steps that could lead to asset transfers if the legislation goes through.

Some of the measures include granting options for takeovers of regional energy companies to industrial groups in exchange for loans to keep them going. The plans bear a striking similarity to the old loans-for-shares deals.

Earlier in September, EES minority shareholder Hermitage Capital Management released a report charging that Chubais had arranged for giant Russian Aluminum to get control of the $1 billion Boguchansk hydro-power plant on the Angara River in Krasnoyarsk in exchange for a $10 million loan.

Other supposed schemes involve assets of regional generator Kuzbassenergo and the investment bank Renaissance Capital. Yet another would link Tomskenergo and Russia's second-largest oil company Yukos, Hermitage Capital said.

In a report in mid-September, "The Moscow Times asked whether Chubais is pursuing another loans-for-shares strategy. The paper concluded, "The evidence suggests that the answer is yes."

The allegations have been serious enough to plunge EES shares into a diving spiral because of concerns that prices were being deliberately driven down. Presidential economic adviser Andrei Illarionov, a longtime Chubais critic, added to the furor in a series of appearances, calling for the monopoly's management to step down.

Illarionov said, "I would describe what is currently going on in EES as a national calamity, a national threat, and even a national disgrace," Interfax reported. Illarionov said the company lost about $6 billion in market value during the past two years.

In a statement, EES challenged Illarionov's charges about its performance and blamed the stock drop on uncertainty about the restructuring legislation.

On 23 September, Prime Minister Mikhail Kasyanov seemed to come to Chubais' defense, telling the Brunswick UBS Warburg conference, "I don't see any evidence of shareholder rights violations." But President Vladimir Putin has yet to silence the feud among his own aides. After taking office two years ago, Putin decided to keep Chubais out of government but to rely on him for the intricate task of power sector reform.

But the government has also not helped EES share prices by keeping tariff increases in check. Investors fear that the 20 percent rate hike allowed for next year may cover inflation and little else. The curb could keep EES from raising the capital it needs.

But the outcry over Chubais may raise just as many questions about Putin. After more than two years, he remains a contradictory figure who has permitted some oligarchs to prosper but not others while promoting reforms for monopolies that are inexplicably stalled. In the case of Chubais, Putin has seemed reluctant to intervene, leaving more doubts about the future of EES.