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Russia: Nemtsov Blasts Berezovsky For His Business Interests

Moscow, 19 August 1997 (RFE/RL) -- Russian television viewers -- searching for new developments in a privatization scandal that has involved top government officials, influential businessmen and media tycoons -- have been offered a pretty straight-forward forecast of political events. The weekly (Sunday) satirical program "Puppets," on NTV commercial TV, suggested Security Council Deputy Secretary and business magnate Boris Berezovsky might soon lose his job.

Coming from a program modeled on the irreverent British "Spitting Image," the forecast seemed no more than a hypothesis. In the aftermath of one of Russia's most bitter financial and media disputes, Moscow these days is full of rumors suggesting more top officials might soon follow the fate of Alfred Kokh, who resigned last week as Deputy Prime Minister and State Property Committee chairman. Kokh had overseen the controversial auction of shares in Russia's telecommunication monopoly Svyazinvest, and in the biggest mining concern, Norilsk Nikel.

First Deputy Prime Minister Boris Nemtsov, in a RFE/RL interview in Sochi, where he was vacationing, blasted Berezovsky's presence in the powerful Security Council, and pledged the state will soon act to restrict the wide influence of the businessman-turned-politician. The deputy head of the Security Council "is not a person in the right job," said Nemtsov. He added that "it is bad when a person with huge business interests combines them with state service."

Berezovsky was appointed to the Security Council following last year's presidential election. During the campaign, newspapers, magazines and particularly TV channels linked to a group of powerful bankers and businessmen, played a key role in boosting incumbent President Boris Yeltsin's ratings from single digits to his election victory. After Berezovsky's appointment, observers said that the economic and political dividends of this support had became evident, particularly for the businessman, who holds the major private stake of ORT television. The state owns a 51 percent stake in ORT.

Besides his involvement in ORT, Berezovsky's business interests include stakes in the giant car concern LogoVAZ, and in Aeroflot and Transaero airlines. He also owes stakes in the daily "Nezavisimaya Gazeta," the weekly "Ogonek" and the TV-6 TV network.

Another major Yeltsin supporter -- the commercial NTV channel controlled by the financial group MOST of Vladimir Gusinsky through the media branch Most-Media -- also after the election obtained permission to go nationwide on a 18-hours broadcast schedule.

And Vladimir Potanin, the head of Oneximbank, Russia's third largest bank, was a first deputy premier until a government reshuffle in March.

But most recently, following the failure of a consortium led by Gusinsky and supported by Berezovsky to acquire 25 percent of Svyazinvest's stakes, something close to open warfare broke out among Yeltsin's wealthy backers.

Potanin led the consortium that paid nearly $1.9 billion for the lucrative Svyazinvest stake. The result provoked an outspoken attack of the deal by ORT and other media assets controlled by Gusinsky and Berezovsky. Allegations of corruption on a grand scale were reported, involving Potanin and a number of government officials.

Finally, last week Yeltsin intervened publicly in the dispute. Observers said Yeltsin's move was a bid to defuse the scandal and placate the embittered bankers. Publicly blasting the fired Kokh for the scandal surrounding Svyazinvest and Norilsk Nikel, Yeltsin said the scandal was connected to privileged links that some banks had with the former privatization head. He added that future tenders will be open, fair and legal.

Observers say that Yeltsin's decision to intervene publicly in the scandal for the first time was also an attempt to make clear that the government is serious in its pledge to cut ties with powerful banks and financial groups.

Following his appointment, Berezovsky said he had delegated all his business commitments, including his role in ORT's board of directors. However, according to Nemtsov, "even if formally Berezovsky has now delegated the running of his business, de-facto he is dealing only with this." Nemtsov went on to say that it is "unacceptable when one is using his state position to solve private problems and to clear up relations with competitors, as in the Svyazinvest scandal."

According to Nemtsov, one of the main points in the dispute proved to be the involvement of people whom he said "could take advantage of their unrestricted possibility to influence top officials and spell out their opinion" clearly in public.

Nemtsov is often seen as a possible strong contender for Russia's next presidential election, scheduled for 2000. Since he was appointed to the cabinet in March, he has enjoyed Yeltsin's strong backing, but his pledge of making more transparent and fair the government activity is seen as likely to alienate many of the powerful businessmen who backed Yeltsin.

Nemtsov told RFE/RL that the bankers, whom he does "not believe have to be credited for Yeltsin's electoral victory...think they did a favor and now the state must reward them forever." But, he said "this is an absurd and will not continue." Nemtsov's reading of the campaign suggests that financial circles "supported Yeltsin, not because they like him, but because they knew that had he not been elected, they could not have continued their activity in Russia."

Since the March government reshuffle that brought Nemtsov in the cabinet, observers have predicted Yeltsin's pledge of economic and anti-corruption reform would be an uphill battle against powerful financial interests.

In his attack on Berezovsky, one of the main representatives of the financial clan, Nemtsov also directly, and for the first time, addressed the issue of control of ORT. He said the state should re-establish control over both the finances and the "ideological foundation" of the work of the Public Russian Television.

"For a number of reasons in the last years the state had lost the ability and the possibility to control what it owns," said Nemtsov. And he said that "only now we are moving toward the re-establishment of state control," first over monopolies and then over its other assets, including ORT.

But he said that "since the situation with ORT is very delicate, the state cannot act as an elephant in a glass shop," with the risk of damaging journalists and infringing laws protecting press-freedom.

In a further attack on Berezovsky, Nemtsov said the magnate has "invented and developed to the very end a peculiar privatization scheme."

"Imagine," Nemtsov said, "a state company whose top managers get their salaries from a private investor." He added that, by assuring the payment of salaries, Berezovsky "first privatized the company's top managers...and obtained all the advantages" of such a move. Nemtsov said, formally the company belongs to the state, but "the money it needs is being channeled through private companies that maintain the profit of the operations."

Nemtsov said, "besides ORT, the scheme was used also for Aeroflot and other companies." He concluded that, under the scheme, "real privatization" would take place only later, "when everything would be already under control." He said, "few people could have been able to carry out such an operation," which, he said "formally is totally legal." But, he added, "this is nonsense," and the state "will soon deal with it."

Nemtsov said the state has two ways to deal with such a scheme.

It may decide to "draw a trust-management scheme for ORT, organizing an open tender to transfer rights to the private structure that would guarantee the highest profit, the payment of taxes and the creation of new working places." He said, "only fair competition would make this option viable and, under fair conditions, I am not sure Berezovsky would automatically win the tender."

The second option, according to Nemtsov, would be the "real privatization of ORT." Different companies could "buy packets of shares and then organize ORT's management in a way, guaranteeing that a minority share-holder does not control the company."

Nemtsov acknowledged the difficulty of carrying out such plans, either for ORT or for any other case involved in the privatization process, But, he said Yeltsin and the government are committed to make change irreversible, despite opposition.

He said that it is "normal that those, who in the past used to have advantages and make huge amounts of money, oppose the change. Their opposition, naturally, turns into huge scandals." But he concluded that as opponents realize "change is definitive, the number of scandals will decrease."

As for Berezovsky, once again the decision is Yeltsin's. "God gives and God takes away," said Nemtsov. "If the President wants to remove any official he has appointed, he can do so without ceremonies."