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Russia: Media Face Dire Financial Straits

Moscow, 6 January 1999 (RFE/RL) -- In the aftermath of last year's near collapse of Russia's advertising markets, the country's fully and partially state-owned television channels are in desperate financial condition.

Several times in the last month, Russian Public Television ORT seemed to be on the brink of bankruptcy. The state of finances at the fully state-owned media holding VGTRK (RTR) is also far from satisfactory.

Throughout December, Moscow media circles anxiously expected the government to announce some kind of initiative, aimed at dealing with the dire straits of Russian television networks. In the last week of 1998, some important moves were unveiled. However, few details are available, as the initiatives were announced at the beginning of Russia's long winter celebrations and were surrounded by secrecy. As a result analysts say a number of questions about the future of Russia's fully or partly state-owned television networks remain.

In separate moves, President Boris Yeltsin and then a partnership of Russian financier-turned-politician Boris Berezovsky and international media magnate Rupert Murdoch announced they were coming to the rescue.

One day after a Kremlin meeting in which Yeltsin compared the heads of Russia's main television networks to "power ministers," seemingly recognizing their political weight, Berezovsky, the man who reportedly has heavily influenced ORT in the last few years, finalized a deal with Murdoch to create a joint advertising company.

Unveiling the deal in an interview with the daily "Vremya MN," on Dec. 28, ORT General Director Igor Shabdurasulov said the new company would start operating in January and would have exclusive rights over the sale of ORT advertising, thus replacing "ORT Reklama," a structure led by Sergei Lisovsky, the founder of "Premier SV."

In the same interview, Shabdurasulov said that President Yeltsin had signed a decree that would allow ORT to obtain a $100 million line of credit from Vneshnekonombank.

Shabdurasulov said that the new -- and still unnamed -- advertising company includes Murdoch's "News Corporation" and a number of Russian structures. Apart from ORT, another television network in which Berezovsky has considerable interests, TV6, and the Russian tycoon's car dealership, Logovaz, will be part of the new company.

Berezovsky owns 37 percent of TV6 and, through Logovaz, he directly controls 8 percent of ORT. He is also the leading force behind a consortium of banks owning another 38 percent stake in the network. Liberal politicians ousted from government in August have argued that Berezovsky also controlled the network through top managers loyal to him.

Shabdurasulov said that the advertising company will be controlled by its Russian shareholders and added that their contribution to the venture will be financial. However, it remains unclear where ORT will find the funds necessary to participate in the venture. Shabdurasulov has repeatedly said in interviews that ORT "does not have a penny in its coffers."

The former leader of the "Our Home Is Russia" faction, Aleksandr Shokhin, told RFE/RL that "The coincidence in the timing (of the creation of the new advertising company and of the presidential decree on ORT) raises questions.... It would be very interesting to know how the Vneshnekonombank credit line will function and details of its financial sources. Vneshnekonombank is a state institution that does not have enough funds to pay (Russia's) foreign debt. I cannot rule out that Vneshnekonombank could borrow this money, maybe from Murdoch himself, and then use it as a loan for ORT."

Media experts forecast that the developments are likely to have important consequences for the future of the first channel of Russia's television, as well as for the country's advertising market. The president of another Russian television network, REN TV, Irena Lesnevskaya, told RFE/RL's Russian service that "a new monopolist is emerging on the Russian advertising market."

Until the August financial crisis "Premier SV" had been one of the two main players on Russia's advertising market (the other is "Video International," a company that has the exclusive rights of advertising over NTV and RTR).

Ahead of the announcement of the new advertising deal with "News Corp." Lisovsky was formally charged by the tax police with avoiding tax payments.

Following the near collapse of the advertising market last fall, "Premier SV" could not meet the terms of its contract with ORT and accumulated millions of dollars of debt with the network, that in turn was on the brink of bankruptcy, as it was unable to pay program producers, transmission providers and salaries for its employees.

Shabdurasulov has said that ORT currently owes some $100 million to its creditors.

Shabdurasulov linked the network's problems to preparations for Russia's future parliamentary and presidential elections. Several bankruptcy suits were filed -- and then revoked -- against the network for its inability to pay its debt. In an emotional appeal for help from President Yeltsin, Shabdurasulov said that "colossal pressure has come down on ORT" from Moscow Mayor Yury Luzhkov and communist members of the Duma ahead of election campaigns.

It is not the first time Murdoch and Berezovsky have launched a common initiative. In April, "News Corp." purchased 38 percent of PLD, a Russian-based telecommunications provider, from London-based "Cable and Wireless" and immediately sold half of the stake to Logovaz. Media analysts said then that the venture would provide Murdoch and Berezovsky with satellite channels over Russia and Europe, necessary for the broadcasting of television programs.

After the April deal, the two media magnates denied they had plans to move into media, but most observers remained skeptical. The December deal could create new opportunities for Murdoch and Berezovsky.

ORT and government officials said the presidential decree providing for the Vneshnekonombank line of credit would not be published. But Shabdurasulov said that, according to the decree, a two-year loan will be given using part of ORT shares as collateral. He said that between 12 and 16 percent of the shares, evenly divided between the state and private shareholders, are to be transferred to the bank. He did not give details of the shareholders' distribution within the private stake transferred to the bank as collateral.

According to Shabdurasulov, Vneshnekonombank would not have the right of transferring or selling the shares during the two-year period. He added that, if the loan is not repaid, the state will lose nothing, as it will simply repossess its own stake, as well as the private one.

Shabdurasulov, who called the loan a "tactical solution," acknowledged that it is unlikely to bring security to ORT's finances, since it only equals the amount of the company's debt. He said ORT has submitted to Yeltsin a plan to sell an additional 25 percent of the company to private investors, preserving for the state a controlling 26 percent stake, but further developments are at the moment unclear. Some Russian media have suggested that Murdoch could be interested in acquiring the stake.

The Vneshnekonombank loan, without solving long-term problems for ORT, raises a number of financial questions.

The liberal "Yabloko" faction's Igor Lukashev, a member of the State Duma's committee on information policy, told RFE/RL that "there are doubts about the legality of the decree. There is a law on the budget, where all incomes and expenses should be included. Therefore, it is not clear where the $100 million (of the loan,) not mentioned in the budget, would come from."

Legislators note that Vneshnekonombank's standing is also unclear. Deputy Finance Minister Mikhail Kasyanov recently said that Vneshnekonombank -- a state-owned institution that is the payment agent for managing Russia's debt -- could be on the brink of default.

In the last days of 1998, Russia effectively defaulted on an important part of its foreign debt. It failed to pay $362 million on Soviet-era debts that it owes to the London Club of commercial banks.

The Finance Ministry and Vneshnekonombank had prepared a restructuring proposal giving creditors new government-issued bonds instead of cash. Russia needed to agree with 95 percent of its creditors on the new plan, but reportedly only 72 percent approved it. However, Russian officials insist that the approval of two-thirds of the creditors would be enough, as it qualifies the changes included in its restructuring proposal as "non-essential."

As creditors are seeking legal clarification, Kasyanov has already said that the lenders could not declare Russia in default, because the entity legally responsible is the debt agent, Vneshnekonombank.

Meanwhile, other Russian television networks are also seeking financial support from the state. The president of VGTRK, Mikhail Shvydkoi, met last month with Kremlin administration head Nikolai Bordyuzha, whom Yeltsin recently asked to handle television issues.

Following the meeting, Shvydkoi told RFE/RL service that the second, fully state-owned channel "is looking for the possibility to obtain a credit, although a lesser one than ORT."

Shvydkoi added that television executives and government officials are meeting to draw up a plan for the future financing of VGTRK. The plan, he said, will be ready by January 15.