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Russia: Putin Aide Sharply Criticizes Russian Electricity Monopoly At U.S. Conference

Russian presidential adviser Andrei Illarionov denounced the country's electricity monopoly at a recent Harvard University conference, attacking the management's record and restructuring plan. Officials also saw a mixed year of achievement for the country's economy, with continued growth but also problems of competitiveness with heavy reliance on oil and gas.

Boston, 19 November 2002 (RFE/RL) -- A raucous row between a top adviser to Russian President Vladimir Putin and the country's electricity monopoly marked a normally placid investment conference last week at America's Harvard University.

In a dinner speech on 15 November, Putin economic aide Andrei Illarionov sharply criticized the Unified Energy Systems (EES) power giant and its restructuring plans before an audience of about 400 that included a delegation of company officials.

Illarionov said: "It looks like those people just forgot that they are management, not a group of bandits [who] captured the company. And this management is hired and can be fired, and completely forgot about it. And such is [an] absolutely inappropriate, vulgar, and boorish attitude."

The economist was referring specifically to a debate held earlier during Harvard's Sixth Annual U.S.-Russian Investment Symposium, when critics accused the utility of selling off assets too cheaply. But Illarionov made clear that his remarks also applied generally to conduct at the huge company, which employs 668,000 people.

He said: "We have heard many times that [EES] is the largest company in the world. It is true. But at the same time, the most ineffective company in the world."

Among many complaints, Illarionov said EES management led by chief executive and former privatization minister Anatolii Chubais had lowered the company's market value by 48 percent during Putin's term in office, while the value of all other major Russian companies rose. He accused the company of trying to set up a "super-monopoly" under the guise of breaking EES into generating, transmission, and supply systems to attract investment capital.

Illarionov said the intent was to create a monopoly over power, not only in the sense of electricity but also "in the sense of might, in the sense of control, [an] economic and political one."

Shortly afterward, the EES contingent, including Deputy Chief Executive Sergei Dubinin, broke into sarcastic applause in an attempt to bring an end to the speech. Chubais, who was scheduled to address the conference, canceled his appearance, citing family reasons. Dubinin promised to address concerns over asset sales raised at the conference by independent board member Aleksandr Braniss. But he declined to name the prospective buyers for generating companies, citing confidentiality, the Reuters news agency reported.

Questions of monopoly reform and its consequences stole much of the spotlight at the three-day conference. Although Russia's State Duma passed the power-sector-restructuring law in its first reading last month, Illarionov has continued to fight the plan supported by EES, which is 52 percent state-owned. In bringing the dispute to the conference, Illarionov and EES essentially exported their feud to a foreign investment audience.

Chubais himself has been a major cause of suspicion because of his infamous 1995 loans-for-shares plan, which distributed many of the nation's valuable enterprises to powerful oligarchs. Although EES shares have dropped over the past two years, they have risen by about 60 percent since late September, when Chubais announced a moratorium on asset sales.

Monopolies also figured in a debate over Russia's bid to join the World Trade Organization. The European Union has been pressing Moscow to raise its cheap domestic gas prices to world market levels as a condition of membership to avoid an unfair advantage for Russian exports. U.S. Ambassador Alexander Vershbow told the conference that Washington backs the EU view. But Russian representatives remained adamantly opposed.

Grigorii Tomchin, chairman of the Duma Committee for Economic Policy and Entrepreneurship, said: "This is our competitive edge, and you've got to understand that. We will never commit a ritual suicide through this type of liberalization. It may happen after there's a real restructuring of natural monopolies, or it may not result ever."

In an informal poll conducted during the WTO session, few members of the audience believed that Russia would gain membership by the end of either 2003 or 2004.

But in an interview with RFE/RL, Anders Aslund, a senior associate at the Carnegie Endowment for International Peace, said Russia could join before raising gas prices. Aslund said: "The WTO demand is really quite simple. It's just that you make a plan for how soon you do it. The negotiation is over how fast."

The outlook that emerged from the conference was mixed.

Yurii Isaev, deputy economic development and trade minister, read off an impressive list of the country's achievements, including a 4 percent growth in gross domestic product, a 25 percent rise in hard-currency and gold reserves, and a 25 percent increase in foreign investment so far this year. The government has also initiated a long-awaited series of legal reforms and greater awareness of corporate-governance issues.

The bad news includes the continued heavy dependence on natural resources and lagging productivity. Last week, Prime Minister Mikhail Kasyanov also voiced dissatisfaction with the country's investment climate, the RIA-Novosti news agency reported. Officials were stung by Russia's low ranking in two investment studies last week.

The World Economic Forum rated Russia 64th out of 80 countries in growth competitiveness, while it placed 135th out of 156 nations on the "index of world economic freedom," compiled by the Washington-based Heritage Foundation and "The Wall Street Journal."

In a video interview at the conference, Mikhail Khodorkovskii, chief executive of the Yukos oil company, spoke of Russia's improved outlook for sovereign risk. Khodorkovskii said ruefully: "I'm hoping that our country will get an investment grade rating. Who knows? We might even squeak up to 134th place in the economic freedom league table."