SKOPJE, Macedonia, Dec. 5 (UPI) -- Even by the imperceptible standards of eastern Europe, the crony-infested Russian version of "privatization" was remarkable for its audacity and scope. Assets now worth some $25 billion were sold for around $1 billion. A later loans-for-shares plunder was micromanaged by Anatoly Chubais, head of the State Property Committee, then heralded by the West as a "true reformer." Chubais enjoyed casting himself as the lonely champion of the rule of law and private property fighting an uphill battle against shady oligarchs and resurgent communists.
Ever since then, Chubais has been entangled in a series of scandals. In 1997 alone, his name was robustly linked to two. One revolved around an outlandish $450,000 advance paid to Chubais and two co-authors by a publishing firm later taken over by a bank, Uneximbank, one of the main beneficiaries of Chubais' privatization shenanigans.
The second outrage involved the now-defunct Harvard Institute of International Development, headed by the much-interviewed Jeffrey Sachs. The Institute enjoyed well more than $60 million in USAID funds as it worked hand in glove in the early 1990s with Chubais to shock Russia into economic "therapy" through the Russian Privatization Center. The outcome has been calamitous. It took Russia almost a decade to recover from the involvement of these "experts" in its economy.
Moreover, often, practice and preaching were far apart. In a bout of puzzling honesty, Chubais admitted, in an interview to the Russian business daily Kommersant, later published also by the Los Angeles Times, to defrauding multilateral lending organizations and their Western masters. He said: "In such situations, the authorities have to (lie). We ought to. The financial institutions understand, despite the fact that we conned them out of $20 billion, that we had no other way out."
Andrei Shleifer and Jonathan Hay, two Harvard professors involved in HIID, have been credibly accused, as a $120 million lawsuit filed in September 2000 by the American authorities under the False Claims Act alleges, of "abusing the trust of the U.S. government by using personal relationships ... for private gain," purportedly shared with Chubais and his crew.
It is a sad testimony to both Russia's dearth of honest talent and to the murkiness of its public life that Chubais is as strong as ever and manages the giant electricity utility, UES. In the dismal landscape of Russian business, Chubais is a managerial star and role model. With a self-declared annual salary of a mere $4,000, this job is, apparently, yet another personal sacrifice of many.
As the Moscow Times recounts, Chubais plans to split the current inefficient electricity behemoth into an independent transmission grid company, a system operator and several generation companies (gencos), all directly owned by the government and minority shareholders. A single holding company will consolidate the stakes that UES holds in regional energy companies. UES will, in effect, end up controlling the national grid. Initial, legislative and administrative, steps to implement this scheme have already been taken.
Yet, Chubais' checkered past and even more checkered friends render him automatically suspect. Everything he says makes incontrovertible economic sense. Power generation, the national and regional grids, the pricing structure, the cost of fossil fuels -- all require nothing short of an agonizing transformation.
But Chubais' history of ulterior motives invariably invokes the question: what's in it for him? Why is he so bent on disposing of UES assets at bargain basement valuations, since electricity prices have not yet been adjusted to reflect costs? According to The Economist, the very foreign investors that Chubais so clamors for may be shunning a UES dominated by him. Many of them remember the attempt they thwarted a few years back to sell generators on the cheap to local tycoons in favor or his dubious ties to the aluminum industry, a heavy consumer of electricity.
Others were shocked by a contract signed with Renaissance Capital, owner of 25 percent of a UES subsidiary, Kuzbassenergo, granting Renaissance cheap generation capacity in future tenders. Such qualms aside, foreign utilities and Russian oil companies, though, would find assets arising from a UES divestiture irresistible.
In the best of Russian traditions, Chubais is busy expanding his fief and preparing for yet another round of self-serving "restructuring". This is not without precedent. Viktor Chernomyrdin, an erstwhile Russian prime minister, similarly leveraged his management of Gazprom, Russia's energy colossus, between 1989 and 1992.
A -- just -- complaint Chubais penned regarding inflated pricing and predatory business practices of Mezhregiongaz, Russia's natural gas monopoly, led to an audit order by Kremlin-appointed Alexei Miller. This could weaken Putin's St. Petersburg pals and strengthen guess who.
UES is to a large extent a Chubais vehicle. An impossible supermajority of three quarters of all shareholders was required to oust him until foreign investors reduced it to 51 percent. Chubais leverages UES to amass personal clout in the energy-hungry provinces.
Consider destitute Bashkortostan. Last week its power grid, BSK, resolved to establish a joint stock company and to spin off the management, sales and maintenance functions to separate entities. The outcome of the upheaval? UES would become the second-largest shareholder of BSK.
A similar deal regarding Mosenergo was struck last month with a reluctant Yuri Luzhkov, Moscow's mayor, after much acrimony. The municipality will enhance its share of the lucrative power generation business by investing in it "assets" valued at "market prices".
Takeovers of fossil fuel companies led Chubais to confrontations with politicians and oligarchs throughout the vast land. In 1999 he clashed with the late Alexander Lebed, governor of Krasnoyarsk Krai, over the control of the Krasugol, the regional coal extractor. Lebed ultimately won.
(Part 2 of this analysis will appear Friday. Send your comments to: [email protected].)
