was Kirienko’s boss at the Ministry of Energy. Now Kirienko is ontop, but Nemtsov’s task remains the oversight and reform of the energymonopolies. The second holdover is Oleg Sysuev, who retains responsibilityfor labor relations and social policy. The new man is Viktor Khristenko,41, a deputy minister of finance now charged with federal-regionalrelations, including the payment of arrears in wages and pensions.
The Kirienko government kept incumbents in place in foreign affairs,defense, and finance, and no innovations should be expected in those areas.This new government has apparently set itself up to succeed or fail bytaking on five closely related issues: government arrears in wages andother obligations, fiscal deficits, shortfalls in tax collections, regionalchallenges to federal power, and the energy monopolies.
That means a fourth key player in Kirienko’s administration is not in thegovernment at all. With a boost from President Boris Yeltsin, AnatolyChubais, the much-despised and twice-fired deputy prime minister andpresidential ex-chief of staff, last week got himself elected chiefexecutive officer of Unified Energy Systems (UES). Along with privatelycontrolled natural-gas monopoly Gazprom, UES is at the center of the”payments crisis” that is the most important obstacle to economic growth andreform.
UES was created during the first wave of post-Soviet privatization in 1992,to keep electric power under state control. The state holds 52% of UESstock. Foreign investors (CS First Boston is believed to be the largest)own 28%, and Russian individual and corporate investors hold the rest.
Directly or indirectly, UES supplies about 80% of Russia’s electricity. Thecompany owns and operates high-voltage transmission systems and largenon-nuclear power-generation facilities. It holds a (usually majority)stake in 72 regional utilities — the “energos” that deliver power and heatto industries and households throughout Russia.
Regional governments typically regulate prices of electricity and heat forhouseholds at well below cost. The regions also pressure UES and the”energos” constantly to maintain supplies to inefficient industries thatcannot pay their bills, or can pay them only in bartered product, not incash. Of its 1997 receivables, UES collected 11% in cash and 59% in barter,while 30% simply went unpaid. The utility passes these losses on bystiffing fuel suppliers in the coal and oil industries and ducking taxobligations to federal and regional authorities — creating new shortfallsthat are passed along to other sectors of the economy in a classic viciouscircle.
Kirienko has organized his government to make breaking this circle his firsttask. He made public statements last week on rescuing the coal and oilindustries, cutting federal subsidies to regions, strengthening federalauthority, and restoring economic growth. These goals too are related. Ifhe achieves his goals, there will be lots of credit to go around. If hefails, Russia’s economy will continue to stagnate or shrink, increasing thelikelihood of some sharp political change of direction.