The boardroom struggle for control of Russia’s state-controlled electricity monopoly, United Energy Systems (UES), reveals deep splits in Russia’s political economy.
On January 27, UES’s board of directors elected Anatoly Dyakov as its new chairman and removed Boris Brevnov, protege of First Deputy Prime Minister Boris Nemtsov. (See Monitor, January 29) Fuel and Energy Minister Sergei Kirienko declared the board actions illegal, as only seven of fifteen directors had taken part, and because his ministry, which holds the state’s controlling 52 percent in UES, had not been consulted. Kirienko reinstated Brevnov and ordered police to seal off Dyakov’s UES office. Brevnov and Dyakov represent, vividly, the two faces of Russian industry: Dyakov the industrialist with decades of bureaucratic experience, Brevnov the brash 29-year old banker (with an American wife, to boot). (Nezavisimaya gazeta, January 28)
Dyakov held a press conference the next day, in which he quoted a report from the State Duma’s Auditing Committee that alleged misuse of $7 million in funds by Brevnov. Brevnov denied the allegations and brandished his own audit of UES from Price Waterhouse. He accused Dyakov of creating a system of double accounting in UES, under which cash payments to the company were channeled into a shadowy parallel company called Uniform Energy Corporation, controlled by Dyakov and his cronies. Brevnov defended his record in his ten months in office, saying that he had closed down 134 excess UES bank accounts and introduced competitive bidding for oil deliveries that had saved the company huge sums. (Financial Times, January 30; Kommersant-daily, January 29)
Brevnov may have won the first round in this boardroom battle. In the meantime, however, the management of UES, which produces 83 percent of Russia’s electricity, is paralyzed. It looks increasingly unlikely that Nemtsov and Brevnov will be able to implement their goals for a restructuring and a new pricing policy.
At the core of this standoff is the barter economy that has emerged in Russia over the past five years. UES customers in the fourth quarter of 1997 paid cash for only 13 percent of their deliveries. The remaining 87 percent was either unpaid or covered by promissory notes (veksely) and debt swaps. Critics say that this bizarre barter system enables both UES and its customers to evade taxes. The system’s defenders argue that it allows the economy to keep going in conditions of imminent mass bankruptcy. Either way, the system is deeply entrenched. UES and its subsidiaries owe 17 billion rubles ($3 billion) to energy suppliers and 20 billion rubles in taxes. In turn, the company is owed 8 billion rubles by its customers. (Finansovye izvestiya, January 29)
UES reliance on barter transactions is far from unique, as evident in the most recent report of the Interdepartmental Balance Commission (IBC). The IBC was formed in May 1996 under the chairmanship of Petr Karpov to coordinate government policy towards indebted companies. The IBC investigated the country’s 210 leading debtors, whose total tax debts amount to 70 billion rubles. Reliance on barter makes tracking the true value of transactions very difficult, but the IBC estimated that 73 percent of these firms’ sales were in barter and 27 percent in cash. Of tax and pension obligations, only 8 percent were in cash. Karpov suggests that in order to deal with the "economic cancer" of barter, a massive clearance of firm debts is in order, after which they will have no excuse not to go onto cash accounting. In the meantime, such reports do little to raise one’s confidence in the government’s ability to meet its tax targets for this year. (Russky telegraf, January 31)
Kremlin Officials Advocate CIS Military Alliance for Russia’s Security.