Publication: Monitor Volume: 3 Issue: 68

Top government officials addressed the mayors of Russia’s leading cities at a meeting of the Union of Russian Cities in Moscow on April 5. (Itar-Tass, Interfax April 5) Deputy Prime Minister Alfred Kokh said that the country was facing a "crisis of statehood" because tax collection in the first quarter was only 58 percent of the target level, with 20 firms — mainly in the energy sector — accounting for 60 percent of the debts.

First Deputy Prime Minister Boris Nemtsov also addressed the mayors’ meeting, and pledged swift action to reform the "natural monopolies" — Gazprom, the electricity utility (Unified Energy Systems), and the Railways Ministry. He said the railways owe 7 trillion rubles in federal taxes and Gazprom 20 trillion rubles. (Itar-Tass, April 4) Nemtsov proposed three specific policies — forced price cuts, a stringent audit, and changes in the ownership structure. None of these look very promising.

With regard to prices, Nemtsov said that railways and electricity tariffs are too high in comparison with prices charged in the US and Europe, and must be lowered. But forcing the utilities to lower the prices they charge industrial consumers will deepen their own indebtedness and will not help the utilities to pay off their tax and wage arrears. The national railways and many regional gas and electricity companies are running at a loss due to non-payment by their own customers. It is not clear what difference a cut in the nominal price — which in most cases is not being paid anyway — will achieve. (While telling the utilities to cut industrial tariffs Nemtsov is trying to persuade them to increase tariffs for residential customers, which are heavily subsidized.)

The pledge to introduce strict accounting reviews of the major monopolies to uncover reserves and root out corruption is also unconvincing, since businesses are already subject to repeated audits of dubious efficiency. Tax audits reportedly recouped an additional 40 trillion rubles in the first quarter of this year. (Kommersant-Daily, April 4)

Nemtsov equivocated over how radical a structural reform he envisages for the monopolies. In an interview with Itar-Tass on April 4 he acknowledged that Gazprom is "a natural monopoly, and no one is going to split it." But Nemtsov he also said he thinks it necessary "to restore the state’s real role in control over Gazprom." He talked of the state taking back the 35-40 percent of shares in the utilities which had been transferred to their boards of directors when they were privatized.

Most industrialists and regional political leaders favor a cut in utility prices, but, having worked hard to establish a modus vivendi with the utility companies, are wary of a Chubais/Nemtsov-led reorganization that could disrupt that relationship. Thus, on April 4 the State Duma appealed to President Yeltsin not to restructure the monopolies. The previous day Moscow mayor Yury Luzhkov, addressing a conference on social partnership, clearly distanced himself from the Chubais/Nemtsov reform agenda. He called for protectionism and state support for industry, and questioned whether tax reform should be a priority. (Interfax, April 3)

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