Publication: Monitor Volume: 4 Issue: 95

Russian Prime Minister Sergei Kirienko has condemned last week’s vote by the State Duma to restrict to 25 percent the amount of shares in the Russian electricity giant, United Energy Systems (UES), that may be held by foreign investors. Foreign shareholders currently own at least 30 percent of UES. The state holds 53 percent. The Duma, which claimed it was acting in the interests of national security, also ruled that the state must retain at least a 51 percent stake in the monopoly. It did not say how its ruling should be carried out. The simplest way of diluting foreign holdings, however, would be by a capital increase open only to domestic investors in which the state would also be obliged to buy fresh shares. Kirienko said the government had “a clear plan of action” both to respond to the move and to protect the rights “of all investors, foreigners included.” Recognizing the danger that the Duma’s ruling represents not only to UES but to other Russian companies seeking foreign capital, Kirienko said the cabinet would take action since the Duma’s move was aimed “not just at UES, but at the whole Russian securities market.” President Boris Yeltsin, whose earlier attempt to veto the bill was overridden by the Duma, is likely to send the law to the Constitutional Court for review.

Yeltsin’s spokesman, Sergei Yastrzhembsky, called the Duma’s move “a stab in the back of the market economy,” while presidential aide Aleksandr Livshits said the state did not have the money to buy extra shares. (Russian agencies, May 15 and 16; Financial Times, May 15) Anatoly Chubais, UES chief executive, also criticized the law but added that foreign shareholders had nothing to fear. Their rights, he explained, were protected by Russia’s civil code which, he said, the new law violates. Chubais acknowledged, nonetheless, that alarm over the Duma’s move had already led to a fall in UES shares. Yastrzhembsky said share prices of other Russian companies, including Lukoil and Gazprom, had also been hit. (Russian agencies, May 15 and 16)