Publication: Monitor Volume: 2 Issue: 220

The Russian government plans to offer one-quarter of Russian telecommunications shares (about $1 billion) to foreign investors next year. This will be done by merging two companies — Rostelekom and Svyazinvest — to form a national telecommunications monopoly worth $4 billion. This will be the biggest issue of Russian equity to foreign investors so far, vastly exceeding the recent issue of 1.5 percent of Gazprom equity for $429 million. (Financial Times, November 15; Interfax, November 18-19) The Russian government owns 51 percent of Rostelekom and 100 percent of Svyazinvest. Svyazinvest was created in 1992 in a deliberate effort to create a competitor for Rostelekom, which would otherwise have had a monopoly of the long-distance market.

Now the government wants to merge the two companies to create a monopoly that will be attractive to investors and raise more money for the government. This means the government is putting the easement of its own budget problems ahead of the longer term goal of establishing an efficient and competitive telecommunications industry. The decision has upset World Bank officials, who say the planned merger will stifle competition. The World Bank has been working on privatization plans for Russia’s telecommunications sector that would keep Svyazinvest and Rostelekom separate and allow the development of additional competitors in the long-distance and international markets.

The British government made similar choices when it privatized major public utilities in the 1980s. It too sold enterprises as monopolies in order to boost government revenue and was criticized for failing to foster competition.

With Moscow’s Help Lukashenko Reaps Bloodless Triumph.