RUSSIAN GOVERNMENT UNVEILS 1998 PRIVATIZATION PROGRAM.

Russia’s new privatization chief, Maksim Boiko, last week unveiled the government’s privatization program for next year, saying it will bring urgently needed funds into the exchequer and make the privatization process more open and honest.

The privatization of large state enterprises in Russia has been languishing since mid-1994 when the first, or "voucher," phase was completed. That first phase moved the bulk of industrial assets out of state ownership at remarkable speed but left two large unresolved problems. First, most of the newly privatized enterprises were controlled by their former managers and the absence of an open and competitive capital market made the normal market challenge to inefficient management weak and, with some exceptions, ineffective.

Second, the state retained substantial shareholdings — often minority holdings that were nonetheless sufficient to give control — in some of the stronger sectors such as oil and gas. The government needed the revenue that could come from selling at least some of these holdings, but the weakness of the capital market, the limitations placed on foreign investors, and crony relations between government, big banks, and many of the big energy companies impeded sales on a competitive basis.

The voucher phase of large-scale privatization did not, of course, bring in budget revenue. But the miserly privatization revenues accruing to the government in 1995-97 have been a measure of the failure of the second phase. Scandals about crony deals erupted, moreover, around the loans-for-shares auctions of late 1996 and, with less justification, about the recent sales of stakes in Svyazinvest and Norilsk Nickel.

The 1998 privatization program, prepared under the management of Boiko’s predecessor Alfred Kokh (who resigned on August 13, taking the fall for July’s Svyazinvest and Norilsk Nickel share sales), offers some hope of improvement. Competitive bidding was already apparent — whatever the critics say — in the Svyazinvest sale. The government’s plan for 1998 includes 66 separate sales, either of wholly-owned state enterprises or of state holdings in partly-privatized concerns. Among the items on the list are another 25 percent of Svyazinvest and holdings in the oil companies LUKoil and Rosneft, the oil pipeline concern Transneft, and Aeroflot. (RIA-Novosti, August 26) These are substantial prizes, and the splits already evident between Russia’s big financial-industrial groups suggest that competition for them will be strong.

Boiko said last week that privatization revenues of 6.1 trillion rubles (existing rubles, not the redenominated rubles that will be in use next year) are built into the draft budget for 1998. That is a useful sum, equivalent to about $1 billion. (Izvestia, August 26) The snag is that Russia’s new privatization law, which came into effect on August 2 and which aims to make share sales more open and competitive, requires the government to submit the annual privatization plan for parliamentary approval. (ORT, August 26; Kommersant-daily, August 27) That will give Duma deputies a chance to block particular sales or to attach conditions to them. So the reformers’ battle is not yet won.

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