Publication: Monitor Volume: 3 Issue: 85

Russian president Boris Yeltsin signed a decree on April 28 ordering the privatization of 49 percent of the telecom holding company Svyazinvest, to be carried out "under the personal control of the president." (Kommersant-daily, April 29)

The plan mandates the sale in the next month of 25 percent of Svyazinvest to foreign or Russian investors. The sale is expected to raise $1.2 billion, of which 15 percent will go to the company and the rest into the federal budget. Russian investors will be given a chance to buy a further 24 percent later in the year. The decree transfers to Svyazinvest the state shares in Rostelekom, the Yekaterinburg telephone company, Moscow Central Telegraph, and Giprosvyaz, effectively recreating a single telecommunications monopoly.

The Russian telecom industry has seen steady growth since 1991, and has emerged as a cash cow. Svyazinvest was spun off from the state monopoly Rostelekom in August 1995 and given control over 87 of 89 regional exchanges — while Rostelekom controlled long-distance lines. In December 1995 a deal to sell 25 percent of Svyazinvest to the Italian firm STET collapsed at the last minute amid mutual recriminations. Given state control over phone tariffs, foreign investors expect firm guarantees about the future regulatory framework. Observers suspect that the government intends to keep control of this lucrative industry in Russian hands, but may have lined up a Western investor (probably an equipment supplier rather than an operating company) willing to take a minority stake. The industry needs to raise at least $10 billion to modernize its facilities. Rostelekom failed in a bid to raise money by issuing ADRs in the U.S. last November because of its inability to provide a list of shareholders.

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