| BUSINESSWEEK ONLINE : DECEMBER 18, 2000 ISSUE | ||||||||
| ||||||||
 | ||||||||
| INTERNATIONAL -- EUROPEAN BUSINESS
ONLINE EXTRA: Chubais: "My Position on This Is Very Pragmatic" In a Q&A, the free-market reformer talks about his controversial plan to sell off Russia electricity giant UES Anatoly B. Chubais has been simultaneously hailed and reviled as the mastermind who brought capitalism to Russia over the past 10 years. He was the architect of Russia's privatization program -- a move that ushered in the market economy with a vengeance. The plan might have indeed given property to Russians, but it has since been savaged for moving too quickly and for handing choice assets to a bunch of insider businessmen at knockdown prices. Chubais might appear to have taken the more sedate role of heading national electricity monopoly Unified Energy Systems (UES), but now he's back in the center of Russia's latest economic policy storm -- this time over plans to deregulate the electricity sector. Once again, Chubais is bent on bringing the market to Russia, this time on the micro level, and once again he's facing a barrage of criticism. And now, minority shareholders in UES are on the attack. They fear Chubais will repeat the mistakes of privatizations past and sell off UES on the cheap, again to insiders. On Dec. 5, Chubais spoke with Business Week Moscow bureau editors to tell of his deregulation plans, explain why it helps to have the media behind you, and why he thinks electricity deregulation is one of the last frontiers in installing a real free market in Russia. Here are edited excerpts of their discussion: Q: How and when did the idea of deregulating the electricity industry first arise? A: It was in 1997 when President Boris Yeltsin first decreed this should happen. At that time it was a new idea not only for Russia but for the world. If Russia had been able to do it then, we would have been ahead of the rest of the world. But unfortunately three years were lost. Almost all the countries of world strongly embraced this idea. It happened in the European Union in 1997, and in the U.S. starting from Philadelphia and New Jersey. That's when what could be called the final sectoral liberalization in the world took place. This was one of the reasons why I decided to work at UES. I understood that this sector was still totally Soviet economically. I understood why deregulation was so desperately needed and introducing the market here was a historic call for the nation. We announced our intentions for restructuring the day [President Vladimir] Putin was elected. This is not a coincidence. Q: What are the basic ideas of the restructuring plan? A: The main principle is to separate the monopoly sector from the competitive sector. Existing power stations will be merged to create several generating companies that will compete on the market. A trading floor for electricity sales will be created, like the electricity exchange in Frankfurt. A wholesale system will be created out of distribution networks. We want to attract gigantic volumes of private strategic investment, unprecedented in Russian history. We can gain investment through initial public offerings and additional share emissions in the generating companies -- that will lower UES's stakes. We need investment to replace current steam-power stations with gas steam-power stations. This is a gigantic task. Russia's energy system is behind the rest of the world by 15 to 20 years. Constructing these type of power stations will automatically increase effectiveness and value. It will double our capacity to save fuel. It's obvious that within the next five to seven years, strategic investment into this sector will turn out to be fantastically profitable. This gives us a basis for serious discussions with strategic investors. From January onwards, my main priority will be negotiations with leading figures at major Western electricity companies. It won't just be general chitchat, but we will have discussions over a developed plan with clear cash flows and capital-return calculations. Q: What do you think of UES minority shareholders' demands to gain voting rights over these asset sales? They fear their interests will not be protected in the restructuring. They say you're trying to consolidate power in your own hands. A: My position on this is very pragmatic. I need to undertake a gigantic, unprecedented sectoral restructuring. It's clear that the more transparent the process, the more my decisions are supported by the board of directors, the more chance we have of success. Q: How do you answer shareholder concerns you might sell assets off on the cheap to company insiders because tariffs will remain set at low prices and you will be unable to attract real strategic investors? Will future profits go directly to their pockets? A: The sale of assets in generating companies can only take place after the creation of the market. That means there must be a market evaluation of them. They will only be sold after electricity tariffs are freed. A minority shareholder once asked that same question at a shareholder meeting. I just told him that if I hadn't sold any assets under privatization, you would not be sitting at this table. There were 15 to 20 businessmen there who didn't even remember that the very institution of minority shareholders wouldn't have existed if I hadn't organized privatization. Q: You've been involved in many complex and controversial policy and financial battles over the last 10 years. How does this one compare? A: I've participated in eight crises in eight years, and over each of them hung the question of changing the political regime. Each one was a question of life or death. Now the price has changed -- we're not discussing a life-or-death question. We're discussing the success or failure of a project. But this is much more professional, which is much more interesting for me personally. That was the reason why I came here. I know how to introduce the market in Russia. I know the macro issues that should be solved. I know the political side of the story. But I don't know what it means to introduce the market on the micro level. I didn't know what it means to fight barter. I didn't know what it means to stop nonpayments. Now I know that the reason behind barter is bad management. But I've proven that not by logic, but by what I've done -- there's no barter in my company. So that's much more professional, much less political, and much more interesting. Q: Some minority shareholders have questioned your decision to buy Moscow-based TV station, Ren-TV. Why is this a business decision for an electricity company? They say this is proof that you are attempting to use UES to further your own political career? A: The easiest way for me to strengthen my political status would be to not even speak about restructuring. It's very easy if you have a company that's producing 85% of electricity across Russia. You could just stop supplying electricity to any region of Russia in five seconds. That's the easiest way to influence what's going on. Ren-TV is a project that could bring money to the company. What was important for me with Ren-TV was not to gain influence in Moscow, but in the regions. It has stations in 400 Russian cities. My company is everywhere, and we need to present our face. We need to explain to people that electricity is a commodity, and if you want to have it, you have to pay for it. That may be very simple for a Western ear, but in Russia that's something that has to be proven. Q: So far the people who have got into trouble under Putin's regime are major businessmen like Boris Berezovsky and Vladimir Gusinsky who have media properties. That seems to be an area the President watches very closely. Are you concerned this could become a point of friction with Putin? A: First, I don't think that Berezovsky had problems with Putin because he was the owner of a TV station. There is one fundamental thing that he believes -- that I will never believe, and Putin will never believe. But Berezovsky is still convinced that it's the businessmen who should appoint regional governors, Cabinet ministers, the Prime Minister, and the President. That's his deep, deep belief. And its something I will never accept and have never accepted before. People who have this kind of ideology and run the No. 1 TV channel are bound to have problems. In my case, I don't know whether I will have problems with Putin. I believe that Russia really needs to have independent media and independent TV stations. I believe that's a key issue. I think that if in the final stage, Gusinsky's privately held NTV becomes state-owned, then that will be the strategic political mistake of Putin and the major political failure of Russia. That's why I think that having UES as the owner of Ren-TV is better than having the state as the owner. Buying Ren-TV was in line with my position on this matter given the political situation that's developing. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
RELATED ITEMS The Battle for Russia's Electricity Giant (int'l edition) TABLE: The Chubais-Fyodorov Face-off ONLINE EXTRA: Chubais: "My Position on This Is Very Pragmatic" INTERACT E-Mail to Business Week Online | |||
|
Copyright 2000-2008, by The McGraw-Hill Companies Inc. All rights reserved.
Terms of Use Privacy Notice  |