PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
The leading voice for economic liberalization in Russian President Vladimir Putin's administration, economic adviser Andrei Illarionov, says he may quit in a bitter dispute with the government over plans to restructure the RAO Unified Energy Systems (UES) electricity monopoly.
Such a step would be a blow to Russia's already shaky foreign-investment climate because Illarionov has been the strongest proponent of liberal economic reforms inside Putin's team. In an exclusive May 24 interview with BusinessWeek Online, Illarionov accused leading members of the government of deliberately ignoring his alternative restructuring proposal. Instead, he alleges that on May 19 the government gave preliminarily approval to what he describes as a flawed plan that would bypass shareholders' rights and put the nation's entire electricity network under the control of UES CEO Anatoly Chubais.
Asked whether he would resign if amendments were not made to the final version of the restructuring plan, due for approval by the government on June 19, Illarionov said: "I am seriously thinking about it."
MONOPOLY POWER? Illarionov is sometimes given to rash statements, so it's possible his talk of possible resignation could be just another gambit in the struggle over the future of the nation's electricity network. But this fight clearly is important to him. It's a high-stakes battle over an electricity system that could give its potential owner immense economic and political clout.
The system, which is 52% owned by the Russian government, encompasses the nation's transmission grid, regional electricity generating companies, and dispatcher systems. But fears over the fate of investors' stakes in restructuring have seen its share price plunge to 10.5 cents, vs. 21.1 cents in March, 2000, when details of the overhaul were first announced.
Chubais, who has said the company's generator-to-socket monopoly needs to be broken, wants to see regional generating companies merged and dispatcher systems split off into separate units that would compete with each other, eventually being sold off with the proceeds used to boost investment. The federal transmission network would be kept as a separate whole.
That much is agreed. But the question that has Illarionov on the verge of quitting is how this will be done. He says a plan forwarded by the Economics & Trade Ministry and given preliminary approval by the government on May 19 after more than a year of debate would put control totally in the hands of UES management.
NOT OPTIMISTIC. Illarionov says the government-approved plan calls for spinning off the regional generating companies, the dispatcher companies, and the federal transmission network as stand-alone subsidiaries of UES -- wiping out shareholders' control and diluting the value of their holdings. Chubais himself said in a December interview with BusinessWeek that UES shareholders would not be able to use their representation on the board of the parent company to exert control over how these subsidiaries are run or sold off.
A plan to retain the federal transmission network as a subsidiary of the UES, as well as to give the parent company control over future sales, would "concentrate massive economic and political power into one person's hands," Illarionov said in the May 24 interview at the Kremlin.
Chubais was unavailable for comment on May 24. But he told reporters over the previous weekend that the plan, which calls for liberalizing the electricity market in 2004, "could have been more radical."
Meanwhile, Illarionov accused Economics & Trade Minister German Gref of dancing to Chubais' tune by forwarding and approving a plan similar to a proposal drafted by the UES CEO last December. He claims the government ignored a proposal he helped prepare to keep ownership of the subsidiaries in proportions equal to the current ownership of UES, rather than giving the parent company's management 100% control. While he has called on Gref to honor earlier verbal promises to make amendments aimed at ensuring the independence of the companies created in the breakup, he doesn't hold much hope this will happen.
"HUGE LOSS." The government "wanted to cave in to Chubais and RAO UES so much that they had no intention of considering any alternative," says Illarionov, adding that the proposal he worked on was deliberately held back until 30 minutes before the May 19 Cabinet meeting. "That was a totally cynical move, and it gives reason to believe they [the Economics & Trade Ministry] were working, and will work, on behalf of Chubais and RAO UES." Economics Minister Gref is closely linked to Chubais, having worked together on privatization schemes in the early '90s.
"If there is no change [to the restructuring plan], it would be a huge loss for the nation," adds Illarionov. "The loss could be as great as the damage wrought by the loans-for-shares scheme," in which state assets were sold off on the cheap to a group of well-connected moguls.
Illarionov is credited with forwarding measures to cut back the state's role in the economy and creating a plan to shield exports from the turbulence of global commodity markets. Until now, he has restrained government moves that could have pushed Russia further from the global economic mainstream. Earlier in 2001, for instance, Illarionov was able to overturn a proposal by Prime Minister Mikhail Kasyanov to delay payment on foreign debt by publicly accusing the government of "hooliganism" over the matter. It's too soon to know how this clash will play out, but Illarionov's loss would be a huge blow to Putin's reform efforts.
Copyright 2001 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
