Russia’s Capitalist Titans Clash Over Spoils of Privatization

Ever since they bankrolled President Boris N. Yeltsin’s reelection last summer, a clique of rich Russian businessmen has been amicably carving up the national assets they say they saved from communism.

But not anymore. This summer, the capitalist titans have clashed over the spoils of a huge post-Soviet privatization program, sending shock waves through the Russian establishment. The coalition of millionaires and ministers that has been running Russia for a year is disintegrating. The future shape of the government, and of economic reform, is being questioned.

“We are witnessing the formation of party lines in the race to succeed Yeltsin,” said Andrei Piontkowsky, director of the independent Center for Strategic Studies.

The trouble began in July, when a 25% stake in Svyazinvest--a communications conglomerate that owns most Russian telephone networks and broadcast facilities--was auctioned.

First Deputy Prime Ministers Anatoly B. Chubais and Boris Y. Nemtsov have been saying for months that there must be no more sweetheart deals in privatization.

Two years ago, Chubais was criticized for some dubious “loans-for-shares” privatizations, in which his banking friends acquired stakes in state firms cheaply. In those days, favored bidders were left to organize auctions themselves, minimizing any rivals’ chances.

Now, instead of giving away assets to repay political favors, ministers want to sell them for as much as possible to pay overdue wages.

To ensure that the Svyazinvest sale was fair, the government organized it. The conglomerate received two bids, both above its starting price of $1.18 billion. One was for $1.7 billion, the other for $1.9 billion. It was sold to the highest bidder, a consortium set up through Vladimir O. Potanin’s Uneximbank.

So far, so good.

“The state gets more and rids itself of the perception of insider deals,” enthused James Fenkner, director of research at CentreInvest in Moscow. “Finally, Russia is moving to a 20th century way of doing business.”

But suddenly, the MOST media empire of rival tycoon Vladimir Gusinsky, leader of the losing bid, cried foul. Gusinsky’s newspaper, Sevodnya, and his television station, NTV, accused Uneximbank of cheating. Gusinsky asked centrist Prime Minister Viktor S. Chernomyrdin to reconsider the sale.

Gusinsky seems to have genuinely felt aggrieved that his smaller bid lost, believing that his turn for a lucky break had come and that he had been cheated out of his rightful place in the millionaires’ line by Potanin.

Russian papers reported a stormy row between him and Chubais, in which he accused the minister of violating a secret pact made before the July 1996 election.

Nemtsov was equally unsympathetic to complaints by Gusinsky and his ally, Boris A. Berezovsky, a millionaire-turned-politician and deputy head of the Security Council.

No trouble surfaced when a 38% stake in Norilsk Nickel was sold Tuesday.

Potanin’s Uneximbank, which has had a controlling stake in Norilsk since 1995, kept the right to organize the sale. No independent audit was done; Uneximbank’s bid of $250 million won, although nickel producer Norilsk’s estimated value is $750 million.

The privatization fight has left the two leading government reformers aligned with Potanin. On the other side, Gusinsky and Berezovsky have teamed up with Chernomyrdin.

More hostilities can be expected in the fall with another high-profile privatization--of oil company Rosneft, which has rights to some of Russia’s biggest untapped wells along with a huge network of gas stations.