Russian Reform Plans Raise Doubts

President Vladimir V. Putin has said that he wants to reform Russia’s two biggest monopolies, the gas producer Gazprom and the electric power giant UES, both infamous for inefficiency and for allegedly enriching top management at the expense of shareholders and the public. But critics say recent signals by Putin’s government indicate the opposite.

Aggrieved shareholders allege that a government-backed “reform” plan for UES announced over the weekend would allow the country’s scores of power plants to be sold off without adequate public supervision to a few wealthy oligarchs.

Meanwhile, the Kremlin has appointed Gazprom’s former chairman, Viktor S. Chernomyrdin, as its top envoy to Ukraine in the midst of fresh allegations that sweetheart deals worth millions were awarded to relatives of Chernomyrdin and other top Gazprom executives. And a lawsuit now before the courts appears aimed at stopping shareholders who want more accountability within Gazprom from voting at an upcoming meeting on whether to renew the contract of the incumbent Gazprom chief executive, Rem Vyakhirev.

In both cases, critics argue, top managers with close political links to the Kremlin are opting for versions of reform that benefit themselves most of all. Only Putin is capable of averting the damage to shareholders and the public interest, they assert.

“The management of all these giant monopolies wants to be in charge of their own restructuring, and it is quite clear that these managements . . . have their private agenda to pursue,” said Dmitri V. Vasiliev, chairman of the board of the Investors’ Rights Protection Assn.

UES, which stands for Unified Energy Systems, is the world’s largest power grid and, through its subsidiaries, controls scores of generating plants across Russia. It is headed by Anatoly B. Chubais, a onetime advisor to former President Boris N. Yeltsin who championed the 1990s privatization of Russian industries--which some critics today contend resulted in a vast giveaway of public assets to a new class of oligarchs.

On Saturday, the Cabinet, led by Prime Minister Mikhail M. Kasyanov, tentatively approved a plan little changed from the reform outline offered by Chubais a year ago. It calls for the UES power grid to be renationalized--returned to state hands--while the power plants would be sold off by a holding company to private investors in Russia’s various regions after a year and a half. After the plants’ sale, electricity prices would be allowed gradually to increase, beginning in 2004.

Private minority shareholders, including Westerners who have been allowed to buy about a third of UES, say they fear that the company’s key assets would be sold off for far below their true value. They would prefer for UES to be split into separate companies in which investors would retain their proportional ownership.

“What Chubais called a restructuring plan was a thinly veiled asset stripping plan,” said William Browder, managing director of Moscow-based Hermitage Capital Management, a private investing company. He called the plan adopted by the government “a great shock, surprise and disappointment.”

What made the decision even more galling to these shareholders is that the government essentially ignored the findings of a blue-ribbon presidential panel, the Kress Commission, set up to devise a reform plan independently of UES management.

“As a result of this reform, Chubais will make a lot of friends, because he will sell off or distribute all UES property among the oligarchs,” charged Boris G. Fedorov, a former finance minister who has become the chief critic of management at both Gazprom and UES.

Economics Minister German O. Gref, who drafted the government plan, promised that shareholders would be protected, but he did not explain what the safeguards might be. Additional modifications are planned over the next month, he said.

Reform of the power sector, namely the introduction of competition, has been widely regarded here as an urgent task because of recurring blackouts over recent years. A loan for capital investments in the power industry by the European Bank for Reconstruction and Development has been held up until the government implements a reform plan.

But even Vasiliev, a critic of the UES proposal, said he could see some upside.

“It demonstrates that the government has the will to make serious decisions that many analysts doubted it had the potential to make,” he said.

Meanwhile, at Gazprom--Russia’s “state within a state,” which accounts for as much as a third of the world’s known gas reserves, 20% of Russian tax revenue and 7% of the country’s gross national product--anxious private shareholders are waiting to see if the Kremlin will prolong Vyakhirev’s term as chairman or name one of his proteges at a board meeting May 30. In addition to supplying Russia and the former Soviet Union, Gazprom is the biggest source of natural gas for Western Europe.

Five seats on the Gazprom board are controlled by the Kremlin. One belongs to Fedorov, representing private, mainly Western, shareholders, and the rest are controlled by Gazprom management.

For years, there have been charges of sweetheart deals between Gazprom and its managers. The latest surfaced Monday in the German newspaper Frankfurter Rundschau, which said it had obtained documents indicating that some Gazprom income is being diverted to a handful of family and friends of Gazprom officials, including various sons of Chernomyrdin and daughters of Vyakhirev and his deputy, Vyacheslav Sheremet.

Among other things, the relatives allegedly--for a few dollars and through a hitherto unknown intermediary firm--received what in effect amounts to 10% ownership of another company that is to be the conduit for $23 billion in sales of natural gas to Hungary through 2015.

Fedorov, the former finance minister whom the lawsuit is trying to bar from voting on Vyakhirev’s successor, said in an interview with The Times that Russia is losing $1 billion a year through such Gazprom shenanigans. The entire federal budget this year, by his account, is only $35 billion.

“Only President Putin’s intervention can save the situation,” he warned, because the courts, he said, have been “corrupted” by Gazprom’s billions.

Chernomyrdin, a former prime minister who Monday was named by Putin to be ambassador to Ukraine and special envoy for trade matters, brushed off the German newspaper’s report, calling it a “show,” according to the Interfax news agency.

“Only people ill disposed toward Russia and Ukraine alike are capable of such provocations,” he said.

Browder of the private investment firm said Putin’s vote on the Gazprom management will be a test of his leadership.

“This will determine if Putin goes down [well] in the private history book of 100 wealthy people or in the history book of 150 million people whose interests he is supposed to be looking after,” he said.

Sergei L. Loiko and Yakov Ryzhak of The Times’ Moscow Bureau contributed to this report.