Russia Overhauls Monopolies

President Boris Yeltsin on Monday signed a sheaf of sweeping decrees to restructure Russias natural monopolies and overhaul its inefficient municipal services. This new burst of economic reform, the most radical since 1992-1993, aims to inject greater competition in important industries, strengthen public finances and spark growth in an economy which has been dogged by recession since the beginning of the decade.

Boris Nemtsov, first deputy prime minister, is spearheading the reform drive. He said the measures would also help the government pay off wages owed to federal employees and attract new investment to upgrade the countrys run-down infrastructure.

Outlining plans to reform the natural monopolies, Nemtsov vowed to create a competitive wholesale market for electricity leading to reduced tariffs by the year-end. The government would keep control of a 51 per cent share of UES, the big electricity utility, and retain an integrated power grid, he said.

 

But it would seek an additional $8 billion from outside investors to build new power transmission lines. Nemtsov said the government would also exercise stronger control over the railway network and Gazprom, the giant gas monopoly in which the state retains a 40 per cent stake.

But he said the government would not break up the company as had previously been mooted. We must retain the single system of gas supply in Russia, we must strengthen the positions of Gazprom in foreign markets, we must facilitate the growth of the price of Gazprom shares. The richer Gazprom is, the richer Russia is, he said.

However, Nemtsov said competitive tenders would be held for new gas deposits, and wider access would be granted to the pipeline network.

Government officials will visit Gazproms headquarters on May 16 to discuss how to implement the industry restructuring.

In an apparent departure from its monopolies policy, the government announced plans yesterday to turn the Svyazinvest telecommunications holding company into the dominant carrier of international and long-distance telephone traffic. On the one hand, the government is trying to beat up the gas, electricity and railway industries but on the other, is trying to create a new national telecoms monopoly, said one western banker in Moscow, speculating the government was not strong enough to tackle every entrenched interest simultaneously. Mr Nemtsov said the government would sell 25 per cent of Svyazinvests shares to Russian or foreign investors for at least $1.2bn and subsequently sell a further 24 per cent to Russian investors. But the terms of the tender suggest well-connected Russian banks are likely to win control of the company. The other main thrust of economic reform will be aimed at slashing housing and utility subsidies, which are a drain on federal and local treasuries. Mr Vyacheslav Basin, chairman of

the federal housing policy committee, said local government was wasting billions a year subsiding inefficient municipal services. The government would now encourage greater competition in municipal services, introduce energy-saving technology and phase out housing subsidies for the rich. Copyright Financial Times Limited 1997.