The government is rushing to create a special investment vehicle to sell a stake in oil major LUKoil to get around a State Duma restriction on the sale of stakes in large state enterprises.

It then intends to float the 6 percent stake in the nation’s No. 1 oil firm as Level 3 American Depositary Receipts on the New York Stock Exchange to raise an estimated $800 million. Government officials plan to issue the ADRs as soon as the first or second quarter of 2001 and are already calling the sale the most important privatization project of 2001.

ADRs are a device that allow foreign firms to buy on the New York Stock Exchange tradable certificates that cover a set number of shares in foreign firms.

Level 3 ADRs require financials for the last three years prepared according to generally accepted accounting principles, or GAAP, which LUKoil has said it will do before the end of January.

Last week, as part of the 2001 budget, the Duma restricted privatization of large companies. If the budget is approved, the restriction will come into force on Jan. 1. It is likely the restriction will be in place at least until next summer, when the government hopes to submit its privatization program to the Duma.

The ban has not deterred Prime Minister Mikhail Kasyanov, who has signed a directive to prepare the LUKoil shares for sale through a 100 percent state-owned company that will be created with 50 million LUKoil shares in its authorized capital.

A spokesman in a federal agency responsible for privatization said this was the government’s only chance to get around the Duma’s restrictions.

He said the government will succeed in doing this if the documents for next year’s privatization plan are signed before the 2001 budget comes into force.

"The placement of shares of LUKoil into the authorized capital of a specially created company would signify that a privatization transaction is taking place this year," he said.

He added it was unimportant when the actual placing of shares on the New York Stock Exchange took place since the shares will already have been transferred from the government to a separate company.

LUKoil does not seem very concerned.

"This is Kasyanov’s problem," a spokesman at LUKoil said.

"Moreover, we are not planning to place our shares in the West now. We are awaiting more favorable market conditions."

Gennady Krasovsky, an oil and gas analyst with NIKoil brokerage, said a delay of the approval of the privatization program could hold up the sale of the oil company’s shares for at least six months.

"Because the government has no plans to privatize Rosneft or Slavneft in 2001, the sale of the LUKoil shares will be crucial," Krasovsky said.