Experience has shown that the more attractive an enterprise is, the more difficult it is to find its state-owned shares for sale at open tenders. Here is the story of one example, Ryabinsk Motors, the country's largest maker of aircraft engines.


This major defense plant has a monopoly on the production of engines for civilian aircraft such as the Tu-154, as well as for certain types of military equipment. Naturally, several significant Western investors have been interested in Ryabinsk Motors for quite a while now. It recently became known that Gazprom -- one of the most powerful domestic players -- is also interested in buying the state's 37 percent stake in the firm with the intention of reorganizing part of the company for the construction of hydroelectric plants.


Meanwhile, the plant is going through some tough times. In April, the federal bankruptcy board of the State Property Committee declared Ryabinsk Motors insolvent. This, however, does not automatically mean the plant is bankrupt, but it is something of a "final warning." After making such a determination, the bankruptcy commission is supposed to appoint an interim director until an emergency shareholders' meeting can be called.


Ryabinsk Motors' present problems began several years ago when it was controlled by the State Defense Production Committee. At that time, the leadership of the aviation industry had to choose between several prototypes for the next generation of aircraft engines. They selected the PS-90 and devoted all their efforts to its production.


The choice was a spectacular failure. During eight months of testing last year on Il-96-300 planes, the PS-90 three times lost power in mid flight. Since the engines have come into service on the Il-96, nine have already had to be withdrawn. As a result, one of the major producers of civilian aircraft engines is now left without a reliable product, and it will take many years and considerable investment before a new model can be developed.


The only way to save Ryabinsk Motors from bankruptcy, according to the federal bankruptcy board, is to sell the state's 37 percent stake in an open tender. However, this proposal has met with sharp opposition from, of course, the State Defense Production Committee, which opposes the sale of its plants on principle. The local administration has also come to the support of this position. Local law enforcement agencies have actually prevented representatives of the bankruptcy board from entering the plant and have prevented them from removing the plant's present director.


The bankruptcy board is arguing that the State Defense Production Committee's actions are only helping the U.S. aviation industry. By freezing Ryabinsk Motors' shares, the committee is condemning the plant to complete collapse. And that would mean that Russian aircraft makers would have to buy engines from Western, most likely American, producers.


Of course, there are also rumors that the bankruptcy board has simply begun proceedings against the plant in order to make it easier for Gazprom to take over the state's shares.


Maybe so. But the story is an especially clear illustration of how difficult it can be for the state to dispose of its shares in attractive enterprises.





Mikhail Berger is economics editor for Izvestia.