EU to Give Russian Privatized Firms $12 Million

Officials on Monday announced the first Western assistance for post-voucher privatization: a $12 million project to restructure Russian enterprises with the help of foreign consultants.The project will pay for Western advice on how to turn privatized companies around by cutting expenses and raising new capital.Michael Emerson, the European Union ambassador to Russia, and Maxim Boiko, head of the Russian Privatization Center, announced at a press conference that six Russian companies had been selected to participate out of a total of 150 that applied. Six more are to be chosen in the coming month."The objective of this enterprise is to get something off to a fast start and to demonstrate model cases," Emerson said.Voucher privatization, in which the government gave each Russian a privatization check to invest at auctions of state companies, is scheduled to end June 30. Post-voucher privatization will concentrate on selling state-owned companies to the highest bidder.Under the consultancy program, to be paid for the by the EU, companies will receive grants of $500,000 to $1 million to pay for consultants who will work out restructuring plans, implement accounting systems, help create product marketing plans and assist in attracting foreign investment.The six companies selected to receive the contracts are: the Yefremov Synthetic Rubber Factory in Tula, the Alexandrovsky Radio Factory in Vladimir, the Shatura Furniture Works in Moscow, the Vladimir Tractor Works, the Krasnoyarksy Refrigerator Plant and the Lesogorsky Plant in St. Petersburg.Consulting companies Arthur D. Little and McKinsey & Co. received the contracts, Emerson said.Consultants are to work three to eight months in each factory.Six additional factories will be chosen in the next month. To be considered under the program, a factory must have distributed shares to its employees and sold off at least 75 percent of its charter capital.The program, part of a $3 billion commitment made by Group of Seven nations at the Tokyo Summit last year to assist newly privatized companies, is run by the Russian Privatization Center, an arm of the State Property Committee, which is in charge of the massive state sell-off.Some of the money will be used for direct investment by a series of investment funds that are now gearing up to buy stakes in Russian enterprises. Other funds will be used to advise companies on restructuring. A separate pool is to be used to relieve Russian companies of the burden of social services such as schools, stadiums and hospitals.The value of the consulting contracts are in some cases larger than the total charter capital of some of the enterprises. However, Boiko noted that assessments for privatization undervalued charter capitals and that the program should dramatically boost the share values of these enterprises."Of course, the services of these consultants are very expensive," Boiko said.But the program will help break down what he said was the top barrier to foreign investment in Russia: "an absence of companies that can accept this money."