Government Moves to End Property Corruption

The Russian government intends to reassert its control over valuable semi-private companies and stamp out corruption among enterprise directors under an economic decree signed earlier this month by President Boris Yeltsin, officials said.Decree No. 1200, signed along with a package of measures on issues ranging from advertising to foreign banks, defines the responsibilities of state directors on the boards of companies in which the government holds a controlling interest. The semi-private companies include some of Russia's most attractive energy, defense and aerospace enterprises.The decree requires state directors to consult with the government before voting on any essential management decisions, including top appointments, credit policy, formation of new enterprises, and sales or mortgage of a company's real estate. According to government officials, the measure was drafted because state representatives at semi-private firms had so far been lax in fulfilling their responsibilities, leaving room for corruption to grow unchecked among the firms' private directors."Previously the directors were not actually responsible for the state property they represented, and we needed tighter control over their activities," said Alexander Yakovlev, deputy chairman of the Russian Federal Property Fund, which has representatives at most semi-private enterprises. He said that state officials would not impede the companies' business, but would keep an eye on management to prevent abuses.Under the decree, the Federal Property Fund, the State Property Committee and various government ministries will sign contracts with their envoys at semi-private companies, describing the government directors' functions, rights and duties. Directors who fail to consult with the government on major decisions, or who support decisions opposed by the government, will lose their jobs. Sergei Pavlenko, head of the government Center for Economic Reform, said that the role of state representatives at semi-private firms has so far been little more than ceremonial. "Most representatives are top government people who simply do not have time to do much," he said. "It's time for the government to declare its right to control its property."Pavlenko said that the decree could be a reaction to numerous reports that private directors use state firms as sources of cheap capital for their own ventures. "They somehow manage to transfer the most expensive equipment to surrounding private enterprises or provide them with cheap credits, and it needs to be effectively stopped," he said.But an official with Yukos, a large Russian oil company in which the government holds a 60 percent voting share, questioned the necessity of the decree, saying that the system of state control already existed and worked just fine.The official, who asked not to be named, said that representatives of the State Property Committee, the Fuel and Energy Ministry and the Russian Anti-Trust Committee -- including Pyotr Mostovoi, first deputy to privatization chief Anatoly Chubais -- had worked effectively on the company's board of directors. "Government representatives have a natural right to take part in our work," the official said, adding that the state directors provided a channel through which problems could be addressed at the government level. But Alexander Livshits, top economic adviser to Yeltsin, said that even the state directors sometimes fall prey to conflicts of interest."They sometimes care more about themselves and their pocketbooks than about the state property they represent," he said.Livshits, however, pointed out that the decree would not only increase the representatives' responsibility to the state, but would also give them a stronger position within the companies they direct.The decree applies only to those companies in which the government holds a controlling interest. Under Russia's privatization rules, the government reserved for itself a majority voting share in industries it considered "vital to the state," such as energy, defense and aerospace. According to Yakovlev, these strategic enterprises, which include some of the country's potentially most profitable firms, make up about 5 percent of all Russian enterprises