Auction Chief: Cash Before Competition

The man responsible for what many view as a less-than-straight auction of government shares in key industries lashed out at his critics Wednesday, declaring that filling state coffers, not promoting competition, was his intended goal.


"I don't think competition is an end in itself," said State Property Committee chairman Alfred Kokh. "If the price we set can be paid by one or two institutions ... the fact that I set a high price is something that doesn't bother me."


A visibly irritated Kokh added that those banks excluded from the lucrative loans-for-shares auctions never had the capital necessary to be contenders, and suffered from "a very evil combination of weak nerves and a lack of money."


The response came as Kokh and Vladimir Sokolov, chairman of the Russian State Property Fund, addressed a luncheon gathering of the American Chamber of Commerce on Monday.


Russia's fledgling stock market is poised to benefit from increasing privatization, Kokh said, calling a current market capitalization figure of $6 billion to $7 billion undervalued.


"I believe increasing the volume of Russia's capitalization by 10 to 15 times is absolutely realistic in 1996," he said.


By increasing the value of domestic securities, Russia would give itself breathing room to begin paying off its international debt obligations in 1997, Kokh said. The debt reduction could take the form of a debt-equity swap, Reuters reported.


The state property organizations have come under intense criticism from three of Russia's largest financial institutions, Alfa-Bank, Inkombank and Bank Rossiisky Kredit. The three claim that auctions for major shares of metal giant Norilsk Nickel and oil majors Sidanko and Yukos were rigged in favor of the banks which organized the auctions, Uneximbank and Bank Menatep.


The three banks have threatened legal action against the government, which declared their bids invalid on the basis that the banks did not have the promised funds, or that they failed to meet details of the bidding procedure.


Responding to a suggestion that the oil and metals giants could have been broken into smaller chunks within reach of many more interested parties, Kokh defended the process.


"We haven't set ourselves the task of providing a tiny morsel to everyone," he said, and predicted victory should anyone dare take him to court.


Prior to the brief question-and answer session, Kokh hailed the country's loans-for-shares program, which he said would put $1 billion into government coffers -- a figure he predicted would double next year when the shares may go on the market.


But he admitted that Russia's 1995 privatization efforts had been "touch-and-go," with money-raising hampered by obsolete techniques left over from voucher privatization.


Still, Kokh predicted that financial stabilization and the increasing sophistication of Russia's securities markets would lead banks to "leave the short-term-commitment markets and move toward long-term capitalization," he said. "It seems to me a very positive move."


Prime Minister Viktor Chernomyrdin, speaking at a separate press conference, said that the privatization process could have been conducted differently. But public criticisms of the loans-for-shares program, he said, could be a result of "not explaining everything, perhaps ... not providing enough information to our public."


Of 46 enterprises originally scheduled for privatization, only 16 remained, he said, noting the deletions of defense and aviation firms. "At the slightest doubt we struck enterprises off."


Kokh said the property committee next year intends to sell 10 high-quality firms similar to the Svyazinvest telecommunications firm, 25 percent of which was auctioned Dec. 1 to the Italian firm STET.


One big-money item being prepared for the block is the state insurance company, Rosgosstrakh, which could provide a third of the projected budget revenues from privatization, Kokh said. He said the selloff could be in late 1996.