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Mon, Apr 12, 2004 - Page 12 News List

World Bank says oligarchs still run Russian industry

ECONOMIC CLOUT Just 23 companies control more than one-third of businesses, even after the arrest of the nation's richest man last fall as part of a new government crackdown


A handful of Russian businessmen continue to wield enormous clout in Russia, despite pledges by President Vladimir Putin to create a level playing field and the jailing of Russia's richest man Mikhail Khodorkovsky.

A ground-breaking study by the World Bank released this week revealed that 23 companies control more than a third of Russian industry, dominating the vital oil and natural resource sectors as well as automobiles and chemicals.

The so-called "oligarchs," who amassed their fortunes in the lawless 1990s when the Russian government sold off top state assets for a fraction of their value in controversial privatizations, are facing pressure to share their wealth.

"The state will do everything to create conditions for equal competition," new Prime Minister Mikhail Fradkov vowed last Thursday in his first meeting with the nation's big business leaders.

"Business must be socially responsible," Fradkov said.

rising influence

But in the four years since Putin came to power, the economic influence of the nation's top private groups has continued to rise, despite the spectacular fall of Khodorkovsky, former chief executive of the Yukos oil giant.

His arrest last October on charges of fraud and tax evasion was widely seen as a warning to business to keep out of politics, but that has not stopped the tycoons who prospered under former president Boris Yeltsin from growing richer.

Today, 35 percent of Russia's industry is in the hands of 23 major companies, which also account for 16 percent of employment and 17 percent of banking assets, the World Bank concluded after an exhaustive study of 1,300 companies.

control of raw materials

The biggest of these industrial giants in terms of sales is the oil producer LUKoil, followed by Millhouse Capital, which owns the Sibneft oil firm and is controlled by the billionaire owner of the UK's Chelsea football club, Roman Abramovich.

And measured by the size of its workforce, the biggest employer after the state is the Base Element holding group (160,500 employees), of Oleg Deripaska, which notably controls Rusal, the largest aluminium producer in the country.

These behemoths have suc-ceeded in a wide-ranging restructuring of industry and can amass capital to invest, in a country where the banking system is weak.

But they are less efficient than other smaller private sector firms -- only state enterprises are less productive -- and use their weight to unduly influence the application of laws and government policy.

World Bank warning

The World Bank urged the Mos-cow government to be "continually aware of the risk facing all large natural-resource producers, where a wealthy few acquire control over resources and the remainder of the population live in poverty."

"At the national [or regional] level, concentration of ownership can result in the domination of economic policymaking by a few special interest groups and in subversion of institutions," the bank report said.

In these companies, corporate governance has made little progress, with one principal shareholder controlling more than 50 percent of shares in most cases.

The World Bank's chief economist in Russia, Christof Ruehl says that the Russian government needs to follow example of the US in bringing to heel the "robber barons" at the turn of the 20th century.

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