Putin Mulls Levy for Russian State Asset Sales From 1990s

Russia may charge businessmen who acquired assets in “unfair” 1990s state sales a one-time levy, said Prime Minister Vladimir Putin, who’s campaigning to return to the presidency in an election next month.

“We have to draw a line under this period, so that society accepts the outcome, ending this problem of the 1990s,” Putin said today at a meeting in Moscow of the Russian Union of Industrialists and Entrepreneurs, a lobby group for big business. He described the privatizations that took place through auctions as “frankly speaking unfair.”

“It should either be a one-time payment or something else,” Putin said. “We have to think about this together. I think society as a whole and the business class have an interest in this.”

Putin has refused to reverse the state asset-sales of the 1990s, which handed holdings in the oil, metals and other industries to so-called oligarchs, or wealthy businessmen, who built ties to the government after the fall of communism. Moscow is the city with the greatest number of billionaires at 79, compared with New York’s 58, according to Forbes magazine.

The Micex Index of 30 stocks fell after the comments and closed 0.8 percent lower at 1,542.79 in Moscow after trading little changed earlier. The MSCI Emerging Markets Index also turned lower and was down 0.2 percent at 1,059.05 at 7.35 p.m.

‘Sensitive Issue’

“This a sensitive issue,” Alexey Mordashov, the billionaire owner of steelmaker OAO Severstal, said after Putin’s comments. “The desire and the need to turn the page is understandable, while it’s unclear whom to tax exactly -- those who privatized, who own now, or minorities.”

Billionaire Mikhail Prokhorov, who’s standing for president in the March 4 election, said last week that all the businessmen who bought state assets in the 1990s should decide themselves how much they want to compensate the state.

“I’ll sell everything, all my assets, when I become president and donate almost all of the money to charity,” said Prokhorov, whose fortune was estimated last year by Forbes at $18 billion, making him Russia’s third-richest person.

After being elected to the presidency in 2000, Putin agreed not to revisit the government’s asset sales from the previous decade on condition the tycoons stay out of politics.

Knockdown Prices

Mikhail Khodorkovsky, once Russia’s richest man and owner of the country’s biggest oil producer, was imprisoned for tax evasion and fraud and his OAO Yukos company dismantled in a campaign he alleges was motivated by his political activities.

Khodorkovsky’s Menatep Bank bought a 78 percent stake in Yukos for $300 million in a so-called loans-for-shares auction that was organized by Menatep in December 1995. The energy producer’s market capitalization later rose to as high as $30 billion.

Some of the biggest Russian companies were auctioned to the businessmen, who later became oligarchs, at knockdown prices after the loans-for-shares plan, which was created to prop up late President Boris Yeltsin’s government. Among other transactions under the loans-for-shares, program, billionaire Vladimir Potanin’s ZAO Interros Holding bought a 38 percent stake in miner OAO Norilsk Nickel.

Communist leader Gennady Zyuganov, a rival of Putin in the presidential race, has also pledged to impose a one-time tax to recoup “profits brought by the wind” from assets sold in the 1990s. He also proposed jailing businessmen guilty of criminal behavior during the privatization process, saying 50,000 crimes and violations have been established.

Shifting Ground

“The newswires are currently dominated by President Putin and his re-electioneering promises and initiatives,” Julian Rimmer, a trader of Russian shares at CF Global Trading in London, said by e-mail. “None looks particularly threatening from an equity standpoint but the ground beneath oligarch feet is shifting and places a nagging doubt in some investors’ minds.”

The Russian leader ordered state-run VTB Group on Feb. 2 to draw up proposals to buy back shares from investors who lost money in the bank’s 2007 initial public offering. Russia’s second-largest bank said the measure will cost it as much as 18 billion rubles ($605 million).

Putin, 59, the clear favorite in polls, is seeking to garner more than 50 percent of the vote to avoid a runoff against the second-place finisher in his bid to return to the presidency after four years as premier. He was elected president in 2000 and 2004 and stepped down in 2008 in favor of his protege, Dmitry Medvedev, to comply with constitutional term limits.

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