Comments by Mr. E.F. Mikhailov, Deputy Director, Department for State Regulation of Rates and Infrastructural Reforms, Russian Ministry for Economic Development and Trade, on Svyazinvest’s privatization. – Vremya Novostei. August 23, 2005

Even according to the most optimistic scenario, the timeline for the holding’s privatization is spring of the next year. This is stipulated in the federal law On Privatization, which governs the procedure for and duration of privatization stages. According to Mr. Evgeni Mikhailov, Deputy Director, Department for State Regulation of Rates and Infrastructural Reforms, Russian Ministry for Economic Development and Trade, the state stake in the holding may only be sold in 1Q06 at the earliest. The state will retain a “golden share”, which will enable it to block certain resolutions of future owners if they contradict state interests – this is a “fix corporate management tool, which is efficiently leveraged by different countries to safeguard state interests in the telecommunications sector.” As for agreement of the draft decree with force-ministers, Mr. Mikhailov is indisposed to believe that ‘special consumers’ of Svyazinvest’s services were opposed to the previous version of the document for protection of their poundage departmental interests. In his words, “draft decree envisages amendments to law, which determine communications operators’ duties in providing communications services in the interests of state defense and security, as well as relations between communications operators and “special consumers” when these services are provided.   A set of documents submitted to the Government together with the decree features the concept of the appropriate bill agreed upon with all departments concerned.

The problem in question is that relations between Svyazinvest (and communications enterprises in general) with force-ministries have not been specifically regulated. In connection with forthcoming privatization, the military reasonably believed reaching agreement with private communications businesses would be more difficult than with a state-owned company. These apprehensions were lifted by a proposal to make amendments to law (including the federal law On Communications) to secure interests of “special consumers”.           

The problem of minority shareholders’ interests protection became an important dimension in Svyazinvest’s privatization. The Cyprus-based Mustcom Ltd (controlled by George Soros) holds a 25% stake plus one share in Svyazinvest. Mustcom insists on broadening its rights in managing the holding after it has gone private, namely propose to amend the Articles of Association of the holding, whereby resolutions on key issues should be taken by a qualified majority of shareholders and members of the board of directors. The sense of the proposal obviously consists in its permitting Mustcom, should these amendments be adopted, to block resolutions taken by the board of directors. Evgeni Mikhailov comments the situation as follows: “Currently, at the request of the Russian Ministry for Economic Development and Trade, this issue is being studied by two companies - Deutsche Bank and Standard&Poors. Late in August, we expect to obtain findings of their studies on adequacy of existing and requested rights of the minority shareholder in Svyazinvest OJSC to the amount of their stake. It is then that the standpoint of the Ministry for Economic Development and Trade will be finalized.”