The draft oil industry privatization plan of Russian President Boris Yeltsin deserves cheers for its intent, jeers for its agenda, and concern for its political durability. Indeed, the immediate political hazards that the plan faces may explain its self defeating paradox of ambition and timing.
Yeltsin's plan would end privatization exemptions now in effect for oil production, refining, and distribution. This part of the move would certainly cheer the international oil companies seeking business in the largest and most important oil producing remnant of the old Soviet Union. It also would accelerate restoration of the federation's rapidly deteriorating oil industry. Such a turnaround is essential to Russia's ability to sustain oil exports and associated hard currency revenues.
TOO LONG A WAIT
The problem with the plan is that privatization would take at least 3 years to complete. That's too long. Russia's revenue needs are urgent. Winter looms. Economic production and oil production are plummeting. On an annual average basis, Russia this year probably will lose its position as the world's leading oil producer, and the slide will continue at least through 1994 or 1995. Exports must decline as well, and with them the revenues Russia so desperately needs.
The government at least recognizes that the country needs outside capital and technology, which is why it has welcomed foreign investment. It seems not to fully recognize the extent to which old command and control habits, and the old guard of technocrats who harbor them, stand in the way of progress. Among the old guard's last redoubts are the still daunting bureaucracies of state associations and enterprises, including those handling oil. It's time for the old guard to go. Russia's economic straits and oil production problems are immediate. Three years from now will be too late.
Yeltsin may be dragging the government's feet on oil industry privatization for political reasons. He faces a challenge to his power on Dec. 1, when the next session of the powerful Congress of People's Deputies begins. In a display of the opposition's influence, Yeltsin sought postponement of the session from the Russian Parliament and lost. The Center for Strategic and International Studies in Washington, D.C., recently characterized the session as "a showdown between Yeltsin and his opponents." The opposition wants to unseat reformist Prime Minister Yegor Gaidar and Foreign Minister Andrei Kozyrev and weaken some of Gaidar's economic reforms.
Deliberately gradual oil industry privatization thus might represent an attempt to appease the resurgent conservatives and Communists who resent Russia's turn in the direction of market economics. Yeltsin is known to be courting the opposition group Civic Union. So far, he has maintained his support for Gaidar and privatization in general. A more gradual approach toward economic reform may, however, become part of whatever compromise emerges.
CENTRAL PLANNING HABITS
As the saying goes, old habits die hard. Obviously, powerful factions in Russia haven't kicked the central planning habits that ruined their country's economy. So another political struggle is at hand. And international companies once again must wait. And Russia's desperate economy must wait. And its distressed people must wait.
So much the pity. Help for Russia's desperate economy is at hand, too, in the form of international companies anxious to begin work. But Russia's old habits, embodied in suspicious bureaucracies with nothing to offer but grudging permissions, are impeding progress. It may be a long winter.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
