9 August 2009
Anton Kostenko comments for The Moscow Times President Medvedev’s order to investigate Russia's state corporations

Medvedev Orders Probe of State Corporations

President Dmitry Medvedev on Friday ordered Prosecutor General Yury Chaika and the head of the Kremlin’s oversight department, Konstantin Chuichenko, to open an investigation into state corporations, in a sign of growing skepticism over the institutions’ role in the economy.

Medvedev ordered a sweeping investigation into how state corporations function, including their use of state assets and the degree to which their current activities correspond to federal law, according to a statement posted on the Kremlin’s web site.

Medvedev set a deadline of Nov. 10 for the investigators to present their findings, including whether or not the state corporation model should “continue to be used as a legal and management structure.”

Conglomerate Russian Technologies, nanotechnology giant Rusnano, Olympic construction firm Olimpstroi, state lender Vneshekonombank, nuclear conglomerate Rosatom, the Housing Maintenance Fund and the Deposit Insurance Agency are all classified as state corporations.

State corporations have come under fire from influential quarters since they were created in 2007. Presidential aide Arkady Dvorkovich and Finance Minister Alexei Kudrin have spoken out against state corporations, saying they hamper growth.
In March, Medvedev’s legal council on civil law said the special legal status accorded to state corporations was unnecessary and suggested that they operate under the same laws as private businesses.

Shortly afterward, Medvedev fired a broadside against Rusnano, criticizing its state corporation model and saying it would hamper innovation.

But so far, it is unclear what model Medvedev is advocating in its place. In July, the president signed a decree creating state company Avtodor, which will manage the country’s federal highways and establish a system of toll roads. Avtodor is classified as a state company, rather than a state corporation, but it seems to operate under a legal status similar to that of state corporations.

It’s not accidental that the prosecutor general was chosen to perform the investigation rather than bodies such as the Federal Tax Service, the Audit Chamber or the Federal Customs Service, said Anton Kostenko, a partner at EPAM, which works with state corporations.

“Usually, such checks are performed after a signal that the law is not being followed in a particular company, while the rest were tacked on to avoid singling out just one,” he said, adding that the Prosecutor General’s Office has the broadest authority to conduct investigations.

Russian Technologies, which controls titanium major VSMPO-Avisma and owns 25 percent of carmaker AvtoVAZ, looks the most “vulnerable,” as it has received controlling stakes in over 400 companies last July under a decree signed by Medvedev, Kostenko said. Chuichenko will probably investigate how well this decree, as well as others issued by the president, are being followed, he said.

There are signs that Russian Technologies head Sergei Chemezov may have fallen from the Kremlin’s good graces. On Thursday, Chemezov was kicked off the presidential commission for economic modernization, the Kremlin said on its web site. Vedomosti cited sources as saying he lost the position because he never attended meetings.

And the commission reshuffle may just be a precursor to changes at Russian Technologies.

There are so many companies under Chemezov’s control that Russian Technologies “hasn’t even gotten around to some of them yet,” said Yevgeny Minchenko, an analyst with the Institute of Political Expertise.

Even so, seeing the order as directed against a specific person or firm would be simplistic, he said.
“The issue of effectiveness of state corporations is not a new one,” he said.

Maria Antonova