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INTERVIEW-Russia wasting chance to reshape economy -magnate
By Andrew Hurst and Dmitry Zhdannikov

MOSCOW, Jan 23 (Reuters) - Russia is squandering a chance to modernise its economy while leaving business exposed to the dead hand of an overblown bureaucracy, a top Russian oil magnate said on Thursday.

"The most acute problem that exists today is between the entrepreneurial class and the bureaucratic class," said Mikhail Khodorkovsky, chairman of Yukos, Russia's second-largest oil company.

Khodorkovsky, 39, Yukos's single largest shareholder with more than one-third of the company's stock, is listed by Fortune magazine in the United States as one of the world's richest men under the age of 40.

"I feel we are standing at a crossroads and we are facing a choice of which path to follow," he told Reuters in an interview.

Top civil servants want Russia to be run like Saudi Arabia where a large bureaucracy absorbs a large part of the workforce and eats up a big slice of state resources, he said.

"Half of the state budget of Saudi Arabia is wages for bureaucrats. This is the road to nowhere," he said. Russia, whose economy has been buoyed by high crude prices, is the only country close to rivalling Saudi Arabia as an oil exporter.

Russia would do better to follow countries such as the United States, said Khodorkovsky. But he added: "Today a large number of bureaucrats are pushing us in the Saudi direction."

In the United States and some European countries "people no longer needed in industry due to increased productivity began to find work in the service sector ... thereby helping build a post-industrial society, which is what we need in Russia."

He said he was alarmed that so many educated young Russians were competing in civil service examinations for safe jobs that paid only $200 a month -- far less than salaries in the private sector.

"Does this not tell us that society is projecting some sick ideas on our youth? This is a serious problem ... (When I see) what is happening with youth today I cannot help but be scared," he said.

Many Russian civil servants are believed to supplement their salaries by extracting bribes from businesses in return for favours.


Russia would pay dearly in the future if it failed to get to grips with shaking up state monopoly Gazprom, and state power utility RAO UES, he told Reuters in a wide-ranging interview before travelling to the World Economic Forum in Davos.

"We are missing a lot of opportunities ... mostly having to do with the opportunity to restructure the natural monopolies, Gazprom, Rao UES and on utilities reform. There will be problems from this and we are going to feel them," he added.

The gas and electricity industries are state behemoths which have changed relatively little since their heyday in the Soviet era and have so far resisted any serious effort at reform.

Economists argue that by selling gas and electricity for less than it costs to produce them, Gazprom and UES are holding back Russia from making a complete transition to a market economy.

European Union trade negotiators have accused Gazprom and UES of subsidising other industries with cheap energy and say the two entities should be run along more commercial lines if Russia wants to join the World Trade Organisation.

Despite missing opportunities to press ahead with reform, the government was making good use of a tax windfall from high oil prices to pay off part of Russia's external debt, he said.

"As far as paying off foreign debt (is concerned) we are doing perfectly well in 2003," he said. "No matter what happens in the oil market we will be okay in this regard."

Khodorkovsky said he was opposed to foreign oil companies being granted tax concessions for their investments under so-called production sharing agreements.

"There should be no discrimination against foreign investors but neither should there be any discrimination against Russian investors. Everyone has to play on a level playing field," he said.

"Fundamentally I feel the existence of two tax regimes in one country is a mistake and the ultimate goal should be to make a single national tax regime," he added.

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