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Part 1 Conclusion to Russias Economic
Transformation in the late 20th Century Part
2 SISEM Soviet Iron Steel Energy Model
Slides for November 7, 2013
GEOG 433
2
Key Legislative Reforms - new property and
organizational forms cont.

• Law on Commodity Exchanges and Exchange-Brokered
  Trade, adopted by Russian Parliament Feb 20, 1992
• Placed these new structures on a legal foundation
• Guaranteed considerable freedom in areas of
  self-management, rules of exchange-brokered trade
  and free prices.
• Banned exchanges from any type of economic
  activity not specific to them
• Banned from regular trade and middleman trade
  activity
• Capital investment only allowed in organization
  and development of exchange-brokered trade and
  market infrastructure
• Stock purchases and subsidiaries forbidden
• Banks forbidden from participating in commodity
  exchange activities

3
Key Legislative Reforms dealing with
Destatization Privatization

• Law of Destatization Privatization, USSR
  Supreme Soviet, July 1, 1991
• Provided for conversion or restructuring of state
  enterprises in variety of new property forms
• Joint-stock companies
• leased enterprises
• Cooperatives
• Redemption of leased property by the lessees,
• Outright sales of enterprises by competitive bid
  or auction
• Enterprise workers granted preferential right to
  acquire shares determine procedure for
  privatization
• Privatization committees tasks -catalog, assign,
  register firms into categories of (initially)
  state property
• Attempted to assess market values for housing

4
Key Legislative Reforms dealing with
Destatization Privatization cont.

• Voucher scheme(s)
• Yeltsin - millions of owners, not a small group
  of millionaires
• Each citizen got one voucher valued at 10,000
  rubles
• Vouchers for direct purchase of shares, indirect
  via investment companies, or sell voucher for
  cash
• August 31, 1992 Russian Deputy Prime Minister
  Anatolii Chubais (400 rubles/1 - Oct 22, 1992)
  claims vouchers would be worth 150,000 to 200,000
  rubles
• Instant secondary market - vouchers discounted to
  6100 rubles on first day of trading - October 1,
  1992
• Oct. 9, 1992, Russian Parliament guarantees face
  value of privatization vouchers and specified
  that vouchers could be used to purchase
  apartments and land
• If enterprise had fixed assets gt50 million rubles
  gt1000 employees, then privatization plans were
  to be completed by Oct. 1, 1992

5
Key Legislative Reforms dealing with
Destatization Privatization cont.

• June 1992 State Program for the Privatization of
  State and Municipal Enterprises of the Russian
  Federation for 1992
• Decree On Organizational Measures for the
  Conversion of State Enterprises and Voluntary
  Associations of State Enterprises into
  Joint-Stock Companies Statute on the
  Commercialization of State Enterprises and Their
  Simultaneous Conversion into Open-Type
  Joint-Stock Companies signed by Yelstin July 1,
  1992
• 9 key objectives
• 1) generate a social stratum of private owners to
  facilitate the creation of a socially and
  consumer-oriented market economy,
• 2) increase efficiency of enterprises via
  privatization,
• 3) provide a social support protection net for
  the population,
• 4) develop a social infrastructure using money
  obtained from the privatization sales,
• 5) promote ruble and general financial
  stabilization,
• 6) create a competitive economic atmosphere,
• 7) de-monopolize the economy,
• 8) attract foreign investment,
• 9) create conditions needed to broaden the scope
  of privatization in 1993-1994

6
Key Legislative Reforms dealing with
Destatization Privatization cont.

• June 1992 State Program for the Privatization of
  State and Municipal Enterprises of the Russian
  Federation for 1992
• 5 property classes
• Objects and enterprises prohibited from being
  privatized -mineral and water resources, gold
  reserve, Central Bank, telecommunication
  facilities, military property, objects of
  cultural historical heritage
• Requires consent of Russian government or one
  Federation republics, a Deputy Prime Minister,
  State Property Committee, and appropriate
  ministry weapons production repair
  facilities, fuel and energy complexes, commercial
  banks, news agencies, nuclear power manufacturing
  facilities (why do you think added restrictions
  were placed on these sorts of objects and firms?)
• Enterprises having dominant or monopoly position
  in national and local markets education
  institutions, breweries distilleries, air,
  rail, and water transport enterprises, firms
  having more than 10,000 enterprises
  privatization requires decision of Russian
  Federations State Property Committee after
  consultation with relevant ministries
• Enterprises such as pharmacies, public baths,
  urban mass transit system require involvement
  of local privatization programs and consent of
  local property management committees
• Enterprises and facilities subject to mandatory
  privatization
• Consumer service enterprises, light industry,
  food industry, public catering, wholesale and
  retail trade
• Money-losing enterprises of all sectors,
  moth-balled facilities, unfinished facilities
• What is money-losing or money-making under
  soft-budget constraints
• 3 property class missing state farms
  (sovkhozy), housing, land

7
Three options offered by State Privatization
Program

• By Nov. 1, 1992, firms preparing privatization
  plans were to be commercialized or transformed
  into joint-stock companies.
• Option 1 - employees given free of charge,
  non-voting shares worth 25 of equity, can buy up
  to additional 10 of equity at a 30 discount
  from book value, totaling a maximum of 6 months
  minimum wages, top managers can purchase up to 5
  of equity at book value, up to 100 of employees
  and managers payments can be made in vouchers
• Option 2 - a group of employees purchases 51 of
  equity at a price determined by the State
  Committee for the Administration of State
  Property (GKI) and up to 50 of payment can be
  made in vouchers and
• Option 3 - (limited to enterprises with less than
  200 employees and a book value of between 1
  million and 50 million rubles) one-year lease
  contract giving employees an option to buy 20 of
  equity at a 30 discount of book value and up to
  100 of payments can be made in vouchers

8
Problems

• IMF issues, inflation, stable currency
• Ruble overhang, suppressed inflation
• Wage arrears
• Viktor Gerashchenko (Head of Central Bank) vs
  Yegor Gaidar (when he was Acting Prime Minister)
• Ruble printing press vs IMF austerity program
• Ruble crash in late 1990s

9
Red Square St. Basils
Slides for November 7th lecture, part 2Modeling
Soviet Iron Steel Industry
10
The Research Questions
11
Ferrous Metallurgy
12
Schematic View ofIron SteelProduction
13
SISEM Flow model
14
SISEM Objective Function
15
Constraints 1
16
Constraints 2
17
Constraints 3
18
Constraints 4
19
Constraints 5
20
Variables 1
21
Variables 2
22
Variables 3
23
Variables 4
24
Sub-system cost questions
25
Sub-system cost functions
26
Transportation Cost Data
27
Ore types (1)
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Ore types (2)
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Ore types (3)
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Ore deposits 1
31
Ore deposits 2
32
Marketable Ore 1965-1980
33
Soviet Ore Exports 1960-1979
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Iron Ore Production Data
35
Iron Ore Enrichment Process
36
Coking Coal Production
37
Coke Manufacture
38
Coking Coal Iron OreExports
39
Scrap metal sources
40
Pig Iron Production (1970)
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Steel Production Data for 1970
42
Steel Production Data for 1990
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Steel Production Data for 1990 (page 2)
44
Modeled Changes in Crude Iron Ore Production
1980-1990
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Changes in Iron Ore Enrichment 1980-1990
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Modeled optimal coking coal production1980-1990
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Changes in Coking Coal Production 1980-1990
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Coal Coking production flows for 1980 1990
49
Changes in Coke Production 1980-1990
50
Coke Manufacture Flows to Pig Iron Plants (1980)
51
Coke Manufacture Flows to Pig Iron Plants (1990)
52
Fe-Ore Production Flows to Steel Plants (1990)
53
Estimated Pig Iron Demand by Regional Nodes
54
Changes in Scrap Metal Utilization 1980-1990
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Modeled changes in Electricity Consumption
1980-1990
56
Modeled Changes in Natural Gas Consumption
1980-1990
57
Changes in Pig Iron Production 1980-1990
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Modeled Steel Production Flows for 1990