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Section 4. Institutional and Macroeconomic Challenges 4.1.Policies in the sphere of property relations 4.1.1. Privatization and federal property administration:

some results of the year of 2004 Initiated in 2003, the gradual implementation of the key elements in the new Con cept of the Federal Property Administration1 began to steadily acquire ever more and more fragmentary character in the year of 2004. One of the most obvious and objective reasons for such a development was the reorganization of the executive power structure which included liquidation of the RF Ministry of Federal Property (RF MFP) replacing it with setting up the Federal Agency for Federal Property Administration (FAFPA or Rosimush estvo) with its further subordination to the RF Ministry of Economic Development endow ing it with norm setting functions in the sphere of privatization2. The necessity in a rather lengthy adaptive period during and after the said reorganization, the attendant changes in the personnel structure and composition (primarily so departure of a significant part of the former RF Ministry of Federal Property employees), further sophistication of the admini stration structure followed with the inevitable attending problems of coordination (along with preservation of the RF MFP) although but only functions of the seller were left to the latter, possibility for a new FAFPA re subordination (for instance, directly under the RF Chairman of the Government) all these logically led to the indisputable fact that in the year of 2004, respective activities of the state in the sphere of its own property administra tion were mostly of a rather inertial and spontaneous character.

In fact, the only component of the new Concept of the Federal Property Administra tion which was in such or other way being practically implemented in the year of 2004, was the 3 year long program of privatization. Such a document (Prognostic plan of privat izing the federal property for the year of 2004 and the main directions of privatizing the federal property up to the year of 2006 was approved by the Instructions of the RF Gov ernment, dated August 15, 2003, No. 1165 p. In particular, the following sequence of ac tions was intended:

2003 privatization of the state owned packages of shares in the amount of up to 2% of the authorized capital;

2004 the state terminates its participation in all joint stock societies where the share of the state comprises less than 25%;

2005 the state terminates its participation in all joint stock societies where the share of the state comprises from 25% to 50% (in particular, it terminates its participation in the capital belonging to companies engaged in the energy supply complex, fishery, foreign economic activities, machine building and cinematography);

2006 the state terminates its participation in all the companies where itowns more than 50% of the share packages but which are not listed among the strategic ones (in particular, those of the civil aviation whose business activities are directly connected with ensuring security of both the respective flights and the state, the chemical and the Although the Concept was approved at the meeting of the RF Government on February 6, 2003, in the period from 2003 to 2004, however, it did not yet receive the status of an official document (as different from the respective Concept of 1999).

For more details see: Radygin A., Malginov G., Privatization and Federal Policy Administration. Russian economy in 2003.

Trends and perspectives. M.: IET, 2004. Pp. 327 339.

Decree of the RF President, dated March 9, 2004, No. 314 On the System and Structure of the Federal Executive Power bodies.

Section 4.

Institutional and Macroeconomic Challenges petrochemical industries, geology and a number of branches of agriculture), including sale of shares of such joint stock societies which were set up during the transformation process of the FPUEs (Federal Public Unitary Enterprises);

by the year of 2008 completion of privatizing the federal property which is not practi cally used for performing the state functions of the Russian Federation, final formation of the management system over the property in the state sector, doubling of incomes from the practical use of the federal property.

According to the estimations made by the RF Ministry of Federal Property in 2003, practical implementation of this program required annual sales of shares belonging to 4000 joint stock societies (including the reorganized FPUEs). To practically reorganize something about six thousand (6000) FPUEs by the year of 2006 (as was evidently implied in the said plan), it was necessary to simultaneously make changes in the respective nor mative and legal acts lifting off the current limitations on privatization for over three thou sand (3000) existing FPUEs. Accordingly, no more than two thousand (2000) FPUEs and five hundred (500) different packages of shares are expected to remain in the state owner ship by the end of 2008. Thus, we can talk about quite a radical scenario of completing the property reform in Russia.

Nevertheless, unreality of the set up time terms stated was quite obvious already when the said program was being adopted and the practical steps undertaken during the year of 2004, became but only an additional confirmation of that fact (Table 1). The basic limitations to practical implementation of such a large scale program within the time terms stated, still remain valid as well:

demand for the overwhelming majority of the objects to be privatized remain extremely low; moreover, the rest of the unsold objects which successfully transit from one year into the other, only keep on increasing;

risks of bringing about certain instability factors into the stock market and of selling the state property cheaper than such could take place under a smooth, time extended process of privatization;

rather high probability of permanent corrections introduced in the lists of the respective packages of shares and enterprises due to various objective and subjective reasons;

organizational facilities of the respective management bodies for fast enough reform ing the state sector are in strong contradiction with the existing quantitative limitation its scope;

although the quantity of the state owned minority packages was such or otherwise get ting reduced during the recent ten years, the rate of such reductions, however, does not substantiate any reasonable forecast of full solution of the problem within the three year span of time3;

demand for new implementation mechanisms of not quite attractive minority packages (in particular, rejection of estimating the minority packages put up for sale and deter mining the starting price at the face value of the shares to be sold) unless such has been practically confirmed4;

The de facto sales of the packages of shares in the recent years comprised but only from 10 to 30 per cent of those planned for a year. For example, 1 965 packages of shares were planned to be sold but nevertheless no respective auctions were officially declared for 571 of them, nor there was any decision on excluding the given enterprise from the said strategic list for 103 of them, and 158 enterprises faced the standard bankruptcy procedures initiated against them (although the latter could easily be viewed as a sort of a spontaneous privatization).

As a sufficiently radical instrument, it probably seems sensible to suggest reducing the authorized capital in the amounts equal to the state share in such JSS where several attempts to sell the state package definitely and unequivocally failed and their management does not have reasonable financial, managerial or strategic perspectives. However, this practical step will RUSSIAN ECONOMY in trends and outlooks resistance of the branch ministries and primarily so with regard to reforming the PUEs [Public Unitary Enterprises] (mostly due to various financial and administrative rea sons);

drastic reductions in the quantity of unitary enterprises at all levels with their possible transforming into open joint stock societies (OJSS) which, while evidently increasing the loads on the public governance bodies, is hardly demonstrating any better effi ciency in the capacity of public representatives during this particular time period as well;

using the property of the respective unitary enterprises in order to set up an apprecia ble sector of public enterprises legally functioning as operative managerial units which simultaneously implies increase of financial risks of the state as connected with the subsidiary responsibility with regard to obligations of such enterprises;

sufficiently significant remains to be the problem of executing full fledged property rights of the respective enterprises on land plots (overcharged prices of redemption and rent, different methods of cadastral estimations and determining the real market price, administrative barriers, regional policies and so on and so forth). general and not at all simple problems of ensuring the required level of quantitative normative and legislative support.

A significant factor, as noted above, was the 2004 administrative reform the influence of which on the processes of managing the state property simply can not be considered as unambiguous. On the one hand, for example, although revision and redistribution of func tions between the respective ministries and departments evidently do stimulate more fa vourable conditions for radical reductions in the FPUE sector, there, nevertheless, also takes place certain general weakening of control over the said FPUEs as caused by the ab sence of sufficiently clear and distinct division of functions and authority functions between the FAFPA and the respective agencies under the branch ministries. On the other hand, however, reorganization of the system of managing the federal property often creates quite serious problems for the current representation of the state in governance bodies of the JSS with the state package including the said list consisting of 27 largest strategic JSS.

According to the available data, the Charter stipulated meetings of the shareholders in most of these companies were conducted in the year of 2004 without the compulsory in structions and directives, as approved by the RF Government, or the position as formu lated by the Rosimushestvo. Another problem to be dealt with is prolonged legal proceed ings as connected with the state property management where of particular significance is the succession of the state position6.

indeed require solid legislative support. A positive incentive for potential buyers could become, for instance, consolidation of the residual state and municipal packages of shares for simultaneous sale.

In December 2003, the President of the Russian Federation signed the law (amendments to the Law On the Practical Im plementation of the RF Land Code) extending the time term for compulsory re registration of the right of using the respec tive land plots by privatized enterprises into the right of ownership or rent in the period from January 1, 2004 to January 1, 2006. As to payments for such land plots, no more than just consideration of the respective projects was taking place during the whole year of 2004.

Russian Focus, 2004. July 5 11. p. 8.

Section 4.

Institutional and Macroeconomic Challenges Table Basic Objects of the Federal Property and the Privatization Program for the 2000s 1999* 2000 2001 2002 2003 2004 Total quantity of 13 786 11 200 9394 9846 9275 8820 FPUEs** Privatized FPUEs during a year:

forecasted 1652 970 1063 de facto 2 5 78 571 455 whose packages of 3611 3524 4407 4 222 4 035 3905 shares are in the owner ship of the RF** Including, inter alia, the respective share in the authorized capital:

100% 382 61 90 99 124 273 50100% 470 506 646 589 552 499 2550% 1601 1211 1401 1 382 1308 1183 less than 25% 863 1746 2270 2152 2051 1950 the golden share 580 750 958 640 Federal packages of shares sold during a year:

forecasted 1126 1965 719 de facto*** 87 216 185 638 150 *For the end of each year. The year of 1999 is used here as the respective basis with due account taken of the adoption of the Concept of Administrating the State Property and privatization in the Russian Federation (offi cially approved by the Resolution of the RF Government, dated September 9, 1999, No 1024).

** The total quantity of unitary enterprises in the early 2000s comprised about 80 000, including about 20 of the state enterprises and about 65 000 of the municipal ones. In 1995, the state owned not less than 15 000 17 000 different size packages of shares but in 1999 about 3 100 of fixed packages and from 7 000 to 8 of unsold ones (remaining on the balance of the respective regional property funds). In the year of 1995, joint stock societies already had the said golden share.

***Data on the packages of shares annual privatization yield to no correct interpretation for a whole number of reasons: (1) absence of sufficiently regular information from the RF Ministry of Property and the RF MFP; (2) transference of packages of shares from the RF Minimushestvo to the RF MFP and its divisions for further sales which actually never takes place (as a rule, only 10 to 20 per cent of the deals are considered as completed);

(3) a counter FPUE corporatization process and other methods to increase the quantity of packages in the ownership of the state. As to the FPUEs, the respective data on privatization appear to be rather relative since the official values probably include a number of FPUEs which were subjected only to the primary corporatiza tion. In January 2005, the RF Ministry of Economic Development suggested to include 42 FPUEs and 63 JSS in the privatization plan for the year of 2005 additionally.

Source: Data of the RF Ministry of Economic Development, FAFPA.

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