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The number of the FGUPs to be incorporated has been constantly growing, however the mid-2005 trend of increasing share of blocks of shares that would help the government to exercise a full-fledged corporate control due to a sharp growth of the number of full (100% shares) blocks ceased gradually and did not developed further in 2008.

As of January 1, 2009, likewise early 2008, the government was able to exercise a majority or complete control in more than 61% of all the companies. The share of the minority stakes (up to 25% of the capital) has been growing in the overall structure of the federally owned stocks while the share of blocking (25% to 50%) or majority stakes (over 50% but under 100%) was decreasing.

The absolute number of minority stakes in federal ownership has changed insignificantly while the number of blocking and majority stakes reduced obviously: by more than 1/5 and accordingly. This trend affected the full stakes to a lesser degree and the number of full stakes reduced by 6.5%.

RUSSIAN ECONOMY IN trends and outlooks Rosstat monitoring is another source of data about the growth of the public sector1. According to Rosstat, the growth dynamics of business entities in 2008 and in 1H of 2009 developed as follows (Table 4).

Table Number of enterprises in the public sector of economy registered by territorial divisions of the Federal Property Management Agency and the Property Management Agencies of the RF subjects in 2008 Business entities which charter capital has over GUPs -State 50% of shares in unitary enter- Date Total* prises- includ- Government agencies in ownership of business ing treasury entities that operate in federal ownership enterprises the public sector of economy As of January 1, 2008 80570 10598 64440 4111 As of July 1, 2008 77461** 9864 62571 3930 As of January 1, 2009 75878** 9144 61831 3795 As of July 1, 2009 77082** 8706 63019 4007 * including organizations which foundation documents after registration in government authorities do not specify types of activities, but excluding joint-stock companies in which more than 50% of shares (stakes) are in joint federal and foreign ownership; the total number of public sector entities can exceed the number of GUPs, institutions and business entities;

** federal property is registered under Resolution of the RF Government of July 16, 2007 No 447 On improvement of registration of federal property;

Source: On the development of the public sector of economy of the Russian Federation in 2007. M., ROSSTAT, 2008, p. 123. On the development of the public sector of economy of the Russian Federation in 1H 2008, M., ROSSTAT, 2008, p. 87; On the development of the public sector of economy of the Russian Federation in 2008.

M., ROSSTAT, 2009, p. 7.; On the development of the public sector of economy of the Russian Federation in 1H 2009. M., ROSSTAT, 2009, p. 7.

In general the number of organizations of the public sector of economy decreased by 5.8% in 2008; however in 1H 2008 it grew by 1.6%. As a result, as of mid-2009 this number roughly corresponded to the similar indicator a year ago July 1, 2008.

The development dynamics varies by different sub-sectors of the public sector. The number of state unitary enterprises was going down (a stable trend): in 2008 by 13.7%, in January-June 2009 by 4.8% (for the year and a half - by 17.9%).

At the same time the number of state enterprises having reduced by 4% in 2008 grew up by 1.9% in 1H 2009. Those business entities in which charter capital more than 50% shares (stakes) are owned by the government demonstrated a similar trend. In 2008 this figure went down by 7.7% while in January-June 2009 it went up by 5.6%. In 2008 the number of business entities in which charter capital more than 50% shares (stakes) are owned by the public business entities dropped most dramatically as compared to other categories of companies in the public sector (almost by 22%), however in 1H 2009 it went up also dramatically by 22.6%.

According to Resolution of the RF Government of January 4, 1999 No 1, Rosstat includes the following business entities of the federal and regional levels: (1) state unitary enterprises under the right of operating and economic control; (2) state institutions; (3) business entities which charter capital has over 50% (stakes) in federal ownership; (4) business entities which charter capital has over 50% of shares (stakes ) in the ownership of business entities in the public sector.

Section Institutional Problems 5.1.2. Mid-term privatization plans While considering the Forecast plan (program) of federal property privatization for and the main trends of federal property privatization for 2011 and 2012 approved by RF Government Resolution of November 30, 2009, No 1805-r, certain variations from the similar documents of the previous years can be noted.

Primarily this relates to the financial and economic crisis situation where a regular privatization program was approved.

The Program did not appear by the end of summer thus breaking the established tradition, and autumn announcements by the competent Russian officials of the possibility to expand 2010 Privatization program vs the initial version with the expected budget revenues from privatization of RUR7.1 bln1 in a new context of budget deficit (the first deficit since early 2000es) demonstrated a forced backslide to using privatization tools for recharging the budget exactly as it was done in the 1990es.

Nevertheless, in spite of the ambitious statements on the initiation of a new wave of privatization and initial optimistic estimates (the federal budget was expected to receive RUR bln from sales of the state property in 2010) 2010-2012 Privatization program does not look too radical.

The following issues should be pointed out in this document.

Firstly it has another reference to the official government document that sets development shapes for the future Main directions of activity of the Russian Federation Government for the period ending 2012 approved by Resolution of the RF Government of November 17, No 1663-r2 where it states that by 2012 the public sector will reduce, the composition of the state property will conform to the authorities and functions of the state and structural changes in the respective sectors of economy; the work will be continued to reduce the list of strategic enterprises that are not subject to privatization; the process of corporatization (converting enterprises into joint-stock companies) of federal unitary enterprises that are not necessary for exercising public authorities will be completed.

With account of the above, in 2010 2012 the work will continue to remove restrictions on privatization of certain types of federal property that have lost their relevance, and to reduce the number of strategic enterprises and joint-stock companies according to the decisions of the President of Russia. A most acceptable and efficient method of management of these property and enterprises including their privatization will be determined.

Secondly, among the objectives of the government policy for federal property privatization in 2010-2012, in addition to the traditional objectives there is a target to create environment for getting off-budget investments for joint-stock companies development.

This means a much broader application of the mechanism of charter capital increase in the open joint-stock companies established in the process of privatization which 25% or more shares are owned by federal or municipal authorities, while keeping the threshold limits for the state owned shares. This procedure was defined in 2006, and the effective Law on privatization was amended accordingly.

M. Momot. Large clearance. V. RBK, No 11, 2009, p.46-51..

The main directions of activity of the Government of the Russian Federation for the period ending 2012 address mainly implementation of the first stage of the Concept of the long-term economic and social development of the Russian Federation for the period ending 2020.

RUSSIAN ECONOMY IN trends and outlooks Rosgosstrah company (the government share is 25%) is a good example of such scheme:

the company was excluded from the list of strategic JSC by Decree of the President of Russia in September 2009. The Decree points out that the RF Government may well take a further decision to increase the charter capital of the company provided the government stake remains to be at least 13.1% of votes at the general shareholders meeting with a possibility to consider the use of a special right of the Russian Federation to participate in the company management (golden share).

Thirdly, the current Privatization program mentions major facilities in federal ownership subject to privatization as it was done in the similar documents for 2007 and 2008. Such major (budget-making) facilities subject to privatization are stakes of such open joint-stock companies as TGK-5, Rosgostrah, Moscow Metrostroi, Iskitimcement (Novosibisk region), Tyretsky Solerudnik (Irkutsk region)1.

Besides, to raise additional revenues to the federal budget, the RF Government may pass resolutions to privatize blocks of shares of companies that are highly attractive for investors.

As the document suggests, such are the shares of sea and river ports, shipping and steamship companies including the stock of OJSC Modern Commercial Fleet (not more than 25% minus 1 share from the federally owned stock), Murmansk Sea Commercial Port, Novorossiysk Sea Commercial Port, Anapa Airport (Krasnodar Krai) Koltsovo Airport (Ekaterinburg) (Tolmachevo Airport (Novosibirsk)2.

A necessary condition for this is Resolution of Russias President on termination or reduction of the participation share of the Russian Federation in management of the joint-stock companies included in the list of strategic enterprises and JSC.

The presence in the list of the airports, sea and river ports as potential objects for privatization3 follows the recent trend when certain restrictions emerged to include in privatization the enterprises in traditional sectors of production (primarily in industry where integrated entities were actively built up); attempts were made to raise private capital for infrastructure development. It is enough mentioning the sale of full stakes (100%) of the Sochi and Tyumen airports, and identification of the Ufa and Salekhard airports as major targets of privatization in the 2007 Forecast plan (program) of federal property privatization and the main directions of federal property privatization for 2007-2009.

Expectations associated with allocation of budget funds for modernization and construction of airports and primarily their flying fields were a significant factor that heated up the interest of the Russian business to invest in the airports. More serious budget limitations that In the final version of the 2010 Privatization program there is no OJSC SG-Trans which is a larger railway shipper of liquid gases. It was planned to auction this company in 1H 2010 with expected revenue of RUR 8 bln.

SG-Trans privatization was planned in 2006, however it failed because a larger part of the companys property was not registered (for ownership). At the end of 2007 RFFI assessed 100% shares of the shipper owned by the government as worth RUR14.8 bln. Moscow Metrostroi was also included in the Privatization Plan earlier.

Tuapse and Vanino sea commercial ports and several shipping companies (Murmansk, North-West, Volga, Enisei and Sakhalin) were also mentioned as possible facilities for privatization though they were not included in the Privatization program.

An object for privatization in such cases is the airport terminal building or the property for rendering services by the sea terminal operators since the facilities used for supporting air or sea traffic, etc. are included in the property list not subject to privatization which are used by specialized government enterprises (FGUPs State Corporation for Air Traffic Organization in the Russian Federation, Administration of Civil Airports (Flying Fields), Rosmorport, Administrations of Sea Ports that are deemed agencies).

Section Institutional Problems are expected in coming years may strongly change this motivation and complicate the government search of investors. Another incentive for inclusion of sea and river ports in the Privatization program was, possibly, the size of the government stake in the capital which in many cases does not exceed the size of control stake.

Fourthly, for the first time in recent years after the current Law on privatization was enforced in 2002, and the government began approving annual Forecasted privatization plans (programs) the document under review does not contain a nominal list of federal unitary enterprises (FGUPs) to be privatized.

As in the similar documents of some previous years, the document states that in 2010 2012 those FGUPs that do not support the government functions of the Russian Federation will be privatized. About 250 FGUPs are to be privatized in 2010; their privatization procedures began in 2009.

If the President of Russia takes a respective decision in 2010, FGUPs that are excluded from the list of strategic enterprises including those that are parts of vertically integrated structures in the strategic sectors of economy may be converted into joint-stock companies;

moreover, newly formed JSC may be re-included in such strategic list.

Literal understanding of this aspect gives grounds to assume that in the current year the privatization process (de facto, mainly, in the form of corporatization) of unitary federal enterprises in terms of their range expansion will slow down except for the earlier initiated procedures that would be brought to their logical end.

The other parameters of the Privatization program are as follows.

In 20102012 the blocks of shares of joint-stock companies established in the process of conversion of federal government unitary enterprises including those incorporated under the 2009 Forecast plan (program) of federal property privatization will be offered for sale except strategic JSC that are in the list of strategic joint-stock companies or participate in the formation of integrated structures.

In 2010 the following stakes will be offered for sale:

blocks of shares which do not exceed 50% of the charter capital of the respective jointstock companies except blocks of shares of strategic JSC or JSC participating in the formation of integrated structures;

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