GEORGY MALGINOV: BUDGET REVENUES FROM THE PRIVATIZATION WILL DECREASE 1.5-FOLD IN 2020-2022
At the very end of last year, by its Resolution No.3260-r of December 31, 2019 the RF Government approved the Forecast Plan (Program) of the Privatization of the Federal Property and the Main Guidelines for the Privatization of the Federal Property in 2020–2022.
In the 4th three-year privatization program in succession, as in the previous one (2017–2019), the objectives of the state policy in the field of privatization have not been directly formulated. They were replaced by the references both to the achievement of the objectives envisaged by the Federal Property Management RF State Program approved by Resolution No.327 of April 15, 2014 of the RF Government and the upgrading of the mechanisms of federal property management in compliance with Section XII of the Concept of Upgrading the Efficiency of Budget Expenditures in 2019–2024 approved by Resolution No.117-r of January 31, 2019 of the RF Government.
In the description of the assets included in the privatization program, it is specified that the relevant entities (organizations) which are in the state ownership are not attributed to the entities of natural monopolies, nor are the enterprises of the military-defense complex. Basically, it is a reproduction of the approach set out in Decree No.596 of May 7, 2012 of the RF President “On the Long-Term State Economic Policy”. It is to be reminded that the above-mentioned decree was meant to facilitate the exit by the state before 2016 fr om the capital of non-oil and gas sector companies which are not attributed to the natural monopolies and the enterprises of the military-defense complex. However, in the new forecast privatization plan there is no mention of affiliation of assets with the non-oil and gas sector.
Specified among additional exceptions were the following: (1) joint-stock companies (JSC) and enterprises included in the list of strategic entities, (2) minority federal packages of equities of JSCs, as well as equities of JSCs, which are the subsidiaries of vertically-integrated companies, planned for the subsequent redistribution among them, (3) entities registered outside the territory of the Russian Federation. Actually, all those entities were mentioned in the same context in the 2017–2019 privatization program, too, though the second group was defined more narrowly as minority packages of equities of JSCs, which are subsidiaries of parent companies of vertically-integrated companies (VIC), meant for the subsequent contribution to the charter capital of parent companies of the relevant VICs. Quite a new thing is the mention of JSC’s equities among the privatized property assigned by legal entities and individuals on a free of charge basis and received in the federal ownership as a result of restructuring of business entities, by a court ruling or as an ownerless property.
The forecast of the effect of the privatization of the property on structural changes in the economy is of a formal nature and presents the quantitative distribution of economic entities related to the state property and planned for privatization in terms of types of economic activities.
The list of large companies privatized on the basis of special decisions by the RF President and the RF Government with the market situation and advice of the leading investment consultants taken into account includes four companies where the state participation in the capital is planned to be stopped (АО Makhachkalinsky Commercial Seaport, the Adler Trout Farm, the Novorossiisky Commercial Seaport, as well as the Almazyuvelirexport Foreig-Economic Association) and 4 companies where the share of the state participation is going to be reduced: in two companies – the Sovkomflot and the Rosspirtprom – to 75% plus 1 share, while in two other companies – the PAO VTB Bank and the Kizlyarsky Cognac Distillery – to 50% plus 1 share. In case of the Almazyuvelirexport, the prospects of complete privatization are justified by assignment of its authorities as regards exports of precious metals and precious gems of the State Fund of the Russian Federation and uncut and cut diamonds of state funds of precious metals and precious gems of constituent entities of the Russian Federation and realization of representational lots of uncut natural diamonds to another authorized entity, while in respect of the VTB it is specified that an equity exceeding 50% of the capital is a common share.
The composition of the assets to be privatized in accordance with custom-made schemes partially overlaps with the previous forecast privatization plan for 2017–2019 which included seven such companies. It is to be noted that the declared reduction of the share of the state in the Sovkomflot and the PAO VTB Bank will permit the government to exercise control, though in the previous program only the influence on corporate governance procedures by means of retaining a block equity holding was mentioned.
The list of assets planned to be privatized in accordance with the ordinary procedure (the second section of the program) includes 86 federal state unitary enterprises (FGUPS), 186 joint-stock companies (JSC), 13 limited-liability companies (LTD) and 1168 properties of the RF state treasury just as it happened in the past years.
In 2020-2022, budget revenues from the privatization (without taking into account the cost of equities of large companies) are expected in the amount of Rb 3.6bn annually (totally, Rb 10.8bn). In previous programs, they were expected in the amount of Rb 5.6bn annually in 2014–2016 (totally, Rb 9bn), Rb 6bn in 2011 and Rb 5bn each in 2012 and 2013 (totally, Rb 16bn). The forecast of the main revenues from the privatization at the expense of equities of large companies having a high investment appeal in case of taking by the RF government of individual decisions is not available in quantitative terms as well as it was not in all the three-year privatization programs, except for the very first one (2011–2013).
Overall, the 2020–2022 privatization forecast plan can be characterized as follows:
Firstly, unlike the previous plan it includes a smaller number (a 2-3-fold decrease) of unitary enterprises and business entities which are privatized in accordance with the general procedure, though the number of other properties of the state treasury is somewhat bigger. The number of large companies to be privatized in accordance with custom-made schemes is comparable with the 2017–2019 forecast plan.
Secondly, the new privatization program is arranged in the same way as the previous ones and reproduces typical disadvantages of the former programs (for example, the formality of the forecast of the effect of the privatization on structural changes in the economy, weak justification of the forecast of the privatization-related proceeds, lack of the concrete information on possible extra-budgetary effects from privatization and inclusion of enterprises whose participation in the privatization is limited by the legislation).
Thirdly, as regards the forecast of budget revenues from the privatization (except for large deals) there is more than a 1.5-fold reduction as compared with the assessment of such revenues in the previous three-year privatization program for 2017–2019, while as compared with the 2014-2016 forecast there is a somewhat excess over it. However, adjustments are highly likely in a situation wh ere the new pattern of the Russian government, in which the Ministry of Finance is to supervise the Rosimuschestvo has been set up.
G.N. Malginov, PhD, Economics, Head of the Ownership and Corporate Governance Department
In the description of the assets included in the privatization program, it is specified that the relevant entities (organizations) which are in the state ownership are not attributed to the entities of natural monopolies, nor are the enterprises of the military-defense complex. Basically, it is a reproduction of the approach set out in Decree No.596 of May 7, 2012 of the RF President “On the Long-Term State Economic Policy”. It is to be reminded that the above-mentioned decree was meant to facilitate the exit by the state before 2016 fr om the capital of non-oil and gas sector companies which are not attributed to the natural monopolies and the enterprises of the military-defense complex. However, in the new forecast privatization plan there is no mention of affiliation of assets with the non-oil and gas sector.
Specified among additional exceptions were the following: (1) joint-stock companies (JSC) and enterprises included in the list of strategic entities, (2) minority federal packages of equities of JSCs, as well as equities of JSCs, which are the subsidiaries of vertically-integrated companies, planned for the subsequent redistribution among them, (3) entities registered outside the territory of the Russian Federation. Actually, all those entities were mentioned in the same context in the 2017–2019 privatization program, too, though the second group was defined more narrowly as minority packages of equities of JSCs, which are subsidiaries of parent companies of vertically-integrated companies (VIC), meant for the subsequent contribution to the charter capital of parent companies of the relevant VICs. Quite a new thing is the mention of JSC’s equities among the privatized property assigned by legal entities and individuals on a free of charge basis and received in the federal ownership as a result of restructuring of business entities, by a court ruling or as an ownerless property.
The forecast of the effect of the privatization of the property on structural changes in the economy is of a formal nature and presents the quantitative distribution of economic entities related to the state property and planned for privatization in terms of types of economic activities.
The list of large companies privatized on the basis of special decisions by the RF President and the RF Government with the market situation and advice of the leading investment consultants taken into account includes four companies where the state participation in the capital is planned to be stopped (АО Makhachkalinsky Commercial Seaport, the Adler Trout Farm, the Novorossiisky Commercial Seaport, as well as the Almazyuvelirexport Foreig-Economic Association) and 4 companies where the share of the state participation is going to be reduced: in two companies – the Sovkomflot and the Rosspirtprom – to 75% plus 1 share, while in two other companies – the PAO VTB Bank and the Kizlyarsky Cognac Distillery – to 50% plus 1 share. In case of the Almazyuvelirexport, the prospects of complete privatization are justified by assignment of its authorities as regards exports of precious metals and precious gems of the State Fund of the Russian Federation and uncut and cut diamonds of state funds of precious metals and precious gems of constituent entities of the Russian Federation and realization of representational lots of uncut natural diamonds to another authorized entity, while in respect of the VTB it is specified that an equity exceeding 50% of the capital is a common share.
The composition of the assets to be privatized in accordance with custom-made schemes partially overlaps with the previous forecast privatization plan for 2017–2019 which included seven such companies. It is to be noted that the declared reduction of the share of the state in the Sovkomflot and the PAO VTB Bank will permit the government to exercise control, though in the previous program only the influence on corporate governance procedures by means of retaining a block equity holding was mentioned.
The list of assets planned to be privatized in accordance with the ordinary procedure (the second section of the program) includes 86 federal state unitary enterprises (FGUPS), 186 joint-stock companies (JSC), 13 limited-liability companies (LTD) and 1168 properties of the RF state treasury just as it happened in the past years.
In 2020-2022, budget revenues from the privatization (without taking into account the cost of equities of large companies) are expected in the amount of Rb 3.6bn annually (totally, Rb 10.8bn). In previous programs, they were expected in the amount of Rb 5.6bn annually in 2014–2016 (totally, Rb 9bn), Rb 6bn in 2011 and Rb 5bn each in 2012 and 2013 (totally, Rb 16bn). The forecast of the main revenues from the privatization at the expense of equities of large companies having a high investment appeal in case of taking by the RF government of individual decisions is not available in quantitative terms as well as it was not in all the three-year privatization programs, except for the very first one (2011–2013).
Overall, the 2020–2022 privatization forecast plan can be characterized as follows:
Firstly, unlike the previous plan it includes a smaller number (a 2-3-fold decrease) of unitary enterprises and business entities which are privatized in accordance with the general procedure, though the number of other properties of the state treasury is somewhat bigger. The number of large companies to be privatized in accordance with custom-made schemes is comparable with the 2017–2019 forecast plan.
Secondly, the new privatization program is arranged in the same way as the previous ones and reproduces typical disadvantages of the former programs (for example, the formality of the forecast of the effect of the privatization on structural changes in the economy, weak justification of the forecast of the privatization-related proceeds, lack of the concrete information on possible extra-budgetary effects from privatization and inclusion of enterprises whose participation in the privatization is limited by the legislation).
Thirdly, as regards the forecast of budget revenues from the privatization (except for large deals) there is more than a 1.5-fold reduction as compared with the assessment of such revenues in the previous three-year privatization program for 2017–2019, while as compared with the 2014-2016 forecast there is a somewhat excess over it. However, adjustments are highly likely in a situation wh ere the new pattern of the Russian government, in which the Ministry of Finance is to supervise the Rosimuschestvo has been set up.
G.N. Malginov, PhD, Economics, Head of the Ownership and Corporate Governance Department