Georgy Malginov on privatization processes and status of property relations in 2024

However, the critical difference of the 2024 privatization was the prevalence of sales beyond the federal privatization program. A total of 132 economic companies were sold, of which 97 (or almost ¾) were sold pursuant to specific RF Government Edicts, and only 35 units were sold as part of the privatization program.

For comparison, in 2023, there were 37 such companies, and another 2 were sold under Government Edicts (a total of 39 units).

The list of the largest companies leading in their respective industries that can be privatized following particular decisions of the President of the Russian Federation and the RF Government (Section I of the PPP) included only one company, JSC Makhachkala seaport (MSTP), which was repeatedly transferred from one privatization program to another. Pursuant to Executive Order No. 197 of the President of the Russian Federation of March 19, 2024, all 100% of MSTP’s shares are to be contributed to charter capital of the newly jointly established with strategic investor AO NORTH-SOUTH. Stakes in its capital are distributed between the state and the strategic investor (following its cash contribution) in proportions of 49% and 51%. It is envisaged to conclude a shareholder agreement between the parties and, if the conditions of such agreement are met, the investor will have the opportunity to buy out the share owned by the Russian Federation during 5 years at a predetermined cost of Rb 1.25bn.

Among other transactions performed as part of privatization program, sale of Rosspirtprom holding company is clearly outstanding, although it was not among the largest companies allocated by the forecast plan for privatization under individual schemes, in terms of the proceeds it was ranked in the top 3 most expensive assets sold since 2020 (about Rb 8.3bn). Only 53 facilities of the RF Treasury were sold (208 units in 2023), however, 691 sold facilities (386 units in 2023) were not included in the privatization program according to the list of property initial worth less than Rb 100mn approved by RF Ministry of Finance.

Total proceeds from sale of shares (stakes) in business entities amounted to Rb 129.11bn at the end of the previous year, having grown by Rb 101.8bn, or by 4.7 times compared to 2023. Most of them were secured by funds from sale of confiscated shares and other financial instruments, including proceeds deposited to the account of the Federal Bailiff Service (FBS) for shares and other financial instruments acquired as a result of corruption offenses. A total of Rb 2.41bn was received from sale of treasury property, including about Rb 1.5bn from sale of property beyond PPP.

New edition of the forecast privatization plan (program), approved by the RF Government Edict No. 2954-r dated October 21, 2024, continues the practice of annual shifting of terms for starting and ending the implementation of the forecast privatization plan. De facto, it is about a new privatization program for 2025–2027. During this period, it is planned to complete privatization of 20 federal state unitary enterprises (FGUPs), including 12 treasury enterprises, 71 business entities (including shares in 7 limited liability companies (LLCs)), as well as 27.863 other properties of the RF treasury.

On the whole, its quantitative parameters do not differ much from the previous one, although the number of business entities included in the program has been reduced by almost 2.5 times. However, for the first time in many years, the possibility of privatization of the largest companies leading in relevant industries, pursuant to particular decisions of the President of the Russian Federation and RF Government is not considered. Revenues to federal budget from privatization of federal property, excluding value of shares of the above-mentioned major companies, will amount to Rb 2.3bn annually in 2025–2027, exceeding almost twice the amount declared in the previous PPP for 2024–2026 (Rb 1.2bn).

Privatization legislation has been enriched by a number of significant innovations.

The sale of property without announcing the price when it was not sold by public offer was replaced by sale of state and municipal property at the minimum allowable price in the range of privatization methods defined by relevant basic law of 2001. Its value is made dependent on the initial offer price set at the failed sale by public offer. Bidding procedure is close to auction and is supplemented with introduction of penalties in case of refusal or evasion of the buyer to conclude a sale and purchase agreement. This innovation is aimed at improving budgetary efficiency in the standard sale of low-liquid assets.

The approval of Rules for alienation of federal property to create conditions for attracting investments, stimulating development of stock market, modernization and technological development of the economy is much more significant. This category, excluded since 2010 from the law on privatization, was regulated in detail to go beyond the perimeter of state ownership.

As for other aspects of the state property policy, a wave of lawsuits continued in recently years, which resulted in the transfer of assets of a number of companies to the state. Their secondary realization significantly diversifies the structure of budget revenues received from sale of property.

Provisional management practice has significantly expanded for companies dominated by foreign capital associated with unfriendly states. The number of legal entities including securities (shares) subject to this practice, more than tripled over the year, exceeding 40 units. Cases of canceling temporary management are still exceptional (e.g., DANON RUSSIA JSC).

With a minimum of changes in the list of strategic organizations, there were important innovations in the management of economic entities of the public sector.

Methodological recommendations for drafting and approving development strategies for joint-stock companies (JSCs) whose shares are owned by the Russian Federation and FGUPs have been approved. They detail structure of these documents and procedure for their approval, differing depending on specifics of the organizations, being the objects of management influence.

With respect to state owned JSCs, most of the criteria approved in 2021 for selection of applicants to the companies' governing bodies (boards of directors (supervisory boards), audit commissions, and as sole executive bodies) have been canceled if they are elected pursuant to instructions or directives of the President of the Russian Federation, instructions of the Chairman of the RF Government and his deputies.

Amendments to Methodological recommendations on developing and applying key performance indicators (KPIs) for JSCs with federally owned shares and certain non-profit organizations (NPOs) in 2020, for officials of their management, establish a range for the share of annual bonuses related to achievement of target KPIs in the total amount of incentive payments and specify a mechanism for reduction of bonuses (10% or 20% of the annual bonus depending on the violation pattern).

G. N. Malginov 
Candidate of Economic Sciences, Head of Ownership and Corporate Governance Department at the Gaidar Institute.

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