Income from the Privatization and Management of State Property in the Federal Budget Draft for 2014-2016

The federal budget draft for 2014 and the planning period for 2015 and 2016 that has been introduced in parliament by the Russian government provides for the utilization of funds obtained in the privatization of federal property as a separate source for financing the federal budget deficit.

In this regard, neither the draft of the corresponding federal law nor the similar document from the previous year contain information on the actual amount of income from privatization, neither in the main body nor in the appendixes. The figure from the privatization of federal property only appears in an explanatory note together with governmental borrowing, as an independent source of financing of the federal budget deficit.

In this context, it is advised that for the 2014-2016 period it is planned to privatize a block of shares of major companies holding leading positions in their corresponding sectors of the economy. The specific time frame and method of privatization of these companies is determined by the government of the RF, based on market conditions and also on the recommendations of leading investment consultants.


Further on, confirming this aspect, the content of the projected plan (program) for the privatization of federal property and the basic direction of the privatization of federal property for 2014-2016, confirmed by the RF Government order of July 1, 2013, No. 1111-r, is laid out de facto in the explanatory notes to the draft legislation for the federal budget for 2-14-2016 presented in parliament.


In this regard it is necessary to note that plans for the privatization of major companies have undergone serious modifications in the document in comparison with the existing privatization program for 2011-2013. This process was established over a year ago in the RF Government order of June 20, 2012, No. 1035-r. Rosagroleasing, Rosselskokhozbank (earlier releasing a statement that government participation would decrease by 2016) and FGC UES (government share slated to decrease to 75% plus 1 share) dropped off the catalogue of assets proposed for privatization, but ROSNANO (government share predicted to drop to 90% by issuing and distributing additional shares), Rostelkom, Rosspirtprom, the State Transport Leasing Company and the two airports in Moscow were added.


Unlike the versions of the privatization program of 2011-2013 dated June 2012, the reduction in participation in the share capital of many major companies was to be done while still contemplating maintaining corporate control, or at least the ability to influence corporate management by a holding a packet of blocking shares (25% plus 1 share).


The halt in governmental participation in capital for 2014-2016 was announced for seven companies (Rosspirtprom, The United Grain Company (UGC), ROSNANO, Rostelkom, Sheremetyevo International Airport (SIA), Vnukovo Airport, Vnukovo International Airport), out of which only UGC and SIA were slated before 2016. In this regard, the decision of the president of the RF and the RF government for the strategic development of the Moscow aviation hub needs to be taken into consideration as it relates to the three Moscow airports. For them, as well as for a number of companies (UGC, ALROSA, Rostelkom), the exercise of special rights to participate on the part of the Russian Federation in the management of stock companies (the "gold share") is possible. It should be observed that cessation of participation by the government in the share capital of each of these companies will very likely create problems from the point of view of the rationale and justification of these actions.

Execution of these measure guarantees 196.8 billion rubles to the federal budget for 2014, 158.8 billion in 2015 and 99.9 billion in 2016. What we have is a decided decrease in the amount of predicted revenue from privatization of state ownership in comparison with what is indicated in the explanatory note referring to the existing federal law of December 3, 2012, No. 216-FZ Regarding the Federal Budget for 2013 and the planned 2014 and 2015 Period: by almost 40% in 2014 (compared to 330.8 billion rubles) and almost four times less for 2015 (compared to 595.1 billion rubles). It should be noted in this regard that in the versions of this law that are available for review (with the modifications and additions introduced by the laws in June of this year), data on the total funds from the sale of shares and other forms of participation in share capital belonging to the federal government are not provided, nor are their division among the various sources of financing of the budget deficit. Privatization plays a secondary role in the financing of the deficit under the new federal budget; the expected revenue from privatization in 2014 is less than 1/3 of the funds expected to be borrowed by the state; about 1/5 in 2015 and about 1/10 in 2016.


To discuss the reality of achieving the reference points presented with regard to the actual privatized revenue in the federal budget is rather difficult, as it depends on both the total list of assets to be presented for sale and their value, which is related to the valuation process and the state of the securities market.


The new privatization program for 2014-2016 indicates revenue of 3 billion rubles annually compared to an assessment of 6 billion rubles for 2011 and 5 billion rubles each for 2012 and 2013 under the current privatization program. However, the prediction of basic returns from privatization from the sale of shares of major companies that are highly attractive to investors disappear completely in the event that the RF government makes separate decisions regarding their quantification, whereas in the previous privatization program the amount was calculated at 1trillion rubles during 2011-2013.


The presence of detailed projections regarding revenue from the use of state property should be noted as a positive trend in the draft budget law presented to parliament for review. In turn, a prominent role is played by the dividends on the federal block of shares; a return of 192.7 billion rubles is predicted in the federal budget for 2014, 200.4 billion rubles in 2015 and 761 billion rubles in 2016.


The growth rate for 2016 is predicated on the allocation of revenue to the federal budget in the form of dividends on Rosneftgaz JCS shares resulting from the sale of 19.5% less 1 share of Rosneft Co. JCS (423.5 billion rubles) and the proposed effect of the decision of the RF government regarding payment of dividends on stock belonging to the state of no less than 35% of the net profit of stock companies as indicated in their consolidated financial report (106 billion rubles).


Other forms of revenue to the federal budget from the use of state property in the form of material assets (rental payments for land and property, calculation of the profit from unitary enterprises) have a supplementary character.

As always with privatization measures, the macroeconomic situation may affect revenue from the use of state property, especially revenue resulting from activities of the state as a business entity (dividends). One further factor requiring additional analysis in this regard is potential decisions on the regulation of tariffs on natural monopolies primarily affecting the state sector of the economy.


G.N. Malginov - Ph.D. economics, head of workshop for issues involving ownership and corporate management