New Privatization Wave: Trends, Issues, Prospects

Statements of the Russian officials about a tentative expansion of privatization program for 2010 as compared with the initially planned options, offered in view of emergence of the budget deficit, occurred for the first time since 2000-s, testify in favor of the scenario of forced return to privatization of tools to supplement the budget system, just as it happened in the 1990's.

Herewith, one should realize that the natural constraint for privatization is the financial crisis, which resulted in the collapse of the stock market, depreciation of assets and the absence of a number of potential investors in the Russian market, who are facing serious problems in their own countries. In this situation, the prospects for a serious growth in budget revenues fr om privatization are problematic, especially without regard for the assets of the fuel and energy complex.

Apparently, one can expect significant proceeds only when there appears an explicit tendency for recovery from the crisis in the Russian economy, while in the developed countries it will be close to completion, resulting in the inflow of capital and investment in countries with the so-called «Emerging markets», including Russia.

The tendency to include in the list of potential privatization objects airports, sea and river ports is in line with the trends of recent years, when certain restrictions have been introduced to privatization of the objects in the traditional sectors of material production (especially in the industrial sector, wh ere active construction of integrated structures was noted), whereas attempts were taken to attract private businesses to infrastructure development. It is sufficient to mention the sale of a complete package of shares (100%) of the airports in Sochi (2006) and Tyumen (2007), as well as planned privatization of airports in Ufa and Salekhard as the largest objects of federal property, included in the tentative Plan (Program) for privatization of federal property in 2007 and its main trends for 2007-2009.

In earlier years, the interest of the Russian businesses to invest in airports, were the expectations associated with the allocation of budgetary funds for modernization and construction of those objects, especially their airfields. Obvious prospects for more severe budgetary constraints in the coming years can significantly affect this motivation and make the search for investors more complicated for the government. Another incentive to include the sea and river ports in the privatization program for the next years can be the size of the government share in the capital, which in very many cases is insufficient for control stake.

Mentioned in the context of privatization complexity of management of assets, which are in the competence of a large number of federal state unitary enterprises, is quite obvious. At the same time, given the downsizing of federal state unitary enterprises over the past 10 years, nearly 2.5 times (from 13.8 thousand units in 1999 to 5.7 thousand in early 2009) and increasing number of claims to public corporations (PC), emerged in 2007 can hardly be regarded as the main causes of a tentative expansion of the privatization program.

G.N. Malginov, PhD, Head of Laboratory for property and corporate governance issues