On the Results of the Privatization Program of 2014–2016

The second 3-year privatization program for the years 2014–2016 was approved by the Executive Order of the Government of the Russian Federation of 1 July, 2013, No. 1111-p.

ёIn the absence of directly formulated state policy tasks in this area, the document contained a reference to achieving the goals and objectives stipulated in the state program of the Russian Federation “Management of the Federal Property” (without any specification), and Executive Order of the President of the Russian Federation No. 596 of 7 May, 2012, “On the Long-Term State Economic Policy” which provided for completing by 2016 the withdrawal of the state from the capital of “non-oil and gas sector” companies that are not natural monopoly holders or defense industry organizations.

As in the case of the previous privatization program, numerous changes and additions were introduced to the forecast privatization plan for 2014–2016. Since its approval, 90 relevant normative legal acts have been adopted, of which 28 were issued in 2016, 37 in 2015, 22 in 2014, and 3 in December 2013. Thus, in terms of the number of the adjustments, the privatization program of 2014–2016 much exceeded the program of 2011–2013 as there were only 50 normative legal acts issued to make changes to the latter.

In terms of financing, the highlight of the program was selling the largest companies’ federal stocks of shares by special resolutions of the Russian government with the help of investment consultants specially invited for this, on the basis of amendments to the existing privatization law, which were adopted in the spring of 2010. All in all, in 2014–2016, 5 such deals with shares of Russian partially government-owned companies were conducted (in 2014, there were 2 such deals, in 2016 – 3), totaling 1113.7 billion rubles. This exceeded the forecast of possible budget revenues from the largest transactions in the amount of 1 trillion rubles contained in the first 3-year privatization program for the yeas 2011–2013 (in the program of 2014–2016, there was no such assessment).

Although in the years 2011–2013, 13 deals with shares of the largest joint-stock companies were struck with the help of investment advisers, which is 2.6 times more than in 2014–2016, their total amount was almost half as much (585 billion rubles). However, without the Rosneft deal that was struck in late 2016, the ratio would be in favor of the first 3-year privatization program, as the total amount of the largest transactions for 2014–2016 would be then 402.9 billion rubles.

Their nature also changed radically. Of the 13 deals struck in 2011–2013, 3 did not have a direct budgetary effect, reducing the government’s stake or the stake of government-controlled companies in the capital (e.g., the placement of additional issues of shares of the United Grain Company and VTB Bank, as well as ROSNEFTEGAZ selling 5.66% of Rosneft shares to BP as part of acquiring TNK-BP shares by Rosneft itself). In aggregate (256.6 billion rubles), they accounted for about 44% of the total amount of the largest transactions.

In 2014–2016, almost all largest transactions were budget revenue generating, including the Rosneft deal which, thanks to a special regulatory support, helped to replenish the federal budget in difficult financial and economic conditions. The sale of 19.5% of Rosneft shares to the alliance of foreign investors represented by the Swiss company Glencore and the Qatar Investment Authority for 710.8 billion rubles had a quasi-privatization character, being at the interface of the public sector of the economy management problems. These funds went to the budget not directly but as dividends of ROSNEFTEGAZ which is a parent company of Rosneft. For this, a corresponding amendment was made to the law on the federal budget of the year 2016. Other major transactions conducted on the basis of individual decisions were selling stocks of shares of INTER RAO UES (13.76%, 18.8 billion rubles) and Arkhangelsk Trawl Fleet (100%, 2.2 billion rubles) in 2014, Bashneft (50.08%, 329.69 billion rubles) and ALROSA (10.9%, 52.18 billion rubles) in 2016.

As for the implementation of the privatization program otherwise (apart from the largest transactions), according to the Federal Property Management Agency’s report on the implementation of the privatization forecast plan (program) of 2014–2016, by 2016, after just three years of the privatization program, 389 federal stocks of shares (equity interests) were sold, which is approximately 1.9 times less than in the period of 2011–2013, but comparable to the indicator of 2008–2010. In terms of budget revenues, the program was formally not only fulfilled but overfulfilled as the amount of income from the sale of stocks of shares (equity interests) of business entities that were not the largest ones (more than 24.8 billion rubles) was much higher than the income forecast contained in it (3 billion rubles annually, or a total of 9 billion rubles, excluding transactions with shares of major companies). However, it was less than in 2011–2013 (about 25.7 billion rubles), not to mention the impact of the inflation that had taken place.

The number of federal state unitary enterprises in relation to which the Federal Property Management Agency issued directives on privatization terms in 2014–2016 (125 enterprises) decreased significantly (more than 1.7 times). At the same time, one can note the continuing prevalence of the practice of converting federal state unitary enterprises into joint stock companies (115 entities, while only 10 were converted into limited liability companies) together with a significant reduction in the share of enterprises reincorporated as joint-stock companies as part of creating vertically integrated structures (less than 1/4 versus more than 2/3 in the years 2011–2013). For this part of the privatization program, in 2014–2016, decisions were made on the conditions of the privatization of 30 federal state unitary enterprises and shares of 141 joint stock companies, and the activities related to creating 14 vertically integrated structures (or almost 3/4 of the number of those supported by the country’s leadership) were fully completed.

Other distinctive features of the privatization program 2014–2016 were:
– the development of a new organizational mechanism for selling privatized property, according to which a large and growing share of transactions (besides the largest ones) is provided by independent sellers (mainly the Auction House of the Russian Federation) and the Federal Property Management Agency’s local offices which in 2014 received the rights to sell a lot of stock of shares and other property;

– some success in involving industry specific strategic investors in the privatization process who are interested in further developing the assets they sell (Arkhangelsk Trawl Fleet, Vnukovo and Sheremetyevo airports), although for a positive assessment of these examples, further monitoring of their development over a period of time is needed, especially that of the fulfillment of the commitments undertaken by investors;

– a breakthrough in selling treasury objects (their number increased by more than 5 times compared to 2011–2013);

– the launch of online sales of the property being privatized, which took more than 6 years to be implemented after such a possibility was provided for in the law on privatization in the spring of 2010.

In general, the results of the second 3-year privatization program (2014–2016) were more modest by most parameters than the results of the first one (2011–2013). This is quite natural in the new economic and political situation that developed in 2014. It determined a rigid priority of the budget approach, which ultimately became dominating for various innovations.

Georgy Malginov – PhD, Head of the Ownership and Corporate Governance Department