A new, the third in succession, Privatization Programme for 2017–2019 was adopted in late February. The Programme was drafted with due regard to the amendments in the spring of 2010 to the Privatization Act in force that extended (from 1 to 3 years) the effective period of the Forecast Plan (Programme) of Federal Property Privatization. It took longer than expected to draft the document which did not even exist earlier in the year, although the Federal Budget 2017–2019 was already adopted by then.

The Forecast Plan (Programme) of Federal Property Privatization and the Guidelines of Federal Property Privatization for 2017–2019 were ultimately adopted by Russian government’s Executive Order No. 227-r of 8 February 2017 upon the adoption of a relevant draft executive order at a Russian government meeting on 2 February 2017.

No explicitly formulated objectives of the national policy of privatization are set forth in the document. Instead, it contains a reference to goals and objectives provided for by a State Programme (Federal Property Management) adopted by Russian government’s Executive Order No. 327 dated 15 April 2014, which also aims to lower the degree of state involvement in economy, to increase the effectiveness of sales of state-held stake/interest in large corporations for the purpose of creating more attractive environment for investment, to encourage stock market development, as well as to undertake modernization and technological development of economy.

Like in the previous privatization programme, reference is made to Executive Order of the Russian President No. 596 of May 7, 2012 On State Economic Policy in the Long-Term under which the state is to sell, before 2016, its stake in non-energy companies other than natural monopolies and defence related companies, and both the Executive Order and the Privatization Act are referred to as underlying instruments for drafting a new programme and for ensuring a seamless privatization process by making sure that the privatization plan cover federal property whose privatization was not completed in the previous planning period.

The Forecast Plan (Programme) of Federal Property Privatization for 2017–2019 further extends the list of companies not eligible for privatization: (1) joint-stock companies and enterprises that are on the list of strategic enterprises, (2) minority stakes in joint-stock companies affiliated with their parent companies as part of vertically integrated systems, with a view to contributing such stakes to the charter capital of the parent companies of relevant integrated systems, as well as (3) organizations that are registered outside the Russian Federation. The former two groups are similar to those mentioned in the privatization programme for 2014–2016, while the third group is new because the previously adopted list of companies not eligible for privatization covers state-held
‘minor’ stakes in joint-stock companies whose preparation for privatization is estimated to incur greater costs than gains.

Forecasting the effect of privatization on structural changes in economy is of formal nature, presenting qualitative distribution of state-owned economic entities to be privatized in terms of economic activity.

The list of largest companies eligible for privatization under special Presidential and federal government’s decisions according to market trends and recommendations of lead investment consultants contains only four companies in which a state-held stake is to be sold (PJSC Novorossiysk Commercial Sea Port, JSC United Grain Company, OJSC Prioksky Non-Ferrous Metals Plant, Crystal Ltd.), three companies in which a state-held stake is to be downsized (down to 29%+1 share in a single company (ALROSA), and down to 25%+1 share in two companies (Sovcomflot and PJSC VTB Bank)). The previous privatization programme for 2014–2016 covered 20 such companies, excluding Rosneft in which parent company’s (JSC Rosneftegaz) stake was expected to be downsized. The list of assets eligible for privatization through the usual procedure (Section 2 thereof) contains 298 federal state unitary enterprises (FSUEs), 477 joint-stock companies, 10 limited liability companies, and 1041state “treasury” enterprises (enterprises that constitute the state treasury of the Russian Federation), in the same manner as few years before.

Federal budget revenues from privatization (excluding the stock value of largest companies) in 2017-2019 are estimated Rb 5.6bn annually (totalling Rb 16.8bn), while they were forecast Rb 3bn annually in the privatization programme for 2014–2016 (totalling Rb 9bn), Rb 6bn in 2011 and Rb 5bn each in 2012 and 2013 (totalling Rb 16bn). Like in the previous privatization programme for 2014–2016, no qualitative estimation has been made as to main revenues from privatization by selling shares in largest companies with high investment appeal, in case the Russian government takes targeted decisions (the privatization programme for 2011–2013 expected Rb 1 trillion of revenues).

By and large, the new privatization programme can be characterized as follows.

First, the comparison of the Forecast Plan (Programme) of Federal Property Privatization 2017– 2019 with the previous privatization programmes reveals that the former is interim in terms of quantity of assets eligible for privatization through the usual procedure (unitary enterprises and economic entities), whilst it has much bigger quantity of other state treasury property. The list of largest companies eligible for privatization under individual schemes is much shorter than that of the programme for 2014–2016. However, it is likely that multiple adjustments will be made, as was the case in previous years.

Second, in terms of content, the privatization programme for 2017–2019 is similar to the two previous three-year programmes. It also mirrors their typical shortcomings (e.g., the formal nature of forecasting the effect of privatization on structural changes in economy, poorly substantiated forecasting of revenues from privatization, lack of details regarding off-budget effects of privatization, selection of enterprises that are restricted for privatization under the law in force).

Third, the forecast budget revenues from privatization (apart from major transactions) are approximately similar to the forecast made in the initial three-year privatization programme for
2011–2013. The amount of main revenues from selling shares in largest companies depends on the degree of budget priority in the course of privatization, which, in turn, is contingent upon economic situation as a whole. Other effects of privatization (promotion and enhancement of investment environment, stock market, corporate governance, competition) are nontrivial in terms of measuring and thus require targeted approaches.

Georgy Malginov – Ph.D. in Economics, Head of Ownership and Corporate Governance Department