Privatization Process and the State of Property Relations in Russia

In all, in 2008, the government made decisions on terms and conditions of privatization of 213 federal public unitary enterprises (vs. 377 ones in 2007) and sale of 209 stakes in joint-stock companies, less stock in joint-stock companies subjected to privatization by means of contributing to authorized capital of integrated structures.

The situation with revenues from property management, i.e. the renewable sources (dividends, a part of the unitary enterprises’ profit, receipts from assets and land lease) appeared to be more favorable. The annual budgetary order by all these items was over fulfilled, and their aggregate value was far grater than earnings from privatization. The revenues from the use of the public property played a role of a certain buffer mostly thanks to the fact they had been collected in the period when the economy had not yet sensed the crisis developments (for instance, dividends on stock packages owned by the federal government were paid by results of the 2007 economic performance).

The main trends of the 2008 property relations were:

• Like in 2006-07, the actual value of privatization revenues falling behind the forecasted one;
  

• Deceleration of the privatization process (the budget revenues from privatization tumbled 2.7 times vs. the 2007 ones; the number of sold federal stock packages and FPUEs with respect to which privatization decisions were made plunged at 43-44%;
  

• The overall structure of the federal budget revenues from privatization and state property management being dominated by renewable sources, whose proportion has been on the rise over a few years already (even with account of revenues from sales of various kinds of assets carried out by other agencies);
  

• Continuation of integration of the public assets into holding companies. The magnitude of this exercise has not reduced compared with 2007 (in all, in 2008, privatization was conducted with the use of contributing in the integrated structures’ authorized capital with 65 unitary enterprises and stakes in 250 JSCs, while in 2007 Rosimuschestvo ruled to contribute to such structures’ authorized capital with stakes in 98 JSCs, privatize 60 unitary enterprises, while another 8 ones were reorganized by means of incorporation);
  

• In contrast to 2007, no economic agents in the organizational and legal form of public corporation (PC), but the sphere of influence of some PCs established in 2007 has expanded notably (there started the formation of a huge conglomerate around Rostekhnologii, which includes a few hundreds of federal stake and FUEs in different sectors assigned to the PC as the government’s contribution; as well, there has been set the composition of assets to be assigned to PC “Rosatom”.
  

• As concerns the already existing public holdings, it is worth noting the rise of a new structure of the electricity sector resulting from the liquidation of RAO UES Russia and limitation of a further government’s direct participation with infrastructure and hydroenergetics (albeit public companies, such as Gazprom and Rosneft have become large shareholders in some newly created generating companies), and the increase up to the control value (from 37% up to 51%) of the federal stake in Alrosa, the diamond corporation), which was made by contributing to its authorized capital with the property complex of the production and research organization “Yakutalmaz”;
  

• The government began to lim it the civil servants’ participation in boards of JSCs with the government’s participation in their capital by means of rotation of their composition, along with a gradual increase in the number of independent directors (Rosimuschestvo attracted to participation in executive bodies of such companies over 50 professional directors and 6 managing companies). This can be regarded not only in the context of boosting the efficiency of corporate governance, but a preparation for a possible sale of the federal stakes in such companies as well.
  

The impact of the most recent crisis developments on the national market for corporate control has remained not quite visible. On the one hand, the cheaper assets constitute a natural object for potential mergers and acquisitions on the part of both public and private companies. On the other hand, the accumulated debt burden and no easy access to borrowings should objectively promote sales of a fraction of assets or, at least, inhibit new buys. A lot will depend on the magnitude and format of the state support designated to the national banks, the banking community’s priorities in terms of crediting the real sector, and the degree of the government’s participation in operations on the stock market. For business groups that will fail to get access to the state support the financial crisis, which has already sharply restricted possibilities for attraction of borrowings, will become a catalyst of the restructuring with a prospect of a possible change of owners.

As concerns prospects for continuation of privatization, with inclusion in a respective governmental program of huge assets comparably by the size with those privatized prior to 1994 (for instance, the government stake in the telecom giant Svyzazinvest whose privatization was postponed several times in the past), the question remains unanswered. In conjunction with this suffice it to remind that the 1997-98 crisis reduced the privatization procedures to minimum, because of a multi-fold devaluation of assets, abandonment of the national market by many potential investors, and a great deal of political uncertainty, while at the time, it was just some emerging markets (in south-east Asia and Latin America) that were battered by the crisis.

As well, in the current conditions one cannot bank on a stable inflow of revenues out of renewable sources, primarily because of the aggravation of the financial and economic standing of the corporations with the government’s participation, and the overall decline in business activities.

G. Malginov, Head, the Department of problems of property and corporate governance