The federal budget upd ate and the revenues from privatization and federal property management in 2015

The drastic change in the macroeconomic situation in the past year, especially at the end of it (the massive capital outflow, the introduction of various mutual sanctions, the fall of global prices of energy resources, the weakening of the ruble's exchange rate, the chance of a recession in the Russian economy) has necessitated the effective federal budget to be updated for another three years to come (2015–2017).

The proposed amendments to the effective law of the federal budget in 2015–2017 dated 1 December 2014 No. 384-FZ suggest no updates specifying revenues from privatization and government property management, in the text of the document. Neither the body of nor the attachments to the respective government draft bill and the effective version of the budget law contain any information on revenues of this type.

Revenues from federal property privatization are specified as stand-alone source of financing of the federal budget deficit only in the explanatory note to the document. A drastic cut of revenues from federal property privatization is envisaged in 2015, to Rb 15,0bn from Rb 158,5bn, or by Rb 143,5bn. However, it is worthwhile noting that the Federal Law "Concerning the Federal Budget for 2015 and the Planning Period of 2016 and 2017" dated 1 December 2014 No. 384-FZ contains no data on the size of revenues from selling of government's shareholding and other forms of shareholding in the chartered capital, and no revenues among the sources of financing of budget deficit are specified. Of course, the cut by an order of magnitude of revenues from federal property privatization makes their role strictly supplementary in financing of federal budget deficit compared to the suggested spending of the resources from the Reserve Fund.
The anticipated volume of revenues from selling of government's shareholding in large investment-attractive companies and the volume of federal budget revenues from federal property privatization, not including the value of shareholding in largest companies se t by the Forecast Plan (Program) of Federal Property Privatization and the Guidelines of Federal Property Privatization for 2014–2016, are mentioned as a reason for the specified Rb 15bn worth federal budget revenues from selling of a shareholding and other forms of shareholding in the chartered capital.

While the effective privatization program specifies as little as Rb 3,0bn annual amount of federal budget revenues from federal property privatization, not including the value of shareholding in largest companies, there is no forecast as such for principal revenues from privatization through selling of a shareholding in largest investment-attractive companies, if the Russian government makes certain decisions.

A successful implementation of the privatization forecast plan is closely related to the macroeconomic situation and developments in the stock market. In principle, the results obtained in 2014, when the Federal Agency for State Property Management (Rosimushchestvo) accomplished a package of measures of more thorough presale and marketing preparation of assets to be privatized amid the worsening of economic situation and investment environment to generate extra revenues from privatization, allow one to expect that the announced target values would be achieved in terms of the specific amount of federal budget revenues from privatization.
The gains from selling a shareholding (a stake in the chartered capital) in business entities were running at Rb 8,05bn (including the revenues expected in Q1 2015). This implies an outrun of 2.7 times the target amount (net of largest sales), drawing on the forecast for revenues (Rb 3bn annually within a period of 2014–2016) made in the privatization program.

According to the monthly Federal budget execution progress report as of 1 January 2015 (concerning sources of internal financing of the deficit) available at the official website of the Federal Treasury, the revenues from selling of a shareholding and other forms of government's shareholding in the chartered capital were running at Rb 29,7bn, thereby showing a more than 14% outrun of budget appropriations in 2014. According to the data on the federal budget execution in January–February of 2015, federal budget revenues from selling of a shareholding and land plots were running at Rb 256,1m.

In 2015, the federal budget revenues from utilizing government (state-owned) properties are estimated Rb 585,7bn, making it Rb 20,7bn, or 3.7%, more than the amount specified when the Federal Law No. 384-FZ was adopted.

The foregoing result must be supported through extra revenues from utilizing government financial assets, namely an increase in the revenues from managing the assets of the Reserve Fund and the National Welfare Fund (up Rb 71,8bn) and the revenues as interest on public loans (up Rb 19,7bn). Furthermore, the growth in the latter sources appears to be fully covered by the decline in revenues resulting from transferring a part of the revenues of the Bank of Russia (down Rb 20bn).

The decline of more than Rb 53bn in the amount of dividends on government shareholding appears to be more significant, which was caused by nonpayment of dividends by OJSC Rosneftegaz from selling of the shares in OJSC Rosneft (Rb 100,0bn), as well as the reduction of dividends on OJSC Gazprom's shares (down Rb 11,5bn). More than a half of the budget losses from these sources must be offset by a Rb 58,4bn growth in dividends on other government shareholding. Regarding this part, however, the forecast for budget revenues seems not to be quite substantiated, because the decline in total volume of 2015 federal budget revenues from dividends compared with 2014 (not including the revenues from selling of Rosneft's shares) was explicitly specified in the documents attached to the draft bill on the federal budget in 2015–2017 which was submitted to the State Duma in the last fall.

The Federal Property Management State Program (SP) adopted by the Russian Government Executive Order of 15 April 2014 No. 327 is among many of the federal budget items to be updated. Total budget appropriations in 2015 to ensure the implementation of the Program is to be cut by 6.7% (or about Rb 1,9bn).

However, volumes of financing will be cut unevenly according to the sub-programs of the foregoing SP: while the allocations for the Sub-Program on "Enhancing the Effectiveness of Federal Property Management and Privatization" will be cut 10.4%, the allocations for the Sub-Program "Administration of State Material Reserve" will be cut as little as 5.8%. Additionally, the cut of financing the payment to investment and financial consultants for services of presale preparation and selling of a shareholding in joint-stock companies as part of another State Program "Public finance management and financial market regulation" (the Sub-Program "Regulatory and Methodological Support and Organization of the Budget Process") may have a certain effect on the implementation of the former of the above mentioned sub-programs.

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