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(1) limited reliability of the Rosstats data amidst the multistage corporate control system employed at many state-owned enterprises, which excludes several levels (by analogy with private companies), (2) impossible impartial and reliable assessment of the state indirect effect on property relations based on the results of the anti-recessionary measures taken in 2008 2009 and (3) potential incompleteness of accounting by public agencies.

6.1.2. Privatization Policy Since the privatization Program for the period of 20112013 approved by the Government of Russia in November 2010 was developed on the basis of the amendments which were made to the applicable law on privatization at the end of May 2010 and provided for a 3-year extension of the planning effective period of the Forecast Plan (Program) for the Federal Property, in 2011 the foregoing document was only amended and updated. A total of 13 relevant statutes and regulations were adopted by the Government of Russia through Enactment No. 2102-r, dd.

November 27, 2010, since the approval of the Forecast Plan (Program) for Federal Property Privatization and the Guidelines of Federal Property Privatization for 20112013, two of With regard to the latter indicator, the data on the end of H1 2011, which saw a considerable growth (against the previous few years) in 2010, also tend to increase a bit as to the public sectors share for the other specified indicators, which needs refinement as to the year-end results in general.

Section Institutional Issues which were issued as early as the very end of 2010 and in January 2012. Government of Russia Enactment No. 513-r, dd. March 24, 2011, contained a major part of the amendments.

The list of the property subject to privatization was expanded as to all types of assets (SUEs, JSCs, LLCs, other property). The list of the latter category which is basically represented by immovable property assets and land plots, was updated most. Whereas the originally approved version of the privatization Program for the period of 20112013 included items of other property assets, it was updated to include 468 items, or up 6.4 times, as early as 2011 year-end.

In addition, the privatization program was complemented with special instructions providing for incorporation of a part of the FSUEs subject to privatization which are 100% owned by the federal government (shares (a part thereof) are subsequently to be contributed to the charter capital of a relevant integrated entity, or 100% shares are subsequently to be assigned as the state asset contribution to Russian Technologies state-owned corporation, as well as provide for the terms of privatization to be defined by the state with regard to specific blocks of shares1.

Given the updates and amendments made, the Privatization Program for the period of 20112013 provides for privatization of a total of 1396 federally held shares of joint stock companies, 276 federal state unitary enterprises and other 468 property assets as part of the Russian Federation treasury.

A special emphasis should be placed on that the list of the 10 super large companies in which the government allowed state capital participation to be reduced in 2011 2013, remained unchanged, but were specified with regard to the Federal Hydropower Generating Company (RusHydro) and the United Grain Company (UGC).

The Ministry of Economic Development and Trade of Russia and the Ministry of Energy of Russia were assigned to see, jointly with the Federal Agency for State Property Management, that the federally held interest in OJSC Federal Hydrogenation Company (the city of Krasnoyarsk) is duly sold under a favorable market situation until July 1, 2012, to the extent that the state retains 50% plus one share in the said joint stock company. The same corporate governance threshold was determined for the United Grain Company (UGC).

A privatization transaction was closed with regard to the foregoing companies, which became the largest transaction throughout the entire period of 2000. In February 2011, OJSC VTB Bank floated a federally held interest of 10% among Russian and foreign investors during a secondary public offering (SPO) at $6.25 per global depository receipt (GDR). According to the data provided by the bank, a total of 1,046,054,133,732 shares of the Russian company were floated in the form of GDRs and common shares. A total of Rb 95.68bn proceeds were obtained.

LLC Merrill Lynch Securities was authorized to organize and close the transaction on behalf of the state under an agency contract. As early as the fall of 2010, LLC Merrill Lynch Securities Merrill Lynch Securities was assigned to be the sole contractor of the public contract on purchase and sale of the federally held ordinary registered shares of OJSC VTB Bank (up to 10% of charter capital) at least at a market price specified on the basis of the market value assessment report made by an independent appraiser.

The originally approved version of the Privatization Program included an instruction for the to-be privatized shares of some of the OJSCs scheduled for contribution to the charter capital of the relevant integrated entity on the basis of the decisions made by the President and Government of Russia.

RUSSIAN ECONOMY IN trends and outlooks Gazprombank in the same manner under an agency contract closed a transaction on purchase and sale of the federally held interest in OJSC Prosvescheniye Publishing House, for a total of Rb 2.25bn.

Apart from the sale of OJSC VTB Bank and OJSC Prosvescheniye Publishing House, five investment banks to be engaged in purchase and sale of the federally held interest in six companies were determined in 2011 as part of the work performed by the Ministry of Economic Development and Trade of Russia.

In all other respects, the Privatization Program for 2011 started traditionally with the bid, which was announced as early as 2010, and summing up the results thereof.

In particular, at the end of December 2010, the Federal Agency for State Property Management announced a purchase and sale of the federally held interest in 16 JSCs (incl. OJSC Tolmachevo Airport) of the 26 investment-attractive joint stock companies (seaports, river ports and shipping lines, airports) included into the privatization program for 2010 for the purpose of subsequent sale under Russian Government Order No. 1321-, dd. August 4, 2010, following the Presidents decision to shorten the list of strategic enterprises and JSCs (Order No. 762, dd. June 18, 2010). The results of the relevant auctions were summed up as early as 2011.

All in all, the shares (interest in charter capitals) of 359 joint stock companies were sold in 2011, including 38 JSCs whose purchase and sale was announced in accordance with the Forecast Plan (Program) for Federal Property Privatization for 2010, and decisions on the terms of privatization were made with regard to 143 federal state unitary enterprises.

Comparing the provided data with the results of the privatization programs implemented in the previous years (Table 7), it is obvious that the number of FSUEs doubled, for which the terms of privatization were made, and the number of sold shares increased 2.7 times vs. 2010.

At the same time, more than 500 shares were sold annually in the mid-2000s, and the results achieved in 2011, 2000 and 2006 thru 2007 are the same. The results are less impressive as to privatization of unitary enterprises.

Furthermore, more important is their inclusion into the composition of vertically integrated entities. For example, almost 2/3 (92) out of the 143 FSUEs, for which the Federal Agency for State Property Management made decisions on the terms of privatization, were incorporated as part of the integration processes. The same picture also can be seen with regard to registered OJSCs (30 out of 42).

The issue of lack of bids from those companies who were supposed to be the bidders in the relevant procedures remained to be resolved in spite of a large scale of privatization in the previous year. For example, more than a half (375) of the shares of 730 JSCs which were offered for sale in 2011 (information announcements were published), were reoffered for bid.

In particular, the same was reported with regard to the shares of OJSC Cheboksary River Port and OJSC Northern River Shipping Lines, which were a part of the aforementioned group of 26 joint stock companies delisted from the list of strategically important enterprises and companies in 2010. Another 10 companies of the list were expected to be privatized in 2011 as part of the implementation of the Forecast Plan (Program) for Federal Property Privatization for 20112013 on the basis of the Government of Russia decisions on the terms of privatization of the federally held shares of Murmansk (25.5%) and Novorossiysk (20%) Commercial Seaports.

Section Institutional Issues Table Comparative data on the dynamics of privatization of federal state unitary enterprises and federally held shares in the period between 2000 and The number of federally owned privatized enterprises (units) (according to the Federal Agency for State Property Management, and the Federal Agency for State Property Period Management of Russia until 2004) privatized FSUEsa, q. JSC shares sold, q.

2000 2 2001 5 125b 2002 102 112b 2003 571c 2004 525 596d 2005 741 2006 356e 2007 377 2008 213 209b 2009 316+256f 52b 2010 62 134b 2011 143 359b a all preparatory arrangements have been completed and decisions on the terms of privatization made;

b including blocks of shares which were announced for sale in the previous year;

c net of the FSUEs whose assets were contributed to the charter capital of OJSC Russian Railways;

d including 31 blocks of shares which were announced for sale in 2004, but the results thereof were summed up in 2005;

e estimated value based on the data provided in the FPMAs Report On Federal Property Privatization in 2007;

f the number of FSUEs for which the decision on incorporation was made by the Ministry of Defense of Russia in addition to those when a similar decision was made by the Federal Agency for State Property Management.

Source: www.mgi.ru; The materials for the meeting of the Government of Russia which was held on March 17, 2005. On Measures Aimed at Improving the Effectiveness of the Federal Property Management; Federal Agency for State Property Management (FPMA) Report On Federal Property Privatization in 2005. ., 2006;

Federal Agency for State Property Management (FPMA) Report On Federal Property Privatization in 2007.

., 2008; Federal Agency for State Property Management. Performance Report for 2008. ., 2009; the data provided by the Ministry of Economic Development and Trade of Russia, the Federal Agency for State Property Management.

Transport assets were sold more or less successfully throughout the entire year. Of most importance were the privatization transactions of the federally held interest in Tolmachevo Airport (the Novosibirsk Oblast, 51%, Rb 2.806m), Volga Shipping (Nizhny Novgorod, 25.5%, Rb 1,042.646m), Tuapse Seaport (25%, Rb 1,612.1m), North Western River Shipping Lines (25.5%, Rb 934m), Vostochny Port (Nakhodka, 20%, Rb 912m), Osetrovsk River Port (the Irkutsk Oblast, Rb 361,821m), Moscow River Shipping Lines (25.5%, Rb 302.994m), Vostok Aviation Company (the city of Khabarovsk, 51%, Rb 263.4m), Astrakhan Airport (51%, 216,875m Rb), Volgograd International Air port (about 38%, Rb 177m), South River Port (Moscow, Rb 134.881m), Volgograd River Port (25.5%, Rb 112,825m), Azov Seaport (25.5%, Rb 100.390m). The sale of blocking interest in Eisk and Taganrog Seaports, Rostov River Port generated less than 100m Rb each1.

The sale price exceeded the initial price in some of the transactions closed, which is not typical of privatization in Russia: (4 times as much) for the federally held interest in Azov Seaport, (2.95 times as much) in Volgograd Airport and (more than 2.5 times) in Tolmachevo Airport, (1.74 times as much) in Volgograd River Port. At the same time, most of the other www.rosim.ru RUSSIAN ECONOMY IN trends and outlooks specified federally held shares were sold when the sale price was equal to the initial price, save for Vostok Aviation Company, Vostochny Port, Eisk and Taganrog Seaports, Rostov River Port, where the sale price slightly outstripped the initial price.

The sale of 55% interest in Vaninsk Commercial Seaport should have been the largest privatization transaction in terms of absolute value (apart from the sale of 10% interest in VTB) (Rb 10,824,125m) and excess of the sale price over the initial price (11.6 times as much), however, the results thereof were cancelled, because the contractor refused to meet the payment commitments. Furthermore, the contractor was to pay a penalty of Rb 75.114m under the arbitration court order, though the Federal Agency for State Property Management demanded much more, Rb 300.46m.

Neither blocking interest auctions for Murmansk River Shipping Lines and Yenisei River Shipping Lines, Samara River Port and Tver River Port, Anapa Airport were held, nor the shares of the foregoing Cheboksary River Port and North Western River Shipping Lines were sold through public offering due to lack of bids.

Given the outdated data of the share market value assessment reports and availability of up-to-date financial figures, as well as the need to engage the maximum number of interested investors, the Federal Agency for State Property Management decided to cancel the sale of the shares of OJSC S7 Airlines and OJSC Murmansk Fishing Seaport which was scheduled for the end of September.

The federally held shares of joint stock companies of various economic sectors, including air transport and water transport (including seaports and river ports), were sold through more than 50 privatization transactions at a value of more than Rb 100m closed in the previous year by the Federal Agency for State Property Management and its territorial offices. It suffice to refer to transactions at a value of more than Rb 300m.

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