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Russian Government Ordinance No. 228, dd. April 10, 2002 (together with the Rules for the Development and Approval of Operational Programs and Determination of a Profit of Federal State Unitary Enterprises which is Subject to Transfer to the Federal Budget, No. 333, dd. June 6, 2003 and No. 739, dd. December 3, 2004.

Apart from the changes relating to the transition towards cooperation in managing FSUEs through the portal and approval of their development strategies, the procedure for reporting by their managers was changed by adding a provision on submission of information to the Federal Agency for State Property Management on participation of a company in the capitals of legal entities (this requirement was previously imposed on participation in the capital of foreign legal entities only).

Except for the enterprises enlisted into the forecast plan (program) on federal property privatization, or the enterprises to be privatized on the basis of duly made decisions.

RUSSIAN ECONOMY IN trends and outlooks sions are in line with the measures provided for by their corporate development program, volumes and sources of financing, corporate budget items for the planning period.

Many amendments and updates were made to the currently applicable regulations which regulate the functioning of FSUEs.

In particular it was established that transactions on purchase and sale of property should be conducted by selling property at auction pursuant to the procedure established by the federal antimonopoly agency, whereas a reference to provisions set forth in the Law On Privatization which regulate sale of state-owned property assets and state-held shares of OJSCs at auction, was applied for this purpose in the previous periods.

In December 2011, the powers of the Federal Agency for State Property Management with regard to FSUEs, save for those FSUEs which are in the scope of competence of the Ministry of Defense of Russia and the Department for Presidential Affairs of the Russian Federation, with regard to coordination based on the proposals of a federal authority which is in charge of supervision over transactions with the immovable property assets secured to the enterprise on the basis of economic management, were supplemented with a qualifying regulation on leasing these property assets under agreements whose standard terms and conditions are approved by the Ministry of Economic Development and Trade of Russian, unless otherwise provided for by other norms and regulations adopted in accordance with the federal laws.

Special Russian Government Instruction No. 1060-r, dd. June 20, 2011 approved a list of 13 FSUEs to be subject to a special procedure for decision-making on specific issues concerning the activity of such enterprises, including appointment of the general manager thereof, conclusion, revision and termination of labor contracts therewith, approval of the development strategy and program, determination of a corporate profit to transfer to the federal budget, as well as approval of the estimate of income and expenses of federal state-run enterprises.

With regard to this group of enterprises, decisions on coordination of transactions relating to purchase, assignment or possibility of assignment, directly or indirectly, by enterprises owning property assets whose value exceeds 25% of book value of the corporate assets based on its accounting reports as of the latest reporting date, should be made by a FGEB on the basis of decisions of the Government of Russia, the Chairperson of the Government of Russia, or decisions made by Deputies Chairperson by Chairpersons order. The same procedure was established for reorganization of such FSUEs.

From the practical point of view, the update to corporate governance of federally owned joint stock companies can be characterized as follows (Table 8).

In the period since 2008 the number of JSCs whose governing bodies included elected professional directors, increased by 41 times, incl. 1,7 times in 2011, to reach 739 persons.

Hence, the percentage of JSCs with federally held shares, which engaged professional directors (net of JSCs which are subject to the special right golden share, and LLCs), stood at more than 26% (against about 8% in 2009, 15.3% in 2010)1.

In analyzing this indicator, one should consider incomplete comparability of the give values, because in and 2010 they were obtained by comparing the number of JSCs which had professional directors in their governing bodies, with the total number of JSCs with federally held shares, as of the beginning of the year. Moreover, in 2011 the value was obtained by comparing it with a smaller group of JSCs with state participation at the year-end, which means that it was slightly overestimated. In addition, there is no knowing whether or not the membership of professional directors nominated by private shareholders apart from those nominated by the state was taken into account.

Section Institutional Issues Table Dynamics of engaging professional directors in the governing bodies of joint stock companies with state capital participation in the period of 2008Indicator 2008 2009 2010 Number of professional directors, per., 112 610 921 including - independent directors, per. 41 180 296 - professional agents, per. 71 430 625 Number of JSCs in which they were elected as members of the governing body 18 269 448 thereof Source: G.S. Nikitin, E.Y. Litvina. Comprehensive Development of the Systems of Corporate Governance of Joint Stock Companies with State Participation. : Joint stock Company: Corporate Governance No. (91), 2011, PP. 13-15, www.rosim.ru.

A total number of professional directors increased by 14 times, incl. by 1.7 times in 2011, in the foregoing JSCs. The number of professional agents increased almost by 17 times (1.9 times in 2011), independent directors by 9 times (about times in 2011). As a result, the latter accounted for 23.5% of the total number of professional directors in 2011, whereas this indicator the percentage was a bit higher in the previous periods (36.6% in 2008, 29.5% in 2009, 32.1% in 2010). Six hundred and two professional agents became Chairpersons of the Board of Directors (supervision boards) of companies with state participation, or half of the total number of those engaged.

Less success was achieved in other fields of corporate governance modernization. A total of 194 JSCs approved their mid-term strategic development program, 241 companies approved a system of key performance indicators. Different number of specialized committees (e.g., committee for strategic planning, HR and remuneration committee, audit committee, etc) were established under the board of directors of 261 JSCs, a position of corporate secretary was envisaged in 129 JSCs. The performance-based assessment of top manager remuneration, which is essential in crisis and post-crisis periods, was introduced through the use of key performance indicators in some joint stock companies: a provision of management remuneration was approved in 296 companies (of which 250 companies introduced remuneration on the basis of key performance indicators), but a provision on remuneration of the members of boards of directors was approved only in 122 companies1.

Following are important events that took place within the property strategy framework at the federal level. The CEOs of various large companies with state capital participation (e.g., the United Aircraft Corporation) were replaced, but it was not the case with natural monopolies, and deputy prime-ministers, ministers, managers of other federal government executive bodies and members of the Presidential Office were replaced with independent directors and professional agents in the board of directors of joint stock companies with state participation.

This measure is intended among others to improve the investment environment and cover about 20 largest companies with state capital participation and was supposed to be implemented within the first half of the year, when meetings of shareholders in the foregoing companies were supposed to replace ministries and other heads of government authorities assigned to regulate some or other market segments, who often were in the capacity of chairperson the board of directors of such companies. Not every civil servant was supposed to G.S. Nikitin, E.Y. Litvina. Comprehensive Development of the Systems of Corporate Governance of Joint stock Companies with state participation. : Joint stock Company: Corporate Governance No. 12 (91), 2011, P. 10, www.rosim.ru RUSSIAN ECONOMY IN trends and outlooks be replaced with an independent director, government authorities were placed in charge of instructing state representatives on most important issues to consider.

The effect of this measure seems to be mixed. On the one hand, it creates potential preconditions for improving corporate governance, which is a key objective of the new privatization program. On the other hand, given the shortage of independent directors who would meet the requirements arising out of the materiality of companies with state capital participation, the situation is very likely to become the same as that at the very beginning of the 2000s, when senior civil servicemen represented state interests in these companies. In any case, it is undesirable if the state loses its leverage on the managers of these companies due to weakened status of state representatives in boards of directors and possible requirements to independent director candidates, and the issue of looking for efficient corporate governance arrangements in companies with state participation which provide for adequate balance of strategic interests of the state and private shareholders, still remains to be topical.

6.1.5. State participation in the economy and structural policy Ownership of assets doesnt mean that the state can influence the configuration of a specific industry and indirectly the structure of economy at large, including through stimulating or opposing to some or other changes in specific sectors. In this respect, the year of 2011 was characterized by a relatively small changes vs. the recent few years.

A list of strategic enterprises and joint stock companies was updated. From the quantitative point of view, the changes were smaller vs. a large-scale reduction that took place in the preceding year. Only one unitary enterprise and two OJSCs were enlisted, and seven unitary enterprises (of which two unitary enterprises were subject to conversion into state-funded institutions) and two OJSCs, including Oboronservice, an integrated entity established in 2008, were delisted. Two OJSCs underwent changes in the format of their presence in the foregoing list: the state-held interest decreased from 100% to 50% +1 share after Sherementyevo International Airport (SIA) and the United Grain Company (UGC) were allowed to increase their charter capital through additional offering.

The same size of state-held interest was established in the middle of the year for Federal Hydropower Generating Company (RusHydro), through a tentative contribution of federally owned shares of 12 OJSCs to its charter capital in addition to a large number of other property assets, of which most significant were Pavlodolsk HPP in North Ossetia (100%), Kamchatka Gazenergy Complex (96.58%), RAO Energy System of East (52.68%). A state-held interest in the three of the rest of companies was bigger than the blocking interest.

Apart from the electric-power industry, the plan for integrated entities includes decisions relating to the geological and agricultural sectors.

The existing OJSC Centrgeologiya will be renamed into Rosgeologiya with subsequent contribution in the form of payment of additional federally-held shares of 24 OJSCs (100% -share) and OJSCs established as a result of transformation of 13 FSUEs, to be floated by this joint stock company.

OJSC Rosspirtproms property complex underwent significant changes. On the one hand, its charter capital was increased through a state contribution of a great number of immovable property assets1 withdrawn from operating management of federal state-run enterprise (FSRE) This can explain in part a sharp increase in the number of property assets subject to privatization which fall under the category of Other property in the privatization program for the period of 2011-2013.

Section Institutional Issues Rosspirtprom. On the other hand, the number of business entities whose shares and interest were contributed to the charter capital of OJSC Rosspirtprom, decreased from 58 to 39, whereas the possibility to delegate exclusive rights to intellectual activities which previously were to be included therein, ceased to be in force. FSUE Central Moscow Hippodrome was incorporated into a OJSC with a 100% federally held interest, consolidating hippodromes of the Russian Federation. This is why the property assets of 27 state stud farms (SSF) left after liquidation of federal state institutions (FSI) were contributed as a state contribution to its charter capital.

An OJSC, Strategic Points of Control, started to build up in the defense industry. Such entities as the Concern Sozvezdiye and Concern Morinformsystem Agat were expected to enlarge.

In 2011, a total of 29 integrated entities (including the Russian Technologies State Corporation) (26 integrated entities in 2010) were formed on the basis of the decisions made by the President and the Government of the Russian Federation.

As part of this process the Federal Agency for State Property Management made decisions on the terms of privatization of 92 unitary enterprises (24 unitary enterprises in 2010), shares of 44 JSCs (46 JSCs in 2010) and another 12 JSCs established as a result of transformation of FSUEs eligible for the Privatization Program and subject to become a part of integrated entities (two integrated enterprises in 2010), as well as 336 other property assets to contribute to the capital of OJSC Federal Hydropower Generating Company (RusHydro) and OJSC Rosspirtprom. The shares of 10 JSCs established through privatization of unitary enterprises were transferred as a state contribution to the Russian Technologies State Corporation.

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