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Russian President Order No. 1009, dd. August 4, 2004, On the Approval of the List of Strategic Enterprises and the List of Strategic Joint Stock Companies. It should be noted that under the applicable Federal Law On Privatization, strategic enterprises and the shares of strategic joint stock companies may not be included into the forecast plan (program) of privatization of federally owned property unless they are excluded from the list of strategic enterprises and joint stock companies.

RUSSIAN ECONOMY IN trends and outlooks Rosselkhozbank)1 leading in relevant industries were defined for 20112015. The shares of the foregoing companies are planned to privatize subject to relevant decisions of the President and the Government of Russia, i.e. on a case-by-case basis. It was established that state participation would be reduced both through sale of a part of state-held shares and second offering to generate investments for the benefit of companies.

Fourth, in addition to defining plans and preparations for sale of the shares of largest public sector companies and banks, it should be noted that the process of preparation and implementation of privatization of smaller public sector companies and enterprises was accelerated.

For example, the Forecast Plan of Privatization of Federally Owned Property for 2010 was largely extended by enlisting about 500 enterprises, of which FSUEs totaled more than 2002.

A special emphasis should be placed on that a series of large JSCs operating in the transport industry and transport infrastructure (sea and river shipping line companies and ports, airports), were added to the list.

It should be noted that high dynamics of actions within the framework of state privatization policy remained unchanged in 2011 (see the previous section herein). Both new political statements (about enhancing the privatization process) and applied innovations in the field of e-trading, development of FSUE strategies, withdrawal of top state officials from boards of directors, creating a greater variety of methods of transformation of unitary enterprises.

Hence drafting and implementation of the new privatization policy in 20092010 were definitely considered among the top priority objectives of the state. However, in spite of positive developments, this process is quite complex and requires constant maneuvering and temporal trade-offs. In our opinion, drafting and implementation of the state privatization policy are characterized by a special role of political decisions, a particular system of presumptions with regard to this field, due to objectively limited possibilities of assessing a socio-economic effect, high diversity of the public sector and specifics of various state-owned assets. In the meantime, it goes without saying that political decisions cant define all the complementary measures to be taken by the state, thus increasing the role of various stakeholder groups with a positive agenda in defining specific measures on the implementation of political decisions, whereas rivalry between these stakeholder groups defines driftage of the privatization policy.

6.2.2. Stakeholder groups and principal risks In our opinion, the development of new privatization ideology can be distinguished, with certain reservations, by three different but not mutually exclusive approaches which are somehow linked to different stakeholder groups in constructing the relevant public policy.

First budget approach implies that privatization should firstly serve as a tool for generating more budget revenues and eventually ensuring current and mid-run macroeconomic stability. In doing so, however, revenues from renewable sources, including privatization, are Refer to, above all, the Forecast Plan (Program) of Privatization of Federally Owned Property and the Guidelines of Privatization of Federally Owned Property for the period of 20112013, as well as the information published by the Ministry of Economic Development and Trade of Russia on planned sale of the shares of large companies leading in relevant industries of the Russian economy, in 2011(http://www.economy.gov.ru/minec/activity/sections/investmentpolicy/doc20101123_08). This list was extended in July 2011.

No unitary enterprises were originally listed in the Forecast Plan (Program) of Privatization of Federally Owned Property for 2010.

Section Institutional Issues supposed to be made much less available to finance current budget expenditures. Shrinking of the public sector as a result of privatization is also considered a way to reduce the number of recipients of state support.

Second structural approach means that privatization should basically be used as a tool to improve competitive power of companies subject to privatization as well as the structure of selected industries and activities. Decisions on privatization of companies should be governed by expediency-based practice of engaging strategic private investors, investment inflow (including a secondary issue of shares to reduce a state capital participation), higher level of corporate governance, promotion of competitive and business environments, etc., rather than fiscal interests.

Third sectoral approach is focused on ensuring social stability and control over the situation, triggering processes of modernization of specific industries through direct state participation. This may result in the need to maintain (increase, as appropriate) direct state influence on the development of industries and sectors sensitive for the general public and the development of the economy at large. This approach is based on large and extra large stateowned companies. The principal tools are implementation of large investment projects and programs (innovative ones, whenever appropriate), establishment of state controlled (stateowned companies) integrated structures, etc.

Each of the approaches has both advantages and is exposed to certain issues and risks. This is why forecasts of expected revenues from privatization may differ largely in the level of declarativity of selected revenue base as well as the status of a regulatory document, and quite often are conventionally estimative (see Table 12).

Table Forecast of revenues from privatization in the period between 2011 and 2014:

assessment, Rb billion 2011 2012 2013 The Forecast Plan (Program) of Privatization of Federally Owned Property for the 6 5 5 period of 20112013 (approved by Russian Government Order dd. November 27, 2010)* Federal Law On the Federal Budget for 2011 and Planning Period of 2012 and - - - 2013 No. 357-FZ, dd. December 13, 2010, (as revised on June 1, 2011, No. 105-FZ) Basic principles of the budget strategy for 2011 and planning period of 2012 and 298 276,1 309,4 300,2013; for 2012 and planning period of 2013 and 2014.

Budget quarterly breakdown for 2011, item revenues from sale of shares and 297,954 - - other forms of capital participation, federally owned property (www.roskazna.ru) The Office of the President of Russia (11.07.2011, Moscow News): at least 450 450 450 Government of Russia (17.06.2011, http://www.rg.ru/2011/06/17/privatizacia- 500 - - site.html): about the Ministry of Economic Development and Trade of Russia (25.07.2011, Vedo- 1000 1000 1000 mosti) * It was assumed that The forecast of revenues from sale of federally owned property can be updated if the Government of Russia makes relevant decisions on privatization of the shares of the largest companies which are highly attractive for investment, in which case revenues from sale of federally owned property in 2011may total (with consideration for a market situation) about Rb 1 trillion. The forecast remained the same in spite of five amendments made in the period between December 2010 and July 2011.

Realistic assessment of available sources of financing of ambitious privatization plans is a special and extremely complicated problem as part of the budget approach. Putting aside any options relating to active behavior of largest companies and banks with state participation (as buyers who have indirect, preferred access to state financial resources), the first thing that RUSSIAN ECONOMY IN trends and outlooks comes to mind is international financial markets, where, however, competition between national governments wishing to implement certain privatization projects resumed its intensity in the period between 2010 and 2011.

Furthermore, according to a severe assessment of A. Vedev, when we talk about prospects of privatization of, say, state-owned corporations, state-owned banks, state-owned property assets, we must understand clearly that we have no internal resources for privatization.

Referring to analysis of the structure of institutional cash flows of the Russian economy as of January 1, 2011, enterprises have been net borrowers over the last decade (net debt due by accounted for 15% of gross assets of the banking system, or accounted for about 10% of GDP)1.

From this it is inferred that the new privatization policy can be implemented with success depending on a set of decisions relating to the system-wide development of the institutional and investment environments, and the financial system of Russia. First of all, it means constraints on foreign legal entities with regard to strategic industries, title guarantees and law enforcement in general, promotion of internal long-term sources of investment, also through modernization of the funded pension system, collective investment institutions and stock market technologies.

However, the budget approach neither is focused on fundraising to develop privatized companies, nor requires any mandatory transfer of control over privatized companies from the state to private owners. These are advantages of the structural approach which, however, is exposed to the risk of subsequent state intervention in the activity of privatized companies, ensures no efficient use of companies borrowings and is not focused on the development of most notable business entities. Though the sectoral approach can be used for aggressive, relatively rapid reconstruction of selected sectors in creating national champions, it may result in unregulated overgrowth of the public sector, deterioration of the competitive environment and restriction of private initiatives (see Table 13).

Table Principal advantages and risks relating to different approaches towards drafting of state policy as part of new privatization Approach Advantages Problems and risks Budget approach Lower (or full absence of) barriers for buyers; Value of privatized shares is not important; possible state reasonable presales preparation; control in large companies;

focus on privatization of largest companies; focus on sales of no-problem, liquid assets;

general reduction of the number of SUEs and OJSCs focus on a relatively short-term perspective with state participation Structural approach Increasing investment trend in using revenues from Ill-defined mutual obligations in the long-term outlook;

privatization; Issues relating to the selection of efficient strategic invesFocus on attracting strategic investors; tors;

actual reduction of a public sector share in the econ- focus on the development of basically large and extra omy large companies;

problems of inefficient usage of extra budgetary borrowings by companies Sectoral approach Development and advanced modernization of largest Poor incentives to develop sectoral regulation;

public sector companies; retained (increased) direct state participation in the econhigher level of attractiveness of large state-owned omy;

companies for potential investors; risk of uncontrolled overgrowth of companies with state provision of social stability participation and deterioration of competitive environment;

risks of nontransparent exchange, administrative bargaining The records of the meeting of the Expert Group on Management of State-Owned Property and Privatization held on July 6, 2011, http://2020strategy.ru/g15/news/32746132.html Section Institutional Issues Competition for influence between the selected stakeholder groups leads to some investigations.

First effect a certain frequency of increase (or decrease) in influence of stakeholder groups on decisions made in the world of privatization. Seniority of a specific approach depends largely on a situation (expectations) relating to budget balance, serious problems encountered in some of the socio-sensitive markets. For example, it was in the period (May thru June) of discussion of the draft budget parameters when a trend towards increase in the role of privatization in generating extra budget revenues became well-marked, when deficiencies in regulation of certain markets came into surface, the rationale increased for the need to maintain direct state participation in certain large companies as compensation for market failures.

Second effect half-way nature of decisions made, incompleteness and inconsistency of implemented measures. Following are some of the recently (2010 2011) available examples:

- positive decision on widening the representation of independent directors in companies with state participation is not supported by measures aimed at increasing the role and liability of boards of directors, changing the procedure for appointment of senior managers therein;

- generation investments for corporate development in the course of privatization (denationalization, to be more precise) is possible for only a small number extra large companies on the basis of individual decisions, whereas no relevant tools and mechanisms (methods of privatization) are available for other companies;

- refusal to use state-owned corporations as a type of business entity is accompanied by setting a task on working out a new form of public entity1;

- given a general focus on reduction of the use of the institute of unitary enterprises, no efforts are made to determine tools of transparent financing of solution of public objectives (functions) through companies, including the private sector.

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