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public agencies ;

business companies in which more than 50% of equity interest is held by the public sector ;

business companies in which more than 50% of equity interest (shares) is held by public sector business companies.

It should be noted, however, that this definition of public sector contains a series of weak points as follows :

it fails to cover commercial and non-profit entities in which federal and regional unitary enterprises have an interest, at least those in which unitary enterprises hold more than 50% equity interest ;

the practice shows that there is no need to hold more than 50% equity interest (shares) in order to be able to control a business company. To be more exact, more than 50% of voting shares must be held to be able to control a company, which is relevant for the enterprises at which during the privatization campaign (1992 1994) 1/4 of the equity (similar to the preferences granted under option 1 during transformation into a jointstock company) was transferred as preferred shares to the employees, but the limits imposed on privatization by the specifics of an industry (e.g., the defense industrial sector) required that the public sector retain the majority interest. As a result, the interest to be held by the government accounted for 38% of the charter capital, but more than 50% of voting shares ; it fails to cover business companies in which a total of public and business companies, in which more than 50% equity interest (shares) is held by the public sector, stockholding exceeds 50% of the charter capital, although individually the public and business companies, in which a state-held share is dominating, stockholdings account for less than 50% 2 ;

the same is true of business companies in which a total of more than 50% of the charter capital is held by the public sector and business companies in which more than 50% of An example of this type is Svyazinvest, a telecommunication holding company. The structural reform of the company, which was completed as early as the first half of the 2000s, was made through consolidation of its subsidiaries by way of establishing seven trans-regional companies ( Centertelecom, Severo-Zapadny Telecom, VolgaTelecom, Uzhnaya Telecommunicatsionnya Kompaniya, Uralsvyazinform, Sibirtelecom, Dalsvyaz ) at the levels of respective federal districts and subsequent affiliation of 65 regional telecom joint-stock companies to these companies. The Holding Company holds about 51% voting shares and less than 50% of equity interest in all of these seven joint-stock companies, like in Rostelecom. Meanwhile, a small interest ( less than 10% ) was held by the federal government in the equity of three regional companies ( Centertelecom, Severo-Zapadny Telecom, Uralsvyazinform).

For example, the state holds the majority interest in the Gazproms authorized capital indirectly through other companies ( Rosneftegaz and Rosgazifikatsiya ) in which the state is a shareholder, even after a scheme designed to obtain the public majority interest for 20042005 was implemented.

Section 6.

Institutional Problems equity interest (shares) is held by public sector business companies, i.e. in which a stateheld participating interest in the charter capital exceeds 50%, although individually their stockholdings are less than 50%, as well as when control over a business company can be obtained by putting together stockholdings of public sector business companies and the business companies they control ;

it lacks transparency with subsidiaries and affiliated companies integrated into businessgroups created around public sector organizations controlled indirectly through various levels (lower-tier subsidiaries, etc.) or stockholding less than 50%.

An obvious lack of transparency in the field of proprietary rights to a company or companies, and a multiple-stage, multiple-level system of corporate control at state-owned companies (by analogy with private companies) makes it important to carry out a special applied research in the field of estimation of the state-owned share of participation in the economy.

Based on the foregoing, it is a nontrivial task to define guidelines on the extent the public sector should participate in both the economy at large and specific sectors, because of a small state-owned share, according to the recent official statistical reports, presumable concentration at low stages of agency chains inside specific companies, as well as a non-public nature of the proprietary right to the assets of state-owned corporations.

Finally, it is impossible yet to provide unbiased and reliable quantitative assessment of an indirect impact by state-controlled banks and development institutions acting as agents in supporting any given companies.

Let us recall that the following options of indirect strengthening of the public proprietary position through launching special programs on urgent support to Russian companies and banks in the fall of 2008 were considered:

Vnesheconobank GC (VEB) becomes a holder of the blocks of shares pledged under a program on refinancing of external debts owed by a series of companies operating in the fuel and power sector, construction industry, transport and communication sector, metal mining industry, microelectronics, metallurgy and other industries (a total of USD 11,6 bln of loans grated to 10 companies, although the amount of loans approved at the end of Q1 2009 totaled USD 14,33 bln, while USD 50 bln was planned initially through depositing the Central Banks foreign exchange reserves in VEB)1 ;

upon implementation of a program on support to the stock and bond market, retain holding of the stocks and bonds acquired in the market through VEB at the expense of the National Wealth Fund (NWF) (initially, it was expected to allocate RUB 175 bln in 2008 and 2009 each, a total of RUB 350 bln) ;

continue further expansion of state-owned corporations (regardless of partial withdrawal of allocated financial resources) ;

transfer private assets to state-owned banks against granted loans and through direct acquisitions, continue establishing state-owned holding companies ;

increase a state-held interest in banking capital as part of a program on the banking system recapitalization (USD 40 bln)2.


The key question with regard to the whole package of impact on regulation of proprietary relations is what kind of policy Vneshekonombank GC (VEB), which in the fall of 2008 began to refinance external debts of a series of largest Russian private companies, is going to pursue. Due to a short-term nature of the loans granted to these companies, a question of repayment and, in case of failure to repay, not a simple choice between new lend RUSSIAN ECONOMY IN trends and outlooks Based on a series of currently available signs, one can infer that the potential of indirect expansion of the public sector through banks and development institutions acting as public agents in supporting specific companies remains outstanding to a great extent due to loyalty to them.

The foregoing can be supported by the following facts: in particular, the loans granted to such companies as Gazpromneft, Sitronics, Evraz Group, Rusal, PIK GROUP and Altimo so that they could repay their external debt were rolled over in the first half of October 2009, in December 2009, Vnesheconobank made an early repayment of a loan of RUB 175 bln to the Ministry of Finance of Russia, which was allocated in the fall of 2008 from the National Wealth Fund (NWF) to support the stock market (RUB 13,27 bln was paid as interest accrued on the deposit), and a series of Russian private companies began to repay the loans obtained from VEB GC to be able to refinance their external debt. As of the beginning of 2010, the size of the portfolio of loans granted by VEB for these purposes decreased to USD 7,8 bln.1 The recipients of the VEBs loans consolidate their debts in other banks. For example, on September 30, 2010 Sberbank granted a loan of USD 4,6 bln to Rusal till December 2013, with a 1.5year roll-over, to refinance the debt owed to VEB. The money covers in full the outstanding debt. Let us recall that VEB granted a loan of USD 4,5 bln in November 2008 to repay the loan obtained in April 2008 from a syndicate of banks to purchase 25% + 2 interest in Norilsk Nickel2.

Hence the foregoing allows one to infer, with certain modifications, that Russia escaped counter recession nationalization in a narrow sense, while the scope of this phenomenon in a wider sense remains unclear, given the activity of economic agents with participation of the state, which excludes new assets in the treasury.

Nevertheless, most of the expert assessments agree to that a state share of participation in the Russian economy increased as a result of activities of mixed-sector companies in the corporate control market and due to the public indirect recession counter measures. In particular, indirect effect of state-controlled banks and entities acting as public agents in implementing the recession counter measures increased, however the scope of the process (and potential of further growth of public influence) remains unclear.

The data provided in Table 5 are very illustrative in terms of dynamics, but seems to be understated as applied to the scope of the public sector in Russia. According to the available estimates (Troika Dialog, 2008), the federal and regional agencies controlled about 40% of market capitalization of the Russian stock market late in 2007 against 24% in 2004. By the beginning of 2008, the depth of concentration of state-owned property accounted for about 4045%, according by the Expert-400 Rating. In 2009, different experts reported this indicator in the range of 50%.

ing, debt restructuring (de facto roll-over of the loans), initiating bankruptcy proceedings or obtaining the title to the pledged assets arose.

From a purely formal point of view, it was not an apparent nationalization, because no assets are added to the federal treasury and VEB, being a public corporation, is treated as a non-profit entity.

The largest banks with a state-held interest in their equity, which received public support, have been facing the same dilemma.

www.veb.ru, 20.07.10.

Sberbank itself considers its loan to Rusal as a business transaction in contrast to the VEBs loan. Direct investments, No. 11 (103), 2010, p. 69 70.

Section 6.

Institutional Problems Table Private sectors share in GDP in economies in transitionCountry Central Europe Czech Republic 10 15 30 45 65 70 75 75 75 80 80 80 80 80 80 80 80 80 n/a n/a Hungary 25 30 40 50 55 60 70 75 80 80 80 80 80 80 80 80 80 80 80 Poland 30 40 45 50 55 60 60 65 65 65 70 75 75 75 75 75 75 75 75 Slovakia 10 15 30 45 55 60 70 75 75 75 80 80 80 80 80 80 80 80 80 Slovenia 15 20 30 40 45 50 55 60 60 60 65 65 65 65 65 65 65 70 70 Baltic states Estonia 10 10 25 40 55 65 70 70 70 75 75 75 80 80 80 80 80 80 80 Latvia 10 10 25 30 40 55 60 60 65 65 65 65 70 70 70 70 70 70 70 Lithuania 10 10 20 35 60 65 70 70 70 70 70 70 75 75 75 75 75 75 75 South-East Europe Bulgaria 10 20 25 35 40 50 55 60 65 70 70 70 70 75 75 75 75 75 75 Romania 15 25 25 35 40 45 55 60 60 60 60 65 65 65 70 70 70 70 70 CIS countries Russia 5 5 25 40 50 55 60 70 70 70 70 70 70 70 70 65 65 65 65 Ukraine 10 10 10 15 40 45 50 55 55 55 60 60 65 65 65 65 65 65 65 * the data on the Czech Republic has not been included into the EBRDs Report on Economies in Transition since 2008.

Source : European Bank for Reconstruction and Development. Transition Reports.

Hence the crisis brought up the issues of defining the scope and manageability of the public sector in the Russian economy, as well as encouraged discussion about launching a new big privatization. In any case, intensification of the national policy in the field of privatization becomes relevant.

6.1.2. Current National Privatization Policy The forecast plan of privatization for 2010 which was approved by the Government of the Russian Federation at the end of November 2009, included shares in 449 joint-stock companies as well as 56 assets belonging to other property in the treasury of the Russian Federation, including immovable assets, sea and river vessels.

The privatization program was extended considerably in mid-March 2010 and included 230 FOUSs for privatization, which was not the case in the original version of the document.

The number of joint-stock companies whose blocks of shares would be offered for sale, increased by more than 1.5 times (up to 690 units). The number of treasury entities included into the privatization plan increased in a slightly smaller proportion (up to 74 units).

By comparing the obtained data, which describes the forecast plan (program) of privatization for 2010, with the basic parameters of privatization programs in the previous years, one may infer that the original version is not too different from the previous programs (Table 6).

According to the method adopted at the EBRD, the private sectors share in the GDP is measured on the basis of statistical data obtained from accredited (public) and unaccredited sources. The share includes income generated by registered private companies from officially accounted business activities, as well as income generated from non-accounted business activities, provided that such activities are backed up by a reliable information thereof. For the purpose of this measurement, private companies mean all companies whose majority interest is held by private individuals and legal entities.

2008* 2009* RUSSIAN ECONOMY IN trends and outlooks Table Comparative data on dynamics of privatization of federal state-owned unitary enterprises and federally-held blocks of shares in the H2 of the 2000s. a FOUSs, units OJSCs, units Period Scheduled for Scheduled for Sold blocks Privatized privatizationc privatizationc of shares in JSC, 2006 885 383 356d 2007 368 377 911 377e 2008 440 213 404 209f 2009 235 316+256 g 291 52h a net of blocks of shares in closed joint-stock companies, participating interest in the charter capital of LLCs and other federally-owned assets ;

b in the originally approved versions of the forecast plans (programs) of privatization of federal property (net of the assets transferred from the plans (programs) of the previous year) ;

c all of the preliminary measures were completed, and decisions on the terms and conditions of privatization were made ;

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