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d the estimated value based on the data obtained from the Federal Agency for State Property Managements Report On Privatization of Federal Property in 2007 ;

e net of 523 of blocks of shares which were put out to auction scheduled for 2008 ;

f including 135 of blocks of shares which were put out for sale under the privatization program of 2007, but net of 268 sales which were scheduled for summation in 2009 ;

g the number of FOUSs on which the Ministry of Defense of Russia made a decision on corporization, in addition to those on which the same decision was made by the Federal Agency for State Property Management ;

h including 26 of blocks of shares which were put out for sale under the privatization program of 2008, but net of 221 joint-stock companies on which privatization measures in terms of sales continue in 2010.

Source : The Federal Agency for State Property Managements Report On Privatization of Federal Property in 2007. M., 2008; The Progress Report for 2008 issued by the Federal Agency for State Property Management.

., 2009; An interview with Medvedev Y.M., the Deputy Head of the Federal Agency for State Property Management Rossiiskaya Gazeta dd. March 30, 2010; The 2009 Progress Report on the Plan (Program) of Privatization of Federal Property. M., 2010.

After a short break which resulted basically from the global financial crisis, the process of privatization was reported to intensify. According to the preliminary data published by the Federal Agency for State Property Management, 132 blocks of shares (interest) of business companies were sold at RUB 22,67 bln in 2010, 125.95% of the target value (RUB 18 bln) of the forecast plan1.

Hence one can infer that from the financial point of view income from privatization of this type of assets exceeded the pre-recession level of 2006 2007 (less than RUB 20 bln), not to mention the values reported in the period of financial and economic downturn in 2008 2009.

The number of sold blocks of shares increased 2.5 times against 2009. On the other hand, the final values of this indicator attained under the privatization program in 2010 were modest against those of the previous years (including 2008).

High financial performance figures attained in 2010 resulted basically from the sale of state-held interest (13.1%) in Rosgosstrakh OJSC whereby RUB 8,675 bln was transferred to the federal budget, which is probably the largest privatization transaction since 2005. It should be noted, however, that the opening and closing bids were equal2. This transaction is comparable to sale of the entire state-held interest, RUB 7,559 bln, in Mosmetrostroi OJSC, when the closing bid tripled the opening one.

http://www.rosim.ru, December 30, 2010.

http://www.prime-tass.ru, December 13, 2010.

Section 6.

Institutional Problems In addition, the sale of blocks of shares in the "Institute for Research and Development of Tractors NATI OJSC (Moscow, 100%) at RUB 1278 mln, Tyretskiy Salt Mine (the Irkutsk Region, 100%) at RUB 660,667 mln, Isktimcement (the Novosibirsk Region, 25.5%) at RUB 651,858 mln, The VODGEO Scientific Research Institute (Moscow, 100%) at RUB 617,996 mln, the Large Diameter Pipe Works (25% + 1 share) at RUB 258,4 mln, Nauka Science and Production Association (Moscow, 20.41%) at RUB 211,134 mln, Altai Publishing and Printing Plant (Barnaul, 100%) at RUB 145,6 mln can be highlighted among large privatization transactions. The closing bids were either slightly higher or equal to the opening bids almost in all of the foregoing cases, save for the sale of the entire state-held interest in NATI, when the closing bid increased by almost 20% vs. the opening bid.

On the other hand, in some cases bidders demonstrated a very high activity. For example, the shares in Intour-Khabarovsk OJSC, Khabarovsk International Tourism and Commerce Company, were sold at 60% beyond the opening bid, while the shares in Suvodskiy Lesopunkt OJSC (the Kirov Region) were sold at 90% beyond the opening bid, and 100% of shares in the Dagestan State Research and Development and Planning and Surveying Institute for Land Management OJSC were sold in the auctions which were held on September 30. In the end, The Federal Agency for State Property Management contributed RUB 118,55 mln to the budget of the Russian Federation. Furthermore, the Federal Agency for State Property Management reported the sales of the state-held interest in the Uralyuvelir-Market Trading Company OJSC (Yekaterinburg), Altaivzryvprom (Barnaul), Kotlaskhleb (the Arkhangelsk Region)1 as one of the most successful transactions in September.

A visible slump in privatization amidst the financial and economic downturn highlighted the weak points in the legal privatization arrangements and procedures, which slow down growth rates and efficiency of privatization of federal property in the period of economic upturn too.

The Ministry of Economic Development and Trades and the Federal Agency for State Property Managements proposals on making relevant amendments to the Law of the Russian Federation, which have been developed since 2005 and focused on expansion of a time horizon of the privatization program for a scheduled period with a view to ensure continuous privatization and optimize managerial decisions in this field2, logically derive from the foregoing. The proposals were materialized in the Federal Law of May 31, 2010, No. 106-FZ, which made many important amendments to the applicable Law on Privatization3.

A new large-scale program on big privatization with a 5-year time horizon (for 2011 2015), which is very unusual for the entire contemporary history of Russia, and an impressive coverage (about 900 enterprises and companies, including the largest ones) was announced in the fall of 2010. In spite of that the economy resumed to grow unlike in the previous year, when the Russian economy developed amidst the economic downturn, it was not until late November that another program of privatization was adopted, like in 20094.

http://www.rosim.ru.

See p. 5, see also the IET Annual Review The Russian Economy in 2005. Trends and Outlooks (Issue 27) P.

4.8.1. The Development of Modern Law on Privatization of Public and Municipal Property in the Russian Federation, pp. 499510.

The package of amendments to the Law on Privatization and some other innovations are discussed in detail in section 5.1.5.

Normally, late in summer, early in fall over the last six years.

RUSSIAN ECONOMY IN trends and outlooks The Forecast Plan (program) of privatization of Federal Property and the Guidelines for Privatization of Federal Property for 2011 2013, which were finally approved by the Order of the Government of the Russian Federation dd. November 27, 2010, No. 2102-, were developed by taking into account a longer effective period (from one to three years) of the forecast plan (program) of privatization of federal property based on the recent amendments made to the applicable Law on Privatization as well as the results of the work performed by federal executive agencies in terms of optimization of the structure of federal property.

The document defines privatization as a tool designed to meet the goal of transition to innovative and socially oriented economic development.

The approved program of privatization consists of two sections.

The first section describes the basic principles and guidelines established by the federal government, as well as plans of privatization of the 10 largest companies. It is the government that will make a decision on when and how each of the companies is to be sold.

In such companies as Rosneft, Rushydro, FSK, Sovkomflot, Russian Railroads, Obyedinennaya Zeronovaya Kompaniya (OZK), Rosagroleasing, as well as VTB, Sberbank, Rosselkhozbank the federal government considers to reduce its equity interest by selling different sizes of blocks of shares over five years to come (2011 2015). It should be noted, however, that the federal government must retain corporate control of almost all of the foregoing companies while it is blocking and minority interest that are to be sold.

The second section contains a list of assets scheduled for privatization according to the normal procedure (114 SUEs, 844 joint-stock companies, including 35 closed joint-stock companies, 10 limited liability companies and 73 assets belonging to other property in the treasury of the Russian Federation, including real estate property, sea and river vessels), the in the manner which has been applied over the few recent years.

The maximum income of near RUB 1 t from privatization is estimated in the forecast plan in the period between 2011 and 2013 with due regard to the market situation and in case the Government of the Russian Federation makes special decisions on privatization of the largest companies which look very attractive in terms of investment. Without such companies, income from privatization in 2011 is estimated only RUB 6 bln, and RUB 5 bln in 2012 and 2013 each.

Today, it is hard to comment on whether or not the set targets can be met, having in mind the particular value of the federal budget revenues from privatization. It should be noted, however, that throughout the entire period of economic growth the value only once approached RUB 100 bln in 2003, although it was outrun three times (in 20032004 and 2007) by total income from privatization (sale) and utilization of federal property (i.e. including dividends from state-held blocks of shares, lease payments, etc.). The problem is how to avoid sale of state-owned property assets at dumping prices. One may notice a certain contradiction here: amidst the economic downturn the federal government may have a temptation to get rid of state-owned property as soon as possible, however, it only can realize good money in a favorable economic situation, while it needs no income from privatization in case of budget surplus.

Implementation of the privatization program would therefore face a serious problem in case of severe macroeconomic situation (e.g., caused by a second wave of crisis or global recession). In any case, privatization (due to a non-renewable source and one-time transactions) only can improve the budget system for a while.

Section 6.

Institutional Problems 6.1.3. Public Sector Structure and Key Economic Agents Like any of the programs of privatization over the last three years, the Forecast Plan (Program) of Privatization of Federal Property and the Guidelines for Privatization of Federal Property for 2011 2013 approved by the Order of the Government of the Russian Federation dd. November 27, 2010, No. 2102- contain data on the number of federally-owned unitary enterprises (of FOUSs) and joint-stock companies in which the Russian Federation holds an interest, only for the beginning of the calendar year. This is why we have no sufficient information to be able to assess the dynamics of these elements of the public sector in 2010.

Let us examine in detail the changes which took place inside the main categories of economic agents which are regarded as federal property in 2009.

Federally-owned unitary enterprises Dynamics and the federal structure of FOUSs in 2006 2009 are shown below in Table 7.

In 2009, the total number of federally-owned unitary enterprises reduced by 6.6% (or almost by 250 units) to reach about 3,5 thousand units by the beginning of 2010. Such a volume of reduction in the subsector of FOUSs stands in stark contrast to reduction in the number of economic agents of this business legal structure in the previous 2008, when it reduced by almost two thousand units.

Table Dynamics and federal structure of federally-owned unitary enterprises in 2006as of June 1, as of January 1, as of January 1, as of January 1, as of January 1, 2006 2007 2008 2009 2010.

Industry units % units % units % units % units % Non-production sector 1817 25.3 1670 25.6 1151 20.2 988 26.25 1424 40.Production sector 1624 22.6 1539 23.55 1744* 30.5 476 12.65 653 18.- machine-building 660 9.2 634 9.7 292 8.- forestry industry 94 2.- light industry 187 2.6 179 2.7 59 1.- food-processing industry 55 0.75 51 0.8 27 0.- constructions materials 55 0.75 49 0.8 industry - chemical industry 34 0.5 33 0.5 47** 1.- metallurgy industry 30 0.4 28 0.4 14 0.- other industry 603 8.4 565 8.65 120 3.agricultural sector 913 12.7 826 12.65 618 10.8 611 16.2 410 11.building industry 752 10.5 668 10.2 300 8.0 252 7.transport and communica- 612 8.55 536 8.2 409 7.2 249 6.6 338 9.tions sector Forestry management 53 0.75 49 0.75 37 0.65 Other industries 1407 19.6 1245 19.05 1750 30.65 1141 30.3 440 12.Total 7178 100.0 6533 100.0 5709 100.0 3765 100.0 3517 100.* production sector and building industry put together ;

** chemical and petrochemical industries.

Source : The Forecast Plan (Program) of Federal Property for 2007 and the Guidelines for Privatization of Federal Property for 20072009; The Forecast Plan (Program) of Federal Property for 2008 and the Guidelines for Privatization of Federal Property for 20082010, The Forecast Plan (Program) of Federal Property for 2009 and the Guidelines for Privatization of Federal Property for 2010 and 2011 ; The Forecast Plan (Program) of Federal Property for 2010 and the Guidelines for Privatization of Federal Property for 2011 and 2012 ; The Forecast Plan (Program) of Federal Property and the Guidelines for Privatization of Federal Property for 2011-2013 ; The estimates were made by the Gaidar Institute for Economic Policy.

RUSSIAN ECONOMY IN trends and outlooks Early in 2010, non-production enterprises formed the biggest group in the sectoral structure of FOUSs (40.5% of the total number of FOUSs). The number of production sector (18.55%), agricultural sector (11.65%) and a group of other industries not included into the base classification (12.5%) was substantial. Transport and communications accounted for 9.6% and building industry for 7.2% of FOUSs.

The changes in the sectoral structure of FOUSs in 2009 mostly tended to slash in the absolute count and share of enterprises in other industries which in total accounted for 30.3% of all of the federally-owned unitary enterprises as of the beginning of 2009 against only 12.5% a year on. A share of agricultural enterprises reduced markedly (by more than 4.5 p. p.) as well. A share of the building industry reduced insignificantly from 8% to 7.2%.

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