Table Annual changes in the number of organizations included into the list of strategically important enterprises and joint-stock companies in 2004 – 2010 and the number of the orders on amendments to the list issued by the President of the Russian Federation The number of Orders on amendments to the Strategically important FOUSs Strategically important OJSCs Period list issued by the President of the Russian included excluded included excluded Federation 2004 3 1 – 1 2005 4 2 13 – 2006 11+1* 2 18 4 2007 42 20 75 12 2008 20+2* 1 175 2 2009 12 1 23 4 2010 11+2* 5 93 8 * – the number of orders which changed the name or the format of participation (a new location was specified or a state-held interest was reduced) of a company in the list, without excluding the company from the same. Specific points of the same contents were included into the Orders of the President of the Russian Federation which made amendments to the list.
It is important to point out that it was not always the case when companies were excluded from the list for the purpose of subsequent selling the same :
Institutional Problems – in most cases, organizations were excluded from the list due to integration processes (which includes build-up of the property portfolio of state-owned corporations). At least 500 of about 930 organizations excluded from the list at different times, were excluded due to set-up of integrated entities of different types whose number (including stateowned corporations such as Rosatom and Russian Technologies State Corporation) reached 30. In particular, integrated entities such as United Shipbuilding Corporation OJSC, “AVRORA Scientific and Production Association” Concern, “Electropribor Central Scientific and Research Institute Concern, the Center for Shipbuilding and Shiprepairing Technology, the Russian Corporation for Rocket and Space Instrument Engineering and Information Systems, High-Precision Instrument Engineering Systems, the Center of Excellence for Farm Livestock Reproduction were included into the list of strategically important companies and joint-stock companies in 2010 ;
– since corporization of a 100% state-owned unitary enterprise means privatization of the same1, the corporization procedure (even without subsequent sale of the shares in a new joint-stock company) required that the unitary enterprise be excluded from the list (it should be noted that in some cases, the shares in open joint-companies were included into the list upon registration of the same) ;
– some of the organizations were excluded from the list due to wind-up of the same.
The list was not only shortened but also widened at the same time. Both previously existing organizations (whose strategic importance previously seemed to be insignificant or unobvious) and newly established companies, above all, joint-stock companies resulted from corporization, as well as the head companies of established integrated entities were included into the list. However, the total number of added organizations (throughout the entire period of the list) is much smaller than that of excluded ones (only 63 organizations against about 930).
Since its approval in August 2004 till the end of 2006, the list underwent no drastic changes, only about 5% of changes were made in its contents over the same period. Largescale shortening of the list began in 2007, when more than 200 organizations (almost 20% of the original contents) were excluded from the list, most of which were excluded for the purpose of setting up different integrated entities. In 2007, the President of the Russian Federation made the most of the decisions providing for such actions (more than 40 presidential orders were issued).
The most significant shortening of the list took place in 2008, when 370 organizations – more than one third of its original contents – were excluded therefrom. However, the overwhelming majority of the organizations (95%) were excluded due to integration processes (which includes the property deposit made by the Russian Federation to the Russian Technologies State Corporation).
The large-scale shortening continued in 2010, when about 270 organizations, or almost one fourth of the original contents and more than a half of the enterprises which were in the list as of the beginning of the same year, were excluded from the list.
The shortening in 2010 differed largely from the previous ones :
Under the regulations and provisions of the civil law, the title to the property owned by a unitary enterprise is to be vested in the state. As part of the corporization procedure, a newly established joint-stock company is to own such property while the state is to held a 100% interest in the same.
RUSSIAN ECONOMY IN trends and outlooks (1) it is not integration that is mainly responsible for exclusion of organizations from the list (at least no integration was mentioned in the Order of the President of the Russian Federation which contains most of the organizations which are subject to exclusion1) ;
(2) the previous large-scale shortening of the list took place in the period between 2007 and 2008. The number of the excluded unitary enterprises and joint-stock companies was almost equal. As a result, their percentage ratio in the list remained almost equal (52% against 48%, respectively) by the beginning of 2010. In 2010 joint-stock companies (the ratio of more than 2:1) prevailed among the organizations excluded from the list, which resulted in a reduction of up to 23% of the organizations of such a form of incorporation in the list.
(3) joint-stock companies in which less than 50% of equity interest was held by the Russian Federation accounted for more than 4/5 of the joint-stock companies which were excluded from the list in 2010. Such joint-stock companies accounted for nearly 2/3 of the total number of the joint-stock companies included into the list as of the beginning of 2010 against nearly 18% of those included by the end of the same year. Furthermore, the state acts as a majority shareholder in a whole range of the companies left in list, which less than 50% of equity interest was held by the Russian Federation (Transinzhstroi OJSC, Gazprom OJSC, Korolev ‘Energy’ Rocket and Space Corporation OJSC, Pervy Kanal OJSC)2.
(4) examining by industry a total of the organizations excluded from the list in 2010, it is noteworthy that a large number (nearly one forth) of them are somehow connected with the transport sector and the relevant infrastructure. For example, a considerable number (almost 40) of organizations operating in the field of transportation (sea and river ports, airports, more than 10 sea and river shipping companies, an airline company, several enterprises operating in the sector of transport machinery industry, specific research and training organizations operating in the sector of civil aviation)3 were among those excluded from the list. In addition, a series of companies operating in such sectors as electronic industry and instrument engineering were excluded from the list.
The process of reducing the list of strategically important companies and organizations in 2010 was accompanied by a large-scale expansion of the original (approved in November 2009) plan of privatization for 2010. During the year the Government of the Russian Federation made 16 decisions on amendments to the forecast plan4 thereby doubling the number, from 449 to 1004, of companies subject to privatization in 2010. Unitary enterprises accounted for nearly half (250 of 557) of the companies included into the program (we remind that the original forecast plan for 2010 contained no list of FOUSs subject to privatization). In The Order of the President of the Russian Federation dated June 18, 2010, No. 762. At the same time, the State Legal Directorate issued a note on the Order, which specified that “decisions have already been made on transfer of the state-held blocks of shares (74.5 to 100 percent) in specific organization to the charter capitals of different integrated entities” (http://www.kremlin.ru/acts/8098). It should be noted that until 2010 the relevant presidential orders not always contained a direct order to subsequently set up integrated entities.
The shortening of the list of strategically important companies and organizations in June 2010 made it legally possible to extend the forecast plan of privatization of federal property for 2010 - 2012 in August 2010 by adding large entities operating in the field of transport and transport infrastructure.
Institutional Problems nearly half of the cases, however, such enterprises were included into the program as part of plans of their further affiliation with integrated entities (as a rule, Russian Technologies State Corporation). In addition, the forecast plan included 297 open joint-stock companies1, 100% interest in most of which was subject to privatization.
The Government of the Russian Federation made two decisions which are considered the most relevant in terms of widening the base for privatization2 :
(1) 467 companies were added at a time to the plan in March 20103. According to this decision, another 227 entities (above all, through a relatively small companies operating in the agricultural industry, non-production sector, construction industry) were added to the list of open joint-stock companies whose shares were planned for privatization. In 2/3 of the cases, 100% interest was subject to privatization; furthermore, the state planned to privatize the 100% interest less one share in a series of open joint-stock companies (most of which belong to the defense industrial sector). In addition, 230 FOUSs (most of which belonged to the defense industrial sector, agricultural sector, public road industry and nonproductive sector) were included into the forecast plan, 99 of which (including all of the enterprises operating in the defense industrial sector) were included for the purpose of further integration ;
(2) in August 2010, 26 fairy large joint-stock companies operating in the transport sector and the transport infrastructure4 were added to the plan of privatization: 13 sea and river ports, 11 sea and river shipping companies and two airports. Allowance was made to sell all of the remainder of state-held blocks of shares (25.5%, as a rule). It should be noted that this decision became legally applicable after the list of strategically important companies and organizations was shortened in June 2010.
Hence, as early as September 2010, regulatory support was provided for initiating privatization of a considerably larger number of companies against the beginning of 2010 thereby widening visibly the range of large companies which are planned for privatization.
Developing Regulatory Control in the Field of Privatization Substantial modernization of privatization arrangements, the relevant regulations of the law was required to meeting the set objectives of making structural changes in the national economy, attracting investments in the development of privatized companies, reducing direct participation of the state in the economy and the scope of the public sector through privatization of state-owned property. There are several reasons for this.
First, immaturity of regulatory arrangements of the procedures for privatization of large companies. According to Clause 3, Article 13 of the previously applicable version of the Federal Law “On Privatization of State and Municipal Property”, the set of tools of privatization It should be noted that seven closed joint-stock companies and three limited liability partnerships were included, apart from FOUSs and open joint-stock companies, into the forecast plan for 2010.
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