Section 5. Institutional Problems 5.1. The State of Property Relations, the Public Sector, and Privatization 5. 1. 1. The Property Policy of the State: Some General Outlooks Last year, the sphere of property relations was characterized, on the whole, by the continuation of the tendencies of the past few years, although with a somewhat lesser intensity.
A general decrease in the number of federal state unitary enterprises (FSUE) and, to a lesser degree, of joint-stock companies (JSC) with federal stakes has been a sufficiently stable tendency of recent years. On the whole, in 2004–07, the total number of FSUEs dropped by 43%. Nevertheless, it is worth mentioning that the year 2007 was marked by a number of structural changes with regard to SCs with state stakes (Table 1).
Table 1 Joint-Stock Companies with RF Stakes, 2004–2008 JSCs’ share in the total number of companies, Size of RF’s share in charter capital of company as of 1 January of each year, % 2004 2005 2006 2007 2008 100% 4 10 30 45 54 Between 50% and 100% – 1 share 15 13 12 10 7 Less than 50% 81 77 58 45 39 Source: Federal Agency for Federal Property Management (FAFPM).
As late as the beginning of 20071, the structure of the bulk of federal blocks of shares was as follows: blocks of shares of up to 25% of capital existed in approximately 25% of all JSCs with state stakes; blocking parcels of shares (between 25 and 50% of capital) – in approximately 20% of companies; while in 55% of all companies the state could exercise either majority or overall control. At the same time, the share of JSCs with a state stake of 100% was 4.5 times larger than of those JSCs in which the State, while being a majority shareholder, had less than 100% of shares (10%).
Last year, the trends toward changes in the structure of federal blocks of shares, which started to take hold during the previous period were gaining momentum. The major quantitative shift which took place in 2006–07 produced an increase in the proportion of JSCs with a federal stake of 100% by 24 percentage points, while the share of companies of all the other categories declined. In this respect, the share of JSCs with minority blocks of shares declined most radically. Also, over the 2004–07 period, the number of the JSCs with regard to which the Russian Federation is entitled to participating in their management under the special “golden share” right dropped twofold.
Thus, by the beginning of 2008, the aggregate share of JSCs over which the State, as a shareholder, can exercise sufficient corporate control through holding a control or a 100% A detailed analysis is presented in the following sections. See also Mal’ginov, G.N., Radygin A.D. Gosudarstvennyi sector rossiiskoi ekonomiki: dinamika kolichestvennykh kharakteristik i osnovnye tendentsii razvitiia [The public sector of Russsia’s economy: the dynamics of quantitative characteristics and the main trends of development] // Ekonomiko – politicheskaia situatsiia v Rossii. June 2007 [The economic and political situation in Russia]. June 2007. Moscow: IEPP, 2007, pp. 43–48.
Section Institutional Problems block of shares, had, for the first time since the late 1990s, exceeded one half of all economic societies with state participation (Table 1).
As in 2006, the aggregate actual results of 2007 with regard to the proceeds from privatization and the use of federal property turned out to be smaller than forecasted (see Table 2).
Table The Dynamics of Proceeds from Privatization and the Use of Federal Property, million rubles 848,1999* 8,547.4 8,547.4 – – 8,720.5 2,191,4 – – 5,675,0 17261.,(600) 3,675,2000 31,367.1 31,367.1 – – 18,790.1 3,427,2 – – 11,687,3 50157.(1050) 6,478,0 209,2001 10,110.6 9,990.6 – 120,0 29,122.6 4,896,1 3,917 13,621,9 39233.(782) (131) 10,402,3 914,2002 14,700.7 12,703.8 – 1,996,9 36,762.2 7,657,9 4,400 13,388,8 51462..(747) (809) 2003 95,237.3 90,660** 585 3,992,3 41,143.2 12,395,2 9,573,9 197,3*** 2,387,6 16,200 136380.17,222,2004 65,777 61,856.8 662,7 3257,5 53,710.3 11,928,8 901,7 2,538,1 17,199,5 119487.(319) 2005 34,882 29079.2** 522 5280,8 54,404 18,610 14,170 1,748 2,386 17,490 89,2006 19,010 17,600 1410 No,data 67,363.6 23,000 16,800 No,data No,data No,data 86,373.2007 Over 49,000 41,000 No,data 8,000 73,921.5,**** 24,080 17,600 4,000 15,425 12,816,forecast 120,2007 No,less,than Over 19,300 No,data. No,data 81,400 No,data No,data No,data No,data No,data actual 19,300 100,* The dynamics for 1995–1998 is presented in: Rossiiskaia ekonomika v 2002 godu. Tendentsii i perspektivy (The Russian economy in 2002. Trends and outlooks]. Moscow: IET, 2003, p. 367.
** Proceeds from the sale, in 2002, of 74.95% of shares in the JSC “Slavneft” in the amount of 59,161.95 million rubles were entered in the revenues of 2003 (i.e., more than 60% of the received revenue). Proceeds from the sale, in 2004, of 17.8% of shares in the JSC “Magnitogorskii metallurgicheskii kombinat” [ the Magnitogorsk Integrated Iron-and-Steel Works] in the amount of 21,928.2 million rubles were entered in the revenues of (i.e., more than 60 % of the received revenue).
*** The lease payment for land in federal property, after the delimitation. In the following years, the item “Lease payments and the proceeds from selling the right to conclude lease contracts for land in federal property” was also taken into account.
**** Only those renewable sources which are directly related to management of state property (administered by the FAFPM) are taken into account here. In accordance with the Law “On the 2007 Federal Budget”, the total expected income from the use of property should amount, in the year 2007, to 100 billion rubles, including, apart from the sources indicated in the Table, the revenues from the remainder of the funds on the federal budget’s accounts, the interest on state credits, the revenues from transferring part of the RF Central Bank’s profit, etc.
Not included in the Table is yet another significant source, which accounts for a large share of the aggregate amount of revenues - “proceeds from the lease of the federally owned property being in the operative management of the federal bodies of state authority and the institutions created thereby, and in the economic management of federal state unitary enterprises” (16.6 billion rubles).
Total assets terprises) 1.1. Privatization military property 2.3. Lease of land 2.2. Lease of property 2.5. SE “Vietsovpetro” (number of enterprises) 2. Renewable sources, total 1.2. Disposal of FSUEs’ and 2.1. Dividends (number of en2.4. FSUEs’ Share of proceeds 1. Non-renewable sources, total 1.3. Sales of land and intangible RUSSIAN ECONOMY IN trends and outlooks Source: the RF Ministry of Economic Development and Trade; the FAFPM; the Federal Law “On the 2007 Federal Budget”; the authors’ estimates.
According to the preliminary data of the FAFPM, in the year 2007, the aggregate proceeds from privatization amounted to 19.3 billion rubles, or were approximately 2 times less than forecasted, which was close to the results of the year 2006. Judging from the estimates of the Russian Fund for Federal Property (RFFP), the reasons for this are as follows: the incomplete reorganization of work caused by the recent change in status; the side effects of administrative reform with regard to relations with the FAFPM; the low quality of the forecast plan of privatization which contains a large amount of objects not to be privatized (bankrupts, liquidated enterprises); and the low liquidity of a large mass of property being privatized2. After the RFFP’s autonomy was restricted at the very end of 2006, the reforming of the system of organizing the sales of federal property being privatized went on until July 2007, when the Joint Regulation, of 27 July, No. 2378-r/120, issued by the FAFPM and the RFFP, confirmed the Temporary Reglament for Cooperation between the FAFPM and the Fund for Implementing the Forecast Plans (or Programs) of Federal Property Privatization.
In the year 2007, there were no privatization transactions with regard to assets of national importance. If the revenues from the selling of shares in big and biggest joint-stock companies are not taken into account (when the revenue from a transaction exceeds 3 billion rubles), the dynamics of proceeds from privatization becomes positive: over the 2004–period, the corresponding revenues increased by more than 2.5 times – from 7.8 billion rubles in 2004 to 19.2 billion rubles in 2007. To a certain degree it has to do with the application of some new procedures for price determination and mechanisms for selling minority blocks of shares. On the whole, in the year 2007, shares (or stakes in charter capital) in 377 economic societies were privatized, with more than one third of the said shares being in minority packages, and tenders for shares in another 523 economic societies, to take place in 2008, were announced.
In 2007, the federal budget’s revenues from the use of property (dividends; part of the profit of unitary enterprises; rental income) amounted to 81.4 billion rubles. It should be noted that in contrast to proceeds from privatization (non-renewable), the forecasted indicators in this segment (including those envisaged by the Law “On the 2007 Federal Budget) were exceeded by 9%.
Among the most significant trends characterizing the activity of biggest state companies in 2007, we should traditionally single out the following ones:
– the continuation of the integration of state – owned assets into holding companies;
– the continuation of the activity of the already existing holding companies with state stakes, with the purpose of increasing the scope of their business and its diversification by way of takeovers and mergers, that is, by way of vertical and horizontal integration.
On the whole, in the year 2007, the FAFPM accomplished the formation of 29 integrated structures. The decisions concerning their creation were envisaging that shares in joint-stock companies should be contributed to the charter capital of the head companies, that 117 unitary enterprises be transformed into open-end companies, and that 8 more unitary enterprises should be reorganized by way of affiliation. It should be mentioned that 28 integrated Interview, given by Chairman of the FAFPM to the newspaper “Vedomosti”, No. 9 (2031), 21 January 2008.
Section Institutional Problems structures were created on the basis of 30 Edicts of the President of the Russian Federation, and 1 – on the basis of a separate decision of the Government of the Russian Federation3.
Undoubtedly, the IPOs of the two largest banks with state stakes (Sberbank and Vneshtorgbank)4, and the creation of the foundations of a new structure of electrical power engineering as a result of reforming the RJSC “UES of Russia”, whose final reorganization was approved at the meeting of the company’s shareholders in autumn 2007, can be classed among the most important events which took place within the framework of the public sector of the Russian economy in 2007. The liquidation of the RJSC, planned for the summer 2008, should be followed by the transfer to the shareholders of shares in 23 big companies in the sphere of electrical power engineering (OGK, TGK, FSK, etc.). By contrast, no radical reorganization measures (such as split-up, etc.) are contemplated.
A principally new development in the property policy of the State was the emergence, in 2007, of 6 state corporations (see Section 5.2, 5.8), created by special federal laws. These corporations are as follows: Vneshekonombank, “Rosnanotech” (Russian nanotechnologies), the Fund for Promoting Reform of the Housing and Utilities Sector, “Olimpstroi” (Olympic construction) (construction of objects for the 2014 Olympic Games in the town of Sochi and its development into a mountain-climatic health resort), “Rostekhnologii” (Russian technologies), and “Rosatom”. Their functional purposes and branch spectrums are very varied, including the implementation of individual projects and programs (“Olimpstroi” and the Fund for Promoting Reform in the Housing and Utilities Sector), the promotion of individual types of activity (Vneshekonombank and “Rosnanotech”), and the management of entire branches (“Rosatom”) and groups of companies (“Rostekhnologii”).
At the same time, RF First Vice-Premier D. A. Medvedev officially stated in January 2008 that the creation of state corporations did not mean that Russia was changing its course and rejecting the market way of development, and that state capitalism was a road to a deadlock5. The formation of such structures is being justified by the necessity to support the priority directions, where Russia has begun to loose its previous leadership (the nuclear branch, shipbuilding and aircraft building). Nevertheless, the limits of “admittance” of private businesses are defined with sufficient clarity: while in the majority of cases their participation can be rather significant, the sphere of defense is to be under complete control of the State, and no alternatives will ever be contemplated.
However, the situation with state corporations’ being a la mode in 2007 (this fashion has already been imitated at regional level) is fraught with considerably increased various economic and financial risks. First of all, it should be noted that the scheme for creating state corporations involves an individual approach, thus placing them beyond the general legal norms established in legislation for specific organizationa-legal forms by related laws (jointstock companies, unitary enterprises, not-for-profit organizations). Among other things, it should be noted that there exist potential possibilities to obtain various preferences and to use one’s monopolistic position, and that the efficiency of the control mechanisms, some of which have never been tested, and some have even not been created as yet, is still unclear.
Otchet o privatizatsii federal’nogo imushchestva v 2007 godu [Report on the privatization of federal property in the year 2007]. Moscow: FAUFI [FAFPM], 2008.
For more details, see Rossiiskaia ekonomika v 2006 godu. Tendentsii i perspektivy [The Russian economy in the year 2006. Trends and outlooks]. Moscow: IEPP [IET], 2007.
“Gazprom” razdelion ne budet [“Gazprom” will not be divided] // Vesti.Ru. 17 January 2008.