The Government Decree envisages that the State, as a shareholder, may exercise this right by decision of the Federal Agency for Federal Property Management, with the exception of (1) strategic JSCs, with regard to which the RF President’s decision is necessary, and (2) the JSCs with regard to which the State’s position is determined by the RF Government, or its Chairman, or Deputy Chairman. In these cases, draft decisions should be submitted by the Ministry of Economic Development and Trade on having coordinated the issue with the body of authority supervising the company in question.
The monetary means received from the redemption of shares by the joint-stock society should be transferred, in full, to the federal budget.
Apart from this, it should be pointed out that the list of strategic enterprises and joint – stock societies was also considerably changed. By the results of the year 2007, it underwent the introduction of 42 clarifications (for comparison: in 2004 – 3, in 2005 – 4, in 2006 – 12).
As in the previous years, most of these alterations were concerned with the formations of integrated structures. As a result, 72 unitary enterprises and 129 OJSCs were excluded from the list, and only 17 unitary enterprises and 12 OJSCs (including several integrated structures the largest of which were the Nuclear Power-Engineering and Industrial Complex and the United Aircraft-Building Corporation) were added thereto.
5.2. Public Corporations as an Essential Element of Institutional Policy in A notable and quite surprising to many experts element of public policy in 2007 has been active establishment of public corporations at the federal level. In a relatively short period of time (May–December 2007) there were adopted federal laws on establishment of six public corporations. Those corporations are authorized with a wide range of functions and provided a significant share of public property (funds from the RF federal budget and Stabilization Fund in the amount of approximately RUR 760 billion in 2007; various production facilities and financial assets) for their operation in a long-term prospective. The process of creating public corporations has immediately inspired a lot of debates on efficiency of such activities of the government.
It is worth noting, that government was actively involved in the formation of large national companies in 2006 as well (in the form of open joint stock companies with 100 per cent of federal ownership), but at that time it did not attract so much attention and did not provoke Section Institutional Problems so extensive critical comments. However, the feed-back to formation of public corporationsin 2007 arises concern and incredulity. In our view, it is largely explained by the following distinctions33 of of those business structures:
– non-transparency of the projects on development and the lack of discussion on public corporations establishment;
– limited time frames for the discussion of draft laws on the establishment of public corporations;
– peculiar legal and structural business form (public corporation), indistinct (framework) legal basis;
– involvement of top political resources in public corporations;
– large volume of national property, allocated to public corporations;
– authorization of a wide and diversified range of powers to the corporations;
– poor arguments to the community for the grounds to public corporations establishment;
– uncertainty of strategic planing and operational policy of the corporations;
– a wide range of proposals from various sources on establishment of the new public corporations34.
There were discussed the risks of such negative effects, resulting from extensive establishment of public corporations, as:
– increased inexpedient government participation in national economy;
– inefficient utilization of national property use;
– non-transparent operation and low accountability (as well as supervision) of public corporations.
Nevertheless, the greatest concern is based on the risk of further extension of the number of public corporations, in particular in the background of proposals to introduce legal framework for public corporations establishment at the level of the Russian Federation Subjects.
In evaluating public policy on the establishment of such corporations, two factors of great importance should be taken into regard: firstly, how justified is the purpose of the business entity and secondly, to what extent is the selection of the legal status of public corporation is justified and reasonable for the purpose of such business functioning (while there are other efficiently operating options, for instance, development and implementation of federal targeted programs, creation of joint-stock holdings, using national property). In our view, the basic concerns in regard to public corporations establishment were primarily related to the choice of the objectives to be achieved. Therefore, we will focus mainly the institutional aspects of public corporations establishment, as well on the assessment of prospective opportunities and accompanying risks.
Using the term “corporation” in the names of a number of the stock holdings, established by the government (OAO “United Aircraft Corporation”, OAO “Joint Shipbuilding Corporation”) sometimes goes beyond the meaning of the term “public corporation”. Herewith, we are talking about public corporations in the narrow sense, in other words, “public corporation” as a legal entity.
Those distinctions are related to public corporations establishment in general, which are not obligatory to any public corporation (thus, the procedure of the Bank for Development formation has been rather time-consuming and involved a number of open debates and discussions).
In this regard, one could refer to proposals for the establishment of “Rosrybflot” and “Avtodor” public corporations, those ones on purchases of medicines, grain exports, housing construction, etc. It can be said that among the members of the executive and legislative authorities there are some illusions on public corporations capacity to address serious problems of social and economic development.
RUSSIAN ECONOMY IN trends and outlooks 5. 2. 1. Distinctions in “Pubic Corporation” Legal Incorporation Form Public corporation is a type of non-profit organization. The legal incorporation form of a “public corporation” was defined as early as in July 1999 by an amendment to Article 7.“Public Corporation” of the Federal Law No. 7 FZ “On non-profit organizations”, adopted in January 1996.
The principal distinctions of this legal business form are as follows:
1) the corporation is created to perform social, management and other functions of public significance;
2) profit is not the basic objective of public corporation activities as a form of non-profit organizations; corporations may be engaged in business activities only to achieve the objectives of its incorporation;
3) each public corporation should be established in compliance with a special federal law;
4) the corporation should be incorporated on the basis of federal property, transferred in the ownership of public corporation by the Russian Federation;
5) documents of incorporation, specified in the Civil Code of the Russian Federation are not required for public corporation establishment;
6) the law “On Non-Profit Organizations” can be inapplicable to the Corporation, in case otherwise is specified by law, under which the corporation was established.
There is a number of other legal provisions, specified in various federal laws, directly related to the public corporations:
– in accordance with the Federal Law No. 178 “On privatization of public and municipal property”, dated December 21, 2001, this law is not applicable to relationships that arise, when federal property is to be transferred to public corporations as contribution from the Russian Federation;
– in accordance with the RF Budget Code, subsidies in the form of property contribution to the public corporations can be specified in the federal law on the federal budget;
– in compliance with the RF Civil Code the public corporation can be recognized insolvent (bankrupt), in case otherwise specified in the federal law on incorporation thereof.
It has been repeatedly noted in regard to the public corporations, that there are significant failures in their legal incorporation form, namely:
– indistinct meaning of the notion “ functions of public significance”, and consequently, an opportunity of extensive interpretations to justify the need to use this wording;
– in fact, the government property is donated to a public corporation in the process of incorporation thereof;
– no clear guidelines are provided for the assets management, which provokes additional risks;
– the issues of transformation and liquidation of public corporations are not legally specified (even as a framework).
In general, the basic Law on Non-Profit Organizations provides only a limited and rather formal list of issues35, that should be defined in the laws on the establishment of public corpo In accordance with Section 3, Article 7.1 of the federal law “On Non-profit Organizations”, which provides for the establishment of a public corporation, there should be specified its name, location, management of its operations (administration, the procedure of incorporation, management authorities appointment and dismissal), the procedure of the reorganization and liquidation of public corporations, utilization of government property in the event of their liquidation.
Section Institutional Problems rations. Special risks arise from the possibility not to apply the law on non-profit organizations to public corporations, if this is foreseen in the law on corporation establishment (Section 3, Article 7.1 of the law “On Non-Profit Organizations”). In theory, this approach opens great opportunities to create an individual legal form for each new corporation, feeling free to go beyond the basic provisions of the law “On Non-profit Organizations” without any restrictions.
5. 2. 2. Incentives for “Public Corporations” Legal Incorporation Form Introduction to the Russian Legislation and its Distinctions before The background of this legal incorporation form introduction was largely explained on an urgent issue of the Russian banking system rescue upon 1998 financial crisis. First of all, to overcome this challenge, the RF Government, by the Order No. 1642, dated as of November 20, 1998 has established a non-banking credit organization “Agency for Credit Organizations Restructuring” in the form of OAO, though later (in the course of credit organizations restructuring), it became necessary to significantly expand its powers. As a result, the President has signed two laws on one and the same day (July 8, 1999): one law, defining a new type of additional non-profit organizations (public corporation)36, and another one, transforming OAO “Agency for Credit Organizations Restructuring” into public corporation “Agency for Credit Organizations Restructuring”37.
Apparently, it was assumed that the requirement to adopt a special federal law for each public corporation would limit the use of this legal form of incorporation. Herewith, in the legal framework of any public corporation the gaps in legislation can be abolished.
For quite a long time it was working: up to 2007, the government established public corporations only twice. First, as mentioned, simultaneously with the introduction of the “public corporation” legal form, when the “Agency for Credit Organizations Restructuring” was established in 199938, and the second time took place only in 2003, when the law was enacted on establishment of the “Deposit Insurance Agency” public corporation39. Legal provisions, effective for public corporations were practically frozen, no amendments or revisions were made to them.
Therefore, prior to 2007, public corporations were created in exceptional cases in the sphere of finance at the junction point of the RF Government and the Central Bank of Russia powers. According to the relevant legislation, establishment of those corporations was em Federal law No. 140 “On Amendments to the Federal Law on Non-Commercial Organizations”, according to which the law on non-profit organizations was supplemented with Art. 7.1 “Public corporation”.
Part 4 of Art. 46 of the Federal Law No. 144-FZ “On Credit Organizations Restructuring”.
It should be noted that on July 28, 2004 a law was passed providing for the liquidation of the “Agency for Credit Organizations Restructuring” public corporation and the transfer of assets as the Russian Federation property contribution to the “Deposit Insurance Agency” public corporation (Article 2, Sections 1,2 of the Federal Law No. 87-FZ “On recognition as null and void the Federal law on credit organizations restructuring and some provisions of the Russian Federation legislation, and establishment of the liquidation procedure for the “Agency for Credit Organizations Restructuring” public corporation).
Chapter 3 of the Federal Law No. 177-FZ as of December 23, 2003 “On insurance of individual deposits with the banks of the Russian Federation”. Herewith, RUR 3 billion was supposed to be transferred by the “Agency for Credit Organizations Restructuring” public corporation as property contribution from the Russian Federation (Section. 1, Article 50).
RUSSIAN ECONOMY IN trends and outlooks bedded in the broader context of regulations in the relevant fields, and the corporations were positioned as an instrument, rather than an independent business subject40. Herewith, there were rather detailed definitions in the laws of the principles and rules of activities of those corporations, as well as regulations for the relevant fields, which to some extent was compensating to the excessive framework-based legal provisions on non-profit organizations.
5. 2. 3. Grounds for Expansion of Public Corporation Legal Form by the Government in The situation has drastically changed in 2007, when federal laws were adopted on establishment of six large public corporations with rather significant objectives of economic, social and political nature (see Table 10).