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In the energy sector, the plan calls for sale of government stakes in oil and gas companies, electricity generation and transmission enterprises as well as a completion of privatization of the coal-mining sector.

Most of the agrarian sector is already in private hands and the plan focuses on further privatization of baking and food storage companies.

A number of enterprises listed in the 2003 privatization list are in the maritime and auto transport industry.

Some of the larger planned privatizations concern the sale of government stakes in Svyazinvest (25.5% minus 2 shares), Magnitogorsk Metallurgic Plant (17.84%), commercial port Pevek, Baikal airline, etc.

The government also plans to divest of its stakes in 600 (714 apparent) commercial banks, a majority of which (about 80%) are currently held by the Ministry of Property.

Beside launching of a whole row of new privatization models, the new 2001 Privatization Law brought about another interesting innovation specified in the December 3, Governmental Decree # 845. The Law now allows exchange professionals (i.e. brokers and brokerage companies) to take part in privatizations, who for instance, can win a right to represent the government when it tries to sell its stakes on the market. A well-meaning innovation, granted of course, that the selection process for a market intermediary is based on objective professional factors and not on a whim and fancy of a bureaucrat in charge.

Appendix 6. New Privatization Methods and Their Legal Provisions The numerous changes proposed by the 2001 Law on Privatization acquired a more concrete shape by summer of 2002.

On May 31, 2002 the Russian government passed a Decree On Affirmation of Rules for Determining a normative Price for Privatization of State and Municipal Property. normative price is defined as a minimum price at which state divestiture of a particular piece of property is acceptable.

According to the aforementioned decree, such normative price for privatization of a federal unitary enterprise has to be based on figures from an interim accounting report prepared in compliance with Russian legislation on privatization of clean assets belonging to a state unitary enterprise. That includes the following guidelnes:

a) value of land that is a part of an enterprise being privatized has to be calculated in accordance with norms and regulations envisaged by the Russian legislation for purchase of land plots RUSSIAN ECONOMY in trends and outlooks b) value of a stake (share, contribution) to charter (joint) capital of enterprises as short-term and long-term financial contributions has to be calculated on the basis of the normative price for the said property;

c) value-added tax has to be levied on assets purchased as a result of privatization d) book value of assets that are not covered by a privatization deal should not be included in the calculations e) Expired debt obligations should not be included in the price calculations Normative price of a unitary enterprise calculated for its transformation into a joint stock company can only be used for determining a share price of the newly created venture.

If no more than a year passes by since the date of a jsc registration (transformed from a unitary enterprise) and till the date when a normative price for its shares is determined, the latter shall be adjusted by multiplying the normative price of a fues assets by a proportion of state-owned shares intended for sale, lawfully determined control coefficient and golden share. Otherwise, i.e. more than year passes by since the date of a JSC registration till the date when a normative price for its shares is determined, or if a fue has not been transformed and registered as a jsc, then a normative price for its assets intended for sale is equals a weighted average of the following figures in a companys last accounting report(value of shares based on net profits, value of shares according to sales results, market value of shares, and book value) multiplied by a golden share coefficient.

A government decree #512, from July 9, 2002 lays down the rules for establishment of terms and condition for privatization of federal property. The decree states that in establishing of these rules the government first has to specify a list of all federal property it intends to privatize, methods it expects would be used for that purpose, estimated revenues as well as other information necessary in the process.

The decree imposes the responsibility for preparation of the aforementioned information on the Ministry of Property and its regional offices, which have to consult with Russian Federal Property Fund in issues pertaining to a preferred method of privatization.

In addition, the Ministry of Property also has to specify any obligations/conditions imposed on a prospective buyer of a particular federal property as well as future use of federal property ineligible for privatization.

Naturally, all Ministerial decisions for privatization of a particular asset have to correspond with the annual general privatization plan. Should a first attempt at sale of a federal asset fail, the privatization method shall be re-considered or a decision to privatize it be cancelled altogether.

Details pertaining to sale of state and municipal property via public offering with and without prior price announcements are provided by a July 22, 2002 eponymous governmental decree #549. \ According to the Article 23 of the Privatization law, a sale of state and municipal property via public offering with prior price announcement shall proceed only if an auction for a property in question was deemed invalid. In these cases an auction organizers have to announce the following: a starting maximum price, time period during which lower bids are accepted and a minimally accepted cut-off price at which a federal/municipal property can be sold. In addition, the starting maximum price can be set lower than a starting minimum price of a previous auction that was deemed invalid. A normative price for such fed INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru eral/municipal asset equals 50% of a starting bid of a previously held auction that was deemed invalid.

A federal/municipal property sold via such public offerings is awarded to a first bidder whose offer equals the starting maximum price. If no such bids are submitted, then the price is lowered within the appropriate period specified in the initial public announcement. In these cases, a first bid received in the amount specified by the new starting price wins. Upon the registration of the first appropriate bid, no other bids are admitted. The price can be lowered successively down to a cut-off price.

According to the Article 24 of the Privatization Law, a sale of state or municipal property without prior price announcement can proceed only if a property was not sold via public offering with a prior price announcement. In these cases, normative price of such enterprise does not have to be calculated.

A purchase deemed valid and a buyer is recognized in the following instances:

a) Only one bid was submitted and he/she was the bidder b) Several bids were submitted and he/she submitted the highest bid c) Several bids were submitted, all with the same offers, and he/she submitted their bid first, prior to others Should no bids be submitted a legally allowable period, or no bids were accepted for consideration, such sale is annulled and a record of that is included into final sale report.

On August 12, 2002 the government passed another decree (#585) this time specifying the rules for auctions of state and municipal property. According to the Article 18 of which an enterprise can be offered for sale via an auction only in cases when a future owner is to have no obligations concerning the property. The property is to go to a highest-bid participant.

Such auctions can be held either publicly or carried out via submission of bids in written form.

The Article 19 of the Privatization Law states that a specialized auction is a sale of shares at an open auction during which all winners receive the shares of a purchased enterprise at one price per share, which has to be calculated in accordance with the following rules:

a) only bids/offers submitted by the eligible participants of a specialized auction can be considered in the final price calculations b) the final price must be equal to a maximum share sale coefficient, which in its turn, equals to a ratio of a number of shares being bought at the auction to the total number of shares made available for sale.

The share sale coefficient can be no lower than.95. Each winning participant of a specialized auction receives a number of shares that corresponds to the ratio of an amount he/she specified in his/her submitted bid to a final price per share.

Another governmental decree# 584, signed on August 12, 2002 details rules and regulations pertaining to the sale of state and municipal property via tender. According to Article 20 of the decree, an entire enterprise or its shares in the amount exceeding 50% of its charter capital can be sold via a tender in cases, when an eventual buyer has to carry certain obligations as to its purchase. An eligible participant with a highest bid wins a tender. Tenders with participation of only one bidder are deemed invalid. In cases when two or more highest bids are equal, an enterprise in question is awarded to a bidder who submitted his/her bid prior to others.

A buyers obligations as to a tender purchase may, for instance, require the following:

retaining of a certain number of employees RUSSIAN ECONOMY in trends and outlooks providing re-training or professional development opportunities for an enterprises employees restrictions on changing a type of industrial/commercial activity; or restrictions on cancellation and/or launch of certain types of communal services of, for instance, transportation, educational or similar nature repair, restoration and/or upkeep of certain important objects of cultural/historic heritage or high communal service value List of conditions/obligations imposed on a buyer of particular enterprise offered on a tender shall be complete and not subject to change. A new owner of such enterprise shall take no longer than a year for delivery of obligation imposed on it by the tender.

Sale via a tender of joint stock companies gives its buyer a right to cast votes according to the number of shares he/she purchased at the companys shareholders meetings even before an official transfer of the deed. Such right for early vote-casting, however, excludes voting on the following subjects:

changes and/or amendments to a companys founding charter documents divestiture, giving up as a collateral or lease or other such measures able to cause a divestiture of a companys assets, if these assets exceed 5% of a companys charter capital or 50,000 times federal minimum wage giving up as a collateral or divestiture of a companys real estate securing a loan in the amount exceeding 5% of a companys free assets subsidiary creation issuance of securities not convertible into a companys shares approval of a companys annual reports, accounting records, profit and/or loss statements as well as decision on distribution of profits and/or losses In addition, a buyer is precluded from early voting on issues pertaining to a companys re-structuring and/or liquidation. Prior to fulfillment of all tender imposed obligations, a companys shareholders may not make decisions altering a companys charter capital, new share issuance and other securities with a potential to be converted into a companys shares.

On the other hand, a newly purchased joint stock company may not make the following decisions prior to the official transfer of an ownership title to a tender winner without his/her approval:

reduce number of a companys employees sign off on a deal, or a combination of deals, whose total value exceeds 5% of a companys assets book value according to a last accounting report or 50,000 times a federal minimum wage;

sign off on a deal, or a combination of deals that may directly or indirectly lead to a divestiture of a companys assets in the amount exceeding 5% of a company assets book value according to a last accounting report or 50,000 times a federal minimum wage;

secure loans issue securities create subsidiaries or wholly new companies as well as purchase or divest of their shares/stakes in charter/joint capital of such companies Should a new owner fail to timely deliver on any of the obligations in accordance with the terms and conditions specified by a tender, the contract of purchase of a state property INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru shall be terminated upon the parties agreement or in accordance with a courts decision. In addition, the delinquent party shall be subject to payment of an appropriate penaltym, and shall cede all authority as to his/her purchased assets, which are be transferred back into the state ownership.

Details on Lease of federal property with a subsequent right for its purchase are specified in an eponymous September 25, 2002 governmental decree # 707. The said decree specifically regulates all federal property lease agreement that were signed prior to enactment of a 2001 Federal Law on Privatization.

According to the decree, a lessee of federal property may submit a request to purchase it to a local office of the Ministry of Property. The latter shall within the following 2 months consider a request, retain an independent valuator and render an appropriate decision. If an independent valuator values a property at 10,000 times federal minimum wage or less the lessees purchase request shall be approved.

If a property, however, is valued at more than 10,000 times federal minimum wage, a local office of the Ministry of Property shall propose the lessee to create a joint stock company, with the property in questions becomes a governments contribution to the charter capital. The lessee may, in its turn, contribute assets obtained as a result of the lease of state property or any other assets in its lawful possession.

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