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In the medium run, the main question is a more precise specification of the governmental legal rights for property in different AO=s. It is based on a number of criteria, of which the most important one is the size of the governmental share in AO=s authorized capital. As concerns majority packages, there should be formed a set of provisions and procedures that would allow the state as a strategic owner to exercise control functions. As far as minority blocks are concerned (under 25%), there should be a set of provisions and procedures allowing the state, among other owners, to exercise the respective control functions.

Today, specifying legal rights the state exercises as a co-owner in various AO=s requires addressing three particular tasks:

1. a greater level of clarity and regulation of operations of those individuals who represent the governments interests in AO=s by means of amending the effective legal acts on these issues (mostly beyond the frame of law-making processes in the Federal Assembly of RF);

2. introduction of elementary control mechanisms over financial flows and the process of at least simple reproduction of capital in mixed companies with the governmental participation in their capital and integration of such mechanisms in operational patterns of individuals representing state interests in AO=s;

3. inventory and ranging of the stock packages the government owns in regionalsectoral terms from the perspective of execution of the revenue part of budgets of all the tiers, completion of the much-needed institutional reform, not excluding pursuing a more pro-active structural and industrial policy in the future.

Let us remind that while being aimed at improvement of economic companies with the state participation, the aforementioned Concept for management of government property and INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru privatization in the Russian Federation generally lies in the frame of guidelines and principles analogous to those applied to unitary enterprises. This can be proved by similar reporting procedures for heads of FSUE=s and representatives of RF in open-end joint-stock companies, monitoring of operations of OAO whose stock is owned by the federal government, which is conducted along with unitary enterprises, by means of inclusion into the register of indicators of their economic efficiency, and transition to an annual approval of economic efficiency indicators both for FSUE and OAO (with the share of federal property over 50%).

It appears that further necessary elements of improvement the process of managing stock (shares) remained in the governments property could be:

bringing the effective standard contract on representation of state interests (approved in May 1996 and not revised since that time) in consistency with the above documents;

cancellation of the right of government representatives (both trustees and civil servants) for independent decision making on the circle of matters due for reconciliation, unless there are instructions of their superior governing bodies, in order to minimize manifestations of an opportunist and interest nature;

to solve the problem of the mechanism of direct encouragement of the work of each of government representatives and trustees by granting them with a certain amount of dividend receipts from the state-owned packages (the Concept suggests allocating not less than 10% of dividends payable on the stock owned by the federal government to fund expenditures associated with managing the stock, however, it does not provide any concrete recommendations in this regard);

provision of the representation of the state interests in the largest and most important AO=s by government executive agencies staff, for whom such an activity should become a major one, along with the approval of the program of their annual operations by the Government (an introduction of the institution of the authorized government representatives). In this regard, an adoption of Regulation of protection of rights of the Russian Federation as an owner may form a major innovation. The Regulation provides the transition of the said institution to a professional basis. Such a transition highlights two necessary components that is, tougher requirements to those pretending to represent state interests in AO=s boards and defining financial sources of their operations;

improvement (setting limits of remuneration and compensation for costs incurred by a trustee, solving the problem of licensing trustees operations proceeding from the law on securities market, along with the organization and conducting of a register of trustees), and a gradual extension of the practice of application of the trusteeship mechanism in the part of stock packages of enterprises of no strategic importance that are owned by the federal government (the most radical variant suggests a transition to this particular form of governance as a solely possible, though considering the effective legal base and current practices, this appears a complex issue);

development of a set of responsibility measures, including the possibility of amending the Criminal Code of RF in the part of protection of state interests in the event of professional representatives dishonestly exercising their duties;

RUSSIAN ECONOMY in trends and outlooks a realization of an alienation strategy with regard to minority stock (up to 25%), except those in the largest and financially significant enterprises;

a differentiated approach to evaluation of efficiency of government representatives performance depending on the size of the state-owned stock and chances to exercise influence on the decision-making process.

4.4. Sectoral Peculiarities of Unitary State Enterprises Federal unitary state enterprises have been reformed at the level of individual sectors within the framework of the Concepts of Public Property Management and Privatisation.

The most profound changes from the perspective of sheer numbers were made to the railway transport as part of preparation to reform the sector and establish RAO Russian Railway. In 2001 the Ministry of Railway (MR) reorganised 396 enterprises depriving them of their legal entity status, of which the vast majority (395) were involved in primary operations, i.e. were part of the railway.

There were as much intensive changes in unitary state enterprises under the Ministry of Industry, Science and Technology. They reorganised 20 federal level enterprises of which one half (10) were liquidated as part of bankruptcy proceedings, 6 transformed into joint-stock companies and 4 passed over to constituent territories of the Russian Federation. 38 enterprises were under bankruptcy proceedings, 12 ceased to be operational (to be liquidated) while another 5 petrochemical engineering enterprises in the territory of Chechenya are in the process to be passed over to the Chechen Republic. The table below shows changes in the structure of enterprises under the Ministry of Industry across sectors in more detail.

Table Changes in Sectoral Structure of Federal Unitary Enterprises under the Ministry of Industry, Science and Technology, 2000-Number of Federal Unitary State Enterprises Listed in Russian To be Government Bankrupt and passed over As of Sector Resolution No. Liquidated no longer op- to the Che- late 813 dated Octo- erational chen Re- ber 12, 2000 public INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru Ministry of Industry, Science And Technology (Minprom):

- Mechanical engineer- 400 19 50 5 ing; 153 7 21 5 - Metallurgy; 40 - 5 - - Chemical industry; 43 2 4 - - Medical and biotechnological industry; 51 2 4 - - Wood and timber complex; 55 7 10 - - Defense industry; 28 2 3 - - Light industry; 14 - 3 - - Intersectoral enterprises 16 -1* - - * One federal entity was transformed into a unitary state enterprise.

Table 4 demonstrates that 60-70 percent of liquidated, bankrupt and non-operational unitary state enterprises are part of mechanical engineering and wood/timber complex.

At the same time changes in the composition of federal unitary state enterprises again confirmed that the process of improvement of the governance system will reveal new and previously unaccounted for enterprises to be added to the list of subordinated enterprises. In 2001 41 unitary enterprises associated with the State Construction Committee and 28 associated with the Ministry of Industry were identified.

Efforts to harmonise charters of unitary state enterprises with new requirements. The first priority task of sectoral management agencies in implementing measures to improve management of unitary state enterprises envisaged in the Concepts of Public Property Management and Privatisation was to perform Russian Government Resolution No. 104 dated February 3, 2000 as regards harmonising charters of subordinated entities with the effective law. Given below are data describing this process as of early 2002 (Table 5).

Table Harmonising Charters of Federal Unitary State Enterprises with New Requirements Enterprises with new charters:

Total enterprises other status Ministry (Agency) as of late 2001 - approved to be agreed (refined etc.) early 2002, units Unit % Unit % Unit % RUSSIAN ECONOMY in trends and outlooks Enterprises with new charters:

Total enterprises other status Ministry (Agency) as of late 2001 - approved to be agreed (refined etc.) early 2002, units Unit % Unit % Unit % Ministry of Transport 834 134 16,1 176 21,1 524 62,(Mintrans):

- Road network; 396* 30 7,6 97 24,5 269 67,- Automobile transport; 236 70 29,7 10 4,2 156 66,- Airlines; 146 8 5,5 57 39,0 81 55,- Sea transport; 36 14 38,9 9 25,0 13 36,- River transport 15 12 80,0 3 20,0 - - Ministry of Railway 459 (MR) Ministry of Industry, Science and Technology (Minprom):

326 180 55,2 87 26,7 59 18,Ministry of Natural Re- sources (MNR): 290 113 39,0 89 30,7 88 30,- Geological services; 193 83 43,0 53 27,5 57 29,- Forestry; 83 29 34,9 25 30,1 29 34,- Environmental protection service; 8 - - 7 87,7 1 12,- Water service 6 1 16,7 4 66,6 1 16,State Construction and Utilities Committee (Gosstroy) 174 103 59,2 46 26,4 25 14,State Fishing Committee (Goskomrybolovstvo) 40 State Metrology and Standards Committee (Gosstandard) 39 Precious Metals and Jewels Agency under the Ministry of Finance 33 - - 23 69,7 10 30,Federal Weather and Environmental Monitor- ing Service (Rosgydro- met) 6 6 100,0 - - - - * Documents of the Russian Road Service (Rosavtodor) contain other assessments of the number of associated unitary enterprises (314, 368 and 433_.

The above data suggest that the process of harmonising charters with new requirements was the most successful at the Federal Weather Service where all 6 enterprises had their charters agreed with the Ministry of Public Property and approved by the sectoral management agency by early 2002. This work is drawing to a close at the Federal River Transport Service (under the Ministry of Transport) where 12 out of 15 enterprises had their charters reregistered. The State Construction Committee and Ministry of Industry were also performing adequately, with 50-60 percent of enterprises having their charters re-registered. This work INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru was completed at the Ministry of Communications and apparently at the State Standards Committee.

This situation is contrasted by the majority of divisions under the Ministry of Transport, with 50-70 percent of enterprises yet to start re-registering their charters. The majority of departments under the MNR also have a large amount of work to do but, unlike the Ministry of Transport, most enterprises have their charters in the process of agreement. The Ministry of Nuclear Energy (Minatom) was expected to complete the work to approve charters of its enterprises by mid-2001 but we have no information whether this process has been completed.

Efforts to harmonise charters with new requirements are still under way in the MNR, Precious Metals and Jewels Agency under the Ministry of Finance, and the Federal Land-Surveying and Cartography Service (Roscartography). We do not have any information on the process of harmonising charters in the MR, Ministry of Agriculture (Minselkhoz) and State Fishing Committee.

Staffing policies. In implementing the Russian Governments decisions to improve management of unitary state enterprises (Resolution No. 234 dated March 16, 2000), many ministries and agencies have set commissions to organise tenders for management positions with these enterprises and certification. In particular, these commissions were set up at the MNR (Ordinance No. 367 dated October 9, 2000), State Construction Committee (Ordinance No. dated April 16, 2001). At the same time the procedure of these measures, list of issues and tests were defined. Thus, the Ministry of Agriculture issued Ordinance No. 1075 dated December 27, 2000 to approve the procedure of tender for position of the manager of unitary state enterprises and the certification procedure.

Certification of directors in 2001 suggests that the process was formal, the maximum share of managers acknowledged incompatible with their position being only 4 percent (in the Ministry of Industry). At the same time we have no information on certification commissions being set up and certification being held in the majority of departments under the Ministry of Transport, MR, Minatom, Ministry of Communications, State Fishing Committee as of early 2002.

With regard to the staffing aspect of improving management of federal unitary state enterprises, one should mention tenders for vacant managerial positions and employment contracts.

We have this information only for two agencies: Ministry of Industry and State Construction Committee. By early 2002 the former held 19 tenders, with 18 managers acknowledged as the best bidders (i.e., covering nearly 5.5 percent of all subordinated enterprises as of late 2001, with 7 tender yet to be held), the latter - 11 tenders in 2001 (i.e., covering nearly 6 percent of subordinated enterprises or 8 percent if not counting the enterprise which became associated with this agency in late 2001).

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