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Table Certification of Managers of Unitary State Enterprises in Line with New Requirements Ministry (Agency) Total enterprises Number of enterprises with managers RUSSIAN ECONOMY in trends and outlooks as of late 2001 - decisions was made early 2002, units on their compliance to be cer- made their with their position tified presentations % of people presentations Ministry of transport (Min- trans):

- Road network 433* 419 361** 354 98,Ministry of Industry, Sci- ence and technology (Min- prom) 326 230 221 212 95,Ministry of Natural Re- sources (MNR) 290 147 144 98,State Construction and Utilities Committee (Goss174 13 troy) State Standards and Metrol- ogy Committee (Gosstan- dards) 39 Federal Weather and Envi- ronmental Monitoring Ser- vice (Roshydromet) 6 5 5 * Data of the Labour, Wages and Personnel Department in the road network of Rosavtodor.

** Not counting 58 directors whose certification was postponed until 2002.

Moreover, the Ministry of Industry documented 205 additional agreements to effective contracts with managers of unitary state enterprises including 147 agreements which enhanced their responsibilities in line with requirements defined in Government Resolution No.

234 dated March 16, 2000.

The State Construction Committee entered 15 contracts with managers, with 7 more to be coordinated with the Ministry of Public Property. Taking this into account, the share of subordinated unitary state enterprises with new contracts entered with managers will be 12.percent.

Financial and economic position of federal unitary state enterprises as influenced by ministries and agencies. Financial and economic position of these enterprises is ambiguous.

Given below are data describing financial and economic position of enterprises subordinated to specific sectoral agencies.

Table 7 shows that a part of federal unitary state enterprises is in a critical condition but their share is relatively small, if one is to believe reports of ministries and agencies. In any event, it is considerably smaller than the share of loss-making enterprises across the economy (37.9 percent in 2001).

Enterprises associated with the Precious Metals and Jewels Department under the Ministry of Finance were in an especially bad position. Positive performance in 2001 was shown by the Weather Service where all unitary state enterprises were making profits and by the Ministry of Interior with less than 8 percent of loss-making enterprises in 2000.

Despite satisfactory financial and economic position of many enterprises, the problem of transferring part of their profits to the federal budget is yet to be addressed. Thus, the Ministry of Nuclear Energy was expected to develop and implement deduction ratios from profits INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru of its subordinated enterprises to the federal budget as late as in the IV quarter of 2001. No profit was transferred by enterprises under the Weather Service and Cartography Committee.

Table Financial and Economic Position of Federal Unitary State Enterprises Subordinated to Specific Sectoral Agencies Number of enterprises with Total enterprises negative or conservatorship no economic Ministry (Agency) as of late 2001 - small-value net or bankruptcy operations early 2002, units assets proceedings unit % unit % unit % Ministry of Industry, Science and Technology (Minprom) 400* 12* 3,0 8** 2,0 38* 9,State Construction and Utilities Committee (Gosstroy) 174 18 10,3 12 6,9 6 3,State Standards and Me- trology Committee (Gosstandard) 39 3 7,Precious Metals and Jew- els Department under the Ministry of Finance 33 10 30,* Enterprises associated with the Ministry of Industry in line with Government Resolution No. 812 dated October 26, 2000, bankrupt enterprises and no longer operational enterprises from this list.

** Enterprises with authorised capital less than the minimum required by law.

In 2001 only a few ministries and agencies adopted regulations on this issue.

It is worth mentioning the MNR which issued ordinances No. 351 and 353 dated April 24, 2001 to define the following deduction ratios from profits to be transferred to the federal budget as proprietors income in 2001:

10 percent for enterprises allocating less than half of profits at their disposal to finance capital expenditures for primary operations;

20 percent for enterprises allocating minimum 40 percent of profits at their disposal to finance capital expenditures for primary operations;

30 percent for enterprises allocating minimum 30 percent of profits at their disposal to finance capital expenditures for primary operations;

60 percent for enterprises allocating less than 30 percent of profits at their disposal to finance capital expenditures for primary operations.

Moreover, enterprises allocating minimum 90 percent of undistributed profits at their disposal to finance capital expenditures for primary operations were fully released from any transfer of proprietors income to the federal budget.

On the basis of economic performance of unitary state enterprises associated with the MNR in 2000 it was established that enterprises allocating minimum 90 percent of undistributed profits including previous years undistributed profits at their disposal to finance capital expenditures for primary operations were released from any transfer of proprietors income to the federal budget.

RUSSIAN ECONOMY in trends and outlooks The share of profits to be transferred to the federal budget as proprietors income including any previous years undistributed profits was generally 50 percent. Where undistributed profits were the security for the enterprise development under the capital expenditure programme for primary operations approved by the MNR, the share of profits to be transferred to the federal budget was 10 percent of undistributed profits including previous years undistributed profits.

It was established that regional departments of natural resources should ensure:

1. Approval of capital expenditure programmes for primary operations;

2. Control over transfer of resources by enterprises to the federal budget as proprietors income;

3. Control over efficient use of resources allocated by enterprises as capital expenditures for primary operations.

The State Construction Committee issued Letter No. IZ-2025/14 dated April 19, 2001 to define deduction ratios from profits of subordinated enterprises to be transferred to the federal budget on the basis of performance in 2000 taking into account the nature of the sector and their operations.

A year later Ordinance No. 65 dated April 26, 2002 defined the following deduction ratios from net profits received in 2001 and left at the disposal of enterprises (line 190, form No. 2 of 2001 Profit and Loss Account):

15 percent for construction (installation) entities, scientific maintenance entities, utilities sector maintenance entities and state farms;

10 percent for manufacturing entities, surveying entities etc.;

7 percent for research and design entities, entities of engineering protection of territories.

Enterprises allocating minimum 40 percent of profits at their disposal to finance capital expenditures for primary operations and compensate for previous years losses, and also Radon special radiation safety enterprises had zero deduction ratio from profits to be transferred to the federal budget on the basis of performance in 2001.

The deadline for full transfer of part of profits to the federal budget was June 15, 2002.

The public property department under the State Construction Committee was expected to ensure:

1. Control over transfer of resources by enterprises to the federal budget on the basis of performance in 2001;

2. Control over use of assets held by enterprises and analysis of efficiency of their operations 3. Review of capital expenditure programmes for primary operations;

4. Review of grounds to change deduction ratios from profits to be transferred to the federal budget on the basis of performance in 2001.

The Ministry of Communications agreed 10 percent ratio with the Ministry of Public Property with respect to performance in 2001.

This suggests that the sectoral managements approach to define deduction ratios from profits to the federal budget was largely based on taking into account the nature of operations of specific enterprises.

INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru In its turn, this suggests that in practice deduction ratios for transfer of profits to the federal budget were defined for a narrow range of enterprises. Thus, the deduction ratio for profits to be transferred to the federal budget in 2001 on the basis of performance in 2000 was defined for only 170 unitary state enterprises of the Ministry of Industry (or approximately percent of enterprises subordinated to with this ministry).

The Ministry believes that transfer of net profits to the federal budget was prevented by either their lack or negligible amount which owed itself to part of profits at enterprises disposal being allocated to increase the authorised capital up to the statutory minimum, upgrade technical and production facilities, and open up new product lines.

Enterprises under the Ministry of Transport were touched by these proceedings to even lesser extent, with 10 percent deduction ratio defined for 3 out of 36 sea transport enterprises, 20 percent for 1 enterprise; 10 percent deduction ratio from net profits defined for 4 out of river transport enterprises, 5 percent for 2 enterprises. No deduction ratio from profits was defined for road and air transport enterprises (including the Air Traffic Control Department).

This owed itself to extensive wear of fixed capital which, given scarce budget financing, required allocations for investment to maintain the operational infrastructure of air (airports) and river (ports, canals etc.) transport, and mobilisation readiness of road transport (formation of numbered army-type columns). Entities providing services to water transport and central offices of the respective agencies (advertising, communication, computing entities, sectoral printed media, maintenance and health entities) do not have available profits at their disposal either. Weather forecasting and environmental monitoring enterprises are in a similar plight. In stating the lack of deductions from profits as a compensation for using federal property in 2001, the Russian Weather Service indicated that the profits at the disposal of enterprises were used to maintain their facilities.

At the same time one needs to underline that sector-specific nature of unitary state enterprises, for instance, scientific research, does not indicate that they fail to generate enough profits to be transferred to the budget. Thus, 3 out of 6 river transport enterprises covered by deduction ratios in 2001 were research institutes and design offices. 3 more were associated with provisioning and foreign economic activities.

Plans for 2002 adopted by a number of agencies (Precious Metals and Jewels Department and Russian Weather Service) envisaged, apart from defining economic performance benchmarks, approving ratios and amounts of profits to be transferred to the federal budget, something that was lacking in the previous years.

The most important aspect of sectoral managements operations to comply with the Russian Government resolutions to improve management of unitary state enterprises was setting up balance sheet commissions or commissions for review of performance and management reports to:

define the economic position of subordinated enterprises;

assess the efficiency of use of federal property;

define and approve economic performance benchmarks for subordinated enterprises, and define deduction ratios from profits to be transferred to the federal budget.

An example of approval of economic performance benchmarks is the following specific values approved by the MNR for 2002:

RUSSIAN ECONOMY in trends and outlooks Proceeds from sale of goods, products, services (minus value-added tax, excise taxes and other mandatory payments) - at least 2001 benchmarks times 1.12.

Net profits - on the basis of general performance indicators:

- minimum 12 percent for enterprises involved in geological prospecting;

- minimum 9 percent for other enterprises.

The amount of net profits to be transferred to the federal budget is defined as the amount of net profits minus part of net profits allocated to finance capital expenditures for primary operations times 1.5 provided that depreciation deductions in the reporting period are fully used to finance capital expenditures for primary operations. Moreover, deduction ratios from net profits to be transferred to the federal budget are minimum 10 percent and maximum 90 percent.

Net assets - at least within the amount defined in the enterprise charter.

The MNRs Department for Subordinated Enterprises was required to:

maintain the sectoral database of approved benchmarks and actual economic performance of enterprises;

submit for approval any capital expenditure programmes for primary operations, to be provided to the MNR together with annual reports, and opinions on such programmes;

define a share of profits to be transferred to the budget and absolute values of economic performance benchmarks for each enterprise.

At the same time the management reporting procedure and methodological recommendations to organise and perform economic performance analysis were approved and made available to federal unitary state enterprises.

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