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Chapter 5. Institutional Problem 5.1. Property relations and the role of the public sector and privatization 5.1.1. The size, integral components and main features of the public sector Last year the Russian economy developed in a crisis situation, and this resulted in a delay in passing a successive privatization program. In 2009 this document was approved as late as the end of November while during six previous years privatization programs were usually approved late summer early autumn1.

The Forecast privatization plan (program) of federal property for 2010 and the main trends of federal property privatization for 2011 and 2012 approved by the respective Resolution of the RF Government of November 30, 2009 No 1805-r, as the previous similar documents contained data on the number of unitary enterprises in federal ownership (FGUPs) and joint-stock companies with the share of the Russian Federation in their capital at the beginning of the calendar year only. Therefore we do not have sufficient information yet to assess objectively the dynamics of these components of the public sector in 2009. Let us review in detail the changes that occurred in the key categories of the business entities in federal ownership.

Federal government unitary enterprises Dynamics and the sector structure of FGUPs in 2004 2008 are tabled below. In 2008 the total number of unitary enterprises in federal ownership reduced by 1/3 (almost 2,000 enterprises) and amounted to 3.8 thousand entities by early 2009. Such reduction of the sector was the largest one during recent years (for comparison: the number of the unitary enterprises reduced by 1/% or by less than 1,500 from June 1, 2006 to January 1, 2008).

Table 1 Dynamics and the sector structure of the federal government unitary enterprises in 2005 2008 As of June 1, As of January 1, As of January 1, As of January 1, As of June 1, 2006 Sector 2005 2007 2008. 2009 units % units % units % units % units % Non-productive sectors 3617 43,6 1817 25,3 1670 25,6 1151 20,2 988 26,Industry 1870 22,55 1624 22,6 1539 23,55 1744* 30,5 476 12,Agriculture 1111 13,4 913 12,7 826 12,65 618 10,8 611 16,Construction 903 10,9 752 10,5 668 10,2 300 8,Transport & Communica725 8,75 612 8,55 536 8,2 409 7,2 249 6,tions Forestry 67 0,8 53 0,75 49 0,75 37 0,65 Other sectors 1407 19,6 1245 19,05 1750 30,65 1141 30,Total 8293 100,0 7178 100,0 6533 100,0 5709 100,0 3765 100,* industry plus construction.

Source: 2006 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2006 2008; 2007 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 20072009; 2008 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2008 2010; 2009 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2010 and 2011; Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2011 and 2012; calculations made by the authors.

The Forecast plan (program) of federal property privatization for 2008 was the only exception as well the main trends of development of federal property privatization for 2008 2010 approved in spring 2007.

Section Institutional Problems Early 2009 the enterprises in the category of other sectors that were not included in the base classification (30.3% of the total number of FGUPs) remained the most numerous category in the FGUP sector structure. The non-productive sectors (26.3%), agriculture (16.2%) and industry (12.7%) were largely represented; 8% of FGUPs represented construction and 6.6% - transport and communications.

In 2008 a sharp decline of the absolute number and share of enterprises in the industry and construction manifested a major trend of changes in the FGUP sector structure. If early 30.5% of the federal unitary enterprises were in the industry and construction, a year after this figure dropped to 20.7%. The reduction of the share of the transport and communications sector was insufficient: from 7.2% down to 6.6%. The specific weight of the non-productive sector and agriculture increased by 5-6 per cent points.

The dynamics of FGUPs number by sectors illustrates well the size of the shift in the FGUP sector structure. Thus, for two years between January 1, 2007 and January 1, 20091 the absolute number of the unitary enterprises in the industry reduced by 3.2 times, in the construction, transport and communications sectors by 2.2 times while in the non-productive sectors by 1.7 times, in agriculture by 1.35 times and in other sectors (outside the base classification) by 1.1 times.

Joint-stock companies (JSC) in federal ownership It is worth noticing that by early 2009 the number of JSC which shares were owned by the federal government reduced by more than 9% (or by 337 companies) vs early 2008; thus their number was 3,3337 companies which is the lowest figure for the entire period 1999 to 2008.

Now let us review the dynamics of the number of JSC which shares were owned by the federal government for the last years, by sectors (see Table 2).

Table Dynamics and sector structure of the joint-stock companies which shares are in federal ownership or in relation to which a special golden share right is used, in 2005 through As of January 1, As of January 1, As of January 1, As of June 1, 2005 As of June 1, Sector 2007 2008 unit % unit % unit % unit % unit % Non-productive sectors 685 18,1 356 9,6 405 10,1 638 17,4 383 11,Industry 2078 54,9 1772 47,6 1797 44,95 1878* 51,1 1583 47,Agriculture 287 7,6 380 10,2 404 10,1 234 7,Construction 459 12,1 396 10,6 353 8,9 397 10,8 280 8,Transport & Communications 229 6,1 363 9,7 534 13,35 761 20,7 522 15,Forestry 45 1,2 99 2,7 88 2,2 Other sectors 358 9,6 416 10,4 335 10,Total 3783 100,0 3724 100,0 3997 100,0 3674 100,0 3337 100,* including industry and construction (695 units or 18.9%), fuel and energy complex (597 units or 16.25%) and military industrial complex (586 units or 15.95%).

Source: 2006 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2006 2008; 2007 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 20072009; 2008 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2008 2010; 2009 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2010 and 2011; The selection of the two-year interval between January 1, 2007 and January 1, 2009 was justified by that early 2008 the industry and construction were quite pronounced in the FGUP sector structure; this impedes making correct comparison of the FGUP structure as of early 2008 and early 2009. Besides in the 2009 data forestry is not segregated.

RUSSIAN ECONOMY IN trends and outlooks Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2011 and 2012; calculations made by the authors.

As of the beginning of 2009, in the JSC sector structure (federally owned) the largest weight was that of industrial enterprises (about 47.5% pf all the JSC). The industry was followed by agriculture (15.7%), non-productive sectors (11.5%) and other sectors (10%). The total weight of the construction, transport and communications sectors was less than 10%.

While speaking about changes in the JSC sector structure which shares are federally owned, one can notice a pronounced increase of the share of industry and agriculture (2.5 and 2.4 per cent points accordingly) in 2007-2008.1. The specific weight of the non-productive sectors was somewhat less pronounced (by 1.4) while the share of construction, transport and communications, and other sectors in the general JSC structure with federally owned stocks decreased; mostly in construction (by more than 3 points).

Distribution of JSC with the state participation depending on the federally owned share is another important feature of such JSC (Table 3).

Table Dynamics and the structure of joint-stock companies with the government participation in 1999 2008 (including the use of the golden share right) with account of the government share size Total by 25% 25 to 50% 50 to 100 % 100% Golden share Date unit % unit % unit % unit % unit % total No shares 3316/ 100 863 26,0 1601 48,3 470 14,2 382 11,5 580 ** 1999 .

3896* January1, 2001 3524*** 100 1746 49,55 1211 34,4 506 14,35 61 1,7 3949 100 1843 46,7 1393 35,3 625 15,8 88 2,2 542** August **** 4407 100 2270 51,5 1401 31,8 646 14,65 90 2,05 750** January 1, 4222 100 2152 51,0 1382 32,7 589 13,95 99 2,35 1076 January 1, ***** June 1, 2003 4205 100 2148 51,1 1339 31,8 600 14,3 118 2,8 October 1, 100 2051 50,8 1308 32,4 552 13,7 124 3,1 640 January 1, 2004 3704 100 1769 47,75 1235 33,35 540 14,6 160 4,3 591 June 1, 2004 3905 100 1950 49,9 1183 30,3 499 12,8 273 7,0 4075/ 100 1697 44,8 1154 30,4 487 12,85 453 11,95 March 1, 3791# 3783/ 100 1544 43,8 1093 31,0 474 13,5 413 11,7 June 1, 3524## 3724/ 100 1063 30,5 885 25,4 397 11,4 1136 32,6 June 1, 3481## 3997/ 100 932 24,4 814 21,3 368 9,6 1702 44,6 January 1, 3816## January 1, 2008 3674 100 771 21,0 645 17,6 269 7,3 1989 54,1 January 1, 2009 3337 100 769 23,0 510 15,3 200 6,0 1858 55,7 * The Concept of management of the state property and privatization in 1999 mentions 3,896 business entities (including 3611 OJSC, 251 CJSC and 34 LTD and LLC), in which capital the federal government participates.

3316 units is an estimate and a result of summarizing the blocks of shares of various size mentioned in the Concept;

The selection of the two-year interval between January 1, 2007 and January 1, 2009 was justified by that at the beginning of 2008 in the JSC sector structure (with federal ownership of stocks) the group of other sectors was absent; at the same time the industry and construction (jointly), fuel and energy complex and military industrial complex were quite marked. This makes difficult reasonable comparison pf the JSC structure with federal blocks of stocks as of early 2008 and early 2009. Besides forestry ceased being shown separately after 2007.

Section Institutional Problems ** total number of JSC using the golden share special right; JSC with no government share are no shown separately;

*** JSC without consideration of 48 interests and blocks of shares in foreign companies; data are available that Russia owns 119 interests, shares and blocks of shares in foreign companies which book value is $1.4 bln;

**** the data from the draft Privatization program for 2002 presented by federal Ministry of Property to the federal government; according to the data of the Ministry of Property Register, 4308 blocks of JSC shares were federally owned as of September 1, 2001;

***** only open joint-stock companies with no account of 118 OJSC where the special golden share right was used (no shares available), blocks of shares of 102 JSC transferred to FGUP Rosspirtprom for operational management, 75 CJSC and interests in the LLC charter capitals, transferred by the RF Government Regulation of April 2, 2002 No 454-r On the termination of state participation in the charter capitals of credit organizations or received in the form of succession, gift or on other grounds;

# 3791 units is an estimated number of JSC which shares are federally owned, with no account of 284 JSC where the special golden share right is used (with no block of shares available). The weight of a JSC with a particular share in the capital for comparison with the previous period data is calculated based on this number.

For reference: as of January 1, 2005, the shares of 3767 JSC were federally owned not considering the above 284 JSC with the golden share and interests in the charter capitals of 24 LLC companies transferred to the treasury following the RF Government Regulation of April 2, 2002 No 454-r On the termination of state participation in the charter capitals of credit organizations ;

## the calculated number of JSC which shares are federally owned; with no account of the JSC where the special golden share right is used. The weight of a JSC with a particular share in the capital for comparison with the previous period data is calculated based on this number.

Source: www.mgi.ru; Russian economy in 2001. Trends and prospects (Edition 23) Vol. 2 M, IEPP, March 2002, p. 62; A. A. Braverman. On measures to improve efficiency of federal property management and the criteria of its evaluation. //Bulletin of the Ministry of Property of Russia. 2003. No 1, p. 13-14. Enterprises with the state participation. Institutional and legal aspects and economic efficiency. Series Scientific reports: independent economic analysis. 155. M.: Moscow Public Research Foundation.; Association of Researchers of the public sector economy, 2004, p. 47; 2004 Federal Property Privatization Program and main trends of federal property privatization by 2006// Bulletin of the Ministry of Property of Russia. 2003. No 3. p. 45. Key problems of improving management efficiency of federal property and main directions of the dividend policy of the Russian federation// Bulletin of the Ministry of Property of Russia. 2003. No 4. p. 8; V, Andrianov. Russia in global economy// Society and Economy 2003, No 11, p. 84;; 2005 Federal Property Privatization Program// Materials for the RF Government meeting on March 17, 2005 On measures to improve management efficiency of federal property; 2006 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2006 2008; 2007 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 20072009; 2008 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2008 2010; 2009 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2010 and 2011;

2010 Forecast plan (program) of federal property privatization and the main trends of federal property privatization for 2011 and 2012; calculations made by the authors.

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