Asset contributions to state-owned corporation “Rostekhnologiyi” During 2009 the RF Government adopted 3 resolutions about disbursement of the federal budget funds to state-owned corporation “Rostekhnologiyi” for their further disbursement to OJSC AVTOVAZ as interest-free loans:
- in early June the respective asset contribution made Rb 25 bn3;
- in mid-December it made Rb 12 bn. The following limitations were set: the funds should be used only to assure discharge of AVTOVAZ obligations to suppliers, intermediaries, credit institutions and other counterparties with further increase of Rostekhnologiyi share in the charter capital of the company4;
- in late December – RB 28 bn allocated for discharge of AVTOVAZ obligations to credit institutions with further increase of Rostekhnologiyi share in the charter capital of the company 5.
It should be noted that in the last case 2 pre-conditions were set for the automotive manufacturer to qualify for receiving the funds:
- prepare and agree with the RF Ministries of Industries and Trade, of Economic Development and of Finance the mid-term Program of ABTOVAZ development including high potential investment projects;
- sign MOU between Rostekhnologiyi, OJSC AVTOVAZ and group of banks including Sberbank and VTB about restructuring the company’s debt and banks’ commitment to issue loans to fund its core business operations under mutually accepted terms.
In addition, late in 2008 and early in 2009 5 more decisions were made to disburse budget funds to Rostekhnologiyi as asset contributions:
• 2008: Rb 1.5 bn without indicating specific objectives6;
- Rb 7.48 bn to finish the construction and commissioning of federal hi-tech medical centers7;
- Rb 2.97 bn to settle debt servicing obligations on loans used for consolidation of VSMPO-AVISMA Corporation8;
RF Government Directive No.346-p of September 15, RF Government Directive No.1604-p of November 2, RF Government Directive No.745-p of June 1, RF Government Directive No.1895-p of December 10, RF Government Directive No.2080-p of December 25, RF Government Directive No.1847-p of December 8, 2008 – respective amendments were introduced into 2009 budget by Federal Law No.837-FZ of November 8, RF Government Directive No.837-p of June 2,2 RF Government Directive No.1466-p of October 8, 2009 – respective amendments were introduced into budget by Federal Law No.76-FZ of April 28, Section Institutional Problems - Rb 1.44 bn to fund especially important and special flights of aircrafts1;
- Rb 900 mln without indicating specific objectives 2.
Providing incentives to increase domestic demand for strategic companies products Additional government procurement The RF Government Anti-Crisis Program identified two large-scale measures stipulating government and municipal procurement of products manufactured by the companies included into the List of Strategic Companies:
(1) automotive vehicles for federal executive agencies, their territorial branches and subordinate institutions (Rb 12.5 bn from the Federal Budget);
(2) renewal of the automotive vehicles fleet used by regional and municipal authorities for passenger transfer, medical purposes, of specialized vehicles used by militia, by utility companies and for road construction purposes (Rb 20 bn from the Federal Budget, Rb 10 bn as cofinancing from regional budgets).
Procuring automotive vehicles for federal executive agencies Funds to procure automotive vehicles for federal executive agencies in the amount of Rb 12.5 bn were allocated by the RF Government in February были 20093. In the same month the RF Ministry of Industries and Trade approved the list of automotive vehicles for such procurement4, comprising over 1 thousand of various types and names (cars and trucks, buses, tow cars), with practically all of them (99.9%) being manufactured by plants either included into the List of Strategic Companies, or by their subsidiaries.
By early October 2009 automotive vehicles were procured for the amount of Rb 11.8 bn (94% of allocated funds), including Rb 2.2 bn spent on purchasing VAZ cars (“Ladas”), Rb 2.1 bn – on KAMAZ trucks (in the amount of 2.1 thousand trucks), Rb 2.0 bn – on UAZ (thousand cars), Rb 1.6 bn – on GAZ (1.7 thousand cars), Rb 1.4 bn – on FIAT (1.4 thousand cars)5.
In early November budget allocations were this purpose were increased up to Rb 15.5 bn.
Renewal of the automotive and specialized vehicles fleet used by regional and municipal authorities In late March of 2009 the RF Government allocated total amount of Rb 20 bn to purchase automotive and specialized vehicles; at the same time the main rules for disbursement of such funds were approved6. In mid-April the RF Ministry of Industries and Trade approved the list of Russian manufacturers of the respective vehicles comprising all automotive manufacturers from the List of Strategic Companies, as well as number of their subsidiaries.
By early October the RF Government allocated the total subsidies of Rb 12.6 bn, and then a month later they amounted to Rb 14.4 bn. The procurement of vehicles was significantly lagging behind due to the need to organize tender procedures, review the bids, award and exe RF Government Directive No.1717-p of November 13, 2009 – respective amendments were introduced into 2009 budget by Federal Law No.230-FZ of October 3, RF Government Directive No.2065-p of December 24, RF Government Directive No.139-p of February 9, Order No.78 by the RF Ministry of Industries and Trade issued on February 20, UAZ and Fiat cars are manufactured by subsidiaries of OJSC Sollers RF Government Resolution No.253 of March 24, RUSSIAN ECONOMY IN trends and outlooks cute contracts, etc. Thus, by October 2009 the total amount of executed contracts was only RB 4.3 bn. The majority of vehicles were procured from GAZ and KAMAZ.
Creating incentives for demand The RF Government Anti-Crisis Program for 2009 stipulated a series of measures and steps to create incentives for demand for the product manufactured by the plants included into the List of Strategic Companies. We need to focus on two measures, implementation of which allowed for achieving visible results in 2009:
(1) subsidizing 2/3 of the refinancing rate for 3-year consumer loans for purchasing cars manufactured in the territory of Russia (overall amount making Rb 2 bn);
(2) increasing the charter capital of OJSC RosAgroLeasing to procure domestically made agricultural machinery and equipment subject to further leasing (Rb 25 bn).
Partial interest rate subsidies for loans to consumers The Federal Budget allocations for subsidizing 2/3 of the refinancing rate for 3-year consumer loans for purchasing cars manufactured in the territory of Russia for the total amount of Rb 2 bn were agreed by the RF Government in February 20091. This measure was applied only to cars with the price not to exceed Rb 350 K included into a special list created by the RF Ministry of Industries and Trade. The initial version of this list2 contained names of car types, 25 of which were manufactured by strategic companies and their affiliates: 23 – by AVTOVAZ; 1 – by its joint venture with General Motors; 1 – by Sollers Group enterprises.
In March 2009 the RF Government adopted the rules for providing subsidies to Russian credit institutions to compensate for the shortfall in income from consumer loans for purchasing cars3. However, disbursement of such funds did not start until the end of the first six months.
In July 2009 the coverage of this measure was significantly expanded: now it could be applied not only to passenger cars but to commercial vehicles with mass not to exceed 3.5 tons, and the maximum price of a car/vehicle was increased up to Rb 600 K4. The list of cars/vehicles subject to such measure was also significantly expanded – up to 50 names, 37 of which were manufactured by strategic companies and their affiliates 5. With the representation of VAZ cars (together with VAZ / General Motors JV) was decreased down to 18 names, and Sollers cars representation was increased up to 12; moreover, 7 other cars were added to the list (manufactured by GAZ).
In Q3 2009 the process of disbursing the subsidies started rolling out, however, the scale of this measure was far from the originally expected: by early October about 39 thousand of soft auto loans were issued (32 thousand – for VAZ cars), and the amount of interest rate subsidies was Rb 33 mln; and one month after the number of loans reached 48 thousand, and the amount of subsidies – about Rb 40 mln. In December 2009 the amount of budget allocations for this purpose was decreased more than 2 times – down to Rb 950 mln6. However, the actual total amount of granted subsidies during 2009 made less than 20% of the budget limit – Rb 187.7 mln7.
RF Government Directive No.139-p of February 9, Order No.77 by the RF Ministry of Industries and Trade issued on February 20, RF Government Resolution No.244 of March 19, RF Government Directive No.905-p of July 7, Order No.650 by the RF Ministry of Industries and Trade issued on July 15, RF Government Resolution No.996 of December 1o, M. Tovkaylo, V. Kholmogorova. Coming Late report. – Vedomosti, February 4, 2010.
Section Institutional Problems The key areas for the RF Government anti-crisis activities in 2010 stipulate subsidies to Russian credit institutions to compensate the shortfalls in income on loans issued in 2009– 2010 to individuals for purchasing cars – for the total amount of Rb 1 bn.
Increasing OJSC RosAgroLeasing charter capital RF Government agreed for additional capitalization of OJSC RosAgroLeasing in the overall amount of Rb 25 bn in early February 20091. By early March the respective funds were disbursed to OJSC RosAgroLeasing. By October 2009 the company used these funds to procure products to be leased to agricultural manufacturers for the overall amount of Rb 28.4 bn, including:
- Agricultural machinery – for Rb 22.8 bn;
- Equipment for cattle breeding and agricultural products processing – for Rb 3.6 bn;
- Pedigree livestock – for Rb 2 bn.
During 9 months of 2009 RosAgroLeasing supplied the agricultural manufacturers with 2,882 tractors, 1,600 harvesters, 4,196 automotive vehicles, 1,719 machinery and equipment pieces for setting-up grain processing facilities, and 18.9 thousand of high-yield pedigree cattle stock.
Decreasing the burden on business Decreasing tax burden in oil-and-gas sector The majority of tax measures applied from the time the crisis started were of “general systemic” character. We can identify some measures, however, focused at strategic companies, in particular – measures to decrease the tax burden on oil-and-gas sector:
• increasing the tax-exempt minimum from 9 to 15 $/bbl when calculating MET rates;
• improving the procedure for recognizing (deducting) the expenses for subsoil licenses acquisition when calculating the Profit Tax by providing the taxpayers with the possibility to write-off such expenses during the period of 2 years • introducing tax holidays for developing off-shore fields, fields in Nenetsky Autonomous District, Yamal Peninsula, East Siberia, Azov and Caspian seas2.
As per the available estimates, the aggregate benefit for oil-and-gas companies amounted to over RB 100 bn.
We also need to emphasize here, that starting from January 1, 2010, a number of changes were introduced to classification of fixed assets included into amortization groups3. These changes are about shifting certain types of equipment (primarily those used in exploration and production) into amortization groups with shorter useful life.
Tax arrears restructuring The RF Government Anti-Crisis Program for 2009 stipulated adjustments to the effective schedules for redemption of restructured tax arrears of the automotive companies to the federal budget, as well as to extra-budgetary funds (in terms of insurance payments arrears). In March 2009 the RF Government adopted respective resolutions with regards to OJSC AV RF Government Directive No.122-p of February 4, Federal Law No.158-FZ of July 22, 2008, “On Amendments to Chapters 21, 23, 24, 25 and 26 of Part II of the Tax Code of the Russian Federation and to some other legislation of the Russian Federation pertaining to taxation” RF Government Resolution No.165 of February 24, RUSSIAN ECONOMY IN trends and outlooks TOVAZ and AMO ZIL1. According to the RF Ministry for Industries and Trade, simultaneous restructuring of tax arrears was performed for the amount of Rb 7.24 bn2.
Let us also note that in December 2009 the RF Government defined the procedure and conditions for restructuring the arrears for defense industry companies engaged in government procurement and included into the List of Strategic Companies – this covered all the arrears to the Federal Budget (taxes, fees, accrued penalties and fines)3.
5.2.4. Overall evaluation of coverage and sector-based specifics of measures supporting strategic companies The aggregate amount of government support to strategic companies (taking into account the shortfall in budget revenues and potential budget expenditure) starting from October until the beginning of 2010 made, according to our estimate, about Rb 1.1 trillion4. Oil-andgas sector, metallurgy, automotive and defense industries received the biggest amounts of such support.
In 2008 the amount of government support was only slightly below Rb 500 bn, the major bulk of it falling under 2 measures: external corporate debt refinancing (approximately Rb 270 bn) and amending the procedure for calculating export duties for crude (about Rb 150 bn, as per available estimates).
The amount of anti-crisis support in 2009 is estimated as exceeding Rb 500 bn; the major portion of budget resources was spent on additional capitalization of companies (direct budget expenditure of about Rb 150 bn), provision of government guarantees (amounting to Rb bn), and tax incentives to oil-and-gas sector (the amount of shortfall in budget revenues exceeds Rb 100 bn, as per some estimates).
Overall, as per our estimates, the amount of direct Federal Budget expenditure and shortfall in budget revenues associated with support to strategic companies exceeded in 2009 г. the amount of Rb 300 bn.
As per the timeline of their implementation, the government support measures reviewed in this material may be clearly split into 2 groups:
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