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This Regulation demands from the executive federal authorities except Presidents Administrative Department, to present, within three months and according to the established procedure, draft acts for specifying the lists of federal government unitary enterprises (FGUPs) in their jurisdiction.

The Federal Property Management Agency is instructed, by July 1, 2010, to carry out actions in reference to FGUPs not included in the mentioned lists for their restructuring, liquidation or inclusion into a forecast plan (program) of privatization and to exercise ownership rights in relation thereto until such actions are completed.

The said Regulation made a number of amendments in and additions to the legislative and normative acts regulating functions of the unitary enterprises in federal ownership, the most significant changes being as follows:

Section Institutional Problems Amendments in Regulation of the RF Government of December 3, 2004 No 739 On the authorities of the federal executive authorities in exercising the ownership rights to the federal government unitary enterprise expanded the range of authorities of the federal executive authorities in relation to enterprises in their jurisdiction that are included in the Forecast plan (program) of privatization of the federal property.

Earlier these authorities were exercised only in relation to enterprises to be converted into joint-stock companies with the contribution of shares into the charter capital of other jointstock companies or keeping them in federal ownership.

Besides, the range of authorities now includes rendering support in preparation of documents by the enterprises required for taking decisions about the terms of privatization and the submission of these documents to the Federal Property Management Agency that has been granted the right to:

request documents from the enterprises which the enterprises are obliged to keep according to the 2002 Law on Unitary Enterprises; while in relation to enterprises included in the Forecast plan (program) of privatization of federal property request also documents required for taking decisions on the privatization terms and also to set the dates for their submission;

launch claims to courts on invalidation of transactions performed by enterprises in violation of the established procedure;

audit, within the framework of their authorities, the use of federal property being in economic management of the enterprises, decide on and carry out documentary due diligence and other audits, including inspections, and make decisions on auditing enterprises including those in the Forecast plan (program) of privatization of federal property to see whether federal property is used efficiently and kept safe.

The list of grounds to terminate an employment contract with a Leader of a federal unitary enterprise under the RF Government Resolution No 234 of March 16, 2000, was supplemented with such grounds as a failure to present or a failure to present on time, a failure to present valid (correct) and/or complete data (information) as necessary to the Federal Property Management Agency and/or a respective executive federal authority under which jurisdiction the given enterprise falls.

The Federal Property Management Agency was also granted the right to include their representatives with the decisive votes in the commissions in organizing a competition to fill the vacancy of the enterprise director and in certifying directors competences.

The Regulation on the management of federally owned shares of open joint-stock companies and the use of a special right of the Russian Federation (golden share) to participate in the management of open joint-stock companies approved by the RF Government Resolution of December 3, 2008 No 738 was changed as follows:

Earlier the Federal Property Management Agency exercised the right of the federal government as a shareholder in different ways based on the classification of joint-stock companies with the federal government interest in their capital (three categories):

joint-stock companies included in a specialized list1 as agreed with the federal ministry or federal authorities of executive power vested with the authorities of management of A group of companies of importance in relation to which the position of the federal government as a shareholder on a number of significant issues is defined by resolution of the federal government, Russian Government Chairman or his/her Deputy upon the Chairmans assignment. Initially this List was approved by the RF Government in 2003, however it has been changed since then many times.

RUSSIAN ECONOMY IN trends and outlooks state property under the guidance of the President of Russia or the Government of the Russian Federation;

joint-stock companies included in the list of strategic companies approved by the President of Russia (hereinafter the Strategic List)1, except joint-stock companies that are included in a specialized list based on proposals of a federal agency in the jurisdiction of the federal ministry concerned or the respective federal body;

other joint-stock companies - independently, while where a federal agency or a federal body as a shareholder presents proposals according to the established procedure with account of those proposals.

RF Government Resolution of December 1, 2009 No 978, cancelled the category of strategic joint-stock companies keeping only the category of joint-stock companies in the specialized list; it was stated that in other joint-stock companies the Federal Property Management Agency exercises the shareholders rights based on the proposals of the federal agency in jurisdiction of the federal ministry or the relevant federal body.

It was stated additionally that if a joint-stock company not included in the specialized list does not submit any proposals (also on candidates proposed for inclusion in the list of candidates for electing board of directors), the Federal Property Management Agency shall develop independently proposals on the federal government position as a shareholder.

The general change of the legislative and normative framework regulating activities of the unitary enterprises and economic entities where the federal government is involved, may be described as having a growing number of exclusions.

Thus certain government acts established that the above mentioned Regulation on the management of federally owned shares of open joint-stock companies and the use of a special right of the Russian Federation (golden share) to participate in the management of open joint-stock companies shall not apply to management of federally owned shares of OJSC State Transportation Leasing Company, shares of joint-stock companies to be transferred to GK Rostechnologies as an asset contribution of the Russian Federal Government before such shares are transferred. A number of authorities of the Federal Property Management Agency have been passed over to Administrative Board of the President of the Russian Federation and the Federal Agency of Marine and River Transport in relation to unitary enterprises in their jurisdiction, while late 2008 these authorities were transferred to the RF Ministry of Defense.

5.1.6. Possible impact of the financial crisis on the property relations and prospects of their development The anti-crisis actions of the RF Federal Government with a domineering trend of limiting direct involvement of the government in capital in principle set the context for this or other privatization scenario.

The development of a future privatization agenda and its possible format, however, meets with certain difficulties.

Firstly, the bulk of the state-owned property was represented by either low-liquidity assets (that required sizable investments or were insufficient in terms of giving control as in case of As for joint-stock companies included in this specialized list, if a federal ministry has federal agencies under its control, proposals submitted to the Federal Property Management Agency must reflect consolidated positions of the federal ministry and its federal agencies on each issue.

Decree of President of Russia of August 4, 2004 No 1009.

Section Institutional Problems minority shares) or very attractive assets (e.g. control or blocking stakes in national monopolies) which sale was quite possible but at the adequate market price if certain conditions allowed for this. It is quite probable that the list of problematic assets owned by the state will be expanded as the crisis continues.

Secondly, the financial crisis that brought about the collapse of the stock market, devaluation of assets and withdrawal from the market of many potential investors who experienced serious problems in their native countries still acts as a natural limiting factor of privatization.

In such situation prospects of significant growth of budget receipts from privatization are quite low moreover with account of lacking assets in the fuel and power complex. We may hope receiving large amounts of revenues only when the Russian economy begins showing signs of going out of the crisis while in the countries with more developed economies the crisis will be close to its end, and as a result of this a flow of capital and investments would be observed to the emerging markets including Russia.

Therefore no inclusion of major assets such as Sberbank, VTB, RZhD, Airoflot, Sheremetievo airport in the privatization program is planned for the near future. As for VTB, it is enough saying that in the mid-term there is a probability of selling its minority block of shares while presently the government interest in the VTB capital reaches 85.5%.

Thirdly, the orientation on the budget revenues as the only criterion of conducting the privatization policy, specifically in the context of crisis, contradicts the tasks of the so-called structural privatization primarily in attracting investments for production upgrade.

The Ministry for Economic Development jointly with the Federal Property Management Agency is drafting amendments for the Law on privatization that would allow conducting auctions with investment terms. In a number of cases, e.g. where state-owned stakes in infrastructure facilities are sold the auction terms may include the requirement to preserve the business profile1.

In this connection it would be worth reminding the low efficiency of the investment bids in the 90es. The volume of investments received from the sales at the investment auctions (with account of delivery of obligations of the previous years) in 1997 made 1.3% only of the total investments in the capital assets (in 19941996 less than 1%). Alongside with this quite a large number of investors participating in the investment bids demonstrated obvious examples of unfair behavior disrupting their commitments. As a result, the investment bids were cancelled (Second Law on privatization of 1997) and replaced for commercial bids with investment and/or social terms2 where the property rights were granted to the auction winner only after certain commitments had been delivered. The current 2001 Law on privatization provides for bids as an independent method of privatization, however the exhaustive list of its possible terms3 does not contain the terms of attracting investments for restructuring of a company. De-facto an auction with social terms may be deemed.

Interview with the Head of the Federal Property Management Agency E. L. Adashkin, RIA Novosti, www.rosim.ru, 25.11.2009.

The commercial bid as an independent method of privatization was actively applied in 1992-1997 mainly for privatization of small businesses when the buyer of an enterprise undertook certain obligations, preserving the business profile, among them. After Law on privatization was enforced in 1997, the investment and the commercial bids merged actually into one method.

The bid terms may be like follows: (1) keeping a certain number of jobs (2) retraining and raising qualification of the employees; (3) restriction on changes of the business profile of the unitary enterprise or designation of RUSSIAN ECONOMY IN trends and outlooks Speaking about possible return to privatization practices with investment obligations and their future, we can assume that this aspect is similar to the issue of reasonable fine tuning of the tax system towards encouragement of certain types of activity (e.g. innovations). In other words, whether the government administration is sufficiently able to control the use of certain legal norms/provisions for compliance with their target purpose.

Fourthly, the critical condition of many private companies that rushed to get support from the government threw light on the fact that had not been obvious until recently that the private business is not always a synonym of an efficient and responsible owner of the assets. Comparison of efficiency of state-owned and private companies in terms of their resistance to crisis and needs in the government support requires additional examination in the context of present-day realities.

Fifthly, a partial shift of the gravity center from the government authorities to various integrated entities with government involvement in making decisions on privatization (one of such examples is Rosneftegaz that secures its indirect control over Rosneft and Gazpromneft) when these entities become owners of a large number of assets due to various reasons (assets are received from the government in the process of establishment and M&A) makes the position of the management of such entities very weighty.

Where such entities initiate sales of their assets, the state is obliged to receive certain reimbursement at least for the assets that had been contributed to those entities earlier for free.

It refers primarily to state corporations established in 2007 2008 that proved to be outside the scope of true corporatization, and to the recipients of state support programs during the crisis. In some cases the government may put up with ignoring budget-related problems in the course of big privatization by integrated entities; but then the obligatory set of behavioral requirements to such business entities must include the absence of outstanding debts, refusal from participation in mergers and acquisitions for the definite period of time, active investments with account of priorities of the federal government anti-crisis program.

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