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- by 2008 - the completion of privatization of federal property not used for the exercise of state functions of the RF, the final formation of the system of management of the properties belonging to the public sector, the doubling of proceeds from the use of federal property.

However, the unrealistic character of the deadlines was apparent yet at the moment of approval of this program, while the experience of its practical implementation in 2004 only confirmed these considerations (see Table 1). The major limits on the implementation of such a large scale program in the period indicated above persist:

- the demand for the bulk of privatized objects remains at an extremely low level, while the stock of objects not sold in the preceding years only increases;

- the risk that the stock market may be destabilized and the state owned property may be sold at the prices below those possible in the case of a prolonged privatization;

The Concept was approved at the RF Government meeting held on February 6, 2003; however, in through 2004 it failed to be granted the status of an official document (in contrast to the Concept of 1999). For details see: Radygin A., Malginov G. Privatizatsiya i upravleniye federalnym imushchestvom (Privatization and management of federal property). In: Rossiyskaya ekonomika v 2003 godu. Tendentsii i perspectivy (The Russian economy in the year 2003. Trends and perspectives). M., IET, 2004, pp. 327 339.

Decree of the RF President No. 314 of March 9, 2004, On the system and structure of federal executive authorities. - the high probability of permanent adjustment of the lists of blocks of shares and enterprises due to objective and subjective factors;

- as concerns the rapid reforming of the public sector, the organizational capacity of the authorities is significantly below the quantitative constraint, i.e. the scale of the project;

- the number of minority blocks of shares owned by the state has anyway diminished over the last 10 years, however, the rates of this reduction do not permit to expect the complete solution of the problem in 3 years13;

- the demand for new mechanisms of sale of less attractive minority blocks of shares (in particular, the rejection of the appraisal of the minority blocks of shares put on the auction and the setting of the initial price at the par value of shares offered for sale) has not been confirmed in practice yet14;

- opposition of branch ministries, primarily as concerns the reform of SUEs (primarily due to financial and administrative considerations);

- a sharp decline in the number of unitary enterprises of all levels as a result of the transformation of such enterprises in open joint stock companies (OAO) will significantly increase the burden on the state authorities, which at present demonstrate rather low efficiency in the role of state representatives);

- the creation of a noticeable sector of government enterprises operating on the right of the working management on the base of property belonging to unitary enterprises presupposes higher financial risks borne by the state due to its subsidiary responsibility for the obligations of these enterprises;

- the urgency of the problem of registration of sound ownership rights of enterprises as concerns their plots of land (overestimated purchase and leasing prices, the methods of cadastre appraisal and determination of the market price, administrative barriers, regional policies, etc) 15;

- general and rather complicated problems of high quality regulatory and legislative norms.

The problems indicated above determined the necessity to adjust the deadlines the Prognostic plan (program) set forth with respect to the completion of privatization of federal property for year and the key guidelines of privatization of federal property in the period till 2006. In accordance with the Prognostic plan (program) of privatization of federal property for year 2005 and the period till 200716, there are envisaged the following amendments to the key guidelines of privatization of federal property in the medium term period (in 2005 through 2007):

- prolongation of privatization of federal property to 2007;

- completion of privatization of the federally owned blocks of shares in OAO, which are below per cent, in 2005;

- change in the structure of privatized federal property across industries;

- introduction of the concept of long term financial plan in the planning of privatization of federal property.

It is also expected that the taking of decisions in accordance with the guidelines of state policy in the sphere of privatization will permit to fully implement the plan envisaging the maximal possible Over the last years, the actual amounts of sales of blocks of shares made 10 per cent to 30 per cent of the annual targets. For instance, in 2003 it was planned to sell 1965 blocks of shares; however, no auctions were held with respect to 571 blocks of shares; the decisions to exclude the respective enterprises from the strategic list failed to be taken with respect to 103 such enterprises; at 158 enterprises there were initiated bankruptcy proceedings (although the latter development may be seen as spontaneous privatization).

It seems that the reduction of authorized capitals by the share owned by the state may be proposed as a radical means at the joint stock companies, where the attempts to sell the state owned block of shares failed repeatedly and the further management of such a block of shares had no financial, management, or strategic perspective.

This step will require however a serious legislative substantiation. For instance, the consolidation of the residual state and municipally owned blocks of shares for the simultaneous sale may become a positive incentive for potential buyers.

In December of 2003, the RF President signed the law (amendments to the law On enactment of the RF Land Code) prolonging the deadline for the mandatory re-registration of the rights to use land plots as the right to own or lease these lands from January 1, 2004 to January 1, 2006. As concerns the payments for such land plots, in 2004 there continued the discussion of the respective draft laws.

Draft for years 2005 through 2007 was discussed at the RF Government meeting held on July 29, 2004. The Prognostic Plan for year 2005 was approved by the RF Government Resolution No. 1124-r of August 26, 2004.

withdrawal of the state from the economy by privatizing of all federal properties not required for the ensuring of state functions.

Table 1.

Principal objects of federal property and privatization program of the 2000s 1999* 2000 2001 2002 2003 2004 Total number of FSUEs 13 786 11 200 9394 9846 9275 8820 - ** FSUEs privatized during year:

- Forecast - - - 1652 970 1063 - Actual number - 2 5 78 571 455 - Joint-stock companies whose blocks of shares 3611 3524 4407 4 222 4 035 3905 - are owned by RF ** Including by stakes in charter capital 61 90 99 124 273 - - 100 % 506 646 589 552 499 - - 50-100 % 1211 1401 1 382 1308 1183 - - 25-50 % 1746 2270 2 152 2051 1950 - - under 25 % - 750 958 640 - - - golden share Privatized federal blocks of shares during year:

- Forecast - - - 1126 1965 719 - Actual number *** - 87 216 185 638 about - * By the end of the respective year. Source: data presented by the RF Ministry of Economic Development, FAMFP.

The actual failure of plans of a large scale sale of residual minority blocks of shares in the 2000s determined the search of additional (as concerns the privatization law of 2002 currently in force) decisions: modernization of privatization infrastructure, removal of a number of restrictions on privatization of strategically important enterprises, modification of procedures governing the conduct of specialized auctions and the system of sales at large, vesting with the FAMFP the powers to monitor transactions and the right to dismiss the management of respective enterprises, etc. A separate task is to reduce the list of strategic enterprises and revision of other legislative restrictions pertaining to privatization. The failures relating to the sale of residual blocks of shares also resulted in a certain revision of accents as it is demonstrated by the growing attention to the reform of FSUEs. In quantitative terms (in accordance with the data as of October of 2004), in the perspective the number of remaining FSUEs should make 1000, the number of federal institutions should be at about 10000, i.e. at about one half of their present number (about 5500 should be privatized or liquidated, while about 4000 should be transferred to the regional authorities). In qualitative terms, there are reanimated the ideas of the introduction of the institution of private managers for state unitary enterprises, which proved to be inefficient in 1990s and 2000s. As it seems, the increasing interest of the RF Ministry of Economic Development in this institution may be related to the failure to radically reduce the number of SUEs remaining on the strategic list in 2004. However, this decision gives rise to considerable doubts. First, there is the substitution of concepts (the problem of SUEs is not related to the level of efficiency of management, but the fallibility of the very notion of right of economic management). Second, there will be encountered difficulties in the course of the settlement of the problem of remuneration of private management Materials prepared for the RF Government meeting held on July 29, 2004.

and monitoring of the operations performed by private managers. The latter is not easier to organize than the monitoring of activities of state managers.

In comparison with the stipulations of the Concept of 2003, there was introduced such an innovation as the proposal to transform unitary enterprises in three ways and create open joint stock companies, government owned enterprises (on condition they perform state functions), and noncommercial enterprises. One of the possible methods of acceleration of privatization may be the rejection of the mandatory transformation of SUEs in OAO, where the share of the state makes 100 per cent (this process takes from 9 months to 2 years) and sales of SUEs without transformation as a property complex by one buyer. The RF Ministry of Economic Development is planning to elaborate the law On noncommercial state organizations (i.e. to create new legal framework for state institutions), modification of the legislation regulating the appraisal activities (in order to more precisely define the procedures governing the transfer of rights for intellectual property), liquidation of such an odious institution as the right of economic management with respect to federal SUEs. The fact that the issue of creation of a high quality register of federal property (including the information about the balance sheets and indicators of performance) was again put on the agenda demonstrates the current situation in this sphere.

In spite of the problems and limitations encountered in this sphere, the revenue targets for year 2004 were significantly exceeded. However, this development does not contradict to the above statement about the inertial and spontaneous character of the state activities in the privatization sphere in 2004. First, similarly to the situation observed in the preceding years, the proud reports about the excess of the set targets were based on isolated large transactions. Second, the amount of Rub. 35 billion to Rub. 40 billion set as the target for year 2004 was traditionally underestimated taking into account the possibility that certain sales could fail and / or creation of favorable conditions so that the real figures of revenues exceed the set targets.

From the point of view of budgetary revenues, the positive trends of 2001 through 2003 relating to the increase in the share of revenues derived from the use of state property (i.e. renewable revenues) persisted in 2004. In accordance with the preliminary data presented by the FAMFP, in 2004 the aggregate revenues of the federal budget derived from privatization and the use of state property made Rub. 118 billion (as not adjusted for the revenues pertaining to the sale of shares in the Magnitogorsk integrated iron and steel works to be entered in the federal budget in 2005). It is expected that the revenues of the federal budget generated by privatization will make not less than Rub. 42.7 billion in 2005. Having no financial illusions as concerns the sale of the bulk of the blocks of shares, the government plans to ensure the reception of this amount primarily at the expense of the sale of the shares in the Svyazinvest holding (although the possibility to delay this transaction until 2006 was discussed already in February of 2005). In August of 2004, 1325 FSUEs and 566 blocks of shares in joint stock companies were included in the base list of the objects planned for privatization in 2005. Next year, besides the sale of Svyazinvest the largest privatization projects may be the transformation of the FSUE Rosspirtporm in a joint stock company and the sale of the respective block of shares (200 enterprises, 80 per cent of the Russian market), Domodedovo Airlines (25 per cent of shares), Novorossiysk and Tuapse sea cargo ports (about 20 per cent of shares), Rosgosstrakh (25 per cent plus one share), etc. The further privatization of the open joint stock company Aeroflot Russian Airlines (the controlling interest 51.2 per cent of shares) is delayed for several years running. In the last few years, a significant revival of the privatization process was expected in connection to the prospects of privatization of wholesale generating companies (WGC) created in the course of reorganization of the RAO UES of Russia. In November of 2004, the statement made by V. Khristenko, the Minster of Industry and Energy, informed the public that the nearest possible term for the privatization of WGC is in 2006.

It seems that by that time all interested parties (the state, the management of the RAO UES of Russia, open joint stock company Gazprom, aluminum and other groups) will work out compromises variants including alongside with the sales via auctions the transfer of state owned WGC in private management of privatization via distribution of WGC shares among the existing shareholders of the RAO UES of Russia.

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