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Institutional and Macroeconomic Challenges Any decisions on establishing, reorganization in the form of dividing, singling out of FPUEs based on the right of economic operation, and transforming them into federal state enterprises as well as on changing the type of such enterprises into federal public ones, shall be taken by the RF Government. The respective draft project on its establishment and/or reorganization must envisage the aims, subject and main types of its business ac tivities. Also, it is presented to the RF Government by the respective federal ministry, fed eral agency or federal service whose professional activities are under control of either the RF President or the RF Government, fully in accordance with the RF Ministry of Economic Development and Trade.

Reorganization of the FPUEs based on the said right of economic operation, in the form of merger and/or association as well as their respective liquidation shall be imple mented by the decision of the FAFPA on the basis of the respective proposal from the fed eral executive power body under whose responsibility such respective enterprise is oper ating.

Liquidation and reorganization of such FPUEs which have been included in the list of the strategic enterprises or the strategic joint stock societies and approved by the Decree of the RF President No 1009, dated August 4, 2004, shall be implemented by the RF Gov ernment on the basis of the respective decision of the RF President.

When attesting Heads of such FPUEs functioning under the jurisdiction of the respec tive federal executive power bodies whose activities, in their turn, are under direct control of either the RF President or the RF Government, formation of the said attestation commis sions shall be practically executed by the said bodies. As to the FPUEs which are under the jurisdiction of the respective federal executive power bodies which are subordinate to the federal ministries, the said attestation commissions shall be formed by the respective fed eral ministries.

The RF MEDT was duly instructed to approve (within a three month period since the date of the official publication of the said Regulations) a sample labor agreement with Head of such FPUE and a sample Charter of such FPUE established on the said right of economic operation24 as well as to present to the RF Government (within a two months pe riod and in the established order) proposals on bringing the existing normative legal acts of the RF Government to conformity with this present Resolution.

Further changes. As to the practical aspect in the respective policies of the state with regard to its own property, rather noteworthy seems to be the fact that it was not too much later after the said list of the strategic enterprises and the joint stock societies was officially approved in August of 2004, that it became the subject of certain changes.

Most notable of them was exclusion from this list (by the Decree of the RF President No 1502, dated December 7, 2004) of the Rosneft Oil Company OJSS as connected with adoption of the GR Governments proposal to include 100% of this federally owned joint stock societys shares as a contribution of the Russian Federation into the authorized capi tal of the Rosneftegas open joint stock society which only added to the strategic OJSS list. It is also to be reminded here that the states initial intention was to exchange the Rosneft for 10.7% of the Gasprom OJSS necessary for consolidating the control pack age of the gas holding in its property which, in its turn, permitted to liberalize the respective market of the Gasprom shares without any damages brought to the majority control over the company. As to Rosneftegas, its creation was intended to serve as a temporary eco It is quite noteworthy that the present Sample Labor Agreement with Head of FPUE and the Sample Charter of such FPUE were officially approved rather recently by the orders of the RF Minimushestvo NoNo 6946 p and 6945 p, dated December 11, 2003, respectively.

RUSSIAN ECONOMY in trends and outlooks nomic entity whose framework would enable functional exchange of the respective assets.

A new element appeared in the position of Gasprom while preparing for such a maneu ver, which came down to a simple fact that 100% of the Rosneft shares will not be enough for the state to acquire the Gasprom package of shares of the desired size and that some other assets should be added to this, for example, the Zarubezhneft RFTS FPUE whose turning into a OJSS was started as far back as the spring of 2004. Further perspectives of the said Rosneftegas OJSS (after the Yuganskneftegas OJSS has been purchased by the Rosneft) indeed seem to be rather uncertain.

In addition to the Rosneft OJSS, fully in accordance with the Decrees of the RF President No 1483, dated November 29, 2004, and No 41, dated January 19, 2005, re spectively, twelve (12) unitary enterprises and eight (8) joint stock societies of the ma chine building and defense industries were also excluded from the said lists of strategic enterprises. Instead, the RIA Novosti Russian International Information Agency was in cluded into such list of strategic enterprises by the Decree of the RF President No 1470, dated November 22, 2004.

Apart from a possible merger of Gasprom and Rosneft (through skilful maneuver ing with the state owned assets of these two corporations which, because of their substan tial scale and size, were of a general national significance), quite noteworthy are the plans of the RF Government, made publicly known in February 2004, to amalgamate by the end of this year the Pulkovo FPUAC (the third largest air carrier in the country) and the Rus sia State Transporting Company (GTC) into one unitary enterprise dealing in air shipping.

However, because of the ongoing administrative reform, the said amalgamation project was stopped and another confirmation that such amalgamation would indeed be com pleted appeared only in the autumn months. The current plan is that practically all of the respective GTC stock (except for the property necessary to ensure carriage of the coun trys first persons) shall be passed over to the new company. As well as the assets of the Pulkovo FPUAC not connected with the airport business. This may very well lead to the appearance of the second large air carrier after the Aeroflot Russian Avialines OJSS.

True, early in the year of 2004, there were rumors about possible including in the said structure of the Kavminvodyavia, the Dalavia and a number of other public unitary air carriage enterprises.

Thus, analysis of the property policies of the state in the area of the federal property administration in the year of 2004 permits to make the following conclusions.

The respective normative legislative basis has been significantly renewed; the leg islative gaps at the junction with the respective privatization and insolvency legislation have been successfully liquidated; presence of at least three lists (the special, which has not yet been published, the strategic and the specific insolvency regimes) of companies with dif ferent degrees of the property control (e.g., economic societies and unitary enterprises) with regard to which the state applies a special regulation, in fact, means nothing but early stages in forming a particular legal field for the enterprises of the state (public) economic sector. Hence, it remains rather unclear where the said lists of the joint stock societies, contained in the respective supplements to the Regulations on the Rights of the Russian Federation as a Shareholder (2001), really fit the system.

An additional functional quality in the capacity of a new subject of the property poli cies with regard to the state economic sector enterprises was acquired by the RF Ministry of Economic Development and Trade which is now called upon to act as a sort of an arbiter between the Federal Agency for Federal Property Administration (FAFPA) and the branch management bodies in many managerial aspects of the economic societies with such or other degree of state participation in the capital and the respective unitary enterprises. In Section 4.

Institutional and Macroeconomic Challenges practical terms, there are certain indications that the trend towards enlargement of the state sector enterprises through their integration, which appeared in the year of 2000, is still going on. Although concrete implementation of such projects, as but too often demon strated in real life (for instance, certain enlargement plans for the military and industrial complex, absorption of Rosneft by Gasprom, etc) in the long run seems to be quite problematic.

4.2. Ownership Rights Protection and Collapse of YUKOS In the period between 2000 and 2004, the RF Government expanded its influence on ownership rights, attempted to establish (expand) control over major cash flows in the Russian economy and, more generally, made efforts to make the Russian business com munity dependant on public institutions in spite of decisions on economic deregulation and further privatization25. Such policy is most likely to result in creating a state capitalism model (keeping in mind conditionality of this term) which is distinguished by a combination of the following elements :

strengthening (widening the scope of application) firmly standard elements of public entrepreneurship, which seems to be viewed as a component providing the national in terests of Russia (which is quite arguable) ;

creating favorable (or at least neutral) conditions for a small group of loyal companies, including private ones, which have gained a reputation of government supporters and based themselves upon a highly centralized state machine which is subordinate to the RF President (including law making structures and judicial authorities) ;

applying (selectively) demonstratively punitive actions (represented by administrative and criminal cases) against powerful economic subjects which fail to suit the model under construction ;

asymmetry of goals and approaches. The goals which have been assigned, most of them quite reasonably, with a view to regaining assets, making property structures transparent, returning profit centers to Russia, abolishing ineffective tax schemes, etc., are being implemented by using approaches which have nothing to do with such is sues, rather than making reforms in the relevant sectors ;

making distinctions between the national interests of Russia and the principle of private property integrity.

Though the foregoing trends developed as the new order strengthened itself throughout the entire period of 2000 thru 2004, the YUKOS case of 2003 2005 became a point of reference for understanding a full picture of ongoing processes. Obviously, the case should be interpreted in terms of creation of public centers of power in the strategic industries (GAZPROM ROSNEFT YUGANSKNEFTEGAZ power supply industry), public control over resources of the Eastern Siberia where YUKOS used to be quite powerful26, geopolitical aspects (selection of pipeline options between China and Japan), etc., rather than the collapse of disgraced tycoons empire (YUKOS). Such interpretation provides a better picture of the real criteria to be relied upon in developing a concept of partnership between the state and the business which is currently so popular among senior public servants.

For more details please refer to Radygina . Russia in 2000 2004 : The Way to State Capitalism // Voprosy Ekonomiki.

2004. No. 4. p. 42 65.

It is only in 2005 upon the sale of YUGANSKNEFTEGAZ to a state owned company when the government has brought up the issue of multifold increase of budget allocations on geologic exploration and eastward reorientation of the industry from the Western regions of Russia. A series of license auctions on natural resource development in this region are expected to be held in the long term. However, it is public companies that are to be granted preferences at these auctions.

RUSSIAN ECONOMY in trends and outlooks The model under construction can be better pictured from the point of view of a se ries of small effects that emerged in the YUKOS case to become a general alarm signal for major businesses in Russia. In 2003 the experts were mostly interested in real motives of the government in the YUKOS case, while in 2004 they focused on other aspects. It is almost obvious that YUKOS will not exist in the way it did until late in 2004, and the com pany will continue to break up in 2005. In regard to M. Khodorkovsky and other sharehold ers and staff members being under arrest in Russia, there is probably no way to achieve compromise like property in exchange of freedom27. In spite of all procedural costs in volved, major criminal cases will be brought to their final judgment which is unpredictable as it will depend not only on the provisions of the RF Criminal Code. In general, it is the un biased assessment of strategic effects of the YUKOS case for the Russian economic and legal systems that will matter, rather than destiny of the company itself and its owner28.

More importantly, potential impacts of the YUKOS case have recently been emerging.

4.2.1. Selling YUGANSKNEFTEGAZ It is our opinion that the sale of YUGANSKNEFTEGAZ, basic YUKOSs oil producing asset, in December 2004 (refer to Annex) is one of the most alarming signs for the Russian business.

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