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According to Table 8, the period between June 1, 2005, and June 1, 2006, was marked by a long awaited drastic turnaround in the structure of stock pack ages owned by the federal government, increasing the number of JSCs in which the federal government has enough shares to decisively influence (control) the pol icy. During this period of time the absolute number of JSCs with 100% government interest increased by 2.8 times, which is definitely an evidence of certain progress in the process of FGUPs incorporation. As for the number of JSCs with less than 100% government interest, it decreased. It is especially obvious with relation to the number of JSCs with minority (up to 25%) federal government interest, which de creased by 1.5 times; as for the number of JSCs with blocking and controlling RUSSIAN ECONOMY IN trends and outlooks packages owned by the RF government, their decrease was far more modest by 20% and 16% respectively.

This resulted in the following structure of federal government portfolio as of June 1, 2006: the packages of up to 25% interest constitute circa 30% of all the JSCs with federal government participation, the blocking packages (between 25% and 50%) constitute about 1/4, and in 44% of JSCs the government could execute majority control (with that, the share of JSCs with 100% of government capital made 32.6% three times above the share of JSCs in which the federal govern ment owned majority stock but less than 100%). The share of JSCs with all stock owned by the federal government increased significantly compared to June 1, 2005, while as the share of JSCs with different sizes of government interest de clined.

Comparing the structure of the federal government packages as of mid 2006, with the one the RF Ministry for Property Management was expecting after imple mentation of 2003 Privatization Program, we may state that the estimated target was achieved with more than 2 year delay (Table 9).

Table Federal Share Packages Structure as of June 1, 2006 vs. the Expected Early 2004 Structure Resulting from Privatization Program Implementation Share of federal packages in JSCs by their sizes and types, % of the aggregated totality of the packages Type of package based on the shares of Estimated upon implementation the Federal Government, % fact as of of 2003 Privatization Program June 1, (i.e., as of early 2004) Minority (less than 25%) 30,5 Blocking (between 25% and 50%) 25,4 Controlling (between 50% and 100%) 11,4 Complete (100%) 32,6 Total number of packages owned by the RF 3724/3481* government * without accounting for the joint stock companies to which the Golden Share Rule is applied (without a package of stocks).

Source: Federal Property Privatization Forecast Plan (Program) for 2007 and Key Areas of Federal Property Privatization for 20072009; A.A. Braverman, Measures to Improve Efficiency of Federal Property Management and Criteria for Evaluating Such Efficiency // Bulletin of the RF Ministry for Federal Property Management No.1, 2003, p. 29; estimates by the authors hereof.

Thus, it had been planned to bring the share of minority packages down to 36% (de facto 30.5%), of blocking packages down to 22% (de facto 25.4%).

The share of complete packages had been expected at the level of 30% (de facto 32.6%). The actual number of controlling packages (11.4%) practically matched the estimated target (12%).

By that the obvious misbalance in the favor of packages not providing for the required level of government control inherited from the period of monetary privati zation of early 90 ies was successfully eliminated, and the share of minority pack ages turned out to be even less than the number expected by early 2004. The ac tual absolute number of JSCs with government owned packages by mid Section Institutional Problems approximately matched the estimated number expected after implementation of 2003 Privatization Program.

A more ambiguous situation may be observed when comparing the structure of federally owned packages as of June 2006 with the absolute numbers of (according to the data presented in the RF State Property Management and Privati zation Concept). The major trend here is significant (by 2.8 times) increase of the share of JSCs with 100% government capital, as well as of JSCs with the minority government owned packages (by 4.5%), while the share of JSCs with different amounts of government capital decreased. The biggest decrease (by 1.9 times) was observed for JSCs with blocking packages owned by the RF government (be tween 25% and 50% interest), and as for JSCs with controlling government interest (between 50% and 100%), their share has also decreased, even though just by 3%.

Having this said, we need to keep in mind, that 1999 data might be incomplete.

However, we may conclude, that the number of reported federal government packages under 25% as of June 1, 2006 (1063 entities) was 1.23 times higher than in 1999, with the maximum falling on early 2002 (2270 entities), after which a stable trend for decrease was being observed (except for H1 2004). The number of fed eral government packages between 25% and 50% in 2006 (885 entities) was by almost 45% less, than in 1999 (1601 entities), being higher in the beginning of 2002 (1401 entities), than a year before that (1211 entities), and afterwards it was demonstrating a stable decline trend. The number of federal packages between 50% and 100% in 2006 (397 entities) was approximately 15% less, than in (470 entities), though it was fluctuating within rather extended range during the analyzed period making 646 entities as of the beginning of 2002 and 600 entities as of June 1, 2003, after which this number was decreasing gradually. The number of JSCs with 100% federal government interest in 2006 was circa 3 times higher than in 1999. The minimum number of such JSCs was registered as of the beginning of 2001 (61 entities). Further on it kept growing, and between June 1, 2005, and June 1, 2006, this growth was of somewhat stick slip nature by 2.8 times (i.e., by 723 entities).

The scale of the Golden Share Rule application to control JSCs reached its maximum in early 2003, when in addition 958 JSCs to which it was applied simulta neously with a certain federal government package there also were 118 JSCs with out federal government participation (compare: in 1999 there were 580 JSCs to which such Rule was applied, while as in early 2002 750 JSCs). In 2003while the process of selling packages owned by the federal government pro ceeded, the number of such JSCs was decreasing (591 entities as of the beginning of 2004), however, the number of JSCs to which this special Rule was applied with out government having any shares was growing: 284 entities as of March 1, (the maximum number for the whole period between 1999 and 2006), which is 2.times more than as of the beginning of 2003. The share of JSCs to which just the Rule was applied without simultaneous ownership of interest in the overall number of JSCs with the Golden Share was also growing: in early 2003 it was 11%, and as of the beginning of 2004 it already was over 42%. However, further on the decrease RUSSIAN ECONOMY IN trends and outlooks in absolute numbers of JSCs to which the special Rule was applied without the gov ernment owning a package started to decrease: 243 entities as of June 1, 2006, versus 259 entities a year before (over 6% decline).

The dynamics of the ration between two major sub sectors of the public sec tor at the federal level also looks pretty interesting (Table 10).

Table Dynamics of decrease of FGUPs and JSCs with packages owned by the federal government during the period of 20032006, % Period Federal State Unitary JSCs with shares owned by Enterprises the federal government (FGUPs) June 1, 2003, and June 1, 2004 6.5 7.June 1, 2004, and June 1, 2005 10.1 3.June 1, 2005, and June 1, 2006 13.4 1.June 1, 2003, and June 1, 2006 27.2 11.Source: Federal Property Privatization Forecast Plan (Program) for 2004 and Key Areas of Federal Property Privatization for the period up to 2006; Federal Property Privatization Forecast Plan (Pro gram) for 2005; Federal Property Privatization Forecast Plan (Program) for 2006 and Key Areas of Federal Property Privatization for 20062008; Federal Property Privatization Forecast Plan (Pro gram) for 2007 and Key Areas of Federal Property Privatization for 20072009; estimates by the au thors hereof.

As it follows from Table 10, the sub sectors decrease in 20032006 was obvi ously erratic. The FGUPs sub sector, initially being more extensive, decreased by over 27% in 3 years, while as the sub sector of JSCs with federal packages de creased only by about 11.5%, i.e., 2.5 less than the FGUPs sub sector. With that, if both sub sectors decreased by an almost equal amount between June 1, 2003, and June 1, 2004, during the following years the decline of JSCs with the federal government interest was declining far less rapidly, the gap reaching over 10 times during the period between June 1, 2005, and June 1, 2006.

This data provides strong evidence of the growing process of FGUPs decline during the last several years, including the decline due to the growing scale of their incorporation. Of course, it needs to be kept in mind that the number of unitary en terprises declined not solely due to their incorporation, but also due to their liquida tion and merging /aggregation. However, the rate of selling federal stock pack ages is clearly behind the rate of incorporating FGUPs, and it is due to this fact that the proportion between these two sub sectors has changed (Table 11). The abrupt increase of JSCs with 100% federal government interest (Table 8) speaks about the same trend (these JSCs are mostly former FGUPs having been put under in corporation).

As is shown in Table 11, the number of JSCs with federal packages made about 52% of the number of FGUPs as of June 1, 2006, while as it was making 42.6% as of June 1, 2003. The same trend can be clearly observed in the industry based profile. JSCs with federal packages are now constituting a higher percent of FGUPs number practically in every industry, and for industry overall (starting from mid 2005), as well as for forest management (starting from mid 2006) the number Section Institutional Problems of such JSCs exceeded the number of FGUPs. Inside the material sector the num ber of JSCs as of June 1, 2006, in metallurgy, chemistry, food processing was 2.5 3.4 times higher than the number of FGUPs, while as in engineering industry this number was practically the same. The non material sector formed an exception, as its profile has been changed due to establishing the other industries category in 2006, so that the entities had to undergo a re classification to be attributed to that or another sector, resulting in re distribution of entities between the industries.

Table Ratio between JSCs with government interest and FGUPs in 20032006, % Industry (sub sector) as of June 1, 2003 as of June 1, 2004 as of June 1, 2005 as of June 1, 42.6 42.3 45.6 51.Nonmaterial sphere 44.0 43.8 18.9 19.Industries, incl. 60.7 60.7 111.1 109. engineering 24.8 25.9 25.5 100. soft industry 8.3 7.7 4.6 14. food processing 71.7 65.6 98.2 256. construction materials 25.9 25.0 27.9 96.manufacturing metallurgy 69.4 86.5 82.4 336. chemistry 41.3 41.9 117.9 288. other industries 111.8 111.7 232.6 114.Agriculture 3.5 3.5 20.6 39.Forest management 25.0 23.1 67.2 186.Transport & Communi 45.0 44.0 63.3 64.cations Construction 47.5 46.7 31.8 50.Source: Federal Property Privatization Forecast Plan (Program) for 2004 and Key Areas of Federal Property Privatization for the period up to 2006; Federal Property Privatization Forecast Plan (Pro gram) for 2005; Federal Property Privatization Forecast Plan (Program) for 2006 and Key Areas of Federal Property Privatization for 20062008; Federal Property Privatization Forecast Plan (Pro gram) for 2007 and Key Areas of Federal Property Privatization for 20072009; estimates by the au thors hereof.

The JSCs created through incorporation of state unitary enterprises naturally become subject to government management (the government being the share holder) in compliance with relevant legal norms and procedures. The duration and the level of governments participation shall be in such case defined by the timeline of selling the government owned package, as well as by the scale of this package.

Its worth reminding that in JSCs where all voting shares are owned by the federal government (as a rule, they are former FGUPs), the authority of the General Share holders Meeting is usually exercised by the RF Agency for Federal Property Man agement (FAFPM). The GSM Resolution shall be then issued in the form of FAFPM directive. The norms regulating the order and deadlines for preparing, calling and conducting General Shareholders Meetings shall not be observed in such cases.

The government sector profile in the near future will be to a great extent de pendent on the degree the privatization program is implemented.

RUSSIAN ECONOMY IN trends and outlooks 5.2.2. Outcomes of 2006 Privatization Policy and Mid Term Privatization Plans As it is already known43, the Forecast Plan (Program) of Federal Property Pri vatization for 2004 and Key Areas of Federal Property Privatization until 2006 (ap proved by the RF Government Resolution No.1165 r of August 15, 2003) stipulated the following algorithm of actions: 2003 privatization of government owned pack ages of stocks comprising up to 2% of charter capital, 2004 government exit from all companies with government share comprising less than 25% interest, 2005 government exit from all companies with government share comprising from 25 to 50%, 2006 government exit from all companies with government share exceeding 50%, which are not qualified as strategic businesses, 2008 completion of privatiz ing federal property not being used for carrying out government functions of the Russian Federation. According to this scenario, by 2008 not more than 2,FGUPs and 500 different packages should remain under government ownership.

Certain adjustments were then introduced when adopting the Forecast Plan (Program) of Federal Property Privatization for 2005 and for the period until 200744:

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