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Revenues from leasing federal property including federal land have gone up by al most RUR 2.3 bln, making up to almost RUR 16.8 bln in 2006. The revenues from selling the right to execute leasing agreements for federally owned lands exceeded similar revenues of the last year by over 90%.

Another revenue source is relatively new but already of big significance this is the revenue from cash recovered by Rosimuschestvo and its territorial divisions through a judicial proceeding on property disputes. During the first 3 quarters of 2006 RUR 2.63 bln were collected (vs. RUR 1.3 bln from the same source in 2005), the share of fully/partially sustained claims making 82.4%.

Even though the renewable revenues sources grew 8 times during the period of 19992006, not 100% of them are unimpeachable, which is especially important if we look into the future prospects for such sources growth. The process of switching to the market based federal property leasing rates is undoubtedly eco nomically feasible. On the contrary, protection of the property rights of the Rus sian Federation should not be focused merely at fiscal objectives of recovering re Section Institutional Problems spective cash amounts via property disputes, especially in the context of the gen eral trend towards increased government involvement (and respective application of this mechanism).

Table Dynamics of Revenues from Privatization and/or Using Federal Property, RUR bln 848.1999* 8 547.4 8 547.4 8 720.5 2 191.4 5 675.0 17261. (600) 3 675.2000 31 367.1 31 367.1 18 790.1 3 427.2 11 687.3 50157.(1050) 6 478.0 209.2001 10 110.6 9 990.6 120.0 29 122.6 4 896.1 3 917 13 621.9 39233.(782) (131) 10 402.3 914.2002 14 700.7 12 703.8 1 996.9 36 762.2 7 657.9 4 400 13 388.8 51462.(747) (809) 197.2003 95 237.3 90 660** 585 3 992.3 41 143.2 12 395.2 9 573.9 2 387.6 16 200 136380.*** 17 222.2004 65 777 61 856.8 662.7 3257.5 53 710,3 11 928.8 901.7 2 538.1 17 199.5 119487.(319) 2005 34 882 29079.2** 522 5280.8 54 404 18 610 14 170 1 748 2 386 17 490 89 31 600 31 000 600 n/a 53 052 20 500 16 700 2 000 2 500 11 352 84 plan 2006 Over 19 010 17 600 1410 n/a 67 363,6 23 000 16 800 n/a n/a n/a actual 86 2007 73 921,5 Over 49 000 41 000 N/a 8 000 24 080 17 600 4 000 15 425 12 816,estimate **** 120 * 19952002 dynamics is found in: Russian Economy in 2002: Trends and Outlook. ., Institute of Transition Economy, 2003, p. 367.

** Revenues from selling 74.95% JSC Slavneft stock for the amount of RUR 59 161.95 mln in were included into 2003 revenues (over 60% of all received revenues). Revenues from selling 17.8% JSC Magnitogorsk Metallurgic Plant stock for the amount of RUR 21 928.2 mln in 2004 were in cluded into 2005 revenues (over 60% of all received revenues).

*** Revenues from leasing federal land after demarcation. In the following years the line Lease pay ments and revenues from selling the right for executing the lease agreements for federal land is accounted.

**** Only those renewable sources are accounted here, which directly relate to managing federal property (administered by the RF Agency for Federal Property Management). According to the RF Law On Federal Budget for 2007, total estimated revenues from using federal property should make RUR 100 bln in 2007 including, on top of the listed sources, revenues from balances on fed eral budget accounts, government loans interest rates, revenues from remitting a portion of the RF Central Bank income, etc. There is one significant revenue source, which was not included into Ta ble 13, but still has substantial weight in the overall revenues amount revenues from leasing property managed by federal government agencies and their establishments or/and under eco nomic jurisdiction of federal state unitary enterprises (FGUPs) (overall RUR 16.6 bln).

Source: statistics of RF Ministry for Economic Development and Trade, RF Agency for Federal Prop erty Management, RF Law On Federal Budget for 2007, estimates by the authors hereof.

nies) TOTAL 2.1. Dividend sources, total sources, total tangible assets 1.1. Privatization 2.3. Leasing land and military assets 2.5. Vietsovpetro 2.2. Leasing property 2. Renewable revenue (number of companies) come (number of compa 1.3. Selling land and non 2.4. Portion of FGUPs in 1.2. Selling FGUPs assets 1. Non renewable revenue RUSSIAN ECONOMY IN trends and outlooks Obvious reduction of federal budget revenues from JV Vietsovpetro activi ties also leads to certain questions arising: the actual decrease in 2005 made RUR 17.5 bln, and the planned decrease for 2007 is by RUR 12.8 bln (given current fa vorable situation at the energy market). Russian share in JV Vietsovpetro was contributed to the charter capital of JSC Zarubezhneft in 2006 (100% Russian Federation property). Respectively, starting from 2008 the federal budget from JVs activities should have been transformed into Zarubezhneft dividend pay ments (in case the decision on pay out was positive).

The dividend policy of Rosimustchestvo is the biggest question. As it is known, current government policy in this sphere (given the lack of uniform dividend policy with regards to government holdings) means merely annual increase of net profits share allocated to dividend payouts. In 2004 this share made at least 10% (the minimum as per the RF Law On Joint Stock Companies), in 2005 at least 20%, in 2006 increase up to 25% minimum is expected. Contrary to the previous years, there may be a significant novelty of Rosimuschestvo requiring calculation of dividend amount as a consolidated profit share49.

The issue here is feasibility of increasing dividend payouts at the request of government shareholders, especially in the situation of a big challenge to find rele vant funding sources for large scale investment programs of major government holdings, especially infrastructure related ones, while as 2006 budget has a sur plus. On one hand, representatives of such holdings together with some experts believe, that higher dividend paid to the government impedes production growth and companies capitalization. On the contrary, the position of Rosimustchestvo is in using cheap credit for up grading the production, which, first of all, improves the companys discipline, and secondly justifies government participation in manag ing these assets. Nevertheless, Rosimustchestvo understands the fact that some organizations have all relevant legal grounds to decrease the paid amount of divi dend by the amount allocated for capital projects50. This is especially relevant for such organizations as Gazprom and Rosneft, which in addition to their investment programs are also active players at corporate control markets.

In 2007 and 2008 privatization revenues according to the optimistic forecast of Rosimustchestvo and RF Ministry of Finance shall make RUR 49 and 52 bln re spectively. These monies together with estimated revenues from selling Gokhran (State Depositary for Precious Metals) resources (RUR 4 bln in 2007 and in 2008) shall be allocated to redeem internal and external government debt of the Russian Federation, as well as to compensate losses of 1991 to Sberbank investors.

In state owned companies such as Rosneft which have not consolidated their subsidiaries the practice of dividend calculation based on the amount of non consolidated profit of the parent com pany using Russian accounting standards is common. Transneft, for example, having showed in 2004 consolidated profit in the amount of RUR 1.43 bln according to International Financial Report ing Standards (IFRS) disclosed the amount of parent companys profits of RUR 5 bln when re distributing profits among the subsidiaries, in 2005 this amount made RUR 4.61 bln, for 9 months of 2006 RUR 3.95 bln (Vedomosti, December 25, 2006).

Interview by V.L. Nazarov, Rosimustchestvo Director, On Rosimustchestvo Performance in 2006, January 23, 2007, Interfax (www.mgi.ru).

Section Institutional Problems Federal Property Privatization Forecast Plan (Program) for 2007 and Key Ar eas of Federal Property Privatization for 20072009 approved by the RF Govern ment Resolution No.1184 r of August 25, 2006, similar to the previous analogous documents, states that during the period of 20072009 stock packages of JSCs established within incorporation of FGUPs will be offered for sale, with the excep tion of packages of JSCs included into the list of either strategic JSCs or those par ticipating in forming integrated structures.

The following packages will be proposed for privatization in 2007:

- stock packages not exceeding 50% of charter capital of the respective JSCs, with the exception of packages of JSCs included into the list of either strategic JSCs or those participating in forming integrated structures, as well as stock packages which will be sold based on the need to form the revenue part of budget and for the period up to 2009 in compliance with the mid term financial plan;

- stock packages of JSCs of fuel and energy complex, energy and construction complex, construction complex, foreign trade organizations, civil aviation, healthcare, chemical, petrochemical and polygraph industries, geology, fishery, poultry industry, crop production, cattle production, timber complex, medical industry, as well as mechanic engineering JSCs (with the exception of strategic ones);

- federal state unitary enterprise of automotive in car building, road facilities, construction complex, civil aviation, geology, oil and gas complex, fuel industry, see and river transport, polygraph industry, healthcare, crop production, poultry and cattle production;

- property of the RF treasury not required for implementation of government functions.

The following major federal property entities are planned for privatization in 2007: JSC VO Stankoimport, Moskovsky Metrostroy, Airport Salekhard, Ufa International Airport.

Work on establishing integrated organizations in defense industry, aviation, ship building, nuclear and aerospace industries will be continued in 20072009.

All FGUPs not engaged in performing government functions of the Russian Federa tion, as well as stocks of JSCs established during incorporation of FGUPs will be offered for sale in 20082009.

To which extent and for how long government will remain a shareholder will depend on the success of selling 100% packages. With respect to this the privati zation program for 2007 looks more than ambitious, especially given the back ground of actual privatization outcomes of the previous years (Table 14).

As Table 14 obviously displays, 2007 privatization program stipulates an abrupt shift in federal stock packages sales towards full sized packages (100% interest), the share of which shall be over 86%. What is meant here are probably packages having appeared after noticeable increase of the rate of FGUPs incorpo ration. This number leads to many questions, especially after analyzing 2005 per formance, when only 51 full sized packages were sold (making less than 10% of RUSSIAN ECONOMY IN trends and outlooks the total number of sold packages). It is also a big surprise to see sharp reduction of the share of minority packages planned for sales, considering that they consti tuted the major share of all packages sold in 2001 and in 2004 2005. Its worth remembering that as of June 1, 2006, federal government owned 1063 packages with up to 25% interest. It made over 30% of all federally owned packages.

Table Dynamics and structure of selling federal stock packages based on their size: actual data of 20012005 and 2007 privatization targets Between 50% + Between 25% + Total up to 25% share and 100 % 1 100 % Year share and 50% share entities % entities % entities % entities % entities % 125* 100 78 62.4 45 36.0 2 1.6 ** 112* 100 51 45.5 56 50.0 5 4.5 ** 565 100 406 71.85 119 21.05 34 6.0 6 1.521 100 360 69.1 81 15.5 29 5.6 51 9.911 100 87 9.5 27 3.0 12 1.3 785 86.* accounting for the outcomes of sales announced one year before, but the results were summa rized only in that year;

** data on 100% packages sales were not highlighted, they were accounted for within the category 50% and above.

Source: data from departmental website www.mgi.ru; Yu.M. Medvedev, RF Ministry for Property Management and its Territorial Branches Performance in 2002, objectives for 2003 // Bulletin of the RF Ministry for Federal Property Management No.1, 2003, p. 36; Materials for RF Government ses sion on March 17, 2005, On Measures to Improve Federal Property Management; Report by RF Agency for Federal Property Management On Federal Property Privatization in 2005 M., 2006;

Federal Property Privatization Forecast Plan (Program) for 2007 and Key Areas of Federal Property Privatization for 20072009; estimates by the authors hereof.

In addition to stock packages, 911 JSCs shall be privatized, as well as 7 pack ages of state owned closed corporations (CJSCs) plus 233 entities of other federal property.

It is also worth noting that for the first time airports (in Ufa and in Salekhard) were among major federal property entities offered for sale, which, on one hand, means obvious depletion of reserves of significant government assets in traditional production sphere, on the other hand it is within the streamline of government ef fort in infrastructure development including projects co financed by private inves tors.

In addition to Ufa airport the list of RF Aviation Agency contains the following assets planned for liquidation, reorganization or divestment: airport Pulkovo (St.

Petersburg), International Nizhny Novgorod airport, Magas airport (Ingushetiya), Komsomolsk na Amure airport, Yuzhno Kurilsk airport (Sakhalin Oblast), Stary Oskol airport (Belgorod Oblast), Irkutsk airport, Mama airport (Irkutsk Oblast), Sakhalin Okha airport, Magadan airport, Uray airport (Khanty Mansy Autonomous District), Shakhtersk airport (Sakhalin Oblast), Ulianovsk airport, Leshukonskoye airport. According to certain sources, airports of Ufa and Nizhny Novgorod are for sale, and the majority of the above listed airports shall be transferred to regional governments. Pulkovo airport in St. Pete is of special concern, the city government Section Institutional Problems wants to have 50% of its shares. However the decision is still not made with re gards to the size of the package and the scheme of payment51.

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