The topic of state corporations presents two factors that are impossible to ignore. Of the seven current state corporations, six were formed at the initiative and with the active assistance of Vladimir Putin. He bypassed the government and personally submitted proposals to the State Duma to create two of the largest and most resource-intensive corporations - Rosatom and Rostekhnologii.
Meanwhile, President Dmitry Medvedev has made no attempt to hide his harsh attitude towards state corporations. It's a safe bet that he will include some rather strong criticism in his address to the Federal Assembly. In fact, the President's remarks at the last meeting with business representatives may even seem rather sensational. The President asserted that in the grand scheme of things, state corporations were simply not what the country needed, and worse yet, their creation at a certain point had gotten "out of control". According to him, they should eventually either be turned into joint stock companies (those that
operate in the competitive segment of the economy) or liquidated altogether (all the rest).
Mr Medvedev actually seemed to be reproaching Mr Putin for letting the creation of these strange and harmful organisations get "out of control", while at the same time implying that he himself intended to set things straight. And yet, upon closer inspection, there is no conflict and no signs that there will be one anytime soon.
THE PASSING WHIP
First, let's take a look at Mr Medvedev's history of statements about state corporations. As it turns out, the subject has been a thorn in his side for quite some time (or at least he was aware of the matter for quite some time), and his remarks have all for the most part been the same: namely, state corporations are not everlasting and they are in some ways flawed, as we all know. Some day we will sort them out. He made such statements in the end of 2007, when he was still a presidential hopeful.
Characteristically, Mr Putin spoke in a similar vein. As he told a meeting of the Presidium of the board of the Chamber of Commerce and Trade in December 2007, "We will not keep those corporations forever. We will not create state capitalism; that's not our path, though some spheres just cannot be restored without state support."
It should be recalled that all six of Mr Putin's state corporations - Olympstroi, Development Bank (VEB), Rosnanotekh, the Housing and Utilities Reform Fund, Rostekhnologii and Rosatom -- had just been formed in late 2007. So, clearly both leaders know that these state corporations are out of kilter, but they're convinced that they could still be useful in solving certain tasks (hosting the Olympics or spurring a breakthrough in certain areas of the economy).
By the way, it would be unfair to attribute the invention of the state corporation as a legal form to Mr Putin; it would be an insult to its real authors, who remain anonymous. It was conceived somewhere in the bowels of the Central Bank in 1999 shortly after the default for the Agency for Restructuring of Credit Organisations (ARCO), which was transformed into the Deposit Insurance Agency (ASV) in 2004.
Subsequently, the two leaders' functions were divided more clearly. Mr Medvedev continued to express criticism and make threatening moves. In his budget address to the Federal Assembly, he set the task of creating a federal system for assessing how effectively the financial resources transferred to the state corporations were being used, and he personally initiated some no-nonsense inspections of state corporations by the Audit Chamber and the Prosecutor General's Office. The first results published involved the Housing and Utilities Reform Fund and revealed some rather shady dealings. At the same time, in the spring of 2009, the Presidential Council for the Codification and Improvement of Civil Legislation proposed abolishing state corporations as a legal entity.
Mr Putin meanwhile suspended criticism and continued to pin hopes on the "economic special force". He was behind the special law that set up the state company Rosavtodor in July 2009. Yet, he appears to have heeded the disparagement expressed by lawyers. Rosavtodor is a cross between a firm and a ministry, but certainly not a state corporation.
It's easy to imagine that the positions of the country's leaders were initially the same, but then diverged quite rapidly. Either way, there is more to be said in favour of the theory that the leaders simply switched roles and swapped the carrot and the stick in public. While in relations with private business Mr Medvedev dangles the carrot, and Mr Putin holds the stick, in relations with the state corporations the roles are reversed. Such an arrangement is not just functional; it's also rather complimentary for both of their images.
Mr Putin is steadfastly implementing the project that's been launched. Mr Medvedev, by berating state corporations, is demonstrating his awareness of the legal flaws in this scheme and the fact that it lends itself to embezzlement. The awareness and caution are appealing to the business community both in Russia and the rest of the world.
But image is not the only concern here. In the context of the crisis and the forced change of benchmarks (more on that topic below), tighter financial control over these structures is absolutely essential. Mr Putin certainly realises this. Besides, an element of intrigue makes political life less dull, a charge often leveled at the country's leaders.
TO BE TRANSFORMED
First, state corporations were formed with a view to some important concrete projects that had clear deadlines. The Olympics and the reform of the housing and utilities sector were seen as the most important projects. The state corporations created with them in mind were supposed to exist up until 2014 and 2012, respectively.
Second, the corporations were formed as agents of development. They were meant to bolster either concrete industries or concrete projects. That said, it's hard to see the logic in selecting these or those industries or projects, both initially, and if one examines the results. One good example is Rostekhnologii, which frequently attempts to "support" successful market players by staging hostile takeovers.
The corporations in the first category seem to be fulfilling their functions, albeit far from perfectly, as the distressing results of the audit of the housing and utilities reform fund and the succession of hirings and firings of Olympstroy's top executives make painfully clear. Of course, these two structures have different administrative clout. Olympstroy can easily blackmail the Government just by mentioning the prospect of the Olympics failing, while the housing and utilities reform fund has no protection whatsoever against auditing agencies. Yet, neither of the two structures is operating in a competitive environment, so the President could not have meant these two when he spoke of turning them into joint stock companies. It's more likely that he was referring to the five state corporations which belong to the second category. It's important to note that the main tasks of most of the "five" changed dramatically once the crisis set in. Instead of "development", their mission became that of "rescuing" the Russian economy. ASB, the deposit insurance agency, went back to its initial functions of rehabilitating the banking system. By all appearances, the company has its job cut out for it for many years to come.
After being transformed into a state corporation, VEB issued a memorandum in which it announced six so-called "target priorities" (infrastructure, innovation, environmental projects, export support, and development of SEZs and small enterprises). None of these has survived. Over the past year and a half, VEB has been practically throwing money at banks and retail networks, shoring up the stock market and large commodity companies.
As a result of its excessive appetite in the boom period, Rostekhnologii found itself stuck with a huge number of problem assets that it can neither abandon nor make profitable at any point in the foreseeable future. So, instead of triumphantly announcing the creation of ever new industrial holdings capable of lifting the economy to new heights, the state corporation's managers are writing scenario after futile scenario for AvtoVAZ's bailout. Merging AvtoVAZ with KamAZ, carrying out massive layoffs, having the company file for bankruptcy: all of these proposed schemes carry with them huge social problems without any guarantees of success.
Not much is known about Rosatom's current situation. Which is only natural, since the corporation itself deals with defense. Admittedly, some of the civilian companies within Rosatom habitually report progress. Atomredmetzoloto has signed agreements on uranium extraction in Mongolia, Australia and Africa. Similarly, Tekhsnabexport has signed contracts for the supply of uranium to Japan and France. The company has also announced some rather grandiose projects, including the export of electricity to Europe from the Baltic nuclear plant currently under construction via a cable running along Nord Stream's underwater pipeline. Yet, the situation surrounding the corporation's two main focuses - the implementation of the programme for building nuclear plants in Russia and contracts for building new blocks abroad - remains unclear. Unfortunately, there are some signs that the situation is quite uncertain in both cases.
Rosnanotekh, headed by Anatoly Chubais, is an exception in that it is doing exactly what it's supposed to be doing: looking for, executing and funding innovative projects. And it has to make do with budgets far smaller than those promised before the crisis.
IF THEY BECOME JOINT STOCK COMPANIES
One can now attempt to answer the question of whether or not these five state corporations should be transformed into joint stock companies, whether or not it will be good for the country's economy and whether or not it is in the interests of Mr Medvedev, who raised the issue of transformation into a joint stock company in the first place. The answer to both questions is no.
For ASV and VEB, being transformed into joint stock companies would make little difference at the moment, and it would waste a great deal of time and effort, consequently rendering the core activity less effective. Neither the depositors with these banks, nor the industrialists lining up to get loans from it would be very pleased with the development.
As for Rosatom, in principle, the structure that is responsible for Russia's nuclear shield cannot have a transparent market form. The decision about whether or not to divide it into a military and civilian branch will just have to wait until the crisis is over.
For Rostekhnologii, any changes to the legal form initiated by the management would be a gift, because it would at least justify the mistakes and failures which seem to keep piling up. At the same time, it would make it possible to finally shelve the issue of whether or not it is practicable to lump everything together.
For Rosnano, conversion into a joint stock company would definitely be a good move. Lacking huge amounts of government money, Chubais puts his stakes on cooperation with foreign venture investors. For them, it's vital for the Russian partner to have a clear legal form. The best legal form is an open joint stock company. In this case, it's perfectly clear what to do and where to search for redress (even if the company is 100% state-owned) in the event of a dispute. But there is certainly no rush to turn Rosnano into a joint stock company, and the timeframe should be left up to its management.
It is a well-known fact that from the political standpoint, transformations initiated in times of crisis usually turn out to be quite unprofitable and even dangerous for those who usher them in. This is true even in the given case.
By initiating a transformation of state corporations into joint stock companies, Mr Medvedev would be assuming part of the responsibility for any setbacks and simultaneously relieving the management of this responsibility, not to mention freeing the producer of the idea, i.e. the Prime Minister. Even if such shared responsibility is a necessary part of the political process, these changes would be much less painful for everyone if they were carried out after the crisis.
Of course, it would be great to think that five years from now the problem of state corporations will be solved, and without proceeding from opportunistic considerations. In our opinion, the decision on the matter could be as follows: Rosnano and VEB will remain open joint stock companies in which the state holds a controlling stake, possibly with private minority shareholders. Rostekhnologii, in its present shape, should not exist at all because of its excessive diversification. The fate of ASV should be decided by the Central Bank in line with the strategy for the banking sector's development, whatever that may be. Rosatom should remain in its present form, though it would help to at least discuss the various options for market-oriented changes in this sphere at the highest level.
Yekaterina Drankina; Yakov Pappe