The government will strip half of the companies it employs in strategic initiatives of their privileges as partners.
Prime Minister Putin intends to strike more than half of strategic enterprises off the list he drew up six years ago to facilitate the privatization of government assets. Experts see it as confirmation of the plan the government previously declared in order to shed its economic functions as quickly as possible. However, they content that this may not be the best time to privatize the enterprises eliminated from the list.
The reduction of the list of strategic enterprises, which has been proceeding at a snail’s pace in the last two years, looks poised to accelerate. “The government has prepared a presidential decree that will exclude about 240 joint stock companies and unitary enterprises from the list of strategic enterprises,” RIA Novosti quotes Vladimir Putin as saying when he addressed a meeting on the modernization of the military-industrial complex and arms supplies on Tuesday.
He said that the list of strategic enterprises will be cut down to 200, and will include all main defense industries, i.e. key state assets, as well as infrastructure companies.
In August 2004, when Vladimir Putin signed a decree as president to approve the list of strategic enterprises and strategic joint stock companies, it included 518 federal state unitary enterprises and 546 joint stock companies.
The privileged few
At the start of the crisis in November 2008, the government made another “privileged” list of 250 enterprises thought to be systemically important or backbone. It included the enterprises in single-industry cities that were crucial for social stability and major enterprises in all sectors.
During the crisis, the status of a strategic enterprise facilitated access to credit: banks lent money to companies on the list more readily than others because the state was committed to assisting them in the event of a financial downturn by giving them credit guarantees, subsidizing interest rates, or buying stakes in the enterprise. As of March 2009, Russian strategic enterprises had received credit amounting to 2 trillion roubles, according to official figures.
No more free rides
By the same token, in 2008 the government announced its plans to assess and reduce the number of strategic facilities. The list was altered many times: as a rule, enterprises were stricken off the list on the eve of their privatization.
The process gathered pace after President Dmitry Medvedev issued several instructions aimed at resuming a massive campaign of state property privatization in 2010.
The privatization programme this year includes 250 unitary enterprises and 449 joint stock companies, among which 14 are strategic companies that can only be privatized under presidential decree.
The list of strategic companies slated for sale includes 13.1% of the insurance company Rosgosstrakh, one share less than 25% of Sovkomflot shipping company, five shipping lines (Murmansk, Volga, North Western, Yenisey, and Sakhalin), four sea ports (Novorossiisk, Murmansk, Vanino, and Tuapse), and three airports (Anapa, Koltsovo Airport in Yekaterinburg, and Tolmachovo Airport in Novosibirsk).
“The government has a privatization plan in progress, but privatization is hindered by the fact that many companies in the plan represent strategic interests,” says Fyodor Naumov, an analyst with the investment company Kapital. For this reason, many more enterprises will likely be dropped from the privileged list. President Dmitry Medvedev has given the government until March 15 to submit a new list of strategic enterprises slated for privatization in 2010-2011.
An uncertain future
The reduction of the list of strategic companies “will make it possible to make quick decisions as to their futures,” Prime Minister Putin said on Friday. He explained that he was referring either to attracting investments, or including the companies in holding structures, or handing them over to the Russian regions.
So far, the list of candidates to be dropped from the privileged group has not been published, and experts are uncertain how the enterprises will be sold after the state relinquishes its blocking stake in each one.
In any case, it will not be a whirlwind process, says Vladimir Tikhomirov, chief economist for the financial corporation Uralsib. “The state will gain more if it waits until the bidding price for these enterprises becomes acceptable rather than selling them quickly at any cost,” the expert notes. He believes that the sale will take different forms: by going public (IPO) and offering shares to private investors both in this country and abroad.
Less red tape for foreigners
In parallel, the state is facilitating foreign access to strategic sectors – albeit slowly and reluctantly. On the prime minister’s instructions, the Federal Anti-Monopoly Service prepared amendments to the Law On Foreign Investments in Russian Strategic Sectors, which has been enforced since May of 2008. The amendments will remove crucial deals in the banking sector from the jurisdiction of the law.
In addition, access to strategic sectors will be simplified for companies that extract minerals, if only on condition that the shares taken over will not change as a result of emissions standards.
The terms for foreign investors will be streamlined, but experts agree that the move is still unlikely to trigger a wave of new deals.
Ilya Zinenko
