Privatization in Russia gets stuck in quagmire

Finance Minister Anton Siluanov: "We are behind the privatization plan targets at the moment." Source: Kommersant

Finance Minister Anton Siluanov: "We are behind the privatization plan targets at the moment." Source: Kommersant

Federal budget revenues from privatization stood at only 4 percent of the annual target at the end of June.

Hopes for replenishment of Russia’s federal budget with revenues from privatization are about to go to pieces. The privatization plan that was supposed to bring in sizable profits has been fulfilled by a mere 4 percent.

Federal budget revenues from privatization stood at only 4 percent of the annual target at the end of June, Finance Minister Anton Siluanov told a meeting of the cabinet of ministers Thursday.

“We are behind the privatization plan targets at the moment,” he said. “We received 17 billion roubles (about $428 million) in the period of January through to June and we’ll revise these plans certainly and will look for the funds to make up for the shortfall - the funds we would use as sources for covering the budget deficit.”

The Finance Ministry’s plans drawn up last year suggested that privatization would bring in some 430 billion roubles but a subsequent correction downsized the figure to 60 billion roubles. Considering the budgetary performance in the first half of 2013, the revised target is doomed to failure as well.

Prime Minister Dmitry Medvedev made a yet another appeal at the end of July to abide by the endorsed privatization plans since the chronic failure to fulfill them was fraught with the emergence of hollows in the federal budget. The Prime Minister promised then that the work towards curtailing the “government presence in the economy will continue with account of the real economic situation.”

The dismal figures of privatization targets fulfillment can aggravate the already knotty economic situation in the country, believes Tamara Kasyanova, the Director General of 2K Audit Delovye Konsultatsii/Morrison International company. The problem is the conditions of economic stagnation will make it rather difficult to manage the huge assets kept on the government’s books.

“Practical experience proves that implementation of sales programs during the crises is a factor benefiting the economy in general,” she said. “Different forecasts suggest that the Russian government controls from 45 percent to 50 percent of the assets today while the average share of government engagement in strategically important corporations in other countries usually doesn’t exceed 30 percent.”

Kasyanova recalled that the Finance Ministry hoped to boost the state budget revenues with the aid of privatization and this is a crucial moment on the background of the government’s - and the President’s - social pledges.

“There are several factors at a time standing behind this poor performance,” she went on. “In the first place, the senior executives of the companies placed in a line for privatization are highly disinterested in the transfer of assets to private ownership and their unwillingness works towards procrastinations with privatization or the crossing-out of companies from privatization schedules.”

“Secondly, the facilities subject to privatization are often offered at the prices way above the existing market quotations,” Kasyanov said.

In June 2013, the government endorsed a new program of privatization that envisions state revenue of around 1 trillion roubles in the period of 2014 through to 2016. Not only did the plan do nothing in terms of speeding the privatization up. On the contrary, it even put off or simply cancelled the transition of a number of facilities to private ownership that had been put on row several years prior to that.

The plans suggested that the privatization was to bring in 1.7 trillion roubles (about $ 52 billion) and 1.0 trillion roubles (around $ 30.58 billion) of that amount would be entered to the budget while the rest would be spent to beef up the capitalization of the very same companies undergoing privatization. The plan envisioned, among other things, that the budgetary revenue from privatization would amount to 180 billion roubles in 2014, 140 billion roubles in 2015, and 300 billion roubles in 2016.

In addition to it, the government planned to pull out of more than 1,200 joint-stock companies and 600 federal unitary enterprises – 53 percent of all the joint-stock companies and 40 percent of state-owned enterprises respectively. The step was supposed to bring in an extra 9 billion roubles.

The cabinet will now have to revise these targets downwards by all means.

First published by Itar-Tass.

All rights reserved by Rossiyskaya Gazeta.

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