Cash-hungry Russia rediscovers privatisation

Moscow – Eyeing a zero budget deficit but also an ambitious modernisation programme, Russia is set to embark on a USD 30 billion (RUB 883 billion) privatisation drive a decade after turning its back on state sell-offs.

A total of 11 state-owned companies have been earmarked for sale, including blue-chips like Russia’s largest bank, Sberbank, and biggest oil firm Rosneft, in a dramatic reversal of government policy.

Finance Minister Alexei Kudrin says that sales planned for 2011-2013 will bring in RUB 883 billion for state coffers depleted by the global economic crisis.

“In the past decade, the Russian government has been consolidating assets under its control, rather than privatising them,” said analyst Lilit Gevorgyan at IHS Global Insight.

“So news of the government’s plans for large-scale privatisation is certainly a U-turn,” she said.

The chaotic post-Soviet privatisations of the 1990s under late president Boris Yeltsin were blamed for selling off Russia’s assets to a clique of oligarchs at knock-down prices and were deeply unloved by the public.

The mastermind of the sell-off plan, former deputy prime minister Anatoly Chubais, remains a hate figure for many Russians. The jailing of one of its main beneficiaries, oil magnate Mikhail Khodorkovsky, stirred no public outcry.

Under strongman Vladimir Putin’s rule, Russia dropped privatisation as the state reasserted its influence over the economy.

But with Russia forecast to run a budget deficit of 3.6 percent of gross domestic product in 2011, followed by 3.1 percent in 2012 and 2.9 percent in 2013, priorities appear to have changed.

Putin has said Russia should work to bring its budget deficit back to zero, a goal that Kudrin, the champion of fiscal prudence in Russia for a decade, has said is realisable no earlier than 2015.

The government has little desire to risk social instability in Russia by cutting social security benefits or raising taxes. Meanwhile, President Dmitry Medvedev wants ambitious modernisation that will not come for free.

Russian daily Vedomosti on Thursday cited a government official as saying that the proceeds would be one of the main sources for bringing down the budget deficit.

Under the plan, the state would sell 24.16 percent of Rosneft, 9.3 percent in Sberbank, 9.38 percent in hydroelectric power operator Roshydro and 24.5 percent in state bank VTB.

The government would keep a controlling stake in all the firms. The sale of state railways operator RZhD, included in an original plan, has been shelved for the moment.

For all the clear ambition of the plan, numerous questions have to be answered before it is launched — it is not clear who the investors will be and to what extent foreign participation will be welcome.

The government has already reduced the stake to be sold in state pipelines operator Transneft, a strategic asset, to just three percent from an original 27.11 percent and the whole package requires final approval.

“Importantly, this proposal has not been discussed by the government yet and the official decision will be made in November 2010,” said Alexander Burgansky, an analyst at Renaissance Capital.

Vladimir Kuznetsov, an analyst at Unicredit, said the government could collect more than USD 30 billion but it would in current circumstances have a hard time selling Transneft and Rosneft above market prices.

“This would not be a simple task unless guarantees emerge about the tax regime, transparency at the companies improves and there is a raising of quality in corporate management,” he said.

With its state wealth funds built up in the time of high oil prices now running low, the government also showed its pragmatism in April by raising USD 5.5 billion in its first international bond issue since the 1998 financial crisis.

Stuart Williams / AFP / Expatica