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Published in Stream:
Russia Update: February 3, 2016
Press by
The Interpreter
@Interpreter_Mag
Russian-to-English translation journal, with original analysis and commentary on Russia's foreign & domestic policy.
Interpreter_Mag
Russia Plans to Privatize Rosneft, Bashneft and Other State Companies - But Cautiously, And With Conditions
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One of the ways Russian President Vladimir Putin is thinking about coping with the Russian economic crisis - the ruble is still not recovering and is at 78.11 to the dollar today and Brent is at $34 today - is to privatize some state companies, or at least reduce the government's shares in them.

Aleksei Ulyukayev, minister of economic development said today at a news conference that the government will begin with the oil companies Rosneft and Bashneft, and ALROSA, the diamond-mining company, Ura.ru and Interfax reported (translation by The Interpreter):

"These are companies, which are already in the plan for privatization. These are public companies that are quoted on the market and by virtue of that, technically and legally best of all prepared and known best of all to the investor. We will start with these companies."

Bashneft had already been purchased by oligarch Vladimir Yevtushenkov, when the Kremlin decided to find fault with the acquisition six years after the fact, and placed Yevtushenkov under house arrest on fraud charges and seized his Bashneft shares. A court ruled the nationalization was legal but eventually Yevtushenkov was released and cleared of the charges. He did not seek to regain his property.


Now the government is talking about privatizing Bashneft again.


Reporters also asked whether the government's decision not to privatize Sberbank will mean that it will not reduce its controlling shares in VTB. Ulyukayev replied that an existing presidential decree requires that the government maintain its control of VTB. He also said that his ministry shares the position of the Russian State Property agency on the need to raise the minimum level of dividends for state companies from 25% to 50% and to move to international standards of financial reporting. He said this issue was now at the stage of being coordinated by the ministries.

At a government meeting on February 1, Putin said that while there was the need to privatize some companies, the state should not lose control over "strategic enterprises," Interfax reported.


For example, the state is close to controlling Aeroflot with 51.17% of the shares, but there is a presidential decree authorizing the reduction of that percentage to 50% plus one share. But as Putin explained, the sale of Sberbank shares would reduce the government's control, so there are no plans for privatization.

Perhaps eager to distinguish his plans from Yeltsin's infamous "loans for shares," Putin also set demands for the kinds of investors who would be acceptable to the government - which seem to be code words for loyal Russian subjects:

"The transfer of shares into private hands is only possible if the buyer has a strategy for development of the acquired company. The new owners of the privatized shares must be located in a Russian jurisdiction."

He said it was "impermissible" to take the shares to offshore companies or conceal the owners.

"We have already long spoken about de-offshorization, and under these conditions going into a new privatization, allowing further offshorization of the Russian economy would be wrong."

Putin's offer to Russian companies to come back to Russia from abroad has not been going so well, and he has urged officials to redouble their efforts to attract them back.

Putin also said that buyers of state assets must have their own resources or loans that do not involve state banks and that companies should not be sold at fire-sale prices which would not help the budget.

In addition to the companies named by Ulyukayev and Aeroflot, Putin indicated the airline Sovkomflot and Russian Railways could be invited to privatize.

But the existing plan for 2016 only mentions Sovkomflot, although the Ministry of Economic Development has called for privatizing Rosneft. Previous plans going back to 2013 have not been realized; last year the plan talked about the government getting out of Rosspirtprom, the liquor company, as well as Obyedinyonnay Zernovaya (United Grain) and Rostelekom, the telecom company but this did not happen, nor were the amounts of shares reduced in a number of other companies including ALROSA and Russian Railways.

-- Catherine A. Fitzpatrick