Dec 9, 2009 | 19:58 GMT

4 mins read

Russia: A Mass Privatization Planned

Russian Prime Minister Vladimir Putin approved a plan to privatize approximately 240 state companies in 2010 alone. It is part of a larger plan in which thousands of state firms will be privatized over a three-year period. There are economic and political reasons for the privatization, but the most important reason is that it supports a geopolitical imperative for Moscow.
Russian Prime Minister Vladimir Putin on Dec. 9 approved a plan that calls for approximately 250 federal unitary enterprises, or state companies, to be privatized in 2010 alone. This falls under a wider plan outlined by Russian Finance Minister Alexei Kudrin in which thousands of state companies — including key ports and shipping firms — will be privatized over a three-year period. The government anticipates that the privatization will yield 18 billion rubles ($600 million) in 2010, 6 billion rubles in 2011, and 5 billion rubles in 2012. The privatization plan was widely discussed for several months, but gained real traction when Putin endorsed the idea at a banking forum in Moscow in September, stating that private enterprise should take the lead in pulling Russia out of its economic recession. Putin's approval makes official a key aspect of a series of strategic economic reforms that Russia has been contemplating over the last few months. While there are certainly economic reasons for this wave of privatization, it has more to do with Russia's current geopolitical interests. Among the major economies, Russia was one of the hardest hit during the global recession. Many of its companies had borrowed heavily from the West during the boom years of the mid-2000s, but foreign capital flooded out of Russia when the crisis hit in 2008. Over the course of the global recession, the government swallowed up many of the companies that simply could not repay their debts as they faced evaporating credit and a free-falling ruble. Although this wave of nationalization helped the Kremlin gain tighter control over strategic industries, Putin realized that this way of getting out of the financial crisis was unsustainable, as it was quickly draining Russia's coffers and expanding its budget deficit. The civiliki, a group of economists and technocrats in the power clan led by Russian President Dmitri Medvedev's deputy chief of staff, Vladislav Surkov, prompted the discussion of economic reforms that included privatizing state companies and reopening Russia's energy sector to foreign investment. Because Surkov's ultimate goal is to purge the rival clan of Deputy Prime Minister Igor Sechin and his powerful Federal Security Services coalition, which runs many of these companies, Putin was concerned about the political instability such a purge could cause. But the economic aspects of the civiliki's plan made sense to Putin, in that it would privatize inefficient and poorly-run state companies while contributing funds to slow the growing budget deficit. Thus, Putin agreed to the plan and has now signed it into law. It is no surprise that most of the approximately 250 firms to be included in the first wave of privatization were nationalized during the economic crisis — companies the government would not have picked up otherwise. According to STRATFOR sources in Moscow, a plethora of ports, airports and related facilities will be privatized during the next month. Some of the firms to be privatized within the next month (and the percentages to be privatized) are:
  • Sovkomflot - 25 percent
  • Novorossiisk Seaport - 20 percent
  • Vanino Seaport - 55 percent
  • Yenisei River Shipping Company - 25.5 percent
  • Sakhalin Sea Shipping Company - 25.5 percent
  • Murmansk Seaport - 34 percent
  • SG-Trans Moscow - 100 percent
  • Tuapse Seaport - 25 percent
  • Volga River Shipping - 25.5 percent
  • Murmansk Sea Shipping Company - 25.5 percent
  • Northwestern Sea Shipping (St. Petersburg) - 25.5 percent
  • Koltsovo Airport (Yekaterinburg) - 34.5 percent
  • Tolmachevo Airport (Novosibirsk) - 51 percent
The funds raised from privatizing these firms are expected to make up for approximately one-sixth of the budget deficit in the next fiscal year. But ultimately, the privatization of these companies will be a careful process in which Moscow will retain control, as can be seen by Russia's decision to privatize a small stake of state diamond company Alrosa while increasing state oversight by putting more state officials on the company's supervisory board. Rather than opening to the West and embracing economic liberalization, the privatization process is one that Russia is following out of the geopolitical need to not lose its influence in other areas, such as politics and the military, because of economic weakness. So while the privatizations occur in the coming years, Moscow will make sure that any future deals are in the government's interests.

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