Russia to reduce state role in the economy

Russia may launch a new massive privatisation program, First Deputy Prime Minister Igor Shuvalov said in an interview to Bloomberg TV. ‘Now is the time that we can return’ to privatization, he said. He promises ‘good assets’.

In particular, some of the state’s 75 percent stake in Rosneft, the largest Russia’s oil company, may be for sale. Ironically, the company’s assets include those acquired from Yukos in a series of controversial deals.

By the end of the year 20 per cent share in Sovcomflot, the largest Russian and one of five world’s largest shipping companies, may be privatised.

In total 5,500 companies may be sold. The government also plans to raise money by auctioning off licenses for untapped deposits of oil, natural gas, and metals.

Most of the privatisations will take place in 2010. ‘I think we need to wait a little bit,’ said Mr Shuvalov, ‘when it's more stable and when the situation is better and safer than now. Maybe the second half of next year but we need to start working now. It's a real plan we're drafting.’

The Ministry of Finance expects the Russia’s federal budget deficit in 2009 to exceed 3.2 trillion roubles (USD$100 billion) or 8.9 percent of gross domestic product, and 2.9 trillion roubles (USD$90 billion) in 2010.

It is not yet clear how much cash the privatisation would generate but it is unlikely to fill the hole in the state finances. The Kremlin, it appears, hopes to boost the economy by reducing its presence in it.

Within the last few years Russia has been liberalising the country’s legislation and achieved remarkable success in some areas. At the same time the role of state companies has been growing reaching, according to analysts, 60 per cent of the economy.

Also, the Kremlin does not appear to realise how difficult it will be to repair the damage done by some recent cases, for instance Alfa v Telenor or Stena v Baltiyskiy Zavod.

‘The state is a bad manager,’ admits Mr Shuvalov. Indeed.



September 23, 2009