Primary navigation:

QFINANCE Quick Links
QFINANCE Reference

Home > Blogs > Anthony Harrington > Russian privatization plans in wobbly mode

Russian privatization plans in wobbly mode

Russian privatization plans in wobbly mode Anthony Harrington

Russia's attempt in the 1990s to "leap with one bound" from a Soviet style "ownership of the means of production" to a modern, capitalist, private ownership model for major assets was a huge success, if by success one means the transfer of some state assets at ludicrously low prices to former party bosses and apparatchiks, with the inevitable result of transforming the lucky few into billionaire oligarchs.

However, perhaps fortunately, the pace of privatization was not exactly breathtaking and the Russian state still owns vastly more than it should, assuming a commitment to a private enterprise model.   When Vladimir Putin took office (again) as President last May, he announced his intention of pushing through a new privatization program, done properly this time, through the government divesting itself of chunks of its holdings via the Russian stock market, at competitive market prices. On 16 April 2013 the Russian Ministry of Economic Development announced that it planned to sell a further 19% of the state owned oil giant, Rosneft, in order to help it meet Putin's privatization target, which aims to raise 427 billion rubles ($13.5 billion) from the sale of various state assets.

The Rosneft sale is likely to be a ponderous affair and is unlikely to be pushed through this year. The government holds the shares via a state-owned company called Rosneftegaz. This is not the first time the government has sold a chunk of its holdings in the Russian oil major. In March, in a complex deal, BP acquired 5.66% of Rosneft via a purchase of that amount of shares from Rosneftegaz, with Putin' s blessing. The proposed 19% public offering would still leave the Government as the majority shareholder, with 50.5% of the shares. This is important because of a Russian law known as "On the Subsoil", in terms of which only companies that are more than 50% state owned are allowed to work on the Russian continental shelf (for the full story see Russia Beyond the Headlines). One minor hiccup is that Rosneft's president, Igor Sechin, has made it clear in the past that he is not in favor of privatization and has so far met all requests for comment on the proposed sale with a stony silence.

In 2011 the Russian government sold 10% of its stake in the state owned financial services giant VTB and according to the Russian media, the state plans to sell a further 10 - 25% of its stake in VTB in the months ahead. It also intends to sell between 7% and 14% of its stake in the diamond mining company ALROSA. These are clearly companies that in any western advanced economy would be 100% in private ownership so the Russian government's efforts here fall squarely into the "better-late-than-never" camp.

Putin is committed, at least on paper, to getting the state out of all its holdings in enterprises other than in the energy and defense sectors, by 2016. Medvedev, during his Presidency, said that he wanted to sell off up to $100 billion of state assets, but so far much remains to be done. The foot dragging is understandable. Sechin is a close ally and adviser to Putin and an avowed statist who believes in a strong role for the state in the economy. Quite why anyone with a grasp of market economics would want that is hard to see, but if you grew up believing in state ownership of the means of production, privatization is a bit of a wrench. Another goal of Putin's, mentioned by The Economist is to move Russia up the World Bank's ease-of-doing-business ranking. Today Russia is ignominiously positioned at 112. Putin wants it to get into the top 20 by 2018. However, as the Wiki leaks saga showed, corruption in Russia is endemic and one of the first requirements for a successful private sector is confidence in the rule of law, in property rights and in a level playing field. Getting rid of the dead hand of the state would be an excellent step, but so would cleaning up the Russian system. Whether Putin is the right man for the job remains to be seen...

Further reading on Russia

Tags: Igor Sechin , oligarchs , privatisation , Rosneft , Russia , Soviet , Vladimir Putin
  • Bookmark and Share
  • Mail to a friend


or register to post your comments.

Back to QFINANCE Blogs

Share this page

  • Facebook
  • Twitter
  • LinkedIn
  • RSS
  • Bookmark and Share

Blog Contributors