Georgy Malginov on the privatization process and the state of property relations in 2023

In 2023, the results of the implementation of the federal privatization program turned out to be very favorable, despite a somewhat reduction in the number of blocks of shares sold in the absence of transactions with assets meant to be privatized on the basis of special decisions of the President and the Government of the Russian Federation. At the same time, impressive financial results were achieved.

Overall, blocks of equities (interests in the charter capital) of 39 business companies were sold (54 business companies in 2022). At the end of 2023, federal budget revenues fr om these sales amounted to Rb27.28 bn, an 18-fold increase as compared to the revenue forecast of the privatization program in 2023–2025. By contrast with 2022, the volume of revenues increased by Rb19.49 bn or 3.5-fold. It became the maximum one in the entire 2017–2023 period.

The main contribution to this result was made by the sale of full (100%) stakes in Phoenix LLC (Bronka port terminal operating company, St. Petersburg, Rb10.9 bn), Kuchuksulfat JSC (Altai Territory, Rb10.36 bn) and the Moscow-based “First Exemplary Printing House” (“POT”) (over Rb4.9 bn). All these assets, although they were not included in the list of assets meant for privatization under individual schemes, were sold on the basis of separate government decisions under which the conclusion of transactions had to be accompanied by buyers’ acceptance of various obligations of an economic, social, technological and production nature.

The number of sold state-owned properties amounted to 208 units (223 units in 2022), but in accordance with the RF Ministry of Finance’s approved list of properties with an initial value of less than Rb100 mn, which were not included in the privatization program, 386 properties were sold. Budget revenues from this new source, which emerged for the first time in 2023 (Rb795.3 mn), turned out to be quite comparable to the amount of funds received from the sale of the state-owned property within the scope of the privatization program (Rb 0.88 bn).

Further prospects for the privatization process are associated with the new version of the forecast privatization plan (program) (PPP) approved by Order No. 2584-r of September 27, 2023 of the Government of the Russian Federation. It was the result of amendments to the Rules for the Development of PPP by Decree No. 1401 of August 23, 2021 of the Government of the Russian Federation, which established an annual shift in the start and end dates for the implementation of the forecast privatization plan. De facto, it is a new 2024–2026 privatization program.

Its quantitative parameters differ little from the previous program. In 2024–2026, it is planned to complete the privatization of 23 federal state unitary enterprises, including 14 state-owned enterprises, 173 business entities (including shares in 7 LLCs), as well as other 27,815 state-owned properties. By contrast with the original version of the 2023–2025 privatization program, the number of unitary enterprises remained the same, the number of economic entities increased by 8%, while that of other state-owned properties to be privatized decreased by 2.2%. The singling out of state-owned enterprises from federal state unitary enterprises to be privatized is a new element which was not previously the case in privatization programs. With regard to assets sold under individual schemes, it is planned only to terminate the government’s participation in the charter capital of the Makhachkala Sea Commercial Port JSC, the company left over from the previous privatization program.

As regards federal budget revenues from the privatization of federal property, excluding the value of shares of large companies occupying the leading positions in the relevant sectors of the economy, they will amount to Rb1.2 bn annually in 2024–2026. The projected annual revenues volume is 20% lower than the amount stated in the forecast privatization plan (program) for 2023–2025 (Rb1.5 bn) and three times lower than the value specified in the primary version of the 2020–2022 privatization program (Rb3.6 bn).

The main amendments to the privatization law regulate the privatization of certain types of property (cultural heritage sites, river port and gas supply facilities and other). Overall, they are aimed at removing existing restrictions on privatization, speeding up its pace and increasing budgetary efficiency, with obvious ambiguity of consequences.

In addition to privatization, the following fundamentally new aspects of the state property policy deserve attention.

Firstly, 2023 saw a wave of lawsuits which resulted in the alienation in favor of the state of assets of a number of companies that emerged on the basis of privatized enterprises. It is noteworthy that in 2023 over a half of all proceeds from the sale of shares (stakes) came from transactions on the sale of assets for the second time (Kuchuksulfat JSC and POT) because these shares were returned to the state on the back of recognition of the previously completed transactions as illegal.

Secondly, amid the new economic and political situation in 2022–2024 a separate line of ​​the economic policy was the regulation of conditions for the exit of foreign businesses from Russia, including the introduction of the practice of temporary administration in respect of a number of companies with a prevailing foreign capital participation.

Thirdly, fundamental innovations have taken place in the management of public sector business entities.

A new regulation has appeared on the remuneration of executive officials of state corporations, companies and business entities with a state share. A clear structuring of top management's income suggests the availability of mandatory incentive payments based on the year’s results related to the achievement of target values ​​of key performance indicators (KPIs). The 2020 guidelines for the formation and application of KPIs to the activities of joint-stock companies with state participation and individual non-profit organizations (NPOs), which include state corporations and state-owned companies, have been supplemented with a special formula for determining the actual bonus amount to be paid to top managers based on the results of the reporting year. It includes three types of bonuses for achieving target values ​​of various KPIs, including those related to the implementation of particularly important projects.

Important amendments have been introduced into the 2004 guidelines for the management of joint-stock companies’ shares in federal ownership and the use of the special right of the Russian Federation to the participation in the management of joint-stock companies (“golden share”). In particular, the deadlines were set for the Federal Property Management Agency (Rosimuschestvo) to submit draft guidelines to the RF Ministry of Finance for the representatives of the interests of the Russian Federation on the boards of directors of joint stock companies included in the special list. Situations were regulated regarding the termination of control over the execution of orders of the country's top officials on the boards of directors of joint-stock companies and replacement of state representatives in those companies wh ere special rights (“golden share”) were used.

In practical terms, it is also worth mentioning the transfer of the United Shipbuilding Corporation (USC) into the VTB Bank’s trust management.

Georgy Malginov, Candidate of Economic Sciences, Head of the Ownership and Corporate Governance Department