GEORGY MALGYNOV ON REVENUES FROM PRIVATIZATION AND STATE PROPERTY MANAGEMENT IN THE DRAFT FEDERAL BUDGET FOR 2024-2026

The federal budget expects annual revenues from privatization of federal property in the amount of nearly Rb1.2 bn. Their role for financing deficit of the federal budget will be minimum: in 2024–2026 the expected amount of privatization revenues will not exceed 0.1% of the amount expected to be raised under government borrowings. The projected annual volume of revenues is about 1/5 inferior to the amount stated in the current forecast plan (program) of privatization for 2023-2025 (adopted by RF Government Edict of December 2, 2022 No.3718-r) and amounts to Rb1.5 bn.

It should be taken into consideration that the above annual amount of budget revenues does not include funds that can potentially be raised as a result of transactions with shares of major companies privatized due to special decisions of the President of the Russian Federation and the Government of the Russian Federation in terms of market conditions and recommendations of leading investment consultants. In 2023-2024. it is suggested to terminate participation of the state in the authorized capital of JSC “Makhachkala commercial sea port.” For comparison, this context should indicate the total amount of funds from the sale of shares and other forms of participation in federally owned capital (sources of domestic financing of the federal budget deficit according to the Federal Treasury) in the previous 2022 (Rb7.8 bn). On these grounds, it can be concluded that it is very likely that the planned budget designs will be executed with some additional available possibilities to use funds from privatization to finance the budget deficit.

Revenues from the use of property in state ownership for 2024 are forecasted to be Rb1,405.8 bn. During the whole period 2024-2026, the most important source of these revenues (from 46% to 50%) are dividends. However, unlike many previous federal budget bills, the importance of this type of budget revenues has decreased significantly, as its share in the structure of the total income from the use of state-owned property, as a rule, used to be 60% to 80% (in budget forecasts for 2021-2025).

In 2024, the federal budget is expected to receive income from sales, which falls on the shares in the authorized (folding) capital of business associations and companies, or dividends on shares owned by the state, in the amount Rb652.3 bn. (including dividends of PJSC “Sber”) which is Rb33.3 bn more than expected in the current year. Over the next two years, however, the trend will be multidirectional with a 10% decline in 2025 being replaced by a 6.2% increase in a year. However, dividend receipts in 2026 are 4.5% lower than in the future year 2024, surpassing the estimate of 2023 by just 0.7%. Values to be achieved in 2024-2026, i.e. about Rb0.6 trillion vs absolute maximum of 2022 (Rb753.5 bn) and dynamics in previous years (Rb422.7 bn in 2020 and Rb339.5 bn in 2021) looks more or less realistic, although there’s no need to confidently talk about this subject in the current situation.

Other types of federal budget revenues from the use of state property through tangible assets (rent payments for land and property, transfer of profits of unitary enterprises) are complementary.

When considering a block of property relations with regard to expenditures, it should be noted that these issues since the end of 2020 have been referred to the state program (SP) under the supervision of the Ministry of Finance of the Russian Federation “Management of public finances and regulation of financial markets”, which includes a trend (sub-program) “Management of federal property.”

Funding of the SP in the draft of a new federal budget is presented in the context of federal and departmental projects, as well as sets of procedural measures (CPM). One of the latest is the CPM “Management of federal property.” Allotments on this CPM foreseen by the draft bill, amount to Rb6,202.8 mn in 2024, Rb6,115.4 mn in 2025 and Rb6,286.3 mn in 2026. Dynamics of expenditures aimed at the implementation of this CPM on the annual basis evidences that sizeable reduction of expenditures (5.8%) in 2024 compared to the expected level in the current year, will continue in 2025, though to a lesser extent (1.4%) with a further growth in 2026 exceeding values of 2024 by 1.3%.

“Management of Federal Property” by the amount of allotments is much inferior to most other CPM, however, being ahead of the volume of funding “Support of Information Systems for Ensuring Budgetary Legal Relations”, “Implementation of state functions on control of production and turnover of ethyl alcohol, alcoholic and alcohol-containing products, on supervision and rendering of services in this sphere”, “Organization of the State Fund of Precious Metals and Precious Stones of the Russian Federation”, “Improvement of effectiveness of the Federal Assay Chamber on state control (supervision) over production, use and circulation of precious metals, use and circulation of precious stones.” The list of departmental projects (DP) includes the project “State as an effective owner.” However, the draft bill on federal budget for 2024–2026 does not envisage its funding, concentrating all volumes precisely under CPM “Management of federal property.”

It is worth mentioning that quantifiable effects of the implementation of tasks of this or another structural element under DP and CPM, only partially coincide with expected results of SP “Management of public finances and regulation of financial markets” in the area “Management of federal property” in the current official edition. There are no indicators such as matching of information of the register of federal property and other state information systems containing data on facilities of federal property, share of economic companies, rights of the shareholder (participant) exercised by Rosimushchestvo and FSUE with profitability of the assets at the level of not less than the average industry for the reporting financial year, in the total number of such economic entities, the share of JSC with more than 50% of the voting shares owned by the Russian Federation, receiving net profit at the end of the financial year, in the set of results of SP in the trend “Management of federal property.”

As a reminder, its goal is to increase revenues from management of federal property on the whole (by 2030 at least by 2 times compared to 2021). The SP passport “Management of public finances and regulation of financial markets,”
 available among documents accompanying the draft bill, determines values of this indicator on an annual basis within coming budget cycle upon reaching 125% by the end of 2026 against 2021 basic level. 

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