Revenues fr om Privatization and State Property Management in the Draft Federal Budget for 2015-2017

It is to be noted that the draft federal budget as a respective document of the previous year does not include the information on the specific value of revenues from privatization either in the main part or annexes. Only in an explanatory note to the document it was stated that funds received from privatization of federal property are specified along with public borrowings as an individual source of financing of the federal budget deficit.

In that context, with reference to the Forecast Plan (Program) of Privatization of Federal Property and the Main Guidelines for Privatization of Federal Property in the 2014–2016 Period approved by Resolution No.1111-r of July 1, 2013 of the Government of the Russian Federation it is stated that within that period it is planned to privatize packages of equities of large companies which occupy leading positions in economic sectors. The specific terms and methods of privatization will be determined by the Government of the Russian Federation with taking into account the market situation and advice of leading investment consultants, however, those companies were not specified.

Implementation of those measures will permit the federal budget to receive Rb 158.5bn and Rb 99.9bn worth of revenues in 2015 and 2016, respectively, which values correspond to those specified in the explanatory note to the draft of the present federal budget. It is to be noted that in versions – available for familiarization -- of Federal Law No.349-FZ of December 2, 2013 on the Federal Budget in 2014 and in the 2015-2015 Planned Period (as Amended in February, April and June 2014) the data on the value of funds received from sale of equities and other forms of participation in capital which is in federal ownership is not available, nor is it singled out among other sources of financing of the federal budget deficit.

Within the frameworks of the new federal budget, revenues from privatization keep playing a subordinate role in deficit financing. So, in 2015 the expected value of privatization revenues will amount to about 40% of funds expected to be attracted by the state (about 19% in 2016).

As a reference point, for the year 2017 the amount of Rb 3.0bn is specified in the document which amount is based on the assumption of absence of decisions -- related to the above period -- of the President of the Russian Federation and the Government of the Russian Federation on sale of large companies' equities which are in federal ownership with projection of the value -- set in the effective privatization program – of federal budget revenues from privatization of federal property (without taking into account the cost of equities of major companies) in the amount of Rb 3.0bn a year. It is to be reminded that the forecast of the main revenues from privatization by means of sale of equities of major companies which have high investment attractiveness is not available in numerical terms in the Forecast Plan (Program) of Privatization of Federal Property and the Main Guidelines for Privatization of Federal Property in the 2014–2016 period.

Certainly, the value of revenues from privatization may be seriously adjusted in development of a new privatization program for 2017 and subsequent years which program proceeding from the norms – which were introduced into the law on privatization in 2010 and concern the term of the forecast plan (program) of privatization of federal property – is to be implemented not earlier than 2016 with taking into account the outputs of realization of the current privatization program.
So far, the available mechanisms of the budget process wh ere the text of the law on the budget which is to be approved does not include any references to privatization in the context of budget revenues leaves broad space for maneuver as regards the list of assets to be privatized and the terms and format of sale of those assets.

So, in the current privatization program for the 2014–2016 period in the context of privatization of large Russian companies a decrease in the interest of the OAO Rosneftegaz in the charter capital of the Rosneft oil company to 50%, plus 1 equity until 2016 is mentioned. However, in the available materials to the government's draft law the size of the package of equities of the OAO NK Rosneft which package can be sold next year is not determined, though in materials to the draft federal budget for 2014-2016 which was introduced into the parliament last autumn dividends on equities of the OAO Rosneftegaz as a result of sale of the minority interest in the Rosneft (19.5% minus 1 equity) were named as a source of budget revenues in 2016; that source was to yield Rb 423.5bn to the federal budget.

As a positive aspect of the draft law for the next three-year period which is introduced to the parliament, it is worth mentioning availability of detailed forecasting of revenues from utilization of state property.

It is to be noted that dividends on federal packages of equities play an important role here. So, in 2015 Rb 251.5bn (or about 45% of all the revenues of the federal budget from utilization of state property) are expected to be paid to the federal budget (Rb 162.5 bn and Rb 221.7bn in 2016 and 2017, respectively); for comparison: the maximum achieved in 2012 was equal to Rb 212.6bn, while in 2013 the value of that index amounted to Rb 134.8bn).

In 2015, growth in dividend payments to the federal budget is mainly justified by revenues from the OAO Rosneftegaz; they are to amount to Rb 129bn, including dividends on performance results in 2014 (Rb 29bn) and non-recurrent revenues from sale of the NK Rosneft's equities owned by the OAO Rosneftegaz (Rb 100bn.) in case of approval of relevant decisions by the Government of the Russian Federation. It is the latter factor that justifies a decrease of Rb 89bn in revenues from the state participation in the capital of economic partnership and entities (mainly dividends on shares) in 2016. But in 2017 such revenues to the federal budget are to grow by more than Rb 59bn which situation is expected to be ensured by growth of nearly Rb 48bn in transfer of dividends on shares of the OAO Gasprom with taking into account that company's proposal to allocate a share of the net profit determined on the basis of the data of the consolidated financial reporting for payment of dividends. At the same time, the effect of application of the above measure in respect of other companies is not quite clear.

Other types of federal budget revenues from utilization of tangible assets owned by the state (rental payments for land and real property and transfer of profits of unitary enterprises) are of an auxiliary nature.

Generally, the value of revenues both from utilization of state property and successful implementation of the forecast plan of privatization depends a great deal on the macroeconomic situation which has an effect on the situation on the stock market. However, from the beginning of 2014 the economic and political situation (large-scale outflow of capital, introduction of different sanctions, depreciation of the ruble exchange rate and a possibility of recession in the Russian economy) has explicitly contributed to devaluation of assets and worsening of the financial and economic situation of public sector entities.

Georgy Malginov, PhD (Economics), Head of the Department of Ownership and Corporate Governance