Russia Scales Down Asset Sales as Medvedev Bemoans Delays

June 27, 2013 JRL Russia List Economy, Business, Investment, Trade, Politics, Government, Protests, Elections

(Bloomberg – bloomberg.com – Scott Rose & Olga Tanas – June 27, 2013) Russia will raise a third less than previously estimated from asset sales in the next three years, downsizing the program as Prime Minister Dmitry Medvedev criticized the lobbying that’s putting a brake on plans.

Revenue from asset sales will bring the budget about 630 billion rubles ($19 billion) in the next three years, including about 180 billion rubles in 2014, Economy Minister Alexei Ulyukayev said at a government meeting today. That compares with a planned 925.9 billion rubles written into the three-year budget, according to the Economy Ministry.

Plans for Russia’s biggest wave of asset sales since the 1990s have hit a snag as companies including pipeline operator OAO Transneft pushed to retain state support and market turbulence held up offerings. President Vladimir Putin ordered the government last year to have a plan to exit all companies except for raw-material producers, natural monopolies and defense enterprises by 2016.

“Privatization is a shared task and a matter of ideology for the government,” Medvedev said at the meeting. Delays are being caused by “the energetic lobbying of individual agencies and individual officials.”

State-controlled companies have swollen to account for half of Russia’s economy, with the government relying on businesses including OAO Gazprom (GAZP) and Russian Railways to help finance expensive infrastructure plans such as the 2014 Sochi Olympics and the 2018 World Cup, BNP Paribas SA said last year.

FED Stance

Russia is tempering expectations for its asset sales after Federal Reserve Chairman Ben S. Bernanke roiled global markets by saying the U.S. central bank’s bond purchases may be reduced this year, reducing the cash available to hold riskier assets.

The Micex Index of 50 stocks fell 0.7 percent to 1,310.64 as of 3:14 p.m. in Moscow, bringing its loss so far this year to 11 percent. The ruble appreciated 0.2 percent against the dollar to 32.8805.

With economic growth slowing to the weakest pace since a 2009 contraction, the government is facing revenue shortfalls from lower tax payments, according to the Finance Ministry. The ministry forecasts budget proceeds from this year’s asset sales at as much as 60 billion rubles, compared with 427 billion rubles written into the budget.

Russia plans to sell as much as 1.7 trillion rubles in assets between 2013 and 2016, with some of those funds staying with the companies to finance investment programs, according to Ulyukayev.

Rosneftegaz Dividends

The budget will get 180 billion rubles next year, 140 billion rubles in 2015 and 300 billion rubles in 2016, he said. The sum rises to 1 trillion rubles when adding in dividends paid by Rosneftegaz, the state-run holding that controls OAO Rosneft (ROSN), as it reduces its stake to 50 percent.

Still, the government may fall short of that figure because the 380 billion rubles from Rosneftegaz may not materialize, Siluanov said at the meeting. “In our forecasts, we don’t see the company having those kinds of resources,” he said.

Russia plans to sell its entire holdings in OAO Rostelecom, the country’s largest fixed-line operator, OAO State Transport Leasing Co., OAO Rosspirtprom and Vnukovo airport through 2016, according to the proposal. The government also is seeking to reduce its stakes to 75 percent plus one share in OAO Russian Railways, Transneft and OAO NPK Uralvagonzavod.

The government will reduce its stakes in OAO Alrosa, OAO Sovcomflot and OAO Aeroflot to 25 percent plus one share during the same period, Ulyukayev said in the presentation. Stakes in VTB Group, OAO RusHydro and OAO Rosneft will be cut to 50 percent.

“Our task is to sell these assets at the best price, raising as much money as possible for the budget,” Medvedev said. “But that’s not the only goal. Companies need more effective owners who are capable of managing the very model of corporate governance to make it more effective, attract long-term investment, and make the companies modern and profitable.”