News / Europe

Russia Unveils Privatization Plan as Largest US Investor Divests

James Brooke

Russia has announced the largest privatization program since the post-communist sales of the early 1990s.  The wide-ranging privatization plan is intended to raise more than $20 billion worth of shares in state companies during the next three years.  But the state is not looking to relinquish control and will retain key stakes, only releasing up to 25 percent of shares in the national oil company, the national shipping company, two state banks and an electric power management company.

Russia is entering an election cycle next year with a growing budget deficit.  Reluctant to raise taxes or cut social benefits before elections, the Kremlin chose to sell state property.  Russia has nearly $500 billion in gold and foreign currency reserves, largely from oil and gas sales.  But the Kremlin is trying to protect this nest egg, fearing energy prices could drop again.

Last year, Russia's economy shrank by eight percent, the worst performance of its peer group - the so-called BRICs, or Brazil, Russia, India and China.  This year, Russia is to partially recover, growing at four percent.

The chief equity strategist for Aton investment bank, Peter Westin, believes state control of Russia's economy may have hit a high-water mark with the high oil prices of 2008.

"They need to raise money," said Westin.  "They are going to hike some taxes, but privatization was an easy road to take.  On top of that, we do know that, looking at the statements of Medvedev, the president, he has basically stated time and time again for the last year or so that the state has too big of a hand in Russia and he also stated that state ownership is less effective than private ownership."

In a policy reversal, President Dimitri Medvedev also declared a goal of cutting the state portion of the economy from 50 percent today, to 30 percent 10 years from now.

Foreign investors are wary of Russian state companies, saying their balance sheets are black boxes and their treatment of minority shareholders can be rough.  But Westin, whose bank facilitates foreign investment in Russia, counters that Russian companies selling shares on the London market are requires to open their books and be transparent.

Meanwhile, highlighting the risks of investing in Russia, ConocoPhillips says it will divest its investments in Lukoil, valued at $10 billion.  Lukoil was Russia's largest private oil company in 2004, when ConocoPhillips first made its investment.

The chief strategist with the Uralsib Financial group in Moscow, Chris Weafer, said ConocoPhillips, the largest American investor in Russia, should have partnered with a state oil company.

"Conoco found itself at the dance with the wrong partner," said Weafer.  "It is clear that the state oil companies - Rosnef, Gazpromneft - are in a much better position to get the attractive licenses.  The new developments - whether East Siberia, Sakhalin, or even the Arctic if it opens up - the state companies will get these licenses.  So you want to be partnered with a state company."

But Weafer said he did not know of any sales from a more modest $2.3-billion privatization program Russia announced earlier this year.

"We are two thirds of the year over with, and we have not actually seen any progress of that small program as yet," said Weafer.  "So there is always in Russia a difference between what the government say it wants to achieve, and actually what it can achieve."

If sales do not materialize, Finance Minister Alexei Kudrin says he has a fallback plan to cut the number of government employees by 20 percent.

You May Like

Mali's Female Basketball Players Rebound After Islamist Occupation

Islamist extremists ruled northern Mali for most of 2012, imposing strict Sharia law, and now some 18 months later, the region is slowly getting back on its feet More

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

Many Chinese-made products go unsold, for now, with numerous Vietnamese consumers still angry over recent dispute More

Koreas Mark 61st Anniversary of War Armistice

Muted observances on both sides of heavily-armed Demilitarized Zone that separates two decades-long enemies More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Students in Business for Themselvesi
X
Mike O'Sullivan
July 26, 2014 11:04 AM
They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Not Even Monks Spared From Thailand’s Junta-Backed Morality Push

With Thailand’s military government firmly in control after May’s bloodless coup, authorities are carrying out plans they say are aimed at restoring discipline, morality and patriotism to all Thais. The measures include a crackdown on illegal gambling, education reforms to promote students’ moral development, and a new 24-hour phone hotline for citizens to report misbehaving monks. Steve Sandford reports from Bangkok.
Video

Video Virtual Program Teaches Farming Skills

In a fast-changing world beset by unpredictable climate conditions, farmers cannot afford to ignore new technology. Researchers in Australia are developing an online virtual world program to share information about climate change and more sustainable farming techniques for sugar cane growers. As VOA's Zlatica Hoke reports, the idea is to create a wider support network for farmers.
Video

Video Airline Expert: Missile will Show Signature on Debris

The debris field from Malaysia Airlines Flight 17 is spread over a 21-kilometer radius in eastern Ukraine. It is expected to take investigators months to sort through the airplane pieces to learn about the missile that brought down the jetliner and who fired it. VOAs Carolyn Presutti explains how this work will be done.
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.

AppleAndroid