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

Ebola Death Toll Nears 5,000 as Virus Advances

West Africa bears heaviest burden; Mali toddler’s death raises new fears More

Jordan’s Battle With Islamic State Militants Carries Domestic Risks

Despite Western concerns that IS militants are preparing a Jordanian offensive, analysts call the kingdom's solid intel a strong deterrent More

Asian-Americans Assume Office in Record Numbers

Steadily deepening engagement in local politics pays off for politicians like Chinese-American Judy Chu 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.
Talks to Resume on Winter Gas for Ukrainei
X
Al Pessin
October 25, 2014 4:21 PM
Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Talks to Resume on Winter Gas for Ukraine

Ukrainian and Russian officials will meet again next week in an effort to settle their dispute over natural gas supplies that threatens to leave Ukraine short of heating fuel for the coming winter. VOA’s Al Pessin reports from London the dispute is complex, and has both economic and geopolitical dimensions.
Video

Video Smugglers Offer Cheap Passage From Turkey to Syria

Smugglers in Turkey offer a relatively cheap passage across the border into Syria. Ankara has stepped up efforts to stem the flow of foreign fighters who want to join Islamic State militants fighting for control of the Syrian border city of Kobani. But porous borders and border guards who can be bribed make illegal border crossings quite easy. Zlatica Hoke has more.
Video

Video Comanche Chief Quanah Parker’s Century-Old House Falling Apart

One of the most fascinating people in U.S. history was Quanah Parker, the last chief of the American Indian tribe, the Comanche. He was the son of a Comanche warrior and a white woman who had been captured by the Indians. Parker was a fierce warrior until 1875 when he led his people to Fort Sill, Oklahoma, and took on a new, peaceful life. As VOA’s Greg Flakus reports from Cache, Oklahoma, Quanah’s image remains strong among his people, but part of his heritage is in danger of disappearing.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.

All About America

AppleAndroid