beyondbrics

Privatisation has an unhappy history in Russia – the chaotic 1990s asset sell-offs that gave birth to the infamous “oligarchs” are often seen as an example of how not to do it. Plans being considered in Moscow for $29bn of asset sales in 2011-13 provide an opportunity to get it right this time, potentially burnishing Russia’s investment image. But big questions remain over whether the government can pull them off.

The first is whether the government and Kremlin can agree within themselves to proceed. There are constant tensions between more liberal, free-market factions, and hardline elements that favour a strong economic role for the state. This week’s leak of plans to sell minority stakes in 10 state-controlled companies from the finance ministry, headed by leading liberal Alexei Kudrin, may have been an attempt to rally support.

Differences have already emerged even with the liberal-leaning economic development ministry, which made more cautious noises about the timing and likely extent of any new sell-off programme.

There have been conflicting signals about whether key companies such as Russian Railways, the national railway operator, and Transneft, the oil pipeline monopoly, will be included or not.

Even if the government can agree, the plans could face foot-dragging all down the line, from state managers and the army of bureaucrats who make a nice living from running state companies. These vested interests might not welcome the transparency requirements that come with a stock market listing or presence of a foreign strategic investor.

The plans have not advanced significantly since a new round of asset sales was first mooted last autumn. Progress on a relatively modest plan to sell off about $2.25bn of state assets this year has been negligible; Elvira Nabiullina, economic development minister, said on Thursday Russia may sell no state assets this year.

The term “privatisation” may, in any case, be a touch misleading. The plans being proposed involve selling stakes of, say, 20 per cent, in companies that are either fully state-owned (such as Russian Railways or Transneft) or have already been partially floated (such as Rosneft or VTB Bank). Any increase in private ownership – and hence accountability to market or strategic investors – is welcome. But, ultimately, the Russian state has made very clear it will not relinquish control.

Related reading:
Is Russia serious about privatisation this time?, FT beyondbrics