#12 - JRL 7305
Rossiiskaya Gazeta
August 28, 2003
THE BIG SELL-OFF
Privatization will earn the treasury over $30 billion in the next three years
An interview with Mikhail Delyagin of the Globalization Institute
Author: Tatiana Panina
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

THE PRIVATIZATION PROGRAM FOR 2004-06 HAS BEEN ADOPTED. SPECIALISTS AND POLITICIANS ARE ACTIVELY DEBATING THE PROGRAM. THEY ARE CONCERNED ABOUT THE HASTE WITH WHICH THE STATE IS PREPARED TO ABANDON ENTERPRISES AND COMPANIES THAT MAY YET BE PROFITABLE.

The privatization program for 2004-06 has been adopted. Its authors are convinced that the sales will bring about structural changes in the economy and bring a lot of money into the federal treasury. First and foremost, the state intends to sell its shares in the companies where the stakes it controls do not exceed 25%. That means almost half of joint stock companies with federal participation. The list does not include energy companies which will await completion of reorganization of the Russian Joint Energy Systems and gas sphere. State interest in major companies will be put up for sale in accordance with the needs of the federal budget. the fate of LUKoil has not been sealed yet. Privatization terms and number of shares will depend on the market situation.

All federal stakes exceeding 50% will be offered for sale in 2005. A year later, the state will withdraw from joint stock companies in civil aviation, health care, chemical industry, cattle-breeding, and the timber industry.

As for state unitary enterprises, they have three years to become private. The process will begin in 2004 with enterprises of the oil and gas sector, fuel industry, printing, and river and sea transport. Privatization of state unitary enterprises in the nuclear energy sphere is to be completed in 2006.

The government expects privatization to earn the federal budget at least 40 billion rubles in 2004 and no less than 35 billion rubles every year afterwards.

Specialists and politicians are actively debating the program of privatization. They are concerned about the haste with which the state is prepared to abandon enterprises and companies that may yet be profitable.

Here is an interview with Mikhail Delyagin, chairman of the presidium of the Globalization Institute.

Question: Are you worried too?

Mikhail Delyagin: Privatization is supposed to make the economy more effective. General public already knows that speculations on how state property automatically means thefts and ineffectiveness while private property is automatically effective, are wrong. Effectiveness of a venture depends the form of ownership only in long terms. In short terms is depends on effective management alone. A state- controlled company may set an example of effective management (we see enough examples of that in the military-industrial complex), and a private venture may be a den of bureaucracy.

Question: Did authors of the program of privatization take into account mistakes of the past?

Mikhail Delyagin: Fallaciousness of privatization for the sake of replenishment of federal treasury was officially admitted in 1997. The budget crisis, however, makes this motive paramount in the work on program of privatizations. Financial rewards to the budget became the key parameter of success. Privatization was ascribed to the necessity to abandon surplus functions of the state in economy only when the state got the windfall of petrodollars. Surplus functions or not, Atomenergoeksport is not something that should ever be privatized. We are talking here the organizations and institutes that possess unique nuclear technologies.

Special attention is being paid to privatization of major enterprises, strategically important and as such attractive to businesses, not the enterprises where the state cannot establish its control. Take, for example, withdrawal of state structures from banks and their capital. Attention was centered around profitable banks abroad and unification of Vneshekonombank and Vneshtorgbank. Needless to say, effectiveness of the latter went down. A great deal of small state banks, the major source of inefficiency, have been left alone. The problem is that inefficiency in Russia is the only protection from a takeover, including takeover through privatization.

State unitary enterprises are the only exception. There are almost 10,000 of them, established by ministries and even other state unitary enterprises. This is where state control is extremely weak. Most state unitary enterprises enrich state officials at the state's expense.

Question: Shall we give a thought to deprivatization then?

Mikhail Delyagin: If we are after construction of a civilized free market (and that's what we've been hearing these last fifteen years or so), then the state should be empowered to sell and to buy. To buy, not commandeer. Whenever the state wants to buy something, first it should prove to taxpayers that it really needs this something and taxpayers should give their consent.

Emergencies are the first exception. Whenever a private property (a blasting cartridge or a factory) is used in defiance of the law and interests of the country, it should be repossessed on the decision of the court.

The second exception concerns violation of privatization terms. The state should either demand that they be honored, or have an accord made with the victims. Failure to honor the accord should lead to nullification of the privatization treaty.

Private property is not threatened by hypothetical nationalization half as much as it is threatened by its helplessness in the face of takeover through enforced insolvency. Loopholes in bankruptcy legislation are the major reason behind the nationwide wave of redistribution that hit Russia. The public is deliberately misled into seeing a threat where there is none and missing the actual danger.