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Russia's Putin Aims to Privatize Some Companies to Fill Budget Hole

Russia's Putin Aims to Privatize Some Companies to Fill Budget Hole

By    |   Tuesday, 02 February 2016 08:16 AM


Russian President Vladimir Putin reportedly is planning to privatize seven major state companies in an attempt to fill budget holes created by plunging oil revenues.

Addressing a meeting with the heads of some of Russia's largest state-controlled enterprises, Putin said the Russian state should retain control of strategic companies when privatizing stakes in those firms, Reuters reported.

Buyers won’t be able to finance deals with loans from state-run banks, Putin said at a Kremlin meeting on Monday to discuss privatization with the heads of state companies including Rosneft OJSC, VTB Bank PJSC, Aeroflot PJSC, Alrosa PAO, Bashneft PAO and Russian Railways JSC. The state must retain control of strategic and systemically important entities, he said.

State-asset sales play “an important role in changing the structure of the Russian economy and stimulate private investment,” Putin said. “The new owners of privatized assets must have Russian jurisdiction.”

The government has announced plans to offer stakes in state-owned companies over two years to earn about 1 trillion rubles ($13 billion) as it seeks to cover a second year of budget deficits after the collapse of oil prices. The budget deficit, already at a five-year high in 2015, risks swelling to as much as 6 percent of GDP this year unless the government takes measures that may include a 10 percent cut in spending, Finance Minister Anton Siluanov said last month.

Herman Gref, the head of Sberbank PJSC, Russia’s biggest lender, which was excluded from the possible privatization program by Putin last week, did not attend the meeting.

The heads of state-run Transneft OAO and Rostelecom PJSC were also absent.

The sale of state property should be “economically viable” and “must take account of market conditions,” Putin said. “Shares shouldn’t be sold for nothing, at a knockdown price,” he said.

“Previously, privatization was mainly driven by the intention to adjust the structure of the economy and make it more efficient,” said Oleg Kouzmin, Russia economist at Renaissance Capital.

“Now, the issue of raising cash as we see a big drop in oil prices has become one of the reasons that privatization is back on the agenda,” he told the Financial Times.

The budget deficit, already at a five-year high in 2015, risks swelling to as much as 6 percent of gross domestic product this year unless the government takes measures that may include a 10 percent cut in spending, Finance Minister Anton Siluanov said Jan. 13.

The budget’s in a “critical” situation, while the general financial turbulence means there’s no point waiting for markets to rebound to allow asset sales in more favorable conditions, Economy Minister Alexei Ulyukayev said at a meeting of the ministry’s council on Tuesday, Bloomberg reported. The government’s task is to carry out quality, transparent deals “in this extremely unfavorable market,” he said.

The government is considering broadening the list of big entities to be privatized in 2016, Ulyukayev’s deputy Olga Dergunova also said on Tuesday.

(Newsmax wire services contributed to this report).

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Russian President Vladimir Putin reportedly is planning to privatize seven major state companies in an attempt to fill budget holes created by plunging oil revenues.
russia, putin, privatize, oil revenue
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2016-16-02
Tuesday, 02 February 2016 08:16 AM
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