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Medvedev confronts vested interests with order to schedule privatization

File Photo of Duma Chamber
file photo
President Dmitry Medvedev ordered the government to prepare a schedule for the privatization of key state companies and push on to reduce state-held stakes to below controlling on Wednesday during his budget address to the State Duma. The call reflects the growing determination of the president and his team to confront vested interests opposed to their modernization drive.

"The role of the state in direct governance of economic assets must be considerably reduced," Medvedev said in his budget address, reports RIA Novosti. "The Russian government needs to prepare a schedule of privatization of large share packages in key state-controlled companies to reduce the state's stakes below a controlling interest or give up state participation, except for infrastructure companies or companies related to the provision of state security."

The planned $50bn privatization drive, first announced last year, was kicked off by the sale of a 10% stake in VTB in February. However, further sales have yet to emerge, with the timing and stake size to be off-loaded by the government at other companies remaining unclear.

Speaking last year, finance minister Alexei Kudrin admitted that the plan would face opposition from vested interests - including management at some of the companies affected - but insisted that the government would push past these obstacles.

However, the lack of a schedule for the sales appears a major risk under these conditions. There has been an almost constant flow of comment from management at some companies - Russian Railways is a notable example - demanding that their companies should delay privatization, and reduce the suggested size of the stakes.

As the presidential election in March draws nearer however, Medvedev and his modernization team appear ever more aggressive in their attempts to push their program through. Medvedev's economic advisor Arkady Dvorkovich complained about the pace of privatization on Monday, whilst Kudrin - a supporter of many of Medvedev's policies if not an actual member of his camp - insisted that the government would leave many sectors altogether, including transport.

The finance minister specifically mentioned flag carrier Aeroflot as such a target - management responded almost immediately. CEO Vitaly Savelyev warned on Wednesday that the state should sell its stake "gradually".

However, at the same time, putting a concrete timetable on such a programme, which needs the flexibility to adapt to market conditions, is tricky. Whilst the driving idea for Medvedev's camp is clearly to reduce the state's role in the economy, it can't throw away the value in these key companies. That would rob the Russian taxpayer, and could damage investor confidence by producing share overhangs in those companies already listed - which includes most of the major names.

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