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State firms shake-up ordered

President Dmitry Medvedev's radical order to make government ministers abandon their posts at state corporations by the end of the year ­ and remove the powerful Deputy Prime Minister Igor Sechin from his post as head of Rosneft ­ is being touted as another direct challenge to Prime Minister Vladimir Putin's government, and possibly the start of a new privatisation campaign.

But officials and experts have raised doubts that the orders can actually be implemented ­ and Putin's silence on the issue may indicate he is either biding his time or staking on a major compromise.

Medvedev, who has pledged to reduce the role of state corporations in the economy since becoming president in 2008, told the government on Saturday that it had until July 1 to remove deputy ministers and federal ministers from 17 state corporations ­ and come up with a privatisation plan by May 15.

But some powerful ministers in Putin's circle have already said the orders don't concern them.

"It's the president's decision, of course, but as far as I understand it's about specialised officials leaving companies that have competition [from other companies]," Deputy Prime Minister Sergei Ivanov, also chairman of the board at United Aviation Building Corporation (OAK), was quoted as saying by Rossiiskaya Gazeta on Friday. "Today there is no one in Russia but OAK that builds airplanes."

Indications that Medvedev's decision was not as threatening to Putin's interests as it first appeared came on Thursday, when everyone was waiting to see what Putin's reaction to Medvedev's proposals would be.

But during the part of the presidium open to the press, Putin appeared to give nothing away ­ except indicating that another part of Medvedev's programme (to cut the social tax burden on business from 34 per cent to 26 per cent) ­ was a "sensitive issue".

Speaking just hours after top Medvedev advisor Arkady Dvorkovich said ministers like Igor Sechin, Alexei Kudrin, Sergei Shmatko and Viktor Zubkov would have to let go of their posts in Rosneft, VTB, Gazprom and Rosselkhozbank, respectively, Putin merely urged caution on cutting employers' social tax contributions. The tax was raised to 34 per cent as recently as January.

"We know how sensitive this topic is," Putin told the presidium after noting how widely spending cuts were discussed as part of the modernisation drive. "We cannot take the burden off business and place it on the population."

After the presidium, Economic Development Minister Elvira Nabiullina gave a lukewarm reception to Medvedev's proposals, telling journalists that were "ambitious" ­ and hinted that Putin had expressed scepticism on other topics apart from the social tax.

"Right now we are going to analyse what companies will be forced to comply with the president's orders, and first of all we will be trying to avoid a conflict of interests," she told journalists after the presidium meeting on Thursday. "As the prime minister said, it demands very careful consideration."

It was not clear, however, whether Nabiullina was referring to "careful consideration" by Putin of Medvedev's social spending cuts, his orders to remove ministers from state corporations, or his 10-point investment programme as a whole.

Privatisation drive

There were some doubts about how Medvedev's plan could be implemented without weakening the government's regulatory role in major industries such as oil and gas.

"Rosneft works in the interests of its main shareholder ­ the government," Kommersant quoted a source close to both Sechin and Rosneft as saying. "Without Igor Sechin's influence it would have been impossible to launch important projects like cooperation with China or the BP deal."

As part of his move to reduce the influence of state corporations, Medvedev ordered the government to come up with a plan to privatise major shares in them within three years.

Nabiullina, who is a member of Gazprom's board, said one of these companies could be Sberbank, but did not elaborate further.

Analysts were divided on how the drive would bode for Russia's existing political structure.

"It's a radical decision that breaks all the rules of the game for state corporations," Rostislav Turovsky, a political scientist at Moscow State University, told The Moscow News. "It's a system of state capitalism that was developed by Putin deliberately, and now it turns out that Medvedev wants to dismantle this system."

The main question, he said, was who would replace these directors.

"What Medvedev and Dvorkovich are offering is a temporary option, a transition period towards privatisation."

That will be possible through a compromise which would involve some of the ministers in question being allowed to acquire a stake in the privatised shares, Turovsky said.

Cosmetic reforms?

But it was equally unclear whether Medvedev actually intended to dismantle the state capitalist system, or merely undertake a few cosmetic reforms.

In a interview with Vedomosti published on Friday, Dvorkovich said that though the ministers would be replaced with professionals from the private sector, high-placed state officials would still influence management at the state corporations through a system of "directives".

Essentially, this would mean that the state would still control the companies through trusted intermediaries ­ meaning that de facto the same ministers would remain in control, but de jure the companies would be more independent.

"It's a clear-headed idea, and it's been in the works for a long time ­ the problem is finding qualified independent directors," Dmitry Abzalov, an analyst with the Centre for Political Trends, told The Moscow News.

But with the system of directives, little would change, he said. "It would still be Kudrin controlling VTB, but through a system of directives."

Such an arrangement could complicate the entire decision-making process at state corporations, Abzalov said. "Directors would have to get their ideas approved with government agencies," he added.

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