Thursday,
17 August 2017
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OpinionRussia’s financial maneuvers

The beginning of this year in Russia is marked by how rapidly the financial and economic base of the country is declining, as well as by the steps that the Kremlin is trying to take to change this trend.

The key maneuver for filling the state budget, will as always be a privatization, which has already been announced by the authorities. According to the Russian Ministry of Finance, the gap between the revenues and expenditures stays at about RUB 2.4 trillion. The drop of Russia’s GDP amounted to 3.7% in 2015. In this situation, the first phase of privatization in 2016 should bring about RUB 700-800 billion. The most interesting thing is what objects are allegedly to be privatized. Among the objects is Bashneft (a 60% stake), Alrosa (18.9%), VTB, Sovkomflot, Transneft, Rostelecom and, most importantly, Rosneft (a 19,5% stake worth RUB 500 billion).

A statement by Minister of Industry and Trade Denis Manturov on a deal on privatization of Vertolyoty Rossiyi (Russian Helicopters) scheduled before year end should be perceived in the same context. The Russian government says it’s ready to sell up to 49% of shares to the national investors, and only 25% to foreigners.

The fact that Russian President Vladimir Putin calls on his subordinates not to sell the state shares for nothing says just that the situation is close to critical, and the Russian government is ready to start shares "good that is acquired back-breaking labor."

The fact that Russian President Vladimir Putin calls on his subordinates not to sell the state shares for nothing says just that the situation is close to critical, and the Russian government is ready to start shares "good that is acquired back-breaking labor."

It’s just that no one will fall for Moscow’s prices. By the way, according to the head of the State Duma Committee on Property Sergey Gavrilov, "over the past two years, the cost of Russian state-owned companies fell by more than twice. For example, the price for one of Russia’s key assets – Rosneft – fell from $85 billion to $45 billion.

Among the factors that will continue contributing to the fall of the Russian economy is the low price of oil within the band of $30-$45 in 2016. If the average price of black gold is maintained at the level of $30 a barrel this year, the losses of the Russian state budget will remain at the level of EUR 23-29 billion, according to the estimates of Finance Minister Anton Siluanov. One can supplement the picture with the rapid flight of capital from Russia, as well as a record decline of reserve funds, which will only be enough until the end of this year.

It shouldn’t be forgotten that the Hague court obliged Russia to pay $50 billion in the Yukos case.

It shouldn’t be forgotten that the Hague court obliged Russia to pay $50 billion in the Yukos case. Since Moscow is in no hurry to pay, the first cautious accounts of arrests of Russia’s state property were recorded across Europe.

The most ironic thing is that the Putin regime is hoping to attract to the privatization process the Western, and particularly American companies. For these purposes, a meeting between Economy Minister Alexei Ulyukayev and U.S. Ambassador to Russia John Tefft (who was earlier Ambassador to Ukraine) was held recently. Prior to this, the Economy Ministry sent a proposal to participate in the privatization to the world's leading 22 investment banks, including the U.S.-based Goldman Sachs, JP Morgan, Citi Group and others. Washington did not encourage Moscow because it had not yet been sufficiently punished for its inappropriate behavior in the international arena, and most importantly, it is not even trying to change it. For example, in a conflict with Ukraine, the Kremlin is not even trying to implement the Minsk agreements, to which the Western sanctions are bound.

In a hypocritical move, against the background of anti-American hysteria in the Russian media, the Russian government purchases U.S. debt bonds worth billions of dollars each month. For example, in February 2016, Russia bought the U.S. bonds worth $4.8 billion. Incidentally, that is why Obama may be in no hurry to topple Putin and launch Russia’s collapse.

Curiously enough, while the West plays the game of downgrading the Russian assets to the limits, China is already saying at the ministerial level that it’s interested in the privatization of Russian assets.

Curiously enough, while the West plays the game of downgrading the Russian assets to the limits, China is already saying at the ministerial level that it’s interested in the privatization of Russian assets.

Obviously, the real start of the privatization of the Russian SOEs, including such structures as Rosneft and other state monopolies, will be a signal that the country’s course is changing. The new owners, or at least their financial and geographical referencing, will allow drawing conclusions about structural changes in Russian politics. For example, the last precedent is the approval by a government commission on foreign investment of a purchase by a Swiss company Molumin AG of a 75% share in Kamchatka-based Geotekhnologia company (holder of licenses for deposits of copper, nickel, gold, cobalt, palladium and other resources) allows to assume that the process has actually already started, and the Western players will not be underdogs in this game.

Although, of course, we shouldn’t rule out a banal transfer of the key objects of state property into the hands of businessmen loyal to the Kremlin, as it was back in the 1990s. In this case, this will mark preparation of the Russian state to the new territorial disintegration and the transition to another mode of operation.

For this reason, we should carefully watch the new redistribution of Russian property, which will be followed either by setting up a new policy, or preservation of the old one. In the meantime, while privatization is still distant, Russia will continue rescuing its state monopolies with the funds from the state budget and cuts in social spending.

Roman Rukomeda

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