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Russia plans largest privatization wave since Yeltsin

Russia plans its biggest sell-off of state assets since the early 1990s as it seeks to raise over $29 billion to plug budget gaps over the next three years, finance ministry sources told Reuters.

The sources told Reuters the plan to sell minority stakes in 10 major companies in 2011-2013 had been discussed and approved at a preliminary meeting chaired by Prime Minister Vladimir Putin.

The sales would include 27.1% in state oil pipeline monopoly Transneft, 24.16% of Russia's largest oil producer Rosneft, 24.5% of Russia's No.2 bank VTB, 9.3% of largest lender Sberbank, 25% minus one share of rail monopoly RZhD.

Russia wants to cut its budget deficit to 4% of GDP in 2011 and 2.9% in 2012 from around 5% – or $80 billion – this year, but a presidential election in 2012 also puts pressure on the government to keep social spending high.
“The finance ministry has made proposals on possible privatizations in 2011-2013, which will allow (us) to collect some 300 billion roubles ($9.88 billion) a year,” one of the sources told Reuters. “The biggest companies will be up for sale in such a way that the government keeps controlling stakes,” he added.

The proposals see Russia reducing its stakes in most of the companies to 50% percent plus one share, which allows the government to still exercise full control over the decision-making process.

Other firms on the list include 28.11% of power grid FSK, 9.38% in hydro power generator RusHydro, 49% in mortgage agency AIZhK, 49% in agricultural bank Rosselkhozbank and 25% minus one share in shipping major SovComFlot.

Reuters calculations showed that sales of stakes in only six listed firms from the list could generate over $30 billion and if combined with unlisted majors such as RZhD and SovComFlot the privatizations could yield billions of dollars more.

Russia's first wave of chaotic privatizations in the 1990s under President Boris Yeltsin resulted in major state oil and metals assets being sold for cheap to a group of well-connected businessmen, known in Russia as the oligarchs.
Putin, who was Russia's President between 2000 and 2008, has repeatedly criticized the sales and brought some of the assets back under state control, including through the bankruptcy of oil major YUKOS, whose oil fields were sold mostly to Rosneft at state-forced auctions.

A second source said the stake sale in rail monopoly RZhD was likely to happen later than other privatizations as the company was undergoing substantial restructuring. The sale of the stake in the mortgage agency is also unlikely to happen in the near future, he said.

Russian shares rose on Monday as the finance ministry confirmed it had drawn up a shortlist of companies earmarked for privatisation, but said it had yet to make a final decision. (Reuters)