Putin with a chunk of oil producer Rosneft
Russian Prime Minister Vladimir Putin is likely to approve $59 billion of asset sales today – with a chunk of oil producer Rosneft likely to be up for grabs – as the Kremlin seeks to plug a hole in the budget with the most ambitious privatisation plan in over a decade.
News wires 21 October 2010 10:05 GMT
Russia’s leaders need money to cover increased spending and ratchet up growth rates with investment ahead of the 2012 presidential election, in which Putin has hinted he may stand.
Putin, still seen as Russia’s paramount leader, is to chair a Cabinet meeting today at which he is expected to give a final green light to the plan, which seeks to raise 1.8 trillion roubles ($59 billion) by selling 900 stakes over five years, reported Reuters.
Once Putin has given his approval, the sales can move ahead, although some of the most valuable stakes – including 15% of Rosneft and a quarter of Russian Railways – will be sold in or after 2012.
But investor confidence in the plan may be undermined by the surprise exclusion of a stake in oil pipeline monopoly Transneft, which was included in a list of potential privatisations published by the Finance Ministry in July.
Transneft preferred shares fell 6% in early trade today after First Deputy Prime Minister Igor Shuvalov was quoted by Russian news agencies yesterday as saying the sale of a stake in the company was not being discussed.
Many investors had bet privatisation would improve management of the company, which pumps the lifeblood of Russia’s $1.2 trillion economy from oil fields in Siberia to markets in Europe and Asia.
Energy Minister Sergei Shmatko later said the government will not return to the issue of possibly privatising Transneft for at least the next five years.
Russia’s budget plunged into the red last year for the first time in a decade, with a deficit of 5.9% of gross domestic product, as the government kept spending as tax revenues plunged.
With deficits forecast for another five years, and spending likely to stay high ahead of the 2012 presidential election, Russia is seeking to attract more foreign and domestic investment to drive growth and cover budgetary shortfalls.
The sale of a 15% stake in Rosneft would reduce the government’s stake to around 60%. The company is worth around $72.4 billion at current prices, putting the potential amount to be raised at nearly $11 billion.
Shuvalov said the privatisation plans would include nearly 8% of Rushydro and 25% of monopoly Russian Railways, which runs the world’s biggest railroad network.
He said the government planned to sell a 30% stake in the country’s second-biggest bank VTB in the next three years and might also eventually cut its stake to below control, provided it found quality investors.
Shuvalov said that after 2015 the state was prepared to lose control in Rosneft, shipping company Sovkomflot and flagship air carrier Aeroflot.
The First Deputy PM said the government would also sell a 4% stake in Federal Grid Company FSK at a price of no less than 0.5 roubles ($0.016) per share, a premium to the current market price of 0.36 roubles.