08.12.08

It was reported yesterday that the state, via the Oboronprom corporation, will buy up over 48% of Saturn Research and Production shares. As a result, a controlling interest in this enterprise will become federal property. So the wave of nationalization that started in the banking sector is spreading to the real sector of the economy.

Deputy Prime Minister Sergei Ivanov said in mid-October that the state is prepared to buy up shares in high-tech companies and defense sector enterprises from private owners, "by mutual agreement," thus becoming a stakeholder in these enterprises. Some time later, Senior Deputy Prime Minister Igor Shuvalov confirmed that the government is discussing partial nationalization as an emergency option for supporting the economy.

In effect, nationalization is already under way in Russia. As in the West, problem banks were the first to end up under the state's wing. For example, the VneshEkonomBank (VEB) state corporation acquired Svyaz Bank and Globex Bank for token payments. SobinBank has been nationalized, in effect, with the state-owned GazpromBank acquiring a controlling interest. The Deposits Insurance Agency (ASV) is seeking new owners for several other problem banks. Given the rising cost of state loans, it is clear that only fully or partially state-owned organizations can carry such a burden.

Sergei Guriyev, rector of the Russian School of Economics, told us that some of the banks now receiving VEB loans won't be able to repay them. VEB will then receive stakes in those banks; in many cases, this will make the banks state-controlled.

The crisis hit the banks first, and now it is spreading to the real sector of the economy: industry. The latest figures from the Federal State Statistics Service (RosStat) show GDP growth of only 0.6% in October. Specialists predict zero growth for Russian industry in December.

Vladislav Inozemtsev, head of the Post-Industrial Society Studies Center: "The situation in industry is deteriorating rapidly. Some enterprises will have to sell their shares to the state, since they don't have any other options. This primarily applies to the metals sector. Some machine-builders and construction companies may also become federal property, since things are going very badly in their sectors."

The process has already started. On the evening of December 2, Prime Minister Vladimir Putin announced that Saturn Research and Production "has proved unable to service and repay its loan commitments owing to the instability in financial markets." According to Putin, the problems of this enterprise cannot be solved without increasing the state-owned stake. The first details of the "solution" were reported on December 3. The state, via Oboronprom, will buy a 48.76% stake in Saturn. Given that it already owned 37%, the state will now have complete control.

"I think it is a justified step for the state to buy into defense sector companies," says Valery Mironov, chief economist at the Development Center. "It prevents the companies being taken over by their Western creditors. But nationalization should be restricted to strategically important enterprises only. There's nothing to fear in the prospect of other companies ending up in foreign hands. It would be better for the state to direct its resources into developing infrastructure and the financial market, since this will help Russia to attract new investors and overcome the crisis faster."

But the state has worked up an appetite already. Specialists predict that dozens of Russian enterprises could be nationalized. On the one hand, this would save them from bankruptcy. On the other hand, the state has never shown itself to be a good property owner or an effective manager.

The most vivid example of that is the bankruptcy of AirUnion, a state-established and state-owned airline. It went bankrupt in autumn this year, owing a total of around $1 billion to its partners - a terrible blow for the sector as a whole. And the state still hasn't paid off AirUnion's debts. However, it has recently decided to establish a new airline on the basis of AirUnion: Russian Airlines (Avialinii Rossii), which will also be state-owned - via the Russian Technologies corporation and the Moscow municipal government. This new company plans to become Russia's largest airline, but confidence in its chances of success is by no means universal. Many experts suspect that the change of name won't make much difference.

Senior state officials themselves are aware that the state is an ineffective manager - and that explains their reluctance to talk about nationalization.

Boris Kagarlitsky, director of the Globalization and Social Movements Institute: "The government wants to draw out and conceal this process - it isn't daring to bring enterprises completely under state control - it's buying only partial stakes. This is a big problem, since the process becomes non-transparent. What's more, there still isn't any specific legislation on nationalized enterprises, so there is no oversight for the work of state officials and public servants at such enterprises."

Much to the government's delight, it looks like nationalization won't draw too many protests from the public. Besides, the latest poll results from the All-Russian Public Opinion Research Center (VTsIOM) show 58% approval for the idea of nationalizing major enterprises and 50% approval for nationalizing banks. However, Igor Shuvalov says that the government has not set the objective of holding stakes in these enterprises in the long term. Once the crisis is over, they will be re-privatized.

Vladislav Inozemtsev: "Not even the state itself knows what it may want to do in the future. Perhaps it will indeed announce re-privatization of nationalized enterprises after the crisis. But the question is, will anyone buy them?"

Boris Kagarlitsky: "I fear the prospect of our country being looted again. They might use tax-payers' money to rescue the problem enterprises now, and hand them over to insiders later."

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Source: "Novye Izvestia"