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. Last Updated: 07/27/2016

Aeroflot Tops List For State Sell-Off

The government is to put up for sale its shares in Aeroflot's international arm and other major transport companies, but has identified another 3,000 "strategic" enterprises that are off limits for privatization, a senior official said Thursday.

Sergei Belyayev, head of the State Property Committee, said at a press conference that the government has now finalized its long-awaited list of 3,054 "strategic enterprises" to be held back from privatization until 1996 or 1997.

The new list includes behemoths such as the giant gas monopoly Gazprom and a number of oil- and defense-related interests.

But Belyayev's glass was at least half full, as the reduced list meant that some 5,800 largely state-owned companies have now been freed up for privatization by the end of the year, including Russian International Airlines -- the most profitable remnant of Aeroflot -- and the Novorossiisk, Far Eastern and Baltic shipping companies.

"The government resolved a key question," Belyayev said. "This allows us to fulfill the second stage of privatization and get planned revenues into the budget."

The second stage of privatization involves government sell-offs of medium and large enterprises in nationwide cash auctions, with the state selling the shares it has left over from the first, voucher stage of the privatization process.

In April the second stage kicked off in earnest with Belyayev's announcement that the state was putting its share in 7,186 smaller and medium-sized companies up for auction. But there was fierce speculation at the time about which plum investment opportunities would be made available in a second round and which would be held back.

The answer came with Thursday's announcement -- shortly after a meeting of the cabinet -- and it was clear that there had been some fierce bargaining behind the scenes.

The decision to put up for sale more than 20 transport companies was sharply criticized by Transport Minister Vitaly Yefimov, who was quoted by Interfax as saying at the cabinet meeting that foreign competitors would "buy off stocks in order to remove Russian transport companies from the Russian market."

Among the companies still deemed to be strategic and therefore protected from privatization were Gazprom, a number of major oil companies, United Energy Systems, Rostelekom and Lenzoloto, Russia's largest producer of gold.

It appeared that some companies had been added to the protected list at the last moment. At the end of June, Belyayev had said that the list, soon to be announced, still holds shares by the end of the year.

But the big issue may be whether the government will be able to find buyers for its shares. While he said sales of April's block of 7,186 companies had been disappointing, Belyayev added that things had picked up in June and there were also good prospects for sale of the new block of companies.

"We have done a market survey and can say that there is a real investment demand and there are real investors for these packages of shares of all enterprises in all branches," he said, adding that a schedule of auctions would be published to start in August, September and October.

The issue is crucial to the government's 1995 budget, which predicted 9 trillion rubles ($2 billion) in revenue from privatization. So far this year less than half a trillion rubles of that revenue has been realized.

First Deputy Prime Minister Anatoly Chubais, who has overall responsibility for the economy, said for example Thursday that giving up sale of the transport shares will result in cutting government allocations for the social sector, including the health service and education, Interfax reported.

An optimistic Belyayev said the government now estimates investment demand to be as high as 19 trillion rubles. He predicted that Russian banks would invest 6 trillion rubles, foreign investors 7 trillion rubles, the general populace 3.5 trillion rubles, and investment funds another 3.5 trillion rubles.

"We hope that the budget will have at least 9 trillion rubles in revenues slated in the federal budget as privatization receipts," he said. "We expect a real boom in the market in the fall."

Despite the fact that Russian capital markets have been picking up of late, other analysts were less bullish. Andrei Illarionov, head of the Institute of Economic Analysis, said the government would be able to raise a maximum of 2 trillion rubles from privatization this year."In the first half of the year the government received only 470 billion rubles and I don't see how it plans to speed up privatization," he said in an interview. "It is not enough to offer interesting enterprises for sale. Investors have to have enough money and to want to commit it."