New Russian government gears up for another privatisation push

By bne IntelliNews May 22, 2012

Graham Stack in Moscow -

Unveiling the new cabinet on May 21, Prime Minister Dmitry Medvedev called for Russia's massive privatisation drive to be reinvigorated. Officials promised him to have an accelerated schedule on his desk within 10 days at most.

A positive signal for the bid to reduce the state's involvement in the economy was the replacement of long-serving statist energy tsar Igor Sechin by liberal economist Arkady Dvorkovich in the new Russian government. Medvedev told the new administrators that acceleration of the $30bn privatization programme over the next two years is a priority.

The two men swapping jobs raises hope of a shift in policy over privatisation, with Sechin, a close associate of President Vladimir Putin, the main opponent of the plan. By way of contrast, Medvedev's protege, US trained economist Dvorkovich, is a key proponent of the plan to put the state's stakes in leading national champions on the auction block.

Dvorkovich will now team up with first deputy Prime Minister Igor Shuvalov to head and accelerate the privatization drive. Addressing the first meeting of the new government, Medvedev told Shuvalov privatization remains the top priority, and the existing programme should be accelerated. "We'll prepare an accelerated schedule. During a week or 10 days at most we'll produce this document," Shuvalov promised.

The current privatization programme aims to earn $30bn for the state budget by 2013, by reducing to controlling stakes the state's ownership in the country's national champions, including Rosneft, Sberbank and VTB, the world's largest railway operator Russian Railways, shipping giant Sovcomflot, and hydropower behemoth Rushydro, among others.

However, the plan has raised the hackles of the older statist generation of Putin loyalists, such as Sechin and head of Russian Railways Vladimir Yakunin, who have tried to apply the brakes, arguing that the current turbulence on world financial markets will reduce the price the government could expect for the stakes. "While taking the real situation on the financial markets into account, we nevertheless need to carry out transactions," Medvedev said, addressing the new cabinet.

Dvorkovich's remit will cover almost all Russia's key industrial sectors - energy, power, transport and agriculture - excluding the defence industry, which remains under the eye of deputy Prime Minister Dmitry Rogozin. Dvorkovich's appointment is likely to accelerate the shift towards market-based tariffs in regulated sectors including power, say analysts.

Sechin also failed to gain a post in the presidential administration announced by Putin on May 22, whilst two Sechin underlings also left the cabinet. Minister of Energy Sergei Shmatko and Minister of Natural Resources Yury Trutnev were replaced by Aleksandr Novak and Rosgeologia head Sergei Donskoi respectively. In another weakening of the conservative group, Transport Minister Igor Levitin - seen as loyal to Yakunin - also lost his job, to be replaced by 44-year-old Maxim Sokolov.

The surprise new appointees as energy and transport ministers are young men with a private sector background seen as close to Medvedev. Novak was a manager at mining giant Norilsk Nickel, at the time when deputy Prime Minister for the North Caucasus, Aleksandr Khloponin, was CEO. When Khloponin left to head the Siberian region of Krasnoyarsk in 2003, Novak followed him. Then president Dmitry Medvedev appointed Khloponin, an economic liberal, to develop the economy of the North Caucasus as a solution to the ongoing Islamist insurrection in 2008.

Alongside Novak and Khloponin, Olga Golodets, new deputy prime minister for the social block, and former HR manager at Norilsk, takes the number of former Norilsk managers in the cabinet to three. This points to the influence of Khloponin as well as of Mikhail Prokhorov, former owner of Norilsk, and close friend of Khloponin. Prokhorov ran as a liberal candidate in the presidential elections against Vladimir Putin, but was regarded as a spoiler candidate secretly working for the Kremlin.

The other network strongly represented in the new cabinet are graduates of St Petersburg's prestigious faculty of law. Sokolov takes the number of former graduates and lecturers now in government to four, as he joins deputy Prime Minister Dmitry Kozak, Justice Minister Aleksandr Konovalov and Medvedev himself.

The security block in the government - defence, interior and foreign - is appointed directly by the president, and saw only one change, with the highly unpopular Rashid Nurgaliev replaced as interior minister by former Moscow Chief of Police Vladimir Kolokoltsev.

While firing one unpopular minister, Putin retained another - Defence Minister Anatoly Serdyukov. Serdyukov, originally from the private sector, is widely hated in the military for pushing through a root-and-branch reform designed to end the Soviet tradition of the conscript army and shift to a Western-style professional army. He has also encountered massive opposition from defence sector producers for his efforts to combat inflated prices, including his moves to purchase foreign-made weaponry for the country's military. By keeping him in the job, the Kremlin is showing a strong commitment to its modernization plans for the sector.

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