Russia eyes $50 billion sell-off

Russia's Minister of Finance Alexei Kudrin speaks with journalists at the Reuters office in Moscow, September 15, 2010. Leading Russian business chiefs, bankers and officials will discuss the outlook for investment in Russia and progress on its modernisation at the fourth Reuters Russia Investment Summit from Sept. 13-15.

MOSCOW (Reuters) - Russia unveiled a beefed-up $50 billion privatization plan on Wednesday in the face of opposition from company managers and an investment climate soured by a feud between the country's top tycoons.

"We will have a privatization program for approximately five years, worth around $10 billion a year," Finance Minister Alexei Kudrin told the Reuters Russia Investment Summit.

This marks an increase from a previously announced plan to earn some $29 billion from asset sales over three years. Kudrin said new companies had been added to the list, but declined to specify which ones.

The original privatization plan featured 10 companies, including the largest oil firm, Rosneft, Russian Railways, the Federal Grid Company (FSK), and Rushydro.

"It (the privatization plan) is in the high stage of preparedness ... The plan which we have submitted, in general, is for five years starting from 2011, which does not mean that we cannot start even this year if we are ready," Kudrin said.

Kudrin played down the significance of protests from the managers of some privatization targets, such as Nikolai Tokarev, the head of state-run oil pipelines operator Transneft, who oppose the sale of their companies.

"The main thing is that the government wants to do it," Kudrin said.

"They (the managers) will not get out of it, because it is not those officials that make the decisions, but the government. The government has on the whole decided on this issue...I do not think that the opinions of individual managers will change the position of the government."

The selloff would be Russia's biggest move on privatization since the 1990s. But some analysts have expressed doubts that stakes in the big firms really will be on offer after previous promises failed to materialize.

"Now the situation on the whole is favorable for the sale. But ... volatility will be high for now on global markets, including on Russian assets. If there is a big fall, of over 20 percent, then we will have to think (again)," Kudrin said.

This time around though the government needs the cash to plug a budget deficit and to enable it to keep social spending high as Russia heads into the 2012 presidential elections.

KEY TO KEEPING PACE

Privatization is a key step toward modernizing the Russian economy and ensuring that in the future it can catch up with the fast pace of growth seen in other emerging markets, Kudrin said.

VTB, Russia number two bank, wants to be the first on the privatization list, CFO Herbert Moos told the summit.

And investment banks are queuing up in the hope of sharing up to $1.5 billion in fees, said Andrew Cornthwaite, the head of investment banking at Renaissance Capital, one of those seeking a mandate.

The earlier privatizations got a bad name when trophy assets were sold cheaply to a handful of businessmen, prompting accusations of corruption and dubious business practices.

"The word 'privatization' has become a swear word in this country. I already participated in this and nobody is praising me for it," Vladimir Potanin, billionaire founder of Interros, told Reuters.

"Let the young ones drink from the chalice of privatization."

Potanin is still locked in a bitter battle over the ownership of Norisk Nickel, the world's largest producer of nickel and palladium, with Oleg Deripaska, the chief executive of RUSAL, the world's biggest producer of aluminum.

And comments made by Potanin, Deripaska and Norilsk Nickel's chief executive Vladimir Strzhalkovsky at the Reuters summit made clear that the battle is far from over.

RUSAL, which owns around 25 percent of Norilsk, accuses the world's largest producer of nickel and palladium of inept management and waste, and says it has the right to a major dividend payment.

The management, backed by Potanin's Interros consortium, in turn accuses Deripaska of trying to bleed cash-rich Norilsk to pay off RUSAL's debts of more than $12 billion, the largest of any non-state company in Russia.

"Oleg needs either to get accustomed to the fact that he is a large but minority shareholder or he, in the interest of RUSAL, conducts a sale," Potanin said at the summit.

Foreign investors in Russia such as Wermuth Asset Management chief executive Maarten van den Belt also do not expect a speedy end to the battle.

"If you start a conflict in Russia you had better be prepared for a rough ride," he said, adding words of advice for foreign investors: "You have to know your place here, you need to know what you can do and what you can't."

(For more on the Reuters Russia Summit, see)

(Reporting by Dasha Korsunskaya, Toni Vorobyova, Steve Gutterman, Alexei Kalmykov, Lidia Kelly, Michael Stott, Mike Dolan, Sitaraman Shankar and Dmitry Zhdannikov; Writing by Sitaraman Shankar; Editing by Greg Mahlich and Andrew Callus)