Russian government slashes privatization targets

Russian President Vladimir Putin speaks at a news conference at the presidential summer residence Kultaranta in Naantali June 25, 2013.

MOSCOW (Reuters) - The Russian government halved its privatization target for next year on Thursday, as Kremlin officials loyal to President Vladimir Putin tightened their grip on economic policy.

The revised privatization agenda rolls back a $50 billion, multi-year drive to dispose of state assets that was launched in 2010 by reformist former Finance Minister Alexei Kudrin but has been only fitfully implemented.

That sell-off plan set the high-water mark of Dmitry Medvedev's liberal four-year presidency. Putin's return to the Kremlin in May 2012, in a job swap with Medvedev, has slowed the pace of reforms in Russia's $2 trillion economy to a near halt.

Privatization revenues have repeatedly fallen short of target, although the state did raise more than $5 billion last autumn from the sale of a stake in Sberbank (SBER.MM), Russia's largest bank.

Disenchanted investors have since sent Russian stocks down to a valuation discount of around a half to other big emerging markets. The benchmark RTS index .IRTS has fallen by 18 percent in the current year to date.

That, in turn, makes selling off the legacy of the Soviet command economy an unappealing prospect for the Kremlin.

"The current state of financial markets is such that it would, with rare exceptions, be impossible to avoid lasting damage from selling stakes in these companies," Olga Dergunova, head of the State Property Agency, told ministers.

Dergunova slashed her privatization revenue forecast for 2014 to 180 billion roubles ($5.5 billion). This year's privatization revenues are likely to reach 60 billion roubles, or 14 percent of their original target.

The main sell-off penciled in for 2014 is a stake in former fixed-line monopoly Rosteleсom (RTKM.MM), which is being groomed to compete with Russia's three main private mobile operators - MTS (MBT.N), Megafon (MFON.MM) and Vimpelcom (VIP.N).

Rostelecom is widely tipped to be the ultimate buyer of Tele2, the fourth-largest player on Russia's mobile market that was recently bought by state bank VTB (VTBR.MM).

KREMLIN INC

While fiscal stability is assured for now by triple-digit prices for oil, Russia's main export earner, creeping state expansion into the economy is sapping growth, which slowed to a four-year low of 1.8 percent in the period from January to May.

The biggest business deal since Putin's return to the Kremlin has been a de facto nationalization - state oil major Rosneft's (ROSN.MM) $55 billion takeover of Anglo-Russian oil venture TNK-BP.

State capitalists like Rosneft CEO Igor Sechin, long-time ally of Putin, oppose privatization - including of his own company.

"With the economy struggling to grow ... a more vibrant private sector is critical to nourishing the proper environment that would be conducive to stimulating growth," said Ivan Tchakarov, chief Russia economist at investment bank Renaissance Capital.

"In that sense, the Economy Ministry proposal does not exactly elicit bright visions about medium-term sustainable economic development."

The revised privatization program contains no firm dates for sell-offs, reduces the size of stakes to be put on the block and ensures that the state will keep majority control of most of its prized assets.

In 2015, a further stake is due to be sold in bank VTB (VTBR.MM), which raised $3.3 billion in a recent rights issue.

In her presentation, Dergunova retreated from the idea of placing stakes in some large state companies on the stock market.

Instead, she proposed selling shares in Russian Railways and state oil pipeline monopoly Transneft (TRNF_p.MM) either to the state pension fund or to the National Welfare Fund, where windfall oil revenues are saved to cover future pension costs.

($1 = 32.9664 Russian roubles)

(Writing by Douglas Busvine; editing by Stephen Nisbet)