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UPDATE 2-Russia's Medvedev puts state firms under scrutiny

* Kremlin to probe usefulness of state corporations

* Corporations active in banking, insurance, high tech

(Recasts with quotes, details, background, analyst comment)

MOSCOW, Aug 7 (Reuters) - President Dmitry Medvedev ordered prosecutors to investigate Russia’s state corporations on Friday, questioning the need for the powerful institutions championed by Prime Minister Vladimir Putin.

The state corporations, which enjoy privileged legal status, are part of the economic vision Putin enacted during his two terms as president. He touted them as engines of Russia’s development that will eventually be sold to the private sector.

On Friday, the Kremlin released a brief and toughly worded statement in which Medvedev ordered an official probe into these firms. “The President ordered (prosecutors) to present their proposals including on whether there are reasons to further use ... structures like state corporations.”

Putin oversaw the creation of a handful of state corporations in the last two years of his presidency, ensuring their easy access to budget money and strong political ties.

Political analysts have said these firms, fashioned from state assets at a time of huge budget surpluses, were used to get budget money out from under the finance ministry’s control and make spending more flexible.

The two largest and most visible are state bank VEB, which has been given the role of disbursing state aid and emergency loans amid the crisis, and Russian Technologies, an engineering conglomerate headed by Putin’s close ally Sergei Chemezov.

Since the start of last year, Russian Technologies -- which controls titanium major VSMPO-Avisma VSMO.MM and owns 25 percent of car maker AvtoVAZ AVAZ.MM -- has been handed control of more than 400 companies, many of them crippled by the financial crisis and indebted to state banks.

The trend has raised concern that the Kremlin’s tightening hold over the economy leaves private firms at a disadvantage to state giants.

Medvedev’s order to Prosecutor General Yury Chaika, who normally handles high-profile criminal probes, called on him “to pay special attention to general questions about how effectively (these firms) are using the state property transferred to them.”

NO STATE CAPITALISM

Although he has never suggested an official investigation, Medvedev has spoken out against state corporations in the past. Earlier this year, his advisors proposed legal amendments that would strip these firms of their privileged status and ban the creation of new ones.

But last month, Medvedev signed a law creating a new state corporation, Avtodor, which will develop the toll road industry.

In his final news conference as president last February, Putin said such firms would be privatised some years after their creation, and has insisted that they are not a sign of permanent “state capitalism”.

Some analysts suggested that Medvedev’s order on Friday was aimed at finding extra revenues amid the economic crisis rather than challenging the legacy of Putin, with whom Medvedev rules Russia in a so-called “tandem” power-sharing arrangement.

“When the state of the budget is one of the sore points for the Russian economy, such measures are directed at finding extra sources of financing in case oil prices fall,” said Yaroslav Lissovolik, chief strategist at Deutsche Bank in Russia.

Roland Nash, head of research at Renaissance Capital, Russia’s largest investment bank, said the order was part of Medvedev’s anti-corruption drive. “He has talked constantly about cleaning up Russia, and a very good place to start would be the state corporations,” Nash said.

The list of such firms also includes the secretive arms trader Rosoboronexport, nanotechnology company Rosnano, nuclear agency Rosatom, development corporation Olympstroi, as well as the United Shipbuilding Co and the Deposit Insurance Agency. (Additional reporting by Toni Vorobyova, editing by Michael Stott and Andrew Roche)

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