Page 55 - RusRPTMay19

payments pegged to money-market rates, so-called floaters.
6.1.3 Budget dynamics - privatisation
Privatization rules are changing. A law recently passed by the Duma and the Federation Council requires that local privatization occur at an open internet auction organized by one of 23 approved consultants. This law will completely change the way local privatization is handled. Most local privatization auctions are handled by government agencies or unitary enterprises (corporations that are wholly owned by the state). Auctions happen in-person or by the submission of sealed bids — a process notorious for corruption. These procedures are not working, as demonstrated by the small percentage of items put up for auction that are actually sold. The new law will make sure that auctions are run in a professional and transparent manner, and will make local sales available to anyone in Russia through the internet platform. Hopefully, this initiative will both reduce corruption and increase budget revenues for local governments. In 2016, 107 blocks of shares and 26,000 objects were put up for sale in privatization auctions, but only 9 blocks of shares and 495 objects were actually sold. Previously, 72% of privatization auctions were run by government agencies themselves, with the rest run by corporations under their control. Among the 23 approved consultants who will now run auctions are VEB Capital, VTB Capital, Gazprombank, Sberbank CIB, and Russian Auction House.
6.1.4 Budget dynamics - regions
With the Russian public finances in rude health the government is moving to take tighter control of regional debt, the build up of which nearly caused a crisis only two years ago.
The State Duma Committee on Budget and Taxes is supporting a proposal by the Ministry of Finance to tighten control over expenditures and debts of the regions as part of an extensive overhaul of financial controls that has been put in place since the economic growth stalled in 2013.
The tax system has overhauled and the tax service been given a new IT system that saw the tax take increase by 20% in 2018, despite the fact that the tax burden remained largely the same. Likewise, the powers of the Audit Chamber, now headed by former Finance Minister Alexey Kudrin, have been expanded and given powers to inspect regional finances. And the IT revolution is continuing as IBS, Russia’s leading software company, is putting regional treasury operations into the cloud and vastly improving their efficiency, as IBS CEO Svetlana Balanova told bne IntelliNews in an exclusive interview last year.
Regional debt ballooned during the “silent crisis” years to the point where some regions had debt servicing costs equal to their entire revenues. At the same time the cash strapped government slashed loans and disbursements to the regions.
The regional debt problem is not going to go away as the Ministry of Finance estimates that regional debt will grow 1.3-fold in the next three years from the current RUB2.2 trillion ($33.2bn) to RUB2.9 trillion, Interfax reported on February 18 with reference to a presentation by the Ministry of Finance
55 RUSSIA Country Report May 2019 www.intellinews.com