Section 6. Institutional changes Текст научной статьи по специальности «Экономика и бизнес»

Section 6. Institutional changes

6.1. Federal property and privatization policy1

6.1.1. Federally owned companies and organizations: quantitative changes

2016 saw first publication of data from a performance measures framework for federal property management that was adopted on January 29, 2015 by Russian Government's executive order No. 72 in lieu of performance measures for a public sector monitoring conducted by Rosstat in the early 2000s in pursuance of the Russian Government's executive order No. 1 dated January 4, 1999 (as further amended on December 30, 2002). The performance measures framework contains data for the number of federal state unitary enterprises (FSUEs) and joint-stock companies (JSCs) with government equity participation that were previously published in privatization programs over a 3-year period (since 2011) and one-year period (prior to 2011). A new Forecast Plan (Program) for Federal Property Privatization and Guidelines for Federal Property Privatization for 2017-2019 adopted early in 20172 contains data dated only as of early 2016 (Table 1). As of early 2017, according to the Report of the Federal Agency for State Property Management (hereinafter Rosimushchestvo) on the implementation of privatization program for 2017-2019, the Russian Federation owned 1108 FSUEs and held an interest of 11 and 17 percent in 1416 JSCs and LLCs, respectively, marking a decline from the previous year's number of economic agents with the same legal form of business. However, developments and processes that took place in 2017 only can be described using data from the performance measures framework for federal property management.

As of July 1, 2017, the Russian Federation owned 1247 JSCs and held a full ownership interest in 1058 FSUEs, 53 federal treasury enterprises (FTEs) and 16244 federal government agencies (FGAs). According to annualized data, the number of FSUEs dropped 320 (more than 23 percent), the number of JSCs with government equity participation fell 324 (more than 20 percent), the number of federal government agencies was down 746 (or 4.4 percent). Furthermore, the number of FTEs increased 12.8 percent. In absolute terms (6 units), however, the increase is difficult to compare with the decline in the number of economic agents with

1 This section is written by Georgy Malginov, the Gaidar Institute, RANEPA; Alexander Radygin, the Gaidar Institute, RANEPA.

2 See the Gaidar Institute's previous review: Russian Economy in 2016: Trends and Outlooks (Issue 38). M., 2017, pp. 357-360.

other types of ownership related to federal property. The same is true for JSCs in which a golden share was used (which gives its holder the power to participate in corporate governance) whose number dropped nearly 5 percent (or by 4 JSCs). Changes that influenced FTEs and JSCs with a golden share took place mostly in H1 2017. Changes over a shorter timeframe in the number of entities with basic types of ownership were as follows: the number of unitary enterprises declined 15 percent, shareholding companies were down 8 percent, government agencies slid 3.6 percent.

Table 1

Federally owned companies and organizations registered with federal property register and performance measures framework for federal property management,

2010-2017

Number of shareholding companies with federal Number of other federal property

Date equity participation owners

Equity participation / of which JSCs golden share in absence of equity participation FSUEs FTEs FGAs

As of January 1, 2010 3066/2950b 3517b

As of January 1, 2013 2356/2337b 1800/1795b 72 20458

As of January 1, 2016 1557/1704b 88/64c 1488/1247b 48 16194

As of April 7, 2016B 1683/1620d 1236 48 16726

As of July 1, 2016 1571 82 1378 47 16990

As of January 1, 2017 1356/1416e 81 1245/1108e 48 16846

As of July 1, 2017 1247 78 1058 53 16244

a golden share is not accounted in the register but mentioned in Rosimushchestvo's documents as part of data on government equity participation;

b the number of JSCs and FSUEs according to data from privatization programs for 2010-2013, 2014-2016 and 2017-2019 (the latter contains data based on OKVED classification (Russian Classifier of Economic Activities) that refer to companies with an interest owned by the federal government); c according to data from the federal property register;

d the numerator shows total corporate entities including ZAOs (closely-held companies) and OOOs (LLCs), the denominator shows equity participation (the difference is supposedly represented by the number of JSCs with a golden share which is not explicitly specified);

e according to data from The 2017 Report on Execution of the Forecast Plan (Program) for Federal Property Privatization for 2017-2019.

Source: The Forecast Plan (Program) for Federal Property Privatization and Guidelines for Federal Property Privatization for 2011-2013; The Forecast Plan (Program) for Federal Property Privatization and Guidelines for Federal Property Privatization for 2014-2016; www.economy.gov.ru, April 23, 2013; The Rosimushchestvo's Performance Report for 2015 ; The Forecast Plan (Program) for Federal Property Privatization and Guidelines for Federal Property Privatization for 2017-2019; Statistical data no The performance measures framework for federal property management, www.gks.ru, March 20, 2016, September 05, 2016; March 20, 2017, September 05, 2017; The Report on Execution of the Forecast Plan (Program) for Federal Property Privatization 2017-2019 in 2017.

Shareholding companies in which the federal government owns an interest are best characterized by Rosimushchestvo's year-end reports regarding the management of federally owned equity shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies that are published since 2012.

According to data from the Federal State Information and Analytical System "Unified State Property Management System (FSIAS USPMS) as of August 01, 2017, the federal property register contained data on 1298 JSCs with an interest owned by the federal government, including 78 JSCs in which the federal government holds a golden share.1

1 The 2016 year-end report on the management of federally owned shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies.

Rosimushchestvo, however, could fully exercise shareholder rights with respect to only 529 out of 1298 JSCs (40.8 percent compared with 46.1 percent as of summer 2016 and 52.1 percent as of summer 2012); therefore, past year's changes followed the trend since 2014 towards continuous contraction of the percentage share of companies where Rosimushchestvo can fully exercise shareholder rights.1

The rest of 769 companies were:

- JSCs with shareholder rights transferred on the federal government's behalf to other federal executive authorities and federally owned corporations (e.g., to the Ministry of Defense of Russia, GC Rostec, Rosatom, or a deed of trust was concluded with such JSCs) (306 JSCs, or 23.6 percent of total JSCs);2

- JSCs in which the federal government owned an interest of less than 2 percent, where under Chapter 1, Article 53 of Federal Act No. 208-FZ 'On Joint-Stock Companies' dated December 26, 1995 the shareholder is not entitled to put matters on the agenda of a general meeting of shareholders) (276 JSCs, or 21.3 percent of total JSCs);

- JSCs in bankruptcy proceedings (135 JSCs, or 10.4 percent of total JSCs);

- JSCs in liquidation, reorganization (36 JSCs, or 2.8 percent of total JSCs);

- JSCs in which the Russian Federation had de facto no ownership interest (e.g., federally owned shares were previously privatized, contributed to the equity of vertically-integrated companies (hereinafter VICs) or in the stage of federal ownership registration) (16 JSCs, or 1.2 percent of total JSCs).

Data on recent years' changes in the population of JSCs where Rosimushchestvo's shareholder rights were restricted, including the grounds for restrictions, are presented in Table 2.

The first thing to be noted is that the absolute number of JSCs where Rosimushchestvo's shareholder rights are restricted decreased by more than 10 percent (or nearly 90 JSCs) from 2016, marking the deepest annual decline since 2013, which was caused primarily by a more than 1/5 decline in the number of JSCs in which the federal government owned a minority interest of less than 2 percent. The number of companies in bankruptcy proceedings decreased by 15 (or by one tenth) and of those in liquidation and reorganization by 12 (or by one fourth).

Table 2

Quantity and structure of joint-stock companies with government equity participation where Rosimushchestvo's shareholder rights are restricted, 2012-2017

1 The absence of restrictions on Rosimushchestvo's shareholder rights does not necessarily mean that sector-specific federal executive authorities involved in the process on a common basis have no corporate governance powers in respective companies, based on the division of powers set forth in the Provision of Federally Owned Shares in Joint-Stock Companies and the Russian Federation's Golden Share (Participation in Corporate Governance) in Joint-Stock Companies (adopted by Government Executive Order No. 738 dated December 03, 2004).

2 Making a single group of JSCs where shareholder rights on the government's behalf are transferred to other than Rosimushchestvo federal executive authorities, government corporations (GCs) and trustees does not seem quite correct because one of the base characteristics of GCs as corporate entities falling into the category of not-forprofit institutions under the Russian legislation is GC's ownership of their assets/properties, which by and large must include federally owned shares transferred to them in the form of asset contribution.

Total Government interest is less than 2 percent Shareholder rights transferred to other entities In bankruptcy proceedings In liquidation Government has no ownership interest

quantity as a percentage of total JSCs quantity as a percentage of total JSCs quantity as a percentage of total JSCs quantity as a percentage of total JSCs quantity as a percentage of total JSCs quantity as a percentage of total JSCs

As of August 01, 2012

1258 1 47.9 1 434 | 16.5 | 387 | 14.75 | 156 | 5.95 | 55 | 2.1 | 226 | 8.6

As of August 01, 2013

988 42.3 465/ 1346 19.95 316 13.55 145 6.2 59 2.5 3 0.1

As of July 7, 2014

949 45.3 436/ 78b 20.8 302 14.4 146 7.0 57 2.7 8 0.4

As of August 01, 2015

884 47.4 373/ 75b 20.0 291 15.6 151 8.1 60d 3.2 9 0.5

As of August 01, 2016

858 53.85 349/ 61b 21.9 297 18.65 150 9.4 48d 3.0 14 0.9

As of August 01, 2017

769 59.25 276/ 60b 21.25 306 23.6 135 10.4 36d 2.8 16 1.2

a under Chapter 1, Article 53 of Federal Act No. 208-FZ 'On Joint-Stock Companies' dated December 26, 1995 the shareholder is not entitled to put matters on the agenda of a general meeting of shareholders; b the denominator shows the number of JSCs in which the Russian Federation concurrently holds a golden share (participation in corporate governance);

c other government executive authorities, federally owned corporations, or there were trust deeds in effect; d including JSCs under reorganization;

e in which the Russian Federation held de facto no ownership interest (federally owned shares were previously privatized, contributed to the equity of vertically-integrated companies, issue of shares is not registered, cessation of business due to liquidation or reorganization), but the data was on the stage of registration with the register. Source: Rosimushchestvo's 2011-2016 year-end reports on the management of federally owned equity shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies, own calculations.

The number of JSCs in which shareholder rights were transferred to other entities, and in which the Russian Federation held de facto no ownership interest increased marginally, but in aggregate the increase (up 11 JSCs) was less in absolute terms than the decline in the number of JSCs in liquidation and reorganization. As a result, the JSCs where Rosimushchestvo's shareholder rights were restricted made up the biggest group of companies with shareholder rights transferred to other entities (23.6 percent), whereas in 2016, by contrast, the biggest group was comprised of JSCs in which the federal government owned an interest of less than 2 percent.

The decline in the share of companies in which the federal government had no full control was led not only by increase in the share of JSCs in which the federal government owned a minority interest of less than 2 percent, but also due to selected privatization priorities with regard to companies where Rosimushchestvo could fully exercise shareholder rights (Table 3).

Table 3

Dynamics of quantity and structure of shareholding companies by share of government equity participation and by inclusion in forecast privatization plans

in 2012-2017

Date Shareholding companies (JSCs and LLCs)

JSCs total interest, percent where government's interest comprises

lGG percent 5G-lGG percent 25—5G percent 2—25 percent

quantity percent quantity percent quantity percent quantity percent

As of August Gl, 2Gl2

- JSCs where Rosimushchestvo could fully exercise shareholder rights* 1371/ 2б29** 100.0 ВВб б4.б 7б 5.55 211 15.4 19В 14.45

As of August Gl, 2Gl3

- JSCs where Rosimushchestvo could fully exercise shareholder rights* 1345/ 2333** 100.0 В74 б5.0 В3 б.15 1В5 13.75 203 15.1

- JSCs included in forecast privatization plans*** 975 100.0 71б 73.4 41 4.2 11б 11.9 102 10.5

As of July 7, 2Gl4

- JSCs where Rosimushchestvo could fully exercise shareholder rights* 1147/ 209б** 100.0 709 б1.В бб 5.В 171 14.9 201 17.5

- JSCs included in forecast privatization plans*** В42 100.0 59б 70.В 3б 4.3 113 13.4 97 11.5

As of August Gl, 2Gl5

- JSCs where Rosimushchestvo could fully exercise shareholder rights* 9В0/ 1Вб4** 100.0 5В9 б0.1 55 5.б 142 14.5 194 19.В

- JSCs included in forecast privatization plans*** ббВ 100.0 4б9 70.2 1В 2.7 90 13.5 91 13.б

As of August Gl, 2Gl6

- JSCs where Rosimushchestvo could fully exercise shareholder rights* 735/ 1593** 100.0 4б9 б3.В 4В б.5 91 12.4 127 17.3

- JSCs included in forecast privatization plans*** 47В 100.0 33б 70.3 14 2.9 5б 11.7 72 15.1

As of August Gl, 2Gl7

- JSCs where Rosimushchestvo could fully exercise shareholder rights* 529/ 129В** 100.0 325 б 1.4 3В 7.2 7б 14.4 90 17.0

- JSCs included in forecast privatization plans*** 27В 100.0 17б б3.3 11 4.0 51 1В.3 40 14.4

* exclusive of (1) JSCs where the federal government owned an interest of less than 2 percent, (2) JSCs where shareholder rights on the federal government's behalf were executed by other entities (other government executive authorities, federally owned corporations, or under fiduciary management agreements), (3) JSCs in bankruptcy (in bankruptcy proceedings), (4) JSCs in liquidation, (5) JSCs in which the Russian Federation had de facto no ownership interest (federally owned shares were previously privatized, contributed to the equity of vertically-integrated companies);

** the denominator shows total number of JSCs according to data from the federal property register;

*** including only those in which Rosimushchestvo could fully exercise shareholder rights. Source: Rosimushchestvo's 2011-2016 year-end reports on the management of federally owned equity shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies; own calculations.

Table 3 presents data showing growth drivers in the share of companies where the federal government had no full control due a small government ownership interest. The point is that within the population of shareholding companies in which Rosimushchestvo (The Federal Agency for State Property Management) could fully exercise shareholder rights, the share of shareholding companies with federal government's full, controlling and blocking interest were included in privatization programs of 2011-2013 and 2014-2016 is generally bigger than the share of companies in which the federal government owned a minority interest. Forecast privatization plans included not more than half of the latter, 80 percent and more of companies in which the federal government owned a controlling interest, approximately 50 percent and more of companies in which the federal government owned a majority interest,1 and more than 60 percent of companies in which the federal government held a blocking interest (Table 4).

Table 4

Share of JSCs, covered by forecast privatization plans, of total shareholding companies where Rosimushchestvo could fully exercise shareholder rights, by amount of government ownership interest, 2012-2016, percent

Date Full interest (100 percent) Controlling interest (50-100 percent) Blocking interest (2550 percent) Minority interest (225 percent)

As of August 01, 2013 81.9 49.4 62.7 50.2

As of July 07, 2014 84.1 54.5 66.1 48.3

As of August 01, 2015 79.6 32.7 63.4 46.9

As of August 01, 2016 71.6 29.2 61.5 56.7

As of August 01, 2017 54.2 28.9 67.1 44.4

Source: Rosimushchestvo's 2011-2016 year-end reports on the management of federally owned equity shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies, own calculations.

The said trend saw a minor correction in 2016. The share of companies (covered by the privatization program) in which the federal government owned a minority interest more than doubled (approximately 57 percent), which was less than the share of companies in which the federal government owned a controlling interest (nearly 72 percent) and a blocking interest (61.5 percent), whereas the share of companies in which the federal government owned a majority interest was less than 30 percent. The 2017 ratio was approximately the same between the groups of companies. However, the percentage of JSCs (covered by a new forecast privatization plan) in which the federal government owned a minority interest came out to be the smallest in five years (44.4 percent). Furthermore, although the share of JSCs with a government full ownership interest dropped noticeably, it stood above 50 percent (54.2 percent). By contrast, the share of blocking ownership interest came out to be the biggest (more than 2/3).

An examination of data from the performance measures framework for federal property management, including but not limited to federal level, provides the following results (Table 5).

Table 5

Number of public-sector organizations registered with Rosimushchestvo, including its local branches, and with federal property managers of subjects

1 Excluding 2015, when the share of companies (covered by the privatization program) with a federal government majority ownership stood at 1/3 or less.

of the Russian Federation in 2013-2014 and number of economic agents relating government property, 2016-2017 (according to state registration data)

by legal form of business

Date Total SUEs including federal treasury enterprises Government agencies Shareholdin g companies

with government ownership interest of more than 50 percent in which public-sector shareholding companies have ownership interest of more than 50 percent

as of January 1, 2013 67003a 4891 56247 3501 2364

As of July 1, 2013 66131a 4589 56100 3201 2241

as of January 1, 2014 64616a 4408 54699 3097 2412

As of July 1, 2014 63635a 4236 54173 2988 2238

as of January 1, 2016 65587b 4284 56693/56649c 3888d

As of July 1, 2016 65218b 3982 56893/56856c 3718d

as of January 1, 2017 64457b 3719 56548/56507c 3532d

As of July 1, 2017 62655b 3294 55414/55361e 3353d

a including organizations whose state-registered articles of association do not provide specific types, but exclusive of joint-stock companies in which an interest of more than 50 percent is jointly owned by the federal government and foreign companies;

b including economic agents with a legal form of business other than unitary enterprises, government agencies and shareholding companies (workmen's cooperative associations and consumer cooperatives, associations (unions), condominium associations, funds, public not-for-profit organizations, etc.);

c exclusive of national science academies and private institutions that are not classified as institutions under the new Framework but must be excluded to ensure a correct comparison;

d total number of shareholding companies regardless of the amount of government's ownership interest (equity participation), data on the number of shareholding companies with a controlling interest owned by the federal government are only available for JSCs with an interest owned by the federal government; e total institutions established by the Russian Federation and subjects of the Russian Federation (excluding national science academies and private institutions that under the new Framework are classified as institutions but must be excluded to ensure a correct comparison).

Source: The Development of Public Sector of Economy in the Russian Federation in 2012 (pp. 7-11), in H1 2013 (pp. 7-11), 2013 (pp. 7-11), in H1 2014 (pp. 7-11), M., Rosstat, 2013-2014, Statistical data on indicators for efficient management of federally owned property, www.gks.ru, March 20, 2016, September 05, 2016, March 20, 2017, September 05, 2017.

The total number of economic agents in federal ownership, under the new framework, stood at about 62.7 thousand by mid-2017, approximately 2.6 thousand (or by 4 percent) less than previous year's number and approximately 1 thousand less than that reported in mid-2014.1

The number of unitary enterprises decreased from mid-2016 by approximately 700 (or more than 17 percent) for certain categories of economic agents, by more than 350 (or nearly 10 percent) for shareholding companies, by nearly 1.5 thousand (or by 2.6 percent) for government agencies. However, the number of government agencies by mid-2017 still remained bigger than 3 years ago.

An examination of the dynamics over a shorter timeframe shows that in H1 2017 the number of unitary enterprises decreased by 11.4 percent, shareholding companies by more than 5 percent, government agencies by 2 percent.

6.1.2. Privatization policy

The Forecast Plan (Program) for Federal Property Privatization and Guidelines for Federal Property Privatization for 2017-2019 adopted by Russian Government's executive order

1 Although the recent public sector development bulletin was released for the period of January-September 2014, the semiannual data dated as of July 01, 2014 also can be applied to a medium-term analysis.

No. 227-r dated February 08, 2017 kicked off in the previous year. This was the third privatization program developed given an extension of the scheduled period (from 1 to 3 years) of the Forecast Plan (Program) For Federal Property Privatization based on the spring-2010 amendments to the existing Privatization Act. Updates and amendments were not made on a regular basis. A total of 15 laws and regulations containing amendments were adopted in 2017 (22 in 2014), when the previous 3-year program kicked off, plus three in December 2013).

As a reminder, the new privatization program included seven companies whose privatization was based on special decisions of the Russian President and the Russian Government with due regard to market trends and recommendations of lead investment consultants, including four companies (АО NCSP Group (NCSP), United Grain Company, Prioksky Non-Ferrous Metals Plant (PNFMP), Kristall Production Corporation) in which the federal government plans to cease to hold its stake, and three companies in which the federal government plans to reduce its stake: to 29 percent plus one share in ALROSA and to 25 percent plus one share in Sovkomflot and VTB Bank (PAO). However, no information on pending deals for the companies is available, except that deals were preliminary announced for VTB Bank (PAO), Sovkomflot and NCSP.1 In his interview in Q1 2018 Head of Rosimushchestvo Dmitry Pristanskov said preparations were underway with regard to Sovkomflot and United Grain Company (the latter is being worked out jointly with The Ministry of Agriculture of Russia), whereas a VTB deal was not on the table yet.2

2017 saw the completion of consolidation of Vnukovo and Sheremetyevo airports that was launched under the previous privatization program of 2014-2016. In late spring 2017, АО Sheremetyevo International Airport (hereinafter АО SIA) was finally reorganized through merger of АО Sheremetyevo Airport to which the federal government previously contributed 83.04 percent of its interest in АО Sheremetyevo International Airport (SIA). The federal government's interest (30.43 percent) in the consolidated operator entered into the list of strategic JSCs. In early fall 2017, the reorganization of AO Vnukovo Airport, AO Vnukovo Invest and OOO AVIATECHINVEST was completed through merger with AO Vnukovo International Airport in which the federal government owns an interest of slightly more than 25 percent.

Apart from that, the year-end results are as follows. According to data from the Federal Budget Execution Progress Report dated as of January 1, 2018 (by source of federal budget deficit internal financing) that was published on the official website of the Federal Treasury of Russia, proceeds from disposition of shares and other forms of equity participation of the federal government amounted to RUB 14284.5 million, that's more than double the federal budget revenues from privatization forecast in the privatization program (RUB 5.6 billion annually, excluding equity shares in biggest companies).

More than half of the amount (RUB 8531.7 million) came from the implementation of Russian Government's executive orders No. 1430-r dated September 02, 2010 and No. 1172-r of June 09, 2016 as well as the terms and conditions stipulated by the Sub-agreement of June 23, 2016 to the Agreement of October 9, 2010 between Rosimushchestvo and PAO FC Sistema concerning a hire purchase (within five years) of USD 777 million worth of 547,312,918 federally owned equity shares in Shyam Teleservices Ltd., a joint venture between Russia-based Sistema Group and Shyam Group of India whose ordinary shares, due to an increase in its equity by a total amount (in Indian Rupees) equivalent to USD 600 million, were

1 www.rosim.ru, January 26, 2017.

2 www.rosim.ru, February 28, 2018.

acquired by the Russian Federation in 2010 under a Russia-India agreement expanding the use of money coming from India's repayment to the Russian Federation for loans that India obtained from the former Soviet Union and from the Russian Federation in 2007, and The Federal Budget Act of 2010-2012. The above deal involving an asset not covered by the existing privatization program became the only deal outside the scope of standard privatization procedures. It is difficult to comment on the deal because assets of this type (with government equity participation in joint ventures) were seldom privatized. Putting aside behind-the-scenes details, the only thing to say is that the amount (more than RUB 8.5 billion) received by the federal government is less than one fifth of USD 777 million, at the exchange rate quoted as of end-June 2016.

Excluding the above amount, RUB 5.19 billion worth of 46 shares (interests) in shareholding companies (JSCs) were sold In 2017, and decisions on terms of privatization were made with regard to 18 federal state unitary enterprises (FSUEs). The number of sold shares (interests) in shareholding companies was almost one fourth as much as that (179) in 2016, below the pre-crisis level of 2009 (52 companies), the lowest in the 2000s. More than three thirds (36) of the overall sold shares were specified in tender announcements made back in 2016. The amount of deals (RUB 5.19 billion) fell less dramatically (45 percent) but was below annual figures posted over the previous three years (RUB 8.0 billion in 2014, RUB 7.3 billion in 2015, RUB 9.5 billion in 2016). The number of privatized FSUEs also came out to be less than the lowest amount (26) seen in 2013 (Table 6).

Table 6

Comparative data on dynamics of privatization of FSUEs and federally

owned shares, 2008-2017

Period Number of privatized federally owned enterprises (federal property) (according to data from Rosimushchestvo)

Privatized FSUEs, quantity sold equity shares in JSCs, quantity sold federal treasury properties, quantity

2008 213 209b

2009 316+256c 52b

2010 62 134b

2008-2010 591+256° 395b d

2011 143 317e/359b 3

2012 47f 265f 40

2013 26 148f 22

2011-2013 216 730* 65

2014 33 107e 12

2015 35g 103e 38

2016 60g 179e 282

2014-2016 12 5g 389 332

2017 18 46b 77b

a all preparatory works were completed and decisions on terms of privatization made; b including shares (incl. federal treasury properties for 2017) announced for sale in the previous year;

c the number of FSUEs where the public-offer decision was made by the Ministry of Defense of Russia in addition to those where the same decision was made by Rosimushchestvo;

d the available information on disposition of other assets in the specified period is reduced to four military immovable properties in the period between October 2008 and January 2009, as well as decisions made on terms of privatization and on publication of tender announcements in late 2010, for which bidding results were summarized in 2011;

e excluding disposition of shares with investment consultants' assistance;

f estimated value based on data from the Rosimushchestvo's Report on Execution of the Forecast Plan (Program) For Federal Property Privatization 2011-2013 with regard to the total number (216) of FSUEs where executive orders on terms of public-offer privatization were issued in 2011-2013, and on the year-end data for 2011 and 2013;

g with regard to certain enterprises where decisions on terms of privatization were revoked in 2015-2016 and then made again; therefore the total number of FSUEs where privatization decisions were made during three separate years is somewhat bigger than that shown in the tabular year-end data for 2014-2016 (125). Source: Rosimushchestvo's Performance Report in 2008; Report on Execution of the Forecast Plan (Program) For Federal Property Privatization 3a 2009, M., 2010; Ministry of Economic Development's Final Report for Federal Property Privatization in 2010; The Ministry of Economic Development's 2011 Final Report for Federal Property Privatization; The Report on Execution of the Forecast Plan (Program) For Federal Property Privatization 2011-2013; The Report on Execution of the Forecast Plan (Program) For Federal Property Privatization 2014-2016 in 2014, www.rosim.ru, February 19, 2015; The Report on Execution of the Forecast Plan (Program) For Federal Property Privatization 2014-2016 in 2015, www.rosim.ru, February 08, 2016, Report on Execution of the Forecast Plan (Program) For Federal Property Privatization 2014-2016 in 2016; The Report on Execution of the Forecast Plan (Program) for Federal Property Privatization 2017-2019 in 2017.

The biggest deal was disposition of 100 percent interest (RUB 1515 million) in AO Shyolkovsky Factory of Secondary Precious Metals (Moscow Oblast). The deal was conducted by AO The Auction House of the Russian Federation (AHRF), including four bidders that took 602 steps to raise the price by one fourth to RUB 301 million.1 The top-5 sales also included a Moscow-based printing house (RUB 1115.5 million), Novosibirsk Refinery Plant (RUB 880 million), Skochinsky Mining Institute (Moscow Oblast, RUB 354 million), Moscow Central Multi-Corporate Enterprise of Construction Engineering Research (RUB 202.2 million). Therefore, more than 60 percent of revenues from standard disposition of equity shares in JSCs operating within the Moscow metropolitan area, where real-estate ownership per se provides ample income opportunities apart from (or instead of) core business activities.

Disposition of 17 shares (out of the 65 shares offered) worth RUB 4.84 billion (93.3 percent of total revenues) in AO RAD contributed most to the final outputs. The 2017 year-end total amount of deals is comparable with that (RUB 5.3 billion) seen in 2015, but the number of sold shares halved (17 from 34). Final results of disposition of equity shares in 38 JSCs including 20 JSCs whose shares were sold by independent sellers (AO RAD, OOO VEB Capital) are expected to be summarized in Q1 2018.

In 2017, the number of sold federal treasury properties (77), which, like in the previous year, was bigger than the number sold shares (interest) in shareholding companies, decreased by nearly 3.7 times from 2016 (282), doubling the number (38) seen in 2015. Similar to shares (interests), however, the overwhelming share (67) of sold properties included properties announced for sale in 2016.

At the same time, announcements of disposition of 204 properties were published in 2017, 10 of which were sold, whereas bidding for 69 properties was declared void, and sales results for another 125 are to be summarized in Q1 2018. Therefore, excluding the most recent large group, the sales were less than 13 percent successful. Total amount of deals decreased by 4.5 times (to RUB 282.67 million). Unlike with shares (stakes), independent sellers play a supplementary role in selling federal treasury properties. AO RAD sold only 9 (RUB 28.60 million) out of the 56 properties it was entitled to sell, thereby contributing only 10 percent to the final outputs.

In 2017, Rosimushchestvo took measures to establish and expand 13 vertically-integrated companies in pursuance of Russian President's executive orders (18) and Russian Government's decisions (6) on the establishment/expansion of vertically-integrated companies. In this respect, 36 FSUEs, equity shares in 44 JSCs and in 10 federal treasury properties were

1 www.rosim.ru, March 22, 2017.

included in the 3-year privatization program. As of 2016 year-end, decisions on terms of privatization were made for 14 FSUEs, 38 JSCs and one federal treasury property.

The last year's slump in privatization dynamics is explained in part by relatively late adoption of a forecast plan (program); therefore it was not until the middle of Q1 2017 that asset evaluation and presale preparations were started.

The key reason, however, was lack of adequate demand, particularly at local level, as was acknowledged by Rosimushchestvo's managers in the middle of the fall of 2017.1 Approximately 60 percent of failed auctions were due to lack of bids (126 out of 209 (total sales) in 2017). Most of the privatized assets were low liquid assets with restricted sales opportunities because of weak financial standing, pre-bankruptcy, lack of actual business operations, and a gap between offered prices and potential purchase estimates.

Transition to a new sales mechanism whereby sales arranger's services are paid by buyers (not out of the federal budget) and deals are conducted only in electronic format (via six platforms selected in late 2015) possibly played a certain role as well. Lots are distributed between them in an open manner, in random order at meetings of a core committee. In order to increase transparency, lots are distributed in presence of authorized representatives of each electronic platform as well as representatives of the Federal Antimonopoly Service of the Russian Federation (FAS) and the Ministry of Economic Development of Russia. Assets are sold in different formats in accordance with key forms of privatization (auctions, public offering and Dutch auctions). Natural persons and corporate entities across the country can participate in sales that are held on platforms well known for purchasers.

Neither the previous year's Federal Budget Act nor the 2018-2020 Federal Budget Act No. 362-FZ of December 5, 2017, including the schedules thereto, provide explicit information on the amount of revenues from privatization. In addition, an explanatory note to a federal government's bill specified revenues from federal property privatization and public borrowings as separate sources of financing of the federal budget deficit. As distinct from previous years' bills, the 2017 federal budget bill and some of the documents attached thereto contained data from the Forecast Plan (Program) For Federal Property Privatization that underpinned the forecast for federal budget revenues from privatization. The same data were provided in the explanatory note and in estimates for the breakdown of budget deficit sources of financing.

Federal budget revenues from federal property privatization are projected at RUB 13.0 billion in 2018, RUB 12.2 billion in 2019, RUB 11.4 billion in 2020. They will represent the least possible contribution to the federal budget deficit financing: revenues from privatization are projected at 1.7 percent of fundraising via public borrowings in 2018, 1.5 and 1.1 percent in 2019 and 2020, respectively. The values for 2018-2019 are less than forecast proceeds from disposition of federal property, excluding equity shares in biggest companies specified in documents attached to the Federal Budget Bill for 2017 and the Planning Period of 2018-2019 that was submitted by the Russian Government in fall 2017 (RUB 13.6 billion in 2018 and RUB 13.9 billion in 2019).

According to the 2017 outputs of the ongoing Forecast Plan (Program) For Federal Property Privatization, it's highly likely that the foregoing projection for revenues from privatization will be correct. According to data from federal budget reports, the amount of proceeds from disposition of shares and other forms of government equity participation (RUB 14.3 billion) is higher than the amount projected for 2018-2020.

1 www.rosim.ru, October 19, 2017.

The projected federal budget revenues from privatization are based on the Privatization Program for 2017-2019 adopted in early 2017 by Russian Government's executive order No. 227 that announced privatization of seven biggest companies in accordance with decisions of the Russian President and the Russian Government when establishing specific dates and procedures with consideration for market trends and recommendations of lead investment consultants. The Russian Government has made no decisions on disposition of blocks of equity shares in biggest companies in 2018-2020; therefore there are no projections for proceeds from disposition of such blocks of shares in 2018 and in the planning period of2019-2020, according to Rosimushchestvo.

6.1.3. Amendments to privatization laws and regulations

The past year was marked by major amendments to privatization laws and regulations.

In July 2017, the Privatization Act in force since 2001 underwent a drastic amendment regarding the list of purchasers of federal and municipal property (Article 5 thereof). The stop list of purchasers was extended. Prior to the amendment, only federal and municipal unitary enterprises and agencies, corporate entities in which the Russian Federation, subjects of the Russian Federation and municipalities own an interest of more than 25 percent, except when federal and municipal property are contributed to the charter capital of companies, could be deemed to be eligible to purchase federal and municipal property. Under the new amendment, purchasers also can be corporate entities registered in nations or territories included in the Finance Ministry's list of nations and territories that offer easy tax terms and/or do not disclose/provide information concerning financial operations (offshore zones) (hereinafter offshore companies)1, as well as corporate entities controlled by an offshore company or by a group of persons running an offshore company. The terms "group of persons" and "control" are applied within the meaning of Articles 9 and 11 of the Competition Protection Act 2006.

The federal government thus used in part its recently debated endeavors to tighten privatization regulations.2 New restrictions were imposed on purchasers of federal or municipal property announced for sale on the official website and defined since July 1, 2017 by the Russian Government3 in compliance with amendments to the Act 2008 Concerning Procedures for Foreign Investment in Economic Facilities of Strategic Importance for National Defense and Security (No. 57-FZ). According to Rosimushchestvo's representatives, the task set by the Russian President in early 2016 to find new owners of privatized assets within the Russian jurisdiction and to prevent further offshorization of the Russian economy was thus been accomplished. A legal mechanism is under elaboration to prevent, through disclosure of data on beneficiaries, "nominal" corporate entities from participating in privatization.4

Another last year's critical amendment was a provision adopted by Russian Government's executive order No. 748 dated June 26, 2017 with regard to selection of legal entities for

1 The list contains 40 countries. Cyprus, a traditional in recent 25 years source of pseudo-foreign investment for the Russian economy, was, however, removed from the list in 2012.

2 See Gaidar Institute's annual reviews: Russia's Economy in 2014: Trends and Outlooks (Issue 36). M., 2015, p. 393 and Russia's Economy in 2015: Trends and Outlooks (Issue 37). M., 2015, p. 388.

However, other proposed regulations regarding law-enforcement agencies' powers to check on bidders in privatization deals and the liability of valuators have not been enacted yet.

3 www.torgi.gov.ru

4 www.rosim.ru, October 18, 2017.

arranging on behalf of the Russian Federation disposition of privatized federal property and/or exercise the seller functions.

The cumbersome selection procedure includes decisions on selection and establishment of a selection committee, plus a two-stage selection procedure.

A pivotal role in the process is assigned to the Ministry of Economic Development which in pursuance of orders and instructions of the Russian President or the Russian Government decides to launch a selection procedure approved by an order specifying federally owned properties that are planned to be privatized, the composition (including not less than five members of the Ministry1) of the selection committee led by a chairperson in the capacity of deputy minister. Another essential role is assigned to the committee secretary in charge of collecting bids from corporate entities, drafting and publishing of tender announcements. Persons having personal interest in final selection results, or persons affiliated with bidders may not be members of the committee.

The selection committee shall take all decisions by open ballot recorded in the minutes thereto. Decisions shall be deemed taken when approved by more than half of the members votes cast. In the event of a tie, the chair of a committee meeting or, in his/her absence, the deputy chair shall be entitled to a casting vote.

Where selection is made with regard to federally owned properties specified in Section II of the privatization program and intended for disposition through auction, through public offering (if the auction is declared void), including in electronic format, the Ministry of Economic Development shall attach to its executive order information on disposition of such federally owned properties via specified channels. The property included in Section II of the Forecast Plan can be grouped into lots.

In pursuance of instructions and orders of the Russian President or the Russian Government, the Ministry of Economic Development may decide to terminate the selection procedure in any stage and publish a notice thereof on the Ministry's official website. Should corporate entities have questions regarding the selection procedure, they shall send their requests to the Ministry of Economic Development which shall respond thereto within three working days.

The initial stage of selection procedure includes collection of information on potential candidates for the purpose of federal property disposition and formalized comparison of their professional and qualification level on a score-based ranking.

Within 5 working days of the date of decision to start a selection procedure, the Ministry of Economic Development shall publish a notice thereof on its official website and send a letter of invitation by mail (the letter may be sent via e-mail or by fax) with attached draft agency agreement to be concluded with a corporate entity. Where the selection date is postponed, as shall be recorded in the minutes thereto, the selection committee shall publish a notice thereof on the Ministry's official website and communicate thereof to corporate entities by phone, fax or via e-mail.

Applications for participation in the selection procedure must be accepted within at least 15 calendar days. Corporate entities shall submit their applications in the manner and within the period prescribed by the notice published on the Ministry's official website and by the letter of invitation.

Corporate entity's application for participation in the selection procedure must include its obligations to: (1) sign an agent agreement with Rosimushchestvo; (2) conduct fair market

1 Rosimushchestvo's representatives can be engaged to participate in the committee.

valuation of federal property by a valuator under an agreement between the agent and the valuator on behalf and at the expense of the agent; (3) obtain on its own behalf and for its own account an expert report of a self-regulatory asset valuator on whether the market valuation report meets Russia's legal requirements and the valuation of equity shares is correct; (4) sign on behalf of the Russian Federation a purchase/sale agreement with purchasers of privatized federal property under the terms and conditions set forth in the agency agreement; (5) present a report on possible deal structuring that could maximize federal budget revenues.

Applications for participation in the selection procedure (apart from the attached letter of interest regarding organization on the federal government's behalf of disposition of privatized federal property and/or acting in the capacity of seller and documents authorizing a person in question to sign on behalf of the corporate entity an application for participation in the selection procedure) are based on information presented in two standard formats of presentation of information of interest1 signed by an authorized person. The information underpins corporate entity's scores in further ranking for selection purposes.

A corporate entity shall be liable for the authenticity of the information presented in the application for participation in the selection procedure. Where the information proves incorrect, the Ministry of Economic Development shall submit to the Russian Government a draft note to take the corporate entity off the list approved in 2010 and updated in 2017 (comprising 23 organizations). Corporate entities can modify or withdraw their applications, as shall be deemed valid at any period time before the expiration of the time limit for the submission thereof to the Ministry of Economic Development.

Envelopes with applications for participation in the selection procedure shall be opened at a meeting of the selection committee on the selection date specified in the notice thereof, as shall be recorded on the same date in the selection final protocol. Within 10 working days of the date of opening of envelopes with applications for participation in the selection procedure, the committee shall check on whether the applications meet the existing presentation requirements and corporate entities shall be ranked according to their scores.

Scores are determined (calculated) by indicators for the assessment of proposals of interest in two standard forms.

As prescribed by Form 1, scores are calculated by three blocks of indicators:

(I) corporate entity's qualifications and past experience;

(II) the composition of a team of corporate entity's personnel, as well as other natural and corporate entities engaged to participate in organization of disposition of property, that will prepare and organize the disposition of property;

(III) corporate entity's past experience in cooperation with government agencies.

A specific set of criteria is applied to each of the foregoing blocks. Bocks I and III refer to the number and the amount (USD in millions) of various deals in which a corporate entity was

1 Where selection concerns federal properties listed in Section II of the privatization program, information about a corporate entity shall be presented as prescribed by Form 2.

previously involved (as a global coordinator, bookrunner1 (underwriter)2, lead organizer, consultant3).4

Block I includes four criteria: (1) corporate entity's (preparation and management of) equity offering deals in international markets in recent 3 years5 (excluding its own shares); (2) preparation and management of deals involving equity shares in Russian companies in recent five years (excluding shares in the corporate entity)6; (3) preparation and management of deals involving equity shares and other securities of companies operating in the core industry of federal property7; (4) participation (if any) in managing deals involving equity shares and other securities of federally owned properties.8

Block III includes two criteria: (1) cooperation with foreign governments (or government agencies acting on the authority of foreign governments) in organization of privatization deals and/or equity/securities offering9; (2) cooperation with the Russian Government, administrations of subjects of the Russian Federation (or government agencies acting on the authority of such administrations) in organization of privatization deals or equity/securities offering in recent five years.10

Block II includes five criteria: (1) persons (3 or less) in charge of organization and coordination of deals at top level (senior managers) who can, among other things, attend meetings with the seller and the issuer; (2) industry-specific bankers (availability of bankers

1 Bookrunner is a firm involved in book building. The term is applied for investment purposes. Bookrunner can be underwriter, arranger and/or lead-manager, that is, normally an investment bank or company.

2 According to all the criteria set forth in Blocks I and III with regard to the role of bookrunner, the indicator for transaction volume per corporate entity must be calculated by dividing total transaction volume by the number of bookrunners involved in the deal.

3 According to all the criteria set forth in Blocks I and III, where the corporate entity is acting as consultant, all M&A deals for various groups of companies must be specified.

4 Only one role per deal can be specified. Only closed deals must be specified, and information must be based on data from independent rating agencies (Dealogic, Bloomberg (if no data available from Dealogic), Mergermarket (where information on M&A deals is presented) with obligatory reference to the source).

5 The role of global coordinator, or bookrunner (underwriter) in offering shares (of both Russian and foreign issuers) in international markets.

6 The role of global coordinator, or bookrunner (underwriter) in offering shares of Russian issuers (incorporated both in and outside Russia), consultant on M&A deals with Russian companies (incorporated in/outside Russia).

7 The role of global coordinator, or bookrunner (underwriter) in offering equity in companies operating in the core industry of federal property, lead arranger and/or bookrunner deals involving issuance of corporate bonds of companies operating in the core industry of federal property, consultant on M&A deals in the core industry of federal property.

8 The role of global coordinator, or bookrunner (underwriter) in corporate equity shares offering, lead arranger and/or bookrunner in corporate bonds offering. By contrast to the above criteria, there is no requirement to calculate the transaction volume for a specific corporate entity by dividing total transaction volume by the number of bookrunners involved in the deal. As to the role of consultant, all the M&A deals that were made in the interests of the company must be specified.

9 The role of global coordinator, or bookrunner (underwriter) in privatization via offering of equity shares and/or depository receipts directly owned by the federal government, in managing equity offering and/or depository receipts of companies with government equity participation (apart from securities directly owned by the government), the role of lead arranger and/or bookrunner in managing the issuance of sovereign bonds, consultant in privatization through mergers and acquisitions.

10 The role of global coordinator, or bookrunner (underwriter) in privatization via offering equity shares and/or depository receipts directly owned by the federal government, in managing equity offering and/or depository receipts of companies with government equity participation (apart from securities directly owned by the government), the role of lead arranger and/or bookrunner in managing the issuance of sovereign bonds, consultant in privatization through mergers and acquisitions.

specializing in the industry that will be involved in the deal); (3) specialists of equity capital markets (availability of specialists of equity capital markets that will be involved in the deal);1 (4) analytical unit (availability of personnel to provide analytical services for the company, sector-specific analysts of Extel and/or Institutional investor rankings); (5) specialists of trading in stocks and/or government bonds of Russian companies who will be involved in the deal (including their geographical distribution in bank offices).2

A set of assessment indicators for proposals of interest, as prescribed by Form 2, is much more moderate regarding selection of federal property included in Section II of the privatization program, and therefore standard procedures are applied to disposition of such federal property.

Block I includes only two criteria: (1) persons (3 or less) in charge of organization and coordination of deals at top level (senior managers); (2) analytical unit (personnel who will provide analytical services for the company (specifying the personnel's past experience in an attachment thereto).

Block II includes a single criterion: cooperation with the Russian Government, administrations of subjects of the Russian Federation (or government agencies acting on their authority) in organizing privatization deals in recent five years (specifying all deals in which the corporate entity was involved as tender arranger (seller) in privatization of federal property, and total sales volume (in million of rubles)).

Scores based on assessment indicators for proposals of interest are calculated by special formulas, where a corporate entity is scored against each criterion and scores represent a sum of imputed values reflecting the results achieved while performing various roles based on past experience and qualification potential.

The said imputed values are calculated as the ratio of the indicator (e.g., the number of deals, total volume of completed sales, total staff), specified in the information attached to the application of a specific corporate entity, to the highest value of the indicator for a particular role, with allowance for respective coefficient, specified in applications for participation in selection procedure submitted by corporate entities.

Assessment indicators for proposals of interest include values of coefficients as prescribed by both forms for all the aforementioned criteria (specifying the highest score per each of them).

In both forms, the resulting score is calculated as a sum of all scores for blocks of assessment indicators for proposals of interest.

Not more than 5 corporate entities with highest scores that make them eligible for the second stage selection procedure shall be selected based on the final calculation of assessment indicators. Where corporate entities have submitted four or less proposals with regard to the same privatized federal property, assessment indicators shall not be calculated and such persons shall be qualified for the second stage selection procedure.

Within 10 working days from the date of selection committee's final protocol for applications for participation in the selection procedure the Ministry of Economic Development shall send by mail (or in e-document format) a decreasing coefficient request to corporate entities qualified for the second stage selection procedure.

1 Criteria (2) and (3) include, apart from respective specialists, the Russian office (specifying, in a schedule thereto, offices located around the globe), the Russian language skills, key personnel (3 or less) who will manage the deal on a daily basis (including participation in meetings with seller's representatives).

2 The schedule for all groups of engaged personnel (except those involved in disposition of equity shares) contains their past experience, proper nominations for sector analysts, as well as details for senior managers, when necessary.

The decreasing coefficient ranges within 1 and 0 and is applied to fee caps for organization on the federal government's behalf of disposition of privatized federal property and/or acting in the capacity of seller. Where a deal is conducted through auction, public offering or public listing, the fee cap may not be more than 2 percent, and, as the case may be, 1 percent. The fee includes all required corporate costs including fees paid to engaged corporate entities and mandatory payments under the Tax Code of the Russian Federation.

Corporate entities shall submit their decreasing coefficient bid in the manner and within the period prescribed by the decreasing coefficient request (not less than within 2 working days). Bids shall contain a letter in which corporate entities shall specify the amount of decreasing coefficient (including the amount in words) and which shall be delivered inside a separate sealed envelope. Like in the initial stage, corporate entities can modify or withdraw their bids at any period of time before the expiration of the time limit for the submission thereof to the Ministry of Economic Development.

Envelopes with decreasing coefficient bids shall be opened at a meeting of the selection committee on the first working day following the date of expiration of the time limit for the submission thereof. A final bid opening protocol shall be issued, containing the name of the winner, that is, a corporate entity with the lowest decreasing coefficient bid.

Where all bids contain the same decreasing coefficient, the selection committee shall decide to send another request to corporate entities to submit their decreasing coefficient bids.

The notice of final selection results shall be posted on the official website of the Ministry within 3 working days from the date of signing of the final bid opening protocol by the chair of the selection committee.

Based on the selection results, the Ministry of Economic Development shall prepare and submit to the Russian Government draft decisions to engage a corporate entity to arrange on the federal government's behalf disposition of privatized federal property and/or to exercise seller functions, and shall pay the corporate entity a fee for the foregoing services. The Russian Government shall include the following information in a draft decision: (a) the name of federally owned properties intended for privatization, (b) the winner's name, (c) the fee paid to the winner.

Obviously the proposed mechanism is an attempt to bridge one of the most serious gaps emerged in the regulatory and legal framework after a package of major amendments to Privatization Act was adopted late in spring 2010.

As a reminder, one of the attempts entitled the Russian Government to engage corporate entities to arrange disposition of privatized property. This actually referred, on the one hand, to engagement of investment consultants to organize deals involving disposition of equity shares in biggest companies specified in Section I of the privatization program, i.e. sales according to tailor-made schemes based on separate decisions, and on the other hand, engagement of private sellers to sell properties specified in Section II of the privatization program, and therefore standard procedures are applied to the disposition of such federal property.

The selection of the former and the latter has not been governed by any regulation to date.

In 2010, the Russian Government adopted a list of 23 corporate entities to be engaged to organize on the federal government's behalf disposition of privatized federal property and/or to act in the capacity of seller, of which the Ministry of Economic Development was in charge of the selection procedure. More than half of the listed companies are biggest foreign investment banks and companies: (Credit Suisse (Moscow), BNP Paribas Bank, Royal Bank of Scotland, Citigroup Global Markets, Unicredit Securities, SG Corporate Finance Advisory, Deutsche

Bank, J.P. Morgan Bank International, Merrill Lynch Securities, Morgan Stanley, Barclays Capital, Raiffeisen Investment, UBS, a branch of private LLC GOLDMAN SACHS (Russia)). The Russian business was represented by banks (Sberbank, VTB Capital, Alfa-Bank, Gazprombank, MDM Bank) as well as other finance institutions (investment companies VEB Capital and Troika Dialog, Renaissance Broker Limited, OAO The Auction House of the Russian Federation). Sberbank was taken off the list in 2012, which nevertheless could conduct the respective activity via ZAO Sberbank CIB (formerly known as Troika Dialog).

Organizers for tailor-made deals in the course of 3-year privatization programs in 2011— 2013 and in 2014-2016 were selected from the list. While less than a half of such deals (6 out of 13) were completed exclusively by Russian organizations in the course of the privatization program in 2011-20131, they played a key part under new conditions in the course of the privatization program in 2014-2016. In 2013, OAO The Auction House of the Russian Federation started acting as seller in disposition of property according to standard procedures. Furthermore, in 2014-2016 independent sellers (The Auction House of the Russian Federation and OOO VEB Capital) represented more than half of total proceeds (apart from biggest sales).

An updated version of the list was adopted shortly after approval of the aforementioned provision on selection of legal entities by Russian Government's executive order No. 1497-r dated July 14, 2017. The list continued to include 23 companies although their composition underwent drastic changes. Five corporate entities were taken off the list, most of which represented foreign capital (Deutsche Bank, Royal Bank of Scotland, Barclays Capital, SG Corporate Finance Advisory, as well as Russian MDM Bank), and representative offices of another three foreign entities changed their legal form.2 At the same time, the list was extended to include PAO ROSBANK, Ernst & Young Valuation and Advisory Services LLC, ATON, AO RAEX Expert Agency, MEF-Audit Auditing and Consulting Group, Solid Financial House. Therefore, there was a shift toward Russian organizations, most of which were private nonbank entities.

Moving on to an analysis of legal entities selection to arrange on behalf of the Russian Federation disposition of privatized federal property and/or exercise the functions of seller, it's worth noticing that the proposed system built upon a combination of the initial selection focused on professional and qualification potential and the ultimate selection focused on the best bid of potential bidders has right to exist.

There is a whole host of drawbacks though.

First, the selection only can be applied to the list of 23 corporate entities.

Second, there is unsettled issue with respect to selection of privatized property for disposition under tailor-made schemes and otherwise, that is, distribution between Sections I and II of the privatization program. According to standard property disposition procedures, properties can be grouped into lots, but there are no well-defined grounds for the grouping.

Third, indicators for presentation of information of interest as prescribed by Form 1 (Block I (information of corporate entity's past experience)) upon the criterion of company's participation (if any) in management of deals involving equity shares and other federally owned securities of contain no confirmation requirement based on data from independent rating

1 Foreign finance institutions otherwise acted as agents, although subsidiaries and affiliates of privatized companies participated in particular cases (for example, Sberbank in 2012 and VTB in 2013).

2 Raiffeisen Bank, Citibank and Unicredit Bank replaced their respective finance companies.

agencies. The same holds true past experience in cooperation with government agencies of both forms of presentation of information of interest.1

Fourth, indicators for presentation of information of interest as prescribed by Form 1 (Block 2 (the composition of corporate entity's team as well as other natural and corporate entities engaged to arrange disposition of property that will be involved in the preparation and disposition of properties) contain no past experience requirement with regard to Russian equity sales specialists as opposed to all other groups of specialists.

Fifth, there are questions to be answered regarding the degree of objectivity with regard to coefficients used for calculations, criteria-based highest scores, rating agencies' data as a source of information.

Sixth, there a many questions to be answered regarding the second-stage selection scheme in particular.

The Program lacks a well-defined fee cap, albeit some amounts (in percentage terms) are applied, for organization on the federal government's behalf of disposition of privatized federal property and/or acting in the capacity of seller.

It is unclear why the decreasing coefficient criterion applied to the fee cap is preferred to the classic price format applied to government procurement. The selection of the winner as a corporate entity that offers the lowest decreasing coefficient is even more controversial.

In general, considering that the July 2016 amendments to the Privatization Act established that the fee of specified corporate entities must be excluded from the price of federal property disposition and instead must be covered by the auction winner or through public offering on top of the fee, it is not at all obvious that the federal government should regulate the fee because the federal budget has ceased to be a source thereof. Under Article 6 thereof, however, the fee at the expense of the buyer is mentioned within the context of auction and public offering, thereby raising an important question about whether this regulation refers to disposition of property under tailor-made schemes based on separate decisions, and therefore the property is included in Section I of the privatization program.

Seventh, apart from apparent complexity of the selection mechanism as a whole, there is noticeable well-known contrast to the overall commitment to digitalization of managerial procedures: electronic sales and interconnection are mentioned among other things, regular mail and means of telephone communication can be used, the envelope opening plays a pivotal role.

In pursuance of the foregoing document, Russian Government's executive order No. 1720-r dated August 10, 2017 established a list of 65 JSCs whose blocks of equity shares are to be transferred to AO The Auction House of the Russian Federation (AHRF), a company 5-year experience, for disposition through auction and public offering (if the auction is declared void), with services paid under the new scheme.

The agent fee for managing and arranging disposition of equity shares must be excluded from the price of disposition of equity shares and instead must be paid by the winner2 on top of the purchase price of privatized equity shares to agent's account within 5 working days from

1 In Form 1, this applies only to the criterion regarding cooperation with administrations of subjects of the Russian Federation (or government agencies acting on the authority of such administrations) in organization of privatization deals or equity/securities offering in recent 5 years.

2 However, the agent fee for disposition of unsold blocks of equity shares included in the list approved by Russian government's executive order No. 1419-r dated July 29, 2014 continued to be covered by federal budget appropriations.

the date of disposition of equity shares in joint-stock companies to the amount established for each block of equity shares.

A 2 percent fee, measured as a percentage of the offering price, is paid for the overwhelming majority of 65 blocks of equity shares, except a 1.9 percent fee for 3 blocks, 1.89 percent for 2 blocks, 1.95 percent for one block of equity shares, with the lowest fee of 0.889 percent for AO Almazny Mir that was previously included in the privatization program in 2011-2013 (Section I). In 2015, an auction for a block of equity shares in AO Almazny Mir was suspended due to the imposition of interim measures in the course of arbitration proceedings in a third-party dispute between private shareholders. However, there is no information available on the selection of AO RAD under the new provision on selection of corporate entities to arrange on the federal government's behalf disposition of privatized federal property and/or to act in the capacity of seller.

In pursuance of the provision, Rosimushchestvo prepared and submitted to the Ministry of Economic Development proposals regarding 170 blocks of equity shares in JSCs covered by the ongoing privatization program to be further transferred to corporate entities authorized to act in the capacity of seller on the federal government's behalf for the purpose of privatization measures.

AO The Auction House of the Russian Federation and Limited Liability Company "Investment Company of Vnesheconombank" (VEB Capital) were announced the winners out of 147 shareholding companies selected by the Ministry of Economic Development, and therefore the Russian Government will be recommended to appoint the foregoing companies as sole contractors under a government contract for arrangement and disposition on the federal government's behalf of the federal property in question. Similarly, three companies (AO RAD and VEB Capital as well as AO RAEX Expert Agency) were selected with regard to 391 out of the 620 federal treasury properties proposed by Rosimushchestvo.

Various existing laws and regulations governing the privatization process were updated and amended by Russian Government's executive order No. 1164 dated September 26, 2017, including a provision on disposition of federal and municipal properties through auction, dedicated auction, public offering, sales with no price offer, as well as arrangement and disposition of federal or municipal property in electronic format.

Basically, the amendments intend to make it possible at regional and municipal levels to engage corporate entities to act in the capacity of seller under agreements on a competitive basis. New regulations were introduced to govern the relationship between them and bidders (tender guarantee1 and its confirmation, imposition of sanctions for failure to comply with the transfer time limits, for winner's avoidance or refusal to enter into a purchase/sale agreement at a set date, information support, etc.).

Furthermore, regarding the improvement of privatization laws and regulations, Rosimushchestvo prepared amendments to the existing regulatory and legal framework (the

1 Where corporate entities are engaged to sell properties through auction, public offering and in electronic format, the tender guarantee is to be credited to one of the accounts specified in the notice and opened with two and more credit institutions that meet the requirements set forth by Article 2 of Act No. 213-FZ dated July 21, 2014 "On Opening of Bank Accounts and Letters of Credit, on Conclusion of Bank Deposit Agreements, Agreements on Securities Holders Register Maintenance by Shareholding Companies that are of Strategic Importance for the Military-Industrial Complex and the National Security of the Russian Federation, and Amendments to Certain Legal Acts of the Russian Federation."

Privatization Act, the Land Code and the provision on federal or municipal property tender) with regard to privatization of cultural heritage buildings/sites.

The key amendments intend to:

- refine the procedure of privatization of cultural heritage buildings/sites;

- provide an opportunity of privatization of cultural heritage buildings/sites in bad condition, save for the underlying land;

- impose extra requirements to confirm potential buyer's solvency.

The foregoing package is now under consideration by various federal executive authorities.

6.1.4. Administration of public-sector entities

The list of strategically important companies and joint-stock companies underwent changes in 2017.

The list was extended to include FSUE (Russian National Guard's FSUE Okhrana) and AO (VO Safety). Twelve FSUEs were taken off the list, of which six companies (including Kaliningrad Fishing Seaport, while the rest of them are related to the nuclear industry, the defense industry and air traffic control) will merge with other unitary enterprises, five companies will be incorporated into JSCs whose equity shares will be transferred as government asset contribution to government corporations (GCs) (GC Rosatom - 41, GC Rostec with a follow-up contribution to the charter capital of AO Concern Avtomatika - 1), and one company (Almazjuvelirexport Foreign Economic Association) will be incorporated into JSCs with the 100 percent government ownership interest.

There were another two essential entries to the list of strategically important companies: a 88.04 percent increase in the threshold of federal corporate control in PAO Rosseti Federal Grid Company and a 30.43 percent in Sheremetyevo International Airport (SIA). That was the third increase in the federal corporate control in the former (54.52 percent in 2012, 61.7 percent in 2013 and 85.31 percent in 2015), and the SIA is in a final stage of consolidation of its assets within the Moscow Aviation Hub.

The federal government's equity interest in AO Sheremetyevo International Airport was fixed at the end of reorganization, as was prescribed in 2015 by a presidential executive order that established the overall fix scheme. As a reminder, in 2015, the federally owned interest was lowered to an insignificant value (compared with 50 percent plus one share in 2011 and the original 100 percent). The reorganization of AO SIA includes merger of AO Sheremetyevo Airport established in 2016, to which the federal government contributed the main block of equity shares in AO Sheremetyevo International Airport (SIA), accounting for 83.04 percent of the total.

During 2017, Rosimushchestvo conducted policies to establish integrated entities where critical expansion decisions (through presidential executive orders) were previously issued (the transition of GC Rostec blocks of equity shares in Uralvagonzavod Corporation and equity shares in a few joint-stock companies, the charter capital of AO ROSNEFTEGAZ increased to include federally owned interest in 10 JSCs including six industry-specific research and development organizations, while the charter capital of PAO Transneft grew to include seven federally owned immovable properties and 625 land parcels).

1 On top of that, this government corporation is planned to receive an asset contribution of a full (100%) ownership interest in another two JSCs established through reorganization of FSUEs not listed in the list of strategically important companies.

The contribution of a federally owned (100 percent) interest in Bank "Rossiysky Capital" (PAO) to the charter capital of AO Agency for Housing Mortgage Lending (AHML) deserves a separate notice. Under the Federal Budget Act of 2017-2019 (Article 21, Paragraphs 11 and 14), the Russian Government is entitled to transfer from the Deposit Insurance Agency (DIA) to the Federal Treasury all common and preferred shares of Bank "Rossiysky Capital" (a publicly-traded company) owned and/or acquired by DIA in 2017 at the price such shares were purchased by DIA (book value) and contribute them to the charter capital of AHML by reducing government's asset contributions under the federal budget acts of 2008-2010 and 2014-2016 to the tune of up to RUB 92 billion.

Moving on to the issue of governance of shareholding companies with government's ownership interest, a high performance discipline (97 percent) of annual general meetings of shareholders in the 2016 corporate year is noteworthy. Annual general meetings were held in all the JSCs listed in the special list adopted by Russian Government's executive order No. 91-r dated January 23, 2003, where the federal government's position regarding some critical issues is regulated at government level (hereinafter the Special List), in all JSCs not listed in the special list, in which the Russian Federation is the sole shareholder, as well as in 90.68 percent of JSCs not listed in the special list, where the federal government owns an interest of more than 2 percent but less than 100 percent.

Further to Russian Government's decisions at general meetings of shareholders, 385 candidates as members of boards of directors (supervisory boards) of JSCs listed in the special list were approved in the 2016 corporate year,1 including 179 professional trustees (instead of 174 recommended for election based on final results of the Rosimushchestvo's Committee for Selection of Independent Directors, members representing the interests of the Russian Federation and independent experts for election as members of governing and supervisory boards of joint-stock companies), 75 independent directors (instead of 82 as recommended) and 131 civil servants (instead of 155 as recommended).2

Given the fact that in 2017 the total absolute number of government representatives in boards of directors of JSCs listed in the special list dropped to the level seen in 2010, shifts in the structure of representatives in corporate governing boards of companies of this group had an effect on the proportion between civil servants and professional trustees. The percentage of the former fell from 50 to 34 percent, whereas the percentage of the latter increased to 46.5 from 30.3 percent. The percentage of independent directors remained unchanged (nearly 20 percent) (Table 7).

In 2017, the structure of government representatives saw no significant changes and the proportion between civil servants, professional trustees and independent directors remained equal to that seen a year earlier. During the 5-year period of 2013-2017, the group of JSCs listed in the special list saw the number of civil servants per company increase to 2.73 from 2.0, professional directors to 5.29 from 5.24.3

The composition of audit committees in 2017 saw an increase in civil servants to 68.5 percent compared with 2/3 a year earlier (or 122 persons compared with 56 independent

1 Excluding PAO State Transport Leasing Company (where the Ministry of Transportation of Russia exercises shareholders rights), AO Corporation MIT (where GC Roscosmos exercises shareholders rights), including PAO Rosseti Federal Grid Company.

2 The Russian government takes final decisions to approve candidates as members of governing and supervisory boards of JSCs listed in the special list.

3 According to graphic data, whereas the Rosimushchestvo's Report reported 5.30 persons per company.

experts). Total number of the latter, however, more than doubled in recent four years, and their number per company increased to 1.17 in 2017 from 0.44 in 2013, with a minor decline from 2016 (1.32).

Table 7

Dynamics and structure of government representatives in governing and supervisory boards of JSCs on Special List,

2009-2017

Year JSCs, quantity Government representatives in boards of directors (supervisory boards) In audit committees: independent experts, quantity

total civil servants professional trustees independent directors

quanti ty perce nt quantity per cent quantity percent quantity perce nt

2009 36 342 100.0 163 47.7 120 35.1 59 17.2

2010 49/59a 386 100.0 193 50.0 117 30.3 76 19.7

2011 51 416 100.0 181 43.5 150 36.1 85 20.4

2012 57 434 100.0 141 32.5 205 47.2 88 20.3 15

2013b 63 452 100.0 127/122c 28.1 228/245c 50.4 97/102c 21.5 27

2014 51 402 100.0 106/104c 26.4 199/197c 49.5 97/90c 24.1 45

2015b 50 390 100.0 118 30.3 178 45.6 94 24.1 54

2016b 50 404 100.0 136 33.7 189 46.8 79 19.5 65

2017d 48 385 100.0 131 34.0 179 46.5 75 19.5 56

a there are some data on election of professional directors as members of governing boards of 59 JSCs; b including AO NCSP Group (NCSP), where only civil servants were elected as members of the NCSP board of directors and audit committee;

c there are some other data (in the denominator) on the composition of government representatives by category (these are possibly preliminary data although the 2014 cumulative number (287) of professional directors (professional trustees and independent directors) published by Rosimushchestvo was equal to the total number of persons of these groups shown in the denominator);

d including NCSP and the Federal Grid Company of United Energy System (FGC UES), which, as of August 01, 2017, did not approve the composition of board of directors and audit committee at their 2017 annual general meetings of shareholders; therefore, data from Russian Government's directive No. 4643p-P13 dated July 03, 2017 at the annual general meeting of shareholders of September 15, 2017 were used. Source: The 2011-2016 year-end reports on the management of federally owned equity shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies, own calculations.

With respect to formation of the composition structure of corporate governing boards of companies not listed in the special list (Table 8), professional directors and public servants held more than half of seats, 59 percent (931 persons) and 41 percent (646 persons), respectively, in 276 JSCs in which the federal government owned a controlling and blocking interest and therefore had 1577 seats in boards of directors (supervisory boards).1 In 39 JSCs where the federal government owned a minority interest of less than 25 percent, the composition of members representing the federal government's interests in boards of directors (supervisory boards) was comprised of 100 percent civil servants (58 seats). Even with this factor in place, however, the number of civil servants in boards of directors (supervisory boards) of JSCs not listed in the special list dropped from 1101 in 2016.

1 Excluding (1) 39 JSCs in which the federal government owned a non-blocking interest and (2) 107 JSCS in which the federal government owned a majority interest or a blocking interest, where decisions to approve professional directors and independent experts were not taken due to various external factors.

Table 8

Dynamics and structure of professional directors representing the federal government in governing and supervisory boards of JSCs not listed __in Special List, 2009-2017__

Year JSCs, quantity Government representatives in boards of directors (supervisory boards) (excluding civil servants) In audit committees: independent experts, quantity

total professional trustees independent directors

quantity percent quantity percent quantity percent

2009 233 431 100.0 310 71.9 121 28.1

2010 389 707 100.0 493 69.7 214 30.3

2011 512 1109 100.0 830 74.8 279 25.2

2012 822 1860/1869* 100.0 1350 72.6 510/519* 27.4 23**

2013 637/ 245*** 1715 100.0 1092 63.7 623 36.3 335

2014 683/ 159*** 2094 100.0 1382 66.0 712 34.0 498

2015 527/ 151*** 1660 100.0 1267 76.3 393 23.7 330

2016 479/ 123*** 1535 100.0 1346 87.7 189 12.3 353

2017 297/ 107*** 978 100.0 864 88.3 114 11.7 325

* there are some data on election of 1869 professional directors, including 519 independent directors;

** there are some data on election of 21 representatives (non-civil servants) in audit committees; *** the denominator shows the number of JSCs with a controlling or minority interest owned by the federal government, where decisions to approve professional directors and independent experts as members of governing and supervisory boards were not taken due to various external factors.

Source: The 2011-2016 year-end reports on the management of federally owned equity shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies, own calculations.

In 2017, as shown in Table 8, the trend towards higher share of professional trustees continued in the midst of drastic decrease (more than 1/3) in the absolute number of professional directors in the overall structure of representatives, and therefore the number of independent directors and their proportion among members representing the federal government (apart from civil servants) hit its lowest (114 persons, or 11.7 percent).

The number of independent experts in audit committees decreased 8 percent year-on-year in 2017, sliding below values seen in 2013 and 2015. The number of professional directors in boards of directors (supervisory boards) as per company increased from 3.20 to 3.29 as the number of independent experts in audit committees climbed from 0.73 to 1.09, doubling the number recorded in 2013.

By 2017 year-end, based on the results of the Committee for Selection of Candidates for the Election of Members of Governing and Auditing Boards in JSCs, Rosimushchestvo compiled a list of candidates for nomination and election as members of governing and supervisory boards of joint-stock companies with an interest owned by the federal government in the 2018 corporate year. One hundred and ninety (190) professional trustees and 68 independent directors as well as more than 60 independent experts were selected as members of boards of directors and audit committees of 48 JSCs listed in the special list. More than 110 professional trustees and independent directors as well as more than 31 independent experts were selected as members of governing and supervisory boards of other JSCs.1

The following is noteworthy in respect to practical application of in-house regulatory documents of federally owned companies.

1 www.rosim.ru, December 22, 2017.

By early August 2017, boards of directors (supervisory boards) of 44 out of 50 JSCs listed in the special list approved their draft long-term development programs (LTDPs) and key performance indicators (KPIs) frameworks. LTDPs were in the draft stage in 2 JSCs, draft LTDPs were pending approval in 2 JSCs, and KPIs frameworks were in various stages of interdepartmental reconciliation in 2 JSCs.1 LTDPs and KPIs progress reports for 2016 were in the draft stage in 37 companies, according to data from Rosimushchestvo.

The foregoing tools were used by approximately 60 percent of companies of a large group of JSCs not listed in the special list in which the federal government owned a joint interest of 50 percent or less, and where Rosimushchestvo exercises shareholder rights (252 JSCs). As of the specified date, 153 JSCs had their LTDPs approved ( 75 JSCs had their draft programs in the draft stage), 156 JSCs had their KPIs frameworks approved (72 JSCs had their KPIs frameworks in the draft stage).

Apart from developing a corporate development planning framework for the medium term (via LTDPs and KPIs), labor productivity growth policies continued to be under special control.

Forty three out of 50 JSCs companies listed in the special list developed a package (Action List) of labor productivity growth policies, 41 JSCs established metrics for this indicator and their labor productivity growth policies were embedded into LTDPs and management KPIs, 42 JSCs amended their labor agreements (contracts) with sole executive directors (SEDs) and completed the annual form of federal statistical surveys of "Data on labor productivity for companies with government's ownership interest in the non-financial corporate sector".2

Less than half of the companies comprising a group of 252 JSCs not listed in the special list in which the federal government owned an aggregate interest of more than 50 percent were covered by most of these policies. Only 112 of them developed a package of labor productivity growth policies, 134 companies established metrics for labor productivity indicator and their labor productivity growth policies were embedded into LTDPs, 123 companies did the same for management KPIs, 98 companies amended their labor agreements (contracts) with sole executive directors (SEDs), 125 companies completed the annual form of the aforementioned federal statistical surveys. A difficult task was to reconcile labor productivity growth with HR policy: more than 40 percent of companies made respective changes in their labor contracts with SEDs.

More than 3/4 of the companies listed in the special list developed and adopted in-house regulatory documents: rules and regulations to increase investment and operational efficiency and cost-efficiency (43 JSCs), internal audit provisions (46 JSCs), quality management framework (45 JSCs), risk management framework (45 JSCs), the procedure for the development and implementation of innovation-led development programs (37 JSCs).

New standard documents regarding corporate governance standardization of companies with an interest owned by the federal government also included new methodological recommendations for comparing technology-led development levels and key performance measures of JSCs with government equity participation, government corporations, federally

1 PAO State Transport Leasing Company (STLC) (where the Ministry of Transportation of Russia exercises shareholders rights), AO Corporation MIT (where GC Roscosmos exercises shareholders rights), PAO NMTP and AO SIA (with a government's ownership interest of less than 50%) procured that these issues were addressed, like what STLC and MIT did with regard to approving LTDP frameworks.

2 PAO State Transport Leasing Company (where the Ministry of Transportation of Russia exercises shareholders rights), AO Corporation MIT (where GC Roscosmos exercises shareholders rights), PAO NMTP and AO SIA (with a government's ownership interest of less than 50%) procured that these measures were taken.

owned companies and FSUEs with development levels and performance measures of lead peer companies, that were approved by Protocol No. 2 dated September 19, 2017 at a meeting of the Interdepartmental Task Force for the Implementation of Innovative Development Priorities of the Presidium of President's Council on Economic Modernization and Innovative Development of Russia.

For the purposes of adoption of standards set forth by the recent Corporate Governance Code 2014 (CGC), Rosimushchestvo (in the capacity of shareholder) analyzed FY16 annual statements approved at 2017 annual general meetings of shareholders of 12 biggest federally owned companies in order to check on their compliance with the principles and recommendations set forth by the CGC. According to the analysis as well as information that Rosimushchestvo requested from federally owned companies, all the 12 JSCs reported in their annual statements about adoption of standards and principles set forth by the Code, and such information was presented (except PAO Gazprom) in the format prescribed by the Bank of Russia's Recommendations.

By the summer's end 2017, the Code provisions were adopted 90 percent (compared with 77 percent a year earlier) based on an analysis of JSCs progress reports with regard to their Code Compliance Road Maps.

Best results were achieved in the following categories:

- company secretary (100 percent compared with 60 percent in 2016);

- shareholder rights and equitable treatment of shareholders while executing shareholder rights (93 percent compared with 86 percent in 2016);

- executive compensation framework for members of the board of directors, executive boards and other critical senior managers of companies (92 percent compared with 83 percent in 2016).

Another four sections of the CGC (board of directors, risk management framework and internal control, disclosure of information, information policy, major corporate actions) were adopted more than 70 percent.

Four out of 12 companies achieved best results in adoption of the Code's key sections: PAO Gazprom (100 percent), PAO Aeroflot (100 percent), PAO Sovkomflot (97 percent), PAO NK Transneft (95 percent). Apart from Aeroflot (a growth to 100 from 81 percent), PAO Transneft (a growth to 74 from 58 percent) and PAO RusHydro (a growth to 63 from 38 percent) showed a substantial improvement from 2015, according to Rosimushchestvo. What's questionable is the degree of objectivity in assessing Gazprom, which was not in the lead group in 2015, and then (in 2016) Gazprom came out to share the lead with Aeroflot although its information on adoption of the standards and principles CGC was incompliant with the format prescribed by the Recommendations of the Bank of Russia. A minor setback of the dynamics of Sovkomflot (99 percent at 2015 year-end) is questionable too.1

The dividend policy mechanism with regard to federally owned companies continued to improve.

As a reminder, this matter is generally regulated by Russian Government's executive order No. 774-r dated May 29, 2006 (as further amended in late 2012), when a provision on dividends payout of not less than 25 percent of JSCs net profits (excluding revenues from financial investment revaluation) emerged, unless otherwise provided by legal acts of the Russian Government.

1 For more details see Section "Compliance with the Corporate Governance Code: Are There Any Improvements?" 392

Faced with a tense fiscal environment in 2016, the Russian Government had to adopt a special dividend policy document. Under executive order No. 705-r dated April 18, 2016 regarding dividends payout for 2015, federal government authorities, first of all Rosimushchestvo, were guided by the executive order including a provision on dividends payout of 50 percent of net profits (in various versions).

In 2017, this standard was embodied in Russian Prime Minister's Instruction No. DM-P13-2672 dated April 26, 2017 (hereinafter "the Instruction") to provide decision making on dividends payout of not less than 50 percent of JSCs annual profit calculated in compliance with the international financial reporting standards (hereinafter the IFRS) when shaping the shareholder's position of the federal government towards dividends payout at JSCs with an interest owned by the federal government (including infrastructure companies, oil and gas companies and military-industrial companies).

In May 2017, a list of provisions regulating federal government authorities' decisions on the amount of dividends in companies with government equity participation (including a minimum threshold of 25 percent of JSCs net profits) under executive order No. 774-r of 2006 was extended to include a provision requiring the amount of dividends to be determined on the basis of net profits reported in financial statements, including IFRS-based consolidated statements, as long as JSCs are obliged to make such statements pursuant to the law. Where a specified amount is higher than net profits reported in JSCs financial account statements, dividends must be paid out of retained earnings.

Federal budget revenues administered by Rosimushchestvo in the form of dividends on shares owned by the federal government, with due consideration for decisions made at 2016 annual general meetings of shareholders, totaled more than RUB 187.9 billion as of August 01, 2017, marking a substantial decline from previous year's amount (RUB 237.73 billion), nearly equal to the 2015 amount of RUB 188.8 billion. JSCs listed in the special list were estimated to make up 99 percent of total accrued dividends on shares owned by the Russian Federation, according to a forecast for federal budget revenues from 2016 dividends. As of 2017 year-end, Rosimushchestvo contributed approximately RUB 250.5 billion to the federal budget, of which RUB 243.5 billion came from 25 biggest companies listed in the special list, Head of Rosimushchestvo Dmitry Pristanskov said in an interview.1

Thirteen top dividend payers that paid more than RUB 1 billion worth of dividends to the federal budget were PAO Gazprom, PAO Transneft, АК ALROSA (PAO), PAO RusHydro, PAO Aeroflot, VTB Bank (PAO), AO Agency for Housing Mortgage Lending, PAO Rostelecom, PAO Sovkomflot, OAO Russian Railways, AO Zarubezhneft, PAO NCSP Group (NCSP), PAO Rosseti Federal Grid Company, of which 11 companies (excluding Gazprom and Rosseti Federal Grid Company) paid not less than 50 percent of their net profits.

Eight of the above JSCs accrued dividends on the IFRS basis, whereas five accrued dividends on the RAS (Russian accounting standards) basis, of which PAO Gazprom and PAO Transneft are noteworthy because their actual figures deviated respectively 40 and 26 percent from Rosimushchestvo's target based on resolutions of their annual general meeting of shareholders (hereinafter AGMS) held in pursuance of Russian Government's directives. Under a government's separate executive order regarding dividends payout in PAO Rosseti Federal Grid Company, the amount of dividends was calculated with consideration for a series

1 The 2016 year-end report on the management of federally owned shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies, www.rosim.ru, February 28, 2018.

of limits on the amount of company's net profits. In addition, the Russian Government decided to reduce the amount of 2016' dividends for certain JSCs operating in the military-industrial complex.

However, federal budget revenues from dividends deviated from the fiscal target primarily because of lack of RUB 156.5 billion worth of target revenues from AO ROSNEFTEGAZ following a biggest privatization deal late in 2016, when RUB 18.4 billion worth of dividends for the first 9 months of 2016 were transferred along with the proceeds worth RUB 692.4 billion from disposition of a 19.5 percent interest in PAO NK Transneft to the federal budget. Under Russian Government's executive order No. 390-r dated June 30, 2017 regarding calculation of dividends transferred to the federal budget, it was decided that AO ROSNEFTEGAZ would not pay 2016 dividends because of a loss incurred (under RAS) in FY16 as well as transferred interim dividends to the aggregate tune of RUB 24.61 billion.1

6.1.5. Improving regulatory environment for federal property organizations

Last year's changes in the regulatory and legal framework that governs economic agents related to federal property influenced almost all types of ownership and therefore turned out be essential enough.

Unitary enterprises

The July 2017 (No. 267-FZ) amendments to the Act 2002 in force (No. 161-FZ) introduced a concept of federal unitary enterprise of strategic importance for the military-industrial complex and the national security that covers:

- federal state unitary enterprises (FSUEs) and federal treasury enterprises (FTEs) listed in the list of strategically important companies approved by the President of Russia under the Privatization Act 2001;

- FSUEs and FTEs listed in the list of strategically important companies and organizations approved by the Russian Government under the Bankruptcy Act 2002;

- FSUEs and FTEs designated by a special decision of the Russian President or the Russian Government.

The category of enterprises, including shareholding companies that come under their direct and indirect control, is subject to restrictions on financial operations (pursuant to new Article 24.1 of Federal Act No. 161-FZ).

The aforementioned corporate entities may open accounts, covered (deposited) letters of credit with credit institutions, enter into bank account contracts/agreements, bank deposit contracts/agreements with credit institutions, acquire their securities, provided that the Russian ruble is the currency of the contract (a security denominated in Russian rubles), only if a credit institution is listed in the Bank of Russia's monthly list published on its official website2 and meets one of the two requirements:3

1 The 2016 year-end report on the management of federally owned shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies.

2 Specifying information on (1) the amount of equity (capital), contingent upon credit institution's consent to the Bank of Russia to disclose the specified information and (2) that a credit institution is covered by mandatory insurance of physical person deposits with Russian banks.

3 Except financial operations with Vnesheconombank.

In addition, the Russian Government was authorized to identify credit institutions that fail to meet the established requirements without including such credit institutions in the list published by the Bank of Russia. However, where

- credit institution's equity is not less than the amount established by the Russian Government as agreed upon with the Bank of Russia and the credit institution meets extra requirements set by the Russian Government1, including requirements for acquisition of securities of credit institutions and established investment limits according to Russian credit institution's amount of equity (capital) and/or a credit rating under the national rating scale for the Russian Federation;

- a credit institution is directly or indirectly controlled by the Bank of Russia or the Russian Federation, given that the Russian Government is entitled to set extra requirements for operations (deals/transactions).

Similar regulations are established for the aforementioned financial operations involving foreign currencies, including denomination of securities.

Although foreign banks can be involved, the Russian Government is entitled to establish a foreign bank requirement by which specified unitary enterprises and shareholding companies must within a prescribed period of time terminate bank account contracts/agreements and bank deposit contracts/agreements with foreign banks that have failed to meet the existing requirements.

A federal executive authority in charge of developing the national policy and banking regulatory framework shall, at least once in three months from the effective date of Russian Government's requirements, publish on its official website a list of foreign banks that meet the established requirements and specify the date of publication.

Strategically important federal unitary enterprises and shareholding companies that come under their direct and indirect control must:

- notify, in the manner prescribed by the Russian Government, a federal executive authority (the Federal Financial Monitoring Service) authorized to counteracting legalization (laundering) of ill-gotten proceeds and terrorist financing of opening/closure of accounts, change of accounts' details, covered (deposited) letters of credit with foreign banks, conclusion/termination of bank account contracts/agreements, bank deposit contracts/agreements with foreign banks and changes therein, acquisition/disposal of securities of foreign banks;

- terminate bank account contracts/agreements and bank deposit contracts/agreements with credit institutions that have failed to meet the foregoing requirements and have been taken off the list published by the Bank of Russia, within 180 days from the date of publication of the respective list of credit institutions on its official website.2

Since the date of credit institution has been taken off the list, the effective period of bank deposit contracts/agreements, agreements on opening covered (deposited) letters of credit concluded between strategically important federal unitary enterprises as well as shareholding companies that come under their direct or indirect control and such a credit institution may not be extended and the bank account opened therewith under a bank account contract/agreement

foreign-based restrictive policies are in force against such credit institution or its control or key stakeholders, the credit institution must be included in list of the Bank of Russia.

1 In addition, the Russian government established a requirement for a credit rating level awarded for a Russian credit institution by credit rating agency/agencies covered by the Bank of Russia's register of credit rating agencies, on the basis of Russia's national ranking scale, employing a methodology that meets, as confirmed by the Bank of Russia, the requirements set forth by the Act 2015 governing credit rating agencies in the Russian Federation.

2 The Russian Government can reschedule the date of termination of a bank deposit agreement.

or a bank deposit contract/agreement may not be credited, except for the interest on the bank account contract/agreement or the bank deposit contract/agreement.

All these changes in the Unitary Enterprises Act are an integral part of amendments to the Act 2001 'Counteracting Legalization (Laundering) of Ill-Gotten Proceeds and Terrorist Financing' (No. 115-FZ) which established restrictions on financial operations of shareholding companies that are of strategic importance for the military-industrial complex and the national security of the Russian Federation1 as well as shareholding companies that are under their direct and indirect control. The list is now extended to include federal unitary enterprises, federally owned corporations, federally owned companies and public not-for-profit companies.2 At the same time, the fact that credit institutions covered by foreign restrictive policies are mentioned among the federal government's prerogatives towards identifying credit institutions that have failed to meet the established requirements points to linkage with the impact of recent sanctions imposed against Russian corporate entities.

New essential provisions regarding operations involving immovable property were introduced by Russian Government's executive order No. 739 dated December 3, 2004, which regulates federal executive authorities' powers to exercise ownership rights over FSUE's property.

Russian Government's executive order No. 528 dated May 5, 2017 established that Rosimushchestvo3 shall approve deals involving enterprises' immovable property worth more than RUB 150 million (under the Valuation Act), except for deals related to leasehold of such property, pursuant to a decision of the Russian Government, the Prime Minister or Prime Minister Deputies (on behalf of the Prime Minister).

An enterprise shall submit proposals regarding deals involving immovable properties that belong to an enterprise by right of economic management, including its transfer under leasehold agreements that shall be subject to standard terms and conditions approved by the Ministry of Economic Development together with justifications thereof and required documents, to the federal executive authority which holds jurisdiction over the enterprise, for further submission to Rosimushchestvo.

To approve deals involving immovable properties that belong to an enterprise by right of economic management, including leasehold thereof, the foregoing agencies shall interact with each other via a federal property management interdepartmental web portal by way of posting electronic documents with enhanced encrypted and certified digital signature.

Rosimushchestvo shall consider proposals for such deals in the prescribed format and decide, not later than 15 working days from the date of publication on the web portal, to approve/deny

1 Under a special Act 2014 (No. 213-FZ), these are shareholding companies listed in: (1) the list of strategically important shareholding companies approved by the Russian President under the Privatization Act 2001 (excluding credit institutions), (2) the list of JSCs in which the shareholder's position of the government is determined at government level (excluding credit institutions), (3) shareholding companies that are of strategic importance for the national defense and the national security within the meaning of the Act 2008 (No. 57-FZ) as well as, since summer 2017, (4) other economic agents with a federally owned interest listed in the list approved by the Russian Government.

A Russian government's draft executive order on adoption of the list of shareholding companies covered by Article 1 of Act No. 213-FZ was under consideration in fall 2017.

2 Respective amendments to separate acts governing Vnesheconombank, Housing and Utility Reform Foundation, Rostec, Rosatom, Roscosmos and Avtodor were made in Articles of Act No. 267-FZ dated July 29, 2017.

3 Applicable to enterprises subordinate to The Ministry of Defense of Russia, The Department for Presidential Affairs of the Russian Federation, To the Federal Agency for Marine and River Transport (when securing properties situated within sea ports boundaries), as specified by departments.

a deal by way of notifying thereof on the web portal in the prescribed manner, or, to the extent provided for thereby, shall submit respective proposals to the Ministry of Economic Development for further submission thereof to the Russian Government, upon 5 days' notice to the federal executive authority. Should Rosimushchestvo fail, within 30 working days from the date of federal executive authority's publication thereof on the web portal, submit the respective proposal, the deal shall be deemed not to be approved (excluding deals to be approved on government level).

Enterprises subordinate to the Ministry of Defense of Russia, The Department for Presidential Affairs of the Russian Federation, The Federal Agency for Marine and River Transport (when securing properties situated within sea ports boundaries) shall submit proposals regarding the aforementioned deals together with justifications thereof and required documents to respective departments and agencies which make decisions, like Rosimushchestvo does, to approve/deny the deals or, to the extent provided for thereby, submit respective proposals and documents to the Russian Government.1

In addition, property sale/purchase deals shall be carried out through auction in the manner prescribed by the federal antimonopoly agency.2 At an auction, the offering price of the property is determined by the enterprise on the basis of a property valuation report drawn up as prescribed by the Valuation Act.

A list of documents required for approval of deals involving immovable property that belongs to an enterprise by right of economic management, including leasehold thereof, shall be approved by a federal executive authority in charge of developing the national policy and regulatory framework in respect of property-related matters.3

Therefore, long-standing significant measures were introduced to regulate unitary enterprise powers at federal level.

Prior to the above-described changes, deals involving immovable property were normally approved by Rosimushchestvo with consideration for proposals of the federal executive authority that held jurisdiction over an enterprise, unless otherwise established by other statutory acts adopted under federal laws and regulations.

The new procedure for interaction on the subject matter between various government authorities was elaborated by setting a quantitative criterion (RUB 150 million), when the issue must be considered at government level, as is the case with approval by federal executive authorities (with consideration for the rationale of Rosimushchestvo's position) of deals involving disposition of a stake (ownership interest) in the charter (pooled) capital of shareholding companies or partnerships, enterprise's equity share, approval of decision of enterprise's participation in business and not-for-profit organizations, conclusion of a simple partnership agreement, as well as (exclusively for FSUEs covered by the privatization program)

1 The Federal Agency for Marine and River Transport shall submit respective proposals and documents to the Ministry of Transport of Russia for approval with the Ministry of Economic Development of Russia and the Ministry of Finance of Russia and for further submission to the Russian government.

2 Today, there are existing Rules for tenders or auctions, leasehold agreements, gratuitous use agreements, fiduciary management agreements, other agreements that provide for transferring of ownership regarding federal and municipal property, as approved by executive order No. 67 dated February 10, 2010 of the Federal Antimonopoly Service of the Russian Federation.

3 Today, there is existing a List of documents an FSUE must submit to be eligible to make deals specified by Russian Government's executive order No. 333 dated June 06, 2003, adopted by executive order No. 3142-r dated July 15, 2003 of the Federal Agency for State Property Management of Russia. At the same time, Russian government's executive order No. 333 dated June 06, 2003 ceased to be in force.

approval of major deals, deals involving loans, sureties, bank guarantees, other encumbrances, assignment of claims, assignment of debt, fundraising.

The introduction of auction procedure for disposition of unitary enterprise's property narrows the gap between the process of transfer of ownership thereof with the privatization mechanism, thus inevitably reducing managers' opportunistic behavior and possible malpractices.

Joint-stock companies

Russian Government's executive order No. 851 dated July 19, 2017 introduced major amendments to the Provision on the management of federally owned shares in joint-stock companies and the Russian Federation's golden share (participation in corporate governance) in joint-stock companies (hereinafter the Provision) adopted by Russian Government's executive order No. 738 dated December 3, 2004, and Russian Government's executive order No. 1214 dated December 31, 2010 "Enhancing the governance of publicly traded companies with an interest owned by the federal government, and federal state unitary enterprises" (hereinafter the Executive Order).

The Provision introduced the following changes.

First, changes in classification of JSCs and the chain of command between various government authorities which shareholder rights are applied to.

A separate group was created to include JSCs listed in the list of strategically important companies adopted by Russian President's executive order 2004 under the Privatization Act, where Rosimushchestvo exercises shareholder rights on the basis of proposals of a federal ministry or federal executive authority authorized to manage federal property under the supervision of the President of Russia or the Russian Government.

Another group was created to include JSCs listed in the special list, in which Rosimushchestvo exercises shareholder rights as agreed upon with a federal ministry (agency). The list was further elaborated. Russian Government's executive order dated August 30, 2017 approved lists of JSCs in which Rosimushchestvo exercises shareholder rights on the federal government's behalf as agreed upon with the Ministry of Industry and Trade (11 JSCs), the Ministry of Energy (10 JSCs), the Ministry of Finance (7 JSCs), the Ministry of Transportation of RussiaoM (6 JSCs), The Ministry of Agriculture of Russia (5 JSCs), The Ministry of Economic Development (3 JSCs), The Ministry of Communications and Mass Media of Russia (2 JSCs), Ministry of Natural Resources (1 JSC), The Ministry of Construction, Housing and Utilities (1 JSC), The Federal State Reserve Agency (1 JSC), The Chief Directorate of Special Programs of the President of the Russian Federation (CDSP) (1 JSC). There were a total of 48 companies, many of which were on the list of strategically important companies.

Now, there is an express reference to the that Rosimushchestvo can on its own discretion exercise shareholder rights regarding the rest of JSCs.

Second, new regulations governing selection of candidates for election as individual (collegiate) executive body (hereinafter I(C)EB) in boards of directors (supervisory boards) and audit committees of JSCs with an interest owned by the federal government can be considered as a standalone matter within the context of amendments to the Provision.

The Ministry of Economic Development jointly with Rosimushchestvo should develop and approve selection criteria for election of candidates for I(C)EB, members of boards of directors (supervisory boards) and audit committees of JSCs, excluding FSUEs established as a result of privatization that operate under the jurisdiction of the Ministry of Defense of Russia and

subordinate to the Facilities and Property Management Office under the President of the Russian Federation.

Organizations, including public organizations, associations (unions), autonomous not-forprofit organizations whose activities are related to association of professional (independent) directors, are entitled to submit to Rosimushchestvo their proposals for nomination of candidates that meet the criteria set by the Ministry of Economic Development. The same holds true for natural persons who can submit their applications exclusively via the federal property management interdepartmental web portal.

Candidates nomination proposals submitted by a federal ministry (agency), organizations, and applications of natural persons shall be considered at meetings of a Rosimushchestvo-led committee for selection of candidates for election as members of governing and supervisory boards in question.1 Based on decisions of the committee, Rosimushchestvo shall determine the shareholder's position of the federal government regarding nomination of candidates for election for I(C)EB, members of boards of directors (supervisory boards) and audit committees.

Another point to note in this respect is substantial alleviation, in January 2017, of restrictions regarding a person nominated by the Russian Federation (as shareholder) for election as independent director in board of directors, who must not be for recent 12 years a member of the board of directors (supervisory board) of a shareholding company where election is to take place (in lieu of previous five-year requirement).

Third, the Provision underwent changes regarding the preparation of government's position as shareholder, terms for submission of federal authorities' proposals to Rosimushchestvo and a procedure for their interaction.

A federal ministry (authority) shall submit its proposals to Rosimushchestvo regarding matters on the agenda of annual general meeting of shareholders and for nomination of candidates for election as members of corporate governing boards at the meeting (excluding an individual (collegiate) executive body (I(C)EB) whose characteristics are described below), audit committees2 regarding joint-stock companies:

- listed in the special list, till November 1st of the year preceding the year of annual general meeting of shareholders (previously, till November 15th);

- listed in the list of strategic companies in which the federal government owns an interest of less than 100 percent of the voting stock, till December 1st of the year preceding the year of annual general meeting of shareholders;

- all JSCs where the federal government holds 100 percent of the voting stock, excluding JSCs listed in the special list, till March 1st of the year of annual general meeting of shareholders (previously, for all JSCs, except till December 1st for JSCs listed in the special list).

The following is the procedure a federal ministry (agency) must follow for submiting to Rosimushchestvo proposals regarding candidates for election for I(C)EB in JSCs listed in the special and strategic lists:

- with regard to JSCs where the federal government holds 100 percent of the voting stock, not later than the earliest of the following: 60 days prior to the termination of I(C)EB office or

1 The committee's composition and operating procedures shall be approved by Rosimushchestvo as agreed upon with the Ministry of Economic Development of Russia.

2 Previously, there were exceptions regarding nomination of candidates for election for I(C)EB in list of matters that underpinned federal ministry's (agency's) proposals to Rosimushchestvo, and the counting committee was mentioned together with the audit committee.

60 days prior to the date of general meeting of shareholders at which matters regarding the formation of I(C)EB are to be decided;

- with regard to the rest of JSCs, not later than the earliest of the following: 120 days prior to the termination of I(C)EB office or 120 days prior to the date of general meeting of shareholders at which matters regarding the formation of I(C)EB are to be decided.

A federal ministry (agency) shall carry out measures for preliminary selection of candidates for election for I(C)EB in JSCs listed in the strategic list under the criteria adopted by the Ministry of Economic Development by publishing respective notices on the federal ministry's (agency's) official website as well as on the federal property management interdepartmental web portal. A notice on preliminary selection of candidates shall be posted within 15 days from the date of publishing.

Proposals of a federal ministry (agency) regarding voting on matters on the agenda of general meeting of shareholders and appointment of a representative for voting at the meeting shall be submitted to Rosimushchestvo within 3 days following the receipt of notice of general meeting of shareholders, but within:

- 20 days prior to the date of general meeting of shareholders at JSCs listed in the special list;

- 15 days prior to the date of general meeting of shareholders at JSCs listed in the list of strategic companies.1

Where a matter of JSCs reorganization is put on the agenda of special general meeting of shareholders, the terms shall be:

- 40 days for JSCs listed in the special list (previously, 25 days);

- 30 days for JSCs listed in the list of strategic companies (previously, for all JSCs, except 20 days for JSCs listed in the special list).

In the event of disagreement between the federal ministry (agency) and Rosimushchestvo, its head and deputy head shall procure that a consensus meeting is held regarding:

- voting on matters on the agenda of meeting of board of directors (supervisory board) of JSCs listed in the special and strategic lists, not later than 10 days from the date of meeting (the term shall be 15 days if a matter on election of individual (collegiate) executive body is put on the agenda of meeting of board of directors (supervisory board)) (a new provision);

- a call for special general meeting of shareholders of JSCs listed in the special and strategic lists, not later than 15 days prior to the date of call for the meeting (the term shall be 25 days if the matter of election of members of the board of directors is put on the agenda of general meeting of shareholders) (previously, 25 days for all JSCs);

- voting on matters on the agenda of general meeting of shareholders of JSCs listed in the special and strategic lists, not later than 15 days prior to the date of meeting (previously, 15 days for all JSCs).

The requirement that a consensus meeting be held to put proposals for nomination of candidates for election as members of governing boards, audit and ballot committees of JSCs and other matters on the agenda of annual general meeting of shareholders not later than till December 10th of the year preceding the year of annual general meeting of shareholders, till November 25th of the year preceding the year of annual general meeting of shareholders at JSCs listed in the special list (in the event of special meetings of shareholders, not later than

1 Previously, 15 days for all JSCs, except 20 days for JSCs listed in the special list.

15 days prior to the expiration of the time limit for the submission thereof to JSCs) was taken off the Provision.

In the event the consensus meeting fails to lead to an agreement, Rosimushchestvo shall, not later than the date following the date of consensus meeting, present required documents containing a discrepancy list including substantiated position of the parties and proposals of the federal ministry's (agency's) to the Ministry of Economic Development.

In this case, the Ministry of Economic Development shall prepare proposals on the shareholder's position of the federal government with regard to JSCs listed in the special and strategic lists that are to be submitted to the Russian Government:

- on its own discretion in the manner prescribed for determination of shareholder's position of the Russian Federation with regard to JSCs listed in the special list (Paragraph 12 of the Provision);

- as agreed upon with a federal ministry (agency) in respect to proposals to call for special general meeting of shareholders for voting on matters on the agenda of general meeting of shareholders, on matters on the agenda of general meeting of shareholders of JSCs listed in the special list where the federal government holds 100 percent of the voting stock (Paragraphs 1315 of the Provision).

Fourth, changes also covered the corporate governance toolkit.

It was explicitly established that requirements to the form and the subject-matter of an agreement with a professional trustee shall be approved by the Ministry of Economic Development.1

Rosimushchestvo shall issue directives for government representatives in boards of directors:

- as agreed upon with a federal ministry or federal agency with regard to JSCs listed in the special list;

- based on the proposals of a federal ministry (agency) with regard to JSCs on the strategic list, excluding those listed in the special list;

- on its own discretion with regard to the rest of JSCs (previously, a federal agency issued directives for government representatives in all JSCs, excluding JSCs that were listed in the special list, on the basis of federal authority's (agency's) proposals.

The Executive Order introduced the following essential changes in the functionality of duties of governing boards of joint-stock companies (JSCs) with government equity participation.

Representatives of the interests of the Russian Federation in JSCs, excluding JSCs established as a result of privatization of FSUEs, under the jurisdiction of the Ministry of Defense of Russia and subordinate to the Facilities and Property Management Office under the President of the Russian Federation shall perform monitoring to procure that the above joint-stock companies shall publish information on the web portal regarding:

1 For JSCs established as a result of privatization of FSUEs under the jurisdiction of the Ministry of Defense of Russia and subordinate to the Department for Presidential Affairs of the Russian Federation, specified by agencies. There was existing a standard contract on representation of interests of the federal government in corporate governing boards of shareholding companies (business partnerships) in which an interest (stake, share) is owned by the federal government, and a procedure for conclusion and registration of such contracts adopted by Russian Government's executive order No. 625 dated May 21, 1996. However, a legal limbo was created after the document was declared to be no longer in force in November 2014.

- the compliance with directives issued by the Russian Government and by Rosimushchestvo in pursuance of executive orders of the Russian President, the Russian Government;

- subsidiaries where more than 50 percent of equity is owned by JSCs in which the federal government owns an interest of more than 50 percent.

Recommendations regarding the contents and the publishing of such information on the web portal shall be approved by Rosimushchestvo which uses the web portal for interacting with:

- natural persons who submit their applications for election for I(C)EB in boards of directors (supervisory boards) and audit committees of shareholding companies;

- organizations including non-government organizations, associations (unions), autonomous not-for-profit organizations whose activities are related to association of professional (independent) directors;

- JSCs, excluding FSUEs established as a result of privatization, that are under the jurisdiction of the Ministry of Defense of Russia and subordinate to the Facilities and Property Management Office under the President of the Russian Federation;

- subsidiaries where more than 50 percent of equity is owned by JSCs in which the federal government owns an interest of more than 50 percent.

With regard to JSCs listed in the special and strategic lists, federal government executive authorities shall:

- approve, within 10 days from the date of receipt of respective documents from JSCs, corporate development strategies and long-term development programs as well as key performance indicators for corporate governing boards;

- monitor via the web portal business and financial operations, including key goals and objectives of corporate development strategies and long-term development programs, the compliance of the individual (collegiate) executive body with decisions of boards of directors (supervisory boards) adopted in pursuance of executive orders of the Russian President, the Russian Government and the Russian Federation as shareholder represented by Rosimushchestvo, the compliance of representatives of the Russian Federation elected according to proposals of a respective federal executive authority with shareholder's directives;

- submit proposals to Rosimushchestvo on matters for the agenda of general meetings of shareholders (meetings of boards of directors (supervisory boards) JSCs) with a view to enhancing the performance of JSCs;

- make sure that the foregoing JSCs publish information on the web portal;

- notify Rosimushchestvo, within 10 days from the date of detection, of lack of information on the web portal that relates to the above obligations of representatives of the Russian Federation to comply with directives of the Russian Government and Rosimushchestvo and subsidiaries with more than half of the equity owned by JSCs in which the federal government owns a majority interest of more than 50 percent.

Therefore a new scheme was launched to provide interaction between various government authorities regarding the governance of JSCs in which the federal government owns an interest. Rosimushchestvo's powers were somehow expanded. An individual (collegiate) executive body of corporate governing boards was for the first time identified, the rights of the professional community and individuals to nominate candidates as members of governing and supervisory boards of such companies were secured. Matters such as selection-criteria based formalization of requirements to government representatives in corporate governing boards and

regulation for a body (committee) that deals with the matters were brought to a higher level (involving the Ministry of Economic Development).

The old scheme included selection criteria for independent directors, representatives of the federal government's interests and independent experts in governing and supervisory boards of JSCs with federal equity participation approved by minutes No. 448 dated August 25, 2014 at a kick-off meeting of the Committee for selection of professional directors and independent experts in governing and supervisory boards of JSCs including those listed in the special list, and by minutes No. 492 of a meeting held on September 24, 2014 between the former head of Rosimushchestvo and representatives of lead nongovernmental/professional organizations. The Committee for selection of professional directors and independent experts acting pursuant to Rosimushchestvo's executive order No. 233 dated June 27, 2014 employed the criteria for decision-making on the expediency of engaging non-civil servants in governing and supervisory boards of JSCs.

In 2017, Rosimushchestvo prepared draft selection criteria for candidates for election as members of boards of directors (supervisory boards) and audit committees of JSCs and draft selection criteria for candidates for election in individual executive bodies (SEDs) of JSCs. The foregoing criteria are designed for selecting professional directors and independent experts as candidates for election as members of boards of directors (supervisory boards), audit committees of JSCs not listed in the special list, candidates for election as SEDs of JSCs, as well as personnel of management organization aspiring to enter into an agreement on delegation of powers to SEDs. Criteria that were first submitted to the Ministry of Economic Development and then discussed and refined for adoption by a Ministry's executive order upon completion of all conciliation procedures.

There is a document that stands apart from the rest - Russian Government's executive order No. 894-r dated May 10, 2017 - which approved methodological recommendations for identification and disposition of non-core assets.

The methodological recommendations intend to facilitate policies of identification and disposition of assets of government corporations, federally-owned companies, JSCs in which the federal government owns a majority interest of more than 50 percent, as well as their subsidiaries (hereinafter organization or shareholding company) that are not used for core business purposes set forth in their charter.

The document sets forth objectives and principles of disposition of non-core assets on the basis of vast set of definitions. The heart of the document is the definition of 'core assets' as assets owned by an organization (entity) and used for core business purposes or essential for the implementation of corporate long-term development program, growth strategy, or compliant with core-asset criteria set forth in the methodological recommendations. Accordingly, non-core assets are defined as assets that fail to meet the definition of 'core assets', including blocks of equity shares (stakes) owned by the organization (entity) in a business entity regardless of its core business, representing, together with blocks of equity shares (stakes) owned by subsidiaries, less than 50 percent of the charter capital.

To indentify a core/non-core management accounting unit which is defined as separate asset of a body of assets that have, among other things, potential to generate cash inflows, it is recommended to make analysis of the use of an asset for core business purposes of an organization (shareholding company) or the effect of the asset on the achievement of goals and objectives of the organization (shareholding company) set forth by its corporate development

strategy or long-term development program (LTDP) with consideration for the criteria for core and non-core management accounting units (Schedule 1).

The criteria are as follows: (1) location of an asset (immovable property) on the territory occupied by the organization (entity) that is used for core business purposes or as the only possible driveway (pass way) to the territory; (2) a management accounting unit generates more than 5 percent of earnings generated at previous financial year-end; (3) pertinence to socially significant facilities (out-patient clinic, airport, health resort, sports center, dormitory, canteen) where more than 50 percent of earnings come from services to the corporate personnel; (4) signed contracts or other obligations related to the use of management accounting that make up more than 1 percent of the earnings of an organization or shareholding company or more than RUB 1 billion; (5) a management accounting unit owns assets that constitute state or trade secrets, the disclosure of which will entail losses for the organization or shareholding company; (6) a management accounting unit has policies in place to prevent emergences, to provide information, economic and financial security of the organization or shareholding company and its subsidiaries.

In the event a management accounting unit is used for core business purposes, as well as if a separate asset or a body of assets are not used for core business purposes but still influence the achievement of goals and objectives set forth by a corporate development strategy or LTDP, the management accounting unit shall be deemed to pertain to core assets.

It is otherwise recommended to identify core/non-core assets management accounting units by the following algorithm.

A degree of impact of the above six criteria on each particular management accounting unit is determined by picking 'Yes' or 'No' answer ('Yes' means a criterion does have impact or 'No' means it doesn't). An analysis of degree of impact of the criteria on the management accounting unit gives answers to be compared with target answers to identify core assets. If the resulting answers are the same as the target answers, a respective indicator (in percentage terms) shall be assigned to each answer1, which is '0' when divergence is found. Indicators (in percentage terms) for each answer shall be summarized. Management accounting units are deemed to be core units if the resulting figure is 50 percent or higher, and non-core units is less than 50 percent.

Criteria for identifying core/non-core assets of management accounting units at an organization or shareholding company are more simple (Schedule 2): an asset (1) is essential to ensure a successful performance of management accounting units; (2) is unalienable asset (easement, or the asset constitutes a business secret or is necessary for the purposes of national interests, mobilization training, defense, security). If at least a single answer matches the target answer, the asset of the organization or shareholding company shall continue to be deemed to be a part of the management accounting unit. If neither of the answers matches the target answer, the asset shall be excluded from the core management accounting unit and ceased to be deemed to be a core asset under the criteria set forth by Schedule 1.

A management accounting unit identified as non-core management accounting unit shall be registered with a non-core assets registry. A non-core assets disposition program, a non-core assets registry and an asset disposition action plan shall be developed (updated) based on analysis of core/non-core assets identification, as well as on corporate non-core assets disposition policy selected by an organization (shareholding company), which shall be

1 Percentage for matching the target answer is set at 20% for the criteria (1) and (4) and 15% for the rest of criteria.

considered and adopted by the board of directors (supervisory board) of the organization (shareholding company) and afterwards published on the company's profile on the federal property management interdepartmental web portal (hereinafter 'the web portal'). The methodological recommendations shall contain requirements to the layout and contents of the above documents.

New non-core assets identified by the organization or shareholding company shall be, within two months of the identification date, registered with the non-core assets registry. The same period is set for updates to the assets disposition program.

Disposition (alienation) of non-core assets to third parties that are meant to be corporate entities and/or natural persons not affiliated with an organization (shareholding company) is recommended to perform through onerous civil transactions including purchase/sale agreements, investment agreements signed upon, including but not limited to, tender results, to the extent that such transactions allow the organization (shareholding company) to acquire ownership of an asset (assets) constituting a core asset (assets) for the organization or shareholding company.

Further, gratuitous deals, including gifting, are permitted, in which case gratuitous alienation of non-core asset to federal and municipal ownership is recommended subject to a separate decision of the board of directors (supervisory board) and written approval by a respective public-law entity.

It is recommended that disposition of non-core assets be in compliance with provisions governing tender agreements set forth by the Civil Code of the Russian Federation (Articles 447 and 448 thereof). Selection of a tender organizer to search for bidders and manage competitive disposition of an asset is to be based on lists of corporate entities for managing on the federal government's behalf of disposition of privatized federal property and/or acting in the capacity of seller (23) and for managing disposition of federal and municipal properties in electronic format (6) approved by Russian Government's executive orders No. 1874-r dated October 25, 2010 (last updated on July 14, 2017) and No. 2488-r dated December 04, 2015, respectively.

Methods and procedures for disposition of non-core assets shall be established by corporate documents of an organization (shareholding company) subject to approval by the board of directors (supervisory board) of the organization or shareholding company in conformity with the requirements set forth by Russia's laws and regulations.

Offering price or purchase price of a non-core asset is determined based on a independent valuator report prepared in compliance with the requirements set forth by laws and regulations of Russia and/or of a non-core asset's host country. A non-core asset can be sold at a price below the book value subject to a special decision of the board of directors (supervisory board) of the organization or shareholding company and a respective feasibility report.

Disposition of non-core asset located overseas is recommended to be based on data from the methodological recommendations in the manner prescribed by Russia's laws and regulations, international laws and regulations or laws and regulations of a non-core asset's host country.

In the event a non-core asset is located abroad, its offering price or purchase price shall be determined based on the report of a Russian or foreign independent valuator selected on a competitive basis. In the event valuator selection competitive procedures are declared void more than twice due to a lack of bids, the offering price or purchase price of non-core asset shall be determined by a decision of the board of directors (supervisory board) of a shareholding company as long as respective feasibility report is made.

It is recommended to place the internal control (audit) department subordinate to the board of directors (supervisory board) in charge of monitoring identification and disposition of non-core assets in an organization or shareholding company, which must at least once a year report to the board of directors on identification and disposition non-core assets in the organization or shareholding company.

Disclosure of non-core assets disposition information and efficient monitoring of the implementation of a corporate asset alienation program shall be provided through quarterly (by 8th date of the month following the financial quarter) publication of complete, updated and accurate information on non-core assets alienation on the web portal, including from subsidiaries, as well as presentation of information on disposition of non-core assets in corporate annual reports in the manner prescribed by Russian Government's executive order No. 1214 dated December 31, 2010. As a reminder, the document approves a tentative layout of annual reports of JSCs with federally owned interest, which was amended in November 2015 to include a separate provision to govern non-core assets disposition.

The methodological recommendations are supposed to be put into practice through endeavors of government authorities.

With regard to shareholding companies, and federal executive authorities providing legal regulation and/or supervision and coordination in business areas specified in Russia's laws and regulations governing shareholding companies listed in the list of strategically important JSCs by Russian President's executive order No. 1009 dated August 4, 2004 and in the lists of JSCs by Russian Government's executive order No. 91-r dated January 23, 2003, the Ministry of Economic Development jointly with Rosimushchestvo must perform via the web portal:

- quarterly monitoring of non-core assets disposition results;

- quarterly validation of completeness and correctness of information concerning non-core assets disposition published on the web portal by managers of shareholding companies.

Furthermore, the foregoing federal ministries and agencies must procure that labor contracts with managers of shareholding companies are amended to include provisions regarding personal liability for late publication on the web portal of information or publication of inaccurate information about non-core assets disposition.

With the aim of making quarterly analysis of shareholding companies and organizations compliance with their non-core asset disposition action plans and annual presentation of relevant information to the Russian Government, the Ministry of Economic Development established an interdepartmental committee to consider, among other things, facts when managers of shareholding companies fail to timely publish information or publish incorrect information about non-core assets disposition on the web portal, provided by Rosimushchestvo and federal executive authorities.

That's not the first time that this issue has recently been addressed. Back in 2014, Rosimushchestvo adopted a methodology for core/non-core assets identification which ceased to be in force after methodological guidelines for identification and disposition of non-core assets were adopted by Russian Government's instruction No. ISH-P13-4065 dated July 7, 2016.

Since their adoption in 2017 at government level, the aspect of property related matters has been brought to a higher level, involving various government authorities/agencies on a system-wide basis. Another, albeit negative, incentive for addressing the issue was announcement that the Ministry of Economic Development jointly with the Ministry of Finance and federal executive authorities were drafting laws and regulations restricting government aid to

organizations (shareholding companies) that fail to develop, implement or duly implement non-core assets alienation programs, including subsidization of interest rate on new investment projects in priority civil sectors, government guarantees on loans and bonded loans as part of policies of sustainable economic development.

6.1.6. Fiscal effect of federal property policy

Unlike in the previous year, the 2017 dynamics of federal budget revenues that somehow related to federal property was heterogeneous. Irrespective of 2016 federal budget revenues from proceeds from disposition of Rosneft equity shares, there was an increase in revenues from the use of federal property (from renewable sources), whereas revenues from privatization and disposition of federal property (from non-renewable sources) plummeted.

Table 9 and 10 present data on revenues (excluding 2015-2017) set forth in the Federal Budget Execution Acts 2000-2014 that stemmed from the use of federal property and disposition of federal property regarding only a specific type of tangible assets.1

According to formal data from budget execution reports, total revenues from renewable sources contracted 70 percent year on year in 2017. As a reminder, however, record values of 2016 were seen due to the effect of a sales deal of 19.5 percent interest in Rosneft, by which all the money was to be paid to the federal budget in the form of dividends from ROSNEFTEGAZ

1 Outside the scope of analysis are federal budget revenues from mineral tax payments (including aquatic biological resources, revenues from the use of forest resources and mineral resources), compensation for agricultural production losses related to alienation of agricultural lands, as a result of financial operations (revenues from investment of budget funds (revenues on federal budget balances and revenues from investment of federal budget funds, including, since 2006, revenues from asset management of the Stabilization Fund of the Russian Federation (since 2009, revenues from asset management of the Reserve Fund and the National Wealth Fund), revenues from investment of proceeds accumulated through auctions of federally owned shares), interest on domestic loans funded out of the federal budget, interest on government loans (interest on Russian government loans paid by foreign governments and foreign corporate entities, money from corporate entities (enterprises and organizations), subjects of the Russian Federation, municipalities in payment of interest and guarantees on loans provided by foreign governments and international financial institutions to the Russian Federation), from the delivery of paid services or recovery of government costs, transfer of profits to the Central Bank of Russia, certain payments by public and municipal enterprises and organizations (patent fees/taxes and registration charges for official registration of computer software, databanks and integrated circuit layouts and other revenues which up to and including 2004 were an integral part of payments from government organizations (apart from revenues from operations of the Vietsovpetro Joint Venture since 2001 and from transfer of a part of FSUEs profits since 2002)), revenues from exercise of product sharing agreements (PSA), revenues from disposal and sale of confiscated/seized and other property translated into government revenues (including properties transferred to the ownership of the federal government by way of inheritance or gift, or treasures), revenues from lotteries, other revenues from the use of federally owned properties and title (revenues from exercise of intellectual property rights (R&D and technological research) of military, special and double purpose, revenues from disposal of rights to research and development deliverables owned by the Russian Federation, revenues from operation and use of motor road assets, motor road tolls on motor vehicles registered overseas, disposal of the Russian Federation exclusive intellectual property rights in geodesy and cartography, and other revenues from the use of property owned by the Russian Federation), as well as revenues from permitted types of activity of organizations credited to the federal budget, proceeds from disposition of precious metals and precious stones of public reserves. Unlike in previous years, the federal budget execution acts 2015-2016 provided no aggregated data by code of types, subtypes of revenues, classification of public administration sector's operations that are attributed to budget revenues (data are presented only by classification code in terms of administrators of revenues). Therefore data from the annual Federal Budget Execution Reports dated as of January 1, 2016 and January 1, 2017, the monthly Federal Budget Execution Report dated as of January 1, 2018 were used.

as Rosneft's parent company. Excluding the foregoing interest worth RUB 692,395 billion,1 revenues from renewable sources increased more than 8 percent in 2017.

Table 9

Federal budget revenues from use of federal property (renewable sources ),

2000-2017, rubles in millions

Year Total Dividends on shares (2000-2017) and revenues from other forms of equity participation (2005-2017) Rental payments for federally owned land Rental revenues from federal property Revenues from transfers of part of after-tax profit and other mandatory payments of FSUEs Revenues from operations of Vietsovinvest Joint Venture

2000 23244.5 5676.5 - 5880.7 - 11687.3a

2001 29241.9 6478.0 3916.7b 5015.7b 209.6d 13621.9

2002 36362.4 10402.3 3588.1 8073.2 910.0 13388.8

2003 41261.1 12395.8 10276.8e 2387.6 16200.9

2004 50249.9 17228.2 908.1f 12374.5g 2539.6 17199.5

2005 56103.2 19291.9 1769.2h 14521.2' 2445.9 18075.0

2006 69173.4 25181.8 3508.0h 16809.9' 2556.0 21117.7

2007 80331.85 43542.7 4841.4h 18195.2i 3231.7 10520.85

2008 76266.7 53155.9 6042.8h 14587.7i 2480.3 -

2009 31849.6 10114.2 6470.5h 13507.6 i 1757.3 -

2010 69728.8 45163.8 7451.7h 12349.2j 4764.1 -

2011 104304.0 79441.0 8210.5h 11241.25j 4637.85 773.4

2012 228964.5 212571.5 7660.7k 3730.3' 5002.0 -

2013 153826.25 134832.0 7739.7k 4042.7' +1015.75m 6196.1 -

2014 241170.6 220204.8 7838.7k 3961.6* +1348.5m 7817.0 -

2015 285371.1 259772.0 9032.3k 5593.8l +1687.8m 9285.2 -

2016 946723.35/ 254328.3" 918969.1/ 226574.1" 9412.4k 5843.25o +3026.7m 9471.9 -

2017 275170.35 251329.2 9825.1k 5318.35o +2857.7m 5840.0 -

a according to data from the Federal Agency for State Property Management of Russia, the revenues were not itemized separately in the Federal Budget Execution Act 2000, specifying the amount of payments of federally owned enterprises (RUB 9887.1 million) (excluding specific components); b the amount of rental (a) for farmlands and (6) for lands owned by cities, towns and settlements; c total rental revenues from properties allocated to (a) research organizations, (b) educational institutions, (c) healthcare institutions, (d) public museums, public institutions of arts and humanities, (e) archive institutions, (f) the Ministry of Defense of Russia, (g) organizations operating under the jurisdiction of the Ministry of Transportation of Russia, (h) organizations providing services to public academies of sciences and (i) other rental revenues from properties owned by the federal government;

d according to data from the Federal Agency for State Property Management of Russia, the revenues were not itemized separately in the Federal Budget Execution Act 2001, the value was equal to the value of other revenues from payments of public and municipal organizations;

e total rental revenues from properties, owned by the federal government (land rental was not itemized separately); f the amount of rental (a) for lands owned by cities, towns and settlements and (b) for federally owned lands after the demarcation of federal ownership of land;

g total rental revenues from properties allocated to (a) research organizations, (b) educational institutions, (c) healthcare institutions, (d) public institutions of arts and humanities, (e) public archive institutions, (f) federal postal service branches of The Ministry of Communications and Informatization of Russia, (g) organizations providing services to public academies of sciences and (h) other rental revenues from properties owned by the federal government;

h rental after the demarcation of federal ownership of land and proceeds from disposition of rights to enter into federally owned land leasehold contracts (excluding land parcels of federal autonomous institutions (2008-2011) and federally funded (2011) institutions);

1 The purchase price of Rosneft shares, net of interim dividends (RUB 18.4 billion) going to the federal budget, was used to ensure a correct comparison.

i rental revenues from properties under the operational management of federal government authorities and institutions established by federal government authorities and under the economic jurisdiction of FSUEs: placed under the operational management of public (a) research institutions, (b) organizations providing scientific services to the Russian Academy of Sciences and to sector-specific academies of sciences, (c) educational institutions, (d) healthcare institutions, (e) federal postal service branches of the Federal Communications Agency, (f) public institutions of arts and humanities, (g) public archive institutions and (h) other rental revenues from properties under the operational management of federal government authorities and institutions established by federal government authorities and under the economic jurisdiction of FSUEs1 (for 2006-2009, excluding revenues from permitted types of activity and overseas revenues from the use of federally owned properties located outside the territory of the Russian Federation that were not itemized separately at all in previous years2); j rental revenues from properties under the operational management of federal government authorities and institutions established by federal government authorities (excluding autonomous and federally funded institutions): placed under the operational management of public (a) research institutions, (b) organizations providing scientific services to the Russian Academy of Sciences and to sector-specific academies of sciences, (c) educational institutions, (d) healthcare institutions, (e) public institutions of arts and humanities, (f) public archive institutions, (g) under the operational management of the Ministry of Defense of Russia and its subordinated agencies (2010), (h) owned by the federal government and in the possession of the Department for Presidential Affairs of the Russian Federation (2010) and (i) other rental revenues from properties under the operational management of federal government authorities and institutions established by federal government authorities (excluding revenues from permitted types of activity and overseas revenues from the use of federally owned properties located outside the territory of the Russian Federation);

k rental after the demarcation of federal ownership of land proceeds from disposition of rights to enter into federally owned land leasehold contracts (excluding land parcels of federally funded and autonomous institutions), as well as (a) rental for land parcels located within the right-of-way lines of federal-aid general-purpose motor roads owned by the federal government (2012-2016), (b) payments under easement agreements with regard to land parcels located within the right-of-way lines of federal-aid general-purpose motor roads for the purpose of construction (reconstruction), over-haul and operation of road service units, laying, reallocation, rebuilding, and operation of engineering networks, installation and operation of advertising structures (2012 and 2014-2016) and (c) payments under easement agreements with regard to land parcels owned by the federal government (20152016);

l rental revenues from properties under the operational management of federal government authorities and institutions established by federal government authorities (excluding federally funded and autonomous institutions): placed under the operational management of public (a) research institutions, (b) educational institutions, (c) healthcare institutions, (d) public institutions of arts and humanities, (e) public archive institutions,

(f) other rental revenues from properties under the operational management of federal treasury institutions,

(g) federal government authorities, the Bank of Russia and governing bodies of non-federally funded funds of the Russian Federation, (h) federal treasury institutions (only 2015) (excluding overseas revenues from the use of federally owned properties located outside the territory of the Russian Federation);

m rental revenues from properties that belong to the Treasury of the Russian Federation (excluding land parcels); n exclusive of proceeds from disposition of equity shares in Rosneft (RUB 692.395 billion), net of interim dividend payment;

o the data for 2016-2017 are generalized without sector-specific separation of institutions. The generalized classification includes only two categories of revenue according to the recipient of revenues from leasehold (federal government authorities, the Bank of Russia and governing bodies of non-federally funded funds of the Russian Federation and federal treasury institutions).

1 In 2008-2009, FSUEs were not mentioned as a source of rental revenues from properties under FSUEs' economic management, and leasehold of properties under economic management of federal government authorities and institutions established by federal government authorities did not cover properties of federally funded autonomous institutions.

2 According to data from the Federal Agency for State Property Management of Russia, revenues from the use of federal properties located abroad (apart from revenues of the Russian party of the Vietsovpetro Joint Venture) totaled RUB 315 million in 1999 and RUB 440 million in 2000. Later, FSUE Overseas Property Management began to play a key part in using federally owned overseas immovable properties for commercial purposes.

Source: Federal Budget Execution Acts 2000-2014, Federal Budget Execution Reports dated as of January 1, 2016, as of January 1, 2017 (annual reports), Federal Budget Execution Report dated as of January 1, 2018 (monthly report), www.roskazna.ru, own calculations.

Dividend inflow to the federal budget increased almost 11 percent, nearing in absolute terms (RUB 251.3 billion) the 2015 peak of RUB 259.8 billion. However, a part of the profits transferred from unitary enterprises plummeted more than 38 percent, surpassing annual decrease rates of 2008-2009. In absolute terms (RUB 5.8 billion), they came out to be below the 2013 level, less than federal budget revenues from land rental that increased nearly 4.4 percent to more than RUB 9.8 billion.1

Total rental revenues from federally owned properties (nearly RUB 8.2 billion) were down nearly 8 percent. Rental revenues from properties that belong to the Treasury of the Russian Federation (excluding land parcels) (more than RUB 2.85 billion) contracted (by 5.6 percent) for the first time since they were reported separately in 2013 fiscal reports, while rental revenues from properties under the operational management of federal government authorities and institutions established by federal government authorities (excluding federally funded and autonomous institutions) (more than RUB 5.3 billion) fell even deeper (9 percent).

Like in the previous year, dividends represented most to the federal budget revenues from renewable sources (more than 91 percent compared to previous year's 89 percent, net of proceeds from disposition of equity shares in Rosneft). The percentage of land rentals stood at 3.6 percent, rentals for properties at 3.0 percent, profits transferred from FSUEs at 2.1 percent. The percentage of the two latter contracted from 2016.

Moving on to an analysis of federal budget revenues from privatization and disposition of federal property (Table 10), the point to note is that proceeds from disposition of the bulk of the assets (shares, plus land parcels in 2003-20072) have since 1999 been attributed to sources of financing of the federal budget deficit.

In 2017, federal budget property-related revenues from non-renewable sources saw a 19-fold fall. Revenues from disposition of shares exhibited an even deeper (28.5-fold) fall to RUB 14.3 billion. There figures were less than those in 2010 but more than doubled the value (RUB 6.3 billion) seen in 2015.

Proceeds from disposition of land parcels contracted by more than 43 percent, down RUB 1.2 billion from previous year's RUB 2.1 billion, equaling to the value seen in 2013 and in the pre-crisis period of 2008-2009. Proceeds from disposition of various types of property posted the smallest decline (15 percent), hitting an all-time low in absolute terms (more than RUB 6.4 billion) since 2011.

Although proceeds from disposition of shares contributed most (nearly 2/3) to total revenues from non-renewable sources in 2017, their percentage came out to be much less than that (nearly 98 percent) registered a year earlier. Accordingly, the share of proceeds from disposition of other assets was up in the order of magnitude and higher. Disposition of various properties

1 Like in the previous year, the amount of rental revenues from land includes revenues from payment for land parcels located within the right-of-way lines of federal-aid general-purpose motor roads owned by the federal government, payments under easement agreements with regard to land parcels located within the right-of-way lines of federal-aid general-purpose motor roads for the purpose of construction (reconstruction), over-haul and operation of road service units, laying, reallocation, rebuilding, and operation of engineering networks, installation and operation of advertising structures, as well as payments under easement agreements with regard to land parcels owned by the federal government, which emerged for the first time in 2015 fiscal reports.

2 In 2003-2004, including disposition of leasehold rights.

made up more than 29 percent of overall proceeds (1.8 percent in 2016) as disposition of land accounted for 5.5 percent (0.5 percent in 2016).

Table 10

Federal budget revenues from property privatization and disposition (non-renewable sources) in 2000-2017, rubles in millions

Year Total Disposition of federally owned shares (2000-2017) and other forms of equity participation (2005-2017)" Disposition of land parcels Disposition of various types of property

2000 27167.8 26983.5 - 184.3b

2001 10307.9 9583.9 119.6c 217.5+ 386.5+0.4 (IAs)d

2002 10448.9 8255.9e 1967.0f 226.0g

2003 94077.6 89758.6 3992.3h 316.2+10.5'

2004 70548.1 65726.9 3259.31 197.3+1364.6+0.04 (IAs)k

2005 41254.2 34987.6 5285.71 980.9m

2006 24726.4 17567.9 5874.21 1284.3n

2007 25429.4 19274.3 959.6° 5195.5p

2008 12395.0 6665.2+29.6 1202.0q 4498.2+0.025 (IAs)r

2009 4544.1 1952.9 1152.5q 1438.7T

2010 18677.6 14914.4 1376.2q 2387.0+0.039 (IAs)r

2011 136660.1 126207.5 2425.2q 8027.4T

2012 80978.7 43862.9 16443.8q 20671.7+0.338 (IAs)r

2013 55288.6 41633.3 1212.75q 12442.2+0.310 (IAs)r

2014 41155.35 29724.0 1912.6q 9517.7+1.048 (IAs)r

2015 18604.1 6304.0 1634.55q 10665.5+0.062 (IAs)r

2016 416470.5 406795.2 2112.7q 7562.6+0.012 (IAs)r

2017 21915.1 14284.5 1199.6q 6429.7+1.3 (IAs)T

a attributed to sources of internal financing of the federal budget deficit, the amount of RUB 29.6 million in 2008 (according to data from the Federal Budget Execution Report dated as of January 1, 2009) is attributed to federal budget revenues but not available in the 2008 Federal Budget Execution Act;

b revenues from privatization federally owned organizations that are deemed to constitute sources of internal financing of the federal budget deficit;

c proceeds from disposition of land parcels and leasehold rights to land parcels owned by the federal government (land parcels underlying privatized enterprises were separated) that are deemed to constitute federal budget revenues;

d the amount proceeds from (1) disposition of properties owned by the federal government that are deemed to constitute sources of internal financing of the federal budget deficit, (2) proceeds (a) from sales of living quarters, (b) from disposition of federally owned productive and nonproductive assets, means of transport, other equipment and other tangible assets, as well as (3) proceeds from disposition of intangible assets (IAs) attributed to federal budget revenues;

e including RUB 6 million from disposition of shares held/owned by subjects of the Russian Federation; f proceeds from disposition of land intangible assets, whose amount was not specified separately, that are deemed to constitute federal budget revenues;

g proceeds from disposition of properties owned by the federal government (including RUB 1.5 million from disposition of properties owned by subjects of the Russian Federation) that are deemed to constitute sources of internal financing of the federal budget deficit;

h includes proceeds: (1) from disposition of land parcels underlying immovable properties owned by the federal government prior to their alienation that are credited to the federal budget, (2) from disposition of other land parcels, as well as from disposition of the right to enter into rental agreements on these land parcels, (3) from disposition of land parcels after the demarcation of land ownership, as well as from disposition of the right to enter into rental agreements on these land parcels that are credited to the federal budget that are deemed to constitute sources of internal financing of the federal budget deficit;

1 the amount (1) of proceeds from disposition of properties owned by the federal government that are deemed to constitute sources of internal financing of the federal budget deficit, and (2) proceeds from disposition of intangible assets attributed to federal budget revenues;

j includes proceeds: (1) from disposition of land parcels prior to the demarcation of state ownership on land underlying immovable properties owned by the federal government prior to their alienation, that are credited to the federal budget, (2) from disposition of other land parcels, as well as from disposition of the right to enter into

rental agreements on these land parcels, (3) from disposition of land parcels after the demarcation of land ownership, as well as from disposition of the right to enter into rental agreements on these land parcels that are credited to the federal budget that are deemed to constitute sources of internal financing of the federal budget deficit;

k the amount of (1) proceeds from disposition of properties owned by the federal government that are deemed to constitute sources of internal financing of the federal budget deficit, (2) proceeds (a) from sales of living quarters, (b) from disposition of equipment, means of transport and other material assets that are credited to the federal budget, (c) from disposition of ship recycling products, (d) from disposition of properties owned by SUEs, institutions, and of military materials and equipment, (e) from disposition of products of recycling of military materials and equipment and ammunition, (3) proceeds from disposition of intangible assets (IAs) attributed to federal budget revenues;

1 includes proceeds: (1) from disposition of land parcels prior to the demarcation of state ownership on land underlying immovable properties owned by the federal government prior to their alienation, (2) from disposition of land parcels after the demarcation of land ownership that are credited to the federal budget, (3) from disposition of other land parcels owned by the federal government prior to the demarcation of state ownership on non-housing land (the latter update is only referred to 2006) that are deemed to constitute sources of financing of the federal budget deficit;

m proceeds from disposition of tangible and intangible assets (net of federal budget revenues from ownership and disposition of seized/confiscated properties and other properties translated into federal government income), include proceeds (a) from sales of living quarters, (b) from disposal of FSUEs properties, (c) from disposal of properties under the management of federal institutions, (d) from disposition of military materials and equipment, (e) from disposition of products of recycling of military materials and equipment and ammunition, (f) from disposal of other properties owned by the federal government, (g) from disposition of intangible assets, that are deemed to constitute federal budget revenues;

n proceeds from disposition of tangible and intangible assets (excluding revenues in the form of a federal share of profit-making products in the course of execution of production sharing agreements (PSA) and federal budget revenues from disposal and disposition of escheat, seized/confiscated properties and other properties translated into federal government revenues), include proceeds (a) from sales of living quarters, (b) from disposal of FSUEs properties, (c) from disposal of properties under the management of federal institutions, (d) from disposal of military materials and equipment, (e) from disposition of products of recycling of military materials and equipment and ammunition, (f) revenues from disposal of other properties owned by the federal government that are deemed to constitute federal budget revenues;

o proceeds from disposition of land parcels after the demarcation of federal ownership of land that are deemed to constitute sources of financing of the federal budget deficit;

p proceeds from disposition of tangible and intangible assets (excluding revenues in the form of a federal share of profit-making products in the course of execution of production sharing agreements (PSA) and federal budget revenues from disposal and disposition of escheat, seized/confiscated properties and other properties translated into federal government revenues, proceeds from disposition of sequestered lumber), include proceeds (a) from sales of living quarters, (b) from disposal of FSUEs properties, (c) from disposal of properties under the management of federal institutions, (d) from disposition of released movable and immovable military properties and other properties of federal executive authorities where military and equated to military service is stipulated, (e) disposition of military products available at federal executive authorities within the framework of military and technological cooperation, (f) revenues from disposal of other properties owned by the federal government that are deemed to constitute federal budget revenues;

q proceeds from disposition of land parcels owned by the federal government (excluding land parcels of federal autonomous institutions and federally funded (2011-2012) institutions) that are deemed to constitute federal budget revenues, as well as, for 2015, plus payment for expanding the area of privately owned land parcels as a result of reallotment of such land parcels and land parcels owned by the federal government; r proceeds from disposition of tangible and intangible assets (excluding revenues in the form of a federal share of profit-making products in the course of execution of production sharing agreements (PSA) and federal budget proceeds from disposal and disposition of escheat, seized/confiscated properties and other properties translated into federal government revenues, proceeds from sales of sequestered lumber (2008-2011), proceeds from using material assets out of the federal reserve of special raw materials and fertile materials (with regard to proceeds from disposition, from granting for temporal use and from other use), as well as, for 2012-2017, proceeds from sales of lumber produced through measures of replacement, conservation and protection of forests while placing the federal government contract to perform the measures without selling forest planting for wood harvesting, as

well as lumber produced by using forests of the federal forestry fund land, pursuant to Articles 43-46 of the Forestry Code of the Russian Federation, revenues from intervention sales out of the reserves of the agricultural intervention fund, raw materials and foodstuff products, from using tangible assets out of the federal reserve, from the engagement of imprisoned persons in paid labor (with regard to sales of finished products), from sales of products requiring special storage conditions)), include revenues: (a) from sales of living quarters, (b) from disposal of properties under the management of federal institutions (excluding autonomous and federally funded institutions (2011-2017), net of revenues from overseas missions' operations (2015-2017), (c) from disposition of released movable and immovable military properties and other properties of federal executive authorities where military and equated to military service is stipulated, (d) from disposition of products of recycling of military materials and equipment and ammunition, (e) from disposition of military products available at federal executive authorities within the framework of military and technological cooperation (2008 and 2010-2017), (f) from disposition of products of recycling of weapons and military materials and equipment as part of the federal program for Industrial Recycling of Weapons and Military Equipment (2005-2010), (g) proceeds from disposition of immovable properties of federally funded and autonomous institutions (2014-2017), (h) revenues from disposal of other properties owned by the federal government, as well as proceeds from disposition of intangible assets (IAs) that are deemed to constitute federal budget revenues.

Source: Federal Budget Execution Acts 2000-2014, Federal Budget Execution Reports dated as of January 1, 2016, as of January 1, 2017 (annual reports), Federal Budget Execution Report dated of January 1, 2018 (monthly report), www.roskazna.ru, own calculations.

Total amount of federal budget revenues from privatization (disposition) and from the use of federal property in 2017 (Table 11) was by 4.6 times less than the previous year's value. In absolute terms, the amount (RUB 297.1 billion) came out to be less than what it was in 2015.

Table 11

Structure of federal property-related budget revenues from various sources,

2000-2017

Year Total revenues from privatization (sales) and from the use of federal property Revenues from privatization and disposition of property (nonrenewable sources) Revenues from the use of federal property (renewable sources )

rubles in millions as percentage of total rubles in millions as percentage of total rubles in millions as percentage of total

2000 50412.3 100.0 27167.8 53.9 23244.5 46.1

2001 39549.8 100.0 10307.9 26.1 29241.9 73.9

2002 46811.3 100.0 10448.9 22.3 36362.4 77.7

2003 135338.7 100.0 94077.6 69.5 41261.1 30.5

2004 120798.0 100.0 70548.1 58.4 50249.9 41.6

2005 97357.4 100.0 41254.2 42.4 56103.2 57.6

2006 93899.8 100.0 24726.4 26.3 69173.4 73.7

2007 105761.25 100.0 25429.4 24.0 80331.85 76.0

2008 88661.7 100.0 12395.0 14.0 76266.7 86.0

2009 36393.7 100.0 4544.1 12.5 31849.6 87.5

2010 88406.4 100.0 18677.6 21.1 69728.8 78.9

2011 240964.1 100.0 136660.1 56.7 104304.0 43.3

2012 309943.2/ 469243.2* 100.0 80978.7/ 240278.7* 26.1/ 51.2* 228964.5 73.9/ 48.8*

2013 209114.85 100.0 55288.6 26.4 153826.25 73.6

2014 282325.95 100.0 41155.35 14.6 241170.6 85.4

2015 303975.2 100.0 18604.1 6.1 285371.1 93.9

2016 1363193.85/ 670798.85** 100.0 416470.5 30.6/ 62.1** 946723.35/ 254328.35o 69.4/ 37.9**

2017 297085.45 100.0 21915.1 7.4 275170.35 92.6

* including central bank's proceeds from disposition of equity shares in Sberbank (RUB 159.3 billion), which possibly leads to an overestimated aggregate share of non-renewable sources because not all of the specified amount went to the federal budget, net of the book value and costs relating to disposition of equity shares. Therefore the share of renewable sources is probably somewhat undervalued;

** exclusive of proceeds from disposition of equity shares in Rosneft (RUB 692.395 billion) (net of interim dividend payment).

Source: Federal Budget Execution Acts 2000-2014, Federal Budget Execution Reports dated as of January 1, 2016, as of January 1, 2017 (annual reports), the Federal Budget Execution Report dated as of January 1, 2018 (monthly report), www.roskazna.ru, own calculations.

After a previous' year substantial change in the structure of overall revenues from privatization (sales) and from the use of federal property as a result of several sale deals involving shares of biggest companies (first of all, Rosneft), the ratio of non-renewable to renewable sources was back to its levels seen 2015.

The percentage of non-renewable sources in the structure of overall revenues from privatization (disposition) and from the use of federal property saw a 4-fold decline to 7.4 percent, whereas the percentage of revenues from the use of federal property was up from 69.4 to 92.6 percent in 2017. In absolute terms, this indicator ranked second after 2015 throughout the entire period since the early 2000s, while revenues from privatization and disposition of property were slightly more than half of the value seen in 2014 but above values seen in 2008-2010 and in 2015.

6.1.7. New version of the federally-funded program for federal property management: intermediate results and fulfillment prospects

Today's federal property policy is described by the Federally-Funded Program for Federal Property Management (hereinafter 'the Program') adopted by Russian Government's executive order No. 327 of April 15, 2014 in lieu of its counterpart that was in force over just 14 months.1 Russian Government's executive order No. 381-12 dated 31 March 2017 introduced material updates and amendments to the 2014 Program.

Financing and indicators for performance

First and foremost, the federally-funded program has been extended till 2019, including the program's second stage (2016-2019). The Ministry of Economic Development continues to be the prime contractor of the Program as Rosimushchestvo is now a joint contractor regarding Sub-program 1 for 'Enhancing the Efficiency of Federal Property Management and Privatization, similar to that of the Federal State Reserve Agency' similar to the Sub-program for 'Public Tangible Reserves Management'. The amount and percentage of federal allocations changed as well (Table 12).

2017-2019 will continue to see the previous year's trend towards less funding compared with the original version of the Program: a decline of 15 percent in 2017 and 24 percent in 2018. The trend, not surprisingly, comes from budget constraints driven by troublesome conditions facing the Russian economy in recent years. Clearly, as contrasted with the 2013 program, the new version of the Program has no target indicators to achieve through allocation of extra resources.

Overall, federal budget appropriations for the Program will amount to RUB 165.8 billion in 7 years (2013-2019), adding about RUB 10.8 billion (or 7 percent) to that for the original 6-year version of the Program (2013-2018). There is, however, marginal increase (nearly RUB 712 million) through extension of the Program with regard to the Sub-program for 'Enhancing the Efficiency of Federal Property Management and Privatization' whose 2019

1 Adopted by Russian government executive order No. 191-r dated February 16, 2013.

For more details on the federal state program 2013 see Malginov G., Radygin A. Public sector and privatization // Russian Economy in 2012. Trends and Outlooks (Issue 34). M., IEP. 2013, pp. 468-475.

funding is somewhat 15 percent less than the average annual amount of the new version of the Program and 1/4 less than that of the original version, not to mention the Program 2013, in which allocations covered only the program itself. Like in the original version of the Program, the bulk of federal allocations cover the sub-program for 'Public Tangible Reserves Management'. The Sub-Program for 'Enhancing the Efficiency of Federal Property Management and Privatization' accounts for less than 20 percent of the total financing in 20132019, with even less (nearly 18 percent) in annual terms for 2017-2019. What is noteworthy is that it's all about target values rather than actual values of federal funding.

Table 12

Amount of federal allocations for Federally-Funded Program for Federal Property Management, 2013-2019 (rubles in millions)

Period Federally-Funded Program 2013* Federally-Funded Program 2014 (original version) Federally-Funded Program 2014 (updated version 2017)

total Including supplementary funding total including Subprogram for Enhancing Efficiency of Federal Property Management and Privatization total including Subprogram for Enhancing Efficiency of Federal Property Management and Privatization

2013 5474.3 5896.9 23629.8 5673.8 23287.2 5474.3

2014 5251.4 9666.6 22093.5 5436.1 22093.5 5436.1

2015 5275.1 9842.7 27537.6 5298.9 27938.9 5408.5

2016 5469.8 11180.5 25261.0 5138.9 24854.5 4465.8

2017 5775.8 8028.8 26903.6 5158.6 22971.3 4127.6

2018 6192.0 7869.2 29605.5 5531.4 22491.1 4046.0

2019 - - - - 22172.6 3991.6

Total 33438.4 52484.8 155031.1 32237.7 165809.1 32949.8

* Exclusively for the Sub-program for 'Enhancing the Efficiency of Federal Property Management and Privatization'. No data were published for the amount of federal allocations for the Sub-Program for 'Public Tangible Reserves Management'.

Source: The Federally-Funded Program for Federal Property Management adopted by Russian Government's executive order No. 191-r dated February 16, 2013; The Federally-Funded Program for Federal Property Management adopted on April 15, 2014 by Russian Government's executive order No. 327 (the original version and the updated version dated March 31, 2017).

Goals and objectives of the new version of the Program are formulated in a more laconic way. Excluding the issue of managing federal tangible assets, there is a goal to enhance mechanisms of federal property management and privatization and an objective of increasing the efficiency and quality of management. Target indicators for the Program continue to be average rates of decrease in the number of organizations with federal government equity participation and federal treasury properties (in percentage terms), whereas the original version of the Program contained target indicators including the dynamics of technology-led development processes of federal property management.

In the new version of the Program, a reform of the federal property disposition framework is expected to be completed by 2019, and the dynamics of quantitative reduction of federal treasury properties are projected to increase 24 percent in 2019 from 3 percent in 2013.

In the original version of the Program, key projected outputs were just outlined rather than linked to specific terms and quantitative indicators: (1) to streamline the composition and structure of federal property at macro- and micro-level to create strong preconditions for economic growth, as well as lay economic groundwork for public not-for-profit institutions (from the perspective of achieving national objectives and interests); (2) to increase the

efficiency of federal property management, including competitiveness and investment appeal of companies with an interest owned by the federal government, setting long- and short-term goals and objectives; (3) to restrict expansion of the public sector of economy by, including but not limited to, establishing and adhering to a framework of prohibitions and restrictions, pursuing industry-specific and other types of policies instead of direct government involvement in the economy, as well as adhering to principles of conformity, sustainability and guaranties of the long-term basis of announced goals and objectives.

Outputs for Sub-program 1 are formulated in a similar manner. It is noteworthy that the original and the new versions of the Program contain the foregoing three points (National policy priorities and goals including general national policy requirements to subjects of the Russian Federation) not as outputs but as effects that could be seen if the program target goals are achieved.

A new version of the data sheet for the Sub-program for 'Enhancing the Efficiency of Federal Property Management and Privatization' has a shorter, albeit different, description of goals and objectives.

The goals are (I) to streamline the composition and structure of federal property, (II) to increase the performance of federal property management and (III) to ensure efficient supervision, accounting and monitoring of the use of federal property.

The objectives are (1) to define the purpose, optimal composition and structure of federal property, (2) to increase the efficiency of federal property disposition and to streamline policies to commercialize federal properties, including privatization instruments, (3) to improve the efficiency and quality of corporate governance in companies with an interest owned by the federal government, management of federally owned properties including federally owned land, (4) to broaden methods of supervision and increase personal liability for management and use of federally owned properties, (5) to improve the efficiency of accounting and monitoring of the use of federal property.

A set of target indicators for the Sub-Program for 'Enhancing the Efficiency of Federal Property Management and Privatization' changed as well. The number of quantitative indicators decreased to 14 from 16. Like in the previous version of the Program, the streamlining of the composition and structure of federal property relies on indicators such as share of federally owned properties (by category) with defined target function (shareholding companies with government equity participation, federal government agencies, federal treasury properties), decrease rates for the number of properties (in terms of YoY percentage change for FSUEs and JSCs, and in terms of percentage change from 2012 for non-commercialized federal treasury land parcels (excluding land parcels restricted for commercialization and de-commercialized land parcels), and other federal treasury properties (excluding those owned exclusively by the Russian Federation)). The only difference in this part was that the share of FSUEs with defined target function was taken off the set of indicators.

The set of indicators describing the effectiveness of federal property management underwent major changes. The aggregate indicator (in percentage terms) showing the compliance with target federal budget revenues from management and disposition of federal property, excluding revenues from privatization, was replaced with two indicators reflecting various aspects of the property management process.

The privatization efficiency must be measured as a percentage share of FY federal budget revenues of target federal budget revenues from disposition of equity shares and stakes in the charter capital of shareholding companies pursuant to a Russian Government's executive order

to approve a forecast plan (program) for privatization for the ensuing year (excluding proceeds from disposition of equity shares in biggest joint-stock companies). It therefore is noteworthy that the new set has no indicator for quantity of disposed highly-sought big investment property assets through public offering (out of property assets intended for disposition this year pursuant to decisions of the Russian President and/or the Russian Government) (exchange transactions and strategic sales).

A share of federal budget revenue, measured as a percentage share of FY target revenue, from stakes in the charter (pooled) capital of business partnerships and entities, or from dividends on shares held/owned by the federal government (with consideration for Russian Government's dividend omission decisions) is selected to measure the efficiency of property use.

What stands apart is another new indicator reflecting the valuation/purchase price ratio for sold properties with ownership transferred to the federal government. Although there is no clear economic rationale for that, one can assume that this relates to the fact that Rosimushchestvo has recently been increasingly focusing on disposition of escheat and confiscated properties.

The new version of the Program also employs the indicator for a share of civil servants in governing and supervisory boards of joint-stock companies with an interest owned by the federal government, which represents the management toolkit for federally owned assets and is supplemented with a share of JSCs (listed in the special list adopted by Russian Government's executive order No. 91-r dated January 23, 20031, as well as other JSCs with a controlling interest owned by the federal government) whose long-term programs have indicators for labor productivity growth, creation and modernization of high-productive jobs.

The number of indicators describing supervision over federal property management and the status of technology-led development of management processes decreased. The new version of the Program has only two indicators from the previous version's set of indicators, namely a percentage share of registered federally owned properties of the total number of identified properties subject to registration (within current year), and a percentage share of digitized public services of total services rendered by Rosimushchestvo.

The new version of the Program has no indicators for a percentage share of shareholding companies with a government full ownership interest and federal organizations with government's ownership interest of less than 100 percent where the fiscal accounting and reporting/accounting system is fully integrated into the Federal State Information and Analytical System 'Unified State Property Management System' (hereinafter the FSIAS USPMS) in the total number of federal organizations, as well as a percentage share of legally significant electronic document flow compliant with existing laws and regulations between Rosimushchestvo, including its local branches, and federal government agencies of total document flow with federal government agencies.

The new version of the Program expects the sub-program 1 to:

- define by 2019 a target function for 100 percent of organizations in which the federal government owns an interest;

- ensure conformity of the composition of organizations in which the federal government owns an interest and whose property is owned by the federal government with objectives and strategic interests of the Russian Federation by 2019;

1 Shareholder's position of the federal government on critical matters regarding these companies shall be determined at government level.

- ensure conformity of competitive and higher-quality corporate governance of companies with an interest owned by the federal government with international standards;

- ensure further decrease in the number of federal treasury properties of the Russian Federation (excluding land parcels) from 1 percent in 2013 to 12 percent in 2019;

- increase substantially the share of commercialized land parcels;

- broaden the system of public control over federal property management and disposition;

- ensure a complete accounting for all federally owned properties under a unified federal property accounting and management system;

- ensure achievement of targets for federal budget revenues from the use and disposition of federal property.

New Program's goals and objectives

In terms of defining national policy priorities and goals, the new version of the Program contains a new reference to the Federal Act on Strategic Planning in the Russian Federation (previous versions contained no references to specific federal acts) in addition to the reference to the Concept of Long-Term Socio-Economic Development of the Russian Federation Until 2020, adopted by Russian Government's executive order No. 1662-r dated November 17, 2008.

The new version contains a new definition of independent experts as persons not holding a public office or non-civil servants of Russia, who are elected as members of supervisory boards ofjoint-stock companies with an interest owned by the federal government. A similar definition was made with regard to civil service for professional directors elected as members of governing boards of JSCs with an interest owned by the federal government.

As shown above, the projected goals and principal outputs for federal property management are defined more clearly than those set forth in the original version of the Program.

The new version of the Program has no clearly defined target outputs like those set for 2018 in the previous version: to increase the proportion of federally owned companies' shares listed in the Russian securities market, and to double stepwise the number of such companies (increase the number of government-controlled publicly-traded companies (OAO) listed in the Russian securities market), non-existence of federal unitary enterprises owned by right of economic management, provision of federal state registration of federal property ownership under the unified accounting and management system. Investment appeal and publicity are not mentioned with reference to international standards regarding increasing the quality of corporate governance of companies with an interest owned by the federal government.

Goals and objectives the Sub-Program for 'Enhancing the Efficiency of Federal Property Management and Privatization' underwent some kind of reformatting. The number of goals dropped from 5 to 3 and many objectives were reformulated.

Goal #1 (the new version of the Program, I) - to streamline the composition and structure of federally owned properties - appears to be bigger in terms of content volume than that in the original version of the Program (only definitions of property management targets). Therefore, the purpose, optimal composition and structure of federally owned properties are presented as an objective in the text (1), whereas objectives used to be bigger in number and less explicit (to check federal properties against objectives and interests of the Russian Federation as a public-law entity, including against powers vested upon federal government authorities, to establish a federal property management system to achieve specific goals through "road maps", to define a structural composition of federal property and a sequence of privatization of federal properties as business units).

However, the following problem-solving toolkit is almost the same, particularly with regard to the highlighted (in Goal #1) objective of (2) increasing the efficiency of federal property disposition and enhancing federal property commercialization policies, including privatization tools.

In the original version of the Program, respective policies were defined as a toolkit to deal with objectives for achieving a second goal on its own (to achieve optimal composition and structure of federally owned properties by reducing government participation in the economy, as well as streamline the composition of federal agencies operating in competitive economic sectors). The objectives were to switch from disposition of separate property or federally owned properties to disposition of business units, to increase the efficiency of disposition of equity shares in big shareholding companies with government equity participation with the aim to creating conditions for investment, securities market promotion as well as modernization and technology-led economic development, to gradually reduce the number of federal state unitary enterprises, as well as optimize the composition of other federal agencies. In this respect, a certified copy of an entry in the federal property register and technical stock-taking documents as necessary and sufficient grounds for ownership registration was mentioned among other polices proposed in the original version of the Program in the context of easing federal registration of immovable property ownership.

Goal #2 (the new version of the Program, II) - to increase federal property management efficiency - is formulated more concisely than that in the original version of the Program (Goal #3 is to increase the efficiency of corporate governance model for companies with an interest owned by the federal government, efficient management of federally owned properties with the proprietary interest transferred to federal agencies, federally owned land parcels, as well as properties that belong to the Treasury of the Russian Federation).

The key objective is formulated more concisely too: (3) to increase the efficiency and quality of corporate governance of companies with an interest owned by the federal government, federally owned properties including federally owned land parcels.

Such objectives were mentioned in the original version of the Program: to increase the quality of corporate governance of companies with an interest owned by the federal government and the effectiveness of vertically-integrated companies and holding companies, to streamline mechanisms of shareholder's rights of the federal government with regard to publicly-traded companies (OAOs), to ensure efficient management, appropriate use and safekeeping of federally owned properties of federal organizations, to minimize the number of properties constituting the Treasury of the Russian Federation (interim status of federally owned properties), to provide a proprietary framework for federal government authorities as well as other organizations as stipulated by statutory acts, including policies aimed at accommodating certain organizations in premises that meet up-to-date operational requirements and exercising powers vested on government authorities, to ensure rational, efficient use of land parcels owned by the federal government and maximum yield.

Like in Goal #1, the original and new versions of the Programs have the same list of policies to achieve set objectives, except that supervisory boards of companies with government equity participation, including independent experts, are mentioned in addition to governing boards in the new version.

Goal #3 (the new version of the Program, III) is to provide efficient supervision, accounting and monitoring of the use of federally owned properties. In the original version of the Program, this goal (Goal #4) was less explicit: to provide federal property management supervision, to

decrease the probability of failure to achieve the set goals and objectives, as well as to minimize potential losses from unfavorable circumstances and conditions." In addition, there was a separate goal (Goal #5) for federal property accounting and monitoring through introduction of a unified federal property accounting and management system including mechanisms of collection and presentation of information for making and analyzing the effectiveness of management decisions regarding federally owned properties.

The new version of the Program sets only two objectives to achieve Goal #3: (4) to broaden supervision channels and to increase personal liability for management and use of federally owned properties, (5) to increase the effectiveness of the system of accounting and monitoring of the use of federal property.

The original version of the Program contained a wider range of such objectives (to increase liability of authorized federal property managers (persons) for mismanagement, for federal property management reporting and to improve reporting procedures and forms for achieving target performance indicators set by federal agencies and companies with an interest owned by the federal government, for developing an integral scheme of incentives and liability of all those involved in the federal property management process for enhancing monitoring and expanding supervision channels over the use of federal property and the achievement of target performance indicators). Those objectives were complemented with objectives implied by the goal of federal property accounting and monitoring (to increase the accounting efficiency regarding federal property by defining its composition and levels of accounting itemization, by developing accounting and federal property management systems, by document management and storage (management decisions library) through digitizing respective paper document archives regarding federal property management, to switch to electronic interaction between managers, to create new channels for interaction between federal property managers, potential investors and the general public).

Like the foregoing goals, the new and the original versions of the Program have almost the same toolkit designed to achieve the set objectives, except that the new version contains policies to increase the quality of projection and planning for federal budget revenues from disposition and use of federal property.

Preliminary outputs

Both the new and the original versions of the Program contain a whole host of schedules thereto, of which data on metrics of indicators are of most interest. Publication of the data allows one not only to compare the two versions of the Program but also measure actual program outputs over the first half of the Program (Tables 13-16).1

The dynamics of the Federally-Funded Program for Federal Property Management in 20132016 with regard to defining the target function of properties can be viewed as an evidence of earlier than expected achievement of target values across all categories (Table 13). Formal 2018 target indicators for unitary enterprises were achieved earlier than expected, in 2015, which might have been the reason why this indicator cannot be found in the set of indicators in the new version of the Program.

1 Despite the fact that the initial stage of the Program covered 2013-2015, it is relevant to examine the 2013-2016 program outputs due to an extension of the Program through 2019 and published Rosimushchestvo' s Performance Report 2016.

Table 13

Implementation of 2013-2016 Federally-Funded Program for Federal Property Management and indicators until 2019 with regard to target function definition (share of assets with specific target function)

Indicator 2013 2014 2015 2016 2017 2018 2019

target actual target actual target actual target actual

Percentage share of FSUEs* 25 87.1 35 97.8 45 100 60 100 - - -

Percentage share of shareholding companies with government full ownership interest 25 58.9 35 61 45 68 50 65.5 100 100 100

Percentage share of federal treasury properties 5 45 10 27.1 15 39 20 ** 40 45 50

Percentage share of FGAs - 0 - 20.5 - 32 5 49 60 100 100

* not included in the new 2017 version of the Program;

** the indicator was estimated using an information system KAZNA (hereinafter KAZNA). The Accounts Chamber of the Russian Federation held an onsite inspection (Examination of adequacy of policies to ensure safekeeping of federal treasury properties of the Russian Federation, save for federally owned interest, stake (share) in the charter (pooled) capital of shareholding companies and partnerships (as part of progress control measures regarding the Federally-Funded Program for Federal Property Management)) at the Federal Agency for State Property Management, which revealed improper operation of KAZNA for calculating the quantity of properties/assets. KAZNA's technical problems led to using incorrect data for calculation of the indicator for previous periods and incorrect values of indicators.

Source: The Federally-Funded Program for Federal Property Management adopted on April 15, 2014 by Russian Government's executive order No. 327, last updated on 31 March 2017, Rosimushchestvo's performance reports for 2013-2016, www.rosim.ru.

Therefore, higher values were expectedly set for 2017-2019 indicators for other categories of assets: the target function for shareholding companies and for federal government agencies was supposed to be defined in 2017 and in 2018, respectively (in 2018 in the original version of the Program), whereas the previous version of the Program expected the target function to be defined for only 15 percent of federal government agencies by 2018. Special emphasis is to be placed on properties that belong to the Treasury of the Russian Federation. The target function for this category is anticipated to be defined earlier than it was scheduled in the original version of the Program. This, however, is to be done by 2019 for only half of properties, and KAZNA's technical problems revealed by The Accounts Chamber of the Russian Federation and reported by Rosimushchestvo in its 2016 performance report raise the question about whether the values for this indicator are substantiated.

The dynamics of the Federally-Funded Program for Federal Property Management in 20132016 with regard to streamlining the property composition and structure (Table 14) shows noticeable deviations in cutting the number of business organizations that are related to federal property (unitary enterprises and shareholding companies with government equity participation). Target and actual values were approximately the same only in 2013. In 2014, the dynamics of decline in the number of economic agents' business-related organizations turned out to be below target values: 8.8 percent for JSCs with government equity participation (against the target set at not less than 15 percent), 6.3 percent for FSUEs (against the target set at not less than 12 percent). In 2015, in percentage terms, the actual figures matched the target (12 percent) for JSCs, whereas actual figures (12 percent) for FSUEs were marginally below the target (13 percent). In 2016, amid an explicit deviation of the indicator for decline in the

number of FSUEs (actual value of 9.7 percent compared with the target set at not less than 15 percent), the decrease rate (20.9 percent) for JSCs tripled the target set at not less than 6 percent.

Table 14

Implementation of 2013-2016 Federally-Funded Program for Federal Property Management and indicators until 2019 with regard to streamlining property

composition and structure

Indicator 2013 2014 2015 2016 2017 2018 2019

target actual target actual target actual target actual

Annual decline in number not less than 15 not less than 12 not less than 5 not less than 6 not less than 7

of JSCs with government ownership interest, percentage change year on not less than 9 10.3 8.8 12 not less than 6 20.9

year

Annual decline in number not not less than 12 not less than 13 not less than 15 not less than 20 not less than 13 not less than 13

of FSUEs, percentage change year on year less than 6 6.9 6.3 12 9.7

Disposition of big highly sought investment

properties through public offering (out of such properties envisaged for disposition under this year's decisions of Russian President and/or not less than 4 6 not less than 4 2 not less than 4 0 not less than 4 3 - - -

Russian Government b)

(exchange transactions

and strategic sales) (quantity)*

Acreage reduction of non-commercialized federal

treasury land parcels as

percentage of area of federal treasury land

parcels in 2012 (excluding 5 3.7 10 21.5 15 17 20 33.9 25 30 35

de-commercialized and

restricted for

commercialization land

parcels,), in percentage

terms

Decrease in number of

federal treasury properties (excluding land parcels) from 2012 (excluding properties owned exclusively by the Russian Federation), in 1 2.5 3 4.6 5 5 7 ** 9 11 12

percentage terms

* not included in the new 2017 version of the Program;

** the indicator was estimated using an information system KAZNA (hereinafter KAZNA). The Accounts Chamber of the Russian Federation held an onsite inspection (Examination of adequacy of policies to ensure safekeeping of federal treasury properties of the Russian Federation, save for federally owned interest, stake (share) in the charter (pooled) capital of shareholding companies and partnerships (as part of progress control measures regarding the Federally-Funded Program for Federal Property Management)) at the Federal Agency for State Property Management, which revealed improper operation of KAZNA for calculating the quantity of properties/assets. KAZNA's technical problems led to using incorrect data for calculation of the indicator for previous periods and incorrect values of indicators.

Source: The Federally-Funded Program for Federal Property Management adopted on April 15, 2014 by Russian Government's executive order No. 327 last updated on 31 March 2017, Rosimushchestvo's performance reports for 2013-2016, www.rosim.ru.

In the new version of the Program, decrease rates in 2017-2019 are slower than in the original version (5-7 percent compared with 8 and 18 percent in 2017-2018, respectively), whereas they are the same for FSUEs (20 percent in 2017 and 13 percent in 2018-2019 compared with 20 percent and 13 percent in 2017-2018 of the 2014 version of the Program).

An important indicator in the original version of the Program was at least 4 deals (since 2013) involving highly-sought big investment properties through public offering (exchange transactions and strategic sales) with regard to properties envisaged for disposition upon current year's decisions of the Russian President and/or the Russian Government. The value (6) of this indicator in the pre-crisis 2013 was 1/5 times the target. The number of such deals in 2014 decreased substantially (tripled) compared with 2013, and no such deals were specified for 2015. The number of deals in 2016 was bigger (3) than that (2) in 2014, but halved (6) compared with 2013. A total number of such deals (11) represented less than 3/4 of annual values in four years (2013-2016), according to the Program.

Acreage reduction (compared with 2012) of non-commercialized federal treasury land parcels lagged behind the target at the onset of the Program (2013), but then outran it by more than 1.5-2 times in 2014 and 2016. In light of what was achieved in 2016, when 2016 year-end acreage of non-commercialized federal treasury land parcels was reduced by more than one third (from 2012), the 2017-2019 targets of the new version of the Program seem to be slow because they match the indicators set in the original version (a decline of 25-35 percent from 2012).

The same holds true for changes in the number of other federal treasury properties. In 20172019, the number is expected to decrease by 9-12 percent from 2012, whereas decline rates in 2013-2015 were faster or similar to target values. In 2016, the problem of correct calculation of indicators using KAZNA data emerged, as noted above.

Table 15

Implementation of 2013-2016 Federally-Funded Program for Federal Property Management and indicators until 2019 regarding federal asset management toolkit (actual indicators only for JSCs with government ownership interest)

Indicator 2013 2014 2015 2016 2017 2018 2019

target actual target actual target actual target actual

Share of civil servants in governing and supervisory boards of JSCs with government ownership interest, in percentage terms 50 34.3 30 29.6 30 27 30 28.7 50 50 50

Share of JSCs (listed in Special List*, as well as other JSCs with government controlling interest) whose long-term programs include indicators for labor productivity growth, high-productive jobs creation and modernization, in percentage terms * * - - - - - - - - 70 80 90

* companies where shareholder's position of the federal government regarding some critical issues is to be determined at government level;

** a new indicator introduced by the 2017 version of the Program

Source: The Federally-Funded Program for Federal Property Management adopted on April 15, 2014 by Russian Government's executive order No. 327 last updated on 31 March 2017, The Rosimushchestvo's Performance Report for 2016, www.rosim.ru.

The management toolkit for federally owned assets (Table 15) is in fact related to an indicator representing a share of civil servants in governing and supervisory boards of JSCs in which the federal government owns an interest. In 2013, the value of this indicator (more than 1/3) was much less than the target (1/2). The same was seen when signs of economic downturn emerged in 2014-2016, although the Prime Minister said civil servants would be temporally back in governing boards of federally owned companies to provide a more thorough supervision (no scope and term of such policies were specified).1 At that period, a share of civil servants came out to be marginally smaller that the target set forth by the original version of the Program for 2014-2018 (a constant value of 30 percent). In the new version of the Program, the 20172019 indicator for a share (50 percent) of civil servants is equal to that for 2013 and is therefore questionable.

Regarding a new indicator (a share of JSCs in long-term programs that include certain indicators), as of August 01, 2017, indicators for labor productivity and labor productivity growth policies were included in long-term development programs (LTDPs) of41 (or 82 percent) out of the 50 JSCs listed in the special list, as well as of 134 out of 252 JSCs not listed in the special list, in which the federal government owns an interest of more than 50 percent in aggregate (or more than 53 percent).2 Therefore, while most important companies with an interest owned by the federal government had already reached the 2018 target, other companies with a controlling interest owned by the federal government have to put this matter on top of their agenda. However, consideration is to be taken of the fact that this refers only to companies with stable financial and business operations, in which Rosimushchestvo exercises shareholder's rights.3

The 2013-2016 dynamics of the Federally-Funded Program for Federal Property Management with regard to technology-led development of governance processes (Table 16) can be viewed as an evidence of achieving target values for most of the indicators, some of which were greatly outperformed by actual values.

In 2014-2016, in particular, nearly all public services were rendered in electronic format (more than 90 percent at 35, 50 and 65 percent, respectively, as recorded by the Program). Rosimushchestvo's services were fully digitized as provided for by the new version of the Program in 2017-2019, although this was expected to be done 100 percent in 2018 under the original version.

There are more questions to be answered regarding short-term (2017-2018) extrapolation of the degree of federal property accounting with a constant value of 80 percent set by the Program since 2014, with increase to 90 percent only in 2019. However, actual values for this indicator in 2015-2016 turned out to be less than those seen in 2013-2014, but matched the target.

In addition, federal organizations' complete integration into the FSIAS USPMS was far ahead of the schedule in the original version of the Program. In 2016, organizations with a government full ownership interest where fiscal accounting and reporting/accounting system was fully integrated into the FSIAS USPMS accounted for 40 percent of the total (the target was set at 20 percent), and 15.7 percent (the target was 10 percent) for organizations in which

1 At the peak of crisis, with no fear // Rossiiskaya Gazeta, January 15, 2015, No. 4 (6575), pp. 1, 4.

2 The 2016 year-end report on the management of federally owned shares in publicly-traded companies and the federal government's golden share (participation in corporate governance) in publicly-traded companies

3 Excluding JSCs where shareholder's rights are transferred on the government's behalf to other federal executive authorities and government corporations (GCs), or such JSCs have concluded a deed of trust, as well as JSCs in bankruptcy proceedings, and in liquidation, reorganization.

the federal government owns an interest of less than 100 percent, with the latter marginally higher (20 percent) in 2015.

Table 16

Implementation of 2013-2016 Federally-Funded Program for Federal Property Management and indicators until 2019 with regard to management processes

technology-led development

Indicator 2013 2014 2015 2016 2017 2018 2019

target actual target actual target actual target actual

Share of federally owned properties registered with the register of total identified and subject to registration properties (within current year), in percentage terms 70 96,6 80 100 80 80 80 80.2 80 80 90

Share of digitized public services of total services rendered by Rosimushchestvo, in percentage terms 10 40 35 98 50 98 65 93.3 100 100 100

Share of legally significant electronic document flow compliant with existing laws and regulations between Rosimushchestvo, including its local branches, and federal government agencies of total document flow with federal government agencies, in percentage terms* 5 6.1 35 21.1 60 38 75 57.3 - - -

Share of federal organizations with government full ownership interest** where fiscal accounting and reporting/accounting system is fully integrated into FSIAS USPMS, of total number of federal organizations with government full ownership interest* - 0 1 37.8 10 39 20 40 - - -

Share of federal organizations where federal government owns interest of less than 100 percent where fiscal accounting and reporting/accounting system is fully integrated into FSIAS USPMS, of total number of federal organizations in which the federal government owns interest of less than 100 percent, in percentage terms* - 0 - * ** 1 20 10 15.7 - - -

* not available in the new 2017 version of the program.

** this indicator is mentioned in the Program 2014 with regard to shareholding companies with a government full ownership interest which differs from the population of federal organizations with a government full ownership interest;

*** there is no data available for 2014 values of the indicator representing a share of federal organizations in which the federal government owns an interest of less than 100 percent where fiscal accounting and reporting/accounting system is fully integrated into the FSIAS USPMS, of the total number of federal organizations in which the federal government owns an interest of less than 100 percent.

Source: The Federally-Funded Program for Federal Property Management adopted on April 15, 2014 by Russian Government's executive order No. 327 last updated on 31 March 2017, Rosimushchestvo's performance reports for 2013-2016, www.rosim.ru.

Conversely, the increase in the share of legally significant electronic document flow compliant with existing laws and regulations between Rosimushchestvo, including its local branches, and federal government agencies of total document flow with federal government agencies was behind the schedule. The value for this indicator was nevertheless above 50 percent (more than 57 percent vs. the 75 percent target) at 2016 year-end.

In terms of fiscal performance, figures for federal budget revenues from federal property management and disposition (excluding revenues from privatization) were ahead of the schedule throughout the entire period of 2013-2016. The indicator stood at 103.4 percent in 2013, 157.8 in 2014, 108.0 in 2015, 103.4 in 2016. The indicator is not applied in 2017-2019.

Budgetary assignments are expectedly to be completed in full in 2017-2019 with regard to two new indicators describing the federal property management performance efficiency for the federal budget. Furthermore, two important updates were made: 1) revenues from disposition of shares of biggest JSCs were removed from the indicator for federal budget revenues from disposition of stakes in the charter capital of business partnerships and entities, and 2) Russian Government's dividend omission decisions must be considered with regard to the indicator for revenues accrued to stakes in the charter of business partnerships and entities, or dividends on shares held/owned by the federal government.

There are much more questions to be answered regarding another new indicator. The ratio of the purchase price and the estimated value of properties with ownership transferred to the federal government is expected to increase during 2017-2019. However, specified values (30 percent in 2017, 40 percent in 2018, 50 percent in 2019) imply that a pricing policy focusing on property nonliquidity, which in fact can be liquid, is allowed.

An illustration of this is sales of luxury property owned by VIPs. For example, the Rosimushchestvo Moscow Branch sold Ruslan Shamsuarov's Mercedes-Benz G63AMG1 through Sberbank-AST Electronic Trading Platform (ETP). A professional valuator estimated the fair market value of the vehicle at Rb 7538 thousand. The value was lowered by 30 percent due to lack of bids pursuant to Clause 17(1) of the Provision for disposition of properties with ownership transferred to the federal government, adopted by a Russian Government's executive order.

An auction for the motor vehicle, allowing for an increase in the offer price in case of high bidding activity, was held on December 27, 2017 and declared a success, i.e. the highest bidder was declared the purchaser. The auction opened at RUB 5276.6 thousand and closed at

RUB 6068.09 thousand, 15 percent above the offer price, but nearly 1/5 less the valuator's

2

price.2

In addition to data on values of indicators in the new version of the Program, the schedules thereto contain a List of core measures, Data on projected key legal regulatory policies, Resource provision for the Program through federal allocations, the Program Implementation Plan for 2017 and the Planning Period of 2018 and 2019. What is noteworthy is, without getting into details, a sharp shrinkage of package of laws and regulations (LRs) proposed for adoption.

1 LUKOIL Vice-President's son Ruslan Shamsuarov was the defendant in a media-covered Gelandewagen reckless driving case. The court held that Shamsuarov's Mercedes-Benz Gelandewagen, which was seized as a physical evidence, must be confiscated by the federal state.

2 www.rosim.ru, January 15, 2018.

This refers to amendments to a legal act and two presidential executive orders, whereas the previous version contained a list of 22 LRs, and the 2013 Program had 28 LRs.

To summarize the adoption of the new version of the Federally-Funded Program for Federal Property Management in 2017, the following is noteworthy. The Program is indeed one of the most important instruments of the national economic policy in recent five years. The program could have been adopted earlier, shortly after the general Concept of Federal Property Management and Privatization in the Russian Federation was adopted in 1999, as well as during a new stage of privatization since the early 2010s, when it was an opportune time for such an omnibus hands-on document.

The outputs of the Sub-program for 'Enhancing the Efficiency of Federal Property Management and Privatization' in 2013-2016, given the values of most of the indicators, show that actual values were ahead of target values, which relates to formal definition (not a substantiated assessment) of the federal property target function and management, including the technological aspect of the process. In addition, there was a noticeable deviation in the decrease in the number of business organizations related to federal property (unitary enterprises and shareholding companies with government equity participation) amid unexpected success in reducing the acreage of federal treasury properties (land parcels). Total number of major deals through public offering over four years turned out to be less than the annual total, according to the Program's data, mainly because of its outputs in 2014-2015.

Recent changes to the Program come down to the following:

- amid recently slimmed federal allocations, the Program was extended for one year (till 2019), the bulk of federal allocations cover, as before, the sub-program for 'Public Tangible Reserves Management' in the offing;

- goals and objectives of both the Program and the Sub-program for 'Enhancing the Efficiency of Federal Property Management and Privatization' are formulated more concisely and precisely;

- anticipated outputs were in part linked to timing (renewal of the federal property disposition system and setting the target function for organizations with an interest owned by the federal government by 2019) and quantitatively defined (dynamics of decrease in the number of federal treasury properties) as the toolkit designed to achieve established objectives remained unchanged;

- a set of indicators describing the implementation of the Program was renewed substantially (most of the indicators for management techniques and the indicator for the number of big deals through public offering were removed; indicators for fiscal efficiency of asset management (including privatization) were further extended; new controversial indicators related to the development of companies with government equity participation and disposition of property with ownership transferred to the federal government emerged).

Considering 2013-2016 outputs and adjustments, further prospects of the Federally-Funded Program for Federal Property Management can be viewed as relatively favorable prospects. Prerequisites for this are based on focusing on slow or sluggish dynamics of decrease in the number of federally owned assets; steadiness of projected values of indicators for a share of civil servants in governing and supervisory boards of JSCs with government equity participation and completeness of federal property accounting till 2019; noninclusion of deals involving biggest companies in assessment of federal budget revenues from disposition of shares, which, according to previous years' practice, show a strong effect of the business

component; consideration for certain dividends omission decisions when dividends are transferred to the federal budget.

There are, however, a few areas of concern inherent in the new version of the Program.

First, there is a clear priority of quantitative approach towards assessing a possible contraction of the public sector. Program's rates of decrease in the number of JSCs with government equity participation and FSUEs are not justified in terms of final assessment of how many FSUEs are needed to perform government functions and so that the federal government could adequately play its role in a economy. Neither are they justified in terms of engaging concrete mechanisms of government property supervision (various types of unitary enterprises, a share of various values in the equity of shareholding companies (JSCs and LLCs), the use of golden share, special types of ownership that are formally related to not-for-profit organizations (federally owned corporations and companies, autonomous organizations)).

Based on Rosstat's data (as of early 20171) on the number of economic agents related to federal property, namely 1356 shareholding companies and 1245 FSUEs, this number will drop approximately to 1100 and 750, respectively, by 2020 if Program's targets are achieved. As of early 2017, however, the scale of government assets at federal level for all categories of corporate entities was many times less than what was stipulated in the Concept 1999: 1.4 thousand shareholding companies vs. nearly 3.9 thousand (a decrease by nearly 3 times), about 1.25 thousand federal unitary enterprises vs. nearly 13.8 thousand (less by an order of magnitude), 16.2 thousand agencies vs. 23.1 thousand (a nearly 30-percent decrease). An exception to this are organizations for which there is no annual decrease indicator similar to that for shareholding companies with government equity participation and unitary enterprises.

It is important for this matter that a goal-oriented approach towards federal property should be supplied with analysis of potential effects of privatization with consideration for its feasibility, comparative economic effectiveness and allocative efficiency of public and private sectors, opportunity costs and the impact on certain markets, industries, regions, national economy as a whole. Furthermore, streamlining the composition and structure of federal assets through reducing their quantity cannot be equated with privatization. Contribution of blocks of equity shares and other assets to the charter capital of various federally controlled integrated companies, transfer of assets to other level of public ownership, liquidation of economic agents as part of bankruptcy proceedings do their part.

Second, switching to measuring the fiscal efficiency of privatization by the degree of forecasting accuracy in the privatization program (net of biggest asset sales) inevitably raises a question about the quality of forecasting and planning of federal budget revenues from disposition and use of federally owned properties in terms of justifying respective figures/values.

The Forecast Plan (Program) for Federal Property Privatization for 2017-2019 contains a target amount set for federal budget revenues from federal property privatization net of annual RUB 5.6 billion worth of shares in biggest companies, whereas the 2017 Report on Execution of the Forecast Plan (Program) for Federal Property Privatization for 2017-2019 reports RUB 5.83 billion of federal budget revenues from sold properties (excluding biggest sales), i.e., 104 percent of the target amount. A relatively easy achievement of targets is illustrated by the previous program's outputs: the target for annual budget revenues was set at RUB 3 billion,

1 Statistical data on the Performance Measures Framework for Federal Property Management, www.gks.ru, March 20, 2017

whereas actual amounts were RUB 8.0 billion in 2014, RUB 7.3 billion in 2015, RUB 9.5 billion in 2016, respectively.

Like in the previous versions, the Program contains no indicators for off-budget effects of privatization (investment promotion, competition and securities market, employment dynamics). However, the final paragraph (before the list of schedules) of the Program contains a separate reference to released public-sector workforce as an extra effect of federal property restructuring coupled with lifting the burden of property maintenance expenses and broadening the business sector's material base.

Third, there are few questions to be answered regarding management of federally owned assets. The indicator for a share of civil servants in governing and supervisory boards of JSCs with government equity participation fails to provide a comprehensive view of the entire body of government representatives because it doesn't cover proportions between other groups of persons generally referred to as professional directors (professional trustees and independent directors).

The following is to be considered to assess prospects for changes in the above indicator: the possibility and feasibility of engaging professional directors as members of governing and supervisory boards of military-industrial organizations related to the national security, which deserves a separate consideration,1 as well as subsidiary and associated companies of vertically-integrated companies and holding companies. It is obvious that quantitative characteristics of civil servants' membership format may need a major revision while selling a government ownership interest (equity participation) in companies with ordinary activities not subject to restrictions, and potential expansion of the practice of engaging professional directors to subsidiary and associated companies.

The indicator for a share of JSCs with government equity participation whose long-term programs contain indicators for labor productivity growth, creation and modernization of high-productive jobs describes just a single aspect of technical and economic efficiency, which is not related to outputs. The quality of corporate governance remains off the table as well.

It's not quite clear (in the Program) whether the amount of revenues from the amount of dividends scheduled for reporting year is equated with the respective budgeted amount and how Russian Government's dividend omission decisions will be considered.

The Program has no whatsoever indicators describing management of the federal property portfolio such as unitary enterprises, institutions, immovable properties including land parcels.

Fourth, the Program contains no analysis of risks to be mitigated through Program's policies. The previous 2013 Federally-Funded Program for Federal Property Management contained policies to deal with risks: an increase in government's informal pressure on privatized companies in case of insufficient regulation of industries in question; expansion of government and quasi government entities in the course of privatization; limited positive structural effects of privatization amid sluggish "external" policies aimed at improving investment environment, developing competitive environment, enhancing corporate governance; nontransparent preparation and making of decisions amid passive behavior of government authorities; token approach towards introducing management innovations. There are more risks that may arise throughout the program: a lack of adequate laws and regulations; inconsistency between property composition and government functions, low management efficiency, a weak

1 An exception was made for military-industrial companies related to the national security in the 2013 Federally Funded Program for Federal Property Management which had an indicator for a share of public-sector employees in governing and supervisory boards of JSCs with government equity participation.

investment promotion in the real sector, failure to generate nontax federal budget revenues, inadequate coordination and interaction between various government authorities, most of which are still pressing issues.

6.2. Compliance with the Corporate Governance Code: are there any improvements?1

6.2.1. The outspread of Corporate Governance Codes in the world

The first corporate governance code in its present-day meaning - the Cadbury Code - was adopted in the UK in 1992 when the Cadbury Committee on Corporate Governance Issues developed the guidelines for the best corporate governance practices. The Cadbury Code laid the foundation not only for British corporate governance codes, but also paved the way for development of such codes in Europe. Late in the 1990s and early in the 2000s, corporate governance codes were approved in Austria, Belgium, Germany, France, Switzerland and Sweden.2 At the same period, similar documents were developed in Australia, Canada, the USA and Japan. In Russia, the first corporate governance code was adopted in 2002. At present, a majority of developing and developed countries have introduced such codes, too.

The Cadbury Code emerged on the back of notorious corporate scandals of the late 1980s and the early 1990s (the Barlow Clowes, the Polly Peck and the BCCI). Corporate scandals became an additional motivation for development of corporate governance codes in Australia (the HIH and One. Tel), the Netherlands (the Royal Ahold), the US (the Enron, and the World Com) and Sweden (the ABB and the Skandia). In some countries, adoption of corporate governance codes was of a preventive nature (Austria, Germany and Switzerland).

Adoption of a corporate governance code is normally aimed both at making a country's corporate governance system more transparent and promoting investors', customers', employees' and the general public's confidence in joint-stock companies' governance and supervision practices. But to achieve this goal, a corporate governance code must be complied with. If not, even the very best document, in terms of its content, as an instrument of upgrading the corporate governance performance may become inefficient. So, the issue of introduction of the corporate governance code as well as utilization of some or other mechanisms of implementation thereof is very important. Lots of countries use specific methods of ensuring companies' compliance with their national codes whose standards may differ from one another in terms of toughness of corporate governance norms and do it with varying degrees of success.

The Cadbury Code can be viewed as a turning point of the "comply or explain" approach, the most popular method of ensuring compliance with corporate governance norms. Further promotion of that approach has been facilitated by the legislation of the European Union under which listed companies of the member-states of the European Union are required to disclose information on their compliance with the corporate governance code in terms of the "comply or explain" approach.3 Other corporate governance systems adopted that approach, too (Hong Kong, Egypt, Morocco, Singapore and other).

1 This section is written by Natalia Polezhaeva, RANEPA.

2 See: Haar B. Shareholder Wealth vs. Stakeholder Interests? Evidence from Code Compliance Under the German Corporate Governance Code (November 24, 2016). SAFE Working Paper No. 154. URL: https://ssrn.com/abstract=2875275.

3 See: Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006; Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings; Commission Recommendation of 9 April

The Russian corporate governance code was adopted not long ago1, and it is complied with by companies on a voluntary basis, however, it does not mean that this matter is left unattended: compliance is actively controlled by various institutions which engage among other things in "smooth" introduction of the code's principles and recommendations into companies' practices. The outputs of these activities and a number of other relevant issues are presently under consideration.

6.2.2. The novelties of the Russian Corporate Governance Code

The 2008 global financial and economic crisis gave a new impulse to revision and development of corporate governance norms. In its reports of 2009-2010 on corporate governance and financial crisis2, the OECD specifies that faults in corporate governance were conductive to the financial crisis. In 2011, the Financial Crisis Inquiry Commission established by the US Government released the Financial Crisis Inquiry Report3, in which it was stated that substantial faults in corporate governance and risk management in numerous systematically important financial institutions were the main cause of the crisis.

As is known, the OECD Corporate Governance Principles (hereinafter the OECD CGP) approved for the first time in 1999 on the back of a series of huge corporate scandals which swept over the world late in the 1990s and early in the 2000s (for example, the Enron and the World Com in the US and the HIH and One. Tel in Australia) were revised as early as 2004. Ten years later, in 2014, the crisis of the late 2000s laid the foundation for the start of a new revising of the OECD CGP and in 2015 the updated document was approved.4

It is quite obvious that the global financial and economic crisis was a driver of revision of the 2002 Corporate Behavior Code5 (hereinafter, CBC). Speculative investors which dominated the Russian market during the period of catch-up growth lost interest in Russian companies, while long-term investors needed precise understanding of a company's strategic goals and prospects and wanted to be sure that their rights would never be violated. This is infeasible to achieve without permanent upgrading of the regulatory norms and corporate governance practices.

Early in the 2000s, the Russian legislation on joint-stock companies was not yet developed enough and there were plenty of issues which the 2002 CBC was meant to make up for. Due to that, the CBC pattern became rather complicated and overloaded. The Corporate Behavior Principles set out in Chapter 1 of the CBC constituted the basis for the guidelines outlined in

2014 on the quality of corporate governance reporting ('comply or explain') 2014/208/EU. URL: http://eur-lex.europa.eu.

1 See hereinafter: E.Apevalova, N. Polezhayeva. The Novelties of Corporate Legislation and Regulation: Changes in the Civil Code and the New Corporate Governance Code // The Russian Economy in 2014. Trends and Prospects. Issue 36. Moscow: Gaidar Institute Publishing House, 2015. pp. 460-465.

2 See: OECD. Corporate governance and the financial crisis. URL: http://www.oecd.org/daf/ca/ corporategovernancea-ndthefinancialcrisis.htm.

3 Financial Crisis Inquiry Commission. The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States / Official Government Edition, 2011. P. XVIII. URL: http ://fcic.law.stanford.edu/report.

4 URL: http://www.oecd.org/corporate/principles-corporate-governance.htm.

5 Instruction No. 421/r of April 04, 2002 of the Federal Commission for Securities Markets (FCSM) "On Guidelines for Application of the Corporate Behavior Code // FCSM Bulletin No.4, April 30, 2002 (Instructions). It actually became null and void after publication of Letter No. 06-52/2463 of April 10, 2014 of the Central Bank of the Russian Federation in which the Corporate Behavior Code was endorsed.

the next nine chapters which were formulated too much in detail for the frameworks of such a document.

From the day of adoption of the CBC, a large number of corporate governance issues were resolved at the level of the legislation and regulatory acts. There was no longer any need in numerous CBC regulatory guidelines: individual chapters on the general meeting of shareholders (Chapter 2), governing bodies of the joint-stock company (Chapter 4), dividends (Chapter 9) and settlement of corporate conflicts (Chapter 10) were no longer required.

The new 2014 Corporate Governance Code1 (hereinafter the CGC) was modeled after the OECD CGP. The CGC is made up of two parts: Part I (A) includes corporate governance principles, while Part II (B), the guidelines for implementing thereof.

Part I of the CGC is of a more practical nature as compared to the annotations of Part II of the OECD CGP which is made up of comments on corporate governance principles meant to explain what such principles are based on.

What is the difference between the 2014 corporate governance principles and the 2002 corporate behavior principles and what do they have in common with the OECD corporate governance principles?

Firstly, the new name of the code - the Corporate Governance Code - reflects changes in the approach and role of the Code. It is not only a document formulating the principles of proper behavior of Russian joint-stock companies in respect of shareholders and investors, but "an effective instrument" of upgrading the efficiency of corporate governance and facilitating the long-term and sustainable development thereof.

The CGC borrowed from the OECD CGP the definition of the corporate governance which was absent in the CBC.

The definition of "corporate governance" covers the system of networking between the executive bodies of a joint-stock company and its board of directors, shareholders and other interested parties. Corporate governance is an instrument of defining the company's goals and methods of achievement thereof, as well as facilitating effective control over the company's activities on the part of shareholders and other interested parties.

Secondly, the CGC borrows the CBC's principles based on the OECD CGP as regards the rights of shareholders and equality of conditions for shareholders in carrying out by them of their rights and elaborates on them further in the guidelines (Chapter 1).

Thirdly, the principles related to a company's board of directors were modified the most (Chapter II).

The CGC specified the responsibilities of the board of directors by including a few OECD corporate governance principles. The board of directors is obligated to do the following:

- define the principles and approaches to organization of the company's risk management system and in-house control (2.1.3);

- play a key role in facilitating the company's transparency and complete disclosure of the information on a timely basis, as well as ensuring an easy access for shareholders to the company's documents (2.1.6);

- carry out control over the company's corporate governance practice and play a key role in the company's corporate affairs (2.1.7).

The CGC attached a form of the principle to the CBC recommendations dealing with the requirements set to a member of the board of directors. A member of the board of directors is

1 Letter No. 06-52/2463 of April 10, 2014 of the Central Bank of Russia "On Corporate Governance Code" // Bulletin No.40 of the Central Bank of the Russian Federation, April 18, 2014.

recommended to have an impeccable business and personal repute; relevant knowledge, skills and experience required for effective fulfillment of his/her duties (2.3.1).

The CGC has upgraded the principles as regards independent directors (2.4.1-2.4.4) as compared to OECD CGP by defining among other things the independent director as a person who has sufficient qualification, experience and independence to form a position of his /her own and make independent, objective and scrupulous judgments.

According to the CBC's recommendations, independent directors should make up minimum a quarter of the board of directors (in any case, at least three independent directors). As in case of the definition of an independent director, the requirement set to the number of independent directors became a CBC recommendation. The CGC made a principle out of that recommendation and increased the number of independent directors at least to one-third.

The CBC recommends toestablish committees made up of members of the board of directors for preliminary consideration of the most important issues facing the company. The CGC principles set new requirements to the composition of the committees (2.8).

The committees on the audit and remuneration should consist of independent directors. A committee on remuneration is to be chaired by an independent director who is not the chairman of the board of directors. Most members of the committee should be independent directors by nomination.

The latest recommendations transformed into the principle were the statutes on the chairman of the board of directors (2.5) (such a principle is absent in the OECD CGP), rights and obligations of members of the board of directors (2.6) and the obligation of the board of directors to facilitate evaluation of the quality of activities of the board of directors, its committees and members of the board of directors (2.9).

Fourthly, unlike the OECD corporate governance principles the Russian principles include those which deal with a company's corporate secretary. At present, such principles make up a separate small chapter (Chapter III of the CGC) and they are partially based on the CBC recommendations (Chapter 5 of the CBC Recommendations) which specify the objectives of the company's corporate secretary (that is, effective routine networking with shareholders, coordination of the company's activities as regards protection of rights and interests of shareholders and facilitation of efficient work of the board of directors) and set requirements to his/her job (for example, fair independence from the company's executive bodies).

Fifthly, the CGC develops into separate Chapter IV on the Remuneration System an individual principle of the CBC and the OECD CGP defining the dependence of the remuneration of members of the board of directors, executive bodies and other key managers of the company on their actual contribution to the company's performance, as well as long-term interests of the company and its shareholders.

Sixthly, the CGC updates the principles dealing with in-house control and establishes new principles of risk management (Chapter V). The CBC included risk management in the in-house control procedures, so, risk management principles were absent in it.

Development of the specified principles is justified by the notorious role which corporate governance shortcomings in risk management played in development of the global financial and economic crisis of the late 2000s. Despite the important role of the risk management system, very little is said about it in the OECD CGP.

Seventhly, as regards the principles of disclosure of the information on the company and the company's information policy the CBC and CGC (Chapter VI) do not specify what relevant information the company should disclose about its activities. However, the recommended parts

of the CBC and the CGC include a list of information meant for disclosure: from the information on the pattern of the company's capital to that on the company's social and ecological responsibilities.

The OECD corporate governance principles establish straightforward that the relevant information for disclosure should include among other things the information on the rights of major shareholders, voting rights, transactions with related parties and expected risk factors.

According to the guidelines of the CGC, the company's Web-site is the main source of information disclosure.

The principles of the CGC and the CBC dealing with confidentiality and the insider information are absent in the OECD CGP, but the principles of information provision are set out in the annotations to the OECD corporate governance principles.

Eighthly, as was seen, the CGC has transformed some recommendations of the CBC into the principles of corporate governance. The most important transformation is related to the provisions on material corporate operations (they were transformed from recommended Chapter 6 of the CBC into Chapter VII on the CGC Principles).

In Corporate Governance Codes, deemed as material corporate operations are, for example, a restructuring and a takeover of the company and transactions that have led to a substantial increase in or reduction of the company's authorized capital. A novelty of the CGC consists in the fact that listing and delisting of the company's equities are attributed to the above-stated operations. Provisions on material corporate operations are absent in the OECD CGP.

So, the main advantage of the 2014 CGC consists in its pattern which became more compact and convenient. Excessive provisions duplicating the legislation were removed from the CGC which started to meet to a greater extent the international standards of corporate governance and facilitate effective application thereof by companies.

6.2.3. The "comply or explain" approach

Under the Russian CGC, joint-stock companies, state-run corporations and companies, as well as other legal entities comply with the CGC's provisions on a voluntary basis. However, joint-stock companies whose securities are traded publicly should disclose information on compliance or specify the reasons for noncompliance with the CGC's principles. Consequently, the compliance of listed companies with the Russian CGC is based on the so-called "comply or explain" approach. However, it appears that in this context the meaning of the word "should" is not quite clear: is it a pressing suggestion or an obligation and if it is the latter what consequences does a company face for a failure to comply with the CGC?

The Statutes of the Central Bank of the Russian Federation on Disclosure of the Information by Issuers of Equity Securities1 are more concrete and establish that the company's annual report should include a statement on the company's compliance with the principles and recommendations of the CGC (Clause 70.3). Also, the provision in question sets the requirements to the content of the statement (Clause 70.4). In addition to the above, the Central Bank of the Russian Federation has developed both the guidelines for preparing the statement and the form of the statement.2

1 Approved by the Central Bank of the Russian Federation on December 30, 2014; No.454-P // Bulletin of the Central Bank of the Russian Federation, Issue No.18-19, March 06, 2015.

2 See Letter No. IN-06-52/8 of February 17, 2016 of the Central Bank of the Russian Federation "On Disclosure in the Annual Report of a Public Joint-Stock Company of the Information on Compliance with the Principles and Recommendations of the Corporate Governance Code // URL: http://www.cbr.ru/.

In the present-day practice of the corporate governance regulation, mandatory and hybrid regulations have become the most wide-spread. The latter represents a combination of the legislation ("the hard law") and the corporate governance code ("the soft law") which can be either complied with on an unconditionally voluntary basis or based on the "comply or explain" approach.1 In case of a hybrid regulation, the laws regulate such components of corporate governance as organization of the board of directors, shareholders' rights and the existence of the audit committee and mandatory external audit. The corporate governance codes deal with the issues related to independence of the members of the board of directors, in-house control, risk management and existence of the committees on remuneration and appointments.

In the mandatory regulation, also known as the "comply or else" approach, the regulator establishes in the form of law the corporate governance norms which are uniform and mandatory for all the companies. In case of a failure to comply with such norms, the company (its officials) will suffer a penalty in the form of a fine or imprisonment. The law does not elaborate on the factors behind noncompliance with the norms.2. This approach is not expensive, but effective, so it is recommended by the European Union for the integration process of developing countries, however, it has a lack of flexibility and motivation on the part of companies, entails a disproportionate burden in case of small companies and appeals little to foreign investors.3

In case of the "comply or explain" approach which is believed to be more efficient, the principles and codes of corporate governance are of a recommendatory nature and, consequently, are not mandatory to be complied with. However, a company which fails to comply with any norms is obligated to provide sufficient explanations. Both application of the norms and justification of explanations of noncompliance therewith are acceptable methods of compliance with the norms. If the company fails to provide explanations or provides insufficient explanations, the company may be punished. This approach permits companies to adjust corporate governance norms to their own specifics and grants them relative freedom in establishing the most suitable governance patterns to upgrade governance performance. Most developing and developed countries utilize the "comply or explain" approach.

Despite the fact that corporate governance codes involving the "comply or explain" approach are regarded as voluntary, too, implementation of the approach proper must be mandatory and underpinned by relevant institutions, as well as judicial and market enforcement measures. If not, corporate governance codes which officially declare such an approach do not differ at all from ordinary voluntary corporate governance codes and may happen to be even less efficient. Unfortunately, in practice the latter option prevails.4 Another disadvantage of this approach consists in the fact that it is mainly applied to listed companies.

At the relatively early stages of the corporate sector development when corporate governance standards are only being introduced by the regulator and companies, the "comply or explain" approach is less appropriate. With standards being defined, the benefit from

1 There is another approach - "apply or explain" - which represents a more accurately formulated version of the "comply or explain" approach. This approach is used in the Republic of South Africa.

2 See here and after: Sarkar S. The Comply-or-Explain Approach for Enforcing Governance Norms (July 15, 2015). URL: https://ssrn.com/abstract=2638252.

3 See.: Nedelchev M. Good Practices in Corporate Governance: One-Size-Fits-All vs. Comply-or-Explain (September 30, 2013) // International Journal of Business Administration. Vol. 4. No. 6. P. 77, 78.

4 Cm.: Hadjikyprianou G.C. The Principle of 'Comply or Explain' Underpinning the UK Corporate Governance Regulation: Is There a Need for a Change? (May 20, 2015). Corporate Law: Corporate Governance Law Journal, Vol 7, Issue 81, November 27, 2015. URL: https://ssrn.com/abstract=2690687.

flexibility of the approach starts to outweigh its cost; the company gets higher motivation to adopt good governance practices and the regulator becomes more effective in evaluating alternative patterns of governance. With most standards established, the regulator becoming completely efficient and complexity of regulation reduced to enforcement of compliance with corporate governance norms, a switch-over to the "comply or else" approach which has a certain extent of flexibility1 may become expedient.

It is to be noted that in developing countries where optimal governance mechanisms maximizing the company value are just evolving, such factors as non-transparency of the company's activities, inefficiency of stock markets and a lack of financial experience with an average shareholder coupled with complex and multiple organizational, ownership and supervising structures may on one side make the "comply or explain" approach quite effective, while on the other side complicate application thereof by burdening the regulator with identification and promotion of the best governance structures.

Lots of European countries are at the advanced stage of the "comply or explain" approach with a detailed description of principles and codes of corporate governance and an active regulator in place. India and the US apply the "comply or else" approach.2 India is a fast-growing and developing economy with evolving standards of corporate governance.3 On the contrary, the US is a very mature economy with a corporate governance system being well adjusted for many years. However, both India and the US consider a possibility of introducing the "comply or explain" approach in respect of individual corporate governance norms related to independent directors, non-financial reporting and corporate social responsibility.4

The efficiency of the "comply or explain" approach largely depends on a drive to good corporate governance, transparency of the company's activities and identification of governance standards. The efficiency of this approach is influenced by the quality of evaluation of the adequacy of explanations provided by companies in respect of departures from the norms. There are three "appraisers": a shareholder, the financial market and the regulator.

The first two "appraisers" have disadvantages which make them unpopular.

Shareholders as "appraisers" may lack financial experience and economic motivation and a free-rider problem is common to them. For an average shareholder who is less informed than a company's manager it is difficult to assess a departure from the corporate governance norm, particularly, the principle.5 Even in case of identification by an individual shareholder of an unjustified departure from the norm, a retrieval of the optimal governance structure may have

1 For example, requirements to the composition of the board of directors and companies' committees are determined as a percentage of the size of the boards and committees and not by concrete figures.

2 See Clause 49 of the 2000 Listing Agreement and the Sarbanes-OxleyAct of 2002.

3 At the same time, Brazil and the Republic of South Africa whose governance structures are undergoing the initial stages of development have adopted the "comply or explain" approach.

4See: Lai B. Y. Are Independent Directors Effective Corporate Monitors? // An Analysis of the Empirical Evidence in the USA and Canada (May 2, 2014). URL: https://ssrn.com/abstract=2781671; Harper H, Virginia E. 'Comply or Explain' and the Future of Nonfinancial Reporting // 21 Lewis & Clark Law Review 317 (2017); Singh P.D., Poonawala S.H. Whether and Where to Spend Mandatory CSR? (June 30, 2016). URL: https://ssrn.com/abstract=2802866; Dharmapala D., Khanna V.S. The Impact of Mandated Corporate Social Responsibility: Evidence from India's Companies Act of 2013 (November 28, 2016). CES ifo Working Paper Series No. 6200. URL: https://ssrn.com/abstract=2895986.

5 For example, the Chinese Corporate Governance Code is made up of 95 principles of corporate governance, but includes no explanations of them, nor does it specify the status and number of independent directors in the board of directors. For an average Chinese shareholder, it is difficult to estimate compliance of the governance structure proposed by managers with the company's interests.

no sense in economic terms because the organization of networking with other shareholders on this issue requires substantial costs. Also, a substandard quality of assessment by shareholders can be explained by the existence of the so-called free-rider problem when each shareholder seeking to save funds expects other shareholders to make a good assessment without his/her participation.

The financial market involves multiple investors, so as an "appraiser" it does not experience a shortage in economic motivation. However, as an association of individual shareholders, the financial market faces the free-rider problem and the problem related to a lack of experience, too. In addition, the financial market is an expensive instrument of ensuring compliance with the corporate governance norms. The financial market as an "appraiser" does not suit well developing economies because they lack the required conditions (disapproval of the overlapping of the roles of the top manager and a dominating shareholder, existence of a highly liquid financial market with low operating costs and other). In the financial market, if a company departs from the "comply or explain" approach, market-based measures of enforcement are available.

Shareholders and financial markets are "appraisers" in Brazil, Spain, the Republic of South Africa and South Korea. In the UK, shareholders assess the quality of explanations of departures from the norms of the corporate governance code and inform the regulator of any discrepancies. However, due to insufficient efficiency of the existing method of ensuring a company's compliance with the code, the UK is looking for other options with an expanded role of the regulator.1

The regulator can be an effective "appraiser" and have proper competence, motivation and authorities to seek enforcement of its requirements. However, as in case of shareholders, the regulator has disadvantages of its own (a lack of skilled personnel, excessive toughness and other) which may turn out to be very serious in such a specific institutional environment as Russian. An immature regulative interference may pose a threat to the entire concept of the "comply or explain" approach by undermining the principles of voluntary participation and flexibility initially envisaged in it. The regulator's interference should not unreasonably overburden companies.

In lots of West European countries, including Belgium, Germany, France and Sweden, the regulator acts as an "appraiser". It is worth paying attention to Belgium's experience in developing practical guidelines for high quality explanations2, for example: in explaining its departure from the norms of the corporate governance code a company cannot simply refer to the fact that it considers such norms as inappropriate; for ensuring better transparency the reasons for departure from the norms should be specified in the corporate governance statement; the board of directors should approve the reasons for such departures, their contents and other.3

It is believed that in many developing countries in the "comply or explain" approach the regulator together with shareholders can be the main "appraisers"; this practice may minimize

1 For more details, see: Hadjikyprianou G.C.

2 Belgian Corporate Governance Committee. Practical rules for high-quality explanations (2016). URL: http://www.corporategovernancecommittee.be/en/explanatory-notes/practical-rules-high-quality-explanations-2016-version.

3 In Russia, similar recommendations can be found in Letter No. IN-06-52/8 of February 17, 2016 of the Central Bank of the Russian Federation "On Disclosure in the Annual Report of a Public Joint-Stock Company of the Statement on Compliance with the Principles and Guidelines of the Corporate Governance Code".

disadvantages proper to either of them as an individual "appraiser". Taking into account its weakness in the above stated category of countries, the financial market plays an auxiliary role.

6.2.4. Compliance of companies' practices with Corporate Governance Codes abroad

The levels of compliance of companies with corporate governance codes may greatly differ in various countries. For example, in Belgium, Spain, Italy, the Netherlands and Germany they exceed 90 percent.1 As shown below, they are much lower in countries of Central and Eastern Europe.

A particular attention is to be paid to the German Corporate Governance Code (Deutscher Corporate Governance Kodex, DCGK2) as revised in 2015 which was developed by the German Government Commission on DCGK.

The DCGK includes the norms of governance and supervision for listed companies, as well as generally recognized standards of good and responsible governance. The Code is meant to make the corporate governance system more transparent and clear. It is aimed at promoting international and national investors', customers', employees' and general public's confidence in supervision and governance of listed companies in Germany.

The Code includes the guidelines noncompliance with which the company has to explain (that is, "shall" guidelines) and those noncompliance with which it may not explain (the "should" guidelines"). The DCGK is mainly made up of the "shall" guidelines and, consequently, is based on the "comply or explain" approach which is mandatory as envisaged by Clause 161 of the German Law on Joint-Stock Companies (Aktiengesetz, ActG).

The main three novelties of the 2015 DCGK emphasize the growing role of the supervisory council:3

- the supervisory council of a listed company is advised to establish the maximum term of office of a member of the supervisory council, taking into account the company's specifics (the "should" guidelines);

- the supervisory council is recommended to make sure that a nominee to the supervisory council is fit to fulfill his/her responsibilities during the entire period of the established term of office (the "should" guidelines);

- the supervisory council is advised to specify in its statement that during the financial year its member took part in less than a half of meetings of the council or committee which he/she is a member of; participation in meetings by phone or videoconferencing is regarded as proper participation, however, it should not be a prevailing one (the "should" guidelines)4.

:See; Harper Ho, Virginia E, 'Comply or Explain' and the Future of Nonfinancial Reporting (July 15, 2017). 21 Lewis & Clark Law Review (2017). P. 320.

2 URL: http://www.ecgi.org/codes/documents/cg_code_germany_5may2015_en.pdf.

3 The board of directors in the German model of corporate governance is a two-tier body made up of a unit which is entrusted with day-to-day management - the board of governors - and the body which forms the composition of the board of governors, controls its operations and formulates the general development strategy of the company, that is, the supervisory council. Also, the Supervisory Council appoints the company's general director. See: Yu.I. Pugach. Comparing Corporate Governance Models in US and German Companies // Law and Modern State. 2015. Issue No.1. p. 84.

4 See: Regierungs kommission. Deutscher Corporate Governance Kodex. Press Release. Frankfurt am Main, 11 May 2015. P. 1, 2.

Late in March 2017, all the companies listed on the DAX and the MDAX - the stock exchange indices -- had their statements on compliance with DCGK published, so, one can make the following conclusions based on them.1

On average, 96.4 percent of large listed companies have the "shall" guidelines. Plenty of companies demonstrate a 100-percent compliance with the guidelines; 8 percent of companies fail to comply at least with one out ten recommendations of GCGC. As compared to the previous year, in 2017 the level of compliance of DAX-listed companies did not change, while that of MDAX-listed companies grew by 0.4 percent.

It is to be noted that only 7 percent of all the companies explain the noncompliance with the "should" guidelines.

The GCGC norms which fail to be complied with more often include those on the board of governors, the supervisory council and transparency. In particular, companies do not comply with recommendations in respect of the upper limit of the remuneration of members of the board of governors; upper limits of termination benefits; disclosure of the size of remuneration of members of the supervisory council by means of tables proposed by GCGC; the composition of the supervisory councils and objective set to it; remuneration of the directors.

The clause on the composition of the supervisory council has the lowest level of compliance (56 percent). A similar situation is observed with setting of objectives to the board of directors. The clause dealing with the pattern of remuneration to members of the board of governors is rated the second as regards noncompliance (only 60 percent). Recommendations as regards disclosure of the size of remuneration to members of the board of governors by means of tables proposed by GCGC are complied with in less than 90 percent of cases.

Large companies demonstrate a higher level of GCGC compliance.

It is to be noted that about three-fourth of DAX-listed companies achieve the indicator's best values as regards "monitoring and control", "transparency" and "dilution of equity" and lower values as regards "motivation schemes". Only a half of MDAX-listed companies achieved maximum results as regards all the four indicators. More substantial changes are observed in the "dilution of capital" indicator: in 2017 this indicator's minimum value fell from 67 percent to 50 percent as compared to the previous year. Nearly 30 percent of DAX-listed companies have the level of compliance as regards "motivation schemes" below 85 percent. Companies expect relevant changes to permit them to reduce by 4 percent the level of noncompliance.

The German practice of dividing the guidelines of the corporate governance code into those which require explanations of noncompliance and those which do not is believed to be quite effective, trend-setting and at the same time not burdensome for companies which are not yet prepared for corporate governance structures. The practice of making the "comply or explain" approach legally mandatory both for the companies and the controller, particularly, in countries where the culture of compliance with corporate governance norms has not been completely formed yet - this was proved by findings of the research carried out by the European Bank for Reconstruction and Development (EBRD) - is worth studying.

In the 2016-2017 EBRD reports2, they assessed the state of corporate governance systems and individual components thereof, strengths and weaknesses of corporate governance systems

1 See: Beyenbach J, RappM.S., Strenger C, Wolff M. Code Compliance Study 2017 - Analysis of the Declarations of Conformity with the German Corporate Governance Code (Version May 2015) (June 27, 2017). URL: https://ssrn.com/abstract=2993262.

2 See: The EBRD. Corporate Governance Sector Assessment. URL: http://www.ebrd.com/what-we-do/sectors/legal-reform/corporate-governance/sector-assessment.html.

and the need of further corporate governance reforming in 34 countries (Table 17). According to their estimates, moderate strong ("4") corporate governance codes envisaging the "comply or explain" approach are in effect in Poland, Slovenia, Croatia, Estonia, Lithuania and Latvia ("3-4").

Table 17

The state of corporate governance codes and the need of their reforming

in 34 states, EBRD

Country CGC Country CGC

Azerbaijan 2 Macedonia 2

Albania 2-3 Morocco 2

Armenia 3 Moldova 2

Belarus 2 Mongolia 2

Bulgaria 2 Poland 4

Bosnia and Herzegovina 2 Russia 4

Hungary 3 Romania 3

Greece 3 Serbia 2-3

Georgia 2 Slovakia 3

Egypt 2-3 Slovenia 4

Jordan 2 Tajikistan 2

Kazakhstan 2 Tunisia 2

Cyprus 3 Turkey 3

Kosovo 3-4 Ukraine 2

Kirgizia 2 Croatia 4

Latvia 3-4 Montenegro 2

Lithuania 3-4 Estonia 4-5

"5" - strong or very strong: corporate governance code (CGC) corresponds to its purpose and best practice.

"4" - moderately strong: larger part of code complies with its purpose, but further reforms on some aspects are required.

"3" - good: code represents some components of good practice, but there are a few key issues pointing to need to reassess code as a whole for reforming purposes.

"2" - weak: code may represent some components of good practice, but needs reforming in general. "1" - very weak: code represents substantial risks and needs serious reforming

Source: The table is based on the EBRD reports.

The 2005 Estonian guidelines for corporate governance (currently under revision) developed by the Financial Supervision Authority, (FSA) and the Tallinn Stock Exchange, (TSE) are approaching the very strong level ("5") and correspond to their purpose and good practice. The document is fairly complete and well implemented.

Ten large national listed companies publish statements on corporate governance on their Web-sites and in their annual reports. Many explanations of departures from provisions of the code are adequately justified, informative and refer to companies' practices. A majority of listed companies do not comply with recommendations on electronic voting and disclosure of remunerations to members of the board of directors.

It is to be noted that the Estonian code does not cover key issues as regards formation and composition of committees of the board of directors, assessment of activities thereof, the Ethics Code, qualification of the directors, in-house control and other. This partially explains a high level of companies' compliance with the Code's provisions.

Generally, the FSA effectively facilitates compliance with the corporate governance guidelines and publishes on a regular basis detailed reports on assessment and promotion of listed companies' practices and progress in the disclosure of information. The latest reports were provided in 2010 and 2011.1 On its part, the TSE facilitates compliance with the Code, publishing annual ratings of the top 20 listed companies of the Baltic Region. One of the criteria of the rating is the quality of a company's annual report. Companies which seek to occupy the top rating positions are expected to provide a complete review of their practices.

The Polish, Slovenian and Croatian Corporate Governance Codes are comprehensive and well-implemented.

1 See: FSA. Corporate Governance Overviews. URL: https://www.fi.ee/index.php?id=12510.

Poland's ten largest listed companies provide reporting on their compliance with the national corporate governance code, with nine of them offering explanations in case of noncompliance with individual provisions of the Code. On average, companies fail to comply with 1-3 provisions of the CGC. Most explanations are of an informative nature, but the quality is getting down as the size of companies diminishes. The Warsaw Stock Exchange is entrusted with the responsibility of facilitating companies' compliance with the Polish Corporate Governance Code, however, the EBRD did not find relevant reports of the stock exchange or another entity which is in charge of control over compliance with the code.

Slovenia's nine largest listed companies out of ten included statements on compliance -based on the "comply or explain" approach - with the corporate governance code in their annual reports. Only two companies appointed an official to supervise the company's compliance with the Code. The Ljubljana Stock Exchange which actively promotes good corporate governance practices published in 2012 the statistical analysis of companies' compliance with the Slovenian Code.1 According to the analysis in question, upgrade in the compliance level was observed in the past few years. However, the level of compliance presented in annual reports can be artificially overstated on the back of incorrect interpretation by companies of the CGC's provisions. Also, companies' explanations of departures from the Code's provisions seem too formal and rarely include concrete arguments or alternative practices.

Croatia's ten largest listed companies published statements on their compliance with the national corporate governance code, however, not all the explanations of departures from the norms were justified. Despite good statistical reports on corporate governance in general, the Croatian Financial Supervision Authority and the Zagreb Stock Exchange do not exercise proper control over explanations provided by companies.

The courts of law in the above countries rarely or never refer to corporate governance codes as a source of companies' rights and obligations.

In Latvia and Lithuania, companies' explanations in case of noncompliance with provisions of the corporate governance code look often uninformative. Also, a big problem is a lack of active controllers monitoring compliance with the Codes and, consequently, this makes relevant reporting unavailable.

The countries with a good ("3") level of corporate governance codes based on the "comply or explain" approach include Hungary, Greece, Cyprus, Romania, Slovakia, Serbia and Turkey. All these countries are member-states or associate members of the EU.

According to the Hungarian legislation and the listing rules of the Budapest Stock Exchange, the country's listed companies are obligated to provide reporting on compliance with the corporate governance code and explain the reasons for departure from the code's provisions. Hungary's ten largest companies publish compliance statements on their Web-sites. Most statements demonstrate a fairly high level of compliance, but explanations of departures from the norms are often formal and uninformative. Also, the corporate governance code has a rather complicated pattern: provisions are divided into recommendations, proposals and explanations. It is to be noted that not all the provisions are in line with the latest legislative changes and the best practices. It is not clear again which entity is responsible for ensuring companies' compliance with the Hungarian Code.

In other countries of this group, a generally similar situation with some deviations is observed. For example, Creek companies interpret differently the "comply or explain"

1 See: Ljubljanska borza. Analiza razkritij odstopanj v izjavah o skladnosti s Kodeksom (September 2014) http ://www.ljse.si/media/Attachments/Izdaj atelj i/Analiza_razkritij_odstopanj_izjav_CG_2012_internet.pdf

approach: at least 1/3 of the listed companies developed corporate governance codes of their own and provided statements on compliance with them, which situation cannot be regarded as a very good practice. In the Turkish Code, provisions related to independent directors, committees and separation of duties between the chairman of the board of directors and the chief executive director are mandatory for listed companies. Fulfillment of other provisions is based on the "comply or explain" approach. However, penalties may not necessarily be imposed either in case of violation of a mandatory provision or supply of insufficient explanations of departures from a non-mandatory norm; this is evidence of insufficient control over companies' compliance with corporate governance norms.

The weak ("2") level of corporate governance codes based on the "comply or explain" approach can be observed in Bulgaria, Macedonia, Montenegro, Bosnia and Herzegovina, as well Moldova. The CGCs of the above countries are characterized by a weak content; only a few companies comply with the CGC; application of the "comply or explain" approach is ineffective (for example, scoring tables with numerical values in Bulgaria and Montenegro); explanations of departures from the CGC's provisions are few and uninformative; there is a lack of proper control over compliance with the corporate governance code.

In the rest of the countries with weak corporate governance, compliance with the CGC is voluntary (Belarus, Kazakhstan, Mongolia, Tunisia, Ukraine and other) or this can be stated as such judging by a rather low level of companies' compliance with the Codes (Azerbaijan, Georgia, Egypt, Jordan, Morocco and other).

So, the "comply or explain" approach is the most effective for a majority of developed countries and numerous developing countries not only as a method of ensuring companies' compliance with corporate governance norms, but also in terms of upgrading the norms as a result of promotion of corporate governance performance.

Being a kind of co-regulation, this approach based on a dialogue between the regulator and regulated entities facilitates the regulator's better understanding of regulated entities' essential needs and alternatives in corporate governance, thus making the regulator's policy more efficient.

Flexibility of the "comply or explain" approach permits companies to adapt corporate governance norms to their own specifics and have some freedom in establishing governance patterns which suit them the best.

However, it is not enough to declare the "comply or explain" approach to upgrade corporate governance performance. The efficiency of the approach depends on a number of factors, including the level of a country's economic development, as well as the method of handling some procedural issues, the main of which is assessment of the quality of the actual corporate governance practice.

6.2.5. The analysis of companies' compliance with the Corporate Governance Code in Russia

Analyzing Russian companies' compliance with the corporate governance code (CGC), both the Central Bank of the Russian Federation and other entities utilized in their research mainly public information which is available in companies' open documents (quarterly and annual reports, statements on compliance with the CGC principles, lists of affiliated persons, reports on material facts and other) and did not carry out verification of authenticity of such information. Joint-stock companies determined on their own the extent of compliance with one or another principle of the CGC and the entities which carried out the analysis specified a high

level of formal approach and a low information content of statements provided by companies, particularly, as regards explanations of departures from corporate governance norms. With such an approach prevailing, the research discussed below does not completely reflect the authenticity of companies' compliance with the CGC in Russia.

In Russia, companies' compliance with the CGC by means of the "comply or explain" approach is controlled by the Central Bank of the Russian Federation. The first review of the corporate governance practice at Russian public companies in 2015 was published by the Central Bank of the Russian Federation in April 2017.1 The second and currently latest review based on the results of 2016 was released in December 20172; it presents a comparative analysis of practices of the CGC application in 2015 and 2016.

For the second review, the Central Bank of the Russian Federation examined statements on compliance with the CGC principles and recommendations provided by 49 companies and 29 companies whose equities were included in the quotation list of the first level (QL1) and the quotation list of the second level (QL2), respectively. The remaining six companies did not provide any statements.

The analysis identified positive dynamics of introduction of the CGC principles and recommendations in the practice of Russian companies. For example, six companies from QL1 promoted by more than 20 percent the level of compliance with the CGC principles and upgraded the quality of explanations of departures from the CGC norms. Though no such substantial changes were observed in QL2, four companies declared that they started to comply with more than a half of norms within the past year. Plenty of companies expect to promote further their compliance with the CGC. Next year, the Central Bank of the Russian Federation expects growth in the level of introduction of the CGC, too, though a more moderate one.

However, the regulator points to the same quality of companies' explanations of departures from the CGC principles, which fact means that the Central Bank of the Russian Federation has to take more efforts to explain to companies what quality of explanations it expects from them (explanatory letters, seminars, networking with companies on the individual basis, sampling analysis of the authenticity of statements and other). The work of the Central Bank of the Russian Federation both on the reviews and with joint-stock companies is an important factor facilitating upgrading of the corporate governance practice.

The outputs of the research carried out by the Central Bank of the Russian Federation pointed to growth of 11 percent in the average level of compliance with the CGC principles and recommendations as compared to the previous year. In 2016, this level was equal to 69 percent. Three companies reported on compliance with over 90 percent of the principles, however none of them managed to comply completely with the CGC.

The share of the companies which complied with less than a half of the CGC principles decreased from 36 percent to 11.5 percent. In QL1, the specified share fell from 23 percent to 4 percent. In QL2, the share of companies which complied with over 75 percent of the CGC principles doubled (Fig. 1).

1 URL: http://www.cbr.ru/StaticHtml/File/14233/Review_I70420I7.pdf.

2 URL: http://www.cbr.ru/Content/Document/File/33001/Review_27122017.pdf.

70 60 50 40

65,5

36,7

59,2

30 20 10 0

24,1

4,1

■

0-49 % 50-75 %

□ QL1 DQL2 □ Across all companies

10,3

75-99 %

Fig. 1. Distribution of the companies by the level of their compliance with the CGC principles in 2016, %

Source: The data of the second Review by the Central Bank of the Russian Federation based on the results of 2016

Over 75 percent of the CGC principles are complied with by 39.7 percent of companies, while 50-75 percent of the principles, by 47.4 percent of the companies. The minimum percent of compliance with the CGC principles is equal to 34 percent.

The average share of companies' noncompliance with the CGC principles fell from 15 percent to 9 percent. In QL1, this share decreased two times over from 12 percent to 6 percent, while in QL2, from 24 percent to 15 percent (Fig. 2).

80 70 60 50 40 30 20 10 0

75

69

58

27

18

22

6

15

n

n

Completely complied Partially complied with Not complied with

□ QL1 DQL2 □ Across all companies

Fig. 2. The average number of CGC principles complied with by companies in 2016, % Source: The data of the second Review by the Central Bank of the Russian Federation based on the results of 2016

As regards complete compliance with principles and recommendations of individual chapters of the CGC, Chapter III on the Corporate Sector is complied the most with (77 percent of companies). It is followed by Chapter V on the Risk Management System and In-House

9

Control (55 percent of companies). In 2015, the above-mentioned chapters were complied the most with, but the number of companies which observed them was smaller (45 percent and 42 percent).

The most complicated chapter in terms of implementation is Chapter II on the Company's Board of Directors, which is made up of 36 principles. None of the companies managed to comply with it. Apart from a large number of principles, implementation of that chapter is complicated by lack of actual loyalty on the part of members of the board of directors to relevant corporate governance approaches (Table 18).

There are difficulties with implementation of provisions of Chapter I on the Rights of Shareholders and Equality of Conditions for Shareholders; only 8 percent of QL1 companies comply completely with it against 3 percent of QL2 companies, though in 2015 there were no such companies at all.

Generally, the number of companies which reported full compliance with the principles of individual chapters of the CGC has increased. However, the Central Bank of the Russian Federation stated a somewhat decrease in implementation by QL2 companies of the principles of the three chapters - on the Remuneration System, the Disclosure of the Information and Material Corporate Operations - which situation can be justified by instability of the QL2 composition that changed more than 25 percent as compared to 2015.

Table 18

The percentage of the companies which reported 100 percent compliance with the principles of individual chapters of the CGC in 2016

Chapter of CGC Number of principles QL1, % QL2, %

I. Shareholders' Rights and Equality of Conditions for Shareholders in Fulfillment of Their Rights 13 8 3

II. Company's Board of Directors 36 0 0

III. Company's Corporate Secretary 2 78 76

IV. Company's System of Remuneration of Members of Board of Directors, Executive Authorities and Other Key Managers 10 8 0

V. Risk Management System and In-House Control 6 55 55

VI. Disclosure of Information on Company and Company's Information Policy 7 24 3

VII. Material Corporate Operations 5 12 3

Source: The data of the second review by the Central Bank of the Russian Federation based on the results of 2016.

The ten CGC principles which are most commonly complied with by companies did not change, but the level of compliance with those principles greatly increased, If in 2015 all the companies reported full compliance with only one principle under which shareholders should be provided with reliable and effective methods of accounting of their share rights and grated a feasibility to make a free and easy assignment of their shares (1.4.1), in 2016 companies complied completely with seven CGC principles, including those establishing the following:

- extra payments or compensations are not envisaged by companies in case of early termination of the authorities of members of the board of directors due to a change in control over the company or other events (4.2.3);

- the compensation amount ("a gold parachute") paid by the company in case of early termination of the authorities to members of the executive bodies or top managers on the company's initiative and in case of absence of unscrupulous practices on their part should not exceed a double amount of the fixed portion of the annual remuneration (4.3.3).

Three more CGC principles (1.1.1, 1.3.1, 3.1.2) are complied with by 97 - 99 percent of the companies. As compared to the previous year, the number of the principles which are fully complied with by over 80 percent of the companies has increased.

Seven out of nine principles which are not complied with more often than others and observed by less than a half of the companies are related to the board of directors.

The least observed principle (7.2.2) concerns the norms and procedures which are to be specified in the company's internal documents as regards fulfillment of material corporate operations. This principle is complied with by only 19 percent of the companies.

Also, the least observed principles are at present the following ones (complied with by 21 percent and 22 percent of companies, respectively) under which:

- an independent director is elected the chairman of the board of directors or a senior independent director is determined from among the elected independent directors to coordinate the work of independent directors and maintain networking with the chairman of the board of directors (2.5.1);

- the company has implemented the program of long-term motivation of members of the executive bodies and other top managers with utilization of the company's equities (options or other financial derivatives based on the company's equities) (4.3.2).

Despite a low level of compliance with theses CGC principles, some progress in performance is observed as compared to 2015. For example, the share of the companies which fully complied with Principle 7.2.2, Principle 2.5.1 and Principle 4.3.2 increased by 2-3 percent. The number of the companies meeting the remaining seven principles increased on average by 11.4 percent.

The "comply or observe" approach offers companies the following two options of compliance with corporate governance norms: (1) comply with the CGC principles and recommendations (Russian companies are definitely making quite a good progress in it); (2) not comply with individual CGC provisions, but disclose the information on the reasons for such noncompliance. In the latter option, the quality of companies' explanations of departures from the CGC principles remains not very high.

At the year-end 2016, the average level of quality of explanations across all the companies amounted to 39 percent, an increase of only 4 percent compared to 2015. In QL1, the level of quality of explanations increased from 38 percent to 45 percent. In QL2, this level fell from 33% to 30%, probably, on the back of substantial renewal of the composition of QL2. It is to be noted that numerous companies in QL2 lacked experience in providing explanations and the regulator did not have time to carry out explanatory work with them, so, only a few QL2 companies managed to upgrade the quality of their explanations as compared to 2015 (Fig. 3).

A high level of quality explanations of the reasons for noncompliance with the CGC principles (over 75 percent) was achieved only by few companies. In QL2, there are no such companies, while in QL1 their share amounts to 10 percent, that is, only five companies all together, including four companies assessing the quality of their explanations to be more than 80 percent and one company estimating it over 90 percent.

The share of the companies whose quality of explanations needs upgrading has largely increased. In QL1, this share grew from 18 percent to 29 percent as compared to 2015, while in QL2, from 7 percent to 17 percent.

A positive thing is a reduction from 80 percent to 69 percent of the share of companies whose quality of explanations requires substantial improvement. It is to be noted that in QL1, the

number of companies with the quality of explanations estimated below 10 percent has decreased by 50 percent to three companies.

QL1

QL2

80 70 60 50 40 30 20 10 0

Requires substantial Requires upgrading High (>75 percent) upgrading (<50 (50-77 percent)

percent)

2015 2016

100 90 80 70 60 50 40 30 20 10 0

Requires substantial Requires upgrading upgrading (<50 (50-75 percent)

percent)

2015 2016

High (>75 percent)

Fig. 3. The shares of different quality levels of explanations of reasons for noncompliance with the CGC principles by QL1 companies and QL2 companies, %

Source: the data of the second Review by the Central Bank of the Russian Federation based on the results of 2016.

The largest number of high-quality explanations (33 percent of the companies) was provided in respect of the reasons for noncompliance with Principle 7.2.1, under which the information on fulfillment of material corporate operations should be disclosed with explanation of reasons for such operations and terms and consequences thereof.

Five out of ten principles in respect of which companies demonstrated the lowest level of quality of explanations deal with regulation of the work of the board of directors (Principle 2.2.1, Principle 2.3.3 and other). On average, 88 percent of the companies failed to provide quality explanations.

So, unlike the level of companies' compliance with the principles and recommendations of the Russian CGC which largely increased in 2016 and is expected to keep on growing, the quality of explanations of reasons for departures from individual principles leaves much to be desired. Instead of reasonable comments, companies reduce their explanations to the sheer fact of noncompliance with a principle or refer to the absence of the relevant requirement either in the legislation or listing rules; this cannot be regarded as a reasonable explanation, either.

The Central Bank of the Russian Federation specifies that it is necessary to formulate clearly in explanations the reasons for which this or that situation prevails in the company; what factors it can be justified by; whether such a situation is accepted as suitable to the company in terms of specific conditions of the company's operation and development; what measures the company has taken or is going to take to reduce risks related to a failure to apply the best

corporate governance practice; whether the company plans and within what time-limits to introduce the relevant CGC recommendations and other.1

It is to be reminded that without quality explanations the "comply or explain" approach is not going to be effective enough.

Apart from the Central Bank of the Russian Federation, the issues of introduction of the CGC are dealt with at twelve state-controlled joint-stock companies by the Rosimuschestvo, the Open Government, the Expert Council under the Government of the Russian Federation and the Working Group on Establishment of the International Financial Center. The list includes the following: the PAO (a publicly traded company) AK "ALROSA", the PAO "AK Transneft, the PAO Aeroflot, the PAO Gazprom, the PAO NK Rosneft, the OAO (open-end joint-stock company) "RZHD", the PAO "Rosseti", the PAO "RusGidro", the PAO "Rostelekom", the PAO "FSK UES", the PAO Sovkomflot and the PAO VTB Bank.

The need of introducing an individual monitoring for joint-stock companies with state participation is substantiated by the specifics of such companies.

The Rosimuschestvo has been carrying out implementation of the CGC at state-controlled joint-stock companies since 2014. The Agency analyzed the 2016 annual reports of 20 joint-stock companies with state participation as regards their compliance with the CGC principles and recommendations.2

On average, the level of compliance by companies with a sample of key CGC provisions amounts to 90 percent, an increase of 13 percent as compared to 2015.

The chapters which are the most complied with include Chapter III on the Corporate Sector (100 percent), Chapter I on the Rights of Shareholders (93 percent) and Chapter IV on the System of Remuneration of Members of the Board of Directors (92 percent). The levels of compliance with the remaining chapters exceed 70 percent.

The highest positions as regards introduction of key sections of the CGC are occupied by the PAO Gazprom (100 percent), the PAO Aeroflot (100 percent), the PAO Sovkomflot (97 percent) and the PAO NK Rosneft (95 percent).

The highest progress as regards introduction of the CGC in 2016 as compared to 2015 was achieved by the PAO Aeroflot (from 81 percent to 100 percent), the PAO Transneft (from 58 percent to 74 percent) and the PAO Rusgidro (from 38 percent to 63 percent).

The Roskomimuschestvo does not analyze the provided explanations of the reasons for noncompliance with individual CGC principles.

The Open Government, the Expert Council under the Government of the Russian Federation and the Working Group on Establishment of the International Financial Center carry out on a regular basis - several times a year - a monitoring of introduction at the above 12 joint-stock companies with state participation of 13 main CGC recommendations as regards upgrading the efficiency of the board of directors and its role in corporate governance:3

- a ban on voting by quasi-treasury stocks;

- taking of decisions by a simple majority of all the members of the board of directors;

1 See: The Central Bank of the Russian Federation. The Review Based on the 2016 Results of Corporate Governance Practices in Russian Publicly Traded Companies. Issue No. 2 (December 2017). p. 34.

2 See: The minutes No.4 of September 21, 2017 of the meeting of the Public Council under the Ministry for Economic Development of the Russian Federation URL: http://economy.gov.ru/wps/wcm/connect/c6b9eee6-365e-4022-ac85-eeca22d7e12a/4.pdf?MOD=AJPERES&CACHEID=c6b9eee6-365e-4022-ac85-eeca22d7e12a.

3 See: The Open Government. The corporate governance level at companies with state participation started to meet higher standards, but some system-based problems still exist (14.11.17). URL: http://open.gov.ru/events/5516467/?sphrase_id=236270.

- issues addressed "in praesentia" by the board of directors;

- issues related to the conflict of interests of members of the board of directors;

- the right of access of the members of the board of directors to the company's and controlled legal entities' documents and information;

- authorities of the board of directors in respect of controlled legal entities' boards of directors and sole executive bodies;

- authorities of the board of directors in respect of controlled legal entities' operations;

- authorities of the board of directors in respect of control over the company's management;

- the board of directors' audit committee made up of independent directors;

- anti-corruption policy, "hot-line"; -in-house audit;

- risk management department;

- formalized risk management system.

Table 19

The ratings of complete introduction of the CGC's priority recommendations

Company Rostelekom ALROSA VTB Aeroflot Rosseti Transneft Rosneft RusGidro S H & W S Gazprom RZhD Sovkomflot

Number of implemented recommendations 11/13 9/13 9/13 8/13 8/13 8/12 6/13 6/12 5/13 3/13 2/12 2/12

Source: The data of the outputs of the monitoring by the Open Government, the Expert Council under the Government of the Russian Federation and the Working Group on Establishment of the International Financial Center for November 2017

In the past three years, the level of corporate governance in companies with state participation has started to meet in general higher standards, but in most companies the specified recommendations were not implemented in full. Also, a number of cases of noncompliance with recommendations which companies used to comply with before was identified.

In accordance with the criteria under review, the PAO Rostelekom is more effective than others in implementing recommendations (Table. 19). The company initially had at its disposal a risk management system which met the requirements of the CGC and introduced the in-house audit and a number of measures enhancing the role of the board of directors in compliance with the CGC. However, the company systematically violates the recommendation as regards a ban on voting by quasi-treasury stocks.

The PAO Gazprom fails to comply with recommendations on promotion of the role and efficiency of the board of directors as well as those dealing with a ban on voting by quasi-treasury stocks, the in-house audit and the risk management system despite the fact that the company established a special risk management department. According to experts, the PAO Cazprom's unwillingness to introduce recommendations is evident. It is to be reminded that as per the Rosimuschestvo's data the PAO Cazprom has introduced completely (100 percent) the key sections of the CGC, so it remains unclear what factors are behind this contradiction.

Unlike the PAO Gazprom, the RZhD - despite its second to last place in the rating - prepared a draft of amendments to its charter with experts' recommendations taken into account and the statutes on the board of directors to upgrade considerably the company's position.

The Open Government and other participants in the monitoring pay attention to companies' explanations of non-implementation of the CGC's priority recommendations, as well as companies' reasons for which they consider recommendations introduced, but do not offer their assessments thereof.1

Thus, despite somewhat different approaches to analyzing and discrepancies in the outputs, both the Central Bank of the Russian Federation and other institutions rated fairly highly the level of Russian companies' compliance with the CGC's recommendations and principles and made positive forecasts as regards further implementation thereof. Unlike the extent of compliance with the CGC's provision, the quality of companies' explanations of noncompliance with some principles leaves much to be desired. Being the main "appraiser" of such explanations, the Central Bank of the Russian Federation refrains from taking tough enforcement measures in respect of companies whose explanations are insufficient and makes a greater emphasis on the explanatory work.

However, not all the institutions analyzing companies' compliance with the CGC in Russia arrived at the same results in their research.

For example, despite a switchover of the Russian CGC from the category of good ("3") Codes to that of moderately strong ones ("4") in December 20172, the European Bank for Reconstruction and Development stressed that as before only Russia's five large listed companies out of ten had disclosed the information on compliance with the CGC. In addition to that, a majority of explanations did not include any references to the current state of corporate governance practices at companies. Also, the EBRD specified that there were no references to the CGC as the source of companies' rights and obligations in the judicial practice.

Having compared the results of its research into corporate governance structures of Russian publicly traded companies in 2012 and 2015, the Deloitte CIS Corporate Governance Center came to the conclusion that corporate governance had seen no change for the better since 2012.3

The 2015 research included 120 Russian companies whose common shares were in the list of the first and second levels of the Moscow Stock Exchange (99 companies) and listed on the London Stock Exchange, the New York Stock Exchange and the NASDAQ (21 companies). It is to be noted that 22 percent of the companies of the sample were from the energy sector; 10 percent, from the oil and gas industry; 8 percent, from the banking sector. The government controls directly and indirectly 34 companies, that is, 3 companies less than in 2012, however, the average value of the state participation in those companies increased on the contrary by 7 percent and amounted to 70 percent.

According to the Deloitte CIS Corporate Governance Center, the level of Russian companies' compliance with the best corporate governance practice is not getting higher due to a lack of foreign investors' interest in them as a result of sanctions and falling oil and gas prices. Also, in 2016 the new listing rules and the "comply or explain" approach did not work in full, while the project of establishing the premium listing segment at the Moscow Stock Exchange for companies with high corporate governance standards was frozen.

1 See: The Open Government, the Expert Council under the President of the Russian Federation and the Working Group on Establishment of the International Financial Center. The Corporate Governance Code was introduced in November 2017. URL: http://open.gov.ru/upload/iblock/131/131f73d02f7071214a16614f2a70af8f.pdf.

2 See: EBRD. Corporate Governance in Transition Economies: Russian Country Report (December 2017). URL: http://www.ebrd.com/documents/ogc/russia.pdf.

3 See: The Corporate Governance Pattern at Russian Publicly Traded Companies. Research by the Deloitte CIS Corporate Governance Center, 2015 URL: https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/about-deloitte/pressrelease/corporate-governance-structures-of-public-russian-companies-rus.pdf.

As regards the composition of the board of directors, the Deloitte CIS Corporate Governance Center stated the insufficient number of external (independent) directors in companies' boards of directors; independent directors accounted for 27 percent and 32 percent of the seats at state-owned companies and private companies, respectively, while under the CGC at least one-third of the elected contingent of the board of directors is recommended. This norm was complied with by 41 percent of the companies.

A factor which brought about a situation where the number of independent directors is not sufficient enough was a renewed practice of 2014-2015 of appointing high-ranking government officials to boards of directors of state-owned companies; the share of such officials largely increased as compared to 2012 and amounted to 21 percent. Directors related one way or other to the state accounted for other 42 percent of the seats in companies' boards of directors. (Fig. 4).

Fig. 4. The pattern of the board of directors at state-owned companies, % Source: The Deloitte research data for 2015

Also, there is a shortage of efficient independent expert-directors in all the companies. The scope of candidates is limited by the CGC's tough requirements to the notion of independence (no relations with the company's shareholders, including kinship relations; a ban on civil service work within a year prior to election to the board of directors and other).

Another problem is the concentrated ownership pattern typical of Russian companies with an average size of a large equity package amounting to 57.6 percent; this is different from the normal situation where minority shareholders usually nominate independent directors.1

Foreign members of the board of directors can be found with 61 percent of the companies; they account for 30 percent and 72 percent of the seats at state-owned and private companies, respectively, and that is quite a high indicator.

As regards the composition of the boards of directors, proceeding from the data of the two research carried out by the Deloitte in 2012 and 2015 it can be stated that the number of companies with some or other committees established has decreased (see Table 20).

1 See: Yu. Petrova, M. Podtserob, C. Romanova. The Corporate Governance in Russia Has Not Improved Since 2012 - Deloitte // The Vedomosti daily, April 05, 2016. URL: https://www.vedomosti.ru/management / articles/2016/04/06/636572-korporativnoe-upravlenie.

Table 20

Companies with relevant committees of the board of directors, %

2015 2012

Audit Committee 95 98

Remuneration and Appointments Committee 64 88

Remuneration Committee 18

Nomination Committee 13

Strategy Committee 53 43

Risk Management Committee 9 8

Ethics Committee or Ethics/Corporate Governance Committee 3 13

Corporate Governance Committee 8

*not available.

Source: The Deloitte research data for 2012 and 2015

In compliance with the CGC, the audit committee is to be made up of independent directors, however, it is so only with 23 percent of companies out of111 companies with such a committee established and its composition disclosed. It is to be noted that in 47 percent of audit committees the majority is made up of independent directors, while in 19 percent of audit committees there are no independent directors at all. In audit committees, independent directors account on average for 51 percent. It is to be noted that 25 percent of the companies have no independent directors on remuneration and appointments committees, either.

In compliance with the CGC, an independent director is to be elected the chairman of the board of directors or the board of directors has to assign the senior independent director out of the number of independent directors. This provision is complied with only by 27 percent of the companies. It is noteworthy that only 13 percent of the boards of directors have an independent chairman; 18 percent of the boards of directors assign an independent senior director.

Despite the CGC's recommendations, only 22 percent of the companies reported self-appraisal of the activities by the board of directors (16 percent) or external assessment (6 percent).

Though under the CGC it is inadmissible to vote at the company's general meeting of shareholders by quasi-treasury stocks, that is, equities whose holder is an entity controlled by the issuer, such equities can be found with 28 percent of the companies and they account on average for 7 percent of the market capitalization of a relevant company. In case of the Uralkaly Company, the share of quasi-treasury stocks amounted to 40 percent.

Summing up the results, it is feasible to make the following conclusions:

1. The Russian Corporate Governance Code is a quality document with a good pattern and content meeting the global corporate governance standards, including the OECD Corporate Governance Principles. The Russian CGC is in no way inferior to corporate governance codes of other countries and in some ways it is even better (the CGC's Part II is of an advisory, rather than annotative, nature; the Code provides a definition of the independent director and includes a separate chapter on the remuneration system and other). The CGC is aimed at upgrading the governance efficiency of Russian companies and facilitating their long-term and sustainable development.

2. Application by companies of the CGC's principles and recommendations is voluntary and based on their willingness to be more attractive to foreign investors. However, in modern Russia where the corporate culture is not yet developed enough pure voluntary participation could considerably slow down implementation of the CGC's provisions. Keeping that in mind, the architects of the CGC envisaged a soft method of compliance based on the "comply or explain " approach applicable only to joint-stock companies whose equities are publicly traded; both

application of the norms and explanation of the reasons for non-application with them are deemed proper methods of compliance with the norms.

3. If utilized correctly, the "comply or explain" approach is believed to be more effective as compared to mandatory regulation. However, in most developing and developed countries which announced this approach there is a problem of implementing it in practice. It often happens that an entity which is obligated to control implementation of the approach is neither designated nor fails to carry out its functions, while companies which do not comply with corporate governance norms provide either formal explanations or no explanations at all.

The fact that companies have to explain the reasons for which they have failed to comply with corporate governance norms makes the "comply or explain" approach the most valuable because by doing so companies may depart, on one side, from the norms, while, on the other side, the regulator is getting a better idea of the regulated entities' essential needs and resources in the field of corporate governance. Consequently, without quality explanations provided, this approach makes no sense.

4. Russia has created almost all the conditions for successful utilization of the "comply or explain" approach and, as a consequence, implementation of the CGC.

The obligation to implement this approach is envisaged in the Statutes of 2014 of the Central Bank of the Russian Federation on Disclosure of the Information by Issuers of Equity Securities. Also, for a company's equities to be included in the quotation list of the first level the Moscow Stock Exchange Listing Rules1 require from 2015 a disclosure of the information with explanation of the reasons in case of the company's failure to comply with the CGC's recommendations as regards the corporate secretary (Clause 2.18).

The entity with the required competence and authority to supervise companies' compliance with the CGC and appraise the quality of explanations in case of companies' departures from the CGC's norms is the Central Bank of the Russian Federation which has adopted a responsible approach to fulfillment of its duties. The Central Bank of the Russian Federation develops regulatory documents, carries out explanatory work with companies and prepares and releases highly informative reports.

Despite such an activity, the Central Bank of the Russian Federation does not resort to tough enforcement measures and prefers to carry out explanatory work with companies without burdening them with its interference; it is believed that at the initial stage of implementation of the CGC's norms such a policy is a reasonable solution.

5. Based on the information from companies' disclosed documents, the Central Bank of the Russian Federation assessed positively the average level of compliance by Russian listed companies with the CGC'sprinciples and recommendations; in 2016 it amounted to 69 percent of all the principles, an increase of 11 percent on the previous year. In 2017, the Central Bank of the Russian Federation expects growth in the compliance level, though a more moderate one.

A number of institutions (the Rosimuschestvo, the Open Government, the Expert Council under the Government of the Russian Federation and the Working Group on Establishment of the International Financial Center) dealing with introduction of the CGC's principles at some Russian companies despite some discrepancies in the results rated highly the level of compliance with the CGC's principles. In 20 joint-stock companies controlled by the state, this level of compliance was equal on average to 90 percent.

1 URL: http://fs.moex.com/files/257/24914.

All the institutions, including the Central Bank of the Russian Federation have come to the conclusion that companies complied the least with the principles dealing with the board of directors.

Unlike the level of compliance with the CGC and its dynamics, the average level of the quality of companies' explanations of departures from the CGC's provisions did not virtually change and amounted only to 39 percent in 2016 as per the data of the Central Bank of the Russian Federation; the above is evidence of the need for the regulator to step up its work in this area.

At the same time, the above indicators do not completely reflect the current state of things due to the established approach to assessment of companies' compliance with the CGC's principles and recommendations: companies determine on their own the extent of compliance with the principles, doing it often for the sake of appearance, while the entities carrying out the analysis examine mainly the information provided by companies, rather than the actual corporate governance practices.

It is to be noted that outputs of some research into Russian companies' compliance with the CGC are not very positive. For example, the Deloitte CIS Corporate Governance Center came to a conclusion that corporate governance in Russia had not changed for the better since 2012. The difference between research results can be partially explained by different compositions of company groups subjected to the analysis. Also, the specified research does not provide assessments of companies' explanations of reasons for noncompliance with the CGC's recommendations.

6. In the end, it can be stated that there is undoubtedly progress in compliance with the Russian CGC and the activities of the Central Bank of the Russian Federation in this area will definitely facilitate promotion of the CGC's principles and recommendations with expansion of the range of legal entities which the "comply or explain" approach is going to be applied to.

A particular attention is to be paid to the quality of companies' explanations because at this stage the regulator has to identify the factors behind the low quality of explanations, rather those behind noncompliance with the CGC's provisions. It is necessary to switch over from assessment offormal statements to assessment of actual corporate governance practices, but it is quite a complicated process and it requires substantial resources. It is to be noted that some steps have already been taken in that direction: the Central Bank of the Russian Federation is networking with some companies on the individual basis to upgrade the quality of their explanations. The regulator is planning to network more actively with companies to eradicate the formal approach and ensure the situation where companies' explanations of departures from the CGC's norms meet shareholders' and investors' expectations. The proper implementation of the "comply of explain" approach will facilitate promotion of transparency, upgrade the existing corporate governance rules with companies' comments taken into account and further develop the corporate culture in Russia.

6.3. Science and innovations1

The year of 2017 can be described as a year of making plans, rather than assessing outputs, in the Russian scientific and technological sector. Preference was given to the development of a plan for the implementation of Scientific and Technological Development Strategy of the Russian Federation, including its integration with polices in progress as part of the

1 This section is written by Irina Dezhina, the Gaidar Institute, the Skolkovo Institute for Science and Technologies.

National Technological Initiative of Russia (NTI), and to the endorsement of the state program for the development of a digital economy in the Russian Federation, including its synchronization with the NTI for the development of scientific and educational and technological competences. Finally, the 2017 full-year consideration of a new science legislation still continued at the end of year.

There were extensive debates about the application of bibliometrics as a scientific performance measurement tool because government agencies, scientific funds, research institutions and higher education institutions use bibliometrics for measuring the performance and rewarding of both individuals and institutions. The final results of a college monitoring, including its scientific and innovative component, and of performance measurement of subordinate institutions of the Federal Agency for Scientific Organizations (FASO) were made public.

A pilot program on support to medium-sized growth companies gained most of the momentum in the technological innovations sector, whereas there was no visible breakthrough in the innovation policy with regard to large and small innovative businesses. On top of that, the segment of technological business venture capital funding stalled.

6.3.1. National policy scientific and technological priorities

The implementation plan for the Scientific and Technological Development Strategy of the Russian Federation adopted in December 2016 (hereinafter "the Strategy") was endorsed in 2017. The State Program on Digital Economy of the Russian Federation1 that also sets out scientific and technological development guidelines emerged in summer. The National Technological Initiative was somewhat tuned to the Strategy and the Digital Economy state program. The Strategy identifies the National Technological Initiative of Russia as a key tool designed to "ensuring that basic knowledge, exploratory and applied scientific research are translated into products and services to facilitate Russian companies in taking leading positions in promising markets pursuant to existing and newly emerging (including after 2030) priorities."2

The Strategy provides for a linkage between "grand challenges" and scientific and technological priorities that can be forged not only through the NTI but also by redesigning a master science and technology program called the State Program for Scientific and Technological Development until 2020. The Program will be replaced with a new state program for Scientific and Technological Development of the Russian Federation for 2018-2025 that was not yet developed at the end of 2017. The new program intends to build a new integral model of public investment, ranging from the provision of support to qualified researchers and entrepreneurs to the introduction of mechanisms designed for the development of science and innovations across the entire knowledge life cycle. That was, in some ways, announcement of returning to the concept of "innovative elevator." The following key innovations were introduced: a multilateral funding rule, common approaches towards pilot project appraisal, and lifting of restrictions on program deadlines (planning horizons can possibly be extended to

1 The Program was endorsed by the Russian Government through Executive Order No. 1632-z dated July 28, 2017 http://static.government.ru/media/files/9gFM4FHj4PsB79I5v7yLVuPgu4bvR7M0.pdf

2 Paragraph 23 of the Strategy. Source: http://kremlin.ru/acts/bank/41449/page/2

3-7 years).1 The Russian Ministry of Education and Science has de facto initiated ways of further business engagement in identifying priorities with an open invitation to companies to co-finance research within an industrial partnership.2

A new list of priorities set out in the Strategy adds to the list of most important scientific areas and appears to introduce for the first time the use of methods of social sciences and humanities to deal with problems. At the same time, they duplicate nearly 70 percent of the priorities adopted back in 2011 by a presidential executive order, with the former being more elaborated. For example, the previous priority was transport systems at large, whereas the today's priority is intellectual transport, logistic and telecommunication systems.

The number of NTI priorities has been cut substantially. The top priorities are 10 "cross-cutting technologies" that are duplicated in the Digital Economy state program (Table 21). These very priorities will supposedly be provided with extra resources.

Table 21

"Cross-cutting technologies" in NTI and in Digital Economy state program

NTI Digital Economy state program

Big data Big data

Artificial intelligence Neurotechnologies and artificial intelligence

Distributed ledger systems Distributed ledger systems

Quantum technologies Quantum technologies

New manufacturing technologies New manufacturing technologies

Sensor technologies and robot accessories Robot accessories and sensor technologies

Wireless communication technologies Wireless communication technologies

Neurotechnologies and virtual and augmented reality technologies Virtual and augmented reality technologies

Industrial Internet

New and portable power sources

Technologies to control properties of biological objects

Sources: http://www.nti2035.ru/technology/; http://static.government.ru/media/files/9gFM4FHj4PsB79I5v7y LVuPgu4bvR7M0.pdf

The changes represent an alternative approach towards the provision of a wide range of support to research. Resuming financing of a great number of subject areas can hardly be possible amid low-level target funding under the (new) Strategy. There are plans to increase R&D spending to 2 percent of GDP by 2035, that's what many countries have already achieved.

Such a moderate way of targeting took place amid continuous decline in R&D spending as a percentage of GDP, from 1.13 percent in 2015 to 1.1 percent in 2016. Russia ranks 35th in R&D spending as a percentage of GDP. In absolute terms, Russia has moved down to 10th place in R&D spending, the country's ranking back in 1995. Russia continues to fall behind leading countries: Russia spends on R&D 13.5 times less than the United States, 11 times less than China, 4.6 times less than Japan, three times less than Germany. Over the past two decades a few catching-up countries have increased considerably investment in R&D, including investment from businesses. R&D spending over the same time has increased 2.6 times in Russia, 21.9 times in China, 4.5 times in Korea, 3.7 times in Israel.3

1 An explanatory note to (Russian) government's draft executive order Concerning the Approval of the State Program of the Russian Federation "The Scientific and Technological Development of the Russian Federation." http://www.consultant.ru/cons/cgi/online.cgi?req=doc&base=PNPA&n=30448&dst=104152#0

2 Kiseleva M. About science on the Science Day: An Exclusive Interview with Olga Vasilieva // Indicator, February 8, 2017 https://indicator.ru/article/2017/02/08/intervyu-olgi-vasilevoj/

3 Ratai T. Science spending in Russia and in world's leading economies // Science, Technologies, Innovations. September 7, 2017 M.: National Research University Higher School of Economics, p. 1.

The shortened list of priorities reflects a policy of focusing on top-performers. The decision appears reasonable because of scarce resources. It's likely, however, that this will deliver a short-term result. The flip side of the approach is further narrowing of the scope of scientific appraisal in Russia while there is a small number of subject areas that meet the global level. Selective support of a small number of subject areas can lead to removing a series of research areas that could potentially underpin a future breakthrough out of the scientific landscape.

Lastly, Russia's presidential election has entered the pre-election period, and the Center for Strategic Research (CSR) has prepared an analytical report (A new technological revolution: Challenges and opportunities for Russia) with the aim to create a new scientific and high-tech based technological image by 2024, by the end of the next presidential term. "Technological revolution" must bring about an economic growth of 4 percent of GDP a year that can supposedly be achieved though "profound technological and organizational changes in traditional industries" as well as building up new sectors. The report proposes that the NTI management should be improved because it lacks, according to the report, efficiency, and a "Russian science management system" should be launched.2 The latter intends to create a new management mechanism "in the format of special federal executive body authorized to develop a national policy and a legal framework of higher education and science." Russia already has a federal executive body - the Ministry of Education and Science - with the same powers.

A great deal of strategic-level documents makes the objectives and principles of public scientific and technological regulation difficult to understand. On the one hand, there is a long list of research areas to implement in order to respond to "grand challenges." On the other hand, the NTI and the Digital Economy program rely on a small number of priorities that are extensively debated and developed worldwide and related to the development of digitization, big data and similar technologies. This set of topics in place makes it difficult to see the country's specific features and to understand what should be done fist and which development aspects are most pressing today and in the medium term. There is, by contrast, an approach announced in the UK. In November 2017, the British government unveiled the "Industrial Strategy for the UK" with the aim of making the UK the world's most innovative nation by 2030. The UK strategy provides a much shorter list of "grand challenges" and key technologies than its Russian counterpart. A fund - Industrial Strategy Challenge Fund (ISCF) - will be established for the development of new technologies. The government plans to invest £725 million over the next three years in the ISCF. The level of investment in research and development (R&D) will therefore be up from 1.7% to 2.4% of GDP by 2027.3 The money will be spent to address problems related to four "grand challenges", namely artificial intelligence, clean growth, ageing society and future of mobility (of people, goods and services). Initial investment will go to transform the construction sector and help create affordable places to live and work that are safer, healthier and use less energy, as well as to technologies that help improve early diagnosis of illnesses and develop precision medicine for patients across the UK. The sectors of priority for research and development financing are construction and automotive

1 A new technological revolution: Challenges and opportunities for Russia. An expert-analytical report prepared under academic supervision of V. N. Knyaginina. M.: Center for Strategic Research, October 2017 https://csr.ru/wp-content/uploads/2017/10/novaya-tehnologicheskaya-revolutsiya-2017-10-13.pdf

2 Ibid., p. 100.

3 Government unveils Industrial Strategy to boost productivity and earning power of people across the UK. Press release. November 27, 2017. https://www.gov.uk/government/news/government-unveils-industrial-strategy-to-boost-productivity-and-earning-power-of-people-across-the-uk

sector, life sciences, artificial intelligence. Thus, there is a clear chain stretching from pressing grand challenges facing the UK to economic sectors and then to research and development to be first to invest in. This logic makes it possible to bind up the interests of the nation and business while providing science with targets in the form of subject areas of priority. Furthermore, the UK strategy will be implemented on a step-by-step basis and based on the latest achievements in developments related to new battery technologies and robotics.

The Russian Strategy sets out seven "grand challenges" of a very general concept: ranging from exhausted possibilities of economic growth based on extensive mineral extraction, provision of food security, development of new power systems, response to threats to national security to making an efficient use of space including the development of airspace and outer space, the global ocean, the Arctic and Antarctic regions. The "grand challenges" are therefore too comprehensive to be easily decomposed to the level of priority sectors and research areas. The NTI, in turn, as a key tool for the Strategy implementation makes the set of country's trending technologies too narrow, thus creating a dissonance between a wide range of problematics and a narrow range of selected subject areas that must be implemented to respond to the "grand challenges."

Viewing the national policy priorities from the perspective of budget allocation, rather than the contents of strategic documents, leads to a conclusion that serious moves in the structure of R&D appropriations still remain to be seen. There are, however, several noteworthy factors.

First, there is a plan to reallocate federal budget appropriations to support basic research over the next three years. However, the biggest gain will be driven by wage growth for researches employed by FASO's institutions and by the Russian Research Center 'Kurchatov Institute', a federal state budgetary institution, including its subordinate institutions. This will ensure the implementation of President's Executive Order No. 597 dated May 7, 2012, under which wages must be increased to a level that doubles the average wage in a region. Total basic research spending will advance at steady (Table 22), albeit slow, pace.

The share of basic research appropriations of total spending on civil scientific research and developments will also advance to 41.9 percent in 2018, 44 percent in 2019 and 45.5 percent in 2020. This type of funding structure corresponds to basic research spending in developed European countries. In France and in the UK, for example, basic research spending account for 45 and 40 percent of budget appropriations on civil R&D.1 At the same time, the Europe average is more than 52 percent, similar to that (53 percent) in the United States.

Table 22

Changes in budget allocations on basic research

Program Budget allocations in 2018, billions of rubles Financing, percentage change, year on year:

2019 2020

Basic research (classification division) 151.7 101.8 102.0

Implementation of basic scientific research by institutions of state academies of science, financial provision for state academies of science 83.2 97.2 102.3

Source: Draft Federal Law On the Federal Budget for 2018 and the Planning Period 2019 and 2020.

1 What is the optimal balancer between basic and applied research? // UNESCO Science Report: towards 2030.

http://www.unesco.org/new/en/natural-sciences/science-technology/single-view-sc-policy/news/what_is_the_

optimal_balance_between_basic_and_applied_resear/

Increased spending on military defense R&D (according to non-classified budget items) comes under notice in applied scientific research, that represent 85.7 percent of civil R&D appropriations in 2018, 85.8 percent in 2019, and 90.4 percent in 2020.

There was a positive trend toward annual growth (within a range of 5-16 percent) in civil applied research, particularly in healthcare spending, including topic subject areas such as translational medicine and precision medicine. Russia's Healthcare Development state program has moved up to 3rd place in volumes of R&D appropriations (Table 23) with a provision for annual growth in funding. However, applied R&D spending for a series of country's topic subject areas - energy and power saving, agriculture development - remain extremely low.

Table 23

Dynamics of R&D appropriations for state programs with biggest R&D

funding (billions of rubles)

State program 2018 2019 2020

Scientific and technological development for 2013-2020 167.9 168.1 170.9

Use of outer space in Russia for 2013-2020 80.7 67.3 64.2

Healthcare development 24.7 26.7 31.0

Percentage share of the three programs of total civil R&D appropriations 75.5 74.7 76.8

Source: Draft Federal Law On the Federal Budget for 2018 and the Planning Period 2019 and 2020.

Budget appropriations on civil science for the next three years have negative dynamics (Figure 5), making it difficult to implement all the large-scale plans that are reflected in strategies and programs.

500,0

250,0 -

200,0 150,0 100,0 50,0

0,0 -

2014 2015 2016 2017 2018 2019 2020

Fig. 5 Federal budget allocations on civil science, billions of rubles

Sources: Data for 2018-2020, according to The Draft Federal Law On the Federal Budget for 2018 and the Planning Period 2019 and 2020; data for 2014-2017, Ratai T. Russia's federal budget allocations on civil science // Science, Technologies, Innovations. June 28, 2017 https://issek.hse.ru/news/207116445.html

Strategic documents ignore the impact of sanctions which appear long term and therefore constitute a "challenge" and have an effect on, among other things, the policy of international scientific and technological cooperation. All the more so because Russia's major, albeit insignificant on a global scale, scientific exchange is taking place with the United States

(according to co-publishing data).1 The United States remain the world's scientific center, and the international cooperation in science is developing more intensively between the United States and countries such as China, UK, Germany, Canada, India, Japan and France. At the same time, it is the relationships between Russian higher education institutions and leading research countries that have been declining as research backed by foreign funds have been discontinued.2 In addition, Russia's Federal Agency for Intellectual Property, Patents and Trademarks (Rospatent) has reported on the sanctions-induced decline in patenting of foreign inventions in Russia over the past 3-4 years.3 Therefore, there is a decline in the diversity of sources of science funding and ways of implementing scientific research and in imports of technologies into the country.

The impact of sanctions on Russia's research and development has to be given more assessment. The problem has been acknowledged, as evidenced by increasing number of debates on the role of science as a "soft power" factor of positive effect and maintaining relations amid adverse international climate. The Russian Foundation for Basic Research, for example, has proposed placing a question of scientific diplomacy on the agenda of the Global Research Council, an informal association of research funding organizations. In particular, the emphasis can be placed on international support to research (Antarctica, near and deep space, cyberspace etc.) that cannot be afforded by just a few countries.4

6.3.2. Science in higher education institutions: achievements |

and challenges

The main topics concerning science in higher education institutions were achievements and challenges facing leading higher education institutions participating in the 5-100 Project, the research development in core higher education institutions, as well as changes in authorizing higher education institutions to award an academic degree at their own discretion.

5-100 Project higher education institutions: Costs and cost-efficiency

The 5-100 Project higher education institutions have overall good research results, but they are still lagging far behind world's leading universities (Table 24).

Table 24 presents data suggesting there is a certain correlation between the intensity of publication activity and the citation of articles. Indeed, it's important that the type of a college is taken into account. For example, articles of the National Research Nuclear University MEPhI show more citation potential because a great deal of research works are performed by large international teams using large installations. Only two classical universities offering a wide array of social sciences and humanities rank among top-5 on publication activity, thus making, in a natural way, the average figure smaller. At the same time, the leader among higher education institutions is the Novosibirsk State University, a classical university, because a

1 According to data for recent decade. Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The digital transformation, OECD Publishing, Paris. P. 128.

2 Enikopolov R. Closed mind: Constraints facing Russia's science and education // RBC, June 2, 2017 https://www.rbc.ru/opinions/politics/02/06/2017/593116589a79472c6c142171

3 Skorobogaty P. Who is to invest in a perpetuum mobile // Expert, No. 45, 2017 http://expert.ru/expert/2017/45/kto-dast-deneg-na-perpetuum-mobile/

4 Belayeva S. Soft albeit strong. Research funds to help global diplomacy // Poisk, No. 46, November 17, 2017 http://www.poisknews.ru/theme/international/30290/

major contribution to scientific achievements stems from the long lasting close relationship with research institutions that make up the Novosibirsk Science City ("Akademgorodok").

Table 24

Costs/research results ratio in 5 higher education institutions as part of 5-100 Project, with highest publication activities

University Number of publications per teacher in WoS1 Average citedness of publications per teacher in WoS Researchers' average salary, thousands of rubles monthly Budget subsidy size, millions of rubles Best ranking (in one of the three rankings), 2017

Novosibirsk State University 7.5 48 115.21 3884 250 (QS)

National Research Nuclear University MEPhI 6.1 44 128.55 4056 373 (QS)

Moscow Institute of Physics and Technology 5.4 23.8 113.83 4087 251-300 (THE)

National Research University of Information Technologies, Mechanics and Optics 4.9 10.1 193.7 4087 501-600 (THE)

Tomsk State University 4.4 11.2 174.40 3157 323 (QS)

Sources: Ponomarev V. Consecutive motions. Russian higher education institutions: 5-100 Project // Expert, November 27, 2017 http://expert.ru/expert/2017/48/posledovatelnoe-dvizhenie/;_Kiseleva M. Achievements of 5100 Project higher education institutions and what lies ahead of them // Indicator.ru. 04.09.2017 https://indicator.ru/article/2017/10/04/budushee-proekta-5-100/; Information and analytical materials based on the results of performance monitoring of higher education institutions. http://indicators.miccedu.ru/ monitoring/?m=vpo

What's also remarkable is that the performance in science has little to do with researchers' average salary and government subsidies. Top-performing Novosibirsk State University pays moderate salaries compared with top income earners such as the National Research University of Information Technologies, Mechanics and Optics and the Tomsk State University, both having lower rankings on performance. The point to note is that the average salary in the 5-100 Project higher education institutions is much higher than in higher education institutions and research institutions across the country. According to data for January-September 2017, the gross payroll in R&D institutions was Rb 50,100 for chief, leading and senior researchers and Rb 39,200 for researchers and junior researchers (Fig. 6).2 Heads of institutions were paid four times as much, Rb 173,100 on average across the country and Rb 257,700 on average in Moscow.

1 Web of Science (WoS) is an online subscription-based scientific citation indexing service that provides analysis of publication activities of authors from various countries.

2 Suslov A.B. Research institutions gross payroll by researcher official capacity: January-September 2017 // Science, Technologies, Innovations. December 6, 2017 M.: National Research University Higher School of Economics, p. 2. https://issek.hse.ru/data/2017/12/06/1161557911/NTI_N_76_06122017.pdf

Fig. 6. Researchers' average monthly salary, thousands of rubles

Sources: Suslov A.B. Gross payroll by researcher's official capacity at research institutions: January-September 2017 // Science, Technologies, Innovations. December, 6, 2017 M.: National Research University Higher School of Economics, p. 2. https://issek.hse.ru/data/2017/12/06/1161557911/NTI_N_76_06122017.pdf; Information and analytical materials based on the results of performance monitoring of higher education institutions. http://indicators.miccedu.ru/monitoring/?m=vpo

Data for 2017 show a visible upgrade in overall rankings, albeit far behind the main objective of entering the top-100 world's universities ranking. Only the Novosibirsk State University managed to hit the QS top-300 ranking1 as the Moscow Institute of Physics and Technology moved up to the THE top-100 ranking2, whereas the rest fell far behind them, with the National Research University of Information Technologies, Mechanics and Optics even downgraded to the QS top-500 ranking. Therefore, there are serious divergences between a university's level of achievements and government funding and employee earnings. A major subsidy and high salaries do not guarantee the highest possible level of productivity.

Researchers of the National Research University Higher School of Economics have made an in-depth analysis of the publication activity of 14 higher education institutions participating in the 5-100 Project to compare with a control group comprising 13 higher education institutions that received no subsidies for entering global rankings. The higher education institutions of both groups were selected so that they have similar start positions (the study covered a period of 2010-2015).3 Actually, it was found that the number of publications was increasing in both groups, but the 5-100 Project higher education institutions showed higher

1 QS World University Rankings is a global survey including the world's top universities ranking compiled by Quacquarelli Symonds (QS), a British consulting company.

2 THE World University Rankings is a global survey including the world's top universities ranking compiled by Times Higher Education.

3 Poldin O.V., Matveeva N.N., Sterligov I.A., Yutkevich M.M. College publication activities: The effect of the 5-100 Project // Voprosy Obrazovaniya, 2017, No. 2, pp. 13-14.

growth rates leaving other higher education institutions further trailing behind them. In addition, the 5-100 Project higher education institutions have more quality publications (in first-quartile journals).1 Apparently, the participation in the 5-100 Project has a positive effect on the scientific performance of higher education institutions, however, the question is how long the growth will continue and how the growth in the number of publications correlates with the quality of scientific novelty of research. The recent results published by Nature show that citation of truly innovative articles is lagging in time. It takes much longer for such articles to reach a high level of citation than it does for regular articles. Such articles can see their citation increase considerably no earlier than five years from the date of initial publication.2

Publication activity and unintended effects

The past year continued to see the effects of policies aimed at stimulating scientific performance with a view to increasing the number of scientific publications and thus making the Russian science more "visible". Institutions' performance is now assessed through the number of publications, the success of agency-funded projects and grants from funds. The Russian Research Fund has the minimum number requirements for articles that are annually indexed by WoS/Scopus.3 The race for numbers has increased the number of publications in non-reputable journals that are denied by WoS and Scopus and easy to publish articles, including on a fee basis. The practice was expanding fast enough to be noticed by the government. The Ministry of Education and Science announced that funding of higher education institutions publishing articles in non-reputable journals as well as abusing self citation can be cut down. The Kazan Federal University, the Peoples' Friendship University of Russia and the Immanuel Kant Baltic Federal University took the lead in the quantity of publications in non-reputable journals.4 Note that the 5-100 Project higher education institutions have somehow joined the all-out race for numbers, with a full-fledged industry of non-reputable journals having emerged worldwide in response to the demand. According to Nature's estimates, the number of non-reputable journals has recently increased over 100,000, equal to the number of reputable scientific journals.5

Another ambiguous trend is growing number of affiliations per author that is most markedly represented in the 5-100 Project that encourages engagement of foreign scholars as well as researchers of academic institutions to Russian higher education institutions. Over the last three years the number of affiliations per author in first-quartile articles of leading higher education institutions of the 5-100 Project has nearly doubled compared with the rest of Russian authors' articles. Hence, it follows that the growth in publishing activity of these universities is driven by, among other things, sponsors including, above all, foreign universities and institutions of the Russian Academy of Science.6 Indeed, the number of engaged foreign teachers and

1 Poldin O.V., Matveeva N.N., Sterligov I. A., Yutkevich M.M. College publication activities: The effect of the 5-100 Project // Voprosy Obrazovaniya, 2017, No. 2, pp. 13-21.

2 Blinkered by bibliometrics // Nature, vol. 544, April 27, 2017. P. 411.

3 According to Elsevier, a global information analytics business, Scopus is the largest abstract and citation database of peer-reviewed literature that can track scientific citation of publications.

4 The Ministry of Education and Science to deny payment to 5-100 Project higher education institutions caught in self citation // Indicator.ru, 17 May,2017 https://indicator.ru/news/2017/05/17/vuzy-5-100-samocitirovanie/

5 Kolata G. Many Academics Are Eager to Publish in Worthless Journals // The New York Times, October 30, 2017. https://www.nytimes.com/2017/10/30/science/predatory-journals-academics.html

6 Sterligov I., Hodger T. Looking at science from the single-author articles perspective // Izmereniya Nauki, No. 2, 2017 https://okna.hse.ru/news/212247840.html

researchers in these higher education institutions has increased by 4.5 times.1 On the one hand, they help Russian counterparts integrate into international research groups and projects. On the other hand, however, this may produce an effect such as the "purchase" of publications through entering into contracts with highly productive scientists from other countries.2 This can be proved by the fact that foreign scientists working in Russia, mostly in Moscow-based higher education institutions, account for just 1.5 percent of the total number of researchers across the country.3

It would be difficult to further increase the presence of foreign high-level researchers because of a lack of ambitious objectives that could be more appealing than money for world's top class specialists. High-ranking government officials acknowledged that more than once.4 The shortage of professionals who can formulate such objectives has recently become obvious.

Therefore, data on characteristics of scientific productivity and its linkage with ranking upgrade are highly controversial. There are, of course, some positive things to note: the number of the 5-100 Project higher education institutions that are now ranked has increased, whatever the ranking position is. While three higher education institutions participating in the 5-100 Project ranked among top-100 on subject areas in 2015, the number doubled to six in 2017. However, the number of non-participating higher education institutions ranked among top-100 higher education institutions on subject areas doubled during the same period.5 What's unclear is the performance measure for the 5-100 Project in terms of how long it would take to be ranked. In the medium term, there are marked constraints to growth induced by the quality of human capital and the effect of some external factors that dampen its increase through foreign specialists engagement.

In the long term, an adverse effect of the race for publications and ranking can stem from higher stratification in the scientific community. Even in the group of leading higher education institutions the stratification is already apparent from the employee earnings perspective. Institutions of the Russian Academy of Science are facing a similar situation.6 There is no regularity, however, that is commonly found in foreign higher education institutions where academicians and specialists in social sciences and humanities are always paid less than specialists in natural sciences, not to mention specialists in engineering. There are other types of stratification. One is that employee earnings within an institution differ largely because of, among other things, personal bonuses from senior management. The 5-100 Project has also made it possible to pay various types of bonuses. However, the principles of purpose and size of bonuses are sometimes not clear enough, except for a publication bonus that is paid are

1 Ponomarev V. Consecutive motion. Russian higher education institutions: The 5-100 Project // Expert, 27 November 2017 http://expert.ru/expert/2017/48/posledovatelnoe-dvizhenie/

2 Poldin O.V., Matveeva N.N., Sterligov I. A., Yutkevich M.M. College publication activities: The effect of the 5-100 Project // Voprosy Obrazovaniya, 2017, No. 2, p.31.

3 Dyachenko E., Nefedova A., Streltsova E. Foreign scientists employment in Russian research institutions and higher education institutions: Opportunities and constraints // University management: Practices and analysis, 2017, Vol. 21, No. 5, p. 134.

4 Medvedev Yu. Trubnikov: Russia to see world-class megascience cetners // Rossyiskaya Gazeta, Jnauary 9, 2018 https://rg.ru/2018/01/09/akademik-trubnikov-v-rf-poiaviatsia-megasajens-centry-mirovogo-urovnia.html; Kiseleva M. Billions, wages and brains: A dispute between RAS professors and government officials // Indicator, 30 November 2017 https://indicator.ru/article/2017/11/30/sobranie-professorov-ran/

5 Invanter A. Without GOELRO and a bomb // Expert, June 30, 2017 http://expert.ru/expert/2017/21/bez-goelro-i-bombyi/

6 Volochkova N. Digging deep. Russian Academy of Science digs into institutions' problems // Poisk, No. 49, December 8, 2017 http://www.poisknews.ru/theme/ran/30916/

publicly disclosed. Accordingly, there is more guessing about it and discontent among scientists. Some say highest bonuses are paid to professors closely connected with senior management and to personnel "favored by senior management."1 Therefore, this implies that the stratification leads to breaking the relationship between earnings and actual contribution to science and eventually has adverse effects on ethical norms.

The bibliometric pressure has expanded beyond the country's borders, affecting foreign counterparts cooperating with Russian scientists. The results of a recent survey of the specific features of the Russian-French Scientific Collaboration 2 show that the pressure to publish a prescribed number of articles has an adverse effect on foreign partners. Russian counterparts ask their foreign partners to publish as many articles as possible and to include as many Russian coauthors as possible in their articles. According to French scientists, Russian quantitative requirements for publications can sometimes be a problem for the normal course of work. In response to the publication requirement there is growing number of salami publications, in which novel ideas are cut into fragments, each being used for writing a separate article; the number of coauthors having little to do with the article is intentionally big. Bibliometric data show that the number of single-author articles is declining although there is much more single-author articles in Russia than, for example, in China. Over the past two decades the number of Russian single-author articles in first-quartile journals has been halved from 10.2 to 5.3 percent.3 The fact to consider is that 19 percent of authors of such articles not only have Russian but also foreign affiliation and they have much better citation than plain Russian articles.

The key way of stimulating publishing activity is to pay extra to authors, in which case the size of payment depends on the impact factor of a journal.4 Using scientific internship as an efficient way of improving publication activity is a much more rare practice by Russian higher education institutions. Foreign studies, however, show that citation of mobile scientists' articles is higher by an average of 40 percent than that of non-mobile scientists.5 Mobility, in turn, also can be viewed as intensity indicator for international links. Recent studies of a relative effect of government funding and international cooperation on research paper citations6 in OECD countries shows that international collaboration has a stronger impact on citation than an increase in government research funding. Furthermore, there is also some negative correlation between growth in funding and the probability of occurrence of most-cited articles.

Although the correctness of expert appraisal is questionable, it has increasingly been considered as a counter balancer to bibliometrics. The entire post-Soviet periods saw the number of Russian scientists decline, the proportion of "middle-aged" researchers worsen, and

1 Aglitskiy I. The way college professors turn into service workers // Nezavisimaya Gazeta - Science, May 24, 2017 http://www.ng.ru/nauka/2017-05-24/10_6994_students.html

2 Dezhina I. Russian-French Scientific Collaboration: Approaches and Mutual Attitudes // Sociology of Science and Technology, 2018, no.1 (in press).

3 Sterligov I., Hodger T. Looking at science from the single-author articles perspective // Izmereniya Nauki, No. 2, 2017 https://okna.hse.ru/news/212247840.html

4 Impact Factor (IF) is a numerical measure of the importance of a scientific journal to assess the level of the journal, the quality of articles published by the journal, to provide financial aid to researchers and employ personnel.

5 Nature Editorial. Science without walls is good for all // Nature, vol. 550, October 5, 2017. PP. 7-8. https://www.nature.com/news/science-without-walls-is-good-for-all-1.22742

6 Leydesdorff L., Bornmann L., Wagner C. The relative influences of government funding and international collaboration on citation impact (December 13, 2017). https://arxiv.org/abs/1712.04659

the Russian expertise degrade gradually with some extra suffering from a small number of specialists of certain subject areas, when a conflict of interests is inevitable. Grant-based financing became less available too by the time the period of upturn was over and research funding began to decline, and therefore expertise tuned into a tool aimed at promoting "insider" projects regardless of conflict of interests because vast academic disciplines had to compete with each other more often than not.

The bibliometric and expertise trap is difficult to overcome because of devaluation of scientific reputation. Policies such as purging of journals, detecting of plagiarists, criticizing the expertise and automatic appointment of experts have a positive, albeit an extremely slow, effect on public awareness.

Science in core universities

Core higher education institutions took the cue from leading universities and increased their scientific level.1 Although research and development is not a core activity of core higher education institutions, it is are very important for them because they focus on interacting with regional enterprises in many subject areas including innovations, which is difficult to do without having a scientific background. That's the reason why core higher education institutions have scientific work targets among expected effects, as measured by R&D volumes and the number of publications in WoS/Scopus per academic. Some core higher education institutions are faced with the challenge of achieving required performance targets that require productivity be up by 7-10 times2 and R&D volume per academic be up to a level 3.5 times the average across the national higher education system. To be able to deal with the problem of increasing publication activity, core higher education institutions started adopting practices of leading universities, including all pros and cons, namely the creation of an incentives framework as well as publication activity centers that also provide training for academics apart from exercising statistical functions. These policies intend to promote growth in the number and quality of publications though, among other things, stepping up competence in preparing for research and writing scientific papers. In addition, core higher education institutions tend to increase R&D investment: core higher education institutions received about 40 percent of total government funding of scientific research development.3

Overall, the effects of college special-purpose programs are positive from the perspective of encouraging universities to develop and apply new practices in research and education, management and entrepreneurship. A study of the National Research University Higher School of Economics aimed at seeking and streamlining best management practices of research

1 Core higher education institutions emerged in 2016, initially, as a result of consolidation of a few higher education institutions in a region, with the aim to promote the development of subjects of the Russian Federation through supplying highly qualified specialists to the local labor market, address pressing regional economic objectives and implement educational and innovative projects jointly with the region and regional enterprises. The consolidation requirement to make higher education institutions eligible for the core college status be has been removed since 2017. Russia has 33 core higher education institutions, with the aim to reach 100 by 2022.

2 I.V. Arzhanova, A.B. Vorov, D.O. Derman, E.A. Dyachkova, A.V. Kalyagin. Results of the implementation of programs on the development of core universities in 2016 // University management: Practices and analysis. Volume 21, No. 4, 2017, p.13. DOI 10.15826/umpa.2017.04.045

3 Calculations are based on data from I.V. Arzhanova, A.B. Vorov, D.O. Derman, E.A. Dyachkova, A.V. Kalyagin. Results of the implementation of programs on the development of core universities in 2016 // University management: Practices and analysis. Volume 21, No. 4, 2017, p. 20.

institutions and higher education institutions1 shows that universities have more successful practices than research institutions, including a higher level of practices designed to develop competences and support publication activity. However, there is a weak cooperation between research institutions and higher education institutions as well as between higher education institutions.

Updates to academic degree awarding

Finally, advantages and problems related to authorizing some higher education institutions to award an academic degree at their own discretion have become a stand-alone subject for debate. Moscow State University (MSU) and St. Petersburg State University (SPSU) were the first to be authorized to do so. However, a monitoring of the practice of organizing the thesis defense process and academic degree awarding should be launched. Last year, however, before the work on formation of new dissertation defense boards in the above universities had even started, the Russian government authorized another 19 higher education institutions and 4 scientific organizations to award an academic degree.2 Such an abrupt extension of powers for higher education institutions appears a hasty decision amid reputation value erosion, growth in the number of publications in non-reputable journals, purchase and forgery of dissertations.

Meanwhile, MSU and SPSU took seriously the objective of setting new requirements for dissertation defense boards and academic-degree seekers. The task was found to be a challenge, with some options on how to handle it. As a result, the requirements of both universities are now much more strict than those of dissertation defense boards operating within the framework of State Commission for Academic Degrees and Titles, and therefore the number of academic-degree seekers has decreased with new dissertation boards in place. In MSU, for example, the number of dissertation defenses has dropped to about 40 a year from 700-800 in previous years.3 Not only the transition period but also the reputational constraining factor should be taken in account here. It's important that both universities put a high value on the reputational factor at the expense of less quantities during the fledging period of boards. While MSU has set up standing dissertation defense boards, SPSU has adopted the western model that allows for setting a dissertation board tailored to each dissertation defense. Both approaches have advantages such as, for example, the MSU's model offers less bureaucratic proceedings than what is normally required for each dissertation defense. It's important that both universities have high quality requirements to publications of academic-degree seekers, and there are plans to conduct a monitoring of papers throughout the full dissertation preparation cycle rather than for a short period immediately preceding the dissertation defense.

Most of the higher education institutions authorized to award academic degrees have a certain (research, federal university) status or they are authorized to develop educational standards at the their own discretion. This gives promise that they will be able introduce dissertation defense principles to make these higher education institutions and research institutions more reputable. However, the cases of MSU and SPSU show that easier, albeit excessively bureaucratized, ways of dissertation defense are still in favor, thus evidencing of a small number of robust research papers. Statistics prove the same: the number of successfully

1 https://goodpractice.hse.ru/

2 Russian government's executive order No. 1792-p dated August 23, 2017 http://static.government.ru/media/ files/JnFTLJA5 81 O4J7RuZuruWKeKZAyWC 1 V7.pdf

3 Emelyanenkov A. Dissertation and reputation // Rossyiskaya Gazeta, November 29, 2017 https://rg.ru/2017/11/29/vladimir-filippov-doplata-za-uchenuiu-stepen-stala-perezhitkom-proshlogo.html

defended Phd and doctoral dissertations has been decreased as a result of purge and cancellation of a series of dissertation defense boards. The number of successfully defended doctoral dissertations has almost halved as successfully defended Phd dissertations more than halved from 2012.1

6.3.3. Academic science

Last year, experts and mass media paid great attention to what was going on in FASO institutions and in the Russian Academy of Science (RAS), mostly in connection with the RAS president election. The sector itself underwent no substantial changes. There was a dispute about Russian scientists and RAS management's discontent of the recent RAS reform as well as the background of a new RAS presidential election.

The Russian academic community came into sharp contrast with FASO management's assessments as to what was going on in FASO institutions. the RAS Trade Unions jointly with the Academic forum 'Russia: Key challenges and solutions'2 conducted an expert survey of 240 FASO employees. The survey shows that the science sector is faced with challenges in all research areas:

• lack of funding, low salaries, lack of opportunities for scientific expeditions and for attending scientific conferences;

• restricted access to information resources including databases on published research papers;

• further increase in the number of FASO bureaucratic requirements for updating statistical data, rankings, citation, time-consuming registrations on websites, etc.;

• therefore, there are serious problems facing young people engagement in FASO scientific and research organizations.

In June, the discontent was strong enough to develop into a protest rally demanding increase in funding of FASO institutions, including the state task3, and RAS professors met in November with Russian presidential aid Aleksei Fursenko, expressing their complaints regarding low salaries and calling for new types of grants for middle-aged researchers.4

The FASO management, in turn, believe positive changes have been seen for the entire list of announced issues; in particular, FASO Director Mikhail Katyukov stated at a RAS General Assembly that:

• research funding was on the rise. The decline in federal budget funding was compensated by a considerable growth in off-budget funding, adding a total of 6.6 percent;

• average salary increased 29 percent (in 2016 from 2013);

• young scientists accounted for 45 percent of the total research workforce, proving there is no problem with young people engagement in science;

1 Emelyanenkov A. Dissertation and reputation // Rossyiskaya Gazeta, November 29, 2017 https://rg.ru/ 2017/11/29/vladimir-filippov-doplata-za-uchenuiu-stepen-stala-perezhitkom-proshlogo.html

2 Sadykova R. The RAS reform is a proven failure: FASO to expand, institutes to lose their premises. February 23, 2017 http://www.mk.ru/science/2017/02/23/reforma-ran-priznana-provalnoy-fano-rasshiryaetsya-instituty-vyselyayut.html

3 "Once again close to the poverty line": News from a rally of RAS employees // Indicator, June 28, 2017 https://indicator.ru/article/2017/06/28/miting-rabotnikov-ran/

4 Kiseleva M. Billions, wages and brains: A dispute between RAS professors and government officials // Indicator, November 30, 2017 https://indicator.ru/article/2017/11/30/sobranie-professorov-ran/

• the number of publications in journals indexed by WoS increased (up 12.7 percent in the period of 2013-2015).1

There is a host of reasons for the disparity in assessing the situation. Researchers' base salaries are low indeed, salary growth records are based on data for total earnings generated from all sources. Earnings, however, are difficult to project, being an indefinite component that can change considerably depending on weather grants and contracts are available or not. In addition, many FASO institutions legally move employees from full-time to part-time status as well as switch to fixed-term employment agreements to ensure growth in salaries.2 There is also a statistical casus of data for young scientists - they are growing in number due to, among other things, retirement of old-age researches.3

The transition to bibliometric accounting is a challenge too, particularly for older researchers who are used to work under no pressure from scientometric assessment. Furthermore, such assessments ignore the fact that any type of work is not necessarily supposed to deliver immediate results in the form of publications, that is to say, there is disparity between the periods of reporting on such figures and a period required for delivering the results that are worth of publishing.4 Things got complicated late in the year, when FASO announced that salaries are supposed to rise proportionally to the increase in the number of articles.5 That gave rise to a sharply negative response on the side of academic community because there is no linear relationship between the salary size and the scientific performance (productivity).

Finally, there were continuous jitters stemmed from a long-lasting preparation for the performance measurement of FASO institutions coupled with the actions performed by the Agency for consolidation of institutions into bigger scientific centers, without having to provide any solid rationale for such actions and clear-cut criteria for measuring the performance of the ongoing restructuring process.6 In 2017, the work on establishment of such federal and regional centers was accelerated, however, they are not subject to performance measurement during the ongoing monitoring cycle. Further, 493 FASO scientific organizations underwent performance measurement by the end of 2017. The concern about managerial decisions that could be made following the performance measurement prompted RAS institutions and branches to virtually ignore it. According to the performance measurement protocol, RAS branches must prepare expert reports based on performance data from institutions. At a later stage, RAS branches must check whether institutions are equitably divided into categories and provide, if needed, their observations.7 By October 2017, 90 percent of institutions ignored FASO's request to provide

1 Shorthand notes of Mikhail Kotuykov's speech at a RAS General Assembly. March 20, 2017 FASO of Russia. http ://fano. gov.ru/ru/press-center/card/?id_4=37994

2 Maksimov. Russia to see less scientists. RAS employees rally in Moscow. June 23, 2017 http://fedpress.ru/news/77/society/1808890

3 Demina N. Scientists and government officials: Is dialogue possible? // Troitsky variant-nauka, No. 243, December 5, 2017, p.1. https://trv-science.ru/2017/12/05/uchenye-i-chinovniki-dialog-vozmozhen/

4 Saburova L. Survival or development: Opportunities and risks stemmed from an academic science reform for the regional scientific community // Sociologia nauki i tekhnologiy. 2017. Volume 8, No. 4, p.50.

5 Rubtsov A. Double up the reality: Russian science is forced to imitate // RBC, January 30, 2018 https://www.rbc.ru/opinions/politics/30/01/2018/5a702b549a794769102a5a0c

6 Simplicity in relations with science is worse than robbery. An editorial, Nezavisimaya Gazeta. May 22, 2017 http://www.ng.ru/editorial/2017-05-22/2_6992_red.html

7 Volochkova N. Stagewise. RAS institutions ranking// Poisk, No. 35, September 1, 2017 http://www.poisknews.ru/theme/science-politic/28378/

the required data.1 Not until the election of new RAS President did the work on data collection for the assessment was accelerated, and expert reports were prepared by the end of October.2 It's characteristic that top-performers accounted for 58 percent of FASO institutions, whereas just 5 percent were recognized as low-performing institutions, according to data from RAS branches. Comparison of data from branches with quantitative (including scientometric) performance figures of institutions revealed that there were only 130 high-performing institutions (26 percent). High-performing institutions had 0.6 publications a year per researcher (less than in higher education institutions), whereas low-performers had 0.1. It's characteristic that there was no big difference in funding of high- and low-performers.3 The results obtained revealed inappropriate funding and a relatively modest performance of institutions.

Overall, 2017 continued to see a negative environment stemming from the continuing standoff between RAS and FASO and from general discontent of the RAS reform despite the fact that many scientists and RAS members are conscious of the need for such a reform. RAS member Aleksei Khokhlov expressed his complaints in clear and unmistakable terms: "The RAS Presidium has long been notoriously known for its nontransparent, behind-the-curtain functioning and a highly archaic infrastructure. What is more, no changes in its style of operation have been seen since the 2013 RAS reform in response to external changes. "4 That's exactly why the academic community had high hopes for the election of a new RAS President.

No RAS presidential election took place in March 2017. The official reason was that the the RAS presidential election procedure needed updating. RAS is a state-funded institution and therefore Russian government's opinion about RAS performance and president is instrumental. It appears that previous RAS President Vladimir Fortov who ran for the presidency in March was not considered a person able to continue the RAS reform and forge relationships with other government agencies. However, it is Vladimir Fortov who was in fact the sole the favorite to win the presidency. All the candidates eventually dropped out, and the RAS presidential election was slated for late in September. Amendments to the legislation were introduced in August. The idea is that not only RAS branches may nominate candidates for RAS presidential elections. RAS members themselves may run for the presidency in a proactive manner, provided that they collect more than 50 RAS members' signatures for candidacy. It is not until the list of candidates is approved by the Russian government that the approved nominees may take part in the election. The newly elected RAS President is subject to approval by the Russian President.5 Therefore, RAS presidential elections are now under rigorous surveillance and formal control by the Russian government.

1 Chernykh A. RAS members to face attendance checks // Commersant, October 11, 2017 https://www.kommersant.ru/doc/3434864

2 Volochkova N. Academically speaking. RAS branches ranking institutions // Poisk, No. 46, November 17, 2017 http://www.poisknews.ru/theme/ran/30239/

3 Volochkova N. Not enough leaders? Evaluation commission's final conclusions spoil the fun of scientists // Poisk, No. 52, December 29, 2017 http://www.poisknews.ru/theme/science-politic/31538/

4 Aleksei Khokhlov: RAN engine's four-year wheel spin // RIA Novosti. July 29, 2017 https://ria.ru/science/20170729/1499294783.html

5 Federal Act dated July 29, 2017 No. 219-FZ On Amendments to the Federal Act On the Russian Academy of Sciences, the Reorganization of the State Academies of Sciences and Amendments to Certain Legislative Acts of the Russian Federation http://www.garant.ru/products/ipo/prime/doc/71632828/

The list of candidates was updated by September. RAS member Aleksandr Sergeev1, Director of Institute of Applied Physics of the Russian Academy of Sciences (the city of Nizhniy Novgorod), was the favorite to win. In his election program Mr. Sergeev presented a conservative enough approach towards the RAS reform that was favored by the majority of RAS members. Eventually, the forecasts proved correct after Aleksandr Sergeev won the election. The next day after the election the Russian president signed a decree appointing Mr. Sergeev as RAS president.

The newly elected RAS President believes that the first thing to do is to change the RAS status so that it ceases to be a state-funded institution. This must be done so that RAS will perform not only research and methodological functions but also organizational and methodological control of FASO institutions, including allocation of funds, as was the case prior to the reform.2 The RAS President noted, however, that this process is a long-term process, and therefore a new status will not be granted in the offing.3

In addition, according to the newly elected president, FASO must be informally accountable to RAS by appointing scientists as including through introducing scientists into the FASO management as well as holding concurrently the position of FASO director and of RAS senior manager. The ideas of centralization have an effect on RAS regional branches too: the RAS President believes that RAS must bring them under scientific and organizational control and become their co-founder.

It's curious that Aleksandr Sergeev shares almost the same views as the previous RAS president, including views on how RAS must integrate itself into the process of addressing national issues. Again, focus is placed on major projects and on RAS engagement in the achievement of military-industrial complex tasks. According to the newly elected RAS President, it's important to, first, take part in major scientific projects, that's what RAS did in the Soviet era, and, second, conduct research to strengthen the national defense capabilities. In doing so, a basic and exploratory research program aimed at meeting the interests of the military-industrial complex needs to be adopted. Lastly, it's important to resume the program of integration with higher education institutions that was underway in the mid/late 1990s, performing largely the function of supplying manpower for RAS.

In the context of the above views and objectives it's not surprising that the new RAS Presidium has many members of the former RAS Presidium, with a few of them being compromised by scandals associated with, among other things, forged dissertations.4 The stated views nevertheless meet the views of a majority of RAS members. Some of them even wrote an Open Letter addressed to the Russian President in support of the idea to make FASO accountable to the Russian Academy of Science, bring back academic institutions under the RAS control, and grant a special status to RAS.5

It's remarkable, however, that the newly elected RAS President has publicly acknowledged that RAS had lost people's respect. A critical goal, according to Aleksandr Sergeev, is to regain

1 Vaganov A. The government seem to have elected the President of the Russian Academy of Sciences // Nezavisimaya Gazeta-Nauka, September 3, 2017 http://www.ng.ru/science/2017-09-03/100_ran030917.html

2 Russian science enters a death valley. Commersant publishes a speach of the newly elected RAS President // Commersant, September 26, 2017 https://www.kommersant.ru/doc/3422102

3 Volochkova N. Digging deep. Russian Academy of Science digs into institutions' problems // Poisk, No. 49, December 8, 2017 http://www.poisknews.ru/theme/ran/30916/

4 Orlova O. Academicians manage to gain government's respect but lose the game with themselves // Weekly journal. October 2, 2017 http://www.ej2015.ru/?a=note&id=31623 (was available on October 30, 2017)

5 A open letter to President Putin // Kommersant, December 27, 2017 https://www.kommersant.ru/doc/3509262

public and people's confidence and respect, which is, however, difficult to accomplish because good reputation is easier to lose than to achieve, let alone to regain. Therefore, reforms that go beyond partial returning to the previous framework will have to be introduced. Anyway, that's what the Russian President's stance is all about - the consolidation of the three academies is a good solution1, and therefore the main course of the RAS reform is on the right track.

6.3.4. Technological innovations promotion policy

The Digital Economy of the Russian Federation state program marks a new uptrend in the development of the country's innovation sector.2 The program sets out basic cross-cutting digital technologies the government will promote as well as goals and objectives of developing research competences and technological capabilities. The program aims to develop startups3, increase big companies engagement in innovative activities, intensive training of IT specialists and other professionals that are in demand in times of digitization. In particular, at least 10 globally competitive leading companies and at least 500 small and medium-sized enterprises specializing in the development of digital technologies and platforms and in the provision of digital services are expected to emerge by 2024.4 In terms of ideology, the program is in line with the import substitution concept because it aims primarily to enhance research competences and technological capacity, sets out "technological self-sufficiency regarding every subject area of cross-cutting digital technologies on a global level, and national security."5 There is a problem though: McKinsey estimates Russia's reliance on imports in certain market segments is getting critical: the country imports 80 to 100 percent of various types of IT equipment and about 75 percent of software.6 The amount of venture capital funding of digital projects in Russia has been decreasing by approximately 5 percent a year.7

The Program was adopted amid stagnant technological innovations. A host of indicators describing country's inventive and innovative activities fell below an already low level of innovation activities that was observed over a long period of time (see Fig. 7).

First and foremost, according to Rospatent, in 2017, there was a decline in the patent activity of Russian research institutions and higher education institutions and therefore in the potential to set up startups on the basis of intellectual property.8 The marketability of developments is low, with patented R&D products making up 10 percent, of which 2.2 percent have found practical application, which is due to (apart from companies' weak interest in innovations) a lack of clear-cut standards for the distribution of intellectual property rights, undeveloped court practice, shortage of patent lawyers.9

1 A meeting with members of the Russian Academy of Sciences. May 30, 2017 http://kremlin.ru/events/ president/news/54635

2 Endorsed by the Russian government through executive order No. 1632-p dated July 28, 2017 http://static.government.ru/media/files/9gFM4FHj4PsB79I5v7yLVuPgu4bvR7M0.pdf

3 A meeting concerning the implementation of the Digital Economy state program. August 15, 2017 http://government.ru/news/28825/

4 The Digital Economy of the Russian Federation state program», pp. 16-17. http://static.government.ru/ media/files/9gFM4FHj4PsB79I5v7yLVuPgu4bvR7M0.pdf

5 Ibid., p. 11.

6 Digital Russia: A new reality. Aleksandr Aptecman, Vadim Kalabin, Vitaly Klintsov et al. Digital/ McKinsey. July 2017. P. 43. file:///D:/Libraries/Downloads/Digital-Russia-report.pdf

7 Ibid., p. 49.

8 Skorobogatiy P. Who is to invest in a perpetuum mobile // Expert, No. 45, 2017 http://expert.ru/expert/2017/ 45/kto-dast-deneg-na-perpetuum-mobile/

9 Ibid.

12

10

8

6

4

2

0

1995 2000 2005 2010 2015 2016

Fig. 7. Innovative enterprises in industry, as a percentage of total industrial enterprises

Source: Fridlyanova S. Industrial enterprises' innovative activities // Science, Technologies, Innovations. November 15, 2017 M.: National Research University Higher School of Economics, p. 1.

Second, hopes that student startups will encourage the development of small business (in particular, a series of programs of the Innovation Promotion Fund rely on that) have not been met. Russian Prime Minister Dmitry Medvedev noted that student entrepreneurship "has failed to meet at least 10 percent of what was expected."1 Indeed, student entrepreneurship is still performing the training function, and it is therefore difficult to find investment for this type of business. However, it is not only student startups that are difficult to find investors for because, third, venture capital funding has been decreasing in the country due to, among other things, sanctions. According RBC's full-year report, the past three years saw transaction volumes in the Russian venture capital ecosystem decline 75 percent, total capital of venture capital funds operating in the Russian market drop 19 percent, venture capital transaction volumes lose 66 percent.2 According to data from the OECD, venture capital investments Russia ranks 30rd on volume out of 33 countries covered by statistics. Russian statistics, however, cannot be used for dividing this type of investment into early and seed-stage investments and later-stage investment in business development3, and it is therefore difficult to measure the innovation orientation of venture capital investments.

Venture capital is expected to be found in big state-owned companies, the target of a new policy that was introduced in June by the Russian President. The policy is so-called "coercion to innovations" by way of recommending such companies to set up corporate venture capital funds and deal with startups. Needless to say, big companies are in focus because most of the

1 Sotnikova A. Dmitry Medvedev carps about student startups failure to meet "at least 10%" of expectations // RBC, May 25, 2017 https://www.rbc.ru/society/25/05/2017/5926ef489a7947524fe9cec5

2 Data for 2014-2016. Source: New instruments formation. RBC 2016 full-year report . M.: RBC, August 2017 http://www.rvc.ru/upload/iblock/150/Report_RVC_2016.pdf

3 According to data for 2016. Source: OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The digital transformation, OECD Publishing, Paris. P. 158.

10.6

9.5

9.3 9.3 9.2

s s

T---1---1---1---r

1995 2000 2005 2010 2015 2016

R&D investment worldwide come from big and medium-sized companies that have long been in the market1; however, fresh small companies tend to offer new innovative ideas.

The recommendation to set up corporate venture capital funds is addressed mostly to biggest state-owned companies such as Rostech, the Federal Space Agency of the Russian Federation (Roscosmos), the United Aircraft Corporation (UAC), the United Shipbuilding Corporation (USBC), State Atomic Energy Corporation (Rosatom).2 A few companies agreed late in November on pooling their efforts to set up venture capital funds: Roscosmos, RBC, VEB-Innovations established a venture capital fund; UAC joined a venture capital fund set up by the Skolkovo Foundation and RBC; USBC plans to establish a venture capital fund early in 2018.3 It's unlikely that corporate venture capital funds will swiftly solve the startups problem because Russia has not more than a few dozens of projects that can be appealing for investors, according to experts.4 Rostelecom, Gazprom Neft, RT-Business Development LLC stand out among existing corporate funds. No successful project kick-offs has been seen yet. The new activity in this sector shows that centralized administrative resources continue to be in use despite low effectiveness of the coercion to innovations. It's not technological innovations that help big companies gain competitive advantages; in particular, state-owned companies gain advantage through having access to administrative resources, government subsidies and government defense contracts.5

The Digital Economy state program can be sort of a catalyst to get things going at least within a limited segment despite overall adversity facing the innovation ecosystem. In April 2017, The Institute of Innovation Management of the National Research University Higher School of Economics conducted a survey among 100 companies (mostly small companies). The survey shows that the program can be used as a mobilizing tool designed for more active transition to digital technologies. However, not all of them are aware of what digital transformation of economy is all about, and digitization is quite often viewed as a way of streamlining internal processes of doing business. Approximately 60 percent of the surveyed companies said digital technologies can be used to streamline the document flow, while only 28 percent companies mentioned big data processing, storage and analysis.6 Therefore, the majority of companies said digital technologies had the strongest effect on stepping up internal processes, namely simplification, acceleration, labor and resource intensity reduction, whereas the weakest effect was on sales, acquisition of new consumers and appearance of brand new products, services and opportunities, with no effect at all on 34-41 percent of cases.7 It's characteristic that a lack of special support policies was found to be one of the main constraints,

1 OECD (2017), OECD Science, Technology and Industry Scoreboard 2017: The digital transformation, OECD Publishing, Paris. P. 29.

2 Vladimir Putin commissions biggest Russian companies to set up venture capital funds // RNS Information Agency, June 2, 2017 https://rns.online/economy/Putin-poruchil-krupneishim-kompaniyam-Rossii-sozdat-venchurnie-fondi-2017-06-02/

3 Khlyuavko A. Roscosmos sets up a venture capital fund // Vedomisti, November 30, 2017 https://www. vedomosti.ru/technology/articles/2017/11/30/743634-roskosmos-venchurnii-fond

4 Kerber S., Leader CJSC Managing Director. Mneniye // RNS Information Agency, November 10, 2017 https://m.rns.online/opinions/Kakuyu-vigodu-mozhet-prinesti-korporativnii-venchurnii-fond-2017-11-10/

5 Sakovich M.. VC is judged by "exits": Why the Russian startups market keeps seeing small number of "exits"? // Forbes, March 10, 2017 http://www.forbes.ru/tehnologii/338751-vc-po-ekzitam-schitayut-pochemu-na-rossiyskom-rynke-startapov-po-prezhnemu-malo

6 Global Economy: Global trends and Russian business practice / under the editorship of Medovnikov D.S. - M.: National Research University Higher School of Economics, 2017. PP. 49-50.

7 Ibid., p. 56.

apart from the traditional shortage of funding. The Digital Economy state program may just as well facilitate the solution of the problem.

Another important aspect related to the program is human capital. Seventy percent of respondents pointed to a lack of high-quality labor force, including insufficient skills of personnel using digital technologies. The manpower issue, particularly IT specialists training, was paid a special attention while discussing the Digital Economy state program. The question of how many specialists the country needs to become a digital economy had different answers. According to the Agency for Strategic Initiatives (ASI), 120,000 highly qualified engineers and programmers are needed for a breakthrough, whereas managers of the Russian Ministry of Communications said about one million IT specialists.1 The figures appear very approximate because of such a wide disagreement. Up to 2,000 IT specialists left the country over the past two years, according to Russoft, a nationwide association of leading companies specializing in software development. Although the number isn't big, we are talking about most qualified specialists.2 Collectively, these data explain why the educational component is essential in the Digital Economy state program. The workforce issue is expected to be addressed through competence development centers that will be established as part of the implementation of the Digital Economy state program and through NTI.

An initiative aimed at promoting medium-sized private growth companies (national champions) was developed amid relatively negative trends in the innovation sector. The initiative is a pilot program encompassing 30 companies. Another 32 companies were selected on a competitive basis late in 2017.3 The initiative exhibits the effectiveness of agencies' pooled efforts, the value of non-monetary policies as well as the potential of support tools synergy.

The key principle of the initiative is "manual" operation with companies in order to facilitate and double down their innovative activities. In 2017, The Ministry of Education and Science offered companies (national champions) to take part in identifying promising subject areas that will then be supported on a competitive basis through a federal special-purpose program -Research and development according to priority areas of the scientific and technological sector development in Russia for 2014-2020. The companies are eligible for competition, and government co-financing at initial R&D stages will cover up to 70 percent of the project value.4 The Ministry's approach towards looking for and engaging industrial partners is now a pilot project, but it's likely that it will continue to develop because companies have great interest in this type of cooperation. Financial aid is also provided via the Industrial Development Fund in the form of easy-term loans and via the SMB Corporation in the form of sureties on concessional lending basis. There is another approach via the Russian Export Center that helps companies with registration of intellectual property rights abroad, compensation for certification costs as well as product shipment costs.5

National champions support tools include various forms of stimulating horizontal links with, above all, state-owned companies that regulate innovation development programs. Such links

1 A meeting at the Council for Strategic Development and Priority Projects. July 5, 2017 http://kremlin.ru/events/president/news/54983

2 Digital Russia: A new reality. Aleksandr Aptecman, Vadim Kalabin, Vitaly Klintsov et al.. Digital/ McKinsey. July 2017. P. 60.

3 Mekhanik A. A happy new champions! https://stimul.online/articles/sreda/s-novymi-natschempionami/

4 Kondrakova Т. Request for a signal. Ministry of Education and Science waiting for proposals from medium-sized business // Poisk, May 19, 2017 http://www.poisknews.ru/theme/science-politic/25315/

5 Grigoijeva I. High-tech exports to see 3.5-fold increase by 2020 // Izvestia, August 22, 2017 https://iz.ru/632460/inna-grigoreva/mer-vysokotekhnologichnyi-eksport-vyrastet-v-35-raza

are expected to help state-owned companies implement more efficiently their plans and medium-sized companies sell their technologies and products. There are plans to encourage the establishment of consortiums that will embark on the development of globally competitive technologies. Such initiatives also can help big state-owned companies solve the problem of retarded innovation-driven development. According to managers of the Ministry of Economic Development of Russia, the implementation of innovation development programs state-owned companies has worsened, the number of innovation units of state-owned companies has been decreasing because "political momentum has been lost.»1 Therefore, the political momentum may be regained through promotion of cooperation with medium-sized growth companies. The national champion status will ensure that products are competitive. Further, this approach also can help solve the import substitution problem.

At the same time, the "manual mode" is quite useful for medium-sized companies in the case of pilot project, whereas it is difficult enough to apply across the country. Another factor that may affect the forms of support in place is the temptation to make advantage of the industrial partner status for gaining a priority access to budget allocations. Where promising subject areas are determined by a limited pool of companies, it's highly likely that the companies will win ministries' tenders to be eligible for funding. Some companies do prefer "easy ways": companies' (national champions) 2017 road maps of growth showed that some of the supportive policies requested from the government aim to eliminate competition in the industry rather than facilitate the development of new technologies.2

Given all the existing potential problems, a concierge service program for medium-sized growth companies sets an interesting precedence of comprehensive use of various government

support tools and makes it possible to ensure that they are well balanced.

* * *

The last year saw the government continue to build out its presence in science and in the development and application of new technologies. The government outpaced the business sector in R&D spending, priorities of (mostly digital) development were set. New policies of "coercion to innovations" were introduced. The government strengthened its positions in the academic system.

Two aspects were characteristic for the scientific and technological policy. First, a series of documents, including statistical documents, were quickly developed and approved. New long-term documents emerged during the year. Second, the implementation of a number of initiatives faltered, such as performance measurement of scientific organizations, updates to the system of distribution of budget appropriations, creation of conditions to encourage venture capital funding, creation of a legal framework to govern intellectual property rights. A number of the last year's new policies resembled some of the previously implemented ideas and therefore looked like cyclical attempts to solve the same unmanageable problems. The Digital Economy state program has almost the same technological priorities as the NTI does, core universities started mimicking the approaches of leading higher education institutions, RAS' new plans were similar to early ideas of switching back to a number of prereform governance policies.

1 Medovnikov D. Russia concentrated gets Innovative. https://stimul.online/articles/interview/innovatsionnaya-rossiya-sosredotachivaetsya-2/

2 Saraev V. A nationwide experiment. https://stimul.online/articles/sreda/eksperiment-natsionalnogo-masshtaba/

Overall, the scientific and innovation policy tends to provide priority support to topperformers that are selected according to various criteria, be it universities, technology companies or selectively engaged foreign scientists. The approach is irrational amid limited capital resources, but it has side-effects. In the scientific and research sector this leads to stratification of the scientific community, which might turn out to be socially dangerous in the future. The scientific labor market remains exclusive, there is no system in place for staff exchange, engagement of specialists from the global market, as well as smooth-running mobility. The focus on specific types of companies in the innovation sector may lead to unreasonable benefits and distortion of competition. At the same time, the pilot project of custom-tailored support to companies (national champions) created an interesting precedence of comprehensive use of the available government support tools. The foregoing open a window of opportunity for forging horizontal links between various actors within the innovation system.

6.4. Government promotion of scientific research and innovative activity at higher educational institutions: the main instruments of support, its scale and beneficiaries1

6.4.1. Scientific research and innovative activity at universities: the current situation and development trends

One typical feature of Russia's science sector, inherited from the Soviet period, is the predominant role in its research and development (R&D) activities of the 'traditional' scientific research organizations, represented by the research institutes operating under the system of government-funded academies of sciences (academic science), as well as by the research institutes and R&D bureaus subordinated to branch ministries and government departments (sectoral science); meanwhile, the role of higher educational institutions (HEE) in those activities was rather modest. At the same time, since the early 2000s, the volume of R&D projects launched in Russia by higher educational institutions and the number of researchers participating in them, has been increasing at a stable rate both in absolute and relative terms (Fig. 8). As a result, over the last one-and-a-half decades, the number of researchers involved in the higher education sector increased more than 1.5 times, the sector's relative share in the total number of researchers and total internal R&D costs2 nearly doubled, and the corresponding costs incurred by higher educational institutions in constant prices increased more than 4-fold.

The growth rates were highest over the period 2009-2011, when in face of post-crisis recovery across the Russian economy, the government, in an attempt to achieve 'new quality' economic growth on the basis of the experiences gained during the crisis, was looking for and developing, among other things, new growth drivers. Universities were chosen to be one of those drivers, and they were assigned the role of scientific research and innovation centers in addition to their educational role; this goal, in its turn, significantly increased government

1 This section is written by Mikhail Kuzyk, IAC, RANEPA; Yuri Simachev, NRU HSE, RANEPA.

2 Hereinafter, internal R&D costs are understood as the actual costs incurred in the course of implementing R&D projects in RF territory, with no regard for their actual source of funding (i.e., including those funded from abroad). Internal R&D costs include both operating costs (salary and wage expenses, supplies and materials, maintenance costs, etc.) and capital costs (those incurred on the purchase of land, on the construction or purchase of buildings, on the purchase of equipment classified as capital assets, etc.). (For more details see, e.g., Gorodnikova N.V., Gokhberg L.M., Ditkovsky K.A. et al. Science and technology indicators in the Russian Federation: HSE Data Books. Moscow. 2018).

involvement in the scientific research and innovation activity of higher educational institutions (more on that later).

h

□= ■ n r r

u l. I

H

1 1 1 i 1 1 i 1 1

00

<n on

<N<N<N<N<N<N<N<N

14%

12%

10%

8%

6%

4%

2%

0%

Internal R&D costs in higher education sector, thousands of rubles, in constant 1989 prices ( left-hand side scale)

] Number of researchers in higher education sector, thousands (left-hand side scale)

Relative share of higher education sector in total internal R&D costs (right-hand side scale)

Relative share of higher education sector in total number of researchers (right-hand side scale)

Fig. 8. Scientific research activities in Russia's higher education sector

in 1995-2015

0

Sources: data released by NRU HSE; own calculations.

Growth of the R&D costs of higher educational institutions was boosted in the main by the increased funding allocated to applied studies, and their volume (in comparable prices) over the period from 2002 through 2015 more than tripled. At present, applied studies account for nearly a half of the total scientific research expenses in the higher education sector, whereas in the early 2000s their share amounted to about a third (Fig. 9). Interestingly, the relative share of the 'intermediate' category - the practical implementation phase of applied R&D studies - over the same period notably shrank.

35% 30% 25% 20% 15% 10% 5% 0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 Total volume, thousands of rubles, in constant 1989 prices (right-hand side scale)

II IIFundamental research Applied research R&D

Capital costs

Relative share ( left-hand side scale)

Fundamental research Applied research A R&D ^^^"Capital costs

Fig. 9. Internal R&D costs in Russia's higher education sector in 2002-2015 Sources: data released by NRU HSE; own calculations.

The bulk of R&D projects implemented by universities (more than 70 percent) belong to the category of natural and technical sciences. However, since the early 2000s, the relative share of the latter has shrunk, while that of research in the field of social sciences and humanities, on the contrary, notably increased (Fig. 10).

□Natural sciences

□ Technical sciences

□ Medical sciences Agricultural sciences

□ Social sciences ■ Humanities

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Fig. 10. The structure of internal operating R&D costs in Russia's higher education sector, by branch of science, in 2002-2015

Sources: data released by NRU HSE; own calculations.

It is important to note that, in spite of the sufficiently stable growth rate, displayed approximately since the early 2000s, of the volume of scientific research funded by the entrepreneurial sector, its relative share in the total internal R&D costs of the higher education sector was not demonstrating any more or less distinctly visible upward trend, varying in the interval between 23 and 33 percent, and from 2010 onwards became stabilized at 27 percent, while the relative share of public sector funding allocated to research projects launched by higher educational institutions (including the funding provided by companies operating in the public sector) was demonstrating, over the period 2010-2015, a downward trend1 (however, when taken in absolute terms, the volume of public funding was increasing - see Fig. 11). Meanwhile, for Russia's science sector in general, the overall picture appears to be even less optimistic: since the early 2000s, there has been stable growth in the relative share of the volume of public funding allocated to R&D projects, and shrinkage of funding from the entrepreneurial sector.

600

500

400

300

200

100

70% 60% 50% 40% 30% 20% 10% 0%

Internal R&D costs in higher education sector, thousands of rubles, in constant 1989 prices (right-hand side scale)

ii ii Funded by entrepreneurial sector

■ 1 Funded from public sources*

Relative share in higher education sector's total internal R&D costs (left-hand side scale)

Of entrepreneurial sector sources Of public sources*

For reference: relative share in total internal R&D costs (left-hand side scale) A Of entrepreneurial sector sources • ••O«* Of public sources*

*Including the organizations belonging to the public sector.

Fig. 11. The share of internal R&D costs in the higher education sector covered by the entrepreneurial sector and the public sector in 1995-2015

Sources: data released by NRU HSE; own calculations.

0

1 In fact, this trend was offset by the increasing funding of R&D projects by higher educational institutions from their own sources.

As far as the innovative activity of universities is concerned, its results traditionally have been estimated by the scale of influence of the higher education sector on the innovation products actually implemented by commercial companies. The available official statistics provide information neither on the number of higher educational institutions cooperating with the business sector, nor on the number of enterprises tapping on the higher education sector as a source for implementable innovations; nevertheless, these data still make it possible to follow the quantitative movement ofjoint scientific research projects launched by industrial enterprises together with higher educational institutions, as well as the relative share of innovative companies involved in this type of cooperation (Fig. 12). The available data point to the existence of a weak but sufficiently stable positive trend in the development of cooperation of industrial companies with higher educational institutions in the R&D field over the past decade (in contrast to their cooperation with the sector of 'traditional' science, where no growth trend is visible).

2 500

2 000

1 500

1 000

500

30°oI

25%

fflfflW

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

40% Relative share in total number of joint R&D projects launched by innovative industrial companies (right-hand side scale) 35"/q^=5lParticipated by higher educational institutions

20%

15%

5%

0%

] Participated by scientific research organizations

Joint R&D projects launched by innovative industrial companies (left-hand side scale)

1 With higher educational institutions

With scientific research organizations

Relative share of innovative companies operating in manufacturing industry (right-hand side scale)

»Participating in joint R&D projects with scientific research organizations

Participating in joint R&D projects with higher educational institutions

Fig. 12. R&D projects launched by industrial companies jointly with higher educational institutions and scientific research organizations in 2006-2015

Sources: data released by NRU HSE; own calculations.

An important index (which has been in high demand in recent years, including in the sphere of Russian government administration, of which more will be said later) reflecting the competitive capacity of the national higher education sector is the hierarchy of Russia's leading universities in the global ranking. In order to analyze the scientific research aspect of the activity of Russian universities, it will be worthwhile to look at the annual data collected in accordance with QS World University Rankings Methodology, where the highest weighting is allotted to each institution's Academic Reputation score.1 Lately, the positions of Russian universities in

1 This metric, with weighting of 40 percent, is based on Academic Survey dataset (for reference: in Russia's Three University Missions ranking, the academic component of a university's activity has weighting of 25 percent). The

0

that ranking have been gradually improving, and this happens mostly due to the better scores gained by the higher educational institutions of the 'second wave', and not the leading universities (Fig. 13).

30

25

20

15

10

100

200

300

400

500

600

Number of Russian universities (left-hand side scale)

In total ranking

2014/2015 2015/2016 2016/2017

2017/2018

In top 600 In top 400 In top 200

Average rankings (right-hand side scale)

Of top 10 Russian universities Of top 6 Russian universities Of top 3 Russian universities •Of Russia's leader

Fig. 13. Russian universities in QS World University Rankings Source: own calculations based on QS World University Rankings.

While looking at the main metrics used to compile the QS score, it is worthwhile to note that many of the Russian universities included in the ranking - and not only the leading ones - have a high score on their Faculty/Student Ratio. The weakest point of those Russian higher educational institutions are their Citations per Faculty and International Faculty Ratio scores (Fig. 14).

100 90 80 70 60 50 40 30 20 10 0

□ Academic Reputation Citations per faculty Employer Reputation

□ Faculty/Student Ratio International Faculty Ratio*

□ International Student Ratio

2014/2015 2015/2016 2016/2017 2017/2018 *In the ranking results for 2015/2016, 2016/2017, and 2017/2018 there are no relevant scores for leading Russian universities.

Fig. 14. The average scores of Russia's top three universities included in QS World University Rankings

0

5

0

other five metrics utilized by QS in evaluating universities, are Citations per faculty (20 percent); Faculty/Student Ratio (20 percent); Employer Reputation (10 percent); International Student Ratio and International Faculty Ratio (5 percent each). For further details, see QS World University Rankings Methodology. URL: https://www.topuniversities.com/qs-world-university-rankings/methodology

On the whole, in spite of the growing activity of universities in the scientific research field, Russia has still failed to join the group of leaders in terms of the relative share of R&D projects implemented by higher educational institutions, falling behind not only the developed industrial countries, but also some of the newly emerged industrial powers, as well as quite a few of the post-socialist states and former USSR republics (Fig. 15).

100 90 80 70 60 50 40 30 20 10 0

a

—i—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—I—i—

< VI

§ &

3

S 'S

3 3 m IS

(S N £

m

JS Ä 3 S 3

-S

sa

M §

a

2 2 'S 's

6

5,5 5

4,5 4

3,5 3

2,5 2

1,5

■a -s

o > Ö °

' O »Relative share of higher education sector in internal R&D costs in 2015 (or another nearest year for which data are available), percent - LEFT-HAND SIDE SCALE □ Mean QS 2016 score of country's three leading universities percent - LEFT-HAND SIDE SCALE

Mean Three University Missions 2017 Top 200 score of country's all universities - LEFT-HAND SIDE SCALE

—■—Universities - industry cooperation in R&D field, GII 2017 score - RIGHT-HAND SIDE SCALE

Fig. 15. The scientific research and innovative activity indices of higher educational institutions; the international competitive capacity indices of leading universities - by-country comparison

Sources: own calculations based on data released by NRU HSE, Global Innovation Index 2017, and Three University Missions.

The same pattern can be observed with regard to the cooperation of Russian universities with industry in the R&D field: although by her Global Innovation Index ranking,1 Russia is ahead of a majority of her former socialist-camp partners and post-Soviet states, she lags significantly behind both the traditional and newly emerging leaders in innovative development, including the Republic of Korea, Singapore, China, and Malaysia. And finally, if we choose to speak of the international competitive capacity of a country's leading higher educational institutions in the terminology of global university rankings, Russia in this respect falls far behind not only the recognized world leaders in higher education like the USA, the UK and Switzerland, but also some other countries like China and Singapore. This conclusion is fully supported not only

1 The Global Innovation Index 2017. URL: https://www.globalinnovationindex.org/gii-2017-report

1

by Russia's scores assigned by foreign agencies (like the already cited QS World University Rankings), but also by one Russian agency (Three University Missions,1 which is frequently criticized for its excessive partiality to Russian higher educational institutions.2

Thus, it should be admitted that, in spite of the progress achieved in recent years, both Russia's higher education sector as a whole and some of its leading representatives still have a long way to go before they win high scores, on a global scale, in terms of their scientific research and innovative activity indices.

6.4.2. The main instruments employed by the government in promoting the scientific research and innovative activity of higher educational institutions3

Beginning from somewhere in the middle of the past decade, the government began to pay much more attention to developing scientific research and innovative activity at higher educational institutions (HEE). One of the first measures undertaken in that direction (and the first one to be truly wide-ranging) was the support for and development of centers for shared use of scientific equipment (CSU) set up on the basis of higher educational institutions, as well as scientific research organizations. These centers, in addition to the conduct of studies, tests and measurements, were also charged with the task of participating in training specialists and other staff with university-level qualifications.4

Centralized federal budget funding has been allocated to the creation and development of centers for shared use of scientific equipment since 2005, to the total value of RUB 15 million RUB (RUB 1.1 million per annum on the average); in this connection, no less than 80 percent of that sum must be spent on purchases of expensive equipment items (to the value of more than RUB 1 million).5 As of end year 2017, as total of 578 centers were established throughout

1 Three University Missions. Moscow international ranking. URL: https://mosiur.org/

2 Suffice to say that only two Russian universities are among the Top 200 in QS World University Rankings -Lomonosov Moscow State University and Saint Petersburg University, whereas in Three University Missions' Top 200, as many as 13 Russian higher educational institutions are included.

3 In this section, we discuss the government support measures and instruments that are initially designed (in full or predominantly) specifically for higher educational institutions, with a significant emphasis on the development of their research and/or innovative activity. For this reason, we do not consider here the funding earmarked for research projects implemented in the framework of federal targeted programs (such as the FTP Research and Development in the Priority Areas of Development of the Russian Scientific and Technological Complex); the grants issues by the Russian Science Foundation and the Russian Foundation for Advanced Research Projects, etc., when universities are treated on equal terms with all the other recipients of government support. We do not analyze here some of the specialized instruments applied by the RF Ministry of Education and Science by way of promoting educational activities (the programs Cadres for the Regions, New Cadres for the Defense-Industrial Complex; the status of a federal innovation site). Besides, we do not discuss here some financial instruments intended for higher educational institutions that channel small amounts of support (in objective terms, relative to the size of the entire university (e.g., some spending items earmarked for individual and collective research projects in the framework of FTP Scientific Research and Educational Cadres for Innovative Russia for Ha 2009-2013 and the Program PUSK (Partnership of Universities and Businesses) launched by the Innovation Promotion Foundation). And finally, in general, we do not discuss the basic channel for funding the activity of universities in the form of government assignment because, strictly speaking, this is not government support in its traditional understanding (optional and selective).

4 The procedure for setting up a federal center for shared use of scientific equipment (approved by Order No 1351 of the RF Ministry of Education and Science, dated March 11, 2011).

5 This requirement is stipulated in the FTP Research and Development in the Priority Areas ofDevelopment of the Russian Scientific and Technological Complex for 2014—2020, whereby the government funding of the centers is

the territory of Russia, more than half of them (282) being based at higher educational institutions1; however, the actual number of recipients of the relevant government support was 152, because many higher educational institutions included in the program set up several centers at once. The absolute champions in this respect are two universities in the south of Russia - Stavropol State Agrarian University and Southern Federal University, which received federal government funding for the creation of 10 and 14 centers respectively.

In 2006-2008, among the activities funded in the framework of the National Priority Project Education through government support channels were innovative educational programs (IEP) implemented by higher educational institutions. Each of these programs was expected to offer a set of measures designed to develop and implement new and upgraded technologies, methods and forms to be employed as part of the teaching process in order to ensure not only fine quality education, but also its integration with science and innovative activity, and to provide the alumni with professional skills capable of ensuring their high competitive potential in the labor market.2

It is important to note that the criteria for selecting those higher educational institutions that were to become the recipients of government support included not only the quality of their innovative programs (the expected results and changes to be achieved in the fields of scientific research and education, their sustainability, availability of resources, including extrabudgetary funding sources, efficient program management, etc.), but also their overall performance level in each field (scientific research, innovative and educational activity), as well as their intellectual potential and material base.3

The recipients of government support from the federal budget under these programs, in the total amount of RUB 30 billion, were 57 higher educational institutions; so, each of them was allocated slightly above RUB 500 million (or approximately RUB 260 million per annum). Meanwhile, the actual amount of support received by higher educational institutions varied rather widely - from RUB 220 million (St. Petersburg Mining University) to nearly RUB 1 billion (Lomonosov Moscow State University and Saint Petersburg State University). The bulk of budget funding received by these higher educational institutions was spent on purchases of laboratory equipment4.

An upshot of this support for innovative educational programs implemented by higher educational institutions was, quite logically, the introduction of a new institution category in the higher education sector - that of national research university (NRU). In this connection, it was planned from the very start, and moreover, stipulated in legislation, that these universities were to implement educational programs and engage in fundamental and applied scientific

regulated. Previously, it was regulated in the framework of the Federal Research and Technology Target Program

Research and Development in the Priority Directions of Development of Science and Technologies for 2002-2006, and the FTP Research and Development in the Priority Areas of Development of the Russian Scientific and Technological Complex for 2007—2013.

1 Web portal Modern Research Infrastructure of the Russian Federation. URL: http://ckp-rf.ru/ckp/

2 The procedure and criteria for the selection procedure, through a tender, of higher professional education institutions implementing innovative educational programs (approved by Order No 44, dated March 2, 2006, of the RF Ministry of Education and Science).

3 Ibid.

4 Education in Russia [Information and analytical data]: Federal Reference Book. V. 5. Moscow: Strategic Partnership Center, 2008. (In Russian)

research in a broad spectrum of fields,1 and do it all with equal efficiency. In fact, that is why the name of this category included the word 'research'.

As was the case with innovative educational programs, the support to NRUs was provided in the framework of special university development programs, and the candidates were selected, as a rule, on a competitive basis (one exception was the two NRU set up by a special Presidential Executive Order as a pilot project). The factors to be taken into consideration were the level of a given higher educational institution (its human resources potential, educational and scientific research infrastructure, performance level in the fields of education, scientific research and innovations, international and national recognition), and the quality, substantiation for, and expected results of its development program.2 To assess the efficiency of program implementation, a list of more than 20 indices was drawn up, these indices describing not only the activity in the educational and scientific research fields, but also innovative activity;3 it should be added that the currently applied version of the list no longer contains these indices.4

Initially it was established that the status of a NRU should be granted to universities for a 10-year period (later on, this restriction was abolished). However, budget funding for their development programs was to be provided only during the first 5 years, on condition that they must also attract co-funding from extrabudgetary sources in the amount of 20 percent. The possible areas for spending these budget resources were purchases of laboratory and scientific research equipment, personnel training in order to improve their qualification, curricula elaboration, database development, and improvement of education and scientific research quality management systems. 5

Over the period 2008-2010, the status of a NRU was granted to 29 universities, 23 of which previously had been receiving government support for their innovative educational programs. The total amount of budget funding allocated to the NRU development programs was approximately RUB 50 billion RUB, or about RUB 1.7 billion per university, or RUB 360 million per annum. About a half of this amount was earmarked for the development of the universities' material and technical base. The highest amount of budget funding - RUB 1.8 million - is to be received by three higher technical educational institutions situated in Moscow: National Research Nuclear University (MEPhI), National University of Science and Technology (MISIS), and Bauman Moscow State Technical University; the lowest - RUB 540 million - is allocated to the development program launched by St. Petersburg Academic University (the nanotechnology scientific research and education center of the Russian Academy of Sciences).

On the whole, we must note the obvious continuity between the NRUs and the previously existing innovation support programs (the list of support recipients, the principles of their

1 Federal Law No 18-FZ, dated February 10, 2009, 'On the Introduction of Alterations to Some Legislative Acts of the Russian Federation with Regard to Issues Associated with the Activity of Federal Universities'. It should be added that at present, that norm is no longer in force. Instead it is established that the activity of NRUs (at least in the framework of programs receiving government support) should be aimed at providing the priority directions in the development of science, technology, machinery, relevant sectors of the economy, and the social sphere with human resources, and at developing and implementing hi-tech projects (Federal Law No 273-FZ, dated December 29, 2012, 'On Education in the Russian Federation').

2 The Provision on the selection, through a tender, of university development programs included in the category national research university (approved by Decree of the RF Government No 550, dated July 13, 2009).

3 Approved by Order No 296, dated July 29, 2009, of the RF Ministry of Education and Science.

4 Approved by Order No 1038, dated September 22, 2015, of the RF Ministry of Education and Science.

5 Ibid.

selection, the support targets, and even the corresponding amount of budget allocations). At the same time, while the programs were more oriented to the development of educational activities, the NRUs (at least in accordance with the initial idea of their creation) were to develop equally their activities in the educational and scientific research fields.

Alongside the status of a NRU, another 'status' category for higher educational institutions was introduced in Russia - that of a federal university (FU).1 The basic functions assigned to such universities, beside the implementation of innovative educational programs, training the personnel needed for the region's comprehensive socio-economic development, and ensuring systemic modernization in the field of professional education, were the conduct of fundamental and applied studies across a broad spectrum of fields, and integration of science, education and industry - among other things, by practically implementing their intellectual products.2

The organization of federal universities was based on a territorial principle, and involved, as a rule, the enlargement of the already existing higher educational institutions. As was the case with NRUs, for each of the universities its own specific development program was approved. Each of these programs envisages educational and scientific research activities, as well as innovative activities; however, no precise targets are established for the latter. It is interesting to note that 8 out of 10 programs envisage the allocation of budget funding. The total volume of budget allocations in the framework of these programs is RUB 40 billion - in the amount of about RUB 5 billion per university, or RUB 1 billion RUB per annum.

In late 2009, the status of a leading classical university (LCU) was approved in its present form, and it was legislatively consolidated to Russia's two major universities - Lomonosov Moscow State University and Saint Petersburg State University, these being unique scientific research and educational complexes of paramount importance for the future progress of Russian society. The leading classical universities differ from the other higher educational institutions in that their scientific research and educational complexes may incorporate not only structural subdivisions, but separate legal entities, e.g., research institutes. Besides, Lomonosov Moscow State University and Saint Petersburg State University are endowed with the right to independently establish the educational standards for their curricula.3 Similarly to the other 'status' categories established for universities, the leading classical universities are assigned their own special development programs where innovative activities are stipulated alongside educational and scientific research activities, but without any specific targets. The total volume of budget funding allocated in the framework of university development programs for 20102016 was RUB 15.8 billion - on the average RUB 1.1 billion per university per annum; in this connection, the bulk of these resources - approximately 85 percent - was earmarked for the development of universities' material and technical base and infrastructure.

In the same year (2009), the set of instruments to be employed in the support for the scientific research and innovative activities of higher educational institutions (which previously included

1 To be more precise, the first federal universities were established back in 2006 - two years before their status was formalized in legislation.

2 Federal Law No 18-FZ, dated February 10, 2009, 'On the Introduction of Alterations to Some Legislative Acts of the Russian Federation with Regard to Issues Associated with the Activity of Federal Universities'. It should be noted that by now, that norm has been abolished, and the role assigned to federal universities in existing legislation is reduced to developing human resources needed for comprehensive socio-economic development of the subjects of the Russian Federation (Federal Law No 273-FZ, dated December 29, 2012, 'On Education in the Russian Federation').

3 Federal Law No 259-FZ, dated November 10, 2009, 'On Lomonosov Moscow State University and Saint Petersburg State University'.

in the main special programs and 'status' categories), was augmented by yet another tool - a small innovative enterprise set up by a higher educational institution (SIE), its goal being the implementation of intellectual products. Initially, budget-funded higher educational institutions (and research institutions) were granted the right to create such enterprises without previously obtaining the approval of an empowered government body.1 From 2011, the rights of budget-funded institutions to dispose of their property2 were significantly expanded, and so it became easier for them to create the charter capital of their enterprises set up with the purpose of intellectual product implementation. Besides, they were granted the right to lease out their premises to their newly created small enterprises without open tender,3 and the small enterprises were allowed to operate under a simplified taxation system,4 as well as to apply reduced rates to their insurance contributions to government extrabudgetary funds (until 2019).5

At present, the official follow-up database of small innovative enterprises operating in the science and innovation sector contains information on 2,600 enterprises, their founders being approximately three hundred higher educational institutions6 - about a third of their total number, or (this being a more illustrative figure) more than half (55 percent) of all state and municipal higher educational institutions, and the latter are, in fact, the target of this particular support mechanism. The obvious leaders in this respect are Belgorod State Technological University and South Ural State University, as they hold stakes in the capital of 84 and 63 SIEs respectively.

It is essential to note in this respect that the number of project-implementation companies was used as one of the targets in the development programs implemented at some federal universities, as well as in the innovative infrastructure development programs of higher educational institutions (for more details about this mechanism, see later); in this connection, 76 higher educational institutions are the founders of half of all the project-implementation companies (PIC). This fact has led to the assumption that sometimes, the creation of a SIE, at least during the initial phase, was purely formal and enforced, and this, in its turn, had a negative effect on the viability of such enterprises.7

1 Federal Law, dated August 2, 2009, No 217-FZ 'On the Introduction of Alterations to Some Legislative Acts of the Russian Federation Concerned with Issues in the Creation, by Budget-funded Scientific and Educational Institutions, of Economic Societies for the Purposes of Practical Application (Introduction) of the Results of Intellectual Activity.' Somewhat later, this norm was extended to include autonomous institutions in accordance with Federal Law No 273-FZ, dated December 29, 2012 'On Education'.

2 Federal Law No 83-FZ, dated May 8, 2010, 'On the Introduction of Alterations to Some Legislative Acts of the Russian Federation in Connection with Improvement of the Legal Status of State (Municipal) Institutions.'

3 Federal Law No 22-FZ, dated March 1, 2011, 'On the Introduction of Alterations to Article 5 of the Federal Law 'On Science and Government Policy in the Field of Science and Technology' and Article 17.1 of Federal Law 'On the Protection of Competition.'

4 Federal Law No 310-FZ, dated November 27, 2010, 'On the Introduction of Alterations to Article 346.12 of Part Two of the Tax Code of the Russian Federation.'

5 Federal Law No 272-FZ, dated October 16, 2010, 'On the Introduction of Alterations to Federal Law "On Insurance Contributions to the Pension Fund of the Russian Federation, the Social Insurance Fund of the Russian Federation, the Federal Compulsory Medical Insurance Fund and Territorial Compulsory Medical Insurance Funds", and Article 33 of the Federal Law "On Compulsory Pension Insurance in the Russian Federation"'.

6 SRI FRCEC: Registration and monitoring of small innovative enterprises of scientific and educational sectors. URL: https://mip.extech.ru/index.php. Strictly speaking, the number of higher educational institutions - founders of enterprises was initially somewhat higher, but some of them have by now been reorganized by way of merger with other higher educational institutions.

7 See, e.g., Ruposov V. Economic activity analysis of ISTU small innovation enterprises. Proceedings of Irkutsk State Technical University. 2014. No 4; Sterligov, I. A third of all small businesses based at higher educational

In 2010, against the backdrop of post-crisis recovery in the national economy and the increasing focus of the government on the potential sources of stable growth, there was also a noticeable surge in the policies oriented to innovations, scientific research and technical development, and one of their priorities de facto was a boost given to the scientific research and innovative activity of universities. At the same time, only one of the instruments included in the government package was shaped in accordance with the tradition that had emerged over the previous years, as government support for a special program that addressed an entire higher educational institution, - the innovative infrastructure development program of a higher educational institution. The budget funding received in this way could be spent by higher educational institutions specifically on the development and proper equipment of innovative infrastructure units (business incubators, technoparks, innovative technology and engineering centers, certification centers, technology transfer centers, centers for shared use of scientific equipment, etc.), as well as on the valuation and legal protection of intellectual products, training abroad and continuing education courses for their staff, creation and implementation of educational programs in the field of small innovative entrepreneurship, consulting services associated with technology transfer, and creation and development of SIEs.1

The selection of infrastructure development programs by open tender, where the bidders were required to conduct fundamental and applied studies in the priority fields that were relevant for the development of science and technology, and to efficiently launch educational programs and the set of measures needed to ensure the development of innovative infrastructure. As was the case with other similar tenders, the choice of winners depended not only on the content of their submitted programs, but also on the overall scientific research, education and innovative potential of a given higher educational institution.

The winners in the two tenders were the innovative infrastructure development programs of 78 higher educational institutions (76 of which are currently operating as independent legal entities). The total volume of budget allocations in the framework of this support program over the period 2010-2012 amounted to RUB 9 million, or approximately RUB 115 million per program.

The second support instrument, launched in 2010, envisages co-funding, by the government, of innovative projects aimed at creating hi-tech industries and implemented jointly by higher educational institutions2 and businesses. In this connection, the direct recipients of budget subsidies are the business companies, which use this funding to pay for the R&D products created by the higher educational institutions in the framework of the joint projects. In the course of a tender, the factors that are primarily considered are the experience of the bidding company in the field addressed by the proposed projects or in related fields, in the implementation of R&D projects, and in the cooperation with higher educational institutions as their customer.3 It was intended that in the elaboration of R&D products ordered in the

institutions exist only on paper. Science and Technology of the Russian Federation STRF.ru. 2011. URL: http://www.strf.ru/material.aspx?CatalogId=221&d_no=41450#.VNqByeY0Enh

1Provision on the government support of innovative infrastructure development, including the support of small-scale innovative entrepreneurship, at federal higher professional educational institutions (approved by Decree of the RF Government No 219, dated April 9, 2010).

2 From 2012 onwards, in order to outsource their R&D projects, commercial companies may also commission state research institutions.

3 Rules for the allocation of subsidies by way of providing government support to the development of cooperation between Russian higher educational institutions, and state research institutions and organizations implementing comprehensive projects aimed at creating hi-tech industries, in the framework of the subprogram Institutional

framework of a given project, undergraduate and postgraduate students should be involved, and the corresponding target was stipulated in the agreement between the government body and the business company.1

This mechanism is still being actively applied, and in fact, it has become the mainstream channel of financial support for the cooperation between higher educational institutions and businesses, both in terms of the number of participants and in terms of the volume of budget allocations. Over the period 2010-2017, support was provided to a selection of more than 400 projects, participated by over a hundred of higher educational institutions. Most often, the recipients of government support are leading multidisciplinary universities and higher technical educational institutions like Lomonosov Moscow State University (14 projects), Moscow Institute of Physics and Technology (MIPT) (14 projects), and National University of Science and Technology (MISIS) (12 projects). The total volume of budget funding allocated to the projects is almost RUB 50 billion, or RUB 140 million per project

And finally, one more instrument, also launched in 2010, envisages support, in the form of grants, for studies conducted at higher educational institutions2 under the guidance of eminent scientists, Russian or foreign, with a position of authority in one or other field of science. To conduct such a study, the scientist should put together a scientific research team, which should include, as a mandatory requirement, the undergraduate and postgraduate students of a given higher educational institution.3 As is the case with co-funding of joint projectsoB, this support instrument is still being applied. The recipients of this form of support have been 60 higher educational institutions implementing 159 scientific research projects. Once again, the leaders in terms of the number of received grants have become Lomonosov Moscow State University and Moscow Institute of Physics and Technology (MIPT) (12 and 9 supported projects respectively), as well as Novosibirsk State University (10 grants) and Saint Petersburg State University (9 grants). The total volume of government funding allocated over the period 2010-2017 amounted to approximately RUB 26 billion, or about RUB 130 million per grant.

The programs of innovative development of biggest companies in the public sector, launched from 2011 onwards, were designed, among other things, to promote the cooperation of such companies with higher educational institutions. One of the inalienable components of these programs is the set of measures aimed at boosting cooperation with leading higher educational institutions in a variety of forms, including joint studies, participation in curricula improvement, organizations of internships and on-the-job training courses, etc. However, these measures, when implemented in actual practice, did not result in a significantly increased scale

Development of the Scientific Research Sector of the Government Program of the Russian Federation Development of Science and Technology for 2013-2020 (approved by Decree of the RF Government No 220, dated April 9, 2010).

1 Order of the RF Ministry of Education and Science No 904, dated November 7, 2012.

2 From 2012 onwards, government support has also been extended to academic research institutions and state research centers.

3 Provision on the allocation of grants by the Government of the Russian Federation by way of providing government support to scientific research conducted under the guidance of leading scientists at Russian higher educational institutions, research institutions subordinated to the Federal Agency for Scientific Organizations, and state research centers of the Russian Federation in the framework of the subprogram Institutional Development of the Scientific Research Sector of the Government Program of the Russian Federation Development of Science and Technology for 2013-2020 (approved by Decree of the RF Government No 220, dated April 9, 2010).

of cooperation between biggest companies and higher educational institutions, at least during the initial phase of implementation of the innovative development programs. 1

In 2012, the government once again resorted to its habitual and traditional practice of supporting higher educational institutions through special programs, which this time were named the strategic development programs of higher educational institutions. The main declared goals of government support were to improve the administrative performance of higher educational institutions, to create strategic management institutions, and to coordinate the structure and content of curricula with the labor market demand, the goals and strategies of socio-economic development of the regions and industries, and the most promising direction of science and technology development. In this connection, it was expected that the programs will conduce to the improvement of the educational, scientific research and innovative activity of higher educational institutions, as well as their competitive capacity on the national and global level, ensure sustainable development of human resources, implementation of innovative methods and hi-tech learning techniques in the educational process, improve the infrastructure employed in the educational process and scientific research, and promote modernization of their laboratories and experimental base. In the final analysis, each of those programs was expected to shape a state-of-the-art higher educational institution capable of providing hi-tech industries or the social sphere with human resources, performing sophisticated academic studies and implementing R&D projects on the basis of highly performing principles and forms of integration of science, education and the business community.2

The area designated for implementing that instrument was from the very start limited to higher educational institutions subordinated to the RF Ministry of Education and Science. Besides, the recipients of budget subsidies earmarked for the implementation of strategic development programs could not be those higher educational institutions that in 2012 were the beneficiaries of other program-oriented government support instruments; thus, the universities with a special status were automatically excluded from the group of potential recipients of support (for each of them, an individual development program was approved). In the course of a tender bidding, as was the case with the other program-oriented forms of support, a number of factors apart from the quality of prepared programs were taken into consideration, namely the educational, scientific research and innovative potential of higher educational institutions, as well as their financial stability3.

Over the period from 2012 through 2014, the government provided support to 55 strategic development programs launched by higher educational institutions. Most of these programs were geared towards the budget expenditure ceiling established for this funding instrument -RUB 300 million (RUB 100 million per annum).

A new phase of active government policy in the higher education sector was initiated by one of the May 2012 Presidential Executive Orders,4 which set as one of the basic government policy targets in the sphere of education and science that no less than five Russian universities

1 Gershman M., Zinina T., Romanov M. et al. The programs of innovative development of companies with state stakes: intermediate results and priorities. / Ed. L.M. Gokhberg, A. N. Klepach, P.B. Rudnik et al. Moscow. NRU HSE, 2015

2 Provision on the support, by open tender, of the strategic development programs of state higher professional educational institutions, dated November 11, 2011.

3 Ibid.

4 The Presidential Executive Orders addressing the issue of improving some basic directions of government policy, issued in May 2012, at the start of the current electoral cycle.

should by 2020 be ranked among the world's top hundred.1 To achieve this target, in 2013, a new mechanism of government support for Russia's leading universities designed to improve their competitive capacity relative to the other world leading research and education centers was launched, better known as Project 5-100. In order to qualify for government support, a higher educational institution was to be included in at least one of the three top global university rankings, as well as to comply with a number of formal criteria, including the mean Unified State Examination score of its enrolled first-year students; the number of undergraduate students studying under budget-funded tuition programs; the relative number of postgraduate students; the volume of spending on R&D projects; publication activity; and the number of foreign students or faculty members (scientific research and education personnel, SREP)2.

Project 5-100 receives the most traditional form of support available for higher educational institutions, which envisages budget funding allocated in the framework of special programs, titled 'the programs designed to improve the competitive capacity of higher educational institutions among the world's leading scientific research and education centers'. These programs include, among other things, measures designed to boost the academic mobility of SREP in the form of participation in internships and on-the-job training courses, involvement of young staff members with an experience of scientific research or tutoring activities in the projects launched by leading educational or scientific research organizations, implementation of joint educational programs with the participation of such organizations, attraction of foreign students, implementation of research studies and R&D projects under the guidance of eminent scientists, and in collaboration with leading scientific research organizations or hi-tech companies.3

In 2013, 15 universities were selected for participation in the project; in 2015, on the basis of a second tender bidding, their number increased to 21. All the project participants, without exception, enjoy the status of federal or national research universities (and so receive the government support pertaining to their status), or previously were the recipients of support in the framework of another program-based instrument - an innovative education program. The total volume of budget funding allocated to higher educational institutions in the project's framework over the period 2013-2017 amounted to more than RUB 50 billion, or RUB 577 million per university per annum. Meanwhile, the relevant budget funding has been distributed unevenly between the universities: while the leaders like NRU HSE, MIPT, MEPhI, and ITMO received in excess of RUB 800 million in per annum terms, the majority of the universities of the 'second wave' were allocated less than RUB 150 million.

A kind of supplement to Project 5-100, oriented in the main to promoting the educational and scientific research activity of universities, was the program of financial assistance to projects for establishing and developing engineering centers (EC), launched in 2013. This mechanism is aimed at creating, on the base of and in collaboration with higher educational institutions, a network of specialized centers providing engineering services to organizations operating in the real sector, developing the best available technologies, promoting innovative scientific research and R&D projects, and supervising the training of personnel in the

1 Presidential Executive Order No 599, dated May 7, 2012, 'On Measures Aimed at the Implementation of Government Policy in the Field of Education and Science'.

2 Order of the RF Ministry of Education and Science No 296, dated April 22, 2013.

3 Rules for the distribution and allocation of subsidies by way of providing government support to the leading universities of the Russianon Federation in order to improve their competitive capacity among major global scientific and educational centers (approved by Decree of the RF Government No 211, dated March 16, 2013).

engineering field. In this connection it is important to note that in each given year, the tenders held in order to select the best engineering center projects were emphasizing different aspects of their activity. Thus, in 2016, the focus was on import substitution in industry and Russia's lower dependence on imports; in 2017, it was on the Arctic zone and on promoting the production of civilian and dual-use technologies by enterprises belonging to the defense-industrial complex.1

An interesting feature of this instrument is that from the very start, it has been an interdepartmental undertaking: the corresponding measures are included in the Government Program Development of Industry and Its Competitive Potential, supervised by the RF Ministry of Industry and Trade, while the actual management of government support is executed by the RF Ministry of Education and Science. At the same time, the recipients of subsidies may only be the higher educational institutions subordinated to the RF Ministry of Education and Science and oriented to R&D projects and training of engineering personnel.

As is the case with many other support mechanisms discussed here, one necessary attribute of government support is the existence of a special program - the strategic engineering center development program. Interestingly, in order to become eligible for government support, a higher educational institution must create a separate legal entity - an engineering center proper. However, it is not the latter that becomes the recipient of government funding - it is allocated to the higher educational institution; meanwhile, the main index of support efficiency is the volume of services provided by the engineering center to companies operating in the real sector. No less (and in recent years, more) than half of the funding allocated by the government must be spent on purchases of equipment, software and intangible assets.2

Over the period from 2013 through 2017, the government subsidies earmarked for the creation and development of engineering centers were received by 49 higher educational institutions. Their total volume was more than RUB 4.5 billion - approximately RUB 100 million per higher educational institution.

A new phase (and so far the last one) in the evolvement of government policy aimed at the development of universities, with a distinct emphasis on the 'peripheral' regions, started in 2015, when the government launched one more specialized program-based financial support instrument in the form of a new status that could be granted to a higher educational institution -that of a core university. The declared goal of that instrument is the socio-economic development of Russia's regions through the creation of university centers for their innovative, technological and social development. For that reason, the formal requirements established for the potential recipients of government funding clearly focus not only, and not so much, on regional universities, but on those higher educational institutions that have never received government financial aid on the federal level, or received it on a very limited scale. In the first round of tender bidding in late 2015 - early 2016, the candidates for government support could not be federal universities, Project 5-100 participants, or higher educational institutions situated in Moscow and St. Petersburg (this requirement automatically removed from the candidate list the leading classical universities - Lomonosov Moscow State University and Saint Petersburg State University, and a number of other higher educational institutions receiving substantial government support (see below)). In the second round (2017), this limitation also included

1 Provision on an open public tender for government support of projects aiming at the creation and development of engineering centers on the basis of higher educational institutions subordinated to the RF Ministry of Education and Science, dated October 12, 2016 (fifth bidding) and September 27, 2017 (sixth bidding) respectively.

2 Ibid.

national research universities. Besides, for a more even distribution of core universities across Russia's territory, it is envisaged that two higher educational institutions belonging to that category cannot be situated in one and the same municipal formation. It is also important to note that in the first round, the mandatory requirement to the higher educational institutions applying for the status of a core university was their enlargement by way of merger with one or several other educational institutions, while in the second round, that condition no longer applied.1

Similarly to the other program-based government support instruments, the criteria for selecting the recipients of budget funding were based not only on the content of core university development programs, but also on the assessment of the actual situation at the higher education institutions posing as candidates for government support. However, this time the highest score was gained not on the basis of the actual indices displayed by the higher educational institution, but depending on the quality of its submitted program. The latter must include measures designed to achieve modernization of its educational, scientific research, and innovative activity, its material and technical base, its social and cultural infrastructure, its administration system, as well as measures aiming at the development of local community, urban and regional environment. As for the indices of higher educational institutions on which the choice of appropriate candidates is made, these are the number of undergraduate and postgraduate students, the number of taught disciplines and specialties, employment opportunities for the alumni, the volume of R&D projects, the number of faculty staff with academic degrees, the amount of aggregate income from all sources and that generated by scientific research, and the citation index.

On the basis of the results of the first tender, government support was allocated to 11 higher educational institutions. The total amount of federal budget funding allocated to their development programs in 2016 was RUB 1.2 billion, or approximately RUB 110 million per higher educational institution. In the second round, 22 higher educational institutions were additionally selected, for 8 of which support is to be allocated from the federal budget, and for the other 14 - from regional budgets, while the cost of methodological and consulting support is to be covered by the RF Ministry of Education and Science.

And finally, the latest government initiative aimed at developing the scientific research and innovative activity of higher educational institutions is the Priority Project Higher Educational Institutions As Centers of Innovative Space,2 its most important component being the creation of university centers for innovative, technological and social development of the regions with the purpose of involving universities in dealing with the issues of sustainable socio-economic development of the Russian Federation and its subjects. It should be noted that although there are some very obvious similarities with the targets designated in the program for core universities, this priority project envisages the creation of a unit with a different status, which will function, in effect, as a superstructure relative to the already existing support instruments. The university applying for the creation of a university center must participate in Project 5-100; have the status of a federal or core university; or answer several formal requirements, i.e., the mean Unified State Examination score of its enrolled first-year student; the volume of R&D

1 Provisions on the procedure of selection, by open tender, of higher educational institutions to be recipients of financial support from the federal budget for their federal state higher educational institution development programs, dated October 16, 2015 and February 17, 2017.

2 It should be noted that is it specifically in the framework of this project that the financial support of the leading universities - participants in the 5-100 Project - has been provided since 2017.

projects; the amount of income; and the relative shares of different categories of students, and these indices, it should be added, are not the same for different groups of regions. Besides, the status of a university center is by definition unobtainable for the higher educational institutions situated in Moscow, St. Petersburg, Moscow Oblast, and Leningrad Oblast. 1

The spectrum of declared goals of the newly established university centers is very broad, and it differs for the centers oriented to innovations, technologies, and the social sphere. The common goals for all types of centers are the capitalization of the educational, scientific research, and technological results achieved in various sectors of a region's economy; the creation of appropriate conditions for the implementation of project-oriented educational programs covering a complete project life cycle; harmonization of the themes of applied R&D projects with the Strategy for Scientific and Technological Development of the Russian Federation; participation in activities oriented to systemic cooperation with scientific research organizations and businesses through the creation of chairs addressing fundamental fields, joint implementation of educational programs and scientific research projects; participation in activities oriented to the creation of proper conditions for continuing education, improving informational, financial and legal literacy of the population, and the improvement of faculty professional competence. The centers for innovative development of the regions, alongside all these goals, must also develop innovative ecosystems conducive to increasing the income generated by universities from the commercial use of their intellectual products, and involve both students and faculty in innovative and entrepreneurial activities. The specific tasks assigned to the centers for technological development of the regions are the creation of sectoral engineering centers capable of providing the infrastructure needed by businesses in order to implement their proj ects in accordance with the directions of the National Technology Initiative (NTI) Strategy and to promote their innovative R&D ideas; the implementation of project-oriented Master's Degree programs in the fields of technological entrepreneurship and management of technological projects, with the involvement of companies operating in the real sector; promotion of students' technological entrepreneurship, creation and development of startup accelerators and innovative entrepreneurship support programs with the participation of development institutions. And finally, the university centers for social development of the regions are expected to ensure the implementation of project-oriented Master's Degree programs in the fields of social entrepreneurship and social project management, with the involvement of companies operating in the real sector, including welfare-oriented non-profit organizations, and to promote the development of students' social entrepreneurship, creation and development of startup accelerators and social entrepreneurship support programs with the participation of development institutions, including for the purpose of creation, by students and alumni, of welfare-oriented non-profit organizations.2

Traditionally, the creation of university centers involves elaboration of a specialized document package - the program of university's reorganization into a university center. However, the set of required targets for program implementation reflects rather accurately the stipulated goals of university centers - while, generally speaking, this is not typical of the majority of other government support instruments employed in the development of universities. It is noteworthy that the selection of higher educational institutions to serve as university centers

1 The model and parameters of monitoring the university centers for innovative, technological and social development of the regions (annex to the RF Ministry of Education and Science's Letter No L0-1754/05, dated August 31, 2017).

2 Ibid.

initially was not expected to depend on federal budget funding (while the possibility of such obligations emerging at some point in the future cannot be ruled out). However, the approved format of the reorganization programs does envisage public funding from regional and local budgets.1

In late 2017, a total of 51 higher educational institutions were officially recognized to be university centers for innovative, technological and social development of the regions. An overwhelming majority in that group was represented by federal or national research universities, Project 5-100 participants, or (at least) core universities. Over the next few years, it can be expected that this status will become more widespread, one reason for that assumption being the fact that, in the Priority Project Higher Educational Institutions As Centers of Innovative Space, it is stipulated that in 2019, there should be 70 university centers, and in 2025 -no less than 100 university centers.2

The main formal and content-related features of the mechanisms employed in promoting the scientific research and innovative activities of higher educational institutions are shown in Table 25.

On the whole, the government support policy targeting the scientific research and innovative activities of higher educational institutions, in contrast to many other areas of government activity, is evidently systematic and has an internal logic, even if it may be considered to be somewhat disputable. Thus, the 'broader' measures (those designed to increase the number of newly created small innovative companies, support the projects aimed at setting up centers for shared use of scientific equipment and cooperation projects) have been applied alongside with support instruments targeting a small the number of leading higher educational institutions (the development programs of national research universities, federal universities, and leading classical universities; and Project 5-100). It is important to point out the continuity between different measures. Thus, for example, the large-scale but short-lived support program targeting the innovative educational activities of higher educational institutions evolved into a permanent status or category being assigned to some of them; the participants in Project 5-100 were for the most part federal and national research universities, while the participation in that project, together with the status of a federal or core university, makes it easier for a higher educational institution to gain official recognition in the capacity of a university center for the development of a region.

One question of paramount importance arising in the course of discussion of any direction or instruments of government policy is the actual positive effect produced by government efforts. Available official data and materials not only fail to provide any exhaustive answer to that question, but do not make it possible even to get near to any coherent answer at all. On the one hand, over the entire period when the government was supporting higher educational institutions in their scientific research and innovative activity, the latter were demonstrating a trend towards growth. On the other, growth of the relevant indices had begun prior to the onset

1 The requirements as to the content and structure of the application for participating in the selection of higher educational institutions by university centers for innovative, technological and social development of the regions; Comments on the conduct of and selection conditions for the creation of university centers for innovative, technological and social development of the regions (annex to the RF Ministry of Education and Science's Letter No 05-18062, dated September 7, 2017.

2 Certificate of the Priority Project Higher Educational Institutions As Centers of Innovative Space (approved by Presidium of the Presidential Council for Strategic Development and Priority Projects, protocol No 9, dated October 25, 2016).

of massive-scale government support for higher educational institutions, and then it happened against the backdrop of the positive movement of many other basic macro indices.

Generally speaking, in order to generate the necessary 'body of evidence' confirming the results of government policy, one must identify the effects produced specifically by the acts undertaken by the government, which could not have been achieved in absence of such acts. In this connection, one must take into consideration not only the results of government support, but also the indirect effects, including changes in the behavior of the beneficiaries of support and their contractors.1 It should be noted that the direct, the indirect, and in particular the behavioral effects often appear with a significant lag of up to several years. Today, the Russian government administration system lacks any practical experience of such assessments. Strictly speaking, this circumstance makes it impossible to draw any well-substantiated conclusions or make any definite statements, not only specifically of the results produced by government policies in the higher education sector (and in other sectors as well), but also of the sustainability of the ongoing positive changes, and whether they will survive if the support is discontinued.

In principle, considering the length of the period of government support, its systemic character, and its rather massive scale (more on this later), we believe that, most probably, it did produce a significant positive influence on the development of scientific research and innovative activity at higher educational institutions; however, we cannot say this with absolute certainty.

Table 25

The main instruments of government support for scientific research and innovative activity of higher educational institutions

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

Support for projects aimed at creation and development of CSUs From 2005 Budget funding for projects Implementation of interdisciplinary scientific research projects in priority science and technology development fields in Russian Federation, including in collaboration with world's leading research centers. Participation in personnel training at university level, on basis of CSUs Support for 578 CSUs, including 282 CSUs in higher education sector based at 151 HEEs. Total volume of budget funding is approximately RUB 15 billion No less than 80 percent of funds should be spent on purchasing cutting-edge scientific research equipment

Innovative educational programs of higher educational institutions 2006-2008 Budget funding for programs Application of cutting-edge educational technologies & methods. Provision of high quality education, high competitive capacity of alumni on labor market. Integration of educational, scientific-research & innovativeoH activities Support for programs launched by 57 HEEs. Total volume of budget funding RUB 30 billion Selection criteria included not only program quality, but also financial etc. situation of bidding HEEs. Allocated budget funding was spent mostly on equipment

Federal universities From 2006 Status (category); in most cases -budget funding for development programs Implementation of innovative educational program integrated into global educational space. Systemic modernization of professional education. Personnel training based on cutting-edge educational technologies for comprehensive 10 federal universities were created based on reorganization of approximately 30 higher educational institutions Federal universities were formed on command basis -without open tenders. Federal universities were set up based on existing HEEs; in most cases, by enlargement through merger with

1 One example of such an approach being applied in Russia can be found in Simachev Yu., KuzykM, Zudin N. The Impact of Public Funding and Tax Incentives on Russian Firms: Additionality Effects Evaluation // New Economic Association. 2017. No 2. P. 59-93.

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

socioeconomic development of region. Wide-range fundamental & applied studies; integration of science, education & industry, including by implementing intellectual products Total volume of budget funding allocated in 2010-2016 was RUB 36 billion other HEEs and secondary educational institutions. Budget funding was envisaged in only 8 development programs. Main budget-fund expenditure item was development of material & technical base and infrastructure of universities - more than 40 percent of total volume

National research universities From 2008 Status (category); budget funding for development programs (for 5 years) Personnel supply for priority directions of development of science, technologies, equipment, branches of economy, and social sphere. Development of hi-tech products and their implementation in industry Category NRU was assigned to 29 higher educational institutions. Total volume of budget funding for development programs in 2009-2014 amounted to approximately RUB 50 billion Initially, to qualify for NRU category, HEEs were to equally efficiently implement educational programs and conduct wide-range fundamental and applied research. Selection criteria were primarily university's characteristics, its potential and efficiency, followed by quality of its submitted program. Approximately half of budget funds allocated to these programs was spent on logistics development

Leading classical universities From 2009 (formalized in legislation) Status (category); budget funding for development programs (for 10 years) Formal legitimization of special status of 2 biggest Russian universities as unique scientific research complexes, of immense significance for Russian society's development Status granted to Lomonosov Moscow State University and Saint Petersburg State University. Total volume of budget funding for development programs in 2010-2016 amounted to approximately RUB 16 billion Scientific research-educational complexes of leading classical universities may include legal entities like research institutes, etc. Universities may establish their own educational standards for their curricula. Major part (approximately 85 percent) of budget funds allocated to these programs was spent on logistics and infrastructure development

Stimulating creation, by government & municipal HEEs, of SIEs From 2009 Possibility of creating SIEs and endowing them with property. Possibility for SIEs to use simplified system of taxation. Lower rates of contributions to government funds for SIEs Implementation of intellectual products, all rights thereto belonging to founding HEEs Official registration of 2,600 SIEs set by 289 operating HEEs Half of SIEs were created by HEEs, to meet corresponding targets

Support for projects launched jointly by HEEs and businesses, to promote hi-tech From 2010 Budget subsidies to business companies, to fund R&D Support for cooperation between HEEs and businesses; elaboration of financial, organizational and normative mechanisms, promotion Support for approximately 400 projects State's direct contractor is not HEE (final recipient of support), but

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

industries (Decree No 218) products developed by HEEs as part of projects of sustainable public-private partnership in implementation of complex joint projects of launched by universities and industrial companies. Identification of existing 'stepping stones' for future research, and identification of institutes or groups of researchers capable of creating science-intensive products. Implementation of cutting-edge organizational & managerial principles in applied studies and R&D projects launched by HEEs in relevant fields. Curricula upgrades by HEEs in accordance with existing technology market demand Total volume of budget funding in 2010-2017 amounted to approximately RUB 50 billion company actually implementing project. Result achieved in each project should be creation of new of upgraded hi-tech product. Undergraduate and postgraduate students must be involved in R&D projects

Programs of innovative infrastructure development at HEEs (Decree No 219) 2010-2012 Budget funding for development programs Creation of innovative environment. Development of cooperation between HEEs and industrial enterprises. Support for SIEs set up by HEEs Support for 78 programs launched by 76 operating HEEs. Total volume of budget funding was RUB 9 billion To qualify for support, HEEs should conduct fundamental and applied studies in priority fields of science and technology, efficiently implement educational programs and measures designed to develop innovative infrastructure. Selection, by open tender, depended not only on quality of submitted programs, but also on scientific research, educational and innovative potential of HEEs. Support directions, relative to programs: • development of innovative infrastructure units at HEEs (businesses incubators, technoparks, innovative technological and engineering centers, certification centers, technology transfer, CSUs, etc.), provided with cutting-edge equipment and software; • legal protection & valuation of intellectual products, all rights thereto belonging to HEEs; implementation and elaboration of training and refresher programs for personnel involved in small innovative entrepreneurship;

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

• internship and refresher courses, for personnel of HEEs, in innovative entrepreneurship and technology transfer at foreign universities; • consulting services of foreign and Russian experts pertaining to technology transfer, creation and development of small innovative companies

Support for scientific research studies under supervision of leading scientists (Decree No 220) From 2010 Budget grants for studies Integration of HEEs in training highly qualified personnel. Involvement of undergraduate and postgraduate students in advanced scientific research under supervision of leading scientists. Improvement of higher education quality, training of highly qualified scientific research personnel. Improvement of professional opportunities for young talent, their anchoring in Russian science. Improvement of scientific research personnel qualification. Assistance to integration of Russian science in global scientific research space; increased mobility and circulation of scientific research personnel. Growth of international scientific research cooperation. Development of science and innovations at HEEs. Boosting activity of HEEs in relevant scientific research field, development of scientific research potential of HEEs. Achievement of scientific research results of world standards. Creation of competitive scientific research laboratories. Growth of citation index and/or patent index In 2010-2017, 159 grants were issued to 60 HEEs. Total volume of budget funding is RUB 26 billion Leading scientist should display mastery specific field of science. Research team must include undergraduate and postgraduate students of HEEs

Measures designed to promote cooperation with leading HEEs under innovative development programs targeting biggest state corporations From 2011 Administrative- command stimulation Creation of demand by biggest state corporations for R&D products created by HEEs. Innovative development programs of 60 companies were approved and launched Selection of core HEEs, research subjects (science, technology), and scope ofjoint scientific research or R&D projects. Elaboration of scientific research programs with HEEs, envisaging, e.g., technological and marketing information exchange mechanisms, collaboration in science and technology development forecasts, creation at HEEs of scientific research and R&D management systems targeting

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

expected demand of businesses and industry. Implementation, in coordination with HEEs, of programs designed to improve education quality and personnel training for hi-tech industries, and education plan and curricula improvement in collaboration with businesses; involvement of companies' employees as tutors; development of internship and on-job practice systems for undergraduate and postgraduate students, faculty and scientific research personnel of HEEs; development of continuous personnel training courses for businesses. Formation of organizational mechanisms for interaction of businesses with HEEs, including mutual participation of personnel in collegiate managerial and consultative bodies

Strategic development programs of HEEs 2012-2014 Budget funding for development programs Improvement of administration efficiency of HEEs, development of management best practices and formation of strategic management institutes to answer labor market demand and goals of socioeconomic development of regions, and promising science and technology fields. Adaptation of professional education structure to suit labor market requirements and socioeconomic development strategy of region or branch of industry. Sustainable development of HEEs: their human resources, educational and scientific research infrastructure, performance in fields of education, scientific research, and innovations. Improvement of competitive capacity of HEEs, at national and international levels. Active implementation of new methodologies and technologies in educational process; modernization of laboratory and experimental base; formation of resource base in accordance with each HEE's development priorities Support for 55 programs. Total volume of budget funding is approximately RUB 16 billion Support recipients were limited to HEEs subordinated to RF Ministry of Education and Science. Support recipients could not be HEEs receiving budget funding for implementation of other development programs

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

Support for leading universities to increase their competitive capacity (Project 5-100) From 2013 Budget funding for development programs. Status of project participant No less than 5 Russian universities to be ranked, by 2020, among the world's top hundred. Development of leading universities to improve their competitive potential compared with world's leading scientific research and educational centers Participated by 21 universities, nearly all of them with status of NRU or FU. Total volume of budget funding allocated to HEEs in 2013-2017 is in excess RUB 50 billion Support recipients were universities already included in world rankings and answering some special formal requirements (their number of undergraduate and postgraduate students, R&D expenditures, publication activity, etc.)

Support to projects for creation and development of engineering centers based at HEEs From 2013 Budget funding for projects (2-3 years) Formation, on basis and with participation of HEEs, of network of centers providing engineering services to organizations operating in real sector, personnel training courses in engineering field, and implementing best available technologies, and promoting innovative scientific research and R&D projects Government subsidies were received by 49 HEEs. Total volume of support is RUB 4.7 billion Example of successful inter-departmental cooperation between RF Ministry of Education and Science, and RF Ministry of Industry and Trade. Support recipients were limited to HEEs subordinated to RF Ministry of Education and Science. To qualify for support, HEEs must be oriented to R&D projects and personnel specialization in engineering services. In different years, engineering center creation projects were selected with focus of different aspects of their activity. Mandatory requirement for support recipients was elaboration of engineering center strategic development program. To qualify for support, HEEs must create legal entity, its main target indicator being volume of services provided to real sector. However, actual recipient of support is not engineering center, but HEE itself. No less than half of budget funding must be spent on acquisition of equipment, software, and intangible assets

Core universities From 2016 Federal budget funding for some development programs. Funding for other development programs from regional budgets Core university status. Socioeconomic development of regions, including through creation of university centers for innovative, technological and social development 33 universities were selected; 19 received federal budget for development programs, 14 were funded from budget of each region. In 2016, total volume of Support recipients are limited to federal state HEEs. Support recipients cannot be federal or national research universities, Project 5100 participants, or HEEs situated in Moscow and St. Petersburg

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

support for 11 development programs of 'first wave' core universities was RUB 1.2 billion One municipal formation should house not more than one core university. In first round of bidding for core university status, mandatory requirement for applicants is that they must undergo reorganization by way of merger with one or several educational organizations. Selection criteria focus not on character of HEEs, on their program development quality. Core university development programs should include measures designed to modernize educational, scientific research and innovative activities, logistics, and social and cultural infrastructure, university administration systems, and also development of local community and urban and regional environments, with emphasis on regional development.

University centers for innovative, technological and social development of regions From 2017 Special status. Funding for reorganization programs from regional budgets Involvement of universities in issues of sustainable socioeconomic development of Russian Federation and RF subjects. Capitalization of educational, scientific research & technological products in region's industries; creation of appropriate conditions for implementation of projects-oriented educational programs covering complete project life cycle. Harmonization of applied R&D projects with Strategy of Scientific and Technological Development of the Russian Federation. Participation in activities oriented to systemic cooperation with scientific research organizations and businesses through creation of chairs addressing fundamental fields of science, joint implementation of educational programs and scientific research projects. Participation in creating proper conditions for continuous education courses, improvement of informational, financial legal literacy, and professional competence of educators 51 HEEs are officially recognized as university centers Diversification of newly created university centers, at least by type of their tasks. Formally declarative procedure for recognizing HEEs to be university centers, though rather rigid 'filtration': applicant HEE must be Project 5100 participant, federal or core university, or satisfy some formal requirements

Direction (instrument) of support Period of use Support character Goals and tasks Scope Specificities, focus

Centers of innovative development of regions must develop innovative ecosystems conducive to increasing universities' income generated by their intellectual products, and involve students and faculty in innovative and entrepreneurial activities. Specific tasks assigned to centers for technological development of regions are: creation of sectoral engineering centers capable of providing infrastructure needed by businesses to implement their projects in accordance with National Technology Initiative (NTI) and to promote innovative R&D; implementation of projects-oriented Master's Degree programs in technological entrepreneurship and management of technological business projects in real sector; involve students in technological entrepreneurship; create and develop startups accelerators and innovative entrepreneurship programs with participation of development institutions. Centers for social development of regions must ensuring implementation of project-oriented Master's Degree programs in social entrepreneurship and social project management involving companies operating in real sector, including welfare-oriented non-profit organizations, and involve students in social entrepreneurship, create and develop startup accelerators and social entrepreneurship programs with participation of development institutions, including creation, by students and alumni, of welfare-oriented non-profit organizations

Source: own compilation based on normative legal acts, methodological and reporting documents and materials of the official websites of state authorities, projects, programs and instruments of support.

6.4.3. The key directions, scope and specificities of current government policy aimed at promoting scientific research and innovative activities of higher educational institutions

On the whole, among the government measures designed to promote scientific research and innovations in the higher education sector, the prevailing ones are program-oriented support instruments that require the recipient higher educational institution to be granted a special status or a special category. Besides, this direction of government policy, similarly to some other directions (in particular, industry and innovations1), relies mostly on financial instruments.

1 See, e.g., Kuzyk M., Simachev Yu. Russia's Innovation Promotion Policies: Their Evolution, Achievements, Problems and Lessons // Russian Economy in 2012. Trends and Outlooks. Issue 34. Section 6.4. Moscow: Gaidar Institute. 2013. P. 521-571; Simachev Yu., KuzykM, Kuznetsov B, Pogrebnyak E. Russia on

The total volume of federal budget funding allocated to higher educational institutions through these support instruments over the period 2005-2017 amounts to nearly RUB 300 billion, which is comparable with the total amount of government investment, over the same period, in the major state development institutions of the innovation sphere: RUSNANO Corporation, Skolkovo Foundation, Russian Venture Company (RVC), and the Innovation Promotion Fund. During that period, the volume of government support peaked (to approximately RUB 40 million per annum) in 2011-2014, when the government, on the one hand, was preoccupied with searching and 'fostering' new drivers of sustainable economic growth, universities designated to be one of those drivers, and on the other, it was not yet setting any new goals in response to political and economic changes in the global arena, like that of making the national economy's main sectors to be less dependent on imports. It should also be noted that over the major part of the period under consideration, the volume of government support was comparable to the amount of internal R&D costs in the higher education sector covered from public sources - budgets of all levels and state corporations (Fig. 16). Moreover, during the 'inter-crisis' period from 2010 through 2013, these government support instruments were totally (or almost totally) determining the character of internal R&D costs covered from public sources, and in 2007, when the process of innovative educational program implementation was at its highest, even exceeded the latter.1

60000

50000

J 40000

30000

20000

10000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Core university development programs

1 1 Support to projects for creation & development of

engineering centers lww^ Support for leading universities to increase their competitive capacity (Project 5-100)

■ ' Strategic development programs

......... Support for scientific research studies under supervision

of leading scientists (Decree No 220) KMKffi Innovative infrastructure development programs (Decree No 219)

LMW Support for joint projects of HEEs and businesses (Decree No 218) ----Programs of leading classical university development

Programs of national research university development

■ ' Programs of federal university development

Innovative educational programs

■ Support for projects aimed at creation and development of CSUs

• • «o • • For reference: internal R&D costs in higher education sector funded from public sources

*Budget of all levels and public sector organizations.

Fig. 16. The volume of federal budget funding received by higher educational institutions through government support instruments in 2005-2016.

0

Sources: own compilation based on normative legal acts, reporting documents and materials published at the official websites of government agencies, projects, programs, and support instruments, as well as statistical data released by NRU HSE.

the Path Towards a New Technologcal Industrial Policy: Exciting Prospects and Fatal Traps // Foresight. 2014. V. 8. No 4. P. 6-23.

1 In fact, this is not surprising because, generally speaking, such programs envisaged funding for both the scientific research and educational activities of higher educational institutions.

If each support instrument is to be taken separately, the highest total volume of budget funding allocated to higher educational institutions (with due regard for the approved budget obligations) was channeled by way of supporting the projects launched by higher educational institutions jointly with businesses in the framework of RF Government Decree No 218 dated April 9, 2010, followed by Project 5-100 and the development programs of NRUs and federal universities (Fig. 17). The last three mechanisms also boast of the highest per annum volume of budget funding, together with the innovative educational programs of higher educational institutions. At the same time, if we look at the amount of budget funding channeled through one implemented project or program, the obvious leader will be the category of leading classical universities and their development programs.

80 70 60 50 40 30 20 10 0

til

J

fa

S

I in

s S

3 13

"i3 u

ÎD §

73 n

.u J2

^ <u

i>

$ S

K CN

ra

I I s I - I

'-3 _ D

16

14

12

<8 a <2 as

□Total federal budget funding volume, billions of rubles* - LEFT-HAND SIDE SCALE

10

Average per annum federal budget funding volume, billions of rubles* - RIGHT-HAND SIDE SCALE

Average federal budget funding volume per project/program, billions of rubles* - RIGHT-HAND SIDE SCALE

W 3

*With the amount of approved budget obligations.

Fig. 17. The volume of federal budget funding distributed through the government support instruments targeting the scientific research and innovative activities of higher educational institutions

Source: own compilation based on normative legal acts, reporting documents and materials published at the official websites of government agencies, projects, programs, and support instruments.

The main direction of government financial support was the development of the material and technical base and infrastructure of higher educational institutions - some of these instruments were from the very start oriented to the relevant targets (support for the creation of centers for shared use of scientific equipment and engineering centers; innovative infrastructure development programs), while others revealed their focus de facto at a later stage (innovative educational programs, the programs for development of federal universities, national research universities, and leading classical universities). Targeted funding of R&D projects is assigned

8

6

4

2

0

to only two instruments, although in a sizable amount: matching grants,1 earmarked for supporting the cooperation between higher educational institutions and businesses (RF Government Decree No 218); and the grants earmarked for the conduct of studies under the guidance of eminent scientists (RF Government Decree No 220).

As for the 'scope' of the various measures and instruments of government support applied in the higher education sector, assessed by the number of actually involved higher educational institutions, an absolute leader in this respect is the instrument envisaging the creation of small innovative companies charged with the task of practically implementing R&D products: by late 2017, approximately 300 higher educational institutions had set up such subsidiaries. Among the financial instruments, the widest 'audience' was benefited by the support for the creation and development of centers for shared use of scientific equipment - over slightly more than a decade, that instrument encompassed more than 150 higher educational institutions.

Overall, the government policy of promoting the scientific research and innovative activities of higher educational institutions has been evolving across two distinctly visible planes. One of them is horizontal and involves measures oriented to a very broad range of recipients; it is characterized by a relatively modest volume of support allocated to each program or project (or at least it appears to be modest by comparison with that the amount of funding allocated to the second category of support instruments), and also, typically, by the extension of government support to those higher educational institutions that have not been receiving it previously. The second plane is vertical and involves sizable financial support allocated to a rather narrow group of eligible universities (Fig. 18). Somewhere halfway between these two categories of government support measures are the instruments launched in 2016-2017 - core universities and university centers for innovative, technological and social development of the regions. Still, the first support instrument is nearer to the horizontal plane, because the selection procedure established for core universities is clearly oriented to the attraction of new 'players', previously overlooked by the massive-scale government support measures. By contrast, the creation of university centers is, more likely, a vertical measure, because those higher educational institutions that have already been 'filtered' through the selection procedures established for other government support instruments (which are mostly vertical), have the highest chance of acquiring the status of a university center.

And finally, considering the situation with regard to government support measures designed to promote science and innovations in the higher education sector relative to each representative of that sector, we should note, first of all, the very uneven pattern of support distribution. Thus, over the period from 2005 through 2017, only slightly more than a third (37 percent) of all higher educational institutions were actually targeted by one or other support instrument, while only a quarter of them were recipients of financial support (Fig. 19).

1 The term matching grant, which is a rather widespread instrument in many countries, means that state or local governments designate funds to go to particular types of projects.

w w я

3

160

140

120

100

80

60

40

20

О CSU

2004

218

219

220

IEP

EC

UC

2006

2008

2010 LCU

Areas of circles correspond to total support volume per recipient НЕЕ Support onset, year

Fig. 18. The distribution of financial support instruments targeting the scientific research and innovative activities of higher educational institutions, by launch year and by number of support recipients, as of end year 2017

Source: own compilation based on normative legal acts, reporting documents and materials published at the official websites of government agencies, projects, programs, and support instruments.

14 12 10

Number of support instruments applied

•Total volume of financial support from federal budget, billions of rubles

Fig. 19. The distribution of higher educational institutions by number of support instruments and by volume of federal budget funding in 2005-2017

Source: own compilation based on normative legal acts, reporting documents and materials published at the official websites of government agencies, projects, programs, and support instruments.

Sizable chunks of budget funding - no less than RUB 200 million in total over the entire period under consideration - were received by 16 percent of higher educational institutions.

xx

0

8

6

4

2

0

Another, even more vivid, evidence of high concentration of support is that 4 percent of universities accounted for % of budget funding, while half of it was allocated to 2 percent, represented by the 'chosen few' with the status of a leading classical university, federal university or national research university, or at least a participant in Project 5-100.

The leaders in terms of the number of directions of government support are not the higher educational institutions situated in Moscow or St. Petersburg, but major regional universities: Tomsk State University, Tomsk Polytechnic University, Samara University, and Ural Federal University. The group of higher educational institutions boasting of having the most comprehensive set of government support instruments at their disposal consists in the main of the habitués of global university rankings; however, there are also several higher educational institutions that are less known, either in Russia or abroad: Altai State University and Petrozavodsk State University.

If we look at the volume of financial support received by higher educational institutions over the period 2005-2017, the topmost positions, quite predictably, will belong to two leading classical universities - Lomonosov Moscow State University and Saint Petersburg State University, both of them also topping the list of Russian universities in QS World University Rankings; and also Ural Federal University and Far Eastern Federal University, also on this list, but with a significantly lower ranking (also compared with the other Russian universities).

On the whole, the pooled data on the volume of financial support received by leading Russian universities and their scores in QS World University Rankings do not provide a definite answer to the question as to whether government support has indeed helped in boosting their competitive capacity on a global scale (at least in terms of that particular ranking). On the one hand, the universities included in the rankings are receiving, as a rule, government support in amounts that look impressive against the general background, while several higher educational institutions, having received sizable support over recent years (primarily in the framework of Project 5-100), notably improved their total ranking score. However, on the other hand, quite a few of Russia's representatives in QS World University Rankings have received a relatively modest volume of financial support through these specific instruments (at least compared with the leaders), while some other higher educational institutions, after receiving sizable budget allocations, still failed to gain a ranking score.

In our opinion, the assumption that government support has a positive effect on the global ranking scores of Russia's higher educational institutions is, at least, not unrealistic, and given that its effect, as noted earlier, oftentimes becomes visible with a significant lag, the successes of those higher educational institutions that have not been included in the rankings, or included with a near-bottom score, may well happen in the nearest future. However, in absence of a comprehensive practical assessment methodology, capable of decomposing a wide spectrum of government support effects on the performance of higher educational institutions and clearing them of other factors, the opposite may also be assumed - that all those measures have helped little in boosting the competitive capacity of Russian universities on a global level, and that their progress in gaining ranking scores has to a certain extent resulted from a favorable combination of circumstances, and also, possibly, from estimations based on artificially generated indices and other parameters necessary for getting that score.

* * *

The competitive potential of a national economy at present strongly depends on the activity of higher educationeñ educational institutions. The modern leading universities not only perform their educating function, but also actively generate new knowledge and innovations. In the developed industrial countries, for at least two decades already, the trends towards strengthening the role of universities as a source of commercial technology products for businesses have become increasingly visible.1

In Russia, the 'university sector' has traditionally displayed a relatively modest scale of scientific research and innovative activity. At the same time, for at least a decade, the government has been investing a lot of effort in the development of scientific research and innovative activity at higher educational institutions, and these efforts became increasingly pronounced after 2009, by way of learning lessons from the experiences of the crisis and attributing 'new quality' to economic growth.

In the framework of the government science and innovation promotion policy targeting higher educational institutions, we can distinguish two different, almost perpendicular, directions. The first one envisages substantial support to be granted to a small group of higher educational institutions (the leaders); the new instruments applied in the framework of this direction frequently become an extension of the already existing ones, both in practical and in formal terms, because their launch sometimes requires the participation of higher educational institutions in the previously launched support mechanisms. It is interesting to note that the most notable surge in the development of the relevant set of instruments occurred during the 'inter-crisis' period - from 2010 through 2013. The second direction from the very start was oriented to a broad range of beneficiaries and implied the extension of government support to new 'players', that is why some of its mechanisms impose restrictions on the participation of those higher educational institutions that have previously been involved in other support schemes.

As far as the outcome of the government efforts of promoting scientific research and innovative activity in the higher education sector is concerned, the question has so far remained open. At the same time, one evident (although not totally indisputable) confirmation of the positive results of the first (vertical) plane of government support has been the notable progress of several actively supported higher educational institutions in their global university ranking scores. Meanwhile, the high concentration of government support, and especially its financial component, its repeated pattern, and the small number (relative to the size of the higher education sector) of its constant recipients is indicative, at least, of the insufficient performance of its second (horizontal) plane, oriented to the broadest possible range of recipients. No doubt, the sparse distribution pattern of the formally 'massive-scale' government support instruments among Russian higher educational institutions is the upshot of the weakness and passivity of many of them. However, such a situation has also been caused by the existing restrictions on the ability to get government support, both formal ones, having to do with the form of ownership of a given higher educational institution, its subordination to a certain government department, etc., and also with some informal restrictions, the most important of them being the well-known

1 See, e.g., Henderson R, Jaffe A., TrajtenbergM. Universities as a source of commercial technology: A detailed analysis of university patenting // Review of Economic and Statistics. 1998, 80(1). P. 119-127; Caloghirou Y, Kastelli I., Tsakanikas A. Internal capabilities and external knowledge sources: complements or substitutes for innovative performance? // Technovation. 2004, 24 (1). P. 29-39.

Matthew effect, when the fact of having received government support once increases the organization's chance to gain access to it in the future.1

On the whole, in spite of a certain growth, over recent years, displayed by the scientific research and innovative activity indices of Russia's universities, this country is still lagging significantly behind the global leaders. In this connection, judging by the results of our analysis of government policy in that sphere, we can note that, although the government support aimed at developing the potential of the national leaders is undoubtedly important, the greatest success in boosting the competitive capacity of higher educational institutions, including their scientific research and innovative activities, can be achieved through promoting the activity of the Russian higher education sector 'at large'. Meanwhile, as demonstrated by the results of previous studies, the budget funding mechanisms traditionally prevailing among the government support measures aimed at higher educational institutions, as well as in some other directions of government support policy, are good for achieving targeted and focused effects, while massive-scale effects are better achieved by means of fiscal instruments, standardization measures, and properly tuned activities of the development institutions, such as the support of innovative startups by the Innovation Promotion Fund, or the development of micro-funding infrastructure for small business by MSP Bank.2

6.5. The North Caucasus in 2017: major development trends3

In 2017, the social and economic development of the North Caucasian regions was proceeding amid introduction by the federal center of some new forms of regional economic support. A change in economic policy priorities in the North Caucasus was taking place amid sluggishness of the health resort sector, growing debt accruals for gas- and power supply and prevailing land-related conflicts.

6.5.1. The federal program for development

of the North Caucasian federal okrug: a shift in priorities?

In 2017, the main document setting out the federal center's approaches to development of the North Caucasian Federal Okrug's (NCFO) regions was still the State Program for Development of the North Caucasian Federal Okrug approved in 2014. However, the program's funding was substantially cut as compared to the earlier approved funding volumes: by the RF Government Resolution of March 31, 2017 the volume of federal budget allocations for implementation of the program in 2017 was set at RUB 13.9 billion against RUB 31.8 billion planned earlier.

This reduction took place amid introduction into the state program in question of a new component, that is, support which is to be rendered for real economy projects via regional development corporations on the co-financing basis with private businesses. This program component which was put into action in 2017 was announced by Lev Kuznetsov, Minister for

1 For more details see, e.g., Crespi F, Antonelli C. Matthew effects and R&D subsidies: knowledge cumulability in high-tech and low-tech industries. University 'RomaTre'. Departmental Working Papers of Economics, 2011, No 0140.

2 See, e.g., Ivanov D., Kuzyk M, Simachev Yu. Fostering Innovation Performance of Russian Manufacturing Enterprises: New Opportunities and Limitation // Foresight. 2012. V. 6. No 2. P. 18—41; Simachev Yu, KuzykM, Ivanov D. Russian Financial Development Institutions: Are We on the Right Way? // Voprosy Ekonomiki. 2012. No 7. P. 4-29.

3 This section is written by Konstantin Kazenin, the Gaidar Institute, IAES-RANEPA.

the North Caucasian Affairs at the meeting of the Government Commission dealing with the issues of social and economic development of the North Caucasian Federal Okrug on October 21, 2016. Lev Kuznetsov said that: "We get down to the new segment of our state program, that is, support for and development of the real sector of the economy... At the first stage, identical limits are set in respect of each subject of the NCFO. It permits us on one side to start on equal grounds, while on the other side to assess effectively the performance of each management team. Agricultural projects are a key niche within the framework of those projects which we expect to carry out."1

Out of 15 investment projects rendered support to within this new line of the program in 2017, the Republic of Dagestan, the Chechen Republic and the Republic of Karachayevo-Cherkesia started to implement 3 projects each; the Ingush Republic and the Republic of North Osetia-Alania, 2 projects each; the Republic of Kabardino-Balkaria and the Stavropol Territory, one project each. The above projects can be divided into the following three categories: agricultural projects (10), manufacturing projects (3) and tourism-related projects (2). Such a distribution points to the fact that in 2017 the support of projects in manufacturing became a priority in implementing the program. According to the data of the RF Ministry for the North Caucasus, with co-financing taken into account in 2017 investments in projects underpinned by the program amounted to about RUB 9 billion, while implementation of the projects permitted to create 1,800 jobs. It seems that in the course of further implementation of the program the government intends to make an emphasis on co-financed investment projects in regions. As early as November 2016, O. Beisultanov, First Deputy Minister for the North Caucasian Affairs declared that the level of funding of the NCFO's regions under the federal program in 20182019 would depend on the 2017 performance of regional subprograms which included such investment projects. However, it is too premature to judge on the efficiency of program-funded projects in 2017.

In implementing large-scale investment projects which profile federal officials regarded as drivers of the NCFO's development in the beginning of the 2010s, no break-through dynamics were observed in 2017. According to the data of the OAO Kurorty Severnogo Kavkaza (Resorts of the North Caucasus), out of six ski resorts which were to be created in the republics of the NCFO building activities were carried out only at three of them: Arkhyz (the Republic of Karachayevo-Cherkesia), Elbrus (the Republic of Kabardino-Balkaria) and Veduchi (the Chechen Republic). It is to be noted that RUB 4.2 billion was envisaged by the Law on the 2017 Federal Budget and allocated on implementation of a tourist cluster project in the North Caucasian Federal Okrug; most of the budget allocations were spent on building of the ski resort infrastructure in Chechnya. The analysis of the open source data on the progress in carrying out of resort projects in the North Caucasus permits to identify the following problems which arose in 2017:

1. Even those resorts where in 2015-2016 the tourist infrastructure was largely expanded saw no growth in the number of tourists. According to unofficial estimates published in the mass media, during the 2017/2018 New Year holidays 120,000 people and 60,000 visited ski resorts of the Republic of Karachayevo-Cherkesia and the Republic of Kabardino-Balkaria, respectively. A 50 percent growth in the number of tourists at these resorts is within the limits of those fluctuations which are related to weather conditions, so one cannot speak about a progressive increase in the flow of tourists;

1 http://government.ru/news/24968/

2. There are explicitly different levels of investors' interest to projects which are underway in the republics. This is proved by the current number of residents of special economic zones (SEZ) established on the basis of resorts in various regions. For example, out of 28 SEZ residents 27 SEZ residents are registered at the Arkhyz SEZ in the Republic of Karachayevo-Cherkesia, including 3 SEZ residents who appeared there only in 2017 and invested over RUB 1 billion in design and construction jobs. Despite the fact that budget funding of building of resort-based special economic zones continues, private investors do not take much interest in them;

3. There are technical problems related to introduction of unified standards of services at the ski resort complex of the NCFO. According to the data of the OAO Kurorty Severnogo Kavkaza, in 2017 there were difficulties, for example, in introducing a unified ski pass at the resorts of the Republic of Kabardino-Balkaria, the Republic of Karachayevo-Cherkesia and the Chechen Republic. The diverse ownership pattern of these resorts and a lack of consensus between owners are the obstacle.

The above two factors prove the existence of the trend - identified in the 2016 review1 -towards the "fragmentation" of the ski resort cluster of the North Caucasus: initially planned as a single commercial body, at present it represents standalone recreation entities in different regions with a different level of development, investors' interest and explicit problems related to introduction of any unified service standards.

6.5.2. Problems with accruals of debts for gas and power supply

One of the North Caucasus's most explicit economic problems hindering the development of the region's power generation sector and the economy as a whole is debt accruals for gas and power-supply. In 2017, negative dynamics were observed in that sector. So, in September 2017 the management of the PAO MRSK Severnogo Kavkaza (Interregional Utility Distribution Company of the North Caucasus) declared that the debt accruals for power-supply of the subjects of the North Caucasian Federal Okrug exceeded RUB 22.8 billion, while debt accruals from the beginning of the year amounted to RUB 2.75 billion. In January 2018, the press-service of the PAO MRSK Severnogo Kavkaza stated that ultimate customers' debt for power-supply in the North Caucasus already amounted to RUB 23.6 billion. As regards debts for gas-supply, in September 2017 Viktor Zubkov, Chairman of the Board of Directors of the RAO Gazprom announced that the debt accruals of the North Caucasus for gas-supply exceeded RUB 61 billion. The share of the North Caucasus in the aggregate debt of Russia's residents for gas-supply amounted almost to 84%. Lev Kuznetsov, Minister for the North Caucasian Affairs estimated the debt of the North Caucasian regions for gas-supply and power-supply in H1 2017 at RUB 7 billion and RUB 2 billion, respectively.

In 2017, high-ranking government and corporate officials not only acknowledged publicly the debt problem, but also proposed methods of handling it, mostly through promotion of supervision over the energy consumption, strengthening of responsibility for payments of regional and local authorities and ownership restructuring in the power-supply sector. So, in September Viktor Zubkov, Chairman of the Board of Directors of the PAO Gazprom said that it was necessary to appoint in each populated area of the North Caucasian regions authorized persons responsible for the payment discipline. Commenting on the situation with debt accruals

1 See: The Russian Economy in 2016. Trends and Prospects. The Gaidar Institute Publishing House, Moscow, 2017.

for power supply in the Republic of Dagestan, Deputy Prime Minister Alexander Khloponin declared the need of consolidating the region's power grids. At the level of the RF Government and top corporate management of large companies, a task was set to resolve the existing debt crisis. It is to be noted that in previous years efforts of federal government and corporate entities to cope with growing debt accruals for gas- and power supply in the North Caucasus did not crown with success. It is noteworthy that in 2017 no new ways of solving this problem were offered by responsible persons at least in the public space. According to numerous expert estimates, high debt accruals for gas- and power supply in the North Caucasus can largely be explained by consumption of power by small enterprises operating without proper registration and paying nothing for electricity consumed (for example, brick-making plants and garment and shoe-making workshops). It appears that the crisis situation with debts cannot be overcome without constant efforts being made to make the economy of the North Caucasus more transparent.

6.5.3. Conflicts at the municipal level

Throughout the entire post-Soviet period, conflicts between different groups of the population or between residents and the government and local authorities taking place at the level of individual municipal entities (districts, towns and rural settlements) have been a major factor of destabilization in the North Caucasus. In 2017, the economic basis for such conflicts was still in place and no solid institutional foundations were created to solve them.

An example of quite a dramatic land-related conflict at the level of the rural municipal district was the developments in the Nogaisky District in the north of Dagestan in July 2017. The situation in that district changed much for the worse after Ramazan Abdulatipov, head of the region appointed the acting head of the district.1 District assembly deputies refused to approve the decision of the head of the region. After almost two weeks of confrontations with district deputies, the leadership of Dagestan and the district assembly agreed on a compromise candidature of the head of the district. The confrontations were accompanied by numerous meetings of district residents protesting against the decision of the region's leaders; anti-riot police was permanently deployed in the district to maintain law and order.

It is to be noted that unresolved land issues instigated ethnic mobilization in this conflict. Local activists raised the issue of the status of agricultural land plots within the boundaries of the district. Nearly half of agricultural land plots in this and other flat districts of Dagestan are attributed to distant-pasture cattle tending lands,2 which under the legislation of the Republic of Dagestan are in the ownership of the government of the region and are leased out to various agricultural organizations, primarily, from mountain districts. The presence of the so-called "external" lessees causes often protests of public activists who position themselves as advocates of the interests of flat land locals (during the abovementioned conflict in the Nogaisky District a group of public activists which opposed the republican authorities held a Congress of the Nogai people and put forward to the leadership of Dagestan demands related to distant-pasture

1The protesters disrupted the presentation of the head of the Nogaisky District. Kavkaz Uzel. 03.07.2017. http://www.kavkaz-uzel.eu/articles/305406/ The decision on appointment of Yarlykov as acting head of the Nogaisky District was cancelled. Kavkaz Uzel. July 04, 2017. http://www.kavkaz-uzel.eu/articles/305487/.

2 See K.Kazenin. The Components of the Caucasus: Land, Power and Ideology in the North Caucasian Republics. Moscow: REGNUM, pp. 24-49.

cattle tending lands1). A lack both of any decisions on disputed lands and clear-cut conflict resolution procedures put on a hold this situation in which land disputes become a kind of an "asset" used by the sides in their fight for control over municipal entities.

Another municipal level conflict was observed in the North Caucasus in 2017 and it showed that in resolving land disputes in this region there was a great danger of force being used instead of appeals to the law. This conflict is about the land meant for development in the Volny Aul neighborhood of Nalchik, capital of the Republic of Kabardino-Balkaria. In mid-2017, the initiative group representing about 1500 residents of the neighborhood demanded land plots for private housing development being allocated free of charge. The activists referred to the fact that land plots in question belonged in the Soviet period to an agricultural enterprise for which family members of those who now claimed that land used to work. According to the initiative group, those families were entitled to receive that land free of charge for private housing building because they had been on the waiting list from the Soviet days. Initially, the position of the Nalchik City Council was to auction off that land. After the activists expressed their disagreement with the stance of the Nalchik City Council, they declared that pressure, including unlawful detentions of some public activists was exerted on them by law enforcement agencies.2 It is to be noted that only interference of regional authorities helped ease tensions around that issue. The problem was resolved through assignment of disputed land plots to the leasehold of the cottage building cooperative established by neighborhood residents for distribution of the land plots among those who needed them. Town council officials who opposed that decision were dismissed.3

The common dominators of all local land-related conflicts are as follows:

- land-related conflicts were not considered by courts of law. They were solved either through interference of the executive authorities or remained unresolved;

- land-related conflicts are becoming the factor of protest mobilization of groups of residents of the North Caucasus.

It is noteworthy that similar specifics of land-related conflicts in the North Caucasian regions were observed in previous years, too. By virtue of the above-stated specifics, land relations remain the factor of social and political tensions in the North Caucasus with explicit lack of lawful instruments being available for resolution of such conflicts.

6.6. Military economy and military reform in Russia4

6.1.1. Military recruitment and social security policy

The number of Russian Armed Forces (RFAF) authorized strength at year-end 2017 increased 17,387 to 1,903,758 on the back of disbandment of the Federal Special Construction Agency (Spetsstroy); therefore, the RFAF's total authorized strength rose to 1,013,628 from

1 The Nogai People Congress participants stated that the confrontation with the authorities of Dagestan was growing. Kavkaz Uzel. July 17, 2017. http://www.kavkaz-uzel.eu/articles/304488/

2 Nalchik city residents' fight for land led to mass detentions. Kavkaz Uzel. October 31, 2017 http://www.kavkaz-uzel.eu/articles/311852/

3 Allocation of land plots inspired Volny Aul residents. Kavkaz Usel. February 15, 2018. http://www.kavkaz-uzel.eu/articles/316583/ _

4 This section is written by Vasily Zatsepin, RANEPA (Sub-sections 6.6.1-6.6.3); Vitaly Tsymbal, RANEPA (Sub-sections 6.6.1-6.6.2).

1 million.1 That was the first time when data on RFAF's authorized war strength (1,700,000) were published by mass media, posting a substantial decrease from 5 million reported prior to the military reform of 2008-2012.2

The Russian Defense Ministry did not publish 2017 year-end service personnel statistics like it did in previous years; therefore, the total accountable strength presumably decreased to 240,000 from previous year's 270,000 as a result of a 35,000 (13 percent) decline in the number of conscript personnel.3 Overall, the 2017 total number of conscript personnel inflow stood at 276,000, or 31,000 (10 percent) less than in 2016.4

The accountable strength of contracted privates and sergeants remained unchanged (384,000) during the year, suggesting that the Defense Ministry opted not to increase the number to 425,000, as was planned for 2017,5 on the ground that 384,000 was an optimal strength at the time.

Military pay in Russia were not indexed for inflation in 2017, remaining at the level of 2016 (an average of Rb 63.6 thousand)6 as military pensions were raised, since February 01, 2017, by 4 percent to an average of Rb 23.5 thousand.

In 2017, 10,000 (half of the previous year's 20.4 thousand) of Defense Ministry service personnel were provided with permanent housing. The Defense Ministry's housing wait list comprised 32.1 thousand persons at year-end, adding 2.3 thousand to the previous year's number, thus suggesting that the service housing problem will not be solved until 2021.7

In 2017, more than 31,000 of Defense Ministry service personnel received service housing (29.2 thousand a year earlier). The number of service personnel entitled to housing allowances almost doubled in 2017, increasing to 107.7 thousand from 59,000.8 The momentum of key housing indicators suggests that the Defense Ministry will not be able to solve the service housing problem by the end of 2018, as was anticipated early in 2014.9

In 2017, according to data from the Chief Military Investigation Department, military investigation authorities received 32.6 thousand offence reports. The number of offences in the Armed Forces dropped 2 percent as the number of corruption-related offences under jurisdiction of military investigation decreased by 14 percent.10

Russian public attitudes towards the RFAF saw further improvement in 2017, as evidenced by data from a November public opinion survey of the Russian Public Opinion Research

1 Executive order No. 127 dated March 28, 2017 'Concerning Amendments to Executive order of the President of the Russian Federation' No. 329 of July 08, 2016 'Concerning Authorized Strength of the Armed Forces of the Russian Federation'; Executive order No. 555 of November 17, 2017 'Concerning the Establishment of Authorized Strength of the Armed Forces of the Russian Federation'.

2 Mobilization scales // Vedomosti. February 13, 2017 (No. 26). P. 3. URL: https://www.vedomosti.ru/ politics/articles/2017/02/13/677314-mobilizatsiyu-gubernatori (accessed date: February 13, 2017).

3 An expanded meeting of the Russian Defense Ministry Board. Balashikha, December 22, 2017. URL: http://www.kremlin.ru/events/president/news/56472 (accessed date: December 25, 2017).

4 Russian President's executive orders No. 135 dated March 30, 2017 and No. 445 dated September 27, 2017.

5 Sub-paragraph 'd', Paragraph 1 of Russian President's executive order No. 604 dated May 07, 2012.

6 Semenov D. A military economy strategy // Krasnaya Zvezda.. October 30, 2017 (No. 121). P. 1.

7 See Semenov D. An "army" of new tenants.

8 Ibid

9 A progress report regarding the Defense Ministry's action plan for the implementation in 2013 of the Russian President's executive orders No. 597, 601, 603, 604, 605 dated May 07, 2012. M., January 22, 2014. URL: http://mil.ru/files/files/result2013/10-planM02013.html (accessed date: November 22, 2017).

10 Gavrilov Yu. Corruption with a negative sign // Rossiyskaya Gazeta. February 06, 2018. (No. 27).

Center.1 In fall 2017, 62 percent of respondents said the RFAF were in excellent/good condition, another 24 percent said they were in normal condition, whereas 5 percent said they were in bad condition. Two years ago, 49 percent of respondents said the RFAF's condition was good, 40 percent said it was well, whereas 8 percent said it was bad or very bad. In fall 2017, 86 percent of respondents said Russia's defense capability was getting stronger, whereas only 2 percent said it was weakening, and 9 percent claimed it remained unchanged. Forty two percent of respondents said Russia's defense capability was strengthening due to weapons modernization. However, there was a substantial increase in the number service personnel's wives viewing the military service as a hazardous job.2

6.6.2. Military-technical policy

While Russia's military-technical policy continued in 2017 as part of the National Armaments Program (NAP) for 2011-2020 and the Basics of Military-Technical Policy of the Russian Federation for the Period up to 2025 and Beyond, as confirmed by Russian President Vladimir Putin in May 20123, stakeholders' efforts were focused on drafting a new national armaments program for 2018-2027.

President Vladimir Putin held two regular days-long sessions in May and in November to discuss various aspects regarding the NAP and the development of the Military-Industrial Complex (MIC). Furthermore, the Military-Industrial Commission held two sessions in January and in September 2017 to discuss the fulfillment of the government defense contract (GDC), the development of RFAF's armaments system and strengthening of MIC companies and organizations.4

Overall, according to data from the Russian Defense Ministry, the 2017 GDC was fulfilled.5 Therefore, three regiments (four regiments a year earlier) of the Strategic Missile Forces (SMF) were re-equipped with YARS systems (a Russian MIRV-equipped, thermonuclear armed intercontinental ballistic missile) as the Aviation Strategic Nuclear Forces received three modernized aircrafts (four aircrafts in 2016). The Ground Forces received 2,055 new and modernized weapons (2,930 in 2016). The Aerospace Forces (ASF) received 191 up-to-date aircrafts and helicopters (139 in 2016). The Navy (Navy) received 23 ships, boats and vessels (26 a year earlier). In addition, 59 unmanned aircraft systems comprising 199 unmanned aerial vehicles were manufactured and delivered to the Army last year (105 systems with 260 unmanned aerial vehicles in 2016).

Therefore, the Strategic Nuclear Forces saw an increase in up-to-date arms of 19 percentage points to 79 percent over 2016 (+5 percentage points a year earlier), the ASF - 6 percentage points to 73 percent (+12 percentage points in 2016), the Navy - 6 percentage points to

1 Russian Army: Public opinion. // VTSIOM. Press release. November 08, 2017 (No. 3509).

2 The ghost of the Fatherland defender // Ogonyok. February 19, 2018 (No. 6).

3 Executive order No. 603 dated May 07, 2012 On the Fulfillment of Construction Plans (Programs) and Improvement of the Russian Armed Forces, Other Troops, Military Units and Agencies and Modernization of the Defense Industry.

4 A session of the Military-Industrial Commission. Moscow, January 26, 2017. URL: http://www. kremlin.ru/ events/president/news/53782 (accessed date: January 26, 2017); ibid. Moscow, September 19, 2017. URL: http://www.kremlin.ru/events/president/news/55653 (accessed date: September 19, 2017).

5 An expanded meeting of the Russian Defense Ministry Board. M., December 22, 2017. URL: http://www.kremlin.ru/news/56472 (accessed date: December 22, 2017).

53 percent (+8 percentage points a year earlier), and the Russian Ground Forces - 3 percentage points to 45 percent (+7 percentage points in 2016).1

In 2017, according to the Russian Defense Minister, the Army and Navy were 59.5 percent equipped with up-to-date arms, an increase of 1.2 percentage points over 2016, or less than one third of the growth (3.7 percentage points) promised earlier in the year,2 which seems unexplainable given that the GDC 2017 was fulfilled in general. Such an abnormally slow growth in the NAP key indicator in 2017 is in sharp contrast to the above figures of growth in equipment with arms across all services and branches of the Armed Forces. 2016 saw an increase of 11.1 percentage points in up-to-date arms.

We analyzed the Defense Ministry's efficiency in spending of NAP appropriations in 20112017 (Fig. 20) using Federal Treasury's data on federal budget expenditure on the Defense Ministry GDC, Russian Accounts Chamber's data on commercial loans backed by government guarantees for the same purpose, as well as Defense Ministry's data on growth in up-to-date arms and equipment (UTDAE)3 and on Ministry's repayment of commercial loans.4 The analysis revealed that the NAP key indicator originally planned for 2017 - "more than a 62 percent level of up-to-date arms" - reflects an expenditure of less than Rb 400 billion per percentage point of growth over the previous year. Although the figure is massively more than that in 2014-2016, it represents a spending efficiency similar to that in 2012 and 2013. The spending level reached Rb 1220.1 billion in 2017.

100,0

2011 2012 2013 2014 2015 2016 2017

GDC including loans disbursement and repayment, in billions of rubles Unit costs, bn Rb/p.p. " "+■ _ Share of up-to-date arms, % -1-Growth in share, percentage points

Fig. 20. Defense Ministry's efficiency in spending of NAP appropriations in 2011-2017

Sources: The Federal Treasury of Russia; The Accounts Chamber of the Russian Federation; The Russian Defense Ministry; own calculations.

1 An expanded meeting of the Russian Defense Ministry Board. M., December 22, 2017. URL: http://www.kremlin.ru/news/56472 (accessed date: December 22, 2017).

2 Sergei Shoigu: "This year the Ministry of Defense is set to ... reach a new level of more than 62 percent of equipment with up-to-date armaments in the constant combat readiness forces". State Duma's shorthand report dated February 22, 2017 URL: http://transcript.duma.gov.ru/node/4606/ (accessed date: March 07, 2017).

3 Avdeev Yu. Research-based focus // Krasnaya Zvezda. November 01, 2017 (No. 122). P. 6.

4 The Russian Defense Ministry saved 130 billion rubles in 2016-2017 through early loans repayment. URL: https://function.mil.ru/news_page/country/more.htm?id=12155560@egNews (accessed date: January 15, 2018).

In other words, if Defense Ministry's and MIC's spending efficiency in 2017 had remained at the 2014-2016 level, the equipment with up-to-date arms would have ranged between 66.0 to 72.6 percent, and even if spending efficiency had fallen to values seen in 2011-2013, the level of equipment with up-to-date arms would have been within a range of 61.6-62.4 percent. The declared NAP fulfillment indicator of 59.5 percent means that the MIC spent inefficiently about Rb 1 trillion of 2017 federal budget allocations for the Defense Ministry GDC to fulfill the NAP.

6.6.3. Military financial policy

The Federal budget 2017 was adjusted twice, in July and in November.1 Appropriations within the 'National Defense' section were initially set at Rb 2 trillion 836 billion by the Federal Budget Act 2017,2 posting a decline of Rb 940 billion (or 24.9 percent) from earlier year's actual amount spent.3 In July, appropriations rose Rb 39 billion (1.4 percent) to Rb 2 trillion 875 billion with a more substantial increase of Rb 175 billion (6.1 percent) to Rb 3 trillion 50 billion (3.3 percent of GDP) late in the year. Both the latest and previous year's increase were driven by the need to repay commercial loans backed by government guarantees to finance GDC in 2013-2014.

All the above indicators for military appropriations can be found in federal budget bills, not in published legal acts. Confidential federal budget revenues in 2017 were rolled back to the 2015 level (see Table 26) as confidential expenditure stood at Rb 2 trillion 833 billion (3.1 percent of GDP).

Table 26

Confidential federal budget expenditure in 2008-2017, %

Code and section (subsection) containing confidential expenditure 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1 2 3 4 5 6 7 8 9 10 11

Total federal budget expenditure 11.1 10.1 10.5 11.7 11.6 13.8 14.9 19.1 21.7 17.3

0100 NATIONAL MATTERS 7.4 5.6 5.9 10.4 11.4 10.1 10.1 15.1 12.5 14.6

0107 Administration and conduct of elections and referendums - - - - - - - - - 1.5

0108 Foreign affairs and international cooperation < 0.1 - - - - <0.1 1.4 24.1 23.1 26.5

0109 National material reserves 89.7 84.6 83.9 85.6 86.5 86.1 86.7 87.2 84.1 86.6

0110 Basic research 0.9 0.7 0.2 0.5 0.8 0.7 0.8 0.8 0.8 0.6

0112 Applied scientific research regarding national matters - - - - 0.3 0.3 0.8 0.7 - -

0114 Other national matters 1.1 1.9 1.9 1.7 1.6 3.6 5.1 5.3 3.4 4.4

0200 NATIONAL DEFENSE 45.9 47.7 46.5 45.4 47.5 50.4 56.0 65.4 70.5 63.9

0201 Russian Federation Armed Forces 38.9 39.2 37.8 39.3 40.7 46.7 52.0 65.3 69.0 60.5

0204 Mobilization preparation of the economy 100 100 100 100 100 100 100 100 100 100

1 Federal Act No. 415-FZ of December 19, 2016 'Concerning the Federal Budget for 2017 and the Planning Period Until 2018 and 2019'; Federal Act No. 157-FZ of July 01, 2017 'Concerning Amendments to Federal Act 'Concerning the Federal Budget for 2017 and the Planning Period Until 2018 and 2019'; Federal Act No. 326-FZ of November 14, 2017 'Concerning Amendments to Federal Act 'Concerning the Federal Budget for 2017 and the Planning Period Until 2018 and 2019'.

2 Attachment 2 to the Accounts Chamber's report regarding a federal bill 'Concerning Amendments to Federal Act 'Concerning the Federal Budget for 2017 and the Planning Period Until 2018 and 2019', approved by Accounts Chamber Panel's minutes No. 35K(1180) dated June 05, 2017.

3 Federal Act No. 287-FZ of October 16, 2017 'Concerning the Federal Budget Execution for 2016'.

Cont'd

1 2 3 4 5 6 7 8 9 10 11

0206 Nuclear weapons complex 100 100 100 100 100 100 100 100 100 100

0207 Fulfillment of international obligations under military-technology cooperation projects 100 100 100 100 61.6 80.6 76.7 80.8 77.6 76.9

0208 Applied science research in national defense 93.0 92.9 91.7 92.4 92.9 94.3 92.1 91.7 96.3 95.7

0209 Other matters regarding national defense 29.9 37.1 48.0 35.0 48.6 34.6 46.9 38.8 41.8 55.6

0300 NATIONAL SECURITY AND LAW ENFORCEMENT 31.3 31.0 31.5 31.6 24.0 26.6 27.1 28.4 29.1 29.4

0302 Internal affairs agencies 5.0 3.7 4.2 3.9 3.3 3.8 3.9 4.9 5.8 5.8

0303 Internal Troops 10.3 8.2 8.2 7.4 4.6 4.4 5.3 6.9 - -

0303 Federal National Guard Troops - - - - - - - - 7.7 7.0

0304 Agencies of justice - - - - - - - - 3.2 3.4

0306 Security service agencies 98.9 99.6 99.6 99.6 99.7 99.8 99.8 99.8 99.8 99.8

0307 Border guard agencies 100 99.5 98.6 99.2 99.1 99.6 99.9 100 100 100

0309 Protection of population and territories from natural and man-made emergencies, civil defense 50.3 50.0 48.6 44.5 41.6 38.5 39.1 39.7 45.7 49.1

0313 Applied scientific research in national security and law enforcement 75.1 75.0 91.4 86.6 86.6 82.5 82.7 91.2 90.5 92.4

0314 Other matters regarding national security and law enforcement 49.3 60.6 49.9 12.4 12.1 11.8 44.8 60.7 59.3 58.2

0400 NATIONAL ECONOMY 1.1 0.8 1.4 1.9 2.5 4.7 3.6 5.5 7.0 9.5

0403 Exploration and use of outer space - - - - - - - - - 56.3

0408 Transport - - - - - 0.1 - 0.2 - -

0410 Communications and information technologies - - - - <0.1 1.8 2.0 0.5 - -

0411 Applied scientific research in national economy 6.0 4.5 5.4 11.9 15.3 18.3 23.8 26.7 14.2 17.6

0412 Other matters regarding national economy 1.3 0.9 2.9 2.2 2.5 9.4 2.9 8.0 17.3 18.2

0500 HOUSING AND UTILITIES 6.7 9.5 15.0 13.8 6.7 9.1 9.7 4.3 7.8 1.4

0501 Housing development 14.5 11.4 19.1 20.2 8.6 16.8 25.0 12.0 22.3 7.7

0700 EDUCATION 2.8 2.9 3.2 4.0 3.3 3.8 4.1 3.3 3.1 3.1

0701 Pre-primary and primary education 2.8 3.6 3.5 3.7 3.2 0.7 0.8 1.2 7.2 6.8

0702 General secondary education 2.0 2.9 2.7 0.7 0.3 0.5 1.1 1.0 0.6 0.8

0704 Secondary vocational education 0.9 0.2 - - - - - - - -

0705 Vocational training, retraining and advanced training 1.6 2.6 11.8 18.1 11.3 4.5 2.8 2.9 3.4 2.5

0706 Higher and postgraduate vocational education 3.3 3.4 3.6 5.0 4.1 4.9 5.1 3.9 3.6 3.7

0709 Other matters regarding education 0.4 0.6 0.5 0.3 0.4 0.5 0.9 1.2 0.9 -

0800 CULTURE, CINEMATOGRAPHY, MASS MEDIA 0.2 0.2 0.2 - - - - - - -

0800 CULTURE, CINEMATOGRAPHY - - - 0.1 0.1 0.1 0.1 0.1 0.2 0.2

0801 Culture 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2

0804 Print media and publishing 2.7 3.1 3.3 - - - - - - -

0900 HEALTHCARE, PHYSICAL CULTURE AND SPORTS 3.4 2.9 2.8 - - - - - - -

0900 HEALTHCARE - - - 2.4 2.1 2.8 2.6 2.6 2.9 3.4

0901 Inpatient medical care 2.9 1.9 1.8 2.1 1.5 2.3 1.6 1.7 1.9 3.3

0902 Outpatient medical care 3.7 3.6 4.6 2.3 2.3 3.3 3.0 2.6 3.3 2.7

0905 Health resort and wellness services 14.5 14.7 11.0 10.0 10.6 12.3 14.6 15.3 16.1 17.1

0907 Sanitary and epidemiological welfare 0.7 0.2 0.5 0.6 0.7 0.7 0.6 0.7 0.7 0.7

0908 Physical culture and sports 0.5 0.6 0.8 - - - - - - -

0910 Other matters regarding healthcare, physical culture and sports 1.7 1.2 0.9 - - - - - - -

0909 Other matters regarding healthcare - - - 0.4 0.3 0.4 0.6 0.4 0.5 0.7

1000 SOCIAL SECURITY POLICY <0.1 <0.1 - - 0.1 0.1 <0.1 0.1 0.1 0.1

1001 Retirement benefits - - - - - - - 0.1 0.1 0.1

Cont'd

1 2 3 4 5 6 7 8 9 10 11

1003 Social protection <0.1 <0.1 - - 0.3 0.4 0.1 0.2 0.3 0.4

1004 Family and child welfare - - - - - <0.1 <0.1 <0.1 <0.1 -

1100 PHYSICAL CULTURE AND SPORTS - - - 0.2 0.3 0.3 0.3 0.2 0.3 0.2

1101 Physical culture - - - 62.0 4.9 6.9 7.6 3.8 3.6 5.2

1200 MASS MEDIA - - - 0.2 0.2 0.4 0.4 0.3 2.2 0.3

1202 Print media and publishing - - - 2.9 3.1 5.0 5.4 4.5 5.1 5.4

1204 Other matters regarding mass media - - - - - - - - 12.9 -

Sources: Federal Budget Execution Acts for 2008-2016, 2017 - Federal Treasury's monthly progress reports on consolidated and federal budgets for December 2017. Data for 2008-2010 are presented with regard to respective sections and subsections of the budget expenditure classification in force since 2011. Data from the old budget classification are written in italics.

Table 27 presents absolute and relative values of the key components of direct military spending in the 2017 federal budget and their change in nominal terms over 2016,1 based on Federal Treasury monthly reports on the execution of consolidated and federal budgets for December 2017.

Table 27

Direct military spending under 'National Defense' section, 2017

Section and subsections Total expenditure, in millions of rubles % change over 2016, rubles in millions (growth, %) Expenditure (% chang e over 2016, p.p.)

Federal budget 2017 as a percentage of GDP

NATIONAL DEFENSE 2.852.230 -923,075 (-24.45) 17.37 (-5,63) 3.10 (-1.29)

Russian Federation Armed Forces 2.219.075 -716,560 (-24.41) 13.51 (-4,37) 2.41 (-1.00)

Mobilization and out-of-forces preparation 6.636 -231 (-3.36) 0.04 (-) 0.01 (-)

Mobilization preparation of the economy 3.351 -236 (-6.57) 0.02 (-) <0.01 (-)

Nuclear weapons complex 44.437 -1.185 (-2.60) 0.27 (-0.01) 0.05 (-)

Fulfillment of international obligations under military-technology cooperation projects 8.823 -1.041 (-10.56) 0.05 (-0.01) 0.01 (-)

Applied science research in national defense 270.499 -200.777 (-42.60) 1.65 (-1.22) 0.29 (-0.25)

Other matters regarding national defense 299.453 -3.045 (-1.01) 1.82 (-0.02) 0.33 (-0.03)

Sources: The Federal Treasury of Russia; own calculations.

Overall, expenditure within the 'National Defense' section in 2017 were Rb 198 billion less than what was planned in the November version of federal budget act, mainly because the Defense Ministry transferred Rb 140 billion of UTDAE purchase and repair allocations and Rb 65 billion of R&D allocations for the GDC as part of the NAP back to the federal budget. The money transfer decision was made by the Defense Ministry and supported by the Russian President in order to prevent further increase in Ministry's payables for advanced payments that were made two weeks after the date of signing the latest amendment to the federal budget 2017, because by December 1st the GDC was faced with a threat of non-execution worth Rb 250300 billion.2 Fig. 21 shows the developments regarding Defense Ministry's payables for advanced payments that unfolded shortly before the decision was made.

1 Pursuant to Federal Act No. 287-FZ dated October 16, 2017 'Concerning the Federal Budget Execution for 2016'.

2 Falichev O. The Ruble to fight terrorists // Voenno-Promyshlenny Kurier. January 10, 2018. (No. 1).

3 500, 3 000,

2 500, 2 000, 1 500,

1 000, 500, 0,

Fig. 21. Defense Ministry's payables for advance payments, 2011-2017 Sources: The Federal Treasury of Russia; The Accounts Chamber of the Russian Federation; own calculations.

The foregoing money transfers possibly helped the Defense Ministry to "manage to overcome adverse trends related to advanced payments in the industry and full payment of non-executed contracts".1

Military spending under other federal budget sections are presented in Table 28. The spending structure saw no serious changes compared with the previous year. Federal National Guard Service expenditure emerged in another four sections of the budget expenditure classification, and the target expenditure item 'Mobilizational preparation of government agencies' made explicit those federal budget expenditure in various expenditure classification sections which used to be mostly within the 'Reimbursement Subsidies for Maintenance Costs of Special-Purpose Facilities' section. Biggest absolute gains were seen in expenditure on the Defense Ministry, the Federal National Guard Service, confidential expenditure within the 'National Economy' section and expenditure on military survivor benefits and war disablement benefits within the 'Social Security Policy' section.

Table 28

Direct and indirect military spending under other sections of federal budget, 2017

Subsection, target item or type of expenditure Total expenditure, r ubles in millions % change over 2016, rubles in millions (growth, %) Expenditure (% change over 2016, p.p.)

Federal budget 2017 as a percentage of GDP

1 2 3 4 5

'National Matters'

Defense Ministry expenditure 9 -13 (-59.50) <0.01 (-) <0.01 (-)

Mobilizational preparation of government agencies 103 103 (-) <0.01 (-) <0.01 (-)

'National Security' and 'Law Enforcement'

Federal National Guard Service 222.588 106.169 (91.19) 1.36 (0.65) 0.24 (0.11)

Border guard agencies 140.386 10 406 (8.01) 0.85 (0,06) 0.15 (-)

Mobilizational preparation of government agencies 23 23 (-) <0.01 (-) <0.01 (-)

1 See An expanded meeting of the Russian Defense Ministry Board.

■ Period-end debt, in billions of rubles

■ GDC with loans spending and repayment, in billions of rubles

Debt/GDC, % 2

1 476.3

707.6 69% 485.6

2011

103%

137%

3 458

236% +

1 464.1

400% 350% 300% 250% 200% 150% 100% 50% 0%

2012

2013

2014

2015

2016 2017 (Q3)

0

2

0

0

0

0

0

0

Cont'd

7 2 3 4 5

'National Economy'

Mobilizational preparation of government agencies 124 124 (-) <0.01 (-) <0.01 (-)

"Destruction of chemical weapons stockpiles in the Russian Federation" Presidential program 348 -167(-32.35) <0.01 (-) <0.01 (-)

Subsidies to the Russia-NATO Coordination Center 19 -1 (-6.00) <0.01 (-) <0.01 (-)

"Industrial Recycling of Weapons and Military Equipment (2011-2015) and Until 2020" Federal Special Program 13 -36 (-73.58) <0.01 (-) <0.01 (-)

Capital construction within GDC 6.971 -291 (-4.01) 0.04 (-) 0.01 (-)

Contributions to charter capitals and grants to MIC organizations 4.268 -30.821 (-87.84) 0.03 (-0.19) <0.01 (-0.04)

Confidential expenditure 234.119 73.603 (45.85) 1.43 (0.45) 0.25 (0.07)

'Housing and Utilities'

Defense Ministry expenditure 45.923 44.591 (3332.40) 0.28 (0.27) 0.05 (0.05)

Federal National Guard Service expenditure 2.283 2 283 (-) 0.01 (0.01) <0.01 (-)

"Destruction of chemical weapons stockpiles in the Russian Federation" 2 -431 (-99.52) <0.01 (-) <0.01 (-)

Presidential program

'Education'

Defense Ministry expenditure 73.777 -1.915 (-2.53) 0.45 (-0.01) 0.09 (-)

Federal National Guard Service expenditure 4.782 4.782 (-) 0.03 (0.03) 0.01 (0.01)

Mobilizational preparation of government agencies 1 1 (-) <0.01 (-) <0.01 (-)

'Culture and Cinematography'

Defense Ministry expenditure 3.761 702 (22.96) 0.02 (-) <0.01 (-)

Federal National Guard Service expenditure 275 275 (-) <0.01 (-) <0.01 (-)

Mobilizational preparation of government agencies 4 4 (-) <0.01 (-) <0.01 (-)

'Healthcare'

Defense Ministry expenditure 58.697 2.387 (4.24) 0.36 (0.01) 0.06 (-)

Federal National Guard Service expenditure 4.375 4.375 (-) 0.03 (0.03) <0.01 (-)

Medicines provision to ZATO FMBA 7 7 (-) <0.01 (-) <0.01 (-)

'Social Security Policy'

Defense Ministry expenditure 487.794 21.373 (4.58) 2.97 (0.13) 0.53 (-0.01)

Expenditure on Federal National Guard Service and Border Guard Agencies 71.805 29.516 (69.63) 0.44 (0.18) 0.08(0.03)

Material support to specialists of the Russian Federation nuclear weapon 7.327 -3 (-0.04) 0.04 (-) 0.01 (-)

complex

Military survivor benefits and war disablement benefits 14.333 1.384 (10.69) 0.09 (0.01) 0.02 (-)

Lump sum pregnancy benefit to the

pregnant spouse of a conscript, as well as monthly child benefit per child of a 926 -26 (-2.75) 0.01 (-) <0.01 (-)

conscript

Mobilizational preparation of government agencies 6 6 (-) <0.01 (-) <0.01 (-)

'Physical Culture and Sports'

Defense Ministry expenditure 3.717 -1.634 (-30.53) 0.02 (-0.01) <0.01 (-)

'Mass Media'

Defense Ministry expenditure

Mobilizational preparation of government agencies 4 4 (-) <0.01 (-) <0.01 (-)

'General Intergovernmental Transfers Within the Budget System of the Russian Federation'

Subsidies to ZATO budgets 9.449 -503 (-5.05) 0.06 (-) 0.01 (-)

Relocation of persons from ZATOs 447 1 (0.31) <0.01 (-) <0.01 (-)

TOTAL UNDER OTHER SECTIONS 1,402,584 267.098 (20.09) 8.54 (1.62) 1.52 (0.20)

Sources: The Federal Treasury of Russia; own calculations.

All in all, in 2017 total federal budget defense appropriations (see Table 29), calculated by the UN Standardized Reporting Instrument for Military Expenditures, dropped 1.1 percentage points year-over-year to 4.6 percent of GDP.

Table 29

Total military and related federal budget spending in 2017

Expenditure Total expenditure, rubles in millions % change over 2016, rubles in millions (growth, %) Expenditure (% change over 2016, p.p.)

Federal budget 2017 as a percentage of GDP

Total military spending related to recent and past military activities 4,254,857 -655.976 (-16.22) 25.91 (-4.00) 4.62 (-1.08)

Total expenditure under 'National Defense' and 'National Security and Law Enforcement' sections 4,770,299 -903.711 (-19.99) 29.05 (-5.51) 5.18 (-1.41)

Sources: The Federal Treasury of Russia; own calculations.

In 2017, the peak of expenditure Rb 1.007 billion (35.3 percent of allocations under the federal budget act) within the 'National Defense' section fell on the fourth quarter (27.6 percent in the first quarter) despite the transition to GDC quarterly pre-financing and a marked expenditure cut at year end. According to the consolidated federal budget quarterly revenue/expenditure sheet, the spending limit for 'National Defense' allocations set forth by the federal budget act was exceeded most (Rb 27 billion) in March.

In 2017, Defense Ministry's service personnel costs amounted to Rb 489 billion 930 million (0.53 percent of GDP), a 3.5 percent increase over 2016 (Rb 473 billion 536 million a year earlier). Defense Ministry's civil personnel payroll stood at Rb 198 billion 400 million (0.22 percent of GDP), Rb 589 million less than previous year's amount. In 2017, Defense Ministry service personnel retirement benefits amounted to Rb 339 billion 330 million (0.37 percent of GDP), adding 3.8 percent to previous year's value.

In 2017, Defense Ministry's costs on combustibles and lubricants (C&L) and subsistence support dropped 15 and 2.6 percent year-over-year, respectively. Defense Ministry's expenditure on clothing supply also contracted 6.9 percent to Rb 27 billion 256 million.

In 2017, Defense Ministry's budget investments in capital construction projects contracted 23.2 percent year-over-year to Rb 121 billion 911 million (0.13 percent of GDP). However, Defense Ministry's expenditure within the 'Housing and Utilities' section (Table 28) increased more than 30-fold to Rb 45 billion 923 million (0.05 percent of GDP) on the back of discontinued outsourcing and recovered departmental utilities system since April 2017.

Table 30 presents our assessment of credit financing contribution in Russia's military spending in 2011-2017 based on Russian Accounts Chamber's data on actual execution of government guarantees for GDC crediting, as well as commercial loans repayment data from the Accounts Chamber and the Defense Ministry. Conservative estimate of a single annual rate of 10,3 percent was used as a first approximation to calculate a bank premium. The total credit scheme contribution for each year is defined as the difference between exercised guarantees and the credit/loan principal.

Table 30

Credit financing contribution to Russian military spending, 2011-2017

2011 2012 2013 2014 2015 2016 2017 2011-2017

1 2 3 4 5 6 7 8 9

Exercised guarantees, in billions of rubles 123.2 187.7 350.5 470.9 8.5 200.8 - 1,341.6

Repaid loans, in billions of rubles, of which: - - - - 182.3 792.0 186.8 1,161.1

principal repayment, in billions of rubles - - - - 123.2 568.5 137.4 829.0

Cont'd

1 2 3 4 5 6 7 8 9

bank premium, in billions of rubles - - - - 59.1 223.5 49.4 332.1

Total credit scheme contribution, in billions of rubles 123.3 187.7 350.5 470.9 -114.7 -367.6 -137.4 -

Total credit scheme contribution, as a percent of GDP 0.20 0.28 0.48 0.59 -0.14 -0.43 -0.15 -

Sources: The Federal Treasury of Russia; The Russian Defense Ministry; own calculations.

Table 31 presents Russia's military spending in the period of 2007-2017, including 1 billion Rb 932 million within total consolidated expenditure as part of the 'National Defense' section of consolidated budgets of subjects of the Russian Federation in 2017 and credit financing contribution in 2011-2017, as shown in Table 30.

Table 31

Russia's key military spending indicators, 2007-2017

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

1 2 3 4 5 6 7 8 9 10 11 12

1. In nominal terms (at current prices), in billions of rubles

Federal budget appropriations under 'National Defense' section: within the existing budget classification system 839.1 1 031.6 1 192.9 1 278.0 1 537.4 1 846.3 2 111.7 2 470.6 3 163.8 3 895.4 3 049.8

Federal budget expenditure outturns under 'National Defense' section within the existing budget classification system8 831.9 1 040.8 1 188.2 1 276.5 1 516.0 1 812.3 2 103.6 2 479.1 3 181.4 3 775.3 2 852.3

Russian Federation's military spending, according to data submitted to the UNb 942.0 1 118.0 1 166.1 1 162.5 1 423.3 1 689.3 1 660.1 1 962.1 2 903.3 2 055.7 -

Total military spending related to recent and past military activities c 1 133.5 1 448.8 1 748.7 1 880.3 2 267.1 2 841.9 3 344.0 3 928.8 4 197.6 4 545.4 4 119.4

2. In real terms (at 2017 prices),d in billions of rubles

Federal budget appropriations under 'National Defense' section: within the existing budget classification system 1 947.1 2 029.2 2 300.7 2 158.7 2 240.3 2 466.2 2 676.0 2 912.4 3 448.5 4 098.0 3 049.8

Federal budget expenditure outturns under 'National Defense' section within the existing budget classification system 1 930.3 2 047.5 2 291.6 2 156.1 2 209.0 2 420.9 2 665.7 2 922.4 3 467.6 3 971.7 2 852.3

Russian Federation's military spending, according to data submitted to the UN 2 185.9 2 199.2 2 249.0 1 963.5 2 074.0 2 256.5 2 103.8 2 313.0 3 164.6 2 162.6 -

Total military spending related to recent and past military activities 2 630.2 2 849.9 3 372.6 3 176.0 3 303.5 3 796.2 4 237.7 4 631.3 4 575.3 4 545.4 4 119.4

3. In real terms (at 2007 prices)," in billions of rubles

Federal budget appropriations under 'National Defense' section: within the existing budget classification system 839.1 874.5 991.5 930.3 965.5 1 062.8 1 153.3 1 255.1 1 486.1 1 766.0 1 314.3

Federal budget expenditure outturns under 'National Defense' section within the existing budget classification system 831.9 882.4 987.6 929.2 952.0 1 043.3 1 148.8 1 259.4 1 494.4 1 711.6 1 229.2

Russian Federation's military spending, according to data submitted to the UN 942.0 947.8 969.2 846.2 893.8 972.5 906.6 996.8 1 363.8 932.0 -

Total military spending related to recent and past military activities 1 133.5 1 228.2 1 453.4 1 368.7 1 423.7 1 636.0 1 826.2 1 995.9 1 971.8 2 060.7 1 775.3

4. Economy's military burden,f as a percent of GDP

Federal budget appropriations under 'National Defense' section: within the existing budget classification system 2.52 2. 50 3.07 2.76 2.55 2.71 2.89 3.12 3.80 4.53 3.31

Federal budget expenditure outturns under 'National Defense' section within the existing budget classification system 2.50 2.52 3.06 2.76 2.51 2.66 2.88 3.13 3.82 4.39 3.10

Russian Federation's military spending, according to data submitted to the UN 2.83 2.71 3.00 2.51 2.36 2.48 2.27 2.48 3.49 2.39 -

Total military spending related to recent and past military activities 3.41 3.51 4.51 4.06 3.76 4.17 4.57 4.96 5.04 5.28 4.48

Cont'd

1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12

5. At purchasing power parity (at current prices), in billions of US$

Federal budget appropriations under 'National Defense' section: within the existing budget classification system 60.0 71.9 85.0 80.7 88.6 102.3 114.3 116.1 131.9 153.8 116.5

Federal budget expenditure outturns under 'National Defense' section within the existing budget classification system 59.5 72.6 84.7 80.6 87.4 100.5 114.1 116.5 132.7 149.0 109.0

Russian Federation's military spending, according to data submitted to the UN 67.4 78.0 83.1 73.4 82.0 93.6 90.1 92.2 121.1 81.2 -

Total defense appropriations related to recent and past military activities 81.1 101.0 124.6 118.8 130.7 157.5 181.4 184.6 175.0 179.4 157.4

6. At average annual exchange rate (at current prices), in billions of US$

Federal budget appropriations under 'National Defense' section: within the existing budget classification system 32.8 41.5 37.6 42.1 52.3 59.4 66.3 64.3 51.9 58.1 52.3

Federal budget expenditure outturns under 'National Defense' section within the existing budget classification system 32.5 41.9 37.5 42.0 51.6 58.3 66.1 64.5 52.2 56.3 48.9

Russian Federation's military spending, according to data submitted to the UN 36.8 45.0 36.8 38.3 48.4 54.3 52.1 55.1 47.6 30.7 -

Total military spending related to recent and past military activities 44.3 58.3 55.1 61.9 77.1 91.4 105.0 102.3 68.9 67.8 70.6

For reference

Gross domestic product deflator, % change year-over-year 113.8 118.0 102.0 114.2 115.9 109.1 105.4 107.5 108.2 103.6 105.2

Purchasing power parity, 8 Rb/US$ 13.98 14.34 14.03 15.83 17.35 18.04 18.43 21.28 23.98 23.33 26.17

U.S. dollar exchange rate (average annual), Rb/US$ 25.58 24.86 31.72 30.37 29.39 31.09 31.85 38.42 60.96 67.03 58.35

a For 2017: data from the Federal Treasury's monthly consolidated budget execution report for December 2017. b For 2017: to be submitted by the Russian Government to the UN in 2018, including expenditure on the Federal National Guard Service and the Border Guard Troops.

c Including military retirement pensions and costs on chemical weapons stockpile destruction and military

equipment recycling.

d, e Deflated by GDP deflator.

f In italics, relative to GDP values, excluding latest changes in Rosstat's methodology. g For 2017: own calculations.

Sources: Federal Budget Acts 2007-2017 and Federal Budget Execution Acts 2007-2016; United Nations Report on Military Expenditures; Russian Central Bank; Rosstat; Russian Federal Treasury.

References

Russian sources

Edit. by T.M. Maleva. 2016. "2014-2015: ekonomichesky krizis - sotsialnoe izmerenie." Scientific paper. Moscow. Delo. Publishers.

Edit. by T.M. Maleva. 2017. "2016: Sotsialno-ekonomicheskoe polozhenie naselenia: prodolzhayuchshiysya krizis ili novaya realnost?" Scientific paper. Moscow. Delo Publishers.

A. Abramov. 2014. "Razlichiya v povedenii vnutrennikh i inostrannykh chastnykh investorov na rossiyskom fondovom rynke." Ekonomicheskoye razvitie Rossii. No11.

A. Abramov, A. Radygin, M. Chernova. 2016. "Kompanii s gosudarstvennym uchastiem na rossiiskom rynke: struktura sobstvennosti i rol v ekonomike". Voprosy ekonomiki. No 12, pp. 61-87.

A. Abramov, A. Radygin, M. Chernova. 2016. "Rosiiskie institutsionalnie investory i privatizatsdionnya politika." Ekonomicheskoe razvitie 2016. No 12.

A. Abramov, A. Radygin, M. Chernova, R. Entov. 2017. "Gosudarstvennaya sobstvennost I kharakteristiki effektivnosti." Voprosy ekonomiki. No 4, pp. 5-37.

Yu. Avdeev. 2017. "V nauchnom pritsele." Krasnaya zvezda. November 1. No 122, p. 6. URL: https://function.mil.ru/news_page/country/more.htm?id=12155560@egNews

E. Avraamova, A. Burdyak, V. Lyashok. 2017. "Sotsialnye trendy i ekonomicheskoe polozhenie rossiiskogo naselenia (po resultatam reguliarnogo monitorings." Institute of Social Analysis and Forecasting, RANEPA). Ekonomicheskoe razvilitie Rossii. No 3, pp. 82-89.

E. Avraamova, E. Grishina, T. Maleva, A. Poliakova. 2017. "Sotsialno-ekonomicheskoe polozhenie naselenia: analiz tekuschikh trendov (po resultatam reguliarnogo monitorings." Institute of Social Analysis and Forecasting, RANEPA). Ekonomicheskoe razvilitie Rossii. No 2, pp. 46-57.

I. Aglitsky. 2017. "Kak professorov vyzov prevratili v rabotnikov sfery obsluzhivaniya." Nezavisimaya gazeta. May 24. http://www.ng.ru/nauka/2017-05-24/10_6994_students.html

A. Khokhlov. 2017. "Mashina RAN probyksovyvala chetyre goda." RIA Novosti. July 29. https://ria.ru/science/20170729/1499294783.html

E. Apevalova, N. Polezhaeva. 2015. "Novatsii korporativnogo zakonodatelstva i regulirovaniya: izmeneniya v Grazhdanskom kodekse i novyi Kodeks korporativnogo upravleniya." Rossiiskaya ekonomika v 2014. Tendentsii i perspektivy. Moscow. Gaidar Institute Publishers. Issue. 36, pp. 460-465.

A. Aptekman, V. Kalabin, V. Klintsov et all. 2017. "Tsyfrovaya Rossiya: novaya realnost." P. 43.

A. Aptekman, V. Kalabin, V. Klintsov et all. 2017. "Tsyfrovaya Rossiya: novaya realnost." P. 60.

https://www.mckinsey.com/ru/~/media/McKinsey/Locations/Europe%20and%20Middle%20 East/Russia/0ur%20Insights/Digital%20Russia/Digital-Russia-report.ashx

I. Arzhanova, A. Vorov, D. Derman, E. Diachkova, A. Kliagin. 2017. "Itogi realizatsii program razvitiya opornykh universitetov v 2016 godu." Universitetskoe upravlenie: praktika i analiz. Vol. 21. No 4, pp. 13, 20.

Armiya strany: otsenka rossiya. VTSYOM. Press release. November 8, 2017. No 3509. Bank Rossii. Obzor praktiki korporativnogo upravlenia v rossiiskikh publichnykh obshestvakh po itogam 2016 goda. December 2017. No 2, p. 34.

Bank Rossii. O chem govoria trendy. Makroekonomika i rynki. Bulleten departamenta issledovaniy I prognozirovaniya. March 2017. No 2 (14), p. 38.

Vaganov. 2017. "Pravitelstvo sdelalo svoy vybor Presidenta Akademii nauk, kazhetsia uzhe sdelalo." Nezavisimaya Gazeta. Nauka Publishers. September 3.

O. Volkova. 2016. "Kontsanktsii protiv sanktsiy: chto khuzhe." RBC Daily. March 21, p. 4. N. Volchkova. 2017. "Gluboko kopat. RAN pogruzhaetsia v problem institutov." Poisk. December 8. No 49. http://www.poisknews.ru/theme/ran/30916/

N. Volchkova. 2017. "Malovato liderov? Vyvody otsenochnoy komissii podportili uchenym prozdnik." Poisk. December 29. No 52. http://www.poisknews.ru/theme/science-politic/31538/ N. Volchkova. 2017. "Po akademicheskomy schetu. Otdelenia RAN vystavili otsenki institutam." Poisk. November 17. No 46. http://www.poisknews.ru/theme/ran/30239/

N. Volchkova. 2017. "Po etapam. Kak idet otsenka institutov RAN." Poisk. No 35. September 1. http://www.poisknews.ru/theme/science-politic/28378/

Vstrecha s akademikami Rossiiskoy akademii nauk. May 30, 2017. http://kremlin.ru/ events/president/news/54635

V tochke krizisa, no bez strakha. Rossiyskaya gazeta. January 15, 2015. No 4 (6575), p. 1, 4. Yu. Gavrilov. 2018. "Korruptsiya so znakom minus." Rossiiskaya gazeta. February 6.No 27. M. Gershman, T. Zinina, M. Romanov et all. 2015. "Programmy innovatsoinnogo razvitia kompaniy s gosudarstvennym uchastiem: promezhutochnye itogi i prioritety." Ed. by L.M. Gohberg, A.N. Klepatch, P.B. Rudnik et all. Moscow. NRU HSE.

V. Gimpelson, A. Zudina. 2017. "Demographicheskie problem rynka truda." Demoskop Weekly. No 729-730. URL: http://demoscope.ru/weekly/2017/0729/tema01.php.

Gorodnikova, L. Gokhberg, K. Ditkovsky et all. 2018. National research university Higher school of economics. Moscow. NRU HSE. 2018.

I Grigorieva. 2017. "Vysokotechnologichniy eksport k 2020 godu vyrastet v 3.5 raza." Izvestiya. August 22. https://iz.ru/632460/inna-grigoreva/mer-vysokotekhnologichnyi-eksport-vyrastet-v-35-raza

E. Gurvich, I. Prilepsky. 2016. "Vliyanie finansovykh sanktsiy na rossiiskuyu ekonomiku." Voprosy ekonomiki. January. No 1, p. 33.

Yu. Danilov, A. Abramov, O. Buklemishev. 2017. "Reforma finansovykh rynkov i nebankovskogo finansovogo sektora." CSR. Moscow. July. Published: http://csr.ru/wp-content/uploads/2017/07/Report-Financial-markets-v2-web.pdf

N. Demina. 2017. "Uchenie i chinovniki: dialog vozmozhen? "Troitskiy variant - Nauka. December 05. No 24 (243), p. 1. https://trv-science.ru/2017/12/05/uchenye-i-chinovniki-dialog-vozmozhen/

S. Drobyshevsky, S. Sinelnikov-Murylev. 2018. "Osobennosti rosta ekonomiki Rossii v 2017 i 2018 godah: stimuli i ogranicheniya. Monitoring ekonomicheskoy situatsii v Rossii." Tendentsii i vyzovy sotsialno-ekonomicheskogo razvitiya. No 2 (63), pp. 7-11.

Doklad o polozhenii v mire: osnovnye polozheniya. 2018. http://wir2018.wid. world/files/ download/wir2018-summary-russian.pdf

Ediniy reestr malogo i srednego predprinimatelstva. URL: https://rmsp.nalog.ru/ Emelianova. 2017. "Dissertatsiya na reputatsii." Rossiyskaya gazeta. November 29. https://rg.ru/2017/11/29/vladimir-filippov-doplata-za-uchenuiu-stepen-stala-perezhitkom-proshlogo.html

Evraziyskiy ekonomicheskiy souyz. Ed by E. Yu. Vinokurov. Center for Integration Studies. St. Petersburg. 2017. p. 163.

Zasedanie Soveta po strategicheskomu razvitiyu i prioritetnym proektam. 05.07.2017. http://kremlin.ru/events/president/news/54983

D. Ivanov, M. Kuzyk, Yu. Simachev. 2012. "Stimilirovanie innovatsionnoy deyatelnosti rossiiskih proizvodstvennyh kompaniy: novye vozmozhnosti i ogranicheniya." Foresight. Vol. 6. No 2, pp. 18-41.

G. Idrisov, Yu. Ponomarev, S. Sinelnikov-Murylev. 2015. "Usloviya torgovli i ekonomicheskoe razvitie sovremennoy Rossii." Ekonomicheskaya politika. No 3, pp. 7-37.

G. Idrisov, V. Mau, A. Bozhechkova. 2017. "V poiskah novoy modeli rosta." Voprosy ekonomiki. No 12.

P. Kadochnikov, A. Knobel, S. Sinelnikov-Murylev. 2016. "Otkrytost rossiiskoy ekonomiki kak istochnik ekonomicheskogo rosta." Voprosy ekonomiki. No 12, pp. 26-42.

S. Kerber, managing director AMC Lider. Mnenie. Information agency RNS. 10.11.2017. https://m.rns.online/opinions/Kakuyu-vigodu-mozhet-prinesti-korporativnii-venchurnii-fond-2017-11-10/

M. Kiseleva. 2017. "Milliardy, zarplaty i mozgi: o chem professor RAN sporili s chinovnikami." Indikator. November 30. https://indicator.ru/article/2017/11/30/sobranie-professorov-ran/

Kommersant. Supplement Review Development No 239 of 22.12.2017.

T. Kondrakova. 2017. "Zapros na signal. V Minobrnauke zhdut predlozheniy ot srednego biznesa." Poisk. May 19. http://www.poisknews.ru/theme/science-politic/25315/

Coase R., Van N. 2016. "How China Became Capitalist." Moscow. Novoe Izdatelstvo.

CPSU. Program of the Communist Party of the Soviet Union. Moscow. Politizdat, 1961.

A.L. Kudrin, I. Sokolov. 2017. "Budzhetny manevr i strukturnaya perestroika rossiyskoi ekonomiki." Voprosy ekonomiki. No 9, pp. 1-27.

A.L. Kudrin, I. Sokolov. 2017. "Budzhetnye pravila kak instrument sbalansirovannoy budzhetnoy politiki." Voprosy ekonomiki. No 11, pp. 1-28.

M. Kuzyk, Yu. Simachev. 2013. "Rossiiskaya politika po stimulirovaniyu innovatsiy: evolutsiya, dostizheniya, problem i uroki. Rossiiskaya ekonomika v 2012 godu." Tendentsii I perspektivy. Moscow. Gaidar Institute Publishers. Issue 34, pp. 521-571.

M. Lewis. 2015. "Flash Boys: A Wall Street Revolt." Moscow. Alpina Publishers. p. 51.

G. Maksimov. 2017. "Uchenyh v Rossii stanet menshe. Rabotniki RAN vyhodia na miting v Moskve." June 23. http://fedpress.ru/news/77/society/1808890

Masshtaby mobilizatsdii. Vedomosti. February 13, 2017. No 26, p. 3. URL: https://www.vedomosti.ru/politics/articles/2017/02/13/677314-mobilizatsiyu-gubernatori

V. Mau. 2014. "V ozhidanii novoy modeli rosta: sotsialno-ekonomicheskoe razvitie Rossii v 2013 godu." Voprosy ekonomiki. No 2.

V. Mau. 2016. "Vspomnit 1980-е." Vedomosti. February 16.

V. Mau. 2016. "Krizisy i uroki: ekonomika Rossii v epohu turbulentnosti. Moscow. Gaidar Institute Publishers.

D. Medovnikov. "Innvatsionnaya Rossiiya sosredotachivaetsia. https://stimul.online/ articles/interview/innovatsionnaya-rossiya-sosredotachivaetsya-2/

M. Mesropian. 2016. "Denezhniy oktiabr." Vedomosti. November 6.

A. Mehanik. "S novymi chempionami!" https://stimul.online/articles/sreda/s-novymi-natschempionami/

Monitoring of Russia's Economic Outlook: Trends and Challenges of Socio-economic Development. 2017. December. No 23(61).

SRI FRCEC: Uchet i monitoring malyh innovatsionnyh predpriyatiy nauchno-obrazovatelnoy sphery. URL: https://mip.extech.ru/index.php

Review of the money and derivatives market. Information and analytical materials of the Bank of Russia. 2016 Q3. No 4, p. 15.

O. Orlova. 2017. "Akademiki dobilis uvazheniya vlasti i proigrali sami sebe." Ezhednevny zhurnal. October 2. http://www.ej2015.ru/?a=note&id=31623.

Open letter to the president of the Russian Federation, V.V. Putin. Kommersant. 27.12.2017. https://www.kommersant.ru/doc/3509262.

Yu. Petrova, M. Podtserob, S. Romanova. 2016. "Korporativnoe upravlenie v Rossii ne uluchshaetsia s 2012 goda." Deloitte. Vedomosti. April 5. URL: https://www.vedomosti.ru/ management/articles/2016/04/06/636572-korporativnoe-upravlenie.

The Bank of Russia letter of April 10, 2014 No 06-52/2463 "O Kodekse korportivnogo upravleniya." Vestnik Banks Rossii. No 40. 18.04.2014. Pravo i sovremennoe gosudarstvo. 2015. No 1, p. 84.

Address of the President of the Russian Federation. December 1, 2016. https://www.wto.org/english/news_e/pres17_e/pr800_e.htm.

Program "Tsifrovaya ekonomika Rossiiskoy Federatsii." pp. 16-17. http://static.government.ru/media/files/9gFM4FHj4PsB79I5v7yLVuPgu4bvR7M0.pdf

Prostota v otnosheniyah s naukoi huzhe vorovstva. Nezavisimaya gazeta. May 22, 2017. http://www.ng.ru/editorial/2017-05-22/2_6992_red.html

Publichniy grafik tsen vtorichnoy nedvizhimosti gorodov Rossii. http://realtymarket.ru/Publi-nii-grafik-cen-vtori-noi-nedvijimosti-gorodo/

Putin poruchil krupneishim kompaniyam Rossii sozdat ventsurnye fondy. RNS information agency. 02.06.2017. https://rns.online/economy/Putin-poruchil-krupneishim-kompaniyam-Rossii-sozdat-venchurnie-fondi-2017-06-02/

Rasshirennoe zasedanie kollefii Ministerstva oborony. Balashiha, December 22, 2017. URL: http://www.kremlin.ru/events/president/news/56472

T. Ratai. 2017. Assignivania na grazhnaskuyu nauku iz sredstv federalnogo budzheta v Rossiiskoy Federatsii. Nauka, tehnologii, innovatsii. June 28. https://issek.hse. ru/news/207116445.html

D. Rodrik. 2014. "The Globalization Paradox: Democracy and the Future of the World Economy." Moscow. Gaidar Institute Publishers.

"Rossiiskaya nauka popala v dolinu smerti." «t» publikuet rech novogo presidenta RAN. Kommersant. 26.09.2017. https://www.kommersant.ru/doc/3422102

Russian economy in 2014. Trends and Outlooks. Gaidar Institute Publishers. Moscow, 2015. Issue 36. C. 393.

Russian economy in 2015 r. Trends and Outlooks. Gaidar Institute Publishers. Moscow 2015. Issue 37. C. 388.

Russian economy in 2016 r. Trends and Outlooks. Gaidar Institute Publishers. Moscow 2017. Issue 38, pp. 330, 357-360.

Rubtsdov. 2018. "Udvoenie realnosti: kak rossiskuyu nauku zastavliayt zanimatsia imitatsiey." RBC. January 30.

V. Ruposov. 2014. "Analiz ekonomicheskoy deyatelnosti malyh innovatsionnyh predpriyatiy IrGTU." Vestnik Irkutskogo gosudarstvennogo tehnicheskogo universiteta. No 4.

L. Saburova. 2017. "Vyzhivanie ili razvitie: vozmozhnosti i riski reformirovaniya akademicheskoy nauki dlia regionalnogo nauchnogo soobshestva. Sotsiologia nauki i tehnologiy. Vol. 8. No 4, p. 50.

V. Sakovich. 2017. "VC po ekzitam schitayut: pochemu na rossiiskom rynke startupov po-prezhnemu malo vyhodov?" Forbes. March 10. http://www.forbes.ru/tehnologii/338751-vc-po-ekzitam-schitayut-pochemu-na-rossiyskom-rynke-startapov-po-prezhnemu-malo

V. Saraev. Eksperiment natsionalnogo masshtaba. https://stimul.online/articles/sreda/ eksperiment-natsionalnogo-masshtaba/

D. Semenov. 2017. "Armiya" novoselov. Krasnaya zvezda. February 16. No 17, p. 2.

D. Semenov. 2017. Strategiya voennoy ekonomiki. Krasnaya zvezda. October 30. No 121. p. 1.

Yu. Simachev, M. Kuzyak, N. Zudina. 2017. "Rezultaty nalogovoi i finansovoy podderzhki rossiiskih kompaniy: proverka na dopolnitelnost. Zhurnal novoy ekonomicheskoy assotsdiatsii. No 2, pp. 59-93.

Yu. Simachev, M. Kuzyak, D. Ivanov. 2012. "Rossiiskie finansovye instituty razvitiya: vernoy dorogoy? " Voprosy ekonomiki. No 7, pp. 4-29.

Yu. Simachev, M. Kuzyak, B. Kuznetsov, E. Pogrebniak. 2014. "Rossiya na puti k novoy tehnologicheskoy promyshlennoy politiki: sredi maniaschih perspektiv i fatalnyh lovushek. Foresight. Vol. 8. No 4, pp. 6-23.

S. Sinelnikov-Murylev, S. Drobyshevsky, M. Kazakova. 2014. "Dekompozitsiya tempov rosta VVP Rossii v 1999-2014 godah. Ekonomicheskaya politika. No 5, pp. 7-37.

P. Skorobogatiy. 2017. "Kto dast deneg na perpetuum mobile." Ekspert. http://expert.ru/expert/2017/45/kto-dast-deneg-na-perpetuum-mobile/

Sovecshanie o realizatsii programmy "Tsifrovaya ekonomika." 15.08.2017. http://government.ru/news/28825/

Sotnikova. 2017. "Medvedev pozhalovalsia na ne okupivshiesia "i na 10%" studencheskie startapy. RBC. May 25.

"Sotsialnie itogi i uroki dlia ekonomicheskoy politiki." 2016. Ed by Т. Maleva. Nauchnie Trudy RANEPA 18/3. Moscow. Delo Publishers.

Statisticheskaya informatsiya po gosudarstvennoy registratsii FCS Rossii. URL: https://www.nalog.ru/rn77/related_activities/statistics_and_analytics/regstats/.

Sterligov. 2011. "Tret malyh predpriyatiy pri vuzah suchshestvuet lish na bumage." Nauka I tehnologii Rossii - STRF.ru. URL: http://www.strf.ru/material.aspx? CatalogId=221&d_ no=41450#.VNqByeY0Enh

Sterligov, T Hodger. 2017. "Vzgliad na nauku cherez prizmu solo-statey." Izmerenia nauki. No 2. https://okna.hse.ru/news/212247840.html

Strategia-2020: Novaya model rosta — novaya sotsialnaya politika. In 2 volumes. Science editors V. Mau, Y. Kuzminov. Moscow. Delo Publishers.

Ten zashitnika otechestva. Ogoniek. February 18, 2018. No 6.

Top zastroicshikov RF. https://erzrf.ru

O Fomichev. 2018. "Rublem po terroristam." Voenno-promyshlenniy kurier. January 10. No 1.

Federalniy spravochnik: Obrazovanie v Rossii [information and analytical publication]. Moscow. NP "Tsentr strategicheskogo partnerstva." 2008. Vol. 5.

Finansovoe obozrenie: usloviya provedenia denezhno-kreditnoy politiki. Information and analytical material of the Bank of Russia. 2016 Q4. No 4, pp. 36-37.

A Haliavko. 2017. "Roskosmos sozdaet ventsurniy fond." Vedomosti. November 30. https://www.vedomosti.ru/technology/articles/2017/11/30/743634-roskosmos-venchurnii-fond.

Tsifrovaya ekonomika: globalnie trendy i praktika rossiiskogo biznesa. Ed by D. Medovnikov. Moscow NRU HSE. 2017. pp. 49-50.

A Chernyh. 2017. "U akademikov proveriat poseschaemost." Коммерсантъ. October 11. https://www.kommersant.ru/doc/3434864.

English sources

Belgian Corporate Governance Committee. Practical rules for high-quality explanations. 2016. URL: http://www.corporategovernancecommittee.be/en/explanatory-notes/practical-rules-high-quality-explanations-2016-version

Beyenbach J., Rapp M.S., Strenger C., Wolff M. 2017. "Code Compliance Study 2017 -Analysis of the Declarations of Conformity with the German Corporate Governance Code (Version May 2015)." 27 June. URL: https://ssrn.com/abstract=2993262

Boskin Michael J. 2017. "The World economy in 2018." Project Syndicate. 21 Dec. https://www.project-syndicate.org/commentary/world-economy-2018-predictions-by-michael-boskin-2017-12.

Caballero R., Hammour M. 1996. "On the timing and efficiency of creative destruction." Quarterly Journal of Economics. Vol. 111. No. 3, pp. 805-852.

Caloghirou Y., Kastelli I., Tsakanikas A. 2004. "Internal capabilities and external knowledge sources: complements or substitutes for innovative performance?" Technovation. Vol. 24 (1), pp. 29-39.

Corporate Governance of State-owned Enterprises: A Toolkit. The World Bank. 2014.

Crisis and Transition: The People's Perspective. Transition Report 2011. EBRD. 2011.

Crespi F., Antonelli C. 2011. "Matthew effects and R&D subsidies: knowledge cumulability in high-tech and low-tech industries." University "Roma Tre". Departmental Working Papers of Economics. No 0140.

Directive 2006/46/EC of the European Parliament and of the Council of 14 June 2006; Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings; Commission Recommendation of 9 April 2014 on the quality of corporate governance reporting ('comply or explain') 2014/208/EU. URL: http://eur-lex.europa.eu

Dervis Kemal, Qureshi Zia. 2018. "The danger in today's good economic news." Project Syndicate. 11 Jan. https://www.project-syndicate.org/commentary/economic-growth-forecasts-optimism-inequality-by-kemal-dervis-and-zia-qureshi-2018-01

Dezhina I. 2018. "Russian-French Scientific Collaboration: Approaches and Mutual Attitudes." Sociology of Science and Technology. No. 1 (in press).

Ding H., He H.2016. "A Tale of Transition: An Empirical Analysis of Economic Inequality in Urban China, 1986-2009." IMF Working Paper. WP/16/239.

Dharmapala D., Khanna V.S. 2016. The Impact of Mandated Corporate Social Responsibility: Evidence from India's Companies Act of 2013." CESifo Working Paper Series No. 6200. 28 Nov. URL: https://ssrn.com/abstract=2895986

EBRD. Corporate Governance in Transition Economies: Russian Country Report (Dec. 2017). URL: http://www.ebrd.com/documents/ogc/russia.pdf

EBRD. Corporate Governance Sector Assessment. URL: http://www.ebrd.com/what-we-do/sectors/legal-reform/corporate-governance/sector-assessment.html.

Eichengreen B., Mehl A., Chi^u L. 2017. How Global Currencies Work: Past, Present and Future. Princeton, NJ: Princeton University Press.

Eurostat. 2014. Essential SNA: Building the basics. Luxembourg: Publications Office of the European Union.

Financial Crisis Inquiry Commission. The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. Official Government Edition. 2011. P. xviii. URL: http://fcic.law.stanford.edu/report

Frankel Jeffrey. 2012. "Internationalization of the RMB and Historical Precedents." Journal of Economic Integration. Sept. Vol. 27, pp. 329-365.

Frankel Jeffrey. 2018. "Does trade fuel inequality." Project Syndicate. 2 Jan. https://www.project-syndicate.org/commentary/globalization-trade-inequality-relationship-by-jeffrey-frankel-2018-01

FSA. Corporate Governance overviews. URL: https://www.fi.ee/index.php?id=12510 Guidelines on corporate governance of state-owned enterprises. Paris: OECD Publishing, 2005.

Haar B. 2016. "Shareholder Wealth vs. Stakeholder Interests? Evidence from Code Compliance under the German Corporate Governance Code (2016. 24 Nov.)." SAFE Working Paper. No. 154. URL: https://ssrn.com/abstract=2875275

Hadjikyprianou G.C. 2015. "The Principle of 'Comply or Explain' Underpinning the UK Corporate Governance Regulation: Is There a Need for a Change?" Corporate Law: Corporate Governance Law Journal. 27 Nov. Vol. 7. Issue 81. URL: https://ssrn.com/abstract=2690687.

Harper H., Virginia E. 2017. "Comply or Explain' and the Future of Nonfinancial Reporting." 21 Lewis & Clark Law Review 317.

Henderson R., Jaffe A., Trajtenberg M. 1998. "Universities as a source of commercial technology: A detailed analysis of university patenting." Review of Economic and Statistics. Vol. 80 (1), pp. 119-127.

Hughes R., Josephs Т., Karolova V., Krivenkov V., Ljungman G. 2014. "Russian Federation: Fiscal transparency evaluation. " IMF Country Report. No 14/134. IEA. World Energy Outlook 2017. Short review, Russian version. p. 9. IMF. Fintech and Financial Services: Initial Considerations / IMF Staff Discussion Note [Финтех и финансовые услуги: первоначальное рассмотрение]. Washington, DC: IMF, 2017. https://prague.bc.events/ru/news/mvf-predstavil-doklad-o-potentsiale-blokcheyna-i-kriptovalyut-69974.

Lai B.Y. 2014. "Are Independent Directors Effective Corporate Monitors? - An Analysis of the Empirical Evidence in the USA and Canada." 2 May. URL: https://ssrn.com/abstract=2781671

Lam R., Rodlauer M., Schipke A. 2017. "Modernizing China. Investing in Soft Infrastructure." International Monetary Fund.

Leydesdorff L., Bornmann L., Wagner C. 2017. "The relative influences of government funding and international collaboration on citation impact." 13 Dec. https://arxiv.org/abs/1712.04659

Ljubljanska borza. Analiza razkritij odstopanj v izjavah o skladnosti sKodeksom. 2014. Sept. http://www.ljse.si/media/Attachments/Izdajatelji/Analiza_razkritij_odstopanj_izjav_CG_2012_i nternet.pdf

Lu Y., Yakovlev D. 2017. "Exploring the Role of Foreign Investors in Russia's Local Currency Government Bond (OFZ) Market." IMF Working Paper. No WP/17/28. Feb. p. 10. Morningstar. Tom Lauricella. Tracking U.S. Asset Flows in 11 Charts. 01-20-18. Murphy Melissa, Wen Jin Yuan. 2009. "Is China Ready to Challenge the Dollar. Internationalization of the Renminbi and Its Implications for the United States." Washington, DC.: The CSIS Press.

Nature. 2017. Nature Editorial. "Science without walls is good for all." 5 Oct. Vol. 550. P. 78. https://www.nature.com/news/science-without-walls-is-good-for-all-1.22742

Nedelchev M. 2013. "Good Practices in Corporate Governance: One-Size-Fits-All vs. Comply-or-Explain." International Journal of Business Administration. 30 Sept. Vol. 4. No. 6, pp. 77, 78.

OECD. Corporate governance and the financial crisis. URL: http://www.oecd.org/ daf/ca/corporategovernancea-ndthefinancialcrisis.htm

OECD Guidelines on Corporate Governance of State-Owned Enterprises. Paris: OECD Publishing, 2015.

OECD Science, Technology and Industry Scoreboard 2017: The digital transformation. Paris: OECD Publishing, 2017. P. 158.

OECD Science, Technology and Industry Scoreboard 2017: The digital transformation. Paris: OECD Publishing, 2017. P. 29.

QS World University Rankings Methodology. URL: https://www.topuniversities. com/qs-world-university-rankings/methodology

Official website of UNCTAD. Trade and development report 2017. BEYOND AUSTERITY: TOWARDS A GLOBAL NEW DEAL. URL: http://unctad.org/en/PublicationsLibrary/tdr2017_en.pdf

Official website of IMF. World Economic Outlook. 2018. Jan. URL: http://www.imf.org/ru/Publications/WEO/Issues/2018/01/11/world-economic-outlook-update-january-2018

Official website of WTO. WTO upgrades forecast for 2017 as trade rebounds strongly. URL: https://www.wto.org/english/news_e/pres17_e/pr800_e.htm

Official website of WTO. URL: https://www.wto.org/english/news_e/news18_e/wtoi_ 12feb18_e.pdf

WTO «Monthly merchandise trade values». URL: https://www.wto.org/english/res_e/ statis_e/short_term_stats_e.htm

Official website of European Commission. URL: http://europa.eu/rapid/press-release_MEMO-16-3605_en.htm

Official website of FCS. URL: http://www.customs.ru/index.php?option=com_content& view=article&id=26274:2018-02-12-11-28-37&catid=40:2011-01-24-15-02-45&Itemid=2094&Itemid=1835

Prasad Eswar S. 2016. "Gaining Currency: The Rise of the Renminbi." N.Y.: Oxford University Press.

Regierungskommission. Deutscher Corporate Governance Kodex. Press Release. Frankfurt am Main. 2015. 11 May. P. 1, 2.

Roach S. 2017. "Complacency will be tested in 2018." Project Syndicate. 14 Dec. https://www.project-syndicate.org/commentary/test-for-economic-complacency-in-2018-by-stephen-s--roach-2017-12/russian

Rodrik D. 2017. "Too late to compensate free trade's losers." Project Syndicate. April 11. https://www.project-syndicate.org/commentary/free-trade-losers-compensation-too-late-by-dani-rodrik-2017-04?barrier=accessreg.

Rodrik D. 2018. "In defense of economic populism." Project Syndicate. January 9. https://www.project-syndicate.org/commentary/defense-of-economic-populism-by-dani-rodrik-2018-01.

Roubini N. 2017. "The Mystery of Missing Inflation." Project Syndicate. September 13. https://www.project-syndicate.org/commentary/monetary-policy-missing-inflation-by-nouriel-roubini-2017-09?barrier=accessreg

Sarkar S. 2015. "The Comply-or-Explain Approach for Enforcing Governance Norms." 2015. July 15. URL: https://ssrn.com/abstract=2638252

Singh P.D., Poonawala S.H. 2016. "Whether and Where to Spend Mandatory CSR?" 30 June. URL: https://ssrn.com/abstract=2802866

Schumpeter J. 1942. "Capitalism, Socialism, and Democracy." N.Y.: Harper & Bros.

Spence M., Karniol-Tambour K. 2018. "The Missing ingredients of growth // Project Syndicate." January 2. https://www.project-syndicate.org/commentary/conditions-for-growth-2018-by-michael-spence-and-karen-karniol-tambour-1-2018-01.

Stinchcombe Kai. 2017. "Then years in, nobody has come up with a use of blockchain." Hacker Noon. 22 Dec. https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100

The Global Innovation Index 2017. URL: https://www.globalinnovationindex.org/gii-2017-report

The Size and Composition of the SOE Sector in OECD Countries. OECD Corporate Governance Working Paper 5, 2011. Paris: OECD.

The Size and Sectoral Distribution of State-Owned Enterprises. Paris: OECD Publishing, 2017.

Laws and regulations, materials issued by the Government authorities

State Program "Federal property management", approved by the RF Government Resolution of February 16, 2013. No 191-p.

State Program "Federal property management", approved by the RF Government Resolution of April 15, 2014. No 327 (original version as of March 31, 2017).

Report of the Ministry of Economic Development on the Outcome of the federal property privatization in 2010.

Report of the Ministry of Economic Development on the Outcome of the federal property privatization 2011.

Report on the monetary policy No 4. Official website of the Bank of Russia. URL: http://www.cbr.ru/publ/ddcp/2017_04_ddcp.pdf/

Report on the status of competition in the Russian Federation in 2015. Moscow: Federal antimonopoly service. 2016.

Laws on the execution of the federal budget in 2000-2014 rr.

Meeting of the Military Industrial Commission. Moscow. January 26, 2017. URL: http://www.kremlin.ru/events/president/news/53782

Meeting of the Military Industrial Commission. Moscow, September 19, 2017. URL: http://www.kremlin.ru/events/president/news/55653

Concept of the long-term socio-economic development of the Russian Federation for the period till 2020, approved by the Resolution of the RF Government of November 17, 2008. No 1662-p.

Moscow international rating "Three missions of universities." URL: https://mosiur.org/

Open government, Expert Council under the RF Government, Working group on creating multiservice centers. Introduction of the Corporate governance codex (November 2017). URL: http://open.gov.ru/upload/iblock/131/131f73d02f7071214a16614f2a70af8f.pdf

Roskomimuschestvo progress report for 2008.

Roskomimuschestvo progress report for 2015.

Roskomimuschestvo progress report for 2013-2016.

Progress report on forecast plan (program) of the federal property privatization for 2009.

Progress report 2013. Progress report 2016 in 2014. on forecast plan (program) of the federal property privatization for 2011

on forecast plan (program) of the federal property privatization for 2014

Progress report 2016 in 2015. on forecast plan (program) of the federal property privatization for 2014

Progress report 2016 in 2016. on forecast plan (program) of the federal property privatization for 2014

Progress report on forecast plan (program) of the federal property privatization for 2017-

2019 in 2017.

Report on the execution of the Implementation plan of the Defense Ministry of the Russian Federation on the implementation of Edicts of the RF President of 7.05.2012 No 597, 601, 603, 604, 605 for 2013, 22.01.2014. URL: http://mil.ru/files/files/result2013/10-planM02013.html

Reports on the execution of the Federal budget as of January 1, 2016, as of January 12017 (annual).

Report on the execution of the Federal budget as of January 1, 2018 (monthly).

Report on administration of JSC shares held in the federal ownership and exercise of right for the RF participation in JSC administration ("golden share") at 2016 year-end.

Reports on administration of JSC shares held in the federal ownership and exercise of a special right for RF participation in JSC administration ("golden share') at 2011-2016 year-end.

Rosimushestvo's report on administration of JSC shares held in the federal ownership and exercise of a special right for RF participation in JSC administration ("golden share") at 2011— 2016 year-end.

On public sector development in the Russian Federation in 2012 pp. 7-11; in H1, 2013 pp. 711; 2013, pp. 7-11; in H1 2014, pp. 7-11. M.: PoccTaT, 2013-2014.

Enactment on administration of JSC shares held in federal ownership and exercise of a special right for RF participation in JSC administration ("golden share"), approved by the RF Government of December 3, 2004 No 738.

Portal "Sovremennaya issledovatelskaya infrastruktura Rossiiskoy Federatsii." URL: http://ckp-rf.ru/ckp/

Resolution of the RF Government of December 3, 2004 No 739 "On the federal executive bodies' powers on execution of ownership rights on federal state unitary enterprises."

Resolution of the RF Government of December 31, 2010, No 1214 "On the development of administration procedure of JSC, whose shares are held in federal ownership and federal state unitary enterprises."

Resolution of the RF Government of March 31, 2017 No 381-12 "On introduction of amendments in the state program of the Russian Federation Administration of the federal property.'"

Resolution of the RF Government of May 5, 2017 No 528 "On introduction of amendments in the Resolution of the RF Government of December 3, 2004 No 739 and certain acts of the RF Government deemed to have lost force."

Resolution of the RF Government of July 19, 2017 No 851 "On introduction of amendments in certain acts of the RF Government."

Annex No 2 to the Accounting Chamber conclusion on the draft Federal Law 'On the Federal budget for 2017 and for planned period 2018-2019" approved by the protocol of the Accounting Chamber Board No 35K(1180) of 05.06.2017.

Forecast plan (program) of the federal property privatization and main directions of the federal property privatization for 2011-2013.

Forecast plan (program) of the federal property privatization and main directions of the federal property privatization for 2014-2016.

Forecast plan (program) of the federal property privatization and main directions of the federal property privatization for 2017-2019.

Draft Federal Law "on the federal budget for 2018 and planned period of 2019 and 2020.»

Minutes of the Pubic Council under the Ministry of economic development of the Russian Federation of 21.09.2017 No 4. URL: http://economy.gov.ru/wps/wcm/connect/c6b9eee6-365e-4022-ac85-eeca22d7e12a/4.pdf?MOD=AJPERES&CACHEID=c6b9eee6-365e-4022-ac85-eeca22d7e12a

The RF Government Resolution No 1792-p of 23.08.2017. http://static.government.ru/media/files/JnFTLJA581O4J7RuZuruWKeKZAyWC1V7.pdf.

RF FCSM Resolution of 04.04.2002 No 421/p "On recommendation of the execution of the Corporate behavior code." FCSM Vestnik. No 4. 30.04.2002.

Extended meeting of the Board of the Ministry of Defense. Moscow, December 22, 2017. URL: http://www.kremlin.ru/news/56472

Statistical data on the indexes system for assessment of efficiency of state property administration.

Statistical information on indexes of efficiency of state property administration.

Shorthand notes of Mikhail Kostuykov's speech at the RAS general meeting. 20.03.2017. Federal Agency for Scientific Organizations of Russia. http://fano.gov.ru/ru/press-center/card/?id_4=37994

Shorthand notes of the State Duma meeting 22.02.2017. URL: http://transcript.duma.gov.ru/ node/4606/

Struktura korporativnogo uplavleniya publichnyh rossiiskih kompaniy. Study of the Center for corporate governance "Deloitte CIS", 2015. URL: https://www2.deloitte.com/content/ dam/Deloitte/ru/Documents/about-deloitte/pressrelease/corporate-governance-structures-of-public-russian-companies-rus.pdf

Edicts of the RF President of 07.05.2012 No 603 "On the implementation of plans (programs) of development of the Armed Forces of the Russian Federation, other forces, military units and bodies and modernization of the military-industrial complex."

Edicts of the RF President of 07.05.2012 No 603 "On the implementation of plans (programs) of development of the Armed Forces of the Russian Federation, other forces and military units and bodies and modernization of the military-industrial complex."

Edicts of the RF President of 07.05.2012 No 604 "On further development of military service in the Russian Federation."

Edicts of the RF President of 28.03.2017 No 127 "On introduction of amendments of the Edicts of the RF President of July 8, 2016 No 329 "On the size of the Armed Forces of the Russian Federation."

Edicts of the RF President of 30.03.2017 No 135.

Edicts of the RF President of 27.09.2017 No 445.

Edict of the RF President of17.11.2017 No 555 "On establishing the size of the armed forces of the Russian Federation."

Federal Law of 14.11.2002 No 161-FZ (edition of 29.12.2017) "On state and municipal unitary enterprises."

Federal Law of 10.02.2009 No 18-FZ "On introduction of amendments in certain legislative acts of the Russian Federation on federal universities performance."

Federal Law of 02.08.2009. No 217-FZ "On introduction of amendments in certain legislative acts of the Russian Federation regarding creation by the budgetary scientific and educational institutions of business entities with an aim of implementation of the results of intellectual activity."

Federal Law of 10.11.2009 No 259-FZ "On Lomonosov Moscow State University and St. Pet4rsburg state university."

Federal Law of 8.05.2010 No 83-FZ "On introduction of amendments in certain legislative acts of the Russian Federation due to the development of legal status of state (municipal) institutions."

Federal Law of 16.10.2010 No 272-FZ "On introduction of amendments in the Federal Law 'On insurance contributions into the Pension Fund of the Russian Federation, Social Insurance Fund of the Russian Federation, Federal Fund of Mandatory Medical Insurance and Territorial Funds of Mandatory Medical Insurance' and Article 33 of the Federal Law 'On Mandatory pension insurance in the Russian Federation."

Federal Law of 27.11.2010 No 310-FZ "On introduction of amendments in article 346.12 part two of the Tax Code of the Russian Federation."

Federal Law of 01.03.2011 No 22-FZ "On introduction of amendments in Article 5 of the Federal Law 'On science and state science and technical policy" and article 17.1 of the Federal Law "On defense of competition."

Federal Law of 29.12.2012 No 273-FZ "On education in the Russian Federation."

Federal Law of 19.12.2016 No 415-FZ "On the federal budget for 2017 and planned period for 2018 and 2019."

Federal Law of 01.07.2017 No 157-FZ "On introduction of amendments in the Federal Law 'On the federal budget for 2017 and for planned period for 2018 and 2019.".

Federal Law of 29.07.2017 No 219-FZ "On introduction of amendments in the Federal Law 'On the Russian academy of sciences, reorganization of state academic sciences and introduction of amendments in certain legislative acts of the Russian Federation." http://www.garant.ru/products/ipo/prime/doc/71632828/

Federal Law of 16.10.2017 No 287-FZ "On execution of the federal budget for 2016."

Federal Law of 14.11.2017 No 326-FZ "On introduction of amendments in the Federal Law 'On the federal budget for 2017 and for the planned period of 2018 and 2019'".

Internet resources

URL: https://www.rbc.ru/opinions/politics/30/01/2018/5a702b549a794769102a5a0c URL: http://www.ng.ru/science/2017-09-03/100_ran030917.html

URL:https://www.mckinsey.com/ru/~/media/McKinsey/Locations/Europe%20and%20Mid dle%20East/Russia/Our%20Insights/Digital%20Russia/Digital-Russia-report.ashx URL: https://www.rbc.ru/society/25/05/2017/5926ef489a7947524fe9cec5 URL: http://www.vsemirnyjbank.org/ru/publication/global-economic-prospects URL: http://www.oecd.org/corporate/principles-corporate-governance.htm URL: http://www.ecgi.org/codes/documents/cg_code_germany_5may2015_en.pdf URL: http://www.cbr.ru/StaticHtml/File/14233/Review_17042017.pdf URL: http://www.cbr.ru/Content/Document/File/33001/Review_27122017.pdf URL: http://www.worldbank.org/en/research/commodity-markets#1 URL: http://fs.moex.com/files/257/24914 URL: http://www.ved.gov.ru/mdb/information/database/

URL: http://www.eurasiancommission.org/ru/act/trade/podm/mery/Pages/measures_list_ applied.aspx

www.economy.gov.ru. 23.04.2013 www.gks.ru. 20.03.2016 www.gks.ru. 5.09.2016 www.gks.ru. 20.03.2017 www.gks.ru. 5.09.2017 www.rosim.ru. 26.01.2017 www.rosim.ru. 28.02.2018 www.rosim.ru. 19.02.2015 www.rosim.ru. 08.02.2016 www.rosim.ru. 22.03.2017 www.rosim.ru. 19.10.2017 www.rosim.ru. 18.10.2017 www.rosim.ru. 22.12.2017 www.rosim.ru. 28.02.2018 www.rosim.ru. 15.01.2018 www.roskazna.ru www.torgi.gov.ru