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Russian government wants public companies to be more effective

September 29, 2015, 21:24 UTC+3 Alexandrova Lyudmila

MOSCOW, September 29. /TASS/. Russia’s public companies are in the limelight again. The federal government has come up with a package of measures to bolster their effectiveness, slash costs and increase transparency. The proposed steps are useful, no denying that but they will hardly succeed in tackling all problems with effectiveness, polled experts believe. Some argue that the list of companies in which the state has a share should be slashed dramatically. Also, the unduly high salaries and bonuses of their top managers remain a great social annoyance.

The government is angry over how the public companies use budget funds, which quite often tend to be spent for purposes other than the originally identified ones. It demands that the disbursement of funds should be accompanied by expert analysis, auditing and evaluation of their effectiveness. These and related matters were high on the agenda of Monday’s conference devoted to ways of how to make public companies and mixed public-private companies more effective.

Prime Minister Dmitry Medvedev recalled it was essential to cut the costs of public companies by an annual 2%-3%. He pointed out that the management’s bonuses must be tightly pegged to success in coping with this task. Situations in which "public or public-private companies declare losses, while their management receives hefty bonuses and other benefits cannot but arouse reasonable questions by those who audit the companies’ operation and by the public at large," he said.

The meeting supported the idea of revising the policy of purchases by public companies. Medvedev said that the amount of purchases from the largest public and public-private companies exceeded 14 trillion rubles ($200 billion). High on the list of problems are grossly overcharged prices and large purchases from the sole provider (42%). It was decided that all of public companies’ purchases should be made exclusively through electronic trading.

"The government has made a decision to deal with public companies in earnest. That is true. Moreover, this is inevitable, because their ineffectiveness in spending funds is on everybody’s tongue," the deputy rector of the presidential academy RANEPA, Andrey Margolin, has told TASS. "It is obvious that the issue of public companies’ costs must be addressed without delay, because they have a major impact on the economy’s development as such. This applies to the basic transportation and energy tariffs. These are priced in the costs of practically any product. If we are to resist inflation effectively enough, these costs are to be managed accordingly."

Margolin is certain that purchases should be made through electronic trading. "In this particular case it is very important to avoid dumping effects on potential providers, which often take place. There is international experience of coping with these problems. The package of measures is clear and timely. This is a task to be addressed."

He welcomes the idea of setting caps on ultra-high salaries of top managers. "The country is living through no easy times, so sky-high salaries of top managers look out of place, to put it mildly."

"The measures that have been proposed are absolutely correct ones, including transparent trading and bonus cuts in case of loss-making operation," the deputy director of the Development Centre institute at the Higher School of Economics, Valery Mironov, told TASS. Public companies may go ineffective, because they are not liable to either free market or government control. "We have too many public corporations following their own rules. They are under the control of their management. They nationalize losses and privatize profits. In other words, losses are compensated for at the expense of the government and profits pocketed." There are too many state-run corporations. Originally their creation was a temporary solution. But some of them are more than ten years old now and there is not the slightest intention of making them private, contrary to the initial intention, Mironov said.

As an example he mentioned Norway, where any new public company is established for a specific purpose. "As soon as the goal has been achieved on time, the company is sold. If not, it is sold, too - for being ineffective. In this country the pubic companies have turned into a never-ending bonanza."

Margolin believes that no fewer than half of Russia’s public companies might have been eliminated "in view of the share of public property that there exists in the economy and that can be observed in countries at a similar level of development."

Top managers’ salaries must be high enough, he believes. "They must be as high as those in the private sector paid to managers holding similar positions, controlling a similar amount of assets and bearing the same responsibility, less, say, 20%-30%, because the government guarantees employment and a social package, while the private sector does not. Otherwise, people will keep stealing in order to adjust managers' incomes to free market standards."

Russia’s managers of public companies earn a whole lot more than their counterparts in other countries, Professor Vladimir Sokolov, of the RANEPA academy, told TASS. According to the latest statistics, the incomes of top managers of large corporate organizations in the West range $600,000 to $1,000,000 a year. In Russia, they make about $16 million.

"The awareness the gap in the salaries of top managers and their subordinates is exorbitantly wide breeds negative sentiment in society and upsets its stability. In this sort of situation the people tend to lose confidence in the authorities and develop the feeling of outrageous injustice," Sokolov concluded.

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