TWO DECADES after embarking on perhaps the most dramatic – and chaotic – privatisation drive in history, Russia is planning to sell stakes in major state companies to help balance its budget and restructure its economy, reversing a recent policy of boosting Kremlin control over big business.

The economic crisis has forced Russia’s leaders to overcome their aversion to state sell-offs, but they will seek to ensure that the privatisation programme planned for 2011-13 will not weaken the power of central government or mimic the rampant corruption of its 1990s predecessor.

Faced with a growing budget deficit and a lack of funding for modernisation projects championed by president Dmitry Medvedev, Russia’s government has earmarked 10 big statecontrolled firms for partial privatisation, although details of the scheme are still being finalised.

The sales are expected to raise more than €20 billion for Russia, allowing Mr Medvedev and the ruling party of his mentor, prime minister Vladimir Putin, to avoid hiking taxes or slashing public spending ahead of parliamentary elections next year and a presidential ballot in 2012.

Key firms slated for partial sale include Russia’s biggest oil company Rosneft, the Sberbank and VTB banks, hydroelectric power operator Rushydro, and Transneft, whose oil pipeline network is the largest in the world.

But while many of the companies may be attractive to investors, they will want to know how the firms will be sold, through open auction or choreographed deals with selected companies, and whether foreigners will even be invited to bid.

What is clear is that Russia will retain a controlling stake in all the listed firms, raising questions over how much influence new investors would have in the companies, and whether longstanding problems with Russian corporate governance and minority shareholder rights will sully the project.

The plan is considered to be a favourite of finance minister Alexei Kudrin, who is seen as a liberal in an administration filled with statists such as Mr Putin.

Mr Kudrin insisted that assets would “be valued publicly, in line with market prices and tenders will be open . . . We are fully ruling out a situation when somebody sells something to someone at an artificially low price.”

Rigged sales at knockdown prices characterised Russian privatisation in the 1990s, an extraordinary period of economic upheaval that saw the industrial giants of the old Soviet state snapped up by a coterie of young businessmen with ready cash and the right connections.

The creation of the now notorious “oligarchs” by president Boris Yeltsin – who took their money and political support in exchange for effective control of Russia’s vast mineral wealth – short-changed the state and made “privatizatsiya” a dirty word for a generation of Russians.

When Mr Putin replaced Yeltsin in 2000, he brought the oligarchs to heel, driving some of them out of the country, and set about restoring state domination of the Russian economy.

“In the past decade, the Russian government has been consolidating assets under its control, rather than privatising them,” said analyst Lilit Gevorgyan at IHS Global Insight. “So news of the government’s plans for large-scale privatisation is certainly a U-turn.”

Russia’s leaders hope their U-turn will help cut the country’s budget deficit from as much as 5.9 per cent of GDP this year to zero some time after 2015, while broadening its investor profile and attracting funds to modernise a heavily energy-dependent economy.

For anyone aware of Russia’s corporate history, however, the privatisation package will come bearing a large label reading “buyer beware”.