Privatization of state and municipal property

In 2021, there were a number of changes to the legislation on privatization:

• a new authorized federal executive body for legal regulation has been identified;
• additional requirements for privatization planning have been established;
• the procedure for reporting on the results of privatization has been clarified.

In our article we will dwell in more detail on these innovations and bills on amendments to Law No. 178-FZ , which relate to:

• privatization of property without inclusion in the privatization program;
• selling property at auction to a single participant;
• cancellation of the submission of financial statements by enterprises and business companies to the authorities authorized in the field of privatization;
• participation of socially oriented non-profit organizations in the privatization of leased state or municipal real estate;
• privatization of gas networks.

1. ACCEPTED CHANGES

1.1. Legal regulation in the field of privatization

From April 24, 2020, the Ministry of Finance of the Russian Federation (hereinafter referred to as the Ministry of Finance of Russia) carries out the functions of developing state policy and legal regulation in the field of privatization of state and municipal property. The Regulations on the Ministry of Finance of Russia supplemented with this authority the Decree of the Government of the Russian Federation dated April 12, 2020 No. 491 “On introducing amendments to certain acts of the Government of the Russian Federation and declaring as invalid certain acts of the Government of the Russian Federation and certain provisions of certain acts of the Government of the Russian Federation.”

As of August 12, 2020, the Rules for preparing and making decisions on the conditions for the privatization of federal property have been changed. The changes were made by Decree of the Government of the Russian Federation dated July 29, 2020 No. 1133 “On amendments to certain acts of the Government of the Russian Federation and the recognition as invalid of certain provisions of certain acts of the Government of the Russian Federation.”

Now the Ministry of Finance of the Russian Federation is authorized to submit to the Government of the Russian Federation:

• draft decisions on the conditions of privatization and the establishment of encumbrances on federal property;
• proposals to cancel or change decisions of the Government of the Russian Federation on the conditions for privatization of property.

Prior to this, these powers belonged to the Russian Ministry of Economic Development.

1.2. Privatization planning and reporting on its results

As of August 11, 2020, the requirements for planning privatization programs and providing information on the results of their implementation have changed. By virtue of Federal Law No. 293-FZ dated July 31, 2020 “On Amendments to the Federal Law “On the Privatization of State and Municipal Property,” constituent entities of the Russian Federation and municipalities are obliged to:

• determine the procedure for planning the privatization of property in accordance with the procedure for developing programs for the privatization of state and municipal property;
• prepare annual information on the results of property privatization using uniform forms.

The specified procedure and forms have not yet been approved by the Government of the Russian Federation, however, back in 2021, the Ministry of Economic Development of Russia prepared a corresponding draft resolution of the Government of the Russian Federation, according to which the rules for the development of property privatization programs contain the following provisions:

• the privatization program is formed for a period of 1 to 3 years;
• develops and approves the privatization program by the Government of the Russian Federation, government bodies of the constituent entities of the Russian Federation, local government bodies;
• the privatization program must be approved no later than 10 working days before the start of the planning period;
• the privatization program is published on the Internet within 15 working days from the date of approval;
• the privatization program must contain information about property and planned income;
• property included in the privatization program is grouped by economic sectors (areas of management);
• uniform forms of reports on the results of privatization are approved.

After the Government of the Russian Federation approves the rules for the development of privatization programs, regional authorities and local governments will need to adjust the legal acts that define the procedure for planning the privatization of property.

1. BILLS

In order to improve the privatization processes and eliminate gaps in legislation in the period 2021-2021, the Russian Ministry of Finance and individual federal executive authorities have prepared a number of bills providing for amendments to Law No. 178-FZ.

2.1. Privatization without including property in the privatization program and sale of property to a single bidder

The Ministry of Finance of Russia has developed and submitted for discussion a draft federal law “On Amendments to the Federal Law “On the Privatization of State and Municipal Property”, aimed at accelerating the rate of involvement in economic circulation of federal property that is not required by the state for the performance of functions and does not generate income. The bill was developed in pursuance of the order of the Government of the Russian Federation dated July 8, 2020 No. MM-P13-7425.

The bill provides two relaxations in order to reduce the time frame for selling property:

1. It is planned to allow the privatization of the following federal property without inclusion in the privatization program:

• movable property;
• real estate, both cadastral and book value of which do not exceed 100 million rubles. If an object does not have a cadastral value, only the book value is taken into account. If a property is alienated along with a land plot, then the cadastral value of the plot is also taken into account.

The list of property that can be privatized without inclusion in the privatization program will be compiled and approved by the Federal Property Management Agency (hereinafter referred to as the List). The same department is obliged to publish the List on the website https://torgi.gov.ru. Changes to the List can only be made in agreement with the Ministry of Finance of Russia and the Federal Antimonopoly Service of Russia. The rules for compiling the List will be determined by the Government of the Russian Federation. At the same time, shares and shares in the authorized capital of business companies must be included in the privatization program, as before.

1. It is planned to allow the conclusion of purchase and sale agreements for federal property with a single participant in an auction or sale by public offer.

The rule applies only when privatizing property included in the List compiled by the Federal Property Management Agency. The sale price will be the initial price, or the offer price established at the corresponding “downward step”. The proposed changes are aimed at reducing the time of sale, reducing the costs of re-evaluation, maintenance and safety of the privatized property.

Let us recall that the current version of Law No. 178-FZ establishes a ban on concluding a contract for the sale and purchase of property if only one participant took part in the auction. In this case, the auction is declared invalid and the sale must be carried out again.

2.2. Cancellation of the submission of financial statements by enterprises and business companies to the authorities authorized in the field of privatization

The Russian Ministry of Finance has developed and submitted for discussion a bill “On amendments to certain legislative acts of the Russian Federation (regarding the abolition of the obligation to submit annual accounting (financial) statements to government bodies).” The draft federal law was prepared in pursuance of the order of the Government of the Russian Federation dated December 21, 2019 No. SA-P13-11206 in order to simplify the requirements for organizations to submit reports to government bodies, to complete the implementation of the “one-stop shop” concept for submitting such reports.

It is proposed to cancel the obligation of business companies and enterprises included in the privatization program to provide accounting (financial) statements to government bodies authorized in the field of privatization. This right will be enjoyed by organizations that provide reporting to the state information resource for accounting (financial) reporting (hereinafter referred to as GIRBO) in accordance with Article 18 of the Federal Law of December 6, 2011 No. 402-FZ “On Accounting”.

Let us remind you that from 01/01/2020 the Federal Tax Service of Russia began to form and maintain the GIRBO. The information contained in GIRBO is open and publicly available. State bodies, local governments, and the Central Bank of the Russian Federation receive information from the resource free of charge.

Thus, government bodies authorized in the field of privatization will be able to receive accounting (financial) statements of organizations directly from GIBO.

2.3. Participation of socially oriented non-profit organizations in privatization

The Upper House of the Parliament of the Russian Federation developed and submitted to the State Duma a draft law “On amendments to Article 31.1 of the Federal Law “On Non-Profit Organizations” and Article 3 of the Federal Law “On the Privatization of State and Municipal Property” in terms of providing property support to socially oriented non-profit organizations.” .

The bill plans to provide socially oriented non-profit organizations (hereinafter referred to as the Organizations) with a preferential right to purchase leased state or municipal real estate. The specifics of the participation of Organizations in the acquisition of leased property will be established by Federal Law No. 7-FZ of January 12, 1996 “On Non-Profit Organizations”.

Property can be purchased by Organizations without bidding while simultaneously meeting the conditions specified in Figure 1:

Figure 1 — Conditions for purchasing property without bidding

The acquisition of property is carried out at the request of the Organization. The selling price is the market value. Property that is acquired by preemptive right must be included in a special list and used by the Organization for the purposes specified in Article 31.1 of the Federal Law of January 12, 1996 No. 7-FZ “On Non-Profit Organizations”.

The obligation to use the property for the specified purposes remains for 5 years after acquisition. If this requirement is violated, the property may be seized in court and returned to municipal or state ownership.

2.4. Privatization of gas networks

In December 2021, the Ministry of Energy of the Russian Federation completed the development of the draft law “On Amendments to the Federal Law “On the Privatization of State and Municipal Property”, which (regarding the privatization of gas distribution networks and gas consumption networks). An independent anti-corruption examination and public discussion of the bill were carried out in September of this year.

The Russian Ministry of Energy proposes to provide gas distribution organizations with a preemptive right to purchase gas distribution and gas consumption networks without participating in tenders. We are talking about networks used to supply gas to gas consumers’ own domestic needs, as well as their own production or other economic needs. Gas distribution organizations will be able to purchase such facilities without bidding on the basis of an application while simultaneously meeting the following conditions:

• a gas distribution organization is a specialized organization that operates the gas distribution system (including the privatized gas supply facility) and provides services related to the supply of gas to consumers;
• the gas supply facility is owned by the gas distribution organization on a lease basis or for free, fixed-term use, continuously in operation for two or more years.

Figure 2 shows the actions of the executive body authorized in the field of privatization upon receipt of an application for the purchase of gas networks:

Figure 2 - Sequence of action by the authority upon receipt of an application from a gas distribution organization

The applicant is required to sign a purchase and sale agreement within 30 days from the date of receipt; in case of refusal, the gas supply facility will be privatized through a competition. Assignment of the preemptive right to purchase is not permitted.

Summarized information on each of the considered bills on amendments to Law No. 178-FZ is given in the table:

* relevant at the time of preparation of expert materials

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Dacha amnesty

We recommend that you read:

Refusal of a share in a privatized apartment

Many were pleased with the provisions of the law on dacha amnesty regarding the privatization of land. However, not everything is actually so smooth. Many citizens and dacha owners simply do not fall under the terms of the dacha amnesty.

Thus, the main conditions for the privatization of dacha plots are:

1. Obtaining land before 2001. All plots in garden and dacha cooperatives received after the specified year are subject to privatization in accordance with the general procedure. The dacha amnesty does not apply to such areas in gardening.
2. A right granted to land. Thus, only those dacha plots that are provided on the basis of the right of lifelong ownership with subsequent inheritance or for permanent free use can be privatized. Land lease or other paid use means the need to buy out the land, and not free privatization.
3. If there are certain buildings on the site, then it is mandatory to submit permits for the building, in particular, permission to put the relevant housing into operation. Otherwise, it is better to hide the fact of the existence of the building or issue documents for it as a newly constructed structure.

If these conditions are met, then no problems should arise in privatizing the dacha.

If there is no specific title document, but the land was in fact allocated before 2001, then it is necessary to request a copy of the relevant resolution from the local administration or through the archival service of the relevant district.

If, as a result of such actions, no documents are found, then privatization will be carried out in accordance with the general procedure. In this case, the land will be purchased, and the owner will have a pre-emptive right to purchase without holding a tender.