Are Oil Exports Russia's Curse as Well as Its Blessing?

In May, Russian stocks plunged after a Kremlin decree designated power grids FSK and MRSK, as well as hydroelectric company Rushydro, as strategic companies in which majority stakes must stay in state hands, effectively canceling privatization plans for the energy sector.

"Putin has always been the more hawkish in terms of promoting state capitalism," Shearing said, pointing out that when it comes to privatization plans in Russia "there's always been this dichotomy between the rhetoric and the reality."

However, Shearing added, the current market conditions are not the best for selling state assets.

The privatization issue is not dead, according to Branis. He says Putin wants to sell some state assets, too, but over a longer timeframe than Prime Minister Dmitry Medvedev.

"I think in the next few months we'll see a lot of discussion about it. I think there will be a compromise. Some transactions will take place in the energy sector but probably not this year, more likely in 2013," he added.

The benefits of privatization will not just come from the cash the state would get for the stakes but also because putting the companies in private hands would cut corruption and bring about structural reform.

"I hope the government will look more towards the benefits of the privatization rather than the price," Branis said.

_________________________________________________________________________
Disclosure:

Alexander Branis and Prosperity Capital Management RF own the following stocks mentioned in the story: Gazprom, TNK-BP and Bashneft.