The overthrow of Viktor Yanukovych as president on Feb. 22 brought renewed talk that the state might begin to re-nationalize the state enterprises it sold to a small group of insiders at fire-sale prices.
The State Property Fund of Ukraine, the government body in charge of privatizing state-owned assets, has been heavily criticized by the business community and experts for setting highly restrictive conditions at auctions. Historically, this meant that a very limited number of bidders, some of whom with clear affiliations to politicians in power, got their hands on prized assets. Moreover, the fixed competition led to assets being sold at rock-bottom prices.
“Businesses linked to Viktor Fedorovych (Yanukovych) benefited greatly from the political regime. We don’t know, some of it may belong to legitimate companies. However, it is necessary to hold a transparent audit. Nationalization may take place,” Institute for Economic Research and Policy Consulting director Igor Burakovsky told the Kyiv Post.
The nation’s richest billionaire Rinat Akhmetov and his partners acquired a substantial amount of state energy assets under Yanukovych’s rule. Akhmetov also purchased Ukrtelecom, the country’s leading telecommunications provider, in June 2013. Another tycoon, Dmytro Firtash, has also privatized a number of energy and chemical assets. Most of these auctions obviously lacked competition, especially from the foreign investors’ side.
The State Property Fund of Ukraine declined comment to the Kyiv Post for this story.
The fund’s chairman, Oleksandr Ryabchenko, is not sure whether he will keep his job, State Property Fund of Ukraine press secretary Nina Yavorska said. “It is not a good time for such an interview,” she added.
Prime Minister Arseniy Yatseniuk on March 3 declared that there would be no re-privatization, referring to the trouble that ex-Prime Minister Yulia Tymoshenko’s government had in re-privatizing Kryvorizhstal in 2005. The previous government under ex-President Leonid Kuchma had first sold the nation’s largest steel mill for $800 million to Akhmetov and Viktor Pinchuk, the president’s son-in-law. Then Tymoshenko’s government took it back and re-sold it for $4.8 billion to a foreign investor.
Appointing oligarchs Igor Kolomoisky and Serhiy Taruta as governors of Dnipropetrovsk and Donetsk, respectively, is a sign that the current government is unwilling to confront the nation’s business titans, at least not at this point.
But re-privatization could scare off investors who would have no reason to believe that the assets won’t be taken back again at a later time said Vasyl Yurchyshyn, a leading economic analyst for Razumkov Center. “And if re-privatization ultimately happens, it should only involve the assets privatized within a three-year period or so from now,” he emphasized.
Oleksandr Bondar of the Svoboda party is considered a top candidate for chairing the SPFU, though he has not been officially nominated. A key supporter of re-privatization, he had already managed the fund in 1998-2003.
A policy of increasing competition, reducing monopolies and the hoarding of capital offshore may become a reason for re-privatization, according to Bondar. One may not hold more than a 25 percent stake in an enterprise that has a monopoly position on the market, the Svoboda party member’s project implies. He also proposed an amnesty program for money that is kept offshore. He promised not to investigate the origin of offshore money if 50 percent of what is held abroad is repatriated into state coffers.
The list of assets slated for privatization this year includes several major enterprises: turbine producer Turboatom, railcar builder Azovmash, and chemical factories Sumykhimprom and Odesa Portside Plant. Minority stakes in Zasyadko Coal Mine, Cherkasyoblenergo, Donetskoblenergo, Donbasenergo and Sumyoblenergo are up for sale too. Ex-Prime Minister Mykola Azarov’s government expected to earn as much as Hr 19.4 billion from privatization this year, though he has been known for making overly optimistic plans in the past.
However, on Feb. 25 SPFU cancelled privatization auctions set to be held at the stock markets. On March 4 Interfax news agency, citing its own sources, reported that the SPFU will cancel all privatization plans for 2014.
Meanwhile, lawmakers Kseniya Lyapina from Batkivshchyna Party and Iryna Gorina of the Party of Regions have offered to place privatization under the control of the legislature. They registered a law bill regulating this issue on Feb. 28.
Still, the sale of state-owned assets would move forward, said Yatseniuk, since he believes that the state cannot manage large assets effectively and quite frankly the government needs the money. Moreover, the incumbent prime minister stands for privatizing Naftogaz, the oil and gas giant whose deficits have been a constant headache for the government. Generally, Yatseniuk plans to sell all the state’s possessions in the energy sector.
Timing is also paramount, especially on whether 2014 is the right time for a massive auction of state-owned assets. “I would freeze up the privatization process for now since the decline in economic activity and political uncertainty do not favor it,” said Burakovsky of the Institute for Economic Research and Policy Consulting.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected]
