Ukraine's privatization has never been short of twisted plots worthy of a novel. But never has it looked more like a thriller, with self-confessed villains picking public fights and making shocking revelations about their murky past.
On March 5, billionaire and Dnipropetrovsk Governor Igor Kolomoisky turned up at the hearing of the parliamentary committee on privatization, evidently to confess that he was one of the beneficiaries of the dirty privatization of the late 1990s-early 2000s that made many of Ukraine’s oligarchs rich.
He admitted, for example, that he paid $5 million per month during an unspecified period of time to fellow billionaire Victor Pinchuk and his father-in-law, ex-President Leonid Kuchma, in order to keep them out of Ukrnafta, an oil and gas extractor in which Kolomoisky has a 43 percent stake.
“We know that the person who gave bribes and who came first to tell about it will not face anything,” Kolomoisky said, and laughed.
“This is another vile insinuation of Kolomoisky. It is a part of an ongoing improper campaign to put pressure on Pinchuk to call off his lawsuit against Kolomoisky and (Gennadiy) Bogolyubov in London. As previous attempts, it will not work,” Pinchuk’s press office told the Kyiv Post.
The issue is sensitive because of an ongoing court dispute in London over the privatization of Kryvyi Rih Iron Ore in 2004. Pinchuk accused Kolomoisky of breach of trust during the privatization process and failure to pass the asset to him. The case is worth up to $2 billion.
Kolomoisky has denied wrongdoing, saying Pinchuk is seeking to get back a bribe. He also told the parliamentary committee that laws were approved in Kuchma’s time specially to limit privatization of sweet assets to the select few, including billionaire Rinat Akhmetov, himself and Pinchuk, and pushed for re-privatization of some of those assets.
“This is the year of re-privatization. Today is the time for the buyer, not the seller,” said Kolomoisky at the hearing.
Re-privatization means that the government should get back the assets that it previously sold cheaply through auctions that lacked transparency and sell them again at a better price.
Oleksandr Parashchiy, head of research at Concorde Capital, an investment firm, agrees with Kolomoisky that it’s a buyer’s market right now, but says re-privatization would be disastrous for the country’s reputation.
“Risks and uncertainties are very high right now, so it would be hard to sell the assets at an adequate price,” said Parashchiy. But re-privatization also carries with it huge reputation risks for the government and is damaging for the investment climate, he said.
Maksim Gardus, an investigative journalist who covered Kolomoisky’s privatization deals, thinks that the re-privatization process, if it happens, will be politically biased against certain people who are out of favor with the current government.
The companies that will be viewed for privatization are those owned by oligarchs in opposition, including Akhmentov’s business empire. The re-privatization of a company belonging to Kolomoisky, a billionaire friendly to the government, will be out of the picture, Gardus predicts.
Some companies that were privatized earlier, like chemical giant Odessa Portside Plant, iron ore holding Ukrrudprom and telecommunications provider Ukrtelecom, are already under investigation by the Verkhovna Rada’s special control commission, said Boris Filatov, the head of the commission, according to Interfax-Ukraine news agency.
The government, however, has no shortage of assets to sell off. Ukraine’s public sector includes some 3,300 companies, mostly loss-making. They employ 1 million people, according to Economy Minister Aivaras Abromavicius.
President Petro Poroshenko raised the issue of their privatization on March 4, when he asked Abromavicius to move in this direction.
Poroshenko wants to privatize companies that are not likely to bring substantial earnings to the budget, keeping some of the firms deemed strategic. He noted Italian investors are ready to participate in the privatization of energy and telecommunication assets.
Ukraine made about $30 million off of privatization in 2014. It already made $4.6 million in January. In line for privatization are such state-owned companies as Centreenergo and Odesa Portside Plan.
But Kolomoisky, during his dramatic appearance in parliament, said the government would be foolish to sell anything at all in the current business environment.
Assets should be privatized to improve their efficiency and never as a way of adding funds to the state budget. Doing so in bad times, at cheap prices, will only put the government on the edge of survival, says Kolomoisky.
Oleksandr Paskhaver, an expert on privatization and former part-time adviser to ex-President Viktor Yushchenko, disagrees.
He says that every state-owned company has had its own corrupt scheme running since the beginning, which made a few of their managers very rich. He thinks that privatization is necessary and says that it should have been done a long time ago in order to deregulate the old corrupt structures.
Parashchiy of Concorde Capital said that a litmus test for determining the right business environment is watching when Poroshenko’s giant confectionary business, Roshen, will be sold. “If it’s a bad time for a businessman to sell assets, it cannot be a good time for the state to sell either,” he concluded.
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected].
