There’s one way to eliminate corruption and mismanagement at state-run enterprises. Sell them to investors and watch as private owners turn around -- or close -- the mostly unprofitable and poorly managed businesses.
Agriculture Minister Oleksiy Pavlenko plans to do just that by selling 75 percent of the 571 state-owned enterprises on his balance sheet and fetch up to $450 million.
Only 20 enterprises turned a profit last year, the minister said, while the rest are money-losing. Some 200 are undergoing bankruptcy proceedings.
By the end of this year, he wants to earn Hr 1 billion ($45 million) for the first 150 companies, he told journalists in Kyiv on May 21. “This would include cultivation of these lands, reconstruction of the complexes, jobs, taxes and prosperous villages,” Pavlenko said.
Combined, the ministry’s enterprises hold 1.1 million hectares of land, 91 percent of which is arable, according to Maksym Martynyuk, head of Ukraine’s State Agency for Land Resources.
Much of it isn’t cultivated, and what is, is usually leased to farmers under the table, costing the state $4-5 billion in lost yearly revenue, he said at a discussion in Kyiv on May 21.
“Privatization of these enterprises is the most effective way to bring these lands out of the shadow economy,” Martynyuk said.
Eventually, the agriculture ministry plans to keep no more than 10 enterprises. Other companies will have to be “re-organized” during the sale process, according to the minister, because they no longer do what their company name says.
He cited about 30 state firms that should either cultivate silkworms or produce silk. An inspection found that none of them do this.
“At best, their land and immovable property have been adapted for crop planting or livestock farming, at the worst – they do not function at all and have a debt that constantly grows,” Pavlenko wrote.
For example, one silk producer in Kyiv Oblast used its plant to run a vehicle parking lot and car repair shop.
Giorgi Vashadze, co-founder of the Georgian Innovation and Development Foundation, who is currently advising Pavlenko’s team, agrees that privatization is the best option. There’s a case to be made for selling now at cheaper prices during an economic crisis.
“When we were starting our reforms in Georgia we understood that maybe we could sell (state enterprises) for more money in five years, but if the economy doesn’t recover in the nearest future we might lose even what we have,” Vashadze told the Kyiv Post. “It’s better to have new jobs in the nearest future…than to keep them for free. Those enterprises are also providing money flows for corrupt officials.”
The privatization procedure should also be completely redesigned to ensure transparency and competition. Holding electronic auctions would be a good decision, Vashadze said.
There is another obsolete Ukrainian regulation that does not serve Pavlenko’s goals.
A law currently is in place that lists 177 state-owned agricultural enterprises that cannot be sold. Serhiy Kaspirzhny, deputy head of state ownership management department at the economy ministry, said a new bill with a revised list has already been submitted to parliament.
“This law’s philosophy was formed in the 1990s; now the situation has changed fundamentally,” he said.
Foreign investors, except for Russians, will be able to bid for entities that do not have land on their balance sheets.
The ones that have land will be transferred to current and former employees at no cost. Some 100,000 citizens would benefit from it, Pavlenko said. They, in turn, would presumably cultivate the farmland or lease it to investors who would.
Certain measures to prevent abuses during the land ownership transfer still have to be developed.
“It’s reasonable to limit the area of land plots (given away per person) with the average land plot size in the district,” Martynyuk of Surveying Service said. “Otherwise, we might reach some astronomic sizes when giving out land.”
It’s also important to limit the number of potential beneficiaries entitled to plots, to avoid more people making land claims the closer the date approaches to land deed transfers, Martynyuk said.
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected].
