The sale has left serious questions over transparency.
Austrian investment company Epic paid the final installment of it $1.3 billion purchase of a 93 percent stake in fixed-line monopoly Ukrtelecom on May 10, concluding the first major privatization since President Viktor Yanukovych took office in February last year but leaving serious questions over transparency.
Ukrtelecom was sold to Epic after it was the sole bidder in a tender in December that analysts said was uncompetitive as it excluded potential bidders such as Norway’s Telenor and Deutsche Telekom because of strict conditions.
Market insiders have said Epic could have been acting as a front for Ukrainian oligarchs. Epic denies this, and the government refutes claims of an unfair tender.
Some suggested Ukraine could have pulled in $500 million more in much-needed cash for its share in the company, which has lost value over the years as governments have wrangled over its sale.
Market insiders have said Epic could have been acting as a front for Ukrainian oligarchs. Epic denies this, and the government refutes claims of an unfair tender.
Yanukovych and his government claim they have tirelessly sought to burnish Ukraine’s investment reputation to give the country’s limping economy a boost. But critics said the failure to have a competitive bidding process and sell for a higher price hurt Ukraine’s reputation as a friendly destination for investors.
The privatization process also raised concerns, critics said, that other state assets could be sold off at below-market prices to well-connected oligarchs, as when Yanukovych was prime minister in 2004.
Many other billion-dollar state assets are slated for privatization this year, including chemicals factory Odesa Portside Plant and energy generation companies.
All could prove attractive to oligarchs close to Yanukovych, such as Dmytro Firtash and Rinat Akhmetov. Experts worry that these assets could be sold off much like Ukrtelecom in uncompetitive tenders, in turn, robbing cash-strapped budget coffers of much needed revenue.
Epic, meanwhile, has denied any connections with oligarchs. The company said it plans to restructure the company before exiting the investment in four to five years through a sale to a strategic investor or an initial public offering.
Ukrtelecom will need a great deal of work to modernize its bureaucratic structure and help it recover from years of mismanagement. It has lagged behind European peers and lost corporate and private clients to higher quality services provided by privately owned mobile and fixed-line operators.
But the company still has a number of strong points, including its control over about 80 percent of the country’s fixed-line market and Ukraine’s only 3G license.
Epic outlined its plans for Ukrtelecom in April, including eliminating loss-making services, such as radio, telegraph and local calls. The company laid off over 4,000 employees in the first four months of 2011 on top of 6,000 in 2010, leaving just over 70,000 workers.
Analysts at investment bank Dragon Capital said Epic would need to almost halve the workforce in order to bring the company’s productivity into line with European telecom operators.
The bank said that any tough restructuring could meet resistance from the authorities, which in the past have played hardball with major investors on the social elements of privatization agreements.
