While Prime Minister Arseniy Yatsenyuk's survival of a no-confidence vote proved the main event on Feb. 16, Ukraine's parliament also took a substantial step towards privatizing state-owned enterprises.
Amendments to the state law on privatization
were passed with the support of 252 members of parliament, a clear majority in
the 422-seat body.
The privatization law, long supported by the
government’s reformist wing, streamlines the sale of state-owned enterprises by
removing a requirement by which minority stakes had to be sold at local stock
exchanges.
The law also allows the State Property Fund to
use externally hired and funded advisors to prepare companies for
privatization.
Additionally, Russians, or citizens of any
“aggressor state,” are banned from purchasing stock in privatized state
enterprises under the new amendments.
“It paves the way for more effective
privatization,” said Dennis Sakva, an analyst at Dragon Capital investment bank
in Kyiv.
Andriy Ivanchuk of Yatsenyuk’s People’s Front
Party, with 81 members in parliament, submitted the bill.
Ukraine’s government oversees roughly 3,000
state-owned enterprises, ranging from transport to arms production.
Many of these are poorly run, unprofitable
entities because their revenues in many cases are embezzled by well-connected
insiders, spurring calls to sell these enterprises.
Aivaras Abromavicus, who resigned from the
post of economy minister partly because of the stalled privatization drive, had
been pushing for the changes for months.
“Excellent!” the Lithuanian-born banker said
in a tweet, referencing the law’s passage.
A step forward?
Analysts say that the changes have removed the
main procedural obstacles to privatization. An earlier requirement by which
minority stakes in state-owned enterprises had to be sold at local stock
exchanges was particularly troublesome, according to Sakva.
“Local stock markets are almost non-existent,”
the Dragon Capital analyst said. “Selling such large stakes at local stock
exchanges does not give a market estimate of the value of the company.”
He added: “It’s much better to sell the
controlling stake in one piece.”
Another change allows the State Property Fund,
which is directly managed by the Cabinet of Ministers, to prepare state-owned
enterprises for privatization by hiring foreign advisers.
“This makes it much easier for the State
Property Fund to hire reputable advisors which can be financed with external
money, like aid from the US or from Europe,” Savka said.
Challenges ahead
What remains to be seen is whether there is
enough political will to actually privatize the state-owned firms.
The Odessa Portside
Plant, a major ammonium producer, is widely expected to be among the first
state-owned firms to be sold.
“Nobody is blocking its
privatization,” Savka said.
Evgen Vorobyov, an
independent foreign affairs analyst, said that firms related to the energy
industry would also be likely to come in the first wave of privatization.
“These are first of all, the low hanging
fruit,” Vorobyov told the Kyiv Post in a telephone interview. “These are the
easiest to privatize in the current conditions because they are sure to provide
return on investments and the assets are in pretty good condition.”
But for Ukraine, the challenge will be both in how these companies are
privatized, and what to do when special interests attempt to block further sale
of state-owned assets.
“The
conundrum will be whether to focus on privatizing these enterprise with a focus
on foreign investors or to stay on the well known path of given assets to
oligarch groups,” Vorobyov said.
The law’s passage came
amid high political drama at parliament as Prime Minister Yatsenyuk avoided a
politically deadly recall vote after thirty deputies from Block Petro
Poroshenko voted against a no-confidence resolution in his government.
The privatization
amendments were passed hours before the no-confidence resolution went up for
a vote.
Vorobyov went on to say that the law’s passage
during the near collapse of the Yatsenyuk government was likely not a
coincidence.
“I think it was
a way to reassure those pro reform ministers that one of their key expectations
would be fulfilled,” he said. “This was sort of a sign to show them that this is going to
happen.
The analyst
added: “And maybe this is also a sign to the IMF, that, look, we’re keeping in
mind all the concerns about corruption, and privatization is seen as away to
tackle corruption in state owned enterprises.”
