Does the state have to produce fertilizer and breed horses at taxpayers' expense? Common sense and the Economy Ministry strongly suggest the answer is no.
“I think
Ukraine’s history shows that when enterprises are in state ownership there is a
significant room for mismanagement, inefficient management and other things
that we all learned to experience,” Sevki Acuner, director of the European Bank
for Reconstruction and Development in Ukraine told the Kyiv Post on Aug. 31.
“And that really brought Ukraine to an economic impasse that it faced in
the end of last year.”
Selling
state companies would mean much more than the Hr 30 billion ($1.4 billion) in
revenue the state plans to receive.
The sale
would end the bleeding of state enterprises via subsidies that get eaten up by
mismanagement and corruption.
In 2014,
the 30 biggest state enterprises incurred Hr 100 billion in losses ($4.5
billion), having received Hr 13 billion in subsidies ($0.59 billion) and having
transferred only Hr 1.2 billion ($54.5 million) to the budget in dividends.
Fourteen
state horse breeding entities that occupy 40,000 hectares of land brought
annual losses of $10 million.
“Their
privatization will help reduce budget expenditure, attract foreign direct
investments, combat corruption schemes and create equal conditions for all
market players,” the Economy Ministry said in an Aug. 18 statement.
In addition
to official losses, managers of state companies have been feeding on corrupt
schemes for years. Only last month the Economy Ministry discovered that 250,000
tons of grain is missing in the State Reserve, costing Hr 800 million ($36.4
million), according to Liga news agency.
An
inpection in July of the State Grain Corporation revealed around $55.2 million
in losses that the company caused to the state in 2013-2014. Meanwhile, the
artificially bankrupted “Khlib Ukrainy” (Bread of Ukraine) cost over Hr 500
million ($22.7 million) in stolen assets at market prices since 2006. In total
the Agriculture Ministry has revealed embezzlements of Hr 9 billion (more than
$400 million). On Sept. 9, RBK Ukraina news agency published a contract
purportedly between state-owned Elektrovazhmash and an offshore entity showing that
the heavy machinery producer lost $1.6 million in the deal.
As soon as
parliament adopts changes to the privatization law, the State Property Fund
will start the new wave of privatization of state enterprises, with plans to
receive up to $1.4 billion in 2016.
Privatization
could also go more smoothly if every government body involved did their part,
head of the State Property Fund Ihor Bilous said in a Sept. 7 briefing.
Out of 302
state enterprises designated for privatization 174 are control led by ministries,
of which only seven have been already transferred to the State Property Fund
for actual sale.
“The
ministries should better transfer the assets to the fund and we will try to
sell those under transparent procedures. Currently it’s moving quite slow,”
Bilous said.
The Odesa
Portside Plant is the first big asset slated for privatization in 2016 under
new procedures.
“Success of
further privatization will depend on the result of this sale and the (sale)
process itself,” Abromavicius tweeted on Aug. 19. Centrenergo, Ukraine’s second
largest thermal power plant, will follow after the heating season next year.
There are
already ten investors interested in Odesa plant and at least five of them will
register for the auction, Bilous believes. The plant’s value was earlier
assessed at $1 billion according to Prime Minister Arseniy Yatsenyuk.
The port’s
privatization was postponed to let parliament this month cancel the requirement
to sell 5-10 percent stakes before the state can offer a controlling stake in an
asset.
“Historically,
five percent was thrown at the market allegedly to define the price of a
majority stake. This was an instrument of manipulation and even raiding,”
Abromavicius wrote on Aug. 19.
The new
legislation will ban companies in which the state has a 25 percent or more
stake from particiapting in auctions. It also bans offshore-registered and
Russian firms from privatizing companies. The buyer will also have to undergo
financial monitoring as well as an inspection by the anti-trust agency and
State Security Service.
Every
entity will also be sold with mediation by a financial advisor or investment
bank and potential buyers will have to pay a deposit of 20 percent of the deal
to participate in the auction.
Bilous
plans to also sell some minor assets by year-end. They include President Hotel
and some industrial companies like the Sumykhimprom chemical plant. These sales
can bring up to Hr 1 billion ($46 million).
The U.S.
Agency for International Development has offered $5-$7 million financial support
to the State Property Fund for due diligence, data room creation and production
of quality analytical materials on each of the big companies for privatization.
Preparation
might cost up to $1 million for a big enterprise like Centrenergo. Such a rigorous
approach would allow for a “different quality of privatization and increased
awareness of investors,” Bilous said.
Kyiv Post
staff writer Olena Gordiienko can be reached at [email protected]
