Directly towards privatization: What prevents us from it and who is our enemy..?

Directly towards privatization: What prevents us from it and who is our enemy..?The large-scale privatization was announced by the government of Arseniy Yatsenyuk almost on the first day of his appointment. But then, that very same government has stalled the process, citing the delay by the need to adopt of the new law. So the other day the President signed this very same law. Was it really needed, and what route will the new wave of privatization follow? News Agency Vector News tried to figure that out.

It is curious that the only one who is generously handing out the comments on the subject, is the Minster of Economic Abromavicius, who is still balancing between being in power and stepping out of political scene. He is doing this even from abroad.

"It is important to conduct a professional and transparent privatization A test for such a transparent and successful privatization is the process of privatization of the Odessa Portside Plant, the sale of which is expected in the summer," - said the Minister.

And indeed, the Odessa Portside Plant could be a great publicity for the process of privatization. If its privatization and selling is successful, it would reduce the level of mistrust to the undertaking as a whole. But the delay significantly reduces the effectiveness of a PR campaign.

"Now the State owns 1827 operating companies, and 1500 more are in the process of liquidation or reorganization. ... Fifteen hundred non-performing businesses! No one has taken the responsibility of pulling the ends, paying off debts and closing them once and for all. After all, they are sucking money "- said outraged Abromavicius for about a year ago. Since then, however, no one has decided to be responsible for putting things in order or settling the problems.

Read also: Rada's passing law on privatization will allow to start it in H1, 2016

"The number of the state-owned companies must be counted by dozens, not by thousands and even not by hundreds. In France, for example, there are only 58 of them: they are giants, they are professionally managed. At this stage, the state should possess such enterprises as "Ukroboronprom" or "Ukrainian Railways". And such companies as "Artemsol", "Ukrspirt" should not be in the state property, they have to compete with private companies. After all, they have no strategic value,"- said the Minister.

Nobody says that the privatization is a wrong path to follow. But how the form of ownership affects the company's ability to compete? Ukraine has actually recognized its inability to effectively manage the property. And, unfortunately, this output is automatically extended to a wider range of issues than the activities of state-owned enterprises.

Catastrophic and global inefficiency of the State itself is far worse than the potential loss on the non-transparent privatization, the sales of artificially bankrupted enterprises for a mere song, and other threats. After all, there are other hundreds (or whatever it is), strategic companies which will not be managed better.

But let us come back to the law, for the sake of which they detained several hundred auctions. Its essence is simple and consists of three sections:

1. It is forbidden to take part in privatization process for the buyers (legal entities or associated individuals), registered in the countries which are recognized by the Verkhovna Rada as aggressor countries. Currently, these are the citizens of Russia, and Russian companies.

2. There is no longer need for mandatory pre-sale of 5-10% of shares of group "B" and "G" on the stock exchanges. Previously, such a rule existed, ostensibly to determine the fair market value of the enterprise.

3. Now the representatives of foreign banks and companies can be involved in the process of privatization as privatization advisers.

Most often two key names appear in the speeches of officials - the notorious Odessa Portside Plant and "Centrenergo" which includes three thermoelectric power stations: Uglerodskaya, Zmeevskaya and Tripolskaya.

The American corporation AES in its time was very interested in purchasing of “Centrenergo”. But Energy Minister Vladimir Demchishin strongly protracted the holding of shares’ transmission to the State Property Fund. In late February, he finally did it, and two days later a former aide of Igor Kononenko - Vladimir Derzhavin - was appointed to the post of Deputy Head of the State Property Fund.

Everybody remembers the tension and conflict between the "privatizator" Abromavicius and Kononenko, who was allegedly controlling "Centrenergo". And this trick with the appointment of the right person to the State Property Fund immediately after privatization’s unlocking perfectly develops in the harmonious picture.

With the sale of the Odessa Portside Plant it is not going smoothly. It won’t be indicative simply because Igor Kolomoisky continues to litigate for the Plant with the Cabinet of Ministers. In 2009, his company won the bid for the company, offering for it $ 800 million. The government has reversed, the outcome of the contest was canceled. And it seems that the Odessa Portside Plant is still the state property. But serious player will not go into a risky project for a lot of money, especially if there are litigations around the object. The trial automatically lowers the cost of the Plant, and throws out of the race the prospective buyers.

But these are the details, albeit they are important. In general, the big selling idea may be coming just the wrong time. The Head of the Committee of Economists of Ukraine Andriy Novak does not get tired to say that privatization "in the country which is actually in the military regime is an economic crime a national scale."

It is not entirely clear why we need the abolition of pre-sales of 5-10% shares. Back in 2014 Yatsenyuk called this rule one of the best way to determine the price. A year later he contradicted his words in practice. The argument is that as a result of such an assessment the obtained price becomes low, is a pure manipulation. Nothing prevented the State Property Fund - without any additional legislation - from changing the formula for calculating the starting price or cancel bids if the byer doesn’t like the price.

In general there was no need to delay the "big privatization" for the abolition of pre-sales at the legislative level.

It is the same story with foreign advisers. "In the current situation the "adviser" is needed in order to give the officials a possibility to get the bribe, - said the former adviser to the Head of the State Property Fund Vladimir Lartsev. - The fact that, because of heightened civil society’s attention to the problem of corruption and the ongoing oligarchic tyranny in Ukraine, the old scheme of making money on the state property selling will be quickly opened by the media. And it will be virtually impossible to get to the bottom of how and how much the "adviser" will pay to the loyal high-ranking official. Especially if it is a foreign bank or a company. "

Read also: Corruption remains main problem for business in Ukraine – poll

This opinion sounds very close to just another in line conspiracy theory or the chronic "it is going worse and worse". But there is the rational element in it. In the end, "Kryvorizhstal" was sold for $ 4.8 billion even without foreign observers. Just because there was such a need. Today, if there is no task to sell the Odessa Portside Plant according to the clean scheme, or at least expensively, foreign bankers will not help.

Meanwhile, the National Bank of Ukraine has been already sharing the non-killed bear's skin. Valeria Gontareva said that this year the proceeds from the privatization will bring the State more than $ 1 billion instead of 17 billion UAH incorporated in the state budget. And it allows her to rely on the additional reserves.

"Unfortunately, we didn’t have the reserves planned in the last year - $ 18 billion. Due to the fact that the cooperation with the International Monetary Fund was not developing as we planned it, we haven’t received the sun of 5 billion. However, by the end of this year we expect 19 billion dollars as reserves, - said the Head of the National Bank, describing the state of foreign exchange reserves in Ukraine to the participants of the 12th investment conference of the company “Dragon Capital”.

Read also: Gontareva: Privatization in 2016 can replenish state treasury by $1 bln

In three years Ukraine should have at its disposal reserves which will have a sustainable level. It is possible, if there are real reforms and real privatization. According to our baseline scenario, the privatization should give us more than $ 1 billion this year. "

Last fall, Prime Minister stated that the Odessa Portside Plant is worth at least $ 1 billion. For about the same amount the "Centrenergo" was appreciated by Vladimir Demchishin. So, if the words of Gontareva are not empty ones, and she still knows something, they will sell before the end of the year, at best, just one object. Well, otherwise "transparent" bidding will not be quite transparent.

Marina Bryl

Translated by Maria Kryzhanovska
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