A group of German experts headed by Heinrich Bonnenberg has assessed, at the request of the World Bank and International Monetary Fund, the transparency of last year’s privatization in Ukraine, and, with its tender procedures unchanged, the equality of bidders and non-interference of the authorities in the work of tender commissions is taken as the criteria of transparency. The expert group came to the conclusion after three months of work that “although most privatization tenders met the criteria of transparency, some remarks should be taken into account to enhance the transparency of future operations.”
Most complaints were about the unprecedented scale of shadow privatization last year. Bypassing official tenders, some enterprises were sold for payment of debts, a property with a market value comparable to the aggregate annual privatization earnings gained through the State Property Fund (SPF), at over 2 billion hryvnias. Simultaneously, most facilities were auctioned off at a price several times lower than their face value. Moreover, the SPF often did not have full information about the current bankruptcy procedures because the system of accountancy of state-run company managers to the SPF does not in fact work.
Significantly, managers of the enterprises being auctioned off for a song might also have been devising shadow schemes. And although the Prosecutor General’s Office has not yet finished investigations into even one of last year’s shadow privatization scandals, the German experts paid attention to them. They rightly note in their conclusions sent to the IMF and World Bank, “There is no reason to deny that managers of state-run enterprises are involved in making such enterprises bankrupt.” The proof of this is the fact that industrial facilities, not clubs or recreation centers, were primarily attached to be further sold at an open auction. Among the most glaring examples of shadow privatization, the experts mention the Slovyansky Coking Ash Plant, Crimean Coking Ash Plant, Odesaoblenerho, the Bila Tserkva’s Rosava Tire Plant, the Pivdenny Mechanical Engineering Plant, and Donbasenerho.
To find a simple and effective remedy for shadow privatization, the Germans suggest that the SPF be appointed the exclusive seller of state property, including that sold at debt auctions. It is thus planned to solve at least the problem of under-pricing through which the largest enterprises are being auctioned off. Up to now, it is the Tax Administration and the Ministry of Justice in the person of its subsidiary Ukrspetsiust that have been dealing with the sales of state-owned facilities that have failed to pay their debts. But neither of these institutions has a clear incentive to sell state property at the highest price possible. Although Ukrspetsiust receives 5% of the amount earned, the transparency of Ministry of Justice sales raises doubts because in this case assessments and sales are made within several days and auctions are advertised in untrustworthy press outlets. In other words, there is no guarantee that some Ukrspetsiust experts did not contribute to shadow privatization. Incidentally, the Prosecutor General’s Office is now conducting an investigation into this case, which touched off a wave of dismissals first at the Ministry of Justice and then at Ukrspetsiust.
Yet, SPF Chairman Oleksandr Bondar is rather skeptical about the prospects of German proposals. “We’ve got too many of those who wish to sell state property, and they will not, of course, let anybody else snatch this away from them. I do see the logic of the German consultants’ proposals, but, given the interests of various government departments, they have almost no chance,” Mr. Bondar says. The fund chairman believes, now that a moratorium has been imposed on court- ordered property seizures, we should try to pass a few laws that will thwart the main schemes of shadow privatization. At the same time, Mr. Bondar is convinced that a number of very influential parliamentary groups are not interested in any speedy solution of this problem.
As the German consultants’ conclusions have been sent to the IMF and the World Bank, it is not ruled out that assigning the SPF the exclusive right to sell state property will become one of the conditions for them to resume loans to Ukraine. This year the government is to draft a new privatization program. No doubt, the IMF and World Bank as lobbyists of the interests of international capital will try to influence the contents of these documents. It is in the interests of foreign investors that large Ukrainian factories are sold at public auction. They have no earthly chance to gain from shadow schemes at least because they have no historical links with local authorities and, to put it roughly, do not know whom to give a certain bribe. Thus, considering the business interests present in practically all parliamentary fractions of this and, undoubtedly, the next parliament, it is quite easy to predict a heated debate on the privatization program. What might become the main topic of this debate is the right to “sell your Fatherland.” Should the debates turn into politico-financial scandals, Ukrainian property will drop further in price.
