Paradoxically, Odesa Port-Side Plant (OPSP) remains state property, according to the results of the sale competition in Ukraine’s State Property Fund (USPF). The OPSP is the monopolist on the state market for receiving, cooling, and transshipping ammonia; it is Ukraine’s second largest ammonia and carbamide producer and third largest nitrogen fertilizer producer in Ukraine. On the morning of Sept. 29, 2009, 99.5 percent of its shares were almost sold to the Ukrainian Open Joint-Stock Company Nortima, which is said to be connected with Ihor Kolomoisky.
Nortima offered five billion hryvnias, up one billion from the starting price, for the plant and won the competition. At the auction, 19 bids were made, each raising the price by 50 million hryvnias.
However, the competition commission thought that 5 billion was a too low price and announced that selling OPSP on these conditions would not be profitable for the state and thus denied Nortima the status of the winner. The competition was ruled invalid.
The USPF acting head Dmytro Parfenenko told journalists that elements of unfair competition that resulted in a low price had been noticed. The government and the USPF believe that the minimum price for such a “gem” should be 8 or 9 billion hryvnias, he said.
A total of 13 companies applied for the OPSP sale competition to the Antimonopoly Committee of Ukraine. However, after President Viktor Yushchenko’s decree and courts’ decisions banning the competition only three companies eventually submitted applications to the USPF: Ukrainian companies Nortima and Frunze-Flora and Russian Azot-Service, which is believed to be connected directly with Gasprom.
Opponents spoke about the danger of participating in this scandalous privatization process. MP Ksenia Liapina predicted that the plant would not be privatized even if the competition would take place. She said that everything will stop at the procedural stage. “Those who will come to this competition will make a huge mistake—they will only spend their money without obtaining any property. This will be followed by lawsuits,” Our Ukraine press service quoted Liapina as saying The Day before the competition.
At the same time, Parfenenko believes that there are no legislative barriers to selling the OPSP. At the opening of the competition he said that the State Law Enforcement Service did not enforce the court decision regarding the lawsuit filed by Dniproazot. According to an explanation from the Ministry of Justice, the Fund can hold the competition if court enforcement action has not been taken.
Parfenenko added that the Constitutional Court of Ukraine turned down the president’s decree that overruled the Cabinet’s decision to include the OPSP on the list of objects subject to privatization in 2009.
At the same time, Yevhen Karpynis, representative of the Presidential Secretarial on the OPSP sale competition commission, said that the procedure was unlawful and submitted an appeal to this effect to the head of the commission.
Karpynis says that the competition violates the decision made by the National Security and Defense Council of Ukraine, and that the Constitutional Court’s denial to open proceedings based on the president’s edict does not invalidate it until it is cancelled.
Even the participants had their own doubts about the legality of the process. Nortima asked the USPF to explain once again its statement about the absence of any barriers to selling the plant and announce the companies that had been denied participation. The answer was that the only company that could not participate in the competition was Russian Azot-Service. However, the Fund was not obliged to fulfill even this requirement.
At a meeting with businessmen who are active on Ukraine’s markets Ukraine’s, Prime Minister Yulia Tymoshenko accused the candidates of a plot aimed at buying the OPSP for a trifle. “We all could see live now how the plot of three sale competition participants to buy the OPSP for a trifle unfolded. Everybody could see live how the auction was thwarted, how they made their plot public, and wanted to buy the OPSP for what was essentially its starting price,” said Tymoshenko. The reason for this was, according to her, the scandal connected with the privatization process, which discouraged most of the potential buyers.
What will now happen to the OPSP? Will the lawsuits continue? Who will have better chances for success in this case? Will the court proceedings be influenced by the fact that it was a Ukrainian company and not one associated with Gasprom that nearly won the competition? These are the questions we have asked The Day’s expert.
COMMENT
Volodymyr FESENKO, political scientist, director of the Penta Center of Applied Political Research:
“There are at least two approaches. One is to sell such big companies to foreign investors, which will set higher economic standards for the Ukrainian economics. This will result in modernization, which has been a topic of much discussion. The other one is to keep companies of strategic economic importance under national control: if it is not the state’s control, then it can be at least under the control of local oligarchs. The point here is that we need to have our own industrial giants and enter international markets through them. Joint efforts of the state and businesses will lead to modernization. This kind of model exists in South Korea and Japan.
“In my opinion, both of the mention approaches do not correspond to the actual state of affairs. On the one hand, after selling Kryvorizhstal to a foreign investor we do not see any changes for the better. Mittal Steel simply makes money but does not introduce any modernization changes. On the other hand, not all Ukrainian oligarchs modernize their industrial companies. There are definitely some positive examples, but not many. In many cases it is the new owner, rather than society, that benefits from privatization.
“When the information about purchasing the OPSP by Kolomoisky first appeared, I had certain doubts about the transparency and the results of this auction. The ensuing events—the decision of the Auction Commission and Tymoshenko’s statement only proved my doubts. The final price does, in fact, look very low—it is only one billion higher than the starting price was. I believe it is not what the government and the USPF expected.
“Therefore, the tactics of applying double standards by some of the participants was obvious. Kolomoisky used a very flexible and crafty tactic. He played made the entire situation extremely complicated by making it dubious and legally controversial, which scared off some of the powerful competitors.
“I do not want to judge the backstage situation, but I think that the story connected with the auction will be continued. Kolomoisky will fight to have the auction results recognized as valid. If this does not work, he will try to torpedo the sale of the OPSP to his potential competitors. He is a fairly aggressive investor. The experience of Ukraine’s economy shows that as soon as monopolists appear in some market segment, there are more conflicts rather than improvements. In general, the situation will remain as controversial as it was before the auction both on the economic and political levels.”
