After receiving the IMF loan the Ukrainian government appears to have lost all interest in single-handedly balancing its budget. At the end of July the State Property Fund of Ukraine put off the launch of the privatization of the public corporation Ukrtelecom for a month. It is September now — the time the SPFU had promised to announce an auction selling 92.79 percent of the Ukrtelecom stocks, yet no such announcement has been made.
Oleksandr Riabchenko, head of SPFU, previously declared that the Ukrtelecom auction had to be announced before August 15, so as to cope with the privatization program, using at least 10 billion hryvnias’ worth of income envisaged by the 2010 budget.
However, First Deputy Prime Minister Andrii Kliuiev predicted, back in June, that the matter of Ukrtelecom privatization wouldn’t be broached in the next couple of months. His forecast (or perhaps directives) are proving to be correct, with Ukrtelecom becoming a champion of the privatization turtle race. This privatization procedure started in the late 1990s. At the time a small part of the stocks was sold as legally allowed benefits for the leadership and staff.
Yulia Tymoshenko’s cabinet tried to sell Ukrtelecom in early 2008, leaving 25 percent plus one share as state property. At the time one share cost 1.04 hryvnias, so the initial price of the 67.79 percent package reached 13.2 billion hryvnias, but time was wasted and the price dropped. In April of that same year the go-vernment had to set the initial price of the package at
12 billion hryvnias. Another attempt to privatize this communications monopoly failed in December 2009. At present, Ukrtelecom stock sells at UAH 0.64 apiece, although the company is gradually gaining momentum. Its net profit in January amounted to 47.97 million hryvnias, compared to 124.13 million worth of losses during the same period the previous year. Its net profit has thus increased by 3.3 percent, totaling 3.4 billion hryvnias.
What is holding back the privatization process in Ukraine? There are no statistics for August, but the SPFU is known to have collected less than five percent of what was due to the central budget in seven months, although it did receive over 326.8 million hryvnias from the lease of property (50.3 percent of the expected sum) and 177.3 million worth of dividends (159 percent).
It is safe to assume that this slow privatization rate reflects the global investment appetite. In the first half of 2010, foreign investment in Ukraine amounted to more than 1.7 billion dollars worth of direct investments, or a mere 66 percent of the receipts in the first half of 2009. Over this period the nonresidents’ capital has dropped by 534 million dollars, with the share of foreign capital increasing in the Ukrainian economy, allowing for revaluation, losses, exchange rate differences, etc., amounting to a mere
21 percent when compared to the first six months of last year. At this point the privatization process ought to be supported by the state, but obviously the government lacks the political will. They are afraid to sell too cheap and in the end lose even more, along with making a bad impression on investors.
A vivid example is the attempt to sell the Luhanskteplovoz diesel locomotive works in Luhansk. Recently MP Oleksandr Bondar, chairman of the VR Special Privatization Oversight Commission, declared that the SPFU has no alternative but to sever the sales contract with the buyer, Bryansk Machine Works, an affiliate of the Russian company Transmashholding. The money due, under the contract, was never transferred by the buyer, although the buyer is not the only party at fault, considering that Ukraine has not as yet refunded the sum it owes this buyer for that same enterprise purchased at a previous auction, that was later proclaimed invalid. Bondar says the SPFU and the Cabinet are looking for ways to solve this problem. The Cabinet is most likely trying to talk the Russian investor into coming forth with the sum due for this diesel locomotive works while the SPFU, acting under the law, must have advised the buyer that they are being levied penalties for delayed payments. Too bad, considering that both parties could have easily achieved a compromise. As it was, the Supreme Economic Court ruled to refer the case for further investigation, freezing further developments.
Is there a single investor anywhere in the world who will risk doing business with Ukrtelecom before Ukraine gets over the Luhanskteplovoz deadlock? The Day tried to get in touch with SPFU head Oleksandr Riabchenko, but his cell phone remains silent.
