The cabinet and the State Property Fund of Ukraine are working on a national privatization program for 2003-05, to be okayed by parliament, says SPF Chairman Oleksandr Bondar. Although a cabinet resolution is still being drafted, Mr. Bondar shared some of the innovations awaiting the Ukrainian privatization process in the next three years.
First, the SPF wants to have a right to reduce the starting price of property by 30% of par value, in cases when enterprises fail to attract buyers after several tenders. We have 26 such properties. Most are very hard to sell, but if we lower their cost buyers are sure to come,” Mr. Bondar feels confident, adding that SPF has requested the cabinet that they approve the new valuation method and allow selling the metallurgical giant Azovstal at a price lower than the face value. The 25% state interest in the Mariupol Alumina Combine was put up for sale three times and every time the principal bidder, Donetsk- based Industrial Union of the Donbas, claimed the starting price (UAH 198 million) was overstated. No other prospective buyers would risk crossing the Donbas Union’s path, so the combine has remained “suspended” for over a year. The government made another attempt to sell Azovstal in the third quarter, so if the price-lowering factor works, the SPF will most likely receive the right to set the starting price below the face value.
The SPF also plans to introduce finance sources in the new privatization program, allowing participation in secondary stock emissions. “We’re now stubbornly blocking all such secondary emissions because we’re afraid state interests will be undermined,” admits Mr. Bondar, adding that a number of enterprises with even small government interests cannot enlist investments against additional stock issues because the SPF has no means to participate in the emission. The new privatization program is expected to authorize the SPF to utilize a certain percentage of the sale proceeds to invest in such companies.
It is also possible, however, that the SPF will not have to bother about the undermining of government interests. Oleksandr Bondar says he intends to resume debate on the introduction of the so-called golden share. This would allow the state to have privileges in managing company property, even if almost 100% interest is in private hands. He makes a reservation, however, saying that the Western investors are adamantly opposed to the golden share: “They are afraid that they won’t be able to run an enterprise after paying big money for it.” He believes the topic will be subject to heated debate. And that, even if the golden share is instituted, the privileges due the state will be very limited.
Another innovation, compared to the current privatization program, is very likely to be a revised notion of industrial investor. At present, all so-called strategic enterprises are sold only to companies operating in the same sector as the property put up for sale. As a result, many potential bidders have been barred access to the tenders – and they have been pelting the SPF with lawsuits. Oleksandr Bondar is against canceling the notion of industrial investor; he is for somewhat attenuating the characteristics of the status.
Under the new rules set forth in the three year program, “superstrategic” entities are likely to be privatized, among them Ukrtelekom or oblenerho regional electricity distribution companies scheduled for privatization this year. In fact, Mr. Bondar does not rule out the possibility of Ukrtelekom or oblenerho firms being sold this year: “We have decided not to step up preparations for the tenders. The Ukrainian energy transport system could also be privatized in the next three years. Selling pipelines is prohibited by law, but President Kuchma has on more than one occasion noted the need to attract pipeline investors from the West and from Russia, so the parliament will have to reconsider this pressing issue.”
What the lawmakers will certainly have to do is introduce in the program the cabinet’s and SPF’s right to manage state property. This right is not clearly defined, so the cabinet now and then takes the liberty of improvising on the theme – as in the case with the state-run Komsomol Ore Administration, which was handed over to the private Illich Metallurgical Combine of Mariupol practically free of charge. Moreover, the cabinet has instructed the SPF to carry out a secondary emission of stocks to sell them precisely to that private company and not to transfer the proceeds to the state budget but leave the money there. Oleksandr Bondar explains that the state-run company was actually out of business and that the Mariupol combine decided to put it back on its feet. Be it as it may, a precedent was established, so the cabinet could sell other state enterprises to certain rival companies. Under the circumstances, the risk of shadow privatization increases many times over.
