On February 7 the government Committee for Social and Humanitarian Development proposed that public sector wages be raised by 25% as early as March 1. However, this rise, as well as that of pensions, student stipends, and other social payments, could fail to materialize because they largely depend on budget revenues from the privatization of Ukraine’s largest enterprises.
It would seem that the Cabinet of Ministers, which has promised to make and increase all kinds of payments, should be striving for the faster and more open commercial sale of state-run facilities. In practice, however, the government’s active intervention in privatization has so far led to diametrically opposite results. It will be recalled that the oblenerho (regional electric company) sales tenders have been postponed for a month, which experts think could reduce the price of the facilities offered and further retard budget revenues. It is, to a large degree, governmental intervention that sent to the verge of collapse the Zaporizhzhia Aluminum Combine (ZAlK) tender, now the object of a civil suit. A government decision has put off until March the tender for Rivneazot (Rivne Nitrogen Plant), which means money will begin to come in April at best.
In these conditions the State Property Fund (SPF) (the fund, not the cabinet, will bear responsibility for any failure of the privatization program), as its First Deputy Chairman Mykhailo Chechetov told The Day, is trying “to make the most use of its reserves.” The fund is doing its best to have the judicial decision to cancel the ZAlK tender overruled and hopes to lead this tender to its “logical” end. In this case, the deputy chairman thinks, “we will meet the first-quarter plan.” Moreover, he said, the fund is taking additional measures to get budget revenues. It has reduced the price of shares in the Mykolayiv Alumina Plant, the sale of which promises over UAH 70 million, but as of February 7 the block of shares had not been sold. It is also planned to receive in February the final money installment for the stake at the Illich Steel Mill (UAH 70 million was remitted the Friday before last, with another 100 million still to be paid). A successful tender (without scandal, as Mr. Chechetov said) was held to privatize 25% of the Central Ore Enrichment Combine. A US firm acquired it for UAH 71 million, paying twice the starting price and having under the sales contract to pay half this amount as early as the end of this month.
However, the successful experience of open commercial tenders does not seem to overly inspire our governmental officials. Thus it is quite possible that some businesses will be privatized “in a different way,” through a legal loophole, which makes it possible to avoid tenders to set up a joint venture based on a state-run enterprise.
By all accounts, precisely this pattern is going to be applied to the so-far-state-owned Mykolayiv-based Zoria Production Association. The forthcoming modernization of Ukraine’s natural gas pipeline system (it is planned to replace in the next few years about 200 gas mainline turbines, with 70% of them perhaps to be manufactured in Mykolayiv itself, which means orders worth hundreds of millions of dollars) opens bright prospects to the enterprises and can help raise the price of Zoria if the latter is to be privatized “for money” through an open tender to sell the state’s share.
The current government says it supports this. However, last year Kyiv and Mykolayiv began to set up a joint venture (which, under the law, requires no tender), the Zoria Multinational Financial Company, with a planned authorized capital of about UAH 600 million. Mr. Chechetov believes this enterprise could be sold in the way already tested during the privatization of Oriana, when the venture’s foreign participant was selected according to the results of a tender.
However, many things show that nobody is seeking the SPF’s advice. The proposals to the government, prepared by the Ministry of the Economy and signed by Deputy Minister Oleksandr Shlapak, have already identified the foreign participants. According to these proposals now being studied by the government, each of the three founders — Ukraine (in the person of the SPF), Russia’s Mosenergo, and Zanhaz-Ukrayina Inc. — will receive a third of the joint venture’s authorized capital.
Unfortunately, the proposals say nothing about how the cofounders will pay for this (in bills of exchange or money) and, if they do so in money, how long they will have to do so. Experts say the suggested authorized capital of over $100 million will result in only $20 million in investment for two years at most, i.e., we give away an important facility practically for a song. Chairman of Verkhovna Rada’s ad hoc privatization supervisory commission Oleksandr Riabchenko toldThe Daythat in economic terms there is no fundamental difference between the sale of a facility and the foundation of a joint venture, except that the money earned through privatization goes directly to the budget. Otherwise, money (in the shape of property) remains behind at the enterprise and only later can the joint venture’s state-owned shares be sold. The world practice of setting up joint ventures of this kind has justified itself. But the Ukrainian methods of founding such enterprises, says Mr. Riabchenko, do not envision tenders, and the available legal instruments are entirely useless. The government has not even introduced any bills which would put joint ventures on a legal footing, the parliamentary commission chairman said. If such a venture’s founders run into some difficulties after it is established (as is the case with AvtoZAZ-Daewoo), they do so only due to the absence of proper laws, Riabchenko thinks. Courts find it very difficult to consider such cases. But the most dangerous thing, in his opinion, is the willful and competition-free establishment of a venture such that the decision is made on the basis of personal preferences. This is still more dangerous when the initiative comes from a foreign party. Riabchenko is convinced we must search for the investors who best suit us. Only competitive privatization can bring in cash. It is the declared amount of money that determines the viability and effectiveness of a facility, he says, otherwise all this will arouse inevitable suspicions and you will wind up accused of corruption.
