Managers suggest options
The State Property Fund (SPF) has approved the list of enterprises to be prepared for privatization in 2002 and privatized a year later. The list includes a total 75 entities, including such well-known companies as the Pivnichnodonetsk-based Azot, Shostka-based Svema, Cherkasynaftoprodukt, and the Azov Shipping Company.
2002 should see the completion of a three-year privatization program the main distinguishing feature of which is the idea of an industrial investor. This involves the sector-based principle of buyer selection and simultaneously restricts competition. In other words, an automobile plant, for example, can only be purchased by an automobile company, an oblenerho (regional electric company — Ed.) only by an energy company, etc. The new list of facilities approved by the SPF does not fall under the current program, while a new one has not yet been drawn up. Although it is not yet clear whether the principle of industrial investors will be canceled, managers of the enterprises to be offered for sale next year are already requesting the SPF to find them financial, not industrial, investors. Why are the managers afraid of industrial investors? To answer this question, suffice it to recall the examples of last year’s privatization, when the buyer of a strategic facility was selected on the sector basis, with a scandal usually to follow.
Consider one typical example. The sale of the Balakliya Cement Works, the largest in this country, last autumn triggered a scandal because the plant management did not agree to hand over a large block of shares to foreign competitors.
The Balakliya Works has been successfully exporting its products, ousting the Swiss from the Hungarian market. When it turned out that a Swiss company was one of the main bidders for the cement plant, the manager began to demand, successfully in the long run, that the tender be canceled. It became clear later that the Dnipropetrovsk-based Privatbank was the Balakliya enterprise’s chief investor in charge of reorganization. Although this bank did not want, naturally, to lose control of the plant, it could not take part in privatization for the simple reason that it did not conform to the idea of an industrial investor.
The other cause of the managers’ fear is the human factor. They are simply afraid of losing their jobs. Practice shows that if a state-run is swallowed by a private company, the first thing the new owner does is change the management.
Undoubtedly, sector-based privatization also has some serious advantages. Particularly, this kind of sale features far fewer instances when the buyer does not meet its investment commitments. Simultaneously, facilities sold to offshore companies often do not meet their investment commitments, so the SPF is often forced to return shares to the state for subsequent resale. SPF Chairman Oleksandr Bondar believes that the industrial investor is much better versed in the specifics of a given sector and hence more rapidly reconstructs the production facilities. But if the SPF had a choice whether to sell a facility to a financial or the sector-based investor, it would probably have been possible to avoid many high-profile privatization scandals. For it is the inability to take part in open tenders that often compels investors to resort to shady privatization schemes.
