Nobody writes Bondar
The lengthy Speaker Saga is already having an adverse effect on the economy. “What impairs Ukrainian privatization is political instability in this country,” says State Property Fund Chairman Oleksandr Bondar. In his words, the protracted election of the Verkhovna Rada leadership and the related “cadre fears” in the government are scaring off investors. Taking into account that this situation has existed since the fall of last year, when the election race got off to a flying start, the investment climate can hardly be described as favorable. Over the past six months, no Western company has risked purchasing a large Ukrainian enterprise at a privatization tender.
Yet, as the State Property Fund (SPF) has noticed, investors take political risks depending on their mentality. Mr. Bondar has quite clearly divided them into three groups; “Undoubtedly, the current instability first of all affects Western capital because it still lies in wait and receives no positive signals. As to Russian capital, I would not say it reacts at all. It clearly identifies priorities and facilities and then buys them irrespective of anything. Ukrainian capital still seems to be participating in the election campaign. It has not yet returned to business. In all probability, this stems from its lack of liquid funds. I see no active participation of Ukrainian capital in privatization.”
The situation looks critical, for the SPF puts its main hopes precisely on Western investors to fill government coffers. The largest revenues are expected from the sales of Ukrtelekom, nine regional power-supply companies (oblenerho), and the UMC mobile phone operator. The Ukrtelekom situation is quite intricate, for it is being sold by those who are learning on the move all the procedures of preparing a facility for privatization. The same lot befell UMC, which Ukrtelekom failed to sell last year. This is a Cabinet of Ministers decision. The telecommunications people, short of experience in holding tenders, seem to have finally decided to sell all their shares to Deutsche Telekom of Germany, sparing themselves the efforts to look for other potential buyers. The cabinet is to hold a session today, at which the State Telecommunications Committee plans to report about progress in this field. The government declines comment, admitting that it awaits news from Germany. In all probability, if the Germans knew at least the rumors about negotiations with other likely buyers, the news would come sooner. SPF chief Bondar does not hide his irritation over the drawn-out sale of UMC. According to him, if the SPF had been entrusted to hold a tender, the mobile phone operator would have been privatized long ago. The budget revenue plan specifies that UMC should be sold before the end of June.
As to the nine oblenerho electric companies, the problem is different. It is practically unrealistic to sell these heavily-indebted forms. The issue of debt deferral and write-off is being handled by the Ministry for Fuel and Energy which promised to solve this problem before the end of June. With a month to go, nothing is known even about the restructuring draft. The nine facilities to be privatized have run up a total of about $1 billion in debt, and this exceeds their market value. What is also going to have a bearing on the date of tenders and the price of these energy companies is the fact that similar companies are already being sold by Slovakia, to be followed in the immediate future by Hungary and Romania. This means the energy-investing multinational companies will have a choice. In addition, the factor of political risks in one country or another could be of paramount importance.
Mr. Bondar confessed he had already reached agreement with the Ministry of Finance on a UAH 2-billion shortfall in the privatization revenues plan. Apparently, if parliament and the government are still in a state of chaos to the end of June, this will pull the plug on Western capital in the second half of the year. The Russians have not yet said if they are going to invest in the oblenerho enterprises, while Ukrainian financial and political groups are used to a bear market. All hopes are being pinned on June, when a speaker will be elected, a more or less stable government formed, UMC sold, and oblenerho debts written off. It is no accident that people who have come to power are as a rule forced to exude optimism.
