Property Retreats Into the Shadow
President Leonid Kuchma instructed the general prosecutor’s office to complete the investigation and submit a report on the mechanisms of shadow privatization in Ukraine. The investigators will try to detect SPF involvement in “nonstandard” sales of state property (particularly with regard to the fund’s regional departments). Mr. Kuchma did not conceal his surprise on learning that several enterprises having strategic importance had somehow become controlled by private structures (offshore companies, as a rule) without any obvious violations of the law. As an example, the president mentioned the Luhansk machine- tool factory where the munitions workshop turned out under such private control.
The president believes the state property fund responsible for compromising the very idea of privatization. In his opinion, authorizing SPF to manage government interest in industrial enterprises was a mistake. “The fund mustn’t manage it, it’s nonsense,” Mr. Kuchma declared at yesterday’s meeting dealing with privatization and administration of state property. He considers that privatization arrangements are inadequate because of such mismanagement of state property. As it is, only one-third of the tenders appointed to sell state property results in the signing of a contract with the buyer, with every fourth state-run enterprise currently undergoing bankruptcy proceedings. The president made it clear that there could be cadre changes within the SPF leadership due to bungling the national privatization program. He instructed the prime minister to make the final decision on the matter.
SPF Chairman Oleksandr Bondar attributes frustration of the privatization program to the scattering of responsibilities for the preparation of tenders, as well as to the working out of new shadow privatization patterns. In his own words, even now quite a few public corporations sell production capacities on account of their debts. The stocks remain state property, but they are just paper not supported by any tangible assets. Yet another, even more unusual shadow privatization technique is being employed, whereby joint stock companies remain under state control, with production capacities and all, but all money flows in conjunction with sales of products appear linked to commercial structures. Such private intermediaries are controlled, as a rule, by managers of public corporations. Mr. Bondar said this problem should be solved by the new 2003-08 privatization program.
Mykola Azarov looked particularly outraged by privatization results. He said that most enterprises thus privatized quickly find relatively lawful ways to avoid taxation. He informed that 77.8% of enterprises thus privatized in Ukraine, after being resold, are now controlled by offshore firms. Also, that such privatized enterprises appear especially active in pumping money out of the state budget, using VAT compensations and other techniques. Mr. Azarov drew the SPF leadership’s attention to the fact that tax authorities are unable to trace down the owners of many such enterprises: “We ask the manager about the proprietor and he says he doesn’t know. Maybe he does, but he won’t tell us.” He pointed out that there is no track is being kept of such government stocks being resold.
Oleksandr Paskhaver, president of the economic development center, surprised many by coming up with a daring assessment of Ukrainian privatization. The problem of shadow privatization and state property mismanagement can be solved, but there is actually no political will to search for this solution. The absence of a system of responsibilities and a markedly critical attitude to the national policy are peculiar not only to privatization. Even the SPF appears not guilty of bungling the Ukrtelecom and regional power distribution companies, because the arrangements were made by the cabinet’s special committees. Anyway, this is a strong argument in SPF defense. We all know that, in the absence of apparent guilty parties, those upstairs start looking for culprits. The general prosecutor’s office is starting its work on this.
