While cabinet ponders a concept for state property, the property slips away
The Cabinet of Ministers has approved a Concept of State Property Management. According to this document, the financial plans of enterprises are subject to government control and the government will regulate the procedure of payment for products. It is worth noting that the government thinks it necessary to work out a new system of incentives for managers and a mechanism of responsibility for board members. Political analysts have already noted that this decision might be aimed, among other things, at stricter control over high revenue industries in order to attract administrative and financial resources for use in next year’s elections. That the concept in no way solves the now most urgent problems of state property management and shadow privatization is additional proof of this version.
It looks like a joke that precisely on the day when the Concept of State Property Management was approved, the Industrial Tribunal of Kyiv began bankruptcy proceedings against the Ukrhazvydobuvannia (Ukrainian Gas Extraction) Company that controls three-fourths of Ukraine’s natural gas extraction.
The case was opened following a lawsuit from the Ukrresursy (Ukrainian Resources) Company to which Ukrhazvydobuvannia owes three million hryvnias. This being comparative chicken feed, Ukrhazvydobuvannia hopes the case will be dropped, at least in theory. But it is still points to the possibility that as the new concept is implemented, nothing might be left for the state to manage.
With government connivance a second wave of shadow privatization swept throughout Ukraine. “This is a nationwide process, and the law requires immediate amendments,” says Yury Hryshan, deputy chairman of the State Property Fund (SPF). According to him, he is being increasingly requested by managers of state-run enterprises to protect them from creditors taking a bite out of them. They buy the debts of state-run companies and establish control over them through the courts. Incidentally, the managers’ complaints have become the main distinguishing feature of the second wave of privatization. Company directors were suspected of conspiracy in making bankrupt such first-wave entities as Donbasenerho, Luhanskoblenerho, and Rosava. These versions are still under scrutiny by the Prosecutor General’s Office. Now the authors of fraudulent schemes do not even bother to preliminarily contact the managers of their industrial prey.
On October 8 Interfax- Ukraine released a Dniproenerho management statement vividly illustrating the current situation. “Debts are now being bought, and we expect lawsuits for big money from creditors. It is difficult to forecast events: everything depends on the political situation,” a company management source said. Dniproenerho management has in fact resigned itself to bankruptcy despite the state’s holding a 76% stake in it. Asked about the state’s immediate actions to preserve control over this enterprise, Mr. Hryshan failed to give a comprehensible answer. In his words, the relevant laws should be passed as soon as possible. This is about amendments to the laws On the Executive Service and On Solvency. Mr. Hryshan admitted that the SPF now has neither an instrument nor a clear strategy to retain strategic facilities as state property. Tellingly, the total debts of Dniproenerho exceed UAH 2.5 billion, while the consumers owe 3 billion to the electric company. But this positive balance is unlikely to be taken into account by the court that will handle the creditors’ suits.
Also significant is the fact that the largest suit for 10.4 million hryvnias against Dniproenerho has already been filed by a certain Alfa Capital Investments Ltd. registered in the Virgin Islands. No doubt, if Dniproenerho had been privatized legally, such a dubious company would have simply been barred from the tender because it has no status of an industrial investor. But now it has every chance to become the owner of a super profitable company without going through a SPF tender and thus without disclosing the particulars on its founders.
Incidentally, the state planned to privatize electricity generating companies in 2002 and even in 2003. As of today, one such firm and one electrical power distribution company have already undergone bankruptcy procedures. Under such conditions, lawful tenders simply cease to make any sense. Even if the State Property Fund sees to it that these facilities are officially privatized, it is not ruled out they will fall victim to suits from creditors at the most crucial moment. There is a precedent. Rivneazot (Rivne Nitrogen) was pronounced bankrupt precisely when the SPF and a Russian Gazprom subsidiary were signing a contract on the purchase and sale of this enterprise’s state-owned block of shares. As a result, the Russians have not yet paid the money, while the courts cannot sort out the appeals from all sides.
The buyer will gain more from shadow than from official privatization. The fact that the former is gaining momentum points out that it is also profitable for some sellers. Mr. Hryshan is convinced that the authors of fraudulent schemes have protectors in Verkhovna Rada. This is the only reason, he says, why parliament has tabled bills aimed at stopping the current chaos in privatization. Submitted for parliamentary scrutiny as long ago as last summer, these bills are still gathering dust in the secretariat. Currently the deputies consider the election more urgent. Moreover, the green light to shadow privatization also seems to be part of the campaign plans of most political-financial groups in Ukraine.
