The IMF is ready to barter money for political will and signals to investors
As the IMF two-week mission to Ukraine came to an end, its head Emanuel van der Mensbrugge claimed on November 5 that the International Monetary Fund regretted the delay in privatization of regional electric companies and believed it necessary to be conducted. He emphasized that the government of Ukraine “should send a signal” that the privatization process was being speeded up to investors. According to him, it must work out a debt restructuring plan for the power supply complex, which would facilitate and speed up privatization in the branch. On the other hand, the mission’s head noted tactfully the “possibly optimistic character” of the payments plan of $2.1 billion, and stressed that it could be accomplished on condition of a strong political will.
One way or the other, the IMF will continue talks with the government and the National Bank of Ukraine only after the preparation of a new preventive standby program and only after a realistic 2003 state budget is passed, so that in current stage it is too early to speak of the amount the new program will provide for (with Ukraine expecting $600 to 800 million), said Mr. Mensbrugge. Claiming the draft budget for 2003 to be realistic, the IMF is obviously on the Ukrainian government’s side in its budget debate in the parliament. Still, although budget passage can be seen as a preliminary request for further talks, to all appearance the IMF will not further lower its demands. According to van der Mensbrugge, improving the fiscal situation in Ukraine, raising the reliability and functional efficiency for the real economy sector and reforms in the energy sector will be the key points of its new program. The mission’s head paid special attention to the fiscal performance of the branch and the level of its payments to the budget. He noted that the power supply branch now accounts for two-thirds of tax arrears.
Emanuel van der Mensbrugge considers it necessary to abolish unreasonable privileges to several economic sectors to the detriment of the others (in this connection he approved of the government’s intention to terminate the tax experiment in metallurgy beginning in 2003). Another goal in the fiscal and budget spheres he mentioned was shift from social subventions to directed public assistance and making it better targeted, which earlier Premier Anatoly Kinakh had repeatedly urged.
Interestingly, the IMF has simultaneously praised Ukraine’s monetary policy as quite successful, making it possible to maintain price stability and low inflation. At the same time, Mr. van der Mensbrugge noted that low inflation had resulted from a number of “exceptional” factors, in particular, by reducing prices in the agricultural complex and abandoning tariff hikes earlier planned in the power complex and other sectors.
What is the IMF representative hinting at, when he mentions a strong political will?
We should recall that Prime Minister Anatoly Kinakh announced last week that the privatization of nine regional electric companies would be postponed to 2003. According to him, first the question of partial discarding and restructuring their bills payable and accounts receivable, which amount to almost UAH 8.8 billion, should be decided upon at the level of legislation. Only after that sale will tenders be announced. And the Cabinet of Ministers has already submitted to Verkhovna Rada the bill On Restructuring the Debts of Ukraine’s Entrepreneurial Subjects that Resulted from Incomplete Payments for Energy Resources.
In the Fuel and Energy Ministry’s estimation, passing this bill would make it possible to lift UAH 4 to 5 billion of the debts for electricity, the total being about UAH 16 billion. However, the parliamentary committee on finance and banking activities has rejected it and seems intent to kill it. At least, when answering The Day’s questions, First Deputy Committee Chairman Viktor Kapustin said he had no idea why the bill had been rejected (he was absent from that meeting). Neither did he know anything of what happened to it later.
But the fuel and energy complex is not simply living in the past when its debts were mainly run up. It is also living for the present, since now electric companies’ performance depends on tariffs that are fixed on a centralized basis. As mentioned, the IMF is not enthusiastic about the government’s decline to raise rates, for it sees the fact as an undesirable signal to investors. Against this background, a compromise option currently opening up in Ukraine provides for improving tax policy in the fuel and energy complex, instead of raising rates. This is the opinion of Andriy Kliuyev, chairman of the parliamentary committee on the fuel and energy complex, nuclear policy, and safety. “We should talk of tariff policy, rather than of raising rates,” he explained and claimed that Jean Lemierre, president of the European Bank for Reconstruction and Development, agreed there must be a reasonable approach to establishing tariffs. According to Andriy Kliuyev, Ukraine should follow a policy that would stimulate investors to introduce new energy-saving technologies, reduce waste of energy sources and lower prime cost of produce. “Only after these problems have been solved, can we discuss tariffs,” the deputy said, adding that “raising them is not at all necessary.”
Meanwhile, the energy complex as one of the most important sectors of Ukraine’s economy needs reforms initiated by some political (and Mr. van der Mensbrugge was certainly right in this). For example, the Energy Market Council intends to appeal to the parliamentary Committee on the Fuel and Energy Complex, Nuclear Policy and Safety asking for amendments to the bill On Restoring the Solvency of the Debtor or Declaring it Bankrupt, which would provide for a moratorium on bankruptcy until the problem of energy debt restructuring is solved. According to a source closely connected with energy market, the debts question is to be decided upon in order to stabilize Ukraine’s economy as a whole. He maintains that all members of wholesale electricity market in Ukraine are currently having legal proceedings with each other, which could result in mass bankruptcies. Privatization with debts, said the resource, might cause the received sums directed to the budget to be considerably less than ones without debts, the latter being “undesirable element in privatization.”
“When an object is being sold,” Yuliya Nosulko, member of supervisory board of Chernihivoblenerho (the Chernihiv regional electricity provider) informed The Day, “its estimation certainly depends on the financial and economic state which is characterized, in particular, by debt amount. Restructuring them is not necessary, but, that being the case, what is going to be the price of the enterprises to be sold? It turns out that the state should simply give them away.”
In short, Ukraine is facing a choice: either to leave regional electric companies to shadow privatization for debts, or, on account of the present unfavorable conditions, to provide them for clear privatization and sell them at a moderate price, having earlier restructured part of the debts. On the other hand, previous privatization experience has raised a number of additional questions. For example, Mykola Steblinsky, chairman of the Fuel and Energy Privatization Commission of the Ukrainian Union of Entrepreneurs and Industrialists told The Day, “I am sorry too that energy complex privatization has been suspended in our country. That is wrong. Of course, one should not sell it for too little money. All the more, one should not solve the problem via unjust rates, when they establish hothouse tariffs for foreign investors and another kind of rates for domestic ones. We have the same case with debts. When some have their debts written off and others not, it is obviously done at the expense of the latter and the consumers, of course.” Under such conditions a foreign investor will not do business in Ukraine, believes Mr. Steblinsky. Only those used to working in our country can dare to do so.
INCIDENTALLY
The explanatory note of the government attached to the draft state budget for 2003 states that it does not provide for the sale of share packages in twelve regional power supply companies or Ukrtelekom in 2003, reports Interfax-Ukraine.
