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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Strategic reserve or “ballast”

What economic consequences does the president’s request to intensify privatization of state enterprises have in store?
29 March, 2011 - 00:00

President Viktor Yanukovych requested that the new state program of intensified privatization be immediately approved. He announced this during a sitting of the decision-making council of the committee for economic reforms. According to him, privatization will not only provide additional resources for realizing reforms, but will also bring extra dozens of billions of hryvnias to the state budget.

According to the president, at present the state owns hundreds of unprofitable enterprises it should get rid of as soon as possible. “I demand to make this direction of the government’s activity a priority. We need to get rid of this ballast,” Yanukovych stressed, addressing Prime Minister Mykola Azarov.

“I consider the pace of reforms in the sphere of privatization and state property management unsatisfactory. The outdated legislation basis for privatization doesn’t correspond to the current needs for a long time now,” the president explained. “Therefore I insist on the necessity to urgently approve a new state program for privatization and making corresponding amendments to the legislation.”

The Day asked experts to share their vision on what the new state program on privatization should look like for the state property to efficiently find owners. Hence, investment specialists tried to give their prognoses: which state companies will be sold first if privatization is intensified, who is interested in them, and what the state can really gain from such a sale.


Ihor BURAKOVSKY, head of the board of the Institute for Economic Studies and Political Consultations:

“It is important, in addition to the new program, to get a distinct understanding of how conditions for the privatization of state enterprises will be written out. If the government explains it in the new document, this will be a substantial step forward, as such actions will enforce the definiteness.

“The key idea is very simple: everything should be sold in competitive tenders. So far what happened around the process of selling Ukrtelecom and some other state properties don’t give reasons to speak about the existence of such a procedure.

“Secondly, the government should clearly indicate which obligations the future investor must undertake. Since today there are conversations about the sale of state enterprises mainly dealing with the companies of strategic importance for Ukraine’s economy. It’s clear that these obligations shouldn’t be just ‘whims.’ They must be realistic: so that the investor could fulfill them. In addition, it is very important to have a real possibility to oversee them later.”

Serhii NEVMERZHYTSKY, senior analyst of the investment company Troika Dialog of Ukraine:

“State assets involved in generating and distributing energy top the privatization list. State packages of such companies as Kyivenerho, Dniproenerho and Zahidenerho can be put up for sale, as well as distributing companies. Next year one should expect the privatization of Tsentrenerho. Regarding distribution companies, Odesaenerho, Cherkasyoblenerho, Kyivenerho, Donetskoblenerho and Krymenerho will be the first to be sold. Odesa Port Plant and state coal mines are also candidates for privatization.

“The private Ukrainian energy holding DTEK, which already owns packages of shares in the abovementioned enterprises and is interested in increasing its share, will be among the most likely participants of the competition. Energy Standard, Privat Group and the Surkis brothers can also be among participants. The participation of Russian companies in the privatization of regional energy companies is also possible.

“It’s rather difficult to predict the revenue generated from the sale of state property, because the sum depends on the type of privatization the state will opt for. As the example of Kryvorizhstal showed, open and transparent competition allows one to maximize income from privatization.

“According to the estimates of Troika Dialog, the ballpark figure for the revenue the state can get in the energy sphere (four energy generating companies plus five regional energy companies), provided that the entire share of state property is sold, can constitute 15 billion hryvnias, and five billion hryvnias from the Odesa Port Plant.”

Volodymyr LANOVY, Ukraine’s former minister of economy:

“I wouldn’t call the enterprises, which still remain state property, a ‘ballast.’ There are many big, powerful enterprises in the raw material field among them (notably in energy and fuel spheres) and highly modern ones — in the machine building complex. If one thoroughly analyzes the role of these enterprises and their impact on the economy and security of the country, it becomes clear that some of them cannot be privatized. For example, distributing, trunk and mining companies in the sphere of energy sources determine the potential of the Ukrainian economy.

“Overall, a huge share of enterprises remain state property. They shouldn’t become the property of one owner, since that would risk the monopolization of strategically important spheres of economy.

“The state’s share is different in the different spheres. For example, in industry it reaches 30 percent, and in transport it is 90 percent. Pipelines are 100 percent state property. Generally, the share of state property in the economy constitutes 30-35 percent. In my opinion, the state should leave for itself only strategically important objects and objects of social value, in which private business is not interested. Ukrainian investors will offer the most for the state property.”

By Alla DUBROVYK, Natalia BILOUSOVA, The Day