Third try

The destiny of Luhanskteplovoz will finally be determined soon. The buyer, Bryansk Machine Works, can choose between paying for the stocks, accepting the fines and thus amicably solving the problem, or go to court. Experts say that, given the circumstances, the State Property Fund of Ukraine (SPFU) made the right decision, albeit having it okayed “upstairs.”

As it was, SPFU head Oleksandr Riabchenko informed the media that his Fund had forwarded a proposal to Russia’s Transmashholding (of which Bryansk Machine Works is an affiliate) to sever the Luhanskteplovoz’s seven-percent stock sales contract, with the consent of both parties.

“Penalties started as of July 29 and continued until August 30, past the final settlement deadline. SPFU has received no money. As a result, the buyer — if they want to own Luhanskteplovoz — must pay 410 million hryvnias plus 82 million worth of penalties and two million hryvnias’ worth of fines. They owe us a total of 494 million hryvnias. That’s the current price of Luhanskteplovoz,” Riabchenko told a press conference.

As reported previously, Bryansk Machine Works won two tenders on the sale of Luhanskteplovoz. The first took place on March 23, 2007. At the time the starting price of the diesel locomotive works’ package was 292 million hryvnias, and it was sold for 505 thousand hryvnias more, but the auction was invalidated by a court ruling. The next winning tender occured on June 15, 2010. That time the winner agreed to pay 410 million hryvnias.

The Russian side expected a mutual offset of liabilities (under the Ukrainian cabinet’s pertinent resolution), except that they valued the sum of 292.5 million hryvnias at 58 million dollars, according to the exchange rate from 2007 — or at 450 million hryvnias by the current exchange rate. In other words, the Russians owe us nothing. We owe them.

SPFU says this valuation, proceeding from the current legislation, is questionable, to put it mildly, considering that all sales in the course of the privatization process are made in hryvnias, not in rubles, dollars or euros. Also, the winning bidder of the tender legally found invalid is refunded after the valid one pays for the package [of stocks]. Oleksandr Riabchenko says that Transmashholding had no alternative, they were prepared to pay 410 million hryvnias and receive 292.5 million. Cabinet could have helped provide the difference (with its resolution), but the [Russian] buyer wouldn’t have any of that, most likely expecting to get more after the ruling of the Supreme Economic Court of Ukraine (SECU). The SECU ruling was made on July 28, leaving no chances for the Russian side.

This change could actually benefit Ukraine. According to the head of the SPFU, another tender would only give an impetus to the bidding process. Although the final price will be known after the evaluation procedures, Riabchenko casually remarked that there was already a bidder that was barred access but was prepared to pay 600 million hryvnias.

Independent experts agree with Riabchenko.

Says Valerii Yuzba, executive director of Competitive Study Center: “Once they announce another Luhanskteplovoz tender, they are sure to have bidders. I don’t see any problems here.” In his opinion, the state must take a tough stand, considering that the production facility put up for sale is extremely attractive for the [foreign] investor: “Their products are in demand, I think the government made the right decision.”

MPs Oleksandr Bondar (NU-NS) and Mykhailo Chechetov (Party of Regions), both having headed SPFU at one time or another, concur with Riabchenko. As a matter of fact, Bondar believes that the Ukrainian state should not allow any belated payments on the part of Bryansk Machine Works, and that Luhanskteplovoz should be reinstated as state property; that yet another tender should be carried out: “The [General] Prosecutor’s Office should respond to the situation if the [State Property] Fund fails to do so.”

Chechetov is less categorical, allowing for the SPFU-Bryansk Machine Works offset of liabilities option — but only if this arrangement is approved by the Cabinet of Ministers of Ukraine: “This matter is beyond SPFU jurisdiction. If the government says so, the investor will remain in business there. This Fund is acting exclusively within the existing legal framework. It has got in touch with the investor, so this contract will be abrogated unless the payment is made within 20 days.”

Analysts are sure that the situation of Luhanskteplovoz will not negatively affect relations between Ukraine and Russia. They also allow for the possibility of SPFU securing the Ukrainian political leadership’s support before raising the matter of a third tender. “Proceeding from the current rules of the political game, I believe that the SPFU didn’t make that decision single-handedly, that it had it cleared upstairs beforehand,” says Alexander Rogers, expert with the Regional Anticrisis Center.

Says Valerii Yuzba: “This is business. The Russian investor [bidder] has been taking his time long enough, with various excuses, so it would be standard practice for the government to put Luhanskteplovoz up for sale once again. Had our government acted this way in regard to all foreign investments, our investment climate would be better.”