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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

Ukraine scaring off potential investors

Oligarchs’ desire to privatize state-owned businesses for a song affects Ukraine’s investment attractiveness
9 October, 2007 - 00:00
Photo by the News Agency UKRINFORM

The socialist Valentyna Semeniuk, head of the State Property Fund, sees no reason for her agency to panic. She recently spoke at a hotline talk and a press conference in the Cabinet of Ministers’ club, where she put in an appearance not so much as Ukraine’s privatization boss as a representative of her party. Semeniuk also offered an analysis of the elections and reached the conclusion that falsifications during the voting were directed primarily against the Socialist Party of Ukraine.

Semeniuk said she hopes to remain in her position a lot longer but did not exclude a different scenario: “The specialists in the fund are sufficiently experienced. Any representative may be appointed head of the fund.” At the same time, she emphasized that both appointments and removals from office require a majority vote in the Verkhovna Rada. “I would like to see another person walk into the session room and garner as many votes as I did — 313,” she said with a trace of nostalgia in her voice.

Ms. Semeniuk said that there is “too much work for her to do” at the fund because the schedule for budget receipts from privatization has been disrupted due to protracted court trials. In her opinion, this is the cause behind the continuing deterioration of Ukraine’s investment attractiveness and losses to the budget. She says this is advantageous primarily for Ukrainian big shots that are deliberately scaring off foreign investors, thus beating down the price of enterprises slated for privatization. “If they want to bring the price down, they go to court, and halt the competition. Then the Special Control Commission passes a resolution or the president issues an edict to cancel the auction. This causes a significant drop in the price because potential buyers abandon the purchases,” said Semeniuk, describing current schemes. At the same time, she believes that Ukraine’s oligarchs will have no trouble issuing an Initial Public Offering (IPO) even now. “Today the dozen or so of Ukraine’s wealthiest oligarchs can easily reach the IPO level. They can all issue it,” said the head of the State Property Fund.

Ukrtelekom is also entangled in a similar legal imbroglio: for some time now it has been subjected to the privatization procedure but to no avail. Naturally, the State Property Fund is interested in obtaining as much as possible from the auction. However, it has yet to hear a desirable figure from potential buyers.

“Ukrtelekom is worth $800 million. But before privatizing it, we need to study the situation in the market. If its shares are listed, we take the listed figure as the starting point for the auction,” Semeniuk says. However, “some players are not interested in this. They stop the fund’s initiatives, thus scaring off foreign investors...If the price of one share is 1.15 UAH, then Ukrtelekom’s starting price is 4.7 billion UAH. Why are they so afraid of transparency and an honest estimate of Ukrtelekom’s assets? Because they want to get it for a song,” Semeniuk said in response to her own question. “I met potential buyers, and in response to my question they said that they cannot buy Ukrtelekom before the parliamentary elections because the situation in Ukraine is unstable now. Another thing: why were all private companies given the right to do business in the cellular phone sector whereas the state-owned company wasn’t? This was to prevent this company’s capitalization level from going up. So we put five percent of Ukrtelekom’s shares to sell on the stock exchange in order to gauge the company’s real value.”

The fund is facing even more serious challenges, such as the Kryvy Rih Oxidized Ore-Dressing Complex. President Yushchenko asked the Security Service of Ukraine and the Prosecutor General’s Office to investigate the fund’s actions in connection with this enterprise. On Sept. 20 the State Property Fund was planning to sign a contract to set up a joint venture to complete the construction of the complex. The other party to the contract was going to be the Ukrainian Ore Metallurgy Company, owned by the Russian holding company Metaloinvest on parity principles with Ukrainian Smart-Holding. The contract was not signed.

The president believes that the fund violated the law. “I request that an investigation be launched within your respective jurisdictions into whether the State Property Fund abided by current legislation when it decided to create a joint venture attached to this complex. In the event of a violation, I request that necessary measures be taken,” Yushchenko’s decree states. In response, Semeniuk claims that through his decree the president was lobbying in the interests of the owners of Mittal Steel. “It’s simple: Mittal Steel’s lobbying interests won. Mittal Steel wants to gain control of everything, after which Ukraine’s metallurgy will come to a halt,” Semeniuk told journalists on Wednesday, before the start of the Cabinet of Ministers’ meeting in Kyiv.

By Oleksii SAVYTSKY, The Day
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