Corporate confusion

The expert community concluded long ago that the state cannot be an effective owner. But Natalia Kuznetsova, a member of the Academy of Legal Sciences of Ukraine believes that the point is not whether it can be a proprietor, but whether it has a program of management for the property it owns.

“A properly formulated concept would answer many questions: what is to be privatized and how; what property should be leased to whom, or who should be allowed to manage it and on what conditions. If the state has these answers, lawyers and economists will be able to find mechanisms to implement this concept,” says Kuznetsova.

The State Property Fund (FDM) recently tried to solve corporate problems, at least theoretically, during a roundtable with lawyers and economic experts. At the start of the discussion Andriy Sachyvko, director of the State Corporate Rights Registration Department, read a rather interesting memo. The state holds more than 28 billion hryvnias’ worth of shares in various businesses. Of this, 13.9 billion, or 49 percent, consists of national joint stock, holding, and leasing companies.

However, the FDM has jurisdiction over mostly small and medium businesses (a total of 1,178 with 14 billion hryvnias’ worth of capital) that are of little interest to investors. At the same time the government, ministries, and agencies are managing 138 entities with 14.3 billion hryvnias of capital. In other words, there is precious little property left for making most attractive purchases.

In fact, out of all the most liquid industries the state controls only the chemical, petrochemical, and communications industries, after losing metallurgy in 2005. According to Sachyvko, the state packet of shares tends to decrease; it is less than 25 percent in 500 enterprises, in other words, less than the blocking packet of shares.

After finding itself a minority stockholder, the state acquired both new problems and an opportunity to create problems for majority stockholders. The FDM’s second-in-command, Oleksandr Potimkov, noted that the state, which has a minority share, cannot protect itself effectively. However, no one can guarantee oneself protection from the state. Minority stockholders showed an example of what they can do when Ukrsotsbank was sold. The tool for conducting the required policy is sufficiently developed.

In order to protect the state from such problems and the proprietors from the possibility of minority shares being manipulated, lawyers armed with the concept mentioned by Kuznetsova, propose to solve countless disputed legal issues that are now providing the groundwork for various machinations.

Viktor Moskalenko, deputy head of the Supreme Economic Court, pointed out that there are situations when the same stock can be held by different persons as ruled by economic and ordinary courts of law. He added that this problem has become markedly acute and must be solved by “transferring to the economic court all issues pertaining to relations between business entities and their participants. This is also true of privatization.”

Although this bill is being deliberated by the Verkhovna Rada, Moskalenko is afraid of unprofessional amendments made by MPs, which may nullify all the positive aspects of the document. He adds that there are many controversial cases being sent back and forth between the economic and administrative courts, and no one can determine their jurisdiction.

This judge noted that the legislator chose a concept for delimiting the jurisdiction between the courts that is not entirely correct, thus laying the groundwork for a situation in which a problem cannot be solved in a court of law without interference from society.

Kuznetsova said that, apart from solving the jurisdiction issue, the problem of assets and municipal property management must also be resolved. She added that today it would be reasonable to transfer the management of government shares to special structures designed to manage such assets and to repeal the delegation of rights. It is also necessary to upgrade the obsolete Law “On Economic Societies” and enact several new ones, including “On Joint Stock Companies” and “On the State Property Fund.” She stressed that the absence of the latter was the cause of the FDM’s inadequate performance and triggered off a number of problems.

The president’s adviser Oleksandr Paskhaver argued that state property should be managed by the cabinet rather than the FDM in principle. But considering that the fund was awarded the status of a separate agency during the period of mass privatization, it must be put in good order.

“I predict that the law on the FDM in its current wording will not be adopted. The times are different,” says Paskhaver, who proposes to transform this agency into a ministry of state property. The expert believes that such a ministry would find it easier to deal with matters relating to state property and determine privatizable entities and industries where state monopoly or market competition is needed.

Paskhaver stressed that state property must be managed with an eye on the corrupt Ukrainian mentality. In his opinion, such a ministry would solve this task quicker. But the president of the Salkom Legal Firm, Yevhen Kubko, argued that there are no laws on ministries in Ukraine. This means that our corruption will still be able to find a field for its activity.