Receipts to state budget from privatization could collapse

State Property Fund (SPF) of Ukraine Chairman Oleksandr Bondar announced that at the present moment the privatization schedule of Ukrtelekom stipulated by the law on the special features of its privatization has already been violated because the Cabinet of Ministers has not yet even decided on the creation of a privatization committee for the company, and the delay in selling it could lead to lowering its price and pose additional obstacles for privatization, reports Interfax-Ukraine. The SPU head also stated that before this committee is created no further steps on the privatization of Ukrtelekom can be taken.

“The more we prepare, the more chance there is that we won’t sell it at all. I’m concerned that Ukrtelekom will be brought to the state of LyNOS,” said Mr. Bondar recalling that the delay of privatization resulted in selling the Lysychansk Oil Refinery for one tenth of its appraised figure at the beginning of privatization.

He went on to explain that his position on the timing of Ukrtelekom privatization does not coincide with the Cabinet of Ministers position on the issue. He stressed that without selling Ukrtelekom stock it will be impossible to meet the plan of budget receipts in 2001 of 5.9 billion hryvnias. (The cost of the whole property complex of Ukrtelekom at the end of 1999 came to 4 billion hryvnias). Let us also recall that the law on the privatization of Ukrtelekom was adopted by Verkhovna Rada in July 2000. Assigning a 50%+1 share of the company to the state is a compulsory condition. It is provided to sell on competitive basis not less than 25% of shares of the company to an industrial investor for cash. The investor is expected to purchase a 36—40% share, because 10—14% of shares can be purchased at a privileged price by company employees. Sales to a strategic investor is expected late this or early next year, and any transfer of terms can put in question the completeness of its assets, hurting the balance budget, and together with this the whole social orientation of the budget so widely advertised by the government.

The SPF head believes that the process of alienating the six oblenerho entities, the sales of which is slated for February 22 (Kyivoblenerho, Rivneoblenerho, and Zhytomyroblenerho) and March 1 (Sevastopoloblenerho, Khersonoblenerho, and Kirovohradoblenerho) as state property, will serve as an indicator of how privatization will proceed this year in general, reports Part.org.ua. And Bondar believes that further privatization as a whole hinges on how privatization proceeds in the energy sector.

Meanwhile the cabinet has drafted a resolution called Steps to Prevent Nonpayments by the Energy Distribution Companies for Electricity, which provides among other things for the reduction of the transfer of money to the oblenerho firms for power transmission services to consumers in proportion to the indebtedness of these organizations for electricity purchased on the wholesale market. According to the draft resolution, energy suppliers will receive from their distribution accounts 20% less of the money due in cases of indebtedness for electricity outstanding 10—15 days, 50% less in cases of indebtedness of up to 30 days, and 90% less in case of indebtedness over 30 days. The National Commission for Electricity Regulation (NCER) is supposed to bring in an outside manager (temporary administration) in those oblenerhos that pay in live cash less than 80% of the cost of electricity purchased the preceding month. If this cash payment for electricity does not increase within 30 days, the NCER will suspend the company’s license to supply electricity. Simultaneously, the Commission is establishing the algorithm, according to which it will deprive the energy supplier of the money due and direct funds to the Enerhorynok State Company to cover the oblenerho’s debt for electricity.

In the opinion of representatives of the energy distributing companies, the adoption of the resolution by the Cabinet of Ministers will lead to the final economic degradation of these enterprises. The Day’s experts also consider that these steps are a continuation of the practice of hands-on management in the energy sector and, should they be implemented, will discredit Ukraine’s investment image even more.

The SPFU chairman is convinced that the privatization should not remain under a manual regime, “whether it be that of the president, Cabinet of Ministers, or the fund, but only in accordance with the legislation in force.” He stressed that this is the core of president’s position. “You know,” he said, “that he (the President — Auth.) has never interfered in the process of privatization of individual objects. Of course, I report to him, you can’t get around that. And the president has his remarks about the fund.” The fund’s head explained the thorough control of the SPFU by the president by the need to prevent “such scandals as with the privatization of the Zaporizhzhia Aluminum Combine (ZALK), adding, “Should such scandals take place this year also, investors will not come to Ukraine: we would frighten them so much that they wouldn’t touch Ukraine with a ten foot pole.”

COMMENTARY

Oleksandr RIABCHENKO, Chairman, Verkhovna Rada Special Oversight Commission on Privatization:

“Now we already have the proof of the suggestions made earlier that as a seller Ukraine in the course of privatization will really have countless problems. And this will be not only in finding buyers (which is obvious) but in keeping deals in accordance with the law. The basis of this is Ukraine’s historically shaped wish to exercise hands-on management, to rank buyers not according to their professional qualities but by political motives or by persons interested in certain buyers: these are neither appropriate nor good for us.

“The main thing here is that the government will have its own opinion, while the SPFU will act as before guided by rather loose provisions governing its day-to-day actions. Never before has the government been interested how the members of competition committee will vote, never has it decided who will be accepted to the competition and who won’t. Now such a wish has surfaced, and this will be the major problem for privatization, because the SPF is not inclined to limit itself to the framework the government wants to put it into. The more so that for this purpose you have to change the existing laws. Especially in respect to the competition.

Judging by the existing draft documents, what the government wants to do can be done only with great difficulty. The assigning to the fund of the functions of the government’s seller will simply not fit into the structure of Ukrainian privatization, the changes in which are not yet planned. And who will answer for one decision or another? Today the fund is responsible. And the cabinet according to the Constitution is not responsible for privatization. Not one law mentions it as a seller of state property. On the contrary, it is the fund that is this seller according to the Constitution.

Such cabinet proposals appear very unfriendly for privatization. Thus we could once again scare away the investors. Meanwhile, the problem of carrying out the budget for 2001, difficult by itself, will still aggravate. The largest objects of privatization are the most problematic. To sell Ukrtelekom is very difficult, and time is short. Otherwise an ultimately unique way will have to be found. We have to proceed with selling the oblenerhos. And the perspective of this is far from clear. When it comes to attractive industrial objects, we first have to find the antidote to what happened at ZAlC, when the cabinet was gathering the members of the commission and giving them instructions. It is clear that those who lost due to this will have an opportunity to sue in arbitration court... All those who lost are now experienced, and they have at their disposal a lot of lawyers, who are the experts in privatization. The civil suits will be endless, and the process of privatization itself will gradually turn into such court cases that are the inevitable but extremely undesirable elements of the hands-on management of privatization, especially if it is necessary to receive the large sums of money for the budget. In order to get the planned UAH 5.9 billion it is necessary to refrain completely from any interference.