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Major privatization in Ukraine: There is no turning back

Author : Olexandr Honcharov

State Property Fund has formed the largest list of the enterprises subjected to denationalization over the past decade
11:10, 14 June 2018

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June 11, head of the State Property Fund (SPF) of Ukraine Vitaliy Trubarov said: "There is no way back, SPF has signed 22 orders on the privatization of large privatization facilities. This is the first large list of such enterprises for the last 10 years. Soon we will announce a competition on the selection of advisers."

And we must honestly admit: due to the weak hryvnia and in accordance with the new Law on Privatization, the participation of investors, especially foreign ones, looks very attractive. Both external and internal investors today carefully study the enterprises subjected to denationalization, since such unique opportunities to invest in terms of a weak hryvnia are very rare. Especially in a country with a huge European territory, a powerful production potential, and a dynamic consumer market. Therefore, until the end of this year, the authorities expect to obtain 0,1 billion USD from the sale of state property.

Related: Ukraine's new law on privatization: Key consequences

That is why the SPF of Ukraine has issued 22 orders so quickly and decided to privatize specific large enterprises from the list of large-scale privatization objects. I also have no doubt that the Fund has no illusions that if it is very difficult to attract long investment money to Ukrainian companies with private capital from countries with high-quality economies, the same investments could easily come to the privatized enterprises.

The statistics of the previous years convincingly confirms that this is not so easy. For example, in 2017, revenues to the state budget were planned at 0,65 billion USD, but they received only 130 million USD In 2016, the volume of proceeds from privatization amounted to 7,3 million USD.

And in the current year 2018, the leadership of the State Property Fund has been working on the solution of various organizational problems for too long. So, only this week they began the process of holding competitions for the selection of advisors for the sale of 22 large-scale privatization enterprises. The SPF plans to announce the contests before July 1, and currently, the specialists of the Foundation are preparing the contest conditions for the work of advisers.

Related: What's wrong with big privatization of Ukrainian energy sector?

However, there are some positive developments too. The heads of these departments, I think, perfectly understand that although the crisis is not the best time for carrying out a large-scale process of denationalization, especially for reforming markets and the economy of Ukraine as a whole. But without launching the process of effective denationalization, it will be increasingly difficult to implement various economic programs. Moreover, the value of assets will continue to fall and the number of problems with borrowing and attracting long investment money into the real sector of the economy will increase. Therefore, international auditing company Ernst & Young, the adviser on the privatization of PJSC "Centrenergo," has already begun searching for a potential buyer for 78.2% shareholding of this issue.

Market participants believe that in 2018, PJSC "Centrenergo" will become the first object of large-scale privatization, which will be acquired by a strategic foreign investor. By this time, all the necessary audits have already been carried out at the enterprise, including financial and environmental audits, the formation of terms of sale and the initial cost of this shareholding is being completed too. Not only the management of the State Property Fund checks potential investors, but they also carefully investigate the current economic situation in Ukraine.

Related: Ukraine is serious about privatization this time

Therefore, it is important for us to quickly and effectively create an investment-friendly environment for the “strategists” and for the international direct investments in large state-owned enterprises subject to privatization. Of course, Verkhovna Rada and the presidential administration need to take the right political decisions in order to adapt to the new conjuncture in world markets. But even when we realize this new reality, how should we act in the conditions of a systemic restriction of the Ukrainian markets (and these restrictions are not only financial)? That is why the adoption of decisions on privatization for each object from the list of 22 enterprises should be the next step after the approval of the list of objects of large privatization.

And, of course, all domestic and foreign investors are now expecting that Groysman’s Cabinet of Ministers would adopt a specific set of financial and economic benchmarks. There should be a clear understanding of the actions of the authorities, and how they can influence the effectiveness of the process of large-scale privatization before the end of 2018. After all, as the head of the State Property Fund of Ukraine Vitaliy Trubarov noted, the list of divestments for this year includes PJSC "Centrenergo," a number of other heat power plants, United Mining and Chemical Company, coal company Krasnolymanska, Azovmash, Turboatom, Electrotyazhmash, Sumykhimprom, Odesa Port Plant, Zaporizhia Titanium and Magnesium Plant, Ukragroleasing, Agrarian Fund, State Food and Grain Corporation, and even 100% of President-Hotel shares.

Related: Privatization: Why does Ukraine need it?

Many leading analysts and experts have no doubt that the weakening of hryvnia will still continue, and this will also facilitate the successful large-scale privatization of large enterprises. But how strong will be the decline of our national currency in relation, for example, to the US dollar by the end of this year? As you know, in the state budget for 2018, the rate was set at 29.3 UAH / USD. In turn, for the sake of justice, we must admit that without large-scale privatization and improvement of practically the entire legislative and regulatory framework, we will not be able to carry out technical re-equipment of the Ukrainian enterprises of the real sector of the economy and do not change the investment climate in the country for the better. Everything is interrelated in this system.

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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