Week's balance: Failure to sell Centrenergo, Nasirov's reinstatement, and higher heating tariffs
The long-awaited privatization tender for the sale of Ukraine's strategic SOE Centrenergo is canceled because participants are not allowed to bid, the court reinstates ex-head of the fiscal service Roman Nasirov suspected of corruption, while NEURC predictably approves new heating tariffs, and the IMF is almost ready to provide Ukraine its first tranche under a new stand-by program – these are the main economic news of the outgoing week.
The central news this week was set to be the sale of the state-owned stake in one of the largest electricity producers, Centrenergo. The bidding was scheduled to be of paramount importance. And it's not just about getting additional funds into the state budget, although the starting price was UAH 6 billion. The most important thing is that Ukraine needed to show the whole world that the country is capable of conducting fair and competitive privatization of strategic companies.
However, already at the very beginning of preparation for the company sale, there were doubts that everything would work out. And by no means were they groundless. I should note that the strategic company was closely "cared for" by Petro Poroshenko's entourage; therefore, many assumed that the privatization of Centrenergo was in fact the legalization of status quo. Moreover, UAH 6 billion is not too much, considering that the company's net profit for 2017 amounted to almost UAH 2 billion. Privatization could dispel all doubts, provided that the company is acquired by some well-known player in the energy market.
However, the acting head of the State Property Fund, Vitaly Trubarov, declared that there was no rush around Centrenergo. Although in November, five companies expressed their interest. It was Ukrdoninvest, Belarusian Oil Bitumen Plant, Forbes and Manhattan Ukraine, Balance Group, and Georgian International Energy Corporation. At the final stretch, only two applications remained.
People’s Deputy Serhiy Leshchenko claimed that this is the president of Ukraine, who really wants to become the owner of Centrenergo and it is he who allegedly stands behind Vitaliy Kropachov's Ukrdoninvest.
“This is another 'Kurchenko' through whom the Poroshenko clan makes money and on whom today's authorities re-register Yanukovych's property,” the people's deputy said, describing Mr Kropachov.
MP Leshchenko also said that the suggestion claiming that leaders of the Popular Front Andriy Ivanchuk and Arseniy Yatsenyuk may stand behind the Oil Bitumen Plant was a conspiracy theory.
In this situation, it appeared that Centrenergo was supposed to be taken by someone close to the highest circles, but the SBU Security Service suspected that the Oil Bitumen Plant had direct ties to the aggressor state, Russia, and therefore could not be allowed to take part in the bidding.
In this regard, the State Property Fund had no choice but to cancel the tender for the sale of the company's state-owned shares. An official statement noted a “Russian trace,” adding that paperwork submitted by both applicants failed to comply with formal requirements.
Thus, all efforts to prepare Centrenergo for privatization have been ruined, so all will have to start from scratch. It is not at all clear when the second competition will be held. Although a Minister of the Cabinet of Ministers, Oleksandr Saienko, noted that the cancellation of the current bidding did not alter the government’s plans to privatize the enterprise.
“The company will be privatized. But we see that the State Property Fund and the privatization advisor need to more thoroughly prepare for the sale. The government is counting on real competition at the auction, and we want to see serious foreign companies among participants,” he said.
Saienko believes that holding a tender for the sale of the enterprise under the new law on privatization allows expecting interest on the part of foreign investors.
Meanwhile, at the moment, the prospects for large-scale privatization in Ukraine are under threat. For example, the court once again postponed the date of consideration of the complaint of one of the participants in the selection of investment advisors for five large-scale privatization objects, which disagree with the results. Acting head of the State Property Fund, Vitaly Trubarov, considers the latest developments "sabotage" of large-scale privatization.
“This is a deliberate delay in the start of privatization. This company initially didn't need an honest and transparent tender. They came to hinder the results of selection, and they are doing their job. Yesterday they challenged a judge, next time they'll do this again, so this could last for months,” he wrote on Facebook.
Due to such actions, the process of searching for potential investors for the Odesa Portside Chemical Plant and four more enterprises just cannot start.
Nasirov reinstated, Kudriavtsev sacked
Breaking news of the outgoing week was the court reinstating Roman Nasirov as head of the State Fiscal Service. Recall, the country's anti-corruption watchdog, NABU, is accusing Nasirov of inflicting damage to the state in the amount of UAH 2 billion.
Often, the judges provide no comment on their decisions, but a raised wave of indignation in society forced Judge Natalia Klymenchuk to explain herself. She stated that the government had fired Nasirov over his second citizenship. However, during trial, law enforcers provided no evidence that the SFS head was holder of another passport but Ukrainian. Therefore, the judge said she had no other choice.
Maybe. But it turns out, Klymenchuk had previously reinstated officials suspected of corruption. In 2011, she handed down such ruling in relation to a customs officer prosecuted for bribery.
It is curious how the Groysman government will act on the Nasirov case. As the news broke, a government envoy to parliament, Vadym Denysenko, wrote on Facebook: “As for Roman Nasirov. As of now, the government has not seen a formal court decision to reinstate him as SFS head. At the same time, the government had made an absolutely legal decision to dismiss Nasirov and, of course, will appeal the decision on his reinstatement.”
However, the government at its Wednesday meeting did not even discuss the Nasirov issue, which is quite understandable. The judiciary, which is tightly controlled by Poroshenko’s entourage, would never have issued a “reinstatement” ruling had there not been an instruction from higher offices, I believe.
By the way, when Arseniy Yatsenyuk’s government was being changed by the new Groysman government, none of the ministers were sure if they would remain in the new team or get sacked. It was only Mr Nasiov who appeared to be calm and confident, telling reporters: "The question [of my dismissal] is not on the agenda at all."
But if the things with regard to Nasirov are more or less clear, the situation with the head of the State Architectural and Construction Inspection, Oleksiy Kudriavtsev, remains foggy.
The thing is that at a Wednesday meeting, the Cabinet dismissed the official, formally – over a fake diploma. Many experts and journalists came to his defense. They believe that for the first time ever, under Kudriavtsev tenure, corruption was tackled in the agency, for which he is allegedly now paying the price.
“All reforms have not only influenced the ranking in Doing Business, they also delivered a blow to the shadow corruption schemes in the State Architecture and Construction Inspection. That is why this pre-ordered campaign was launched against me. I provided all evidence showing that I had not violated the law and, while before becoming a civil servant, I'd had the required Ukrainian education,” said Kudriavtsev.
An interesting fact is that even Prosecutor General Yuriyl Lutsenko's support as well as that of many government officials, in particular, Deputy Prime Minister Hennadiy Zubko, did not save Mr Kudriavtsev from reprisal.
Journalists say that the main instigators of the dismissal are acting agrarian minister Maksym Martyniuk and MP Serhiy Berezenko (BPP).
New year – new tariffs
After the Cabinet finally decided to raise gas prices for the households, an increase in heating tariffs was only a matter of time. And in the outgoing week, the National Energy and Utilities Regulation Commission (NEURC) approved new heating tariffs for the households regarding more than twenty thermal generation enterprises throughout the country.
Tariffs for thermal energy generation were increased by 12-24%. New tariffs for heat produced come into effect on January 1, 2019, although some experts earlier expected a hike as early as this December.
NEURC chief Oksana Kryvenko, noted that the heating tariff growth rate for most enterprises did not exceed that of gas prices at 23.5%. Also, as a result of a revision, the thermal energy tariff for state institutions was reduced by 22%.
In addition to new heat tariffs, in the outgoing week, the NEURC increased by 2% the wholesale market price of electricity for the first half of 2019. The raise concerns industry, while the price for households remains unchanged.
She expressed hope that this was the last decision on the wholesale market price as after July 1, 2019, it will be the market which will form the price. In the meantime, according to the NEURC decision, the average projected wholesale market price for 2019 will be UAH 1,669.98 per MWh, while in Q3 and Q4 of 2019, it will be UAH 1,722 per MWh.
IMF set to provide another tranche
The IMF is satisfied with how Ukraine fulfills the requirements set. Therefore, the Fund finally agreed on a stand-by cooperation program worth $3.9 billion, which is soon expected to be approved by the IMF Executive Board. As for the first tranche of the new program, its volume will be announced on December 18, IMF spox Jerry Rice said.
According to him, the Ukrainian government has confirmed its intention to continue macroeconomic reforms and those to attract investment, as well as to achieve sustainable economic growth.
In parallel, the Ministry of Finance reported that the European Commission provided Ukraine with the first tranche of the EU's fourth macro-financial assistance program in the amount of EUR 500 million in the form of a loan at 1.25% per annum maturing in April 2033.
Besides, EC Vice-President Valdis Dombrovskis and Ukrainian President Petro Poroshenko discussed the possibility of Ukraine getting a second tranche of macro-financial assistance. According to Mr Dombrovskis, to this end, Ukraine must implement a number of reforms in the field of energy.
If we put aside the not entirely positive expert forecasts, the EC tranche and IMF's imminent decision give optimism that national economy will smoothly slide into the next year without any obstacles.
Another good news was voiced by President of the European Council, Donald Tusk. He said that the European Union decided to extend economic sanctions against Russia. According to him, the heads of the state and government of the European Union member states went for extending for another six months sanctions on the banking, financial and energy sectors of the Russian Federation.
In the coming week, the Verkhovna Rada will meet for the last plenary session this year. The most anticipated issue to consider will be the extension of farmland sale moratorium. Besides, the legislators may adopt as early as this year the bill on concession. And, of course, also this week, the IMF is expected to decide on the volume of their first bailout tranche for Ukraine under the new stand-by program.