The Verkhovna Rada has finally unblocked the holding of auctions for the sale of large state-owned enterprises.
Although the main purpose of privatization Ukrainian officials name fighting corruption and increasing the efficiency of property management rather than raising funds for the budget, the ban lift was primarily dictated by financial motives.
A year ago, when the global coronavirus pandemic was just gaining momentum, the government and the State Property Fund feared that the demand for state property among foreign and domestic investors would be so negligible that major objects would be sold for pennies.
Today, the world is already witnessing the third wave of COVID-19, while Ukraine is seeing a steady climb of daily coronavirus cases. However, it seems that in the high offices, this is no longer considered as a deterrent to the launch of SOE sales.
Ukraine must proceed with large-scale privatization
In March, President Volodymyr Zelensky said Ukraine should continue its large-scale privatization campaign: "Getting rid of the ballast that brought the country only losses and corruption."
The parliament responded to the call, a few days later passing the relevant law.
Prime Minister Denys Shmyhal said that auctions for the sale of large privatization objects in Ukraine are expected to start as early as this summer.
The first SOEs to be put up for sale will be the United Mining and Chemical Company, and First Kyiv Machine-Building Plant (Bolshevik).
The head of government has vowed absolutely open and fair auctions for all state-owned assets.
Meanwhile, the 2021 state budget has laid down UAH 12 billion in privatization receipts.
The State Property Fund expects that the lion's share of this sum, which is UAH 9 billion, will come precisely from the sale of the two said objects.
Those set to invest in Bolshevik will be interested in a land plot in the Kyiv center
With regard to Bolshevik, there is reason to believe that investors will show no interest in production capabilities of a long-obsolete enterprise, while eyeing a massive land plot in the heart of Kyiv, which could be used for urban construction.
In addition, the State Property Fund plans to receive UAH 1.9 billion from the sale of Ukrspyrt distilleries, as well as UAH 1 billion – from the sale of mothballed penitentiary facilities. Another UAH 1 billion is set to be obtained from the sale of smaller-scale SOEs.
Tentative calculations suggest that the revenue target for 2021 could in fact be met in full.
The Fund also plans to announce tenders for the sale of the capital's President Hotel (for at least UAH 1 billion), four state thermal power plants, and five regional energy companies (for a total of UAH 6 billion to UAH 8 billion).
The plan also lays down another UAH 3 billion from the sale of other major SOEs, including the Odesa Portside Chemical Plant and Ukragroleasing.
The SPF is confident in the success of the upcoming biddings
The State Property Fund is confident in the success of the upcoming biddings. The reason – even in the crisis year of 2020, it sold state property worth UAH 3 billion against the original target of UAH 12 billion.
Since year-start, the proceeds from privatization have exceeded UAH 1 billion, which in the current conditions is a rather decent figure.
There was also the case with the sale of Dnipro Hotel located in the center of Kyiv, which became a real triumph for the Fund. With the starting price of UAH 81 million, it was sold for a staggering UAH 1.1 billion. Moreover, this was July 2020, when the level of overall uncertainty was significantly higher than today.
If Ukraine this summer launches the process of mass privatization, in a couple of years it could seal significant progress in denationalizing state assets.
The main thing is to make sure no one hinders the State Property Fund's efforts again.
At the same time, it should be recalled that the National Economic Strategy until 2030, approved by the government, envisages a task of transferring to concession 90% of enterprises prohibited for sale, and completing the sale of all SOEs that won't be included in the list.
A significant share of property will still remain in state ownership
Parliament has approved a preliminary list of some six and a half hundred state-owned enterprises to be banned from sale. So even if Ukraine's large-scale privatization this year proves a success, a significant share of property will still remain in state ownership.
Officials now have a great opportunity to improve their management skills and prove that state-owned enterprises are so much more than cash cows for domestic politicians.