Government rushes ahead with major privatization sale of Odessa Portside Plant despite worries that the tender could face election-related hurdles.
Ukraine’s government is rushing forward with the second largest privatization sale since the 2005 $4.8 billion sale of flagship steel mill Kryvorizhstal despite presidential disapproval and worries that the tender could face election-related hurdles.
The State Property Fund (SPF) launched a tender for a 99.52 percent stake in Odessa Portside Plant on Aug. 15 with a starting price of $500 million. Buyers are required to have experience in chemical production. Thus far, a handful of domestic and Russian bidders have lined up for this strategic asset, which experts have said could fetch some $1 billion for state coffers. The winning bid is scheduled to be announced on Oct. 30 in the midst of the coalition-building process following the Sept. 30 snap parliamentary elections.
Odessa Portside Plant is Ukraine’s leading producer of nitrogen fertilizer and ammonia. The plant exports almost 90 percent of its output to world markets and boasts a competitive advantage in being vertically integrated with a key pipeline that ships raw chemical materials.
By auctioning off the plant, the government hopes to raise badly needed cash for state coffers. Original plans envisioned $2 billion being raised through privatization this year, but only about $300 million has been raised thus far as the bid was shoved onto the backburner.
President Viktor Yushchenko has in recent months criticized the government of his nemesis Prime Minister Viktor Yanukovych of resorting once again to so-called shadowy privatization dealings conducted years earlier, such as the original allegedly rigged sale of Kryvorizhstal. The president has made a point of objecting to plans to tender off the prized chemical plant amid a divisive snap election and has expressed general doubt as to the ability of his rival’s government to conduct a transparent privatization sale altogether.
“I feel extremely suspicious of institutions or powers that are trying to initiate any privatization process today. I am convinced that the current State Property Fund is incapable of an unbiased, objective privatization that is based on competition and law,” Yushchenko said recently.
SPF chief Valentyna Semenyuk, a leader of the Socialist Party, has brushed all criticism aside and held firm to tender plans with the backing of the Yanukovych government.
The winning bidder will be required to invest an additional $238 million into the plant within five years and boost net sales up to $509 million, or 37 percent more than posted in 2006.
As of Aug. 29, five companies had expressed interest in bidding for the plant, including Ukrainian chemical company Cherkassy Azot, and Evrokhim and Acron, both Russian. Experts said additional bidders from within Ukraine and Russia could line up.
Nevertheless, the sale could be played as a major election campaign issue much like the reversal of the allegedly rigged 2004 Kryvorizhstal sale became a campaign promise of presidential candidate Yushchenko. Kryvorizhstal was originally sold for about $800 million to companies controlled by Ukrainian tycoons Rinat Akhmetov and Viktor Pinchuk. Foreign bidders offered double that amount but were excluded from the final bidding.
Andriy Kozhemyakin, a legislator within the opposition bloc of Yulia Tymoshenko and deputy head of the privatization oversight committee in the dissolved parliament, warned that the sale could be halted by a new government after the elections.
Kozhemyakin stopped short of accusing the current government of masterminding a rigged tender, saying his political opponents were no doubt “rushing forward with the sale” to personally control “reallocation of the remaining tidbits.”
Kozhemyakin said all experts agree that the plant needs to be privatized, but warned that the rushed nature of this sale could jeopardize the plant and Ukraine’s interests.
“I would not advise selling the plant now before the elections,” said Oleksandr Ryabchenko, director of the International Institute of Privatization, Management of Property and Investments.
Ryabchenko said the sale could be haunted by unclear relations between the future owner and the ammonia supply pipeline.
Odessa Portside Plant must be carefully restructured to clearly specify what rights the new owner will have over the strategically important pipeline, which feeds the plant with ammonium. The current tender conditions are not clear on this key issue, Ryabchenko added.
And if Tymoshenko’s bloc comes to power through the Sept. 30 vote, “it seems to me that this sale will be put off” and done right, Kozhemyakin said.
Ryabchenko said: Unless these issues are addressed, the sale could be halted, or reversed in the future, much like what happened with Kryvorizhstal.
