Previous privatization efforts have changed Ukraine from a planned, state run economy to a market economy – more or less. But with 1,833 enterprises still state-owned and state-managed, a significant part of the old state economy remains.
The State
Property Fund is now set to initiate a new round of privatizations, with the
sale on Aug. 26 of a 5 percent stake in the Odesa Portside Plant, a major
producer of ammonia and carbamide.
But
restructuring rather than privatization is the ultimate goal for many of the
companies, as they are natural monopolies.
With a
combined workforce of 1.3 million, these government firms are the country’s
largest employer, and much of the embezzlement and misuse of funds, for which
the public sector is notorious, occurs at these companies.
But now
Lithuanian-born Minister of Economic Development Aivaras Abromavičius has made
it a top priority to turn these value-sapping entities into cash cows. The plan
is to wipe out regular losses these companies cost the public sector economy –
their combined loss in 2014 alone was Hr 115 billion – and make them net contributors
to the budget. That means raising the quality of the goods and services they
provide. The idea is summed up in an economy ministry report, which reads that
“the state has a responsibility to be an active and professional owner, in
order to create value for its citizens.”
Even when the
Hr 85 billion 2014 loss of the state’s single largest loss maker – oil and gas
company Naftogaz Ukrainy – is
not included, the financial losses for the government from the operation of
state-owned companies is still “unacceptable,” according to the ministry.
Financial
issues aside, better-managed state owned companies could eventually help change
the corporate and political culture in the country, as Roman Ilto of the
ministry’s task force for the reform of state-owned enterprises told the Kyiv
Post. It would be more difficult for top officials to steal funds from them, he
said, potentially refocusing the whole sense of holding high positions away
from looting. It would also be harder for private interests to capture partially
state-owned companies, as in the case of Ukrnafta,
where a minority owner, the tycoon Ihor Kolomiysky, effectively used to control
the company.
Better corporate governance of
the state-owned companies would also be a positive influence on the national
economy and on the business environment, making Ukraine more attractive to
foreign investors, the ministry report states.
The task
force is headed by another Lithuanian, a former deputy minister in his native
country, 32-year-old Adomas Audickas. The task force embarked on its reforms in
February by issuing a set of Transparency Guidelines to be followed by all
state-owned companies. All were required by law to follow the instructions and
decrees of the Ministry of Economic Development. The companies now
have to make their financial statements public and external audits are
mandatory for the 146 largest state owned companies, Ilto said.
The rules
also stiffened procedures for the appointment of high-ranking officials, with companies required to conduct an open selection
process for the position of chief executive officer. All applications are
reviewed by an inter-ministerial appointment commission. Shortlisted candidates
for CEOs of companies with revenues in excess of Hr 1.5 billion have to go before
a nomination committee made up of representatives of the economy, finance,
infrastructure, energy, and agrarian policy ministries together with five
independent experts from the World Bank and other institutional lenders.
The CEOs of UkrGazBank and the contested Ukrnafta had already been chosen this way. Audickas said he expected that at least 20
top officials would the chosen by the nomination committee by year end,
although “the ministries are reluctant to go through the
nomination committee, because it makes it much harder for them to put their
preferred person in charge,” he said.
The nomination
committee also has also drawn up job descriptions for the CEOs of companies
like Ukrspyrt and the airports in
Boryspil and Lviv.
But will
Audickas’ team, armed with Organization for Economic Co-operation and
Development methodology, be able to stand up against well connected vested
interests?
Ilto said
that the task force didn’t provide a quick fix. Rather measures like
international audits, more professional corporate management teams, and
increased transparency would help tip the balance in favor of reforms in a
combined effort with civic society and political players, he said.
Serhiy Kiral,
a lawmaker from the reformist Samopomich party, a part of the governing
coalition, said that the task was daunting. He said that ministry’s formal
right to dictate corporate governance rules on the state owned companies was no
match for the “billions of dollars worth” of vested interests if there was no
will “from above” to reform.
He was
referring to recent talk about high ranking, post-EuroMaidan, officials like President
Petro Poroshenko and Prime Minister Arseniy Yastenyuk placing loyalist in key
positions in companies to oversee insider embezzlement schemes rather than end
them.
“The reform team has to constantly communicate their policies to the wider
public. Raised awareness about correct procedures will alert anti-corruption
watchdog organizations, we in parliament, and the international community when
somebody tries to circumvent them,” Kiral said.
Following the
issue closely as deputy head of the parliament’s Committee on Industrial
Policy, he said that there was now a critical mass pushing for reform.
Putting
things into perspective, the state railway company Ukrzaliznytsia together
with power distribution companies like CentroEnergo and Naftogaz Ukrainy had combined revenues in the first nine month of 2014 of Hr 120 billion. That
was 79 percent of the revenues of the top 100 state owned companies.
Another
1,500-plus non-operating state owned enterprises would be put up for sale, many
via the Dutch auction method, where bids go down rather than up.
And an important upcoming battle would be a draft law that would require
state companies to disclose information about their trading partners. If
passed, it could help identify “tunneling,” when inputs are purchased at
inflated prices, benefiting insiders.
Kyiv Post staff writer Johannes Wamberg
Andersen can be reached at [email protected].
