Almost as soon as Ukraine gained its independence nearly a generation ago, investors and analysts began speaking of the country’s great potential – as the breadbasket of Europe, as a consumer population of 50 million, as a beacon of democracy on the border with Russia, etc. These hopes have still not died, but they are slowly being smothered by a seemingly never ending cycle of disappointments.
The latest case in point is the failed privatization of the Odessa Portside Plant, one of Ukraine’s biggest state enterprises and a coveted producer of fertilizers. In a televised auction, Ukraine’s State Property Fund actually completed the sale for a much needed $624 million.
On the face of it, the auction was a success, broadcast live on national television. But just minutes later, privatization officials returned to smash the hopes of free-marketers and viewers alike.
The worst part is that Ukraine really does need the money and fast. After being hit harder than most by the global economic crisis, the country is digging deep into the IMF’s pockets. A successful privatization campaign is one of the government’s best hopes for bolstering weak budget revenues.
But the auction of the Odessa Portside Plant didn’t take place for the very reason that it was so highly anticipated: money. Although the starting price was set at USD 500m, and Ukraine’s Nortima won with a bid significantly higher, the government was apparently hoping for a clean USD 1 billion.
Prime Minister Yulia Tymoshenko promptly accused the three bidders, including another Ukrainian company called Frunze-Flora and Russia’s Azot Servis (part of Sibur holding), of collusion and price fixing. They tried to get it for a song, Ms. Tymoshenko told her countrymen in the way of an explanation.
As the main engine behind the plant’s privatization, Tymoshenko was obliged to explain why things didn’t go off. After all, she had known beforehand which companies would be taking part in the bidding. If Sibur and the two Ukrainian oligarchs behind the other two bidding companies were in cahoots, Ms. Tymoshenko should have allowed other buyers in on the auction.
