Lashing out at the conduct of privatization in Ukraine, President Leonid Kuchma has urged the government to ban the sale of state property to offshore companies.
Kuchma told the government’s committee on organized crime and corruption on April 20 that the present privatization process ‘encourages corruption and economic crime.’ He asked the government to consider a ban on sales of state property to companies registered offshore.
He also said the State Property Fund (SPF), the government’s privatization arm, should check whether offshore buyers fulfill their investment commitments. Such cases should be taken to court where necessary, he said.
Over the last few years stakes in many of Ukraine’s most attractive companies have been sold to offshore companies with no or little experience in the purchased enterprise’s line of business. The vast majority of these ‘offshore’ investors, particularly those involved in the energy and metallurgical sectors, are generally believed to be linked to domestic financial groups.
Kuchma said he was particularly alarmed by the chaotic state of privatization in the energy sector.
‘The Energy Ministry has no idea who purchased shares in regional electricity distributors [oblenergos] in privileged sales, and for what purpose,’ he said.
In many cases, shares in privatized companies are offered to employees and management at a privileged, discounted price.
Kuchma lashed out at the State Antimonopoly Committee for allowing offshore companies participate in oblenergo tenders. He said the government has lost control of the sector as a result of privatization.
Kuchma also recommended that the government examine the activities of Ukrainian commercial banks that own large stakes in Ukrainian enterprises. He alleged that Dnipropetrovsk-based Pryvatbank, for instance, is purposely mismanaging several ore-enrichment plants in order to have an excuse to sell them to offshore companies in future.
Meanwhile, the SPF on April 21 announced that Credit Suisse First Boston (CSFB) has won the tender to advise the fund on how best to privatize seven of the country’s regional electricity distributors, or oblenergos. A joint bid by Ukraine’s Kinto investment company and Austria’s Epic company came second in the tender.
Oleksandr Bazarov, CSFB’s president in Ukraine, told Ukrainian News his company will suggest that a number of reforms be carried out in the energy sector before the government sells the oblenergos.
Bazarov said CSFB has already prepared a plan on how to reform the troubled sector and will soon submit it to the government for consideration. He wouldn’t elaborate on the measures his bank wants to see implemented, but said they are aimed at increasing the level of payment in the sector.
He said the sale value of the oblenergos will double or triple if the planned reforms are carried out. Foreign strategic and portfolio investors are already showing interest in the sales, Bazarov said. ‘The interest exists, and it’s significant,’ he said.
The SPF and CSFB now have 20 days to finalize the terms under which the bank will advise the fund. Should the two fail to reach an agreement, the fund will enter into talks with Kinto and Epic, runners-up in the tender.
But while the SPF was taking a step forward in the privatization of the energy sector, it was taking a step back in other areas of privatization.
The SPF has released a list of companies in which it intends to renationalize stakes previously sold to private companies. Stakes in 110 companies will be clawed back due to investors’ failure to stick to investment pledges, the fund said in a statement.
The list of companies includes the Halychyna oil refinery, where Hospodarska Spilka Halychyna – a company representing the plant’s employees – bought a 30 percent stake, as well as Luhanskoblenergo, where an obscure company called Verrona Plus had won a 35 percent stake.
SPF RESULTS
Prychornomorya bank has acquired a 28.5 percent stake in Dnipropetrovsk region-based Hubinisky grain elevator in a non-commercial tender. The bank paid Hr 211,500 for the stake.
Soft drinks manufacturer Rosynka has bought a 25 percent stake in the Cherkassy brewery, according to brokers Alfa Capital. Rosynka will install a new bottling line at the brewery as payment for the stake.
