Ukraine's attempts to sell off power companies have sparked low-voltage interest from foreign buyers, who on Thursday said Kyiv must change privatization rules. This month tenders for sales of stakes in AT Khmelnytskoblenergo, Volynoblenergo, Kirovohradoblenergo and Zakarpattyoblenergo failed to attract even one buyer, setting back government plans to sell 14 of 25 distributors this year.
'We came to the conclusion that we would not participate because the investment was a fair size, but there was very little in the way of management involvement,' Victor Pergat, director general of Canada's Northland Power, told Reuters.
The energy sector in Ukraine is riddled with a chronic non-payments problem which has plunged the companies into debt and is governed by murky and often contradictory legislation.
'Basically you were asked to put in money and you have to depend on the present management system to say the returns are supposed to be there and that risk is very high,' Pergat said.
The company owns a 51 percent stake in a Kyiv power and heating plant in a pioneering $160 million joint-venture project to increase and improve energy production before returning the operation to Ukraine in 15 years. The State Property Fund (SPF), Ukraine's privatization body, has said it will offer stakes in the distributors again. It has sold a 20 percent stake in only one company, Ternopiloblenergo.
The SPF plans to begin sales of four generating companies this year, although the government has said it will keep a 51 percent stake in each of them.
'Experts say it is possible for Ukraine during privatization of the power energy system to get more than $10 billion in the next three years,' said Maxim Karizhsky, an analyst with the International Center for Policy Studies think tank.
The deputy head of the State Property Fund said last week the companies attracted no offers because there was little money in Ukraine to buy them, but also because the tender process was overregulated and companies were in financial difficulty.
'Almost all of them had huge losses in 1997,' Ivan Kompan, research manager at Wood and Company, said. Currently the government charges only about 85 percent of the cost of producing electricity, despite pressure from the International Monetary Fund and World Bank to raise prices.
Kompan said Ukraine, whose wage debt totals about $2.5 billion, risked social unrest if it raised household rates and also feared making Ukrainian exports uncompetitive if it raised industry rates.
Kompan held out more hope for sell-offs of energy generators. The SPF was to pick a company this month to organize Donbassenergo's international tender and was to start the Tsentrenergo sell-off in the second quarter. 'I believe they will be of more interest to investors after the elections and when the Asian crisis is over,' Kompan said, referring to the parliamentary election on March 29. Kharizsky said Ukraine needed to form a clearer legal base for energy company operations, to a large extent ruled by presidential decree or spontaneous government orders. He also said financial operations of the national center overseeing the sector were not transparent, leaving investors uncertain over who was responsible for debts. 'Even private Ukrainian investors are not ready to put considerable money into shares of these regional companies,' he said.
He added the energy sector, while viewed as one of the most reformed in Ukraine, was ruled by a tight circle which left it closed to the influence of investors.
'If you want to invest money in the field it will be difficult for you to imagine what might happen in this sector even in a year let alone in three years,' Kharizsky said.
