Ukraine's most lucrative equities are set to become a battlefield for Russia's major financial groupings in the following months as the government's privatization drive shifts into high gear, Ukrainian economic observers and financiers said this week.
With Western investors remaining wary about Ukraine, it may take some time before the government can persuade the West that its recently declared reform efforts are sincere.
But Russia's rich, used to doing business in different conditions, would not be discouraged by Ukraine's unstable legislation and declining economy, analysts said.
'Of course, it would be desirable if Western companies with an established corporate culture decided to purchase state-owned shares, but few investors would want to plunk down tens of millions of dollars in exchange for a headache,' said Viktor Shkorevsky, an analyst at Ukraine's Center for Economic and Political Studies.
Since the government began to announce its privatization sweepstakes in January, a tender for the sale of a 30 percent stake in the Mykolayiv Alumina Plant has engendered the most conflict.
Russian media have been rife with speculation in the past week about alleged competition between the country's two powerful cartels over the factory, which supplies about a third of raw materials for Russia's aluminum smelters.
The aluminum giant Sibirsky Aluminum, which already controls a 36 percent stake in the Mykolaiv factory and is believed to be backed by Anatoly Chubais, head of Russia's energy monopoly, is vying for the stake from one side.
Well-known tycoons Boris Berezovsky and Roman Abramovich are said to be pressing ahead from the other. Abramovich and Berezovsky are linked to Russia's oil major Sibneft, which recently said it purchased majority stakes in Russia's two biggest aluminum smelters.
The tender is scheduled to take place in mid-March but government officials have said it might be postponed.
Ukraine's oil refineries, which depend on Russia for most of their crude supplies are likely to become Russian tycoons' next target, and the country's mounting debt to Russia for energy supplies would only play to Russia's advantage, analysts say.
They cite the presently prevailing view among Russian officials and their supporting cadre of financial moguls that ownership of Ukrainian equities should become the preferred way for Ukraine to repay its debts to Russia.
Russia's First Deputy Prime Minister Mikhail Kasyanov delivered the message during bilateral talks with Ukrainian Prime Minister Viktor Yushchenko in Kyiv late last month, publicly proposing in Moscow that the Ukrainian government consider paying off its $3 billion overall energy debt with state-owned equities, including the Mykolayiv Alumina Plant.
Observers say another, related direction of Russian capital's expansion into Ukraine is starting to reveal itself in the banking sector.
In particular, Ukrsotsbank, one of Ukraine's largest, has recently brought a group of financial specialists from Moscow to help manage the bank's portfolios, according to several banking sources.
Ukrsotsbank chairman of the board, Valery Khoroshkovsky, however, said the possibility of further migration of banking experts from Moscow to Ukraine would represent nothing but a natural trend.
'Since independence, Ukrainian financiers have simply been unable to accumulate the capital necessary to compete with Russian cartels for properties they desire to own,' Khoroshkovsky said.
He declined to elaborate on his bank's cooperation with Russian financiers, but said such ties should only be encouraged.
'At this juncture, it would be counterproductive to impede the flow of [Russian] capital into Ukraine using legislative or political tricks. Ukraine's only recourse is to lay down the basic rules of the game and let commercial activity run its course,' Khoroshovsky told the Post.
He also predicted that Russia would continue to insist on receiving state-owned shares in Ukrainian enterprises representing strategic value to Russian investors, despite the Ukrainian government's firm refusal to consider the issue.
Shkorevsky said the Russian government's stance on the Ukrainian debt would likely become more strongly pronounced after the presidential elections are held in the country later this month.
'After March 26, an arrangement for the sale of the most hotly contested stakes sought by Russian investors will probably be worked out,' Shkorevsky said.
