Analysts are skeptical the State Property Fund can meet the lofty Hr 2.5 billion revenue target laid out in Ukraine’s privatization plan for 2000. But they say the high target and a growing interest from Russian firms in Ukrainian heavy industry should at least allow the fund to generate more cash from privatization than it has in previous years.
The target of Hr 2.5 billion – more than five times more revenue than the fund generated last year in hryvna terms – has been set high in response to Ukraine’s large massive foreign debt obligations and pressure from international lenders to step up lagging privatization efforts.
Before the latest plan was published, it was widely thought that the government would strive to earn a significant chunk of its revenues through the sale of Ukrtelekom. But the state telecoms monopoly is not even on the list of enterprises scheduled for privatization this year.
That has analysts wondering how the government will raise all that money.
‘I think, it’s unrealistic without Ukrtelekom on the list,’ said Valery Antonov, an analyst with Alfa Capital brokerage house. ‘The figure is used, I think, to hike budget revenues and cover gaps in the budget.’
Ukraine has had problems meeting much less ambitious privatization revenue targets in the past, including last year’s target of Hr 750 million.
Privatization of the energy sector was the cornerstone of last year’s plan but was held up by bickering between various government agencies over how to best sell the country’s energy companies – or whether to sell them at all.
The 2000 plan calls for resuming sales of the country’s regional electricity distributors – known as oblenergos – via the SPF’s network of regional stock exchanges. Stakes ranging from 2 percent to 7 percent in several oblenergos will be put on block in early March.
The SPF will hold off on selling oblenergos via tenders – generally used to sell larger stakes – until the third quarter of the year at the earliest.
The SPF projected to generate Hr 600 million from sales of energy companies last year, but raised only a fraction of that.
This year, the SPF is relying on the sale of a small number of large industrial giants to raise the bulk of its planned funds.
First in line is a 30 percent stake in Mykolaiv Alumina Plant (MAP), Europe’s largest alumina producer. The fund put the stake up for sale in late February at a starting price of Hr 113 million.
The government also has big plans for chemicals maker Oriana, located in Western Ukraine. The SPF has announced it will put a 92.5 percent stake in the company up for sale later this year for an estimated Hr 745 million – the largest sale in terms of planned revenues scheduled for this year.
Oriana may go off in a package along with its principal raw-materials supplier, Lysychansk-based oil refinery LyNOS. The SPF failed in several earlier attempts to sell LyNOS, Ukraine’s second-largest refinery.
If Ukraine somehow manages to reach its lofty privatization target, it will most likely have the Russians to thank. Several Russian firms have publicly expressed interest in acquiring stakes in companies Ukraine has had trouble selling off in the past.
Siberian Aluminum Group, which claims to already control 36 percent of Mykolaiv Alumina Plant, has already announced it plans to participate in the current tender.
Russia’s Tyumen Oil company is reportedly just one of several foreign investors – most Russian – interested in vacuuming up the Oriana stake.
The wave of Russian interest has led some analysts to say that Ukraine indeed has a chance to meet its Hr 2.5 billion revenue target. For more encouragement, they point to SPF’s successful Feb. 23 sale of a 9 percent stake in Zaporizhstal metallurgical works for a respectable Hr 91 million.
The success of that deal contrasts markedly with the country’s dismal past efforts to privatize its metallurgical sector. The fund is planning to sell another 25 percent in the company later this year.
Regardless of whether the SPF meets its revenue target, analysts say that there are really two yardsticks by which the government can measure the success of this year’s privatization drive: total revenues earned, and total companies sold.
While the former measure gets most of the attention from Ukraine’s cash-hungry government, the latter is more important in the long run, some Westerners say. The more decaying state enterprises the state gets off its hands – no matter what the price – the better off the state, the logic goes.
‘I don’t think you can measure success in figures only,’ said Kevin Covert, an analyst with PricewaterhouseCoopers in Kyiv. ‘If they [the government] start selling strategic companies, that’s a success.’
Parliament approved the latest draft of this year’s privatization program on Feb. 22, and the president is expected to sign it into law in early March.
