A small land parcel beneath a Ternopil Region gas station sold last month for Hr 1,242 could help fuel a market-driven revolution ridding Ukrainian businesses of the least desirable landlord – the government. That is the hope of officials at the Ukraine Enterprise Land Sales Project (UKRels), a consultancy financed with U.S. assistance. Its involvement in the March 11 sale of some 1,000 square meters of Ternopil real estate heralds an ambitious strategy to get around a Parliament hostile to private land ownership by relying on a dusty presidential decree and boilerplate language in the new Ukrainian constitution.
‘Now we can say [a land sale] is possible and has been done,’ said Louis Faoro, director of the project. UKRels’ Western advisers prefer to downplay the project’s role in the conflict between President Leonid Kuchma, who backs comprehensive reform legalizing land sales, and the leftist-dominated legislature that has blocked its passage. Instead, they stress their ability to solve practical difficulties such as proper valuation of the land faced by first-time buyers and sellers.
But they do so in the service of a larger idea. ‘There’s a problem with tradition,’ said Faoro. ‘There’s been an ideology which held that land should always belong to the state.’
UKRels, in contrast, promotes the view that ‘land in a market economy is an important asset that is to be managed just as buildings and machines are to be managed.’ Thanks to the vagaries of time and Soviet planning, some Ukrainian enterprises now find themselves sitting on extremely valuable real estate in a prime commercial location. Yet many have no idea that they can cash in, never mind how.
UKRels advisers argue that, in fact, enterprises have been legally entitled to purchase their land from the government since 1995. They were just never told about it. A presidential decree issued by Kuchma in July 1995 authorized the sale of land to enterprises for entrepreneurial activity. But because a land use code adopted in 1992 explicitly permits only the sale of farmland under extremely limited conditions, the 1995 decree was initially viewed by experts as lacking a solid foundation.
A year later, however, came a new constitution guaranteeing individuals and enterprises the right to own land ‘in accordance with legislation.’ UKRels attorneys argue that clause, combined with the Kuchma decree, allows enterprises to buy their land and even resell it later to another buyer.
They acknowledged that such purchases and sales could be contested in court on the grounds that Parliament has failed to pass appropriate legislation. The advisers add, however, that a similar project operating in Russia under a similarly cloudy legal landscape has thus far prevailed in all court cases.
‘Our legal arguments are unassailable,’ said UKRels attorney Justin Hall.
UKRels was established in November with the mission of supplementing the vague language of Kuchma’s decree and the constitution with practical precedents and an information campaign informing privatized enterprises of their rights. According to Faoro, a handful of enterprises bought out their land before UKRels came on the scene. But the vast majority were held back by simple ignorance of their legal position or the reticence of local officials – who were also ignorant of how to manage such a deal. Valuing property properly was another problem. Under outdated assessment formulas currently in use across the country, many plots are valued more highly than an equivalent land parcel in central London or Manhattan, said Faoro.
One of UKRels’ goals is to establish a more realistic pricing mechanism. Another is to clarify legal procedures accompanying land sales and offer other legal advice. UKRels has held four seminars in different regions of Ukraine to explain the concepts to enterprise owners and managers, and now operates 10 branches throughout the country.
Demand for the expertise UKRels offers is high. Enterprises that own their land can not only expand and rebuild but get instant capital from the resale of their site should they decide to relocate, said Tim Dubel, an adviser with the United States Agency for International Development. UKRels has compiled a list of about 125 enterprises seeking its advice even before its information campaign has fully kicked in.
Only Ukrainian firms are eligible to buy land with UKRels assistance, but many of those who have asked for advice see land purchase as the necessary first step for attracting foreigners to their own private patch.
Faoro agreed. The first question many foreign investors ask, he said, is whether their prospective partner is located on government property. If the answer is yes, most are scared off by the prospect of endless hassles over regulations and inspections, said Faoro. ‘No foreign investor wants to be partners with the government,’ he said.
