Rarely have so many stolen so much so quickly. As the country was preoccupied by parliamentary elections, Kyiv city council thought nobody would notice and pushed through hundreds of land transfers on Oct. 1.
Actually, the $200 million “robbery” of Kyiv land is equal to about 20 percent of what Rinat Akhmetov’s System Capital Management “stole” during the rigged share auction of the Dnipropenergo thermoelectric generator earlier this year. And it represents less than 5 percent of the amount Viktor Pinchuk and Akhmetov tried to “steal” though a rigged auction of the Kryvorizhstal steel mill.
But the gall of Kyiv Mayor Leonid Chernovetsky and President Viktor Yushchenko’s own Our Ukraine faction in Kyiv city council in attempting to “steal” thousands of hectares of land in the capital city is shocking. While the councilors from the Yulia Tymoshenko Bloc, the Vitaly Klitschko Bloc and the Party of Regions were looking the other way, city council speaker and deputy mayor Oles Dovhy rushed through some 400 land grants to unknown companies and individuals.
Sadly, it is unfair to say that the greedy council members actually “stole” anything. In fact, they simply manipulated the law to allow the doling out of land parcels for their pet projects.
In much the same way, Akhmetov and Pinchuk lobbied to change the rules for the privatization of Kryvrorizhstal so that foreign bidders were excluded from the auction.
In economics there is a simple rule: In order to reduce prices, supply needs to grow or demand needs to be reduced. It is difficult to increase the supply of multi-billion-dollar steel factories or the number of regional energy companies to be privatized, or of land in Kyiv, for that matter.
Instead, bureaucratic obstacles are erected: The city architect must approve plans before anything can be built, or a company must have three years of very specific coal-processing experience before it can bid on a steel mill. Similar obstacles simply reduce the amount of participants in tenders and the price the government receives from the sale of state assets.
Transparent and open auctions are the simple solution. Anyone, be it a foreign or Ukrainian entity, a private individual or major company, should be allowed to take part. There should be no restrictions on what an entity can do with a parcel of land, a steel mill or telecommunications company. Every new barrier that is put up – whether it is a city architect who decides that a building’s facade must match Kyiv’s “historical face,” or coal-smelting requirements, or promises not to fire employees, is simply a legal fig leaf for corruption that artificially pushes down demand.
If authorities are actually worried about the plights of workers at Kryvorizhstal or Ukrtelecom, then they should state outright: 10 percent of the purchase price must be spent on employee compensation and retraining, for example. One could argue that a chunk of those funds will ultimately be “stolen” as well, but the losses incurred will be substantially less than those resulting from losses due to rigged auctions.
It is rare to see economic theory proven so clearly in real world practice. But thanks to the re-privatization of Kryvorizhstal, the true costs of falsified participations, land grants and other corrupt measures are now known to every Ukrainian: Pinchuk and Akhmetov paid $800 million for Kryvorizhstal, while Mittal paid $4.8 billion.
Billions upon billions of hryvnias are “stolen” every day. Kyiv city council “stole” $200 million in one day. One can only shudder to think: What’s next?
Jed Sunden is majority owner of KP Media, which publishes the Kyiv Post.
