Kyiv’s state motorcycle plant used to produce legendary Dnepr bikes, but it had been run-down for years until tycoon Vasyl Khmelnytsky acquired it for nearly $8 million.
Khmelnytsky, however, didn’t buy the plant to manufacture bikes. Instead, he used its territory to build the Unit.City innovative park that hosts tech startups.
“This is an absolute win-win — the state, business and all citizens of the country win,” Khmelnytsky told the Kyiv Post. He said the old plant will now bring “new opportunities.”
It is a happy ending for a decrepit property, which many other state-owned buildings can’t boast about. Ukraine still has 3,600 state enterprises and most of them have neglected premises, maintenance of which brings only losses to the state coffers.
The only way to save this real estate (and budget money) is to sell them to private businesses. For entrepreneurs, it’s a bargain, because they can get affordable property in a good location with all the needed utilities, including electricity and plumbing.
Transparent privatization
For years until 2018, the state had sold few old enterprises to private investors — often for knockdown prices and through shadow schemes, which only few knew and had access to.
Khmelnytsky, a seasonal politician back then, was one of those lucky people who bought the state property in 2012. It took him five years to turn its territory into the Unit.City industrial park.
Dubbed Ukraine’s Silicon Valley, the park offers office space for over 100 Ukrainian and foreign tech companies, cultural projects and investment funds.
The park is growing, and by 2025, it will have five new campuses. Besides, Khmelnytsky’s company UDP and KAN Development are constructing a residential complex there.
Just as Unit.City is sprawling, so the process of privatization is becoming more transparent.
When in 2018 the government made the privatization of small state property (under $9,000) official, things have started to pick up pace.
The procedure has become straightforward too. To buy a state asset, potential investors have to register on the website of e-procurement system Prozorro.Sale. They need to upload documents and pay warranty and registration fees to later participate in an auction. The biggest bidder wins, signs a contract and pays for the property.
According to Dmytro Sennychenko, head of the State Property Fund, privatization in Ukraine has many advantages even for foreign investors, as state specialists prepare “financial, technical, tax and legal audits” that can be checked remotely from abroad.
Ukraine — and its assets — may attract investors with its “geopolitical position, skilled labor, and the association agreement with the European Union.”
Last year automotive company Bastion Group used new transparent privatization rules and acquired the major stake in state-owned enterprise Kyivpasservis. For $8.3 million, it bought six bus stations in Kyiv, including the central one, and 18 bus stations in Kyiv Oblast.
The company’s marketing head Dmytro Ozhyhov said that although the “Soviet-era” buildings are decrepit and the equipment is obsolete, he can make use of them after a little renovation.
Bastion will build waiting areas for passengers, stores, food courts and a motel. The company plans to preserve some of the Soviet architecture, including by renovating mosaics at some of the bus stations.
The company has already spent about 2 million euros on the renovation of the Central Bus Station in Kyiv. It plans to redo all the
other bus stations too, but the company hasn’t yet calculated the cost of it, Ozhyhov said.
What’s next
Apart from run-down factories and bus stations, the state has also put prisons out for sale. Pre-trial detention centers will be sold too.
It’s likely that, after they’re sold, most of them will be destroyed to build factories, residential complexes or shopping malls in their place.
The benefit for potential investors is that external and internal engineering networks and water connections are already there.
Some state facilities, however, cannot be destroyed since they are architectural monuments. This includes pre-trial detention centers in Kyiv, Odesa and Lviv.
Denys Malyuska, Ukraine’s justice minister, told Radio Free Europe/Radio Liberty that detention centers can be used for hotels or museums.
As the number of prisoners dropped from 137,000 in 2013 to nearly 53,000 last year, even operating prisons are now less than 70% full. Therefore, the state will shut down 35 prisons and will try to sell them.
The Justice Ministry, which owns detention and pre-detention facilities, said that 70% of the money it raises will fund the construction of new detention facilities, 30% will go to the state budget.
For now, however, the ministry hasn’t sold a single prison yet. It tried to sell the Irpin Correctional Center, located just outside Kyiv, for $7.9 million, but nobody bid for it.
Now the state asks $3.9 million, advertising the place as the one that “opens opportunities for constructing a business center, logistics complex or residential property,” according to the Justice Ministry website.
Denys Malyuska, Ukraine’s justice minister, speaks during a presentation of “big sale of prisons” on Aug. 6, 2020. (AFP)
While small privatization is rather successful, the privatization of large-scale state assets, worth over $9,000, is lagging.
The fund had to start selling big state assets in 2020, but the government put the privatization on hold due to the pandemic. The parliament voted for lifting the ban in the first reading in February.
In total, the state plans to sell over 550 of its enterprises, including Odesa Portside Plant.
Many state-owned enterprises have debts and other problems that discourage potential investors but the fund tries to cope with it.
According to Sennychenko, the fund attracts advisers for each case of big privatization. They collect the information about assets, analyze it, offer starting prices and develop plans of what to do with debts.
If the government lifts the ban on big privatization this year, the state budget may get $320 million along with other $110 million from “small” privatization. In 2020, the fund managed to make nearly $110 million for Ukraine by selling unneeded small-scale assets, while the target was just $18 million.
Khmelnytsky, as an investor in state property, also thinks that Ukraine should push privatization forward. He doesn’t see any risks or drawbacks in it.
“We need to get rid of old assets that cannot be restored as fast as possible and foster investors to privatize them to turn them into something useful for the country…” Khmelnytsky said.
Apart from run-down factories and bus stations, the state has also put prisons up for sale. Potential investors can benefit from gas and water connections that are already there. Denys Malyuska, Ukraine’s justice minister, says that detention centers can be used for museums or hotels.
