Since Dmytro Sennychenko was appointed the head of the State Property Fund nearly a year ago, his life has been anything but boring.
Hundreds of simultaneous court hearings, several bomb threats during important fund meetings, raider attacks, accusations of backing Russian interests, constant attempts on giving him multi-million-dollar bribes — that is Sennychenko’s daily routine.
“We could make movies here every day,” Sennychenko told the Kyiv Post.
Sennychenko is at the center of attention because he’s a key person responsible for privatizing nearly 3,700 stateowned enterprises across Ukraine, including huge plants and factories.
However, the state has poorly managed many of them, and Sennychenko believes at least one-third can’t be sold anymore and should be liquidated.
“There is even nothing to sell there, more obligations than assets,” he said.
Nevertheless, in just the first half of 2020, the fund has already exceeded the government’s $20-million privatization plan for this year. As of June, it has sold more than 200 objects worth a total of $24 million. But Sennychenko still is not happy with this result. He wants to sell all of them as quickly as possible.
“Ukraine is the last country in Europe, where assets can be acquired on the primary market,” he said. “Privatization in neighbouring Eastern European countries as well as Western countries happened a long time ago.”
At the same time, the initial government plan for privatization at the beginning of the year was 24 times higher than the current one, at nearly $480 million. The plans have changed because of the global COVID-19 pandemic and strict quarantine measures.
The government also decided to cut $2 million in spending on preparing properties worth over $10 million each for major privatization. As a result, the fund had to stop privatizing several such enterprises planned for 2020 because preparations usually take from 9 to 11 months.
“We are against such decisions very much,” said Sennychenko. “It is not right to stop big privatization projects.”
A view of the Odesa Portside Plant on Aug. 31, 2016. In the beginning of 2020, Ukraine’s anti-corruption agencies conducted a special detention operation against people who attempted to give a $5-million bribe to Dmytro Sennychenko, the head of Ukraine’s
State Property Fund, in order to appoint their preferred director of this plant, which is currently on the list for privatization. (Volodymyr Petrov)
Easy access for transparency
In order to make privatization processes easier, the fund has launched a website to show financial, technical and due diligence information. If privatization announcements were previously printed in a newspaper with a circulation of 400 copies in a country of nearly 40 million people, today everything can be easily seen online.
“All potential buyers can look into it,” said Sennychenko. He said such openness increased the competition at auctions from one or two bidders to five per auction.
Overall, the fund plans to put some 500 “small objects”— when the value of each is below $10 million — up for privatization by the end of this year. The Dnipro Hotel in the center of Kyiv, small seaports on the Black Sea coast like Skadovsk and Ust-Dunaisk and 12 out of 73 state alcohol plants are among them.
The Bolshevik machine-building plant that the Soviet Union even used to produce artillery shells now stands empty and derelict on a territory of 30 hectares in central Kyiv. “This is a chic territory for a development project,” Sennychenko said.
Big privatization and oligarchs
On the path to mass privatization, the business interests of Ukrainian oligarchs are one of the State Property Fund’s biggest obstacles.
The fund currently has 23 large state enterprises it plans to privatize in the future. But oligarchs often own some shares in the enterprises or control them from within using top managers and directors.They also can benefit through intermediate companies that maintain strange relations with the enterprises and shady schemes.
Sennychenko often finds himself threatening these oligarchs’ interests.
“We have 530 court hearings at once. We are in a constant struggle to tear these assets from them and put them on the open market,” he said. Oligarchs are “rooted there deeply in different ways.”
The fund has to waste a lot of time on this, which slows down privatization.
“If those people want to rule such enterprises, the fund offers them to buy (the enterprises) and only then to manage them, rather than using them while they are stateowned,” said Sennychenko.
Sennychenko has already gotten used to the constant flow of bribe offers from those interested in earning money on state-owned enterprises and opposing largescale privatization.
In January, Ukraine’s anti-corruption agencies conducted a special detention operation against three men who attempted to give a $5-million bribe to Sennychenko in order to appoint “their” director to the Odesa Portside Plant. The chemical factory was for many years reported to be in the business orbit of oligarch Ihor Kolomoisky. The plant is currently on the list for privatization this year.
“I already felt such annoyance and disgust after multiple such bribe offers that I decided that it was time to detain at least someone,” Sennychenko said. “When there’s a private owner, they won’t be able to do their shady schemes.”
At the Zaporizhia Titanium and Magnesium Combine, Europe’s only producer of sponge titanium, it had not been possible to change the director since 2013.
Clerks at the plant, where 51% of shares belong to the state and 49% to Ukrainian oligarch Dmytro Firtash, did not even attempt to register another candidates for director — they were afraid for their own lives. They only managed to replace the director this year, but with a huge threat to Ukraine’s ecology.
On the day when the new director replaced the previous one, who is currently suspected of stealing $492 million from the plant, the regional electricity supplier decided to cut electricity to the plant due to its $40 million of unpaid bills.
If that had happened, the furnaces at the plant would have stopped and never restarted due to specifics of the technology used. Moreover, chlorine would have spilled into the Dnipro River, causing an ecological catastrophe for the whole region.
“We called the energy minister directly to ask to delay this shutdown for at least a week, so that the company could pay part of the debt,” said Sennychenko.
He strongly believes that such an enterprise should be included in the list of enterprises required to regularly pay the government for insurance against electricity shutoffs. But the plant has not paid for this service.
“A man-made disaster was prevented on the day the new director was appointed,” Sennychenko said.
Currently, the plant is not on the privatization list, but eventually the state’s share should also be privatized, he believes.
Dealing with Firtash’s company may be difficult, but a private investor should be willing to defend its interests in court.
“A private investor will deal better with all court hearings,” he said.
Dmytro Sennychenko, head of State Property Fund, points at the map of Ukraine with all the state assets that his agency plans to sell to private investors on June 18, 2020. (Oleg Petrasiuk)
Forcing bankruptcy
Sennychenko is constantly facing accusations that the fund appoints new management to state-owned plants and deliberately drives them into bankruptcy so that they can easily be bought at a low price when privatization auctions are held.
Most recently, critics have lobbed these accusations at the fund’s handling of Elektrovazhmash, a Kharkiv-based strategic state enterprise specializing in the production of turbo-generators and hydro-generators. The enterprise was on the 2020 large-scale privatization list before the COVID-19 pandemic changed the government’s plan.
When the enterprise was transferred to the fund at the end of 2019, its bank loans — including from Russian Sberbank — stood at $36 million and it had annual total losses of more than $4 million. It had reduced the number of its staff by 30% to 3,500, and the enterprise was working only 4 days a week. Eighty percent of orders were not made on time.
“We received this enterprise in these conditions. It was bankrupt already, and had been brought to this condition during many previous years,” Sennychenko said.
“Every enterprise we receive is a distressed asset, which has long-term debts. And what we are doing is we appoint anti-crisis managers,” he added.
Lobbying Russian interests?
Many Ukrainian media have claimed that Sennychenko is lobbying Russian interests when selling state-owned enterprises.
They cite the case of United Mining and Chemical Company, where the fund appointed Peter Davis as acting head of the firm. He had previously worked for British multinational Glencore, which owns 8.8% of United Company Rusal, a Russian aluminium giant.
Sennychenko denies these accusations, saying that Davis is just a professional manager and he has worked in many other companies besides Rusal.
”He also worked for McDonald’s, so we can say he lobbies American interests,” Sennychenko said. Davis also worked at the 1+1 Media holding before Ukrainian oligarch Ihor Kolomoisky bought it.
Moreover, as soon as the new team arrived at United Mining and Chemical’s plant, the financial director’s car was burned during the night and armed men tried to break into the apartment of the commercial director.
Since running such enterprises is psychologically difficult, Sennychenko says that the fund is “looking very carefully for stress-resistant managers.”
“It is a ticket to the war,” he added.
While resisting the influence of oligarchs in large Ukrainian state enterprises is an enormous challenge, small-scale privatization and long-term rent have proven significantly easier. They take less time and can even be fun.
Here are some examples of successful, small-scale privatization in Ukraine.
National bank holiday home
The National Bank of Ukraine’s holiday home in the Carpathian Mountains near the western Ukrainian city of Ivano-Frankivsk was built in 2013. The 2,000-square-meter house was built exclusively for the board members of the bank and as a place to host up to six VIP guests.
“Every room has a jacuzzi, the windows are made of armored glass, the walls are textured with Venetian plaster and the chandeliers on the ceiling are made of crocodile leather,” said Sennychenko.
But the holiday home lacks a few very important things — a road to get there and electricity and gas hookups. The starting price for the house was $2.4 million, which the National Bank spent to build this “sanatorium for the elite.”
However, since nobody bid on the house during two auctions, the price dropped to less than $1 million. That’s when a restaurateur from Odesa and a hotelier from Lviv bought the building.
Kuchma hotel
There are thousands of different state-owned enterprises, plants and factories across Ukraine. And some of them are totally unproductive or de facto abandoned assets.
Take, for example, the 5,000-square-meter hotel Slovianskiy, which was built in 2004 in Chernihiv Oblast on a picturesque riverbank. The hotel was constructed to serve a single purpose: to host then-Ukrainian President Leonid Kuchma, Belarusian President Alexander Lukashenko and Russian President Vladimir Putin.
“A glamorous building,” Sennychenko describes it.
Now, the hotel operates with huge losses and the local administration has to pay $20 million annually to maintain it. The fund will put it up for auction in early July to bring in an investor and, hopefully, make “the asset productive.”
Renting instead of selling
While the State Property Fund broadly supports privatization, there are some cases when it decides not to privatize an asset,
but to rent it out long-term.
One of them was a children’s yacht club in Odesa on the coast of the Black Sea. It is owned by the Infrastructure Ministry. The fund’s experts realized that the club was surrounded by private buildings. If they privatized the club, it would most likely be replaced by a different kind of building, depriving children of a place to learn yachting.
“We decided to give the yacht club out for long-term rent for some 40 years to preserve it’s activity,” Sennychenko said. “The whole of Odesa supported this decision.”
By the end of summer or during the fall, the fund will conduct an auction to attract a long-term tenant.
Another rent case is a very old salt plant in Drohobych, a city in Lviv Oblast. The factory currently produces little salt and it’s value is largely historic. The fund plans to rent it out for a long term.
“It is better to create a tourism center around this historical enterprise, not just sell it thoughtlessly,” Sennychenko said.
