Ukraine’s state postal service provider Ukrposhta has recently become a public joint stock company. With its new legal status and the autonomy that comes with it, the company wants to raise revenues by combining several businesses – a real estate property management firm, a bank, and a shipping carrier for global e-commerce retailers.
Under the management of CEO Igor Smelyansky, Ukrposhta has put its first property up for lease, is holding talks with U.S. courier company USPS, and is awaiting the Verkhovna Rada’s passing a bill that would allow it to offer more financial services.
Restructuring
Ukrposhta completed its corporate restructuring in March, having transformed into a public joint stock company 100 percent owned by the Ministry of Infrastructure.
“We are a regular business company now,” Ukrposhta CEO Smelyansky said in an interview with the Kyiv Post.
The new legal status grants the state-owned company autonomy in decision making and financial planning, he said. Previously, as a “state unitary commercial enterprise” it had to follow a financial plan approved by the government a year in advance.
A former employee of KPMG office in New York, Smelyansky was appointed in April 2016 from among a cohort of Western-educated professionals who came into government service to reform Ukraine.
Sadly, many “reformers” who came in the wake of the EuroMaidan Revolution have already resigned – most recently Polish citizen Wojciech Balczun, who took the helm at Ukraine’s state railways Ukrzaliznitsya at the same time as Smelyansky took over Ukrposhta.
But Smelyansky is determined to turn “the pumpkin” of the loss-making state-owned company, with 80 percent of its post offices and sorting centers still relying on manual labor not computers, into a “Cinderella.” The company’s corporate presentation even uses the fairytale character to illustrate the transformations which it plans to go though, such as automation, improved logistics, and diversification of services.
Property management
In August, Ukrposhta became the first state-owned company to put property on lease via ProZorro, the government e-procurement system. The first lot is a restaurant with a summer terrace for a starting price Hr 31,000 in the small town Bucha, 33 kilometers from Kyiv.
The restaurant is one of the non-core assets that Ukrposhta hopes to turn into a source of additional revenues.
Currently, Ukrposhta has 12 recreational facilities used as hotels, training centers, and banquets halls. They are a legacy of the Soviet institutional system, which required virtually every state agency to maintain a vast number of ancillary properties for various purposes.
As a result, Ukrposhta is now one of the largest property owners in the country, with nearly 1.3 million square meters of premises, including sorting centers, garages, warehouses, branch offices, and recreational facilities.
In addition, the company rents 374,000 square meters of retail space in Kyiv, making it the second largest property leaseholder in the city after the state savings bank, Oschadbank.
Naturally, maintaining such a huge real estate portfolio is difficult and expensive for a struggling state company. Moreover, many of the premises haven’t been used for years or are inconveniently located.
“Today Ukrposhta has 35 sorting centers in Kyiv. Many of them are located near the railway station from the times when the mail was delivered by railways,” Smelyansky gives an example. “In fact, we need 5-6 of them, no more, but modern and computerized and outside the city center.”
The new management led by Smelyansky audited Ukrposhta’s assets and decided to get rid of non-core or unused premises by selling or leasing them. In addition, the company re-assessed its retail network, deciding to open new post offices in malls and locations with better foot traffic.
Financial services
In June, before the Verkhovna Rada (Ukraine’s parliament) left on its lengthy summer hiatus, a draft bill was submitted to extend the list of financial services offered by Ukrposhta. It will be reviewed in September.
Hitherto, the company has been providing financial services such as pension payments and money transfers, but the new bill would allow it to open customer accounts, issue payment cards, and accept deposits, similar to a bank.
However, the proposals are opposed by the Independent Association of Banks of Ukraine, the European Business Association, and the National Bank of Ukraine. They argue that the new bill would allow Ukrposhta to function as a bank de-facto without getting a bank license. Neither would it have to contribute to the Deposit Guarantee Fund or be required to comply with the rules of the NBU on obligatory client identification.
Furthermore, the private banks are concerned by the increasing proportion of state financial institutions on the market, believing this creates unfair competition.
According to the NBU statistics, the four largest state-owned banks – PrivatBank, Oschadbank, Ukreximbank, and Ukrgasbank – account for over half of all deposits from individuals and legal enterprises in Ukraine.
But Smelyansky says Ukrposhta won’t compete with the commercial banks, and will focus on servicing rural communities that have no bank branches.
Today Ukrposhta operates 11,500 offices that cover practically the whole of Ukraine, including 27,000 villages with populations fewer than 2,000 people.
“The estimated 14 million people that live in those small villages are left out of the banking system,” Smelyansky told the Kyiv Post. “They’re already customers of Ukrposhta, because there’s nothing else there, so it’s wrong to say that we’d increase the state monopoly of the market.”
His idea is to encourage people in rural areas, 30 percent of population, to use cashless transactions. Ukrposhta would also give them a place to save money in the absence of banks. At the larger scale, this would benefit the economy and bring additional income to Ukrposhta offices to help pay for their automation. Currently, rural post office employees have to deal with large amounts of cash to pay pensions.
Smelyansky added that the 8.75 percent deposit interest rate offered by Ukrposhta are uncompetitive for city customers, but might be attractive to rural ones, who would otherwise keep their savings in cash. Ukrposhta will not offer loans, he said.
Smelyansky is determined to get what he wants one way or another. If the draft bill fails in the Verkhovna Rada this fall, he is considering either purchasing a small bank or signing a strategic partnership with another bank.
International shipping
In 2016 Nova Poshta, a private postal company, signed a deal with SF Express, the Chinese delivery services company. Nova Poshta now handles express deliveries from six Chinese stores to Ukraine, including AliExpress, an eBay-like website that belongs to the world’s largest online retailer Alibaba Group.
Except for this, Ukraine has been isolated from the world’s e-commerce giants so far, giving business to forwarding companies to deliver orders from abroad.
So to develop its international business, Ukrposhta is currently in talks with U.S. postal service USPS to handle international shipments from Amazon, the US-based online store, to Ukraine.
Smelyansky says cooperation with USPS would require technical and operational adjustments, as well as joint efforts with the State Customs Service of Ukraine to ease the customs clearance of expensive packages.
Currently, Ukrainian customs regulations allow Ukrainians to receive, without paying value added tax, packages with goods not exceeding a total value of 150 euros.
“We want to offer our customers the option of direct delivery to Ukraine, but we understand that the average purchase from Amazon is higher (than 150 euros),” Smelyansky said.
“So we have to give people a convenient way to pay the tax, and this requires integration with the Customs Service.”
