Kharkiv’s prized state-owned turbine producer Turboatom is slated for privatization this year. A strategic asset that produces nuclear, hydroelectric and thermoelectric power stations, the State Property Fund wants to sell its 75 percent stake worth up to $800 million.
The crown jewel in the state’s privatization portfolio has long been coveted by Russian investors.
And there’s good reason why. Turboatom nearly doubled its net profit in 2013, earning some $73 million.
But given the State Property Fund’s track record of selling state-owned assets at rock-bottom prices to insiders, or at times to a single bidder, it’s unclear who will get the treasured company.
On top of Turboatom’s impressive financials, Turboatom plans to increase revenue to Hr 2 billion this year, up from Hr 1.9 billion in 2013.
But the company needs technological upgrades and better management, both of which the state is not able to adequately provide.
Since this year’s budget was first proposed in mid-December, the company has been on and off the privatization list several times. Yet on Jan. 20, the State Privatization Fund finally confirmed that it would be put on the market.
Turboatom’s sale still needs approval from the Cabinet of Ministers. Also, a new government may be in place by December given the current political instability, and it might not view the deal as favorable to the nation’s interests.
According to analyst Yaroslav Yarosh, one group led by Presidential Administration head Andriy Klyuyev, who owns a portfolio of energy assets, wants to sell the turbine manufacturer to a Russian company in order to “cement economic relations with Moscow.”
A second group under current Deputy Prime Minister Yuri Boyko prefers the status quo, since Turboatom plays a key role in several domestic renovation projects. Both Klyuyev and Boyko are considered candidates as the nation’s next prime minister.
Any sale of the state’s share in Turboatom will depend on demand. So far the company appears to have few takers. The Russian nuclear power giant Rosatom looks to be the most likely candidate. The company’s foreign unit press secretary Yulia Shaida told the Kyiv Post that Rosatom “will participate in the auction for its privatization.”
Local energy analyst Yuri Korolchuk of the Institute of Energy Strategy said that Rosatom “has ambitious plans to build 40 reactors around the world… and could use Turboatom turbines.”
Ukraine-born Russian businessman Konstantin Grigorishin is also considered to be a candidate for purchasing the asset, though analysts doubt he can compete with Rosatom. He owns 15 percent of Turboatom through his Energy Standard company. He reportedly wanted to buy the company in 2008 when he had a favorable relationship with then-Prime Minister Yulia Tymoshenko, but the sale was blocked by ex-President Viktor Yushchenko.
Another potential Russian buyer is heavy machinery producer Siloviye Mashiny, which has a 5 percent stake in Turboatom.
Other potential foreign buyers are unlikely because of Ukraine’s poor record of protecting investor rights and non-transparent conditions for privatization.
But since Turboatom’s market is concentrated mostly in the Commonwealth of Independent States, Korolchuk observed, Russia might be the only taker.
Turboatom sells 49 percent of its output abroad, including to Russia, Kazakhstan, Finland, India and Cuba. Of the 11 large turbines it produced last year, seven remained in Ukraine, three were installed in Russia and one went to Kazakhstan. According to company chief executive officer Viktor Subbotin, new orders include steam and condenser turbines for several Russian nuclear power plants.
“Its products are genuinely in demand in the former Soviet Union,” Eavex Capital analyst Dmytro Churin stated. “And substituting them would be expensive. (The company) is highly specialized, making it difficult to compete.”
The risk of not selling to a Russian company has a sinister side as well. “Rosatom and Russian companies can create stiff competition for Turboatom if another company buys it or if it remains public. Turboatom could be gradually squeezed out of its markets,” Korolchuk said.
Aside from Turboatom, other major assets being put up for sale this year, according to the Jan. 20 approved list, include rail car builder Azovmash, chemical factories Sumykhimprom and Odesa Portside Plant, and minority stakes in Zasyadko Coal Mine, Donetskoblenergo and Donbasenergo. The Cabinet of Ministers expects privatization proceeds to reach $2 billion this year. The approved budget deficit for this year, meanwhile, is $6.7 billion.
Kyiv Post staff writer Evan Ostryzniuk can be reached at [email protected]. Kyiv Post associate business editor Ivan Verstyuk contributed reporting to this story.
