Early this week, the State Property Fund of Ukraine unveiled its program for the privatization of state property for the period 2010 – 2014. Over the four years, the SPF plans UAH 50 – 70 bn in proceeds from the sale of state assets and a 25-30% reduction in the state’s shares in national companies from the current 37%. The majority of objects significant for the country will be sold under specially developed procedures
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| PHÎÒÎ: AP |
Smaller companiesare first up for sale
The privatization program divides all state property objects into those that should immediately be sold and those that should be sold taking into account “individual particularities”. Objects that are of no particular interest for the government are in the first category, while strategic companies and monopolies fall in the second category. At the same time, sectors of industry that the government views as strategic will be defined by a special legislation.
The SPF has devised several variants for the privatization of unneeded assets.
First, 100% of the shares of such companies will be put up for sale. Secondly, the SPF sanctioned the use of a mechanism of lowering opening bids on tenders, meaning there will be no limitations to such undercutting of prices. The main objective of the SPF is to attract buyers for a symbolic price of UAH 1.
Another possible variant is the sale of a company without announcing its value or purchase price. This means that upon mutual agreement bidders in a tender will have a chance to buy attractive enterprises for a song.
The third way envisages divvying up shares into parts of no less than 25% of the authorized capital and selling them as separate bids on the stock market.
A clever trick here is that in compliance with the regulations proposed in the bill on the transparency of privatization procedures, the government will demand disclosure of end beneficiaries only in case it receives over 25% of a company’s shares. Basically, this will mean the names of the buyers of state assets will not be made public upon agreement with the SPF to split shares under the guise of a lack of interest in particular assets. Noteworthy is that the state is not obligated to hold tenders for such objects.
“It is highly likely that such a scheme of quick sales is aimed at efficiently patching gaps in the national budget, instead of developing sectors of the economy in which alienated companies are operating. There is virtually no other explanation for speeding up privatization. Apparently, the government wants to take credit for completing the privatization process without thinking about the price and economic substantiation of the sale of state-owned objects,” said Kateryna Kutsenko, an expert at the Institute of Economic Research and Policy Consulting.
Major assets get special treatment
The privatization procedures for the sale of companies in the “G” group (strategic companies and monopolies) are slightly more complicated. First of all, they can be sold exclusively on auctions at hiked up prices. Secondly, they will be sold according to the principle of “individual privatization”. This means the individual nuances of a particular company and the market it is operating on will be taken into consideration at all stages of the sales process. Apparently, it is precisely this provision that will afford the opportunity to register the terms of sales of the most interesting objects owned by the government for bidders that have close ties with the authorities.
Another provision enabling manipulations with the results of privatization tenders is the principle of “attraction of investors interested in long-term development of the objects for privatization now owned by the state”. The proposed prices and business plans for the development of companies after their privatization will be considered at tenders in order to screen the purchase of state assets for further resale by profiteers.
In short, additional payments to the national treasury are not compulsory. The main thing is that the development plan submitted be attractive to potential buyers. Moreover, to prevent a company’s shares from being sold to strangers the SPF has introduced a restriction on the participation of companies from countries that are not members of the FATF or are registered in offshore zones. The new owner of a company should not be worry about impulsive re-privatization feats of the government after it gains ownership of a company. The agreements will contain a comprehensive list of reasons for which a purchase-sale agreement may be terminated.
Presumably, all objects will be sold with land plots. If there is no demand for them, an object can be sold without allotment while the land plots will be leased to the new owners. What is enticing about this scheme is that in compliance with the Land Code, a tenant has preferential rights to the purchase of land. However, such a procedure will not be as open to the public as a privatization tender. For this reason, there are no guarantees that the money paid to the national budget will be on par with the market price.
G group companies are the only entities for which specific terms of use of assets and forms of business activities after privatization will be defined. Moreover, additional demands will be put to the buyers after the sale. At the end of the day, the government does not care much about the fate of the other companies.
The option of assigning a controlling share package in a company is yet another distinctive feature in the sale of strategic companies. If the government leaves some shares for itself, the share package should be a controlling package. All share packages that are less than 50% of state ownership should be sold. At the moment, there are 415 state-owned enterprises of this type.
The possibility of attracting special advisors for the sale of strategic companies is also important. Taking into consideration that G group companies are the most expensive assets put up for sale and the fact that advisors will work for a percentage commission from privatization deal opens path for corruption, particularly when the SPF selects one advisor for the sale of all properties of the G group.
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