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29 March, 2011

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Ukrtelecom’s bizarre privatization: prepared for over 10 years, to be sold to God-knows-who

TParty of the Regions’ style is well known, but this time it outdid itself. Under President Kuchma, state-owned assets were sold off for peanuts. But privatization under current Chair Oleksandr Riabchenko is different even than under Mykhailo Chechetov, who ran the Fund in 2004. Then, everyone knew who got what: which plant went to Akhmetov, Novynskiy, Kolomoyskiy or whoever… Today, nobody knows anything.

To set the record straight, a special committee will be set up to audit the tender. Or Special VR Privatization Oversight Committee will look into the way the tender was run. Two questions need to be answered: how much the government spent to prepare Ukrtelecom for privatization and who is the real owner now? Everybody already knows that it was bought, not by Austrians, as was originally announced, but by an unknown offshore company.1 Moreover, just before the privatization, the National Communications Regulatory Commission took proposed changes to the top rates for landlines as a basis. The Austrian holding could not have lobbied this decision before Ukrtelecom was sold. This means that whoever is behind this privatization has good enough ties to the President’s inner circle to influence the NCRC. But this wasn’t likely Rinat Akhmetov: He was in a position to buy Ukrtelecom openly, since a company of his had met all the requirements of the SPF.

In short, no one will be able to challenge this privatization. Indeed, nobody is even going to try because, strictly speaking, no laws were broken. Still, this event does merit a political assessment—if only to show Ukrainians how much of their taxpayer money was wasted to prepare such a major asset to be given away to God-knows-who for peanuts.

I can tell you right now that the government put billions of hryvnia into Ukrtelecom—even if Mr. Riabchenko claims that the operator has been running at a loss. The company was prepared for privatization and it is the only owner of a 3G license. Then too, the government has been giving Ukrtelecom deferrals on transferring dividends to the Budget for some time. In other words, this privatization has turned out to be very costly for everyone concerned.

What’s more, raising rates on landlines is most likely just the first government gesture to help the new owner. And we can expect further moves in his benefit. For instance, his company will be the only one to get a 4G license. This could lead to a monopoly on wired internet connections just as in Arab countries, that is, windfall profits for the company and control over information flows for those in power.

This doesn’t look good for mobile operators: they will find themselves in an uncompetitive environment with no market pricing or equal access to resources. It’s hard to say now how Ukrtelecom’s new investor will behave. We can project what strategy a major telecoms player might follow, but here we’re talking about an unknown company. Whatever happens, this doesn’t bode well for consumers. After all, the investor needs to offset the UAH 10.5bn this acquisition cost.

The prospects for privatization in Ukraine after this decision are yet another matter. Think about it: preparation for sale lasted for over a decade, interspersed with debate over whether a company that controls telecommunications should be made private at all. In the end, it was sold to some unknown entity that is obviously not going to invest anything in its newly-bought asset2—in stark contrast to other potential buyers, which included major European telecoms operators. The idea of turning this privatization into a showcase failed: a slew of interested bidders were excluded from the tender. Initially, plans were to increase the Start Price, but this idea was also trashed. Instead of several competing bidders, which would have raised the final sale price, only one company was allowed to bid and paid barely more than the opening price.

The current Administration has made it very clear to foreign investors that they are not welcome and that homeboys will get to cherry-pick all the best assets. Ironically, Ukraine has no more properties of this level. The one and only Odesa Port Plant is only interesting to operators on the chemicals market. And here, too, the new owner has most likely already been designated.


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