A Twist of the Wrist

23 December 2011, 15:30

UW: What is your first impression of the government’s privatization program?

The bill has just passed the committee and the Verkhovna Rada has not yet opened it at the session. But I will say that under the current privatization approach, no bills or programs are really meaningful. Most tenders actually have just one buyer. KyivEnergo is unique in this sense as it has as many as two competitors. What is the program good for under such circumstances?

UW: What exactly is wrong with the Cabinet of Ministers’ program?

It has no clear list of objects or purposes of privatization. Many were surprised by the intention to sell all state-owned assets by 2014. Does this mean the start of a trivial enterprise give-away to tycoons that liked the companies at some point? This could be an option if everything is settled with the President. But it is too early yet to draw conclusions based on the program’s general statements.  

UW: This total approach hints at one other problem. Ukraine has state-owned companies that feed private structures. Which objects should be sold?

Who needs to sell these objects? The government or tycoons? Forget state interest. These will hardly be taken into account.

UW: What kind of a privatization would be reasonable under such circumstances?

They need to sell everything but not to one buyer. Otherwise, we will change the government monopoly to a private one; although it has long been proven that the latter is worse. The establishment of industry holdings, like in Kazakhstan or China, has nothing in common with European practices or reason. I have no idea why people talk of a market here or go to a market yet fail to recognize the importance of competition. Private monopolies on which the economy of the whole country relies can be unpredictable in times of crisis. Therefore, politicians should take into account conceptual things, not commercial details.

UW: What is the market value of objects that can be put on sale in 2012?

We could have an idea of what the assets cost if we had competition. Today no expert in Ukraine or abroad can answer this question. And that’s a big problem. Even oligarchs who gain something in the process cannot determine the value of these assets. Notably, even powerful foreign investors find themselves out of the game. For instance, the last time the Russians won a tender was when they bought LuhanskTeplovoz, a Luhansk-based locomotive plant. An Indian investor bought Kryvorizhstal earlier. Over the past 10 years, foreigners have made just two or three big scale purchases, and these were exceptions. Others buy entities yet rarely invest much or barely introduce innovative technologies in their newly-acquired businesses. The process looks like a vicious circle: everyone is fussing around, grabbing something from others, redistributing assets over and over again. This is terrible for the economy. The government should realize this! But nobody seems to be listening. Everyone will end up in the trap they’re making, even those who seem to be churning good profits now.

UW: Which entities should not be sold at all?

The Ukrainian Railway for sure. Selling it would be insane! Of course, the government in Ukraine can hardly run anything but some things are too social to be transferred into private ownership – that’s a risk! The biggest issues here are tariffs and the terms of transportation. It’s dangerous to sell some other objects as well, such as Naftogaz and aircraft or transport entities. But the railway must remain in state ownership. The UK once tried to privatize theirs but re-nationalized it later.

I don’t support the idea that the market economy has exhausted itself and government interference and regulation are the future. Quite the contrary, some State Property Fund presidents have had a lot of leftist ideas over the past few years. Privatization should be transparent and timely. Let’s take the land market. It’s not to be blamed on the current government alone but the fact that the land market is being legalized after the land has been distributed speaks for itself. I’m not sure the State Property Fund will manage to privatize everything by 2014 but the government will surely no longer own a share in holdings, including national joint stock companies and the rest. The officials will deal with all that. 

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