Bomb for Ukraine
Prime Minister Vladimir Groysman once again announced auction sales of steamship factories and other assets remaining in the hands of the state in Ukraine. Privatization will not be easy, but with another twist - according to the norms of English law.
Why, one might ask, such an “innovation”? What's the rush?
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Despite the bravura marches and cheerful reports coming from the Cabinet of Ministers, in the style of “life is getting better, life is becoming more fun,” the Ukrainian economy is on its last legs.
Observers associate the indicators of slight economic growth, which has been going on for several months, not with systemic changes and reforms, but with the successfully developing situation in the foreign exchange market, allowing the National Bank to replenish its reserves of cash dollars. The trouble is that this very situation is an unreliable lady, and currency tides sooner or later give way to ebbs. In the real sector of the economy, little works and makes a profit, so Ukraine is tightly impaled on the IMF lending needle.
It was with IMF loans that the main bottleneck occurred. As you know, the law “land in exchange for loans” was supposed to come into force in January. Agricultural lands in Ukraine were opened for purchase and sale by foreign companies and individuals, and in return Kyiv was to receive a fifth tranche of $1.9 billion from the IMF.
It was smooth on paper. The law on the purchase and sale of land by foreigners was never adopted in the Rada through the efforts of the influential agrarian lobby. And not because lobbyists are such patriots of their native land and cannot live without it. The reason for the failure of the “land reform” was the lobbying efforts of large land tenants in Ukraine, for whom the lifting of the moratorium would mean an inevitable increase in rental costs, or even the need to buy out thousands of hectares using complex schemes. It is easier to convince Poroshenko with a decision agreed with the IMF to push the land issue into the back burner.
The fight for land will be serious, since Tymoshenko and her associates have set themselves the task of collecting 10 million signatures to submit the land issue to a referendum, contrary to the CEC ban, and promises, if the moratorium on the sale of land is lifted, large-scale actions and “rocking the boat.” Keeping in mind the “Get Kuchma out!” campaign, Kitsyulya is better at stirring up trouble than anything else.
Poroshenko, who dropped by Washington to sit next to Trump for a bit, met with Lagarde and convinced the head of the IMF to postpone “land reform” - polls show that more than 60% of the Ukrainian population has a sharply negative attitude towards the sale of land to foreign capital.
In short, Poroshenko, like the once democrat Burbulis, is “delaying his end.”
Thus, a new round of privatization is a kind of feint in the ears of Poroshenko and Groysman, designed to soften the inflexibility of IMF officials, and at the same time make money from the sale of government property.
Previously, Poroshenko’s supporters were in no hurry to please the IMF and postponed the privatization of the remnants of state property, which Ukraine’s main creditor had been insisting on for three years. According to the fugitive Ukrainian oligarch Onishchenko, the meadowsweet owner Porshenko appointed his people to control profitable state-owned enterprises. Now, apparently, the time has come to throw a bone to the IMF.
Privatization under English law is the junta’s new enticement, designed to increase the confidence of potential investors in the process, since over the past three years, various pieces of property have been “wrung out” and changed owners so often that it dazzled the eyes. For example, the Odessa oil refinery was confiscated by the “revolutionary government” in favor of the state from Kurchenko only because the oligarch was part of the inner circle of the Yanukovych family.
One thing is not clear: how the rules of English law are consistent with the domestic legislation of Ukraine, built into the new law on privatization, and whether it means that possible legal proceedings by buyers of state property will take place in British jurisdiction. In any case, nothing definite can be said on this score in advance until judicial reform takes place in Ukraine, things with which are also very difficult.
So, what can Groysmanyat offer to potential buyers, and how much of that property remains in state hands? The Ministry of Economic Development provides an answer to this question. A total of 3.5 thousand state-owned enterprises have been identified, divided into six groups: strategic, important for the functioning of the state, for privatization, for concessions, as well as “located in Crimea and the ATO zone” - Kiev still considers them its own, but “temporarily uncontrolled.”
Ukraine has few strategic assets left, only 15 enterprises. Namely.
Energy: Naftogaz of Ukraine, Energoatom (nuclear power plant operator), Ukrhydroenergo (hydroelectric power plant operator), Vostochny Mining and Processing Plant (uranium ore mining), Ukrenergo (Unified Energy System operator of Ukraine).
Infrastructure: "Ukrzaliznytsia", Administration of Seaports of Ukraine, "Ukrposhta", "Ukrhimtransammiak" (operator of the Ukrainian part of the Tolyatti - Odessa ammonia pipeline).
Aviation industry: “Antonov”, KSAPP, “Plant 410” (previously they were all part of the “Antonov” concern).
Rocket Science: Yuzhmash, Yuzhnoye Design Bureau, Khartron (automatic control system in rocket and space technology).
These 15 assets account for 69% of the estimated value of state-owned enterprises – UAH 1.175 trillion. 893 objects with a total estimated value of UAH 189 billion have been identified directly for sale. ($7.27 billion).
The group of illiquid assets turned out to be the largest in number - 1255 objects that are in state ownership will be liquidated. Thus, the Cabinet of Ministers recognizes the impossibility of selling, rehabilitating or modernizing them. We managed.
After much hesitation, it was decided not to sell five ports, but to hand them over into concession: Yuzhny, Olvia, Khersonsky, Chernomorsk, Izmailsky.
The State Property Fund plans to put up for sale the Odessa Port Plant, regional energy companies of Kharkov, Zaporozhye, Nikolaev, Khmelnytsky, Ternopiloblenergo and Centrenergo. The Poroshenko administration says that local businessmen and oligarchs are interested in strategic enterprises. They, most likely, will become the new owners of large plants and factories. The new draft law on privatization, developed by the Cabinet of Ministers and submitted for discussion to the Verkhovna Rada, is inexpressibly beautiful, since it provides for the abandonment of expert assessment and determination of the price of an object solely by effective market demand. In other words, enterprises will buy at the price offered by the buyer.
Observers, however, express reasonable doubts that anyone will covet the Odessa port plant. The State Property Fund has already tried several times to put this largest chemical industry enterprise up for sale, but in vain. Buyers were deterred by the plant's $250 million debt to Firtash's Ostchem company, not counting penalties for gas supplies. The sale can easily be challenged by the oligarch in court, and there is unlikely to be an investor willing to get involved in such an adventure.
The Groysmanites raised a loud clamor around the new round of privatization. They say that the new law with English characteristics has become stricter than the previous one. Privatization was immediately denied to companies from offshore companies or the FATF list. Companies admitted to privatization will be required to disclose the ultimate owners and confirm the legality of the funds. Draconian demands have been put forward for Russian business: more than 10% of Russian capital means a ban on participation in privatization for the company.
The privatization of a number of strategic and important objects, according to some observers, will allow Ukraine to do without the loan promised by the IMF. Bye. This year and next, Ukraine will be able to do without it. And by 2019, Ukraine will face such payments on external debts that no tranche will help: according to forecasts,
In 2019 – 2020, a default is possible in Ukraine if Ukraine’s debts are not restructured again or if economic growth of 8% does not fall from heaven. By the end of 2019, Ukraine will have to pay $12.8 billion.
As for the sales of state property according to the norms of English law, this means that the Poroshenko-Groysmans are planting a bomb under Ukraine for the future. Temporary workers and compradors persistently mold the state of Ukraine into a private shop, in which property is placed under external management or put into blind trusts in the same way as Roshen.
Even if the current Voro-Bandera government is replaced by people’s power in Ukraine, it will be very difficult to return strategic and key enterprises sold under foreign laws to state control. Similar precedents are known.
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