At the end of July, the government approved a list of 420 state-owned enterprises that will be transferred to the management of the State Property Fund of Ukraine for further privatization or liquidation. This decision is part of the public property reform announced last year. According to its results, out of 3,500 state-owned companies, no more than 150-200 should remain under the administration of the state.

In order to regulate the system of state-owned enterprises, by the end of 2022, the Ministry of Economy planned to complete triage — division of state-owned companies into groups or lists according to certain criteria:

  • those that will remain in public ownership;
  • will be transferred to the concession (temporary use subject to mandatory investment);
  • or for privatization or liquidation.

Thus, it is possible to separate non-core, loss-making, or non-operating enterprises from strategic ones — those that ensure the performance of state functions. These are companies that are state natural monopolies (NJSC “Naftogaz of Ukraine,” PJSC “Ukrzaliznytsia,” and others), or perform socially important functions in the defense or social spheres, etc.

This time, the CMU transferred 65 objects that have the potential to restore or modernize production after attracting investment for privatization. Of these, only 33 are operational and only 10 make a profit.

The remaining 355 will be dissoluted or reorganized — these are enterprises that generate losses, and in most cases, they exist only on paper.

Cherries on the cake

Among the enterprises transferred for privatization are a number of objects that have valuable assets and/or high profit. With the help of the property of these SEs, we expect fierce competition at auctions and a significant increase in price.

We have high hopes for the giant of the alcohol industry “Ukrspyrt.” The value of the company’s assets in 2020 was UAH 1.2 billion, and income was UAH 1.8 billion.

The production sites of the SE “Ukrspyrt” are investment attractive because they are operational, have working utility connections, and a transport infrastructure. Therefore, it will potentially be very attractive for businesses relocating from dangerous regions. Recent legislative changes will also play into hand — the buyer will be able to re-issue licenses for the production of alcohol and other related activities. That is, they will not need to be documented from scratch.

Before the war, the SPFU predicted that it would sell the property of the alcohol plants of the SE “Ukrspyrt” and the concern “Ukrspyrt” for almost UAH 2 billion. And this figure remains plausible — according to Prozorro.Sale, the final value of such property at auctions last year on average doubled, and most — increased by 326%.

It is followed by JSC “Bread of Ukraine” (UAH 1.2 billion), once a leading operator in the Ukrainian grain market, in the field of making bread and other flour products. The JSC owns plants and elevators in almost every oblast of the country.

Powder Metallurgy Plant.” Since 1958, the enterprise of the metallurgical industry has been constantly operating in Brovary, in the financial statements it indicated the value of its assets — UAH 195 million.

SE “DPI” Kryvbasproekt, an enterprise that carries out a complex of analytical, research, engineering, and project works on the extraction and processing of mineral raw materials, received high income in 2020 from the sale of services — UAH 45 million.

SE “UkrRTC Energostal,” operating in the field of design and reconstruction of objects of the mining and metallurgical complex, mechanical engineering, closed 2020 with an income of UAH 25 million.

SE Lviv Special Design Bureau “Topaz,” a manufacturer of jewelry and souvenirs, which has been on the market for more than 20 years, is an interesting object for investment.

State-owned enterprises of the National Academy of Sciences of Ukraine

The National Academy of Sciences of Ukraine became one of the leaders in the number of enterprises, institutions, and organizations that were transferred from its sphere of management for further privatization (31 objects) or liquidation (20). This situation is not surprising, given the crushing conclusions and reports of the State Audit Service and the Accounting Chamber.

In 2019, the State Audit Service conducted a financial audit of the implementation of the NAS’ budget programs for the period from 2016 to mid-2019 and established violations in the amount of UAH 865 million. The auditors noticed that the National Academy of Sciences received less funds from the lease, the property in its management was destroyed, and subordinate institutions duplicated each other’s functions — that is, the state paid twice.

Subsequently, the National Academy of Sciences of Ukraine stated that some conclusions contained in the audit report were “groundless, evaluative, subjective, and biased.” However, in February 2022, the Accounting Chamber actually confirmed the conclusions of the State Audit Service:

  • Only 95 (40%) of 232 enterprises in the Academy’s sphere of competence were operational, and 45 (29%) were profitable, there is no information about 81 enterprises.
  • A significant part of the objects are in poor condition and need repair for UAH 1.5 billion. This condition makes it impossible to use them for their intended purpose.
  • Due to inefficient disposal of the property, part of it has been lost, and rental income has decreased.
  • The Academy does not have complete and reliable information about the actual state of use of property and the results of financial and economic activities of enterprises within its competence.

During 2019 — 9 months of 2021, the National Academy of Sciences of Ukraine transferred 100 objects of the Academy’s property complex for privatization, another 5 were dissoluted, and 37 were in a state of dissolution.

SE in criminal proceedings

“Nove Zhyttia” (New Life), “Chyste Misto” (Clean City), “Yakisna Voda” (Quality Water), “Grinenergo,” and “Misto Maibutnioho” (City of the Future) — unfortunately, these are not a list of implemented socio-economic projects during Azarov’s office as prime minister, but still existing state enterprises, which are now transferred for privatization or liquidation. Previously, they were used by the persons involved in the criminal case of Derzhinvestproekt to appropriate and legalize public funds.

In 2012-2014, the State Agency for Investment and Management of National Projects of Ukraine (“Derzhinvestproekt”) was headed by the infamous Vladyslav Kaskiv. Investigators of the Ministry of Internal Affairs found that, together with other officials of the Agency, through the controlled SE State Investment Company (also transferred by the Cabinet of Ministers for privatization), Kaskiv withdrew through offshore companies and appropriated more than UAH 500 million allocated from the national budget for the implementation of the above projects.

Another enterprise included in the list for liquidation and associated with Kaskiv — SE “National Project” LNG Terminal.” On November 26, 2012, the Head of the Derzhinvestproekt signed a cooperation agreement with the Spanish Gas Natural Fenosa within the framework of the construction of an LNG terminal in Odesa oblast. The value of the deal amounted to USD 1.1 billion. On the Spanish side, the agreement was signed by Jordi Sarda Bonvehi, who allegedly represented the Spanish company Gas Natural. However, within two days, the company stated that it did not know the person who had signed this agreement. Later, journalists discovered that Sarda Bonvehi was a ski instructor from Barcelona and really had nothing to do with Gas Natural.

Currently, it is virtually impossible to prosecute the ex-head of Derzhinvestproekt due to the conditions under which the Prosecutor General’s Office extradited him from Panama in 2017. He cannot be served with charges, despite the collected evidence base.

However, not everyone was so lucky. The former acting director of the SE “Directorate for Construction and Management of the National Project “Air Express” and other infrastructure facilities of Kyiv region,” which was also transferred to the SPFU for privatization, was sentenced to 11 years in prison in May this year.

In 2014, he was charged with acquisition and embezzlement of UAH 116 million received by Ukraine under a loan agreement from the Export-Import Bank of China for the construction of a railway passenger service between Boryspil Airport and Kyiv. The project was terminated, and the SE still exists.

“Strategic” assets

In addition to factories, plants, scientific and technical centers and institutions, the government has decided to transfer the following facilities to the management of the SPFU for further privatization or liquidation:

  • Palace of Culture “Avtomobilist” in Dnipro;
  • “Lermontovskyi” Sanatorium in Odesa;
  • Hotel of the Ministry of Internal Affairs of Ukraine in Kyiv;
  • two publishing houses of the Ministry of Defense of Ukraine and the editorial office of the monthly information-popular and scientific-practical illustrated magazine “Militia of Ukraine.”

It is paradoxical that such non-core assets continue to generate losses for the budget and serve as a source of corruption for balance holders or management bodies that are reluctant to get rid of such property.

According to the SPFU, as of April, there are more than 3,300 state-owned enterprises in Ukraine. At the same time, as of October last year, there were less than 1,400 of them functioning, and only 862 were profitable. The war has probably only made things worse. Consequently, most of the SEs are currently burdening the budget.

But to get rid of these unprofitable enterprises, we need to change the country’s policy on the management of state assets. Ukraine should only own strategic objects: natural monopolies, military enterprises, and companies that provide exclusively social functions. The remaining state-owned enterprises that have been out of business for decades and have become a source of corruption should be transferred for privatization or liquidated if their value is less than debts and other liabilities.

The basis for the implementation of the new property policy should be triage, conducted according to a single methodology, which should be public and determined at the regulatory level. The state must clearly answer: which state-owned enterprises it wishes to preserve, and by what criteria it will separate strategic and non-strategic assets. So, we hope that the decision of the government will not be a full stop, but only a starting point in the process of triage.