TI Ukraine experts identified the most common mistakes in the privatization and lease of state property and offered their recommendations for improvement.

The “Auction Revolution,” caused by the adoption of two new laws “On Privatization of State and Municipal Property” in 2018 and “On Lease of State-Owned and Municipal Property” in 2019, has radically changed the rules of the game in the field of state property management. From now on, government property can only be bought or sold through e-auctions in the Prozorro.Sale system.

The goal of the reform was not only to attract additional budget resources, but also to increase transparency and efficiency of state property management. The reform continues, and there is still a public demand to ensure its effective monitoring.

Based on the results of the first attempt to analyze the privatization and lease procedures under the new legislation, we are ready to share the most common mistakes that have occurred. We have also prepared recommendations for improving the procedural steps in privatization and lease of public property.

The most common mistakes in the procedures of privatization and lease of state and municipal property that we have encountered can be divided into 3 categories:

  • marketing ones — prevent the attractiveness and effective promotion of an object among potential tenants or buyers;
  • procedural ones — violate the legal requirements regarding the lease or small-scale privatization procedure.
  • those related to paperwork — concerning the shortcomings of the package of documents that accompany the object.

We offer the following recommendations for tender organizers to conduct procedures with fewer errors.

For small-scale privatization:

  • Pay attention to the incompleteness of the submitted information about objects (land plots, information about the single property complex, etc.) and take measures to supplement it. Consider the possibility of issuing a separate order of the SPFU, according to which the organizers will be required to detail the composition of the SPC property, if such complexes do not have real estate.
  • In the information notice and in the contract, outline an inventory of the property in accordance with the ownership documents and/or technical passports.
  • Refrain from alienating objects that include property located in the temporarily occupied territories.

For lease: 

  • Take a more careful approach to creating an object’s image and upload high-quality photos.
  • Carefully check the information specified in the lot description and documents published as part of the procedure in the Prozorro.Sale system. Quite often, we noticed differences in the description of the object’s intended purpose. For example, according to the announcement, there are no restrictions in the intended purpose, but the attached draft agreement contains the intended purpose in accordance with the current lease agreement.
  • Take a more careful approach to determining the amount of the guarantee fee because in case of under-accrual of the amount and in case of disqualification of the participant, the budget will not receive enough funds. At the same time, charging too high a guarantee fee can scare off potential participants.

A good example in disclosing information is the publication of information about small-scale privatization objects by the State Property Fund of Ukraine.  The SPFU has taken a big step towards potential buyers by launching a specialized website for privatization  and lease and by disclosing information about objects. On the portals, you can find special teasers in the form of brochures or videos, and documents can be viewed in virtual data rooms by pre-registering on the portals.

This material was prepared by Transparency International Ukraine with the support of the USAID project Economic Development, Management and Growth of Entrepreneurship (EDGE) and State-Owned Enterprises Rapid Response Activity (SOERR). The authors’ views expressed in this article do not necessarily reflect those of the United States Agency for International Development or the United States government.