Transparency International Ukraine calls on MPs to support draft law No. 12230, which should solve this problem.
According to the results of a study by Transparency International Ukraine, since 2019, more than a third of municipal property objects in 82 cities under study were privatized not through auctions, but through a lessee redemption mechanism.
The law allows lessees to obtain the right for redemption of their leased property without an auction. To do this, it is necessary to carry out its integral improvements (for example, reconstruction or extension), the cost of which will be at least 25% of the market value of this property and apply to the local council for permission for redemption.
In at least 19 cities, including Kropyvnytskyi, Uzhhorod, Zaporizhzhia, Sumy, Odesa, and Dnipro, redemptions were preferred over auctions—the percentage of municipal property objects sold in this way exceeded half of the total number of those that were privatized. In 3 cities (Horishni Plavni, Svitlovodsk, Chornomorsk), all objects were privatized in this way.
In cities where both mechanisms were used, on average, the cost of objects purchased on a competitive basis exceeded the price of objects sold through redemption by 45%.
Considering the indicator of the difference in value, the budgets of cities that used the redemption mechanism could have potentially lost more than UAH 552 million in the sale of assets in a non-competitive way since 2019.
In addition, lessees who bought property from communities mostly improved it in the minimum amount (25%) of the market value of the object. This suggests that such “improvements” were aimed at obtaining the right to purchase the property, rather than real improvement of the leased property. The application of the redemption mechanism also contains a corruption component due to possible abuses with the valuation of property, which directly affects its sale price.
Considering such conclusions, we are convinced that the redemption of leased property requires an alternative. On the one hand, it shall ensure transparency and growth of revenues to local budgets, and on the other hand, it shall take into account the interests of lessees who invest in leased property.
Such an alternative may be found in auctions, using the lessee’s preemptive right to purchase the property at the highest price that was offered during such an auction. This practice is already used in land auctions and auctions for the lease of state and municipal property. Recently, the parliament registered a draft law No. 12230, which proposes to implement such a mechanism in privatization. TI Ukraine supports its adoption by the parliament to ensure more effective management of municipal property.