It was in June 2018 that the legislative framework was formed, according to which auctions for the sale of public and municipal property began to be held through Prozorro.Sale. This simplified the sales procedure and, more importantly, made it open, transparent, and competitive.
The Prozorro.Sale system is built on the “everyone sees everything” principle. Data on lots, conditions of their sale, the course of electronic auctions, their participants and winners, concluded contracts — all this information is publicly available. Anyone can choose an object to their liking and try to buy it at an auction.
Equal access to bidding and transparency of privatization procedures contributed to the active participation of private investors. Since the introduction of the reform, more than 9,000 participants have competed for the right to purchase public or municipal property — an average of 3 at each auction. Such competition helped form a market price for objects — according to the results of auctions, the starting price of the sold objects increased more than twofold.
Among the successful cases of privatization are the sale of the Dnipro hotel (UAH 1.1 bln), the Kalush CHPP (UAH 801 mln), and the Lviv penal colony (UAH 377 mln), as well as alcohol industry facilities (more than UAH 2.3 bln).
The launch of the reform intensified the sale of not only public, but also municipal property. Of the nearly 5,000 successful tenders, more than 3,000 were announced by local self-government bodies. Notably, it was the communities that were the first to put their objects up for sale in the Prozorro.Sale system.
As a result, since the introduction of the reform, private investors have acquired almost 5,000 public and municipal property objects, as a result of which the state and communities managed to earn UAH 13.6 bln. The lion’s share of these funds — UAH 9.8 bln — were channelled to the state budget, and UAH 3.8 bln comprised the revenues of local budgets.
“Prozorro.Sale is one of the revolutionary initiatives and an example of how you can simultaneously improve the economic situation and reduce the space for corruption. Transparency International Ukraine joined the creation of this project, and after its transfer to the state, continued to support it systematically. We are pleased to have participated in the reform of small-scale privatization in this way,” said Ivan Lakhtionov, Deputy Executive Director of TI Ukraine for Innovative Projects.
Small-scale privatization during the war
Unfortunately, the full-scale invasion has affected the plans to implement the reform — the privatization was suspended. In July 2022, TI Ukraine called on the parliament to resume and simplify privatization, which could mitigate the impact of the war on the budget in the face of falling economic activity and a rapid decline in GDP.
Finally, in September last year, small-scale privatization was resumed under new, simplified rules — and the results met the expectations.
The figure of UAH 900 mln attracted to the national budget in the first quarter of 2023 was a record for the last 10 years. In just 10 months, small-scale privatization brought UAH 2.8 bln to the national and local budgets. At the same time, not only did the average number of participants in auctions for the sale of public property increase, but also the price — up to an average of two and a half times.
In addition, Ukraine sold a seaport for the first time for more than UAH 200 mln. The auction for the Hermitage hotel in the center of Kyiv caused a real stir. 39 participants took part in them, as a result of which the starting price increased almost 15 times and amounted to UAH 311 mln — a record figure since the resumption of small-scale privatization.
“Calling on the parliament to resume privatization, we were convinced that it could become an additional source of revenues. This applies not only to one-time injections from sales into the budget to partially cover the deficit and meet defense needs. Privatization provides further transformation of assets that will generate a constant income and stimulate the economic development of the country,” explains Andrii Shvadchak, legal advisor to TI Ukraine.
The success of privatization has shown that business has adapted to the realities of war and continues to seek for new opportunities. More than 3,200 enterprises remain in state ownership, of which every second is unprofitable or economically inactive. They do not generate income for the state, but debts to creditors, the budget, and employees and are a source of corruption. Therefore, TI Ukraine is convinced that despite the war, privatization should continue and benefit the restoration of the country.
This publication was prepared by Transparency International Ukraine with the financial support of Sweden.