Investment menu for privatization in Ukraine is ready

Investment menu for privatization in Ukraine is ready

Dmytro Sennychenko, the head of State Property Fund of Ukraine, speaks about privatization plans of the country

Over the past four months, Dmytro Sennychenko, 46, has led one of the most important state bodies in the country – the State Property Fund of Ukraine.

Privatization and cultivating investments are big priorities for the current administration. At the World Economic Forum, President Vlodymyr Zelesnky publicly called on investors to bet on Ukraine promising favorable conditions.

“We propose all of you to be the shareholders of the success of new Ukraine,” Zelensky said during the forum on Jan.22.

Today, Sennychenko is the key person responsible for the transparent and effective privatization of some 1,440 state enterprises with a total value of at least $6.9 billion.

Sennychenko is sure that in Ukraine, a window of opportunity has finally opened as the country has established unprecedented unity between the president, parliament and the prime minister.

But urgency is the key.

“This window of opportunity needs to be implemented as quickly as possible. Any window of opportunity can be opened, but it also can be closed,” Sennychenko told the Kyiv Post in an interview on Jan.17.

To ensure privatization goes according to plan, a few things are on Sennychenko’s list of priorities, particularly to hire more professionals to the team and to launch a virtual data room so investors will be able to easily evaluate enterprises online.

“The fund needs to be ready to implement the policy. It should have new rules, new procedures, new people,” he said.

Sennychenko, who headed a number of international investment companies before joining the government, says there is a great need to combine the expectations of potential investors operating in more developed economies with the status quo in Ukraine.

Currently, the structure of the fund itself is not adapted to carry out the goals set by the government. But Sennychenko says there has already been progress towards transparency, something that previously did not exist at all.

In the past, lists of enterprises eligible for privatization were published in a newspaper with circulation limited to 400 copies across the country. Now, state enterprises up for privatization are listed on the fund’s website, which Sennychenko believes will help minimize corruption.

In one case under investigation by the Security Service of Ukraine, or SBU, an official from one of the fund’s regional branches tried to pass information about a state enterprise to a potential buyer on a flash drive. According to Sennychenko, such information is valuable and vulnerable to exploitation.

Now, with an emphasis on transparency, Sennychenko says “we’re changing the concept in general, where everyone will know everything.”

Final goal and 2020 plan

For Sennychenko, privatization is not a goal in itself but only a tool to generate investments for poorly managed or half-ruined enterprises to help Ukraine’s economy.

“The number one goal is to find an investor which will enter the enterprise and will create added value,” said Sennychenko.

In total, Ukraine has nearly 3,600 state enterprises, but 1,300 of them must be liquidated as they don’t hold any value. 560 are in Crimea. In addition, 300 state enterprises in Ukraine have strategic value and won’t be privatized at all, including enterprises in the defense sector, natural monopolies and those with a high social value like the state postal service, Ukrposhta.

Those eligible for privatization fall into two categories: so-called “big privatization,” which applies to companies worth more than Hr 250 million, with 65 of the largest state companies in this category, and “small-scale privatization,” for any company worth less than Hr 250 million, comprising 1,375 companies.

“Poland, Slovakia [and the] Czech Republic did this a long time ago, and now we see an effect. Today every Pole is wealthier than Ukrainians by 7-8 times,” said Sennychenko.

In 2020, the fund plans to privatize three to five of the largest state companies and over 300 of smaller enterprises.

“2020 should become the year of investments. We expect of Hr 12 billion ($500 million) of income into the state budget,” said the fund’s head.

So far, Sennychenko sees huge interest in the Electrovazhmash plant (a manufacturer and supplier of turbo and hydro generators) and the United Mining and Chemical Company (a titanium mining company) from Japanese and Australian investors. These two are likely to be privatized this year.

Another Ukrainian giant expected to be privatized in 2020 is Centrenergo, the second largest power generator in the country, which with total capacity of 7,690 megawatts generates 15% of electricity nationwide.

However, there is not a single enterprise from on the list of “big privatization” companies that has no legal problems, either due to corruption or mismanagement, according to Sennychenko.

“Privatization is the best step against corruption, because neither the state nor a fund can ensure 100% clean and non-corrupt management of the enterprise,” he said.

In addition, starting Feb.1 the fund will also launch a free service where all Ukrainians can see which state-owned enterprises rent a given property, at what price and for what application.

Today the number of such objects reached 17,000. Previously, intermediary companies charged Hr 1,800 for such services.

Sennychenko also says that he wants to bring new international standards of enterprise evaluation to Ukraine.

“The last time such a law was adopted was in 2003. Life has changed since then,” he said. “My goal is to balance the role of the state as a regulator and the role of the market. In fact, in many countries there is no national regulator on evaluation.”

Fight against interest groups

Bringing order to state-owned enterprises in Ukraine means undermining the interests of the people who benefited from such a murky system, many of whom are used to having their way, so to speak.

“We realized what would happen when we entered [this sphere]. Yes, we understand that we step on the interests of many,” said Sennychenko.

Without revealing names, he personally and the Ministry of Economic Development in general felt pressure and even received threats from influential players who do not benefit from privatization.

Sometimes he even gets messages ordering him not to change directors in certain enterprises.

“When there will be the same rules, the wave of resistance should be gone. Now the resistance exists, we feel it,” said Sennychenko.

But he still sees it as his mission to change attitudes towards state institutions and to build trust in public bodies long seen as corrupt.

“I want to restore the confidence in a statehood of Ukraine through building a transparent institution,” said Sennychenko.

Source: Kyivpost

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