Odesa Portside Plant Will be Privatised

Sale of the plant to help fund the budget deficit was one of the conditions of the stand-by facility agreed with the International Monetary Fund (IMF). This latest action by the president therefore beggars belief.

The issue of the plant’s privatisation has been touted since Mr Yushchenko’s election in 2005 and came to a head in spring 2008. At that time the argument was put forward that any tender would be contrary to national security interests. However, analysts believed the president’s real reason for blocking the privatisation was to deprive the government of revenues that could be drawn upon to repay lost Soviet-era bank deposits. The fear was that the repayment programme would increase Ms Tymoshenko’s popularity ahead of the 2010 presidential election – something which had to be avoided at all costs.

President’s flip-flop policy on privatisation

Interestingly, Mr Yushchenko had promised to repay the deposits in his 2004 election programme but forgot this and much else from his programme after coming to power. Indeed, draft presidential decree number two outlined in great detail how the lost deposits would be repaid.

Today, Mr Yushchenko is replaying the “national security” argument to block the privatisation. Also thrown into the mix is the accusation that the privatisation cannot be permitted to go ahead because it would provide Ms Tymoshenko with election campaign funds. Party of Regions leader Viktor Yanukovych said openly what Mr Yushchenko believes: “These steps taken by the government to sell off state property ahead of elections is evidence of corruption and also an attempt to obtain additional finances for the candidate’s campaign from the authorities.”

State Property Fund sanctions sale

This time, the presidential decree contradicts a ruling by the State Property Fund. This institution, long under the control of Socialist Valentyna Semeniuk and loyal to the president, dropped its opposition to the plant’s privatisation and launched an open tender on 15 July to sell 99.56 percent of the state’s shares. The State Property Fund’s starting price was 4 billion hryvnia (€320 million). If successful, the tender could put 8.5 billion hryvnia (€680 million) into the government’s coffers.

The auction is planned to go ahead on 29 September, only 12 days after the presidential decree. First Deputy Prime Minister Oleksandr Turchynov argued that the decree cannot block the privatisation as it had already been in motion since July. “There is no law or decree that can be applied to past events. The process has been going on for half a year and it could have been halted up to its start but not a week before the auction,” said Mr Turchynov.

The first deputy prime minister also suggested that the attempt to block the privatisation may damage Ukraine’s reputation with foreign investors. “Maybe one could say that the president simply does not love his own country and wants it such that the international community did not invest in Ukraine,” he complained. He makes a strong point. If a disputed bid goes ahead, unsuccessful bidders may seek to challenge the validity of the auction in court, further damaging the country’s reputation.

Significant interest, domestically and internationally, has been shown in the tender. One well-placed consortium comprises three investors from Norway (Yara International ASA), the Libyan Investment Authority and Polish Kulczyk Holding SA. However, the political wrangling may frighten off foreign investors. According to the State Property Fund three companies have filed applications to participate in the auction. They are Azot Servis (Russia), Frunze-Flora (Ukraine) and Nortima (Ukraine).

Two factors at work

The Ukrainian reality suggests two factors to be at work. Firstly, President Yushchenko and Party of Regions leader Mr Yanukovych are opposed to the privatisation. Oddly, in 2007 they both supported the privatisation. Then, President Yushchenko did not raise “national security” grounds. Sadly, the opposition today rests on a banal factor in Ukrainian politics that the president and opposition leader have policies that amount to the “worse the better.” Both leaders have sought to undermine the government’s anti-crisis policies through presidential decrees or by blocking parliament.

In a 30 November 2006 letter to Prime Minister Yanukovych, reprinted in Ukrayinska Pravda (18 September), President Yushchenko complained about the slow pace of privatisation, pointing out that only 111 out of 518 objects slated for privatisation had actually been auctioned. President Yushchenko complained that the Yanukovych government was blocking the privatisations of, amongst others, UkrTelekom and the Odesa Portside Plant “regardless of the fact this is harming their effectiveness and attractiveness for investors.”

Not surprisingly, the president had never used “national security grounds” to argue against the plant’s privatisation until Ms Tymoshenko became prime minister. President Yushchenko had one rule for the Odesa plant when the government was led by Mr Yanukovych (privatise!) and another when the government was led by Ms Tymoshenko (halt the privatisation!).

Only two months ago, the first deputy head of the presidential secretariat Oleksandr Shlapak had said publicly that the president would support the plant’s privatisation. “We have no pretensions. If everything is undertaken in accordance with legislation and established procedures, the sale will go ahead... By Gods it will be sold!” (Ukrayinska Pravda, 18 September).

There can be no question about the manner in which any auction would be conducted. The premier said that it is most important to ensure “fair and transparent conditions for all potential investors.”

It should be noted that the Tymoshenko government was the first to launch totally transparent privatisations, as seen in the re-privatisation of the Kryvorizhstal steel mill in October 2005. Mr Turchynov pointed to the fact that “we have a practice of undertaking privatisations in the interests of concrete structures and firms.”

The move to halt the privatisation may play into the hands of local oligarchs who may benefit from the removal of international bidders worried about the legal efficacy of winning a disputed tender. At the same time it meets the president’s goal of starving the Tymoshenko government of funds so that it fails to meet budget commitments to the IMF. In both instances Ukraine loses.