13:01 23.03.2021

Author SVITLANA PANAIOTIDI

Large-scale privatization: not to lose a chance for development and investor trust

5 min read
Large-scale privatization: not to lose a chance for development and investor trust

Svitlana Panaiotidi, Deputy Minister of Economic Development, Trade and Agriculture of Ukraine

 

What profit can a large hotel in the center of the European capital bring?

The four-star Dnipro Hotel in the center of Kyiv annually brought to the state ... no, not even a million — about UAH 100 thousand of profit. And that means UAH 8.3 thousand per month, which is comparable to the income of an employee with an average salary in Kyiv. In 2020, with the Hotel’s sale, the state received UAH 1 billion 111 million.

The Dnipro Hotel was one of the objects of small-scale privatization thanks to which the budget received almost UAH 4 billion in 2020 — this is the amount of property sold to the state and local governments! The processes were transparent and accessible through the electronic trading system "Prozorro.Sale". The year 2021 may be decisive for privatization: the state budget plans to get revenues of UAH 12 billion, of which UAH 9 billion will come from large-scale privatization. And this goal looks even more than real if you take a few steps.

Large-scale privatization is the sale of state-owned enterprises with a book value of more than UAH 250 million. The procedure for large-scale privatization is somewhat different from the small-scale. It involves investment advisers who gather all the necessary information, prepare the facility, and look for potential investors. Then there is a public competition, where the company gets the one who offers the highest price.

On February 4, 2020, the Verkhovna Rada supported the draft law 4543 on unlocking transparent large-scale privatization auctions in the first reading. The adoption of this bill in the second reading eliminates the last barrier to attracting sustainable investment through large-scale privatization in Ukraine’s economy.

 

Why should large-scale privatization be unblocked?

 

Unblocking of large-scale privatization is a continuation of the legislative and procedural process for this privatization to take place. This is a clear signal that Ukraine is ready to get investments, that we will ensure the transparent and fair sale of large enterprises, and that we have moved from the "deadlock."

In 2019, this process was blocked. At that time, there were fears that because of global economic turbulence due to the COVID-19 pandemic, there would be no demand and favorable offers from global investors to significant objects of large-scale privatization. But the success of small-scale privatization has shown that there is no "inappropriate" time for an investor — if there is trust to a transparent process and confidence in a fair auction.

New investments, modernization, development, targeted investment are things that the state will not be able to give to all these objects, and without which, in the end, they will simply slowly turn into ghost companies that once had potential but no longer interest anyone.

 

Will the state give everything into private hands?

 

No, in fact not.

To protect important objects for society and the state, on February 17, the Verkhovna Rada Committee on Economic Development reviewed and supported the government draft law 4020 "On the list of state property objects that are not subject to privatization." Therefore, those state-owned enterprises that are essential and key to the state and society remain state-owned. Only assets that are not of strategic importance are subject to privatization.

In 2021, the State Property Fund plans transparent tenders for the sale of the United Mining and Chemical Company (UMCC), JSC "First Kyiv Machine-Building Plant" ("Bolshevik" plant), and the President Hotel.

 

Who will take care of people?

 

One of the points that is often questioned and often manipulated is what will happen to the staff of the sold companies. Like, if the company was state-owned and engaged in the extraction of raw materials, but the new owner will change its profile — what will happen to ordinary workers?

The privatization law prohibits staff reductions for six months after the company is transferred to a new owner. In addition, after the privatization of the companies important for the infrastructure and the population, the new owners cannot change the enterprise profile.

In fact, the company is shifting from inefficient public administration (often associated with high-level corruption schemes) to private hands. Hands that are interested in its profitability, capacity expansion and job creation. And therefore — in the search for qualified personnel. Under such conditions, the dismissal of professionals would be unprofitable and completely illogical for the new owner.

Privatization will take into account the rights of workers and the need to ensure a decent future for socio-cultural facilities (some SOEs still have sports clubs and teams, recreation centers, etc.). Investment advisers, trade unions and labor collectives will be involved in the discussion of these issues. The specifics of the region and local needs and requests will also be taken into account.

This will not only save jobs and employees, but also increase tax revenues to both state and local budgets through the development of SOEs. That is, to ensure the implementation of socially important projects in communities, to improve infrastructure and people's lives.

Large-scale privatization is not just about selling at the highest price. This is the beginning of the process of investment and development of cities and towns, and what is important — the growth of the welfare of our citizens.

 

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