Little or Enough? Two Years on a Street Called ‘Privatization’
Dmytro Sennychenko, Chairman of the State Property Fund of Ukraine
Two years ago, I gave my first interview as the Chairman of the State Property Fund of Ukraine.
In that particular interview, apart from covering the future plans and stating the actual status of state assets, I have mentioned my personal deadline for this position — two years. As for me, this is an adequate period of time to establish processes, as well as to show some certain results (in case you don’t try to hold down your job). This time is also enough for the Fund to become fully operative without my personal interference.
Now we have met all these conditions. Two years have passed, and the Fund has become an effective institution with transparent and well-managed processes, capable of being effective regardless of its current management.
To avail of this opportunity, I want to thank journalists for the first and all the subsequent chances to tell about privatization, inform on the status of the SOEs and report on our results. Your competence, critical control and focus were priceless and significantly contributed to the privatization reform in Ukraine, which became possible with your help.
I also would like to present sincere compliments to my team. My dear colleagues, you were, and you are the best. I had to fox, parley and persuade in order to bring top professionals from their fabulous business centres into the world of shabby carpets. But then I have never ever regretted, as it paid off a hundredfold with the record-breaking KPIs generated by this team.
Now, looking back on the last two years, during which we have caught up three decades, I’m full of honour and confidence. We have made a breakthrough, broke a vicious circle of corruption in the sphere of state property and neutralized even the possibility of corruption. The processes are now well-managed, the team is put together, the goal is clear, and the examples are shown. Now we should keep up the pace.
I was, and I am certain: there is no alternative for privatization in Ukraine. I can confirm, it is a common perception in each and every level of power: reducing the number of state enterprises lies at the heart of the economic strategy ‘Ukraine 2030’. For the last 2 years, no one retreated from this path.
In Ukraine, the public sector generates 50% of GDP. Even in China, which is considered as an ideal of state regulation policies, the public sector provides for only 32% of GDP. Embarrassed with public assets, the state cannot move forward, or actually does it with an extremely low pace. We pull this load, fix it, pay for the imitation of work, being self ignorant with its worthlessness.
It’s time to say: we do not really need it. SOEs are a kind of nostalgia for the irretrievable past. On the contrary, we should look forward and strive for the maximum productivity. The absolute majority of assets might be effective only in private hands. A government is a good strategist, but a poor manager.
The moment, when everyone gets down to his business — businessmen deal with entrepreneurship, whiles a state creates necessary conditions — everything will be fine, including anti-corruption measures. A common fact: SOEs are the main sources of corruption. Some people tend to go into politics not for policymaking, but to appoint loyal managers on state assets.
730 Days Which Changed Everything
Two years is a relatively small period of time for a person, and just a blink of an eye in the scale of a country. But if we look upon these two years, speaking in financial results, they have surpassed a decade, and the whole period of Ukraine’s independence considering institutional progress. I will point out only a few main parameters, in which the Fund succeeded during the last two years.
First and foremost: the relaunch of privatization.
Nominally, state property had been under privatization even before. However, it was a kind of Schrödinger privatization, with only a few people participating, informed and having various kinds of formal and informal influence. We do have changed this situation.
‘Everyone knows everything’ principle has ruined all cover-ups, and with the launch of privatization.gov.ua site we saw the transformation of privatization into a transparent, competitive, honest and inclusive process. Online mechanisms and maximum autonomy of participants contributed to an obvious financial effect: as a result of successful auctions, privatization earned for the budget app. UAH 8 bn (with UAH 2.25 bn in 2020), a 9-year record, despite closed borders, quarantines and Covid-19.
An average number of participants, which haven’t really changed for ages (traditionally, a winner + a puppet competitor), comprises up to 5 now, with 10 or even 20 players can fight for the asset. Several years ago, it was simply impossible. The average price increase has reached 107%. In comparison, prior to the reform, the start price increased only by 20% due to low market competition.
A new format, namely — the relaunch of privatization, allowed to launch Big privatization, which had been impossible during the last 16 years. With the big privatization being finally unlocked, large-scale SOEs were brought back under the state control, went through a period of financial and legal sanitation, and can be finally privatized.
When we came to the State Property Fund of Ukraine, the lease of state property was even more corrupt than the privatization itself. While the sales of state property were at least in public focus, the lease of state property was absolutely in the shadows. But this situation has finally changed.
Just as in the case of privatization, all the information on the lease was transferred online. The orenda.gov.ua site was full of actual and complete data in the assets, with fully automatic online auctions (now totaling more than 4000) contributing to the rise in competitiveness and equality for all participants. Ukrainian business could not reshape its activities and reasonably could not believe in such changes. For multiple times, I have hung up my phone after people asking to ‘get things done’. At some time, such kind of phone calls stopped, so I suppossed that the new rules have become a new normal for the public.
And again, the financial result of the reform is obvious. The state has earned UAH 1.6 bn for the lease of its property, the highest-ever result!
One should point out, the SPFU has been guided by the principle of economic justice, especially during the period of low business activity during the pandemic. Allowances for SMEs, which suffered due to the quarantine, have generated UAH 160 mln of savings for national business. Our point was clear: it is better to concede a part of profit now than to lose a partner, actual jobs, and potential taxes due to the downfall of such SMEs in the future. And it has really worked out.
Property evaluation has been also under a quiet revolution.
The property evaluation reform was our first ‘war’ in the office. Back in these days, I used to believe there was nothing worse than that. What a naivety! However, just in a few steps, we have broken the back of the scheme, one of the most cynical and large on the market, which influenced almost everyone, who had to evaluate his property. Eliminating agents, which are charged only for the fact of their existence and data transfer, we have saved UAH 1.7 bn for Ukrainian citizens. An economic effect of the automatic evaluation system, which uses adequate parameters and multipliers, comprises up to UAH 80 mln. Moreover, the rise of profits to the Pension Fund of Ukraine, which are based on the evaluation property cost, has increased by 42% — to UAH 217 mln in 3Q 2021.
We have developed all the necessary legal norms for the full transfer of the evaluation process on an advanced basis. The Draft Law eliminates fractional evaluation, which pulled apart an asset and a land plot of its location; it also introduces the best international standards of evaluation. Now, only 226 votes of Ukrainian MPs separate us from this.
And finally, the corporate governance reform.
The State Property Fund is a last resort institution. Getting another SOE on our balance, we can say straight off, without any financial documents: it was bled white during the last 30 years, it has a lot of debts, and its workers lived at least 5+ years with no salary. Dozens of illegal seizures and legal cases are almost inevitable for such enterprises.
The Fund has received almost 700 SOEs, and almost each of them is a nobody’s bargain. However, we have started to clean these Augean stables: changing management, introducing financial accountability, and putting expenditures under severe control. All these measures contributed to the overall sanitation of the assets.
✔ Dividends increased in 3 times — to UAH 300 mln
✔ Annual tax incomes increased by UAH 800 mln — to UAH 8.4 bn
✔ Total losses dropped by UAH 3 bn in a year — to UAH 1 bn
✔ More than 2500 ha of land plots have been regained under state control, with 15000 ha under the process
Complementary to the operation activities, we have also worked on our strategic goals. The balance between employee turnover and strategy is a written rule for every manager. I have always been dedicated to it, despite any current tasks, namely such exotic measures as countering an armed seizure of an enterprise or 3 special operations of NABU to detect the potential bribers of the Chairman of the SPFU.
In conclusion, I would like to point out: reforms do not gain support at once. I have hardly ever heard any approval from everyone but the colleagues. I have even more seldom heard support, and I have rarely heard any words of gratitude. It was tough, but I am quite experienced to understand: the results can be seen only over the years. Only time can judge whether it was done little or enough.
of my term, I pledged to change the inner sense of the privatization process in Ukraine. Now, I want to declare: it has been done successfully. We should continue this work and keep up the pace.
The privatization goes on.