Small-scale privatization brought the state budget 4 billion UAH over the year. This is a good help for strengthening Ukraine’s defense capabilities. The Cabinet of Ministers also promises to unblock greater privatization. But whether this will happen before martial law is lifted is unknown.
The resumption of privatization turned out to be a fairly successful step. According to the State Property Fund (SPF), for 9 months of 2023, the state budget received UAH 2.7 billion from privatization. This is three times more than for similar periods in the pre-war years. Since September 2022, when privatization was, in fact, unblocked, budget revenues have amounted to UAH 4 billion.
The total number of objects and assets that the SPF has privatized since the beginning of 2023 has exceeded 300, and the number of participants in privatization auctions has exceeded 1,600.
So far, small and medium-sized objects worth up to UAH 250 million are going under the hammer. These are mainly “dead” enterprises and administrative real estate, which are used as platforms for launching new businesses.
At the same time, the start of large-scale privatization, which includes large strategic enterprises, is constantly being postponed.
What privatization objects are in demand?
Every month the SPF puts up for sale 40-50 different objects and assets. Accordingly, every week the Fund holds about a dozen privatization auctions. Of course, not all of them are successful. But on average, the State Fund replenishes the state budget in the amount of UAH 50 to 200 million per week.
It all depends on what is being sold. As practice shows, most people want to buy distilleries, property complexes (EIC), assets of the agro-industrial sector (bread factories, elevators) and mining enterprises, as well as non-residential real estate (from administrative and office buildings to sanatoriums, hotels and recreation centers ).
According to the SPF, over 60% of lots sold in 2023 are commercial real estate, which entrepreneurs restore and use to open new shops, offices or cafes.
By the way, competition at the auction is about 5 applicants. This is how many potential buyers compete for one lot.
What assets and objects have already been sold?
As part of small privatization, mostly non-performing and problematic objects are sold. These are bankrupt enterprises or state-owned enterprises that have large debts and are involved in criminal cases and litigation.
Since September 2022, the largest objects that were sold as part of privatization were:
- Hotel “Hermitage” (Kyiv) – 311 million UAH;
- State Enterprise “Ukroboronresursy” (Kyiv) – UAH 210 million;
- State Enterprise “Rivnetorf” (Rivne region) – UAH 205 million;
- Seaport “Ust-Dunaisk” (Odessa region) – UAH 201 million;
- JSC “Lviv Jewelry Factory” (Lviv) – UAH 185 million;
- EIK SE "Volyntorf" (Volyn region) - 212 million UAH.
By the standards of small privatization, these are all quite large lots, which, moreover, were sold with a significant increase in price. For example, the Hermitage Hotel had a starting price of UAH 21 million, and the Ust-Dunaisk port had a starting price of UAH 60 million.
But as mentioned above, along with the privatized asset, the new owner receives a lot of worries.
The Hermitage Hotel will not be able to resume operations without renovation. Experts estimate that for this it is necessary to invest up to UAH 350-400 million. In fact, this is almost the same amount that was spent on its purchase. The sold state-owned enterprise Rivnetorf does not have a special permit for peat extraction, and in addition to this, the company’s debts exceed UAH 7 million. And with the privatization of Ust-Dunaisk, an incident occurred: the State Property Fund mistakenly sold not only what belonged to the state, but also infrastructure facilities that were already privately owned.
What else will the State Property Fund sell?
As of October 10, the SPF privatization plan included a total of over 1,300 objects. Among those assets that will be sold before the end of October and early November, there are just over 20 lots.
In particular, on October 27, the Foundation will hold an auction for the privatization of the Moryak recreation center, which is located in the Odessa region. Its starting price is 808 thousand UAH.
On October 31, an auction will be held for the sale of the EIC of the State Enterprise "Dneproblagrostandart" with a starting price of 109 thousand UAH.
An auction is planned for November 14, for which an administrative building in the Lviv region with an area of 131 sq. m. will be offered. Its initial cost is UAH 413 thousand.
But the largest lot is 50% + 1 share in the authorized capital of the Rivne Radio Engineering Plant enterprise. The auction will take place on November 7, the State Property Fund intends to start trading with UAH 121 million. Like many other facilities, the plant is not functioning. It was stopped back in 2013, and some time later it was declared bankrupt.
By the way, privatization is not only the sale of state assets, but also the leasing of state property. The amounts there are, of course, smaller. But in just 9 months of 2023, the State Property Fund accumulated UAH 572.1 million from rent and concluded almost 1.3 thousand new lease agreements. Thus, the SPF has fulfilled the plan to raise funds from rent by almost 80%.
Prospects for big privatization
Back in the summer, the Cabinet of Ministers approved Resolution No. 723, which establishes the rules for holding auctions as part of large-scale privatization in the Prozorro.Sales system. The document defines the criteria for online platforms that will be able to participate in large-scale privatization, and provides for some changes in the auction mechanism to eliminate the risks of their failure.
In other words, preparations are clearly underway for the restart of large-scale privatization. In addition, in October, Prime Minister Denis Shmygal announced that in the coming year, five large privatization projects will most likely be put up for sale. A little earlier, the former head of the State Property Fund Rustem Umerov said that among the large enterprises that could go for privatization are the Odessa Port Plant (OPZ), Centrenergo, the United Mining and Chemical Company (OGKhK) and the Zaporozhye Titanium-Magnesium Plant. According to Umerov, large-scale privatization could bring the state budget up to UAH 15 billion.
But the issue of privatization of large strategic enterprises remains open. And the likelihood of its resumption in the foreseeable future is extremely vague.
Firstly, military risks are very high, which is the main factor that scares away large investors. Secondly, the draft state budget for 2024 indicates that revenues from privatization will amount to a total of UAH 4 billion. This is the volume that small privatization and rent can bring. But this amount is clearly not enough for the sale of large enterprises.
