National security for sale? By canceling the list of strategic enterprises not subject to privatization, the government has been violating the Constitution for the fifth year
Five years ago, the Verkhovna Rada adopted a law that abolished the list of property not subject to privatization. The state has not received a new list of state-owned enterprises that cannot be sold. A number of people's deputies appealed to the Constitutional Court to prove that the absence of such a list contradicts the Basic Law (Article 85, paragraph 36). But their complaint has not been considered for five years (!).
During this time, parliament could have approved a new list, but this also did not happen. Moreover, the government adopted a resolution on the alienation and lease of property of state joint-stock companies. This document does not contain clear criteria that would protect property important to national security.
When the legislative branch of government failed to fulfill its direct responsibilities, it was the third branch of government—the judiciary—that fulfilled its role. The Grand Chamber of the Supreme Court this year decided that State joint-stock companies such as Naftogaz, Nadra Ukrainy and Ukrposhta cannot, at their discretion, sell property transferred by the state to their authorized capital.
But on September 18, the Grand Chamber will sit on the Nadra Ukraine case. This enterprise requires a review of the previous decision of the authority. The basis was changes to the law “On the management of state property”, which the parliament adopted in the spring. These changes, starting from the spring of 2024, directly provide that the managers of joint stock companies, where the state has 100% of the shares, can sell the property of the companies.
What happened to strategic enterprises?
Parliament, upon proposal from the government, approves a list of state-owned objects that are not subject to privatization. These are the objects that are important for national security.
People's Deputy Alexei Movchan (“Servant of the People”), who is a member of the Verkhovna Rada Committee on Economic Development, convinces: “When it comes to the list, the logic embedded in the Constitution is outdated and does not meet the requirements of the time. In the canceled list, about 40% of the enterprises were bankrupt. There were also hairdressing salons and even the state enterprise “Rope Choir”.
Doctor of Law, Professor Elena Belyanevich does not agree with such a sweeping position. She notes that the Constitution must be respected: “When parliament declared the list of objects not subject to privatization to be no longer in force, there was actually a refusal to implement the provisions of the Constitution. Thus, the parliament violated one of the principles of the legal order: authorities and their officials are obliged to act only on the basis, within the powers and in the manner provided for by the Constitution and laws of Ukraine. This created a gap that can only be filled by a law that will determine the list of objects of state property that are not subject to privatization. The absence of a list is a direct threat to the country’s national security and state sovereignty in the context of the war for independence. One can hardly hope that the judiciary in the state in which it found itself thanks to the reforms of 2019-2024 will be able to prevent the destruction of state property relations. Individual court decisions can specifically protect individual objects, but cannot protect the legal order in its comprehensiveness.”
People's Deputy Movchan explains that four years ago the Cabinet of Ministers introduced a bill (4020) on the list of strategic enterprises that are not subject to privatization, but it only passed the first reading. This year, changes were adopted to the law on corporate governance. The government, according to the people's deputy, must develop by-laws that provide justification for the ownership of state assets and next year, as Movchan convinces, there should already be a list.
But the Verkhovna Rada must approach the list of enterprises that should be on the list carefully. At one time, the strategic enterprise Motor Sich was not included in this list. That is why it was able to be privatized, despite the fact that it is the largest manufacturer of helicopter engines. The first stage of privatization took place five days after the inauguration of Leonid Kuchma. It was this plant that could “land” Russian aviation.
The Security Service of Ukraine filed suspicions of negligence due to the privatization of the plant three years ago. And now the state is trying the former head of this enterprise, Vyacheslav Boguslaev.
Boguslaev actually became the owner of the enterprise and in the end tried to sell it to the Chinese. Now he is suspected of treason. And the High Anti-Corruption Court in the case on the claim of the Ministry of Justice in its decision noted: Boguslaev’s actions were aimed at supplying aircraft engines to the Russian Federation, which led to the accumulation of new and modernization of old Russian aviation equipment. Boguslaev’s lawyer, Rostislav Kravets, denied this during the trial, of course.
During the war, the state realized that it was necessary to protect strategic enterprises and we are already talking about the nationalization of Motor Sich. The same applies to the private joint stock company AvtoKrAZ, which produces trucks.
The situation with Motor Sich and AvtoKrAZ is not an isolated case. Thus, the privatization of the Luhansk Ammunition Plant in 2001-2009 led to the state losing the opportunity to remove most of the production lines of this largest ammunition plant from the combat zone. The gigantic capacities eventually reached the Russian aggressor unharmed. The Luganskteplovoz plant was privatized in 2010 and sold to the Russians.
Ukraine is not the only state that makes mistakes during privatization. Thus, the UK, after the privatization of the railway in 1994, spent six times more on the railway than their European neighbors. In 2015, according to polls, the British supported the nationalization of the enterprise.
Why is Ukrposhta losing...?
Since not everything could be privatized in Ukraine, the process of corporatization developed in parallel. This is the transformation of state-owned companies into joint-stock companies, the state owns 100% of the shares.
Ukraine, having carried out corporatization, formed the authorized capital of these companies, transferring into it state property in the form of various assets (money, real estate, trademarks, inventions, patents, etc.).
In return, the managers who headed these companies had to effectively manage this property and increase the income of the companies, making them economically stable and independent of subsidies.
In practice, the “corporatization” scheme sometimes works quite differently. After transformation into joint stock companies, state-owned companies sell part of the property that was transferred to them at their own discretion.
Now Ukrposhta, managed by Igor Smelyansky, has sold the post office in the president’s homeland - in the center of Krivoy Rog. And now the company, which previously earned money from rent, rents its own office from the new owner. Such stories are not isolated. Smelyansky even declared his desire to sell the Main Post Office on Khreshchatyk, which has symbolic significance for the entire country.
That is, it may happen that the state, which has shares in Ukrposhta, will at one point become the owner of pieces of paper that are not backed by property. And all that will remain is the Ukrposhta logo. And the activities of this enterprise are extremely important in times of war, and in the competition it loses to private operators. But during a war, in strategic matters, the state cannot depend on business.
The public initiative “Igla” turned to the head of Ukrposhta, Smelyansky, to find out how much Ukrposhta has sold property for since 2019? and get answers to other questions. In fact, an enterprise that has state property under management provides an answer to an information request only about tariffs for services.
Member of the Verkhovna Rada Committee on Economic Development Alexey Movchan (“Servant of the People”) explains why Ukrposhta does not provide information upon request: “Before Ukrposhta became a joint-stock company, the state owned its property. And now the state owns the shares. Accordingly, the joint stock company is already hiring a manager to manage this property. If you want to find out whether a manager manages effectively, then you need to ask Prime Minister Denis Shmygal or the Ministry of Infrastructure about this data. They have to keep an eye on this because they are the owner of the shares. And so the whole world is moving towards transferring everything into private hands. Just not like we did in the 90s - we gave it to the oligarchs and to entrepreneurs on a competitive basis.
People's Deputy Sergei Vlasenko (Batkivshchyna), who, together with other 50 people's deputies, signed a submission to the Constitutional Court, emphasizes: “Ukrposhta” or “Oshchadbank” are important for the state not only because of their functions “If we talk about “Ukrposhta”, then a postman in a village is not just a function. This is an important person for the entire community, who carries pensions in cash to those who cannot get to an ATM, and ensures communication in the community. This is about the periodicals that people read, and do not forget that digitalization is not everywhere. People are still receiving letters. The same thing with Oschadbank. This is not just an extensive network of branches, as in other banks. This is also a structure that performs socially important functions,” explains the deputy.
As a result, the state has to sue the joint-stock companies it created - Subsoil of Ukraine and Ukrposhta - and return property that they should not have sold. Such cases have already reached the Grand Chamber of the Supreme Court.
In the case of Ukrposhta, the subject of the dispute is the ownership of non-residential premises, which the company registered as private property, although this property is state property. This is probably done with the aim of selling such real estate in the future.
The prosecutor's office notes that Ukrposhta does not own the property, it only manages it, and the owner is the state represented by the Ministry of Infrastructure. Therefore, the “main post office of the country” did not have the right to re-register these premises.
State-owned enterprises can indeed sell property that they do not need to perform their functions, but there must be clear criteria for this. The money received from such sales should be used to implement government programs approved by the government, but definitely not for large salaries of management. This could be strengthening the education sector, medicine, and the like. This is how, by ensuring the constitutional rights of citizens, the state performs the social function of owning state property.
People's Deputy Vlasenko explains why the Constitutional Court never considered the submission of people's deputies, which they submitted in 2019: “The court does not work properly. They report that decisions are made, but here we are talking about small structures - senates. There are not enough judges there to make decisions in full. Meanwhile, the thesis is spreading that the state cannot be an effective manager, they say, everything must be handed over to private hands. But here we must honestly say that 80% of what was privatized does not work effectively. The land of strategic enterprises was often given over for development into residential complexes. It’s easier to make money this way than to create jobs and strengthen the country’s economy. Large countries are returning to state control. There is not a single country where the state's share in the economy is zero. And industries such as railways or oil and gas production should never be private at all. Only some “new faces” in our government don’t understand this.”
Thus, one of the recently dismissed deputy chairmen of the Office of the President, Rostislav Shurma, was responsible for one of the “reforms” as a result of which the state enterprise “Forests of Ukraine” was created. Government decree stipulates that an enterprise can become a joint stock company. That is, the same thing can happen with the property of this enterprise as with the property of Ukrposhta.
After forests, Shurma took up the reform of the water industry. Only now they decided not to go through a state enterprise, but to immediately create a joint-stock company directly.
Rostislav Shurma is no longer on Bankova, but government regulations on the creation of state-owned enterprises that have every chance of becoming joint stock are still in effect. If they become joint stock companies, then citizens in response to their inquiries will know exactly as much about water or forests in Ukraine as they do about the property of Ukrposhta.
What should the government do immediately?
On September 18, 2024, a meeting of the Grand Chamber of the Supreme Court will take place on the application of NJSC Nadra of Ukraine to review the decision due to newly discovered circumstances. If the decision is in favor of Nadra Ukraine, then other joint-stock companies, where the share of state property is 100%, will be able to refer to it, justifying the sale of such property without any safeguards. Member of the Verkhovna Rada Committee on Economic Development Alexey Movchan (“Servant” people") explains why Ukrposhta does not provide information to the request like this: “Before Ukrposhta became a joint-stock company, the state owned its property. And now the state owns the shares. Accordingly, the joint stock company is already hiring a manager to manage this property. If you want to find out whether a manager manages effectively, then you need to ask Prime Minister Denis Shmygal or the Ministry of Infrastructure about this data. They have to keep an eye on this because they are the owner of the shares. And so the whole world is moving towards transferring everything into private hands. Just not like we did in the 90s - we gave it to the oligarchs and to entrepreneurs on a competitive basis.
People's Deputy Sergei Vlasenko (Batkivshchyna), who, together with other 50 people's deputies, signed a submission to the Constitutional Court, emphasizes: “Ukrposhta” or “Oshchadbank” are important for the state not only because of their functions “If we talk about “Ukrposhta”, then a postman in a village is not just a function. This is an important person for the entire community, who carries pensions in cash to those who cannot get to an ATM, and ensures communication in the community. This is about the periodicals that people read, and do not forget that digitalization is not everywhere. People are still receiving letters. The same thing with Oschadbank. This is not just an extensive network of branches, as in other banks. This is also a structure that performs socially important functions,” explains the deputy.
As a result, the state has to sue the joint-stock companies it created - Subsoil of Ukraine and Ukrposhta - and return property that they should not have sold. Such cases have already reached the Grand Chamber of the Supreme Court.
In the case of Ukrposhta, the subject of the dispute is the ownership of non-residential premises, which the company registered as private property, although this property is state property. This is probably done with the aim of selling such real estate in the future.
The prosecutor's office notes that Ukrposhta does not own the property, it only manages it, and the owner is the state represented by the Ministry of Infrastructure. Therefore, the “main post office of the country” did not have the right to re-register these premises.
State-owned enterprises can indeed sell property that they do not need to perform their functions, but there must be clear criteria for this. The money received from such sales should be used to implement government programs approved by the government, but definitely not for large salaries of management. This could be strengthening the education sector, medicine, and the like. This is how, by ensuring the constitutional rights of citizens, the state performs the social function of owning state property.
That is why, in order to correct the situation, the Verkhovna Rada must approve a list of property objects that are not subject to privatization. There is no point in expecting the Constitutional Court, which has been considering the people’s deputies’ complaint for five years, to make a decision in the near future.
As for the government, it must immediately submit for approval to the Verkhovna Rada a list of state-owned objects that are not subject to privatization. It should include both objects important for national security and social objects.
At the legislative level, it is necessary to define clear criteria for distinguishing the alienation of state property through privatization and ordinary (non-privatization) alienation.
The usual (non-privatization) alienation of state property does not have signs of social importance; it is one of the forms of its disposal based on the purely economic or economic interests of business entities and management of state property, which receives funds (that is, property that is not part of production and does not ensure the fulfillment of statutory tasks, etc.).
It is also necessary to change the provision of the law “On the management of state property” (Article 11), eliminating the provision that property transferred to the authorized capital of a state joint-stock company is its property. That is, we need to return to the previous edition of the article that existed before April of this year.
And in the law “On the privatization of state property” (Article 4), remove the provision that the property of state companies, which is not subject to privatization, can be privatized if it was leased. According to this scheme, as the media reported, the Inka Architectural Workshop tried to take away one of the premises of the War Museum. The court is currently hearing a case regarding the termination of the lease agreement with this company.
It is also necessary to harmonize with the legislation the norms of government regulations on the alienation and lease of property of state joint-stock companies and determine the criteria for the possibility of alienation.
Without such changes, there is almost no chance that state property will not be sold off to all sides by “effective managers”.
