State en­ter­prises drain $5 bil­lion in 2014 from Ukrainian tax­pay­ers

Kyiv Post Legal Quarterly - - Contents -

In2014 alone, state en­ter­prises of­fi­cially lost Hr 115 bil­lion – more than $5 bil­lion, fu­eled by theft through one cor­rupt scheme af­ter mer­chants and, in some cases, oli­garchs and ty­coons who stand be­hind them.

If many of th­ese en­ter­prises be­came pri­vately owned, they would bring tax rev­enues in­stead of financial losses and al­low Ukraine's gov­ern­ment to shed up to 50 per­cent of its to­tal work­force of more than 1 mil­lion em­ploy­ees.

Re­mov­ing th­ese cesspools of cor­rup­tion and bad man­age­ment from the tax­pay­ers' shoul­ders has proven to be dif­fi­cult.

One of the holdups is a new pri­va­ti­za­tion law mov­ing through par­lia­ment aimed at en­sur­ing trans­parency and com­pe­ti­tion, as well as pro­tect­ing the rights of the state and in­vestor.

Those who ben­e­fit from the sta­tus quo are putting up fierce re­sis­tance.

"Sab­o­tage comes from the bu­reau­crats and mer­chants who feed from the schemes,” Olek­siy Zubryt­sky, an ad­viser

to Agri­cul­ture Min­is­ter Olek­siy Pavlenko, told the Kyiv Post.

More than 150 ap­peals sent to law en­force­ment agen­cies from the Agri­cul­ture Min­istry are in dif­fer­ent stages: pre-court in­ves­ti­ga­tions, in­dict­ments sent to court, other types of con­sid­er­a­tion.

“We haven’t re­ceived any re­sponse yet. The of­ten asked ques­tion is why no­body of those who were shoot­ing the Maidan is im­pris­oned? So this is our Maidan, no­body is im­pris­oned either" for em­bez­zle­ment, Zubryt­sky said.

Pri­va­ti­za­tion is seen as the only vi­able so­lu­tion for many state en­ter­prises, where cor­rup­tion per­me­ates all lev­els, from depart­ment di­rec­tors to en­gi­neers and ac­coun­tants. Of­fi­cially, work­ers are un­der­paid and over­pro­tected, a con­tribut­ing fac­tor to the flour­ish­ing cor­rup­tion schemes.

Apart from that, pow­er­ful busi­ness clans who stand be­hind some state en­ter­prises re­sort to threat­en­ing any new tech­no­cratic man­ager who at­tempts to clean up the mess, Zubryt­sky said.

Sev­eral draft laws will es­tab­lish new rules on pri­va­ti­za­tion to ban un­friendly buy­ers from the auc­tion and can­cel re­quire­ment to sell 5-10 per­cent stakes be­fore the state can of­fer a con­trol­ling stake in an as­set.

Other prob­lems in the cur­rent law should also be ad­dressed to make pri­va­ti­za­tion more at­trac­tive to for­eign in­vestors. “There is al­most no room for ne­go­ti­a­tions be­tween an ac­quirer and the fund,” Sayenko Kharenko se­nior as­so­ciate Olek­sandr Niko­laichyk told the Kyiv Post. “In ad­di­tion, in­vestors lack in­for­ma­tion on the tar­get since there is no ef­fec­tive way to per­form a proper due dili­gence.”

Ad­di­tion­ally, the guar­an­tees that an in­vestor re­ceives are non-en­force­able un­der Ukrainian law. “The ac­quirer will sim­ply be un­able to ben­e­fit from such pro­tec­tion in postac­qui­si­tion lit­i­ga­tion,” Niko­laichyk said.

The State Prop­erty Fund is re­spon­si­ble for due dili­gence and pre­par­ing the state as­sets for sale. Pri­va­ti­za­tion could go more smoothly if ev­ery gov­ern­ment body did their part, fund di­rec­tor Ihor Bilous, said in a Sept. 7 brief­ing.

Out of 302 state en­ter­prises des­ig­nated for pri­va­ti­za­tion, 174 are con­trolled by min­istries, of which only seven have been al­ready trans­ferred to the fund for ac­tual sale.

“The min­istries should trans­fer the as­sets to the fund and we will try to sell those un­der trans­par­ent pro­ce­dures. Cur­rently it’s mov­ing quite slow,” Bilous said.

The Agri­cul­ture Min­istry is ready to trans­fer all 101 en­ter­prises des­ig­nated for pri­va­ti­za­tion to the fund, but many com­pa­nies are “stuck in the pro­ce­dures.” Some 50 are still wait­ing for ap­provals from the Cabi­net and par­lia­ment, oth­ers are in de­lay due to pa­per­work, of­ten also sab­o­taged by of­fi­cials on lower lev­els.

“One can work for years in an un­regis- tered field, use un­reg­is­tered build­ings, but as soon as pri­va­ti­za­tion is in ques­tion, prop­erty is­sues step for­ward,” Zubryt­sky said at a press brief­ing on Sept. 29. “With­out changes to the leg­is­la­tion, pri­va­ti­za­tion will not be con­ducted even next year. We be­lieve it’s nec­es­sary to rad­i­cally sim­plify the pro­ce­dure of pri­va­ti­za­tion of the small­est and most loss-mak­ing en­ter­prises.”

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