State enterprises drain $5 billion in 2014 from Ukrainian taxpayers
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.”