Pavlenko hopes for $450 mil­lion by sell­ing state agri­cul­ture firms

Kyiv Post - - Business - BY OLENA GORDIIENKO [email protected] Kyiv Post staff writer Olena Gordiienko can be reached at [email protected] com.

There’s one way to elim­i­nate cor­rup­tion and mis­man­age­ment at state-run en­ter­prises. Sell them to in­vestors and watch as pri­vate own­ers turn around -- or close -- the mostly un­prof­itable and poorly man­aged busi­nesses.

Agri­cul­ture Min­is­ter Olek­siy Pavlenko plans to do just that by sell­ing 75 per­cent of the 571 state-owned en­ter­prises on his bal­ance sheet and fetch up to $450 mil­lion.

Only 20 en­ter­prises turned a profit last year, the min­is­ter said, while the rest are money-los­ing. Some 200 are un­der­go­ing bank­ruptcy pro­ceed­ings.

By the end of this year, he wants to earn Hr 1 bil­lion ($45 mil­lion) for the first 150 com­pa­nies, he told jour­nal­ists in Kyiv on May 21. “This would in­clude cul­ti­va­tion of th­ese lands, re­con­struc­tion of the com­plexes, jobs, taxes and pros­per­ous vil­lages,” Pavlenko said.

Com­bined, the min­istry’s en­ter­prises hold 1.1 mil­lion hectares of land, 91 per­cent of which is arable, ac­cord­ing to Maksym Mar­tynyuk, head of Ukraine’s State Agency for Land Re­sources.

Much of it isn’t cul­ti­vated, and what is, is usu­ally leased to farm­ers un­der the ta­ble, cost­ing the state $4-5 bil­lion in lost yearly rev­enue, he said at a dis­cus­sion in Kyiv on May 21.

“Pri­va­ti­za­tion of th­ese en­ter­prises is the most ef­fec­tive way to bring th­ese lands out of the shadow econ­omy,” Mar­tynyuk said.

Even­tu­ally, the agri­cul­ture min­istry plans to keep no more than 10 en­ter­prises. Other com­pa­nies will have to be “re-or­ga­nized” dur­ing the sale process, ac­cord­ing to the min­is­ter, be­cause Agri­cul­ture Min­is­ter Olek­siy Pavlenko spoke to in­ter­na­tional part­ners, in­vestors and of­fi­cials at the open­ing of AGRO2015 ex­hi­bi­tion in Kyiv on June 3. Agri­cul­ture needs in­vest­ment both in new projects and state-owned en­ter­prises on sale. (Kostyan­tyn Ch­er­nichkin) they no longer do what their com­pany name says.

He cited about 30 state firms that should ei­ther cul­ti­vate silk­worms or pro­duce silk. An in­spec­tion found that none of them do this.

“At best, their land and im­mov­able prop­erty have been adapted for crop plant­ing or live­stock farm­ing, at the worst – they do not func­tion at all and have a debt that con­stantly grows,” Pavlenko wrote.

For ex­am­ple, one silk pro­ducer in Kyiv Oblast used its plant to run a ve­hi­cle park­ing lot and car re­pair shop.

Giorgi Vashadze, co-founder of the Ge­or­gian In­no­va­tion and Devel­op­ment Foun­da­tion, who is cur­rently ad­vis­ing Pavlenko’s team, agrees that pri­va­ti­za­tion is the best op­tion. There’s a case to be made for sell­ing now at cheaper prices dur­ing an eco­nomic cri­sis.

“When we were start­ing our re­forms in Ge­or­gia we un­der­stood that maybe we could sell (state en­ter­prises) for more money in five years, but if the econ­omy doesn’t re­cover in the near­est fu­ture we might lose even what we have,” Vashadze told the Kyiv Post. “It’s bet­ter to have new jobs in the near­est fu­ture…than to keep them for free. Those en­ter­prises are also pro­vid­ing money flows for cor­rupt of­fi­cials.”

The pri­va­ti­za­tion pro­ce­dure should also be com­pletely re­designed to en­sure trans­parency and com­pe­ti­tion. Hold­ing elec­tronic auc­tions would be a good de­ci­sion, Vashadze said.

There is an­other ob­so­lete Ukrainian reg­u­la­tion that does not serve Pavlenko’s goals.

A law cur­rently is in place that lists 177 state-owned agri­cul­tural en­ter­prises that can­not be sold. Ser­hiy Kaspirzhny, deputy head of state own­er­ship man­age­ment depart­ment at the econ­omy min­istry, said a new bill with a re­vised list has al­ready been sub­mit­ted to par­lia­ment.

“This law’s phi­los­o­phy was formed in the 1990s; now the sit­u­a­tion has changed fun­da­men­tally,” he said.

For­eign in­vestors, ex­cept for Rus­sians, will be able to bid for en­ti­ties that do not have land on their bal­ance sheets.

The ones that have land will be trans­ferred to cur­rent and for­mer em­ploy­ees at no cost. Some 100,000 cit­i­zens would ben­e­fit from it, Pavlenko said. They, in turn, would pre­sum­ably cul­ti­vate the farm­land or lease it to in­vestors who would.

Cer­tain mea­sures to pre­vent abuses dur­ing the land own­er­ship trans­fer still have to be de­vel­oped.

“It’s rea­son­able to limit the area of land plots (given away per per­son) with the av­er­age land plot size in the dis­trict,” Mar­tynyuk of Sur­vey­ing Ser­vice said. “Oth­er­wise, we might reach some astro­nomic sizes when giv­ing out land.”

It’s also im­por­tant to limit the num­ber of po­ten­tial ben­e­fi­cia­ries en­ti­tled to plots, to avoid more peo­ple mak­ing land claims the closer the date ap­proaches to land deed trans­fers, Mar­tynyuk said.

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