Modern economic POTENTIAL OF UKRAINE

Privatization of State Property

According to data from the State Property Fund of Ukraine, 890 objects were brought out of state property in Ukraine in 2005. Mostly, these were Group A objects – 549 units (61.7%), and Group D – 234 sites (26.3%). Besides, 77 objects (8.7%) from Group J were removed from state property, as well as 19 Group E objects (2.1%), and 11 Group B objects (1.2%).

According to the Law of Ukraine No.1723-III of May 18, 2000 “On State Program of Privatization”:

Group À – integral state property complexes, rent enterprises and structural sub-departments of enterprises transformed into independent enterprises, including those in the process of restructuring of state enterprises with an average number of employees up to 100 persons inclusively or over 100 persons, but the value of fixed assets of which is not substantial enough to form the authorized capital of open joint-stock companies (hereinafter – OJSC), as well as hotels, resort institutions and recreation sites, and the assets of enterprises which were not sold as whole property complexes.

Group B – integral property complexes of enterprises with an average number of employees exceeding 100 persons and with the value of fixed assets substantial enough to form the authorized capital of an OJSC; shares of an OJSC, the issue of which has been registered, shares of an OJSC established upon enterprises of an agro-industrial complex when the value of the fixed assets is substantial enough to form the authorized capital of an OJSC.

Group G – integral property complexes of enterprises or stakes of an OJSC which, at the moment when the privatization decision was made, holds a monopolistic or dominating position in a country-wide market of corresponding goods and services or is of strategic importance to the economy and security of the state.

Group D – incomplete construction sites, idle objects.

Group E – shares owned by the state in the authorized capital of an economic entity (including enterprises with foreign investment) situated on the territory of Ukraine or abroad.

Group J – irregardless of the value, objects of healthcare, education, culture, art and press, physical culture and sports, television and radio broadcast, publishing, as well as sanitary and resort institutions, recreation sites and camps (excluding resort institutions and recreation sites which are accounting units), etc.

The primary means of bringing the objects out of state property were: purchase – 395 objects, and auction sale – 421 objects, which accounts for 44.4% and 47.3% of the total number of objects taken out of state property. 59 objects were purchased through lease (6.7%), 7 objects (0.8%) – through sales of OJSC shares, 4 objects (0.4%) were sold via non-commercial bids, and 4 objects (0.4%) – at commercial bids.

7 Group B objects (64%) were brought out of state property via the selling of OJSC shares and 4 objects (36%) were purchased.

Objects of small privatization (Group A) were mostly purchased – 284 objects (51.7%) and sold at auction – 206 objects (37.5%). 58 objects (10.6%) were sold through leasing and 1 object (0.2%) was sold via commercial bids.

Within Group D, 185 objects (79.1%) were sold at auctions and 43 objects (18.4%) were purchased. The number of objects sold at commercial and non-commercial bids was respectively 3 (1.2%) and 2 (0.9%), and 1 object (0.4%) was removed via lease.

By and large, 19 objects of Group E were taken out of state property, of which 12 objects (63.2%) were purchased and 7 objects (36.8%) were sold at auctions.

Out of 77 objects within Group J, 52 objects (67.5%) were purchased, 23 objects (29.9%) were sold at auctions, and 2 objects (2.6%) were sold via non-commercial bids.

According to appraisal reports, the value of the state share in property which was to be removed from state ownership over 2005 is UAH 212.64 mn. Distribution by groups of objects was as follows, %: A – 52.0; B – 6.8; D – 12.5; E – 23.3; and J – 5.4. (Picture 1).

Picture 1. Composition of groups of objects privatized in 2005

In 2005, privatization organs, with the consent of local self-government bodies, changed ownership of 4,639 public utility companies. Mostly, these were objects of A group (4,546 objects – 98%). Other groups contributed 2%, in particular: 54 Group D objects (1.1%), 26 Group J objects (0.6%), and 13 Group E objects (0.3%).

Most of public utilities were sold through purchase – 71.3% objects. 18.7% of objects were leased, and 7.1% of the objects were sold at auctions. 2.5% of the objects were sold at commercial bids, and 0.4% – at non-commercial bids.

In 2005, the State Property Fund announced 12 (including 1 repeatedly) calls for bids to sell stakes in OJSCs with an aggregate start price of UAH 10.07 bn.

Since the beginning of 2005, because of the temporary suspension of privatization processes (according to the Decree of the Ukrainian Parliament No.2349-IV of January 13, 2005 “On temporary restrictions in privatization” and Decree of the Fund No.85 of January 13, 2005 “On temporary suspension of privatization”), the Fund only sold 3 stakes in OJSCs through bids.

The list of sold companies includes:

• OJSC “Krivorizhstal Mining and Metallurgical Works of Krivoy Rih”. The open sale of a 93.02% interest in OJSC Krivorozhstal took place October 24, 2005. The competition winner was Mittal Steel Germany GmbH, which offered the highest price for the stake – UAH 24.2 bn (start price fixed at UAH 10.0 bn). The agreement on the sale-purchase, KPP-497, was signed on October 28, 2005.
• OJSC “Kharkiv Electrical Transportation Plant”. The regional department of the State Property Fund (SPF) in Kharkiv region completed the bid selling a stake in the authorized capital of the OJSC’s plant. The stake was sold for UAH 116.62 ths., and SPF Regional Department Decree No.1258 of November 23, 2004 confirmed the results.
• OJSC “VolynRybKhoz”. The Fund’s regional department in Volyn oblast held bids to sell a stake equal to 25.01% in the authorized capital of the company. By results of the bids, decree No.65 of June 22, 2005 recognized Zapad (West) Private Company the winner. The stake was sold for UAH 185 ths. with a nominal value stated at UAH 183.01 ths. The start price was fixed at UAH 184 ths.

In 2005, 204 stakes of 140 OJSCs with an aggregate nominal value of UAH 1,067.99 mn were offered for sale (for cash) on stock exchanges of Ukraine and the First Stock Trading System (PFTS).

The proposed stakes included 184 (90.2%) interests in Group B objects, 18 (8.8%) – in Group G, and 2 (1%) – in objects from Group E. 27 stakes of Group B objects were sold, which included 4 stakes with prices exceeding nominal value.

The value of all sold stakes by nominal value and by contracts signed totaled correspondingly UAH 506.92 mn and 535.71 mn with a ratio between sale price and nominal value of the sold stakes at 1.05.

The most interests were put up for sale at the Ukrainian Stock Exchange (UFB) – 80 (39.2%). The Ukrainian Interbank Currency Exchange (UMVB) presented 38 stakes for sale (18.6%), the Ukrainian Interbank Stock Exchange (UMFB) – 29 interests (14.2%), the First Stock Trading System (PFTS) – 16 (7.8%); Kiev International Stock Exchange (KMFB) – 22 (10.8%); Donetsk Stock Exchange (DFB) – 13 (6.4%); Crimean Stock Exchange (KFB) – 4 (2.0%); and Lugansk Stock Exchange (LFB) – 2 stakes (0.9%).

The largest number of stakes were sold at UFB – 15 (53.6% in total number of all stakes sold through exchanges and PFTS); KMFB – 6 stakes (21.4%); UMVB and UMFB – 2 stakes at each (7.1% for each); at LFB, KFB, and PFTS – 1 stake (3.6%) at each. No interests were sold at DFB.

In December 2005, compared to the previous month, the stock exchanges and PFTS saw growing sales of OJSC stakes, while the number of state interests in OJSCs proposed for sale went down (table 1).

In December 2005, the best (by financial proceeds) examples of state interest sales in OJSCs through stock exchanges and PFTS were:

• a 36.04% stock in OJSC Severodonetskiy Construction Ceramics Plant – market value of the stake sold, UAH 3.09 mn;
• interest equal to 51.36% in OJSC Uzhgorod Poultry Factory – market value of the stake sold, UAH 3.05 mn.

The sale of a 24.49% stake in OJSC Tribo for UAH 7.59 mn (minimal value UAH 4.74 mn) is the best example of a sale with price overrun.

In the period under review, the privatization of state property yielded revenues of UAH 20.71 bn.

UAH 20.69 bn were forwarded to the finance general fund of the State Budget of Ukraine with privatization proceeds (except for objects for which special allocation is provided) and other earnings directly related to privatization and crediting of enterprises. The central body of the State Property Fund brought objects out of state property for a gross value of UAH 20.51 bn regional departments – UAH 196.49 mn.

Most of the earnings originated from sale of state property objects by the Fund’s regional departments were in the city of Kiev – UAH 39.4 mn, city of Sevastopol – UAH 14.11 mn; as well as in the regions: Zaporozhye – UAH 18.78 mn, Kharkiv – UAH 17.95 mn, Donetsk – UAH 15.37 mn, Lugansk – UAH 11.07 mn, Odessa – UAH 9.88 mn, Lvov – UAH 8.45 mn, Zakarpatye – UAH 6.63 mn, Dnepropetrovsk – UAH 6.6 mn, Nikolayev – UAH 6.22 mn, and Ivano-Frankovsk – UAH 5.51 mn.