Privatization with the eyes wide shut

Throughout the years of independence the word “privatization” has become symbolic. Someone will associate it with the discovery of new opportunities, someone – with a sense of betrayal and injustice. However, no matter how we treat some things, there are actions that cannot be avoided at all.

The privatization law itself is a step forward. Today the state owns three and a half thousand enterprises. Most of them are small assets bearing no strategic value. Moreover, we are often told that the public sector of the economy is unprofitable, because the state is a bad owner a priori. Not just unprofitable, but also extremely corrupt. According to the NABU, presently there is an investigation about corruption offenses in the public sector worth of 20 billion hryvnias.

Therefore, confidently stepping forward, we cannot do this with eyes wide shut, ignoring possible shortcomings in specific plans for the realization of good intentions.

Mistakes of the past

That is why the idea of a new large-scale privatization should make us cautious given the already existing experience.

Firstly, as a result of the shameful “grab-it-isation” in independent Ukraine, a separate layer of oligarchs was formed, who bought for a song the enterprises whose material and technical base had been formed by the decade-long efforts and means of millions of people who as a result remained with nothing.

Secondly, the fears are justified, because in the process of privatization the state does not guarantee the protection of the interests of ordinary citizens. The energy regulator makes decisions that allow enrichment through inflated electricity tariffs. The Antimonopoly Committee does not notice Firtash’s monopoly on the gas distribution market or Akhmetov’s monopoly in thermal generation.

We should pay special attention to the example of regional gas distribution companies. These state gas distribution companies were successfully privatized. And what do we have now? During my recent trip to Chernihiv region I met many people and heard a lot of complaints from them. One of the most common of them was as follows. Ordinary people who live in private houses in towns or villages receive bills with arrears for some unreal volumes of allegedly consumed gas that they could not have physically used. In case of non-payment they are threatened to have gas turned off. In the end, they really have it turned off. And there is virtually no one to protect their rights.

Domestic power engineering perfectly demonstrates how unsuccessful privatization harms not only the state, but also ordinary people. Therefore, we must take into account the bitter lessons of the period of our independence in order to avoid the same mistakes in the future.

Welcome to Ukraine?

First of all, we need more money in the state treasury (for example, in 2017 it was planned to get 17 billion hryvnias from privatization, of which only about 5 billion will be actually received).

Secondly, we need to attract investment in the modernization and development of specific enterprises, where our citizens work. But, judging from the experience of our privatized regional gas distribution companies and regional power distribution companies, the domestic oligarchs who became their owners are reluctant to invest their own funds in infrastructure development. Therefore, in this regard, it is critically important to attract foreign investors. However, given the current version of the bill, there might be problems with the real not declarative implementation of this task.

First of all, the draft law needs to be improved in terms of preventing any participation in the privatization of buyers who have an opaque ownership structure, namely, the beneficiary owners of which are not 100% disclosed. The same applies to those that are related to the aggressor country or come from offshore jurisdictions.

There are some other nuances. According to the current version of the law, local authorities are deprived of the opportunity to independently privatize communal property. Communal property is the property of the community. It the community that has the full right to determine the basis and time of privatization, the funds from which must come to local budgets of course.

Equally suspicious is the norm granting the Cabinet the possibility to decide, at its discretion, whether it is expedient or not to use the services of international companies providing consultations on privatization of large objects. The function of such foreign consultants who must have at least ten years of international experience is to help us take into account the previous mistakes, make the process more transparent and, possibly, expand the range of potential investors. However, as we see, the authors of the draft law on privatization do not exclude the possibility of selective application of their services.

The privatization of this year was quite indicative. The state sold blocks of shares of several regional heat distribution companies, and auctions were planned for July – specifically for the period of summer holidays, when employees of Western companies tend to go on vacations. And we, literally, had the work in full swing.

Therefore, the main task of privatization is not just to provide additional revenues to the state budget and attract investment in specific facilities, but also to demonstrate to the whole society that our state is able to organize and conduct such processes in a civilized manner.

Think real

However, if “small privatization” is necessary, one must be very careful with the privatization of large objects. Moreover, many of them will remain in state ownership under any circumstances – nuclear power plants, for example. Perhaps, in theory, the state is an inefficient owner, generally speaking. At least, more inefficient than private business. However, in the modern Ukrainian context, the state is simply obliged to BECOME an effective owner. And there are many tools for this – the use of electronic procurement systems like Prozorro, the search for effective managers, advocating for the interests of the state in the court cases on debt obligations of state-owned enterprises.

Privatization is always good on paper, but in reality it leads to very contradictory consequences. In order to conduct it really qualitatively we need to try to see things as they are. So, privatization is not always white, while state ownership is not always black. But the fear of a foreign investor and the protection of the interests of a large “national bourgeoisie” are not always actions in the national interest.

Therefore, it is worth opening our eyes: not to be afraid of inevitable privatization, but also not to have rose-coloured glasses considering all investors to be “good”. Not all of them are. But this is what competition is for, and the least we can do is to create no legislative obstacles for it.

Viktoriya Vojtsitska
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