Buoyed by sale of small state assets, Ukraine eyes bigger sell-off

By Olena Harmash

KYIV (Reuters) – Ukraine raised record proceeds from selling small state assets in the first quarter of this year despite Russia’s invasion and aims to privatise thousands more in an economic overhaul, the head of the State Property Fund said.

Since his appointment to head the fund last September, Rustem Umerov has kickstarted Ukraine’s privatisation efforts after years of inaction.

In that time, the fund has raised 2.5 billion hryvnias ($68.36 million) for the budget. The first quarter of 2023 brought in over 902 million hryvnias, the best results in the last 10 years.

“Up to 80% of our sold portfolio is made up of agribusiness companies, infrastructure and real estate,” Umerov, 41, told Reuters in an interview.

“These are local investors – Ukrainian small and medium businesses. They are from horeca (the food service and hotel industries), retailers, and there are also portfolio and financial investors.”

Domestic investors driving demand at auctions held via an online system called Prozorro.Sales – created to ensure transparent and competitive auctions – are preparing sites for processing and industrial enterprises, and do not want to waste time waiting for the war to end, Umerov said.

The war has devastated Ukraine’s economy, destroying or damaging some of its biggest industrial companies, especially in the east where fighting has been fierce.

The World Bank has estimated that the cost of reconstruction and recovery in Ukraine will be $411 billion. Gross domestic product fell by 29.1% in 2022, the largest annual drop since Ukraine declared independence from the Soviet Union in 1991.

The government expects a budget deficit of $38 billion this year, and is reliant on foreign aid to cover social spending and wages.

Turning round loss-making state companies, attracting investors to renovate ageing assets and bringing in more budget proceeds to help the war effort are key tasks, Umerov said.

“Overall the country has 3,600 state-owned enterprises and 85% of them do not work at all or make losses,” he said.

MODERNISATION

The fund has prepared legislation to be able to liquidate them and is getting ready to be able to clean it up. State companies’ losses were 17.79 billion hryvnias last year, data from the fund showed.

“Large-scale privatisation can bring us not only money for the armed forces but also a responsible investor who will focus on the modernisation of these enterprises. Privatisation is not only for the sake of money, it is for the purpose of rebooting state property,” he said.

Assets likely to be put up for sale include chemicals producer Odesa Preport Plant, energy company Tsentrenergo and titanium producer Zaporozhia Titanium & Magnesium Combine.

But Umerov and his team must first win parliament’s approval of laws opening the way for large-scale privatisation.

“There is opposition, but this will be the last nail in communism’s coffin,” said Umerov, a former lawmaker.

“We need to create jobs, we need to look to the future… If we do not prepare the foundation for the state to hold only strategic companies and sell the rest, we will not have enough time. That’s why I want to finish it this year.”

($1 = 36.9300 hryvnias)