Ukraine upgrades its 2016 privatization plans

Ukraine’s State Property Fund (SPF) made public on Sept. 27 its updated privatization schedule for 2016. It revealed that in October, the SPF is planning to offer 70% stakes in power DisCos Mykolayivoblenergo (MYON UZ) and Khmelnytskoblenergo (HMON UK), a 51% stake in Ternopiloblenergo (TOEN UK), a 65% stake in Kharkivoblenergo (HAON UK) and a 99.6% stake in fertilizer producer Odesa Portside Plant. In November 2016, it plans to offer a 60.2% stake in power DisCo Zaporizhiaoblenergo (ZAON UK). In December, it may offer a 75.2% stake in power turbine producer Turboatom (TATM UK), a 100% stake in chemical plant Sumykhimpom, a 78.3% stake in power GenCo Centrenergo (CEEN UK), as well as some other big assets. All the above-listed stakes will be offered based on separate resolutions of Ukraine’s Cabinet of Ministers.

On top of that, the SPF could offer in November 25% stakes in power GenCos Zakhidenergo (ZAEN UK), Dniproenergo (DNEN UK) and Donbasenergo (DOEN UK); a 25% stake in integrated utility Kyivenergo (KIEN UK); and 25% stakes in power distribution companies Dniprooblenergo (DNON UK), Donetskoblenergo (DOON UK), Odesaoblenergo (ODEN UK) and Sumyoblenergo (SOEN UZ). It also scheduled the sale of a 46% stake in power DisCo Cherkasyoblenergo (CHON UK).

Alexander Paraschiy: Post-EuroMaidan Ukraine has no story of a successful privatization: since the beginning of 2014, assets for only UAH 676 mln were sold, out of a three-year plan of UAH 53,400 mln. Most of the above-listed companies are eternal members of all the SPF’s previous sale announcements, with no tangible results. And we doubt that much will change these months.

We believe it’s a high time to initiate the sale of Turboatom and Centrenergo – very profitable companies so far – though we doubt the government has enough political will to do it. The only tender that we see possible is for the Odesa Portside Plant, which the SPF failed to sell in July. But that can happen only if the plant’s price will be significantly reduced from the earlier offered USD 530 mln, and only to “investors” close to the current power brokers.

We also believe this year is not appropriate for offering large stakes in power distribution companies. Their market value could be raised significantly after the power sector regulator introduces RAB-based rate regulations for them, and this has not happened yet. On top of that, it does not look efficient for the government to offer a 46% stake in Cherkasyoblenergo as this is not a controling stake, and we know that the state owns 71% in the company.

Regarding 25% stakes in DTEK-related electricity companies (DNEN, DOON, KIEN, ZAEN), we doubt DTEK will be able to buy them, given its debt issues. However, it looks possible for the SPF to sell small stakes in Odesaoblenergo and Sumyoblenergo this year.

All in all, we would be surprised if the SPF will be able to raise more than UAH 1 bln this year from its scheduled privatization.