Ukraine to issue UAH 16 bln debt to compensate low privatization revenue

Ukraine’s Cabinet of Ministers issued UAH 16.6 bln in new state loans to cover an underperformance in privatization revenue, according to a Cabinet decree approved on Nov. 7 and made public on Nov. 11. The 2014 budget projected this revenue source would generate UAH 17 bln for state deficit financing; however, the State Property Fund collected only UAH 0.06 bln in 9M14.

Meanwhile, the Cabinet is still planning to convene privatization tenders to sell all the state’s stakes in five power distribution companies, according to a government decree made public on Nov. 11. The document stipulates tenders for stakes of 65% in Kharkivoblenergo (HAON UK), 60% in Zaporizhiaoblenergo (ZAON UK), as well as 45%-70% stakes in three smaller DisCos.

Alexander Paraschiy: The substitution of privatization revenue with more state debt is unavoidable, since there was no chance to generate UAH 17 bln from privatization against the backdrop of military actions at the country. Even the planned sale of power DisCos (which could bring about UAH 1.5 bln revenue to the state) is very unlikely to happen this year.

Therefore, we believe the IMF will approve this decision. However, the problem it creates is that the extra UAH 16.6 bln will most likely be printed by the NBU (no other sources of funding are available). In light of the destabilized and totally disoriented ForEx market, the funding of the state deficit at the expense of NBU support poses the main risk for the national currency.