Ukraine privatization revenue covers 1.6% of annual plan

The Ukrainian government’s privatization revenue for 1H13 was UAH 173.4 mln, according to a State Property Fund (SPF) report released on July 8. The collections covered only 1.6% of the UAH 10.9 bln target for the year. In 1H12, privatization revenue reached UAH 5.1 bln.

Alexander Paraschiy: Weak privatization revenue is creating problems for the budget. For the first six months, state budget revenue was 0.3% below 2012 results yoy and didn’t even approach expenditures. As a result, the budget deficit reached UAH 18.5 bln in 5M13 (the latest available period), a record-high for the first five months of any year.

Against this backdrop, the privatization revenue shortfall is only aggravating the problem since UAH 10.9 bln had been earmarked to cover part of the targeted UAH 50.6 bln deficit in the state budget.

For 2H13, the SPF has set a plan for the sale of several significant privatizations in the electricity sector including Donbasenergo (DOEN UK) in August, and Kharkivoblenergo (HAON UK) and Zaporizhiaoblenergo (ZAON UK) in September. Other assets planned for sale are fertilizer producers Sumykhimprom (already in July) and Odesa Portside Plant (December), as well as turbine producer Turboatom (TATM UK, December).

The sale of all these assets, if executed on schedule, could generate up to UAH 10 bln, but their privatization has yet to be approved by the government. Given the state’s record, we see the chance that all the planned assets will be ready for sale as very low, thus expecting the government will raise no more than UAH 3-4 bln from privatizations in 2013.

Based on possible underperformance on the privatization side (which has become typical for Ukraine), as well as expectedly weak budget revenue generation this year, there’s a high likelihood for heavy direct support for the state budget by the National Bank of Ukraine, which means cash injections of nearly UAH 30-40 bln in 2013.