President opposes privatization of UTEL and TATM

Yesterday President Viktor Yushchenko characterized the government’s privatization plans as risky. He pledged to block the privatization of strategic assets: the gas transportation system, Ukrtelecom (UTEL), Turboatom (TATM) and Odesa Portside Plant. Alexander Paraschiy: Last year, Yushchenko blocked tenders to privatize UTEL, TATM, six Oblenergos and Odesa Portside by suspending the government’s orders to start the tenders. The government tried to ignore the president’s ban by privatizing the Oblenergos (refer to our Oblenergo note as of May 8, 2008) and Odessa Portside, but failed: the President’s position was supported by Valentina Semenyuk (who was then head of the State Property Fund). Now that Semenyuk has been dismissed, and acting head of SPF Dmytro Parfenenko seems to be close to the Prime Minister, the government’s privatization program has a higher chance of being realized. Privatization despite the President’s opposition does raise political risks and (most likely) will scare away most potential investors. This scenario seems to be beneficial for Russian investors (e.g. Sistema/MTS and Alfa/Altimo for Ukrtelecom), who look the least susceptible to political risks, though this would hardly be beneficial for Ukraine’s budget. We continue to believe that political turbulence makes large-scale privatizations unlikely this year.