Igor Mazepa
Founder and CEO
 

Corruption and losses. Why state-owned enterprises should be sold

Privatization of state assets in this country has become a subject of political speculations long been, especially on the eve of elections. Therefore, I’d like to say a few words about the status of the state-owned enterprises and benefits privatization would bring to every Ukrainian.

Let's start with the fact that privatization is a good way to replenish the state budget. In recent 10-15 years, lawmakers planned huge amounts of income from privatization in the budget - from 10 to 20 billion hryvna, but these plans were fulfilled only twice in the history of Ukraine. In 2005, when Kryvorizhstal was sold, and in 2011, when Ukrtelecom was sold.

The second equally important aspect is a significant share of GDP, more than a third, which is still generated by the public sector. In this situation, it is impossible to form a stable and strong middle class, which would be a cost-active agent in the country. Only privatization would solve the problem of its absence.

The third is that a state-owned company has always been a source of corruption, manipulation and theft for officials and their crime-sponsored protectors. If a company is in private hands, under the control of a qualified management, it radically changes the pattern of the operational management. A private investor invests its money in the company and is interested in profitability and efficiency.

Speaking with foreign strategic investors, we often heard that privatization of Ukrainian state-owned enterprises should be conducted with a discount as compared to similar private companies. This is due to mismanagement, stealing, shadow schemes of withdrawing money and assets of enterprises. Correction of effects of such management may take years of efforts and huge investments. State-owned companies are always the biggest source of profit for officials. Therefore, I will always stand for privatization. Every year, tens of billions of hryvna are “drained” from state-owned companies for nothing. We need a political initiative to change it all.

Nuclear and hydropower may be an exception. Maybe, the part of railways should be left in the hands of the State, for example, railroad tracks. Everything else should be given to private companies to operate the public tracks. It’s quite possible that private companies will build their own railroad tracks, a faster, more reliable and safe. For example, as in has been happening in America for the last 200 years.

The most common cause of the privatization failure, which I hear from officials, is the fear to sell a state object at an underestimated price. This is unalloyed hypocrisy, because only a fair, open, transparent tender can produce a fair price for an asset. That is, you do not know until try. Opponents of privatization also refer to the fact that the state will not receive good money because of the crisis, war, etc. I am convinced that if we leave everything as it is, then in three or four years, the state will not receive any money. Ineffective management and stealing will drive even potentially successful businesses to bankruptcy. The sooner it will be transferred into private hands, the lesser corruption in the country will be. At the same time, the people should understand who buys state assets. In this respect, it is very important to disclose beneficial owners standing for the purchase. In no case there should be corrupted judges, officials, high-ranking militiamen, prosecutors, so they were not able to launder their money through privatization.

On August 19, the Government once again postponed the tender for 5% shares in the Odessa Port Plant (OPP), which was scheduled for August 26. It is clear from the above, what was the reason of such decision. In three days before the tender, when foreign investors have already exchanged dollars for hryvna and deposited money to accounts, the Government is ready to do all out of, because it is supposedly not ready and has no confidence in the privatization process, which was regulated by the same Cabinet. I can only interpret such actions as another populist step before the election and the reluctance to change anything.

http://finance.liga.net/economics/2015/8/25/opinio...