Ukraine schedules privatization of utility companies starting May 2016

Ukraine’s State Property Fund (SPF) published on Jan. 20 its 2016 schedule to sell 50 state stakes in some utility, energy and machinery companies. According to the schedule, the SPF is going to offer in May 25% stakes in power DisCos Sumyoblenergo and Odesaoblenergo (ODEN UK), as well as a 25% stake in power GenCo Donbasenergo (DOEN UK).

June is scheduled to be the hottest month, when the SPF plans to offer 25% stakes in the biggest assets currently controlled by DTEK (DTEKUA): power GenCos Zakhidenergo (ZAEN UK) and Dniproenergo (DNEN UK), as well as power DisCos Dniprooblenergo (DNON UK) and Kyivenergo (KIEN UK). Other assets scheduled for June are 51%-70% stakes in four power DisCos: Kharkivoblenergo (HAON UK), Khmelnytskoblenergo (HMON UK), Ternopiloblenergo (TOEN UK) and Mykolaivoblenergo. In the second half of 2016, the SPF is going to offer 46% in power DisCo Cherkasyoblenergo (CHON UK), 25% in DTEK-Donetskoblenergo (DOON UK) and 38% in two DTEK-controlled coal enrichment factories.

The privatization schedule does not contain the biggest privatization targets for 2016: Odesa Portside Plant, Sumy-Khimprom and Centrenergo (CEEN UK). It also does not contain a stake in large power DisCo Zaporizhiaoblenergo (ZAON UK).

Alexander Paraschiy: We doubt that the SPF will manage to fulfill its offered schedule, for multiple reasons. Firstly, it’s the tradition of the Ukrainian privatization agency to not meet its schedules – and nothing has changed with this government. Secondly, the legislation to improve the privatization process, drafted by the SPF and submitted to Ukrainian parliament in autumn, has not been approved by the Rada, and the timing of its approval is not clear today. Thirdly, the list seems to have been prepared hastily – otherwise it’s hard to understand why the SPF omitted a control stake in one power DisCo and scheduled to sell only 46% in another (instead of the 61% it can offer).

In addition, the biggest properties in the offered list, by their value, represent 25%-38% stakes in companies already controlled by DTEK. It’s not critical for DTEK, the obvious buyer, to purchase stakes in companies that it fully controls anyway. Moreover, DTEK is very unlikely to spend money for such purchases now, when it has severe liquidity and solvency issues.