Privatization in Ukraine

The process of removing property from state control began in Ukraine, when the country was still a republic within the USSR. The adoption of the laws “On Individual Labor Activity” (1986) and “On Cooperation in the USSR” (1988) made it possible for small private businesses and cooperatives to develop. Cooperatives organized within enterprises were often used as channels for the transfer of assets from the public sector. The Law “On State Enterprise,” adopted in 1988, leased the property of enterprises to labor collectives. The leaders of the latter, acting as representatives of the labor collective and using their connections in the party and economic nomenklatura, were given the opportunity not only to manage state property, but also to use it in their own interests.

Officially, privatization in Ukraine began in 1992. One of its first steps was the law “On the privatization of state housing stock,” adopted in June, which made it possible for residents to obtain private ownership of the apartments they occupy.

In 1994, the President of Ukraine adopted Decree No. 56 “On a unified system of privatization bodies in Ukraine”, in accordance with which a system of Ukrainian privatization bodies was formed, which has since undergone minor changes.

Its main body, the State Property Fund of Ukraine (SPFU), is subordinate and accountable to the Verkhovna Rada. The chairman of the fund is appointed by the president and approved by the Verkhovna Rada.

When privatizing enterprises, the following schemes were used:

1. Redemption of small enterprises (the owner becomes a partnership of buyers formed by the employees of the enterprise).

2. Redemption of the property of an enterprise with an alternative privatization plan (the owner of the object or part of it becomes a buyer’s partnership formed by the employees of the enterprise; the partnership develops a privatization plan alternative to the plan proposed by the privatization commission).

3. Redemption of state property leased (the tenant becomes the owner).

4. Sale at auction.

5. Sale through a non-commercial competition (the buyer who offers the best investment plan becomes the owner).

6. Sale by commercial competition (the buyer who meets certain criteria and offers the highest price for the property becomes the owner).

7. Sale by competition with deferred payment (the buyer who has received the right to the property on a competitive basis becomes the owner, he is given an installment plan for three years with an advance payment of 30% of the cost).

8. Sale of shares of open joint stock companies.

Small enterprises (processing and local industry, construction materials industry, light and food industries, certain types of transport, trade and public catering, consumer services, etc.) were privatized under the first four schemes in accordance with the law “On the privatization of small state-owned enterprises (small privatization)”, adopted in March 1992.

In the same month, the law “On the privatization of property of state-owned enterprises” was adopted. This law provided for the possibility of privatization of state property on a paid basis - for cash and property certificates. Enterprises could also be leased with subsequent purchase.

All citizens of Ukraine received property certificates in the form of deposit accounts. They could be exchanged according to their nominal value for shares, shares and other documents certifying ownership. The face value was not significant, since the real purchasing power of the certificate depended on the method of privatization of a particular enterprise and was determined by the value of the shares of the privatized enterprises, for which the certificate could be exchanged. In particular, it could be used when privatizing one’s enterprise (if it was privatized).

Employees of privatized enterprises had the right to choose the method of privatization and benefits when purchasing the property of the enterprise if they formed a “society of buyers”, which included more than 50% of the employees. The combined privatization scheme became widespread, when the “buying society” acquired part of the property for which there were enough funds (certificates of employees, members of their families and pensioners who previously worked at the enterprise), and the rest of the property was leased with subsequent purchase (in this case, the land the enterprise remained state property).

This scheme was beneficial to enterprise employees, but citizens not involved in production or service were practically deprived of the opportunity to use their privatization certificates.

It was planned to complete small privatization in 1995. Small enterprises not purchased or leased before this period were subject to sale on a competitive basis. In fact, it lasted until 1997. More than 90% of trade, service and public catering enterprises passed into private hands.

In June 1993, preparations began for the privatization of large enterprises. A presidential decree “On the corporatization of enterprises” was adopted, that is, on the transformation of medium and large state-owned enterprises, as well as closed joint-stock companies, more than 75% of the authorized capital of which was state-owned, into open joint-stock companies. Enterprises were subject to corporatization if the book value of fixed assets as of January 1, 1993 was at least 20 million rubles; an enterprise subject to corporatization could no longer rent out its property.

In 1995, personalized privatization property certificates (PICs) were introduced into cash circulation, with the help of which citizens who had not used their right to receive a share of state property could do so. In addition to PIPs, there were compensation certificates received as compensation for money deposits that disappeared from Sberbank and Gosstrakh. Individuals and legal entities purchased shares of privatized enterprises at certification auctions.

The privatization plan for specific enterprises was developed by the State Property Fund of Ukraine or its regional bodies and approved by the Cabinet of Ministers.

If the value of the enterprise was insufficient to create an OJSC (less than 20 million rubles), then it was privatized by buying out part of it by members of the workforce using IPR, and the rest was privatized on a general basis.

Since 1999, the sale of shares in privatized enterprises has been carried out exclusively for cash. At the same time, the law “On the list of objects of state property rights that are not subject to privatization” was adopted, according to which such a list is approved by the Verkhovna Rada upon the proposal of the Cabinet of Ministers. Legislative acts are adopted defining the privatization scheme - in particular, the size of shares remaining in state ownership, purchased on preferential terms by members of the labor collective and persons equated to them, or put up for open auction.

At this stage, the main task is to find a strategic investor who will modernize the enterprise, make it competitive and offer a convincing concept for its further development. But in practice, the owners of attractive assets often became individuals and structures close to government circles. One of the authors of the concept of privatization in Ukraine, President of the Ukrainian Center for Economic Development, Alexander Paskhaver, in one of his interviews [1] said: “Today, the greatest danger, from the point of view of privatization and economic reforms in general, is the state itself, the bureaucracy, which has managed to select private capital Thus, only capital, which is fused with the state, survived, became strong and viable. This is a very big danger, because the state in the sphere of privatization should serve capital, and not vice versa.”

Ukrainian President Leonid Kuchma, before the 2002 Verkhovna Rada elections, repeatedly stated that many mistakes were made in the privatization process, and therefore the main task of the new Verkhovna Rada should be the adoption of a law on re-privatization. He instructed the Cabinet of Ministers to develop and submit to the new Rada a bill defining the procedure for returning inefficiently operating enterprises to state ownership. In 2003, the bill was adopted by the Rada, but Kuchma did not sign it - apparently, after the end of the election campaign, this topic became irrelevant for him.

It should be noted that during the years of Kuchma’s rule, state stakes in a number of large enterprises came under the control of entrepreneurs who had business, personal or family ties with the president. The Ukrainian opposition has repeatedly accused the president of the fact that the most attractive assets are privatized at a reduced price, the terms of competitions are tailored to certain buyers, and undesirable applicants are cut off in advance. It is no coincidence that one of the main slogans of the “Orange Revolution” was the return of illegally privatized enterprises, in particular the Krivorozhstal plant, 93% of the shares of which the State Property Fund sold in June 2004 for $800 million to the Investment and Metallurgical Union consortium. Forty percent of the shares of this business structure were controlled by the Interpipe corporation, owned by Victor Pinchuk, the president’s son-in-law. Competing companies offered significantly larger sums (Russian Severstal Group - $1.2 billion, and the international consortium LNM and US Steel - $1.5 billion), but they were not allowed to participate in the competition.

After Viktor Yushchenko came to power in Ukraine, Valentina Semenyuk, an active supporter of maintaining state ownership of all large profitable enterprises, was appointed head of the State Property Fund of Ukraine.

In the spring of 2005, an active campaign began in Ukraine to return illegally privatized assets to state ownership. Prime Minister Yulia Tymoshenko publicly stated that, based on the results of an inspection by the Prosecutor General's Office, a decision was made to challenge in court the legality of the privatization of more than three thousand enterprises.

However, the State Property Fund denied this information. He said that the Fund is challenging the results of the privatization of only 191 objects in the courts. Yushchenko, Semenyuk, and other major government officials constantly emphasized that this is not about reprivatization or nationalization, but exclusively about the protection of illegally violated property interests of the state.

As expected, the first large enterprise for which the reprivatization procedure was launched was Krivorozhstal.

On April 22, 2005, the Kyiv Economic Court declared the sale of the plant illegal and decided to return it to the State Property Fund. Representatives of the Investment and Metallurgical Union consortium proposed concluding a settlement agreement. Yushchenko did not object, but Yulia Tymoshenko was categorically against it.

In the summer of 2005, the Cabinet of Ministers of Ukraine began preparations for the re-privatization of Krivorozhstal OJSC.

At the same time, the privatization of the Nikopol Ferroalloy Plant, also owned by Pinchuk, was declared illegal.

After the resignation of the government of Yulia Tymoshenko in early September 2005 and the appointment of Yuri Yekhanurov as Prime Minister, from August 1994 to February 1997, i.e., during the period of the most active privatization, the head of the State Property Fund, it was announced that there would be no mass reprivatization will.

And literally a week later, Valentina Semenyuk announced a sharp increase in pressure on her from oligarchic clans, who “cannot come to terms with the principled position of the head of the State Property Fund on the return of illegally acquired objects to state ownership and the Fund’s control over the fulfillment of investment obligations.”

The Verkhovna Rada sided with Semenyuk in this fight and on October 18, 2005 adopted resolutions “On maintaining state ownership of the stake in OJSC Krivorozhstal” and “On temporary restrictions in the field of privatization.” The Ukrainian government, on the contrary, was extremely interested in the re-privatization of the plant. Fulfillment by the cabinet of its obligations—in particular, doubling the size of pensions and significantly raising salaries for public sector employees—required additional funds. Revenues from reprivatization or surcharges for enterprises sold at a reduced price were considered one of the main sources of budget replenishment. Therefore, the recommendations of the Verkhovna Rada were not taken into account.

The situation became so tense that two days before the auction for Krivorozhstal, scheduled for October 24, 2005, Valentina Semenyuk went to the hospital.

The auction took place. Three companies took part in it: Smart Group LLC (Dnepropetrovsk), Industrial Group Consortium (Kyiv) and Mittal Steel Germany GMBH. The latter won, offering 24.2 billion hryvnia for the stake (the starting price was 10 billion).

In protest, Valentina Semenyuk resigned. However, Yushchenko did not satisfy the request for resignation. After a series of meetings between the leader of the SPU, of which Semenyuk is a member, Alexander Moroz and the president, a compromise was reached, and the head of the State Property Fund remained in her post.

In August 2006, the prime minister's chair was taken by Viktor Yanukovych, the leader of the Party of Regions, which advocates ending re-privatization and creating a more stable investment climate in the country. Almost immediately, the Cabinet of Ministers sent a letter to the State Property Fund, the Prosecutor General's Office and the Ministry of Internal Affairs demanding that they review and, in the absence of sufficient grounds, terminate all investigations related to the legality of the privatization of industrial enterprises. “In Ukraine they will forever forget the word ‘reprivatization’,” Yanukovych said then. At the same time, the government of Ukraine criticized the State Property Fund for the low pace of implementation of the budget revenue plan from privatization and ordered an urgent increase in the number of objects put up for sale.

In the fall of 2006, a conflict arose between the State Property Fund and the new management of Krivorozhstal. The head of the State Property Fund stated that Mittal Steel Kryviy Rih did not fully fulfill its obligations (in particular, the thirteenth salary was not paid in full and dividends based on the results of work for 2005 were not transferred to the budget), and threatened legal proceedings. Semenyuk was supported by representatives of left factions in the Verkhovna Rada. To this, the director of the representative office of the European Bank for Reconstruction and Development in Ukraine, Kamen Zahariev, said that the attitude of the Ukrainian authorities towards such a large investor as Mittal Steel will largely determine the attitude of foreign investors towards Ukraine. By the end of the year, the conflict was resolved - the company fulfilled most of its obligations, and the clauses of the purchase and sale agreement, which the parties interpret differently, are expected to be clarified in a special agreement.

The certificate was prepared by Yulia Smolyakova.