Kiev deludes itself into thinking that privatization brings in capital

By Vladimir V. Sytin

The State Property Fund of Ukraine will hold a competition on July 4 to select experts who could evaluate the state-owned block of shares of the Odessa port chemical plant that is subject to privatization. In addition, the fund has established the commission that is supposed to inventory plant's property until July 25. Readers of The Ukrainian Times know that 99.56% of shares of the Odessa enterprise were estimated at from $800 million to $1.5 billion.

Previously, State Property Fund made the decision to privatize the Black Sea Shipping Company whose fixed assets are estimated at more than 83 million grivnas.

In Soviet times, the state-owned company boasted a fleet of 400 ships. Unfortunately, most ships were transferred to offshore companies during the Kravchuk era of disastrous selloffs. In 1992 the Black Sea Shipping Company had 225 vessels, whereas the only one self-propelled scow Parutine remained at the enterprise by 2008.

The Odessa Regional Economic Court declared bankruptcy of the Black Sea Shipping Company in 2003. In February 2006, the debt-ridden enterprise started undergoing reorganization.

In addition, the plan for privatization of state-owned enterprises envisages the sale of the state water-ways enterprise UstDunaiVodDor and blue-chip companies, such as CentrEnergo (UX: CEEN) valued at $1 billion, the Kharkov-based turbine company Turboatom, which is 75% owned by the state, and the Zaporozhye titanomagnesium plant (51% owned by the state), the only producer of sponge titanium in Europe.

Observers agree that using privatization to cover a short-term budget problem creates a larger long-term problem. The profits of Ukrainian enterprises would flow out of this country, reducing the grivna’s exchange rate. In effect, allowing foreigners to acquire Ukraine’s national assets helps them to speculate against the grivna. Critics say a puppet government’s policy to get foreign loans at any price and to sell off the remnants of Ukrainian industry is the road to nowhere.

According to politologist Paul Craig Roberts, privatization is the vehicle to undercut economic sovereignty and increase profits by raising prices. Today
privatization is a way that government can reward cronies by giving them valuable public resources for a low price. In the United States, deregulation has resulted in high prices and poor services.

In Russia, the government was under a delusion that privatization brings in capital. This delusion caused the Russian government to turn over 20% of its oil company to foreign ownership. The only thing achieved by this strategic blunder was to deliver 20% of its oil profits into foreign hands.