Archive for September 28th, 2012

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Mass privatisation ahead for Ukraine?

September 28, 2012

For those of you who follow me on twitter and in particular followed a conversation between Alex Nice (@AlexNicest) and myself (@OdessaBlogger) a few days ago, then the start of this blog entry is more of a summary of what was said – but don’t simply pass – it goes on to new ground that wasn’t subject to our 148 character sentence conversation.

For those who do not know who Alex Nice is, apart from being a very nice chap, he was also very active within the Russia/Eurasia sphere at Chatham House until not that long ago.  He has since moved on to another organisation of similar ilk.  Ergo he is a pretty smart and insightful chap with lots of clever things to say.

My connection with Alex is therefore quite obvious considering I am a Chatham House member living in part of the world which was, and still is, of particular interest to him.

Anyway, rumour reached me that Yushni docks has been bid for by a company called SCM.  That company is owned by Rinat Akhmetov, Ukraine’s richest man, the money behind Party of Regions and thus the power behind the thrown.  I casually mentioned the rumour to Alex in our twitter conversation.  The bid offer, I understand, is about $600 million.

To be honest, that seems way over a reasonable price as things stand today, even when including all the infrastructure, grandfather rights and hard assets.  Particularly so when Illychovsk was on the market (in an off-market way) for $235 million only a few years ago until the owner changed his mind and decided to keep it.

Illychovsk port is 49 square kilometers, has its own rail spur, and is far busier than Yushni.  In fact Illychovsk if not the busiest commercial port in Ukraine, it is certainly up there.

The only notable thing relating to Yushni as it stands today, it that it is the deepest port in Ukraine – but that would in no way account for the large bid.

However, back in 2010, I stated that the proposed LNG terminal Ukraine was seeking would be best suited to appear at Yushni due to the land around the port available for development.  Subsequently I have been proved right and indeed it is to be the site for the new LNG terminal as confirmed this year.

Necessarily, that puts a very different light on the future worth of Yushni Port.

However, Ukraine has a very, very long list of companies and State owned assets that are deemed “strategic”.  Amnogst those thousands (and I mean thousands) of companies and assets, are almost all the docks and ports, airport runways, Naftogaz Ukraine etc.

In fact the only port I knew that wasn’t a “strategic asset” was Illychovsk, which by some mysterious dealing was allowed into private ownership a long time ago.

So, wondering how SCM was going to buy what I believe is a listed “strategic asset” and therefore prohibited from sale, I did a bit of metaphorical digging a few days ago.

What I discovered, or rather more accurately, what I was told, is that after the elections there is a draft list of over 1000 currently “strategic assets” that are listed to become privatised as drawn up by the Party of Regions.

Now for any “strategic asset” to be privatised, it necessarily needs the approval of the RADA and thus it waits until after the elections when the composition of the new RADA is known.

One can only assume that Yushni is on the said list and that is why there is a “bid” by SCM at present and not a simple purchase.  It awaits being removed from the “strategic” list.

Of course questions follow as to what else is on the list, who has already offered up a bid and at what price?

Are there already bids in for the 1000 or more “strategic assets” apparently listed to be privatised?

Despite the nefariousness and insider shenanigans that appear to be happening in preparation for this mass privitisation, importantly for Ukraine and the Ukrainian economy will be whether the loss making behemoth that is Naftogaz is on the list and whether it will be broken up and parts of it privatised as is desperately required and advocated for by the EBRD – leaving only the pipelines as a government owned “strategic asset”?

Definitely something to keep a close eye on in the very near future, as one suspects this next large round of privatisation has as much to do with filling holes in the State budget and financing election promises as it does with expanding the oligarchy asset pool.  Especially so with the current President up for reelection in 2015 and remains, at least at present, the oligarchy’s preferred arbiter.

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