Archive for November 17th, 2016


Privatisation and domestic competition – Odessa Port Side and Odessa Port

November 17, 2016

With the second attempt at the privatisation of Odessa Port Side soon arriving upon the horizon, it is necessary to make clear that this time it undoubtedly will sell.


Another failure there will not be – the opening bid price is now about right and likely to encourage a final offer above that opening bid price.

According to the ministry responsible for conducting the privatisation there are both domestic and foreign bidders this time, and although they cannot be named by the ministry, the bidders can of course make themselves known.

It remains unknown whether Group DF will actively pursue this asset long coveted by Dmitry Firtash – or not.  As the link explains there are issues that would politically preclude his success, none more so that the many $ billions of debt owed to Russia’s Gazprombank.

Thus far two domestic bidders have let their interest be known.

One bidder is Glenshee Holdings (Cyprus) owned by Alexander Yaroslavsky.  The second known bidder is Ukrefteburenie, which is in turn owned by Deripon Commercial (Cyprus), owned by Ihor Kolomoisky, who has also long coveted this asset, and Vitaly Homutyunnik (a particularly affluent parliamentarian and Kolomoisky lobbyist therein).

As stated in previous entries regarding this particular privatisation “Though perhaps it is irrelevant whether Odessa Port Side is sold to foreign or Ukrainian owners as long as the privatisation occurs to the highest of international standards, a reader may perhaps have more faith in a foreign investor actually honouring the clauses within the contract of sale than a potential Ukrainian owner.”

That comment still holds true – what matters for Ukraine is that the privatisation meets the highest standards of international practice and that winners and losers all leave the process with complete faith in the integrity of that process and its outcome.  Whether the winner be a domestic or foreign bidder is a secondary consideration (albeit a foreign winner sends a far more desirable signal).

Whatever – It can already be said that there is at least domestic competition for the asset – or can it?

Of the two known domestic bidders any sensible money would be placed upon the Kolomoisky/Homutyunnik Ukrefteburenie (Deripon Commercial) bid being the winner vis a vis Glenshee Holdings and Mr Yaroslavsky.

The reasoning behind that statement is that Messrs Kolomoisky and Yaroslavsky are both active, amicable shareholders in Ukratatnafta.  It is beyond naivety to believe that the winner of this “competition” has not already been agreed privately.  Their relationship has nothing to gain from animosity in a genuine bidding competition.

Quite simply Mr Kolomoisky wants it more – and has always wanted it – as Mr Yaroslavsky (and everybody else) knows.   Indeed it can be pondered whether Mr Yaroslavsky’s interest is there simply to give the appearance of domestic competition for Messrs Kolomoisky and Homutyunnik, or whether it exists as Contingency Plan B should the Kolomoisky-Homutyunnik bid be deemed unpalatable and Mr Yaroslavsky would then hold ownership for a period of time before selling it on per prior agreement.

As matters stand however, realistically it can be understood that the winner of the Odessa Port Side privatisation is going to be between the Kolomoisky/Homutyunnik Ukrefteburenie (Deripon Commercial) bid and any foreign bidders.

In a few weeks the winner will be known – but sold Odessa Port Side most certainly will be now there is a far more sensible opening bid price.

The blog having decried the original bid price as far too high for the first failed attempt at privatising Odessa Port Side, it is now time to decry a sale price that is far below what it should be – in Odessa Port.

It appears that the Ministry of Infrastructure is attempting to quietly sell off the 12 tugs of Odessa Commercial Sea Port to a company called P&O Maritime FZE.  The tug service at the port is a source of significant income for OCSP – on average a tug costs about $750 per hour.  Annually “tug revenue” generates about $15 million.

It therefore appears that a monopoly at OCSP that generates about $15 million for the port should not be quietly sold off for a mere $50 million – particularly when the rumoured sale will be constructed of an immediate $25 million payment followed by the remainder spread over several years.

Clearly there are few monopolies being sold off that repay outlay within 4 years – thus the nature of this attempt to quietly facilitate this sale at a prima facie undervaluation seems to have more than a whiff of nefariousness about it.

Perhaps Prime Minister Groisman, who stated he would personally look after Odessa during the absence of a Governor would take it upon himself to ask questions of the Ministry of Infrastructure regarding this sale and lowly asking price?  Perhaps he would too – if he knew about it, but a reader probably suspects he is rather too busy to take note of what is happening in Odessa despite his well-meaning rhetoric.

Maybe among the diplomatic corps that drop by the blog, one will privately raise the issue?

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