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KIEV.- The imposing Hotel Ukraine stands in the center of Kyiv for six decades and has witnessed some of the most crucial moments in the country’s recent history.
In the square in front of the hotel and which would later be renamed Independence Square (Maidan) The crowd gathered to celebrate the fall of the Soviet Unionand there were also the popular uprisings that overthrew Ukrainian leaders then. Today, all that space in front of the hotel is covered with blue and yellow flags, a reminder of the thousands of lives that have already been lost in the ongoing war between Russia and Ukraine.
But now The Hotel Ukraine is under auction and is one of the great state assets of which the government of Volodymyr Zelensky intends to get rid of help finance its Armed Forces and shore up an economy exhausted by a war of attrition that has emptied the public coffers. The base price of Hotel Ukraine is 25 million dollars.
Starting next month, the government will auction off about 20 state companiesincluding the Hotel Ukraine, a huge shopping center in kyiv, and several chemical and mining companies.
The privatization drive has two main objectives: raise money for a national budget that fell $5 billion short this year due to military spending, and bolster the faltering economy with an injection of private investment that over time they will make the country more self-sufficient.
“The budget is in the red”, says Oleksiy Sobolev, Deputy Minister of Economy of Ukraine. “We have to find other forms of financing to stabilize the macroeconomy and help the Army win this war against Russia“, Explain.
Anyway, the scope of privatizations is limitedand the momentum will face considerable resistance in a country at warwhere many Ukrainians also fear that the proceeds of these sales will be lost in the black hole of systemic corruption from the country.
Ievgen Baranov, CEO of kyiv-based investment firm Dragon Capital, says privatizations will only move forward “if the current government acts as a responsible seller, able to give guarantees to potential buyers”.
Aware that the ongoing war may scare away investors, for this year The government set itself the modest goal of liquidating a minimum of 100 million dollars in public assetsa tiny sum compared to the mega-million dollar military aid packages that it receives from its allies in the West.
Ukrainian officials and experts recognize that given the risks posed by the war, assets are likely to be sold at lower prices than before the war. But they hope that privatizations will help shore up the economy, generating new jobs and more tax revenue, in addition to attracting other investments. They say the situation is extremely urgent.
“The State is desperate for money”, says Michael Lukashenko, partner at Aequo, a law firm specializing in privatization advice. “If we don’t sell and raise money right now, soon there will be nothing to sellbecause the property will be destroyed or occupied.”
After the collapse of the Soviet Union in 1991, Ukraine inherited a bunch of public companies mired in debt and poorly managed. According to official figures, Ukraine currently has about 3,100 public companies, of which less than half are in operation and only 15% generate operating profits.
Last year, the five least profitable companies cost the state more than $50 million. “It is an unacceptable level of deficit, especially in times of war, when every dollar spent must be carefully controlled.“Vitaliy Koval, head of the State Property Fund of Ukraine, which manages the country’s public companies, said recently in an interview.
On the wall of his office hung a map of Ukraine with pins marking the location of some 30 state distilleries: only four of them are in operationKoval said, adding that the goal is to remove all the pins from that map.
The ultimate goal of the government is retain control of only 100 public companies.
Koval pointed out that Ukraine currently does not have enough weapons to prevent Russia from destroying or capturing its factoriesand that the country has to quickly sell assets to “buy more projectiles and air defenses to protect” its productive sector.
“It is more prudent to invest a few thousand dollars in projectiles right now than to risk those assets falling into the hands of the Russians in the future”Koval warned.
One of the largest assets for sale is the United Mining and Chemical Company, known as UMCC, one of the world’s largest producers of titanium, a metal crucial for the manufacture of aircraft and medical implants. Before the war, although in the midst of the pandemic and under threat of Russian invasion, Ukraine had to cancel the company’s auction three times due to lack of bidders.
The Ukrainian government now hopes to hold a fourth auction, scheduled for the second half of the year. Vitaliy Strukov, managing partner of BDO Ukraine, the financial firm advising the government on the sale of UMCC, says there are already seven interested investors, and that the base price for the sale will be 100 million dollars.
But in kyiv there are many who have mixed feelings about this privatization attack. Some say to support the war effort “every hryvnia counts”, referring to the Ukrainian currencybut they also express their fear for the fate of that money, due to corruption.
“No one knows where that money is going”says Olha Kalinichenko, 36, as she eats breakfast in the Hotel Ukraine restaurant and enjoys the view of Independence Square, with the golden domes of the cathedrals rising on the horizon between Soviet-era buildings.
Koval said the hotel has accumulated $1 million in debt and the government should not hold it back simply because of its history. “Many Soviet-era companies are now relics of the past”, he claimed. “What we have to do today is get rid of that burden of the past.”
Ukraine is especially eager to attract foreign investors “to demonstrate that private investment is possible even during war”says Baranov, the CEO of Dragon Capital.
But Ukrainian officials and economists acknowledge that attracting investments in times of war will be a real challenge.
Just two months ago, in April, Russian missiles destroyed a power plant operated by Centrenergo, one of the companies Ukraine hoped to privatize. “There is nothing left to sell there”says the investment expert.
Constant Méheut and Daria Mitiuk
Translation of Jaime Arrambide
The New York Times
