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Ukraine: Premier Says Government To Review Former Privatization Deals

President Yushchenko and Prime Minister Tymoshenko (file photo) A Ukrainian court ruled today that the privatization of the country's largest steel enterprise, Kryvoryzhstal, was illegal. It marks the beginning of a review of shady privatization deals in the country, as Ukrainian Prime Minister Yuliya Tymoshenko announced yesterday that the government will revisit the privatization of some 3,000 firms. The government says many privatized companies were sold to allies of former President Leonid Kuchma at very low prices and the new owners should either pay the market value for the firms they acquired or return them to the state. It is difficult to predict how this move might affect foreign investment in Ukraine or the business climate in the country.

Prague, 17 February 2005 (RFE/RL) -- The new Ukrainian government says many privatized firms were sold to allies of the former administration of President Kuchma at rock-bottom prices and the deals should be reviewed.

More than 90,000 businesses in all, from massive corporations to tiny shops, have been sold by the government since 1992, when the dismantling of the socialist state began in Ukraine.

Volodymyr Horbach, an analyst at the Kyiv-based Institute of Euro-Atlantic Cooperation, told RFE/RL that the new government is moving to restore justice, which was trampled upon under former administrations. He said the majority of Ukrainians support President Viktor Yushchenko and Prime Minister Tymoshenko, the leaders of the Orange Revolution.

"The new authorities consider it a return of justice and this is the way it is understood by the Ukrainian people. Many companies were privatized in an unfair way, not in a transparent way…and not everyone who wanted to take part in privatization was allowed to do so. That's why looking at some of the [privatization] sales is understood by the public as a just action," Horbach said.

The number of suspicious cases is growing. Earlier this week, President Yushchenko said that only several top firms would be targeted, but Tymoshenko said thousands will be investigated. Horbach said even this number might be too modest because "for sure there were more companies that were privatized in murky ways."
Ukrainian politicians say that huge sums of money found their way into the pockets of state officials during the privatization process.

"Two days ago the president spoke about 30 companies," Horbach added. "The prime minister [has now] mentioned 3,000. I don't think the new authorities have a definite number."

Tymoshenko gave no further details about the 3,000 enterprises to be examined, but said they will "not be as large as Kryvoryzhstal."

Today, a Ukrainian court said the privatization deal for Kryvoryzhstal was illegal. The decision paves the way for the deal to be annulled. The steel mill was sold to a consortium that included Viktor Pinchuk, former President Kuchma's son-in-law, for $800 million, despite higher bids from several foreign groups. Ukrainian politicians say that huge sums of money found their way into the pockets of state officials during the privatization process.

Stuart Hensel of the Economist Intelligence Unit says that a resale of the Kryvoryzhstal mill could potentially triple the price. However, he fears that a long list of companies under scrutiny might damage foreign investors' faith in doing business in Ukraine.

Kirill Koktysh of the Moscow Institute of International Relations says the move will definitely create problems for those Russians who supported Kuchma. "I think now that Ukraine will become very problematic for those Russian investors who are already there and invested under the guarantees given to them by Kuchma," he said. "These investors, of course, will have problems."

Koktysh said that Russian businessmen who have invested in Kryvoryzhstal know nothing definite about the future of their investments. However, he said, there will be no problems for those Russians who support Yushchenko. Koktysh added that it could be that one group of Russian investors will be pushed out by another.

On the whole, Koktysh said scrutinizing privatization is a populist move that is unlikely to bring stability. "As far as I know, on the one hand there are no legal procedures [in place] that would make it difficult for abuse to take place [in any future privatization deals]," he said. "On the other hand, there is nothing to guarantee that [any next round of] privatization will not be easily overturned by a future president [of Ukraine]. There is no such legal mechanism [to prevent abuse or guarantee the transactions] and it is a problem."

Others say that reviewing past privatization deals will not scare foreign investors away because the greatest fear in Ukraine is corruption, and it is already keeping investment levels low. Foreign investment in Ukraine, at about $40 per person in 2004, is one of the lowest of all former Soviet republics.

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