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Ukraine: Privatization Of Ukraine's Energy Companies Resumes

Kyiv, 21 April 1998 (RFE/RL) -- Ukraine's Energy Minister Oleksy Sheberstov says privatization of Ukraine's regional energy-distributing companies -- halted at the beginning of April -- will resume in mid-May under new conditions. Speaking at a Monday news conference, Sheberstov said the new conditions, under which energy distributors are again to be offered for sale, will benefit both potential investors and the state.

"The way privatization (of energy distributors) was conducted before proved inefficient, and it was suspended to revise conditions of tenders to make the companies more attractive and increase revenues from their privatization," said Sheberstov.

Prime Minister Valeriy Pustovoytenko ordered a ban on privatization of the energy distributors April 2, citing low prices at which the stakes were sold. Government officials also sought to explain the decision, citing the need to wait until Ukraine's falling stock market stabilizes, so that the stakes could be sold at a higher price.

Stock market analysts said the new wave of energy company sell-offs is very likely to fail, if the government decides further to increase the starting price of the stakes. "The prices were already too high, and if they are further increased, we can hardly expect any new demand for these shares," said Alfa Capital Research Department Director Fedor Grechaninov.

Grechaninov also said the government's plan to prohibit the purchaser of the stake from reselling it within five years, and the requirement that the investor have experience in the energy market, would automatically bar many Western financial intermediaries from participating in the tenders. He said this would be an unreasonable decision, under the circumstances, when numerous foreign investors prefer to stay away from Ukraine. "It's good to look for investors with relevant experience, but this limitation is not reasonable at the moment," he said.

By the time Pustovoytenko ordered a suspension of privatization of energy distributors, the State Property Fund had managed to sell stakes in only two of the seven companies, whose shares were offered for sale at the beginning of the year. The other tenders failed, because they attracted no bidders who, analysts said, were discouraged by high prices the government was charging for the stakes, and by the low performance of the energy sector.

The country's energy companies were collectively owed nearly $2 billion, as of April 1. In turn, the energy companies owed more than $2.5 billion to their suppliers. With barter agreements accounting for more than 70 percent of energy companies' deals, 23 of 27 Ukrainian energy distributors recorded losses last year, unable to generate cash to repay their debts.

The deteriorating situation in the sector forced the Energy Ministry to raise general electricity rates by 20 percent. However, this is only just enough for the companies to make ends meet, because the extra revenues will be eroded by inflation.

"The raise in electricity tariffs will just help preserve the status quo," said Zynovy Butsyo who heads the National Commission for Energy Sector Regulation. "The rates need to be further increased for the energy companies to start generating profits."

Viktor Luhovyk is a Kyiv-based journalist who specializes in economic/financial reporting, and, who routinely contributes to RFE/RL.