On February 14 the State Property Fund refused to approve the terms of Odessa Port Plant’s privatisation as proposed by the Cabinet of Ministers and explained that the conditions were different from those worked out by the SPF and offered by the Competition Commission. “When I receive the Cabinet of Ministers decree and I see absolutely different terms from those which the SPF offered in accordance to the decision by the competition commission, I gasp,” said SPF head Valentyna Semenyuk.
Semenyuk announced that four of the commission’s nine members, including representatives of the trade union committee and local government as well as two Fund officials joined her in not supporting the Cabinet’s plan. Semenyuk emphasized that the government had cut the social terms significantly. However, she specified only the removal of the point about reducing the workforce and benefits for workers and pensioners.
“Before signing this document I have to inform the president about the serious changes in the tender terms,” she added.
Protecting employee rights
Prime Minister Yulia Tymoshenko appears intent on selling OPP this year and demands that Semenyuk “remove all obstacles to an honest and transparent competitive privatisation.” Tymoshenko recently signed a decree approving the tender terms, putting up for auction a 99.52% stake of OPP. During a meeting with plant workers on February 7 she promised to preserve their social security package. “The social part of the privatisation terms preserves the plant’s social infrastructure via investors’ money and also allows for salary raises for employees, to bring them up to those on the world market,” she said.
The latest privatisation terms exclude offshore companies from the tender, require a confirmation of participants’ profitability for at least the last three years, and preservation of all of OPP’s economic activities. Shlapak said that the Ministry of Industrial Policy and Ministry of Economics will establish tariffs for trans-shipment – OPP’s competitive advantage over the country’s other chemical firms.
The plant is a terminus of the Tolyatti-Horlivka-Odesa ammonia line which connects OPP with Russian giant Tolyattiazot and Ukraine’s Stirol. OPP is also considered an interesting acquisition as the second biggest chemical enterprise in Ukraine, producing ammonia, carbamides and other chemicals. It exports 50% of all Ukrainian ammonia and 20% of all carbamides.
Benefits and threats of privatisation
Today the plant is valued at USD 600 million. However, experts state that during an auction process the price could reach USD 1 billion. “If the starting price is USD 600 million, the most optimistic forecast would be twice that,” comments Denis Shauruk, an equity analyst at the Kyiv-based Alfa Capital. Tymoshenko has promised that an open tender for OPP would be held 75 days after approving all documents for privatisation. Part of the money from the acquisition will go to Odessa Oblast. “If the purchase and sale agreement is not observed, the SPF will break it and return the plant to state ownership,” warned Tymoshenko during a recent visit to OPP.
Tymoshenko claims that the current delay in OPP’s privatisation threatens inflows to the state budget. She has argued that serious investments are also necessary to keep the plant competitive as the state is not ready to finance and modernise it themselves.
Market experts agree that privatisation makes sense for both the plant and the state. “The enterprise will go through a serious modernization process, which could cost an estimated USD 250 million. This will increase profitability and insure it against risks connected with growing gas prices,” explains Shauruk.
Yevhenia Akhtyrko, a macroeconomic analyst from the Kyiv office of the Georgian investment bank Galt & Taggart Securities, says that the state will not suffer from OPP’s privatisation if it controls tariffs for trans-shipments and works out terms in detail.
History of delays
Attempts to privatise OPP have been made repeatedly. Talks began in 1993 but in 1997 the government balked and four years later, then-president Leonid Kuchma removed it from the privatisation list. In 2004 the SPF returned to the idea. Since then, state officials regularly turned it down. In 2007 President Viktor Yushchenko stopped the tender announced by the Yanukovych government because of the undeveloped terms of sale. At the time the price for OPP was USD 500 million.
