The media spotlight last week was largely focused on two prominent politicians - the Head of State Property Fund and member of the Socialist Party, Valentyna Semenyuk and the First Deputy Prime Minister and Minister of Finance Mykola Azarov.
Controversial privatisation
Semenyuk found herself at the centre of a new privatisation deal which some observers thought signaled a reversal to the bad old days when the sale of state owned assets was handled in an underhand fashion. In those days "undesirable" bidders were declared non-compliant with tender requirements while the final price used to be agreed upon by the remaining bidders.
The state enterprise going under the hammer last week was Luganksteplovoz, the biggest CIS diesel locomotive manufacturer, with 76% of its shares up for sale. The manner in which this was handled reminded commentators of several earlier notorious privatisations.
Transmash the favourite all along
Four companies took part in the auction. Two of them - the Demikhovsky Engineering Plant and the Bryansk Engineering Plant - are both controlled by the Russian Transmash-holding, while the other two Ukrainian bidders, Marganetskiy GOK and Dniprovagon-mash, were backed by the Privat Group and the TAS Group.
Transmashholding was always the favourite, given that Luganskteplovoz exports most of its production to Russia and needs both the technological and financial backing from Russia to develop its business.
It was therefore little surprise when the Bryansk Engineering Plant controlled by Transmash was declared the winner last week. The final price of UAH 292.5 million (USD 58 million), however took many by surprise. It was only UAH 500,000 ( USD 100,000) above the initial bidding price.
This was especially puzzling given Semenyuk's public comments last year which valued the enterprise at UAH 1 billion (USD 250 million) - almost five times more than the final sale price.
Even though this high valuation may have been too optimistic, most experts agree that the real price should have been in the region UAH 400-500 million (USD 100 million). It has also been pointed out that the State Privatization Committee is expecting Transmash to invest USD 60 million to develop Luganskteplovoz as well as raise sales by 20% annually and introduce new locomotive types.
Nonetheless, an investigation is now being launched and there could well be a legal appeal against the decision.
Azarov scores on budget
In contrast, Azarov scored a major victory last week. President Viktor Yushchenko finally signed the amendments to the 2007 budget that provided for an increase in minimum pensions and wages. This was implemented against the background of the President's sharp criticism of such an increase, claiming it would generate a budget deficit of UAH 3 billion.
The President is sure this could have been avoided and has asked the government to introduce several amendments which would ensure the deficit will be kept within 2.6% (as opposed to the current 3%).
Moving on two fronts
Following this victory, Azarov made in many respects a revolutionary statement: the government seriously considers introducing a new type of "tax holiday" whereby there would be no criminal punishment for tax offences for 10 years hoping that such a liberal tax climate will attract investors.
The Finance Minister was also pushing ahead with a project very dear to his heart: the creation of Free Trade Zones (FTZ) within the Common Economic Space (CES), a project which was put on ice by the Orange government because of a cooling relationship with Russia.
At the same time, the government carried on with its work on free trade agreements with the European Union, which in some people's view is an alternative to the CES.
This dual approach on Western and Eastern fronts signals a pragmatic and at the same time perhaps directionless strategy which risks falling between two stools of Moscow and Brussels. Others however argue that the two are not mutually exclusive and that Ukraine should maintain a good relationship with both competing powers.
