Privatization
Last week the Verkhovna Rada delayed consideration of the Cabinet bill on the "specificities of the privatization" of Ukraine's giant national company, Ukrtelekom (Ukrainian Telecommunications). The Cabinet believes that by selling this enterprise a number of social problems will be solved and up to Hr 8 billion added to the budget. Others, espetially some experts on the parliamentary Transport and Communications Committee, think doing so on the eve of the presidential campaign is ill-advised because it could be sold too cheaply. Committee Chairman Oleh SHEVCHUK, Ukrtelekom former deputy director general, shared these and other views with The Day.
Ukrtelekom ranks among Ukraine's largest state-owned enterprises, he said. This association emerged after the USSR's collapse, in conformity with the telecommunications law. Ukrtelekom was set up as a separate business providing all types of telecommunications: automatic telephone exchange, mobile and cellular phones, and pagers. As of January 4, 1998, this association, originally made up of several legal entities, was reorganized as a state telecommunications enterprise. Formally, the main reason for this was to raise the effectiveness of the national telecommunications system and prepare for its privatization.
Q: Since Ukrtelekom is a strategic object, won't its corporatization damage the national interests?
A: There are pluses and minuses. With the right approach, Ukrtelekom could attract very sizable investment, especially now that the crisis has left only a handful of attractive investments – in fact, only telecommunications and arterial gas pipelines. With the right approach the stock market decline will damage Ukrtelekom stock only slightly. Without investment its budget liabilities will never be paid off. Thus, the privatization specificities law is among the Cabinet's top ten anti-crisis measures.
All the same, if and when a serious investor materializes, the enterprise will be exposed to rigid rationalization and modernization, meaning personnel reductions, lower installation fees, and higher costs (users' and domestic trunk-line call bills are now cheaper than even in Russia, although installation costs are higher than anywhere else).
Another problem is the privatization vehicle. The bill envisages 100% privatization with the government retaining a "golden share" (i.e., the right to intervene without holding any stock – Ed.). We have never practiced this and no other countries have experience in this sphere, especially in terms of national security. Yet investors can count their money; if they cannot have this company under sufficient control they will not offer good bids. All this is very difficult to combine. I am not sure that the golden share is the best idea, and I think there will be other proposals.
Q: What ownership patterns are practiced in CIS and European telecommunications systems?
A: You won't find two countries with the same patterns. We all know what happened in Russia. They privatized regional telecommunication enterprises with the state retaining 51%, tried to collect all government shares in these enterprises, and sell them before privatizing Sviazinvest. They could do it only on the third try, and the proceeds were miserable. Of course, no budget problems were solved.
In Eastern Europe telecommunications are either completely privatized or in the process of privatization. It is hard to say what ownership patterns will be adopted as the procedures last several years. Government interest is omnipresent: from 51% to 25% or less. In France and Germany preparation took ten to fifteen years.
Q: How important is Ukrtelekom to national security?
A: There is such a thing as mobilization projects. They come first. In war the government must have control over the entire telecommunications system, otherwise the Cabinet, Parliament, special services, and civil defense will not be able to function effectively. Hence, in privatization the state must insist on retaining the status of specially reserved communications facilities.
Another aspect is the current government hot lines (high frequency, ATS100, ATS10, etc.). All these special networks were installed alongside conventional ones. In other words, there are six cables in a pipe, of which three are hot lines, so maintaining their special status and keeping the data transferred secret is very difficult, because the other cables are to be privatized.
Q: How much can one expect from privatization?
A: Ukrtelekom employs 130,000 and handles 9,000,000 users, so assessing it will cost millions of hryvnias. Current tentative estimates are based on Western European experience. The number of users is multiplied by the cost of a single telephone line. Multiplying $1000 (in Russia a telephone line costs $240 compared to $1,500 in the Czech Republic) by 9,000,000 users makes $9 billion. Ukraine has only 15% digital equipment, thus lowering the cost to $4-5 billion. But again, these estimates are very approximate. No one in Ukraine or anywhere else knows exactly how much Ukrtelekom is worth. We will know only when preparing it for privatization. It lost much value after the appearance of UMC and Utel, which provide the most profitable services. There are also other factors.
Q: Russian experience shows that when large enterprises are put up for sale prior to a presidential campaign, the proceeds are used in campaigning for the current President. Any comment?
A: Apart from Russia, we have world experience. No large blocks of shares are sold before or after such major events as parliamentary or presidential elections. Of course, this experience could be ignored somewhere in Latin America. I would hate to see this happen in Ukraine as a European country. There is still a year left before the next campaign, but apparently there is no time to carry out privatization other than by using the Russian or some Latin American experience. That's too bad.
Q: Talking about Ukrtelekom's privatization you have in mind foreign investors. What about domestic ones? Or you think that they just won't measure up?
A: The first block of shares (25% + 1%) to be sold to a strategic investor is expected to cost between one and two billion dollars. I do not agree with these figures, but who can afford that much in Ukraine?
I think that Ukrainian business must participate in this privatization project in some way. Maybe a block of shares (5%-10%) will be sold only to residents, but it must not be large, otherwise we will never get real money or real investors. Here the important thing is not so much the money earned by Ukrainian businessmen as advanced experience in this domain.
