Manipulating Politics: Domestic Investors in Ukrainian Privatisation Auctions 2000–2004

Abstract

This article focuses on political aspects of Ukrainian privatisation auctions during the presidency of Leonid Kuchma. It contributes to a discussion of the role of big national investors, or so-called oligarchs, in the context of a regime of competitive authoritarianism in Ukraine. A quantitative evaluation is made by means of an assessment of the values of the winning bids in the privatisation auctions under Kuchma and this is linked to a characterisation of the successful bidders in terms of their links to oligarchical networks. As a result distinct strategies of the Yushchenko and the Yanukovych governments towards auctions and towards oligarchs in general can be identified.

Notes

A comprehensive overview of macroeconomic statistical data for the 1990s is provided by the Institute for Economic Research and Policy Consulting, available at: http://www.ier.kiev.ua/English/data/data_eng.cgi.

For an overview of macroeconomic data see the Monthly Economic Monitor Ukraine, available at: http://www.ier.kiev.ua/English/memu_eng.cgi.

An overview of different approaches is offered by Kuzio (2005).

Since the late 1990s many of the popular mass media in Ukraine have been part of the holdings of oligarchs. A regular update is provided by the annual list of Ukraine's 100 biggest companies, which includes schemes of the most important holdings (Invest Gazeta). The administration of the Kuchma presidency was also accused of giving direct instructions on media contents to journalists in the form of so-called temniki (Human Rights Watch 2003).

On corruption in the judiciary see for example the extensive survey by the Kiev International Institute of Sociology (Martsinkiv & Khutkiy 2006).

For further discussion of the rise of the Ukrainian oligarchs see Kowall (2006), Kuzio (2007), Pleines (2005) and Puglisi (2003).

‘The 30 Richest Ukrainians (2006)’, Kyiv Post (Special Insert), 29 June.

Author's own calculation based on the annual rating of a business journal (‘Top-100 luchshikh kompanii Ukrainy’, Invest Gazeta, 2005).

In its ruling of 1 July 1998, the Supreme Court declared that the incorporation of the State Property Fund into the legislative was not compatible with art. 116.5 of the constitution, which regulates the powers of the government.

Law ‘Pro Derzhavnu programu pryvatyzatsiyi’ of 18 May 2000, No. 1723-III.

For an overview of the legal regulation of privatisation auctions, see Chechetov (2004) and Schramm (2000).

State Property Fund Decree ‘Stosovno prodazhu aktsii vidkrytykh aktsionernykh tovaristv’ of 9 October 2000, No. 10-31-12341.

State Property Fund Decree ‘Pro zatverdzhennya Polozhennya pro poryadok provedennya konkursiv z prodazhu paketiv aktsiy vidkrytykh aktsionernykh tovarystv, stvorenykh u protsesi privatizatsiyi ta korporatizatsiyi’ of 13 September 2000, No. 1928/73/863.

Law ‘Pro Derzhavnu programu privatizatsiyi’ of 18 May 2000, No. 1723-III, here: Appendix, Point 10.

The Russian company Severstal, which had been excluded from the bidding, had submitted a bid of $1,200 million. After the Orange Revolution, the Kryvorizhstal’ privatisation was annulled and the repeat auction, conducted in October 2005 without restrictions for foreign bidders, was won by the German subsidiary of Mittal Steel with an offer of $4,800 million (Paskhaver & Verkhovodova 2006).

Law ‘Pro osoblyvosti pryvatyzatsiyi pidpryyemstv DAK Ukrrudprom’ of 9 April 2004, No. 1677-IV.

Law ‘Pro osoblyvosti pryvatyzatsiyi VAT Mariupol's'kyy metalurgiynyy kombinat imeni Illicha’ of 2 November 2000, No.2085-III.

In a more recent case, the State Property Fund in March 2007 published the announcement of the privatisation of the Luhanskteplovoz company on the closing date for bid offers (Neutze & Karatnycky 2007, pp. 15–16).

In one other instance, a Ukrainian finance investor was involved as a junior partner.

If a company operates at a loss, the p/e ratio is negative and does not allow an evaluation of the investment price.

The EM-Eastern Europe Index by Morgan Stanley Capital International comprises the share prices of the leading companies from Central and Eastern Europe. The Euro Stoxx 50 Index by Dow Jones includes the share prices of Europe's 50 biggest traded companies.

UNIAN, 15 February 2001.

BBC News, 26 April 2001, 12:19 GMT.