A BRIEF Q&A WITH DMYTRO SENNYCHENKO, HEAD OF THE STATE PROPERTY FUND OF UKRAINE
Dmytro Sennychenko, Head of the State Property Fund of Ukraine, is a financial management expert with wide reform background. In 1997, Dmytro was the economist at the National Bank of Ukraine, where he managed projects of the World Bank Group in the financial sector. During this time, he became a member of the Interagency Working Group on Ukraine’s accession to the GATT / WTO. In 2000, Dmytro became the International Secretary in the Office of the Prime Minister of Ukraine, and occupied the position of Deputy Director from Ukraine at the Black Sea Trade and Development Bank (BSTDB). Dmytro has experience cooperating with international donors’ organizations: from 2004–2006 he was Head of the German Corporation for International Cooperation (GIZ), at that time known as GTZ — German Technical Cooperation Agency.
Dmytro has worked as the CEO of the British-based development company Parkridge Holdings in Ukraine, specializing in real estate and infrastructure investments and as Director of Jones Lang LaSalle in Ukraine, CIS Business Development Director.
Dmytro helped to reform a Ukrainian company, Ukrposhta, as the Director of Real Estate and Infrastructure Management, where he led the corporatization and reform of a state-owned enterprise. Under his leadership, Ukrposhta was the first state-owned enterprise to launch a procedure for the leasing of real estate by means of the trading e-system ProZorro.Sale.
Dmytro has served as an independent member of the Supervisory Boards of Enterprises with Foreign Investment in Ukraine, including companies whose authorized capital was invested by EBRD; an independent member of the Prozorro Supervisory Board. He held the positions of Vice President of the Committee on Infrastructure and Real Estate of the American Chamber of Commerce (ACC). He has also been a member of the Board of the Ukrainian Real Estate Club and a member of the Entrepreneurs Council of the Cabinet of Ministers of Ukraine.
Since September 24, 2019, he has been carrying out the duties as Head of the State Property Fund of Ukraine.
Last year, the President of Ukraine sent a clear message: “Invest in Ukraine!” and announced the reform of the management of state-owned enterprises. What challenges have you faced as the Head of the State Property Fund of Ukraine (SPFU), what have you already managed? And what positive expectations and changes for Ukraine are you ready to announce?
The policy announced after the presidential and parliamentary elections clearly shows that Ukraine is moving towards privatization. Two conducive presidential decrees and the fact that Parliament lifted the ban on the privatization of more than 1,400 state-owned enterprises attests to this. In the last nine months, more than 700 enterprises have been transferred to the State Property Fund to be privatized, compared to just 93 in the past 15 years.
On the other hand, we do face numerous challenges in our line of work. Of course, first and foremost, we should mention the limitations that COVID-19 produced. Besides the challenges presented by a global pandemic, we also encountered obstacles generated within our own state. In particular, a law was passed by the Parliament which prohibited large-scale privatization. It not only barred us from holding auctions until the end of the restrictive quarantine measures but also halted the preparation of these assets for sale. Furthermore, the funding for preparatory procedures of all the assets was redirected to the Coronavirus Fund.
However, despite our limited resources and the numerous complications brought by the pandemic, the Fund persevered and still managed to completely overhaul the privatization procedures to make them fair and transparent.
The Fund is being supported in its effort to reform state-owned enterprises (SOEs) by USAID/Ukraine. What activities are you implementing together and what results do you plan to achieve?
Due to USAID’s assistance, we were already able to change how the State Property Fund discloses information about the assets it has for sale. Now all the relevant documents are published online in virtual data rooms. This makes it much easier for potential buyers to access information about their potential purchase, dismantling the labyrinthine procedures they had to pass through previously. This new level of convenience and transparency has already yielded results — the number of bidders per auction has doubled, despite the pandemic.
USAID is also helping us to create a system to monitor all the assets under the Fund’s management. Previously, information about an asset was scattered in multiple departments, frequently located in different regions of the country and often only available in paper form. This obscurity made it very easy to hide actions or inactions that impeded an assets sale, artificially reduced its value, or were otherwise detrimental to Ukraine’s interest. The new monitoring system will bring order and transparency, which will allow us to manage our assets effectively.
Together with the USAID, we are also working on an automated system to appraise real estate assets for the whole country. The new automated mechanism will calculate the fair value of properties and generate electronic certificates, reducing the costs of transactions and the effect of human bias and interference. In addition to eliminating excessive bureaucracy and unnecessary fees, it will also make the real estate market more transparent and simplify the procedure of calculating taxes, reducing the bureaucratic burden on taxpayers and making it harder to evade paying your fair share.
Why do you think the American people are helping Ukrainians with the reform of effective state property management and privatization?
A mature society is one that thinks outside the bounds of happiness of a single individual family; it understands the need for peace and prosperity on their street, in their state, in their country. That is why we are grateful to the American people and their government for thinking not just about the happiness in their own home, but also about the well-being of people around the globe and for directing part of their taxes to lend a hand to countries in transition.
The opponents of privatization say now is not the right time for privatization, because of Russian aggression in Ukraine, COVID-2019, and the economic downturn. What do you think about this? What is your vision of the development of the privatization process in its current time?
Since Ukraine’s proclamation of independence, several attempts have been made to privatize and every time the process was halted, with politicians claiming that “now is not the right time” — the Orange Revolution of 2005, the financial crisis of 2008, the Revolution of Dignity of 2014, something was always in the way. The truth is, it’s never the right time. You just have to go ahead and do it.
Otherwise, we end up perpetuating our current situation when, out of more than 3,600 state-owned enterprises, over a thousand urgently need to be liquidated. Anything of worth in them has already been embezzled and pilfered while we waited for the “right time.”
Furthermore, the public sector of Ukraine’s economy is a major source of corruption. That is why now is the right time to privatize. The main question is not “when?” but “how?” My answer is with full disclosure of information, fair and open competition, and targeted marketing. Now is a good time. The world has printed a lot of money to fight COVID-19 and that money will need to be put to profitable use. Ukraine is the last European country where privatization has not taken place.
It is known that privatization in the post-Soviet countries in the 90s raised doubts about transparency and fairness when the most attractive properties were concentrated in the oligarch’s hands. What is the difference between the current privatization in Ukraine (large and small) and the previous one?
There are two bad examples of how privatization can be done, both concerning Ukraine. The first is the so-called voucher privatization that took place in the 1990s; the second is the oligarchic privatization of the 2000s. They are distinguished from the current privatization process by one key thing: In 2018, we adopted a new Law on Privatization. It defines the new structure of all processes, equal access for all participants, competitive bidding on electronic platforms, and disclosure of complete information about the assets offered for sale. This creates fundamentally new rules of the game, which qualitatively distinguishes the current process from those that took place in the 1990s and 2000s.
Ukraine is a country with large potential in state-owned properties in agriculture, energy, and industrial sectors. Which economic sectors are most attractive for privatization and the most interesting properties for foreign investors that will be privatized soon?
Ukraine and its economy are greatly underestimated. Now is the right time to invest and all investors, according to their specialization, must determine for themselves what they find important and promising. Our task as the State Property Fund is to restore confidence in the privatization process and prepare an “investment menu” that can cater to any tastes. We have assets in the energy sector, in agriculture, in real estate. Moreover, there are many brown-fields where repurposing is possible. We are also preparing several ports, agro-industrial facilities and alcohol distilleries for privatization in the months to come.
Who do you expect to attract as investors of large-scale privatization and who are the buyers of small-scale privatization? The reason to invest in Ukraine?
We do not differentiate between domestic or foreign investors. The only inviolable condition is that companies owned by citizens of Russia, an aggressor state, cannot participate in privatization. And that is final.