Attention! Sea Ports… Fresh Sea Ports Go on Sale

The sudden changes made in approaches to the public sector management led to extremely important events. We have instantly witnessed the abolition of both lists of state-owned assets, which are not subject to privatization. In particular, the previously hidden corners of our homeland have lost a good 13 seaports, or rather, 13 state-owned stevedoring companies. Government and the Ministry of Infrastructure are planning to transfer all state-owned stevedores to the private owners. For this purpose, it is planned to use two instruments – concession and privatization. Let’s talk about the latter.

To start technical privatization procedures, the State Property Fund of Ukraine shall assume management over the respective enterprises. This is exactly what the Fund and the Ministry of Infrastructure are doing now. Reportedly, it is planned to privatize the state-owned enterprises Ust-Danube Commercial Seaport, Skadovsky Commercial Sea Port and Belgorod-Dniester Commercial Sea Port already this year. The first one is already managed by the Fund, and two others are in the process of transfer. Since, the mentioned assets are enterprises of a special character from a technological and regulatory point of view, we provide a brief overview of specific features of their privatization below.

Assets of small or large privatization?

Studying of an existing classification of privatization assets will not take much time. All marketable property is divided into assets of small and large privatization. If the value of assets exceeds UAH 250 million according to the last financial statement, such asset is qualified as a large privatization asset. If we refer to the last available data (as of 2018), all three enterprises are qualified as small privatization assets. Belgorod-Dniester Commercial Sea Port needs some UAH 50-60 million to cross the threshold, but hardly anything has changed over the last time. What is the difference between small privatization assets and large privatization assets?

Sale preparation

Fact – there is no preparatory procedures to increase the attractiveness of small privatization assets stipulated by the Law on Privatization. We assume that such procedures are not established because of the policy of quick sale at any price offered by the market. It is impossible to improve the condition of enterprise before its sale, because, unlike the preparation of large privatization assets, there is a lack of resources for this. Also, we shouldn’t hope for the corporatization of stevedoring companies. This is a long and inappropriate process in this case.

As opposed to small privatization, the sale of large privatization assets involves advisers whose responsibilities, among other things, include preparation of financial restructuring, marketing policy and other procedures aimed at increasing attractiveness of an asset. Thus, stevedoring companies will be sold without involvement of any advisers that will certainly be a big disadvantage, considering the importance of such assets for regional development.

Starting price estimates

Small privatization assets are put up for sale at a starting price, which shall be equal to their book value. If the book value is unavailable, the price of small privatization asset is determined on the basis of Appraisal methods by privatization body itself or by engaging licensed appraiser. Large privatization asset, in its turn, is appraised by advisor. In the event of a sale of the stevedoring companies, the appraisal will likely be made on the basis of existing financial statement. Therefore, you can estimate an approximate starting price right now.

Methods of sale

Small privatization assets are sold in electronic auctions only. The law provides for the possibility of sale of such assets in auctions with and without conditions. In the latter case the price is the only one criterion to determine a winner, while auction with conditions also implies obligations of the buyer to perform the fixes conditions of sale. Fixed conditions may include maintaining business profile, making investments, repayment of debts, providing social guarantees, repayment of governmental expenses related to audit, appraisal, and other conditions provided for by law.

In our case, special terms and conditions of sale specified in the Law on Sea Ports of Ukraine take place. In particular, requirements for sale of stevedoring companies may include the lease of berths for up to 49 years that technologically provide a complete cycle of the transshipment services. Application of this requirement will guarantee a new owner an exclusive use of berths. This approach will certainly have an impact on the attractiveness of asset and on the sale price accordingly. Alternatively, there may be a paid service to the Administration of the Seaports of Ukraine for access to berths, but in this case the owner will not have a privilege of exclusive use got from the lease.

Total freedom of the Fund in making decisions on such important issues as the development of fixed conditions for sale should be noted. At the same time, the potential buyers are technically unable to submit their proposals for the development of stevedoring companies. We should also remember that there will not be any negotiations on purchase and sale agreement.

Information support

Information support of sale of small privatization assets is an Achilles’ heel. If large privatization completely covers this issue using procedures and adviser, when selling small privatization assets, much to our regret, the Fund has no resources to collect, analyze and provide the buyers with the necessary information about sale asset. However, buyers of stevedoring companies will face a more serious problem – the procedures for the sale of small privatization assets do not provide for the possibility to visit a sale object, to conduct interview, and to get access to the documents of enterprise. Under such circumstances, an advantage will get those who have access to insider information.

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As we can see, there are plenty of questions on the privatization of state stevedoring companies. It is impossible to predict which possible conditions for privatization of stevedoring companies will be determined by the Fund. That is why investors interested in privatization, should already keep their finger on the pulse to form their own vision of further development of enterprises beforehand and to explain to the government.


Andrii Pidhainyi, Managing Partner

Centre for Transport Strategies, February 10, 2020