Investors worry over Ukraine’s privisation agenda

Foreign investors are waiting impatiently for a new Ukrainian government to kick-start privatisation. They are far from sure it will.

Parliament is expected to vote on a cabinet line-up this week following Prime Minister Arseniy Yatseniuk’s resignation on Sunday after months of political infighting in a country already destabilised by pro-Russian separatism.

Lawmakers said technocrat Finance Minister Natalia Yaresko was likely to be dropped; Economy Minister Aivaras Abromavicious, a key driver for privatisation, had already resigned over what he said was meddling by vested interests.

The pro-Western authorities who came to power in 2014 after a Moscow-backed president fled protests against his rule pledged to sell off state firms they said were crippled by graft.

But a privatisation plan the government predicted would raise $778 million for the budget last year involved sales of just $7 million, according to data from the State Property Fund.

Brian Best, a managing director at Dragon Capital, the largest investment bank in Ukraine and minority owned by Goldman Sachs, said potential buyers might soon walk away.

Investors are “definitely in a wait-and-see mode, but they won’t wait forever. They have capital to deploy and that capital will seek markets that are easier to invest in than Ukraine if something isn’t done in the near future,” Best said.

He cites the example of Dragon Capital’s involvement as advisor to a Western consortium interested in buying Ukraine’s second-largest thermal energy company Centrenergo.

The sale has been repeatedly pushed back: from end-2015, to the end of the first quarter of 2016 and beyond. The consortium lost patience and gave up on the purchase last year, Best said, declining to name the companies involved.

Best said energy ministry representatives had discussed “highly inflated” prices in private meetings with the consortium and also suggested “privatisation wasn’t going to happen – that they weren’t going to do it.

But then the prime minister said they were going to do it, so it was mixed signals, mixed negative signals,” he said.

A spokeswoman for the Energy Ministry disputed that account, saying the ministry had always supported privatisation and none of the meetings between ministry representatives and investors had reflected a different attitude.