By Laura Mills
SHOVKOVE, Ukraine--In his 50 years at the state farm here,
Volodymyr Polutskiy says his work has dwindled from producing silk
for Red Army parachutes to eking out a living chopping wood and
growing wheat.
Now, Ukraine's government is trying to sell this farm and
hundreds of other state-owned enterprises, hoping that private
investment and management will revive the mostly unprofitable
businesses and bring funds to its recession-hit budget.
The privatization drive is central to efforts by the country's
pro-Western government to overhaul the moribund economy, which is
forecast to contract 9.5% this year.
Officials have listed 342 companies they want to sell this year,
including thermal-power plants and a horse-breeding farm.
But amid fighting with Russia-backed separatists in the east and
complaints that the government is making slow progress combating
corruption, it isn't clear who will buy. Backers of the plan say
the currency collapse has made Ukrainian assets cheap for foreign
investors, but critics say local tycoons--who already wield
enormous political and financial influence--are more likely to
benefit by snapping up the best assets cheaply, leaving other
entities struggling to find a buyer.
Ukraine has a spotty record selling off state assets since the
collapse of the Soviet Union, with plum companies ending up with
politically connected tycoons, while less-desirable state
enterprises were neglected, often falling into debt.
Following a revolution last year calling for an overhaul of the
country, the new government has hired a young team at the Ministry
of Economy to oversee a selloff of many of the enterprises, which
employ 1.3 million people from a working population of 20 million.
In the first nine months of 2014, the companies posted net losses
of 74.4 billion hryvnia ($3.5 billion).
The companies on the block this year are those that officials
think have the best potential for growth, including five
thermal-power plants, 13 ports and several mines. Companies of
strategic or social importance, such as the railways, won't be
sold.
"It's like having a private-equity fund with 2,000 companies,"
says Adomas Audickas, the 32-year-old team leader, who previously
helped run a privatization effort in his native Lithuania. "The
average Joe should understand that he is the shareholder of these
companies, and these companies do not perform very well."
After joining the Ministry of Agriculture in January,
44-year-old Alexei Zubritsky wrote to all 571 state-owned farms
requesting updated earning reports. He received 96 answers, of
which only 20 reported profits. He then spent months driving around
the countryside knocking on doors. So far, he has found 150 farms
that went bankrupt years ago.
"This is what they gave us for privatization," he says of one
bankrupt sugar-storage plant. "There's nothing there--no office, no
buildings, nothing but $100 million in debt."
Dressed in a shirt and tie, Mr. Zubritsky stands out at the silk
farm in Shovkove, where workers were busy fixing a tractor radiator
when he visited in May. For decades, more than 200 employees
cultivated silk at the farm, attracting delegations from all over
the Soviet Union for training.
But with the Soviet collapse, orders dwindled. Silk production
was halted altogether nine years ago. Now, the mulberry trees that
fed the silkworms are charred stumps after a fire several years
ago, and old cocoons litter the farm's dilapidated buildings. The
remaining nine employees make ends meet by chopping wood and
growing wheat for wages worth about $50 a month.
Mr. Polutskiy, who has been there since 1965, says he is in
favor of privatization--but he isn't convinced it will happen. "We
always hoped for privatization but we've waited so long, we've lost
hope a little bit, " he says.
The farm isn't yet officially up for sale, though the Ministry
of Agriculture says it is pushing for it to be added to the list.
Mr. Zubritsky says the government doesn't expect to make much money
from selling small enterprises like the farm. It would prefer the
farms to be sold at a token price to the workers themselves, giving
them ownership of the property and taking it out of the state's
hands.
The Ministry of Economy says it is working hard to ensure
transparency in the privatization process and to push through
business-friendly legislation.
The team is pressing for legislation that would make CEO
appointments to state-owned enterprises more transparent. After
hearing concern from foreign investors about Ukraine's notoriously
corrupt judiciary, they are exploring the possibility of allowing
buyers the right to litigate potential problems under Ukrainian law
but in foreign courts.
Some critics don't think that's enough.
"It is clear that no [foreign investors] are going to come and
invest hundreds of millions of dollars into a company with the
current level of corruption and poor judicial system," says
Viktoria Voytsitska, a member of parliament with the Samopomych
party, which is part of the governing coalition.
"Who are we left with? Local oligarchs, and of course they are
interested in reinvesting their cash into Ukrainian assets at a
considerable discount," she said.
Write to Laura Mills at MoscowBureau@dowjones.com