Ukraine - privatisation

Cabinet declares $2.4 billion starting price for Ukrtelecom

Ukraine’s government approved on April 9 a $2.4 billion starting bid to privatize a 68 percent stake in fixed-line telephone monopoly Ukrtelecom.

Ukraine’s government approved on April 9 a $2.4 billion starting bid to privatize a 68 percent stake in fixed­line telephone monopoly Ukrtelecom, which is slated for this year.

The sale, which is expected to be launched in coming weeks, is likely to raise the most for state coffers since the 2005 privatization of steel mill Kryvorizhstal, which was auctioned for $4.8 billion in a tender considered to be the most transparent in Ukraine history.

In selling Ukrtelecom, the Cabinet of Ministers led by Prime Minister Yulia Tymoshenko is hoping to raise badly needed government revenues and to repeat the success of the Kryvorizhstal privatization, which is considered a showcase sale following years of shadowy privatization deals conducted under the presidency of Leonid Kuchma.

Analysts said a rivalry with President Viktor Yushchenko, who favors a more careful approach to selling off such a huge company, could put the sale off.

Another hurdle facing Tymoshenko’s privatization plans for this year, which also includes tenders for a big chemical plant and electricity utilities, is her ability to oust the current head of the State Property Fund, Valentyna Semeniuk.

Semeniuk, a holdover from the previous government and a Socialist who has stalled privatizations, has held on to her post by virtue by supporting Yushchenko’s disapproval of Tymoshenko’s replacement candidate, Andriy Portnov.

Politics aside, privatization experts said Ukrtelecom should be sold sooner, rather than later.

“The reasons the government decided to sell it now, meaning to fill up the budget (for spending), may not be the best reasons, but Ukrtelecom must be sold as soon as possible,” said Oleksandr Riabchenko, a privatization expert.

Suggesting Ukrtelecom has, under state management, lost key market share to fast­growing mobile telecommunications providers, Riabchenko said the company is desperately in need of fresh investment and better management.

“It should have been sold several years ago when it was more valuable,” he said. “It must be privatized as soon as possible before it depreciates further.”

Ukrtelecom earned about $1.6 billion in revenue last year from fixed­line services, slightly less than earned in 2006.

Despite its worsening position, Riabchenko said Ukrtelecom could be sold for significantly higher than the starting price, depending upon how many serious bidders line up for the tender.

The main attraction is the company’s monopolistic control of backbone networks that are used by both mobile telecommunications companies, and Internet service providers.

A handful of big potential buyers have expressed interest in bidding for Ukrtelecom, according to news reports.

They include Ukrainian billionaire Rinat Akhmetov’s System Capital Management, Russian groups Sistema (MTS) and Alfa Group, Turkcell, Magyar Telecom, Telecom Austria and Transtelecom.

Officials from Norwegian telecommunications company Telenor, majority owner of Ukrainian mobile telecom Kyivstar, said this week their company was not likely to bid for Ukrtelecom.