Ukrainian State Property Fund head Mykhaylo Chechetov has denied favouring the Donetsk business group. Speaking in an interview with a web site, Chechetov said that several major companies had beensold to business groups other then Donetsk despite the fact that he was on “excellent” terms with Prime Minister Viktor Yanukovych, formerly Donetsk Region governor. On one occasion, higher officialsinstructed the fund on terms of privatization of a key company, Chechetov said, declining to reveal where the instructions came from. Despite pressure from MPs with vested interests, the fund treatsall potential investors equally, Chechetov added. No negotiations have been held about a possible sale of several Ukrainian energy distributors to the Unified Energy System of Russia, Chechetov alsosaid. The following is an excerpt from the interview Chechetov gave to journalist Oleksandr Mikhelson, posted on the Ukrainian web site Glavred on 28 November 2003; subheadings have been insertededitorially:
[Mikhelson] The head of the State Property Fund of Ukraine, Mykhaylo Chechetov, takes credit, among other things, for the fund’s openness. In a sense, we cannot deny it.
[Passage omitted: brief profile of Chechetov]
Mr Chechetov, you took part in a meeting held by parliament’s Special Control Commission for privatization to look into the conflict at the Kilikiyskyy winery and problems at the Chysti Metaly [Pure Metals] plant. What did the commission decide?
[Chechetov] In this situation, I just feel sorry for the Supreme Council [parliament]. Despite the huge challenges now facing our law- makers, they are being drawn into a purely corporate conflict. One group of people at the winery cannot agree with another about who is the real leaseholder at the facility. What does the state have to do with all that?
Those people are writing to MPs… [ellipsis as published] If this is a conflict between individuals, who is supposed to make a decision? A court. The state interests are not violated in this case, the winery remains state-owned.
[Mikhelson] Why didn’t the conflicting sides go to court?
[Chechetov] Well, someone went to court but it didn’t work out. So they approached the Supreme Council. I think it’s just a waste of time. I can understand Valentyna Petrovna (Semenyuk, the of the parliamentary commission – Mikhelson) who wants to take it up. But this is not the kind of thing the Supreme Council should do, I can tell you as a former member of parliament.
[Mikhelson] Nonetheless, the commission is going to complain to the Prosecutor-General’s Office and the SBU [Security Service of Ukraine] about the State Property Fund having withheld information about the privatization of some enterprises.
Fund under pressure
[Chechetov] The commission represents different political forces with their respective interests. I cannot take decisions as a politician.
[Mikhelson] Do you think the commission was guided by political interests in taking this decision?
[Chechetov] To some extent.
[Mikhelson] Do such situations occur frequently?
[Chechetov] They happen sometimes. When one financial-political group wants to square accounts with another one, they try to act via the State Property Fund, they start putting pressure from all sides: let us look into, they say, how that group privatized a newsstand in 1993. It takes a lot of energy and distracts people from much more important issues… [ellipsis as published]
[Mikhelson] But there are things other than newsstands in our country. There are also groups who want to review previous privatization results and get enterprises, including strategic ones, reprivatized with more benefit for themselves… [ellipsis as published]
[Chechetov] To close this issue, I can say that the fund has come under heavy pressure. The case of the Chysti Metaly plant is one example. This is why we have long since been asking parliament to approve a law on the State Property Fund and a privatization programme to provide us with relevant legislation to be on firm ground.
In dealing with investors, we don’t care at all if they are white, red or blue. What really matters to me is that we should have a legal framework. If, in keeping with the law, I have a letter from a governor or a minister that some director should be dismissed, I shall dismiss him. If there are no such documents, you may fall over backwards, it would be of no help.
[Mikhelson] What form does the pressure take – phone calls, threats, offers of money?
[Chechetov] Well… [ellipsis as published] they write appeals to MPs, bring them up with commissions and committees… [ellipsis as published] But I am only too well aware that whatever decision I may take today, everyone will know it tomorrow. We are as transparent as possible. I think I am dishing out more comment than five ministers put together. I am trying to explain things but no-one is listening. Mind you, these are pretty sophisticated matters.
We work in compliance with current legislation. I will not drive through a red light, only green light, whether someone likes it or not. If you don’t like it, change the lights. But MPs are not happy. Some demand a moratorium on privatization until the [presidential] election [due in October 2004]. Others have adjusted themselves to the existing rules. “We have got a ski-track,” they say. “If you throw snow on it, we’ll have to make a new one.”
[Mikhelson] Your are speaking about law-makers. Is there any pressure from the Cabinet of Ministers or the presidential administration?
[Chechetov] I don’t care where pressure comes from. What really matters is that I must have a document. There was an inquiry today: I produced two papers, thereby hedging the fund against possible attacks.
No bias in favour of Donetsk lobby
[Mikhelson] How are you getting on with the Cabinet of Ministers?
[Chechetov] No other government worked so much in concert with us as this one.
[Mikhelson ] But you didn’t head the State Property Fund under any other governments… [ellipsis as published]
[Chechetov] I was the fund’s first deputy chairman and have been its head for four years now. We’ve been on good terms with all the governments. I cannot say that we had no consensus with [former Prime Minister Anatoliy] Kinakh… [ellipsis as published] We are trying to maximize co-ordination both with the Cabinet of Ministers and parliament. We have no other choice. Imagine a property being contended by seven investors, each trying to get the better of the others and all the seven sitting in parliament.
Yet of all the governments, we are on the best terms with this one. Total mutual understanding with the prime minister and deputy prime ministers… [ellipsis as published] Due to this, by the way, we are ahead of this year’s plans despite the huge political risks involved.
[Mikhelson] It looks like it is true that Chechetov belongs to the “Donetsk team” once he is on friendly terms with the Donetsk man, [Prime Minister Viktor] Yanukovych [former Donetsk Region governor]?
[Chechetov] Yanukovych and I not just both hail from Donetsk Region, we are both from Yenakiyeve, a small provincial town. We are on excellent terms with each other.
[Mikhelson] But we are speaking about business interests… [ellipsis as published]
[Chechetov] The ferro-alloy plant in Nikopol was bought by Interpipe [headed by President Leonid Kuchma’s son-in-law, Viktor Pinchuk]. What does it have to do with Donetsk? Kievenerho [Kiev- based power-distributing company] was handed over to the Kiev mayor’s office. Is that people from Donetsk? The Kharkiv-based Ukrsibbank bought the Northern ore-dressing combine [in Kryvyy Rih].
[Mikhelson] How about the Central ore-dressing combine [in Kryvyy Rih]?
[Chechetov] The problem is not in the buyer. The problem is that the state, holding a controlling interest, could not control anything. It was unclear who was behind its director, and the composition of it supervisory board was obscure. They didn’t hold shareholders’ meetings. This was where the state had to intervene.
[Mikhelson] And the new investor, [major businessman] Rinat Akhmetov’s company System Capital Management, which is also based in Donetsk of all places, has nothing to do with all this, or does it?
[Chechetov] What has the investor got to do with it? Shareholders’ meetings were not held for years on end. The local authorities failed to guarantee this natural right of every shareholder. The central authorities had to step in and guarantee that right, given that 25 per cent of the shares were the subject of court proceedings, only 75 per cent were really working with only 70 per cent taking part in meetings.
[Mikhelson] Is it true that the Industrial Union of Donbas is the only company in Ukraine that meets the additional requirements set to bidders for the Dzerzhinskiy steelworks [which was eventually sold to the union on 15 December] ?
[Chechetov] I’d like to explain that different facilities have special requirements. To draw an analogy, privatization is like medical treatment for ailing companies. In hospital, every patient needs special therapy: one needs intensive care, another needs to stay in bed, while yet another will make do with a glass of vodka.
Then, if I need to see the doctor, I will hardly choose one who has done in three patients. I will probably try to see a reputable professional, will I?
Then, Dzerzhinskiy is a plant crucial to the city. It employs 20,000 workers. I visited it on several occasions and spoke to them. Everyone has a family, which adds another 80,000. The town’s population is 160,000. It makes no difference to them who runs the enterprise, as long as they get their wages regularly. The wages are growing, and there are jobs for them and their children. Look at the Petrovskyy steelworks in Dnipropetrovsk and what their home-bred structure did. I don’t want to name it. It is local, not from Donetsk, Lviv or Crimea. People are scared of it. They fear that the same thing will be done to Dzerzhinskiy steelworks as to Petrovskyy.
Next point. We are moving towards Europe, we want to settle our problems with FATF [international anti-laundering body] but they expect real actions of us, rather than declarations. Everyone knows that dirty money is used to finance international terrorism. An investor whose money is of unquestionable origin will not be afraid of any special requirements. But if something is wrong with them, they start shouting that something is wrong with us.
[Mikhelson] If so, why were those special requirements first revoked and then reinstated again? You mentioned a decision by a higher authority… [ellipsis as published]
[Chechetov] Indeed, a decision was made on a higher level binding us to cancel those requirements, supposedly to step up competition.
[Mikhelson] What is the name of the office?
[Chechetov] I would rather not specify it.
[Mikhelson] In any event it is either the Cabinet of Ministers, or the Presidential Administration, or the president himself, aren’t they? But the Cabinet of Ministers is interested, theoretically, in having special requirements… [ellipsis as published]
[Chechetov] I am working in a structure of power, there are higher authorities and I am not supposed to discuss their decisions. When people saw that they were being pushed into an abyss, they started writing letters explaining the situation to the higher authorities. When the latter took a closer look, they saw that the original decision had been wrong. They turned to us, we gave our reasons again and finally common sense prevailed.
No talks on sales to Russian energy giant
[Mikhelson] Please describe the situation surrounding the Unified Energy System of Russia’s intention to buy a number of Ukrainian regional energy companies.
[Chechetov] Whatever [company head Anatoliy] Chubays says should be put through the prism of the parliamentary elections that are to be held in Russia just one week from now. It is very similar to all that talk about “a liberal empire”. It is very popular over there now.
[Mikhelson] So can you say that no talks are going on?
[Chechetov] Certainly not. Its a very serious issue that needs to be scrutinized very carefully.
[Mikhelson] What is the current situation surrounding the [state- run Ukrainian telecommunications company] Ukrtelekom? You once said that it was inadvisable to privatize such serious facilities during an election campaign. And then you said that it could be sold before the end of 2004… [ellipsis as published]
[Chechetov] We have learned to work under political storms. On the other hand, parliament has approved revenues worth 2.1bn [hryvnyas] from privatization in the 2004 state budget. Yet I think that the factor here should be 100 per cent rather than three tenths. So we should prepare property worth 4bn assuming that only half of it will be successfully sold. This applies to the possibility of selling Ukrtelekom.
In addition, we must take account of the situation on the market. If we see that the industry is going through hard times worldwide and we can hardly expect a serious investor with good managers to come forward now, why should we sell the company? Giving it away for a song is not the way out. At the moment, I am not prepared to say how it’s going to be.
[Mikhelson] If the “higher authorities” order you to sell [the company] whatever the market situation? Or the other way round, not to sell it for the time being even though the situation is extremely favourable?
[Chechetov] I think it’s hardly possible with companies like this. One way or another, higher authorities are humans, too. Their children and grandchildren will live in this country.
[Mikhelson] Speaking about metallurgy, what is the situation surrounding Ukrrudprom [Ukrainian state ore-mining joint-stock company]?
[Chechetov] A law has been passed on the privatization of Ukrrudprom. Two contending scenarios were considered. The first one envisaged selling the entire enterprise, with the state keeping a controlling or blocking stake. The investor should not only manage the enterprise but also provide a comprehensive solution to all problems, in particular, environmental ones. Should we split the company up, as the second scenario suggests, who will take care of the environment?
[Mikhelson] But a third option was approved.
[Chechetov] The option approved is a half-and-half scheme. The second reading will transform the scheme so that it can please the parliamentary majority, the Cabinet of Ministers and us: the entire company should be sold. An investment pool, or consortium, will be set up. It will have enough money to pay for the block of shares, invest in the company’s development and take care of the environment.
[Mikhelson] Who will take part in the consortium? Will a special tender be held to select its participants?
[Chechetov] Don’t we have powerful financial industrial groups? Some points will be worked out. The state will keep a 25- or 30-per- cent stake.
[Mikhelson] Meanwhile, Kryvorizhstal [steelworks in Kryvyy Rih] is still state-owned despite your prediction that it would top the list of expensive companies.
[Chechetov] Indeed, this decision has been approved by a vote. I have always said that a law takes effect only when it has been signed by the president and published. Now the first step has been made. I personally would rather put it off until next year
[Passage omitted: Chechetov interviewed about the 2004 state budget and the upcoming presidential election.]
