State-owned enterprises become profitable – Ministry of Economic Development and Trade of Ukraine

State-owned enterprises become profitable – Ministry of Economic Development and Trade of Ukraine
July 20, 2016.

While the process of privatization of state-owned enterprises persists in Ukraine, the appointment of new heads as well as the establishment of supervisory boards is expected. The Ministry of Economic Development and Trade of Ukraine reports on the financial results for the last year and shares perspectives and plans for the future.

Achievements in 2015

Kyiv, July 20, 2016. In 2015, losses of the top 100 state-owned enterprises decreased three times, and profits more than doubled compared to 2014. Yulia Kovaliv, First Deputy Minister of Economic Development and Trade of Ukraine, stated this at a press briefing at Ukraine Crisis Media Center. “In 2014, total losses for the top 100 state-owned enterprises were 119 billion hryvnias and in 2015 the loss decreased almost three times – to 42.6 billion hryvnias. Profits rose from 5.5 to 13.8 billion hryvnias,” detailed the First Deputy Minister. “This 13.8 billion net profit transformed in 2.5 billion dividends paid to the budget in 2015, and about 6 billion net profit was paid to the budget last year,” noted Yulia Kovaliv.
The total revenue of the top 100 state-owned companies amounted to 332 billion hryvnias in 2015, while revenues of all SOEs in general amounted to 442 billion. Electric power and chemical industries constituted the largest share in the structure of profitable industries, while oil and gas industries were among the unprofitable. In particular, the most unprofitable were Naftogaz (25 billion hryvnias), Ukrzaliznytsia (16.8 billion), DPZKU (State Food and Grain Corporation of Ukraine) and Regional Electric Network. The most profitable were Ukrainian Seaports Authority (USPA), Turboatom and Energoatom. Yulia Kovaliv also focused on the fact that some companies had already significantly reduced their losses compared to 2014. “Naftogaz showed the best result: their net loss decreased by almost 65 billion hryvnias, and Energoatom – by 7.7 billion. There was also growth in USPA, Ukrenergo and Turboatom,” said Yulia Kovaliv. Regional Electric Network showed the most unprofitable result. The First Deputy Minister explained that this is primarily due to the fact that the company’s activities and some of its assets are in the temporarily occupied territories and ATO zone. The result of Ukrzaliznytsia also worsened.
Financial perspectives of companies

According to Yulia Kovaliv, the Ministry has approved the financial plans of the largest state-owned enterprises. “We expect that the losses of state-owned enterprises will significantly reduce. 50 top state-owned enterprises have submitted their financial plans, and only two of them have unprofitable financial plans. Thus, we expect the gross profit of state companies to be more than 20 billion hryvnias,” she said. This should be facilitated by stabilization of the hryvnia, internal optimization, public procurement and increased tariffs for these companies’ services, so that they are no longer operating at a loss. Yulia Kovaliv also reported that significantly higher budget revenues are expected from state-owned enterprises in 2016. “We expect such payments to increase by about 20% this year,” she stated.
Yulia Kovaliv noted that although only 1,800 out of 3,500 state-owned enterprises are currently working, it is the top 100 state-owned enterprises that have the absolute majority of state assets. “This is 86% of the total assets of our state enterprises. […] Of these, the top 5 companies’ assets account for 73%. In fact, by having the top 10 state-owned enterprises under control, we will have a transparent process of managing almost 80% of state enterprises’ assets,” she explained. The main tools for increasing the efficiency of enterprises should be ensuring transparency and auditing.

Audit of enterprises

Yulia Kovaliv reminded that SOEs are obliged by law to conduct independent audits and publish the results on the website, publish information on their activities and key agreements, and make purchases through ProZorro from September 1. She noted that of the 45 largest public companies that are supposed to conduct independent audits involving major international auditing companies, 14 have already audited and published the results, and 18 are in the process of auditing. “We expect these 18 companies to publish their audit findings and financial reports on their websites by the end of August,” explained the First Deputy Minister. 11 companies have not started the audit yet. Of these, some are undergoing liquidation, and some are sabotaging the process. “As of today, we asked the leaders of each of these businesses and expect them to launch an audit, otherwise we will have to take appropriate action,” emphasized Yulia Kovaliv.

Appointment of higher officials to SOEs

The Ministry has established the procedure for appointing independent supervisory boards to the enterprises. “As stipulated by law, in addition to ‘Naftogaz,’ there will be at least 15 enterprises with the formed supervisory boards by the end of the year. The boards will include independent members, that is, people who are not connected with the activities of companies instead of civil servants. These are people who have wide experience in these areas and the corresponding moral qualities,” explained Yulia Kovaliv. According to her, this should radically change the state-owned enterprise management. “Up to now, all members of the supervisory boards have voted in accordance with the directives and instructions of the government. The implementation of this law will allow them to act at their own discretion for the benefit of the company. All members of the supervisory boards will bear personal responsibility for their decisions. In fact, this will minimize the direct influence of the government on strategic decision-making at state-owned enterprises,” noted the First Deputy Minister. The supervisory boards will be elected in accordance with the same nomination committee procedure that is used for conducting competition for the posts of heads of state-owned enterprises.

Yulia Kovaliv noted that as of today, five competitions for the posts of heads of the largest public state-owned enterprises still persist. The Nomination Committee has chosen none of the proposed candidates for the post of the head of “Ukrspyrt.” Yesterday the first meeting of the commission on the election of the head of Mariupol Seaport was held. Next week a meeting on “Electrotyazhmash” will be held. Competitions for the posts of the heads of “Ukrtransamiak” and “Boryspil” Airport have begun. It is expected that all these competitions will end in two months. Yulia Kovaliv assured that the public will be properly informed about the progress of the competitions.

Yulia Kovaliv also expressed hope that at the September Session the Verkhovna Rada will adopt a draft law that simplifies the privatization of small and medium state-owned enterprises, as well as a draft law that reduces the list of state-owned enterprises not subject to privatization. There are about 1,400 of them in Ukraine.

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