Hotel Ukraine has stood in Kyiv for sixty years and has witnessed some of the key moments in Ukraine’s recent history.
Crowds gathered in the square in front of the 14-story hotel to celebrate the fall of the Soviet Union. The popular uprising that became known as Independence Square toppled Ukraine’s leaders. Today, blue and yellow flags cover the lawns near the hotel, a reminder of the many lives lost in the war between Ukraine and Russia.
Now, the hotel is being auctioned off as part of an effort to sell off some of the country’s biggest state assets to fund the military and boost an economy devastated by the war that has drained Ukraine’s coffers. The starting bid is $25 million.
Starting this summer, the government will Auction of about 20 state-owned enterprisesThese include Hotel Ukraine, a large shopping mall in Kiev, and several mining and chemical companies.
The privatization drive had two main objectives: to raise funds for the state budget, This year’s military spending shortfall is $5 billion. and to boost Ukraine’s ailing economy by attracting investment, which officials hope will make Ukraine more self-sufficient over time.
“The budget is in deficit,” Oleksiy Sobolev, Ukraine’s deputy economy minister, said in an interview. “We need to find other ways to get money to keep the macroeconomic situation stable, to help the army and to win this war with Russia.”
Still, privatization can only go so far, and it presents considerable challenges for a country at war, where many citizens worry that the sales could be tainted by widespread Ukrainian separatism. corruption.
Ievgen Baranov, managing director of Kyiv-based investment firm Dragon Capital, said privatization would only be effective if the government “acts as a responsible seller, able to provide guarantees and compensation to potential buyers.”
Mindful that investors might be deterred by the conflict, the government has set itself a modest target of selling at least $100 million worth of assets this year — a sum that pales in comparison to the multibillion-dollar military aid package from Western allies.
Ukrainian officials and experts acknowledge that assets may sell for less than pre-war prices given the risks posed by the conflict. But they hope privatization will help support the economy by creating more jobs and tax revenues, in addition to more investment. The situation, they say, is urgent.
“The state is in desperate need of money,” said Michael Lukashenko, a partner at law firm Aequo, which advises companies on privatizations. “If we don’t sell now and raise money, soon there will be nothing to sell because the properties will either be destroyed or occupied.”
Ukraine inherited many poorly managed and debt-ridden state-owned enterprises after the Soviet Union collapsed in 1991. Today, Ukraine has about 3,100 enterprises, of which fewer than half are actually operational and only 15% are profitable, according to the country’s statistics service. official data.
Last year, the five least profitable companies cost the state more than $50 million.“This level of costs is unacceptable, especially in wartime, when every expenditure must be strictly controlled,” Vitaly Koval, head of the Ukrainian State Property Fund, which manages state companies, said in a recent interview at the fund’s headquarters in Kiev.
On the wall of Koval’s office hangs a map of Ukraine with pushpins marking 30 state-owned breweries. Currently, Koval says, only four are operating. The goal, he says, is to remove all the pins.
Koval said he and the National Property Fund promoted the privatization plan at a conference in Berlin this week focused on Ukraine’s recovery.
Koval, a former entrepreneur in the construction and transport industries, said he considered state-owned enterprises “a hotbed of corruption and other illegal activities.” His fund is now “screening” companies to determine which ones should be privatized, liquidated or placed under state control. “Privatization is synonymous with cleansing,” he said.
The government’s ultimate goal is to retain control over just 100 companies.
Koval said Ukraine currently does not have enough weapons to stop it Factories destroyed or occupied by Russia and needed to quickly sell assets to “buy more artillery shells and air defense systems” to protect them.
“It is much smarter to invest a few thousand dollars today in a shell company than to risk assets falling into Russian hands in the future,” he said.
Economists say past privatization efforts have often been misguided, leaving large swathes of assets in the hands of oligarchs on the cheap or being delayed for years by unfavorable market conditions and legal disputes over corporate debt repayments.
The government says the auction system will make the process more transparent. But whether the debt disputes can be successfully resolved remains to be seen.
One of the biggest assets up for sale is United Mining and Chemicals (UMCC), one of the world’s largest producers of titanium, a metal used in aircraft and medical implants. Three previous auctions were called off before the war for lack of bidders, even as the pandemic and the threat of a Russian invasion loomed.
The Ukrainian government now hopes that the fourth auction, scheduled for the fall, will actually take place. Vitaliy Strukov, managing partner of financial firm BDO Ukraine, which is advising the Ukrainian government on the sale of UMCC, said seven investors have expressed interest in participating in the auction, with a starting price of around $100 million.
Many in Kiev have mixed feelings about the privatization process. Some say “every hryvnia counts,” referring to Ukraine’s currency. But they also worry about potential corruption.
“Where the money went, no one knows,” said Olha Kalinichenko, 36, who was having breakfast recently in the restaurant of the Hotel Ukraine, taking in the view of Independence Square, with the golden domes of the cathedral rising among Soviet-era buildings on the horizon.
Ms Kalinichenko said the hotel held a special place in her heart because it was the site of many battles for Ukraine’s sovereignty.
“I myself was here during the Maidan revolution; many volunteers stayed at Hotel Ukraine,” she said, referring to the popular uprising that toppled pro-Russian President Viktor Yanukovych in February 2014 and foreshadowed the current conflict with Moscow.
Alla Sheverieva, who has worked at the hotel for more than 30 years, said she remembered watching Ukrainian riot police violently disperse crowds gathered in the square during the Maidan revolution. Snipers also fired at the crowd from the hotel rooftop.
“When they started bringing in the dead and wounded, I heard gunshots and crazy screams in the corridors,” Ms. Sheviryeva said, recalling the hotel lobby that had been transformed into a makeshift hospital, its marble floors stained with blood.
Koval, the head of the real estate fund, said the hotel is $1 million in debt and the government should not keep it for historical reasons. He said many Soviet-era businesses are now “historical relics.” “Today we have to get rid of this heritage.”
Ukraine is particularly eager to attract foreign investors “to show that private investment is possible even during war,” said Mr. Baranov of Dragon Capital.
But Ukrainian officials and economists acknowledge that war conditions will make attracting investors a challenge.
In April, Russian missiles destroyed a power plant operated by Centrenergo, a company Ukraine hopes to privatize. “Now there is nothing to sell,” Mr. Baranov said.
