By Myron Wasylyk, Senior Vice President, PBN•Kyiv

Ukraine's President Leonid Kuchma in July marked a decade of rule over this nation the size of France with a population of 48 million. His tenure will come to an end this autumn when a new president is elected in what is expected to be a highly contested race.

But, before Kuchma departs Byzantine Ukrainian politics, he's destined to make his mark on Ukrainian history even more indelible by engaging in one of the largest bargain basement sell-offs in Europe this year. Some of Ukraine's most profitable and sought-after industrial jewels have posted "For Sale" signs on their front doors. But the highest bidder isn't always the winner. Instead, most of the tenders are going to Ukrainian oligarchs with close ties to the outgoing president.

Why the Rush?

State budget revenues from privatization in Ukraine during the past decade have never been more than $500-800 million annually. So why is the government expecting to collect four-to-five times more money this year? Among the answers most mentioned by analysts are:

• Kuchma's heir apparent Prime Minister Viktor Yanukovich's chances of winning the presidency in October are uncertain, so the sell-offs have been accelerated before democratic opposition leader Viktor Yushchenko could come to power.
• Incumbent Prime Minister Viktor Yanukovich needs $400 million from privatization revenues to pay state employees' wage arrears and back pensions to help bolster his presidential race.
• Insider privatization deals now are more likely to allow oligarchs to buy cheap and re-sell enterprises at a significant mark-up if Yushchenko comes to power.
• With Yushchenko as president, local oligarchs cannot compete with strategic foreign investors who can offer top-bids for competitive and profitable industrial enterprises.

What's for Sale and Who's Winning?

Enterprises on the auction block are from a broad spectrum of industries. Among the most promising are: steelmaking and metallurgy plants, iron ore mines, telecommunications companies, electricity distribution plants, shipbuilding companies and much more.

The President's son-in-law, Viktor Pinchuk, and Donetsk billionaire Renat Ahmetov have so far done well in state privatizations. In June, Ukraine's state property fund sold the Kryvorizhstal Steel Making Plant to Messrs. Pinchuk and Ahmetov, who offered the lowest bid of $800 million. Government officials turned down better offers from Russia's Severstal ($1.2 billion) and the UK-USA consortium of LNM-US Steel ($1.5 billion).

Mr. Pinchuk's Interpipe Corporation recently won the tenders for a number of iron-ore and coal assets. Messrs. Pinchuk and Ahmetov are also reported to have a good chance of capturing UkrRudProm, an iron-ore company.

President Leonid Kuchma's brother-in-law is reported to be the main contender for the privatization of Ukraine's telephone company UkrTelecom. Donetsk businessmen close to the Prime Minister are also vying for UkrTelecom. However, Kuchma's government reshuffle last week in which he gave custody of UkrTelecom to the trusted hands of Transportation Minister Heorgi Kirpa, indicates the president doesn't want to compete for this prized asset.

Pointers for Investors

By no means do the sell-offs in Ukraine close the doors to foreign investors. While chances of winning privatization tenders now may be slim, one needs to look at Ukrainian assets after the elections.

Presidential candidate Viktor Yushchenko has promised, if elected, he will initiate a careful review of all recent privatization tenders and a close look at their investment obligations. While his platform states he is not keen on renationalizing former state assets, he has warned oligarchs that they will be forced to pay their fair share of taxes off the market value of newly acquired assets. Stay tuned.