Privatization, New Markets and Confiscated Property: How Asset Management Changed in 2023

At the beginning of last year, in February, the State Fisheries Agency announced the first online auctions for commercial fishing in the Prozorro.Sale electronic trading system. And within a month, a chain of fish restaurants known throughout the country wrote on social networks that it had won one of these quota auctions in order not to depend on suppliers.

The government made the first attempt to regulate the market for conducting fishing competitions in Ukraine’s water bodies through open electronic auctions back in 2019 since before that the state regulation of this market was unclear and opaque. Thus, before the start of the reform, the fee for the use of water bioresources for the entire 2022 amounted to only UAH 10.2 million. After the government transferred fish auctions to Prozorro.Sale, local budgets received ten times more last year — almost UAH 110 million.

This is just one example of how in 2023 the state improved the regulation of markets in the face of the full-scale war. What other steps did the government and parliament take last year to improve the efficiency of public asset management? But what are the benefits of scaling uniform rules in different markets?

 

Major privatization and reform for key state-owned companies

One of the most important legislative decisions of 2023 in the field of public asset management was the unblocking of large-scale privatization. This testifies the willingness of the state to stop asset depreciation and attract private investment, which required a transparent and clear legal framework. In the summer of 2022, not only did the parliament restore small-scale privatization at state online auctions under new rules, but also determined for the first time since independence that large-scale privatization should take place as openly and transparently through online auctions as small-scale privatization.

In the state budget for 2024, the State Property Fund of Ukraine is expected to attract UAH 4 billion from privatization. In order for the Fund to implement this plan, in July 2023 the government established additional guarantees for electronic tenders for small privatization and technical requirements for launching large privatization. The electronic trading system and almost 20 authorized platforms – the basis for the State Property Fund to announce auctions and for participants to take part in them – are fully technically ready for the start of large-scale privatization auctions, which are expected to be held this year.

Another important step towards improving the efficiency of public asset management was the reform for more than 130 state-owned companies. Law of Ukraine No. 2792-IX, which entered into force on March 28, 2023, and the government resolution adopted for its implementation at the end of September, determined the mechanisms for the sale and lease of assets of state joint-stock companies.

According to the new rules, those of them that are solely owned by the state will sell and lease their assets through the state's online auctions Prozorro.Sale. Previously, these companies were not obliged to sell their property through competitive electronic auctions; instead, they independently determined the methods of disposal and lease in their own procedures in accordance with the legislation on the activities of joint-stock companies. This not only opens business access to the market of such assets, but also provides an opportunity to increase the efficiency of the companies themselves and the trust in them, in particular among international partners.

Almost three months after the launch of the new rules, seven state-owned joint-stock companies are selling their assets in the system, which have put up property for over a quarter of a billion hryvnias at online auctions.

 

How the sale of sanctioned property will take place

High public interest, the attention of international partners and the need to get the maximum benefit for the economy and the state in general from the management of assets related to the aggressor country, contributed to the fact that the government and parliament determined on the legislative level how such property will be sold.

Ukraine began to form a state sanctions policy back in 2014, after Russia’s armed invasion started. Back then, it resembled building an airplane in flight, and the number of challenges is still unprecedented. To date, there are no cases in the world when states would be forced to build complex management of assets related to an aggressor country so quickly.

Speaking about the so-called Russian property, one should be aware that this includes several types of assets of different origins, each of which requires separate legislative regulation.

After the election of the new leadership of the Asset Recovery and Management Agency (ARMA), the improvement of the legislation on the sale of property seized and confiscated in criminal proceedings has accelerated. From now on, such assets will be sold through Prozorro.Sale.

Besides, the Cabinet of Ministers has already made a decision regarding the sale of forcibly seized Russian assets. And recently he approved the Procedure for managing the so-called sanctioned assets. The last two types of assets will be auctioned by the State Property Fund. The money from their sale and rent will go to the accounts of the Fund for the Elimination of the Consequences of Armed Aggression.

Such legislative decisions make it possible to comprehensively regulate the issue of the sale of property related to the aggressor country, so that it works for the economy of the state and opens business access to new assets.

 

New assets at state auctions

As of the end of 2023, public assets are sold on more than 20 markets through state online auctions Prozorro.Sale, including state and communal real estate for rental, agricultural land plots, objects of small privatization, special permits for the use of subsoil assets, etc. Of the more than UAH 80 billion that state online auctions helped to earn for the budgets of various levels during the entire period of their work, UAH 15 billion came last year.

The results of the markets operating in the state system show, in particular, the importance of systematic and consistent establishment of the rules of the game. In practice, it works like this. When the architecture of the system ensures the impossibility of interference in the course of trades, the transparency of the process and the efficiency of the sale of various assets, then at the request of the state, which is the regulator and manager of all assets, we help to scale these principles to new markets.

Among them is the previously mentioned process of allocating quotas for commercial fishing, which remained opaque for a long time. The legislative regulation of the launch of fish auctions opened business access to such assets in public online auctions, allowed to attract more than 50 new market participants, and also showed how much money was missing from local budgets due to the lack of clear and open rules for all.

Another case that shows, although relatively small in terms of volume, but important from the point of view of the consistent introduction of transparent and uniform rules, is the sale of amber from the State Saving Room for the Precious Metals and Precious Stones of Ukraine. Last year, such assets appeared in the state electronic trading system for the first time and already brought almost UAH 16 million to the state budget.

All these examples show that in the conditions of the full-scale war, the state should move more than ever in the direction of systematic and consistent improvement of legislation, scaling of clear rules of the game and conversion of its assets into revenues for budgets.