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A new player of privatization

publication . 11 May 2018

Recently the new Law of Ukraine On privatization of state and communal property came into force and introduced revolutionary changes to privatization procedure. One of the curious and interesting innovations that we saw in the new law is introduction of new participant of the privatization procedure - an adviser.

Contacts

Anatoli Grabovy

Сounsel, Attorney at law

Oleksandr Melnyk

Head of Odesa Branch, Attorney at law, Associate

Adviser is involved in cases of large privatization. The new law recognizes an adviser as a person, who provides services on preparation of subjects to privatization under contract with privatization body including search of potential buyers, sometimes with the definition of the starting price of the subjects to privatization.
The law does not clearly specify who can be an adviser in the privatization procedure; however, there are restrictions on those individuals who may advise the state and local authorities in the privatization.

In general, those persons who are not eligible to be a buyer, can not be an adviser too. Namely: public authorities; state enterprises of Ukraine; state-owned economic associations, state-owned holding companies, state-owned joint-stock companies and companies, their subsidiaries and enterprises; employees of state bodies of privatization; legal entities registered in offshore areas with opaque ownership structure; legal entities registered in the states of the FATF included in the list of non-cooperating in the sphere of counteraction to money laundering, and have in their composition such participant having half and more percent; legal entities, the information about the beneficiary owners has not been disclosed; natural and legal persons in respect of which, or related to which special economic and other restrictive measures and sanctions have been applied; persons who have already been a party to privatization and breached privatization rules, as well as their associated persons.

In addition, the lawmakers could not evade the political situation in the country, and forbade the participation in the privatization of anyone, who in one way or another connected with the aggressor state.

In other words, the advisers may be the same entities that have the right to participate in privatization, except for one difference – the adviser involved in the preparation of subject for the privatization can not be a buyer of such subject.

The advisers will be involved in large privatization on a competitive basis. Competitive selection of advisers will be carried out in compliance with the principles of competition, equality, public availability, transparency, clarity, and independence of the competition commission.

The Cabinet of Ministers shall develop a regulation which will determine the various criteria for the involvement of advisers, in particular: the possibility of representing and engaging other consultants; competence that will be determined by qualifications, experience, knowledge and skills; the advisory method of preparation for sale, sales strategy, material and technical support and project organization; offered by the counsel of the terms of preparation for sale and sale of the privatization object.

What will the advisers change?

As noted above, the advisers will take the responsibilities in providing most of the services in the process of large privatization of the state property, namely in the search of the potential buyers etc.According to the reformers’ idea the task of advisers will be, in particular:

  • gathering of information and analyzing the economic, technical and financial indicators of the activities of privatized enterprises;
  • bringing the main indicators of company's accounting statements to accounting standards, including as international standards;
  • provision of audit;
  • preparation of the financial model and determination of investment attractiveness of the enterprise, possible ways of its improvement, ways of restructuring of debts, recommendations for establishing basic prices and tariffs for products and services, marketing policy and other measures;
  • definition of the starting price and preparation of the information package concerning the object of privatization;
  • preparation of documentation required for economic competition compliance and environmental audit;
  • carrying out activities to find a potential investor.

In our opinion, such model, in which the state will transfer all of the above functions during the large privatization to the skilled and competent specialists, that has relevant experience and skills will be courageous and potentially attractive.But, if there is no candidate willing to take part in the competitive selection of advisers, preparation for large privatization is carried out by state and local authorities bodies independently, without the participation of advisers.

Conclusions:

The need of the new regulation arose long time ago and was conditioned by the need to dispose the problems that prevented the privatization processes. In general, it should be noted, that the lawmaker managed to lay the foundation for unification and optimization of the legislation on privatization issues and clarify the regulation of this sphere. And due to the simplification of the privatization procedure, there is a hope, that the demand of potential investors will increase and, accordingly, the incomes to the state budget will increase.

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