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Large And Small. The Path Of Privatization From Failure To Transparency

Photo: depositphotos / VadimVasenin
5 December 2019
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Figure 1. Privatisation in Ukraine: planned and actual revenue (USD mln)

Source: Source: State Property Fund, State budgets

  • Active involvement of foreign investors into privatisation.
  • Reducing the level of information asymmetry by involving independent investment advisers.
  • Linking the system of financial and non-financial incentives (KPIs) of SOE top management to preparation of SOEs for privatisation – to prevent then from sabotaging privatization efforts.
  • Priority privatisation of enterprises operating in competitive markets.
  • Zero state share in privatised enterprises.
  • The following should remain in state ownership: natural monopolies for which no special conditions for privatisation have been developed; those entities that are vital for the national security or carry out other socially important activities that cannot be fully fulfilled by private capital.
  • OECD Principles of Corporate Governance and OECD Guidelines on Corporate Governance of State-Owned Enterprises should be applied in the management of the state-owned enterprises; in particular, supervisory boards should be established with a majority of independent members.
  • Remaining enterprises should be privatised, transferred to a public-private partnership (in particular, concessions) or liquidated.

* There are three layers of corporate governance – owner, supervisory boards, executive management. Currently the reform covers mainly the second layer – creation of independent supervisory boards. We also suggest considering changing the first layer – transfer ownership function from ministries or the government to centralized ownership entity. Ministries now often have a conflict of interest – they may perform ownership, regulatory and policy functions at the same time. In our view ministries should focus on policy function. Regulatory functions (topical for monopolies) should be given to independent regulators. Ownership function can be delegated to centralized ownership entity.

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The authors do not work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations