"We can only make our economy more successful and dynamic by selling the assets to, preferably Western investors, who will make them more dynamic and transparent"

This article originally appeared at Business New Europe

Amongst the first things the Lithuanian-born fund manager and investment banker Aivaras Abromavicius did following his appointment at the end of 2014 as Ukraine’s new economy minister was to order a stock take of all the state-owned enterprises under his control.

“We have 3,000 state-owned enterprises, of which only 1,833 are operational, but there is a high concentration of assets: the top 100 control 92% of the revenues, but a little over half are losing money,” Abromavicius told bne IntelliNews in an exclusive interview on the eve of the EBRD annual meeting on May14-15. “These companies have a dividend yield of about 0.1%. They are not sharing cash flows with their main shareholders – the state. For years they have been managed in the interests of some private owners, not the state. We need to change that.”

The ministry has already changed the way the heads of state-owned enterprises are appointed, namely that they must now be approved by a committee of ten people: “five ministers all with investment banking backgrounds like myself; and five independents including the heads of the World Bank, the EBRD, IFC in Ukraine, [the newly appointed] Business Ombudsman and the rector of the Kyiv School of Economics.” The top-50 companies will also now be forced for the first time to carry out audits with one of the big recognised auditors to produce transparent accounts.

The abuse of state-owned assets was highlighted by the recent showdown between the government and Ukraine's pre-eminent oligarch, Ihor Kolomoisky, who owned 43% of oil and gas producer Ukrnafta with the state holding another 51%. Previously, the company's charter required 60% of shareholders to be present at shareholder meetings, leverage that Kolomoisky used to his personal advantage. “After years of attempts, finally [in April] the parliament reduced the requirement for quorum from 60% to 40%," Abromavicius said. “As the president said: state assets need to be managed by the state and private assets by private companies. This is the beginning of the process of de-oligarchisation. It was bold move and a very necessary move.”

For years Ukrnafta sold its oil through auction at a 15% discount at which only Kolomoisky could participate. "So when I became minister I appointed myself as chairman of the commission that sold oil and in the Cabinet of Ministers we removed the 15% discount and organised a new auction," Abromavicius said. The oligarch blocked the new auction for two months, but then "in March we sold the oil without a discount for the first time in the history of Ukraine. The tycoons were earning be-tween $150mn-200mn a year from this scheme," Abromavicius claimed.

Corruption is widespread and not limited to the oligarchs, so Abromavicius has launched an initiative to properly compensate state employees and bureaucrats to incentivize them to work for the benefit of the state, which will be presented to parliament in the coming months.

The next priority will be to sell off these assets after they have been cleaned up. "This year we have UAH17bn (€743mn) in the budget as proceeds from the privatization process, so we are definitely going to attempt to sell something," said Abromavicius. "I believe a state with weak institutions, like Ukraine, is a bad owner of the assets. We can only make our economy more successful and dynamic by selling the assets to, preferably Western, investors, who will make them more dynamic and transparent."

The reform of Ukraine's industrial base is not going to be easy because, said Abromavicius, "resistance is still massive wherever you look.” However, he remains optimistic that the worst is over. "Finally we have a critical mass of people that want to change the country in the government, in the parliament, in the presidential administration and on the streets, to ensure Ukraine finds the right path.”