RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/UKR/72/Add.1
18 February 2000
(00-0614)
Working Party on the
Accession of UkraineOriginal:  English
ACCESSION OF UKRAINE
Memorandum on Privatization
Addendum
The following additional information concerning privatization has been received from the
Governmental Commission on Ukraine's Accession to the WTO.
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Ukraine continues to actively implement ownership reform. It is one of the main elements of
economic reform. Since 1992 more than 63,526 state enterprises and other state entities or
organizations have changed their form of ownership, including more than 52,000 small entities and
more than 11,000 medium- and large-scale enterprises.
Since the beginning of 1992 over 70 per cent of assets of 11,037 medium- and large-scale
enterprises have been privatized, including 7,877 enterprises whose assets have undergone complete
privatization.
The General Investment Climate
The Government of Ukraine has prepared a Draft State Programme of Privatization for the
Year 2000. Its main goal is being to improve the investment climate in Ukraine. Amendments and
modifications are introduced to the privatization laws and regulations in order to accomplish this goal.
A number of draft laws and regulations relating to various issues of privatization have already been
developed and submitted to the Supreme Rada of Ukraine.
A characteristic feature of the Draft State Programme of Privatization for the Year 2000 is its
emphasis on the specific features of the specific ente rprises which take into account their financial and
economic conditions and market values, as well as national security interests and the requirements of
civilized investment climate.
The Draft Programme contains specially designed basic principles for individual
privatization, including the sale of integrated production facilities of enterprises and controlling
packages of shares in joint stock companies that have been created in the course of privatization and
corporate restructuring. In this respect, control ling packages of shares of strategic entities and
monopoly enterprises (Group D) are sold at tenders without investment commitments by the industrial
investors who comply with the specific qualifications required for these investments.
The Draft Programme envisages that the State holds only packages of shares of enterprises
and companies belonging to Group D. The size of such packages should be 25 per cent or 50 per cent
respectively plus one share of stock. To ensure transparency, the protection mechanisms are intended
to be created for other stockholders where the state retains a package of shares. In contrast to theWT/ACC/UKR/72/Add.1
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practices in prior years, it is planned to make public the process of the state retaining packages of
shares.
In order to attract investors, it is intended that  the following rule be passed: if a buyer fulfils
his commitments for three years, he will enjoy th e right of first refusal to buy out the respective
package of shares held by the State.
At the same time, stringent restrictions concerning the alienation of packages of shares are
imposed on investors. An investor may not dispose of a package of shares for three years. If six
months prior to the end of this period the financial and commercial standing of the joint stock
company deteriorates due to the investor’s fault, the package of shares is transferred back to the State,
and the investor is required to compensate the joint stock company for all losses sustained.
The Draft Programme for the first time provides for liability of the State. If the financial and
commercial standing of a joint stock company whose controlling package of shares is held by the
State deteriorates six months prior to the expiratio n of the State ownership, the package of shares that
is provisionally held by the State is subject to a mandatory sale.
In addition, there is an intention to strengthen the control over the fulfilment of terms of
privatization contracts.
Procedures for the preparation of lists of enterprises subject to privatization have undergone
significant changes.  In addition to pre-privatization measures that were earlier undertaken, it is
planned to introduce an extra set of measures which will take into account the existence of a demand
for the enterprises to be privatized in order to cr eate the most marketable terms and methods for the
sale of their shares.
The Draft State Programme of Privatization for the Year 2000 also strengthens the role of the
regional offices of the Anti-Monopoly Committee. An attempt is also made to balance this expanded
role with the Committee’s overall responsibility for the results of privatization and for the
simplification of the mechanisms of adjustments in the sale of the packages of shares.
Consequently, the Draft Programme ensures openness and transparency of all means and
methods of privatization and furnishes to a broad investor community the information on enterprisesand other companies through national and international printed and electronic mass media, in
particular via the Internet, prior to the announcement of a sale by the privatization agencies.
Recognizing the need for economically strategic investors, the Draft Programme contains a
list of large-scale enterprises whose packages of shares will be sold in 2000. They include:
- Twenty-three power companies: with packages of 50 per cent + one share in seven of
these companies; with packages of shares amounting to 45 per cent of the authorized
capital in six power companies; and with packages of shares amounting to 26 per
cent-40 per cent of the authorized capital in ten power companies;
- six metallurgic combines: five metallurgic combines with packages of shares
amounting to 25 per cent + one share, and one combine with a package of its shares
amounting to 48 per cent of its authorized capital;
- Nikopol and Zaporizhzhya ferrous plants with packages of shares amounting to 25
per cent + one share of stock;
- the Mykolayiv aluminium plant with a package of shares amounting to 25 per cent +
one share of stock;
- Open Joint Stock Company “Rivneazot” (mineral nitrogen fertilizers, caprolactam
etc.), Open Joint Stock Company “Oriana” (products of fine organic synthesis,WT/ACC/UKR/72/Add.1
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including: polypropylene, polypropylene carpets etc.), the “Druzhnivsk Engineering
Plant” (coal mining combines and mining  equipment) and the “Alchevsk Chemical-
Recovery Plant” with packages of their respective shares amounting to 25 per cent +
1 share.
Energy Sector Reform
The special characteristics of privatization in the energy sector, as well as the legal and
organizational principles of privatizing enterprises in the energy sector are set out in the Decree of the
President of Ukraine “On Some Peculiarities of Privatization of the Energy Complex” of
2 August 1999 № 944/99.
In accordance with this Presidential decree, the State Property Fund in cooperation with the
Ministry of Energy, the Anti-Monopoly Committee, and the State Securities and Exchange
Commission have developed and registered with the Ministry of Justice a set of rules known as the
Rules on the Selling and Tender Procedures for the Sale of Packages of Shares in Power Companies.
These rules address:
- the procedures for the establishment and powers of tender commissions;
- specific rules for the selection of advisors for the conduct of tenders;
- rules for the observance of the requirements of anti-monopoly and energy laws,
including State control over economic concentration issues in the process of
privatization.
Agricultural Reform
It should be mentioned that considerable progress has taken place in the process of
privatization in the area of agriculture.
As of 10 November 1999, 2,440 state agricultural farms and other state agricultural
enterprises are ready to undergo restructuring. They constitute 93.6 per cent of the total number of
enterprises and companies that are subject to privatization.
In terms of their capital assets, a majority of the privatized agricultural enterprises and farms
(over 80 per cent) are medium- and large-scale entities. On an average they employ 360 persons each.
The area of land occupied by such enterprises and farms averages 3,000 hectares each.
The assets of 2,155 enterprises and farms have been privatized in excess of 70 per cent, which
represents 94 per cent of the total privatization in the production sector of the economy.
The total area of land occupied by the privatized enterprises and farms amounts to 4.5 million
hectares.
To sum up, the major part of privatization of state-owned properties in the rural areas has
been completed. In the future it may only be necessa ry to privatize individual agricultural enterprises
and farms that have been excluded from the list of enterprises and businesses to be privatized or the
privatization of auxiliary farms and enterprises that have acquired the status of legal entities as a result
of the restructuring of medium- and large-scale industrial enterprises.
Privatization in the agricultural sector, with regard to the special features of this area of
economy, has achieved the following results:WT/ACC/UKR/72/Add.1
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- An acceleration of the tempo of privatization processes in rural areas, with the result of
agriculture becoming one of the first areas of the economy in which the process of mass
privatization is being completed.
- The creation of the privatization process in general without any significant disruption of
labour or tension among the employees of state agricultural farms that have undergoneprivatization.
- The observance of privatization procedures without imposing any unnecessary financial
burdens on the enterprises and farms that have undergone privatization.
It should be noted that the prior approach to the privatization in the agricultural sector left a
whole range of issues unresolved:
- the restructuring of enterprises and farms that were privatized;
- the emergence of a sense of ownership in rural areas;
- the inducement of non-governmental investment in agriculture;
- an effective transfer of social facilities and amenities, previously administered by
agricultural enterprises or farms, to communal ownership;
- a gap in time between ownership reform and land reform, etc.
Based on the above, the principal directions of future ownership reform in the area of
agriculture need to include:
- The privatization of agricultural enterprises and farms, which are not privatized or are
excluded from the list enterprises that were not subject to privatization, by means of
individually developed schemes.
- The determination of agricultural enterprises’ rights of ownership to and interests in
the assets of inter-farm enterprises and other businesses of a mixed form ofownership. It is necessary to enact the appropriate legislation to regulate procedures
for the determination of such rights and interests.
- The extension of land reform to the process of determining agricultural enterprises’
rights of ownership to plots of land which were transferred as collective property to
such enterprises. It is necessary to amend the Land Code to ensure conformity with
the Constitution of Ukraine.
- A reform of the financing system in agriculture in order to provide communal
guarantees for loans that are made to agricultural enterprises and farms by banks.
- A financial recovery of agricultural enterprises through:
- restructuring into securities of the tax liabilities of the enterprises to central and local
budget authorities;
- the establishment of suitable conditions for non-governmental investments;
- the completion of transfers of social amenities formerly supported by agricultural
enterprises to communal ownership;
- the reorganization of agricultural enterprises.
Key Directions of Financial and Technical Assistance in Privatization
1. Reporting of the activities of privatization agencies of Ukraine in mass media and the Internet
(methodological support regarding the highlighting of issues relating to the activity of
privatization agencies of Ukraine pursuant to international standards of business).
2. The establishment of a Consulting Centre for the Attraction of Investment to Ukraine.
3. The restructuring of enterprises (offering practical and methodological /consulting/ assistance
in the restructuring of large- and medium-scale enterprises of the base industries in order toWT/ACC/UKR/72/Add.1
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raise their attractiveness for investors. Participation in the development of restructuring
projects).
4. Education and training of specialists of state privatization agencies regarding issues relating
to the restructuring of large- and medium-size enterprises, including the organization ofseminars and “round table” discussions.
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