Relevant restrictions on “Large-Scale Privatisation”
On February 3, 2020, the Government registered in Parliament draft law No.2831 On the List of Objects of State Ownership that cannot be Privatised (the List). Previously, on October 2, 2019, the Parliament of Ukraine adopted a law 145-IX On the Abolition of the Law of Ukraine on the List of Objects of State Ownership that cannot be Privatised in its second reading.
The previous law was analysed in detail in one of our previous legal alerts: Anticipating the Commencement of “Large-scale Privatisation”.
The new Bill might still be subject to some changes following the first or second reading in Parliament.
The abolition of the law On the List of Objects of State Ownership that cannot be Privatised marked the beginning of a large privatisation campaign initiated by the Cabinet of Ministers and the State Property Fund of Ukraine.
However, the abolition of this law also created a legal vacuum in the field of state-owned enterprises. On the one hand, the Law of Ukraine On the Privatisation of State and Communal Property determines the general criteria of public enterprises that cannot be privatised (e.g. subsoil, roads, military equipment manufacturers and sport infrastructure for international sporting competitions).
On the other hand, the abovementioned criteria are too general, and the legal environment in Ukraine is such that it requires a specific law with a precise list of enterprises that are restricted from privatisation. Moreover, Article 4 of the Law of Ukraine On the Privatisation of State and Communal Property directly obliges Parliament to adopt the List.
The adoption of the law On the List of Objects of State Ownership that Cannot be Privatised will ensure greater control of the state over the preservation and use of property of joint stock companies, state-owned enterprises, institutions and organisations that are not subject to privatisation.
Although the proposed amendments are very narrow compared to other current draft laws in the Ukrainian Parliament, this particular law is expected to be supportive to investment activity in Ukraine. The new List imposes far fewer restrictions than the previously abolished list and shows a clear shift from the inherited aspects of the Soviet-era planned economy and a purposeful step closer towards a free market economy in Ukraine.
The draft law No.2831
Currently 911 public legal entities from the abolished List are being liquidated or reorganised and legislators want the new List to include:
– 9 joint-stock companies in which the share capital of state-owned corporate rights is 50% + 1 share;
– 101 state unitary enterprises, state-owned enterprises and joint-stock companies in which the share capital of state-owned corporate rights is 100%;
– 109 cultural and sports facilities.
The List is expected to contain enterprises providing energy independence and defence capability to the state, the activities of which are considered critically important to society.
Furthermore, the Bill stipulates that in some cases the state may sell its corporate rights in joint-stock companies included in the List if the share of corporate rights owned by the state of such companies is not reduced to less than 50% + 1 share.
In summary, although the new draft law No.2831 is very small in volume (only one page of text), it determines an important aspect of state policy for years to come and provides greater clarity to investors with regards to the privatization program. The new list is expected to contain 219 enterprises, which is six times less than the previously abolished list. Privatisation is seen as a key priority among the supranational institutions supporting Ukraine and has generated significant interest among international investors. This law sends another signal to the international community that Ukraine is serious about reforming its economy.