Privatisation: three waves, and what each one produced

Ukraine's privatisation history divides cleanly into three phases, and comparing them is the most useful available demonstration that process design determines outcome more than ownership ideology does.

Phase one: vouchers

In the early 1990s every citizen received a privatisation certificate entitling them to a share of state enterprises. The design intent was broad ownership. The result was that certificates were sold for small sums to intermediaries who accumulated them into controlling blocks.

This is not a Ukrainian failure specifically; voucher schemes produced concentration everywhere they were tried. A share certificate in an enterprise with no dividend, no market and no governance rights is worth very little to a household and a great deal to someone assembling control.

Phase two: insider sales

Through the late 1990s and 2000s the valuable assets were sold: steel plants, coke works, ferroalloys, chemical combines, regional electricity distributors, ports.

Many of these processes were structured to produce a predetermined result. Qualification criteria were written so that only one bidder could satisfy them — a requirement to have operated a similar asset in Ukraine for a set number of years is the classic example. Timelines were short. Information was limited.

The prices reflected the process. The single best documented case is Kryvorizhstal, sold in 2004 under restrictive conditions, annulled by the courts, and re-auctioned openly in 2005 for roughly six times the original price, with international bidders and live television coverage.

That one comparison is worth more than any argument about privatisation policy. Same asset, same country, same year — the only variable was whether the process was open.

Phase three: transparent auctions

The model since 2016 runs privatisation through the same electronic platform as public procurement. Assets are listed, information is published, bidding is open and the results are visible.

The programme has focused on small and medium assets — hotels, plants, land parcels, minority stakes — with the large enterprises repeatedly postponed. Realised prices have consistently exceeded starting valuations, often by multiples, which is the expected result when a genuine market is allowed to form.

The remaining large state assets are a different problem. Several are strategically sensitive, several are loss-making, and several would attract only a small number of possible buyers. Selling them well requires more than an open platform; it requires sector regulation that makes the asset worth owning.

What an investor should take from this

Three points.

Look at the qualification criteria before anything else. If they can only be met by one party, the process is decided and the auction is theatre. This test applies to procurement as much as to privatisation.

Ukrainian state asset sales are now genuinely accessible to foreign bidders in a way they were not before 2016. The platform is open, the information is public and the procedure is documented.

And where an asset is offered below any plausible replacement cost, the discount is usually explained by something — an environmental liability, an unresolved land title, a labour agreement, a contract with a related party. Those are all fixable, and finding them before bidding rather than after is the whole of the diligence exercise.

Related in this archive

• The cost of defending a currency peg, and who eventually pays it
• An old balance-of-payments problem, and why it kept coming back
• Ukraine and the IMF: the pattern across eight programmes
• Ukraine Annual Review 2012: stagnation with one door opened

What all three waves left behind meets you when you buy an asset today: you have to read the ownership chain back thirty years, because which wave it changed hands in determines the legal risk. In due diligence this is where I spend most of the time. The real gain from transparent auctions was not the price but that they left a clean chain.