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Ministry of Economic Development and Trade of Ukraine published the first review of the 100 largest state enterprises

MEDT of Ukraine published the first annual review Ukraine’s TOP-100 State-Owned Enterprises – these enterprises provide for 80 % of profit and 90 % of assets of the whole state sector of the country. Publication of this review is the first step on the road to increase of state-owned enterprises’ transparency, pointing out a necessity of improvement of the state sector of economics management and profitability increase. According to the data as of the end of September 2014 there are more than 3 thousand of state-owned enterprises in Ukraine, but only 1 833 of them operate. State sector is a significant share of the economics of Ukraine and the greatest employer, providing with work places for about 1 million of people.

“Due to publication of the first annual review Ukrainians, being a real owners of all state-owned enterprises in our country, at last will be able to get a detailed information about the financial conditions and results of the state sector of economics activity”, Aivaras Abromavičius, Minister of economic development and trade of Ukraine, told.

According to the review, Ukraine’s TOP-100 State-Owned Enterprises completed 2013 year with cumulative loss amounting to UAH 16 billion, and according to the results of 9 months of 2014 the financial results of these enterprises aggravated even more – cumulative loss increased up to UAH 74.7 billion. While a significant share of losses (UAH 62.5 billion) resulted from the activity of NJSC Naftogaz of Ukraine and certain losses are connected with weak economic conditions and national currency devaluation, there are still no doubts that effectiveness of the state-owned enterprises’ management is low and requires improvements.

According to the results of 2013 profitability of assets of the state-owned enterprises was negative and made up -3%. For comparison, average profitability of assets in private sector makes up 7-10%. Applying such indices of private sector profitability to TOP-100 state-owned enterprises we can come to a conclusion as to a possibility of annual profit increase at the state-owned enterprises up to a level of UAH 50-70 billion.

“Taking into account that state-owned enterprises’ assets are underestimated, potential of profit receiving by the state sector enterprises is much higher”, Aivaras Abromavičius, Minister of economic development and trade of Ukraine, told. “The greatest part of state-owned enterprises doesn’t perform the financial statements audit, that’s why their assets are not duly estimated. As a rule, state-owned enterprises consider assets under their cost value – that’s why assets cost is understated due to unaccounted effects of a significant devaluation of Hryvna. Application of assets profitability ratio at 7-10% to a real cost of the state-owned enterprises’ cost would imply even greater potential of the state sector profit increase”.

Difference between actual negative profitability of the state-owned enterprise and theoretically high profitability may be partially explained by non-commercial functions which the state-owned enterprises have to perform. For example, commutation services of railroad are unprofitable. If railroad activity belonged to private sector management scope, a private owner for the purposes of passengers’ service management would have to address for aid grant to the Government or to terminate such activity. However the state-owned enterprises have obvious and implied duties to perform such functions. The Minister Abromavičius explains: “It is very important that the state-owned enterprises disclose information about influence of non-commercial functions on operational and financial results. It will increase the transparency and allow the Government and Ukrainians to compare the state-owned enterprises’ activity with alike enterprises of private sector and to evaluate the effectiveness of their activity”.

Annual report consists of five main sections which cover: reform of the state-owned enterprises in Ukraine and experience of other countries, review of current regulatory environment of the state-owned enterprises in Ukraine, consolidated financial information as to activity of TOP-100 state-owned enterprises, reviews of the main fields, such as the power industry, transport, finances, agriculture and other, as well as more detailed information about TOP-30 state-owned enterprises of Ukraine.

The report was prepared within the frameworks of state-owned enterprises reform and the MEDT is responsible for implementation thereof. Reform is aimed at increase of transparency and efficiency of the state-owned enterprises, improvement of principles of corporative management, implementation of the best world practices of such enterprises’ management and, eventually,   value engineering for Ukraine. Improving management of the state-owned enterprises, Ukraine receives a possibility to increase their activity efficiency, to attract investments and to increase profit for the state budget.

The report is prepared under financial support of the Government of Great Britain (DFID) within the frameworks of the UK-Ukraine Reform Assistance Program.

Ukraine's TOP-100 State-Owned Enterprises

 

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