Unlisted billions in the state’s pocket, or What we have from leases of state properties

19 000 lease agreements – this is the exact amount of records contained in the base of State Property Fund of Ukraine (SPFU) as of April 1, 2017. We analyzed who rents state property, how much the leased objects cost, and how much the revenues come from the state.

Who leases state property?

Of the 19 000 lease agreements, 24% have been concluded with state institutions, 46% and 31% – with legal entities and individuals, accordingly. Most of the legal entities included in the top 10, by number of contracts, belong to two sectors: telecom (18.2% of contracts) and state banks (8%).

What is the area of leased objects?

According to all contracts of the SPFU, objects of almost 7 million sq. m area are leased. Government agencies lease an area of 3.2 million sq. m (46%), individuals – 0.4 million sq. m (6%), and legal entities – 3.3 million sq. m (48%).

According to the SPFU register, the average area of leases by state institutions is 703 sq. m, individuals – 70 sq. m, legal entities – 384 sq. m. Among state institutions, the largest leased object has an area of 90 000 sq. m, the General Directorate of the National Police in the Poltava region is stationed there. Among individuals – 12 500 sq. m, but the object is located in Crimea, and the term of the contract expired in 2016. Among legal entities, the tenant of the largest, in size, facility has an area of 500,000 sq. m is OJSC “Rivnerybhosp”.

How much do rental objects cost and how much income does the state bring?

According to available data and an assessment by the Centre for Economic Strategy (CES), the value of state property under these contracts is over 16.3 billion UAH. The cost of objects leased by individuals – 1 billion UAH, legal entities – 10 billion UAH.

The cost of objects leased to government institutions is determined by a standardized estimate, the value of which is not included in the database. Therefore, CES calculated it, using the average cost per square meter by availability in the database – 1942 UAH per sq. m (except for values that create a statistical asymmetry). The cost is 6.3 billion UAH.

Among the legal entities, the most expensive object worth 1.6 billion UAH is leased by DTEK Dobropiliavuhillia. The cost of the most expensive object leased by individuals – 5,45 million UAH.

The state receives about 107 million UAH monthly, and the average cost of rent for 1 sq. m is about 100 UAH. The largest profit state receives is from DTEK Dobropiliavuhillia, which pays the lease – 14.2 million UAH per month.

Sell and optimize

When renting state property, there are certain corruption risks. The best way to minimize them is to sell the property.

Note that some objects are in long-term lease (part of the contracts with the term of over 5 years is 51% for individuals, 60% for legal entities). After the sale of the objects, the state must guarantee the tenants an immutability of the lease terms before the expiration of the contracts.

Also, it is impossible to sell objects that are leased by government agencies right away, but it is possible to optimize their use.

First, it is important to analyze how efficiently the area is use Dobropiliavuhillia d. If not, release part of it and lease the area to legal entities and individuals at a market rate or simply sell.

Secondly, it is necessary to analyze the location of objects leased by government agencies. Are they located in places of high market value or their use would bring more social and economic benefits elsewhere? In both cases, it is worth moving the objects to a different location, and the area to be sold at market value.

Our analysis found property worth at least 16 billion UAH in the state’s pocket, which at the same time could be a source of corruption. In order to offset corruption risks, we advise selling all property that the state does not use for its own needs, and as for the rest – optimize its use.

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