Ukraine’s resilience to crises: state-owned enterprises

The state-owned enterprise sector in Ukraine remains  substantial, and the largest enterprises remain vulnerable to political influence. They continue posing fiscal risks for the state and the risk of creating economic bottlenecks.

This chapter analyses the long-term challenges, as well as the impact of recent crises: the coronavirus outbreak and the energy crisis. In addition, we have included the risks in the state-owned enterprise sector which the Finance Ministry assumed when submitting the draft budget for 2022.

There are 3,500 state enterprises in Ukraine. 1,400 of them are functioning, while the rest are in the process of shutdown or are located in the territories not controlled by the Ukraninan government.

The Ministry of Economy declares that most state enterprises should be privatized or liquidated. However, as of 1 July 2021, only 723 enterprises were transferred to the State Property Fund. For the rest, the state’ s function as owner remains distributed among the 96 authorities to which the various SOEs are subordinated.

This is not in line with the OECD Guidelines, according to which line ministries should not act as owner and regulator at the same time.

The government prioritises the management of the 15 largest state-owned enterprises in which it plans to or is already implementing corporate governance reform. These enterprises are natural monopolies, perform a state function or have special obligations in the areas of energy, transport, etc.

The financial performance of the 1,458 SOEs operating in the crisis year 2020 amounted to a total of -51.3 bln UAH (-1.83 bln USD, the sum of income and losses).

Six out of  ten largest enterprises showed a loss of 84 bln UAH (3 bln USD) and four showed a profit of  7 bln UAH (250 mln USD) (for details, see the analytical brief “Ukraine’s Resilience to Crises: Public Debt”).[2]

Nine state-owned enterprises have supervisory boards appointed under the new regulations. Six of them have supervisory boards with a majority of independent members, and in two SOEs (Naftogaz and Ukrzaliznytsia) the election is  ongoing. In other SOEs, heads are appointed by governing bodies, which creates risks for politically motivated decisions.