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Yet another dingdong has broken out between Ukrainian President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. This time the president is trying to suspend the sell-off of the country's key petrochemical plant, Odessa Portside Plant, a privatisation that has already failed several times due to disputes between the government and the president.

"The privatization of the Odessa Portside Plant threatens the economic security of Ukraine," Yushchenko said on Thursday, September 17 as he suspended a cabinet resolution on the sale of the plant.

The plant, one of the biggest fertiliser plants in the Commonwealth of Independent States, was put up for sale by the cash-strapped government and is one of the few assets the state is likely to sell this year. The much anticipated sale of the government's stake in fixed-line telecommunications operator Ukrtelecom is unlikely to go ahead and the auctions of several energy assets have been repeatedly cancelled by the State Property Fund (SPF) due to the lack of bids.

Earlier this week, the SPF said it had already received applications from 15 investors interested in buying the state's 99.6% stake in the Odessa Portside Plant in an auction where the initial asking price is UAH4bn (€320m), but could raise several times as much. The tender is scheduled for September 29 and the deadline for the applications is September 21. "Preliminary interest towards Odessa Portside Plant from potential bidders, which included domestic, Russian and global chemical producers, was very strong, with sale price estimates ranging from $0.5bn (starting price) to more than $1bn (for comparison, Stirol, which is comparable in size with Odesa Portside Plant, currently has a market cap of $125m)," says Andrey Bespyatov of Dragon Capital.

Empty coffers

Tymoshenko is desperate to see the sale go through to replenish the government's depleted war chest, but the president's office seems to have adopted a strategy of attempting to starve the government into submission by cutting off its access to funds ahead of crucial presidential elections slated for January 2010. The president's office earlier this month moved to cut off the government access to funds in the National Bank of Ukraine that the government intends to use to fund the deficit.

Oleksiy Blinov of Astrum says: "The president continues to maintain his line of limiting the government in funding the budget deficit. This decision follows a recent message to the National Bank of Ukraine to stop supporting the budget through purchasing domestic bonds (OVGZ) issued by the government. We think that there is a high probability that the government will ignore the president's objections and will actually carry out the sale of the Odessa Portside Plant. However, the outcome of the privatization should be broadly contested by the president, the opposition and those bidders who will not win the tender. Thus, we are not including the potential receipts from the Odessa Portside Plant's sale into our 2009 privatization forecast and maintain it at its current level of UAH2bn."

Tymoshenko insists the sale will go ahead as planned towards the end of this year. "The tender to sell a state-stake in the Odessa Portside Plant will be held on the date previously set," she said during a regional trip, Interfax reported. "I would like to firmly state that a decision on the privatization was passed by the State Property Fund of Ukraine and it will take place within the term fixed by the fund, and nothing will prevent this."

Tymoshenko should win this fight, as the sale of the plant was one of the conditions to receive the International Monetary Fund stand-by facility that Ukraine's government badly needs to keep functioning. She added that investors who have applied for inclusion in the tender can be rest assured that they will be able to take part.

Still, the fight raises unnecessary concerns that will affect the price the government eventually gets and will push the sale towards the locals who are used to this sort thing. "Tymoshenko argued the Odessa Portside Plant tender remained fully legitimate, as all regulations regarding it were issued by the State Property Fund, whose decisions the president was not authorized to revoke. While the government seems determined to proceed with the tender, we think most foreign bidders, concerned about its legitimacy, will stay away, giving local groups the opportunity to buy Odessa Portside Plant for a cheaper price. Supporting our view, Privat Group, the most likely winner in the current circumstances, was quick to confirm it would participate in the auction. We also think Russian bidders are likely to stay on given their experience of the local business environment, ability to deal with political risks in Ukraine and, importantly, access to cheap gas supplies," says Bespyatov.

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