A new privatisation tender for a 99.567% stake in Ukraine’s state-owned Odesa Port Plant (OPP) has failed, casting a black cloud over the government’s hopes of selling off more than 330 companies through 2017.

The giant fertiliser producing facility’s sale is supposed to be the lynchpin of Ukraine’s privatisation drive, and its success is crucial to winning the confidence of cautious foreign investors.

In the wake of the failed second tender, a storm of mutual accusations swept Kyiv as officials as usual slammed each other for being unprofessional and asserting corrupt interests. However, Western investors’ unwillingness to participate was predictable: the loss-making, debt-burdened plant at the epicentre of judicial disputes initiated by Ukrainian oligarchs appears to be too risky an asset to touch.

“The recent tender to privatise Odesa Port Plant showed that the institution [State Property Fund - SPF] is absolutely unable to effectively conduct privatisation and unable to manage state-owned property,” Prime Minister Volodymyr Groysman said during a government meeting in Kyiv. “I would dismiss everyone who manages SPF if this were in my power, everyone would have been fired.”

Before the second tender, the authorities in Kyiv agreed to cut the starting price of the Black Sea coastal plant as low as $200mn (from the initial $530mn). However, the potential buyer should still repay $251mn in debt to Ukrainian oligarch Dmytro Firtash’s Ostchem company, $32mn to banks and traders for previously supplied natural gas, and invest at least $100mn in restarting the plant’s operations, which will demand further large volumes of gas.

Another reason for the failure of the privatisation is the conflict with the Nortima company, controlled by oligarch Ihor Kolomoisky. Nortima previously threatened to block the OPP  privatisation, saying any sale deal would be regarded as a purchase of stolen assets following a 2009 tender in which it outbid two rivals with an offer of $600mn at the exchange rate at the time.

However, the SPF refused to recognise the company as the tender winner. Kyiv-based experts attribute the SPF’s move to unwillingness of former prime minister Yulia Tymoshenko to transfer the plant to the oligarch at the time.

Meanwhile, attention is now turning to what the Ukrainian authorities will now do with OPP, the supposed jewel in the crown of the privatisations. If the transfer of OPP to one of Ukraine's oligarchs for management is now on the agenda, this can torpedo hopes of a rapid flow of foreign investment.

Although eyes are on Ukraine as its economy recovers from its nosedive since 2014, foreign direct investment is still struggling: According to an new analysis by the Financial Times, just $536.6mn were invested in 20 new greenfields projects in Ukraine in January-September 2016, compared with $4.6bn in the whole of 2013 while former president Viktor Yanukovych was still in power.

But in August, even after the failure in July of the first OPP tender, Ukrainian authories were still adding morsels to the bag of goodies to be sold, including such state-run giants as Turboatom, the country’s biggest producer of turbine equipment, Electrotyazhmash, a leading producer of turbogenerators, United Mining and Chemical Company, and the State Food and Grain Corporation.

Further clouding OPP’s future prospects, the situation on the mineral fertiliser market is the worst in over 15 years, with the negative trend likely to persist until 2019.

“There are several options: we could stop the plant, because it is unprofitable, or it could be transferred to the company with gas until the market conditions improve,” SPF head Ihor Bilous said on December 7, apparently referring to Kolomoisky's Ukrnaftoburinnia. “We have to decide: either we work and bear losses or we halt the plant and wait for better times. If we do not find a solution, the supervisory board will vote in favour of stopping the plant.”

Earlier, Ukrainian gas producer Ukrnaftoburinnia, controlled by Kolomoisky and wealthy lawmaker Vitaliy Khomutynnik, expressed interest in the second tender, triggering rumours that OPP could be transferred to the company.

Serhiy Fursa, a bond expert at Kyiv-based brokerage Dragon Capital, believes this is still likely, and lampoons the SPF’s machinations of recent months: “We will promise to sell soon. To a good buyer. In the meantime, we can give OPP to a sound owner for free, provided it has cheap gas. And I wonder where this cheap gas comes from. Is there anyone offering huge discounts?” Fursa wrote in a blog published in the Ekonomichna Pravda online outlet.