Ukraine’s state enterprises start to make money again

Ukraine’s state enterprises start to make money again
By bne IntelliNews August 24, 2017

Some of Ukraine’s largest state-owned enterprises (SOE) are making money again as some of the major restructuring efforts begin to bear fruit.

Ukraine’s economy ministry reported the rapid growth of the country’s oil and gas sector in 2016 where much of the first work has been done, reported Interfax. Of the top 100 SOEs, the oil and gas companies showed the most growth, boosting net revenue by 46.8% y/y to UAH192.9bn ($7.5bn), the Economic Development and Trade Ministry said in a report on SOE results.

"The most profit-making assets are national joint-stock company gas monopolist Naftogaz Ukrainy, utilities company Ukrenergo, Ukrainian Sea Port Authority, Ukrhydroenergo, and Pivdenne (Yuzhnoye) Design Bureau (Dnipro). These enterprises are operating on the regulated markets with restricted competition," First Deputy Economic Development and Trade Minister Maskym Nefyodov said at a briefing in Kyiv on August 23.

The return to profit has been a huge boon for the cash-strapped country, which previously had to subsidize many of these companies to the tune of hundreds of millions of dollars. Now they are paying in money to the budget. Ukraine’s SOEs transferred a total of UAH15.5bn ($608mn) to the state budget for 2016, according to the website of the Ministry of Economic Development and Trade statement earlier this month.

According to the new report, the amount the SOEs have contributed has gone up again. The net profit of oil and gas companies in 2016 amounted to UAH22.5bn ($879mn) compared with losses of UAH36.3bn in 2015. The rapid growth of the oil and gas sector is explained by the Naftogaz's price policy reform, the ministry said.

SOEs in the electricity sector increased net revenue by 10% last year to UAH87.5bn. At the same time, their net profit decreased by 63%, up to UAH4.9bn, according to the report of the ministry. Centrenergo power company that may be privatized increased profit by 5.5-fold, to UAH387mn while sister company and hydro power producer Ukrhydroenergo doubled its profit to UAH2.2bn, Interfax reports.

Control of Naftogaz has been wrested away from the oligarchs and the company paid UAH71.8bn (€2.3bn) in taxes and dividends to the national budget in January-July by itself.

The state’s industrial holdings have done less well and many are still awaiting to be restructured. The 14 largest state-owned machine-building enterprises sold products for UAH7bn in 2016, which is 1.4% less than in 2015, but their net profits increased to UAH5bn from UAH1bn over the same period.

In food processing and agriculture revenues grew by 0.6% in 2016 compared to 2015, to UAH18.5bn. The problem here is the State Food and Grain Corporation of Ukraine, which is still loss-making. But the first pass at reforming the company saw its losses fall to UAH576mn in 2016 from UAH2.9bn in 2015.

The situation in the transport sector saw revenues rise 11% to UAH96.7bn, but many of the companies are still loss-making, even if the losses are falling. The net loss of transport SOEs fell to UAH268mn in 2016 from UAH9.1bn in 2015. The main culprit in this sector is the state-owned rail company Ukrzaliznytsia. However, the Polish-born CEO Wojciech Balczun managed to halve the losses, which fell to UAH7.3bn from UAH16.8bn over the period. Despite this sterling record, Balczun was recently been forced out of the company. The one asset in the transport sector that is doing well is the Boryspil International Airport, which saw profits double to UAH1.4bn over the period.

Other SOEs that did badly was the post office Ukrposhta, which posted losses of UAH161mn. The coal industry is also struggling, as it has been the most affected by the fighting in the east. Revenues were down by a quarter in the period.

Net revenue of chemical industry enterprises in 2016 decreased by 40% to UAH9.6bn, while net loss amounted to UAH2.3bn compared with profit of UAH432mn in 2015, Interfax reported. The big nut here is the Odessa Port Plant, which was supposed to be sold off in a privatization but has been closed down as no buyer can be found. OPP net financial loss reached UAH3bn compared with profit of UAH211mn in 2015.