: :inin Kyiv (EET)

The first annual review of the TOP 100 state-owned enterprises in Ukraine

On April 28, 2015, the Press Center of the Ministry of Economic Development and Trade of Ukraine on the official website presented the first annual review of the TOP 100 state-owned enterprises (SOEs)


“As a result of this first Annual Review of Ukraine’s SOEs, the Ukrainian people, who are the ultimate shareholders of all SOEs in the country, finally have an opportunity to receive detailed information about the financial standing and operations of the state-owned sector”, – stated Minister of Economic Development and Trade of Ukraine Aivaras Abromavicius.

Actually, the review says that as of the end of September 2014, there were over 3 thousand SOEs, only 29 out of the biggest TOP-100 SOEs have a Board of Directors in place composed solely of public servants, while less than 40% of the TOP-100 SOEs are audited and only a handful by internationally recognized audit firms.

According to the review “TOP 100 SOEs generated UAH 16bn. in losses in 2013; their performance deteriorated even further in 2014 with losses reaching UAH 74.7bn. during the first nine months of the year. While UAH 62.5bn. of these losses came from Naftogaz of Ukraine alone and a portion of the losses can be attributed to weak economic conditions and currency devaluation, it is unquestionable that the operating efficiency of the SOEs is unacceptably low.”

“Return on assets (ROA) of the SOEs in Ukraine was negative at minus 3% in 2013. By comparison, ROA in the private sector can reach 7 – 10% on average. Applying this standard to TOP 100 SOEs implies that the annual profits of the state-owned sector of the Ukrainian economy have the potential to exceed 50-70bn.”

The profit potential of SOEs could be even higher if one considers that their assets are undervalued, according to Minister Abromavicius:

“Most SOEs are not audited and therefore their assets are not properly valued. SOEs tend to carry their assets at acquisition value, and are thus undervalued as a result of the significant devaluation of the hryvnia. Applying the 7-10% ROA benchmark to the true market value of SOE’s assets would suggest even greater potential to increase the profitability of the SOEs sector”.

“The difference between the actual negative and high theoretical profitability of SOEs can be partially explained by the non-commercial activities in which SOEs are required to engage. For example, passenger transportation via railways is a loss making activity. If railways were managed by the private sector they would either ask for subsidy from the government to provide passenger service or discontinue it. State-owned enterprises, however, have implicit and explicit obligations to engage in these activities,” states the report.


According to Minister Abromavicius, “It is very important that SOEs disclose the impact of non-commercial activities on operating and financial results. This would increase transparency and allow the government and citizens of Ukraine, who are the ultimate shareholders of these companies, to benchmark SOEs with private sector peers and judge the efficiency of SOEs”.

This report has been produced as part of the SOE reform program and must show how by improving the management of its SOEs, Ukraine can substantially improve their performance, boost investment and increase budgetary inflows:

“The annual review consists of five main sections which cover the SOE reform in Ukraine and experience of other countries, provides an overview of the existing SOE regulatory environment in Ukraine, and contains aggregated financial information on the portfolio of SOEs, overviews on energy, transportation, banking, agriculture and other sectors as well as individual profiles of Ukraine’s largest 30 SOEs. This comprehensive document was produced in a very short timeframe.”

“This report was produced as part of the SOE reform program being undertaken by the Ministry of Economic Development and Trade of Ukraine. The goal of the SOE reform program is to increase transparency and efficiency of SOEs, enhance their corporate governance, implement global best practice in managing these companies and, ultimately, create value for the Ukrainian state. By improving the management its SOEs, Ukraine can substantially improve their performance, boost investment and ultimately increase budgetary inflows.”

“Ukraine does not have to start from scratch. We are able to use well-established OECD guidelines on corporate governance of SOEs and the vast experience of well-developed European economies, which have successfully reformed their own SOEs in the past. Effective management of SOEs depends on three fundamental principles: transparency; a clear commercial objective; and political insulation of all management decisions. Transparent public access to key performance indicators of SOEs is necessary to provide the basis for government accountability and raises barriers against possible political intervention into the operations of SOEs,” underlines Minister of Economic Development and Trade of Ukraine Aivaras Abromavicius


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