If you’re looking for perky ideas for investment in Ukraine, how about buying a state company that provides “all types of massages, depending on your wishes?” It also has a salt spa room and a bespoke tailoring service to throw in the mix, according to its website.
This company, called Center-service, is a part of the national asset management holding that for decades has ensured comfortable existence of Ukraine’s top officials, including the president.
The holding is known by its Ukrainian acronym DUS and runs some 60 companies. Their activities range from hospitals, hotels and exhibition halls, to making vodka called Presidential Standard. DUS also services presidential planes and keeps official residences running.
For decades, DUS has been a sacred cow, receiving more than $86 million in public subsidies per year. Its companies were not expected to make a profit, their only aim was to appease the powers-that-be.
But now its first five units are going up for sale. And this, the government says, is just the first step in large-scale privatization that will continue for years to come.
“We’re starting privatization from ourselves,” says Yuliya Kovaliv, deputy head of the president’s office, who coordinates the transfer of DUS assets to the State Property Fund to oversee the sale.
Nine more DUS daughters are to be sold right after the trial batch, including the vodka maker.
Overall, Ukraine plans to prepare 500 small state companies for sale this year, and then up the game in 2020 to collect $480 million from big privatization, Prime Minister Oleksiy Honcharuk said earlier this month.
This is very ambitious. Last year, the government sold $12 million worth of state assets, or less than 2 percent of its target, continuing a long-term trend of failure to privatize.
The first batch of DUS companies to be sold includes farms that have fed Ukraine’s presidents, a construction company and a telecoms firm. Kovaliv says that the assets will be sold off in the first quarter of 2020 through the national auction platform prozorro.sale, where any domestic or foreign firm can register and bid.
The last of the first batch is the four-star hotel Dnipro, located in the heart of Kyiv on European Square. It has 186 guest rooms, a standard double room goes for $100 per night on booking.com.
Kovaliv says the government will pick an adviser to sell this hotel through a tender procedure. “We’re expecting a strategic investor who can give a facelift to both the hotel and the European Square,” she says.
A senior Western diplomat whose government is heavily engaged in helping Ukraine with its new economic agenda, says there are signs that Ukraine “looks more serious about privatization” now.
“The only thing that can stop them is vested interests,” the diplomat says.
State-owned assets have been a boon for corrupt officials and their cronies who often set up intermediaries that buy state-made produce cheaply, sell expensively, and keep the margin while government-owned firms either remained in the red, or made a pitiful profit.
The president’s farming and food company Chaika, for example, made just $178,000 in profit last year, despite growing an abundance of fresh vegetables, producing pork and charcuterie, breeding fish at its own facility, and operating a dairy farm.
Center-service, the spa and tailoring outlet, made less than $100 in profit in 2018, according to its audit, which is available on the company website. The company did not respond to a request for comment.
But if you decide to splash on an asset like Center-service, you would at least get to fix its finances while using spa services fit for the president.