RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/UKR/721
17 August 1999
(99-3465)
Working Party on the
Accession on UkraineOriginal:  English
ACCESSION OF UKRAINE
Memorandum on Privatization
The following information concerning privatization has been received from the Governmental
Commission on Ukraine’s Accession to WTO
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1. History
The privatization process in Ukraine may be divided into three stages:
Stage 1 (1992–first half 1997) commenced with the adoption of the first State Privatization
Program it entails mostly the development of a normative base for privatization, the conducting of a
mass privatization by means of privatization certificates, the execution of small privatizations, and
also the start of preparations for the individual procedures of privatizing large enterprises.
Stage 2 (second half 1997–first half 1999) was commenced with the adoption of the third
State Privatisation Programme. Its chief characteristic is the coincident timing of the end of mass
privatisation (by means of free-of-charge transfers of property in exchange for privatisation
certificates), and moving on to individual privatizations, along with monetary investment for
developing enterprises and the economy as a whole.
Stage 3 (starting in the second half of 1999) is a stage devoted exclusively to individual
privatizations and paid transfers of entities to private owners with a relatively limited interference of
the government in the process of property distribution.
2. Current Situation
As of 1 January 1999, 61,591 entities2 have changed their form of ownership. A significant
number of them were previously communally owned (45,001, or 73.1 per cent), while the rest were
state-owned. The majority of denationalized entities were in group A (80.4 per cent), 17.6 per cent
were in groups B, C, and D, 2.0 per cent were in group E, and 15 entities were in group H.
The greatest proportion of denationalized entities since the beginning of the privatization
process, compared to the Ukraine total, have been in Donetsk (11.0 per cent), Lviv (9.8 per cent),
Dnipropetrovsk (7.3 per cent), Kharkiv (5.1 per cent), Odessa (4.7 per cent), and in the city of Kyiv
(7.3 per cent).
                                                     
1 This document cancels and replaces, in English only, the document WT/ACC/SPEC/UKR/72 dated
17 August 1999.
2 Data is calculated based on information from the central office of the State Property Fund of Ukraine,
as well as its regional branches and representative of fices, as to entities which have completed purchase-sale
contracts as of January 1, 1999.WT/ACC/UKR/72
Page 2
3. Methods of Privatization
During the entire process the denationalization of  state enterprises property of organizations,
and institutions was accomplished mainly by buyouts by buyers’ associations (41.4 per cent). Inparticular, more than half of the entities in Lviv (67.5 per cent), Donetsk (51.8 per cent), and Ivano-
Frankivsk (50.9 per cent) oblasts and the cities of Kyiv (64.2 per cent) and Sevastopol (56.2 per cent)
changed ownership using this means.
The buyout of state property with a turnaround leasing upon buyout was actively applied in
Kharkiv (53.8 per cent), Luhansk (34.2 per cent), Odesa (32.5 per cent), Zaporizhia (30.4 per cent),
and Poltava (28.9 per cent) oblasts; while the sale of shares in open joint-stock companies wasprevalent in Chernihiv (31.7 per cent), Kherson (29.4 per cent), Vinnytsia (29.3 per cent), and
Zhytomyr (27.3 per cent) oblasts. In Ukraine overall, these two methods of privatization were used to
change ownership of 20.4 and 16.0 per cent of entities respectively.
Sale by auction is becoming a more widespread competitive methods of privatizing the
property of enterprises, organizations, and institutions (12.5 per cent). The proportion of this methods
of privatization is higher in certain regions. For example, the largest portion of entities denationalized
in this way compared to the overall total of denationalized entities on the territory is observed in
Crimea (31.0 per cent) and Dnipropetrovsk (22.4 per cent) and Luhansk (20.9 per cent).
4. Scope of Privatization
The process of property reform has touched almost all branches of the economy. It has been
especially evident in trade and public catering, household services, industry, construction, agriculture,
and housing and utilities, with 27,776, 11,256, 6,760, 3,181, 2,956, and 2,532 denationalized,respectively.
In industry, the denationalization process was mainly accomplished by the sale of shares in
open joint-stock companies (61.5 per cent of the total number of denationalized entities in this sector
of the economy). In certain areas of industry this means of privatization was used more frequently
than in others. For example, in the flour milling, cereals and mixed feed industry nearly all the entities
were denationalized in this manner (89.5 per cent of the total number of denationalized entities in thisarea of industry). In the electricity, machine building and metal processing, ferrous metallurgy, food,
and construction materials industries this method of privatization was also most popular (80.8, 72.2,
70.5, 70.2, and 64.2 per cent, respectively). In the fuel industry the largest number of enterprises was
privatized by auctions (34.6 per cent).
More than a half of the entities in the area of procurements (86.8 per cent), transport (75.2 per
cent), and material inputs and sales (65.1 per cent) changed their forms of ownership by sale of shares
in open joint-stock companies.
Buyouts of entities by buyers’ associations were widespread in the cultural and art areas (77.6
per cent), household services (56.1 per cent), health care, physical education, and social services (55.9
per cent), agriculture (54.1 per cent), and trade and public catering (46.4 per cent).
As of 1 January 1999, 1,180 unfinished construction entities have been denationalized; this
was accomplished mostly by way of auctions (76 per cent).WT/ACC/UKR/72
Page 3
5. Results and Extent of Privatization
After denationalization, 51,096 entities became collectively owned (83 per cent of the overall
total of denationalized entities), 10,492 entities became privately owned (17 per cent), and 3 entities
became the property of international organizations or foreign legal persons.
The sale of shares in open joint-stock companies temporarily remaining under state ownership
or owned by the state through property of inter-farm enterprises and joint ventures (group E entities)
continues. As of 1 January 1999 there were 800 such entities.
The most active period of denationalization was in 1995–1996, when 58 per cent of the
overall total of denationalized entities changed the form of their ownerships (from 1992–1993 to1998).
The process began slowing down in 1997: the pr ocess was 2.3 times slower in 1997 than in
1996, while in 1998 it was 1.6 times slower than in 1997.
In 1998 the change of ownership occurred in the case of 5,451 entities (8,574 in 1997),
including 31.5 per cent (compare 22.1 per cent) state-owned and 68.5 per cent (77.9 per cent)
communally owned entities. Of these, 4,216 were in group A (7,000 in 1997), 830 were in groups B,
C, and D (1,170 in 1997), and 390 were in group E (404 in 1997).
In 1998 the privatization of social sector entities was classified in the new group H; there
were 15 such entities. In terms of branches of the economy they were divided as follows: 4 entities
each in culture and arts, and tourism and recreation, 3 entities each in healthcare and education, and
inpharmaceuticals.
It should be added that while the total number of denationalized entities fell in 1998 compared
to 1997, the rate of denationalization of unfinished construction facilities increased. Thus, while every
22nd denationalized entity in 1997 was in this group, in 1998 it was every 14th.
6. Property Report
As during the entire process of property reform, in 1998 the denationalization of property in
branches of the economy was accomplished mostly by buyouts by buyers’ associations (40 per cent of
the total number of denationalized entities in Ukraine). This method of property reform was used for
nearly three quarters of cultural and art entities (74.7 per cent), more than for a half of wholesale trade
entities (55.8 per cent) and health care, physical education and social services entities (53.4 per cent),
and for about a half of retail trade (49.7 per cent), household services (48.1 per cent), and housing andutilities (45.4 per cent) entities.
7. Industrial Privatization
In industry the denationalization process was accomplished mostly by sale of shares in open
joint-stock companies (60.4 per cent of the total number of denationalized entities in this sector of the
economy).
In certain areas of industry this method of privatization was used more often. For example, in
the flour milling, cereals and mixed feed industry nearly all the entities were denationalized in thismanner (98.7 per cent of the total number of denationalized entities in this area of industry). In the
machine building and metal processing, food, chemical and petrochemical, and construction materials
industries this method of privatization was also above the industry average (67.0, 65.7, 63.6, and 61.1
per cent, respectively).WT/ACC/UKR/72
Page 4
8. Auctions
The competitive method by auction are applied more and more often in the privatization of
property of enterprises, organisations, and institutions. For example, in 1998 every fourth entity was
sold at an auction (every fifth in 1997, every eighth in 1996, every twelfth in 1995, and everytwentieth in 1994). Every third entity in housing and utilities, and nearly all unfinished construction
facilities (92.9 per cent), changed from state owners hip using auctions as a method of privatization.
9. Form of Ownership
In 1998 3,301 entities were transferred to collective forms of ownership (60.6 per cent of the
total number denationalised), while 2,149 entities (39.4 per cent) came under private ownership and 1entity was taken over by an international organization or legal entity of another country.
10. Revenue
Receipts from the sale of entities which changed their form of ownership in 1998 are
anticipated at 151.3m hryvnias, including 145.9m hr yvnias in cash. Expected revenues from placing
shares are 1,561.7m hryvnias, including 943.2m hryvnias in cash.
In 1998 the sale of shares in open joint-stock companies temporarily remaining under state
ownership or belonging to the state through the prop erty of inter-farm enterprises and joint ventures
(group E entities) continued. This activity applied to 326 entities (201 in 1997). The expected revenue
from the sale of these entities is 40m hryvnias, and 21.5m hryvnias from the sale of shares.
Number of denationalized entities according to form of ownership
Years Total Including:
State-owned Communally owned
1992–1993 3,600 1,623 1,977
1994 8,252 2,709 5,543
1995 16,227 4,114 12,113
1996 19,487 4,526 14,961
1997 8,574 1,899 6,675
1998 5,451 1,719 3,732
11. Legislative Basis and Procedures for Privatization
Privatization in Ukraine is regulated among others by the following laws of Ukraine:
- “On the Privatization of State Property”;- “On Privatization Certificates”;
- “On Securities and the Stock Market”;
- “On the State Privatization Program”. The Program, according to Article 4 of the Law
of Ukraine “On the Privatization of State Property”, is approved annually.
The privatization of entities subject to small privatization is accomplished by:
- buyout, sale at auction, or by competitive bidding.
The privatization of medium and large businesses in 1998 was accomplished by sale of shares
in open joint-stock companies (OJSCs) that were created on the basis of the state property ofenterprises, with the continuation of privileges, as  provided by privatization legislation, for employeesWT/ACC/UKR/72
Page 5
and persons having the lawfully given right to acquire shares for nominal value, and in keeping with
quotas (60, 50, or 25 per cent depending on the value of the enterprise’s capital assets), as well as by
application of privatization and compensation certificates. The sale of shares of OJSCs created during
the process of privatization and corporatisation is accomplished by state privatization bodies,
including the participation of legal entities authorized by them, by:
- privileged sale to employees of enterprises whose assets are being privatized;
- sale to Ukrainian citizens and intermediaries for privatization and compensation certificates
through the National Network of Certificate Auction Centers;
- sale for cash to natural and legal persons at specialized auctions through the National
Network of Certificate Auction Centers;
- sale through the exchange trade system;- sale through non-exchange stock trade systems;
- sale of share packets for cash at auction;
- sale of share packets during commerci al and non-commercial competitive bids;
- sale of share packets by open tenders according to the procedure established by the State
Property Fund of Ukraine.
12. Procedures in the Agroindustrial Complex
The privatization of assets of enterprises in the food industry processing agricultural raw
materials, flour-milling, cereals, and mixed feed industry, and also service, construction, brand-nametrade, and other non-agricultural enterprises and organizations of the agroindustrial complex that
provide works and services to agricultural producers, regardless of the worth of the entities being
privatized (but no less that what is necessary to establish the authorized capital of a joint-stock
company, in accordance with Ukrainian legislation), is accomplished by transforming them into open
joint-stock companies, according to the procedure specified by the Cabinet of Ministers of Ukraine.
With that, the systemic profile and technological integrity of production is intended to be preserved,
and the unity of asset complexes and technologies too.
The privatisation of assets of collective farms and other state agricultural enterprises
established on the basis of collective farms without buyout of their assets by the state, which during
the period of their operations did not receive budget funds for the purchase capital assets and for
construction, is accomplished by transforming them, pursuant to general meeting resolutions(meetings of authorized members) into collecti ve agricultural enterprises or open joint-stock
companies, with subsequent free-of-charge transfers of assets to the employees of the founding
enterprises.
The privatisation of assets of collective farms and other state agricultural enterprises,
established on the basis of inter-farm enterprises founded by collective farms without buyout of their
assets by the state, which during the period of their operations did not receive budget funds for
purchasing capital assets and construction, is accomplished by transforming them into open joint-
stock companies, with subsequent free-of-charge transfer of assets of these companies to founders of
the inter-farm enterprises.
13. Use of Privatization Procedures
According to the Law of Ukraine “On the Privatization of Assets of State Enterprises,”
proceeds of privatization are applied to cover the costs of privatization, to lend for the technicalupgrading of privatized enterprises, for business developments, and for the creation of new jobs
within the limits defined in the State Privatizatio n Program. Any balance is transferred to the State
Budget of Ukraine.WT/ACC/UKR/72
Page 6
Until 1997, the funds from privatization were received by the State Budget. Starting from
1997, in accordance with the Law of Ukraine “On the State Budget of Ukraine for 1997,” part of the
funds from the privatization of assets of state enterprises is planned to be allocated for the structural
reform of branches of the national economy.
A part of the funds from privatization of group A (small privatization) entities, the majority of
which are communally owned entities, are directed in  the last two years to local budgets for financing
social programs, and for post-privatization support of businesses.
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