conducted an interview with Rustem Umerov on Wednesday afternoon, before MP Yaroslav Zheleznyak's report about the possible appointment of the SPFU head as Defense Minister to replace Oleksii Reznikov.

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We were preparing this conversation as an opportunity to ask Umerov about privatization and the State Property Fund's plans for asset management.

Accordingly, many questions that would have asked him if the interview had taken place a day later were not posed.

However, here are questions about the activities of the State Property Fund (SPFU), the sale and management of state assets, the problems of selling strategic enterprises and plans for the future of the Fund. You have been the head of the SPFU for almost a year. How can you assess your work in this position? What, in your opinion, were the main successes and failures?

Rustem Umerov: First, over the year, the SPFU has consolidated more than 2,300 state-owned enterprises under its management, which is more than 65% of all state assets (3,600 in total - ed.). This is a precedent for Ukraine.

Previously, state-owned enterprises were managed by more than 90 different governing bodies - ministries, agencies, etc.

Today, we have become the largest manager of state assets.

We are currently working with the Cabinet of Ministers and the Committee on State Property on a new state property policy, which will establish a single body to manage state assets.

We also made the second huge step with the Cabinet of Ministers. The Verkhovna Rada adopted a law (draft law 8250 - ed.), according to which all personnel appointments within the Fund are made by the head of the SPFU. Today, the State Property Fund is essentially an independent government agency that focuses on managing state assets.

In fact, we have removed political influence on any appointments in the Fund.

The SPFU claims that most state-owned enterprises operate "on paper". Why is this the case? What can be done with these assets and what are you doing?

We conducted an audit to understand what we have. After we were given the companies, we saw that some companies existed de jure, but de facto they either had no employees or no activity. At the same time, the companies had directors and other employees who were paid salaries. No one knows where that CEO is, where those employees are. However, the budget accumulates billions of dollars in debts from these companies every year.

We did a thorough analysis, checked that these companies did not exist, and proposed to the Cabinet of Ministers and the Verkhovna Rada Committee on Economic Policy to adopt a new law (draft law 8205 - ed.) on the mechanism for liquidating state-owned enterprises. This document introduces a new effective procedure for liquidating state-owned enterprises. For example, we will sell the assets of such enterprises at auctions to cover their debts.

Recently, the Verkhovna Rada passed a law that granted more independence to the SPFU. Why does the Fund need this and how will it help it?

This law removed opportunities for various financial, industrial, political and other groups to influence the State Property Fund.

In addition, the law centralized the management of state assets. Until then, the SPFU had 12 regional offices that were [feigning busy work] instead of working. In fact, each regional office could block the privatization expected by the public with one signature.

I assume that RivneTorf could be an example, where perhaps the regional office appointed the “right” people to the management and made money from it?

I'll tell you about an example of a conditional state-owned enterprise. The state analyzes how critically the country's economy depends on its work. In our case, it's worth looking at how big a share it has in its industry. If it is 0.01 or 0.02%, it is transferred to the SPFU for privatization.

The Fund audits the company and puts it up for privatization. And it is at this point, when the Fund puts it up for privatization, that the regional office of the SPFU or the director of the state-owned enterprise may not sign it, because they have a collusion not to do so at the local level.

That's why we proposed to the Parliament to legislatively eliminate these corruption schemes, and I am grateful to my colleagues from the Verkhovna Rada for their support. Now, instead of 12 separate legal entities in the regions, regional offices of the SPFU will be represented in the central office.

How would you characterize the management that used to run the SPFU enterprises? Are there any difficulties with changing the management at large state-owned enterprises?

There are myths and stereotypes around the Fund. For example, that the Fund is insolvent, corrupt, etc. Why did this happen? Previously, few people understood how the Fund manages state-owned enterprises, how it selects managers for them, and what results these enterprises show.

For me, the main thing was to overcome these myths and stereotypes. In one year, we have shown that we were able to take over 2,300 state-owned enterprises. We were able to generate an economic effect of UAH 13 billion ($351 million) from their management.

What did we do to achieve this? For example, we introduced an updated procedure for appointing CEOs and supervisory boards. The procedure stipulates that we conduct background checks of candidates for law enforcement, anti-corruption, and other bodies.

Does it make sense to carry out privatization at all during the war?

What is the main priority for all of us now? It is, of course, victory. To win, we need weapons. And this requires money. Privatization and lease of state property are financial sources that can help provide our Defense Forces with the necessary weapons.

In addition, the privatization and lease of state property is an opportunity for Ukrainian businesses to relocate from the regions affected by the full-scale invasion. Entrepreneurs have the opportunity to buy or lease state property to restart their business in a new location and create new jobs.

How does small-scale privatization work and what revenues have been generated?

The economic effect of the resumption of small-scale privatization is UAH 5.2 billion ($140.5 million). This amount includes direct payments from the winners of privatization auctions - UAH 3.8 billion ($102.7 million), as well as debts to be paid by the new owners and 20% VAT.

The Fund has announced the start of large-scale privatization. Why sell large state-owned enterprises during the war? What are the specific plans for the sale? I am referring to Centrenergo, Odesa Port Plant (OPP), and the United Mining and Chemical Company (UMCC).

We have recently replaced the supervisory board of Centrenergo and appointed a new CEO. He has three tasks: he has to get through the fall and winter period, build protective structures and prepare Centrenergo for privatization. Now we have four units operating and we are working to enter the fall-winter period with six units and pass it with eight.

If we leave Centrenergo in the same unmodernized state for another 10 years, the company will simply become uninteresting for investors in the future. The world is moving towards green and nuclear energy. In this regard, we decided together with the government that it would be better to transfer this asset to a private owner.

To start privatization, we first had to take control of the company, which we worked on for eight months, because Centrenergo was owned by the state only de jure.

Do you plan to sell Centrenergo, UMCC, and OPP within a year?

We set this goal for ourselves. But you need to understand that the Fund had no control over these enterprises de facto. This is how the Ukrainian culture of state ownership works. You can control an enterprise de jure, but de facto you may not.

The main thing now is that thanks to our cooperation with law enforcement agencies, we have already gained de facto control over UMCC and Centrenergo. We are now working to get the same control over the OPP.

In an interview with, Dimitri Kalandadze, Deputy Chairman of the Board of UMCC, said that he was making plans for UMCC's development until 2030. Is there a chance that the government will refuse to sell the company?

I tell all directors to have a plan A and a plan B. Plan A is to prepare everything for privatization. Plan B is to have a development plan despite privatization. The new owner must understand that while the company was state-owned, it implemented the best management practices. That's why he is probably appealing to the fact that I made such plans.

The heads of state-owned enterprises managed by the SPFU must manage these enterprises using non-Soviet methods. This is a challenge for me as a statesman.

Could you name the companies that are applying to buy the OPP, UMCC, and Centrenergo?

Our task as the State Property Fund is to prepare the enterprise for privatization and put it up for auction. The experience of small-scale privatization shows that an average of five potential buyers are interested in state assets.

There are investors in the world who specialize in investing in developed countries. And there are those who specialize in developing countries, i.e. emerging markets. Ukraine today is not even an emerging market, but an emergency market. The goal of investors is to acquire assets, modernize them, and then hold an IPO to increase the company's value and long-term dividend policy.

Kalandadze said that he wants Demurinsky Mining and Processing Plant (GOK) to be transferred to UMCC because it will increase the resource base. What are you going to do with this GOK, will you give it to UMCC or sell it separately?

When new management came to the company, they started preparing a development plan. It turned out that there was a lack of resources for development. The holding's management started looking at ways to increase it.

As for the Demurinsky Mining and Processing Plant, it took some time to take control of the plant. In order to take control of a sanctioned asset, you have to go through a lot of procedural things and courts. After it came under the actual control of the Fund, we are analyzing the possibility of cooperation between UMCC and GOK. The main goal is to preserve the assets and get more money to the state budget during privatization.

In addition to large-scale privatization, the SPFU announced the start of the sale of property seized from Russian oligarchs. When and for which assets will you be looking for new private owners? What prevents you from speeding up this process?

We are preparing the first assets seized from the Russians for sale. Demurinsky GOK and Ocean Plaza (a shopping and entertainment center in Kyiv - ed.) and others. We are working with the Ministry of Justice, law enforcement, and anti-corruption agencies to speed up this process.

Each sanctions case is unique. We have to act in a balanced and prudent manner, comply with all the rules of law - lift all arrests, and prepare the entire legal and audit base to put these assets up for auction.

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What is the format of the Fund's relations with its minority shareholder, Andriy Ivanov's UDP company? How do you cooperate with it?

The state respects the rights of minority shareholders. First, we will conduct all audits - financial, legal, and criminal. And then we will propose solutions in accordance with the law and constituent documents. I hope that by the end of the year, we will put the state stake in Ocean Plaza up for sale.

What format of selling the state stake does the Fund consider the most likely? The entire stake through Prozorro.Sale platform? Or only a part of it? Or a priority buyout by minority shareholders? When do you plan to make the final decision?

We will act in accordance with an independent legal audit and request a recommendation from investment bankers. Everything should be as transparent as possible. Together with the Ministry of Justice, we are currently studying the constituent documents.

The so-called "Medvedchuk pipe" - a part of the Samara-Western direction oil pipeline - was transferred to the Fund. What is the future of this pipe - will it remain in state ownership or will it be privatized?

The state won the court of first instance. The process is now at the appeal stage. When we win the appeal, we will be ready to take this asset into the Fund's portfolio. Then the decision will be up to the state. If the government determines that this asset is strategic, we will transfer it to the Sovereign Wealth Fund. If not, we will put it up for privatization.

The public has repeatedly heard from the SPFU about plans to create the Sovereign Wealth Fund. When will they be implemented? Which companies will be included in it? What financial results do you expect?

We have to offer society a new state ownership policy. Currently, several dozen government agencies and other institutions manage state assets in Ukraine. This leads to inefficient management of state assets. Therefore, we need to develop a new policy in this area.

The new ownership policy will set out the criteria by which assets will be defined as strategic. It will also define which assets we consider to be commercial and which to be non-commercial. Which ones belong to banks and which ones to the defense sector.

If this strategy is adopted, we estimate that about 100 state-owned enterprises should remain in state ownership, of which about 50 will be classified as commercial.

These 50 enterprises should be included in the Sovereign Wealth Fund. Currently, the capitalization of these enterprises is approximately $40-50 billion. In ten years, a professional management team will be able to increase it to $150-200 billion, which will bring 10 or 20% annual yield.

As a result, the government will be able to plan in its budget revenues from the effective management of state assets in the amount of $20-40 billion annually.

Sovereign wealth funds are a mechanism for investment that international investors understand. Over the past 20-30 years, up to 100 sovereign wealth funds have emerged in the world.

International experts are helping us to create the sovereign wealth fund. Soon our team will submit a strategy for creating the Sovereign Wealth Fund to the Cabinet of Ministers. Next, we will propose a draft law to the Parliament that will outline the principles of the Sovereign Wealth Fund. Our strategy includes three planning horizons: 1-2 years, 5 and 10 years.

The Sovereign Wealth Fund will become a center for people who want to work for the state and receive market salaries.

It will also be a platform for investors who will speak the same language and offer new catalytic projects.

Can you tell us in detail about the idea of leasing state land through Prozorro.Sale? What do you need to do for this? Who is hindering this process?

Let's start with the fact that no one knew exactly how much agricultural land the state owns. We conducted an analysis. It turned out that the state owns between 500,000 and 700,000 hectares of land. The Fund currently manages only 370,000 hectares. The rest of the land is under the jurisdiction of other ministries, departments, agencies, academies of sciences, and other state institutions.

For a long time, the use of these lands has been based on "gray schemes". For example, in exchange for profit sharing, land cultivation contracts were signed for one year. After the harvest, the yields on paper decreased. And, accordingly, the profit. The difference between the actual profit and the profit "on paper" was shared by the tenants with the heads of these state-owned enterprises. As a result, the state budget lost billions of hryvnias every year. On July 27, the parliament put an end to this (voted for draft law 7588 - ed.).

Now we need to accumulate inefficiently used state land into one fund - the Land Bank. We are already working on this issue with the Cabinet of Ministers. In January 2024, we will be ready to offer society a new tool - the land will be leased out for long-term use through auctions on Prozorro. At the same time, they will remain state-owned.

The Fund plans to create an investment real estate fund. What tasks do you plan to solve by creating this institution?

When I came to the State Property Fund, it was not clear how much real estate there was in the state. Today it is clear that it is almost 8 million square meters. It generates a monthly profit of UAH 70 million hryvnias ($1.9 million).

I asked for an inventory of this real estate. It turned out that some of it could be privatized. The rest of the assets should be used to create a Real Estate Invest Trust (REIT).

What should this fund do? The same thing as the Land Bank - lease out state-owned real estate for a long-term period under transparent procedures. This will help to attract significant funds to the state budget on a regular basis.

I have a question about Asset Recovery and Management Agency (ARMA). What do you think of the new appointment of Olena Duma as the head of the agency? How did the cooperation with ARMA go in general to ensure that the seized assets become state property as soon as possible?

We have been in contact with ARMA and have always been open to resolve any issues. We told them that we have the mandate and experience to take over the seized assets. If the Verkhovna Rada adopts the draft law we have proposed, we will be able to take over from ARMA assets that have already been transferred to state ownership. If the asset is strategic, it will go to the Sovereign Wealth Fund, otherwise we will sell it.

In general, this is more of a question for lawmakers and political circles: who should take over the management of which assets.