Share |

Tuesday, January 29, 2008

Tymoshenko Outlines Her Privatization Credo to Yushchenko

We’ve offered, taking into account that the state will never be an efficient entrepreneur, the state will only be able to control three or four corporations such as Energoatom, Naftogaz — that is, to make business plans, keep things going... The idea is to have the state, where regulation is required, retain potent regulatory functions — this concerns oblgazes, oblenergos [regional gas and electricity companies], everything that really looks like a [natural] monopoly. The state spells out these potent regulatory functions via legislation. At the opposite end, we don’t make up a list of what we’re going to privatize, but rather, we make up a list of what cannot be privatized under any circumstances, complete with a comprehensive analysis of why a given enterprise cannot be privatized.

Here we go again, cruising the ideological avenues of the world: from solidarism to Thatcherism; from pondering membership in the Socialist International to praising Sarkozy; from advocating aggressive privatization to promoting the idea of mild government-subsidized mortgage rates. How does it all add up? Exactly where are we going?

Video uploaded from:


Anonymous said...

Exactly where are we going?

Based on the speech, if implemented and put into action, Ukraine is going free market capitalist in a big way with all companies, corporations, assets etc. in the hands of private owners (except for just a few.) The ramification is on par with an 9.0 richter scale earthquake. What concerns me is the mention of "natural monopolies" and how limited it seems regulation would be. First to be protectionist of monopolies is dangerous (Ukraine already has monopolies and while it is VERY good for businesspeople it is VERY BAD for the citizens.) Second there should close regulation of all industries period not just 'monopolies'.

What she is saying leads to hyperventilation - the money that will be made potentially is simply fantastic - but on the other hand without govt intercedence the corruption will be of catastrophic proportions and the citizenry will suffer. And in 15 years it will either be autocratic as RF is right now or as free as Europe.

In other words this could the start of something very good or very bad for Ukraine and Ukrainians but in the shorterm, have a back up plan.


Anonymous said...

OK, Luida, it depends on one's theory of regulation.

In the West, the idea of "natural monopolies" is an old economic idea.

Today, in telecommunications, it has been discarded due to advances in technology.

The idea of regulation with regard to natural monopolies, however, is to create a sort of substitute for competition.

That is, one tries to strike a balance between consumers and suppliers, between household or industrial users of gas or electricity, and the monopoly gas or electric company.

That means prices that are sufficient to provide a decent, but not huge return, or profit, for the monopoly, while at the same time providing affordability for consumers.

Usually, the mechanism for that is a regulatory agency, which may consist of elected or appointed officials.

In such a situation, one must have open proceedings subject to scrutiny by the press and the public. And all records of the agency must be open to the public. Bribery, of course, is out of the question.

In regulated industries, "agency capture," or the attempt by the regulated industry to "take over" the regulators, is not unknown.

That's why public scrutiny is so important.

Regulated industries are nothing new in the West, and in most cases, countries have learned to strike a balance between heavy-handed regulation, and regulation that is too lax.

Unfortunately, that is just developing in Ukraine.

And the dangers that you point out are very real.

Taras said...

You nailed it all, guys.

Luida, I’m not sure what Ukraine will look like 15 years from now. All I know is that 15 years ago we had 52 million Ukrainians. Today, we only have about 46, and the trend continues.

Elmer, thank you for examining the monopoly issue. In Ukraine, it’s all too natural for some regulators to qualify a monopoly as “natural,” and to set ridiculous fines for companies with triple-digit profit margins.

Anonymous said...

elmer - it is unclear by which defn of natural monopoly she meant - if she meant natural monopoly which leads to following - "is used to justify the creation of statutory monopolies, where government prohibits competition by law. Examples of claimed natural monopolies include railways, telecommunications, water services, electricity, mail delivery and computer software. Some claim that the theory is a flawed rationale for state prohibition of competition."

I am against govt prohibition of competition by law.

If she meant natural monopoly meaning that "if only one firm is able to survive in the long run, even in the absence of legal regulations or "predatory" measures by the monopolist. " It is said that this is the result of high fixed costs of entering an industry which causes long run average costs to decline as output expands (i.e. economies of scale in private costs)." I am cool with this kind of natural monopoly because how many people can afford to go into the business of running an electrical grid?

So which definition of natural monopoly was she referring to? It seems like the second, I think but I am not sure.


Anonymous said...

elmer - "The idea of regulation with regard to natural monopolies, however, is to create a sort of substitute for competition."

Regulation in Ukraine by the govt should receive low marks in all industries and all service industries. Case in point regulating coal mines for safety. What is going to be done to better govt in regards to regulation within in her plans?

Anonymous said...

Taras, the regulators are not the ones who get to choose whom to regulate (in the West).

So there are no arbitrary decisions.

In each case, there are constitutional and statutory provisions specifying which companies are to be regulated, and the duties of the regulators.

The regulators then spell out regulations.

As a double-check on the regulators, their actions have to be supported by some measure of evidence, the regulated entity has a right to a hearing, in accordance with specified procedures, and any decision is subject to oversight and challenge by a court.

The typical standard in regulation is that the decision may not be "arbitrary or capricious".

That means checking whether the agency has overstepped its statutory authority, whether it has followed its own regulations, whether there is sufficient evidence to support the regulatory decision, or whether there is some other irregularity.

For regulated utilities, if a regulator allowed triple-digit returns, he/she would be booted out of office.

The usual standard is "reasonable rate of return," taking into account economic conditions, such as inflation, etc.

Taras said...

Elmer, in Ukraine the regulatory community makes laws of its own. In countries where other laws often don’t work, regulators have “freedom of choice,” which makes regulation one of the most corrupt parts of the government machinery.

“To my friends, everything; to my enemies, the law.” You know the story.

Luida, I don’t know exactly what she meant, since she didn’t define "natural monopoly." But you’re right, regulation in Ukraine sux. Underregulated natural and “supernatural” monopolies make Ukrainians’ lives miserable.

Take public utilities. Poor management. High maintenance costs. Low quality. Pipes that burst every other day. People that get blown up.

That’s the way official and unofficial monopolies work.

Anonymous said...

Luida, the theory of "natural monopoly" has been used for all sorts of purposes. I wouldn't necessarily rely on Wikipedia too much here, although it is a very good source and readily available.

In utility regulation, the idea on a common sense basis is that it is wasteful, duplicative and just plain stupid for people to have more than one gas company or electric company coming to each house or apartment. Can you imagine all the gas lines or electric lines?

And your example of an electrical grid is exactly on point.

Or maybe not, since no reasonable businessman would build any gas pipes to a number of homes just on the hope, wish or prayer, that consumers MIGHT buy gas from his lines as opposed to someone else's.

So utility regulation comes into play. And the theory is for regulation NOT to PROHIBIT competition, but to approximate, or act as a substitute or proxy for competition.

But you are right - there are different types of regulation apart from economic regulation.

In the field of pharmaceuticals, for example, in the US, the FDA has the power to regulate drugs/medicine, which must first be proven to be "safe and effective" before they are permitted to be put on the market - by prescription of doctors only.

In that field, there is no limit on the profits or returns of the pharmaceutical companies, because there are many of them, and they compete. The primary concern is the safety and efficacy of drugs.

Mine safety - good point. Typically, profits are not regulated here. (There are minimum wage laws which apply to many industries, but that does not regulate profits.) Safety inspectors inspect the mines, and there are publicly promulgated standards/regulations which apply to all mining activities which each company must follow. If they don't, the mine inspectors can fine (monetary penalties) the companies, and even shut them down.

Nuclear energy is regulated, and before anyone can build a plant, the agency has inspection and approval authority every step of the way. Very important for nuclear plants to be safe - failsafe.

So I should have said earlier that there are different types of regulation, not necessarily just economic regulation.

It sounds to me like Tymoshenko is well aware of the different types of regulation, even if she did not specifically spell it out in her speech in detail.

Taras said...

Here’s a fresh piece that puts Yushchenko and Tymoshenko on the opposite ends of the monopoly issue.

Anonymous said...

OK, here's one thing I left out.

In most cases in the US, the city provides water (not hot water, like in Ukraine - well, when you can get it in Ukraine), and one pays a monthly water bill. Water outages are not tolerated, and city officials would get voted out of office if water service deteriorated.

In some cases, the city also provides electricity, but in the vast majority of cases, the electric company is a private company that is regulated by a public utility commission.

Nuclear power plants have been built by private enterprises, and are regulated by a federal agency.

Ukraine is still coming out of a situation in which there was no private enterprise.

It is a HUGE transformation of a centrally controlled (I won't say planned) economy.

So far, it's been a very bumpy ride.

But, stubborn (and sometimes stupid) Ukrainians won't learn from the mistakes, or the experience of others, and in fine Ukrainian tradition, it's much more fun to constantly argue, and participate in intrigue, rather than to simply get things done.

And I'm not talking about the "stabilnist" way of getting things done.

So there you go.

People may look at "stupid Americans," but there is one thing for sure - as Larry the Cable Guy says - Americans "get 'er done."

Anonymous said...

elmer - But in the aspect of regulation the govt of Ukraine has a lousy record and this should not be so at all. Regulation is one of those items that govt does do well, very well indeed, IF the govt is honest, transparent and not corrupted and civil servants who trangress the law are punished. But Ukraine's got a ways to go yet.

Thank you for the link to the article Taras. And I think you would agree with the following "The highest patriotism is not a blind acceptance of official policy but a love of one's country deep enough to call her to a higher standard." (said by George McGovern)


Taras said...

Elmer, thanks to sovok and stabilnist, Ukrainians almost always learn the hard way. And sometimes it looks like they haven’t learned anything.

Luida, McGovern speaks for me!:)

Anonymous said...

Well, Luida and Taras, I agree with you both.

But it seems to me that the very first question is key - Exactly where are we going?

I think Ukraine is lousy in regulation in large part because Ukrainian government depends on personalities, and not on any system or standards.

The saying in the US is that it's a government of laws, not men.

There are a few people who have their fingers super-glued into a pie, and they are kicking and screaming every which way they can to keep it there.

The way they got their fingers in the pie, as everyone knows, is cronyism (kumi, or chums) and "warm seats" and "roofs."

Sooo --- Ukraine buys Turkmenistan gas from Russia, and the RosUkrEnergo intermediary, split 50/50 between a FEW Ukrainians and a FEW Russians, makes billions, while bleeding Naftohaz dry.

What does it tell you when the Prime Minister of a country decides to ignore court decisions - and that she is obviously right in doing so, on a practical level?

What standards exist in Ukraine for regulation? Where are they published? Who promulgates the standards? Who enforces them?

Mine safety was an issue a long time ago in Wales, in the 1930's. They learned - so why can't Ukraine take advantage of the experience of others? Just so the big fat pig Zvyahilsky who collects BIG money from the mines can continue to make noises about not knowing who owns the mine?

Much better to focus on "The Slap," so that Chernoco can continue stealing land.

Anonymous said...

elmer - You are just tugging on my favorite gripe - the judiciary and the legal code.

Fix both, prosecute the trangressers and reinforce that crime does not pay. And deputy immunity has to be voted out.

But right now nothing can get done at all as the General Prosecutor remains in office (in fact Piskun may return), Parliament is not voting on anything at all, and judges both good and bad are out stamping away documents with their seals (pechatku).

Notice how the Kremenchug refinery is a "dead" issue? A multi-million dolllar operation was whisked out of the hands of the owners via a judge's decision and heavily armed private security force who even repelled the police.

And no one NOT a single person is going to go to jail for the money that disappeared from Naftohaz - billions.



Taras said...

Haven’t heard from Chernovetsky for a while. Any idea what happened to his pride? Well, I hope he gets the rest of his regulation in the polls.