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Investors wonder if Ukrainian privatisation will ever materialise

* Privatisation of key assets repeatedly delayed

* Top 100 state-owned firms posted $4.6 billion loss in 2014

* Planned Odessa Portside Plant sale will test transparency

By Alessandra Prentice

KIEV, April 13 (Reuters) - Foreign investors are waiting impatiently for a new Ukrainian government to kick-start privatisation. They are far from sure it will.

Parliament is expected to vote on a cabinet line-up this week following Prime Minister Arseniy Yatseniuk's resignation on Sunday after months of political infighting in a country already destabilised by pro-Russian separatism.

Lawmakers said technocrat Finance Minister Natalia Yaresko was likely to be dropped; Economy Minister Aivaras Abromavicious, a key driver for privatisation, had already resigned over what he said was meddling by vested interests.

The pro-Western authorities who came to power in 2014 after a Moscow-backed president fled protests against his rule pledged to sell off state firms they said were crippled by graft.

But a privatisation plan the government predicted would raise $778 million for the budget last year involved sales of just $7 million, according to data from the State Property Fund.

Brian Best, a managing director at Dragon Capital, the largest investment bank in Ukraine and minority owned by Goldman Sachs, said potential buyers might soon walk away.

Investors are "definitely in a wait-and-see mode, but they won't wait forever. They have capital to deploy and that capital will seek markets that are easier to invest in than Ukraine if something isn't done in the near future," Best said.

He cites the example of Dragon Capital's involvement as advisor to a Western consortium interested in buying Ukraine's second-largest thermal energy company Centrenergo.

The sale has been repeatedly pushed back: from end-2015, to the end of the first quarter of 2016 and beyond. The consortium lost patience and gave up on the purchase last year, Best said, declining to name the companies involved.


Best said energy ministry representatives had discussed "highly inflated" prices in private meetings with the consortium and also suggested "privatisation wasn't going to happen - that they weren't going to do it.

But then the prime minister said they were going to do it, so it was mixed signals, mixed negative signals," he said.

A spokeswoman for the Energy Ministry disputed that account, saying the ministry had always supported privatisation and none of the meetings between ministry representatives and investors had reflected a different attitude.

"The consistent position of the ministry has been maximum cooperation on the sale to create competitive conditions on the thermal generation market," she said in emailed comments.

The ministry also referred Reuters to Energy Minister Volodymyr Demchyshyn's expressed commitment to the sale of Centrenergo, which the State Property Fund has indicated may be ready by the end of November.


Andrew Favorov, managing partner of energy project development firm Energy Resources of Ukraine (ERU), says it took a year of visits to Europe and the United States to persuade investment funds to consider Centrenergo and the delays were putting them off.

"What is in doubt is whether this investment, these funds, will be around for much longer. They're saying - 'where's something tangible?' Nobody believes the press conferences, people have a hard time taking the words at face value anymore. We're yet to get a clear picture," Favorov told Reuters.

He said ERU hoped to invest $200-300 million over the next 2-3 years: "this is what we do - we buy beat-up old Soviet assets and whip them into shape, but the disconnect between the public statements on privatisation and the actual tangible steps is apparent and pronounced. That's why we're acutely following what's going on."

The biggest 100 of Ukraine's over 3,000 state companies posted a combined loss of 117 billion hryvnia ($4.6 billion) in 2014, an economy ministry report said.

Centrenergo, which runs three power plants built in the 1960's-70's, posted a 60 percent year-on-year fall in earnings that year. A government report last September said it topped the near-term privatisation list due to its "urgent funding needs".

Privatisation is not an explicit condition of a $17.5 billion aid programme from the International Monetary Fund, which has halted payments, but forms part of the fiscal rebalancing the IMF requires.

Alongside Centrenergo, another company that stands out among some 350 targeted for privatisation is one of Ukraine's largest nitrogen fertilizer producers, Odessa Portside Plant (OPP), which could be put on the market in June.

"There is some interest in OPP. I wouldn't say it's huge interest - 5 or 6 parties - but foreign investors are looking at it. Its sale would be a very positive sign," Best said.

Andy Hunder, the head of the American Chamber of Commerce in Ukraine said timeliness and transparency would be key: "That will be the litmus test for potential investors in Ukraine."

The lack of transparency in state-run firms prompted the economy ministry to push through laws requiring the CEOs of large companies to be replaced. Centrenergo's was among them but the change has yet to happen.

Economy Minister Abromavicius resigned in February saying his job had become impossible, although he continued to carry out some duties because parliament has not voted on his resignation.

"The people who were responsible for the progress that was made, such as Aivaras - it's not clear they will continue to have a role in a new government. It is a concerning issue," ERU's Favorov said. ($1 = 25.6000 hryvnias) (Editing by Matthias Williams and Philippa Fletcher)