Ukraine has cancelled the auction for a controlling stake in state power producer Centrenergo, the head of the State Property Fund, Vitaly Trubarov, said on December 11. The auction was expected to be won by insiders with ties to President Petro Poroshenko.

In what should have been the biggest privatisation auction of the year, the government was to offer 78.289% stake in the company that supplies power to Kyiv and the surrounding region with a starting price of UAH5.98bn ($215mn). 

The auction was already controversial after it emerged that the most likely winner was going to be Kyiv-based Ukrdoninvest that is controlled by businessman Vitaliy Kropachev, a businessman connected to Poroshenko. The State Property Fund cancelled the auction after throwing out two bids, including Ukrdoninvest’s bid, because of insider ties.

“The participants of the tender, and these are Ukrdoninvest LLC and the production unitary enterprise Oil Bitumen Plant, are not allowed to participate in the tender, since the documentation submitted by them does not meet the requirements of the legislation, in particular, paragraph 5.7.14 of the regulations on the procedure for holding tenders for the sale of shares of joint stock companies, on the provision of information and copies of documents regarding persons connected with a potential buyer,” Trubarov said.

Kropachev is a close associate of Poroshenko and, as bne IntelliNews reported, had locked up the coal supplies to the power company.

Kropachev is also reportedly close to Ihor Kononenko, who is a close associate and long-time business partner of Poroshenko as well as the first deputy head of the Poroshenko Bloc faction in parliament.

Earlier, the Ukrainian cabinet approved a starting price for the sale of the 78.3% stake in Centrenergo of UAH5.98bn ($210mn).

In a separate resolution, the Ukrainian government approved the conditions for the sale of the company. Specifically, the conditions provide for Centrenergo’s payment of dividends to the national budget in the amount of 30% of net profit for 2018, while the draft resolution contained the text on the payment of dividends in accordance with the standard approved by the government, which in 2017 was 75%, and 2016 50%.

It was reported earlier that a total of five companies had submitted bids. Previously Trubarov said the privatisation would go ahead despite the imposition of martial law on November 25. According to Trubarov, bids had been received in November, after which the bidding companies must pay a guarantee fee.

"The introduction of martial law will not affect the privatisation processes (procedure), both for large and small enterprises. At the same time, an investor will take into account the relevant fact," Trubarov said on his Facebook page at the time.

Amongst the companies that announced an intention to bid were Ukraine’s largest private gas producing companies Ukrnaftoburinnia that is controlled by Ukraine’s richest man Ihor Kolomoisky.

Kyiv-based company Forbes and Manhattan Ukraine, headed by member of the advisory board of the Canadian bank Forbes & Manhattan Mykhailo Spektor, also announced its intention to participate in the tender.

In addition, Belarusian unitary enterprise Neftebitumen Plant, owned by one of the largest Belarusian oil traders Interservice; Tbilisi-headquartered Georgian International Energy Corporation; and, Kyiv-registered Balance Group (its ultimate beneficial owner is ex-people's deputy Dmytro Kriuchkov, detained in Germany in July and suspected of embezzling Zaporizhiaoblenergo funds), were expected to take part in the tender.

Centrenergo consists of three thermal power plants – Vuhlehirska, Zmiivska, and Trypilska. Their combined installed capacity is 7.665 GW, which is 14% of Ukraine's overall power generation capacity. Centrenergo supplies electricity to Kyiv, Kharkiv, and Donetsk regions.