The Law of Ukraine “On economic experiment in Ukrainian mining-and-metallurgical sector” was aimed at establishment of conditions for successful overcoming of the crisis in the Ukrainian metal-making sector, production growth, and increased deductions to
РФФЕКТР?Р’РќРћРЎРўР¬, Рљ СОЖАЛЕНР?Р®, РќР?Р—РљРђ
UNFORTUNATELY, EFFICIENCY IS LOW
The Law of Ukraine “On economic experiment in
Ukrainian mining-and-metallurgical sector” was aimed at establishment of conditions for
successful overcoming of the crisis in the Ukrainian metal-making sector, production
growth, and increased deductions to the budget. These goals were successfully achieved by
most of metallurgical enterprises.
The editorial board has addressed deputy director
general on economy of Metallurgprom Association Ms. Nina Chechel with a request to comment
on efficiency of the economic experiment in the Ukrainian mining-and-metallurgical sector
during the period of its effect.
During the term of effect of the economic experiment (July
1, 1999 – October 1, 2001) the metallurgical enterprises of Metallurgprom Association
were granted tax incentives for the total amount of UAH 1.67621 billion (UAH 120.71
million in incentives granted to ferroalloy companies). Over 80% of these financial means
were directed by the companies for replenishment of their current assets, over 11% were
spend on technical upgrades, 6% — for environment-protecting measures, and the rest –
for other needs. It is remarkable that enterprises were able to spend additional funds,
which were formed as a result of the economic experiment, on technical upgrades and
environmental protection.
Financial and economic performance of the Ukrainian
metallurgy improved along with the reduced tax burden and a growth of physical parameters.
For example, in the first half-year of 2001, in comparison with the first half of 1999
(i.e. before the experiment’s beginning), production of the following commodities
indicated a substantial growth: agglomerate +38.0%, iron +20.2%, steel +32.7%, end rolled
metal products +33.9%, ferroalloys +54.2%. Net profit on metallurgical companies’ sales
of their products increased by 32.1%. (for ferroalloy works +93.0%). The share of barter
transactions dropped to 4.09% (6.50% for ferroalloy companies) against 94.33% (60.72%) in
the first half of 1999 respectively. The rate of return nearly doubled although in the
second half of 2000, the growth came to 3.86 times. Such a slowdown was caused by a
worsening of the situation on foreign markets and deficient pricing policy on the domestic
market.
During the experiment, enterprises undertook a number of
resource-economy and energy-saving measures, which enabled them to benefit from the 7-8%
economy of energy resources per tonne of steel. Unfortunately, another raise of energy and
railway tariffs brought to naught the economic effect of the resource-and-energy-saving
measures.
The situation was further worsened by the widespread
practice of non-repayment of VAT to exporters. As of October 1, 2001, this indebtedness of
the State to Ukrainian metal-making companies totaled UAH 462.71 million and that to
ferroalloy works UAH 48.38 million.
It must be pointed out here that notwithstanding the
negative effects of the State-initiated measures (tariff raise or VAT non-repayment), the
budgetary deductions by metallurgical enterprises continued going up.
Analysis of the financial state of metallurgical
enterprises indicated a general positive tendency towards their higher solvency and
financial stability.
The indebtedness for wage payments has almost been cleared
off. The delay period for wage payment averaged only 0.25 months for metallurgical
companies as of October 1, 2001 and was equal to zero for ferroalloy-making companies.
However, the forecast for the near half-year is far from
optimistic. Budgetary deductions are likely to go 25% down, owing to the expected decline
of prices on foreign markets and a continuous growth of prices on the domestic market for
natural-monopoly resources. Along with that, prices for raw materials that must be
consumed by metallurgical enterprises on the permanent basis (agglomeration ore,
concentrate, pellets, furnace coke, ferroalloys, steel scrap) are also skyrocketing.
The Law of Ukraine “On economic experiment in Ukrainian
mining-and-metallurgical sector” ceases its effect on January 1, 2002. There is no hope
for enactment of the Tax Code before that date (which could have eased the tax burden of
the Ukrainian metallurgy). This means that economies of the metallurgical companies will
plunge into even worse economic conditions than they were before the experiment’s
launch.
Metallurgists addressed the government many times with the
request to extend the experiment to metal-consuming industries (machine-building,
shipbuilding, metal-working), which would increase the paying capacity of the domestic
market and reduce the country’s dependence on world markets. The economic experiment has
proved its efficiency in terms of tax regulation and can be a model for the Tax Code. It
is necessary either to include all of the experiment’s regulations into the Tax Code and
give rebirth to the domestic market or prolong the term of the experiment up to the moment
when the Tax Code has been put into effect.
Reference note:
The main factors that contributed to a worsening of
metallurgical companies’ financial state, became prominent in the second half of 2000,
and are still in effect today are as follows:
a worsening of the situation on foreign markets;
a raise of tariffs for electric energy and prices for
natural gas, coal, and other raw materials on the domestic market;
a raise of railway tariffs;
revaluation of the national currency.
The situation on foreign markets accounted for the lion’s
share of losses (49.8%) incurred to Ukrainian metallurgical companies, natural-monopoly
resources – for 36%, railway tariff raise – for 6%. One of the resulting effects was
UAH 135 million not received by the budget in deductions.