Social sphere is a point of particular concern during the process of restructurization of Ukrainian enterprises in compliance with requirements of the market economy.
PLANT WILL SELL A REHABILITATION CENTER AT A REASONABLE PRICE….
Social sphere is a point of particular concern during the process of restructurization of Ukrainian enterprises in compliance with requirements of the market economy.
This sphere includes non-productive facilities of plants that were created for ensuring normal living and activity of their employees, i.e. canteens, shops, apartment houses, hostels, polyclinics, hospitals, so-called culture clubs, stadiums, recreation departments, camps for children, rehabilitation centers, sanatoria, prophylactic medical institutions, auxiliary farms, kindergardens and schools.
In the times of planned economy, social infrastructure of an enterprise had an impact on a citizen from the moment he was born till his death. Enterprises were forced to perform an unusual for them function of distributing material resources. This stimulated development of dependency feeling and social passivity of the plants’ employees. Enterprises of the military sector, metallurgical mills and natural monopolyst enterprises possessed the largest social infrastructures (for instance, Ukrzaliznytsya (Ukrainian Railroads).
Enterprises belonging to the social sphere incurred the greatest losses as a result of the economic crisis. Entities of social and cultural sphere witnessed sheer degradation, since they did not receive support from plants and did not gain any profit themselves.
Plant canteens with their rather power consuming production were the first to react to the crisis. Only a few enterprises were able to continue supporting their canteens, since the prices for electric power and foodstuffs skyrocketed. A great number of such canteens were simply closed or degenerated into banal cafe-bars with alcoholic drinks in the menu.
On the other hand, over the years of economic recession in Ukraine, objects of social sphere, which used to be a strong component of the plant’s economy, turned out to become a rock on the neck of enterprises. Even when an enterprise still manages to keep its social sector, expenditures for that become a heavy burden laid on the product’s prime cost and negatively affect competitive ability of the product on the market.
Along with that, a passenger travelling by a railway expess and enjoying its modest comfort has no idea that, by paying an unreasonably high price for the ticket, he is paying not only for the railway transportation, but also for accomodation facilities and hospital for railroad employees, camp for their children and even volleyball team of Ukrzaliznytsya, though he may never know about its existence.
Experience of revival at Ukrainian enterprises showed that their restructurization should include elimination of secondary and non-productive expenditures (including expenses for supporting the social sphere) with the purpose of making the products cheaper and their competitive ability higher.
For the second consecutive year, international consulting company Barents Group with support of the United States Agency for International Development (USAID) administers "Restructurization of Ukrainian Enterprises" project in Ukraine. Experts with the project, who have experience in anti-crisis planning at enterprises in many countries of the world, assist dozens of Ukrainian enterprises in solving complicated problem of restructuring their social assets.
The city will take care about accomodation facilities
According to Vasiliy Ryabov, a counsellor with the project, social objects that belong to any plant can be divided into two groups. The first one includes objects that are not owned by the plant, i.e. accomodation facilities, kindergardens and schools. These establishments are not included into the enterprise’s authorized capital; they are owned by the state and were passed for management by the enterprise. The company must transfer them to ownership of municipal authorities of the place where the plant is located.
The second group consists of facilities, which are included into the statutory fund of and are owned by the enterprise: culture clubs, polyclinics, hospitals, recreation departments, rehabilitation centers and prophylactic medical institutions. These are the only establishments plant may deal with at its own discretion.
The process of passing over accomodation facilities, schools and kindergardens to municipal authorities started a while ago. However, it was progressing rather slowly. That is why, the Decree of the President of Ukraine "On speeding-up of transfer of social objects to municipal ownership" appeared, and Verkhovna Rada (Supreme Council) passed a corresponding Law on its basis in December 1999.
Passivity in transfer of the objects of social sphere to the city authorities stermed from the parental traditions, which were still alive: "We have to take care of our employees", though a routine care about social assets was always a headache for the management of plants and a reason for great financial expenditures .
Local authorities are also reluctant to receive enterprises’ accomodation facilities, which are in poor condition, since they require much funding, and the engineering infrastructure of these facilities (boiler houses and power networks) is often in bad condition as well.
Nonetheless, not every top official in the city hall realizes that keeping accomodation facilities is the function of the city. The city should be interested in assisting enterprises and taking away the unnecessary load from them. Having got rid of this burden, an enterprise would receive an opportunity to earn more money, wages would go up, and payments to the city budget would increase. Citizens’ higher purchasing capacity will stimulate creation of new workplaces in the service sphere – the well-known "multiplier effect " would work out in the city’s economy.
This is typical especially for enterprises located in small towns, where the whole borough depends on whether the plant survives or not (for instance, mines in small Donbass villages, former military complex enterprises, and now also machine building and instrument engineering plants located in district centers, companies Linos in Lisichansk, Naftochemic Prikarpatya in Nadvirna, Oriana in Kalush and even Nikolaev Shipbuilding Plant).
However, making an agreement between the plant’s management and local authorities on passing over accomodation facilities does not solve all the problems. Engineering infrastructure of the accomodation sector is under surveyance of the regional municipal organizations, and sometimes it is quite difficult for an enterprise to achieve an agreement with them. One of the typical requirements set by municipal services is as follows: prior to transfer of accomodation facilities and municipal networks to the town, significant repairs must be made at the plant’s expense. However, it is often very difficult for the plants to find enough funds for that.
Moreover, some absurd situations take place. An enterprise in Poltava provided heating to some accomodation facilities of the city. The city authorities do not allow it to quit this alien for the enterprise activity, thus pushing the plant to bankrupcy.
Summarizing the accumulated experience, it should be noted that this process is long and full of compromises. Most problems are of the psychological character and can be regarded as the socialist-era vestiges of parentalism and dependence.
Transfer problems could be solved easier if both parties were ready to meet and keep in mind their mutual interests. City authorities must take the responsibility of plant’s social sphere. The plant, in its turn, should assist the city in this, at least at the beginning (for example, in power network repairs). It is also worth mentioning that the Law provides for a step-by-step transfer of social assets to the city as regards the key financial aspect: plants should take 30% of all expenses related to its former accomodation facilities till the end of the current calendar year.
Some of the best successful examples of passing over accomodation facilities of enterprises to municipal authorities are Chasov-Yar Refractory Plant and OJSC DonCement (Donetsk region), Kamenka Machine Building Plant (Cherkassy region) and some others.
Buy a culture club!..
Objects of the social sphere that remain in the plants’ ownership will face a difficult fate in most cases – just a few plants are able to painlessly incur expenses on their maintenance nowadays.
First of all, managers of an enterprise do not imagine how expensive a culture club or children’s camp really is. Therefore, estimation of the actual amount of expenditures for the social sphere should be the first step of the management’s program of actions.
Then, an enterprise must determine priorities in its social sphere: which objects are necessary, and which can be refused. Good results may be obtained by interviewing the personnel.
Absolute refusal of the whole social sphere is not on the agenda. It is possible that this particular culture club or children’s camp is badly needed. The management has to carefully calculate and assess everything.
The next step is taking decision on each object. There are different types of decisions: preservation of the object under the present conditions of operation, its sale, transfer to municipal ownership, establishment of a subsidiary company on its basis, partial alienation (for instance, one camp or rehabilitation center owned by two or more enterprises) or closing.
The choice depends on political will of the plant’s management and its actual financial capacities. A foreign company might be able to keep, for example, a yacht club on their own account, whereas, for Ukrainian companies, the question of survival on the market is the most topical one today.
There is a plant in one of the regions of Ukraine, which uses its culture club only once a year to hold annual meetings of shareholders. Although, keeping the club costs the plant some UAH 100,000 per annum.
Another example – OJSC Leninskaya Kuznitsa, Kiev, reorganized its culture club into a subsidiary company, which earns money for its maintenance independently.
Barents Group has also mentioned an example of obviously one of the most successful restructurizations of the plant’s recreation facility in Ukraine. This is Sevastopol Marine Plant. As a result of restructurization, a camp for children owned by the plant and located in a beautiful area on the south coast of Crimea was turned into a subsidiary company and started to operate independently. Owing to a successful reorganization, the camp became one of the sources of income for Sevastopol Marine Plant, along with ship repair facilities and Avlita new private port.
A special decision should be taken on plant’s auxiliary farming facilities. As a rule, unprofitable farms were thrust on the plants as auxiliary economies. They have not become profitable over the period of long-term economic depression in the agro-industrial complex. And now, when the land tax has increased, plant’s management should think about advisability of keeping these auxiliary farms on the enterprise’s balance.
From the financial point of view, social assets also make up the enterprise’s fixed assets, as well as equipment, premises, machines etc. Their restructurization must be a usual business, free from ideology.