Before November 1st, 2016, the government will compile a list of agricultural enterprises to undergo financial recovery procedures. Otherwise, they would be unable to repay due debt independently. This measure aims to encourage ownership change at the loss-making enterprises; however, it may lead to no avail if the state actively interferes with the activities of new owners.
According to the Presidential Decree No 253 of July 4th, 2016, before November 1st, 2016 the government will have to put a list of agricultural enterprises to undergo pre-trial financial recovery procedures and a list of enterprises to undergo bankruptcy procedure. Financial recovery envisages instalment payment of overdue debt to the budget, to the Social Security Fund, fines and penalties for 3 to 5 years. Overdue energy debt to be repaid in equal instalments by December 31st, 2018, and budget loans and accrued interest and penalties on loans - in three years. No interest is envisaged for the deterred payments. In addition, these organisations will be entitled to a tax break.
Terms have been set for bankrupt enterprises to complete all regal procedures in connection with the sale of property and closure of activities.
The said measures will be implemented in order to remedy the deteriorated financial health in agriculture. As of May 1st, 2016, 73.7% of agricultural enterprises were unprofitable without the state support. Agriculture is a chronic non-payer for energy, many agricultural enterprises do not pay salaries on time and their overdue loans have exceeded 8.5%. That said, agriculture receives soft loans at the lowest interest rate among all economic sectors - in May 2016, the average interest rate was 18.3% per annum. Most agricultural enterprises are unable to repay their debt independently - their debt is 5.8 times of the debt to agriculture.
The new regulation opens new opportunities for agricultural enterprises. The fact that they may be rented out or put for asset management would boost investors’ interest in agriculture. In addition, if an agricultural manager manages to improve financial health of an enterprise and repay its debt, he or she will be entitled to up to 25% of its shares.
The key issue is about how all these measures will be implemented. Since there are many restrictions, such as the requirement to preserve the speciality of an enterprise, its agreements and the investment volume, only a few businesses are likely to be interested in acquiring unprofitable agricultural enterprises. In addition, the state has a malicious practice of interfering with the activities of organisations, which were privatised. If such practice continues, the efficiency of the said measures would be reduced to zero, and financial rehabilitation would become a debt write-off at the expense of the state budget and creditors of agricultural organisations.
Overall, the state has decided to kill off hopelessly unprofitable agricultural enterprises through bankruptcy. Efficiency of the pre-trial financial rehabilitation at agricultural enterprises is likely to depend on the nature of relations between the state and the new owner if the state continues interfering with the management, investors are unlikely to show any interest.
