By Matthias Williams
KIEV (Reuters) - Ukraine has set too high a reserve price for its flagship privatisation of Odessa Portside Plant (OPP) that could deter reputable foreign investors from bidding, the IMF and EBRD told the government in a letter seen by Reuters on Thursday.
The auction of OPP, the first major privatisation since a 2014 uprising brought in a pro-Western leadership, is seen by Ukraine's allies as a test of its ability to attract vital foreign investment and improve transparency in line with a $17.5 billion aid-for-reforms programme from the International Monetary Fund.
In their letter to Prime Minister Volodymyr Groysman, the lenders said the valuation process - which set a reserve price of $521 million for auctioning the state fertiliser group - fell short of international standards and risks damaging Ukraine's image.
"We are concerned that many reputable international investors could simply decide to not even investigate the opportunity," wrote Jerome Vacher and Francis Malige, regional representatives for the International Monetary Fund and European Bank for Reconstruction and Development.
"Should this be the case, it would negatively affect the trust of foreign investors in the next round of privatisation of OPP, as well as broadly damage Ukraine's image and its potential attractiveness for foreign direct investments," the letter, dated May 27, said.
The IMF and EBRD "strongly encourage" the government to reconsider the valuation, it said.
Groysman's spokesman said the price had been determined in accordance with Ukrainian laws before the election of the current government, which came to power in April.
"The price was agreed at a government meeting attended by representatives of the EBRD and IMF," said spokesman Dmytro Stolyarchuk. "The government adopted transparent privatisation conditions, which in particular involve the participation of no fewer than two contenders, including one foreign (contender)."
The State Property Fund, which is responsible for managing the sale, said it regarded the valuation as fair.
"The Fund thinks the price is objective. From our point of view, the price is not too high. The valuation was carried out using three methods and the price was based on their average," a spokesman said.
The sale of OPP and other state firms has been repeatedly pushed back. This has concerned potential foreign investors, some of whom have said they had begun to question Ukraine's commitment to the process.
While no auction date has yet been set for OPP, the State Property Fund has previously said it could be put on the market this month.
Transparency has been a top issue because of fears that the sales could strengthen the control of Ukraine's oligarchs over strategic industries.
The new government predicted that it would raise $778 million through privatisation last year, but only $7 million has been made so far, State Property Fund data shows.
(Addtional reporting by Pavel Polityuk; writing by Alessandra Prentice editing by David Stamp) OLGBBUS Reuters UK Online Report Business News 20160602T104314+0000