Cabinet acts to annul sale of Kryvorizhstal (02/13/05)

Cabinet acts to annul sale of Kryvorizhstal

by Olga Nuzhinskaya
Special to The Ukrainian Weekly

KYIV - Ukraine's new prime minister, Yulia Tymoshenko, ordered the government during its first meeting to begin the process of returning Kryvorizhstal to state control so that Ukraine's largest steel mill can go back on the market at a higher price.

"All the documents that the former government approved illegally have been canceled," Ms. Tymoshenko said after the February 5 meeting. "This means that we have begun the process of returning Kryvorizhstal to be state property."

Preparations will then be made to resell the mill during an open, transparent auction, the prime minister said. She pledged that the process would proceed as quickly as the law allowed.

The order by Ms. Tymoshenko is the latest in a series of maneuvers surrounding the Kryvorizhstal steel mill, which was bought at a highly understated price last year by a consortium that included the son-in-law of former President Leonid Kuchma.

Many Ukrainians consider the deal one of the most corrupt of this country's post-Soviet privatization deals.

A Ukrainian court had already frozen shares in Kryvorizhstal, and newly elected President Viktor Yushchenko repeatedly vowed to re-examine the deals in which prize industries were sold at unexpectedly low prices. However, these actions have elicited fears that the move could devolve into political revenge and thereby scare off investors.

Viktor Medvedchuk, former President Kuchma's powerful former chief-of-staff, warned that, if the government appeared to be on a witch-hunt, "the investment climate could significantly deteriorate."

Kryvorizhstal was sold last year for $800 million (U.S.) to coal and steel tycoons Viktor Pinchuk, the son-in-law of President Kuchma, and Rynat Akhmetov, who reportedly was a contributor to the campaign of presidential candidate Viktor Yanukovych. Analysts have said the mill was worth twice the winning bid.

Other bidders at the auction of Kryvorizhstal, including Russia's OAO Severstal and a consortium of LNM Group and United States Steel Corp., cried foul, claiming they had offered more than Messrs. Pinchuk and Akhmetov.

But Mr. Pinchuk said the government's decision to choose his consortium "was a strategic decision ... in the interest of the Ukrainian economy." He argued that "The price paid for Kryvorizhstal is two times higher then the sum paid for all the other metallurgical factories in Ukraine."

A peculiar tender requirement that successful bidders must have produced at least 1 million tons of coking coal annually in Ukraine during the past three years shut the door to all but a handful of homegrown companies.

The sale sparked outrage in Ukraine and abroad, and is currently being challenged by a Ukrainian parliamentary commission in the courts. "Without competition, without a realistic price ... I don't consider that privatization," said Prime Minister Tymoshenko.

Kryvorizhstal produces about 20 percent of Ukraine's steel and had a pretax profit of about $300 million in 2003.

Speaking during the vote in the Verkhovna Rada at the time of the appointment of a new government, President Yushchenko assured lawmakers: "All those enterprises that were stolen will be returned to the state, beginning with Kryvorizhstal."

Mr. Pinchuk stated that he was not "concerned or worried" about Kryvorizhstal's possible reprivatization, and said that he would accept any ruling, "provided the court acts according to law." He added that he also hopes that President Yushchenko will "accept any court decision."

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