Tycoon seeks compromise over control of Kryvorizhstal (06/12/05)

Tycoon seeks compromise over control of Kryvorizhstal

by Olga Nuzhinskaya
Special to The Ukrainian Weekly

KYIV - Powerful Ukrainian tycoon Viktor Pinchuk said he had proposed a compromise with the new government that would allow him to keep control over the country's biggest steel mill, which many say was privatized illegally.

Mr. Pinchuk refused to give any details about his proposals to hang on to the Kryvorizhstal mill, but said the government had not replied. Ukrainian media have reported that the proposal involves paying additional money to settle out of court and retain control of the business.

Kryvorizhstal was sold last year to Mr. Pinchuk, the son-in-law of former President Leonid Kuchma, and fellow tycoon Rynat Akhmetov for $800 million (U.S.). The sale went through despite higher offers from major steel bidders in the United States and Russia, sparking outrage in Ukraine and abroad.

President Viktor Yushchenko, who was elected in January, has characterized the mill's privatization as theft and pledged that his government would return it to the state "at any cost."

The new government has made it clear that it plans to challenge past privatizations, but its mixed messages about how many and its repeated delay in making public which companies will come under fire has spooked potential investors.

Mr. Pinchuk stressed that he had come up with several different proposals to settle the issue, but refused to divulge any because no negotiations are under way.

"I am for a compromise, but not because we did something wrong a year ago," Mr. Pinchuk told reporters on June 2.

Mr. Pinchuk also asked the government and president to avoid Russia's strong-arm approach to settling conflicts with big business, casting his struggle to hold on to Kryvorizhstal in the same light as Russian oil giant Yukos and its demise at the Kremlin's hands.

The government's efforts to take the privatized Kryvorizhstal out of the tycoons' hands has sparked comparisons to the government onslaught in neighboring Russia against the Yukos oil company and its former CEO, Mikhail Khodorkovsky.

Yukos has been torn apart; its main production unit was sold off to satisfy payment of back taxes. On May 31 a Russian court sentenced Mr. Khodorkovsky to nine years in prison after a trial widely viewed as rigged because of Khodorkovsky's opposition to President Vladimir Putin.

"Now it is a very convenient situation for the Ukrainian government to show that it acts in a different way and that it is European," Mr. Pinchuk said. "For the sake of Ukraine, we must reach a compromise."

Kyiv's Economic Court of Appeals on June 2 rejected an appeal from the lawyers of Messrs. Pinchuk and Akhmetov and endorsed the Economic Court's prior ruling that the privatization of Kryvorizhstal was illegal.

The court also froze the mill's shares and banned Messrs. Pinchuk and Akhmetov's consortium, Investment-Metallurgical Union, from all dealings involving Kryvorizhstal property.

But Mr. Pinchuk's lawyer Serhii Vlasenko stated that the Kryvorizhstal owners will appeal to the High Economic Court of Ukraine and "pursue our compromise proposal."

Mr. Pinchuk said that a compromise would improve Ukraine's investment climate and reassure foreign investors. He pledged that he was ready to "sacrifice something, lose something."

The government had earlier reacted coolly to suggestions of an out-of-court settlement. Valentyna Semenyuk, head of Ukraine's State Property Fund, said that no compromise was possible because there were clear violations in the privatization process.

But President Yushchenko later said that he "personally welcomed" the proposal but added that a "peaceful agreement must be based on the court's decision."

While the president came out in favor of a compromise, Ukrainian Prime Minister Yulia Tymoshenko dismissed it.

"A signing of a peace offering seems quite unlikely now that there is a court ruling," she said. "I don't think peace offerings ... make any sense."

Several days later, on June 6, Ms. Tymoshenko said that she had ordered the State Property Fund to prepare a repeat auction of the Kryvorizhstal, which she hopes could take place within a month.

The prime minister promised that there would be no restrictions on who could participate in the new auction. "No exclusions, the former owners can take part in the tender," Ms. Tymoshenko explained.

But it remains unlikely that all the legal issues surrounding Kryvorizhstal will be settled quickly.

Presidential adviser Oleksander Pashaver criticized Prime Minister Tymoshenko's order as too early and said that no serious investors would take part in the tender as the court's proceedings regarding the mill are not yet over.

"This could only make investors laugh," said Mr. Pashaver.

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