Billionaire Pinchuk promotes Ukraine's membership in EU

by Zenon Zawada
Kyiv Press Bureau

YALTA, Ukraine - To learn that Viktor Pinchuk is among Ukraine's biggest advocates for European Union (EU) membership may come as a surprise, considering he worked against the Orange Revolution.

Yet, for the past three years, the billionaire magnate has hosted and footed much of the bill for the lavish Yalta European Strategy (YES) conference, inviting leaders and experts from the world over to brainstorm over Ukraine's Westward progress.

Mr. Pinchuk tells reporters he is driven by the desire to see Ukraine assimilate European values and standards.

"I am not sure that Ukraine will be an EU member in 10 or 15 years," he said. "But we need these reforms - democracy, a market economy and rule of law."

Herein lies his deeper motivation - his vast industrial empire stands to benefit from enormous gains as a result of such reforms and closer ties to Europe.

Interpipe Corp. is among the world's largest pipe producers, having secured 4 percent of the world's seamless pipe market, 10 percent of the global market in railway wheels and 11 percent of the manganese ferroalloys market, according to company information.

While he sells the majority of his pipes to former Soviet states, Mr. Pinchuk wants to sell more on the European market, where Interpipe currently sells about 20 percent of its product, said Andrii Gostik, an analyst at the Kyiv-based Concorde Capital investment bank. Interpipe has already established offices in Switzerland.

"Europe is a high-end market, and Interpipe's share is less than it could potentially be," Mr. Gostik said. Mr. Pinchuk's ability to sell more in Europe is limited by trade barriers established by the EU.

"EU membership would open up more markets than the World Trade Organization and remove restrictions that are currently in place," Mr. Gostik said.

Mr. Pinchuk's ties to European business aren't limited to selling metal products.

Ukraine's adoption of Western business and legal standards would enhance the attractiveness of his other assets to foreign clients and investors.

As a foremost example, Mr. Pinchuk is currently shopping around one of Ukraine's largest banks, the $1 billion UkrSotsBank, to Western buyers.

The West is also important because Interpipe is also likely to take its shares public in the next decade, either on the London or New York stock exchange.

When chatting with reporters at the YES conference on July 14, Mr. Pinchuk spoke as a progressive reformer, stressing the need for new leaders in Ukrainian politics who bring fresh approaches to resolving problems.

In its current situation under its current leaders, Ukraine is not progressing, but simply moving from one crisis to another, he said. The best coalition government would consist of both Our Ukraine and the Party of the Regions, he noted, an alliance that would unify the nation and find common ground between the country's east and west.

"Any one-color coalition will not be effective or very stable," Mr. Pinchuk said.

His political party in the March 2006 elections, Viche, was an attempt to change the dynamics of Ukrainian politics from its current east-west rivalry.

Marketed as a progressive party representing the interests of Ukraine's small but fledgling middle class, Mr. Pinchuk said Viche's driving idea was to call new leaders together to craft a plan and vision for how Ukraine would position itself in the world economy.

Conflicts over North Atlantic Treaty Organization (NATO) membership and the Russian language could be easily resolved in referenda instead of languishing in the current political quagmires.

The viche party finished in ninth place and earned 441,000 votes, gaining the most support in Ukraine's biggest cities - Kyiv, Kharkiv and Dnipropetrovsk.

"Conditions have to be created for the coming of a new generation and the project of building a new country should be realized," said Mr. Pinchuk. "So our politicians should speak exactly about this, and not about positions. It shouldn't be a battle for government. It isn't interesting and it isn't romantic."

Whether reflective of his true beliefs or an attempt to create a new image, calls for reform and democratic values belie Mr. Pinchuk's past.

While serving in the nation's Parliament, he belonged to factions that supported former President Leonid Kuchma and his corrupt administration. No one doubts that his courtship and marriage in 2002 to Mr. Kuchma's daughter, Olena Franchuk, enabled him to enhance his personal business interests.

His first bonanza arrived in 2003, when he purchased a majority share of the lucrative Nikopol Ferroalloy Plant for $77 million. Its current value has been estimated as much as $1 billion.

At another rigged auction, Mr. Pinchuk teamed up with Donetsk billionaire Rynat Akhmetov in snatching up the Kryvorizhstal steel mill for $804 million at a time when foreign competitors were making billion-dollar offers.

Mr. Pinchuk opposed the Orange Revolution because the success of his businesses depended on his relations with Mr. Kuchma. His television networks smeared Mr. Yushchenko during the campaign.

It was only when the momentum shifted in Mr. Yushchenko's favor that Mr. Pinchuk began to shift his political stance with the changing tide, declaring in a Kyiv Post interview that he himself would have joined the national revolt if he were in his youth (he is 45).

Mr. Pinchuk's friends, including former Polish President Alexsander Kwasniewski, are quick to point out that the billionaire was thinking along progressive lines before the Orange Revolution, having launched the first YES conference in July 2004.

Though he opposed the Orange Revolution when it erupted, he now says that Ukraine is better off for it. In his mind, the presidential elections and the revolution were two separate things. "We can be proud of the social phenomenon," he said. "It was a display of the society's emotions."

Not only is Ukraine better off after the revolution, but so is Mr. Pinchuk.

Ukraine's new luster has enabled his business assets to skyrocket in value in the months since. He is now valued at $3.7 billion, making him the country's second-wealthiest man following Mr. Akhmetov.

Mr. Pinchuk told reporters that he continues to profit from his business and has even been recognized by the Ukrainian government as among the nation's best taxpayers.

His businesses have become more transparent, reflected in the fact that his employees receive all their salary on the books - currently a rare practice in Ukraine.

"No man in the world won't pay more (taxes) than what circumstances demand, especially in the absence of distinct laws," Mr. Pinchuk said.

"But gradually you begin to understand that it is more favorable to pay more because it is more favorable for you to become transparent. On the world markets, your capitalization will be higher and you will be worth more. As a result, you will be richer when you pay more taxes in the correct system and the correct legislation," he explained.

Not everything Orange is good, however.

Mr. Pinchuk is a fierce opponent of fellow Dnipropetrovsk native Yulia Tymoshenko, who led the government charge to reprivatize Kryvorizhstal and repossess Mr. Pinchuk's Nikopol Ferroalloy Plant before President Viktor Yushchenko sacked her in September.

He accused of her trying to shift control of the Nikopol plant from Mr. Pinchuk to his Dnipropetrovsk rival Ihor Kolomoiskyi, currently a minority shareholder in the plant.

Media reports later alleged that in exchange for control of Nikopol, Mr. Kolomoiskyi planned to sell Ms. Tymoshenko a minority stake in television network 1+1, a charge she has vehemently denied.

It was a make mistake to sell Kryvorizhstal to foreigners because Ukraine lost the chance to become a global player in the metallurgical industry, Mr. Pinchuk said. Kryvorizhstal could have remained a state-owned company that could have partnered with private firms and competed on the global steel market, he added.

Instead, the Ukrainian government demonstrated no national strategy in its decision to sell to Mittal Steel Co.

"Why did Lakshmi Mittal pay more? Because today's price is not as important as his long-term strategy for decades," Mr. Pinchuk said. "He sees that it's necessary to create a player who makes 100 million tons, then 150 million, then 200 million tons of steel. Why? Because the global economy will develop in this way."

Like virtually all Soviet citizens, Mr. Pinchuk came from humble beginnings. He worked as a metallurgical engineer in Dnipropetrovsk. And, like Ms. Tymoshenko, Mr. Pinchuk's first fortune came from trading and importing Russian and Turkmen natural gas.

The profit enabled him to begin acquiring factories such as the Nizhnedniprovskyi Tube-Rolling Plant, the Novomoskovskyi Tube-Rolling Plant and the Nikopol plant, among others.

It was his success in industry that enabled him to launch businesses in Ukraine's media, creating an empire that includes three national television networks and a leading daily newspaper, Fakty i Komentari.

His biographies state that his family faced discrimination by Soviet authorities because they were Jewish, having been denied the opportunity to study in Kyiv.

Mr. Pinchuk is currently active in the Dnipropetrovsk Jewish community and is financing a documentary film on the Holocaust along with Steven Spielberg's Shoah Foundation.

A collection of Jewish eyewitness accounts of the Holocaust in Ukraine, the film will premiere in September on the 65th anniversary of the Babyn Yar massacre, where Nazis executed about 34,000 Jews in September 1941. By the end of the German occupation, over 150,000 Jews, Ukrainian nationalists, POWs and others were killed at Babyn Yar, a ravine in Kyiv.

Copyright © The Ukrainian Weekly, July 30, 2006, No. 31, Vol. LXXIV

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