RUSSIAN IMPORT RESTRICTIONS PAVE WAY FOR TAKEOVERS OF UKRAINIAN STEEL PLANTS.

Publication: Monitor Volume: 7 Issue: 74

The Russian government has arm-twisted Ukraine into accepting stringent limitations on steel pipe exports to Russia, the main market for that Ukrainian product. Protection of Russian steel pipe producers is only one motivation, and perhaps not the principal one, behind Moscow’s action. The apparent broader aim is to push Ukraine’s steel industry to the brink of bankruptcy and render the choice plants vulnerable to Russian takeover bids in a follow-up stage.

In a tense, ten-hour negotiating session in Moscow on April 10, Prime Ministers Mikhail Kasyanov and Viktor Yushchenko agreed that Ukraine would limit steel pipe exports to Russia to 485,000 tons this year. The figure matches Moscow’s initial negotiating gambit, which Kyiv had sought in vain to change. Russia maximized the pressure on the Ukrainians by raising two unrelated issues: that of Ukrainian arrears for gas and that of the Russian goal to link up the Russian and Ukrainian electrical power systems. By assenting under pressure to the restrictive quota for steel, Yushchenko and President Leonid Kuchma gained a temporary reprieve on the debt front. Kuchma had urged that assent before Yushchenko’s Moscow visit and approved the result afterward. Deputy Prime Minister Oleh Dubyna, like Yushchenko, opposed the restrictive quota, but ultimately acceded under pressure. Dubyna cited the risk of losing some 50,000 jobs in the steel industry if Ukraine rejects Russia’s demand.

That linkup would further increase Ukraine’s already heavy dependence on Russian energy supplies. Kuchma reluctantly supports the move. Yushchenko opposes it. Moscow has directed the restrictive measures solely at the Ukrainian steel industry: Other foreign suppliers to Russia are not affected. According to Russian statistics, Ukraine exported some 770,000 to 790,000 tons of steel pipe of various types to Russia in 2000. The figure amounts to a 17-percent share of the Russian market, but makes up approximately 60 percent of Ukraine’s total steel pipe exports of 1.25 million tons in 2000. Meanwhile, those exports form a perennial object of antidumping investigations in Western Europe and North America–a situation which further increases Ukraine’s dependence on the Russian market.

In February of this year, Russia’s Pipe Producers Fund–the relevant industry lobby–asked the government to impose either high tariffs or quantitative limitations on Ukrainian steel pipe of all types. The state-controlled Gazprom company, however, requested a partial exemption for Ukraine’s Khartsyz plant, producer of anticorrosion coated, large-diameter pipe of up to 1,420 millimeters –a type Gazprom needs, and the production of which has long posed difficult problems for Russian industry.

Last month, the Russian government publicly demanded that Ukraine slash steel pipe exports to Russia to 480,000 tons annually, effective immediately. Failing Ukrainian compliance, Moscow threatened to impose a 40-percent tariff surcharge on Ukrainian steel pipes, with the partial exception of Khartsyz which faced a 20-percent surcharge. The surcharges would instantly price most types of this Ukrainian product out of the Russian market. The quantitative limitations, however, could usher in a period of agony for the Ukrainian plants, starving them of reinvestment funds and reducing their market value, preparatory to takeovers on the cheap by Russian oligarchic capital. Such takeovers can even be portrayed as a rescue as a way to make them look politically acceptable in Ukraine.

The partial reprieve on Khartsyz is conditional on the sale of part of its stock to Russian interests. Failing that, the plant would come under the full brunt of Russian import restrictions. The plant, situated in the Luhansk Region, with an output capacity of 1.5 million tons annually, is 77 percent state-owned and tops the list of plants subject to privatization. The Ukrainian authorities are now seeking a privatization method which would keep the controlling interest in Ukrainian hands.

Russian President Vladimir Putin sought Kuchma’s consent to a Russian takeover of Khartsyz when the two presidents met in February in Dnipropetrovsk. But Russian capital is interested in a number of Ukrainian steel plants. The Southern Pipe plant in Nikopol, for example, is the sole large-scale Ukrainian producer in Ukraine and one of the leading producers in the CIS of steel pipes for geological prospection equipment, high-pressure boilers and pumps, and compressor installations. According to its management, the Russian import restrictions could be fatal for the plant. Once deprived of its main market, the state-owned operation would be difficult to privatize with bona-fide Western capital, and would lay wide open for acquisition by Russian capital on terms that the latter could dictate.

The rescue of this Ukrainian sector could theoretically be achieved through a westward reorientation of exports. That option seems, however, unrealistic and probably unavailable because of protective measures in the West itself. Even outside the European Union, national steel producers in some of the former Comecon [defunct, Soviet-led economic bloc] countries seek to keep that sector alive through protectionism. Ukraine’s neighbors Romania and Slovakia, for example, have mainly for that reason sharply curtailed their traditional import of Ukrainian steel products.

Planned acquisitions of Ukrainian steel plants form a part of Russia’s broader political strategy toward Ukraine. With Kuchma politically enfeebled and Yushchenko under attack by Ukrainian oligarchic groups out of the president’s control, Russian capital has acquired several choice plants in Ukraine in recent months. If the trend continues, then–as the Ukrainian commentator Vyacheslav Pikhovshek recently remarked–it may not much matter any longer for whom the Ukrainians cast their ballots in elections (UNIAN, March 16-17, 23, 29, April 5-6, 11-15; Izvestia, April 12; Segodnya (Kyiv), April 13; see the Monitor, January 22, February 7, 15-16).

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