Ukrainian Prime Minister Yulia Tymoshenko’s cabinet has decided to re-privatize Ukraine’s largest steelworks, Kryvorizhstal, ending months of uncertainty. The government of President Leonid Kuchma sold 93% of Kryvorizhstal’s shares to the Investment Metallurgy Union (IMS), controlled by Kuchma’s son-in-law, Viktor Pinchuk, and Donetsk tycoon Renat Akhmetov for $800 million in June 2004. The IMS bid less than British LNM, the Russian Severstal, and Yevrazholding, but the government manipulated tender conditions in such a way that only IMS could meet them. During last year’s presidential campaign, Viktor Yushchenko promised to revisit Kryvorizhstal’s privatization. On April 22 the Kyiv Economic Court ruled on a lawsuit filed by the Prosecutor-General’s Office that Kryvorizhstal’s privatization was illegal. The IMS filed an appeal, but the Kyiv Economic Court of Appeals rejected it on June 2.
IMS does not agree with the judicial ruling. It plans to take the issue to the Supreme Court and to the European Court at The Hague if the government does not agree to settle the issue out of court through an “amicable agreement.” Ukrayinska pravda and Zerkalo nedeli have reported that Pinchuk is ready to return 50% of Kryvorizhstal’s shares to the state without compensation, leaving 43% under his and Akhmetov’s control. If the government accepted this deal, it would not have to return the $800 that the IMS originally paid for Kryvorizhstal, and it would have its own share of the dividends. IMS would retain de facto control of Kryvorizhstal, as the size of its share package would allow it, under Ukrainian laws, to block any government attempts to replace the IMS-controlled management at Kryvorizhstal. Another possibility proposed by Pinchuk involves the IMS simply paying more for the 93% stake.
Tymoshenko, however, has firmly rejected any possibility of an amicable agreement with Pinchuk and Akhmetov. “In accordance with the court’s verdict, Kryvorizhstal will have to be put up for a brand-new privatization tender,” she told Ukrayinska pravda on June 3, adding that potential investors from all over the world should be invited. “A new tender and nothing else!” she said. Tymoshenko’s position has not been the most radical in the Ukrainian government. Socialist Valentyna Semenyuk, who heads the State Property Fund (SPF), has argued that Kryvorizhstal should be simply re-nationalized. On June 6, Tymoshenko instructed the SPF to come up, within a month, with a package of documents to re-privatize Kryvorizhstal at a new tender. Professionalism would be the only condition for tender participants, she said.
On June 11 the Cabinet of Ministers met to decide the fate of Kryvorizhstal and ruled that the 93% stake sold to the IMS a year ago should be returned to the state, and then put up for a repeat tender. The government expects Kryvorizhstal to be re-sold for more than $2 billion, according to Tymoshenko. Somewhat earlier Yuriy Yekhanurov, a former head of the SPF and currently governor of Dnipropetrovsk region, where Kryvorizhstal is based, forecast that the government might raise as much as $4 billion from selling Kryvorizhstal. Tymoshenko said that the government would install its own temporary managers at Kryvorizhstal for the period of change of ownership. At the same meeting, the Cabinet lifted the ban on the privatization of strategic assets. The ban was introduced earlier this year, de facto freezing privatization in the country. This was the main formal obstacle to re-selling Kryvorizhstal.
Uncertainty over Kryvorizhstal has been one of the main factors discouraging potential investors from coming to Ukraine after the Orange Revolution. If the government succeeds in re-selling Kryvorizhstal, investor trust may be restored. But Kryvorizhstal’s re-privatization may turn out to be not as smooth as Tymoshenko’s Cabinet expects. On June 9 IMS issued a statement warning, “If any of Kryvorizhstal’s potential buyers should decide to buy shares in it from the state, the IMS will be forced to take the buyer to court.” Also, the government has made it clear that it would compensate the IMS for Kryvorizhstal only after the company has been re-sold, as there is currently no money for this in the state coffers. But this may not be quite legal. Commenting on the Kryvorizhstal issue, Viktor Medvedchuk, who headed the presidential office under Kuchma, warned potential investors against buying into Kryvorizhstal, saying that they may eventually lose in courts. He quoted Article 41 of the Ukrainian Constitution, which stipulates, “Private property may be confiscated only after its value has been fully compensated to the owners.”
(Era radio, May 27; UNIAN, May 30; Ukrayinski novyny, June 6; Ukrayinska pravda, June 7, 9,10; Zerkalo nedeli, June 11; Interfax-Ukraine, June 9, 12; Channel 5, One Plus One TV, June 12)