Supreme Court puts an end to appeals by Pinchuk to maintain control of lucrative ferroalloy plant
Ukraine’s Supreme Court has put an end to appeals by tycoon Viktor Pinchuk to maintain control of the lucrative Nikopol Ferroalloy Plant, which he obtained during controversial tenders in 2003, when his father-in-law, Leonid Kuchma, was still the country’s president.
The matter, however, may ultimately be decided in Strasbourg, France, as Pinchuk’s lawyers are vowing to appeal to the European Court of Human Rights.
On Jan. 20, Ukraine’s highest court cleared the way for the State Property Fund (SPF) to repossess a 50-percent +1 share stake in the plant, backing similar rulings made in 2005 by the Supreme Economic Court and lower courts, which cited violations in the 2003 tender.
The Pinchuk-controlled Prydniprovya Consortium acquired a majority stake in the plant through an auction in 2005, paying a total of $80 million. The heads of Dnipropetrovsk-based Privatbank offered more than $100 million for the plant, but were disqualified from the tender under what they claim were controversial terms.
In 2003 and 2004, when Kuchma was still in power, Ukraine’s Supreme Court twice rejected appeals against the sale of Nikopol, the judicial process took a 180-degree turn after Viktor Yushchenko became president at the beginning of 2005, to the disadvantage of Pinchuk.
Iryna Nazarova, a lawyer who represents the interests of the SPF, said the main legal problem with the sale was procedural errors in the tender process. For example, she said Interpipe neglected to submit important supporting documentation.
Lawyer Oleksy Reznikov, who represents the interests of the Prydniprovya Consortium, said it wasn’t the buyer who was at fault but the now former government officials who conducted the tender. “This is the main, key argument,” he told the Post, adding that that his client had paid eight times more than the book value of the shares at the time.
Almost immediately after the Supreme Court had announced its decision, Reznikov announced that Prydniprovya would contest the ruling at the European Court of Human Rights in Strasbourg.
“Starting tomorrow, we will begin preparing a draft appeal,” he told journalists on Jan. 20.
“There have been five precedent cases with the court that are analogous to this one,” he told the Post, estimating the chances of a victory in Strasbourg as “very high”.
As of Jan. 25, the shares lay frozen at Ukrsotsbank, also owned by the Ukrainian tycoon. According to Nazarova, Prydniprovya is holding up the transfer of the shares to the SPF using various legal tricks.
Prydniprovya began appealing the 2005 court decisions in succession, but the Supreme Court was reluctant to take on the case. Justices finally agreed to review it at the end of November, but only got down to work on Jan. 17.
And due to various legal formalities, it might take the state a month or two to actually take possession of the share package, according to Oleksandr Ryabchenko, a privatization expert.
All the while, Pinchuk will continue to receive considerable profits.
“The Nikopol plant is very profitable,” said Ryabchenko.
“It must bring in around $30 million per month in revenues, and costs are not very high.”
Nikopol earns hard export dollars, satisfying 11 percent of the world market for supplies of ferrosilicon. Even if the Ukrainian tycoon loses his controlling stake, he will still retain another 23 percent share that he obtained through other transactions. The Privatbank group, co-owned by Ukrainian tycoons Ihor Kolomojsky, Hennady Bogolubov and Oleksy Martynov, controls a quarter of the plant’s shares.
Privat has expressed interest in increasing its share in the ferroalloy plant.
When the government started challenging Pinchuk’s acquisition of the plant in the course of its privatization reviews last year, then Prime Minister Yulia Tymoshenko was accused of lobbying their interests.
As for the workers at the Nikopol plant, many continue to call for a peaceful solution between the SPF and Prydniprovya.
“We consider stability of the plant’s privatization results in 2003 as the basis for the plant’s development and the growth of the working team’s prosperity,” reads a statement released by the workers to the media.
This isn’t surprising, according to Ryabchenko, because although the state may have lost out on the sale of the plant, the workers have come out better. Pinchuk raised their salaries “by a lot,” said the analyst.
“Salaries at the plant are very high, some of the highest for any industry in Ukraine. They know that state plants generally pay less and that another private owner might end up changing employment conditions,” Ryabchenko said. As of Jan. 25, it remained unclear whether the government planned on reselling the plant this year. Last year, Tymoshenko said that the plant could sell for as high as $1 billion in a repeat privatization tender.
