A local court in Kyiv has suddenly restarted an eight-year-old trial on the privatization of Kryvorizhstal, which could potentially take it out of the hands of a foreign investor and return it to a company that two well-connected oligarchs had established to purchase it during the first state sale.
If the Kyiv Commercial Court takes the side of Investment-Metallurgical Union, the plaintiff appealing the steel mill’s 2005 reversed nationalization, it would negate what was viewed by many as Ukraine’s only transparent and competitive privatization, which brought nearly $5 billion to state coffers.
The first hearing in this case was set for June 4, but then postponed to June 18 when the plaintiff failed to show up. Rinat Akhmetov and Viktor Pinchuk, two of the richest people in the country, owned IMU when they bought the mill for $800 million on June 14, 2004.
Akhmetov currently owns 49.9 percent of IMU. Pinchuk’s share in the special-purpose vehicle is not known.
However, Akhmetov’s System Capital Management said in a statement it does not know why the court resumed the investigation into the claim filed by IMU eight years ago.
“SCM representatives have neither filed any applications or petitions to the Kyiv Commercial Court nor appeared in court,” read the statement.
Pinchuk’s EastOne holding told Kyiv Post it has not moved on the case for years.
ArcellorMittal, the world’s leading integrated steel and mining company, was the giant mill’s second buyer paying $4.8 billion in 2005, after a nationalization that saw Akhmetov and Pinchuk lose control of it.
ArcelorMittal’s representative said the company was worried about the case. Supervisory board member Serhiy Piontkovsky told Kyiv Post that although the company does not feature in the suit and the company’s rights will not be affected, there may be others that follow.
“This lawsuit has no effect on us, but it can serve as an impetus for other cases which, in turn, theoretically may somehow affect our rights,” he said.
At the time of the first privatization, Pinchuk’s father-in-law was then-President Leonid Kuchma. Akhmetov was already the richest man in Ukraine, and was a key backer of then-Prime Minister Viktor Yanukovych. Foreign investors submitted higher bids than IMU’s $800 million but were rejected because of tender conditions that many believed were designed to favor the oligarchs’ bid.
Several months later, after power in the nation shifted to the team of President Viktor Yushchenko and his Prime Minister Yulia Tymoshenko in the wake of the Orange Revolution, the results of the tender were annulled through the courts.
The mill was sold again, this time to Mittal Steel for $4.8 billion, which to this day remains the highest amount received from the sale of state assets.
In March 2005 IMU challenged the State Property Fund’s decision to annul the original privatization of Kryvorizhstal, and the case has remained dormant ever since.
A year later IMU filed a lawsuit in the European Court for Human Rights, claiming its property rights were breached as a result of the nationalization.
Serhiy Vlasenko, a prominent lawyer who represented IMU at the time, made this statement to the press then: “If someone wants to buy a “Kryvorizhstal”, we are warning – this object is defective. Tomorrow or the day after the European Court, which, fortunately, is not controlled by the Ukrainian government, could return the steel mill to the IMU.”
The resurrection of the case in Kyiv coincided with increased media attention on ArcelorMittal’s employment policy. In particular, at the end of May, TV talk show host Savik Shuster dedicated a program to the dismissal of workers at ArcelorMittal Kryvyi Rih.
Oleg Marchenko, managing partner of Ulysses law firm says there have to be political reasons behind the renewal of the case. “To launch or not to launch the case is an issue of business and political interests,” he says.
Marchenko said there may be legal reasons behind the claim. “When this asset was taken away, it was done very quickly and possibly with some violations of procedure. Maybe now the plaintiffs are trying to get it back,” Marchenko said.
He said that now the asset is worth less than what ArcelorMittal paid for it initially, possibly about $3 billion. “Arcelor might try to either block the court hearing, or get back $4.8 billion of their investment for an asset worth $3 billion. Possibly both sides will be satisfied.”
Kyiv Post staff writer Kateryna Kapliuk and editor Katya Gorchinskaya can be reached at [email protected] and [email protected], respectively.
