Two international steel conglomerates have unveiled plans to bid together for Kryvorizhstal, Ukraine’s largest steel mill, in a privatization tender which industry sources suspect has been structured in order to favor bids by Ukrainian business groups.
LNM Group, the world’s second-largest steel producer, announced May 25 that it would bid for the mill in partnership with United States Steel Corporation (U.S. Steel), the 6th largest in steel production worldwide.
India’s Tata Steel, and a consortium of Russia’s Severstal and Luxembourg-based Arcleor, the world’s largest steel producer, have already indicated that they would be interested in buying Kryvorizhstal.
In a statement, LNM and U.S. Steel urged the Ukrainian government to rethink the tender conditions, which require bidders to have produced more than 1 million tons of Ukrainian coke a year since 2001.
“LNM and U.S. Steel are two of the world’s leading steel producers, who together can offer a wealth of experience and knowledge to Kryvorizhstal. Together they have combined worldwide steel production of approximately 60 million tons and annual coke production of approximately 20 million tons,” the statement reads.
LNM Group chairman Lakshmi Mittal said: “There has been much comment over the criteria for the current tender process. This is an international tender, and as such, we expect the SPF to ensure that international businesses be given the opportunity to participate in a fair and open tender.”
If the tender conditions stand, analysts said that foreign steel interests could qualify for the tender by partnering up with one of several Ukrainian steel groups that meet the coke condition.
However LNM Group spokesperson Paul Weigh told the Post on May 25 that his company would not bid in partnership with a Ukrainian group that fulfills the coke production requirements. Rather, LNM Group and U.S. Steel hope that Ukraine will drop the tender requirement, which they view as discriminating against potential foreign investors.
Kryvorizhstal, which produces about 20 percent of Ukraine’s metal output, had revenues of $1.4 billion in 2003 and produced about 6 million tons of rolled steel, 7 million tons of steel, and 7.8 million tons of pig iron. In comparison, LNM Group expects its revenues this year to exceed $15 billion.
A lack of transparency in the Ukrainian steel industry has in the past kept foreign steel out Ukraine, which is the seventh biggest steel producer in the world.
The coke-production condition has already elicited protest from Russia’s Severstal and Luxembourg-based Arcelor, the world’s largest steel group, which plan to bid together for the mill. Severstal has threatened to sue Ukraine for imposing the condition.
The SPF maintains that the sale conditions are fair and says that the sale will go ahead, despite calls by oppositionist parliament deputies for privatization of strategic state enterprises to be put on hold until after presidential elections this fall.
The deadline for bids for Kryvorizhstal is June 7. Analysts say the tender could be stalled by lawsuits from potential bidders, or employees who feel that their rights have been infringed by the tender.
