International steel giant also pledges not to reduce workforce at Ukraine's steel powerhouse
y Fund (SPF) on Oct. 28, nearly a week after the Dutch-registered holding won an auction for the prized steel mill with a landmark $4.8 billion bid.
Days earlier Mittal, which has 30 days from the date on the purchase agreement to pay for Kryvorizhstal, had pledged not to reduce the mill’s 56,000-strong workforce.
Last week credit rating agency Standard & Poor’s questioned whether Mittal overpaid for the mill, overstretching its financial resources. In a report obtained by the Post, Mittal, which last week explained it would pay for the mill using in-house resources and credit lines, argues otherwise.
Mittal, the world’s largest steel-producing holding and the first major industry player to enter the Ukrainian market, described Kryvorizhstal as the “future most competitive plant of Europe.”
The report indicates that the Kryvorizhstal acquisition strengthened Mittal’s presence in Europe, better positioning the group against its main competitors, including Arcelor, which bid just $20 million less than Mittal for the mill. Arcelor, Mittal’s principal competitor, is ranked as the world’s second-largest steel producer.
Kryvorizhstal “perfectly matches the investment criteria of Mittal Steel in terms of growth potential, low cost, iron ore integration and potential for productivity improvement,” the report reads. Kryvorizhstal could boost productivity by five percent annually over the next several years, the report continues, adding that steel consumption in Ukraine and other developing countries in which Mittal has a presence is expected to rise more than three percent annually in the next five years.
Ore reserves controlled by Ukraine’s largest steel plant total more than 1 billion tons, a big plus for Mittal, which controls a handful of mills in Central and Eastern Europe partially dependent on foreign ore imports. Mittal has also expressed interest in acquiring a stake in a potentially large yet unfinished ore pit, which the government of Ukraine plans to privatize in the near future.
President Viktor Yushchenko and Prime Minister Yuriy Yekhanurov indicated that the next big sale could be the unfinished Kryviy Rih Oxidized Ore Pit, a potentially large supplier of steel ore, which Mittal has been eyeing for several years now.
Nearly $1 billion is needed to complete the pit, a Soviet project co-owned by Eastern European countries in which Mittal has steel interests.
In August, the government commissioned the SPF to sell the state’s 56.4 percent stake in the pit, according to Ukrainian News.
Mittal and other steel groups are expected to bid in the tender.
Meanwhile, the struggle by political groups who differ on how to use the windfall raised from the sale shifted into higher gear this week. Different factions in parliament submitted bills targeted at controlling how the $4.8 billion will be spent. President Yushchenko and his government are hoping the funds will be spent to service the national debt and kick-start innovative projects that would fuel more economic growth, such as energy savings technology.
Other factions, such as Yulia Tymoshenko’s Batkivshchyna (Fatherland) camp, are calling for large portions of the money to be spent on paying back citizens who lost their savings when the former Soviet Sberbank went bust.As Ukraine’s largest mill, Kryvorizhstal accounts for 20 percent of all steel produced in Ukraine, itself ranked as the world’s seventh-largest steel producing country. Ukraine also boasts large reserves of ore and coal, key raw materials used in steel production. Ukraine’s steel industry is largely dominated by Ukrainian and Russian business groups.
