Another Ukrainian court is set to turn back the clocks, this time threatening a landmark, five-year-old privatization deal that brought state coffers $4.8 billion in the cleanest state auction ever held.
The general prosecutor’s office is suing ArcelorMittal, Ukraine’s biggest foreign investor, which purchased the country’s largest steel mill in Kryviy Rih back in 2005.
The world’s largest steel company denies alleged irregularities to a 2009 agreement to delay investments because of the financial crisis. The case could deal a major blow to the government’s attempts to project itself as open to foreign investment.
The commercial litigation comes amid backsliding in the political arena, too. On Oct. 1, the Constitutional Court ruled to significantly augment the powers of Ukrainian President Viktor Yanukovych by canceling changes to the Constitution agreed in late 2004, during the height of the pro-democracy struggle.
The current Yanukovych team consists of many of the same officials who served before the Orange Revolution, when Kryvorizhstal (now ArcelorMittal KryviyRih) was first sold under former President Leonid Kuchma to his son-in-law Viktor Pinchuk and billionaire Rinat Akhmetov, a major financial backer of Yanukovych, for a meager $800 million.
Now, if prosecutors are successful, the Dnipropetrovsk Oblast mill purchased by Mittal Steel, now ArcelorMittal, will return to state hands – and maybe eventually back to Pinchuk and Akhmetov.
A top ArcelorMittal executive, Christophe Cornier, said that the first hearing of the case by the Kyiv Economic Court on Oct. 1 was more disappointing than even the company’s worst expectations.
“We are taking this very seriously,” said Cornier, a 25-year veteran of the company flown in from London to confront the emergency situation. “We paid $4.8 billion for this plant, and put $500 million worth of capital expenditures into it. We feel it is a very good plant and we don’t want to lose it.”
“But it is very difficult to assess what the outcome will be,” acknowledged Cornier, who said he will be meeting with German and French ambassadors in Kyiv. “We are outside the boundaries of a normal law and order situation.”
The steel plant is a defendant along with privatization agency the State Property Fund (SPF). Prosecutors are disputing a 2009 agreement between ArcelorMittal and the SPF that declared a force majeure in view of the global economic crisis, allowing the company to postpone investment commitments made under the terms of the original share purchase agreement of 2005.
“The dispute is that the addendum is not legal because it was not signed by the cabinet of ministers,” Cornier said. “But when you look at the original share purchase agreement [of 2005], it is not written anywhere that it has to be signed by the cabinet.”
Furthermore, according to Cornier, the plant’s shareholder, ArcelorMittal Duisburg GmbH, has not been informed of the lawsuit, an apparent breach of the law.
And thirdly, according to Cornier, both the original share purchase agreement and the additional agreement of 2009 specify the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (a non-state independent arbitrage court) as the place of jurisdiction for all disputes.
But on Oct. 1, presiding judge Oleh Khrypun dismissed claims the court had no right to hear the case.
“This is very strange. I have never heard before that a judge from the Economic Court handles a case stipulated for the” International Commercial Arbitration Court, said Yevdokia Paschenko, vice president of the International Commercial Arbitration Court. Khrypun was only named to preside over the case one day before the hearing, replacing the original judge.
“If you see the pile of paper regarding the case he had to get through,” Cornier said. “I doubt if it was possible for him to have read much of it, even if he did not sleep.”
Khrypun has previously aroused controversy over his handling of cases, most recently in a lawsuit of Transbank against Ukrainian TV channel Tonis in August. “This seemed to us more like a raider attack than a fair hearing,” said Larissa Rudenok, head of Tonis legal department. Khrypun has denied any irregularities in his rulings on the case.
Then on Oct. 5, in a strange twist of Ukrainian justice, a representative of the cabinet, one of the plaintiffs in the case, withdrew its complaint against ArcelorMittal, but the case hasn’t been closed.
“It is unclear whose interest the prosecutor is protecting in this case,” reads an Oct. 6 statement from ArcelorMittal.
A spokesman for the General Prosecutor’s Office declined to comment on the merits of the case, citing its technical nature and the fact that it’s still in progress.
But if prosecutors are successful, the steel mill will be returned to state control and threaten ArcelorMittal’s entire investment, Cornier said.
“I doubt we would see our money back. I don’t see the country is rich enough to give us back $4.8 billion, when they are not capable of returning our VAT [value-added tax], and when by the end of this year we will have paid three years corporate tax in advance.” said Cornier.
Cornier said ArcelorMittal had received no offers for the mill, nor knew of anyone trying to acquire it, nor does it want to sell. “It is not the ArcelorMittal style to sell,” he said.
Cornier said the government’s lawsuit was out of synch with the free-market image that Yanukovych projects abroad.
The lawsuit is not the only problem suddenly confronting the company, a fact that adds to the impression there is an organized campaign under way. The Security Service of Ukraine, the successor agency to the Soviet KGB, is currently investigating the company after the State Customs Service brought criminal charges alleging that the value of coal imports were under-declared. ArcelorMittal dismissed the accusations.
“The customs service have suddenly declared that the real value of our coal imports should be $360 per ton, when you only have to open a newspaper to see that the price is $200,” Cornier said.
Trade union representatives at the plant have also raised their voices, accusing company management of failing to fulfill a collective agreement signed in 2009. Cornier played down the topic, saying: “Everyone has trade union issues, and we fulfilled 99 percent of the agreement.”
In October 2009, a car carrying two ArcelorMittal auditors in Ukraine was fired upon, injuring one of the company employees.
Cornier said more recent developments could cause the company to rethink its plans to expand into coal mining in Ukraine and to complete a plant for processing oxidized iron ore at Kirovohrad. “Mr. Mittal is a little upset,” he said of the response of ArcelorMittal’s Indian owner and chief executive officer.
“We like our plant. We like the country. It is a good place to make steel. There is good iron ore, and skilled people,” Cornier said. “But we don’t see our Ukrainian competitors having problems with the general prosecutor.”
Kyiv Post staff writer Graham Stack can be reached at [email protected]
