The State Property Fund's tender for a 30 percent stake in the Mykolayiv Alumina Plant, long-mired in controversy, sunk into farce on March 20 when a losing bidder in the competition revealed that it in fact controls the little-known company that won.
A source at Russia's Siberian Aluminum Group, who declined to be named, said his company controls Ukrainian Aluminum, the surprise winner of the tender.
But officially, both the SPF and Siberian Aluminum deny any link between the Russian company and Ukrainian Aluminum.
Ukrainian Aluminum, registered in Kyiv only a year ago, bid Hr 547.2 million ($100 million) for the stake, SPF deputy head Leonid Kalnichenko said on March 20, announcing the preliminary result of the tender.
Two other bidders in the tender, Siberian Aluminum and the Dniproptrovsk-based National Aluminum Company, offered Hr 273.6 million and Hr 164.16 million for the stake respectively.
Ukrainian Aluminum's bid was almost five times greater than the Hr 115 million starting price for the stake set by the SPF, which bodes well for the government's hopes of raising substantial funds from privatization this year.
If the sale goes through at the present price, the money raised would account for a fifth of the SPF's privatization revenue target for 2000 of Hr 2.5 billion.
However, under the tender rules, the other participants in the competition have five days to decide whether to up their bids.
'If the propositions are not improved, than Ukrainian Aluminum will be announced a winner,' Kalnichenko said.
He said the fund will announce its final decision on the tender next week.
Siberian Aluminum, previously the favorite to win the stake, said it is considering upping its bid in the second round. In an official statement, Siberian Aluminum described Ukrainian Aluminum as a partner, but denied Ukrainian Aluminum is the Russian aluminum producer's daughter company.
The source at Siberian Aluminum, however, said the company does indeed control Ukrainian Aluminum. The source said Ukrainian Aluminum took part in the Mykolayiv Alumina Plant tender on behalf of its Russian parent company.
The victory of Ukrainian Aluminum, which had been generally considered an underdog in the race, apparently came as a surprise to fund officials and privatization analysts alike.
But the preliminary result of the tender did nothing to enhance the image of Ukraine's privatization process, even though SPF head Oleksandr Bondar had earlier promised the competition would exemplify the transparency of the sale of state assets in Ukraine.
Despite their pledge of transparency and repeated pleas from journalists, SPF officials declined to disclose the owners and industrial profile of Ukrainian Aluminum.
Kalnichenko limited himself to saying that Ukrainian Aluminum has 'eight or nine co-founders,' with some 75 percent of the company's capital coming from abroad. He declined to reveal more details about the company's owners until the result of the tender is approved by the Anti-Monopoly Committee.
Kalnichenko also provided no information regarding the tender winner's experience in the aluminum industry. In this, as in other tenders, experience in the relevant industry is a requirement for a company's participation in the competition.
A fourth bidder for the stake fell foul of the SPF's tender rules on March 17, when the fund rejected a bid by Russia's Kransoyarsk Aluminum Plant.
The fund said the plant had failed to submit documents confirming it had an agreement with a Ukrainian electricity supplier to provide energy to an aluminum smelter.
Building an aluminum smelter in Ukraine with an annual capacity of 100,000 tons to utilize some of the Mykolayiv Alumina Plant's product was also a condition of the tender.
The SPF also said the Kransoyarsk plant failed to provide proof that it could utilize 70 percent of the Mykolayiv Alumina Plant's alumina output, also one of the terms of the tender.
Finally, the SPF said the Kransoyarsk plant had outstanding debts of 3.2 billion Russian rubles, a factor that also barred it from further participation in the tender.
In another condition attached to the deal, the winner of the tender was to halt tolling practices at the plant and introduce direct import-export operations within two years.
The Mykolayiv Alumina Plant is Europe's largest alumina producer and a key provider of raw materials for Russia's aluminum industry.
SPF Results
In a privatization coup for the SPF, the fund sold a stake in electrode maker Ukrayinsky Hrafyt for 50 times its starting price.
Dzherelo investment company paid Hr 15 million for a 25 percent stake in Ukrayinsky Hrafyt. During bidding, Ukrayinsky Hrafyt's share price surged from its nominal value of Hr 0.05 to a final price of Hr 2.69 per share.
Ukrayinsky Hrafyt has a near monopoly on production of electrodes, which are used in aluminum production.
So far, some 58.8 percent shares in Ukrayinsky Hrafyt have been sold.
In another big sale last week, investment firm Discount 2000 acquired a 25 percent stake in the Frunze machine-building plant for Hr 27.3 million in a sale conducted through a stock exchange.
Discount 2000 earlier bought a 42 percent stake in the Zaporizhya ferroalloy plant.
Frunze produces equipment for the gas extraction, chemical and nuclear industries, with some 70 percent of the company's products being exported. Frunze has now undergone complete privatization.
