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Hostages to Independence
The change of power in Ukraine and the initiatives of its new government aimed at returning certain privatized enterprises to the state have opened for Russian metallurgists an access to a broad list of attractive assets. But the “recoil” of the “flywheel” of the “orange revolution” was quite strong: for the first six months the Russian owners of Ukrainian companies were under threat of reprivatization. Now it is clear that the property of Russians in Ukraine will not be violated. As to their new projects, they should carefully be related to the alignment of forces in the Ukrainian government.
Two Sides of One Reprivatization
The new President of Ukraine, Viktor Yushchenko, began his term of office with a measure which pleased Russian metallurgists. The biggest Ukrainian metallurgical plant “Krivorozhstal” has again become state property. (We should recall that it was privatized in August 2003).
Viktor Yushchenko spoke of the need to revise the privatization of “Krivorozhstal” during his election campaign. Last February Yulia Timoshenko, the Premier of Ukraine, announced the beginning of the plant's reprivatization. The auction will take place on October 24 at which part of the shares of the enterprise will be sold. Among the claimants are certain Russian companies.
Meanwhile, the reprivatization campaign of the Ukrainian government which has opened for Russian metallurgists the road to the attractive asset, seriously complicated the operations of their colleagues, aluminium producers. The “Rusal” Co. of Oleg Deripaska and “SUAL-holding” of Viktor Vekselberg face the threat of losing the Ukrainian enterprises under their control: the Nikolayev alumina plant (NAP) and the Zaporozhye aluminium plant (ZAP).
Kharkov Trouble for “Rusal”
“Rusal” won the tender on the privatization of 30% of NAP shares in 2000, with an undertaking to build an aluminium plant near Kharkov. After signing the deal “Rusal” began to drag out the beginning of construction, explaining that at first it hoped to get direct electric energy supply from Russia, but this scheme was banned by the Ukrainian authorities; meanwhile the price of electricity in Ukraine is too high. Instead, “Rusal” offered the Ukrainian government to increase the production capacity of NAP from 1.3 million tons to 1.6 million tons a year by 2008 and modernize the company “Khimprom”.
The new Ukrainian authorities have returned to the question of the construction of an aluminium plant near Kharkov. Last March the deputy head of “Rusal”, Alexander Livshits, after negotiations with the Ukrainian Vice Premier Anatoly Kinakh said that his company was considering plans to build a new aluminium plant in Ukraine with a capacity of 200,000 tons a year at a cost of $500 million.
The negotiations between Messrs. Livshits and Kinakh gave “Rusal” only a month of respite. It was announced later that there were no reasons for changing the initial investment agreement between the Russian company and the government of Ukraine.
The Zaporozhskaya Sech of SUAL
The conflict around ZAP (the only aluminium plant in Ukraine) began during its privatization in February 2001 when 68.01% of its shares were bought by the Russian company “AvtoVAZ-Invest” (AVI). In 2004 shareholders began to modernize the enterprise, having invested $53.3 million.
In the autumn of 2004, it became known unofficially that the Russian “SUAL-holding” was the real owner of ZAP. Last year SUAL announced that it completed a deal for buying 95% of the shares belonging to AVI.
The Ukrainian authorities placed ZAP in “unbearable economic conditions” last June, by charging it with very high tariffs on electric energy. SUAL experts calculated that ZAP lost its profitableness and warned the Ukrainian authorities that their company would curtail its purchases of electricity and dismiss half of the plant's employees. In reply, the government of Ukraine threatened to reprivatize ZAP.
At last the two sides have reached a compromise, but SUAL continues to regard the subject of lowering electricity tariffs still open.
Gigantic Efforts of “Renova”
Despite the problems connected with ZAP, Viktor Vekselberg's company initiated another spectacular project in Ukraine last spring. The “Renova” Co. controlled by Vekselberg has a licence to develop the Fyodorovsky apatite-ilmenite deposit in the Zhitomir Region. Last March he announced his intention to organize a vertically integrated titanium-apatite company. “Renova” presented a scheme of its formation to the government of Ukraine in June, recommending to attract Ukrainian, Russian and western capital.
“Renova” representatives say that the government of Ukraine supported this initiative. According to their information, the question of setting up the “Titanium of Ukraine” Co. would be examined quite soon. As a result, “Renova” hopes to get the controlling block of shares in the new company. According to certain sources, the preparation of the formation of this new company is supervised by Premier Yulia Timoshenko personally.
Meanwhile, arguments around the Nikopol Plant of Ferro-alloys (NPF), which belongs to Viktor Pinchuk, the son-in-law of the ex-President of Ukraine, continue. There have been several court decisions but neither Russian nor Ukrainian experts can predict the fate of the enterprise. It is evident that the ultimate decision will depend on the highest figures in the Ukrainian establishment. As to Russian businessmen, if they are still interested in working in Ukraine, they should carefully study the new political situation in the country and thoroughly follow its changes.
Renata Yambayeva
All the Article in Russian as of July 20, 2005
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