Krivoryzhstal Privatization after Two and Half Years
Spotlight on the Biggest Privatization in Ukraine
Since privatization is a big topic again with the fight between Yushchenko and Tymoshenko, I thought it would be worth looking back to see what's going on with Kryvoryzhstal, now Mittal Steel Kryvy Rih.
For background, this state asset was first privatized in an untransparent bid by Akhmetov and Pinchuk in Fall 2004 for $800mn, then reprivatized in November of 2005 in a fair and open bid that provided a massive amount more money for government coffers ($4.8bn: more than the previous 10 years of investment). It's been quite a while since I've seen big news about the plant, but if we're to decide what we think of Tymoshenko's new privatization proposals, knowing the current status of this key privatization will be important.
2006-2007
In the spring of 2006 ran into troubles (some big troubles) with State Property Fund Chairwoman Valentyna Semenyuk. Taking into account that she fought against the privatization to Mittal Steel from the beginning (preferring, implicitly, the much less economically beneficial, nontransparent, and suspicious privatization to Akhmetov and Pinchuk), this was not an unexpected attack. However, her accusation that Mittal wasn't keeping the promises regarding wages that were part of the privatization deal did not seem to have been refuted by the company in the Ukrainiska Pravda article above, thought the company resolved to do better. Two days later, according to this article, the company raised the wages it pays its employees to the highest in the entire metallurgic sector.
Things also seem to have improved in fall of 2006, when Mittal Steel got a loan from the European Bank for Reconstruction and Development for $500mn to modernize the facilities. The company claimed to have already invested a further $85mn of its own money in the same effort. This article in New Europe states that the company managed to increase sales by 16% as the result of its efforst in 2006.
In 2007, the company bought a new coke battery, increased production in the first quarter, and submitted plans for further investment and growth, especially growth in sales in the Ukrainian market. A January 2008 report states that the company lifted output for 2007 year by 7%.
Finally, the company is cited in this report on the Ukrainian steel market as the major factor in increasing competition in the Ukrainian steel production, and thus improving the market overall.
2008
For it in 2008 is this conflict, in which it seems the company has defaulted on one promise to improve the situation for workers, as well as a number of lesser articles in the privatization agreement of 2005 (again coming into conflict with Semenyuk).
I originally looked back into this issue, because a friend of mine who knows people working in or around Mittal Steel Kryvy Rih told me that his acquantences were complaining that the new company was worse than the old one.
Does anyone else have more information on this? The track record in the articles of continued investment and growth looks good from a business standpoint. However, is this be happening without greatly improving the situation for workers? What's happened to the high wages they were reported to have been earning in 2006?
Thanks in advance for any article links you might have!
Dan McMinn
The update for this entry is long in coming, though IIU gave me the information ages ago. Apologies. Here are some of the many links she forwarded to me:
Ukrainian Journal: this links to a host of articles on Arcelor Mittal Kryvy Rih. The majority of them show improved business numbers for the mine amid continued accusations from the SPF (under Valentyna Semenyuk) that Mittal is "not fulfilling its obligations as part of the privatization deal". Considering that Semenyuk has opposed the deal from the start and would look for any excuse to malign Mittal, it's impossible to say how much truth, if any, is in the SPF's accusations. (Semenyuk brought up the topic again (uk) when Tymoshenko was trying to kick her out of the SPF Chairperson position.)
In December of last year, Tymoshenko said she'd "found where the Kryvorizhstal money went" (uk). Unfortunately, this was another one of those accusations without an accused, and it doesn't appear that the money has subsequently shown up. In January four workers were injured (uk) in a fire at the steel enterprise--an unfortunate event, but not a tragedy. And in February, a Ministry inspection group (uk) was ready to look over the place until April, but I don't know if it carried out the inspection, and if so, what the results were.
All in all, it still seems to me as though the company is making good, profit-making business decisions, but I'm not sure how many of the dividends are accruing to the workers.
Dan McMinn
in 01) Economics and Finance, 20) Privatization
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April 30: Ukrspetseksport, the Ukrainian state arms company, increased its income from sales of arms and services by 28.3% in 2007 to 2006, up to 1.5bn hryvnyas, about 500m dollars.
The company said in an official report for the State Commission for Securities and Stock Market that its net income grew by 8.6% in 2007, to 214.1m hryvnyas, but net profit dropped by 65%, to 5.5m hryvnyas, it reported.
http://www.ukraine-observer.com/
net income up 8.6% but net profit down 65%
Imagine the reaction if this company was publicly traded on the stock exchange? lots of upset shareholders but in this case the shareholders are the Ukrainian people.
http://kommersant.ua/doc.html?DocID=885928&IssueId=46907
http://www.dartmouth.edu/~stege/blog/?p=105
Actually, not a joke - Akhmetov as well as others would imo love to get ownership of this beauty and Tymo's govt needs the money. And the argument is simple which is that Mittal is in violation of its 2005 agreement and it would only need a judge's ruling.
btw any news on UkrTatNafta? and what is the latest with Telenor and KyivStar?
We can look at it as one of the few Orange Revolution promises that ended up being delivered.
In stark contrast with the 2004 procedure, the year 2005 saw a level playing field. The highest bidder won.
Would Kryvorizhstal fetch a higher price in 2008? Unless we have a major global recession, it would.
In 2005, metal prices dropped and nobody wanted to put the reprivatization issue on the back burner.
http://www.timesonline.co.uk/tol/news/world/europe/article3850193.ece
Founded only 15 years ago, Mes is the most elite primary and secondary school in Russia. It may not be the best, but it is by far the most popular among Moscow’s ruling classes. To send a child there is to make a statement. To get a place is to be accepted in a club. After all, this is where Abramovich’s children went to school, as did Mikhail Khodorkovsky’s, once Russia’s richest man, who is now serving a lengthy jail sentence in Siberia as a punishment for angering the Kremlin. The offspring of Pyotr Aven, one of Russia’s first oligarch bankers, who are now in England, are also former students.
........................
To celebrate his son’s 14th birthday two years ago, a Ukrainian tycoon dispatched his private jet to Moscow, boarded his son’s whole Mes class and flew them to Kiev for the weekend. They stayed in suites in the city’s most expensive five-star hotel and took a cruise down the Dnieper river on a private yacht. The boy’s father could not join them as he was in jail at the time.
Of course the price went up! That's why businesses buy other businesses. I sure as hell hope nobody gets into power who thinks putting the company through again would be a good idea. I can just see FDI inflows from everywhere but Cyprus dry up.
Meanwhile, may Mittal increase the value another fourfold, and more such companies go on the block.
BNN reported that representatives of consultant company Meril Lynch have presented Bulgarian Economics and Energy Minister Peter Dimitrov the bid of ArcelroMittal for 71% of the Kremikovtzi steel mill.
As per report, the actual numbers in the proposal are not supposed to be published before the actual bidding begins but the Minister, however, has ordered that syndicates should also be aware of the data in it.
Other bidders are reported to be Ukrainian billionaire Mr Kostyantin Zhevago and Ukrainian tycoon Mr Rinat Akhmetov.
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http://www.focus-fen.net/index.php?id=n140592
Experts from the European Commission will audit Kremikovtzi in June in order to check whether the factory has complied with the European environmental requirements, the President of the National Federation Metallurgy at the Confederation of Labour Podkrepa (trade union) – Lyudmil Pavlov announced. According to him, a contract must be signed with the potential buyer of Kremikovtzi – Vorskla Steel Bulgaria, connected with the Ukrainian businessman Konstantin Zhevago, because the deal is almost finalized. According to the workers of the factory Zhevago is the best possible buyer, because he plans to invest USD 120 million. Apart from that the Ukrainians want to settle Kremikovtzi’s debts to the Bulgarian State Railway, National Electricity Company, and Bulgargaz.