Mittal Stirs Change In Ukraine Steel City

KRYVIY RIH, Ukraine -- Lenin still guards the entrance to Ukraine's biggest steel plant, but the flags that flutter beside him identify a new king in this town.

Billionaire Lakshmi Mittal

Indian-born billionaire Lakshmi Mittal extended his steel empire -- already the world's largest -- when his company paid $4.8 billion (2.6 billion pounds) for the Kryvorizhstal plant at an auction last year, becoming the single biggest foreign investor in Ukraine.

Now, life could be about to change for many of the 700,000 residents of this dusty, central city. Kryviy Rih will get a more efficient steel plant, but street protests that greeted the new owner's arrival betray a resistance to change.

It's a scene familiar to Narendra Chaudhary, general director of Mittal Steel Kryviy Rih and a 40-year steel veteran.

"The influence of a steel plant is not limited to the unit itself. Its arteries and veins go all around society at this stage of economic development," said Chaudhary, who has headed Mittal Steel (MT.N: Quote, Profile, Research) plants in Kazakhstan and Romania.

"Our behaviour here is being closely watched. Mittal Steel could be an agent of change in the economy," he said.

Ukraine is hoping to reignite the economy after growth slowed to 2.6 percent last year from a record 12.1 percent in 2004. With commodity prices at record highs, the country's iron ore and coal resources, used to make steel, are central to this.

President Viktor Yushchenko hailed last October's sale to Mittal as the start of a new economic era. The auction was meant to lure back Western investors made wary by turmoil during his first nine months in office.

But some plant workers fear foreign ownership will mean fewer jobs and benefits -- even though they won pledges that Mittal would honour some investment obligations for five years.

Kryvorizhstal employs 57,000 people. With the average worker supporting a family of four, 228,000 people depend on the plant.

"Within the framework of these restrictions, wherever there is a possibility to make the whole number smaller, we shall do that. But we don't have complete freedom to reorganise the operation and significantly reduce the number," Chaudhary said.

Murad Grigoryan, a 44-year-old taxi driver and floor tiler, has reservations about the sale.

Sitting behind the wheel of a 1971 Lada, he said: "It would be like me selling my car and letting someone else drive. I'd make a quick buck but I wouldn't have the right to go where I want any more".

It's an argument heard elsewhere in Kryviy Rih, a mainly Russian-speaking city whose political loyalties lie with Viktor Yanukovich, the defeated presidential candidate during Ukraine's "Orange Revolution" in 2004.

Opponents of the Kryviy Rih sale argue a better long-term bet would have been to retain ownership of the plant.

Artyom Sinenko, 26, who works in Kryviy Rih's only bowling alley, said the government used to pay about 10 percent of the cost of a family holiday on the Black Sea for plant employees. Such traditional benefits, he said, are now under threat.

Chaudhary puts the average annual cost to the company of one employee, including salary and other benefits, at about $5,000.

And he says wages have increased since Mittal arrived.

"We gave an increase of four to 4.5 percent from the day we came. Subsequently, we've also brought in additional medical insurance cover for all the employees," he said, adding that wages would be automatically corrected for inflation.

Kryviy Rih claims to be the longest settlement in Europe, stretching 125 km (78 miles) from end to end. It straddles a succession of iron ore mines that, residents say, are responsible for the permanent coat of red dust on the streets.

Along run-down Karl Marx Avenue, the city's old centre, slot machines occupy the once-grand Lenin Cinema and tributes to American rappers decorate the walls of nearby housing blocks.

As prices for iron ore and steel rose in the last few years, signs of a nascent prosperity multiplied around Kryviy Rih, which translates as Crooked Horn, a name which some say is derived from a bend in the river and others say refers to the crooked leg of an early Cossack ruler.

"There has been more investment coming to the city in the last few years," said Vadim Chuply, a 21-year-old barman, pointing to a shopping centre and casino being built nearby.

Sports stores and fast-food restaurants have sprung up along Metallurgists' Avenue, the main road leading to the steel plant.


A Soviet-era mural at the factory urges workers to produce more steel for the motherland, but Mittal Steel is less concerned about volume than value.

Its biggest change so far has been scrapping a plan to increase output of long products like steel bars and wire rod -- which account for 100 percent of production -- and focussing instead on moving into flat products that can be sold for more -- a shift that is part of a $1.2 billion investment.

Mittal has more experience than most in revolutionising ageing steel plants. The company, which has made a $25 million unsolicited bid for its largest rival Arcelor (CELR.PA: Quote, Profile, Research), grew to become the world's largest steel maker by reviving such mills.

But it's not an overnight job.

Chaudhary said relations with workers and trade unions had improved since early December. "But we are aware that we will have to continue to work and develop relationships. I saw this in Romania. I saw it in Kazakhstan and, to some extent, in Mexico. I expect the same thing will also happen here."

Source: Reuters