ArcelorMittal Fears Politics In Ukraine Case

KIEV, Ukraine -- A top executive at steelmaker ArcelorMittal expressed fears on Friday that a court action in Ukraine could lead to it losing a plant which it bought for $4.8 billion in a landmark re-privatisation.

Rinat Starkov, chief executive of the Kryvy Rih mill, said in a telephone interview that if the court case goes against ArcelorMittal it would shake foreign investor confidence in the ex-Soviet republic.

"If the world's biggest steelmaking company is thrown out, I would like to see what fools would buy it (the plant)," he said.

"It would damage the reputation and investor climate of Ukraine, but anything is possible."

The state prosecutor alleges that the company violated terms of its 2005 purchase of the eastern Ukrainian plant by subsequently delaying investment in it without valid permission.

ArcelorMittal says it reached a legal agreement with Ukraine's State Property Fund to put off investment commitments after declaring force majeure in the global downturn of 2008-9.

Some commentators link the prosecutor's move to the political change of guard in Ukraine, in which President Viktor Yanukovich took over last February from Viktor Yushchenko.

In Paris, Yanukovich appeared to rule out any drastic action against ArcelorMittal.

"There will be no question of ... any rupture in the privatisation agreement of this factory," he said, adding the government would meet ArcelorMittal representatives to discuss the company's obligations.

Ukraine first privatised Kryvy Rih in 2004, selling it to local industrialists for $800 million in a move that drew sharp criticism from the opposition and helped fan the flames of the "Orange Revolution" which brought Yushchenko to power.

In 2005, acting on its anti-oligarch agenda, Yushchenko's government re-nationalised the plant after a court ruled that the initial sale had been made at an artificially low price.

It was subsequently bought by Mittal Steel, now known as ArcelorMittal, for more than five times the $800 million which oligarch groups had paid.

Substantial Investment Starkov said there had been substantial investment by the company since it bought the plant in what was the biggest ever foreign investment in the country.

The plant employs 37,500 and has a production capacity of 7 million tonnes of steel products.

Starkov said the prosecutor's action had been pushed forward with great speed in a commercial court in Kiev despite the company's claim that only an arbitration court was competent to hear it.

If the court, which reconvenes next Tuesday, upholds the prosecutor's action the company would be in default and could be stripped of its assets, he said.

He said he saw a pattern of action against the company over the past three months, referring to a separate case against ArcelorMittal over coal which it shipped into the country.

Starkov said the company had been given only a day to prepare documents for the hearing and then all its motions had been denied by the court.

He also linked the action to the fact that ArcelorMittal was the government's biggest creditor and was owed 500 million euros in VAT and profit tax reimbursements.

"There is just too much coincidence for all this to be happening at the same time," he said.

Asked if he saw the action as political, he said: "That is what we believe".

Source: IBN