The State Property Fund of Ukraine (STPFU) named the successful bidder at an auction selling 93.02% interest in the world’s largest steel supplier, public joint-stock company Kryvyi Rih Mining and Metallurgical Combine “Kryvorizhstal.” It is Germany’s Mittal Steel Germany GmbH that offered UAH 24,200,000,000 for the stock package. The buyer will have to invest $2.4 billion in Kryvorizhstal before 2010. In addition, SPFU has determined the amount of annual revenues and tax payments that the steelworks will have to deliver regardless of the market situation.
There have been court rulings in 2005, annulling Kryvorizhstal’s privatization; 93.02 interest therein has been returned to the state and on August 10 the steelworks was put up for sale again with the starting price of UAH 10 billion (about $2 billion).
Analysts thought the price could reach $2.5-2.7 billion, but the reality surpassed all expectations. Oleksandr Paskhaver, Ukrainian president’s advisor, believes that the auction will play a major role in the subsequent privatization process. He said on Channel 5 that “now our national wealth is priced higher.” At the same time, he warned against the reprivatization temptation, with other projects being put up for sale again.
Below are opinions voiced by Mr. Paskhaver and other experts to The Day’s Olha VASYLEVSKA.
COMMENTARIES
Anatoly HALCHYNSKY, director, Institute for Strategic Assessment:
I think that the public responded to that live broadcast normally. I’m still for such sales being kept in broad public view and transparent. We must form a positive approach to privatization and to private property as such. I was pleased to watch that industrial project being sold in such transparent manner. Another thing is that I have always supported the development of national capital. Let’s hope that the current investor will be an effective one, what with its international prestige. The only problem is how best to utilize this one-time payment, I mean the Kryvorizhstal proceeds.
Oleksandr RIABCHENKO, director, International Privatization, Property Management and Investment Institute:
I think that organizing the auction was a good idea, as it was kept transparent, so all could see what was happening; all could see the largest steelworks put up for sale and sold. Of course, what influenced the prices was the competition between two steel companies ranking first and second on the world market. They vied not so much for Kryvorizhstal as for showing who was the best. This is very profitable for Ukraine, as everyone knows now that Ukrainian assets are very expensive. In fact, the sale of Kryvorizhstal has instantly added to Ukraine’s international image. I’m sure that business should be put up for sale that can insterest the world’s leading companies. This will increase Ukraine’s investment ratings.
Oleksandr PASKHAVER, president, Economic Development Center:
This auction leaves one impressed by its transparency and spectacular scope. I might describe it as a new kind of show. Our citizens could see what the competition is all about. This is something you can’t stage (considering the “cast”). All this must add to the confidence in the current government and in the subsequent privatization process, provided this privatization is held precisely in this manner. This is a doubtless advantage. Besides, it should be noted that the high price paid for Kryvorizhstal has added to the prices of other sellable projects. This high price means that the Western market operators overstated the Ukrainian risks and that they no longer consider them as high as we expected. This is another advantage. The bad thing is that all this happened in regard to a project impounded by the state in the course of reprivatization. The only thing that can save the situation is that this will remain an exception privatization case. I hope that the government will not be tempted to use this example as a precedent in other such cases. What I mean by temptation is that, if a business can be resold at an advantage, why not try to resell another one? I would like to stress that the high price paid in this case is the result of the authorities announcing that there will be no reprivatization, and of the previous radical government being replaced by the current, moderate one. Because if another reprivatization campaign is launched, there will be no high prices for our businesses. Another risk is that big money always means big corruption, when it comes to allocating the proceeds. Such is the controversial result; there are very good and alarming aspects.
Mykhailo CHECHETOV, former head of the State Property Fund:
In the first place, I’d like to point out that Kryvorizhstal had three scenarios. The first one was that the steel works would remain state property. From what I know, this option is still supported by the majority of the population and by certain political forces. The second scenario is privatization. This scenario has two variants: (a) selling the works to a national investor and (b) to a foreign investor. I believe that the state is a less effective owner, so it’s best to let the works into the hands of a more effective manager. The problem is what manager, domestic or foreign? Everywhere in the world they are closely following foreign capital penetrating basic economic sectors as the latter are at the core of national security. When it comes to unique projects being put up for sale, one ought to think twice before allowing their privatization by foreign investors. Yet when Kryvorizhstal was put up for sale and the doors were opened for foreign investors, it became clear that our investors didn’t stand a chance. Our business can’t compete with the world’s largest companies.
