The privatization of the Zaporizhzhia Aluminum Combine (ZAC) is still the cause of mounting tension. The weekend before last, State Property Fund Chairman Oleksandr Bondar and his second-in-command Mykhailo Chechetov accused ZAC leadership of attempting to sabotage the tender, demonstrating a noncommercial approach, etc., allegedly harming the national interest. The ZAC press service in turn believes that such verbal attacks are the result of a letter Ivan Bastryha, chairman of the board, addressed to the President of Ukraine, and which document Mr. Bondar is determined to interpret in its letter rather than spirit.
“It is true that Ivan Bastryha presented a letter to Leonid Kuchma on November 16 requesting the date of the tender be postponed, so that the President’s previous order concerning ZAC privatization could be carried out,” reads the press release. The point in question was the priority of investment programs. In other words, the message boiled down to revising the bidding rules, something the combine’s management had insisted upon long before the privatization process, something of which the head of the fund is well aware. Oleksandr Bondar, however, lacking any reasoned response to the subject of the message, focuses on the privatization procedures and legal norms, complaining that Bastryha never addressed the matter to him personally. Bondar seems unembarrassed by the fact that the privatization debate between the fund and the combine has been underway for over a year, without any chance of reaching an understanding. An eloquent example is the 1999 privatization using property and compensation certificates. Owing to SPF’s ‘paternal care,’ this had to be carried out within nine days, a term worth being entered into the Guinness Book of Records , and because of which ZAC lost some 3% of its stock.”
Let us recall how this correspondence began. On February 26 ZAC management sent a message to the President, containing proposals it wanted included in the tender rules. The head of state marked the document “I support them” and instructed First Vice Premier Yuri Yekhanurov and SPF Chairman Oleksandr Bondar to study them. In April, Mr. Yekhanurov instructed Mr. Bondar to include in the bidding rules a clause stipulating the possibility of the buyer’s investment. On September 6, SPF announced a tender for 61.01% of ZAC stock. The investment obligations seemed to have been accounted for, yet Oleksandr Bondar was quoted as saying that “the financial bids will determine the winner.” If this is how the President’s and First Vice Premier’s instructions are carried, what can a manager expect?
November 20 marked the deadline for the reception of bids and the bid evaluation committee began examining them. The prospective bidders passed muster as conforming to the industrial requirements. ZAC management was informed after the fact. On November 27, a committee for the evaluation of technical bids was convened (a ZAC official was invited to attend as a technical expert, but without a vote). In other words, the tender proceeded as scheduled. Under these circumstances what could ZAC management have done to botch privatization when it lacked any levers of influence? It is true that Ivan Bastryha still objects to the bidding rules and insists on the priority of the investment program. Apparently, the last thing SPF wants is to watch Mr. Bastryha’s arguments heard and accepted, so the emphasis is now on the procedural and legal aspects. Perhaps this is because eventually someone will have to answer for the outcome of ZAC privatization, this company being Ukraine’s only aluminum manufacturer. Offense is still the best defense, and even if there is no cause for offense it is more often than not effectively engineered, stresses the ZAC press release.
P.S.
Last Friday the State Reserve Agency suddenly confirmed that the Zaporizhzhia Aluminum Combine is running up a debt to it as a result of non-sanctioned withdrawal of alumina belonging to the agency. With due account of the accrued fines and penalties, the debt roughly equals the starting price (UAH 166,961,950,000) of the works’ stake (68.01%) offered for sale.
The State Reserve notes in a press release that its leadership is concerned over the fact that the new ZAC owner may choose not to accept these debts. For this reason, the agency has send a letter to the Cabinet of Ministers and the State Property Fund and hopes that ZAC tender conditions will also take into account the State Reserve’s interests. What is not clear in this story is why these circumstances have not bothered the State Reserve before.
Meanwhile, Anatoly Holovko, general manager of the Metalurhiya Consortium, one of the participants in the ZAC competitive tender, has said he is unaware of the ZAC debt to the State Reserve. “Before making a decision to take part in the tender, we studied the enterprise’s balance sheets submitted to us by the tender organizer (the State Property Fund of Ukraine — Auth.): they said nothing about this debt,” he explained to Interfax-Ukraine. This brings up one more question: does it mean the Property Fund has been hiding such important information from the tender competitors?
As is known, the Russian Aluminum group, represented at the tender by the companies United Siberian Aluminum, the Mykolayiv Alumina Plant, and the Bratsk Aluminum Works, refused to further participate in the ZAC tender after receiving this information. And what if the Metalurhiya Consortium will also be forced to make a similar decision? Then this will leave the AvtoVAZ-Invest consortium the only participant in the tender. (Two contenders — KrAZ Foreign Trade. And Itera-Ukraine Ltd. — were not allowed to participate because they did not meet the standards of an industrial investor and failed to submit to the Antimonopoly Committee the required information about their control mechanism).
Is it accidental that the State Reserve’s information about the hitherto unknown ZAC debt was accompanied by the news that the Foreign Economic Bank — one of Russia’s largest banks — is going to extend a long-term loan to AvtoVAZ-Invest (Russia) to enable it to acquire ZAC (?! — Ed.). Moreover, the issue is not only about a long-term credit to buy a 68.01% ZAC stake but also about the funds allegedly given to implement the investment program. In addition, the Foreign Economic Bank said it will be ready, should AvtoVAZ-Invest win the tender, to write off the factory’s overdue debts against the loan it received from Italy under Ukrainian government’s guarantees.
