The Indian owners of the Mittal Steel Germany Gmbh (Duisburg, Germany), who practically “created” Ukraine’s 2005 budget, are now facing the sad prospect of being thrown out of Kryvorizhstal if this largest investor in Ukrainian history fails to comply with the ultimatum issued by the State Property Fund (FDM). They are being accused of failing to accomplish the terms of the sales agreement, FDM chairperson Valentyna Semeniuk claims, failing to increase the minimum salaries in conformity with the officially adopted living wage, and failing to provide for the so-called 13 th month pay. If these accusations are confirmed in court, the Kryvorizhstal sale contract may be annulled. Semeniuk says there are five prospective buyers, who are prepared to pay more than 24 billion hryvnias for the metallurgical complex.
The situation appears to be simple. If you don’t comply with your contractual obligations, you have to be held responsible. Semeniuk emphasized that for the FDM upholding such investment obligations is a question of “Ukraine’s authority”. This is an interesting question: will a new lawsuit against the investor and owner boost Ukraine’s reputation or damage it?
Anatoliy Holubchenko, MP and president of the Association of Ferrous Metallurgical Enterprises of Ukraine, told The Day that he cannot understand or “even accept relations in which the plant is being resold twice in one year.” The former deputy prime minister (several times over) demurs heatedly: “How can one do business in this country? Kryvorizhstal is not a children’s potty!” He has warned the Ukrainian government that another nationalization of this industrial entity may prove to be a long and complicated process. “I can’t really predict its outcome.” The Ukrainian parliamentarian says that all statements in connection with this seem to be more of a political nature. All the fuss is about politics and Ukraine “doesn’t need any of this commotion — it can only damage its international reputation. They should have thought of this before, when they were selling,” says Holubchenko.
Now let us hear what the defendant has to say. Narendra Chaudhari, the director general of Mittal Steel Kryvyi Rih (the current name of Kryvorizhstal), told a press conference in Kryvyi Rih that increasing the wages of top workers so they will reach the living wage should have been done on a one- time basis during the purchase of the enterprise, rather than constantly, as the FDM and the unions are demanding. “The salaries of top- echelon workers at this enterprise were raised to the living wage level once the sales agreement was signed, in accordance with the agreement.”
The FDM is insisting on another pay increase in conjunction with a change to the official living wage,” the investors say. They claim that the first round of monitoring of investment obligations in March had a positive result. As for the “13 th salary,” the Indians promise to pay it as soon as they tally their annual performance results.
All of us, including the FDM, are certainly in favor of foreign investors abiding by Ukrainian laws. However, is it true that the Ukrainian side has fulfilled all its obligations? Is it true that all Ukrainian enterprises, especially coal mines, where working conditions are especially difficult, conform to the law? Perhaps we should first try to clean our own house? Or maybe we should pressure the foreign investor to show an example of a law-abiding attitude to our state managers? Then what should be done about the main postulate of the investment climate, that there are equal rules of the game for domestic and foreign investors? In a word, the problem of Ukraine’s investment climate is once again being debated, and this very fact seems to be leading Ukraine into the investment “shadows.”
Another apparent shortcoming on the part of the authors of the Kryvorizhstal investment terms and conditions is that they knew who they were dealing with. Could they have envisaged a drop in price of one of the “pillars” of construction-steel reinforcements, in which Kryvorizhstal is the clear monopolist? Of course, they could have. What about the fact that the new owners will not be buying Ukrainian coal because they have the required enterprises in Kazakhstan? They could have thought of that too. At the time, however, the hunt for money was on. Then why didn’t they properly formulate at least the investment obligations on which they were insisting? Now we will have to sue our main investor and become the laughing stock of the world, and the outcome is anyone’s guess.
Contrary to official statements, we can’t get it right with investors in Ukraine. Recently, a reputed international body known as the European Business Association carried out detailed research, but the association does not seem to be in any hurry to publicize its findings. Is it afraid of mistakes in its findings? That is quite possible. A couple of days ago The Day received a copy of an open letter from a member company of this association, addressed to the president of Ukraine. The author of the letter, Fildes Enterprises Ltd. (they have an affiliate known as Fildes Ukraine and a small investment to the tune of 200,000 dollars), tells President Yushchenko about the investment climate in Ukraine and requests his protection and lawful attitude.
There is a striking sentence in the document: “During the past 18 months the company has been exposed to the ‘attractiveness of the investment climate’.” In the past two years the company paid the central budget over two million hryvnias. But as soon as they started generating revenues, they were approached by bureaucrats representing “pertinent” authorities, who offered “protection.” Such “business relations” do not fall under the meaning of honest business, the offended investors write.
Their unwillingness “to play the game by the rules” that exist in our country led to criminal proceedings, searches, impoundment of documents and hard/software, and months spent in pre-trial detention cells. What about the interior minister’s claims that this “masked show” has ended in Ukraine? Are the bureaucrats concerned becoming bolder and not even bothering to cover their tracks? The authors of the appeal gently asked the guarantor of the Constitution of Ukraine (for some reason Leonid Kuchma was frequently associated with his constitutional duty, while Viktor Yushchenko is rarely referred to in this capacity) to take all possible legal steps and bring the guilty parties to justice before the situation damages Ukraine’s international image.
Meanwhile, domestic analysts are making no secret of their concern for Ukraine’s investment climate. Rostyslav Ishchenko, vice- president of the Corporate Relations Research Center in Kyiv, believes that in practice the investment climate is not all that attractive. “There are a great many examples of direct pressure on foreign investors by Ukrainian law enforcement agencies. Proof of this may be found in the pessimistic findings of Mid Europa Partners, a large European investment company specializing in the implementation of investment programs in Eastern and Central Europe,” says this expert.
Ishchenko believes that an influx of foreign investments and the normal development of the Ukrainian economy are impossible “without a serious reform of the law enforcement system... At any rate, under the existing system of pressure exerted on business by the law enforcement system we cannot even begin talking about an investment breakthrough, despite the government’s declarations.” A number of other investors seem to share Ishchenko’s opinion.
