The State Property Fund of Ukraine will put on sale a 68% block of stock in the Zaporizhzhia Aluminum Plant (ZALK) and 31% of the AvtoZAZ Plant sometime in September. The managers of these two plants are jittery because for them it is a to-be-or-not-to-be situation. Yet, each of the managers reacts to the situation in his own way. Ivan Bastryha is prepared to put up a stubborn fight. His ideas as far as the investment attractiveness of the renovation programs of his plant seem to be totally different from those of the State Property Fund. The renovation program which includes modernization of electrolyzer production, construction of a facility to make anodes and of foil rolling shops, production of crude aluminum, has been recently presented by America’s Kaiser Aluminum Corporation. Volodymyr Kuratchenko, the former governor, spoke in quite clear terms about this contradiction in opinions between Bastryha and the SPF at the latest meeting of the ZALK shareholders.
The AvtoZAZ Works, in contrast to ZALK, does not seem to have strong backing. Negotiations with the Ford Motor Company are being conducted by the Korean side alone. It is not clear what awaits AvtoZAZ. In spite of the fact that DAEWOO has managed to reach certain agreements, these agreements will lead to nothing unless the Ukrainian market is protected by the relevant laws. Compensation measures, which the government promised to take in exchange for the abrogation of minimum customs duties and extension of the age limits on foreign-made cars imported into Ukraine, have been okayed by parliament, but only tentatively, and in the first reading. The lawmakers promised to reconsider this bill after returning from their vacations with no date being set. Oleh Papahev, AvtoZAZ general manager, is ready to welcome any investors, those with serious intentions, of course. So far no investor has turned up. In the first three months of 2000, AvtoZAZ was in the red. The losses amounted to UAH 6 million, and to stay afloat, AvtoZAZ has been forced to start using its statutory fund.
Oblast Governor Oleksiy Kucherenko has decided to support AvtoZAZ and ZALK. Shortly before they were privatized, he visited the plants, promised his backing, and the governor’s opinion would surely be taken into consideration at the meetings of the stock purchase contest committee.
“I’m not going to teach metallurgists how to make metal,” he said. “The aluminum plant is a strategically important facility for both the region and for Ukraine. We must not hamper the production of high-quality metal that can be easily sold. I can tell you frankly that a pitched battle will be fought over the share of ZALK stock that will go the state. The oblast administration will insist that the main criteria in determining the winner of the contest be the economic viability of further development and investment, real and not just promised. We’ll do our best to put aside the political, pie- in-the-sky promises, and other factors of this kind. Time will tell whether we succeed. We are prepared to stand our ground.” In complying with Bastryha’s request, the governor agreed to try to get a ZALK representative on the contest committee.
Oleksiy Kucherenko assured Oleh Papashev, that if out of 31% of the shares offered at least 25% were sold, things at AvtoZAZ should take a turn for the better. “This plant is of enormous importance for Ukraine,” he reiterated during his talk with Papashev. “Statistics show that one job in the automotive industry translates into six or seven jobs in other industries. Two weeks ago I talked to President Kuchma about the problems AvtoZAZ was facing, and mentioned the possibility of getting it a new owner. I asked the president to place the program of AvtoZAZ development under his patronage, and he agreed. Now the oblast administration, jointly with AvtoZAZ, will have to work out a strategy of further actions to be taken, including drafting the relevant laws, which would make stable and profitable work by AvtoZAZ possible.”
Kucherenko thinks the Cabinet of Ministers has acted correctly. According to him, the protectionist measures taken to control the import of foreign-made cars and further obstacles in the way of free exchange of goods have no future. In order to enter the world market, one has to take certain obligations upon oneself. On the other hand, it is extremely important to protect Ukrainian producers. Kucherenko has offered to do the following: first, to make all the functionaries use Lanos cars rather than Mercedes (incidentally, the governor himself does not intend to substitute his German Mercedes 600 steed for a Korean palfrey; he said that unlike other officials, he spends half of his life in cars rather than at his desk, and his Mercedes is a good guarantee that he would survive an accident; “A live governor is of much more use than a dead one,” he says); secondly, postponement for budget payments should be permitted and leasing schemes used; and thirdly, a well-balanced model of interaction between tax inspectors and potential customers should be established. In other words, preferential sales terms should be worked out. The production costs of the cars made at AvtoZAZ should be reduced, and Tavriya autos, according to Kucherenko, should be made affordable to pensioners, students, and the handicapped. It should cost no more than $1,700 or $1,800 and then it will find its market niche.
The AvtoZAZ and ZALK managers were eager to learn the governor’s views on the electrical supply problems. 40% of the production costs at the ZALK Aluminum Plant go for the electricity consumed. Irregularities in electricity supply have led to disastrous consequences — ZALK has lost UAH 50 million in potential profits, and UAH 25 million have gone into repairing equipment damaged in electricity cutoffs. In addition, an unexpected electric power disconnection is always fraught with danger and can result in injury or even death of workers. When electrolyzers are suddenly cut off from power supply, powerful electromagnetic radiation is produced, and once many workers were injured.
Kucherenko sees the way out in combined efforts. According to him, the Verkhovna Rada Fuel and Energy Committee has begun drafting bills, the implementation of which would allow the oblasts to provide themselves with energy reserves and use them as they see fit. “All the problems connected with electricity supplies have emerged as a direct result of industrialist’s direct attempts to make arrangements with Kyiv about these supplies,” said Kucherenko. He hopes to reach a compromise with the newly appointed management of the Zaporizhoblenerho (Zaporizhzhya Oblast Energy). The state is again in control of the Zaporizhoblenerho, and this gives one grounds for optimism. At the same time, Kucherenko’s predicts economic difficulties for the coming winter. “However, overcoming difficulties spur us all to adopt a different stance in dealing with the electricity issues. If this happens, than spring will not be slow in coming.”
