Last Thursday the Ukrainian government received an unpleasant message from the US. John Herbst, the ambassador of this leading world power, said to a Ukrainian newspaper, “Reprivatization has by and large not affected American investors and they have suffered no direct losses, but the US considers it a wrong policy.” The ambassador went on to say, “In no way am I defending oligarchs, but I know that if the state, in the name of justice, repossesses hundreds or even dozens of businesses, this will deal a staggering blow to the country’s economic development, and that is the last thing Ukraine needs.” Commenting on the investment climate, the ambassador said, “Investors, for example, will take a very dim view of a new government that opts for large-scale reprivatization.”
Meanwhile, a couple of weeks ago the Ukrainian judiciary, namely, the Supreme Court, gave in to government pressure and put an end to the reprivatization story of the Nikopol Ferroalloys Plant (NFP). To tell the truth, this was done rather clumsily. As the Supreme Court was in session, the Prosecutor General’s Office admitted that the buyer, the Prydniprovya industrial-financial consortium, had not violated any rules. In its view, only the State Property Fund (SPF) may have committed some violations. Yet even this claim sounds dubious, because the court refused to look into the matter. These kinds of “violations” accompanied practically all privatization auctions after 2000. The court ruling in fact clears a legal path to total reprivatization, which the SPF representative confirmed at the same court session.
The court handed down a somewhat illogical ruling, for it considered the NFP, and therefore its workforce unit, a disinterested party. This was the reason for the court’s refusal to accept the enterprise’s lawsuit. Will the workforce unit agree to this and how will this affect the current social tensions in Nikopol, which once made rather a painful impression on President Viktor Yushchenko? Last week NFP employees demanded adamantly that the Supreme Court look into their complaint. “Whoever says that the collective does not care who the plant’s boss will be and whether or not the privatization agreement will be terminated either does not understand what he’s talking about or is being hypocritical,” said Yuriy Lohvinov, NFP trade union committee chief, while workers were chanting the slogans, “We need a fair court,” “Let peace begin with the NFP,” and even “We want an amicable settlement.” In the union’s view, should the privatization of their plant be canceled, this will adversely affect the workers and the plan itself. “It is the current owner who has provided the best social guarantees in this industry; he’s been investing in production, environmental protection, and social security without confining himself to the obligations laid down in the NFP controlling shares sale agreement,” Lohvinov claims. In all probability, an acute social conflict is brewing in Nikopol. To ward it off, the NFP’s social partnership board has cabled the Supreme Court to recognize the plant’s eight-thousand-strong workforce unit as a third party in the court proceedings. Unfortunately, the court turned a deaf ear to this, although twice before it had confirmed the legitimacy of the NFP privatization.
It is clear now that Prydniprovya is bound to file a lawsuit with the European Court of Human Rights, which administers case law and often handles cases like the NFP’s, for example the “Stretch v. the United Kingdom” case, which is very similar to the NFP’s. The court’s judgment ruled against Great Britain.
But the Supreme Court’s ruling may create difficulties for Ukraine long before the European Court takes up this case. A new NFP privatization auction will almost inevitably create the danger that the ferroalloy industry will become a monopoly. In a bid to buy not just a plant but a monopoly, the Privat group (which already owns ore-refining mills and two ferroalloy plants that to a large extent dictate pricing policy in Ukraine’s metallurgical industry) will be able to pay more than its rivals and win the auction. The question is whether Ukraine needs this money. The Kryvorizhstal steel mill can already serve as an example of what a generous buyer can do: the mill has raised the sale price of its products (which will inevitably raise housing prices) and is going to switch to Kazakhstan-produced cheap coal, thus leaving Ukrainian coal miners jobless.
What conclusions can the state draw from this complicated situation? “The main thing is that government bodies have no complaints about the buyer. They have said this officially, and I think this will greatly strengthen Prydniprovya’s position at the European Court,” says Oleksandr Riabchenko, director of the International Institute of Privatization, Property Management, and Investments. “The state is suing itself, trying itself, and pleading guilty, but it is not suffering and, the main thing, is not losing a thing. The buyer, i.e., the party that has not breached the law, which has been officially admitted, is in fact the aggrieved party.” This opinion is worth heeding, as is the view of Volodymyr Kazachenko, chairman of the Central Committee of the Union of the Mining and Metallurgical Workers, who said, “We are not siding either with Interpipe or Privat. But I know that the current owner suits the collective. So we favor an amicable settlement. If necessary, let the state set a price and the owner pay an additional amount, for it is the SPF, not the owner, who must accept all the blame.”
