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Ukraine: Country's Largest Steel Mill Sold At Auction

Kryvorizhstal steel plant (file photo) (official site) Ukraine's largest steel mill, the Kryvorizhstal plant near Kyiv, was sold today for the equivalent of $4.8 billion at a state auction. The winning bidder is the Mittal Steel Company of the Netherlands, one of the world’s two largest steelmakers. Today’s auction was intended to right what many in Ukraine regard as the scandalous sale of the Kryvorizhstal plant in 2004. That sale, for the equivalent of a mere $800 million, saw the company go to a group of industrialists with close ties to former Ukrainian President Leonid Kuchma.

Prague, 24 October 2005 (RFE/RL) -- The Kryvorizhstal steel plant went on the auction block today in a high-stakes, suspenseful drama that pitted three powerful bidders against one another.

The bidders included the world’s two biggest steelmakers: Mittal Steel Company of the Netherlands, and Arcelor SA of Luxembourg. For the bidding, Arcelor joined with Ukraine’s Industrial Union of Donbass in an investment vehicle called the Industrial Group. The third bidder was Ukraine’s LLC Smart Group, based in Dnipropetrovsk.

The government put the starting price of the steel plant at a minimum of $2 billion. But the bidding -- broadcast on Ukrainian television -- quickly soared to more than double that amount:

"Once more, I am reminding you that on the table is the package of shares for the Kryvorizhstal company," the auctioneer said. "Participant No. 3 [Mittal Steel Company] bids a price of 24,200 million hryvnyas [$4.8 billion]. Three! Sold to participant No. 3."

The auction gives winner Mittal Steel a slightly larger than 92 percent stake in the Kryvorizhstal plant.

The plant produces approximately 20 percent of Ukraine’s metal output and had sales of $1.9 billion in 2004. It is considered highly profitable because it uses low-cost raw materials, fuel, and labor.

Dmytro Parfenenko, deputy head of the Ukrainian State Property Fund, told reporters after the auction that the new owner assumes a range of environmental and social obligations by purchasing the plant.

"You know about the strict fixed conditions and the future obligations of the buyer, including economic obligations, investment obligations, a very serious social package which requires social benefits and guarantees for the company's employees, and also the buyer's environmental obligations. May God help them [the owners] fulfill all those [obligations]. On my part I will say that the State Property Fund will exercise strict control over these activities," Parfenenko said.

Today’s sale marks the second time Ukraine has privatized the steel mill. The first time was in 2004, when it was bought by a group of Ukrainian industrialists with close ties to former President Leonid Kuchma.

That time the plant sold for a mere $800 million -- or $4 billion less than today. But the low price caused a scandal, with Ukrainian President Viktor Yushchenko branding the sale a "theft" before he took office.

Court rulings later struck down the 2004 sale, and the steel mill was returned to the state in June. That freed the government to reprivatize the plant today.

Yushchenko told reporters after the auction that his government had delivered on its promises to fight corruption and pursue economic reform. "What happened today proves that Ukraine is capable of carrying out an honest privatization, following all legal procedures," he said. "The Ukrainian state has proved itself. The Ukrainian nation received a well-deserved compliment for the suffering it has endured for many years during the privatization process."

However, the reprivatization of Kryvorizhstal has also drawn some criticism. Some 150 protesters gathered today outside the State Property Fund to protest the sale. They held placards reading: "The People Own Kryvorizhstal."

(with contributions from RFE/RL's Ukrainian Service, news agencies)