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Sale Of Major Ukrainian State Firm Falls Through

Prime Minister Yulia Tymoshenko accused the bidders of collusion.
KYIV (Reuters) - The sale of one of Ukraine's biggest state companies collapsed on Tuesday, highlighting the deep rift in the country's leadership while the government accused bidders of shady dealings to get the firm on the cheap.

President Viktor Yushchenko had already banned the sale of the Odessa Port fertilizer plant by decree earlier this month in a move widely seen as an attempt to spite his rival, Prime Minister Yulia Tymoshenko.

Both will compete for the post of president in a January 17 election.

Encouraged by Tymoshenko, the state privatization agency pressed ahead with a live-televised auction despite the presidential decree -- but it ended in farce.

After rushing through the sale at break-neck speed, auction officials declared Ukraine's Nortima the winner with a bid of $624 million, but then the show went off-air.

A short time later, an official from the State Property Fund, the privatization agency, emerged to tell journalists that the bid had been refused because it was too low.

Tymoshenko made clear she agreed.

"It became evident on live television how the three participants in the auction conspired to buy the Odessa Port plant for a song," she said in a statement.

"It was seen directly on live television how the auction collapsed, how they made public their collusion and wanted to buy the Odessa Port plant at the starting price," she said.

Some hours later, Nortima said it would go to court to force the sale to be honored and said it wanted Tymoshenko to retract her accusations of collusion.

"Nortima is getting ready to go to court and will demand the forced implementation of the completed deal," a Nortima official told journalists.

The ex-Soviet state is battling a deep economic crisis and funds from the sale of the Black Sea plant could have boosted over-stretched state coffers which rely heavily on multibillion-dollar lending from the International Monetary Fund.

The bid of $624 million by Nortima, a company controlled by oligarch Ihor Kolomoysky, was higher than a minimum price set of $500 million.

The State Property Fund, the privatization agency, said it had expected bids of about $1 billion for the plant, despite the starting price.

Some analysts said the government may have been led by the bidders to believe such bids would be proposed.

A price of $1 billion would have fulfilled the government's planned revenues from privatization this year, helping it reach budget promises as required by the IMF as part of its $16.4 billion bailout package, analysts said.

"Normally, when the fund prepares something for a sale, there are talks with investors in order to see more or less what price it should expect," said Oleksander Ryabchenko, director of the Privatization Institute, an independent think tank.

"Most likely such secret talks were held and it is obvious that a different sum was discussed then," he said.

Tymoshenko has for years pinned her reputation as a social crusader to moves against what she calls the corruption of Ukraine's post-Soviet billionaires. She herself is a former gas magnate.

She led the resale of Ukraine's largest steel plant, Kryvorizhstal, to ArcelorMittal for almost $5 billion in 2005 after it had originally been sold to two billionaires for under $1 billion.

Immediately prior to the auction, Yushchenko's camp declared it "hasty and illegal" and seemed certain to savor any discomfort by Tymoshenko over the botched privatization attempt.

Tymoshenko herself moved quickly to save face and blamed Yushchenko's decree for scaring off foreign investors.

A consortium of Norway's Yara International and Polish and Libyan investors had pulled out from the bidding after the decree.

Apart from Nortima, two other companies -- Ukraine's Frunze-Flora and Russia's Azot Servis, a unit of Sibur holding -- had made bids.