Ukraine prepares for biggest ever privatization auction

For the first time in this ex-Soviet republic's history, a major industrial enterprise is slated to go under the hammer live on television.

Ukrainian President Viktor Yushchenko has staked his reputation on the auction to privatize the Kryvorizhstal steel mill, Ukraine's biggest. His opponents are determined to block it.

Parliamentary critics twice last week mustered enough votes to press the government to halt Monday's sale of the 93.02 percent stake in the mill, but Yushchenko shrugged off their nonbinding appeal, just as he has the legal challenges waged by the mill's former owners.

"There won't even be talk of reconsidering the decision," Yushchenko said Friday, adding that a repeat auction was necessary "first of all, morally and politically."

"We want the repeat sale to show one thing: breaches in the law ... will be corrected," Yushchenko said.

Kryvorizhstal, which produces 20 percent of Ukraine's entire metal output, was sold last June by the state for US$800 million (Ђ665 million) in a privatization widely condemned as rigged. The buyers: Former President Leonid Kuchma's son-in-law, Viktor Pinchuk, and coal-and-steel-magnate Rinat Akhmetov.

During last year's Orange Revolution, Yushchenko called the sale a "theft" and pledged it would be reversed.

Oleh Rybachuk, Yushchenko's chief-of-staff, said that "if (the auction) is successful, it will show that you can trust what the Ukrainian government says."

The world's two largest steel producers, Mittal Steel and Arcelor, are expected to participate.

The opening price is 10 billion hryvna (US$2 billion, Ђ1.6 billion) but analysts expect the price could be driven as high as 17.7 billion hryvna (US$3.5 billion, Ђ2.9 billion). The sale could generate 10 percent of the country's annual budget revenues _ a huge cash influx that Yushchenko's government desperately needs.

But the 450-member parliament is determined to put the brakes on. This week, it passed repeated appeals to the government to stop the auction and hold on to what is considered Ukraine's flagship mill. Even the head of the State Property Fund, which is conducting the auction, has made little secret of her displeasure at having to surrender this valuable state enterprise.

"I stood for and I still stand by the position that such profitable factories must remain in the hands of the state," said State Property Fund head Valentyna Semenyuk, a member of the Socialist Party, which has led the parliamentary challenge to Monday's sale.

The mill, which produces 8 million tons (8.8 US tons) of steel a year, was returned to the state in June after former Prime Minister Yulia Tymoshenko's government successfully challenged its privatization under Kuchma.

Legal appeals by the Pinchuk-Akhmetov consortium were rejected, but one appeal is still pending before Ukraine's Supreme Court. The two tycoons have also launched a challenge before the European Court of Human Rights.

Last week, a U.S.-based investment group, acting on behalf of the former owners, sued in a U.S. District Court in Manhattan in a bid to stop the resale.

"The investors must stop and think," Pinchuk was quoted as telling Ukraine's Ukraynska Pravda Web site. "Say you want to buy an apartment but you are told this apartment is the subject of a court case. Will you risk buying this apartment? I don't think so."

His lawyers have dispatched letters to the potential bidders warning them of the situation, Pinchuk said.

The three confirmed bidders, however, don't seem scared. Mittal Steel, the world's largest steel producer, had been blocked from participating in last summer's auction for what it claimed were dubious reasons.

This time, Mittal will be competing against the Industrial Group consortium, which brings together the Industrial Union of Donbass, Ukraine, and the world's second-largest steel producer, Arcelor.

The third bidder is the Dnipropetrovsk, Ukraine-registered LLCSmart-Group, reportedly linked to a Russian steel magnate.

Originally, the Ukrainian government had hoped for at least 10 bidders, but analysts said the smaller number isn't much of a disappointment.

"Mittal and Arcelor were considered the favorites anyway and the government would like to sell it to a multinational Western-based company," said Tomas Fiala, managing director of the Kiev-based investment bank, Dragon Capital.

The government's post-Orange Revolution re-privatization policy, spearheaded by Tymoshenko, was canceled last month, but Kryvorizhstal's resale never was put in question. Yushchenko has said it is a matter of honor.

Government officials have already begun salivating over the extra funds the mill's sale will bring. Security Council head Anatoliy Kinakh promised that the money would go toward social programs, while other officials have bandied about ideas such as redeeming some domestic debt and boosting the share capital of the two state-owned banks, AP reported. V.A.