ArcelorMittal, one of Ukraine’s largest foreign investors, cried foul this week saying that it is being harassed through endless tax inspections and pressure by state authorities.
The company, which runs Ukraine’s largest steel mill in Kryvy Rih, said it is owed hundreds of millions of hryvnias in overdue tax refunds by authorities and is considering establishing a separate department to respond to twice-daily inspections by state bodies.
ArcelorMittal Kryviy Rih, the Ukrainian arm of the world’s biggest steel producer, has come under consistent pressure from the authorities in the last year.
Last year, it complained the government was using administrative pressure to renationalize the plant, which it bought in 2005 for $4.8 billion.
The authorities had accused the company of violating its purchase agreement by not investing in the plant and social programs. The company eventually fought off the claims in court.
Rinat Starkov, chief executive of ArcelorMittal Kryviy Rih, said the company was owed Hr 2.3 billion ($288 million) in value-added tax (VAT) refunds as of the end of 2010. Refunds owed to the firm grew at a rate of Hr 300 million per month last year, according to Starkov.
“The question of failing to return VAT was a serious problem for us for the whole of 2010 and, unfortunately, we don’t yet see any serious improvements in this matter, or even the desire of the government to do something about this situation,” he said at a press conference on Feb. 14.
Starkov added that ArcelorMittal had been forced to pay taxes in advance amounting to Hr 1.2 billion by Dec. 31 last year.
The company is also coming under the watchful eye of zealous state inspectors who carry out an average of two checks per day, according to Starkov. He said the number of inspections grew by 40 percent in 2010 compared to 2009.
Ukraine has a dismal investment climate and has, as a result, attracted only a tiny amount of foreign direct investment compared to the levels that have flowed into neighboring Poland, for example.
When the nation’s largest investor is treated this bad, observers say it raises questions about whether President Viktor Yanukovych’s administration is really serious about attracting more investment that Ukraine so desperately needs to fuel sustained economic recovery and long-term growth.
Troubles facing ArcelorMittal last year were not isolated incidents. Since acquiring the Kyrvy Rih steel mill in 2005, the world leading steel producer has seen its top managers shot at by local gangs and top Ukrainian officials repeatedly threaten to challenge its ownership of the plant.
“This situation can’t be considered normal, given that it substantially undermines the attempts of Ukraine to create the image of a country with an attractive investment climate,” Starkov said. Starkov’s words paint a very different picture to those of the presidential administration.
Iryna Akimova, the president’s deputy chief of staff, told the Kyiv Post in a recent interview that the government at the end of last year had begun to “gradually remove” the majority of “sore spots” in relations between the government and ArcelorMittal and the question of VAT refunds.
Kyiv Post staff writer Vlad Lavrov can be reached at [email protected]
