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On Oct. 12, ArcelorMittal got the government to back down from a lawsuit that threatened the company’s ownership of the Kryviy Rih plant, the nation’s largest steelmaker.

Journalists, observers and various people supporting ArcelorMittal, Ukraine’s biggest foreign investor, packed the small hall of the Kyiv Economic Court on Oct. 12, expecting drama. They got it.

The hearing came in response to the unexpected lawsuit filed in July by state prosecutors against the global steel giant. The state’s case, depending on how the court ruled, threatened to overturn a landmark privatization deal going back to 2005.

But instead of hearing the merits of the state’s claims that the steel giant had reneged on its legal investment commitments for the Kryviy Rih plant, the government prosecutor dropped the case – unexpectedly and without explanation.

Now ArcelorMittal executives and lawyers are left to wonder whether the threat to the company’s investment in Ukraine’s biggest steel mill, formerly known as Kryvorizhstal, has passed.

The abrupt and unexplained circumstances of the aborted case of the state vs. ArcelorMittal expose several worrisome, recurring problems in Ukraine.

One of them is the utter lack of judicial independence.

In recent weeks, ArcelorMittal raised such an international outcry over the attacks on the company that President Viktor Yanukovych felt compelled to respond publicly on Oct. 8, assuring the investor that the government had no intention of seizing the plant. It took prosecutors only two days (not including the weekend) to act on the presidential edict.

If ArcelorMittal had truly violated legal obligations made during its 2005 purchase, then why was the case dropped? It looks like yet another case of politics trumping justice – and just about everything else — in Ukraine.

The state’s willingness to back down, however, is touted in some circles as evidence of the Yanukovych administration’s interest in improving its international reputation among investors, especially with the coming privatizations of several giant state businesses, including telecommunications monopoly Ukrtelecom.

“The question I have is: Was the claimant in this case the Ukrainian state, thus ruling out a repeat lawsuit? Or was it just the prosecutor general’s office, meaning that another state entity could file a similar lawsuit against our client somewhere down the road?”

– Svitlana Romanova, a lawyer for the Baker & Mckenzie law firm.

ArcelorMittal officials responded with guarded praise, signaling that the steel giant doesn’t think all its battles with Ukrainian authorities are behind them.

“I’m happy,” said Svitlana Romanova, a lawyer for the Baker & Mckenzie law firm, which defended ArcelorMittal in the high-profile case.

But Romanova and company representatives told the Kyiv Post that the Oct. 12 ruling by Ukrainian Judge Oleh Khrypun may not preclude the state from reopening the case and possibly even repossessing the prized mill eventually.

“The question I have is: Was the claimant in this case the Ukrainian state, thus ruling out a repeat lawsuit? Or was it just the prosecutor general’s office, meaning that another state entity could file a similar lawsuit against our client somewhere down the road?” Romanova asked.

Khrypun, a judge who is no stranger to controversial cases, dismissed the dispute without explanation after the lone prosecutor withdrew the state’s claims, also without explanation.

“Was today’s decision a result of President Viktor Yanukovych’s meeting in Paris with [French] President Nicolas Sarkozy? I don’t know,” pondered Romanova.

The issue was raised during Yanukovych’s Paris visit because ArcelorMittal is part French-owned. France-based Arcelor merged with British-Dutch Mittal Steel in 2006 to form the world leading steel giant.

On Oct. 8, during an official visit to the French capital, Yanukovych tried to quell the controversy over the lawsuit.

“In my opinion, it will not develop further. In any case, I told President Nicolas Sarkozy yesterday that this question will most likely not reach the court, and the question of re-privatizing or cancelling the agreement on privatizing this plant will not arise,” Yanukovych was quoted as saying in Paris.

ArcelorMittal, owned by Indian tycoon Lakshmi Mittal, bought Kryvorizhstal in 2005 during the country’s cleanest state auction ever, fetching a record $4.8 billion, far more than any other privatization sale since the collapse of the Soviet Union in 1991.

The landmark deal signaled that Ukraine, at last, was open to foreign investment and finally determined to shed its “crony capitalist” reality, in which most Soviet state assets went to insiders for cheap in independent Ukraine.

The celebrated 2005 auction of Kryvorizhstal took place following the cancellation of its highly suspect sale a year earlier to a leading member of Yanukovych’s Regions Party, billionaire Rinat Akhmetov, and Viktor Pinchuk, son-in-law of the outgoing president at the time Leonid Kuchma for only $800 million.

ArcelorMittal co-owner Lakshmi Mittal is to
visit Ukraine next week to discuss his companies problems.

Since then, Ukraine’s biggest investor has barely had a moment’s peace.

Over the years leading up to the lawsuit filed by the prosecutor’s office in July, ArcelorMittal Kryviy Rih has been accused by Ukrainian trade unions of reneging on its investment obligations.

More recently, the Security Service of Ukraine, successor agency to the Soviet KGB, began investigating the company for customs violations on imported coal.

Rinat Starkov, chief executive officer of ArcelorMittal’s steel plant in Kryviy Rih, the nation’s largest.

Both grievances have been vigorously denied by top company executives, who for their part draw attention to the hundreds of millions of dollars owed to the company by the government in the form of refunds on value added taxes paid.

Strange and violent incidents also happened to plant workers. In October 2009, gunshots were fired at a company car, leaving one foreign employee wounded.

In line with earlier official statements made by his company, the Kryviy Rih plant’s new chief executive officer, Rinat Starkov, noted the official origin of the administrative problems encountered by his company.

Starkov said Yanukovych “has been fully briefed on the case against ArcelorMittal and knows exactly what is happening.”

Yanukovych also is under pressure, however, to present a “reformist,” law-and-order and free-market face to the international community, including such lenders as the International Monetary Fund, which has approved a $15 billion credit line over the next two and a half years.

Ukraine also recently announced the privatization of state telecom giant Ukrtelecom, for a starting price of $1.32 billion, which could bring in badly needed foreign investment.

But if investors don’t feel their assets are safe in Ukraine, they won’t come.

The prosecutor general’s latest lawsuit relates to a 2009 force majeure – or emergency situation — agreement between ArcelorMittal and the State Property Fund.

The deal allowed the steel plant to postpone investment commitments made under the terms of the original purchase in 2005 because of the global economic crisis that caused steel prices to plummet in 2008.

The state’s July lawsuit names Arcelor Mittal Duisburg GmbH. as well as Ukraine’s State Property Fund as co-defendants.


“The Yanukovych adminstration’s reforms have been so successful that the treatment has killed the patient.”

– Ihor Koliushko, who heads the Center for Political and Legal Reforms.

ArcelorMittal’s defense has hinged on the contents of both the 2005 purchase agreement and its 2009 force majeure addendum, which specifies an international arbitration court as the jurisdiction for deciding all disputes.

Both Starkov and Baker & McKenzie’s Romanova expressed concern not only over the fact that Khrypun’s court should not have been allowed to hear the case in the first place, but also over the speed with which the controversial judge has pushed the proceedings along.

“Three sessions in 10 days [Oct. 1, 5 and 10] is unheard of for such a case,” Romanova said.

No less strange was the speed with which the prosecutor general’s office and Kyiv Economic Court dropped their case against the multinational steel company.

Ihor Koliushko, who heads the Center for Political and Legal Reforms, told the Kyiv Post that the independence of Ukraine’s judiciary has been so restricted that the judiciary no longer exists as an independent and separate branch of power.

“The Yanukovych adminstration’s reforms have been so successful that the treatment has killed the patient,” he said.

However, not everyone is convinced that the sorry state of the country’s courts will necessarily lead to the confiscation of the country’s largest steel mill from its largest foreign investor.

“Although in our country, the courts do all kinds of things, the idea of taking back this plant from such a serious international investor would be going too far. The damage to the country’s investment reputation would be too great.”

– Oleksandr Bondar, a one-time head of Ukraine’s State Property Fund.

“Although in our country, the courts do all kinds of things, the idea of taking back this plant from such a serious international investor would be going too far. The damage to the country’s investment reputation would be too great,” Oleksandr Bondar, a one-time head of Ukraine’s State Property Fund said.

More likely, according to Bondar, is that the Yanukovych administration is putting pressure on ArcelorMittal to increase its tax payments to the cash-strapped government.

“They [ArcelorMittal] aren’t the only company under pressure to contribute more to the government,” Bondar said.

Kyiv Post staff writer John Marone can be reached at [email protected].