The privatization of yet another of Ukraine's potentially lucrative state enterprises has been halted by the government – and the government is yet again facing allegations that its motives for doing so were less than pure.
The plant in question is the fertilizer and chemical plant Priportovoy Zavod, located in the Black Sea port of Pivdenny, near Odessa. While the reason the privatization was stopped has not been made public, an inside source in Odessa said Prime Minister Valery Pustovoitenko personally halted the privatization of the plant during a trip to Odessa on Sept. 16.
The prime candidate for a stake in Priportovoy Zavod was Monaco-based Fetkominvest, which already owns a minor share. A successful bid on the stake in the plant would have given Fetkominvest effective control of almost half of the former Soviet Union's fertilizer processing capacity. The plant currently controls about one-third.
Specific details on the alleged investment proposal were not available. But the government halted the tender even though a successful bid by Fetkominvest reportedly would have left it short of a majority stake. Insiders allege the government was turned off by the prospect of seeing its own stake significantly diluted.
'What we are hearing here is that the national government did not want to allow the sale of a valuable enterprise without guaranteeing its interests,' an Odessa-based shipping professional said. 'But there is no confirmation.'
Pustovoitenko's office declined to comment on the purpose of the premier's trip to the plant. State-controlled media Pustovoitenko visited the plant 'to meet with management and to discuss strategic matters.'
A Priportovoy Zavod receptionist said, 'Pustovoitenko was here, But we can't tell you why.'
About the only detail of this murky case that is clear is that Priportovoy Zavod – and the entire port of Pivdenny, for that matter – would benefit highly from an injection of foreign capital.
Established on the profits of Occidental Petroleum founder Armand Hammer's long trading relationship with the Soviet Union, Priportovoy Zavod thrived in Soviet times by taking chemicals manufactured in Russia and converting them into fertilizers.
The plant continued to exploit the benefits of the region up until the Soviet Union's collapse. In the early 1990s, 20-25 percent of the world's carbamide and ammonium – the keys to the production of nitrogen-based fertilizers – passed through Pivdenny.
Ukrainian independence coincided with a very bearish market turn. Commodity prices plummeted, from $165 per ton of Ukrainian carbamide to the current level of $80 per ton. China, which was once the largest buyer of Ukrainian fertilizers, became a net exporter as of June 1997.
Meanwhile, hot competition from Novorossisk, Russia, and Ventspils, Lithuania, combined with the vindictive customs practices of newly independent Ukraine, hurt the Pivdenny based plant even further.
Only one of the eight major Russian chemical manufacturers that used to push their fertilizers through Pivdenny still does so. And despite processing some 3.1 million tons of chemicals last year and grossing $220 million to $240 million in net income, the plant operated at only half-capacity. Experts say the worst has yet to come.
'The situation isn't as we are being told, it is much worse' said Igor Lander, director of a Pivdenny port company. 'Ammonium shipments will continue at a dramatically reduced volume, and carbamid will simply go away completely.'
Nonetheless, foreigners have stood in line to get a chunk of the plant.
The first of the foreign suitors was Norwegian chemical giant Norsk-Hydro, which was thrown out of a $15.2 million joint venture with Priportovoy Zavod in March 1997. The Ukrainians claimed the Scandinavians dragged their feet when it came to coughing up hard currency. Norsk-Hydro alleged the Ukrainians backed out of a signed agreement in favor of Russian partners.
Fetkominvest, which is closely linked with phosphate manufacturers in Kemerovo, Russia, and Sumy, Ukraine, replaced Norsk-Hydro the next month. Its investment into overhauling and modernizing two phosphate-loading wharves was estimated at $1.5 million. Construction was complete at the end of the year.
But a lot more remains to be done to fully exploit the plant's potential, including the replacement of the plant's 1960s-era equipment.
'For the right foreign company … the Pivdenny phosphates and fertilizer factory and loading complex is ready for foreign investment and will sell up to 38 percent of its shares to the right financial source,' Roman Shpek, head of Ukraine's National Agency for European Integration and Development, told reporters last year.
Now, that plan has been scratched and everyone involved seems afraid to answer the simple question: Why?
