Court annuls Kryvorizhstal deal

A Kyiv court ruled Feb. 17 that last year's privatization of Ukraine's largest steel mill was illegal, a day after Ukraine's new premier announced that the government plans a massive probe into more than 3,000 post-Soviet privatization deals.

The court annulled its own ruling that had allowed the sale of the Kryvorizhstal mill to former President Leonid Kuchma's son-in-law, Viktor Pinchuk, and tycoon Rinat Akhmetov despite reportedly higher offers from bidders in the United States and Russia, a court official said.

The sale became one of Ukraine's most controversial post-Soviet privatizations, and new President Viktor Yushchenko had vowed to reverse it.

"This ruling is the first one that does not recognize this privatization as legal," said lawyer Irina Nazarova, who represents a group of lawmakers loyal to Yushchenko.

Pinchuk said in a statement that he would accept "any decision independently taken by the courts under the rule of law," and that "Ukrainian authorities themselves should comply with court decisions."

In an interview with Ukraine's Korrespondent magazine published this week, Pinchuk said that for himself and Akhmetov, their reputations as "honest businessmen and patriots" were of the utmost importance in resolving the issue.

In a sign that Pinchuk is eager to establish good relations with the new government, he hosted a luncheon that featured Yushchenko during last month's World Economic Forum in Switzerland, a high-powered gathering of government and business leaders.

Pinchuk's corporate lawyer Oleksiy Reznikov, however, dismissed the court's ruling Feb. 17 as "cynical and damaging."

"The court acted against the law," Reznikov told reporters, announcing plans to appeal to a higher court. The case could eventually reach Ukraine's Supreme Court.

Nazarova, lawmaker Pavlo Ignatenko and a group of deputies filed a lawsuit last year to annul the privatization, claiming the deal violated the rights of Ukrainian citizens to buy stakes in the company.

Yushchenko has called the mill's sale, at the rock bottom price of $800 million (665 million euros), a theft.

Yulia Tymoshenko said Feb. 15 that the government would investigate the privatization of some 3,000 other enterprises to learn whether they were sold off at discounts to tycoons connected with the former regime.

Andriy Dmytrenko, an analyst with Kiev-based Dragon Capital Investment House, called the court ruling "one of first steps in the process of the cancellation of murky privatization deals." He cautioned, however, that the Supreme Court "will have the last word."

In a statement, Pinchuk urged the government to conduct its inquiries into past privatizations "in a controlled manner, transparently and involving dialogue."

"Avoiding a murky and legally dubious process is the best way to improve the image of Ukraine in the international community, particularly in relation to European investors," he said.

Other bidders at the Kryvorizhstal auction, including Russia's OAO Severstal and a consortium of LNM Group and United States Steel Corp., cried foul after the sale, claiming they had offered more than Pinchuk and Akhmetov.

Earlier this week, Yushchenko pledged that his government would return the mill to the state "at any cost."

Analysts said that if the mill is put up for a transparent resale open to foreign bidders, the government might receive more than double what it sold it for last year. The state needs the money desperately to fill its budget gap.

Iosif Diskin, co-chairman of the Moscow-based Council for National Strategies, said Ukraine's example should push the Russian leadership to close the book once and for all on the contentious privatizations of the 1990s by providing the possibility for owners to pay an extra fee to hold onto property that was obtained on the cheap.

"What has the liberal, Orange Revolution done first of all? It has made the decision to review more than a 1,000 privatization deals," Diskin told a Moscow news conference.

"No liberal adherence to ownership rights stopped the leaders of the Orange Revolution - on purely economic grounds - from saying 'we will destroy the economic foundation of our political enemies'."