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Last Updated: Wednesday, 16 June, 2004, 08:54 GMT 09:54 UK
A nasty business in Ukraine
By Helen Fawkes
BBC Kiev correspondent

Leonid Kuchma
When Mr Kuchma talks, everyone has to listen

If Ukraine wants to send out a danger signal to foreign investors, it's going about it in the right way.

One of Ukraine's most lucrative privatisation deals has been awarded to the richest man in Ukraine and along with arguably the most well connected man in the country.

On Monday, Rinat Akhmetov, Ukraine's wealthiest man and businessman Viktor Pinchuk, the son in law of President Leonid Kuchma, won the tender to buy Kryvorizhstal, one of the world's largest steel plants.

For some Ukrainians this is being viewed as another cynical example of pro-government oligarchs profiting at their country's expense.

No contest

A consortium of international firms LNM and US Steel had offered $1.5bn for Kryvorizhstal, but the Akhmetov-Pinchuk partnership won despite bidding half as much.

Viktor Pinchuk
Viktor Pinchuk has friends in high places
The tough rules set out by Ukraine's State Property Fund excluded most of the proposals - including all the foreign ones.

Companies were required to have a history of producing at least a million tonnes a year of coke in Ukraine.

While claiming to welcome international bids, this condition meant it was never going to be an open competition for Kryvorizhstal, which employs 52,000 people, and which last year made a pre-tax profit of around $300m.


This has been one of the ongoing problems of Ukraine's privatisation programme.

There have been repeated complaints by foreign investors that privatisation tenders are frequently rigged in favour of Ukrainian businessmen often connected with President Kuchma and his associates.

Like in many former Soviet states, business and politics are closely linked.

With just weeks to go until the start of the presidential election campaign, this deal can also be seen as a significant political manoeuvre on the part of those in power.

Political problems

In October, Ukrainians go to the polls to elect a new leader.

Journalists protest in Kiev
Protesters call for free speech, but is anybody listening?
President Kuchma has said on many occasions he will not run for a third term - even though the constitution was changed last year to allow him to do just that.

Instead he is backing the Prime Minister, Viktor Yanukovych.

A former governor of the Donetsk region, the industrial powerhouse in the east of Ukraine, Mr Yanukovych is regarded as a key figure in the business empire of Mr Akhmetov, one of the lucky winners of the Kryvorizhstal tender.

Commentators have suggested that the Kryvorizhstal privatisation deal could be part of an agreement reached between President Kuchma and Mr Yanukovych.

If the President does not run, he will want to ensure that he is given immunity from prosecution.

Back-room deals

During his time in office, Mr Kuchma has lurched from one scandal to another, including being accused of complicity in the killing of an opposition journalist, over which he could face a jail sentence if he's charged and found guilty.

Viktor Yushchenko
Mr Yushchenko considers his position
There is a feeling that uncertainty over the outcome of the election could have prompted the pro-presidential politicians to press ahead with the Kryvorizhstal privatisation despite legal attempts to stop it.

The opposition leader, Viktor Yushchenko, who has said he will run as a presidential candidate, has continued to be a popular figure in the opinion polls.

The opposition has been against selling off the state-run steel plant and they want the privatisation of strategic enterprises to be halted until after the elections.

On the edge

Ukraine, which now borders the EU, is one of the largest countries in Europe, but its great potential has yet to be realised.

Ever since independence from the former Soviet Union, the pace of economic reform has been slow.

Ukrainian market traders
Ukraine's economy remains stoutly agrarian
The country has also been held back by corruption which continues to be carried out on a massive scale.

True, the economy is looking healthy right now: in the first quarter of the year, gross domestic product increased by almost 11% year on year.

But the gap between the haves and the have-nots is increasing - outside the main cities, the poverty is hard to miss.

Some people live without basic amenities like running water and a gas supply, and average incomes are still just $100 a month.

If the Kryvorizhstal sell-off is another step in the consolidation of power, money and influence in the hands of pro-government oligarchs, matters can only get worse.

Scandal over Ukraine steel sale
14 Jun 04  |  Business
US jury convicts ex-Ukrainian PM
03 Jun 04  |  Americas
Ukraine hopes for sell-off boost
12 May 04  |  Business
Ukraine MPs vote against reforms
08 Apr 04  |  Europe
Country profile: Ukraine
21 Apr 04  |  Country profiles
Kuchma gets chance of third term
30 Dec 03  |  Europe

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