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Last Updated: Monday, 24 October 2005, 04:02 GMT 05:02 UK
Steel sale will test Orange pledge
By Helen Fawkes
BBC News, Kiev

Burning rivers of liquid steel flow into the furnace at Kryvorizhstal.

The orange glow lights up Anatoly's face.

He is one of the 56,000 employees.

Kryvorizhstal furnace
The auction will start at over twice the original sale price
Like Anatoly, many of them say they are proud to work here because of the heritage of this steel giant.

Based in Eastern Ukraine, Kryvorizhstal was established in the early years of the Soviet Union.

But its future is not so certain. On Monday, it is being auctioned off live on television for a starting price of $2bn - but it is not the first time it has been sold.

This is one of the country's most lucrative assets - it produces almost 7m tonnes of steel a year.

It was the original sale of Kryvorizhstal last year which helped to spark the Orange Revolution, which brought Viktor Yushchenko to power.

It was bought by a consortium of businessmen closely linked to the former authorities.

For this steel works, which is the size of a small town, they paid $800m, while foreign firms had offered almost double.

The sale has since been declared illegal by the courts.

Sale reviewed

"During the preparations for the privatisation last year, I was in charge of a special parliamentary commission which revealed lots of violations. But it was only after the Orange Revolution that the state was able to take back Kryvorizhstal," says Valentyna Semeniuk, the head of the State Property Fund which is responsible for privatisations.

Anatoly, Kryvorizhstal worker
Workers like Anatoly have pride in their work, but want a future
This was one of the main issues of the opposition's presidential election campaign last year which led to the mass street protests in Kiev.

Once in power, President Yushchenko ordered a review of some of the controversial privatisations of the past.

But Kryvorizhstal has been unfairly targeted, according to Viktor Pinchuk, who was part of the consortium that bought the steelworks.

The billionaire is the son in law of Ukraine's ex-President Leonid Kuchma.

"This Kryvorizhstal case was one of the main symbols of the orange revolution and Mr Yushchenko promised to the people that if he will win he will take this property back to the state," says Mr Pinchuk.

"But it is an absolutely political re-privatisation."

He is now taking the case to the European Court of Human Rights.

"Nobody has paid back our $800m - that's why we are sure there is now only one legal owner of Kryvorizhstal and that's our consortium."

Opposition MPs who are based in this industrial heartland have tried unsuccessfully try to halt the repeat sale.

Growth hit

But the president is determined it will go ahead as a showcase privatisation.

The government will get at least $2bn, which will help fund the massive increase in social spending since Mr Yushchenko came to power.

Kryvorizhstal plant
Kryvorizhstal is a test case for President Yushchenko
In the last year there has been a sharp slowdown in economic growth.

That is partly blamed on the uncertainty over ownership rights which has sacred off many companies from putting their money into Ukraine.

"Investors are now looking at what will happen, how transparent the process is and if there is a clear signal from the government that this is the last asset that will be re-privatised," says Jorge Zukoski, the president of the American Chamber of Commerce in Kiev.

"What we can see at this point is that there is so much international interest in Ukraine that if this one re-privatisation is handled properly the country will be able to move on rather rapidly."

Inside a dimly lit factory bright orange tubes of metal are curled and then cooled on a conveyer belt.

Steel like this from Kryvorizhstal is sold on the global market and the repeat sale has attracted international interest.

Three firms are taking part:

  • the world's biggest steel company, Mittal Steel, which attempted to buy Kryvorizhstal the first time round
  • a consortium led by the European giant Arcelor
  • the eastern Ukrainian LLC Smart Group.

The controversial auction of the steelworks will be broadcast live on national television on Monday.

The re-privatisation of this enterprise will fulfil a key promise of the Orange Revolution but the cost to Ukraine could be high.

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