Ukraine Reveals Terms of Kryvorizhstal Sale

KIEV -- Ukraine will stage its largest and most hotly contested privatization this year by reauctioning the vast Kryvorizhstal steel plant, it announced on Wednesday, with the starting price set at 10 billion hryvnas ($2 billion).

The rerun of the ex-Soviet state's auction of the country's largest steel mill comes after President Viktor Yushchenko denounced the original sale as "theft."

Yushchenko made the sell-off a major issue in last year's presidential campaign, which he eventually won after a new vote was ordered due to electoral fraud.

The new sale of 93.02 percent of Kryvorizhstal, set for Oct. 24 and announced by the State Property Fund in its official gazette, follows court rulings overturning last year's sale for $800 million, which was below other offers, to a group of businessmen closely linked to Ukraine's previous authorities.

Revenue from any sale is key for a government saddled by huge social obligations. It will also show whether foreign investors are willing to come to Ukraine after months of disputes within the administration and confusion over economic strategy.

"This is an important event from various viewpoints, above all the legal situation. The old owners are still pursuing the case in courts and raises the question whether putting it up for auction could be a bit premature," said Zsolt Papp, market strategist at ABN AMRO in London.

"On the other hand, Kryvoryzhstal was seen as an obvious case where a large state asset was sold at a below-market price so it is logical the government would try to correct that privatization first."

Several foreign companies -- including the world's biggest steel maker, Mittal Steel; Evrazholding; and Severstal -- have expressed interest in buying the mill. Mittal confirmed its interest on Wednesday.

Evrazholding and Severstal declined to comment.

Contested post-Soviet privatization has proved to be one of the most divisive issues tackled by Yushchenko's administration.

Ministers have been bickering for months over what to do with sales conducted in dubious circumstances under the previous government. Courts are deliberating over dozens of cases, and no clear official strategy has been presented.

A successful sale would help the government offset expenditure linked to the doubling of pensions during last year's campaign. The current government, its eyes firmly on a general election next March, introduced a pensions increase of its own.

But privatization revenues, a major source to cover the budget deficit, have so far failed to materialize.

"This year's privatization target is $1.4 billion, and so far they have only raised a 10th of that. Obviously the market would love it if they sold the steel assets," Frank Gill, emerging markets strategist at IDEAglobal in London.