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. Last Updated: 07/27/2016

Partners in Steel Mill Fall Out

Unable and probably even unwilling to search for a compromise, a Moscow investor and the Kemerovo region governor, Aman Tuleyev, are fighting a debilitating battle for control over the Kuznetsk steel mill.

Regional prosecutors used force Saturday to oust the steel mill's external manager, Sergei Kuznetsov, who had been defying court orders to quit his post, officials from the Metallurgical Investment Company, or MIKOM, said Tuesday.

Kuznetsov - who was thrown into jail with several other steel mill officials - had the support the plant's workers, who reportedly clashed with police, MIKOM officials said.

The police raid, made at the behest of the Communist governor, marked a return to Bolshevik methods, claimed MIKOM director Mikhail Zhivilo.

"We witnessed the rebirth of the horrors of 1937," he said, citing the year of Stalin's great purge. "The only goal pursued by Tuleyev is to seize all power in the region."

However, Kemerovo officials defended the governor's actions, which they said had been fully legal. They also denied that any fighting took place at the plant.

"There was no fighting and the people who requested medical aid had minor injuries not related with the incident," regional Deputy Governor Vladimir Krasilnikov said Tuesday in a telephone interview from Kemerovo.

Workers had turned away from MIKOM's management team after they were informed that the top 39 employees at the plant had received monthly salaries of 100,000 rubles (about $4,000) each in the second half of 1998, he added.

Krasilnikov said that the head of the plant's labor union, Andrei Denaikin, was drunk, swore at the police and had attempted to incite his fellow workers to riot.

Denaikin was detained by the police and, according to some sources at the plant, beaten almost to death.

Whatever actually happened in Kemerovo on Saturday, the Kuznetsk steel mill dispute has escalated into a bizarre falling out between former partners.

MIKOM in fact supported Tuleyev's re-election campaign in 1996.

"We supported Tuleyev and made monetary transfers to his accounts," Zhivilo said.

It later bought a stake in the Kuznetsk plant and installed a fresh management team. When the mill was declared bankrupt earlier this year, MIKOM succeeded in getting its man, Kuznetsov, installed as external manager.

However, trouble loomed when the external manager announced that he wanted to sell the steel mill, claiming he could raise $300 million to $350 million in an open auction to pay off the factory's debts.

That was when the two parties fell out, as Tuleyev feared losing control.

He also saw a chance to get hold of Kuznetsk's lucrative hard currency earnings, Zhivilo said.

"On Monday [Kuznetsk] revised all export contracts, making the Siberian Ore Metal Co. a recipient of all export revenues," he said.

The Siberian Ore Metal Co. is owned by the local administration.

The move went against Tuleyev's own stated policies - that intermediary companies should not be selling steel - Zhivilo said.

In the first nine months of this year, the mill had revenues of 4.37 billion rubles ($190 million), allowing it to post pretax profits of 300 million rubles ($12 million), up from a loss of 451 million rubles ($45 million) for the same period in 1998, Interfax reported.

The mill produced 1.25 million tons of pig iron and 2.1 million tons of steel, the agency added.

The Kemerovo government wants to keep the steel mill under external management for the maximum 10-year period, exempting it from debt servicing while it gets back on its feet, Deputy Governor Krasilnikov said.

Even as Tuleyev moves to consolidate his win, union feeling is still running high against him and his administration.

The Communist governor has refused 28 separate invitations from the workers for him to visit the plant and explain his position, said Irina Ledeneyeva, deputy head of the Central Council of Metallurgical Labor Union.

Ledeneyeva said the conflict was a straightforward fight over valuable property, a view also endorsed by Viktor Medikov, a Duma deputy who represents Kemerovo for the Russian Regions faction.

"It is a fight for property," Medikov said. "I do not sympathize with any side except for the workers of the plant."

Medikov said he met with the plant's employees Friday and later with local police, prosecutors and is seeking an appointment with Prime Minister Vladimir Putin.

"I feared that on Saturday the situation could go out of control and civil riots and strikes could start in Kemerovo," Medikov said.

Meanwhile, Communist Duma Deputy Nina Astanina, also from Kemerovo, said MIKOM was to blame.

"Kuznetsov violated the law by refusing to abide by the court's decision," Astanina said.

Astanina sharply criticized MIKOM's activities in Prokopievsk, the Kemerovo district she represents.

MIKOM, which owns coal mines in Prokopievsk and built a financial-industrial group in the region, was exporting products at below market prices and paying the lowest salaries in the industry. Miners in Prokopievsk get about 550 rubles a month ($20), she said.