Mykolayiv Alumina Plant: Quiet Before Next Battle?

Unlike its Russian counterparts, which receive alumina mostly from the Urals bauxite, the MAP buys bauxite in Guinea (also formerly in Brazil and Australia). The latter ore is of higher quality and aluminum content. The plant's annual export capacity was about $200 million. About $140 million of its own funds have been invested in the plant development over the last decade. The plant accounts for up to 60% of Mykolayiv oblast budget revenues.

MAP was not much harmed by the collapse of the USSR, remaining one of the pivotal points in the production of Russian aluminum (Guinea-Mykolayiv-Russia). It also kept its previous suppliers and customers, the Krasnoyarsk and Bratsk aluminum works. The time of maneuvering and searching for new recipients of alumina came later, when Russia saw the beginning of privatization followed by a so-called Great Patriotic Aluminum War. When the firing of unsuitable directors and managers was in full swing in Russia and the aluminum complex was being divided up, MAP, now a leasing facility, saw privatization as a distant prospect.

The decision to privatize the MAP was made in 1997. The State Property Fund approved the first plan of placing the shares of what was registered as the Mykolayiv Alumina Plant Company: a 30.97% stake was handed over to the workers' collective in the person of the lease-holding organization, 28% was planned to be sold in three blocks in a non-commercial tender, 25% remained state property, and the remaining shares were intended to be sold in small blocks on preferential subscription, via certificate auctions, in exchange for compensation certificates, etc. The MAP Co. authorized capital was set at 378,263,360 hryvnias. The privatization plan, especially regarding the blocks to be sold on a competitive basis, was repeatedly altered. Only the work collective's share always remained the same: 30.97%.

While the State Property Fund was making its final choice about the placement of shares, an 8-month blockade of the MAP began in 1997. Russian aluminum works (including those under Trans World Group control) refused to buy the Ukrainian alumina (importing it, to their loss, even from Australia) and issued an ultimatum: they would buy alumina at the price they set. As Vitaly Mieshyn told the UNIAN press conference at the time, the price they demanded was $17-18 per ton lower than the world level. The plant did not accept these conditions: "We cannot sell alumina in fact at cost."

MAP had to re-orient itself toward the Tajik Aluminum Works, with which it concluded a deal to supply 400,000 tons of alumina. Contrary to a now popular version about Mr. Mieshyn's "unauthorized actions," the decision to cooperate with the Tajik works was approved at the top level. Addressing the work collective on April 22, 1997, and explaining the situation with the blockade and orientation toward Tajikistan, Mr. Mieshyn said, "At various estimates, the plant (in Tajikistan - Author) has multimillion dollar debts. Besides, it is situated in a politically unstable area. Nevertheless, it was decided on the level of the presidents of Ukraine and Tajikistan to supply our alumina, with a grace period of 45 days. But Tajikistan only pays us for 40% of the products received" (the text of his speech was printed in the plant's newspaper Metallurg on May 22, 1997). This means at least one more person must share with the general manager the responsibility for Tajikistan's debt to the MAP (variously estimated at $50 to $60 million), now being placed on Mr. Mieshyn alone.

Having set up an alternative sales market, MAP began to cooperate with the Tajik works on a barter basis: in exchange for alumina supplies, Ukraine began to receive aluminum (under the project, up to 100,000 tons a year). Tajikistan took a commitment to repay the previous debts, which was confirmed by First Deputy Premier of Tajikistan Akbar Kakhorov during his visit to Kyiv in April this year. A 15-year intergovernmental agreement was prepared, which provides for the processing of alumina at the Tajik Aluminum Works and stipulates, among other things, a debt repayment pattern. Yet, the draft agreement, with all necessary permits, is gathering dust in the Cabinet of Ministers, while the Ukrainian prime minister's visit to Tajikistan to sign the agreement is not expected in the foreseeable future.

The Tajik debts became the main argument for those favoring Mr. Mieshyn's dismissal: they allege the debts are the main reason why the plant's financial and economic situation has deteriorated abruptly. However, there were also other reasons. Among them was the criminal case opened by the Security Service of Ukraine last December against the general manager and six other executives. It is still being investigated with no apparent result. The case resulted in the partners' ultimatum to work only on a prepayment basis. This washed $11 million out of the plant's current assets and led to power outages, although electricity debts covered only two months, but the loss inflicted on the continuous-cycle-production facility runs into the millions. This month, after signing the order to fire Mr. Mieshyn, Chairman of the National State Corporate Rights Agency Oleh Taranov gave many speeches arguing need to fire the general manager and citing figures that characterize the ever-worsening situation at the plant. True, the analysis was only made with respect to four months of this year, and not, for example, for the whole 1998, when the MAP produced a record-breaking 1,064,000 tons of alumina. Still, the situation changed four months later. According to the plant's economic department, in the period from April to June, accounts payable and debts receivable went down by $10 million and $6.5 million, respectively, budgetary arrears were cut by $2.7 million, wage and wage-fund-deduction arrears decreased from three months to two, while fuel debts were reduced by $5.5 million. A report signed by the MAP deputy financial controller and chief accountant points out that by the end of July the plant will be able to pay its fuel debts by over 50%, pay off its budgetary arrears, fully redeem wage arrears, and make further payments against its liabilities. This forecast of the financial department quite fits in with the promises of new plant general manager Mykola Naboka.

On coming to the plant, Mr. Naboka also promised workers to keep intact all social guarantees that were made during Mr. Mieshyn's management, which they, however, do not believe. This in fact became the main reason for a two-week picketing of the plant, aimed at keeping the new manager out. The workers think that the situation under Naboka, admittedly a TWG man (which, incidentally, he does not hide, for he has worked several years in this company's structures), will not be like it was under Mieshyn, who managed to build "capitalism with a socialist face" at the enterprise: average monthly wages vary between 300 and 700 hryvnias (very good compared to other floundering local industries), the plant allocated huge sums for various rewards and to compensate for food, lodging, tuition of factory workers and their children, medicines, the plant pensioners' fringe benefits, etc. Plant workers had free - or almost free - summer vacations not only in Ukraine but also abroad. The competition among applicants to the MAP is notably tighter than it used to be at the most prestigious universities. But the experience of Russian privatization shows that enterprises taken over by TWG first of all slashed the social sphere and resorted to manpower reductions.

Minister for Industrial Policy Vasyl Hureyev promised this will not be the case at the MAP. Introducing Mr. Naboka, he characterized him as a highly professional expert, who was awarded the Order of Lenin and even was a delegate at the XXVII CPSU Congress. Describing the new manager's life story, Mr. Hureyev said that when Mr. Naboka came to the Don Ore Enrichment Combine in Kazakhstan, he doubled output in one year, further increasing it each subsequent year. In this case, it is not clear why, in a letter to the MAP labor collective, First Vice President of the Kazkprom Co. Z. G. Zaurbekova affirms, "Mr. Naboka personally also made a sizable contribution to the squandering of Kazakhstan's industrial potential... After TWG quit Kazakhstan, Mr. Naboka hastily went on a regular vacation... never to return to the plant, thus leaving the facility he was in charge of to the mercy of fate... N. V. Naboka was relieved of his job under Article 33, item 4 of the Code of Labor Laws of the Republic of Kazakhstan (absenteeism)... A criminal case was opened in Kazakhstan with respect to a group of TWG managers. Incidentally, Mr. Naboka is also a party to this case."

Meanwhile, Mr. Naboka has begun to carry out the duties of the MAP general manager. At least until the elections, as venomous tongues have it. According to unconfirmed information, Mr. Mieshyn is going to head MHZ Ltd. which concentrates the shares of the plant's work collective. There is now a lull in the scandal surrounding the MAP manager's chair. Before a new storm?

INCIDENTALLY

General manager of the Kamyanets-Podilsk Electric Mechanical Plant Ltd. Leonid DIAKONOV said, "It has to be one more onslaught by the authorities on a joint-stock company. As to Mr. Mieshyn's culpability, it should be proven in court. However... What I resent is that the judge announces one sentence, then two hours later another opposite one. Who or what influenced him so? The alumina plant is a joint-stock company with its own statute and should work within the state's legislation. Thus it is up to the shareholders to decide who will be the manager. If they have a block of shares (Ministry of Industrial Policy - Ed.), let them convene a meeting on 45-day notice, as it should be. I can guess somebody's interest in the profit-making enterprise."

Mr. Diakonov's colleagues, whom The Day correspondent turned to, were ready to comment on anything except what is going on in Mykolayiv. The manager of the Kamyanets-Podilsk Precision Mechanisms Plant, recently visited by Valery Pustovoitenko, replied, "I still want to stay alive." The general manager of Ukrelektrapparat (Khmelnytsky) Mykhailo Kyrpychenko thanked The Day for its attention and said: "If I say the wrong thing, there will be no end to inspectors..." It appears the time for frank comments has not yet come.
 

 Marginalia

It became quite clear at the end of the week before last not only that the new chairman of the MAP board of directors will serve the interests of TWG, a branch of the empire of brothers Ruben and Lev Chernoi, but also that this turn of events was not at all unexpected for the executive branch.

Ukrayinski Novyny reports that TWG experts are already rendering juridical and consultative assistance to MAP. In an interview with that agency, Minister of Industrial Policy Vasyl Hureyev declared, " If the relationship between the MAP and Trans World Group is based on normal mutual settlements, without the MAP being enslaved, this should also be supported."

Former chairman of the MAP board Vitaly Mieshyn asserts that one form of enslavement used by TWG is to extend loans to enterprises it works with in order to increase the plants’ indebtedness to the company. Although Mr. Naboka says he will try "to meet the plant’s current needs at the expense of current earnings," TWG legal advisor Aleksandr Marten has already said in advance that he does not rule out extending a loan to the MAP. The more so that there is a grand motive for it: the MAP has no bauxite, and Mr. Naboka has applied to the government for permission to use bauxite from the state reserve. What is more, Deputy Minister for Industrial Policy Serhiy Hryshchenko said, as Ukrayinski Novyny reports, that the bauxite problem was caused by Vitaly Mieshyn. Mr. Hryshchenko, charged with overall supervision of the alumina plant, has stated that TWG already discussed the issue of supplying bauxite to the MAP with Guinea’s minister for mineral resources on July 8.

He also said that the Swiss company Global Interholding, a go-between in alumina supplies to Tajikistan, owes the MAP about $68 million, while the intermediary in supplies to Russia, the offshore company Newnikom (rumor has it the two mediating companies belong to Mr. Mieshyn’s relatives), owes about $23 million. "We will set very strict conditions of prepayment," the new MAP manager said. On July 7, Mr. Naboka suspended delivery of alumina to the Tajik Aluminum Combine, a partner of TWG rivals, the Siberian Aluminum Group and the Bratsk Aluminum Combine. On the eve of this, Mr. Marten told Ukrayinski Novyny, "I know that Naboka coordinated well in advance the issue of supplying alumina to the Krasnoyarsk, Bratsk, Volgograd, and Novokuznetsk Aluminum Combines (controlled by TWG —Ed.). They agree to buy [alumina] only if the manager will be Naboka whom they know from his work in Kazakhstan."

However, in 1997 the Supreme Court of Kazakhstan noted that what TWG had done was "an unlawful, purposeful, well-planned and well-orchestrated action aimed at the complete material subjugation of Kazakhstan’s largest enterprises to TWG structures." In a letter to the MAP work collective, present manager of the Don Ore Enrichment Plant writes that TWG activities have inflicted $400 million in losses on the economy of Kazakhstan, including $200 million on enterprises themselves and $200 million on the state. (Incidentally, manager of the Tajik Aluminum Works Yermatov sent a letter to the President of Ukraine on June 28, asking that Mr. Mieshyn be retained as chairman of the MAP board).
TWG has suffered a series of defeats not only in Kazakhstan but also in Russia. Siberian Aluminum has upstaged TWG at the Sayany Aluminum Works and this spring TWG failed to get rid of the Novo-Lipetsk Steel Mill director who did suit the company. This foiled, as Prime-TASS quotes mill director Dmitry Bakatin as saying, the company’s attempt "to regain its former position at the Novo-Lipetsk plant," where it once had the exclusive right to supply raw materials, export products, and allocate funds to the plant on their own conditions.

"What is going on surrounding the Mykolayiv Alumina Plant," presidential candidate Yevhen Marchuk said at a recent press conference, "is common banditry, the final stage of the redistribution of state property." When still prime minister, he advocated retaining the MAP as state-run property. During the recent Verkhovna Rada hearings, the Premier Valery Pustovoitenko mentioned as a major achievement of his Cabinet the increase in the state’s stake in the plant’s authorized capital to 50% plus 1 share in June, this year: "If we had not done this, the MAP could have sailed away nobody knows where." But the enterprise can sail away in a different direction: as Ukrayinski Novyny reports, Mr. Naboka is exploring the possibility of floating MAP shares as a financial instrument to raise funds for the plant. There is no doubt that in this case TWG funds will be raised first of all.

"We can return to privatization a year or two later, when the situation with the plant clears up: it will either go bankrupt or stabilize. We can earn more money for a plant that works," Ukrayinski Novyny quote Minister for Industrial Policy Vasyl Hureyev as saying. But under such a governmental approach ("throw it on the whirlpool of business clashes and let it sink or swim") to state property, which can bring in more profit than all taxes on mobile phones, precious metals, and hard-currency deals, the former variation looks more probable. Then who will be held responsible if the MAP repeats the Kazakhstan story and to what extent?