Whether it will be a success remains an open question

The State Property Fund planned to sign a purchase contract with the Donbas Industrial Union Corporation, the coal basin’s largest electricity supplier, successful bidder in a tender selling the publicly held corporation [known here as a public joint stock company] Khartsyzk Pipe Plant, whose stocks could not be sold since 1995. SPF Chairman Oleksandr Bondar even declared that he had approved the bid evaluation report. The more so that the successful bidder had promised to make payment ahead of term. On the night of August 27, however, the Pechersk District Court submitted its ruling forbidding the SPF to do anything about the pipe- rolling plant’s block of shares, following a claim filed by one of the public corporation’s female stockholders, contesting the bid evaluation committee’s resolution barring the Poltava Ore Mining and Processing Combine.

Apart from DIUC, bids were submitted by the corporations Interpipe Research Investment Group, public corporation POMPC, and Assorti Ltd.

Mykhailo Chechetov, first deputy chairman of the SPF, told The Day that two bidders, DIUC and Interpipe of Dnipropetrovsk, were on the tender’s home stretch. At one time, Interpipe was headed by People’s Deputy Viktor Pinchuk. Mr. Chechetov did not identify two bidders made to pull out in the first round but assured all in earshot that Russia’s Gazprom was not among them (Gazprom has previously shown quite an interest in the pipe- rolling plant, but now “did not even want” to bid in the tender. He went on to say that Gazprom’s change of mind had to do with the new leadership’s policy (they did not even pay for the block of shares purchased from Rivneazot.

The DIUC starting price was set at UAH 122,695,000 prior to the tender. Chechetov said the successful bidder had paid another four million.

The fixed bidding rules envisaged in part the redemption or restructuring of the enterprise’s bills payable, implementation of an engineering renovation program, introduction of progressive technologies, retaining the output structure, assortment, output and sales scope at the time of signing the purchase contract, and the total workforce for six months from the date of signing the contract. The strategic importance of the Khartsyzk Pipe Plant is explained by the fact that it is the CIS’s only enterprise capable of producing high-strength electrically welded steel gas pipes with a diameter of 478-1,420 meters, used in arterial gas pipelines. In addition, the Khartsyzk plant manufactures general-duty 478-1,420 meter pipes for water supply and central heating system; 27-89 and 19-102 pipes are meant for refrigerating equipment. The corporation’s statutory fund is UAH 1,919,998,000; per share par value: UAH 0.05.

Meanwhile, the quick and conflict-free (rather, not too profitable) sale of the pipe-rolling plant could have unpleasant consequences for other enterprises put up for sale. Ukraine plans to sell Nikopol’s Southern Pipe Plant immediately afterward. The invitation to bidders was published August 15 and the tender is scheduled to start in 45 days, with the starting price at UAH 352.6 million, that is, almost three times that of Khartsyzk. Experts predict that Gazprom’s non-participation (it forced the previous tender’s cost down by an order of magnitude) will have an adverse effect on Nikopol. In fact, the very holding of the tender is questionable. Indeed, under the bidding rules, the buyer is under obligation to pay all back wages and make the required payments to the Pension Fund and state budget (UAH 15 million) by January 1, 2002; also restructure the energy supply debts (UAH 13.5 million, as of the same date) for the next three years; provide for at least 20% supply to the national pipe-rolling market; retain the output structure and scope as of the date of signing the purchase contract (and also jobs) for the next six months. In addition, the bid evaluation committee is to submit a concept of the enterprise’s privatization development, stipulating the bidder’s obligations to carry out the program and implement a number of bilateral interests in advancing the enterprise, improving its performance; along with a business plan and feasibility study.

However, the main drawback of the Southern Pipe Plant in the eyes of prospective buyers is the fact that in 2000 this monopolist supplier of geological survey pipes, tubing strings, and rolled steel pipes (mostly intended for the defense, machine-building, oil-and-gas, and heat-and-power engineering industries) was attached to the Nikotube Seamless Pipe Mill, one for stainless pipes, the YUTiST Steel Pipe Mill, and one called Trubolit, using the parent company’s workshops. As a result, investment was attracted and the project started working. But what is to be done now that the most salable workshops are no longer available? The scheduled tender may have an accordingly disheartening outcome.

Oleksandr Bondar, as chairman of SPF, believes that the Nikopol starting price is overstated, considering its current financial status, reports UNIAN. He says that SPF will make an appropriate decision as bids will start to be submitted. The prime minister recently admonished the SPF that its work should be aimed at “implementing budget income forecasts to a maximum degree, but without lowering the quality and worsening the long-term consequences of privatizing any given property.” Of course, the SPF bears this instruction in mind, but political factors could also affect its stand. Thus, experts suggest that SPF will be hard put to resist the moneyed structures’ power play in the 2002 elections.

Oleksandr Riabchenko, chairman of the parliamentary privatization oversight committee, described the situation with the Khartsyzk Pipe Plant to The Day, saying that “the outcome of the tender was known all along... But for previous arrangements, the outcome would have been different; Khartsyzk costs ‘a little’ more than was actually paid.”

PS

The Donbas Industrial Union Corporation announced plans to set up an international consortium jointly with Russian suppliers of Ukrainian pipes. DIUC deputy board chairman Serhiy Tatuta assures us that preliminary arrangements with the Russian side have been made. The consortium is expected to include the Illich Metallurgical Works, Azovstal, Khartsyzk Pipe Plant, the First Ukrainian International Bank, Credit Suisse First Boston, and a newly formed business entity incorporating all Russian oil-and-gas companies interested in large diameter Ukrainian pipes. The formation of this entity in Russia is supervised by the Putin administration, says Mr. Tatuta, and it will see to it (as provided by the Russian law) that the movement of goods within a single consortium is not qualified as export-import transactions, meaning it will be exempted from the currently imposed quotas.

Another Ukrainian pipe-rolling giant, Dnipropetrovsk’s Interpipe, is simultaneously looking for its own way to duck the quotas. There is a lawsuit in progress in Russia (initiated by Russian consumer companies) and the Ukrainian party is trying to prove the that pipes being exported from Ukraine have no analogs in Russia, and that even if there are, such Russian pipes are of inferior quality. The court ruling is expected in September. If it is positive, Interpipe will be able to beat most of the quotas. Also in September, the company’s pipe-rolling mills will finally exhaust their export quotas. At present, Interpipe includes Nikopol’s pipe-rolling, seamless, YutiST steel, and a stainless steel pipe-rolling works.

Considering recent efforts on the part of Ukrainian pipe-rolling companies, it is safe to assume that they are solving business problems with Russia more energetically if not more effectively. The privatization of Ukraine’s industrial giants is already showing results. Where the government proves impotent private interest is most effective, and this interest is shown by both Ukrainian exporters and Russian importers.