KIEV, UKRAINE - ArcelorMittal, the world's largest steelmaker, said the Ukrainian government could seize control of its $4.8 billion steel plant there after charging it with violating terms of a 2005 purchase agreement.

The dispute, which will be taken up during an Kiev court hearing Tuesday, centers on whether ArcelorMittal was granted valid permission in April 2009 to delay a $200 million investment in the massive plant, which is one of the company's largest facilities.

ArcelorMittal claims it reached an agreement with Ukraine's State Property Fund, which is responsible for privatizations, to postpone investment commitments through early next year after the steelmaker declared force majeure in 2009 due to the global economic slowdown.
ArcelorMittal says the Ukrainian government has challenged the validity of the State Property Fund agreement.

Serhiy Tihipko, Ukraine's deputy prime minister for the economy, could not be reached for comment. The Ukrainian government has consistently stressed its commitment to attracting foreign investment and carrying out needed business reforms to improve its business climate.

Mittal Steel, now known as ArcelorMittal, bought the plant in Kryvyi Rih during the upturn in global steel demand, spending $4.8 billion to get a toehold in then fast developing Eastern Europe market. The purchase agreement outlined how much the steelmaker would invest in the plant and social programs.

While the economy has slowed since then and steelmakers around the world have been idling inefficient capacity, it would be a huge blow to ArcelorMittal if the assets were seized. "We are concerned that there is an attempt to take back our asset and return it to the state," said Nicola Davidson, a spokeswoman for ArcelorMittal. "Somewhere, someone is creating a false reason that we have broken our sales purchase agreement."

If the court rules against ArcelorMittal, the company said it would appeal the decision.

Christopher Cornier, a management board member at ArcelorMittal who is involved in overseeing the Ukrainian mill, said the worst-case scenario would be that the mill would be sold and the proceeds given to ArcelorMittal. The problem, he said, is that ArcelorMittal would likely lose billions in a sale because there are few buyers and the market is weak.

In addition to the $4.8 billion purchase price, the steelmaker has spent an additional $500 million in the plant. Mr. Cornier estimated that the sale of the plant would net less than $1 billion.  "The price will be very low," he said.

The huge steel complex employs 35,000 people and includes an iron ore mine. It produces mainly construction grade steel products, such as wire rod and rebar. Its costs increased significantly this year after the government raised natural gas prices 50%. —James Marson and Alex MacDonald contributed to this article.

Write to Robert Guy Matthews at robertguy.matthews@wsj.com

LINK:  http://online.wsj.com/article/SB10001424052748704689804575536211717622250.html?KEYWORDS=ukraine

NOTE:  ArcelorMittal is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org