KYIV - Another Ukrainian court is set to turn back the clocks, this time threatening a landmark, five-year-old privatization deal that brought state coffers $4.8 billion in the cleanest state auction ever held.

The general prosecutor’s office is suing ArcelorMittal, Ukraine’s biggest foreign investor, which purchased the country’s largest steel mill in Kryviy Rih back in 2005.

The world’s largest steel company denies alleged irregularities to a 2009 agreement to delay investments because of the financial crisis. The case could deal a major blow to the government’s attempts to project itself as open to foreign investment.

The commercial litigation comes amid backsliding in the political arena, too. On Oct. 1, the Constitutional Court ruled to significantly augment the powers of Ukrainian President Viktor Yanukovych by canceling changes to the Constitution agreed in late 2004, during the height of the pro-democracy struggle.

The current Yanukovych team consists of many of the same officials who served before the Orange Revolution, when Kryvorizhstal (now ArcelorMittal KryviyRih) was first sold under former President Leonid Kuchma to his son-in-law Viktor Pinchuk and billionaire Rinat Akhmetov, a major financial backer of Yanukovych, for a meager $800 million.

Now, if prosecutors are successful, the Dnipropetrovsk Oblast mill purchased by Mittal Steel, now ArcelorMittal, will return to state hands – and maybe eventually back to Pinchuk and Akhmetov.

A top ArcelorMittal executive, Christophe Cornier, said that the first hearing of the case by the Kyiv Economic Court on Oct. 1 was more disappointing than even the company’s worst expectations.

“We are taking this very seriously,” said Cornier, a 25-year veteran of the company flown in from London to confront the emergency situation. “We paid $4.8 billion for this plant, and put $500 million worth of capital expenditures into it. We feel it is a very good plant and we don’t want to lose it.”

“But it is very difficult to assess what the outcome will be,” acknowledged Cornier, who said he will be meeting with German and French ambassadors in Kyiv. “We are outside the boundaries of a normal law and order situation.”

The steel plant is a defendant along with privatization agency the State Property Fund (SPF). Prosecutors are disputing a 2009 agreement between ArcelorMittal and the SPF that declared a force majeure in view of the global economic crisis, allowing the company to postpone investment commitments made under the terms of the original share purchase agreement of 2005.

“The dispute is that the addendum is not legal because it was not signed by the cabinet of ministers,” Cornier said. “But when you look at the original share purchase agreement [of 2005], it is not written anywhere that it has to be signed by the cabinet.”

Furthermore, according to Cornier, the plant’s shareholder, ArcelorMittal Duisburg GmbH, has not been informed of the lawsuit, an apparent breach of the law. And thirdly, according to Cornier, both the original share purchase agreement and the additional agreement of 2009 specify the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (a non-state independent arbitrage court) as the place of jurisdiction for all disputes.

NOTE: Kyiv Post staff writer Graham Stack can be reached at stack@kyivpost.com.

LINK:  http://www.kyivpost.com/news/business/bus_general/detail/85482/#ixzz11jYKG2sd