Test case

6 Oct 2010 By Jason Bush

The steel giant’s $5 billion investment in the country’s largest steel plant is under threat. ArcelorMittal is accused of reneging on social commitments made during privatisation. The outcome of the case will show whether Ukraine can shake off its terrible business reputation.

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A commercial court in Kiev is hearing a case filed in July by Ukraine's Prosecutor General against the steel plant ArcelorMittal Kryviy Rih and the Ukrainian State Property Fund. The suit claims that a May, 2009 agreement between the steel plant and the State Property Fund, is illegal, because it was not agreed with the Cabinet of Ministers.

Under that agreement, ArcelorMittal was permitted to delay fulfilment of its obligations made in a sale and purchase agreement made in October 2005, when the steel plant was privatised. These obligations included pledges to invest in technical and environmental modernisation of the plant. The 2009 amendment stated that force majeure circumstances had been created by the global economic slump, which badly impacted the Ukrainian steel sector.

ArcelorMittal has rejected the claims contained in the lawsuit. In a statement issued after a court hearing on Oct. 1, the company said that it was "deeply concerned with the continuous neglect of the existing international and national law". It says that the Kiev court has no jurisdiction, as the original sale and purchase agreement stipulated that all disputes are to be heard in the International Court of Commercial Arbitration.

ArcelorMittal Kryviy Rih is Ukraine's largest steel plant, located in the city of Kryviy Rih in the Dnepropetrovsk Oblast. Mittal Steel acquired the plant in October 2005, paying $4.8 billion in Ukraine's largestever foreign investment.

The plant's privatisation was hailed as a major reform step in the wake of the 2004 Orange Revolution. It followed the reversal of a previous privatisation in 2004, when two Ukrainian businessmen, Viktor Pinchuk and Rinat Akhmetov, acquired the plant for $800 million.

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