Identifier
Created
Classification
Origin
06KIEV456
2006-02-02 11:03:00
CONFIDENTIAL
Embassy Kyiv
Cable title:  

UKRAINE: OLIGARCH PINCHUK ON NIKOPOL FERROALLOY

Tags:  EINV PGOV 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 KIEV 000456 

SIPDIS

E.O. 12958: DECL: 02/02/2016
TAGS: EINV PGOV
SUBJECT: UKRAINE: OLIGARCH PINCHUK ON NIKOPOL FERROALLOY
AND POST-ELECTION POLITICS

REF: A. 05 KIEV 4925

B. 05 KIEV 3660

Classified By: Political Counselor Aubrey A. Carlson for reasons 1.4(b,
d)

C O N F I D E N T I A L SECTION 01 OF 02 KIEV 000456

SIPDIS

E.O. 12958: DECL: 02/02/2016
TAGS: EINV PGOV
SUBJECT: UKRAINE: OLIGARCH PINCHUK ON NIKOPOL FERROALLOY
AND POST-ELECTION POLITICS

REF: A. 05 KIEV 4925

B. 05 KIEV 3660

Classified By: Political Counselor Aubrey A. Carlson for reasons 1.4(b,
d)


1. (C) Summary: Oligarch Viktor Pinchuk suggested, in a
February 1 conversation with visiting Project for
Transitional Democracies President Bruce Jackson and PolOff,
that he would not appeal his case to a European court after
the Ukrainian Supreme Court refused January 20 to hear his
appeal against a ruling invalidating his 2003 purchase of
Nikopol Ferroalloy Works. He repeated his willingness (ref
A) to pay more money to retain his ownership rights, but
again claimed the Ukrainian government was not prepared to
take him up on the offer. Pinchuk predicted that former
Prime Minister Yanukovych would not emerge as prime minister
after the March parliamentary elections; he hoped a young,
progressive technocrat might become prime minister as a
result of a coalition joining Yushchenko's People's Union Our
Ukraine and Yanukovych's Party of Regions. A leader of a
party with a smaller representation in the new parliament
might also join a coalition and emerge as a compromise prime
minister. Recently leaked documents from the May 2005
interrogation of Mykhailo Chechetov, the State Property Fund
Chair at the time of the Nikopol privatization, suggest that
then-President Kuchma ordered the State Property Fund to rig
the privatization so that his son-in-law Pinchuk would take
control of Nikopol. End summary.

Investor and Worker "Human Rights"
--------------


2. (C) Pinchuk said, after three months of battling, the
Supreme Court had finally heard his lawyers' arguments
January 17 on lower court rulings that declared illegal his
2003 purchase of a 50-percent-plus-1 share stake of Nikopol
Ferroalloy Works (NFW). (Note: Pinchuk retains another
24-percent share that he purchased in a separate transaction.
Internecine conflict within the GOU in its effort to
"reprivatize" NFW was one of the proximate causes of the
dismissal of the Tymoshenko Cabinet in September 2005.) At
the hearing, the presiding judge asked whether the investors
or some other party had acted illegally in the sale. After
hemming and hawing, the government lawyers admitted that the
State Property Fund had acted illegally, but not the

investors, in the privatization. Noting that Ukraine's
signing of the European Convention on Human Rights obligated
Ukraine to follow European courts' precedents, Pinchuk
claimed European courts had never ruled against investors and
overturned a privatization resulting from government
wrong-doing. Pinchuk, however, appeared to dismiss the
possibility of an appeal when he noted that the European
Court of Human Rights would not hear such an appeal for a
year and, in the meantime, the appeal would not suspend the
legal process in Ukraine. Pinchuk suggested that his efforts
to retain Nikopol would be ultimately fruitless, since
President Yushchenko and Privat Bank were gunning for him.
(Note: The press reported the Supreme Court ended its review
on January 18 and, on January 20, refused to consider the
appeal, thereby allowing the lower court ruling to stand.)


3. (SBU) (Note: Also on January 20, Interior Minister
Lutsenko confirmed that transcripts of the May 2005
interrogation of former State Property Fund Chair Chechetov
leaked to internet news sites were genuine. In the protocol
of the questioning, available at www.obozrevatel.com.ua, a
website owned by Tymoshenko associate Mykhailo Brodsky,
Chechetov acknowledged that privatization of certain
enterprises, including Nikopol and Kryvorizhstal, did not
occur according to established privatization guidelines and
were illegal, but had been carried out on orders of top
Ukrainian officials, including then-President Kuchma and
Kuchma's son-in-law Pinchuk. Kuchma had ordered Chechetov to
listen to Pinchuk's suggestions and, if possible, do what
Pinchuk asked. Since Kuchma's phone call was interpreted at
the State Property Fund as an instruction to sell the plant
to Pinchuk, special competition conditions were developed to
ensure that a company belonging to Pinchuk fit the
description. End note.)


4. (C) Pinchuk told Jackson the judge had urged the parties
to reach an out-of-court settlement. Pinchuk was willing to
do so and pay a higher price, but the State Property Fund and
Cabinet of Ministers had refused to consider a negotiated
deal. Pinchuk noted that this stance contradicted President
Yushchenko's public statements that he was willing to
negotiate a settlement with Pinchuk and his partners.
Pinchuk said this was only the latest example of
contradiction between Yushchenko's public statements and his
private stance. When asked, Pinchuk estimated his 50-percent
share, for which he paid $80 million two-and-a-half years
ago, to be worth somewhere between U.S. $200-300 million, but
he added that the company's value had dropped somewhat due to
current uncertainties. (Note: Minority shareholder Privat
bank claimed that, at a fair auction, Pinchuk's
50-percent-plus-1 share would have fetched about $190 million
when Pinchuk originally bought it in 2003, and estimated that
it would now sell for $500 million. A tax lawyer who helped
prepare Nikopol's books for sale to Russian investors in
early 2005 told us that Nikopol had $1 billion in turnover in
2004 and that Pinchuk was looking to sell his stake for $350
million. The GOU publicly projects a sale price of $1
billion.)


5. (C) Pinchuk said he was gratified Nikopol's workers had
genuinely rallied around his cause. He said the workers were
pleased with their salary and benefits ("social guarantees")
and were fearful about their possible treatment if Nikopol
were to return to government ownership. Pinchuk claimed the
central committee of Nikopol's trade union wanted him to
retain his ownership because he provided the "best example in
the country," which could be cited in reaching deals with
other "oligarchs" (note: Pinchuk's term). (Comment: The
genuineness of Pinchuk's support among the workers is
somewhat suspect; those who have participated in
demonstrations against the government's actions are known to
have been paid for their efforts.)

Coalition Options
--------------


6. (C) Pinchuk predicted Party of Regions would top the
parliamentary (Rada) elections, and he hoped Yulia Tymoshenko
and her bloc would not rise higher than third, with
Yushchenko's People's Union Our Ukraine (POUO) in second. He
thought Regions would get 20-25 percent, POUO would get 15-20
percent, and Bloc Yulia Tymoshenko (BYuT) 10-20 percent. He
thought there was a real possibility of a coalition between
President Yushchenko's POUO, and former Prime Minister
Yanukovych's Party of Regions. If so, Pinchuk ruled out the
possibility of Yanukovych becoming prime minister. The best
outcome, he opined, would be if such a coalition chose a
young, progressive politician, like current Economics
Minister Yatsenyuk, as a compromise prime minister. Another
possibility might be a prime minister coming out of a
coalition with parties holding fewer seats in the Rada.
Current Rada Speaker Lytvyn or Socialist Party head Moroz
might then emerge as prime minister, Pinchuk hypothesized.


7. (C) Pinchuk suggested Tymoshenko would not be prime
minister "in the first round" but she might yet become prime
minister "later." When asked to explain, Pinchuk said, since
any coalition after the March Rada elections would be
fragile, he could see the possibility of several governments
in quick succession, "like Italy before Berlusconi." He
thought that Yushchenko had wasted a unique time during the
last year, when Ukraine had the potential to rise to new
heights, but instead had fallen back down. Stressing that he
was presenting only his personal views that should not be
shared, Pinchuk said he thought Yushchenko had been deeply
affected by the poisoning attempt, whose results he saw
"every time he looks in the mirror." Partly as a result,
Yushchenko had difficulty exercising the decisive and
consistent leadership necessary. Pinchuk concluded that he
was "pessimistic in the short run but optimistic in the long
run" about Ukraine's future.


8. (U) Visit Embassy Kiev's classified website:
www.state.sgov.gov/p/eur/kiev.
HERBST