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06KIEV456, UKRAINE: OLIGARCH PINCHUK ON NIKOPOL FERROALLOY

February 2, 2006

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06KIEV456 2006-02-02 11:03 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv
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) 

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 billio
n 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

 

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