The question of who will conclude the
construction of
Ukraine-based Krivoy Rog Mining and Processing Works of Oxidized Ore (KGOKOR) - which was started in Soviet times - in addition to the question of when it will be completed, are both still up in the air. Since last August, when the Ukrainian government approved procedures on the creation of a joint venture for the completion of KGOKOR, according to which 50 percent plus one share in the enterprise is to remain under state control, independent investors united into two separate groups which appeared to be the main candidates in the running. The first group is a consortium of Smart-group and Metalloinvest, while the second one includes Mittal Steel, ISD and Ilyich. However, the Ukrainian State Property Fund (SPFU) is not in any hurry yet to grant a positive decision to either of these, content for the moment to turn its favor from one to the other.
The
construction of KGOKOR started in 1985 as an independent project of
Ukraine,
Romania and
Slovakia, holding 56.4 percent, 28 percent and 15.6 percent stakes respectively. The initial investment in the project totaled $2.4 billion. Upon completion of the
construction work, KGOKOR was expected to produce approximately 10 million metric tons of pellets per year, holding about two billion metric tons of
iron ore in reserves. Many things have been changed since that time - the collapse of the Soviet bloc along with the accession of
Slovakia and
Romania to the European Union being the most important factors affecting the completion of KGOKOR. As a result of these momentous changes, the old allies and partners were now separated by different interests and policies. And for a while the issue of KGOKOR was put on the back burner.
The world market situation, the growing demand for
iron ore and the development of the Ukrainian steel industry all contributed to focusing the Ukrainian government's attention on KGOKOR once more. The matter resurfaced at the beginning of 2006 when the Ukrainian government decided to complete the
construction unilaterally, by creating a joint venture with an investment of at least $400 million. Mittal Steel, which bought one of the largest steel producers in
Ukraine - Kryvorizhstal - at the end of 2005, expressed its wish at the time to finish the
construction of KGOKOR. The largest investor in
Ukraine even submitted an $800 million bid to the Ukrainian government, promising to complete the
construction in the shortest time, and to produce 10.5 million pellets a year at the facility upon its completion. Mittal Steel even hinted that it would settle the outstanding conflicting issues with the governments of
Romania and
Slovakia (the company owns assets in both countries) in the event of a favorable decision of the SPFU. However, because of unsolved issues between Mittal Steel and the SPFU concerning the Kryvorizhstal purchase, the company's proposal was turned down.
Instead, SPFU named a proposal submitted by the consortium of Smart-group and Metalloinvest Holding for the completion of KGOKOR as the optimal one in August of last year. A working group was created in September 2006 to evaluate this plan. The consortium even went further by creating a
Ukraine-based joint venture company - Ukrainian Ore Dressing Metallurgical Company - which would be in charge of the completion of the KGOKOR project upon the final decision of the SPFU. However, although naming the consortium's proposal as the best one, the SPFU was not in any hurry to take a step further than that.
One of the reasons behind the lack of SPFU action in going ahead with the Smart-group and Metalloinvest proposal is that
Romania - the second largest shareholder in the original KGOKOR project - is demanding that it be paid off for its share in the project. At the end of August 2006, the Romanian government sent an official letter to the Ukrainian government demanding the payment of costs totaling $330 million which it incurred during the
construction of KGOKOR. In the letter,
Romania specified that its preferred method of payment would be through the supply of pellets from KGOKOR to
Romania-based Mittal Steel mills, thus turning the scales back in favor of the Mittal Steel proposal.
As for Mittal Steel itself, after it failed to win its solo bid for KGOKOR, it commenced a search for domestic partners. And very recently the steel giant announced that it is currently in talks with Ukrainian steel producers ISD and Ilyich with a view to establishing a consortium that will finally complete the KGOKOR project.
The SPFU, for its part, is not rushing to choose between the two main rival groups, nor is it attempting to find a solution with the other original investors in KGOKOR- namely,
Romania and
Slovakia. Instead, it has continued work on the estimation of the total value of KGOKOR. As a result, the question of who will at long last complete the KGOKOR project, and of when it will be completed, still remains wide open.