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20 January, 2011  ▪  Ivan Neliubchenko

Tyrants in the Material World

Having control over raw materials is allowing pro-PR tycoons to gobble up steelworks and chemical plants


Last year, Ukraine saw a massive re-structuring of the markets in which its financial industrial groups (FIGs) operate. Some of the country’s oligarchs lost nearly all their political clout, along with their economic positions, while others grew stronger. This shuffle was not just the result of a change in Administrations. Many other factors came into play, such as the financial industrial crisis, the shortage of raw materials and their inevitably growing price—for some companies.

Heavy metal

The steel industry witnessed real ore wars and it was victory time for Rinat Akhmetov, the owner of Metinvest. In 2010, the whole world suffered from a shortage of iron ore. China further fuelled the crisis.

“It needs 50-55 tonnes of iron ore every month,” says Yevhen Dubohryz, an analyst with BG Capital. “China has been growing at a lively pace since the crisis and is investing in infrastructure. In addition, it wants to be less dependent on three biggest iron ore producers, BHP Billiton, Vale and Rio Tinto, which together control nearly 70% of the iron ore market in the world. This oligopoly has resulted in a steep rise in ore prices for steelworks. As a result, ore mining companies earn the most in the overall mining and steel industry.”

In contrast to the international market, just one company dominates Ukraine’s iron ore market, not three: Metinvest. It gained its monopolist status back in 2007 after swallowing up the Ingulets Ore Enrichment Plant, owned by Vadym Novinskiy’s Smart Group. Novinskiy traded his company for a 25% stake in Metinvest. This has left Ukraine’s richest tycoon with the Central, Northern and Ingulets plants, which constitute the lion’s share of the domestic ore enrichment industry.

Rinat Akhmetov immediately set up a very convenient scheme for shipping ore to steelworks owned by others: while ore was getting cheaper around the whole world, Metinvest was enjoying a steady income because it was selling ore at fixed prices set once a year. In 2010, the rules of the game changed again as ore prices skyrocketed all over the world. Suddenly Mr. Akhmetov began to adjust his prices quarterly, not yearly.

Metinvest’s aggressive actions forced other Ukrainian steelworks that had no raw materials of their own to buy ore at inflated prices, including Zaporizhstal, ISD Group and, most importantly, the Illich Steelworks in Mariupol. The owner of Illich Steelworks, Volodymyr Boyko, had resisted Mr. Akhmetov for several years but gave up after a raider’s attack and yet another rise in ore prices. In 2010, Metinvest finally took over the Illich plant. Just a year earlier, such an alliance between a “red director” and an oligarch seemed unthinkable. In 2010 though, it became a reality. As soon as Illich Steelworks joined the Akhmetov empire, it got a 25-year contract for ore supplies.

Similar problems with ore supplies drove Eduard Shyfrin and Alex Schneider to sell Zaporizhstal. Rinat Akhmetov almost bought it but, at the last minute, a Russian group offered a better price. Now, PR’s main backer is using the court system to block the transfer of ownership of the steelworks, one of Ukraine’s largest. Meanwhile, Shyfrin and Schneider have pretty well lost the war over ore and have been squeezed out of the business.

One of the reasons why Serhiy Taruta sold a controlling stake in his ISD in early 2010 to a group of Russians represented by the state-owned Vnieshekonombank was also because he had no ore of his own. The other main factor was that the companies within ISD were heavily indebted and were having a hard time meeting payments due to the financial crisis. One-time business giants Serhiy Taruta and Oleh Mkrtchian now own just 49% of their own corporation. Their third partner, Vitaliy Hayduk, quit business in 2008.

The new owners of ISD and Zaporizhstal now have to adapt to Rinat Akhmetov’s ore dictatorship. With ore expensive, their output will increase or decline much less quickly than plants with their own mines. According to BG Capital’s Dubohryz, steel output rose around 10% in 2010. This indicator would be a much more promising, around 18-20%, if ore prices were similar to those in, say, Russia’s steel industry in Ukraine.

Chemical reaction

It’s not just Ukraine’s steel industry that is warring over raw materials. The chemical industry, another key business for many Ukrainian FIGs, is also in turmoil. In 2010, it went through considerable restructuring as well. Constituting 60-75% of production cost, natural gas is the main component in the production of nitrogen fertilizers. This makes producers of nitrogen fertilizers completely dependent on inputs from Ukrainian chemical plants. This is even more true of producers of ammonium, where natural gas is up to 90% of production cost.

Ukraine’s chemical industry mostly consumes gas imported from Russia. In 2010, Group DF gained stature in the chemical market thanks to the 12.1bn cu m of gas that Naftogaz Ukrainy had to return to Dmytro Firtash: in February 2008, the government allegedly took 11bn cu m Rosukenergo gas, of which he was the main owner. Until then, GDF owned just one nitrogen fertilizer plant in Ukraine, RivneAzot. In 2010, Mr. Firtash bought out his powerful rival, Stirol Chemicals.

PR Deputy Mykola Yankovskiy sold the company for familiar reasons: the price of gas was growing, while demand for mineral fertilizers remained unstable, making the business unprofitable at times. When the crisis broke out in 2008-2009, Stirol found itself cutting production in half and even stopping it altogether at times. In 2010, the price of gas at the Russia-Ukraine border jumped again. Bu Mr. Firtash now had enough fuel to keep both Stirol and RivneAzot running for several years.

Next in Mr. Firtash’s line of sight is CherkasyAzot, owned by Oleksandr Yaroslavskiy. According to Mr. Yaroslavskiy, a price has not yet been negotiated. Group DF has also announced its intention to participate in the privatization of another large ammonium plant, the Odesa Port Plant (OPZ). If it succeeds, Group DF will become the main player on Ukraine’s chemical market. It will control not only three or four of the country’s six ammonium plants, but also the Odesa Port Plant—essentially the export regulator for ammonium shipped to the Pivdenniy Port through the Togliatti-Horlivka-Odesa arterial pipeline.

Even without the Odesa plant, however, Mr. Firtash has become the most powerful player in the domestic chemical industry and is just a step away from having a giant concern for all titanium dioxide producers in Ukraine. Group DF owns 50%+1 share of the Krymskiy Tytan. Meanwhile, Government officials have already made some statements to the effect that the Cabinet of Ministers plans to add the state-owned Sumykhimprom, another titanium dioxide producer, to a state-owned holding that will most likely to be run by a Firtash man.

Ukraine’s commodity wars are not likely to end in 2011, either. This could lead to yet more restructuring of assets in favor of the resource kings.



Rinat Akhmetov


·         Illich Steelworks, Mariupol

·         30.9% of Kyivenergo

·         24.9% of Zakhidenergo

·         12.5% of Krymenergo

·         Kyiv TsUM, the central department store

·         Raised stake in Donetskhormash to 50.05%

·         Merged PUMB and Donhorbank

·         34 Kanal, a Dnipropetrovsk TV channel

·         Kerammekhanizatsia and Capital Service, both exploration companies

·         Pharmatsia Donbasu LLC, a chain of over 120 pharmacies in six oblasts

·         Control over the assets of two state-owned anthracite mining holdings, Rovankyantratsyt and Sverdlovantratsyt, through DTEK; leased the property of state-owned Dobropilliavuhillia. This means these companies are being prepared for privatization



Plans for 2011

SELL: Illichivets FC, Mariupol


·         Ukrtelecom

·         State-owned stakes in Zakhidenergo, Tsentroenergo, Dniproenergo, Donbasenergo

·         A number of coal mining companies

·         A number of industrial and infrastructure objects in Kyiv

·         UIA, Ukrainian International Airlines

In 2011, Ukrainian media started buzzing about another influential businessman, PR Deputy Yuriy Ivaniushchenko, aka Yenakiyivskiy, according to open sources. He is supposedly in control of the coal empire equally to Rinat Akhmetov and has other major assets including the famed 7th Kilometer Market in Odesa.


Dmytro Firtash


·         90% of Stirol Chemicals, Horlivka

·         Control of Irshanskiy and Vilnohorskiy Mining and Enrichment Plants

·         12.1bn cu m of natural gas returned by the State under orders from a Swedish court

·         His men run the Zaporizhzhia Titan Magnesium Plant and Sumykhimprom

·         Operating control over Ukrtransgas and Ukrgasvudobutok

·         Retained control over gas distribution networks in 20 oblast and municipal gas utilities

·         Won back his rights for Emfes, a Hungarian energy company, through the courts



Plans for 2011

·         Buy the Odesa Port Plant

·         Buy a series of industrial and infrastructure objects in Kyiv

·         Buy Azot in Cherkasy

·         Extend control over gas, titanium and chemical markets


Ihor Kolomoiskiy


·         Increased stake at Dniproavia to 100%

·         Increased stake at JKX Oil&Gas to 25%

·         Protected his business empire from Donetsk boys

·         Exchanged energy assets with Surkis brothers


·         Failed to join Ferrexpo Board

Plans for 2011

·         Lease DniproAzot complex to Ukrnafta. This will allow Ukrnafta, which he controls, to sell some extracted gas to the leasing company, not consumers.

·         Retain control over Ukrtatnafta

·         Use the Odesa-Brody pipeline for his Halychyna and Naftokhimik Prykarpattia oil refineries


·         State-owned stakes of Zakhidenergo, Tsentrenergo, Dniproenergo and Donbasenergo

·         Ukraine International Airlines (MAU)

·         Odesa Port Plant (OPZ)


Viktor Pinchuk




·         Failed to launch his Geo Alliance Company on Western stock exchanges

Plans for 2011


 Oleksandr Yaroslavskiy


·         His company, DCH, opened a terminal at Kharkiv airport

·         Sold Merefianska Glass Company to Turkish businessmen


·         Sold 18.6% of Ukrsibbank to PNB Paribas and is no longer a shareholder

Plans for 2011

·         Build a five-star hotel in Kharkiv


·         CherkasyAzot to Dmytro Firtash


Andriy and Serhiy Kliuyev


·         NSI Bud, a construction company

·         Partial control over Oschadny Bank, the state savings bank



Plans for 2011


 Kostiantyn Zhevaho

So far this one-time major backer of BYT seems on good terms with the new Government


Serhiy Taruta


·         Yalta Intourist Hotel, Crimea


·         Lost control over ISD Corporation

·         Sold Huta Czestochowa, a major Polish steel plant

·         Lost a court case to Rinat Akhmetov on a shortfall in contracted raw materials worth around UAH 1bn

Plans for 2011

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