How Viktor Pinchuk's experience can help Dmitry Firtash in his fight against Igor Kolomoisky
Dmytro Firtash's titanium empire is crumbling at the seams. The businessman, who over the past ten years has virtually taken over all titanium production in Ukraine, risks being left with nothing.
Late last week, the Cabinet of Ministers began the process of transferring the Irshansk and Volnogorsk ilmenite plants to the state-owned United Mining and Chemical Company (UMCC). If the government succeeds in completing the transfer, their previous tenant, Dmitry Firtash's Ostchem Group, will lose the source of raw materials for Crimean Titan and the Zaporizhzhia Titanium and Magnesium Plant.
The return of the mining and processing plants is symbolic for Dmitry Firtash. His career as a titanium magnate began with the purchase of half of Krymsky Titan and the lease of the plants in 2004. Within ten years, Firtash had practically completely dominated the industry. By early 2014, Group DF controlled Krymsky Titan, the Irshansky, Volnogorsky, and Mezhdurechensky mining and processing plants, Valki-Ilmenit, half of the Zaporizhzhia Titanium and Magnesium Plant (ZTMK), and the creditors' committee of Sumykhimprom, whose privatization tender was scheduled to take place this summer.
So far, the state has only regained ownership of the titanium mining and processing plants on paper. Firtash's management continues to manage them. Yesterday, Dmitry Parfenenko, Chairman of the State Property Fund, admitted that agency representatives are unable to access the plants to conduct an inventory of the assets. "If the lessee refuses to allow the de facto owner of the property to conduct an inventory, this raises certain doubts regarding the integrity of the property," Parfenenko complained.
His concerns are not unfounded. The fact is that Firtash de facto owns more than half of the mining and processing plants' assets.
The Azarov government planned to privatize the Irshansky and Volnogorsky mines this year. The privatization process for leased enterprises was first tested at the Zasyadko Mine in 2011. Back then, during the corporatization phase of the state-owned enterprise, the mine's "workforce," led by Yefim Zvyagilsky, a member of parliament from the Party of Regions, received 83% of the shares as compensation for their investment over a 20-year lease.
The privatization of the mining and processing plants could have followed a similar pattern. "The lessee's share would have been over 50% even before privatization," Parfenenko told reporters. The fund refused to renew the lease but does not intend to compensate Firtash for his investments, as it "did not issue official permits for essential improvements" to the plants.
There have already been media reports about equipment being removed from the plants. OGKhK Director Ruslan Zhurilo isn't making a big deal out of it. "If the tenant wants to take back all their property and equipment, there will be a small cash flow gap. We'll resolve this situation... We'll do everything we can to ensure production continues uninterrupted," the top manager says.
Privat's Trace
The equipment problem could be resolved by tapping into old connections. According to Delovoy Stolitsa, Zhurilo is associated with Slavutich Capital, a company owned by Gennady Korban, a partner of Privat Group co-owner Igor Kolomoisky. Privat owns the Marganets and Ordzhonikidze Mining and Processing Plants and could easily share equipment with the "titanium brothers."
Igor Kolomoisky's group expressed interest in the titanium sector after the change of power. For example, Privat's allied firm, Business Invest, participated in the failed bid to sell Sumykhimprom. And Korban's former manager, Igor Samoshost, took over the Zirconium company, which is technologically linked to Volnogorsk Mining and Metallurgical Company.
Firtash's situation is similar to the 2005 Nikopol Ferroalloy Plant incident. A year before the Orange Revolution, the former president's son-in-law, Viktor Pinchuk, purchased a controlling stake in the plant. After the change of power, Privat's lawyers made life difficult for Pinchuk, seeking the return of the shares to the state. The legal battle continued until Pinchuk agreed to a minority stake in the joint ferroalloy holding company.
Sooner or later, the state will reclaim the mining and processing plants. But Group DF still has strong negotiating positions. First, it has existing contracts with consumers. Second, it owns Crimean Titan and ZTMC, which use ilmenite ore from the mining and processing plants. Reprivatizing ZTMC, half of which was transferred to Firtash last year, is no easy task, Parfenenko admits.
Cyprus-based Tolexis Limited, as a shareholder in ZTMC on behalf of Group DF, has a preemptive right to purchase the state-owned stake in the enterprise. It also has every chance of becoming an investor in the reorganization of Sumykhimprom.
What does the OGKhK top manager say about his connection to Privat? "I actually know Gennady Olegovich (Korban – Hubs)," Zhurilo told Hubs. "As for Mr. Kolomoisky, the only thing we have in common is a passion for the Dnipro football club."
Andrey Samofalov, HUBS
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