Ukraine Halts Chemical Plant Sale

KIEV, Ukraine (AP) -- The Ukrainian government auctioned off a key chemical plant Tuesday but canceled the controversial sale just minutes later, claiming the bidders conspired to drive the price down.

The Odessa Port plant is at the center of a rivalry between Ukraine's leaders that has hampered effective economic policy. President Viktor Yushchenko is locked in a power struggle with Prime Minister Yulia Tymoshenko, his ally in the 2004 Orange Revolution protests that led to his election, and both are running for the presidency in January.

Tymoshenko wants to sell the plant this year, putting cash in her government's coffers amid a devastating recession. Yushchenko argues the country is not ready to sell the key plant and has issued an order banning its sale.

The plant manufactures ammonium and other chemicals used to make fertilizers, one of Ukraine's key export commodities.

The state property fund conducted a tender for the plant Tuesday despite the order and protests from a Yushchenko representative at the auction who said it was illegal. This was the third attempt to auction off the plant in recent years, according to the fund.

A Ukrainian company, Nortima, won the tender with a bid of 5 billion hryvna ($592 million or euro405 million), but the nation's top privatization official said minutes later that the tender commission had voted unanimously to annul the results because the price was too low.

The official -- acting State Property Fund chief Dmitry Parfenenko -- accused bidders of plotting to lower the value of the plant.

"Unfortunately, you have seen what kind of pressure is being exerted on the state property fund, on the tender commission," Parfenenko said. "All this was aimed at lowering the value of Odessa Port plant shares at the end of the day."

He said a fair price for the plant specializing in ammonium production would have been 10 billion hryvna ($1.2 billion; euro810 million). The starting price at the tender was 4 billion hryvna ($475 million or euro325 million).

Tymoshenko praised the decision to annul the sale, accusing "shadow clans" of conspiring to drive down the price. Neither she nor Parfenenko would provide details of the alleged plot.

Timur Novikov, a spokesman for Nortima, told reporters the company would contest the annulment in courts and seek compensation for legal and other fees incurred in the course of the privatization.

Even though Yushchenko's representatives also supported the decision to annul the sale, Parfenenko indicated that the president's attempts to stall the tender in the first place have also served to lower its value.

Yushchenko called the attempted sale a "shame," according to his Web site. "Our future is not about selling off assets created by our parents," he said.

Analysts were puzzled by the authorities' move and said it hurt the country's investment climate.

Marina Alexeyenkova, an analyst with Renaissance Capital Russia, said the price offered Tuesday was fair, given that the chemicals market was undergoing harsh times amid the global crisis.

"The price is in line with market conditions" Alexeyenkova said.

Tamara Levchenko, an analyst with the Kiev-based Dragon Capital investment bank said that the authorities should have set a higher starting price if they consider the final offer unfair. Levchenko said the political battle around the plant is hurting Ukraine's image.

"All of this has a negative impact on Ukraine' investment portrait," Levchenko said.

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