Ukraine to launch costly upgrade of steel plants

Roman Olearchyk (London, UK)

Ukraine's steel barons are pushing ahead with costly upgrades aimed at reducing their dependence on increasingly expensive natural gas imports from Russia and central Asia.

Interpipe, one of Ukraine's largest industrial holding companies, which is controlled by the Ukrainian billionaire Viktor Pinchuk, yesterday unveiled plans to pump $610m (EUR470m, £310m) into the construction of an
energy-efficient steel mill. Italy's Danieli, a leading supplier of equipment and technology, has been hired to build the mill.

When completed in 2009, the factory will produce 1.3m tonnes of steel for Interpipe's steel pipe and railway wheel factories. Ukraine's Soviet-built mills rely heavily on gas furnace technology; the new mill will use less-expensive electric arc furnace technology.

The country's vast steel and chemical industries are highly dependent on natural gas imports and have laboured to introduce energy efficiency upgrades. Fuel prices nearly doubled to $95 per 1,000 cubic metres in
January 2006 and increased this year to $130.

Mr Pinchuk, the son-in-law of Leonid Kuchma, Ukraine's former president, is one of several ambitious Ukrainian billionaires planning to float shares in a diversified portfolio of companies within the next few years.

The ageing steel factories are among their most valuable assets, but modernisation is needed to bolster competitiveness.

"The future of Ukraine does not only entail modernisation of factories built 50-100 years ago. If we want to keep up with developed industrial countries, we need to establish production facilities based on modern technologies," Mr. Pinchuk said.

His mill may lay claim to being the single largest greenfield investment in Ukraine. It could also be the first steel factory erected since Soviet days in a country ranked as one of the largest steel-producing nations, although
other mills are under development.

Kostyantin Zhevago, a Ukrainian business mogul and owner of a diversified business empire, plans to invest more than $1.5bn in two state-of-the-art steel mills. One will be in Ukraine while a rolling mill designed to process
slabs is planned for Hungary.

Unlike their Russian peers, Ukraine's industrial giants have not yet floated stock on leading securities markets. But they have stepped up efforts to fund modernisation and energy efficiency, landing large loans with big
banks.

Industrial Union of Donbass, also known as ISD Group, has in recent years raised more than $850m from European banks for energy efficiency upgrades. ISD, which owns a coke factory and two metallurgical plants in Ukraine,
acquired Hungary's Dunaferr and Poland's Huta Czestochowa mills in recent years. It is holding merger talks with Russia's ore conglomerate Gazmetall.

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