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U.S. Steel might stay

SINCE last November, when reports about the possibility of the U.S. Steel Corporation selling its U.S. Steel Košice (USSK) subsidiary in eastern Slovakia emerged, the local media has been speculating on who might purchase the mill – and the Slovak government has been negotiating to get the firm to change its mind. As long ago as March 5, Prime Minister Robert Fico suggested that the talks, aimed at securing jobs at the plant, eastern Slovakia’s largest private-sector employer, were nearing a conclusion – “be it a negative or a positive outcome” – and that the government would shortly inform the public.

SINCE last November, when reports about the possibility of the U.S. Steel Corporation selling its U.S. Steel Košice (USSK) subsidiary in eastern Slovakia emerged, the local media has been speculating on who might purchase the mill – and the Slovak government has been negotiating to get the firm to change its mind. As long ago as March 5, Prime Minister Robert Fico suggested that the talks, aimed at securing jobs at the plant, eastern Slovakia’s largest private-sector employer, were nearing a conclusion – “be it a negative or a positive outcome” – and that the government would shortly inform the public.

“I think that at the moment their departure is not imminent in such a way that they would leave tomorrow, the day after tomorrow or next year,” Economy Minister Tomáš Malatinský said after a cabinet session on March 20, as reported by the SITA newswire. “I hope they will also be here after next year.”

Malatinský, like Fico a fortnight earlier, said that the negotiations over the continued presence of the US investor were nearing their conclusion and that he believed the outcome would be positive for Slovakia. There was no definitive announcement as this edition of The Slovak Spectator went to print.

While Malatinský described the short-term perspective as ‘promising’ he admitted that the long-term outlook was unclear. “The American investor has not committed itself to anything yet in terms of the company’s internal decisions, currently being made in Pittsburgh, on its course of action,”
Malatinský said as quoted by the TASR newswire.

According to Malatinský, the Slovak government is able to offer advantages to the American investor but he refused to specify the nature of these. Nevertheless, he hinted at some measures in the area of energy, which could ease the energy bills of the operation, and also suggested some options in the area of environmental protection, according to SITA.

Last November U.S. Steel said it was considering offers for USSK, one of the flagship United States investments in Slovakia, that were interesting enough to explore. The firm confirmed that there had been talks about a potential sale, but remained tight-lipped about the identity of potential buyers.

“What I can confirm is that we have received expressions of interest in U.S. Steel Košice likely due to its strong financial performance and strategic position in the region,” USSK spokesman Ján Bača told The Slovak Spectator in November 2012, attributing interest in USSK to it being an attractive asset with experienced employees, strong performance and “a very reliable and favourable cost position”.

The media later speculated that one possible buyer could be the Ukrainian firm Metinvest, which belongs to the System Capital Management group owned by Ukrainian oligarch Rinat Akhmetov.

“We have not bought it,” said a spokesman for Metinvest, Ivan Šmidník, following a report in the Hospodárske Noviny business daily stating that a deal had been signed on November 18 in Vienna.
Reports about a potential sale led to a political slanging match between Fico and former prime minister Mikuláš Dzurinda, with Fico claiming on November 20 that “it now shows what madness it was to privatise state property” and blaming the current situation on the Dzurinda governments in office between 1998 and 2006.

Fico implied that the Dzurinda administration effectively gave away state property, adding that “western investors were making a mint and now, when they have pulled out everything they could from here, they are leaving Slovakia for good”. Dzurinda’s party, the Slovak Democratic and Christian Union (SDKÚ), called Fico’s statements outrageous, and argued that U.S. Steel, by buying the Košice-based steel mill in 2000, had in fact saved the economy of eastern Slovakia.

The history of USSK

The history of steelmaking in Košice dates back to the late 1950s, when the new steel mill was built on a greenfield site as part of the country’s communist-era industrialisation. After the fall of the communist regime in 1989, the government, which was then led by prime minister Vladimír Mečiar, privatised the profitable Východoslovenské Železiarne (VSŽ), as it was then known, via a coupon privatisation and direct share sales. The latter took place under murky conditions and was financially disadvantageous to the state. Alexander Rezeš, a minister in Mečiar’s 1994-98 government, and his family gradually took control of the company.

In November 1998, after the first Dzurinda government had taken power, VSŽ management led by Július Rezeš, the son of Alexander, admitted that the company was facing a serious financial crisis. The Rezeš-led management stepped down and businessman Gabriel Eichler, nominated by creditor banks with the support of the government, which controlled about one third of VSŽ, became the company’s president. He was tasked with restructuring and stabilising the company and preparing it for sale to a foreign investor.

The US investor took over VSŽ’s core business on November 24, 2000, starting a new phase in the history of the steel mill. In total, U.S. Steel was to pay a maximum of $495.5 million for the steel mill. This sum included $60 million in cash, the assumption of $325 million in debt (out of a total of $411 million), settlement of $15 million in overdue taxes, and payment of a share of profits not lower than $25 million but not higher that $75 million to VSŽ shareholders in 2002 and 2003. It also promised to invest at least $700 million in the company over a period of 10 years. USSK was eligible for tax relief totalling $430 million up to 2010, although this sum had been exhausted by 2008.

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