U.S. STEEL Corporation will not sell its U.S. Steel Košice (USSK) subsidiary in eastern Slovakia. Representatives of the Slovak government and the US investor signed a memorandum confirming the latter’s continued presence in Slovakia, meaning that it will remain one of the country’s biggest employers. The Slovak government has been negotiating to get the firm to change its mind since last November, when it indicated that it was thinking of selling USSK.
The memorandum was signed on March 26 in Košice, upon the return of Slovak Prime Minister Robert Fico from a whirlwind two-day trip to the headquarters of U.S. Steel in Pittsburgh, USA, accompanied by Environment Minister Peter Žiga, Mayor of Košice Richard Raši and President of the Košice Self-Governing Region Zdenko Trebula.
“I want to say thank you for this moment, which I consider important not only for the east but for the whole of Slovakia,” Fico said, as quoted by the Sme daily. “The agreement guarantees U.S. Steel’s stay in the east for at least five years and we will then re-evaluate the conditions.”
Nevertheless, Fico added that some of the state aid to be given to the firm will last 15 years. The prime minister stressed that Slovakia was not providing any “direct investment stimuli from the state budget” to get U.S. Steel to stay, and added “nor are tax holidays involved”, the SITA newswire reported.
“We have created conditions so that they are motivated to stay and produce steel,” said Fico, as quoted by Sme.
According to Sme, U.S. Steel should benefit to the tune of around €14 million per year in reduced energy bills. Among other things, the memorandum also guarantees that as of January 1, 2014 some laws, such as the law on renewable energy sources, will be changed to make it possible for the company to reconstruct boilers in its on-site power station with state support, according to Sme.
U.S. Steel agreed in return to preserve employment and not enact mass layoffs at its Košice subsidiary, Sme reported.
“I have to say that the management of U.S. Steel has had good relations with the Slovak government since we started our business here,” David Rintoul, president of USSK, as quoted by Sme.
Economy Minister Tomáš Malatinský, who was not part of the Slovak delegation to Pittsburgh, had indicated on March 20 that the departure of U.S. Steel was not “imminent in such a way that they would leave tomorrow, the day after tomorrow or next year”.
Speculation about the sale of USSK
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 steelmaking in Košice dates back to the late 1950s, when the new steel mill was build on a greenfield site as part of the country’s communist-era industrialization. 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.