Steel producers up in arms over gas deal after assessing state’s losses

Ukrainian steel producers have issued an unusually strong-worded statement to the president in connection with the gas deal with Russia. “We are being brainwashed into thinking that 95 dollars is much better than 50 dollars per thousand cubic meters. Whoever does not believe this is considered to be in fierce opposition to Ukraine and its enemy. All this finds support and justification on the part of this country’s leadership,” said the statement, a copy of which was sent to The Day. The document was signed by the managers of a dozen mines and steel mills. The steel producers’ view of the situation is devoid of any optimism, to put it mildly. In their opinion, already in the first six months the real value of gas for industrial users will rise to nearly 150 dollars (95 dollars, plus transportation, compensation paid to the population and the public utilities sector, Naftohaz Ukrainy’s profits, and VAT). The signatories believe that this can lead to the “collapse of the entire national economy,” and they are putting the blame on the political leadership. “Over the past year your team has failed to prepare society and the industry for the coming increase in the price of natural gas. The government has given rise to new shoots of corruption. As a result, they have ‘frittered away’ the strategic resources of the state’s energy security.” The authors propose that the current negotiations on interstate gas agreements be suspended, as they are illegitimate in their view, and that the government be stripped of its powers. Here it would be useful to quote from an interview that was published in the online publication Ukrainska pravda with Serhiy Taruta, co-owner of the Industrial Union of Donbas, who is “the closest to Yushchenko among the old oligarchs...Unfortunately, the president is not familiar with other opinions,” says Taruta. “Let him invite independent experts, and they will put him in the picture. Then I think his attitude will change radically. Regrettably, the president has so far relied on information furnished by the very people who promoted signing the damaging gas deals.”

According to Vasyl Kharakhulakh, general manager of the Metalurhprom association, the higher gas price will boost the cost of cast iron (31 million tons are produced annually) by UAH 8.3 billion. So, goodbye to profits. Kharakhulakh predicts that steel mills will see an 11.11 percent drop in cost-efficiency, which at best will fall to 3.2 percent, and many businesses will have to show zero or even negative results. But what worries steel producers even more than the possible loss of cost-effectiveness is the likely loss of markets.

If they want to remain part of the worldwide trade, they will first have to think about saving energy. According to Volodymyr Vlasiuk, head of the state-run Ukrzovnishekspertyza, Ukraine is one of a handful of countries that use gas for making steel. Vlasiuk claims that Ukrainian enterprises can still work if the price of gas is $95 and world prices for metal do not go down. But if the gas price rises even to $120 in the second half of the year and metal prices drop by 15%, there will be no funds left for industrial retooling. In his words, enterprises can only switch to less power-consuming production if they are given five stable gas years.