The Prague Post
July 5th, 2008
Reader's SurveyNEW     Endowment Fund     Book of Lists ONLINE      Reservations      Classifieds    Subscriptions

Home » Archives » Legal Services

Tangled up in steel

State's win in Petrcíle case adds another twist to Ostrava steelworks quarrel

By Victor Velek
Staff Writer, The Prague Post
January 30th, 2008 issue

ISIFA
Finance Minister Miroslav Kalousek scored an arbitration win against Petrcíle, though the state must still sell its disputed shares.
enlarge
An arbitration verdict announced by the Finance Ministry Jan. 22 has added a new twist to a series of long-standing disputes surrounding the country’s largest steelworks.
The state does not need to pay billions of crowns in compensation to Petrcíle — a company supposedly controlled by the financier Pavel Tykač — for Petrcíle’s elimination from the privatization of the Nová huť steelworks, which is now the Ostrava branch of the multinational steel giant ArcelorMittal.
Petrcíle’s claim, worth about 7 billion Kč ($324 million) including interest, was firmly turned down, said Finance Ministry spokesman Ondřej Jakob. “The ruling is final and binding,” he said.
The Nová huť dispute stretches back to 1996, when the government sold 1 percent of its Nová huť shares to Petrcíle, a company formed by the steelworks’ managers. The government had promised to sell Petrcíle an additional 14 percent of Nová huť stocks.
In 2000, however, the state pulled out of the deal. Two years later, it sold the majority share of Nová huť to Mittal, now ArcelorMittal. Petrcíle was later sold to the entrepreneur Radim Masný, who subsequently sued the state, demanding 2 billion Kč in compensation for the canceled contract.
Four years later Masný won the suit, but the state appealed the verdict and the case remains open. In the meantime, Petrcíle was acquired by the Cyprus-based financial group Zuglite Investments, which is believed to be controlled by Tykač. It was under Zuglite that Petrcíle filed its failed arbitration claim.
Despite the arbitration loss, the rights stemming from the original Petrcíle deal are still valid, and the state must sell its 14 percent share of ArcelorMittal Ostrava for some 850 million Kč (thought to be much less than its market value) to either Petrcíle or ArcelorMittal, Finance Ministry lawyer Radek Šnábl told Czech Radio.
This share cannot be sold until another suit stemming from the Petrcíle  case is resolved.
When the government sold Nová huť to ArcelorMittal, it pledged to include the shares originally slated for Petrcíle — essentially giving two companies claims to the same shares. Naturally, ArcelorMittal decided to sue the state.
Since 2005, the steel powerhouse has also been fighting a second legal battle against the government, this one connected to the privatization of Vítkovice Steel, another Ostrava-based steelworks. ArcelorMittal complained that its exclusion from the privatization tender violated the Czech-Dutch investment protection treaty.
Last year, the parties decided on a truce in both disputes and have been trying to negotiate a settlement. There is speculation that the recent arbitration ruling might prompt ArcelorMittal to withdraw from the settlement talks. ArcelorMittal Ostrava spokeswoman Jana Dronská said the company wants the Finance Ministry to provide it with details of the verdict.
“We want to continue negotiating about the settlement of the arbitration disputes,” she said.
The same day as the Finance Ministry’s announcement, it became apparent that it won’t be Tykač who could eventually get the disputed shares. The case could be heading for a surprise ending as PPF Investments — the private equity firm connected to the financial empire of Petr Kellner, the Czech Republic’s richest man — has now stepped into the picture.
“PPF Investments is declaring that it has and intends to exercise the option for the purchase of 1,719,881 shares of ArcelorMittal Ostrava,” announced spokesman Jan Piskáček Jan. 22, disclosing no further details.
Like Latin America
The Ostrava steelworks legal saga is only one of many arbitration suits that have hit the Czech Republic in the wake of the messy dismantling of the state-run economy in the early 1990s.
Apart from the ArcelorMittal arbitration over Vítkovice Steel, the country is currently a defendant in 11 other arbitration disputes launched on the basis of purported violations of bilateral investment protection treaties, according to the Finance Ministry.
Several other cases have already been decided, among them notorious quarrels with Nomura, CME and Eastern Sugar.
Although the number of arbitration disputes lodged against the post-communist states of Central and Eastern Europe is higher than in Western Europe, it is by no means dramatic from a global perspective, according to Rostislav Pekař of the international law firm Squire, Sanders & Dempsey, which represents the Czech Republic in several arbitration suits.
“As far as investment arbitration is concerned, Central and East European countries can be compared with an average Latin American country,” Pekař said.
Although the first bilateral investment treaty, closed between Germany and Pakistan, dates back to 1961, investment arbitration disputes are a new phenomenon, Pekař added. “Only in the past 10 or 15 years have investment arbitration disputes been booming,” he said.
Today, more than 120 such cases are pending at the International Center for Settlement of Investment Disputes, the main platform for the resolution of international investment disputes. About as many cases are dealt with by other arbitration courts, Pekař said.
“In some 60 percent of disputes, the investor wins,” Pekař estimated, adding that this is perhaps because investors carefully assess their chances before they decide to sue the state. However, winning an arbitration dispute doesn’t necessarily mean the compensation amount sought by the company will be awarded, he said, so “the legal victory need not necessarily be an economic victory.”

Victor Velek can be reached at vvelek@praguepost.com


survey banner


Other articles in Legal Services (30/01/2008):

Browse the Current Issue

If you enjoyed this article, why don't you subscribe to the print version!
We accept secure online transactions provided by PayPal and Moneybookers

Be the first to add a comment!


Full Name: *
City: *
E-mail: **
This comment can be published in the print version of The Prague Post
Enter the text on the right:
 visual captcha
Comment: *
* Required field. In order to be approved for display, comments must have a first and last name and a city.
** E-mails are required and will only be used for internal purposes.

Most visited in Book of Lists

Hotel booking
The Prague Post Online contains a selection of articles that have been printed in
The Prague Post, a weekly newspaper published in the Czech Republic.
To subscribe to the print paper, click here.
Unauthorized reproduction is strictly prohibited.