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July 20th, 2008
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Steel reserves

Win in ArcelorMittal arbitration bodes well for future settlement

By František Bouc
Staff Writer, The Prague Post
April 30th, 2008 issue

COURTESY PHOTO
ArcelorMittal's steelworks in Ostrava, north Moravia, was at the center of an arbitration suit recently won by the state.
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The country’s most prominent current arbitration case has taken yet another turn.
About a month ago, the government celebrated a significant victory after it defeated an arbitration claim from the steel conglomerate ArcelorMittal seeking approximately 5.79 billion Kč ($356 million) from the state.
ArcelorMittal demanded the money after the state refused to sell its nearly 14 percent share in the ArcelorMittal steel mill in Ostrava, north Moravia, the majority of which the metallurgical giant acquired from the state in 2003. ArcelorMittal and the company Petrcíle had claims to the minority stake, both of which have been overruled in arbitration cases.
The arbitration tribunal in Paris also ordered that the government’s legal fees, totaling 500,000 euros ($800,000/12.5 million Kč), be reimbursed.
“The Czech Republic will not have to pay a single crown,” said Finance Minister Miroslav Kalousek triumphantly after the ruling.
After a series of losses in various international arbitrations, the win in Paris came just in time for the government. So far, the state has had to pay some 12 billion Kč in lost international arbitrations, which see investors demand compensation for the government’s failure to protect their investment in the country.
The most painful single loss on record is still the arbitration case against Ronald Lauder’s media company CME, which cost the Czech Republic 10.7 billion Kč in 2003.
At the moment, the government is locked in about 12 arbitration disputes, in which some 50 billion Kč are at stake. And these cases don’t show any sign of abating: Several suits arose over the past few weeks, with the claims varying lost investments in a golf course development to a failed scheme to extract underground water for businesses.
“Over the past few weeks, we’ve received about six claims, and two of them are worth some 1 billion Kč,” said Radek Šnábl, director of the international law department at the Finance Ministry, who is responsible for the coordination of international arbitration.
Never ending arbitrations
The recent win in the Paris arbitration, while a big bonus to government’s largely negative record in significant international arbitrations, could more importantly influence further developments in the government’s battle with ArcelorMittal.
The Paris arbitration is an opening act to the country’s largest arbitration case at the moment, as ArcelorMittal is suing the state for nearly 20 billion Kč. That case is likely to be resolved within the next few months.
The dispute started in 2005. At that time, ArcelorMittal filed a lawsuit against the state for its exclusion from the privatization of the Vítkovice Steel ironworks. The plant is now controlled by Russian capital and has been renamed Evraz Vítkovice Steel.
In a conciliatory moment, the arbitration was suspended last November for an indefinite period. Representatives of the government and ArcelorMittal say that they are looking for a truce.
“It should not be a surprise if a pact is found in the second quarter,” said Vijay Kumar Bhatnagar, the supervisory board member in charge of the dispute for the Ostrava steelworks.
“We can really make it by the [summer] holidays,” Šnábl confirmed.
Šnábl said there were three options currently being discussed. It is likely the state will not have to pay the 20 billion Kč, but compensation may come in the form of shares, or some imposed fines may be remitted, he said.
While détente may rule the day in the ArcelorMittal case, the government will likely have its hands full fighting off a challenge from the Italian investment company Investmart, which is demanding compensation for its lost investment in the bankrupt Czech bank Union banka. The claim, worth up to 6 billion Kč, will be considered by an arbitration panel in London.
The London venue may stir up some bad memories for the country’s arbitration team. It was there that the government suffered one of its major arbitration defeats, to the Japanese bank Nomura, in 2006. The two had been locked in a lengthy dispute over the bankruptcy of the IPB bank in 2000.
Then, the government took the collapsing bank away from Nomura and put it under the control of ČSOB. Šnábl said the Italians were likely to use the Nomura ruling as precedent and in their favor.

František Bouc can be reached at fbouc@praguepost.com


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