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Romania bail out from Ukraine Krivoy Rog Mining Oxidized Ore project investment

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Krivoy Rog, Kryvyi Rih in Ukrainian, is situated in a region known for iron-ore mining and metallurgy industry. Romania has been spending money on the unfinished plant every year since 1986, when five communist countries started work on the Krivoy Rog Mining and Processing Works of Oxidized Ore, KGOKOR, one of the largest industrial projects of the time. The new government in Kiev, which is more open to negotiations and is trying to attract investors, could allow Romania to sell its stake in KGOKOR.

Romania’s budget for 2016, which the government approved on Wednesday, envisages spending of 4.1 million lei, almost 1 million euro, on security at an unfinished Soviet-era plant in eastern Ukraine. Romania allocated the same amount this year, up 32 per cent compared to 2014, according to media reports.

In fact, Romania has been spending money on the unfinished plant every year since 1986, when five communist countries started work on the Krivoy Rog Mining and Processing Works of Oxidized Ore, KGOKOR, one of the largest industrial projects of the time.

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In the early 1990s, construction of the plant was frozen. Following negotiations among the investors, Bulgaria and Germany then exited the project. The main shareholders remained Ukraine with 56.4 per cent of the shares, Romania – 28 per cent and Slovakia – 15.6 per cent.

Romania’s decision to get involved in the project was mainly economically motivated, experts recall.

“Romania invested around US 800 million dollars before 1989 in the project with the aim of finding a cheap secure supply source of iron ore for its many big steel plants,” historian Cosmin Popa told BIRN.

“After the collapse of communism, successive Romanian governments have tried to find a way to exit the enterprise but without results,” he added.

“This is a Catch-22 situation, as there is no money and no prospects for starting work at Krivoy Rog,” Popa continued.

KGOKOR is about 70 per cent finished but still requires another US 800 million dollars or so in investment to finish construction and start operations.

In 2007, Romania planned to sell its stake in KGOKOR to steel and mining group ArcelorMitall on condition that the group doubled steel production at its Romanian plant ArcelorMittal Galati.

ArcelorMitall also made an offer to Ukraine for KGOKOR but a planned tender was canceled unexpectedly following a face-off between the Ukrainian government and the then president of Ukraine, Viktor Yushchenko.

In 2010, the Ukrainian government announced a new initiative to sell off the unfinished plant.

Krivoy Rog, Kryvyi Rih in Ukrainian, is situated in a region known for iron-ore mining and metallurgy industry.

However, mining activity in the region has been hit by ther armed conflicts in eastern Ukraine between Ukrainian forces and Russian-backed rebels.

The current political regime in Ukraine could work in Romania’s favour, experts say. The new government in Kiev, which is more open to negotiations and is trying to attract investors, could allow Romania to sell its stake in KGOKOR.

Otherwise, there is no solution for Romania to get back the money it has invested so far,” Popa said.

In July, Ukrainian President Petro Poroshenko attended the opening of a new blast furnace in Krivoy Rog, following an investment by ArcelorMittal. “Krivoy Rog is becoming a symbol of the revival of the Ukrainian economy,” Poroshenko said.

Balkaninsight

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