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Mittal Steel to launch Netherlands vs. Czech Republic arbitration

Czech Business Weekly, Prague

Mittal Steel to launch Netherlands vs. Czech Republic arbitration

By Sean B. Carney

2 September 2005

Netherlands-based Mittal Steel, disqualified from the Vítkovice Steel privatization, says that in late September it will launch international arbitration against the Czech state.

Ondra Otradovec, Mittal’s director of mergers and acquisitions, says the international arbitration is based on the Czech government’s “infringement upon a bilateral investment treaty between the Netherlands and the Czech Republic [stipulating] that fair and equitable treatment be given to all investors.”

Mittal’s legal team is putting the finishing touches on the case. He said Mittal followed all rules in the privatization, submitted its Kč 9 billion (highest) bid on time, and offered to settle all issues with Osinek and Vítkovice. Nevertheless, the state excluded Mittal and Otradovec says the government actions were “not normal at all.”

“In a nutshell, our exclusion was unjust,” Otradovec said. He didn’t say what damages Mittal was seeking.

The arbitration is ill-advised, according to Karel Muzikář, the man who led the government’s legal team on the Vítkovice privatization. “In my legal understanding of the situation, there is no basis for that kind of arbitration,” he said.

Eva Kijonková, spokeswoman for Osinek, the state-owned company which still owns Vítkovice, said that from the beginning the privatization process adhered to European law and fulfilled all government criteria.

If this isn’t a bluff, as when Mittal very publicly threatened to stop supplying raw iron to Vítkovice May 1 but then didn’t stop deliveries, the arbitration could jeopardize the Czech Republic’s chances of hosting Mittal’s proposed factory to produce cold rolled steel sheets for the automotive industry.

The new plant would be a greenfield investment valued at almost $500 million (Kč 11.66 billion), industry observers say. Mittal, the No. 1 producer of steel sheets for the auto industry in North America, so far has no significant facilities tailored for sheet production in Europe.

By announcing the arbitration proceedings at the same time that it is deciding where to locate the new plant, Mittal could be taking the opportunity for another bluff. But this time around, Otradovec says Mittal is “really preparing these steps” and that it is “for the government to decide” if it’s a bluff.

It remains unclear whether the arbitration and new plant issues are related. Otradovec said, “I don’t want to put [them] in such a close connection,” but quickly followed by adding, “On the other hand, facts remain.” Each investor looks for countries with the best terms, markets, political conditions and stable environment, Otradovec said; in this case, he added, “The approach of the Czech government doesn’t help.”