TPT September 2010

G lobal M arketplace Earlier in the day of the Bloomberg interview he told a Steel Success Strategies conference, “The reality of quarterly pricing means raw material costs will increase over the remainder of this year.” › Together with Posco, of South Korea, ArcelorMittal is among a number of international and domestic investors making huge commitments to projects in the Indian state of Karnataka. At an early June meeting of business leaders in the state capital of Bangalore, Lakshmi Mittal announced that his company planned to invest billions of dollars in a steel and power plant in Karnataka. Posco signed a deal to set up another power plant in the state. But Habib Beary, reporting from Bangalore for BBC News (4 June), noted that land acquisition for industrial purposes has stirred massive protests across India. He recalled that agreements worth billions of dollars were also signed during a similar event in 2000, but actual investments turned out to be much lower than the amounts pledged. Mr Beary wrote, “That was partly because the state government’s plan to acquire farmland for industry was bitterly opposed by farmers.” If BS Yeddyurappa has his way, the plans for development will succeed in spite of opposition. Karnataka’s chief minister – describing Bangalore as a “favourite global destination” for multinational companies – declared, “We will cut the red tape and spread the red carpet for investors.” After failing to block a lawsuit by the federal government of Canada that could force it to sell its Canadian operations, US Steel Corp on 29 June filed an appeal to a Federal Court ruling upholding Ottawa’s powers to go after foreign companies on grounds of failure to live up to promises. The lawsuit, brought last year, alleges that Pittsburgh-based US Steel violated two of 31 “undertakings” regarding production and employment levels, made to gain Ottawa’s approval for its $1bn-plus acquisition of Stelco Inc (Hamilton, Ontario) in 2007. In clearing the Stelco takeover, the government cited job protection as a “net benefit” that would thereupon accrue to Canadians. Specifically, it is claimed that US Steel scaled back production and laid off or retired 2,400 workers at two former Stelco plants in Ontario. US Steel blamed weak steel demand for its decisions. But to Ottawa, apparently a strict constructionist in these matters, a deal is a deal. The judge who issued the ruling rejected the claim by US Steel that its rights were violated by provisions of the Investment Canada Act, which gives Ottawa the power to oversee foreign investment. Under the act the government has authority to ask the courts to fine US Steel up to C$10,000 (US$9,700) a day until commitments on job protection are honoured. For its part, US Steel argued that the size of the penalty – which it termed a “King Kong fine” – was one of the ways in which the act violated its rights. In a closely watched case, Canada and US Steel lock horns over ‘broken promises’ on employment and production

Law reporter Jeff Gray of the Toronto Globe and Mail noted the view in local legal circles that the spiralling fight, and the initial Federal Court ruling upholding the Investment Canada Act, should prompt foreign companies shopping for acquisitions in Canada to take their undertakings – promises to Ottawa – more seriously. “For the longest time, it was always an afterthought,” Toronto-based lawyer Brian Facey, who has helped major foreign investors navigate the Investment Canada Act, told Mr Gray. “It was a condition put in the various merger agreements that you would have to get the various approvals. But people didn’t focus that much on Investment Canada. You knew you’d get through it.” (“US Steel Appeals Court Ruling in Stelco Case,” 29 June) › Now, Mr Facey observed, foreign buyers and Canadian vendors alike are seeking special covenants in merger agreements that spell out the likely effects of undertakings. In his view, foreign buyers would do well to think carefully about a possibly souring economy before committing to certain levels of employment and the like. As Mr Facey put it to the Globe and Mail , “The main point for foreign investors is you bear the risk of any unforeseen developments – because the [Canadian] government can really hold you to it.” In brief . . . › Having gained the support of four of the five labour unions at the Fiat plant in Pomigliano, near Naples, company chief Sergio Marchionne said on 9 July that Fiat would invest $875mn to bring production of its Panda model back to Italy from Poland. In a June referendum, some 60% of the 5,000 workers at Pomigliano, Fiat’s least productive factory, accepted the company’s proposals for additional shifts, shortened sick leave, and curtailment of strikes as their contribution to the transfer. Fiat currently produces the Alfa Romeo – the first “supercar” – at Pomigliano. Oil and gas Germany’s Europipe would share the risk of rising raw materials costs with pipeline builders The Russian natural gas producer Gazprom, lead investor in the $9 billion Nord Stream natural gas line linking Europe to Russia, is building pipelines that bypass countries such as Ukraine, where price disputes have disrupted flows of the fuel to Europe. According to the Brussels-based producer group Eurogas, declining output within Europe means the region must look elsewhere to fill its needs beginning in 2015; and that by 2030 about 70% of its requirement will be served by imports. This suggests a busy period ahead for pipeline builders in the region. If proposals made by Europipe, a German supplier of steel pipes to Nord Stream, are adopted, companies like itself would share with customers such as Gazprom the risk of swings in raw materials costs. The suppliers would set a cap, to which the price to clients could rise with any increase in raw materials costs. The customers would be refunded if costs fall.

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S eptember 2010

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