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Mittal caught in Russia-Ukraine gas price crossfire

New Delhi, Jan. 2: Mittal Steel, the multinational steel giant belonging to UK-based Indian Lakshmi Mittal, has been caught in the crossfire of the bitter fight between Russia and Ukraine over natural gas supplies.

The multinational giant, which has just closed a deal to buy Ukrainian steel plant Kryvorizhstal, found itself directly in the firing line from Russian President Vladimir Putin as the row escalated last week.

'It's one thing to subsidise friends and neighbours who like us are emerging from the complicated situation of a planned economy, and another thing, for example, to subsidise Indian business in Ukraine,' said Putin.

The Russian president made the statement during a meeting with a Ukrainian delegation which had travelled to Moscow for negotiations.

Russia shut down natural gas supplies to Ukraine on January 1 after its demand for a four-fold price hike was turned down by the Ukrainians. The shutdown has triggered fears that the Ukrainians will face a mid-winter freeze in their homes and factories as natural gas supplies run short. The temperature in Kiev, the Ukraine capital, was Minus (-) 3C on Tuesday and may drop to Minus (-) 10C by Friday.

In November, Mittal inked the $4.8 billion deal to buy KryvorizhStal, a highly profitable Ukrainian steel mill which was re-privatised after a televised bidding battle earlier this year. Mittal beat off strong competition from other bidders, including a Russian consortium.

KryvorizhStal is an extremely profitable mill that makes about 7 million tonnes of steel annually and also turns in high profits. Equally importantly, the mill comes with over one billion tonnes of iron ore reserves. As demand for steel has risen led by a boom in China, iron ore has become a highly sought-after commodity globally.

Mittal has already gone on record to emphasise that KryvorizhStal will become a lynchpin of the Mittal Steel network. 'Kryvorizhstal is a company which we believe not only has an exciting future ahead of it, but that can add considerable value to Mittal Steel. Indeed we have already identified some $200 million of synergies that we expect to be realised by the end of 2007," he told a group of executives a few weeks ago.

Russia has demanded that Ukraine hike prices of natural gas four times from $50 for 1,000cu metres to $230. The Ukrainians made a counter-offer of $80, which was turned down on Sunday by Gazprom, the giant Russian company that controls the country's oil and gas industry.

Mittal Steel, which burst into the Fortune 500 list in 2005, has a string of steel mills in eastern Europe and the former Soviet Union including the huge Karmet steel plant in Khazakhstan and plants in Poland, Czechoslovakia and Romania. It's not immediately clear whether any of these plant will be affected by the Russo-Ukrainian row.

Forbes calculated in 2005 that Lakshmi Mittal was the richest non-American with assets of around $18 billion. This came after he created a steel industry colossus in 2004 with the deal to buy US steel giant ISG for $4.5 billion.

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