KIEV, Ukraine, Feb. 17 -- A court ruled Thursday that the privatization of Ukraine's largest steel mill was illegal, setting the stage for the first confrontation between some of the nation's biggest businessmen and the new government that vows to undo deals that put state property in the hands of people close to the previous administration.
The court annulled its own ruling that had allowed the sale of the Kryvorizhstal mill last year to former president Leonid Kuchma's son-in-law, Viktor Pinchuk, and tycoon Rinat Akhmetov despite reportedly higher offers from bidders in the United States and Russia, a court official said.
The sale became one of Ukraine's most disputed post-Soviet privatizations, and new President Viktor A. Yushchenko had vowed to reverse it.
"This ruling is the first one that does not recognize this privatization as legal," said lawyer Irina Nazarova, who represents a group of lawmakers loyal to Yushchenko.
Pinchuk said in a statement that he would accept "any decision independently taken by the courts under the rule of law" and that "Ukrainian authorities themselves should comply with court decisions."
In an interview with Ukraine's Korrespondent magazine published this week, Pinchuk said that his and Akhmetov's reputations as "honest businessmen and patriots" were of the utmost importance in resolving the issue.
In a sign that Pinchuk is eager to establish good relations with the new government, he hosted a luncheon that featured Yushchenko during last month's World Economic Forum in Switzerland, a high-powered gathering of government and business leaders.
Pinchuk's corporate lawyer Oleksiy Reznikov, however, dismissed the court's ruling Thursday as "cynical and damaging."
"The court acted against the law," Reznikov told reporters, announcing plans to appeal to a higher court. The case could eventually reach Ukraine's Supreme Court.
Nazarova, lawmaker Pavlo Ignatenko and a group of deputies filed suit last year to annul the privatization, claiming the deal violated the rights of Ukrainian citizens to buy stakes in the company.
Yushchenko has called the mill's sale for $800 million a theft. He pledged earlier this week that his government would return the mill to the state "at any cost." He has said that if the mill is put up for a transparent resale open to foreign bidders, the government might receive more than double what it sold it for last year.
Andriy Dmytrenko, an analyst with the Kiev-based Dragon Capital investment bank, called the court ruling "one of [the] first steps in the process of the cancellation of murky privatization deals."
Pinchuk urged the government in a statement to conduct its inquiries into past privatizations "in a controlled manner, transparently and involving dialogue."
"Avoiding a murky and legally dubious process is the best way to improve the image of Ukraine in the international community, particularly in relation to European investors," he said.
Analysts have warned that a massive re-privatization could be used as political revenge by the new leadership against Kuchma loyalists and could scare potential investors.
Yushchenko tried to dissipate those fears Monday, telling an investment conference that a list of enterprises to come under scrutiny "will be limited and final and will not be extended after its completion."
Prime Minister Yulia Tymoshenko said Wednesday that the government would investigate the privatization of about 3,000 enterprises to learn whether they had been sold at discounts to tycoons connected with the former government.
Dmytrenko said that the government should develop "an elaborate mechanism of repossessing illegally privatized companies" to avoid "a situation similar to Russia's Yukos."
In an attempt to rein in politically ambitious oil and gas magnates, the Russian government has presided over the breakup of Yukos Oil, whose biggest subsidiary ended up in the hands of Rosneft, a state-owned company. Critics say the pursuit of Yukos raises questions about the rule of law and property rights in Russia.