...BUT DON'T DISCUSS PROBLEMATIC CHURCH RELATIONS. Yastrzhembskii said Yeltsin and Pope John Paul did not discuss problems in relations between the Russian Orthodox and Roman Catholic Churches, RFE/RL's correspondent in Rome reported on 10 February. He added that the two men also refrained from discussing a possible trip to Russia by the pontiff. Before leaving for Italy, Yeltsin told journalists that he planned to invite John Paul to visit Russia. But a spokesman for the Russian Orthodox Church said on 6 February that no meeting between the pontiff and Patriarch Aleksii II can take place until the two Churches settle outstanding disputes, such as Russian concerns about the situation for Orthodox believers in western Ukraine. The pontiff and Aleksii were scheduled to meet last June, but that meeting was called off (see "RFE/RL Newsline," 13 June 1997). LB

DUMA DELAYS CONSIDERATION OF RUSSIAN-UKRAINIAN TREATY. The State Duma Council on 10 February voted to delay consideration of the Russian-Ukrainian friendship treaty signed last May, "Kommersant-Daily" reported on 11 February. The Duma was scheduled to consider the treaty on 6 February, but Duma CIS Affairs Committee Chairman Georgii Tikhonov of the Popular Power faction told the newspaper that the treaty will not be debated in the lower house of the parliament before March. "Kommersant-Daily" argued that the delay was inspired by the Russian Foreign Ministry. Unnamed sources in the Duma Foreign Affairs and CIS Affairs Committees told the newspaper that the Foreign Ministry supports postponing ratification until after the Ukrainian parliament has ratified the agreement on dividing the Black Sea Fleet. The Ukrainian parliament ratified the friendship treaty last month but has yet to consider the agreement on the fleet. LB

UKRAINIAN PRESIDENT WANTS PRIVATIZATION TO RESUME. Leonid Kuchma told a group of businessmen in Kyiv that privatization must resume, AFP reported on 11 February. Kuchma decried the parliamentary freeze on the privatization of state assets and pledged to end the government's monopoly on energy. On 9 February, the cabinet had announced it will sell 40 percent of the country's largest oil refinery in March. It said that presidential decrees would be used to get around the parliamentary ban on privatization. Kuchma also said that great efforts will be made to reduce barter trade in Ukraine and the black economy. PB

RUSSIAN MINISTER IN KYIV FOR TALKS ON ECONOMIC PROGRAM. Anatolii Adamishin, Russian minister for cooperation with the CIS states, met with Ukrainian officials on 10 February to conclude drawing up details of a 10-year program on economic cooperation, ITAR-TASS reported. Adamishin held talks with Prime Minister Valery Pustovoitenko and Deputy Prime Minister Serhei Tyhypko in an effort to finalize a draft agreement scheduled to be signed by the Russian and Ukrainian presidents when they meet in Moscow next week. Adamishin said the two sides have created "an unusual document" that established "favorable conditions" for improved bilateral trade and cooperation. He added that he hoped Ukraine will take "a more active part" in the work of the CIS. PB

In Ukraine, conventional wisdom has it that managers of enterprises must thoroughly re-educate themselves in capitalist ways before foreign investors will come up with cash. But the recently privatized Donetsk Iron and Steel Works (DISW) enterprise has found another way.

The steel it makes is in demand around the world. After coming through the Soviet collapse in better shape than most other steel mills, DISW now has a foreign backer helping it plan for the future.

The mill has been operating for more than 100 years. The present directors took over in 1994, when enterprise after enterprise in Ukraine's "smokestack sector" was going under. Immediately after independence, DISW not only kept afloat but thrived by supplying enterprises throughout the CIS.

Geography helped DISW. The iron ore, coke, pellets, concentrates, and refractors needed to convert iron ore into pressed sheets and rolled pipe are available in abundance in surrounding regions of the country. Thus, when CIS borders went up and customs duties were imposed, DISW did not need to pay such duties to import raw materials. Just about the only input that the Ukrainian steel industry, in general, and DISW, in particular, have lacked in recent years is power. The situation was stable until 1994, when the state began phasing out electricity subsidies. About the same time, hyper-inflation hit, meaning that not only did the company have to draw down its financial resources to maintain production but the economy in which it operated was thrown into chaos.

Imposition of new tariffs and value-added tax in CIS countries cut into earnings as well. Worse still, smaller operators in the West began to complain about the volume of cheap Ukrainian steel pouring into their home markets. European and U.S. politicians began talking about "level playing fields" and "dumping."

The approved business school solution in 1996 would have probably been to sell everything, downsize 80 percent of the employees, and either open a smaller, more efficient mill, or invest capital resources into government Treasury bills. But since at the time the government owned DISW, liquidation was not an option for top managers.

Ukraine's State Property Fund (SPF) has applied several approaches toward converting a government company into a private one. Usually, the bigger the company and the more likely its product could have a military application, the larger the stake the SPF orders the government to maintain. DISW qualified on both counts for a large government stake.

In 1996, the SPF handed down a privatization decision for the plant whereby ordinary citizens got 40 percent of shares and the government 20 percent. The remaining 40 percent went onto the market as a single-share bloc. The competition winner was Autoaliance-Doverie, whose majority shareholder is British MetalsRussia Ltd. For $50 million, the Hong-Kong-based steel manufacturer and trader got 40 percent of the Donetsk works. Already a provider of investment money for Russian steel plants, MetalsRussia has, so far, pumped operating capital totaling $9 million in equipment and $17 million into DISW.

The task for both DISW and MetalsRussia management has been to find a niche on the international market for a large-capacity steel factory, relatively inefficient in energy and raw materials usage.

The restructured enterprise altered its approach to foreign markets, focusing on export to Southeast Asia. Manufacturers in places like Singapore and Bangkok, who have no domestic steel industries to protect, want cheap steel.

One portion of the MetalsRussia cash investment is going into machines to make Donetsk steel more marketable. But besides making better steel, DISW must make its product cheaper, which, above all, means reducing the energy cost per ton of steel. Smaller Western mills make competitive steel largely because their energy costs are relatively low. Such an operation in Ukraine would not only throw a lot of workers onto the unemployment line but would put miners of raw materials out of work.

Part of MetalsRussia's investment has gone into energy-saving projects, like overhauling and upgrading DISW's Electric Furnaces. That leaves the problem of finding markets for DISW's cheaper, better-quality product.

A global company with steel interests worldwide, MetalsRussia, through its parent company Sakhavria Group Thailand, has opened up an existing market for DISW products. Owning factory shares in sites like Pakistan, Russia, India, and Ukraine, the foreign interest links DISW's products into the international market for steel. In theory, the future for DISW, and firms like it, looks rosy. The product is competitive. Foreign capital has been tied into domestic manufacturing. Salaries are paid on time. And the Ukrainian government is interested in the company's success.

The author is a Kyiv-based journalist who regularly contributes to RFE/RL.