KIEV, May 18 – Prime Minister Yulia Tymoshenko’s government, at an emergency meeting Monday, postponed indefinitely the privatization of Odessa Portside Plant, a lucrative exporter of fertilizers, easing tensions with President Viktor Yushchenko.

The move comes days after law enforcement agencies controlled by the president launched a criminal investigation against the key Tymoshenko allies who have been spearheading the sell-off effort.

“The privatization has been postponed indefinitely,” Justice Minister Mykola Onyshchuk said after the meeting.

The decision to postpone the privatization, which allows Tymoshenko to avoid the immediate escalation of tensions with Yushchenko, is seen as a major setback for the prime minister.

It also suggests that Tymoshenko, who badly needs cash to fund her populist depositor bailout campaign, will probably resort to borrowing money internationally through an issue of debt.

Tymoshenko apparently decided to avoid the confrontation with Yushchenko after the Prosecutor General’s Office had launched the investigation against Andriy Portnov, a person Tymoshenko claims has been managing the privatization.

Valentyna Semeniuk, the person who Yushchenko insists has been in charge of the privatization agency, has been interviewed by prosecutors over the past three days as a witness in the case against Portnov.

Portnov is alleged of taking illegal actions, including the destruction of a print-run of an official newspaper that has been carrying Semeniuk’s announcement canceling the privatization of Odessa Portside Plant.

“We have created a mobile investigating team that includes experienced agents of the Prosecutor General Office and SBU [security service],” Oleksandr Medvedko, the prosecutor general, told Yushchenko on Monday. “We started the investigation.”

Following the news of the investigation, Tymoshenko also unlocked state financing of Semeniuk’s State Property Fund, allowing the staff to collect their pay for the first time since middle of April.

Tymoshenko planned to sell Odessa Portside Plant for at least 5 billion hryvnias, or $1 billion, on Tuesday as her government desperately needs cash to continue the depositor bailout campaign.

The campaign calls for payments of 20 billion hryvnias this year, including at least 6 billion hryvnias in cash.

Tymoshenko pledged to redeem all of the deposits, estimated at 120 billion hryvnias, before the end of 2009, just ahead of the next presidential election.

Oleksandr Morozov, a former head of Oshchadbank, the state savings bank, warned last year the campaign would boost consumer inflation in Ukraine to a dangerous level of 40% per year. Ukraine has been enjoying an average inflation of just more than 10% over the past several years.

But four month into the campaign, Ukraine’s inflation, also helped by soaring prices of energy and food, rose to more than 30% between April and April 2007, providing the biggest threat for the economy, analysts said. (tl/ez)