KIEV, Sept. 29 – Prime Minister Yulia Tymoshenko’s push to sell a major Odessa chemical company ended in fiasco Tuesday, forcing the government to cancel the privatization amid allegations of “collusion” among bidders.

Nortima, a consortium uniting two Ukrainian billionaires, Ihor Kolomoyskiy and Oleksandr Yaroslavskiy, won the auction by offering $625 million for Odessa Port-side Plant, outbidding a company affiliated with Gazprom.

But the State Property Fund later quickly canceled the auction, saying the price offered for 99.5% stake is too low. The government planned to raise at least $512 million, but hoped the selloff would fetch much more.

The development is a major setback for Tymoshenko, whose government faces shortage of funds and has been resorting to urgent borrowing to meet budget needs.

The Odessa Plant selloff was designed to help the government meet budget spending needs amid concerns that the International Monetary Fund may postpone the lending due to poor pace of reforms.

“This is humiliation what has happened at the auction,” President Viktor Yushchenko said Tuesday.

Yushchenko has been opposing the privatization amid concerns that the ongoing economic greatly reduces the price of the Odessa Plant. He suspended the privatization several times over the past several years.

But Tymoshenko had planned to go ahead with the selloff even despite the opposition from Yushchenko, underscoring the need for the government to raise cash.

The offered price for the stake at $625 million – much less than what the government has expected – represents “collusion” between the three bidders, Dmytro Parfemenko, the head of the SPF, said.

“In the behavior of the bidders we see elements of collusion,” Parfemenko said after the auction, which had been broadcast live on the Ukrainian state television.

Tymoshenko also accused the bidders of collusion.

“Just now in a live broadcast we’ve seen how the three bidders have colluded in order to buy the Odessa Port-side Plant for nothing,” Tymoshenko said. “We all have seen how they tried to buy the stake in fact at the minimum initial price.”

Timur Novikov, a Nortima representative, on Tuesday denied the allegations of collusion among the bidders, and said the SPF had suddenly changed its mind after spending time in a room behind the closed doors.

“Nobody, neither the government nor the SPF has originally raised the issue of low price,” Novikov said in Shuster Live television talk show. “The issue has suddenly emerged after members of privatization commission have returned from the meeting behind the closed doors.”

“They went there with one mood,” Novikov said. “And then there is this surprise. I think what happened in the room is an element of management from the Cabinet of Ministers.”

The Odessa Port-side Plant, which is producing nitrogen fertilizers, is a lucrative asset for natural gas companies, whose access to export markets is often restricted by availability of gas pipelines.

Natural gas is used as a major component in production of nitrogen fertilizers that may allow natural gas companies to diversify their exports routes and increase revenue.

The Odessa Port-side Plant also controls a major pipeline moving ammonia fro Russia across Ukraine, and a sea port that is exporting this ammonia, making the facility even more attractive.

The auction to sell 99.56% stake of the Odessa plant was supposed to become the largest selloff of state assets over the past four years, after Ukraine had sold 93% stake in the country’s biggest steelmaker Kryvorizhstal to Mittal Steel for $4.8 billion in October 2005. (nr/ez)