Keystone of the systemoligarchic groups in Ukraine, lead to the conclusion that the effec-tiveness...
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59 Wojciech Konończuk KEYSTONE OF THE SYSTEM OLD AND NEW OLIGARCHS IN UKRAINE
Transcript of Keystone of the systemoligarchic groups in Ukraine, lead to the conclusion that the effec-tiveness...
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Wojciech Konończuk
Keystone of the systemOLD AND NEW OLIGARCHS IN UKRAINE
NUMBER 59WARSAWAUgUSt 2016
Keystone of the systemOLD AND NEW OLIgARCHS IN UKRAINE
Wojciech Konończuk
© Copyright by Ośrodek Studiów Wschodnichim. Marka Karpia / Centre for Eastern Studies
Content editorAdam Eberhardt
EditorHalina Kowalczyk
Co-operationKatarzyna Kazimierska, Anna Łabuszewska
translationJim todd
ChartsWojciech Mańkowski
graphic design PARA-BUCH
DtP groupMedia
Illustration on cover Shutterstock
PUBLISHERośrodek studiów Wschodnich im. marka Karpia Centre for Eastern Studies
ul. Koszykowa 6a, Warsaw, PolandPhone + 48 /22/ 525 80 00Fax: + 48 /22/ 525 80 40osw.waw.pl
ISBN 978-83-62936-82-3
Contents
SUMMARY /5
INtRODUCtION /8
I. OLIgARCHS IN tHE SYStEM OF POSt-MAIDAN UKRAINE /11
1. The ‘old’ oligarchs (temporarily) on the defensive /112. Co-operation with the new government /15
II. NEW OLIgARCHS IN tHE gOvERNMENt /21
1. The business-political circle of President Poroshenko /222. The business-political circle of Arseniy Yatsenyuk
and the People’s Front /28
III. tHE DE-OLIgARCHISAtION tHAt NEvER HAPPENED /35
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SUMMARY
• Forthelasttwodecades,oligarchs,orbigentrepreneurswhohave been able to turn their business prowess into power-fulpolitical influence,havebeenamongthemost importantactors in Ukraine’s politics. More than two years after theMaidanrevolution, it is fully justified tosay that theoligar-chicsystemremainsakeymechanisminUkraine’spoliticalandeconomiclife.Whileitistruethattheinfluenceofthefor-merlymostpowerfuloligarchicgroupshaserodedduringthisperiod,nosuchgroupexceptfortheFamily,i.e.theoligarchiccirclecentredaroundformerPresidentYanukovych,hasbeeneliminated.
• The oligarchs have been able to hold on to their influencein politics and the economy thanks to a number of factors,amongwhich twoareparticularly important: theweaknessofthegovernmentinKyiv,whichispreoccupiedwiththewarindefenceof the country’s territorial integrity, and the factthattheoligarchicgroupsstillpossesspowerfulinstrumentstodefend theirpositions, includingdominanceof themediamarketandsomestrategicsectorsoftheeconomy.However,themaincausebehindthepersistenceof theoligarchicsys-temhasbeenthedecision,takenbysomeofthepost-Maidanelite,toenterintoinformalallianceswiththeoligarchs.Presi-dentPetroPoroshenko’sgroupandthecircleofthethenprimeministerArseniyYatsenyukandhisPeople’sFrontpartyhave–independentlyofeachother–enteredinformalagreementswithdifferentoligarchicgroups.ThishasledtothecreationofanimportantdivisioninUkrainianpolitics.Thatdivisionpersistsdespite the fact thatVolodymyrGroysman, thenewprimeminister appointed inmid-April 2016,has close linksto the president’s camp. However, this is a purely tacticaland therefore impermanentalignment, foundedon thecur-rentneedsofthetwosides.Thelessonfromthelastdozenorsoyears inUkraine is that theoligarchsdonot enter stable
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alliances,andareflexibleinchoosingtheirallies.Theirrela-tionswithonepoliticalpartyoranotherdependonthecur-rentpoliticalsituation,andaresubordinatedtotheoverarch-ingobjectiveofpreservingtheirbusinessinterests.
• Asthe‘old’oligarchshavepreservedmuchoftheirinfluence,in parallel, new political-business groups have started toemergearound theUkrainian leadership,whichcanalsobetermed‘oligarchic’.Thankstotheircloselinkstothehighest-ranking leaders of Ukraine, members of these groups havetaken control overmany important state-owned companiesand have been trying to build up their own financial andbusinessbases.Theireffortshavebeenmotivatedbyadeep-rooted,ifinformal,principleofUkrainianpolitics,accordingtowhichpoliticalpoweralsodependsonthevalueofthebusi-ness assets controlled by any given party. This mechanismhas been practically identical towhatwas observed duringViktorYanukovych’srule,althoughitsscaleissmaller,andithasbeenoperatingintheconditionsofadeepeconomiccrisis,withfewerassetsupforgrabs.Themainresourceofthenew-lyemergingoligarchicgroupsconsistsintheircloserelationswiththehigh-rankingleadersofUkraine,andnotinperma-nent control (ownership) of important enterprises ormediacompanies.Asaresult,thesegroupsarestillweakerthanthe‘old’oligarchsand–inviewofthechronicpoliticalinstabilityinUkraine–unlikelytoconsolidatetheirinfluence.
• Theexistenceof theoligarchicgroups, formedasaresultofapathologicalsymbiosisbetweenpowerandbigbusiness,re-mainsoneof thecrucialobstacles impeding themodernisa-tionof theUkrainianstate.Thereformsimplementedsofarhavebeeninconsistentandtooslow,andhavenotunderminedtheoligarchs’position,onereasonforwhichisthatboththe‘old’and ‘new’oligarchshaveprovenskilful inhinderingordelayingthereformprocess.InacountryasweakasUkraine,well-organised oligarchic groupswith their ownmedia and
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substantialfinancialresourcesarestillseenbypoliticiansasdesirableallies,andasaresulttheyhavebecomeapermanentelementofpolitics.Theoligarchsaretherebecauseoftheab-sence of strong state institutions,which, in turn, should beblamedontheweaknessofastateriddenbysystemiccorrup-tionandlackinganindependentjudiciaryorefficientadmin-istration.Thus,theoligarchshavebeenthebeneficiariesofallthe shortcomingsof theUkrainianstate.The successof anyefforts to undermine their influence will depend primarilyonwhetherUkraine’spresent-dayfaçade institutionscanbereplacedwithinstitutionsthatarerobustandindependent–andthatisthemostimportantobjectiveofthereformprocess.
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INTRODUCTION
TheUkrainianoligarchicsystemwhichformedinthesecondhalfof the 1990shasdemonstrated extraordinaryvitality and resil-ience,aswellasacapacitytoadapttochangingpoliticalcircum-stances. Irrespective of who is in power in Kyiv, the oligarchsinvariablyretaintheirstatusaskeypoliticalplayers.Innooth-ercountry inEurope (except forMoldova1)dooligarchsholdasmuchswayasinUkraine.ThepurposeofthepresentpaperistodescribetheroleandsignificanceoftheoligarchsinUkrainetwoandahalfyearsaftertheMaidan.
OligarchyisnotanexclusivelyUkrainianorpost-Sovietphenom-enon–ithasbeenknownsincethetimesofthefirststateorgan-ismsandpoliticalsystems.Somecharacteristicsofoligarchyareconstant, whether it is the ancient world, certain modern-eraWesternEuropeanstates,thePolish-LithuanianCommonwealth,or Ukraine since 1991. According to Professor Antoni Mączak,a distinguished Polish historianwho studied the phenomenon,oligarchyisprimarilyasystemofstategovernance.2Inanoligar-chicsystem,aninformalandlimitedgroup(orgroups)operateswhosemembers, the oligarchs, have creatednetworks of inter-dependencies. Within those networks, they provide patronageand protection to their clients (politicians, communities, par-ties,etc.)inreturnforloyaltyandforpromotingtheirinterests.As a result, whole pyramids of interdependencies formwithinastate(atboththecentralandthelocal levels),whichresemble
1 K.Całus,Moldova: fromoligarchicpluralism toPlahotniuc’shegemony,OSW Commentary, 11 April 2016, http://www.osw.waw.pl/en/publikacje/osw-commentary/2016-04-11/moldova-oligarchic-pluralism-to-plahotniucs-hegemony
2 ProfessorAntoniMączak’stwomajorworksonoligarchyasasystemofpow-erareKlientela. Nieformalne systemy władzy w Polsce i w Europie XVI-XVIII w.[Clientele.InformalsystemsofpowerinPolandandinEuropeinthe16thto18thcentury],Warsaw2000,andNierówna przyjaźń: układy klientalne w pers-pektywie historycznej[Unequalfriendship:clientelistsystemsinahistoricalperspective],Wrocław2003.
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feudalrelationships.ThehistoricalmodelsdescribedbyProfes-sorMączakmaybehelpfultodayinunderstandingtheoligarchicsystemsinUkraine.
ItappearsthatthenegativephenomenonofUkrainianoligarchyhasnotbeenfullyrecognisedintheWest,andhasthereforebeenignoredandremainspoorlystudied.3Thismaybeduetodifficultyin capturing and describing the phenomenon, which combinespolitical aswell strictlyeconomicandfinancial elements.A re-searcherstudyingoligarchy isoften forced torelyonpresump-tions rather thanhard facts.However,withoutunravelling thebehind-the-scenesworkings of the oligarchy, it is impossible tounderstandtherealmechanismsatworkinUkrainianpolitics.
Thepurposeofthepresentpaperisnottocomprehensivelyana-lysetheUkrainianoligarchicsystem,butrathertoshowhowandwhy theoligarchshavebeenable topreserve their role and in-fluenceinthewakeoftheRevolutionofDignity.Thefirstpartisfocusedonthesituationoftheoligarchicgroupsthathaveexistedforadozenorsoyears,whichwewillrefertoasthe‘old’oligar-chicgroupsforthesakeofsimplicity.Itexplainshowthesegroupshaveestablishedco-operationwith thepost-Maidan leadership,whichwasoneofthereasonstheypreservedtheirpoliticalandeconomicpositions.The secondpartdescribes theparallel pro-cessstartedin2014,wherebypeoplefromtheUkrainiantoplead-ership’sinnercirclehavebeenbuildingtheirownbusinessbases.Theirmodeofoperation,whichmainlyconsistsintakingcontroloverstate-ownedcompaniesintheirownortheirparties’inter-ests, resembles themethodsemployed in thepast,proving thatthepathologicalmechanisms inUkrainianpoliticsare far fromhavingbeeneradicated.Thebeneficiariesofthisprocesswillbereferredtoas ‘newoligarchs’ inthetext,which isonlyaminorsimplification.
3 ThisisevidencedbythefactthatnotasinglebookhasbeenpublishedinEnglishontheUkrainianoligarchicsystem.
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In theconclusion, thispaperwill try toanswer thequestionofwhyde-oligarchisation,whichhasbeencalledforandpromisedonmanyoccasions,hasnothappenedinUkraine.Theauthor’sob-servations, especiallyabout thepersistently strong influenceofoligarchicgroupsinUkraine,leadtotheconclusionthattheeffec-tivenessofUkraine’sreformsdependsonthefutureofUkrainianoligarchy.
Inthetitleofthispapertheoligarchsarereferredtoasthe‘cor-nerstone’, inordertoemphasisethattheyarethestrongestele-mentinthedysfunctionalsystemthathasformedinUkraineoverthelasttwodecades,andthereforeoneofthemostimportantob-stacleshinderingUkraine’seffortstoexitthepost-Sovietmodel.Unlessthisproblemissolved,Ukrainewillnotbeabletobuildanefficientstatewithwell-functioningmarketmechanisms.
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I. OlIgARChS IN The SYSTeM Of pOST-MAIDAN UkRAINe
1. The ‘old’ oligarchs (temporarily) on the defensive
Before the Revolution of Dignity, therewere fourmajor oligar-chicgroupsandoveradozensmallergroupingsinUkraine.Theyneverconstitutedamonolith,hadcontradictory interests,oftengotconflictedandbackeddifferentpoliticalparties.Thiswasoneof thekeymechanismssafeguarding the specificallyUkrainiantypeofpoliticalpluralism.4Themostimportantoligarchicstruc-turespriorto2014included:
• the so-called family, ledbyOleksandrYanukovych, sonofthethenPresident.UntiltheMaidan,theFamilyhadbeenthemostexpansiveoligarchicgroup,whichusedthuggishmeth-odstoquicklyacquirenewassets;
• the group of Rinat Akhmetov, therichestman inUkraineanduntilrecentlythemostpowerfuloligarchwhoseinfluenceextended intovarious sectors of the economy, ranging fromenergy(DTEK),metallurgyandthecoalindustry(Metinvest),tothefinancialsector(PUMBbank),themedia(theUkrainachannel, one of the largest television stations in Ukraine),the agricultural sector (HarvEast) and telecommunications(Ukrtelecom);
• the group of Dmytro firtash with influencemainly in thechemicalandgassectors(DFGroup)andthemedia(theInterTVchannel,amongothers).Firtash,oneofthemostinfluen-tialentrepreneursduringtheruleofViktorYushchenkoandthen Viktor Yanukovych, is one of the Ukrainian oligarchs
4 Formoreinformation,see:S.Matuszak,Theoligarchicdemocracy.Theinflu-enceofbusinessgroupsonUkrainianpolitics,OSW Studies,September2012,http://www.osw.waw.pl/sites/default/files/prace_42_en_0.pdf
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whomaintainveryclosetieswithRussia.AttheonsetofhiscareerhetradedinRussiangas,andGazprombankprovidedtheloanstofinancehisexpansionintheenergysector;
• the group of Ihor kolomoyskyi,oneofUkraine’smostpow-erfuloligarchicgroupssince the 1990s,activemainly in thefinancesector (PrivatBank,Ukraine’s largestfinancial insti-tution), the energy sector (Ukrnafta, themainplayer in theoilmarket), thechemical,metallurgicand transport sectors(MAUairlines),themedia(the1+1TVchannelandothers)andagriculture(PrivatAgro-Holding).
AsadirectconsequenceoftheRevolutionofDignity,theFamilycompletely lost itssignificance intheUkrainianoligarchicsys-temas its leadingmembers (including theYanukovych family,the former deputy primeminister SerhiyArbuzov, the formerenergy minister Eduard Stavitsky and their associate SerhiyKurchenko)fled toRussia.At the same time IhorKolomoyskyimanagedtoexpandhisinfluence.HequicklyenteredanalliancewiththenewgovernmentandinMarch2014wasappointedthegovernor of the Dnipropetrovsk oblast, his home region, andwheremostofhisbusinessassetsarelocated.Hemanagedtoef-fectively stabilise this strategically important region in thedi-rectvicinityoftheDonbas,which,combinedwithhisskilfuluseof anti-Russian rhetoric, substantially boosted his popularityandpoliticalinfluence.
The remaining twomajor groups emerged substantially weak-ened.RinatAkhmetov,oneofthemainbusinessbeneficiariesofthePartyofRegions’four-yearrule,lostcontrolofsomeofhisas-setsinthewar-tornDonbas,eventhoughintheinitialphaseoftheconflictheinformallysupportedtheso-calledseparatists inthehopethatthiswouldgivehimaninstrumenttoputpressureonKyivandboosthispoliticalsignificancewhilealsoprovidinghimwithpoliticalimmunity.DmytroFirtash,ontheotherhand,wasarrested inMarch2014 inViennaat the requestof theFBI
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andspentmore thanayearunderhomearrestuntil, inanun-precedentedruling,anAustriancourtrefusedtohandhimovertotheUnitedStates.Sincethattime,hehasbeenlivinginAustria,buthispoliticalandbusinessinterestsinUkrainecontinuetobecuratedbySerhiyLyovochkin,an influentialdeputy,oneof theleadersoftheOppositionBloc(agroupingofpeopleformerlyas-sociatedwiththePartyofRegions)andtheformerchiefofPresi-dentYanukovych’sadministration.ItshouldbenotedthatwhilethepoliticalimportanceofAkhmetovandFirtashdeclinedintheaftermathoftherevolution,theyhavenotbeenexpropriated.5
As a result,when social andpoliticalmobilisationwashighdi-rectlyaftertheMaidanandthecountrywasreadytoundertakepainfulreforms,the ‘old’oligarchsfoundthemselvesonthede-fensive, uncertain about the future of their business interests.Their position was threatened by the programme for systemicrepairofthestate,envisagedintheAssociationAgreementwiththeUE, the IMFassistanceprogrammeandthecoalitionagree-mentconcludedinlate2014,becausetheirbusinesseshadhither-tothrivedthankstocorruption-baseddealswiththeauthoritiesandriggedpublictendersandprivatisations.Thesecretoftheoli-garchicbusinessempires’successlayprimarilyintheirrelationswithpoliticiansandtheirparasiticexploitationofthestate.
Yetdespitetheinitialuncertaintyandproblems,the‘old’oligarchsmanaged to keep their status as important players in Ukraine’spoliticsandeconomy.6Severalfactorscontributedtothis.Firstly,ade-oligarchisationofUkrainethatwouldhavegenuinelystrippedthemostpowerfuloligarchsofinfluence,includingbyprosecutingthem,wouldhavebeendifficulttocarryoutintheconditionsof
5 Inautumn2014Firtash’sDFGrouplostcontrolofthetwotitaniumplantsithadleasedfromthestate.
6 Formoreinformation,see:W.Konończuk,OligarchsaftertheMaidan:theoldsystemina‘new’Ukraine,OSW Commentary,16February2015,http://www.osw.waw.pl/en/publikacje/osw-commentary/2015-02-16/oligarchs-after-maidan-old-system-a-new-ukraine
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ongoingwarwithRussia.Itwouldhaveinevitablyledtoopenpo-liticalconflictbecauseofpossibleretaliatoryactiononthepartoftheoligarchswhocontrolledmanysectorsoftheeconomy,andasaconsequencewouldhaveseriouslydestabilisedtheinternalsitu-ation.Secondly,theoligarchs’organisationalstrengthandfinan-cialcapabilitieswereinsharpcontrasttotheweaknessofthecen-tralgovernmentbodies,whichdidnotmakeforacoherentpoliticalcampandoftenhaddivergentinterests.Theoligarchicgroupstookadvantageofthesedivisions.Thirdly,theoligarchsretainedcer-taininstrumentstoinfluencepolitics,includinginparticularoversomedeputiesandcontrolofnearlyallmajortelevisionstations.The channels owned by the four oligarchs (Ihor Kolomoyskyi,Dmytro Firtash, Viktor Pinchuk and Rinat Akhmetov) togethercontrol77%oftheUkrainianmarket.7Finallyandmostimportant-ly,theoligarchicsystemhadenteredanalliancewithsectionsofthepost-Maidanpoliticalelite,enablingtheoligarchstosurvive,remain inpolitics despite theweakening of their positions, andpreservemuchoftheirbusinessinfluence.
Chart 1.Theoligarchs’sharesinUkraine’stelevisionmarket(May2016)
Ihor Kolomoyskyi – 20%
Dmytro Firtash,Serhiy Lyovochkin – 21%
Viktor Pinchuk – 23%
Rinat Akhmetov – 13%
Petro Poroshenko < 1%
other oligarchs – 5%
other – 17 %
Source:TelevisionIndustryCommittee
7 Author’sowncalculations,basedonfiguresfromtheTelevisionIndustryCommittee(May2016),http://tampanel.com.ua/
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Chart 2.Theoligarchs’sharesinUkraine’sbankingsector(April2016)8
Ihor Kolomoyskyi (PRIVATBANK) – 21%
other oligarchs – 7%
Russian capital – 15%
other – 57%
Source:NationalBankofUkraine
2. Co-operation with the new government
Theparliamentaryelections inOctober2014,conductedunderthe restored 2004 constitution which weakened presidentialpowerswhilestrengtheningtheVerkhovna Rada,markedacru-cialmomentintheoligarchs’struggletoregainpoliticalsignifi-cance. Election campaigns inUkraine are traditionally amongthemost expensive in Europe, each time costing hundreds ofmillions of dollars according to estimates.9 In the conditionsprevalentinUkraine,itistheoligarchswhoprovidemostofthefunding–a fact that isoneof thekeys tounderstanding theirroleintheUkrainianpoliticalsystem.Allthemajoroligarchicgroupsentered thebattle forseats in thenewparliament,and
8 Before2014, theoligarchs’banksaccounted foramuchgreater shareofUkraine’sbankingsector.However,theeconomiccrisiscausedanumberofbankruptcies,andthebanksaffectedincludedtheNadrabank(DmytroFirtash),FinancesandCredit(KostyantynZhevago),andFinancialInitiative(OlegBakhmatyuk).
9 AccordingtoelectionexpertsquotedbytheBBC,thetotalcampaignspend-ing by all Ukrainian parties ahead of the 2012 parliamentary electionsamountedtoUS$2.5billion.С. Дорош, ‘Виборча реклама: 20 млрд.гривень за любов народу‘,BBC,11October2012,http://www.bbc.com/ukrainian/politics/2012/10/121011_election_ukraine_advertising_cost_sd.shtml
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managedtoplacetheirpeopleonthelistsofnearlyallmajorpar-ties.Whileitisdifficulttopreciselygaugetheinfluencethattheoligarchsholdoverindividualpoliticalformations,ananalysisof the Verkhovna Rada’s activities duringmuch of the presenttermsuggeststhatIhorKolomoyskyiisparticularlyinfluentialin Arseniy Yatsenyuk’s People’s Front, the Radical Party andthe Revival party,while Dmytro Firtash has substantial cloutinpartsof thePetroPoroshenkoBloc (the formerUDARpartyofVitaliKlitschko)andtheOppositionBloc.Moreover,someoftheOppositionBlocdeputiesarecontrolledbyRinatAkhmetovwhosebusinesspartner,theoligarchVadimNovinsky,hasbeenelectedtoparliamentfromtheBloc’slist.
Chart 3.Theinfluenceofmajoroligarchsonpoliticalparties
Poroshenko Bloc
People’s Front
Opp
ositi
on B
loc
Self-
Relia
nce
Radica
l Par
ty
Batkivshchyn
a
People’s Will
Revival
Non-affiliated
Ihor Kolomoyskyi Dmytro Firtash Rinat Akhmetov no consistent influence
In the parliamentary elections, the ‘old’ oligarchs reassertedtheir status as important ‘stakeholders’ in Ukrainian politics,andasaresultthenewleadershipstartedtofindthemnecessary.Subsequent developments demonstrated that what had hap-penedwaseffectivelyamarriagebetweentheoligarchicgroupsand sectionsof thepolitical elite that came topower in theaf-termathoftheMaidan.ThetwocentresofpowerinKyiv,i.e.thecampsofthepresidentandtheprimeminister,enteredinformal
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agreementswiththemostpowerfuloligarchs independentlyofeachother,underwhichthepoliticiansofferedguaranteesthattheoligarchs’assetswouldbesafe,inreturnforpoliticalandme-diasupport.TheindicationsthatthiswasindeedthecaseincludethefactthatKyivdidnotlaunchasingleprosecutionagainstanyoftheoligarchs,anddidnoteventhreatentoreversetheYanuko-vych-eraprivatisations,whichinmanycasehadbeenillegalandconductedsolelyintheoligarchs’interests.Onthecontrary,someoligarchic groupswere even allowed to expand their holdings;for instanceAkhmetov took over theDniprodzerzhynsk Coke-ChemicalPlantfromtheRussianEvrazcompany,whileFirtashsoughttotakeoverastakeintheVOGfillingstationchain,oneofthelargestinUkraine;andInter,histelevisionstation,hashaditslicenceextended.10
TheactionsoftheUkrainianleadershiphardlyreflecteditsinitialrhetoric.Forinstance,inMarch2015PresidentPoroshenkosaid:“De-oligarchisationismykeystartingposition.Wearetryingtointroduceorder in thecountry,and theyare thechaos.”11Thesewords,however,werenotfollowedbyanyrealstepstoactuallycurb the oligarchs’ influence. Nevertheless, the deep economiccrisis in Ukraine has caused serious problems formany of theoligarchiccompanies,someofwhichhavebeenunable torepaytheirbankingloans.Somewerealsoadverselyaffectedaftertheiraccess to tenders and public procurement procedures, a steadysourceofgreatprofitsunderYanukovych,wascutofforrestrict-ed.Consequently,thewealthofmostoftheUkrainianoligarchshasshrunk,ascanbeenseeninthemostrecentForbesrankingoftheworld’srichestpeople.12Whiletheaccumulatedassetsofthe
10 A. Джумайло, Е. Хвостик, ‘Владельцы Evraz сдали кокс’,Kommersant,28Au-gust2015,http://www.kommersant.ru/doc/2797444
11 ‘Порошенко об Укрнафте: Это не конфликт во власти, ключевое – деоли-гархизация‘,pravda.com.ua,29March2015,http://www.epravda.com.ua/rus/news/2015/03/29/535932/
12 Akhmetov’swealth iscurrentlyestimatedatUS$2.3billion,comparedtoUS$6.7billionin2015andUS$16billionin2012.ThevalueofassetsheldbyIhor
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fivewealthiestUkrainianswereestimatedatUS$25billionin2013(14%ofUkraine’sGDPatthattime),in2016thisfiguredecreasedthree-foldtoUS$7.1billion.
Onecouldpoint tomanyexamplesofhowthenewgovernmentfailed todismantle the arrangements, datingback to theYanu-kovychera,thathadbeengeneratingsubstantialprofitsforsomeof the ‘old’ oligarchs (even if it did not do anything to activelyfurtherthoseoligarchs’interests).Forinstance,deputiesinYat-senyuk’spartylongobstructedtheamendmentofthejointstockcompaniesbill,asaresultofwhichsomeoligarchswouldceaseto exercise control over important enterprises, in which theyhadbeentakingallthemanagementdecisionsdespiteonlyhold-ingminoritystakes.Whenthebillwasultimatelyamended,IhorKolomoyskyiceasedexercisinghislong-termoperationalcontrolovertheenergycompanyUkrnafta,inwhichhehadheld42%ofshares (with the State Treasury holding 51%).However, for un-clear reasons the government still permitted him to postponetherepaymentofoutstandingtaxamountingtoaroundUS$400million.ThePeople’sFrontwasparticularlyactive indefendingAkhmetov’sinterests,whichappearstoconfirmtheexistenceofunclearlinksbetweenthisoligarchandYatsenyuk.Forexample,forayearaftertheRevolutionofDignitythegovernmentwasun-abletoliftthesubsidiesonelectricityexportsintroducedin2012,whichhadmainlybenefitedAkhmetov’scompanyDTEK(thesub-sidies exceededUS$100million annually). On the positive side,someneededchangedidoccurinthegassector,whichhadtradi-tionallybeenoneofthemostimportantsourcesofprofitsfortheUkrainiangovernmenteliteandtheoligarchs,afterUkrainefirstrestrictedandthendiscontinuedgaspurchasesfromRussia,andthegovernment imposedgreatertransparencyonNaftogazand
KolomoyskyiandhisbusinesspartnerHennadiyBoholubovhasnotchanged;thewealthofeachofthemisestimatedatUS$1.3billion.ThewealthofVik-torPinchukhasshrunkfromUS$1.5billiontoUS$1.2billion.TheWorld’sBillionaires2016.http://www.forbes.com/billionaires/list/#version:static_country:Ukraine
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adoptedthefundamentalnewgasmarketlawinApril2015,initi-atingthereformprocessinthatsector.
Theonlymajorconflictbetweenthe‘old’oligarchsandthepost-Maidan leadership (specifically the president) occurred afterPoroshenko removedKolomoyskyi fromhispost as governorofDnipropetrovskinMarch2015becauseoftheoligarch’sgrowinginfluenceandhiseffortstokeepcontroloftheprofitableUkrnaftacompany.Theconflicthassincebeensmoothedout,althoughKo-lomoyskyi’sgrowingpoliticalambitionshavenonetheless led tothearrestofhismainaide,HennadiyKorban,whohadbeen inchargeofbuildingupUKROP,anewpartythatwasquitesuccess-fulinthelocalelectionsinOctober2015.YetKolomoyskyi’sbusi-nessinterestswerenotaffected,andeventhoughKorbanremainsunderhousearrest,therearemanyindicationsthatthepresident(whocontrolstheProsecutor’sOffice)andtheDnipropetrovskoli-garchhavecometoterms.
In theaftermathof thegovernment coalition crisis in thefirstmonthsof2016,andthenthecoalition’sbreak-upfollowingtheexitofBatkivshchynaandSelf-Reliance,theinfluenceofthe‘old’oligarchicgroups increased.ThePoroshenkoBlocand thePeo-ple’sFront,whichevenbeforecouldnotfullycountonthesup-portoftheremainingcoalitionmembers,enteredaninformalde factocoalitionwiththreeoppositionparties:theOppositionBloc,RevivalandPeople’sWill,allcontrolledbyoligarchs.Aftermanyweeksofdisputes,Yatsenyukwasultimatelypersuadedtostepdown,andon14AprilthegovernmentendorsedanewgovernmentledbyVolodymyrGroysmanand supportedby thePoroshenkoBlocandthePeople’sFront.Ithasbeenpossibletolargelyrecre-atetheoldcoalitionandthusendthegovernmentcrisisbecausetheinterestsofthePoroshenkoandYatsenyukcampsandtheoli-garchicfractionsconverged.Noneofthesegroupsarecurrentlyinterestedinearlyelections,whichwouldhavebeentheonlyal-ternativeiftheyhadfailedtoreachanagreement.Thisappearstodemonstrateagainthatthereisasymbiosis,surprisingatfirst
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sight,betweensectionsofthepost-Maidanpoliticaleliteandthe‘old’oligarchicgroups.
ThenewUkrainiancoalitionandtheGroysmangovernmentareweaker than the previous coalition and the Yatsenyuk govern-mentwere,astheyonlypossessaveryslimmajorityintheVerk-hovna Rada(227votes,thenecessaryminimumbeing226)andareinternallyunstable.Akindof internaloppositionexistswithinthePoroshenkoBloc, i.e.agroupofmorethanadozendeputieswhooftenvotedifferentlyfromtherestofthefaction(e.g. theyvotedagainstendorsingthegovernment).Thismeansthatinfu-turevotes, thecoalitionwillhave to seekhelpof theoligarchicRevivalandPeople’sWillparties,whichhave23and19deputiesrespectively.BotharewithintheorbitofKolomoyskyi’sinfluenceandvotedtosupporttheGroysmangovernment,whichsuggeststhatthereis indeedaparallel, informalcoalition.InsomevotesthegovernmentmayalsocountonthesupportoftheOppositionBlocandOlehLyashko’sRadicalParty,whereoligarchicinfluenceisalso strong.However, each time thegovernmentwillhave topay aprice for the extravotesby offering concrete concessionsto theoligarchs.This ishow theweaknessof thenewcoalitionworksasoneofthefactorsconservingtheoldsystemandhinder-ingreforms.
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II. New OlIgARChS IN The gOveRNMeNT
Whilethe‘old’oligarchs’madesuccessfuleffortstopreservetheirinfluenceinbusinessandpolitics,asdiscussedabove,thelasttwoyearsalsosawaparallelprocesswherebypeoplewithcloselinkstothenewtopleadershipofUkrainestrovetobuildupbusinessbasesoftheirown.ThisprocesshasfollowedapatterntypicalforeachnewadministrationinUkraine–oftakingoperationalcontroloverthemostvaluablestate-ownedenterprisesinordertocontroltheirfinancialflowsand,usually,toprofitillegallyattheexpenseofthestatebudget.
AftertheMaidan,groupsoftrustedpeopleformedaroundthethenPrimeMinisterYatsenyukandPresidentPoroshenko(himselfanoligarchpriortotakingpower,albeitalessinfluentialone).Thosegroups,comprisedofpoliticiansandlargeentrepreneurswithcloselinkstothem,setouttosystematicallyexpandtheirinfluenceonkeystate-ownedbusinesses.Someoftheirmembershavealsotriedtoacquireownershipofstate-ownedbusinesses.Whilethisprocessisfarfromtransparentandhasnotbeenfullystudiedyet,itmaybearguedthatsectionsofthenewgovernmentelitehavebeenef-fectivelyreplicatingthepatternsofcorruptionthatwereprevalentinUkraineunderthepreviousgovernments.Asinthepast,controlofindividualministriesandstatebodies,whichareseenaspoliti-calspoils,hasbeeninstrumentalintakingoperationalcontroloverbusinessassets.Moreover,therearemanyindicationsthatpeoplerepresenting the new leadership have taken over businesses (orstakestherein)formerlyheldbypeopleassociatedwiththeFamily.13
13 AftertheMaidan,thenewgovernmentwaitedformanymonthsbeforetak-inganystepsagainstbusinessassetsheldbypeoplefromViktorYanuko-vych’scircle,andeventhentargetedonlyasmallsectionofthoseassets.Itwouldbedifficulttofindanyexplanationforthisotherthanasecretdealthatseemstohavebeenstruckbetweenthe‘old’andthe‘new’elite,wherebythelattertookoversomeoftheassetsinquestionintheirowninterest.InMay2016YuriyLutsenko,thenewprosecutorgeneral,admittedthattheprosecu-tor’sofficehadnotpreparedasinglecaseagainsttheYanukovychregime’sofficialsandpoliticians.
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Itmayseemdisputabletousethename‘oligarchs’todenotethere-sponsiblepeoplefromPetroPoroshenko’sandArseniyYatsenyuk’srespective circles, as most of them are high-ranking politicianswho nonetheless already held major business assets when theywereelectedtotheVerkhovna Rada.Tracingtheircurrentbusinessinfluenceispossible(albeitonlytosomeextent)thankstoreport-ing by the Ukrainian media and its journalistic investigations.Theiroperationalmodelreliesonusingthepowertheypossessasrepresentatives of the state to expand their businesses and takecontroloverthefinancesofthemostprofitablestate-ownedcompa-nies.Thoseactivitiesarenotpartofpublicpolicybutbelonginthedomainofinformal,behind-the-scenesdealings.Thepoliticiansinquestionarefurthermoresurroundedbypowerfulbusinesspeoplewhousedtobesecond-rank, less influentialoligarchsduringtheYanukovychera.SincetheMaidan,theirbusiness interestshavebeenthriving,thankstotheirlinkstothenewleadership.
Thisprocess isnotyetcomplete.The followingsectionwilldis-cuss what we know so far about the people from the politicalandbusinessmilieuofPresidentPoroshenkoand formerPrimeMinisterYatsenyuk(thelatterhasbeenabletoremainoneofthemost importantplayers inUkraine’spoliticalscenedespitehav-ing steppeddownasPM inApril 2016, aswillbedemonstratedbelow).Giventheirmodusoperandiandbusinesspotential, itisonlyaminorsimplificationtocallthesepeoplethe‘newoligarchs’.
1. The business-political circle of president poroshenko
Ihor kononenko,whohadnotbeenwidelyknownbeforehewaselectedtotheVerkhovna Radain2014,isoneofthemostinfluentialpeopleinPresidentPoroshenko’scircle.HehasbeenPoroshenko’strustedmansince theydidmilitary service together in theSo-viet army in themid-1980s. Kononenko has been Poroshenko’sbusinesspartnersince1992;forexamplehehasservedformanyyears as deputy CEO of Poroshenko’s Ukrprominvest holding,whichgroupstogethercompaniesrangingfromtheRoshensugar
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companytotheChannel5televisionstation.Bothmenholdsharesin the International Investment Bank (Poroshenko has 60% ofsharesandKononenko14.9%)andintheKrainainsurancecom-pany(inwhichthepresidentcontrols49.9%ofshares).Kononen-koalsohashisowninvestmentfundVIKandseveralindustrialplants(includinginZaporizhiaandLuhansk).
Afterhewaselecteddeputy,Kononenkosoonbecameakeyfigure(next to Yuriy Lutsenko) in the Poroshenko Bloc’s parliamentaryclub,risingtothepositionoftheclub’sdeputychair.Inthelocalelec-tionsinautumn2015hewastheparty’schiefofelectionstaff.Overthe last year, thanks tohis status as thepresident’s close aide,hehasbecomeoneofthemostinfluentialfiguresinUkrainianpolitics,whichhasalsoboostedhisbusinessinfluence.Several largestate-ownedcompanies,mainlyfromtheenergysector,havefoundthem-selvesinKononenko’sorbit,includingCentrenergo,whichproduces14%ofUkraine’stotalelectricity,andhasbeentippedforprivatisa-tion. Kononenko has been influencing the energy sector throughhis close ties with Volodymyr Demchyshyn, the energy ministerinYatsenyuk’scabinet(whowasreplacedbyIhorNasalykinApril)andDmytroVovk, chief of the energy regulatorNKREKP,bothofwhomarethepresident’smenandhavepreviouslyworkedincom-paniescontrolledbyPoroshenko.AconflictwithKononenkowasinthebackgroundofthewidelypubliciseddismissalinFebruary2016ofAivarasAbromavičius, theminister for economicdevelopment.Theminister,whohadbeenwidelyregardedasoneofthemainre-formers in Yatsenyuk’s government, directly accused Kononenkoofcorruptionandofpromotinghispeopletohighpositionsinmanyimportantstate-ownedcompanies,includingNaftogazandcompa-niesinthemetallurgyandchemicalsectors,inordertocontroltheirfinancial flows. The stated, immediate reason for Abromavičius’sdismissalconcernedhisrefusaltoacceptthenominationofaKonon-enkodesigneeasdeputyministerinchargeofsupervisingNaftogaz.
Kononenkowasalsoimplicatedinanotherhigh-profileresigna-tion,thatofdeputyProsecutorGeneralVitalyKasko,whoaccused
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Kononenkoof interferingwiththeoperationoftheprosecutor’sofficeashesteppeddowninmid-February2016.14Kaskosaidonthatoccasion:“TheGeneralProsecutor’sOfficeisadeadbodyinwhoseindependenceno-onebelieves(…),hasultimatelybecomeaninstitutionruledbyaclique(krugovaya poruka)whereanyat-tempts at changing the situation from within are kept down.”However,eventhosewidelypublicisedresignationsfailedtoaf-fectKononenko’s position. In earlyMarch, his former assistantwasappointedasdeputychiefoftheStatePropertyFund,wherehewillsupervisetheprivatisationofCentrenergo,amongothertasks.15Kononenkoalsohassome influence in theSecuritySer-viceofUkraine, a fact that sealshis statusasoneof thepeoplewiththestrongestinfluenceinUkrainianpolitics.16
Chart 4.SharesofoligarchicgroupsinUkraine’selectricitymarket
DTEK (Rinat Akhmetov) – 25%
ENERGOATOM (Mykola Martynenko) – 56%
UKRHIDROENERGO – 5%
CENTRENERGO (Ihor Kononenko) – 4%
DONBASENERGO (Oleksandr Yanukovych) – 3%
other – 7%
14 AllyofUkrainianpresidentaccusedofmeddlinginprosecution,Reuters,25February2015,http://www.reuters.com/article/us-ukraine-president-ally-idUSKCN0VY1RP?feedType=RSS&feedName=worldNews
15 Заступником голови Фонду держмайна призначений екс-помічник Ко-но ненка,pravda.com.ua,1March2016,http://www.pravda.com.ua/news/2016/03/1/7100817/
16 AsconfirmedbytheSBUdeputychief,GeneralViktorTrepak,dismissedinApril2016.‘Виктор Трепак: “Я передал в НАБУ доказательства тотальной коррумпированности власти”’,ZN.ua,27May2016,http://gazeta.zn.ua/internal/viktor-trepak-ya-peredal-v-nabu-dokazatelstva-totalnoy-korrum-pirovannosti-vlasti-_.html
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konstantin grigorishin, a Ukrainian entrepreneur withaRussianpassport, is another oligarchwith very close ties toPresidentPoroshenko.Hestartedhiscareerinthe1990sbysell-ingmetallurgicproductstoRussia,butnearlyallofhisbusinessassets,worth an estimated US$1.2 billion according to Forbes,arelocatedinUkraine.17Amongotherbusinessinterests,Grigor-ishincontrols75%ofsharesinZaporozhtransformator,Europe’slargesttransformermanufacturer;15%ofsharesinTurboatom,which manufactures steam turbines for thermal and nuclearpower plants; Dneprospetsstal; and the Ukrrichflot holdingwhichownsseveralriverports.Despitethecrisis,mostofthesecompanies have been among Ukraine’s most profitable busi-nesses.Grigorishinmoreoverholdsstakesin9outofUkraine’s25 oblgazes, i.e. regional gas distribution companies,18 makinghimoneofthemostimportantplayersinUkraine’senergysec-tor.Hehasbeenactiveinpoliticsforthelastdozenyearsorso;forexample,hefinancedtheCommunistPartybefore2012andViktor Medvedchuk’s SDPU(u) party before the Orange Revo-lution. In the years 2008–2009 he was banned from enteringUkraineattherequestoftheSBU.
Grigorishinhasbeeninvolvedinbusinessco-operationwithPo-roshenkoforaroundtenyears;forexamplethetwomenco-ownedthe Sevastopol dockyard (nationalised by the Russian govern-mentin2015),controlasix-hectareplotincentralKyiv,andtriedto buy out the Inter television station together in 2007.Grigor-ishin’sinfluenceintheUkrainianeconomy,especiallytheenergysector,increasedafterPoroshenkowaselectedpresident.Inlate2014YuriyKasich,whohadpreviouslyworkedforGrigorishin’scompanies,was appointed, atGrigorishin’s recommendation, astheCEOofUkrenergo,thestate-ownedelectricitygridoperator.Hewasdismissedseveralmonthslaterintheaftermathofascan-dalthateruptedafteracompanyofGrigorishin’swonUkrenergo’s
17 http://www.forbes.ru/profile/konstantin-grigorishin18 HeholdscontrollingstatesonlyintheVinnytsiaandZaporizhiacompanies.
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large tender for thesupplyof transformers,whichaccording tomarket expertswere redundant and sold at an excessive price.TheclosetiesbetweenPoroshenkoandtheRussianoligarchGri-gorishinhavebeenregularlycriticisedbytheUkrainianmedia,andthemanhimselfwasreferredtoasan‘FSBagent’bythethenprimeministerYatsenyuk.19However,theoligarchclearlyseemstofeelthathispositionissafe;forinstance,heputhimselfforwardasacandidatetotakethepostofheadofthepresidentialadmin-istrationinlate2015.Grigorishin’seffortstoexpandhisbusinessinterestsintheUkrainianelectricitysectoralsoputhimoncolli-sioncoursewithBorisLozhkin,thepresidentialadministrationchiefwhosaidinaninterviewthattheoligarch“didnotlikethefactthatIdidnotsupporthiseffortstoinfluenceprocessesintheUkrainianenergysector.Ibelievethatthestateisthestate,andprivatebusinessisprivatebusiness.”20Sincethebeginningofthisyear,Grigorishinhasbeenexperiencingsomelegal troubles:aninvestigationintoallegedtaxevasionhasbeenlaunchedagainstoneofhiscompaniesattheinitiativeoftheinteriorministerAr-senAvakov,whoisamemberofYatsenyuk’sparty.Inanycase,itisquiteincrediblethatPoroshenkostillhasnotdistancedhimselffromGrigorishin.
Poroshenko alsohas close links to another oligarch,Yuriy ko-siuk, themain stakeholder inMyronivsky Khliboprodukt, oneofUkraine’slargestagricultureandfoodconcerns(360,000hec-taresofagriculturalland,producingmostlycerealsandpoultry),whichislistedontheLondonStockExchange.Kosiuk’sassetsareestimatedataroundUS$1billion.Thenatureofhisrelationswiththepresidentisunclear,buttheyareprobablybasedonthefactthatlargepartsofbothmen’sbusinessassetsareconcentratedin
19 Страсти по Григоришину: олигарх оказался в российском розыске,Forbes.ua,8February2016,http://forbes.net.ua/business/1410530-strasti-po-grig-orishinu-oligarh-okazalsya-v-rossijskom-rozyske
20 InterviewwithBorisLozhkin,Dzerkalo Tyzhnya,13November2015,http://gazeta.zn.ua/internal/glava-administracii-prezidenta-boris-lozhkin-k-gos-sluzhbe-otnoshus-kak-k-sluzhbe-v-armii-_.html
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theVinnytsiaoblast.Shortlyafterhewaselectedpresident,Po-roshenkoappointedKosiukasdeputychiefofhisadministration,inchargeofsupervisingthesecurityanddefenceblock.Thenom-inationwasquitesurprisingbecausetheoligarchhadnoprevi-ousexperienceinthatarea.HewasdismissedinDecember2014after facingmountingcriticismover lobbying forhisowncom-pany(withregardtoVATreimbursementsamongother things)andignoringstatedefenceissues.Nonetheless,KosiukseemstohavemaintainedgoodcontactswithPoroshenko,whohassinceappointedhimashisadvisor.Inearly2016,theoligarchgaveaninterviewinwhichhecriticisedtheEUAssociationAgreement,arguingthat itonlybenefitedtheEuropeanUnion.21KosiukhasastrongpositionintheUkrainianagrarianlobby,whichaccountsforaquarterofUkraine’sexportsandhasbeenrecentlygrowinginstrength.
The business interests of President petro poroshenko, whoalsousedtoberegardedasa(second-rank)oligarchbeforetheMaidan,deserveseparateattention.Poroshenkohasnotyetde-liveredonhiscampaignpromisetosellallhisbusinesses(ex-ceptforChannel5),whichareworthanestimatedUS$1.5billion.Theofficially statedreasonsconcern thecrisis and theunfa-vourablemarketsituation,whichhavedrivendownthevalueof Poroshenko’s companies, including the most prized one,Roshen(PoroshenkoclaimsthathecouldsellthecompanyforUS$3billion,whileNestlehasofferedhimUS$1billion,whichexperts say is a reasonablemarket price). Itwas only in late2015thatRoshenwasputinaso-calledblindtrustwithaWest-erninvestmentbank.Thecompanyhasexpandedconsiderablyover the last twoyears, and its revenueshave increased.ThesmallInternationalInvestmentBankcontrolledbyPoroshenko
21 Forinstance,KosiuksaidthatUkraine“hadbeencheated(…)thisisnofreetradearea”becausetheEUhasnotopeneditsmarketsforUkrainianagri-culturalproductstotheextentthathadbeenexpected.Юрій Косюк: «Зона вільної торгівлі з Європою це обман України»,voanews.com,17January2016,http://ukrainian.voanews.com/a/yuriy-kosyuk-eu/3149549.html
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alsomanagedtoexpanditsholdingsbyasmuchas85%inthefirstyearofthepresident’sterm,despitethedeepcrisisaffect-ing theUkrainianbankingsector.22However, it isdifficult topinpointanyspecificmeasurestakenbythegovernmentthatfavouredPoroshenko’sbusiness interests.TheUkrainianme-dia,whichthoroughlyandcriticallyobservehisbusinessactiv-ity,havealsobeensilentaboutit.ThegreatestscandalinwhichtheUkrainianpresidenthasbeenimplicatedconcernsthein-formationthatemergedabouthimfromthePanamaPapersinApril2016.TheleakeddocumentsshowedthatPoroshenkohadregisteredacompanycalledPrimeAssetPartnersintheBrit-ishVirginIslandstoactasamanagingholdingforRoshenon21August2014,i.e.afterhehadalreadybeenelectedpresident.Whiletherevelationsdeliveredamajorblowtohisimageandtriggeredcriticismfromsomeofhispoliticalopponents,thereg-istrationofacompanydidnotinitselfconstituteaviolationofanylaws,andthepresidentmanagedtoemergeunscathedfromthescandal.
2. The business-political circle of Arseniy Yatsenyuk and the People’s Front
ThePeople’sFrontemergedfromthegeneralelectioninOctober2014 as the second-largestparliamentary clubwith81deputies,andasaresultitsleaderArseniyYatsenyukwasabletoretainhispostasprimeminister(hehadbeenfirstappointedasPMinFeb-ruary2014).EventhoughhewasforcedoutinApril2016,heman-aged to negotiate favourable conditions for his resignation andremains one of themost influential politicians inUkraine.ThemainreasonforthisisbecausethePoroshenkoBlochasnoalter-nativetoco-operatingwiththePeople’sFront.Indeed,theFront’sinfluenceintheGroysmancabinetisevenstrongerthanbefore.
22 Банк Порошенко растет быстрее рынка,LB.ua,11February2015,http://economics.lb.ua/finances/2015/02/11/295223_bank_poroshenko_rastet_bis-tree_rinka.html
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The foreign minister Arsen Avakov and justice minister PavloPetrenkohavekept theirpositions,whileotherFrontmembershavebeenappointedastheministersfortheenvironmentanded-ucationandthedeputyministerforEuropeanintegration.AndriyParubiy,oneofthePeople’sFront’sleaders,istheVerkhovna Radaspeaker,andOleksandrTurchynov, theparty’ssecondmost im-portantperson,haskepthisjobasheadoftheNationalSecurityandDefenceCouncil.
The group of Arseniy Yatsenyuk’s closest aides includesAn-driy Ivanchuk,deputychiefofthePeople’sFrontparliamen-taryclubandchairofonetheVerkhovna Rada’smostimportantcommittees,thecommitteeforeconomicpolicy.Thetwomen’sacquaintancedatesbacktowhentheybothstudiedlawattheuniversity inChernivtsi in the early 1990. Itwas also at thattimethattheylaunchedtheirfirstbusinessprojectstogether.Sincethen,theirbiographieshavebeenintertwined.AfterYa-tsenyukstartedhisfast-trackpoliticalcareerin2001,Ivanchukbecamethecuratorofhisbusinessinterests.WhileYatsenyukservedastheministerforeconomy(2005–2006),IvanchukwasappointedasdeputyCEOofthestate-ownedEnergyCompanyofUkraine,whichcontrolledpowerplantsaccountingfornear-lyathirdofUkraine’stotalelectricityproduction.Laterhebe-camethechiefofanotherstate-ownedcompany,theelectricityexporterUkrinterenergo.
WhenYatsenyukfoundedhisownparty,theFrontforChangein2009, Ivanchukbecameits leader. In thenewparliament, Ivan-chuk,who likeKononenkohad been little known to the publicbefore,isoneofthemostinfluentialpersons.Hisdutiesincludemaintainingdisciplineinthepartyandmanagingcontactswithbig business. The Ukrainian media have repeatedly reportedaboutIvanchukactingasthego-betweenforYatsenyukandtheoligarchs,especiallyKolomoyskyiandAkhmetov.ItwasIvanchukwhoin2015blockedtheadoptionofamendmentstothejointstockcompaniesbillwhichwouldhaveharmedKolomoyskyi’sinterests
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inUkrnafta.Bytheway,KolomoyskyiandIvanchukarebusinesspartnersinabioethanolmanufacturingcompany.23
Ivanchukalsoholdsanumberofotherbusinessassets,mainlyinthe foods, fuels, agricultureandsolarenergysectors.However,thevalueoftheseassetsisdifficulttoestimate.AftertheMaidan,he started to expandhis influence into some state-owned com-panies, including Ukrspirt, Ukraine’s largest alcohol manufac-turer. According to the Ukrainianmedia, Ivanchuk had devel-opedalarge-scaleschemetosmuggleUkrainianalcohol,inwhichheallegedlypartneredwithYuriy Ivanyushchenko,anoligarchwithcloselinkstotheYanukovychfamily.24AllegationshavealsobeenpubliclylevelledatIvanchukbytheOdessaoblastgovernorMikheilSaakashvili,whoaccusedtheoligarchofcorruptiononamassivescale.25However,thatdidnotaffectIvanchuk’spoliticalposition inanyway.Meanwhile,Ukrspirt isbeingprepared forprivatisation.
Ivanchukhaslinkstoanotheroligarch,leonid Yurushev,oneoftheleastpubliclyknownamongUkraine’smajorentrepreneurs.Yurushevstartedhiscareerinthe1990sintheDonbaswherehewasamemberofthecriminalgroupledbyAkhatBragin(thethen ‘godfather’ofDonbas),andhassubsequentlyco-operatedwithRinatAkhmetov andViktorYanukovych, amongothers.In2009hesoldhisForumbanktoGermany’sCommerzbankandinvestedsomeoftheproceedsindevelopmentprojectsinKyiv(aluxuryhotelchain).CurrentlyYurushevalsoownsanumberofindustrialcompanies,includingintherailcarandtransport
23 Ігор Коломойський: Мої розмови пишуть Льовочкін з Пінчуком, pravda.com.ua, 5March 2015, http://www.pravda.com.ua/articles/2015/03/5/7060596/
24 Герои большого спирта, glavcom.ua,29October2015,http://glavcom.ua/publications/132247-geroi-bolshogo-spirta.html
25 Саакашвили оценил потери бюджета от олигархов в 5 миллиардов дол-ларов, epravda.com.ua, 6December2015,http://www.epravda.com.ua/rus/news/2015/12/6/571099/
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sector (Dizelnyi Zavod in Kryvyi Rih, DneprovagonremstroynearDniproandInterlizinvest,oneofUkraine’slargestprivaterail transportandforwardingcompanies).Hiswealthwases-timated atUS$900million in 2014. For several yearsYurush-evhasbeenconsideredtobethemainsponsorofYatsenyuk’sparty,whichIvanchukofficiallyadmittedrecently.26SincetheMaidan,companiescontrolledbytheoligarchhavewonseverallucrativepublictenders,includingthebiggestonesorganisedbyUkrzaliznytsia(UZ),theUkrainianrailways.Thelattercompa-ny’sdeputyCEObetween2014andFebruary2016wasMaksymBlank,whohadpreviouslyworkedasamanagerinYurushev’scompaniesandwhowasaccusedofblockingreformsinUZandpreserving the longstanding corruptionpatterns in that hugecompany(UZaccountsforaround3%ofUkraine’sGDP).In2015hiscompanywonatenderfortheoperationofdutyfreeshopsin the Boryspil airport near Kyiv.27 Yurushev also runs somebusinesses jointlywithAndriy Ivanchuk.Thechangeofown-ership of Kreativ, one of Ukraine’s big agricultural and foodsholdings(whichmanufacturesplantfatsamongothercommod-ities and holds around 30,000 hectares of land), was effectedlastyear,probably inordertoservethe interestsofYurushevandIvanchuk.28
Mykola Martynenko, who co-chairedthePeople’sFrontbeforeDecember2015, isArseniyYatsenyuk’ssecondmost influentialaide.Heisawell-knownfigureinUkrainianpolitics;from1998untiltheendof2015heservedasdeputytotheVerkhovna Rada(initially representing Yushchenko’s Our Ukraine, and then
26 Андрій Іванчук: Яценюк мені ніколи нічого не пропонував,pravda.com.ua,9February2016,http://www.pravda.com.ua/articles/2016/02/9/7098391/
27 A. Іванцова, Інфраструктура для олігарха Леоніда Юрушева, RadioSvoboda, 30 October 2015, http://www.radiosvoboda.org/content/arti-cle/27335723.html
28 В. Стародубцев, Друзья Яценюка становятся миллиардерами-перера-ботчиками, DSnews.ua, 7 September 2015, http://www.dsnews.ua/poli-tics/druzya-yatsenyuka-stanovyatsya-milliarderami-pererabotchika-mi-05092015105200
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Batkivshchyna),andfrom2006tilltheendof2015hechairedtheRada committee for the fuels and energy complex ofUkraine,oneofthemostimportantcommitteesintheparliament.Keep-ing thatpostunder three consecutivegovernmentsmusthaverequiredconsiderablepoliticalskill,provingthatMartynenkois amanwho can come to termswith practically any govern-ment. Since 2011,MartynenkohasbeenamemberofYatseny-uk’s party. For the last fewyearshehas been regarded as themainpolitical ‘supervisor’ofEnergoatom,thestate-ownedop-eratorofallUkrainiannuclearpowerplantswhichaccountforhalfofthecountry’stotalelectricityoutput.InApril2015MykolaGordienko,thechiefoftheStateFinancialInspection(PIF),pub-liclyaccusedYatsenyukofhavingtakenoverandprotectingtheYanukovych-era corruptionmechanisms.He said thatMykolaMartynenko was co-responsible for numerous irregularitiesand embezzlement at Energoatom, worth around €50million.Gordienko estimated that the state budget had lostmore than7.5billionhryvnia(aroundUS$300million)asaresult,alsoalsopointedtoirregularitiesinotherstate-ownedcompaniesover-seen by Yatsenyuk’s people (including Ukrgazvydobuvannya,theUkrainianRailwaysandtheUkrainianPost),detectedinthecourseofPIFchecks.29Heclaimedthatthegovernmenthadbeenobstructinginvestigationsintocorruptionschemesthatexistedunderthepreviousgovernment.Theonlyresultoftheseallega-tionswasthatthePIFchiefwasforcedtoresignandtheaffairwassweptunderthecarpet.However,bringingthecrisisundercontrolwas only possible thanks to an informal deal betweentheprimeministerandthepresident,whocontrolstheprosecu-tor’soffice.
Inlate2014theCzechpressreportedthatSwissprosecutionau-thorities had launched an investigation against Martynenko,
29 Документи Гордієнка: що відсторонений голова Держфінінспекції на-дав депутатам,pravda.com.ua,8April2015,http://www.pravda.com.ua/news/2015/04/8/7064163/
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whowasaccusedofacceptingabribeofUS$30millionfromtheCzech Republic’s Škoda JS in return for ensuring the companywasawardedacontractforthesupplyofdevicestoEnergoatom.30MartynenkoresignedasdeputyinDecember2015buttheUkrain-ianprosecutor’sofficehasyettointerrogatehim.31ThechiefoftheNationalAnti-CorruptionOfficehaspubliclysaid that thepros-ecutor’sofficewasblocking the transferofdocumentsconcern-ing the investigation againstMartynenko.32His business inter-ests also extend to other state-owned companies, the largest ofwhichincludetheOdessaPortPlant,agiantchemicalcompany,andtheUnitedMiningandChemicalCompany.Howmanycom-paniesMartynenko owns privately is not known.What we doknowisthatheownsAustria’sAntraGMBH,oneofthemainim-portersofgastoUkraine,whichsuppliesgastotheOdessaPortPlantmentioned above.33 The Ukrainianmedia have repeatedlyaccusedMartynenkoof corruptionandofbeingYatsenyuk’sde facto‘treasurer’,buttheserevelationshaveachievednothing.Re-spondingtotheallegations,theoligarchsaidinarareinterviewthattheaimofthecampaigntodiscredithimwasto“destabilisethestate”and“defendtheoligarchs’interests”.34
30 ChefderukrainischenAtombehördesollinderSchweizGeldverstecken,Sonntag Zeitung, 22 March 2015, http://www.sonntagszeitung.ch/read/sz_22_03_2015/nachrichten/Chef-der-ukrainischen-Atombehoerde-soll-in-der-Schweiz-Geld-verstecken-30868
31 С. Мусаева-Боровик, А. Самофалов, Ядерное обогащение Николая Марты-ненко,pravda.com.ua,9November2015,http://www.pravda.com.ua/rus/articles/2015/11/9/7087675/
32 Артем Сытник: “Гарантии независимости НАБУ в законе соблюдены. Ответственность — на мне и моей команде”,ZN.ua,3March2016,http://gazeta.zn.ua/internal/artem-sytnik-garantii-nezavisimosti-nabu-v-za-kone-soblyudeny-otvetstvennost-na-mne-i-moey-komande-_.html
33 Новый тренд. Частный бизнес осваивает импорт газа из ЕС, Liga.net,4March2016,http://biz.liga.net/all/tek/stati/3271195-novyy-trend-chast-nyy-biznes-osvaivaet-import-gaza-iz-es.htm
34 Мартиненко звинуватив у кампанії проти себе олігархів, BBC,30Novem-ber2015,http://www.bbc.com/ukrainian/news_in_brief/2015/11/151130_vs_martynenko_statement
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Chart 5.LinksofthemainoligarchicgroupsinUkraine
close links
within the orbit of influence
Ihor Kononenko
Petro Poroshenko
Arseniy Yatsenyuk /
People’s Front
Mykola Martynenko
Andriy Ivanchuk
Leonid Yurushev
IhorKolomoyskyi
Rinat Akhmetov
Serhiy Lyovochkin
Dmytro Firtash
Yuriy Kosiuk
Konstantin Grigorishin
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III. The De-OlIgARChISATION ThAT NeveR hAppeNeD
Severalweeks beforehe steppeddownas primeminister,Ar-seniy Yatsenyuk said: “We have managed to destroy the sys-temic,mafia-stylecorruptionat thevery topofgovernment.”35AcloserlookatthesituationinUkraine’spoliticsandtheecon-omy,andattherelationshipsbetweenthegovernmentandbigbusiness,showsthatthisispurelywishfulthinking.Theoligar-chicsystem,whichintrinsicallyinvolvescorruptionandinfor-maltiesbetweentheoligarchsandthetoptiersofgovernment,didnotdisappearaftertheMaidan;itmerelyevolvedslightlytoadapttothenewpoliticalsituation.Thelong-establishedmainoligarchic groups startedmore or less close co-operationwiththegovernmentelite,whichneededtheirsupportandwasatthesametimetooweakorlackedthepoliticalwilltoreallyunder-minetheoligarchs’positions.Itistruethatmostofthe‘old’oli-garchsemergedconsiderablyweakerafter2014(partlyasare-sultoftheeconomiccrisisinUkraine),nolongerenjoythesamelevelofinfluenceonthegovernment,andcannotparticipateinpublicprocurementonthesamescaleasbefore.However,theynonethelesscontinuetorankamongthemostinfluentialactorsinUkrainianpolitics.Asaresult,despitesomereshuffling,theoligarchicsystemagainpersisted,as itdid intheaftermathoftheOrangeRevolutionin2004.
The post-Maidan oligarchic system is mainly characterised bya tactical alliance between themajor ‘old’ oligarchs and eitherPresidentPoroshenko’scamporthegroupofArseniyYatsenyuk,i.e. the twostrongestcentresofpoliticalpower inUkraine.TheoligarchsDmytroFirtashandSerhiyLyovochkinareamongthosewhohavebuiltupcloserelationswiththepresident’scircle,while
35 Усі антикорупційні органи повинні нещадно боротися з політичною ко-рупцією, - Арсеній Яценюк,Km.gov.ua,21February2016,http://www.kmu.gov.ua/control/uk/publish/article?art_id=248845249&cat_id=244276429
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Ihor Kolomoyskyi and Rinat Akhmetov have associated them-selveswithYatsenyuk’scircle.Thisalliancebenefitsbothsides.The government officials have gained the support of importantdeputiesfromtheoligarchicgroupingsintheVerkhovna Rada,aswellasinformalsourcesoffinancingandmediasupport(whichwasparticularlyimportantinviewoftheparliamentaryandlocalelections).Inreturn,theoligarchsweregrantedpersonalsafety,protectionfortheirbusinessesandtheabilitytocontinuelobby-ingfortheirbusinessinterests.Becauseofthisforcedsymbiosis,thenewleadershipofUkrainehaschosennottorevisetheYanuk-ovych-eraprivatisations,ofwhichtheoligarchicgroupswerethemainbeneficiaries.
As in the previous period, after the revolution the oligarchsagain started exploiting their advantage over the politicians.In apoorlymanaged statewith an ineffective and corruptbu-reaucracy, they are thebest-organisedgroup that is alsobest-preparedtogovern.Theycanaffordtouseexpensivelegalcoun-selorhire lobbyists,andtheyhaveattheirdisposaltheirownpowerful televisionstationswhichhavepracticallydominatedtheUkrainianmediamarket.Yet inorder toensure that theirbusinessesareprotected,theoligarchicgroupsconstantlyneedtousetoolsonlyavailabletostateauthorities,whichmeansthattheyhavehad tofind some commongroundwith thepoliticalleadership.Itshouldbenotedinthiscontextthattheoligarchsdonothaveanyconstantalliesamongthepoliticalparties,butinstead, enter temporarydeals thatare subject to revisionde-pending onwhat is needed to safeguard one’s interests at thegivenmoment.
Asa resultof the ‘old’oligarchsenteringallianceswith thepo-litical camps of President Poroshenko and Arseniy Yatsenyuk& his People’s Front, a bipolar arrangement has formedwithintheoligarchicsystem,whichtranslatesdirectlyintothebalanceofpowerinUkrainianpolitics.Thus,theoligarchs’co-operationwiththegovernmenthasledtotheformationofaspecifictypeof
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pluralism.36The‘old’oligarchs’effortstofindprotectionfortheirbusinessinterestsalsocontributedtothisoutcome–theco-oper-ationbetweenRinatAkhmetovandArseniyYatsenyuk’scircleisacaseinpoint:theoligarch’sinterestsintheelectricitysector,inwhichhehadbeenthedominantactorformanyyears,hadcomeunderthreatasaresultoftheexpansionofpeoplewithlinkstoPresidentPoroshenko, i.e. IhorKononenkoandKonstantinGri-gorishin,whowereseekingtogainmoreinfluenceinthatsector.
This bipolar arrangement survived the change of primeminis-terswhenArseniyYatsenyuksteppeddownandwasreplacedbyVolodymyrGroysman, President Poroshenko’s trustedman.Af-terlengthynegotiations,Yatsenyukwas,however,abletoresignon favourableconditions forhispartyand itsbusinessbase.Asaresult,thebalanceofpowerthathadformedoverthelasttwoyearsbetweenthemajorpoliticalplayersandtheoligarchywaspreserved,althoughitcanhardlyhavebeensaidtobecomemorestable.ThereisnothingtosuggestthatPrimeMinisterGroysmanwillbewillingorabletochangetherulesaccordingtowhichthesystemoperates,especiallysincethenewcoalitiononlyhasathinmajorityintheVerkhovna Rada,andinmanyvotesitwillhavetolookforadditionalsupportfromtheoligarchicfactions–andpaythepricefordoingso.Anotherindicationthatthestatus quobe-tweenthegovernmentandtheoligarchswillcontinuecomesfroma statementbyGroysmanwhosaid that “the samerules shouldapply to the oligarchs (…), exclusivelymarketmechanisms, nopreferences(…).Thepositionoftheoligarchsshouldbeasfollows:letthemtakecareofthecountry’seconomicdevelopmentandnotinterferein[thegovernment’s]affairs”.37Suchanapproachrules
36 Tosomeextentthisresemblesthesituationafter2004,whensomeoftheoligarchsthrewtheirweightbehindViktorYushchenkoandothersbackedYuliaTymoshenko,butatthattimetherealsoexistedathirdpole–thecampofViktorYanukovychandtheoligarchsaroundhim.
37 Володимир Гройсман: Якщо прийдуть на обід Коломойський, Ахметов, Пінчук, Григоришин - тікати?,pravda.com.ua,16May2016,http://www.pravda.com.ua/articles/2016/05/16/7108560/
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outanyradicalactionagainsttheoligarchs,althoughitdoesdis-playanintentiontocautiouslyandslowly‘civilise’theoligarchicsystem.GiventhecurrentpoliticalcontextinUkraine,however,thatmeansthatnochangewhatsoeverwillhappen,andthesitua-tionwhichemergedaftertheMaidanwillcontinue.
Theprocesseswhichallowedthe‘old’oligarchicgroupstoretainmuchoftheirformerinfluenceandtherulesgoverningUkrain-ianpoliticstoremainunchangedoverlappedwiththeemergence,in the aftermath of the Revolution of Dignity, of new political-businessgroupsaroundthetwomajorcentresofpoliticalpowerinUkraine.Since2014,peoplefromthesegroupshavebeenabletotakeoperationalcontrolovermanyofthemostimportantstate-ownedcompanies.Theyhavemanagedtogaincontrolthosecom-panies’financialflowswhilede factoassumingnoresponsibilityfor those companies’ performance, and have been able to takeconvenientstartingpositionsaheadoftheplannedprivatisationsofmanyofthebusinessesinquestion,thankstotheircontrolofthekeyparliamentarycommittees,ministriesandstateagencies.Thisisalsooneofthereasonswhythemainpoliticalplayersarecurrentlynotinterestedinearlyparliamentaryelections.Forthenewgovernmentanditsbusinessbackers,privatisationoffersanopportunitytoacquirelucrativebusinessassetsforafractionoftheirrealvaluebecausetheeconomiccrisishasdriventhepric-esdown.Moreover, theyareinapositiontomanipulatetheac-cessofpotential rivals to theprivatisationprocedures.Andbe-causetherearefewnot-yet-privatisedbusinessesleftinUkraine,thebattleoverwhowillacquirethemisnowenteringadecisivephase,whichwillinevitablygenerateconflicts.Thebusinessbaseofthe‘new’oligarchs,however,isconsiderablyweakerthanthatof the ‘old’oligarchs.The formerusuallydonotownanymajorbusiness assets, butmerelymanage state-owned property, and–crucially–donotcontrolanyof themajor televisionstations,whichareanimportantpoliticalinstrumentinUkraine.Thefactthatthemonopolyofthetraditionalplayersinthemediamarkethasnotbeenovercomeisanotherreasonwhythe‘new’oligarchs
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andthepoliticiansassociatedwiththemhavehadtoreachsomekindofagreementwiththosewhocontrolthetelevisionstations.
ThestillrobustoligarchicsystemandtheUkrainianleadership’sinabilityandlackofpoliticalwilltoreallychallengeithavebeendirectlyaffectingthereformprocessinUkraine.AftertheMaid-an,Ukraine found itself inaparadoxical situation–on theonehand,membersofthenewgovernmentarefullyawarethattheyhave toreformthesystembecause that iswhat thepeople (andtheWest)expect,andisobjectivelynecessaryinviewofthefactthatthepost-Sovieteconomicandpoliticalmodelhasexhausteditspotential.Ontheotherhand,however,theyareunabletocon-sistently pursue reforms because they themselves are productsofthesystem.38MostoftheleadingpoliticianswhohavebeeninpowerinUkrainesince2004wereshapedinthe1990sandhavealreadyheldhighstateofficesinseveralpreviousgovernments.ItcanthereforehardlybesaidthatanewpoliticalelitehascometopowerinUkraineand,asaresult,whatthecountrygetsisadapta-tionandadjustmentsinsteadofearnestattemptsatstructurallychangingthesituation.
Thefragmentaryreformscarriedoutsofarhavenotcurbedoli-garchicinfluencetoanysignificantdegree.Eventhepositiveso-lutionsadoptedbytheVerkhovna Rada,whichshouldhaveunder-mined theoligarchs’ clout,havebeenwatereddownordelayed(for example, there have been attempts at delaying the start oftheanti-corruptioninstitutions’operations,andtheintroductionofpublicfinancingofpoliticalpartieshasbeenpostponeduntil2017).Thanks to thePresident’s control of theGeneralProsecu-tor’sOffice,ithasbeenpossibletoeffectivelythwartsomeincon-venientinvestigations.Neitherhasanysubstantialderegulationof theeconomytakenplace,whichcouldhavecreated theright
38 M.Seddom,Washington’sManInUkraineCan’tStopHisCountry’sCor-rupt Cronies, BuzzNews, 21 October 2015, https://www.buzzfeed.com/maxseddon/washingtons-man-in-ukraine-cant-stop-his-countrys-corrupt-cr?utm_term=.oxMXzvm40#.maQrmG1Ao
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conditions for thedevelopmentof small-andmedium-sizeden-terprisesandundermined thepreferential conditionsonwhichtheoligarchicbusinessesoperate.Theexperienceofthelastdoz-enorsoyearsprovesthattheoligarchiceconomicmodelcannotprovideaviablealternativetoaneffectivelyfunctioningmarketbecauseitcannotcreatestablesourcesofgrowth.Onthecontra-ry, theoligarchs,whohave takenoverentire economic sectors,havebeenmainlyinterestedinmaximisingtheirprofitsandhavecared little about the development and modernisation of theirbusinesses. As a result of this extensive and anti-developmenteconomicmodel, none of the big business-dominated sectors oftheUkrainianeconomyhasundergoneanymodernisation.
MorethantwoyearsaftertheMaidan,thenewgovernmenthasyettodeliverononeofitskeypromises–tostriptheoligarchicgroupsof influenceaspartof adeep reformprocess.While thehighest-rankingmembersoftheUkrainianleadershipregularlyre-asserttheircommitmenttode-oligarchisationintheirpolicystatements,littleisbeingdonetoactuallyachievethatgoal.Giventhescaleoftheirobservablelackofpoliticalwilltodoanythingtothatend,oneshouldpresumethattheoligarchswillkeeptheirinfluence as longas the currentbalanceofpower inUkrainianpoliticsprevails.Somemoreorlessseriousconflictsmayemergebetween thegovernmentand individualoligarchs,but thiswillnotaffectthesysteminanysignificantway.39Moreover,evenifa snapelectionwere tobeheld in thecomingmonths, itwouldbeveryunlikelytoleadtoaqualitativechangeintheVerkhovna Rada and elevate parties free of oligarchic influences to power.Thatisbecause,facedwithcostlyelectioncampaigning,eachofthemajorpoliticalpartieswouldneedtoreachforthefinancial
39 IhorKolomoyskyiwasthereforerighttosaythatinthepresentconditions,“Ukrainiande-oligarchisationmeanttakingbusinessassetsawayfromsomeoligarchsandgivingthemtootheroligarchs”. Игорь Коломойский: «Я не го-тов к тому, чтобы мне сказали правила и я стал по ним жить, а Кононенко - нет»,LB.ua,3December2015,http://lb.ua/news/2015/12/03/322600_igor_kolomoyskiy_ya_gotov_tomu.html
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andmedia support of the oligarchic groups, andwouldhave toput the oligarchs’ representatives in its election lists in return.Inviewofthegeneralweaknessofthestateandtheother,previ-ouslydescribed instrumentsofoligarchic influence, thismeansthatintheforeseeablefuture,theoligarchswillcontinuetoactasimportant‘stakeholders’inUkrainianpolitics,inwhichtheyholdablockingpackage.
wOjCIeCh kONOńCzUk
