Thursday, May 25
Укр Eng
Log In Register
PoliticsNeighboursEconomicsSocietyCultureHistoryOpinionsArchivePhoto Gallery
23 April, 2015  ▪  Oles Oleksiyenko

The Phantom of Deoligarchization

Taming a few oligarchs will not change the oligarchic system, since Ukraine still has no organized alternative to it in the form of civil society or small and medium businesses

"The attack on Ihor Kolomoisky," as it was dubbed by observers and experts, intensified the public discussion on what is going on in the country. Is it the start of the deoligarchization process or just another redistribution of spheres of influence? The Ukrainian Week also tried to analyze the implications of the recent developments and the new setup of Ukrainian oligarchs.

REBALANCING

First of all, it should be noted that the removal of Yanukovych from power a year ago has dramatically increased the role of the oligarchs in the country. This was inevitable in the situation of an evolutionary power shift, when the old Parliament formed by the oligarchs was preserved, and their economic, political and media assets remained intact. In this way, the system has remained almost unharmed, and due to the weakness of the state and the external threat, the role of the oligarchs has only increased. However, the developments of the past year have significantly changed the balance of power within the system.

Following the victory in the presidential elections, the political weight of Petro Poroshenko has soared. The position of Ihor Kolomoisky, the head of Dnipropetrovsk Regional State Administration, who increasingly claimed to be the "Viceroy of the South East," strengthened due to his active attitude towards fighting separatism and protecting the country from the Russian aggression. Meanwhile, the position of the favorites of the previous regime – Dmytro Firtash currently under arrest in Vienna and especially Rinat Akhmetov – gradually weakened. The latter has become for Ukrainians the symbol of support for separatists and lost a large share of his assets and profits through the annexation of Crimea and the war in Donbass. Viktor Pinchuk, who traditionally had a complex relationship with Ihor Kolomoisky, feels increasingly uncomfortable. At the same time, Ihor Yeremeyev and Kostyantyn Hryhoryshyn started playing a much more active role in the political and economic life of the country.

RELATED ARTICLE: Transition from oligarch economy to EU membership for Ukraine 

The traditions of Ukrainian oligarchs involved using stealthy levers to influence the authorities and obtain preferences, as well as the access to public assets and cash flows. However, Ihor Kolomoisky’s behavior recently went beyond the familiar paradigm: he publicly and openly demonstrated his contempt for the official government institutions, resorting to threats of raiding state assets.

In fact, Kolomoisky refused to recognize Poroshenko's authority as the head of state, which raised the question of the country's manageability both for its citizens and for outside observers. It has to be noted that Kolomoisky, unlike other oligarchs, had an additional resource in the form of volunteer battalions and, according to sources, constantly threatened using them to protect his business interests. In these circumstances, taming the headstrong magnate was the matter of survival for the President, who was in this case backed by the West and the other oligarchs.

In this way, the situation with Kolomoisky should not be considered as an episode in the warfare against the oligarchic system as such, but rather as a fight with one of its representatives, who wanted to rise above the rules, creating a threat to the system. It is telling that these same motives were quoted by President Poroshenko to explain the recent events. For instance, in an interview to ICTV channel on March 28 he said: "...While we are trying to bring order to the country, they (the oligarchs – Ed.) are bringing chaos. Military convoys in the city, UkrNafta dividends, the murder of an SBU employee – all of this is chaos, which I will not tolerate. This is absolutely not the matter of names. The caste of the privileged will be eliminated." Even though the head of state called it a "deoligarchization," as we can see, it is just about drawing the "red lines" which cannot be crossed, and not about striving to dismantle the system as such.

RELATED ARTICLE: An Oligarch Burden on the Economy

Another obvious motive for the attack on oligarchs was to forbid them access to the revenues of state enterprises, mainly monopolies. This was evident both in the case of UkrNafta, when the conflict with Kolomoisky occurred, and in the relations of the authorities with other Ukrainian oligarchs, such as Dmytro Firtash and Rinat Akhmetov. Firtash last year lost the control over the earlier "leased" state-owned Irshansk and Vilnohirsk iron ore refineries, whose products were sold at underestimated prices, and was recently faced with the attempts of bereaving his regional gas companies of gas distribution networks acquired in 2012. Akhmetov lost a significant share of state subsidies for the "green" tariff, which was recently reduced by half, had to give up his monopoly in electricity exports, and failed to lobby the financing of his power generating facilities in the territories occupied by terrorists by EnergoRynok state enterprise.

However, it is very important that the current move results not only in changing the personalities pursuing their own interests and parasitizing on state-owned companies, but also in the real receipt/saving of funds by those companies and the state budget. For example, during the scandal with UkrTransNafta, the representatives of Kolomoisky's team openly stated that the companies of which Firtash was making a good hand until recently, including Vilnohirsk refinery, keep using the same corrupt schemes, but their beneficiaries are now Prime Minister Yatsenyuk and his gray cardinal Mykola Martynenko. The tasty morsels of the energy market and the attractive assets that have been or may soon be lost by Firtash and Akhmetov, according to the media, are either already owned by the Russian oligarch Hryhoryshyn or will soon pass into his hands.

However, today nobody is talking about countering the oligarchs' monopolism  as such, let alone curtailing their influence on the public policy, which they exercise through their own MPs or even political parties in the Parliament and in local councils, their henchmen in the government agencies responsible for regulating certain economy sectors, etc.

RELATED ARTICLE: A Road Map for Economic De-Sovietization

Kolomoisky, for instance, until recently blocked the implementation of the Open Skies agreement with the EU that threatened his monopoly in the airline market. Nothing has been done to remedy this situation. The total monopolization of the energy sector by the Russian-oriented oligarchs has been preserved, despite the energy war: 70% of regional and municipal gas distribution companies are owned by Firtash, and 30% of electricity and 70% of coal are produced by DTEK owned by Rinat Akhmetov. DTEK also controls about a third of the electricity supplies to end users through its own regional power distribution companies, the largest of which are Kyivenergo and Dniproenergo. A number of power distribution companies belong to the Russian oligarch Kostyantyn Hryhoryshyn, mentioned above.

NEW FAVOURITES

Recently, the new favorites emerged, rapidly increasing their share in the country's most profitable and strategic markets through their influence in the top echelons of power. These are the group of Ihor Yeremeyev, an oligarch from Volyn region, who is considered to be Kolomoisky's main rival in the oil market and, again, Kostyantyn Hryhoryshyn. The role played by these two may soon become similar to that played by Firtash and Akhmetov during the Yanukovych times.

The co-owner of Continuum Group Ihor Yeremeyev also controls a group of MPs of both the previous and the current Parliament, which formally belonged to the ruling coalition, and now is actually a part of it. Andriy Pyvovarsky, Yeremeyev's henchman, is now one of the ministers of the current government, and his People's Will parliamentary group often votes in unison with the coalition, sometimes compensating for the lack of discipline in its ranks. People from Kolomoisky's inner circle do not deny their conflict with Yeremeyev's group and its interest in pushing out Kolomoisky's managers from UkrTransNafta and UkrNafta, and even call this a defining motif in the recent confrontation. Yeremeyev is allegedly close to Ihor Kononenko, a business partner and a longtime friend of President Poroshenko.

However, much closer attention should be paid to the figure of another Poroshenko's favorite, Russian oligarch Kostyantyn Hryhoryshyn. The Energy Minister Vladimir Demchyshyn appointed on BPP's quota is considered to be his protégé. Recently, Samopomich MP Lev Pidlisetsky accused Hryhoryshyn of establishing total control over UkrEnergo National Energy Company, the operator of Ukraine's unified energy system, where the entire management staff was replaced, "including department heads." The media also associated the disruption of contracts for supplies of South African coal to Ukrainian state-owned thermal power plants last fall with Hryhoryshyn's schemes.

RELATED ARTICLE: The Tycoon Effect: Who owned what in 2013

There is every reason to be beware of Hryhoryshyn becoming for President Poroshenko what Firtash was for Yushchenko during the latter's presidency. Hryhoryshyn and Poroshenko are old business partners. There were times when they together even tried to buy a controlling stake in Inter TV channel from Ihor Pluzhnikov, and since 2007, they have jointly controlled Sevastopol Marine Plant. This means that the Kremlin may exercise subtle pressure on Poroshenko through Hryhoryshyn, as it once did on Yushchenko through Firtash, offering him attractive business schemes that would bring Ukraine closer to Russia. Contracts for the supply of coal and electricity from Russia signed this winter can be regarded as the first examples of such pressure.

One should not be deceived by the facts that Kostyantyn Hryhoryshyn was named among the main sponsors of the Orange Revolution, that he is a native of Zaporizhya, and that the lion's share of his assets is in Ukraine (Energy Standard, which manages a number of regional power distribution companies, UkrRichFlot, Zaporizhya Super-Power  Transformers Plant, ZaporizhTransformator, Sumy Frunze Machine-Building Science and  Production Association, etc). Despite his Ukrainian origin, Hryhoryshyn is a typical Russian oligarch, whose prospects depend primarily on his manageability and usefulness for the Kremlin. He not only holds the Russian passport, but also lives in Moscow, and his business is closely associated with Russian state-owned companies, where he has branched connections (Gazprom, Inter RAO UES, etc.).

THE LAUREL WREATH OF UKRAINIAN IVANISHVILI

At least two Ukrainian oligarchs may soon launch their own ambitious political projects with the primary purpose of eliminating the current coalition, or at least its main actors.

Kolomoisky's allies make no secret of their intentions to take revenge for the defeat and humiliation. They categorically rejected the possibility of playing a separatism card, but their more active participation in the political struggle is to be expected. It is encouraged by the just frustration of the population by the political actors of the ruling coalition and, primarily, by the President's and Prime Minister's activities. This negative attitude towards the authorities can be expected to grow, since the socio-economic situation in the country is projected to deteriorate. At the same time, the reorientation of the disillusioned voters towards the Opposition Bloc is likely to be minimal. If its rating grows, it will be first of all due to the activation of the traditional PR and/or CPU electorate that was passive during the last election.

In these conditions, Kolomoisky has a chance of placing to local councils and, in the case of early parliamentary elections, to the Parliament a considerable number of his own deputies as part of one or several political groups. It is unlikely that he will want to become a public politician, at least in the long run. First of all, it involves certain risks, because high expectations can rapidly turn into hatred and irritation. However, Kolomoisky may form a more or less wide association designed to prevent the revenge of his foes Akhmetov or Firtash and to weaken the influence of his opponents from the current government camp.

One more oligarch, Dmytro Firtash, has actually started on the path shown by Bidzina Ivanishvili. The lawsuit brought against him in Austria is slowly coming to nought due to the lack of evidence, as he is preparing for a triumphant return to Ukraine with the electoral agenda that is becoming more and more obvious.

RELATED ARTICLE: Free Energy and Its Enemies: Who sabotages energy reforms in Ukraine

Firtash has signaled that he will place his stake on populism and the return of the country to the Russian sphere of influence. In particular, he stated that it is important to start with the constitutional reform aimed at ensuring the country's federalization or decentralization, "because without this task, nothing can be changed." He also said that despite the "painful relations with Russia, Ukraine should become not a footstep, but a bridge between Europe, Russia and Asia. We need to establish a common market, instead of looking in one direction or another."At the pompous Ukraine Tomorrow forum held in Vienna in early March, Firtash presented his own initiative of the country's modernization and alternative development. At the meeting, the establishment of the Agency for Modernization of Ukraine was announced, with the task to prepare a step-by-step plan to assimilate $300 billion of investment required for its implementation. This process should be completed by the end of September this year, that is, at the height of the local elections campaign (if it is not postponed). The fact that a complimentary TV spot on the event was immediately aired by Russia's First Channel is telling.

Since the modernization was formally initiated by the Employers' Federation of Ukraine  controlled by Firtash and the trade unions equally dependent on him, the oligarch's speech and initiative were filled with populist proposals that he somehow did not bother to implement at his numerous enterprises in Ukraine in the previous years. In particular, according to Firtash, "the strategy of attracting investors to the country with cheap labor is wrong." Besides, he criticized the current government for its national austerity program, saying that "we must understand that people have to live. Not only in 25 years, but already today we need to make great strides to see daily improvements in the situation and the living standards." Such ideas may prove to be popular before the local and, quite possibly, early parliamentary elections, when the population is tired of the belt tightening policy that was launched in 2014 and worsened in 2015.

In addition to organizing such high-profile PR activities, Firtash's team also has a more systematic approach to the problem of Ukraine's perception in Europe. For example, European news channel Euronews and Inter Media Group announced on March 13 the signing of a license agreement for the launch of its Ukrainian version. While the signing of such agreement with Firtash's media resources was long opposed by the Euronews' major French shareholders (23.9% stake), the positive results were achieved after 53% of the channel's shares were unexpectedly acquired for €35 million by a Egyptian billionaire Naguib Sawiris in early March 2015. An interesting coincidence...

RELATED ARTICLE: How Ukraine can survive the next heating season without Russian gas and coal 

THE SINE QUA NON

In the absence of an organized political force or a broad civic movement capable of taking the responsibility for the development of the country and its fundamental transformation, instead of the imitation thereof, the citizen's inclination towards populism will always be used by the oligarchs for their own benefit. The country still has no organized progressive force to take the place that will remain vacant after the oligarchs are removed from power. This place could be filled either by the representatives of big businesses of a smaller scale (which would only increase instability), or by the current bureaucrats and security forces (which is also no good for the country).

For the real and, most importantly, effective deoligarchization that would contribute to the country's dynamic development, we need an organized alternative in the form of an institutionalized civil society or powerful and organized political forces based on the active participation of small and medium-sized businesses. The desperate fight on Maidan has to be continued in new forms, otherwise neither the courage to overthrow the regime nor the deaths of the hundreds of heroes will help dismantling the system that still controls all parliamentary political groups, this time or in the future.


Related publications:

  • Social networks went into a rage, the President’s site was bombarded with dozens of petitions, and many began talking about censorship on the internet. The reason for this outburst was a ban on Vkontakte, a Russian version of Facebook very popular among schoolkids, Yandex, Russia’s answer to Google, and Mail.ru in Ukraine
    18 May, Stanislav Kozliuk
  • The Crimean Tatars faced deportation from the peninsula under Stalin in 1944. Today, they are facing a policy of quiet expulsion from their lands
    8 May, Stanislav Kozliuk
  • Current state and plans in Ukraine’s defense industry
    28 April, Yuriy Lapayev
  • What it takes to upgrade Ukraine’s military
    28 April, Oleksandr Kramar
  • Ukraine needs to prepare a consolidated claim on Russia’s responsibility for its armed aggression to be used in international courts, as well as laws on the occupied territory and the restoration of territorial integrity
    28 April, Volodymyr Vasylenko
  • As of the end of March, 44 Ukrainian citizens remained in Russian captivity. What can Ukraine do to free them?
    20 April, Stanislav Kozliuk
Copyright © Ukrainian Week LLC. All rights reserved.
Reprint or other commercial use of the site materials is allowed only with the editorial board permission.
Legal disclaimer Accessibility Privacy policy Terms of use Contact us