The Family Holds the Reins

30 January 2012, 14:32

On January 18, President Viktor Yanukovych took a long-anticipated step and fired Prime Minister Mykola Azarov’s last influential figure in the government. Azarov’s long-time associate Fedir Yaroshenko was forced to “voluntarily resign” as Finance Minister and was immediately replaced by ex-SBU Chief Valeriy Khoroshkovsky. Khoroshkovsky’s candidacy has been brought up since mid-2011. After a serious conflict with Yulia Tymoshenko over customs clearing of RosUkrEnergo’s gas, observers have linked him to Tymoshenko’s archenemy Dmytro Firtash. But Khoroshkovsky’s ascent to power points to his extreme flexibility in relationships with his patrons and an ability to change them under the pressure of circumstance. So it is impossible to say unambiguously that the Lovochkin-Firtash group will benefit from his appointment as the finance minister. Sources with knowledge of the situation claim that he has become much closer to “the Family” in the past several months.


Khoroshkovsky began his working career as a driver in a zoo and then became an entrepreneur, allegedly to bring cars from Togliatti, Russia to Ukraine. His political career started when he participated in the parliamentary campaign in 1997-98 and made it into parliament with the pro-government Popular Democratic Party. He polished his skills in the Budget Committee, accompanying his activity with much publicized image-boosting projects, including several booklets on budget issues. They were published with Khoroshkovsky’s signature, but their real authors were identified as the Agency for Humanitarian Technologies. His first political joint project was the Velvet Generation Team. In the 2002 elections, this political force was financed by President Leonid Kuchma’s son-in-law Viktor Pinchuk, which earned it the label ‘technical’. Khoroshkovsky’s middling success in politics in the early 2000s came amidst his energetic business activity. In 2001, he purchased a 50% stake in Soyuz-Viktan, a large alcohol producer, and a controlling interest in Ukrsotsbank. The bank was later sold to Pinchuk in what some say was a compensation of sorts for the disastrous performance of the Velvet Generation Team. Curiously, when Khoroshkovsky sold his share in Soyuz-Viktan in 2006, this enterprise, formerly one of the most successful Ukrainian businesses and at one point the second largest vodka producer in the world, declared bankruptcy.

After losing in the next election, he managed to cooperate with all key political figures – Kuchma, Yanukovych, Tymoshenko, Viktor Yushchenko and Yanukovych again. In 2002, he was Deputy Chief of the Presidential Administration for several months. He served as the Minister of the Economy and European Integration in Yanukovych’s first cabinet until his resignation in early 2004. After “the efficient manager” Viktor Baloha came to Yushchenko’s Presidential Secretariat and entered into confrontation with the Yanukovych government in 2007, Khoroshkovsky drew interest from Bankova Str. as the head of the Inter channel’s supervisory board. (Interestingly, he purchased interest in the channel in 2005 from the heirs of Ihor Pluzhnykov, who had died a short time before the transaction.) Evidently this was why Khoroshkovsky was appointed First Deputy of the Secretary of the National Security and Defense Council. In 2008 during Tymoshenko’s premiership he headed the State Customs Service and was praised for taking imports out of the shadow economy. After a conflict with Tymoshenko, when he refused to clear RosUkrEnergo’s gas stored in underground storage facilities as a state’s asset, Yushchenko appointed him Deputy Chief of the SBU.

Khoroshkovsky demonstrated uncanny political sense for a long time. For example, he left Kuchma’s Presidential Administration before the arrival of Viktor Medvedchuk and thus avoided tainting his reputation by cooperation with this odious figure. He resigned from Yanukovych's first cabinet nine months before the Orange Revolution, which spared him the status of “an enemy of the revolution.” After Yushchenko disbanded parliament in May 2007, he again resigned from the office of First Deputy Secretary of the National Security and Defense Council. By doing so he showed for the umpteenth time that he was “equidistant” from opposing political forces in the conditions of a political crisis, which augured well for his later political career.

Finally, as the head of the State Customs Service in Tymoshenko’s government, Khoroshkovsky refused to clear RosUkrEnergo’s gas in 2009. His long-time business partner Firtash was co-owner of the company. This led to his firing but saved him from criminal persecution under President Yanukovych (unlike those who obeyed Tymoshenko’s instructions at the time, such as Anatoliy Makarenko and Ihor Didenko).

Khoroshkovsky’s worldview has gone through astounding metamorphoses. He began his political career as one of the leaders of the Velvet Generation Team, a liberally oriented political project. In 2004, he made a loud statement and demonstratively quit as Minister of the Economy and European Integration in protest against Ukraine's possible accession to the Common Economic Space with Russia. He clearly articulated his position in interviews: the limits of Ukraine's economical proximity to the Russian Federation and other Russia-oriented CIS members was a free trade zone. However, one year later his life was already closely associated with Russian business. He became president of EURAS Group, a Russian holding, and head of the supervisory board and an owner of the Inter channel which adopted a patently pro-Russian stance. While he headed the SBU, Khoroshkovsky triggered a number of scandals. He was accused of abusing office to monopolize information space and of repressive activities carried out by his agency:  a “spy mania” with regard to foreigners, unwarranted raids, persecutions of Ukrainian historians who studied the archives of Soviet special services to find information on the Ukrainian national underground and expulsion of Czech diplomats soon after the Czech Republic granted political asylum to ex-Minister of the Economy Bohdan Danylyshyn. Meanwhile, open provocations staged by pro-Russian organizations and anti-Ukrainian statements made by government representatives were for some reason ignored by the Khoroshkovsky-led Security Service. Some of his opponents even called him “the Kremlin’s agent of influence.”


It is now clear that Azarov will not be very comfortable with the newly appointed Minister of Finance. According to Paragraph 9 of the Cabinet’s Rules, the Prime Minister cannot bypass a minister to issue instructions to bodies he coordinates and guides. In other words, Azarov will be able to send his orders to, say, the head of the State Tax Administration only with Khoroshkovsky’s approval.

At the same time, his appointment is not so much an attempt to carry out some “special operation” to remove the incumbent premier as preparations for what is coming next. Yanukovych has no problem firing Azarov at any moment considering the latter’s “technical” status. Azarov does not have a team of his own, a systemic business or an independent political project (not even a parliamentary group). He does not own any media resources and is not a landmark figure to either the West or Russia. In this context, Khoroshkovsky’s appointment appears to be a probable first step to his promotion to the premier’s office, either as acting or full-fledged prime minister, if Azarov is dismissed for “failure to carry out reforms”.

Whether Khoroshkovsky eventually becomes premier or not, his appointment is a powerful blow to not only Azarov but also the “old Donetsk” groups of Rinat Akhmetov and Andriy Kliuiev. At the same time, under the current Constitution, any minister that is equally distanced from the main financial-industrial groups can only be, for objective reasons, a creature of Bankova Str. (Whether he is a point man of the Chief of the Presidential Administration or directly of “the Family” is another question.) Last year’s appointments showed that people loyal to the Family are increasingly taking up government offices. Two cases in point are NBU Chief Serhiy Arbuzov and Interior Minister Vitaliy Zakharchenko. As the election approaches, we can expect close coordination between two centers of influence – Chief of the Presidential Administration Serhiy Lovochkin (and hence the entire Firtash-Lovochkin-Boiko group) and the Family. Some observers have predicted a “cooling down” in the relationships between the Family and Firtash, who has incurred political and business losses against the backdrop of Kyiv’s tensions with the Kremlin, but it does not seem this will come any time soon. The future of both groups depends on the prospects of the Yanukovych government. In contrast, Akhmetov and Kliuiev can search for alternative ways to hedge political risks if power changes hands, including throwing their support behind a promising opposition political force.

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