It is commonplace to describe Ukraine as a country that is still dominated by a small group of oligarchic families. This is based on the mistaken assumption that because President Petro Poroshenko was considered a small oligarch he would never attempt to reduce the power and influence of Ukrainian oligarchs. But, this assumption is wrong because much has changed since the 2013-2014 Euromaidan Revolution with the biggest change being that the cosy relationship oligarchs once had with the president no longer exists.
President Poroshenko is not on the current Forbes list of billionaires because his wealth has more than halved from $1.6 bn. (2014) to $589 mn. (2017). This is the first time a Ukrainian president is not financially gaining from his position of power. Traditionally, Ukrainian presidents leave office far wealthier than when they were elected.
Two further oligarchs Rinat Akhmetov and Dmytro Firtash gained the most during Viktor Yanukovych’s presidency. They no longer have influence with the president. Akhmetov lost many of his businesses in regions of the Donbas controlled by Russia’s two proxy regions, the Donetsk and Luhansk People’s Republics. Akhmetov is in disfavour because of widespread suspicion that in spring 2014 he was neutral or worse still colluded with anti-Euromaidan protestors who evolved into pro-Russian proxies. Akhmetov did not bring the large number of workers under his control on to the streets to confront pro-Russian proxies until May 2014, and this was only in the southern Donetsk port city of Mariupol which is under Ukrainian control.
Firtash is in house arrest in Vienna awaiting the outcome of US and Spanish requests to have him extradited to stand trial on corruption in the former and money laundering in cahoots with Russian organised crime in the latter. Firtash, as the head of Ukraine’s gas lobby, had earned huge illicit incomes from jointly controlling gas intermediaries Eural-Trans Gas, RosUkrEnergo and OstChem with Russia’s state gas company Gazprom. These incomes were then used to buy up politicians irrespective of their political affiliations, both Orange Revolution hero President Viktor Yushchenko and anti-Orange Revolution Yanukovych. The biggest success of the gas lobby was to infiltrate the Party of Regions which had been the political protection club of the Donetsk clan and install gas lobby oligarch Serhiy Lyovochkin as Yanukovych’s Chief of Staff.
Viktor Pinchuk was always the most progressive of Ukraine’s oligarchs and the most active on the international stage seeking to improve his image. Pinchuk organised an annual Yalta (since 2014 held in Kyiv) European Strategy which brought together many international dignitaries, including former Prime Minister Tony Blair and former US President Bill Clinton. Typically for oligarchs, Pinchuk donated to both sides to be always on the winning side and made large donations to Bill Clinton’s library and Donald Trump’s election campaign. industrial assets have declined in value as Russia closed its market to his steel pipes. Since 2014, Pinchuk has kept a low profile but in December 2016, he penned a commentary for The Wall Street Journal (https://www.wsj.com/articles/ukraine-must-make-painful-compromises-for-peace-with-russia-1483053902) that was heavily criticised in Kyiv policymakers for seeking a deal with Russia in the vein proposed by Trump during his election campaign that would have harmed Ukrainian sovereignty.
Prior to 2014, Ukraine’s oligarchs never went into opposition to the president. This only happened once with former Prime Minister Pavlo Lazarenko in the late 1990s. His attempt at challenging President Leonid Kuchma failed and after parliament removed his immunity from prosecution he fled abroad and sought asylum in the US, which imprisoned him in 2006-2012 for money laundering.
Today, for the first time, many Ukrainian oligarchs are in opposition to the president. Forbes magazine current list of wealthy billionaires includes seven Ukrainians and of these, three – Igor Kolomoyskyy, Gennadiy Boglyubov, and Vadim Novinskyy – are in opposition to President Poroshenko (https://www.forbes.com/billionaires/list/#version:static_search:ukraine). Kolomoyskyy and Boglyubov are long-term business allies from the city of Dnipro (the new name for Dnipropetrovsk). Novinskyy is a pro-Russian politician with links to Moscow in the Opposition Bloc, a parliamentary group that brings together former members of the discredited Party of Regions which disintegrated when President Yanukovych fled from Ukraine during the Euromaidan Revolution.
In spring 2014, Kolomoyskyy was the only Ukrainian oligarch who rallied to Ukraine’s defence during Russia’s aggression. President Poroshenko appointed him governor of Dnipro oblast (region) which borders the Donbas. He provided personal funding for the creation of volunteer battalions that fought against Russian proxies at a time when Ukraine barely possessed an army. Kolomoyskyy even offered a $10,000 bounty for every captured Russian soldier. Dnipro has suffered 3-4 times more casualties in the war than any other Ukrainian region.
In taking this patriotic step, Kolomoyskky believed that, as in the past, he would be financially rewarded for supporting Ukraine against Russian aggression. The thought never crossed his mind of providing a “free lunch” as seen when Kolomoyskyy said “The age of the oligarchs is over” because “It’s now the era of one oligarch alone.” Kolomoyskyy was suggesting that President Poroshenko should make him Ukraine’s sole top oligarch in gratitude for his patriotism.
An important demand by Kolomoyskyy was to continue controlling UkrNafta and UkrTransNafta which although both state companies, the former in oil production and the latter an oil pipeline operator, through his 42% of shares choosing a loyal chairman and influencing the loyalties of members of the board of management. UkrNafta sold its oil to Pryvat-controlled traders at below market prices in monthly auctions from which competitors were prevented from participating. Pryvat controlled Ukraine’s only functioning oil refinery in the city of Kremenchuh.
Kolomoyskyy’s control of 42% of UkrNafta was enough to earn him and his oligarchic allies’ huge corrupt rents. Shareholder meetings required a minimum of those owning 60%+1 shares to be present but whenever there were attempts to change the board of management, Pryvat (who controlled 42%) would not show up preventing a quorum. Pryvat also used their control to prevent the pay out by UkrNafta of dividends worth billions of dollars.
After 2014, the closing off illicit avenues of corruption in the energy sector was an important demand of the IMF and EU in return for financial assistance and this meant the government ending oligarch siphoning of profits from UkrNafta and the state gas company Naftohaz Ukrainy. Parliament adopted legislation reducing the required quorum from 60 to 50%+1 shares making it impossible for Kolomoyskyy to continue to indirectly control UkrNafta. Parliament also imposed greater control over UkrTransNafta and removed its chief executive, Oleksandr Lazorko, who was loyal to Kolomoyskyy. Naftohaz had been a cash cow for presidents since its creation in 1998 and on the eve of the Euromaidan ate up 5% of GDP in government subsidies. Today, Naftohaz is the biggest tax payer to the Ukrainian budget.
Verbal disputes between Kolomoyskyy and President Poroshenko spiralled into armed conflict at the Kyiv headquarters of UkrNafta and UkrTransNafta in March 2015. Ukrainian investigative journalist and MP Serhiy Leshchenko said that it, “looked like the first act of a military coup”. This was a direct challenge to Poroshenko that he had to face down or failing to do so become a lame duck president.
Kolomoyskyy was removed as governor of the Dnipro region and the power of his clan and the oligarch precipitously declined. The Financial Times described this as an “An oligarch brought to heel” and wrote that, “The break between Ukraine’s two most powerful men – once the staunchest of allies – was a political earthquake.”
But, more was to come. In December 2016, the National Bank of Ukraine nationalised Pryvat Bank, which was founded in 1992 and had become Ukraine’s largest private lender, accounting for a quarter of deposits in the banking system. Kolomoyskky has a Swiss passport and fled from Ukraine to Switzerland where he owns a palace on Lake Geneva. Kroll Associates, hired to undertake a criminal investigation by the National Bank of Ukraine, found that Pryvat Bank had money laundered $5.5 billion over the previous decade under governments led by Prime Ministers Tymoshenko (2005, 2007-2010), Yanukovych (2006-2007) and Nikolai Azarov (2010-2014).
Oligarch influence continues to be found in Ukrainian television with Kolomoyskyy (Channel 1+1), the gas lobby (Inter Channel), Akhmetov (Ukrayina Channel) and Pinchuk (STB, Novyj Kanal Channels) controlling the majority of electronic content. But, this is a reflection of oligarchic pluralism as these channels do not have one voice and one strategy towards President Poroshenko; indeed, some, such as 1+1 Channel, are very critical of the president.
In parliament, political representation for oligarchs has been dramatically reduced with the simultaneous growth of influence of medium and small businesspersons. During Yanukovych’s presidency, the Party of Regions controlled half of parliament while today its current incarnation, the Opposition Bloc, has only 43 out of 430 MP’s who are loyal to the gas lobby and Akhmetov. Kolmoyskyy’s influence is limited to the Power to the People and Revival factions who together control another 42 MP’s.
The Ukrainian political and economic system is no longer dominated by a cosy relationship at the summit of power between the president and oligarchs. Akhmetov is no longer the “King of the Donbas” and his political vehicle, the Party of Regions, no longer exists, Pinchuk has withdrawn from Ukrainian politics and economics, Kolomoyskyy is in exile in Switzerland and wanted by Ukrainian law enforcement for money laundering through Pryvat Bank, while Firtash is in “house arrest” in the Ritz Hotel in Vienna fighting against his extradition to Spain or the US.