Ukraine’s oligarchs remain influential as ever

With a wealthy businessman at the helm in Kiev, a small economic elite continues to wield enormous political power
by Sabra Ayres
Al Jazeera America | June 21, 2014

KIEV, Ukraine — Ukraine’s fourth-richest man has a plan he says will help end the war with pro-Moscow rebels in the country’s volatile east. He proposes building a $136 million fence along the porous border with Russia to prevent tanks, artillery and mercenary soldiers from entering Ukraine to join the separatists’ ranks.

Ihor Kolomoisky is willing to put up some of his own fortune to get it done within the next six months.

An oligarch who Forbes estimates is worth about $1.8 billion, Kolomoisky recently pitched the seemingly far-fetched scheme to Ukraine’s newly elected president, Petro Poroshenko, also a Ukrainian oligarch, worth some $1.3 billion. Kolomoisky’s vision is a 1,200-mile fence constructed with high-strength steel and an electric current running through it, which would include a parallel moat system and layers of barbed wire as an added precaution.

Whether or not Poroshenko takes up Kolomoisky’s fence plan — and there is little sign such a project is feasible — the fact that Ukrainian oligarchs are still so prominent in Ukraine politically and economically poses serious challenges to the strife-torn country.

Many of the protesters who gathered in central Kiev’s Independence Square last year to demonstrate against then-President Viktor Yanukovich’s refusal to sign an association agreement with the European Union were taking a stand against entrenched and corrupt elites in politics and business.

But with a violent uprising in parts of the mostly pro-Russian east, the prospects for reducing the power of entrenched elites in Ukraine appear to have diminished. In order to for the country to achieve real change, “the prominence of Ukraine’s oligarchs in the economy must be decreased,” said Pavlo Sheremeta, minister of economic development and trade, in a recent televised interview.

Yet the influence of the oligarchs has likely gotten stronger. The debate over a fence is far from the first time Kolomoisky — Kiev’s appointed governor of the industrial region of Dnipropetrovsk — has offered his millions to help Ukraine fight the pro-Kremlin separatist rebels. Shortly after they took over government buildings and police stations in April throughout his neighboring eastern regions of Donetsk and Luhansk, the banking magnate offered bounties of up to $10,000 for the capture of the movement’s leaders and $1,000 for each rebel Kalashnikov. He is bankrolling paramilitary groups fighting alongside the national guard and has paid for gasoline to fuel Ukrainian military vehicles.

In the recent Ukrainian presidential election last month, voters were faced with a list of candidates that included three oligarchs. They decisively elected Poroshenko, the billionaire “Chocolate King.” Calling for the end of Ukrainian oligarchy is easier said than done, it seems.

“Eventually, this will be possible but not in the short term,” said Mark Galeotti, a professor of global affairs at New York University, who has done extensive research on post-Soviet security. “Ukraine’s primary object is first to deal with rebels in the east and to deal with Russia. The second thing will be to re-establish some sort of economic development. But they can’t do that and take on the oligarchs at the same time.”

Many Ukrainian oligarchs got rich using the same methods as their Russian counterparts — buying up state-owned enterprises and industries at cheap prices shortly after the breakup of the Soviet Union. They were often politically connected figures who had managed to accumulate capital under the Soviet system despite the strong official limits on such activities. They bought up Ukraine’s suddenly privatized heavy industries and export businesses, such as steel, coal and military machinery, vastly expanding their wealth almost overnight and creating a powerful elite.

In order to keep their empires and profits growing, the oligarchs used their fortunes to secure influence in the Ukrainian government, either by funding the campaigns of parliament deputies and their parties or by cutting deals to get political appointments for their loyalists. Many, including Poroshenko and Kolomoisky, bought up national media conglomerates with television, newspaper and magazine holdings and used the outlets to advance their agendas.

“The way the oligarchs work, they weren’t trying to establish themselves as political leaders,” Galeotti said. “What they wanted was enough autonomy so that they could do what they wanted and not worry about the state interfering.”

Some used their influence to grow their empires through backdoor deals in government procurements, budget subsidies and tax exemptions for their industries and murky asset accumulation.

A key player in both the old political order and the one emerging since the fall of Yanukovich is Ukraine’s richest man, Rinat Akhmetov. The steel magnate, who is associated with financing the political rise of Yanukovich, began his own rise in Donetsk, the industrial heartland where his business empire consists of heavy industry, metallurgy and coal mines. Forbes estimates Akhmetov’s worth at $12.8 billion. His empire includes Metinvest holdings, the Shakhtar Donetsk professional soccer team, luxury hotel chains and more. He also threw his resources behind Yanukovich and deputies from his party, the Party of Regions.

But since the ouster of Yanukovich in February, Akhmetov’s hometown of Donetsk has been riven by conflict. Armed rebel groups, with what Kiev claims is the Kremlin’s backing, have declared independence from Ukraine and waged a war against the central government.

Unlike Kolomoisky, who has consistently declared his loyalty to a united Ukraine, Akhmetov had been playing a more ambiguous role throughout the Ukrainian crisis, neither backing the separatist movement in the Donbas nor throwing his weight behind the new government in Kiev. Some believed Akhmetov was using the separatists to pressure the new Kiev government to remember that he still wields huge influence in eastern Ukraine.

“Akhmetov lost when Yanukovich left,” said Olexiy Haran, a professor of political science at Kyiv Mohyla University. The fall of the former leader raised a possibility that a new government might call for investigations into how some oligarchs, perhaps including Akhmetov, acquired their assets.

In late May, however, the pro-Russian separatists in the east had spiraled out of control. Fighting between the rebels and the Ukrainian military had killed some 270 people, many of them civilians. Tens of thousands of civilians — a large portion of them Akhmetov industry workers — were fleeing the region for safety.

In response, the oligarch came out in support of a united Ukraine. The week after the separatists declared independence from Kiev after a regional referendum, he called on his workers to protest the separatists and financed a group of steelworkers to patrol the streets in the port city of Mariupol.

But some experts feel that Akhmetov misplayed his hand. By the time he finally came out against the separatists, they had already come out against him, saying they would nationalize any enterprise that did not agree to pay taxes directly to the leaders of the Donetsk People’s Republic.

“Now Akhmetov understands that if the situation with the separatists continues, he will lose and he will be a nobody,” Haran said.

His business empire relies heavily on the Russian market, but if the region were to be more incorporated into Russia — as the rebels are seeking — Akhmetov would become a small fish in a large sea of Russian oligarchs.

He would also be faced with Russia’s President Vladimir Putin. Akhmetov would only have to review the case of Mikhail Khordorkovsky — who spent 10 years in jail — to realize what happens in Russia to oligarchs who don’t play by Putin’s rules, said Galeotti.

Kolomoisky, however, truly benefits from a Kiev central government without Yanukovich, who extended favors to Akhmetov and other Donbas-centered oligarchs. Kolomoisky’s very public support for a united Ukraine has positioned him well both politically and economically in the new Ukraine, and he will continue to do what it takes to ensure this new government succeeds so that he can too, Galeotti said.

Many have expressed fears that Ukraine could slip into being run by warlords, each using his own military to protect narrow financial interests. But it doesn’t have to be this way, Haran said, pointing out that some people think Ukraine has the chance to tackle its oligarchs’ influence.

“Now we can say to the oligarchs, ‘It’s time you will live according to the rules,’” he said. “It’s not easy to do, but I believe there is possibly a window of opportunity.”

http://america.aljazeera.com/articles/2014/6/21/ukraine-oligarchsinfluence.html

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