Setting its sights on the tycoons
Poroshenko tightens reins to curb corruption
Bloodied by war and barely solvent, Ukraine is facing another threat from within: oligarchs with private security forces and steamroller business tactics inherited from decades of corruption.
Some of the billionaires fund volunteer militias that helped defend the homeland by opposing Russian- backed rebels but there’s a risk they may fight off government attempts to impose transparency and order aimed at attracting foreign investment.
“No international lender will give money to the country if central power is weak and the country is being ruled by kinglets,” said Mustafa Nayem, a lawmaker in the ruling party.
A standoff last month between government troops and gunmen loyal to magnate Igor Kolomoisky revealed the stakes.
Kolomoisky, 52, has been the biggest supporter of the war effort among the country’s richest men, which cemented support for him as governor of a strategic region adjacent to the conflict zone. He was forced to quit, raising questions both about the troops he funds and his future intentions.
The former governor’s deputy last year announced the launch of volunteer “elite battalions” under Kolomoisky’s “personal control.” By taking on such tycoons, Ukrainian President Petro Poroshenko, himself a chocolate magnate, hopes to curb what’s seen as Europe’s worst corruption and strengthen central authority.
It’s a high- risk gambit, adding yet another source of concern to the government’s efforts to restructure debt and gain access to international funding.
If the oligarchs choose to resist, they have money at their disposal and influence through political connections and their companies, which form the backbone of Ukraine’s economy, said Volodymyr Fesenko, who runs the Penta Political Analysis Centre in Kyiv.
The battle with Kolomoisky revolved around the government’s move to wrest control of the energy companies VAT Ukrnafta and VAT Ukrtransnafta from him.
Last week, the government proposed integrating the so- called volunteer units — some funded by wealthy Ukrainians with companies operating in or near the conflict zone — into the country’s military.
The government is putting on a brave front. Interior Minister Arsen Avakov warned billionaires, including the country’s two richest men, Rinat Akhmetov and Viktor Pinchuk, that he was clamping down on the right to carry weapons and would ensure “armed security guards won’t walk the streets.”
Those billionaires made most of their fortunes in the 1990s and early 2000s, when the business habits that led to Ukraine’s current predicament became entrenched. The country is ranked 142nd of 175 countries in Transparency International’s 2014 corruption perceptions index, on par with Uganda.
The symbiotic relationship between the country’s business and political elites grew especially tight under Viktor Yanukovych, the former Kremlin- backed president who fled to Russia during bloody protests a year ago, according to Yuriy Yakymenko, an analyst at the Razumkov Centre in Kyiv.
“It wasn’t even oligarchic capitalism, but parasitic capitalism,” Yakymenko said.
As the insurgency engulfed Akhmetov’s most important base of operations, he lost much of his wealth. Since peaking at $ 22.4 billion two years ago, the value of his empire has fallen by more than half, to $ 8.4 billion, according to the Bloomberg billionaires index.
He is accused by senior officials of having supported the rebels. Some politicians, including Kolomoisky, advocate seizing the assets he gained during Yanukovych’s reign. The Prosecutor General’s Office has summoned him for questioning over “alleged financing of terrorism” and Yanukovych’s violent crackdown on protesters.
While still the country’s richest person, Akhmetov has “lost his status as the oligarch who can influence the situation,” said Fesenko at Penta.
That fallen crown was seized by Kolomoisky, who was appointed last March as governor of the Dnipropetrovsk region that borders rebel- held areas.
Running a strategic region and wielding a private army has been the pinnacle of a career that started in the post- Soviet disarray of the early 1990s. Kolomoisky began building an empire at a time when Dnipropetrovsk was run by Pavlo Lazarenko, who would later become prime minister under President Leonid Kuchma. In 2006, Lazarenko was sentenced to nine years in prison and fined $ 10 million for money laundering by a U. S. court.
Kolomoisky’s empire includes Privatbank, Ukraine’s largest private lender, a 42 per cent stake in VAT Ukrnafta, the country’s biggest oil company, ferroalloy plants and refineries. In 2009, the government also granted Kolomoisky the right to manage oil pipelines operator Ukrtransnafta.
“Kolomoisky has increased his influence drastically,” Fesenko said. “Poroshenko had to limit it.”
Kolomoisky met Poroshenko on the tarmac of Dnipropetrovsk airport on March 26, both smiling as they shook hands and posed for photos, contending that they had no conflict.
Two days later, thousands of Kolomoisky supporters held a rally in the city of about one million, pledging support for Ukrainian unity even as they criticized government policies that led to the ex- governor’s departure.
That show of unity may not last. Gennady Korban, the deputy head of the Dnipropetrovsk government under Kolomoisky, has already accused authorities of failing to deliver on promises to the regions.
Should Kolomoisky and other tycoons challenge the government, their wealth and resources would give them a wide range of weapons to destabilize Ukrainian politics, according to Nayem, the pro- Poroshenko lawmaker.