Poroshenko and Kolo­moisky ri­valry takes cen­ter stage

Kyiv Post - - National - BY MATTHEW KUPFER [email protected]­POST.COM

On March 31, as exit polls an­nounced that co­me­dian-turned-politi­cian Volodymyr Ze­len­skiy had seized a sig­nif­i­cant lead in the first round of Ukraine’s pres­i­den­tial elec­tion, the run­ner-up, Pres­i­dent Petro Poroshenko, took the stage in front of his sup­port­ers.

“Fate has brought me to face…the pup­pet of (billionair­e oli­garch Ihor) Kolo­moisky,” he said.

In ef­fect, Poroshenko was re­fram­ing the elec­tion not as one be­tween an in­cum­bent and a pop­u­lar challenger, but be­tween him and an in­flu­en­tial and much ma­ligned Ukrainian ty­coon who is ac­cused of steal­ing $5.5 bil­lion from the na­tion’s largest bank, Pri­vatBank, be­fore it was na­tion­al­ized in 2016. Kolo­moisky de­nies tak­ing part in bank fraud.

Ze­len­skiy’s com­edy shows and his hit se­ries, "Ser­vant of the Peo­ple," are broad­cast on Kolo­moisky’s 1+1 tele­vi­sion chan­nel. And the can­di­date’s cam­paign team is also us­ing the ser­vices of An­driy Bo­hdan, a lawyer who has rep­re­sented the in­ter­ests of Kolo­moisky, and the oli­garch’s body­guard. That has sparked con­cerns that he will make con­ces­sions to the oli­garch, who cur­rently lives in Is­rael and re­fuses to re­turn to Ukraine while Poroshenko is in of­fice. Ze­len­skiy has ve­he­mently de­nied that he is be­holden to Kolo­moisky.

But Poroshenko’s ac­cu­sa­tions re­flect more than a po­ten­tially ef­fec­tive cam­paign strat­egy. Rather, they are also the lat­est salvo in a long­stand­ing feud be­tween the Ukrainian leader and one of coun­try’s wil­i­est oli­garchs — a man who played a crit­i­cal role in sta­bi­liz­ing the coun­try in 2014, but soon fell out of fa­vor with the govern­ment.

There are also se­ri­ous busi­ness in­ter­ests at play. In 2013, Kolo­moisky was val­ued at $2.4 bil­lion. To­day, his net worth stands at $1.1 bil­lion. While not all those losses may be a di­rect re­sult of Poroshenko’s ac­tions, his pres­i­dency has un­doubt­edly been a ma­jor blow to the oli­garch’s busi­ness em­pire.

“They had pe­riod of part­ner­ship… when they worked to­gether and found com­pro­mises. But there were also con­fronta­tions,” says Volodymyr Fe­senko, di­rec­tor of the Penta think tank. “And in the last year-and-ahalf, it has been a con­flict over Pri­vatBank.”

Pro-Maidan oli­garch

Five years af­ter Ukraine’s 2014 EuroMaidan Rev­o­lu­tion, which drove Pres­i­dent Vik­tor Yanukovych from power, it is al­most dif­fi­cult to re­mem­ber Kolo­moisky as any­thing other than a po­lit­i­cal en­emy of Poroshenko. But it wasn’t al­ways that way.

In early 2014, af­ter Rus­sia an­nexed the Crimean penin­sula, Krem­lin­staged up­ris­ings be­gan erupt­ing across Ukraine’s east. In those heady months, Kolo­moisky — one of Ukraine’s wealthiest and most in­flu­en­tial busi­ness­men — played a cen­tral role in stem­ming the spread of sep­a­ratism.

In Fe­bru­ary 2014, Kolo­moisky in­vited Gen­nady Kernes, the mayor of the eastern city of Kharkiv, to visit him in Geneva, Switzer­land, where the oli­garch resided at that time. There he con­vinced Kernes to aban­don Yanukovych and take the side of the post-Maidan in­terim Ukrainian govern­ment.

Soon, the Ukrainian au­thor­i­ties ap­pointed Kolo­moisky gov­er­nor of his na­tive Dnipropetr­o­vsk Oblast, where he set about es­tab­lish­ing or­der and crush­ing a nascent Rus­si­abacked upris­ing in the city. His ex­act meth­ods re­main un­clear, but the oli­garch him­self has hinted that they were vi­o­lent. At one point, his team even of­fered a re­ward of $10,000 for each sep­a­ratist fighter handed over to the au­thor­i­ties.

Kolo­moisky founded and fi­nanced the vol­un­teer Dnipro Bat­tal­ion to fight Rus­sia in the coun­try’s eastern Don­bas, and sup­ported sev­eral other bat­tal­ions.

Kolo­moisky, who is Jewish, also spoke out against ac­cu­sa­tions by Krem­lin of­fi­cials and Rus­sia’s yel­low press that Ukraine’s govern­ment was Nazi or fas­cist.

“If Nazis made me a gov­er­nor, then ei­ther they are not Nazis or I’m not a Jew,” he said.

En­emy of the state?

If Kolo­moisky’s rise to po­lit­i­cal promi­nence af­ter the EuroMaidan Rev­o­lu­tion was me­te­oric, his fall from grace was just as abrupt.

In March 2015, the Ukrainian state passed a law that sharply cur­tailed Kolo­moisky’s de facto con­trol over ma­jor­ity state-owned en­ter­prises. This would start a chain of events strip­ping Kolo­moisky of sev­eral key en­ter­prises and as­sets.

In re­sponse, Kolo­moisky came with armed men to block­ade two such en­ter­prises: oil-pro­ducer Ukr­nafta and oil trans­porta­tion mo­nop­oly Ukr­transnafta. In an in­ter­view with jour­nal­ist Dmytro Gordon, Kolo­moisky said these were a se­cu­rity guard firm, not a “pri­vate army.”

Re­gard­less of ter­mi­nol­ogy, both com­pa­nies were sites of a be­hindthe-scenes busi­ness bat­tle be­tween the oli­garch and the state. Ukrainian state oil and gas com­pany Naftogaz, which has strug­gled with the coun­try’s pow­er­ful oli­garchs, owns a 50-per­cent stake plus one share in Ukr­nafta, while Kolo­moisky con­trols a roughly 42-per­cent share. And de­spite be­ing en­tirely owned by Naftogaz, Ukr­transnafta had been led by Olek­sandr La­zorko, a di­rec­tor al­legedly tied to Kolo­moisky.

The au­thor­i­ties claim that the Ukrainian bud­get lost $600 mil­lion in un­paid taxes dur­ing Kolo­moisky’s con­trol of Ukr­nafta. Mean­while, un­der the lead­er­ship of La­zorko, Ukr­transnafta had paid nearly $11.3 mil­lion to store oil in reser­voirs of fac­to­ries con­trolled by Kolo­moisky, Ra­dio Free Europe/Ra­dio Lib­erty’s Schemes investigat­ive unit re­ported.

Af­ter the March 2015 con­fronta­tion, Poroshenko fired Kolo­moisky from the po­si­tion of Dnipropetr­o­vsk gov­er­nor.

The next year, the Ukrainian govern­ment once again took aim at Kolo­moisky: amid ru­mors of mas­sive in­sider lend­ing, it na­tion­al­ized Pri­vatBank, which Kolo­moisky owned to­gether with his busi­ness part­ner, Gen­nadiy Bo­holyubov. The scope of this move should not be un­der­es­ti­mated: Pri­vatBank is the coun­try’s largest fi­nan­cial in­sti­tu­tion, mak­ing up 20 per­cent of the Ukrainian bank­ing sec­tor.

Upon tak­ing con­trol of the bank, the Ukrainian au­thor­i­ties dis­cov­ered a hole of $5.5 bil­lion dol­lars in its ledger. Va­le­ria Gontareva, then gov­er­nor of the Na­tional Bank of Ukraine, an­nounced that Pri­vatBank’s en­tire cor­po­rate loan port­fo­lio had gone to com­pa­nies tied to its own­ers.

Most re­cently, on March 29, a Kyiv court placed yet an­other ar­rest on as­sets be­long­ing to Kolo­moisky and Bo­holyubov’s in­for­mal Pri­vat busi­ness group. Pri­vat stands ac­cused in a long­stand­ing case of em­bez­zling nearly $700 mil­lion in re­fi­nanc­ing loans pro­vided by the Na­tional Bank of Ukraine to Pri­vatBank in the ten years be­fore its na­tion­al­iza­tion.

Ukrainian pros­e­cu­tors first got ar­rests placed on Pri­vat as­sets in 2017. Among the as­sets cur­rently un­der ar­rest are land plots in the Odesa Oblast Gold Coast re­sort and in Bukovel, the largest ski re­sort in Eastern Europe, lo­cated in the pris­tine Carpathian Moun­tains of IvanoFrank­ivsk Oblast.

Kolo­moisky has also faced busi­ness losses in an­other area. Since 2017, sev­eral low-cost air­lines have en­tered the Ukrainian mar­ket, eat

ing away at the near-mo­nop­oly of Ukraine In­ter­na­tional Air­lines. Kolo­moisky is one of the com­pany’s ben­e­fi­cia­ries, although his ex­act own­er­ship share re­mains un­clear.

The ar­rival of low-costers was achieved un­der the po­lit­i­cal lead­er­ship of In­fras­truc­ture Min­is­ter Volodymyr Omelyan and his pre­de­ces­sor, An­driy Pyvo­varsky. Ini­tially, Ukraine In­ter­na­tional Air­lines re­sisted its less-ex­pen­sive com­peti­tors, but has in­creas­ingly adapted to in­creased com­pe­ti­tion, says An­driy Guck, a part­ner at Kyiv’s Ante law firm and an ex­pert on air­lines.

It’s per­sonal

But if busi­ness is­sues shat­tered Kolo­moisky’s re­la­tion­ship with Poroshenko, there is also a per­sonal as­pect to their con­fronta­tion.

Shortly af­ter Kolo­moisky was sacked as Dnipro gov­er­nor, Poroshenko re­placed his ally, Odesa Oblast Gov­er­nor Ihor Pa­lyt­sia, with for­mer Ge­or­gian Pres­i­dent Mikheil Saakashvil­i. The oli­garch and the for­mer pres­i­dent would pub­licly ex­change a se­ries of in­sults over the mat­ter.

In Oc­to­ber 2015, Gen­nady Kor­ban, a Kolo­moisky ally and leader of the op­po­si­tion Ukrop Party, was ar­rested on a se­ries of se­ri­ous charges run­ning the gamut from em­bez­zle­ment to or­ga­nized crime.

Kor­ban blamed Pavlo Dem­chyna, a top se­cu­rity of­fi­cial close to Poroshenko’s po­lit­i­cal and busi­ness part­ner Ihor Kononenko, for his ar­rest. Kolo­moisky has also blamed Kononenko for the takeovers of Ukr­nafta and Ukr­transnafta.

Un­sur­pris­ingly, Kolo­moisky has spo­ken neg­a­tively of Poroshenko. In a De­cem­ber 2015 in­ter­view with Politico Europe, the oli­garch said that the only dif­fer­ence be­tween Poroshenko and his ousted pre­de­ces­sor Yanukovych was “a good ed­u­ca­tion, good English, and lack of a crim­i­nal record.” He also de­scribed Poroshenko as a “slave to ab­so­lute power.”

In a 2018 in­ter­view with Sonya Koshk­ina, the ed­i­tor of Ukraine’s Levyi Bereg news site, Kolo­moisky said that Poroshenko’s re­elec­tion “can’t be pos­si­ble.”

“I don’t want to judge his per­sonal qual­i­ties but I would de­scribe his pres­i­dency with two words: To­tal amoral­ity,” he said. “He tries to take ad­van­tage of any event to turn it in fa­vor of his po­lit­i­cal ca­reer. When his rat­ing be­gan to de­cline, he sud­denly de­cided to go af­ter To­mos” — a doc­u­ment grant­ing Ukraine’s Ortho­dox Church canon­i­cal in­de­pen­dence from Moscow, which the coun­try re­ceived in Jan­uary 2019.

Kolo­moisky also al­leged that Poroshenko wants to take con­trol of his 1+1 tele­vi­sion chan­nel. In a coun­try where me­dia as­sets al­low oli­garchs to ad­vance their po­lit­i­cal goals, that ac­cu­sa­tion — true or not — makes a cer­tain log­i­cal sense.

That tele­vi­sion chan­nel has also played a role in turn­ing the con­flict per­sonal for Poroshenko. Ear­lier this month, 1+1 broad­cast a pro­gram called “50 Shades of Poroshenko,” which ac­cused the pres­i­dent of cor­rup­tion and im­plied he had killed his own brother. Mykhailo Poroshenko re­port­edly died in an au­to­mo­bile ac­ci­dent in Moldova in 1997.

Poroshenko called these ru­mors “a mad salvo of fakes” and claimed they were taken from Rus­sian tele­vi­sion.

“Poroshenko is very an­gry with Kolo­moisky,” says Fe­senko. “I would say a ‘holy war’ has be­gun be­tween them.”

Much to gain?

Kolo­moisky terms the na­tion­al­iza­tion of Pri­vatBank “an il­le­gal seizure of prop­erty with­out court or­der or com­pen­sa­tion” or­ga­nized by Poroshenko and ex-Na­tional Bank chief Va­leriya Gontareva in ca­hoots with the In­ter­na­tional Mon­e­tary Fund.

It’s an ironic al­le­ga­tion from a man who al­legedly built much of his busi­ness em­pire through cor­po­rate raid­ing, the prac­tice of us­ing state cor­rup­tion, the le­gal sys­tem, and even force to take over com­pa­nies.

But Kolo­moisky could po­ten­tially stand to gain from a Ze­len­skiy pres­i­dency — although it’s un­clear ex­actly how much.

Kolo­moisky and Ze­len­skiy “are busi­ness part­ners, so in Ukrainian con­di­tions, it can be very ben­e­fi­cial. Plus, I think Kolo­moisky presents him­self as an older men­tor (to Ze­len­skiy)” says Yevhen Mahda, di­rec­tor of the In­sti­tute of World Pol­icy.

Ac­cord­ing to Mahda, the big prize is Pri­vatBank, and that ap­pears to be mo­ti­vat­ing the oli­garch.

“It’s clear that un­til re­cently, Kolo­moisky did not have such po­lit­i­cal am­bi­tions,” he says. “Kolo­moisky al­ways just came to an agree­ment with the win­ner (of the elec­tion).”

Ze­len­skiy ob­vi­ously can­not re­turn con­trol over the bank to Kolo­moisky with a pres­i­den­tial or­der. But should the co­me­dian win the pres­i­dency and his Ser­vant of the Peo­ple party take enough seats in par­lia­ment, Mahda be­lieves it will be pos­si­ble. The pres­i­dent chooses the cen­tral bank head but re­quires par­lia­men­tary ap­proval.

Cur­rently, Kolo­moisky faces the prospect of los­ing his frozen as­sets as com­pen­sa­tion for the re­cap­i­tal­iza­tion of Pri­vatBank, says Ser­hiy Fursa, an in­vest­ment banker at Dragon Cap­i­tal. He be­lieves that, un­der Ze­len­skiy, Kolo­moisky could avoid that sce­nario.

And he could even get Pri­vatBank back.

“If a lo­cal Ukrainian court de­cides that the na­tion­al­iza­tion was il­le­gal... and it isn’t chal­lenged and comes into force, Kolo­moisky’s lawyers can take that de­ci­sion to Lon­don and the court will be forced to close the case,” Fursa says.

Mahda also sug­gests that, in that sit­u­a­tion, low-cost air­lines could po­ten­tially be pushed out of the coun­try. While there is so far no ev­i­dence a Ze­len­skiy govern­ment would move to reestab­lish Ukraine In­ter­na­tional Air­lines’ dom­i­nance, it is — at a min­i­mum — pos­si­ble.

“Avi­a­tion is a highly reg­u­la­tory mar­ket, and it is very sen­si­tive to how it is man­aged and what rules are im­posed,” says avi­a­tion ex­pert Guck.

If peo­ple un­sup­port­ive of for­eign car­ri­ers again take con­trol of the State Avi­a­tion Ad­min­is­tra­tion and the In­struc­ture Min­istry, low-costers “will be ready to very quickly close up shop and leave,” he says.

How­ever, Fe­senko doubts that Kolo­moisky would have such an un­seemly in­flu­ence on Ze­len­skiy. He be­lieves that the can­di­date is not the oli­garch’s pup­pet, and would not nec­es­sar­ily ac­cept any sug­ges­tions by Kolo­moisky.

“For Ze­len­skiy, work­ing in the in­ter­ests of Kolo­moisky — es­pe­cially re­gard­ing Pri­vatBank — would be too dan­ger­ous,” Fe­senko says. “He could de­stroy his rep­u­ta­tion.”

Where Fe­senko and Mahda agree is on the main av­enue through which Kolo­moisky could in­flu­ence Ze­len­skiy: mu­tual con­tacts who could pro­pose ap­pointees to the can­di­date’s largely un­formed po­lit­i­cal team.

But if Fe­senko is skep­ti­cal of the al­leged dan­ger posed by Kolo­moisky, Mahda is more con­cerned about Pri­vatBank stay­ing out of his con­trol.

That is es­pe­cially sig­nif­i­cant given that Pri­vatBank’s new man­age­ment has had lim­ited suc­cess fight­ing the for­mer own­ers in court. In Novem­ber, a Lon­don High Court ruled that it did not have juris­dic­tion in the mat­ter, a de­ci­sion that brings Kolo­moisky a step closer to end­ing more than a year-long freeze of $2.5 bil­lion of his and Bo­holyubov’s as­sets world­wide.

Mahda sug­gests that, were Kolo­moisky to re­gain con­trol over Pri­vatBank, it would be dan­ger­ous for Ukraine. It could even be used to black­mail the govern­ment.

“Imag­ine if Pri­vatBank stayed in Kolo­moisky’s hands,” he says. “One fine day — per­haps in the heat of the (pres­i­den­tial) cam­paign — it could sud­denly an­nounce its bank­ruptcy. And I think sup­port for the au­thor­i­ties would col­lapse into the abyss.” ■

A woman with­draws money from an ATM at a Pri­vatBank branch in Kyiv on April 4, 2019. The bank, Ukraine's largest fi­nan­cial in­sti­tu­tion, for­merly be­longed to oli­garch Ihor Kolo­moisky and his busi­ness part­ner, but was na­tion­al­ized in 2016. (Kostyan­tyn Ch­er­nichkin)

Ukrainian Pres­i­dent Petro Poroshenko meets with fel­low oli­garch Ihor Kolo­moisky in Kyiv on March 25, 2015, a day af­ter he was sacked as gov­er­nor of Dnipropetr­o­vsk Oblast. (Mikhail Pal­in­chak)

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