Ukraine’s Oligarchs Are Still Calling the Shots

A few weeks ago, the private Ukrainian TV channel 1+1 treated its viewers to a remarkable report on the doings of one of the country’s richest men. The subject of the report was Dmitry Firtash, a telecommunications and energy magnate who was arrested in Vienna on March 12 on United States bribery charges. (He was released after paying 125 million euros in bail, and currently remains in Austria, where he is fighting extradition to the United States.) But the 1+1 report, one of many attacks on Firtash aired by the channel in recent months, spent little time illuminating the businessman’s latest legal problems. Instead it dwelled on his alleged connections to a notorious Russian gangster — whom it depicted as a close associate of Vladimir Putin.

That one of Ukraine’s businesspeople might have ties to a heavyweight of Russian organized crime was probably not news to 1+1 viewers. (Ukraine’s security service publicized a link between Firtash and the mafioso in question, Semyon Mogilevich, back in 2005.) More striking was the TV channel’s effort to depict Firtash as a puppet of the Kremlin — a particularly damning charge at a moment when Ukraine is struggling to fight off a Moscow-sponsored rebellion. And some viewers may have noted an odd coincidence: The man who owns 1+1, a business tycoon and politician named Igor Kolomoisky, also happens to be Firtash’s most ferocious competitor.

Like Firtash, Kolomoisky belongs to the select circle of Ukraine’s oligarchs, businessmen who have parlayed their enormous wealth (and media assets) into broad political influence. In an ideal world, the oligarchs would be creatures of the past. The Euromaidan revolution that toppled President Viktor Yanukovych six months ago took aim squarely at the system of brutal crony capitalism that has crippled Ukraine’s post-Soviet development. Yet even now, months later, some of the oligarchs continue to thrive, building their wealth and power even as the country struggles to contain the turmoil in the east.

The oligarchs have weighed heavily on Ukraine’s economic and political development for years. Most of them amassed their wealth by exploiting their closeness to those in power rather than through efficient management. The tycoons use their money to secure political influence, either by wrangling positions in government for themselves or by purchasing access to politicians. They can siphon off the profits from state-owned property or bid for government contracts without facing pesky competition. Others sell their products to government buyers at inflated prices. (In 2004, for example, top oligarch Rinat Akhmetov and one of his equally well-connected friends, Victor Pinchuk, bought a government steel plant without a competitive tender for $800 million; in a rare case of official second-guessing, the government took the plant back and sold it again, a year later, to an Indian investor for six times the price.) The oligarchs also use their ownership of media outlets to block any attempts to undermine their interests.

To be sure, the collapse of the Yanukovych regime did make life difficult for some of the oligarchs — especially the group consisting of Yanukovych and his associates, who were known as "the Family" (in part because his own sons played a major role in its workings). Today, the Family has almost entirely lost its sway over Ukrainian politics; even members of Yanukovych’s own Party of Regions routinely denounce them. Yanukovych and several of his associates (including the 20-something oligarch Serhiy Kurchenko) decamped to Russia when his government fell apart in February. Most remain there today.

Life has also become more complicated for Rinat Akhmetov, one of Yanukovych’s sometime allies. The collapse of the Yanukovych regime and the outbreak of the rebellion by pro-Russian separatists have hit Akhmetov, Ukraine’s richest man, particularly hard. Much of his wealth is tied up in factories in the industrial city of Donetsk, now the heartland of the separatist rebellion and the focus of Kiev’s military campaign to restore control over the east. Work at some of his plants has ground to a halt because of the fighting.

Now, caught between the rebels and the government in Kiev, Akhmetov finds himself desperately maneuvering to find a balance between the two sides. Even as he’s bent over backward to express his support for the government in Kiev (once even accusing the separatists of "genocide" in his native Donbass region), he’s also been urging President Petro Poroshenko to stop bombarding Donetsk as the Ukrainian military campaign fights to take the city back. Just to be on the safe side, Akhmetov has seen fit to relocate to Kiev since the pro-Russian militants took over his hometown. (He is notably reluctant to travel to Europe, however, apparently fearing a fate similar to the one that has met Firtash.)

Akhmetov’s problems have created an opening for his rivals — above all Petro Poroshenko, the confectionary magnate (known as the "Chocolate King") whose early support for the Maidan revolutionaries made him one of Ukraine’s most popular politicians and ultimately propelled him into the presidency. Despite his image as a self-made businessman whose companies produce worthy products, Poroshenko, too, qualifies as a member in good standing of the oligarchic system. Over the years, Poroshenko (net worth: $1.3 billion) has doubled as a businessman and high-ranking government official, donated cash to members of parliament, and used his own TV station to promote his personal agenda. He probably would have never risen to his current position had it not been for the lack of credible leaders among the revolutionaries.

Poroshenko’s behavior after the arrest of Firtash was illuminating. At the time, immediately after Russia’s annexation of Crimea and two months away from the presidential election, Poroshenko was desperate for help. So he headed off to Austria, where he visited Firtash — just days after his release on bail — in order to enlist the support of his TV channel, Inter. (Inter is 61 percent owned by Firtash and another oligarch by the name of Sergei Lyovochkin, who served for a time as Yanukovych’s chief of staff. It goes without saying, by the way, that Firtash has also used Inter to blacken Kolomoisky’s reputation at every opportunity.) In return for providing favorable coverage, Firtash hoped to gain the favor of the future president in his effort to avoid extradition to the United States — as well as protection against the maneuverings of rival Kolomoisky.

He will need all the help he can get. Kolomoisky’s rise since the revolution has been nothing short of spectacular. In March 2014, when the new post-Yanukovych government was desperately casting about for strong local leaders to stem the growth of separatism and to provide financial support to the embattled military, they gave the colorful Kolomoisky an emergency appointment as the governor of the province of Dnepropetrovsk, a traditional Ukrainian power center. A citizen of three countries — Ukraine, Israel, and Cyprus — Kolomoisky seized the opportunity to forge a new identity for himself as an ardent defender of Ukrainian sovereignty. His robustly nationalist stance has now transformed him into one of the country’s most popular politicians — despite the Maidan protesters’ vow to rid Ukraine of oligarchic power.

Kolomoisky’s rise is one of the biggest surprises of post-revolutionary Ukraine. Over the past two decades the oligarch has always found a way to cooperate with whoever ruled over the country. Whether it was cutting deals with former Prime Minister Pavlo Lazarenko, who was convicted for eight years in the United States for money laundering, or Yanukovych, who allowed Kolomoisky to maintain a stake in the state oil company, Kolomoisky has always managed to adapt to his political surroundings. His flexibility has enabled him to become the fourth-richest man in Ukraine, thanks to his enormous influence in banking and oil; Forbes estimates his wealth at $1.6 billion. Like other oligarchs, he’s made much of his money by exploiting his good relations with the government: Even though the government owns 51 percent of the oil and gas conglomerate Ukrnafta, Kolomoisky, who controls the company’s management, can largely do as he sees fit — even siphoning off oil from the state supply system for private business purposes. (The photo above shows pro-Russian separatists attacking a branch of Kolomoisky’s PrivatBank in Donetsk in April.)

In his latest incarnation, Kolomoisky has used his wealth and influence to rebrand himself as a populist firebrand. With Ukraine at war in the east, Kolomoisky has vowed to rein in separatism, even creating his own private militia for the purpose, the Dnieper Battalion. This has helped raise Kolomoisky’s standing in the eyes of the Ukrainian public and in turn he has positioned himself to be an influential power broker in the "new" Ukraine. But Kolomoisky’s forays into populism don’t stop there. Recently, he announced a $10,000 bounty for each separatist caught by the battalion. He’s even proposed building a wall along the Russian border.

(Kolomoisky has become a favorite target of Kremlin propaganda along the way. He and Russian President Vladimir Putin have publicly traded insults, with Putin calling Kolomoisky "a unique imposter" after the oligarch referred to Putin as a "short schizophrenic.")

Kolomoisky’s newfound popularity could well alter the calculus of Ukrainian domestic politics. When Poroshenko was elected to the presidency, he enjoyed such solid electoral support that he could reasonably assume that he’d be able to wield decisive influence over parliament, perhaps even dominating the early parliamentary elections scheduled for October. Yet Kolomoisky’s spectacular rise increases the likelihood that the next parliament will be controlled by oligarchs behind the scenes.

Yanukovych and his cronies largely dominated the old legislature. But the next one is likely to see intensified competition from several oligarch-controlled factions. Akhmetov is working to revive Yanukovych’s Party of Regions, which draws much of its strength from Russian-speaking Ukrainians. Firtash and Lyovochkin plan to lend their support to three parties (including Udar, the party of ex-heavyweight boxer and current Kiev mayor Vitali Klitschko).

The wild card remains Kolomoisky, who has yet to decide whom he will fund — though it’s rumored he’s planning to create a nationalist movement drawing on veterans from the fight against the rebels. Kolomoisky is certainly poised to capitalize on the current weakness of the central government. Many Ukrainians are eagerly casting about for a strong leader, and for some it’s Kolomoisky who fits the bill. Poroshenko might be tempted to strip Kolomoisky of his position as governor, but it’s already too late for that. Such a move would only make a martyr out of Kolomoisky and give his supporters fuel leading into the election.

It’s clear, in any case, that Ukraine’s business elites continue to shape the country’s political agenda despite the wishes of the Maidan revolutionaries to the contrary. With parliamentary elections set for October, Poroshenko will have to decide if he really wants to fight the corruption that brought so many Ukrainians out into the streets — or content himself with the oligarch politics of old.