For the past three months, the Ukrainian oligarch club has been suffering losses. Two top players have been disqualified — Viktor Medvedchuk and Ihor Kolomoisky.
A close friend of Russian President Vladimir Putin, Medvedchuk was deprived of his main asset — a media weapon in the form of three TV channels. They allowed him to manipulate the entire Ukrainian society and to build up the political power of the Opposition Platform — For Life party. Today, Medvedchuk is regularly questioned by the SBU, and his offices and home undergo searches.
Kolomoisky was deprived of influence in the Servant of the People faction when his main mouthpiece, Oleksandr Dubinsky, who was subjected to U.S. sanctions, was kicked out. Last year, the state-owned company Centrenergo — which Kolomoisky allegedly used for his profit — received a new general director in an attempt to block the oligarch’s influence in the company. Law enforcement is looking into embezzlement schemes at the enterprise. Meanwhile, the Anti-monopoly Committee imposed a record fine of Hr 4.7 billion (around $170 million) on Kolomoisky’s companies for abuses of the gasoline market.
But there’s another oligarch in this club that Ukraine shouldn’t forget. So far, he hasn’t received a proper state response for defying the law and enriching himself through corruption. His name is Dmytro Firtash.
Remember Firtash?
Firtash is a friend of several Ukrainian presidents. He was indicted in 2014 for what federal prosecutors in the Northern District of Illinois allege was his role in bribing Indian officials to get a lucrative mining deal to sell titanium to Boeing.
Since 2014, he has been living in Vienna and contesting his extradition to the U. S. At one point, Firtash even became part of ex-President Donald Trump’s conspiracy theory. Although Firtash is closely tied to Russia, he has a direct influence not only on Ukrainian politics but also on public sentiment, possessing the leverage to sway social discontent.
His leverage relies not only on the Inter TV channel, which he owns, but also the largest network of regional gas stations in the country, which almost caused riots last fall due to a sharp increase in tariffs.
Firtash is a typical product of the tumultuous 1990s. He was educated at a railroad college as a locomotive engineer and served for a time in the fire department. After the collapse of the Soviet Union, he was in the food and fox breeding business. Once a shipment of his goods went to Turkmenistan and when no money was received from there, Firtash personally went to sort it out. The local authorities offered to cover the debt not with money but with gas. That is how he got into the chain of trade relations, which were supervised by the Kremlin-controlled Gazprom’s then-darling, Igor Makarov, and the Itera group of companies that he created.
Years later, tired of cooperating with Itera, Firtash decided to promote himself as an independent figure. But he needed protection, and eventually found Semion Mogilevich, a Russian criminal mastermind originally from Kyiv, who was listed by the FBI as one of the 10 most wanted crimi-nals. This decision became a turning point in Firtash’s life — as it got him on the radar of the U.S. intelligence agencies.
The year 2002 was a time of great political redistribution in Ukraine. Then-President Leonid Kuchma miraculously escaped the consequences of journalist Georgiy Gongadze’s Sept. 16, 2000, murder. Kuchma cemented the power structure and Viktor Yanukovych became his designated successor. Medvedchuk was supposed to oversee the smooth transit of power. And Firtash’s future friends create a counterbalance to Medvedchuk when the young and ambitious Sergei Lyovochkin became an adviser to Kuchma, and Yuriy Boyko became the new head of Naftogaz.
That was the beginning of the future gas clan, which would become a shareholder first of the Party of Regions and then of Opposition Platform — For Life.
Gas trade
Firtash’s first middleman gas company was Eural Trans Gas (ETG). It was registered by Mogilevich’s lawyer and listed three unemployed Romanian citizens as beneficiaries.
It looked unconvincing and soon a new Swiss company, RosUkrEnergo, became the intermediary for gas deals between Russia and Ukraine. RosUkrEnergo was launched mere months before the 2004 presidential elections, which ended in falsifications in favor of Yanukovych and was followed by the Orange Revolution that overturned the election and brought Viktor Yushchenko to power.
In the 2007 snap parliamentary elections, the Firtash-Lyovochkin group decided to take root in Yanukovych’s orbit. The so-called Donetsk clan, who were used to disposing of the Party of Regions as their property, unexpectedly found competitors at their side. They emerged with the approval of Yanukovych, who did not want to depend on billionaire oligarch Rinat Akhmetov alone.
It is this group that would stop Yanukovych from joining a broad coalition with Yulia Tymoshenko in 2010, even when Akhmetov gave the go-ahead to the merger with the opponent. Yanukovych appreciated the good service of Lyovochkin and eventually allowed him to develop into a full-fledged oligarch.
Regional gas companies
After amassing resources on gas supplies from Turkmenistan and Russia, the RosUkrEnergo group decided to expand its influence by knocking on every Ukrainian’s door. They bought regional gas distribution companies. At the same time, the parliament voted to “forgive” those private regional gas distributors their debts.
The regional gas distributors by themselves mean nothing. It is a room in an office building where several people sit and move papers from one pile to another. What is important is the distribution networks that bring gas from the main pipe to households. Legally, they remain state property, although they are managed by regional gas distributors free of charge. That is how Firtash began controlling the gas supply to the population.
Running the broad distribution system, Firtash is paid by each house or apartment connected to it. But there is also a shadow part to this “business.” In a nutshell, the gas distributors used to write off cheap gas for the population as losses in the gas system. In reality, this gas was used for production at Firtash’s enterprises. The chemical enterprises used the cheap gas, intended for the population, to produce expensive nitrogen fertilizers.
The model operated safely until a unified gas price was introduced after Yanukovych fled to Russia in 2014. Now the schemers have less profit, and stealing gas as before will not work.
The scale of the theft can be assessed from the example of a local gas distributor — Kirovogradgas. When state-owned oil and gas company Naftogaz took control of this distributor, it discovered a model that was scaled to the entire country. Entire streets of non-existing houses were recorded among gas consumers. In addition, there were records of gas being lost in accidents that in reality did not happen.
Where was the stolen gas going? To the alcohol distilleries, which worked normally during that day but then had their “black market” shift at night, producing black-market alcohol, which they then sold.
For a long time, although the state controlled 51% of Kirovogradgaz, the company was in reality controlled by Firtash’s people through a 28% share, held by a Hong Kong citizen who also owned shares in the Clearing House Bank of the Lyovochkin family.
How he did it
The problems of regional gas distributors stem from the voucher privatization of the 1990s when employees became minority owners of the gas distributors and then oligarchic groups bought a small amount of shares from them.
One of the people who participated in the privatization was Oleg Bakhmatyuk, an agricultural oligarch who is now hiding from Ukraine’s National Anti-Corruption Bureau in Austria. He had an astounding career in Naftogaz after the Orange Revolution. In 2005, Bakhmatyuk became the head of the department of expert appraisal of investments, and in 2006 he was appointed the deputy head of Naftogaz. Also in 2006, he bought controlling stakes in local Ivano-Frankivskgaz, Lvivgaz, Zakarpatgaz, Chernivtsygaz and Volyngaz, and then sold them to Firtash.
Firtash’s triumph came in 2012. It was a year and a half after Yanukovych was elected president. By that time, he consolidated all the power, and was paying off the debts to the clans that had supported him. Akhmetov took over the coal energy sector and regional power suppliers, which he bought up without proper competition.
Firtash, who was in charge of the gas sphere, secured regional gas stations for himself. The competitors were screened out. Only companies that met the terms of the tender, and were aligned with Firtash’s interests, could take part in the privatization.
Firtash’s decisive breakthrough came in the middle of 2012, when Gaztek, a company linked to the oligarch, bought shares of 13 gas supplying companies from the state within two months. For all of it, the company paid Hr 326 million or less than $50 million. As it turned out later, Gaztek employed only two people, although the company owned assets worth Hr 1 billion.
The privatization of regional gas distributors was preceded by a generous gift from the state. It wrote off all the debts of these companies — $3 billion at that rate — before private investors were brought into the company.
As of 2016 and until now, Dmytro Firtash and his partners control over 70 percent of the gas supply to the population.
Initially, Firtash’s idea was to bring the regional gas distributors under the umbrella of his joint company with Naftogaz and Gazprom — a Ukrainian subsidiary of RosUkrEnergo, UkrGazEnergo. But Firtash turned out to be cunning — instead of doing that, he took the domestic consumers for himself. This gave him both leverage over authorities and a source of unaccounted gas for his chemical plants.
Firtash today
While he was making good money at home, Firtash got into trouble overseas. He became the second oligarch in the history of Ukraine, after Pavlo Lazarenko, to be indicted by the U.S. authorities. He was arrested in Vienna in March 2014.
He spent nine days in custody and was released on the bail of 125 million euros, the highest in Austrian history. The bail was paid by the Russian billionaire Vasily Anisimov, who happened to be a friend of Arkady Rotenberg. Rotenberg is not just a member of Putin’s inner circle and his judo sparring partner, but also had lent Firtash huge sums of money to buy chemical plants in Ukraine, and was his senior partner in this business.
Firtash hired an army of lawyers. Firtash’s defense team was led by former Austrian Justice Minister Dieter Boehmdorfer. The public rehabilitation plan for Firtash was written by Paul Manafort, who a few years earlier had consulted him on the purchase of real estate in America, an $885 mil-lion plot of land in New York City on which the Drake Hotel was located.
In 2019, Firtash decided to do Rudy Giuliani a favor by launching a dirt-digging campaign for Donald Trump’s rival Joe Biden. The oligarch secured an affidavit in Austria from former Attorney General Viktor Shokin, who said exactly what Giuliani wanted to hear: that Shokin was allegedly fired from his post under pressure from Biden, who wanted to block the investigation of his son Hunter in Ukraine.
Giuliani subsequently used this testimony heavily in a propaganda campaign for the 2020 U.S. presidential election. Later, Giuliani’s friends Joe DiGenova and Victoria Toensing started working with Firtash as advocates.
At the end of the day, it did not bring Firtash any success. Biden got elected. And the U.S. authori-ties continue to push for Firtash’s extradition.
And now is a good moment for Ukraine to take down another robber baron and add Firtash’s name to the list that now includes Medvedchuk and Kolomoisky.
The state still has a trump card up its sleeve: It can deploy the National Security and Defense Council to give the control of all regional gas distributors back to Naftogaz, and arrange a concession tender for them. This will deprive Firtash of his monopoly and leave him with nothing but the offices of the regional gas companies.
This would be tantamount to declaring war on one of the big clans, which is represented by lawmakers and the media weapon, the Inter TV channel. As the enemy of the state has been weakened and there is a great demand for justice in the society, it means that now is the best moment for such a special operation.
Sergii Leshchenko, the former deputy chief editor of Ukrainska Pravda, was a member of Ukraine’s parliament, serving from October 2014 as part of ex-President Petro Poroshenko’s Bloc. He lost his re-election bid in the July 21, 2019, parliamentary race. He started writing columns for the Kyiv Post in October 2019.
