Last Saturday was a day off for most people in Ukraine, but it was a busy one at the Ukrainian energy regulator.
Its members met to solve a difficult problem. Ukraine owes a huge amount to renewable energy producers — soon the debt will reach $1 billion. The debt has been growing like a snowball because of astronomical high green tariffs and intensive solar power generation in summer.
The regulator had to decide whose pocket to dive in to start covering the debt.
In the end, they decided that the whole country should help renewable energy producers. The regulator increased the cost of electricity transmission of the main company Ukrenergo, which runs the nation’s power lines, by 50%. There were not enough votes to increase it further. This measure won’t solve the problem though: To repay the debts, the cost of electricity transmission should be raised not by 50%, but four times.
The burden to cover the rest has been put on the state, which will have to take loans to repay the daily increasing debt to the green energy producers.
This is an example of how good intentions can lead to a mess when they meet Ukrainian reality.
Resourceful Rinat
Many European investors have been investing their money in the Ukrainian “energy of the future” since the feed-in tariff was introduced in 2008. But Rinat Akhmetov, Ukraine’s richest billionaire, turned out to be the quickest. From the outside, it looks like he had information that plants built by the end of 2019 would qualify for the higher rates.
Read also: Akhmetov flexes his muscles over the energy sector
More importantly, Akhmetov had excess cash, which he had accumulated during the rule of former President Petro Poroshenko and the Rotterdam Plus scheme (a rigged formula for calculating the price of coal-produced electricity, which benefitted Akhmetov). The National Anti-Corruption Bureau of Ukraine had already handed suspicion notices to six people allegedly involved in the Rotterdam Plus scheme.
The investigation never got to Akhmetov himself, and Dmytro Vovk, the former head of the National Energy and Utilities Regulatory Commission is hiding from Ukrainian justice abroad. Akhmetov spent the money generated by the corruption scheme on the construction of solar power plants that are among the largest in Europe. They enjoy the highest feed-in tariff in Europe. They make solar energy that is 10 times more expensive than nuclear power in Ukraine.
Today Akhmetov controls 25 percent of the renewable energy market. And he uses international investors in the market as a human shield for any attempts to correct the skewed tariffs. This tactic is like taking a hostage and he applies it everywhere.
For example, by threatening to stop coal mines and unemployment of miners, Akhmetov has managed to achieve several profitable solutions. Ukraine has banned imports of electricity, even from Belarus. Electricity consumers have become hostage the same way as international investors in green energy. It was in Akhmetov’s interest that the import of coal from Russia was de facto barred through the introduction of a 65% duty in March. In his interests, nuclear plants were stopped so that cheaper nuclear energy did not bring down the price of his coal, and oversupply of electricity on the market was solved with minimal losses for Ukraine’s richest man. Instead, the state took the losses.
There are similar examples in other areas as well. For example, Ukrzaliznytsia, a state railway company, ships Akhmetov’s iron ore for export at a loss. The issue of setting fair tariffs has not been solved in Ukraine for decades. (Editor’s Note: The author is a member of the supervisory board of Ukrzaliznytsya).
Lasting influence
In 2010, Akhmetov reached the peak of his power — he hired an American political technologist Paul Manafort and he made Akhmetov’s friend Viktor Yanukovych the president of Ukraine. Akhmetov controlled half of the then-ruling Party of Regions in parliament and even the oligarch’s personal driver became a lawmaker. In five years, Akhmetov himself showed up in parliament hall only once — on the day of taking the oath, which automatically granted him immunity from criminal prosecution.
Now Akhmetov is no longer a lawmaker, and his parliament lobby has been significantly reduced in strength. That’s why he has to make alliances with lawmakers from Yulia Tymoshenko’s Batkivshchyna party to lobby his interests and back his stooge Oleh Lyashko at the election in Chernihiv Oblast out of despair.
But one shouldn’t underestimate Akhmetov’s standing. He still has no less powerful weapon in his hands — control of 25% of the country’s economy Plus — his media holding, which last year added the Ukraine 24 news channel to its toolbox. With such assets, he can easily “hire” lawmakers, and influence courts or law enforcement agencies.
Akhmetov’s influence has not diminished. It has become less obvious but more dangerous. A lawmaker is an unstable asset — he can get out of the oligarch’s control. But with a quarter of GDP in his pocket Akhmetov could collapse the whole economy.
Tame him
Without solving Akhmetov’s issue it is impossible to imagine the successful presidency for Volodymyr Zelensky.
Last year, trying to neutralize the pressure of another oligarch Ihor Kolomoisky, Zelensky established relations with Akhmetov and enjoyed the loyalty of his TV channels. But soon enough the price of the issue will be too high. Akhmetov has never ended up a losing party in such agreements.
The new leadership of the Antimonopoly Committee might be a crucial milestone for reducing Akhmetov’s influence. Its previous head Yuriy Terentyev, who turned a blind eye on Akhmetov’s abuse of his status as an energy monopolist, was important for the oligarch yet he wasn’t able to defend him: The parliament approved Terentyev’s resignation with the minimum possible number of votes, 226.
West needs to help
It is also important that Western partners stop looking at Akhmetov through rose-tinted glasses. He has worked hard to try to white-wash his reputation in the West: For many years now, Washington-based legal firm Akin Gump represents his interests in the U. S. He also owns some mines in America and makes generous contributions to Atlantic Council.
A few years ago, when Kolomoisky’s appetites had to be tamed, Ukraine’s Western partners took a strong stance against him and insisted on the nationalization of PrivatBank, which greatly weakened the oligarch and neutralized him for several years. Then the intervention of the International Monetary Fund, then-U.S. Vice President Joe Biden, and Ukraine’s partners in Europe played a crucial role.
Today, Ukraine’s friends abroad must show the same unified position regarding Akhmetov and his monopolies, which are destroying the foundations of the economy and taking the whole of Ukraine and its international investors as hostages. One should not turn a blind eye to Akhmetov’s oligarchy, even if he often pays lavishly for his silence.
I cannot be accused of pro-Kolomoisky rhetoric, but I think it makes little sense that the West has turned just against Kolomoisky but not Akhmetov. They can’t think of one as hypertoxic oligarch while at the same time pity the other over the loss of his home, a mansion located in the Botanical Garden in Donetsk. Meanwhile, Akhmetov is completing his new palatial house near Kyiv, and he also owns the most expensive apartment in London in the residential complex One Hyde Park and recently acquired a villa of King Leopold II of Belgium on the French Cote d’Azur in Saint-Jean-Cap-Ferrat.
And this enormous wealth has one origin — Ukraine, which is officially the poorest country in Europe. While in fact, we are a rich country, whose resources are unfairly distributed, favoring a handful of powerful clans. And neither the Ukrainian government nor Ukraine’s friends in the world have the right to be silent accomplices of the corruption-oligarchic model.
Sergii Leshchenko is a Kyiv Post columnist, investigative journalist, and former member of the Verkhovna Rada, Ukraine’s parliament.
