Oligarch Ihor Kolomoisky has seen some tough times lately. His financial assets have been nationalized, multiple energy assets frozen, and the government is suing the oligarch in London, Geneva and Kyiv for multi-billion-dollar fraud.
However, Ukraine is about to elect a new head of state, one who some fear might help Kolomoisky regain his influence.
The Kyiv Post has looked into Kolomoisky’s assets and interests in Ukraine’s energy sector and how the sector might be affected if the oligarch regains influence.
Ukrnafta
Kolomoisky was on the up during the first two years after the 2014 EuroMaidan Revolution. He was made the governor of his native Dnipropetrovsk Oblast and helped to fight off pro-Russian separatism in the region.
However, in late 2015 he turned into the government’s main villain.
Kolomoisky partly owned Ukraine’s oil extraction company Ukrnafta and oil processing company UkrTatNafta, while having influence on transportation company UkrTransNafta, operating Ukraine’s oil pipeline transportation system.
He has a 42 percent share of Ukrnafta, while 50 percent plus one share is owned by the government through state-owned monopoly Naftogaz.
In early 2010, under Yulia Tymoshenko’s government, the scheme that was de facto in place from 2003, gained official recognition – Ukrnafta received 11 supervisory board members, six from Naftogaz and five from Kolomoisky, while the quorum was set at eight members, meaning that any decision by the board could be passed only if there were eight people in the room to vote.
The decree made Kolomoisky the most influential person in Ukraine’s petroleum industry, while the company continued to be a cash cow for corruption. Back in 2016, the National Anti-Corruption Bureau of Ukraine alleged that over Hr 14 billion (approximately $650 million) was cashed out of the state-owned company through Kolomoisky-related companies. Kolomoisky’s sued the government in response for $5.5 billion.
In 2015, The quorum requirement was removed. On March 28, 2019 a new system for appointing the supervisory board was created. Under the new changes, six board members are now “independent” (each party picks three board members), then there are three from Naftogaz, and two from the minority shareholders controlled by Kolomoisky.
But if the political leadership changes, the company could be dragged back under the influence of Kolomoisky.
Ukrnafta sued Naftogaz for Hr 14 billion for using their gas, with the two coming to terms on March 28 that Naftogaz will buy the oil taken from Ukrnafta a decade ago, based on current market prices. But this will only happen if the government covers its overall debt to Naftogaz first, which equates to somewhere between $3-5 billion.
If state-owned Naftogaz becomes friendlier to Kolomoisky, Ukrnafta’s board members can be influenced by the oligarch In the future, while prices for Kolomoisky’s mining and processing plants can be set on favorable terms, as it was between 2003 and 2015.
Ukrnafta extracts just under 50 percent of Ukraine’s petroleum, while refines 68 percent of Ukraine’s oil. Ukrnafta is also the leading gas chain in Ukraine with 537 gas stations, added to the 1,088 gas stations directly owned by Kolomoisky. Combined, this number is over 50 percent of Ukraine’s private gas stations.
UkTatNafta, UkrTransNafta and NaftoGaz
Another case is UkrTatNafta. The company was created as a joint venture of Ukraine’s government and the Russian province of Tatarstan, with its subsidiary TatNeft. Ukraine had a 50 share, another 50 was split between the government of Tatarstan and TatNeft.
The company was transferred to Kolomoisky in 2009, with the Russian side suing both the government and Kolomoisky himself for allegedly raiding their property. The company owns Ukraine’s largest refinery, in Kremenchuk.
For the past two years the company has been lobbying either for the banning of the import of gasoline to Ukraine, or for the imposition of high tariffs on refined oil. The initiative was petitioned through Ukraine’s National Security and Defense Council, with the company claiming national security is at stake due to gasoline coming from Russia through Belarus.
The idea wasn’t supported, with Ukraine having only two processing plants able to produce gasoline, one owned by Naftogaz (Shebelynka), the other by Ukrnafta (Kremechuk).
Ukraine’s National Security and Defense Council is appointed by the president, without the need for a vote in parliament, while banning gasoline imports will have a strong influence on prices at Ukraine’s gas stations.
Then on April 18, Russia banned the export of oil products to Ukraine.
Additionally, UkrTransNafta, which owns Ukraine’s transit system and is responsible for the transportation of petroleum, was once controlled by Kolomisky as well. The company is fully owned by NaftoGaz, but people associated with Kolomoisky were placed on top positions, with the consent of Ukraine’s government.
According to various media sources, UkrTransNafta stored petroleum at Kolomoisky’s oil refineries, and set favorable prices for UkrNafta and UkrTatNafta to transport their products to and from the refinery, while in 2014 the company processed technical oil, meant to be stored in pipes to keep them in working order, at the Kremenchuk refinery, costing the state millions of dollars.
Having possession of all three, Kolomoisky created a fully vertical integrated business, giving him major influence in Ukraine’s petroleum market.
Today, UkrTransNafta is fully owned by the government, while the situation at UkrNafta is not clear. But Naftogaz itself can be influenced by the oligarch if Kolomosiky comes to terms with the Cabinet of Ministers, as both Naftogaz and Kolomoisky have multi-billion claims against one another in Ukraine’s courts.
Edward Chow, an independent U.S. energy expert, in a written comment to Kyiv Post stated that formal presidential power over the energy sector is limited.
“I don’t expect any major changes until after the October (parliament) elections and the formation of the new Cabinet of Ministers,” wrote Chow, adding that it is not clear why UkrNafta wasn’t reformed over the past five years.
Mining and Processing
Kolomoisky has a wide network of plants and factories all over Ukraine, including Kremenchuk Oil Refining Plant, DniproAzot (one of the largest chemical companies in Ukraine), two ferroalloy plants, and two large mining and processing plants, as well as a large oil storage facility at the port of Odesa.
Other energy assets include shares in three regional energy plants in Poltava, Sumy and Chernihiv, commonly known as oblenergos, together with Konstantin Grigorishin, a Russian-Ukrainian businessman and owner of the Zaporozhtransformator, a power transformer and shunt reactor producer.
The National Bank of Ukraine together with the state-owned PrivatBank were able to freeze the assets of companies owned by Kolomoisky through the London High Court of Justice. The assets were used as guarantees, when the oligarch withdrew cash from PrivatBank, which he owned prior to 2016. On April 18, the Kyiv District Administrative Court ruled that the nationalization was illegal. The NBU is to appeal.
The survival of Kolomoisky’s business empire depends on a positive outcome in his case against Ukraine’s government.
In a phone conversation with the Kyiv Post on April 18, Kolomoisky said he was satisfied with the ruling of the Kyiv District Administrative Court.
“It was an important trial. The court sorted things out and made a fair decision,” he said.
