“When Ukraine gained independence in the early 1990s, because the country is so attractive and rich, it was plundered not only from the outside, but also from the inside by many people who are now respected businessmen. I consider them just bandits, that is, they have become multimillionaires or billionaires on what was left of the Soviet era-enterprises. They did not build them, but simply took them away, raided them. Those were the times. And these people are financial groups. Today they have real estate, yachts, by the way, in England and France, in elite regions, in Monaco. Today, they are respected businessmen all over Europe who not only visit it, but live there. That is why we need to fight all these groups. And we do it.”
–President Volodymyr Zelensky to Le Figaro newspaper in France on April 16, 2021
President Volodymyr Zelensky to Le Figaro newspaper in France on April 16, 2021
President Volodymyr Zelensky ordered the National Security and Defense Council to draft legislation to limit the powers of Ukrainian oligarchs on April 15.
For decades, oligarchs have used their economic might and political influence to bend governments to their will and win privileges. Now, in the president’s words, the oligarchs must become law-abiding businesspeople.
Zelensky made a similar promise during the 2019 campaign that got him elected president.
Yet, two years into his presidency, Ukrainian oligarchs wield tremendous power over the media, industry and politics.
And while Zelensky has taken some oligarchs down a peg, others still have free reign over key sectors of the economy.
Since early February, the Zelensky-led Security Council has been stripping possessions from pro-Kremlin politician Viktor Medvedchuk, who co-heads the 44-member Opposition Platform — For Life party. He was deprived of his propaganda-spewing media empire and his other vast business interests in Ukraine.
Across the aisle, ex-President Petro Poroshenko, worth $1.6 billion, has also come under pressure. At one point, Poroshenko, the leader of the 27-member European Solidarity faction, had 27 criminal cases opened against him for corruption, abuse of office and even treason. Several investigations are ongoing.
The latest oligarch to fall out of favor with Zelensky is Ihor Kolomoisky, after the U. S. Department of Justice filed a civil forfeiture complaint accusing him of profiting from corruption and money laundering.
However, Ukrainian oligarchs who haven’t overtly interfered with the president’s agenda remain untouched.
Rinat Akhmetov, Ukraine’s wealthiest man, has been successfully using the state-owned railway monopolist Ukrzaliznytsia to transport iron ore and coal at below-market prices, costing the company billions.
Dmytro Firtash and Victor Pinchuk are rarely mentioned by top officials and the media. Firtash has monopolies in the nitrogen fertilizer sector, the titanium market and controls most regional gas companies. He also owes state-owned Naftogaz close to $1 billion for gas supplies. Pinchuk is the king of pipe production.
The oligarchs’ adaptability is not surprising.
Six Ukrainian oligarchs own over 65% of Ukraine’s TV market and control over 150 lawmakers in parliament, making fighting them all at once an uneasy task.
Read More: Screen Masters: TV stations guard interests of oligarchs
“The problem has multiple layers — regulations, courts, law enforcement, executive authorities. One law can’t perform a miracle,” says Andriy Gerus, head of the parliament’s energy committee who represents Zelensky’s 246-member Servant of the People faction.
“Yet, the fact that it was made public is already a big plus, because it is turning into a big nationwide discussion,” says Gerus. “Now they will need to act on it.”
King of coal and iron
The biggest oligarch in Ukraine has so far got no attention from Zelensky. Akhmetov dominates several industries.
His Metinvest controls over 50% of Ukraine’s iron ore market and the oligarch’s energy conglomerate DTEK extracts nearly 70% of Ukraine’s coal.
In both areas, he benefits from weak policies.
In Ukraine, the government regulates prices for freight transportation, while parliament sets prices for resource extraction. Both are alleged to be below the market rate, which benefits Akhmetov.
Today, rent for iron ore extraction in Ukraine is 12% of its cost price which is around $20 per ton. Since 2019, iron ore’s market value jumped from $80 per ton to over $178, yet the extraction rent remained the same.
Akhmetov also enjoys big discounts for transporting goods. Akhmetov pays $4.73 per ton to move ore and coal across Ukraine. These rates don’t even cover the rail operator’s expenditures and are one of the reasons why Ukrzaliznytsia lost more than $450 million in 2020.
A drone picture shows an aerial view of the DTEK tower and the Nº1 Kyivenerho heat supply station in Kyiv on Dec. 7, 2020. DTEK is owned by Rinat Akhmetov, the wealthiest oligarch in Ukraine, and produces the lion’s share of Ukraine’s coal-fired electricity. (Volodymyr Petrov)
“If they pay fewer taxes, have lower tariffs and rent, they gain excess profit which they then invest into media and politics to keep the prices low,” says Gerus.
Ukrainian journalists attribute Akhmetov’s good standing to his Ukraina TV channel, the most-watched in Ukraine, where Zelensky enjoys favorable reporting.
According to Bihus.Info news outlet, Akhmetov allegedly influences at least 30 lawmakers from Zelensky’s Servant of the People party, based on how they vote.
The low-profile ones
Similarly, Firtash and Pinchuk have kept their empires since Zelensky’s inauguration.
Firtash maintains a grip on Ukraine’s titanium market and chemical production. He has a monopoly on nitrogen fertilizer and owns most regional gas companies.
The oligarch maintains political influence through his popular TV channel Inter and his ties with pro-Kremlin politicians in Ukraine, such as his business partner and Opposition Platform co-head, lawmaker Serhiy Lyovochkin.
In 2019, the Anti-Monopoly Committee of Ukraine ordered a break-up of Firtash’s fertilizer monopoly. In December 2020, the court of appeals overturned the decision. In December, the Anti-Monopoly Committee fined Firtash’s regional gas distribution companies Hr 380 million ($14 million) for abusing their monopoly position.
However, nothing followed, and Firtash’s political and economic influence is holding strong, despite him facing corruption charges in America.
He has been fighting extradition on bribery charges and lives in exile in Austria.
Read More: Has fugitive Firtash co-opted Austria’s leaders to block US?
Pinchuk has successfully dodged all the scandals.
He rose to prominence with the help of his father-in-law, ex-President Leonid Kuchma in the late 1990s, and stayed afloat ever since. As soon as Zelensky took office, Kuchma reprised his role as Ukraine’s representative in the Minsk peace talks with Russia. His return was negotiated in Pinchuk’s presence.
Pinchuk has been whitewashing his name with the help of the Pinchuk Art Center, Ukrainian breakfasts in Davos and the annual Yalta European Summit Conference.
Pinchuk’s Interpipe was also one of the beneficiaries of the so-called “green metallurgy law” passed by Zelensky’s Servant of the People party, which will provide lower electricity prices for steel plants that reduce carbon emissions once the bylaws are worked out.
Oligarchs out of luck
Not all oligarchs were as lucky. Pro-Kremlin politician Medvedchuk has been the biggest loser.
Under Poroshenko, he increased his political clout by spreading pro-Kremlin propaganda from his media outlets. His world came crashing down on Feb. 2, when Zelensky sanctioned Medvedchuk’s closest ally, lawmaker Taras Kozak, and closed his nationwide TV channels — NewsOne, Channel 112, and ZIK.
With the stroke of a pen, Medvedchuk lost his 4% share of Ukraine’s media market.
On Feb. 19, the NSDC imposed sanctions on Medvedchuk himself, freezing his assets, restricting his financial operations for five years and nullifying all his permits and licenses.
Soon, the High Anti-Corruption Court ordered the seizure of an oil product pipeline that was controlled by Medvedchuk, while his gas station chain was searched by the Security Service, accused of a “major” tax evasion scheme.
Meanwhile, Poroshenko, Zelensky’s biggest rival, learned to live with the constant legal pressure, using it to mobilize his electoral base.
From the campaign trail, Zelensky made it clear that he would go after Poroshenko for alleged corruption and abuse of office.
When Zelensky took office, cases against Poroshenko began piling up. In June 2020, Poroshenko was finally charged for abuse of office. The case revolved around the allegation of unlawfully appointing a state official.
However, the case has stalled and Poroshenko remains free.
Love-hate Kolomoisky
Zelensky’s relationship with Kolomoisky was seen as the biggest weather vane for how the president will handle oligarchs.
In 2019, Kolomoisky’s 1+1 media empire played a big role in Zelensky’s election. After Zelensky’s victory, Kolomoisky maintained good relations with the president. More than 30 lawmakers in Zelensky’s newly established Servant of the People party were associates or former employees of Kolomoisky.
He also backed a new party, For the Future, which now includes 22 lawmakers. Kolomoisky’s first year under Zelensky went well.
Kolomoisky gained control of Centrenergo, a state-owned energy company, and preserved his control over Ukrnafta, a state-owned petroleum producer where he owns a big minority stake.
In 2020, Ukrnafta was supposed to get a fresh start with a new independent director. Kolomoisky was able to keep a favorable CEO in place.
The case of Centrenergo, which covers 15% of Ukraine’s energy production, is the best example of the oligarch’s influence.
After Zelensky took office in 2019, Kolomoisky began milking the company by selling it overpriced gas and receiving cheap electricity in return. According to Bihus.info, this has made him $13 million in 2021 alone.
Billionaire oligarch Ihor Kolomoisky talks to journalists at the Yalta European Strategy conference in Kyiv on Sept. 13, 2019, organized by oligarch Victor Pinchuk. (Matthew Kupfer)
He even helped sack the pro-reform government of Prime Minister Oleksiy Honcharuk, which tried to pry the oligarch’s grip from Centrenergo.
But recently, Kolomoisky’s fortune has turned for the worse in the fight over PrivatBank, which was taken away from the oligarch and nationalized in 2016.
Ukrainian prosecutors allege that Kolomoisky used insider lending to fleece the bank of $5.5 billion, forcing nationalization and a massive taxpayer bailout.
In December, the U.S. moved to seize the oligarch’s stateside properties and all but accused him of money laundering. On March 5, Kolomoisky and his family were banned from entering the U.S.
Read More: As Zelensky vows to take down oligarchs, attention turns to Kolomoisky
Ukraine got the hint, the State Property Fund changed Centrenergo’s leadership, while Kolomoisky’s associates in Ukraine were charged with embezzlement.
In March, top former PrivatBank officials were charged with embezzling $315 million and one was even pulled out of a plane when he tried to flee Ukraine.
Anti-oligarch bill
Zelensky’s anti-oligarch bill is unlikely to succeed in parliament.
Zelensky’s Servant of the People faction in parliament officially controls the majority of seats. In reality, it hasn’t been able to pass any substantial piece of legislation alone since early 2020.
Read More: Zelensky’s party loses support, trails in polls
Servant of the People lawmakers linked to Kolomoisky and Akhmetov have successfully lobbied their masters’ interests in parliament.
“Sometimes we see ad hoc alliances between the oligarchs,” says Agiya Zagrebelska, founder of the Antitrust League and an ex-commissioner of the Anti-Monopoly Committee.
“A bill that would have any kind of provisions that would endanger the oligarchs’ influence has a very low chance of passing.”
The courts have also served the oligarchs well.
In early April, the Special Anti-Corruption Prosecutor’s Office closed a case concerning the Rotterdam+ coal pricing scheme that cost Ukrainians Hr 39 billion ($1.4 billion), according to anti-corruption detectives.
“The problem is that these decisions later go to court, which is a whole separate problem,” says Gerus.
Political will?
However, the president recently showed that he sometimes doesn’t need parliament or courts to advance his agenda.
Zelensky can force Ukrainian oligarchs to follow the law without passing additional ones. Ukraine’s Anti-Monopoly Committee and National Energy and Utilities Regulatory Commission can be his tools.
“Despite the fact that it looks hard at first glance, it’s not,” says Zagrebelska, adding that the state has all it needs to tame the oligarchs.
In March 2021, the Regulatory Commission imposed the maximum possible fine of Hr 5.1 million ($182,000) against three DTEK plants for deliberately cutting coal supplies during the coldest weeks of winter.
Ukraine’s Finance Minister Serhiy Marchenko has also been pushing for tax code reform, asking the parliament to increase the rent for iron ore extraction.
According to the Finance Ministry’s proposal the iron ore extraction rent would be calculated not as a percentage of the cost price but the resource’s actual cost on the market.
This would force Akhmetov’s Metinvest to pay $22 per ton instead of the current $3.
“If we bring taxes and tariffs to European standards then we can control their influence,” says Gerus.
“We need fair competition and here, the role of the Anti-Monopoly Committee is crucial,” he adds.
On March 30, the Anti-Monopoly Committee completed a five-year investigation into collusion by fuel companies associated with Kolomoisky and imposed a $170 million fine.
“Today, under Ukrainian law, there are more than enough tools for the government to fight oligarchic influence,” says Zagrebelska. “The question is simply who and how uses them.”
