THE OLIGARCHIC DEMOCRACYTHE INFLUENCE OF BUSINESS GROUPS ON UKRAINIAN POLITICS

Sławomir Matuszak

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THE OLIGARCHIC DEMOCRACYTHE INFLUENCE OF BUSINESS GROUPS ON UKRAINIAN POLITICS

Sławomir Matuszak

NUMBER 42WARSAWSEPTEMBER 2012

© Copyright by Ośrodek Studiów Wschodnichim. Marka Karpia / Centre for Eastern Studies

CONTENT EdITORSAdam Eberhardt, Wojciech Konończuk

EdITORSAnna ŁabuszewskaKatarzyna Kazimierska

TRANSLATIONIlona duchnowicz

CO-OPERATIONNicholas Furnival

GRAPHIC dESIGN PARA-BUCH

CHARTSWojciech Mańkowski

PHOTOGRAPH ON COVERShutterstock

dTPGroupMedia

PUBLISHEROśrodek Studiów Wschodnich im. Marka Karpia Centre for Eastern Studies

ul. Koszykowa 6a, Warsaw, PolandPhone + 48 /22/ 525 80 00Fax: + 48 /22/ 525 80 40osw.waw.pl

ISBN 978-83-62936-14-4

Contents

Theses /5

Main seCTors of business aCTiviTy of The key ukrainian oligarChs /8

inTroduCTion /9

reservaTions /11

I. The eMergenCe of The oligarChiC sysTeM and iTs forM in 1991–2004 /13

1. The genesis of the oligarchic system /132. The formation of the clans /133. The beginnings of a system crisis /174. The orange revolution /20

II. The oligarChs in 2005–2010 /23

1. The orange ‘oligarchic democracy’ /251.1. The business circles linked to the Party of regions /261.2. ‘orange’ business /271.3. The others /302. Tymoshenko’s conflict with the rue group /323. The attempt to form a grand coalition /324. The presidential election of 2010 /34

III. The oligarChs afTer vikTor yanukovyCh’s viCTory /37

1. The key groups of influence in the state administration /372. ‘The family’ – an attempt at a new quality /403. The expansion of business linked to the Party of regions /503.1. dmytro firtash /503.2. rinat akhmetov /533.3. The other oligarchs /544. The other oligarchic groups /555. other tendencies in the economy /58

IV. The oligarChs’ influenCe on foreign PoliCy /63

1. The political interests of the oligarchs /632. The economic interests /643. The attitude towards integration projects /663.1. relations with the West /673.2. Co-operation with russia /694. The primacy of individual interests /71

V. The advanTages and The disadvanTages of The oligarChiC sysTeM /74

1. The negatives /752. The positives /78

VI. Possible fuTure develoPMenTs of The oligarChiC sysTeM /80

suPPleMenT: The oligarChs’ forTunes in nuMbers /83

aPPendix /88

1. yanukovych’s ‘family’ /882. akhmetov’s group /882.1. rinat akhmetov /882.2. borys kolesnikov /932.3. vadym novinsky /943. The rue group /953.1. dmytro firtash /963.2. valeriy khoroshkovskyi /984. The other oligarchs from the Party of regions /1004.1. The klyuyev brothers: andriy and serhiy /1004.2. serhiy Tihipko /1024.3. oleksandr yaroslavsky /1035. Privat group – ihor kolomoyskyi and henadiy boholyubov /1046. other oligarchs /1076.1. viktor Pinchuk /1076.2. Petro Poroshenko /1086.3. kostyantin Zhevago /1106.4. oleh bakhmatyuk /111

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Theses

• TheUkrainianoligarchicsystemdevelopedintoitsultimateshapeduringLeonid Kuchma’s presidency (1994–2004). Although this system has un-dergonesomeformofevolution,itappearstobeverydurable.Oligarchicclansemergedinthemid1990sandwouldgainadominantinfluenceonthecountry’spoliticallifeoverthecourseofafewyears.TheOrangeRevo-lutiontriggeredareshuffleamongtheoligarchs,butthesystemitselfhasremainedunaltered.Representativesofbigbusiness stillhaveadecisiveimpactonthepoliticsandeconomyofUkraine.

• BigbusinessnotonlycontrolsentiresectorsoftheUkrainianeconomyandtheelectronicmassmedia—italsohasavastinfluencewithinpoliticalpar-ties. It isoftenthecasethattheoverridinggoalofagivengrouping’sex-istenceistorepresenttheoligarchswhosponsorit.Anetworkofmutualconnectionsexistsbetweenpoliticiansandoligarchs.Insomecasestheseconnectionsaresodurablethatitisfairtosaythatoligarchicgroupshavebeenformed(consistingofbusinessmen,politiciansandstateofficialswhosupporteachother).Representativesofbigbusinessareoftenmuchmoreimportant players on the Ukrainian political scene than the politiciansthemselves.OnemayriskstatingthatitistheinterplayoftheinterestsoftheoligarchsthatistherealmechanismwhichshapesUkrainianpolitics.Whengivingtheirsupportforagivenpoliticalgrouping,representativesofbigbusinessareguidedbynothingmorethantheirowninterests,andtheydonotidentifythemselveswiththeviewsofthepoliticalpartiesandpoliti-cianstheyareofferingfinancialsupportto. If thepoliticalconfigurationchanges,theoligarchsusuallyhavenoproblemsfindingcommongroundwiththenewgovernment.

• Although theoligarchic systemdoeshave somepositive elements (forexample, it contributes topluralism inpolitical lifeand themedia), itneedstobestatedthattheoverallinfluenceofUkrainianbigbusinessisharmfulandhindersthecountry’sdevelopmentinbothpoliticalandeconomic terms. Themonopolisation of the key economic sectors hasconstrained competition and is one of the causes of the unfavourableinvestmentclimateinUkraine.Thedependenceofmostpoliticalforcesonbigbusinessmeansthatthegovernmentinmanycasesisguidedbytheinterestsoftheoligarchswhoaresponsoringitinsteadoftheinter-estsoftheircountry;thisoftenleadstomulti-billiondollarlossesintheUkrainianstatebudget.

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• TheinfluenceoftheoligarchsonUkraine’sforeignpolicyislimitedwhencomparedtoeconomicor internalpolicy.Theydonotseemtohaveaco-herentstrategyinexternalrelations,buttheiractionsresultingfromtheirindividualinterestsoftenhaveasignificantimpactonUkraine’sbehaviourontheinternationalarena.SometimestheirinfluenceservestheUkrain-iannational interest.However,where the interestsofbigbusinesscomeintoconflictwiththeinterestsofthestate,oligarchslobby(oftensuccess-fully)fortheirownbenefit.

• Insomesectors(primarilymetallurgy),representativesofbigbusinessarethemainbarriertoRussiancapitalexpansioninUkraine.Russianbusinessistheirkeycompetitoronforeignmarkets.However,oligarchsaresome-timesforcedbythecircumstancestoselltheirbusinesses,andRussianin-vestorsareoftentheonlyprospectivebuyersinsuchcases.Giventhehighdegreeofownershipconcentrationinthehandsofrelativelyfewoligarchs,it is very likely thatRussiawould take control of anumberofUkraine’sstrategiccompaniesshouldanemergencysituationarise(forexample,thesecondwaveoftheeconomiccrisis).

• When Viktor Yanukovych won the presidential election in 2010, repre-sentativesofonepoliticalgrouping,thePartyofRegions,gainedstrengthtoanextentunseenso far inUkraine’shistory,andcompletelymonopo-lisedpoliticalpowerinthecountry.ThecoalitionpartnersofthePartyofRegions andoppositiongroupingshavebeenmarginalised to a large ex-tent.ThenetworkofthegroupsofinfluencewhichemergedafterthePartyofRegionstookpowerhasremainedessentiallyunchangedoverthepasttwoyears.ThegovernmentandthepresidentialadministrationhavebeendividedbetweentheRUEGroupandthe‘Donetskclan’,currentlythetwostrongestgroups.

• Theemergingbusinessof‘thefamily’–thistermisusedtorefertothepeo-plewhoaredirectlylinkedtoPresidentViktorYanukovychandhissons–isanewphenomenon.Thepoliticalandeconomicexpansionof‘thefamily’began shortly afterYanukovych tookofficeaspresidentofUkraine, andgainedmomentumin2011andinearly2012.AlthoughYanukovych’spoliti-calpowerisstrongerthanthatofanyotherpresidentinUkraine’shistory,thefinancialstrengthof‘thefamily’isstilllimited.

• Afurtherstrengtheningof‘thefamily’s’positioninbusinessattheexpenseofotheroligarchicgroupsisverylikelytobringaboutaconflictbetween

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Yanukovychandmostrepresentativesofbigbusiness.Theconsequencesofthisaredifficulttopredict.TheconcentrationofhugepoliticalpowerinthehandsofYanukovychhasalreadygivenrisetoconcernamongoligarchs,includingthosewhohavesofarformedhispoliticalbase.

• ItseemsquiteunlikelythatasystemresemblingtheRussianmodel,wherebigbusiness is subordinate to the government,will be created.Yanuko-vych’smainweaknessesarethelimitednumberofpeoplewhohecanseeas unconditionally loyal to him and the strength of the other oligarchicgroups.Itseemsthatthemost likelyscenarioforthedevelopmentofthesituation in thenext fewyears (at leastuntil thepresidentialelection in2015)willbethedevelopmentofacompromisebetweentheoligarchsandPresidentYanukovych. If this is thecase, ‘the family’wouldgainan im-portantbutnotdominantpositioninthemodelofpowerandbusinessinUkraine.

• ThepoliticalinfluenceofthoseoligarchicgroupswhicharenotlinkedtothegoverningPartyofRegionshaslessenedsignificantlysince2010.How-ever,thishasnotledtoanymajorownershipchangessofar.Othergroupshavemanaged to keep their assets, although the government has takensomeactionaimedagainsttheirrepresentatives.However,financialsup-portfrombigbusinessforoppositionpoliticalpartieshaseitherceasedorbeensignificantlyreduced.

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Main sectors of business activity of the key Ukrainian oligarchs

Rinat AkhmetovMetallurgy,media,banking,transport,conventional

powerengineering,insurance,retailtrade

Ihor Kolomoyskyi and henadiy Boholyubov (Privat Group)

Banking,media,metallurgy,oilsector,chemicalindustry,airtransport

Dmytro Firtash Chemicalindustry,gassector,banking,titaniumindustry

Viktor Pinchuk Metallurgy,media

serhiy Tihipko Financialsector,machine-buildingindustry

Kostyantin Zhevago Metallurgy,machine-buildingindustry,banking

Vadym Novinsky Metallurgy,machine-buildingindustry,shipbuild-ingindustry,agriculture

Oleh Bakhmatyuk Agriculture,foodindustry

Andriy and serhiy Klyuyev Metallurgy,machine-buildingindustry,renewablepowerengineering

serhiy Taruta Metallurgy,media

Petro Poroshenko Foodindustry,automobileindustry,media

Borys Kolesnikov Foodindustry

Valeriy Khoroshkovskyi Media

Tariel Vasadze Automobileindustry,insurance

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INTRODUcTION

Theoligarchicsystem,i.e.asystembasedonlinksbetweenthenewlyformedbigbusinessandthepoliticalclass,emergedseveralyearsafterUkrainere-gained independence in 1991. Although a similar phenomenon has also de-velopedinotherformerSovietrepublics,firstofallinRussia,bigbusinessatpresentdoesnothavesuchastronginfluenceonpoliticsinanyotherEasternEuropeancountryasitdoesinUkraine.

Representatives of big business inUkraine, as in Russia, are commonly re-ferredtoasoligarchs1.

Theoligarchicsystem,whichtookitsfinalformduringLeonidKuchma’ssecondterminofficeaspresident(1999–2004),turnedouttobeadurablephenomenon.ThenatureofthecloselinksbetweenthegovernmentandtheoligarchshasnotundergoneanymajorchangeseitherasaconsequenceoftheOrangeRevolutionin2004orfollowingViktorYanukovych’svictoryinthepresidentialelectionin2010.Althoughcertainreshufflesinsidethepoliticalandbusinesseliteshaveal-readytakenplaceandwillhappeninthefuture,itseemsunlikelythatanythingwillbeabletochangethissystem,atleastinthemediumterm.

ThistextisaimedatpresentingthenetworkofconnectionsexistingbetweenbigbusinessandpoliticsinUkraineandatpointingtothekeyoligarchicgroupsandthepoliticalforcestheysupport.AdefinitemajorityofpapersconcerningcontemporaryUkrainianpoliticsasaruledisregardordealwiththissubjectvery superficially,while it is impossible to understand modern Ukraine without understanding a number of dependencies existing between the political and business elites there.

EachUkrainianoligarchhasadifferentinfluence,whichisnotalwayspropor-tionatetothevalueoftheirassets.Theinfluenceofsomebusinessmenislimitedtoprotectingtheirowninterestswithinthesectoroftheeconomyinwhichtheyoperate.Othershaveamuchbroaderimpactandthiscanbesensedacrosstheentirecountry.Thispaper is focusedon thoserepresentativesofbigbusinesswhohaveamajorinfluenceonboththedomesticandforeignpolicyofUkraine.

1 Theterm‘oligarchy’asadefinitionforbusinesswascoinedinRussia,andwaspopularisedbyOlgaKryshtanovskaya,asociologistfromtheRussianAcademyofSciences,inthemid1990s.Oligarchsarerepresentativesofbigbusinesswhoareabletoinfluencethepoliticsofacountryfortheirownbenefitowingtotheirassets.

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Thistexthasbeendividedintotwoparts.Thegeneralpartoutlinesabriefhis-toryoftheoligarchicsystem’sformationinthe1990s,itsdevelopmentbeforeandaftertheOrangeRevolutionandduringtheruleofPresidentYanukovych.OnechapterisdevotedtotheimpacttheoligarchshaveonUkraine’sforeignpolicy.Anattempttoprovideanevaluationoftheimpactofbigbusinessonthecountry’sdevelopmentandthepossiblewaystheoligarchicsystemmaydevel-opinthefuturehavealsobeenpresented.Someissueswhichdeservespecialattentionhavebeendiscussedinseparateframes.

Thesecondpartcontainsadescriptionof thekeygroupsand individualoli-garchsinUkraine:briefbiographiesofindividualrepresentativesofbigbusi-nessandthespecificationsoftheirassets.

Thisisnotahistoricalwork.Thechapterconcerningtheemergenceandtheinitialdevelopmentoftheoligarchicsysteminthe1990swasmadebriefforapurpose.Itseemsthatthereisnoneedtomentionalltheoligarchicgroupsexistingatthattime,exceptforthemostimportantonesandthosewhichstillhaveasayinpoliticstoday.Theprocessesandthekeygroupsofinfluenceex-istingwithinthetimeframefromtheOrangeRevolutiontoViktorYanukovy-ch’svictoryinthepresidentialelectionin2010aredescribedinmoredetail.TheperiodtowhichmostattentionhasbeenpaidisYanukovych’spresidency,i.e.modernUkraine.Theoligarchicsystemisaveryextensivetopic,sosomeissueshavenotbeen tackledat all (for example, the rolesplayedby certainoligarchsincertainregions).Someissueshavebeenoutlinedinageneralway,suchasownershipchangesamongtheoligarchsinthe1990sandaftertheOr-angeRevolution.Oneexceptionistheperiodsince2010,whichhasbeendis-cussedinmoredetail.

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ReseRVATIONs

• Thisworkisbasedoncommonlyavailablematerials(mainlyontheInter-net).Consideringthefactthatpublicationofsponsoredtexts–whichareoftenaimedatdiscreditingpoliticalopponentsandbusinesscompetitors– iswidespread in theUkrainianmedia,despite theauthor’sbesteffortsandcriticalapproach,inmanycasesithasbeendifficulttoverifythecred-ibilityofthefactspresentedbelow.

• Itisoftenimpossibletoclearlyassesstheassetsownedbyindividualoli-garchs,andpercentagedifferencesbetweenthedatapublishedinvariousrankingsofUkraine’srichestpeoplereachdoubledigits.Thisisduetotheproblemswithassessing thevalueofparticularassetsownedby theoli-garchs(formoreonthisissue,seethesupplement‘Oligarchsinfigures’).

• Insomecases,andthesearenotrare,itisdifficulttodeterminetheownerofagivencompanyInothercasestheownershipstructureisquitetrans-parent anddoesnot give rise to any seriousdoubts.The latter concernsforexamplethecorporationSystemCapitalManagement(SCM),inwhichRinatAkhmetov’sassetsareconcentrated,andViktorPinchuk’sInterpipeandStarlightMedia.Sometimestheownershipstructureistransparent,asisthecasewithGroupDF,whichincludesthekeyassetsofDmytroFirtash,butitsowner’sself-relianceseemsdubious.Therearealsocaseswherethestructure is extremely tangledand impossible to follow.OneexampleofthisisPrivatGroup,whichdoesnotexistasasinglelegalentity,anditisnotcertainwhether thenumerouscompanieswhichareassociatedwiththisgrouparereallycontrolledbyit.Insomecasestherealownerofthebusinessorcompanycanbeadifferentpersonthantheonespecifiedintheregisterastheformalshareholder.Thisinparticularconcerns‘thefamily’,i.e.thegrouplinkeddirectlytoPresidentYanukovychandalsotohisson,Oleksandr,andthebusinessmanYuriyIvanyushchenko.

• ThepartofthereportwhichcarriesthehighestriskofinaccuracyistheonedescribingtheperiodafterViktorYanukovych’svictoryinthepresi-dentialelection,especiallyinthosepartswhichrefertobusinessactivitieslinkedto‘thefamily’.Ontheonehand,thereisnodoubtthatYanukovychhasbeentakingactionstostrengthenhis immediatepoliticalandfinan-cialbase,whichhasbeenprovenbyanumberofnominationshehasmadewithin the past two years.However, the availablematerials concerningthisissuearemostlyspeculativeandnotcompletelytrustworthy.

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• Thedivisionintoclansandoligarchicgroupsistoacertainextentamat-terofconvention,whichisespeciallytrueabouttherecentperiod,duringwhichthechangesrelatedtotheexpansionof‘thefamily’linkedtoYanu-kovychhavebeentakingplacequiterapidly.Insomecases,aswiththeco-operationbetweenAkhmetovandVadymNovinskyaspartofMetInvest,thebusinessconnectionsareclearanddurable.However,theconnectionsexistingbetweenindividualpoliticiansandofficialsandcertainoligarchsareoftenlimited.Financialsupportacceptedbyagivenpoliticiandoesnotalwaysnecessarilymeanthatthispoliticianisapuppetinthehandsofthebusinessman.Despitethesereservations,thedivisionintogroupsisusefulandhasbeenpreservedinthistext.

• Furthermore,insomecasesthehierarchywithinagivengroupisdifficulttodetermine.ThisisespeciallyproblematicwhenattemptstoanalysethedependenciesinsidetheRUEgrouparemade,wherecompletelycontradic-tory interpretationsofrelationsexistingbetweenDmytroFirtash,YuriyBoykoandSerhiyLyovochkincanbemadeandseemreasonable.

• ManyactorspresentontheUkrainianpoliticalscenearedifficulttoclassifyfirmlyaseitherpoliticiansorbusinessmen.Forexample,AndriyKlyuyev,thesecretaryoftheNationalSecurityandDefenceCouncilofUkraine,whowasuntilrecentlyfirstdeputyprimeminister,orBorysKolesnikov,deputyprimeministerandminister for infrastructure– theyownconsiderablefortunes and at the same time hold prominent functions in the govern-ment. Inothercases, the fortunesofpoliticiansorstateofficialsare for-mallyregisteredasbeingownedbymembersoftheirfamilies.

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I. The eMeRGeNce OF The OlIGARchIc sysTeM AND ITs FORM IN 1991–2004

1. The genesis of the oligarchic system

Theoligarchic system inUkrainebegan tobe formed immediatelyafter thecollapseoftheSovietUnion,butitwasfinallyestablishedfirmlyinthesecondhalfofthe1990s,duringthepresidencyofLeonidKuchma.Forthisreasonheisoftenreferredtoasthefoundingfatherofthissystem.ItwasalreadyinthelastyearsoftheexistenceoftheUSSR,afterperestroikabegan,thatmembersoftheCommunistnomenklaturastartedamassingcapital.WhenUkrainegainedindependence,thiscapitalenabledthemtopurchaseindustrialplantsatlowpricesaspartofprivatisation.Thefirstbusinessgroups(usuallybrandedasclans)began toemergeduring theperiodof the country’spolitical andeco-nomictransformation.Thefactorwhichunitedthesegroupswaseithercom-monterritoryoracommonsector inwhich theyoperated (forexample, thegassectorormetallurgy).Themutualdependencebetweenrepresentativesofbusinessandpoliticswasformedatthesametime.Membersofthestateappa-ratusderivedbenefitsfromthesupportofferedbybusinessmen,andinreturntheymadepossibleoratleastturnedablindeyetowidespreadviolationsofthelawintheprocessofprivatisationanddoingbusiness.Therelationsbetweenrepresentativesofbusinessandpoliticsalsooverlappedwith theclose linksofbothofthesegroupswiththecriminalunderworld.Thebitterstruggleforinfluenceinthemid1990sresultedinanumberofinfamousmurdersofstateofficials(forexample,ofVadymHetman,aformerheadoftheNationalBankofUkraine),well-knownbusinessmen(forexample,YevhenShcherban)andmafiabosses(AkhatBragin).

2. The formation of the clans

Kuchma’srisetopowerin1994and–moreimportantly–theadoptionoftheconstitutionwhichsetupthepresidentialsysteminUkrainemadeitpossibletoorganise thesystemofmutualdependencebetweenpoliticsandbusinesswhichhadalreadybeenforming.Clansbasedonregionalindustry,whichisdistributed disproportionately across the country, were established duringthefirsttermofLeonidKuchma.Largeheavyindustryplantsareconcentrat-edpredominantlyinthetwoeasternregions,theDonetsBasin(theDonetskandLuhanskOblasts)andtheareassurroundingDnipropetrovsk(mainlytheDnipropetrovsk and Zaporizhia Oblasts). The remaining industrial centres,such as Kharkiv, were somewhat less significant. The president, given his

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extensivescopeofauthority,wasactingasanarbiterbetweentheemergingoligarchicgroups.Hemanagedtomaintainthebalancebetweentheclansbybackingcertainofthemagainsttheothersandtopreventtheoligarchsfrombecomingindependentofthegovernmentstructuresforalongtime.

ThreemainclanswereformedduringKuchma’sfirsttermaspresident:

a. The Donetsk clan–whosebusinessbasewasmetallurgy.RinatAkhmetovgainedthepositionofthemostimportantoligarchintheDonetskgroup.Thisgroupalsoconsistedofanumberofsub-clansandsubgroups,includ-ingtheIndustrialUnionofDonbass(ISD)ownedbySerhiyTarutaandVi-taliyHaydukandthegroupcontrolledbytheKlyuyevbrothers,AndriyandSerhiy.ViktorYanukovych,whowasthegovernoroftheDonetskOblastin1997–2002andtheprimeministerofUkrainein2002–2005duringKuch-ma’s second term,became themainpolitical representative of this clan.Initially,Yanukovychdidnotplayan independentrole;hewasrather inchargeoffosteringtheinterestsofthebusinessmenfromDonetsk.Itwasonlywhenhegainedthepositionofprimeministerthathisrolebegantogrow.ThePartyofRegionalRevivalofUkraine,whichwasestablishedin1997andwasrenamedasthePartyofRegionsin2000,hasbeenthepoliti-calbaseoftheDonetskclan.

b. The Dnipropetrovsk clan –itsinfluencewasstrongestduringKuchma’sfirstterm.Thisclan’ssignificancereacheditspeakintheperiodwhenPav-loLazarenkowasprimeminister(1996–1997).YuliaTymoshenkowashisclosestaide(seeFrame1).OneofthemainreasonswhytheDnipropetro-vskgroupwassoimportantwasthefactthatKuchmahimselfcamefromtheDnipropetrovskOblastandhadworkedformanyyearsinDnipropetro-vsk.FollowingthedismissaloftheLazarenkocabinetandLazarenko’ses-capeabroad,thisclanfellapartintoseveralgroups,themostimportantofwhichwastheoneformedaroundViktorPinchuk(whoisKuchma’sson-in-law).Later,PrivatGroup ledby IhorKolomoyskyi andHenadiyBoho-lyubovwouldgainincreasingsignificance,whiletheothercircleswouldbecomelessinfluential.MetallurgywasthemainareaofPinchuk’sactiv-ity.PrivatGroupwasfocusedonthefinancialsector(banking).Itisworthmentioningthatanumberofotherinfluentialpoliticians,includingYuliaTymoshenkoandSerhiyTihipko,werelinkedtotheDnipropetrovskclan.

c. The Kyiv clan–itspivotalfigurewasViktorMedvedchuk,theheadofthePresidentialAdministrationduringKuchma’ssecondterminoffice.This

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groupconsistedof ‘theKyivseven’2;Atpresentonly theSurkisbrothers,Hryhoriy and Ihor3 are still active in this group of businessmen.Whencomparedto theotherclanstheKyivgrouphadamodesteconomicbase(mainlyoperatingintheenergysector,bankingandmedia),butitwasdef-initelythestrongestinpoliticalterms.ItspoliticalstrengthwasbasedonthepositionofMedvedchukasKuchma’saideandontheinfluentialSocialDemocraticPartyofUkraine(united),SDPU(o),whichhaditsrepresenta-tivesintheVerkhovnaRada.

Frame 1. The rise and fall of Pavlo lazarenko

Lazarenko,whocomesfromtheDnipropetrovskOblast,mayberecognisedasasymbolofthefirst,unusuallyturbulentperiodofchangeinUkraineafter the country gained independence. In 1992–1995, he governed theDnipropetrovskOblast–firstasapresidentialenvoyandlaterasthegover-nor.In1995,hewasnominateddeputyprimeminister,andwastheprimeministerofUkrainein1996–1997.Atthesametime,Lazarenkowasaveryactivebusinessman.Hewascommonlyperceivedastheregion’sgreatestoligarchalreadyatthetimewhenhewasthegovernoroftheDnipropetro-vskOblast.Whenheheldthepostofprimeminister,thecorporationUnitedEnergySystemsofUkraine(YESU)developedrapidly.InashorttimeYESUbecameUkraine’s largest industrial and financial group and the largestprivateimporterofRussiangas,whileatthesametimeowningassetsinvarioussectorsoftheeconomy4.YESUoweditsgrowingsignificancetoitspatronagefromLazarenko,whowasprobablyahiddenshareholderinthiscompany.ItsexpansionledLazarenkointoconflictwithmanyinfluentialbusinessmen,includingYevhenShcherban,whowasmurderedin1996.La-zarenko’spositionbecamesostrongthatitevenputKuchmaatthreat,whowantedtogetridofthisinconvenientcompetitor.Lazarenkowaschargedwithcorruption,embezzlementofstatepropertyandtheillegaltransferofmoneyabroad5.TheVerkhovnaRadacancelledhisimmunityin1999.Laza-

2 Киевская семерка, Инвестгазета,10March2003,http://www.investgazeta.net/politika-i-ekonomika/kievskaja-semerka-144187/

3 In 1996–2000,Hryhoriy Surkiswas the president of the Professional Football League ofUkraineandadeputypresidentoftheFootballFederationofUkraine(FFU).Since2000,hehasuninterruptedlyheldthefunctionofthepresidentoftheFFU.IhorSurkishasbeenthepresidentofthefootballclubDynamoKyivsince2002.

4 Arkadiusz Sarna, ‘Ukraińska metalurgia: gospodarcze ogniwo oligarchicznego systemuwładzy’,AnalizyOSW,1May2002.

5 ‘UpadekPawłaŁazarenki’,OSW,Tydzień na Wschodzie,no.127,25February1999.

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renkomanagedtoescapeabroad,buthewasdetainedinNewYork,wherehefacedacourttrialonchargesofmoneylaundering.Thesechargescon-cernedasumofUS$114millionwhichwaslaunderedwhenhewasprimeminister6. In2006,acourtinSanFranciscosentencedhimtonineyearsinprison.ThefallofLazarenkoputanendtotheprosperityofYESU.Thecompanywasoustedfromthegasmarket,anditsassetsweretakenoverbyotherbusinessgroups,oneofwhichwasViktorPinchuk’sInterpipe7.

Lazarenko’scase is interestingbecausenootheroligarchofsuchsignifi-cance has since fallen in Ukraine. However, the Lazarenko case wouldhave probably not been worthmentioning if not for the fact that YuliaTymoshenko,whodirectedYESUin1995–1997,embarkedonherpoliticalandbusiness careerbyhis side.Later shewaselected to theparliamentandactedasLazarenko’sdeputy inhisparty,Hromada. In 1999,when itbecameclearthatLazarenko’sfallwasinevitable(andalsotoprotectherownassets),Tymoshenkoestablishedherownparty,Batkivshchyna (Fa-therland),which she is still the leader of. TheYESU casehas beenusedagainstTymoshenkointhepast.Atthebeginningof2001,shewasarrestedforonemonthonchargeswhichincludedillegalgasexportandtaxfrauds.TheYESUcasere-emergedinOctober2011,whentheSecurityServiceofUkraineannouncedthatcriminalproceedingshadbeenlaunchedagainstTymoshenko.Shewasaccusedofburdeningthestatebudgetwiththecor-poration’sdebtsexceedingUS$400million.Furthermore,theprosecutionauthorities are conducting an investigation into Tymoshenko’s possibleparticipationinsolicitingthemurderofShcherban.

Initially,inthesecondhalfofthe1990s,thesystemwhichemergedinUkrainewasquitesimilar to theRussiansystem,wherePresidentBorisYeltsin’sau-thoritywasrestrictedbypowerfuloligarchs,suchasBorisBerezovsky.How-ever,whenVladimirPutincametopowerin2000,thesetwomodelsbecameincreasinglydifferent.Putinmanagedtomakebigbusinesssubordinatetothegovernmentinseveralyears.Amilestoneinthisprocesswasthestate’stakeo-veroftheassetsofRussia’slargestoilcompany,Yukos,whoseowner,Mikhail

6 ‘PavloLazarenko is facingdirtymoney laundering charges’,OSW,Tydzień na Wschodzie,no.186,8June2000.

7 Arkadiusz Sarna, ‘Ukraińska metalurgia: gospodarcze ogniwo oligarchicznego systemuwładzy’,AnalizyOSW,1May2002.

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Khodorkovsky,wassentencedtonineyearsinprison8.ThisprocessinUkrainemovedintheoppositedirection: thegovernmentwasbecomingweakerandweaker,andtheoligarchsweregainingstrength.AtrialanalogoustotheRus-sianKhodorkovskycasehasnever takenplace inUkraine.On thecontrary,Kuchma’s positionwas essentially undermined in 2000due to the ‘CassetteScandal’9,andhebecamemoreandmoredependentonbigbusiness.

3. The beginnings of a system crisis

AttheendofKuchma’spresidency,thedecompositionoftheclansystemwasmoreandmoreevident.However,thisdidnotmeanthattheoligarchs’influ-ence hadweakened.As individual businessmenwere gaining strength, theneedtomaintainregionalbondswaslessening,whiletheneedtoprotectin-dividualinterestswasgrowing.Theprocessofthedisintegrationoftheclanswasuneven.TheDnipropetrovsk groupbrokeup fastest of all, theDonetskclanremainedmostconsolidated,butdisagreementsalsostartedtoemergein-sideit.Firstofall,Akhmetov’sconflictwithHaydukandTaruta(theISDgroup)wasescalating.

Theprocessof legalising the fortunesofrepresentativesofbigbusinesswasalsodevelopingatafastrate.Beforethat,theirownershipwasusuallyinfor-mal andwasmanifested through the distribution of shares among variousrepresentativesofagivengroup.Non-transparentstructuresandcompaniesregisteredintaxhavenswereusedveryoften10.However,themostpowerfuloligarchsbegantograduallyconcentratetheirassetsingroups,suchasPin-chuk’sInterpipeorAkhmetov’sSCM.

Atthistime,theRUEgroupalsoenteredthescene11.ItsnameisderivedfromRosUkrEnergo, a companywhich was established in July 2004 to act as an

8 EwaPaszyc,‘WyrokwsprawieszefówJukosu–pyrrusowezwycięstwoKremla’,Tydzień na Wschodzie,no.398,2 June2005.

9 ThescandalwasoverrecordingsoftalksfromKuchma’sofficemadebyhisbodyguard,Ma-jorMykolaMelnychenko,whichcouldsuggestthatthepresidentwasinvolvedinthemur-derofGeorgiyGongadze,ajournalistofUkrayinska Pravda,whowaslinkedtotheopposi-tion.TherecordingswerebeingpublishedpiecebypieceandledtoasevereinternalcrisisinUkraineandKyiv’spartialisolationwithintheinternationalcommunity.

10 CyprusandsomeSwisscantons,withthemostliberallaws,wereverypopular.Александр Дубинский, ‘Тигипко бьется за Кипр’,Экономические Известия,20March2012,http://fi-nance.eizvestia.com/full/tigipko-betsya-za-kipr

11 Toavoidambiguity,thetermRUEreferstotheoligarchicgroup,whilethenameRosUkr-Energoisusedtorefertothegastradeagentcompany.

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intermediary in gas imports to Ukraine from Central Asia and Russia (seeFrame2).At that stage, representativesof this group, the thenheadofNaf-togaz, Yuriy Boyko,Kuchma’s advisor, Serhiy Lyovochkin and businessmanDmytroFirtash,wereplayingratherlimitedrolesinUkrainianpolitics.Thishoweverwastochangesoon.RUEisbelievedtobethemostpro-RussiangroupinsidetheUkrainianpoliticalandbusinesselitesinceitsrepresentativeshavelobbied forRussian interests onnumerous occasions. The view that Firtashismerelyafigurehead,whoonlyrepresentstheinterestsofotherpeople(notnecessarilyoriginatingfromUkraine),isquitewidespread12.

Frame 2. RosUkrenergo and gas imports from Russia

GastradewithRussiaandTurkmenistan13wasoneofthemostprofitablewaysofdoingbusiness inUkraineandRussia alike.Thewayofmakingmoneywas simple. Instead of signing contracts directlywith the state-controlledmonopolies,NaftogazandGazprom,theservicesofintermedi-aryfirmswereused. In 1994–2001, this functionwasperformedby Iteracompany,andlater,until2005,byEuralTransGas.Theincomesgeneratedbytheiractivityweretransferredtothebankaccountsofthegovernmentelitesinbothcountries14.Anewagent,RosUkrEnergo,wasestablishedun-dertheaegisofpresidentsKuchmaandPutinin2004.ThiscompanywasregisteredinSwitzerland.However,noconcreteinformationregardingitsownershipstructurewasavailableatfirst.Dataonitsshareholdersbecameknownonlyin200615.HalfofthesharesinRosUkrEnergowereownedbyGazprom,whiletheholdersoftheUkrainianhalfofthecompanyturnedouttobeDmytroFirtash(45%)andIvanFursin(5%).ItwaslaterreportedincertainmediathattherealownerofthesharesheldbyFursinwasSer-hiyLyovochkin16.Nohardevidencehasbeenpresentedinthiscase,butithasbeenproventhatFursinandLyovochkinhaveclosebusinesscontacts17.

12 Ukraine:FirtashUsesCrisisToExpandIntoBanking,Wikileaks.org,http://wikileaks.org/cable/2008/11/08KYIV2294.html#

13 Beforethegaswarof2006,mostofgasimportedtoUkraineoriginatedfromTurkmenistan.14 Katarzyna Pełczyńska-Nałęcz, Iwona Wiśniewska, ‘Rosyjsko-ukraiński kompromis ga-

zowy’,OSW,Tydzień na Wschodzie,no.422,5January2006.15 Владимир Бережной, ‘Кто владеет украинским газом’,Известия, 26April2006,http://

izvestia.ru/news/31325816 Сергей Никонов, ‘Хамодержавие или донецкие уже передрались’,ОРД, 6March 2010,

http://ord-ua.com/2010/03/06/hamoderzhavie-ili-donetskie-uzhe-peredralis/?lpage=117 Сергей Лещенко, ‘Фирташизация Януковича’,Украинскaя Правда, 12October2007,http://

www.pravda.com.ua/rus/articles/2007/10/12/4425697/

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ItisbelievedthattheheadofNaftogaz,YuriyBoyko,whohashadclosecon-tactswithFirtash,wasthepersonwhocameupwiththeideaofcreatingRosUkrEnergo18.

RosUkrEnergoreinforceditspositionasaconsequenceofthegaswarbe-tweenUkraineandRussiain2006.Inadditiontotheexclusiverighttoactasanagentingasimports(thistimeexclusivelyfromRussia)19,NaftogazandRosUkrEnergoestablishedtheirsubsidiary,UkrGazEnergo,whichwastodealwithgassalestoindustrialrecipients20.In2009,followinganothergaswar,RUElostitsfunctionasanagentingasimports(formoredetailsofwhatlaterhappenedtoRosUkrEnergo,seepartII,section2andpartIII,section3).

AspecificmodelofpoliticalclassemergedunderKuchma’srule.Inthismodel,mostpoliticianswereclientsofbigbusinessandrepresentedits interests intheparliamentandgovernment.Theoligarchsthemselvesalsobecamepoliti-cians(aswiththeSDPU(o)andthePartyofRegions).

In thefinalperiodofKuchma’s second term inoffice, one couldobserve in-creasinglystrongtensioninthesystemhehadcreated.Followingtheunsuc-cessfulattemptstoextendthepresident’srule,itbecameclearthatadifferentpoliticianwouldtakepowerinUkrainein2004andwouldhaveveryextensiverightsasprovidedbytheconstitution.Itwasalsoobviousthat,nomatterwhowaselected,thispoliticianwouldnotberespectedbytheoligarchstotheex-tentthatKuchmahadbeen.Theelectionofapoliticianwhowouldrepresentanyofthegroupsposedaveryseriousthreattotheinterestofalltheothers.

Theawarenessoftheneedtosecurethepoliticalbaseresultedinanincreaseoftheinfluenceofbigbusinessonthepartysystem.Intheparliamentaryelec-tion in 2002, the partieswhich represented the oligarchic groups achievedverygoodresults.Amixedelectoralsystemappliedatthetimeoftheparlia-mentaryelectionin2002(halfoftheseatsweregrantedthroughthefirstpastthepostsystemandhalfthroughproportionalrepresentation).Inmostcases,

18 Мустафа Найем, ‘Семья RosUkrEnergo. Тайна отношений Фирташа и Бойко раскрыта’,Украинскaя Правда,5July2007,http://www.pravda.com.ua/rus/articles/2007/07/5/4420882/

19 UkrainegivingupgasimportsfromTurkmenistanwasoneoftheelementsofthecompro-misefollowingthegaswar.Since2006,GazpromhasboughtTurkmengasandresoldittoUkraine.

20 ArkadiuszSarna,‘RosUkrEnergozwycięzcą„wojnygazowej”?’,OSW,Tydzień na Wschodzie,no.427,9 February2006.

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localbusinessmenwoninthesingle-memberconstituencies.Theywerefor-mally independentbut in fact theywerewilling toco-operatewith the rul-ingcamp21.ApartfromtheSDPU(o),thekeygroupingswhichrepresentedbigbusiness were the Labour Party (the Dnipropetrovsk group) and the PartyofRegions(theDonetskgroup).Thetwolatterpartiesenteredparliamentasmembersofthepro-presidentialblocForUnitedUkraine.Althoughthisblocreceivedrather lowsupport in theelection(11.7%), theMPsfromthesingle-memberconstituenciesenabledittoformthelargestfactionintheVerkhovnaRada(175ofthe450MPs)22.

Theparliamentaryelectionin2002alsorevealedanotherimportantphenom-enon. The significance of people representing medium-sized business wasgrowing.TheycentredaroundOurUkraine,theblocledbyViktorYushchen-ko,whichwas themainopposition force.OurUkraineclearlywon thepro-portionalelection,withitslevelofsupportat23.5%.Itwas,however,unabletoformacoalition,becauseitsresultsinthesingle-memberconstituenciesweremuchworse.Unlikealltheaforementionedgroupings,itcouldnotbesaidthatOurUkrainewasanoligarchicbloc,sincemostofthepartieswhichformedithadtheirownpoliticalmanifestos(ideology).However,asitspopularitywasgrowing,OurUkrainebegan toattract less influential (usually local) repre-sentativesofbigbusiness.PetroPoroshenkoandDavidZhvaniawereamongthem.Thesecirclesweregraduallygainingstrengthasthepresidentialelec-tionwasapproachingandYushchenkowasamongthefrontrunners.

4. The Orange Revolution

ItispossibletostatemanyreasonswhytheOrangeRevolutionof2004brokeoutandwassuccessful.Themainreasonsincludedtheinterestsandactionsoftheoligarchs.Theincreasinglystrongpolitical influenceandtheproblemwithsuccessiontothepresidencycausedrepresentativesofbigbusinesstobemoreandmoreinterestedinintroducingtheparliamentarypoliticalsysteminUkraine.Althoughmostoftheoligarchshadmadetheirassetslegal,itwasfearedthatwhenanewpresidenttookpower,majorownershipchangescouldtakeplaceinbigbusiness.Areductionofthepresidentialprerogativeswouldessentiallyneutralisethethreatlinkedtotheelectionofanewpersontothis

21 Thisisalsointerestingsincesimilarvotingregulationswillapplyduringtheparliamen-taryelectionsinOctober2012.

22 ‘Верховна Рада України 4-го скликання’,Wikipedia,16March2012,http://uk.wikipedia.org/wiki/Верховна_Рада_України_4-го_скликання

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post.Furthermore,moreextensivecompetencesfortheparliamentandgov-ernmentwouldmake itpossible for theoligarchs toparticipate toagreaterextentinrulingthecountry,abovealltoinfluencethenominationsofseniorstateofficials.Beforethepresidentialelectionin2004,therulingteammadeanumberofattempts toamendtheconstitution.However,allof themwereunsuccessfulduetothelackofconsensusoverthedetailsofthenewsystem23.

TheapproachingelectionwasalsoaproblemforKuchmahimselfandhisclos-estaides.AlthoughtheConstitutionalCourt24hadruledthathecouldseektobeelectedforathirdterminofficeaspresident25,Kuchmadidnotusethisop-portunitybecausethelevelofpublicsupportforhimwaslow.Anotheroptionwas to indicate a successor, a variantwhich had been successfully put intopractice inRussia in2000.The successorwouldatbestmake itpossible forKuchmatoinfluencethewayinwhichthecountrywasgovernedandatleastgivehimaguaranteeofsecurity.Themainproblemwasfindingasuitablecan-didate–apersonwhowouldbeacceptabletoKuchmaandwhowouldnotupsetthesubtlebalanceofinterestsofindividualoligarchicgroupsandwhowouldhaveachanceofwinningtheelection.Finally,thethenprimeminister,Vik-torYanukovych,becametherulingteam’scandidate.However,thiswasacon-sequenceofinertiaandnotKuchma’schoice.ThesearchforamoreadequatepersonhadlastedsolongthatYanukovychastheleaderofthestrongestpartyinsidethegovernmentteambecame,alongwithYushchenko,oneofthemostpopularcandidates.Yanukovych,whorepresentedtheDonetskclanandwascloselylinkedtoAkhmetov,wasnotasatisfactorycandidatetootheroligar-chicgroups.DespitetheirdislikeofYanukovych,mostrepresentativesofbigbusinessbackedhimintheelectionmainlybecausetheyfearedtheliberalre-formspromisedbyYushchenko.

Paradoxically,thefearofYanukovychpresentamongsomeoligarchswasoneofthecausesofsuccessoftheOrangeRevolutionattheendof2004sincehewouldhaveextensivecompetences.Whenitbecameclearthattheonlywayofputtingdowntheprotestsagainsttheforgeryoftheresultsofthepresidential

23 TadeuszA.Olszański,‘ParlamentUkrainyniezdołałuchwalićzmianwkonstytucji’,OSW,Tydzień na Wschodzie,no.349,15April2004.

24 ‘SądKonstytucyjnyodopuszczalnościtrzeciejkadencjiprezydentaKuczmy’,OSW,Tydzień na Wschodzie,no.335,8January2004.

25 TheconstitutionofUkraineprovidedthatonepersoncouldholdthepresidencyforamaxi-mumoftwoterms.ThemainargumentofKuchma’ssupportersforhisrunningforpresi-dencythethirdterminofficewasthefactthathehadbeenelectedforthefirsttimein1994,andtheconstitutionhadcomeintoforcein1996.

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runoff26was through the use of force, some representatives of big businesschoseacompromisewithYushchenko.OneofthesegroupswasISD.AlthoughthisgrouporiginatedfromtheDonetskclan,itsconflictwithAkhmetovwasescalatinganditdidnotwanthimtobecomestronger.KuchmaalsowithdrewhissupportforYanukovychatacrucialmoment,whenhedidnotagreetolawenforcementagenciesbeingordered touse forceagainst thedemonstrators.Thepresident agreed for the runoff tobe repeated in exchange for securityguarantees.ThepriceforallowingafairelectiontobeheldwasYushchenko’sconsent to a constitutional reform under which the parliamentary systemwouldbeintroducedinUkrainewith,however,quitebroadcompetencesleftforthepresident27.Yushchenkowontherepeatedrunoffon26December2004,withsupportat52%.Soonthereafter,OurUkrainemanagedtoformaparlia-mentarymajoritysincesomeoftheMPsfromthegovernmentcampchangesidestojoin‘theOrange’.The‘Orange’governmentledbyYuliaTymoshenkowasformedinFebruary2005.

26 Intherunoffon21November2004,whichwasfixed,theelectionresultswere49.4%forViktorYanukovychand46.7%forViktorYushchenko.

27 Theconstitutionalreformcameintoforcein2006.Thissystemresembledtheonewhichexistedinthe1990sinPoland,followingtheadoptionoftheSmallConstitutionof1992.Thepresidentwasinchargeofthelawenforcementsectorsandforeignpolicy,andthegovern-mentwasresponsiblefortheeconomy.

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II. The OlIGARchs IN 2005–2010

TheOrangeRevolutionwasnotwithoutreasonbrandeda ‘revoltof themil-lionairesagainstthebillionaires’28,sinceViktorYushchenkowassupportedbybusinesscirclesofalessersignificance.DuringLeonidKuchma’ssecondtermthepoliticalsystembecamesorigidthatitlimitedthepossibilitiesformedi-um-sized business to develop. For similar reasons Yushchenkowas backedbythemiddleclass,especiallyrepresentativesofsmallbusiness.Later,theirsupportshiftedtoagreatextenttotheYuliaTymoshenkoBloc,whichintheparliamentaryelectionin2006replacedOurUkraineasthestrongest‘orange’grouping.

Ashasalreadybeenmentioned,oneofthereasonswhytheoligarchssupportedKuchmaandlaterYanukovychwastheirfearofthoroughreforms.Later–dur-ingtheelectioncampaign,whichwasquiteruthless,thefearofrevengeandaccountabilitywasaddedtothat,especiallysincepartofYushchenko’saidesresortedtoradicalslogansduringthecampaign,suchas“sendthecrookstoprison”.Itcouldappearinitiallythatthenewteamwouldindeedbringaboutrealchange.InApril2005,BorysKolesnikov,abusinessmanandpoliticianbe-longingtothePartyofRegions,whoatthattimewastheheadoftheDonetskOblastCouncil,wasarrestedforafewmonthsonchargesoftheillegaltakeo-verofshares.

Frame 3. The Kolesnikov case

Kolesnikovwasoneof themost influential politicians from thePartyofRegions and a business partner of Rinat Akhmetov. InNovember 2004,he took part in a congress in Sievierodonetsk29 (LuhanskOblast),wherehebacked the ideaof creating anAutonomousSouth-EasternUkrainianRepublic.Partofthevictorious ‘orange’teamhadaparticularlybadper-ceptionofhim.Kolesnikovwas interrogatedby theprosecutionauthori-

28 ThisphraseisbelievedtohavebeencoinedbyAndersAslund,aSwedishpoliticalexpertdeal-ingwithUkraine.JimHoagland,‘Ukraine’slessonforPutin’,The Washington Post,27January2005,http://www.washingtonpost.com/wp-dyn/articles/A40072-2005Jan26.html.How-ever,DmytroVydryn,aUkrainianpoliticalexpert,claimsthatitwashetousethisdefini-tionforthefirsttime.Дмитрий Выдрин, ‘Революция без лидера – все равно, что секс без партнера’,forUm,1December2012,http://for-ua.com/authornews/2010/12/01/070343.html

29 ThiscongressofrepresentativesofregionalgovernmentswasconvenedinresponsetotheOrangeRevolutionandwasanattemptfromYanukovych’ssupporterstoputpressureonthegovernmentinKyiv.

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ties inconnectionwith thismatterbutwasarrested foranotherreason.BorysPenchuk,thepresidentoftheAnti-CorruptionFoundationandtheauthorofthebookentitled‘DonetskMafia:Anthology’,madeareporttotheprosecutionauthoritiesaccusingKolesnikovofa raider takeover30of thesharesinashoppingcentreinDonetskownedbyPenchuk.KolesnikovwasarrestedinApril2005.However,hewasreleasedmorethanthreemonthslater, in July, andproceedings againsthimwerediscontinuedby theAt-torneyGeneral’sOfficein2006.Ayearlater,KolesnikovsuedBorysPen-chuk,accusinghimofextortion.Penchukwasarrested in2008andwassentencedtoeightyearsinprison(thepenaltywaslaterreducedbyhalf)andconfiscationof assets inOctober200931.WhenYanukovychwon thepresidentialelection,KolesnikovwasnominateddeputyprimeministerinchargeofthepreparationsforEuro2012.

Anothersignofchangeappearedinthefirsthalfof2005,whenTymoshenkoinvalidatedtheprivatisationofKryvorizhstal,Ukraine’slargestmetallurgicalplant.Kryvorizhstalhadbeen sold toPinchukandAkhmetovby theendofKuchma’sruleforUS$800million,apricewhichwasseenasbeingsignificant-lytoolow.ThiscompanywasrenationalisedinOctober2005,andtheprivati-sationtenderwasheldoncemore.Kryvorizhstalwassoldtoaforeigninvestor,MittalSteel,forUS$4.8billion.Thiswasthelargestsuminthehistoryofpri-vatisationinUkrainesofar32.

Tymoshenkodidnotintendtolimitheractionstoonecompanyandannouncedthattheprivatisationsofaroundthreethousandcompanieswouldbeinvali-dated.However,theoligarchs’fearsthatthiswasabeginningofthecancel-lation of all the other dubious takeovers of state-controlled assets provedgroundless. In fact, the Kryvorizhstal case was unique, and it was mainlyaboutpunishingthemostdisgracedbeneficiariesoftheKuchmaregime,i.e.Pinchuk,(Kuchma’sson-in-law)andAkhmetov,themainsponsorofthePartyofRegionsandYanukovych.ThenegativestancetakenbytheWestontakingawayassetsfrombusinessmenwasnotinsignificant33.Acleardifferencecould

30 Thismeanstheillegaltakeoverofallorpartofassets,usuallyonthebasisofforgeddocumentsbackedwithaboughtcourtdecision,notinfrequentlyaccompaniedbythreatortheuseofforce.

31 Юлия Рябчун, ‘Борис Пенчук оказался неусидчивым’,Коммерсантъ Украина,24Febru-ary2010,http://kommersant.ua/doc/1327358

32 AnnaGórska,‘Sukcesprywatyzacyjnyukraińskichwładz’,OSW,Tydzień na Wschodzie,no.414,27October2005.

33 Arkadiusz Sarna, ‘Ukraina: „Sprawa Achmetowa” – wojna z oligarchami czy kampaniawyborcza?’,OSW,Tydzień na Wschodzie,no.406,25August2005.

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beseenalreadyatthattimebetweenTymoshenko,whowasthekeyrepresent-ativeofthe‘hawk’factioninthe‘orange’team,whowantedtosettleherscoreswithherpoliticalopponents,andPresidentYushchenko,whopreferredacom-promisebetweenthegovernmentandbusiness34.Tymoshenko’sdismissalinSeptember2005meantthatnomajorchangeswouldtakeplace.

1. The orange ‘oligarchic democracy’

FollowingthevictoryofViktorYushchenko,thefollowingthreepoliticalcen-tresformedinUkraine:(1)thepresidentialteamalongwiththeOurUkraineparty, (2) the Yulia Tymoshenko Bloc, whose leader held the post of primeminister for thegreaterpart of theperiod inquestion35, and (3) theopposi-tionamongwhomthePartyofRegionsplayedthekeyrole.Theamendmentof the constitutionwhich reduced the president’s power and reinforced thegovernmentandparliamentguaranteedthatnoneofthesecentreswouldpre-vailovertheothers.Theoligarchicgroupssupportedeitherofthesecampstovariousextents,sometimesshiftedtheirsupportand–whichwasnotrare–didnotlimittheirbackingtoonlyoneofthem.Noneofthesecentresclearlyoutweighedtheothers,andthiscontributedtocompetitionamongthemandthepoliticalparties.Oneeffectofthissystemwasacontinuous,bitterpoliticalstruggle,whichlaterledtoanalmosttotalparalysisofthestate.

Theresultsoftheparliamentaryelectionin2006andoftheearlyelectionin2007finallyfixed inplace the change in themapof influence from thekeyoligarchicgroupswhichhadbegunwith theOrangeRevolution.Theresultsofbothelectionsweresimilar:thePartyofRegionswon,whiletheYuliaTy-moshenko Bloc received slightly lower support and remained the strongestgrouping in the ‘orange’ camp. OurUkraine achieved amuchworse result,whichwaslinkedtoadramaticfallinpublicsupportforViktorYushchenko36.

TheparliamentaryelectionssealedthekeychangewhichhadappearedamongtheoligarchicgroupsaftertheOrangeRevolution,namelythefallingsignifi-canceof theKyivclan.TheSDPU(o),onwhich theclan’s influencehadbeen

34 ‘Kolejnydwugłoswsprawiereprywatyzacji’,OSW,Tydzień na Wschodzie,no.385,17Febru-ary2005.

35 YuliaTymoshenkowasprimeministerfromJanuarytoSeptember2005andfromDecem-ber2007toMarch2010.

36 Intheelectionin2007,thePartyofRegionsgained175ofthe450seatsintheVerkhovnaRada,BYuTgained156seatsandOurUkrainegained72.TheothertwogroupingstoenterparliamentweretheCommunistPartyofUkraine(27seats)andtheLytvynBloc(20seats).

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based,nolongerhadrepresentativesintheVerkhovnaRada.TheSurkisbroth-ersmaintainedtheir influence inbusiness, includingfootball,but theirroleinpoliticshadalsosignificantlyweakened.ThecasewithViktorMedvedchukwassimilar:althoughhehadnotbeenmarginalisedcompletely(mainlyow-ingtohisclosecontactswithrepresentativesofseniorRussianofficials37),hisinfluencewasincomparablysmallerthanithadbeenattheendofKuchma’spresidency,whenhewascommonlyperceivedasthesecondmostimportantpersoninthestate.

In2006and2007,Ukrainewasthesceneofmajorpoliticalupheavalandfre-quentreshufflesinthegovernment.Followingtheelectionof2006,ViktorYa-nukovychwasprimeministerforayearorso.Fromtheendof2007to2010,thisfunctionwasheldbyYuliaTymoshenko.Atthattime,theorangeteamwassplitcompletelyintotwocamps,thepro-Yushchenkoandthepro-Tymoshenkocamps,whichwerefightingagainstoneanother.

1.1. The business circles linked to the Party of Regions

AnumberofmajorbusinessgroupswhoserepresentativesoriginatedmainlyfromtheDonbassregioncouldbedistinguishedinthePartyofRegions.InthiscontextitisworthmentioningthebrothersAndriyandSerhiyKlyuyev,VasylKhmelnytsky andValentynLandyk.However, this party’s policywas influ-encedstrongestofallbythetwooligarchicgroupswhichwereatthesametimeitsmajorfinancialsponsors:thegroupcentredaroundUkraine’srichestbusi-nessman,RinatAkhmetov,andtheRUEgroup.Inmanycases,theoligarchslinkedtothePartyofRegionsheldseatsinparliamentandusedittolobbyfortheirown interests,and theirposition (especiallyAkhmetov’s)wasveryes-sentialfordeterminingtheparty’spolicy.

The Akhmetov group

ThebusinesscircleslinkedtoRinatAkhmetovweretheprincipalfinancialbaseofthePartyofRegions.Incontrasttotheprecedingyears,whenAkhmetovhadnotbeenanactiveparticipantinpoliticallife,in2006and2007,hetookpartintheelectionsandbecameanMP.Furthermore,almosthalfoftheMPsfromthe

37 According toUkrainianmedia,VladimirPutinandDmitryMedvedev’swife in2004be-came the godparents of one ofMedvedchuk’s daughters; Тарас Козуб, Елена Галаджий, ‘Медведчук возвращается в политику, чтобы бороться за Евразию’, Комсомольская Правда в Украине, 22March2012,http://kp.ua/daily/220312/330450/

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PartyofRegionswerepeoplelinkedtoAkhmetov38.BorysKolesnikov,theheadofthisparty’scampaign,wasbelievedtobeAkhmetov’sclosestaide.ThelossofKryvorizhstalwasnotaseriousblowtoAkhmetov’sbusinessempire,whichcontinueditsexpansion,forexampleinthepowerengineeringsector.

The RUe group

FollowingtheOrangeRevolution,representativesofanotherinfluentialbusi-nessgroup,RUE,alsodevelopedlinkswiththePartyofRegions.Membersofthisgrouphadalreadyperformedsignificantfunctionsinthestateadminis-trationatthetimeofKuchma’spresidency(BoykowastheheadofNaftogaz,andLyovochkinwasanadvisortoKuchma).However,theywerelinkedtopo-litical forcesunrelated to theDonetskclan.Theysoughtelection in2006asrepresentativesof otherpartiesbutnoneof themwona seat inparliament.Itwasonlyin2007thatBoykoandLyovochkinbecameMPs,thistimeasmem-bersof thePartyofRegions.WhenYanukovychwasprimeminister (2006–2007),Boykoheldthefunctionoftheministerforenergy,andLyovochkinwastheheadoftheprimeminister’ssecretariat.

Atthattime,thegroupstrengtheneditspositioninbusiness.Asaconsequenceof the gas war of 2006, RosUkrEnergo became the only importer of gas toUkraine,andUkrGaz-Energo,acompanycontrolledbyNaftogazandRUE,wasgrantedtherighttosell5billionm3ofgastoindustrialrecipientsinUkraine39,whichensuredconstantincometoFirtash.Atthesametime,Firtashmanagedtotakeoverpartofthelocalgasdistributionnetworks,knownasoblhaz.

1.2. ‘Orange’ business

Whilesince2004thebusinesscirclessupportingthePartyofRegionshavenotchangedtheirpoliticalsympathies,theoligarchs’backingfortheorangecamphasbeenclearlylessstable.Themaindifferencebetween‘theorange’andthePartyofRegionswasthescopeofbusiness’s influenceonthepolicyadoptedbyagivenparty.ThisinfluencewasdefinitelymorelimitedinOurUkraine,andevenmoresointhecaseofBYuT.Thiswaspartlyduetothesignificantly

38 Виктор Чивокуня, ‘Янукович с Ахметовым получили билет на войну’, Yкраинская Правда,3 April2007,http://www.pravda.com.ua/rus/articles/4b1aaf6b37fef/

39 Алла Еременко, ‘Реанимация «Укргаз-Энерго» = агония «Нафтогаза»?’, Зеркало Недели, 1April2011,http://zn.ua/ECONOMICS/reanimatsiya_ukrgaz-energo__agoniya_nafto-gaza-78741.html

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smallerfinancialpotentialofthe‘orange’oligarchsascomparedtothosefromDonetsk.Thepersonalityoftheleadersofthesepartieshadanevenstrongerimpact: Tymoshenko’s party clearly relied on its leader, while Yanukovychwouldalwayshavetobalancevariousinterestsinsidehisparty.

KostyantinZhevagowas the richestbusinessman in theBYuTparliamenta-ryclub.Hiskeyassetswereinthebankingsectorandmetallurgy(ironores).AnotheroligarchMPwhobelongedtoBYuTwasTarielVasadze,theowneroftheUkrAvtoGroup,Ukraine’s largestcarmanufacturer40.TheBuriakbroth-ers,Oleksandr and Serhiy,who own the Brokbiznes bank, one ofUkraine’slargestfinancialinstitutions,werealsoBYuTmembers41.

Somesupportwasalsoofferedtothe‘orange’campbyIhorKolomoyskyiandHenadiyBoholyubov(PrivatGroup).Capitalisingontheconflictbetweenthepresidentandtheprimeminister,PrivatwastakingcareofitsinterestsandbackedeitherYushchenkoorTymoshenko,dependingonitsneeds.Itdidnotbecomeengagedoneitherofthesides.

Our Ukraine received even less support from big business than the YuliaTymoshenkoBloc.OneofthemostpowerfuloligarchswhobackedOurUkraineandViktorYushchenkowasPetroPoroshenko,theowneroftheUkrpromin-vestholding42.In2005,PoroshenkowasthesecretaryoftheNationalSecurityandDefenceCouncil(NSDC),andheldthepostoftheministerofforeignaffairsforseveralmonthsinlate2009/early2010.

RepresentativesoftheRUEgroupalsohadclosecontactswithYushchenko’scamp.Yushchenko treated the support from this groupas away tobecomepartlyindependentfromthecircleslinkedtoOurUkraine43.In2006,ValeriyKhoroshkovskyi,theowneroftheTVchannelInter,whowasbelievedtobe

40 In 2005,Vasadze boughtWarsaw’s FSO car factory;DanutaWalewska, ‘TariełWasadze:człowiek, który zbawił FSO’, Rzeczpospolita, 29 May 2006, http://archiwum.rp.pl/ar-tykul/618209_Tariel_Wasadze:_czlowiek_ktory_zbawil_FSO.html

41 AccordingtotheNationalBankofUkraine(dataasof1October2011)Brokbizneswasranked14thintermsofassetsownedinthebankingsystem.

42 YushchenkoisthegodfatherofPetroPoroshenko’stwodaughters.43 OneexampleofthiswasthediscontinuationoftheinvestigationbytheSBUintothecase

ofRosUkrEnergoshareholdersfollowinganinterventionfromOleksandrTretyakov,whowasanadvisortoYushchenko.Accordingtomediareports,FirtashalsoallegedlypaidfortheYushchenkofamily’sflightfromtheUnitedStatestotheinaugurationofYushchenko’spresidency.ArkadiuszSarna,‘AtmosferawokółRosUkrEnergozagęszczasię’,OSW,Tydzień na Wschodzie,no.439,11May2006.

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abusinesspartnerofFirtash44,wasnominatedbythepresidentasdeputysec-retaryoftheNSDC.Later,from2007toJanuary2009,hewastheheadoftheNationalCustomsService,andinMarch2009hewasnominateddeputyheadandthenheadoftheSecurityServiceofUkraine(SBU).Khoroshkovskyi,asanofficialofboththeCustomsServiceandtheSBU,wasactingtothebenefitof Firtash during his dispute with Tymoshenko and Naftogaz (see section2below).AkhmetovalsohadsomeinfluenceintheYushchenkoadministra-tion.In2007,RaisaBogatyreva,whowaslinkedtoAkhmetov,wasnominatedsecretaryoftheNationalSecurityandDefenceCouncil.

PublicsupportforYushchenkofellrapidlyduringhispresidency.Whenitbe-cameclearthathehadnochanceofbeingre-elected,someofthebusinessmenlinkedtoOurUkrainebegantoshifttheirsupporttoTymoshenko.ThiswasthecasewithISDcontrolledbyHaydukandTaruta,whohadbackedYushchenkoduringtheOrangeRevolution,butlaterembarkedonactiveco-operationwithYuliaTymoshenko.Duetotheeconomiccrisisinlate2009,HaydukdecidedtosellhissharesinISD,whichwastakenoverbyRussianinvestors.

Frame 4. Russian capital takes over IsD

UkrainianbusinesswaspreventingRussiancapital fromexpanding intoUkraine’smost important branch of industry,metallurgy.The economiccrisis of 2009 caused the Industrial Union of Donbass (ISD), which hadexcessive debts as a consequence of investmentsmade in the precedingyears, tobeonthevergeofbankruptcy.Forthisreason,VitaliyHayduk,whoco-ownedISD,decidedtosellhisshares.Attheendof2009,50%+2sharesweretakenoverbyaconsortiumofRussianinvestorsorganisedbytheSwiss-basedfirm,Carbofer,inwhichRussia’sVnesheconombankheldstakes.ThedealconcernedtwosteelyardsinUkraineandplantsinPoland(CzestochowaSteelworks)andHungary.ThiswasthefirstinstancewhenRussianbusinesstookoverassetsintheUkrainianmetallurgysector45.

OnepersonwhocontributedgreatlytoISD’sproblemswasitsmaincom-petitor inUkraine,RinatAkhmetov.Apartfromthebusinessaspect, the

44 Сергей Никонов, ‘Как Хорошковский на госслужбе разбогател’,ОРД,20May2009,http://ord-ua.com/2009/05/20/horosh/?lpage=1

45 Anna Górska, Iwona Wiśniewska, ‘Russian investors enter the Ukrainian metallurgysector’, OSW, EastWeek, 13 January 2010, http://www.osw.waw.pl/en/publikacje/east-week/2010-01-13/russian-investors-enter-ukrainian-metallurgy-sector

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strugglebetweenISDandAkhmetovalsohadapoliticalundertone.ISDsup-portedPresidentYushchenko,andlaterYuliaTymoshenko,whileAkhme-tovwasthemainsponsorofthePartyofRegions.OneoftheproblemsISDhadwasthelackofitsownironoredeposits.OremininginUkraineismo-nopolisedbyMetInvestownedbyAkhmetov,whocapitalisedonhisposi-tionwhencompetingwithISD.TarutaandHaydukwereforcedtobuythemoreexpensiverawmaterialfromBrazilandRussia46.Paradoxically,theinfightingbetweentheUkrainianoligarchscontributedtotheirmostdan-gerouscompetitor,Russianbusiness,enteringthismarket.

In2010,moremetallurgicalassetsweretakenoverbyRussiansinUkraine:the IlyichSteel and IronWorks inMariupol andZaporizhstal.However,thesaleoftheformerwasinvalidatedbytheUkrainiangovernment,andZaporizhstalwasfinallyboughtbyAkhmetov(formoredetailsonthissub-ject,seepartIII,section3).TheexpansionofRussiancapitalinUkrainianmetallurgyhasbeenfrozensincethen.

1.3. The others

Viktor Pinchuk,oneofthekeyoligarchsduringKuchma’spresidency,with-drewfrompoliticalactivityandremovedhimselffromthespotlightaftertheOrangeRevolution.Hedidnotrunforaparliamentaryseatintheelectionof2006.Healsodecidedtosellpartofhisassetswhichhedidnotseeasessentialforhisbusiness,suchasUkrsocbank,oneofUkraine’slargestbanks47,andkepthisassetsinmetallurgyandthemedia.Pinchukbecameincreasinglyengagedinsupportingculturalprojects(forexample,themodernartgalleryPinchu-kArtCentre)andpromotingEuropean integration, includingholdingannualYES(YaltaEuropeanStrategy)summits,aforumformeetingsofpoliticsandbusinessrepresentativesfromUkraineandtheWest.

UnlikePinchuk,PrivatGroupwasplayinganincreasinglyimportantroleinpoliticsandwassuccessfullylobbyingforitsowninterests,regardlessofwhoruledthecountry.Privatwasknownforitsextremelyaggressivewayofdo-ing business. In 2008–2010, through dubious legal operations, Kolomoyskyi

46 Anna Górska, ‘Rosja–Ukraina: pogłębiona współpraca czy fuzja w metalurgii?’, OSW,Tydzień na Wschodzie,no.472,22February2007.

47 This bank was sold in 2007 for US$2 billion to Italy’s UniCredit Group, Елена Губарь, Александр Черновалов, ‘Суммашествие UniCreditGroupприобрел Укрсоцбанк за $2,07 млрд’, Коммерсантъ Украина, 6July2007,http://kommersant.ua/doc/780617

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managedtotakecontrolofUkrtatnafta,whichownsUkraine’slargestrefineryinKremenchuk.AsaconsequenceofactionstakenbyPrivat,Russianshare-holders,whoformallyheld55%oftheshares,wereforcedoutofthecompany.

Frame 5. The war over the Kremenchuk refinery

Ukrtatnafta, a companywhose key asset isUkraine’s largest refinery inKremenchuk, was the object of whatwas so far themostwidely publi-ciseddisputebetween representativesofRussianandUkrainian capital.Thecompanywasestablishedin1994bythegovernmentsofUkraineandTatarstan(intheRussianFederation).In1998,partoftheUkrainianstakewastakenoverbycompaniescontrolledbyRussianbusinessmen.In2007,Ukraineheld43%oftheshares(theyweremanagedbyNaftogaz),whiletheRussianpartner(thegovernmentofTatarstanandthecompaniesTatneft,SeaGroupInternationalandAmRuzTrading)ownedintotalover55%oftheshares.Furthermore,a1.2%stakewasheldbyKorsan,acompanylinkedtoPrivatGroup.In2008,theeconomiccourtinKyivdeemedthetakeoverof18.3%thesharesbySeaGroupInternationalandAmRuzTradingillegal48.The shares taken away from these companies were bought by Korsan.In2009,thecourtalsoorderedthatthe28.8%stakeheldbythegovernmentofTatarstanbetakenaway49.Ayearlater,thecourt’sverdictwasupheldbyUkraine’sSupremeEconomicCourt.TheseshareswerealsotakenoverbyPrivat,which–holdingintotala47%stake–begantocontrolthemanage-mentofUkrtatnafta50.Oftheremainingshares,43%areheldbyNaftogazandtheother10%byTatneft.

Inretaliation,Tatneft, thekeysupplierofoil for theKremenchukrefin-ery,cutoilsupplies.Privatcouldensurealternativesupplies.Sinceitcon-trolledthemanagementofUkrTransNafta(theoperatorofoilpipelinesinUkraine,whichisformallystate-controlled),itchangedthedirectionofoilflowinUkrainianpipelinesandstartedsupplyingoiltotheKremenchukrefineryfromAzerbaijan.ThisalsocausedacutofsuppliestotherefineryinOdessa,ownedbyRussia’sLUKoil,whichhadbeenusingthesepipelines.

48 ‘Суд подтвердил права государства на оспариваемые 18,3% акций „Укртатнафты”’,Зеркало недели, 7June2008,http://zn.ua/ECONOMICS/sud_podtverdil_prava_gosudarst-va_na_osparivaemye_18,3_aktsiy_ukrtatnafty-53884.html

49 ‘Суд признал незаконной покупку Татарстаном 28,8% „Укртатнафты”, Новости Донбасса, 19March2009,http://novosti.dn.ua/details/77408/

50 Олег Гавриш, Андрей Леденев, ‘„Приват” сконцентрировался на „Укртатнафте”, Ком­мерсантъ Украина, №37 (1085),http://www.kommersant.ua/doc/1330369

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AlthoughtheseizureofthesharesfromtheRussianshareholdershasbeendiscussedonnumerousoccasionsatthetimeofmeetingsofthemostseniorUkrainianandRussianofficials,thisissuehasnotasyetbeenresolved.

2. Tymoshenko’s conflict with the RUe Group

Ashasbeenmentionedearlierinthistext,representativesoftheRUEGroupformedthebusinessbase forboth thePartyofRegionsandPresidentYush-chenko.Tymoshenko sawRUEas adangerousopponentbecause it support-ed two camps which were hostile to her and had great financial capacity.TymoshenkowastryingtoblockFirtash’smainsourceofincome–gastrade.Toachievethis,shewasmakingattemptstoeliminateRosUkrEnergoastheagentingasimports.ThiswasdifficultbecauseingasissuesPresidentYush-chenkode factobackedRUEbyemphasisingtheneedtomaintainthecontinu-ityofsupplies,whileTymoshenkowantedtochangethesystemandgetridoftheagent,evenatthecostofanothergascrisiswithRussia.PrimeMinisterTymoshenkoachievedthisgoalontheoccasionofthegaswarbetweenRussiaandUkraineinJanuary2009.However,Ukrainehadtopayaveryhighpriceforthis.GascontractssignedbyNaftogazandGazpromforthetimeframebe-tween2009and2019turnedouttobeextremelyunfavourableforKyivduetothehighpriceofgassetinthem.However,thesecontractsexcludedRosUkr-Energoasanagent,whichTymoshenkosawasasuccess,consideringtheup-comingpresidential campaign.Gazpromalso allowedNaftogaz to take over11billionm3ofgasownedbyRosUkrEnergo.

3. The attempt to form a grand coalition

TheincessantpoliticalcrisesfollowingtheOrangeRevolution,especiallyaf-ter2006,posedaseriousimpedimenttotheoligarchsindoingbusiness.Thehighcoststheyincurredinconnectionwiththetwocampaignsprecedingtheparliamentaryelectionsin2006and2007werealsoanimportantfactor51,andPresident Yushchenko made another attempt at dissolving the parliamentin2008.Furthermore,adeepeconomiccrisisbeganinUkraineinlate2008.SinceTymoshenkohadlimitedfundsatherdisposal,inheranti-crisispolicyshe directed state support to the businessmen linked to BYuT, and left the

51 The estimated cost of election campaign which enables winning one seat in parlia-ment ranged between US$1 billion and US$20 billion, depending on the constituency,Сколько стоит депутатский мандат?, Siteua.org, 14 November 2011, http://siteua.org/Украина/311794/Сколько_стоит_депутатский_мандат_

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firmsoftheoligarchsfromthePartyofRegionswithnosupportwhatsoever.Therefore, part of the Party ofRegions’ financial base linked toAkhmetovwantedtoreachacompromisewithBYuTsoastoimprovethestate’sfinan-cial capacityandputanend to thepoliticalwarbydividing the spheresofinfluence.AlthoughthedividesontheUkrainianpoliticalscenebetweentheorangeandthewhite-and-blue52teamswereveryclear,theoligarchslinkedtothePartyofRegionshadalreadyshownthattheywerepragmaticasregardstheiralliances53.

TalksbehindthescenesaimedatformingagrandcoalitionofthePartyofRe-gionsandBYuTbeganin2008.Anewdraftconstitutionwasprepared.Itwassupposedtointroduceanewparliamentarysystem,wherethepresidentwouldbe elected by the parliament. According to initial arrangements, Yanuko-vychwastobecometheheadofstate(withverylimitedcompetences),whileTymoshenkowouldkeepherpostasprimeminister.Anextensionofparlia-ment’stenureuntil2014wasalsoplanned54.ThegroupcentredaroundAkhme-tovbackedthecompromiseasitwouldguaranteepoliticalstabilisationforthenextfewyears.

ThecompromisewasopposedforobviousreasonsbyYushchenkoandtheRUEGroup,whichhadcomeintobitterconflictwithTymoshenko.Agrandcoali-tionwouldmeantotaldefeatandthefinal lossof theirbusinesspositionforthisgroup.TheRUEfactionsucceededinconvincingYanukovychthatitwasbetter to take theriskandtakepowerasaconsequenceof thegeneralelec-tionthantoacceptthepresidencyinasystemwheretherealpowerwouldrestwithTymoshenko55.ThebreakdownoftalksinJune2009provedhowstrongan influence theRUEGrouphadonYanukovych,whileAkhmetov’sconnec-tionsturnedoutinsufficienttopushthroughacompromise.

52 TheofficialcoloursofthePartyofRegions.53 AcoalitionofthePartyofRegionsandOurUkrainewasascenariowhichwasseriouslycon-

sideredaftertheparliamentaryelectionin2007.‘Preparingforthenextdrama’,The Econo-mist,27September2007,http://www.economist.com/node/9867554?story_id=9867554

54 Thisdraftconstitutionalsoincludedanumberofregulationswhichwouldlimitthefreedomofspeechandtheindependenceofthejudiciaryandupsetvotingrulesinparliament,thusleadingtocurbingthepossibilitytoactfortheopposition.TadeuszA.Olszański,‘Ukraine:CoalitiontalksbetweentheTymoshenkoBlocandthePartyofRegionsbreakdown’,OSW,EastWeek,no.97,17June2009,http://www.osw.waw.pl/sites/default/files/EastWeek_172.pdf

55 Сергей Лозунько, ‘Нас прибют, но попозже’, 2000, 19-25 June 2009, http://2000.net.ua/2000/forum/puls/46691

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4. The presidential election of 2010

Asthecoalitiontalksendedinfailure,thestakesinthepresidentialelectiongrew significantly.Were Yanukovych to lose the election, this would mostlikelyhavespelttheendofhispoliticalcareer.IfTymoshenkowon,shewouldgaincompletepower inUkraine for thefirst time.Themajorityofbigbusi-nesspreferredYanukovych,believingthathewouldbeaweakpresident,likeYushchenko.Tymoshenkowasan independentplayer toamuchgreaterex-tent.Thisraisedfearsamongtheoligarchsthat, ifshewontheelection,shecouldbringaboutfundamentalchangesintheownershipstructuresoftheoli-garchicgroups,andevenchangetheverynatureofrelationsbetweenbusinessandpolitics.Thisdidnot,however,mean that itwaseasier forYanukovychtoconducttheelectioncampaign.Tymoshenkomanagedtoensureadequatefundingforhercampaignandwonthefavoursofthetelevisionmedia.EventhetelevisionchannelsownedbytheoligarchslinkedtothePartyofRegions(seeFrame6)embarkedonaninformationpolicywhichwasbeneficialforTy-moshenko56.Despiteallthis,YanukovychwonthepresidentialrunoffinFeb-ruary2010,thedifferencebetweenthesupportlevelsforthemwasthreepercent.Inthefollowingmonth,hesuccessfullycausedthecreationofamajoritycoalitioninparliamentwiththeCommunists,theLytvynBlocandsomevenalMPsfromBYuTandOurUkraine,andthentheformationofagovernmentledbyMykolaAzarov.

Frame 6. The oligarchs and the media

Themediaareaspecialexampleofthedominationtheoligarchswieldinthe economyandwhich translatesdirectly into theirpolitical influence.Themediaarenottreatedasordinarybusiness,butprimarilyasatooltodefendone’sowninterests.Thishasadirectimpactonlimitingjournalists’independence,whichismisused,especiallyintelevision.Thiswasalsoevi-dentduringYushchenko’spresidency,whenachannel’sinformationpolicywouldchangedependingontherelationsbetweenitsownerandthegov-ernment.SincethePartyofRegionstookandconsolidatedpower,allthemajorstationshaveadoptedapro-governmentstancetovariousextents.

56 This evenaffected the Inter channelownedbyKhoroshkovsky (RUEGroup),whichwasthemosthostiletoTymoshenko.ShebackedbusinessmanKostyantinGrigorishin,whode-mandedatcourtthatthesaleofIntertoKhoroshkovskyshouldbecancelled.Thechannelwasnottakenawayfromtheoligarch,butInterceaseditsattacksonTymoshenko.,К. Усов, О. Довженко, ‘Охота на «Интер»’,Зеркало недели, 21April 2009,http://zn.ua/POLITICS/ohota_na_inter-56707.html

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Furthermore,themediaareaveryseriousmeansofpressureonindividualpoliticiansandbusinesscompetitors.

Thedegreeofoligarchisationofthemediaisdirectlyproportionatetothestrengthoftheirimpact.Thetelevisionmarkethasbeenmonopolisedal-mostcompletely.Thefivechannelswiththehighestviewershiplevels(In-ter,“Ukraina”,1+1,ISTVandSTB)areownedbyfourpeople,ofwhomthreeareinthetoppositionsonthelistsoftherichestpeopleinUkraine.Addi-tionally,eachofthemhasseveralthematicchannels.TheotheroligarchsfromUkraine57 andnational televisionhavepracticallyno say.Owing totheirconnectionsinthegovernment,thedominatingoligarchsareabletopreventanyattempts forotherchannels todevelop, including thechan-nelswhichhavemoreindependentteamsofjournalists.Oneexampleisthecancellationoftherighttousethefrequencywithnation-widecoverageforthenewschannel5KanalandthetelevisionTViin2010,asaconsequenceofwhichtheirviewershiplevelsdroppedtoaround1%.

Bigbusiness is alsopredominanton theprintedpressmarket.However,thissegmentisnotmonopolisedtosuchadegreebytherepresentativesofthe‘fourtelevisiontycoons’.ThisissobecausethepressmarketinUkraineispoorlydeveloped(thereisasmallcirculation,whichalsomeansaweak-erimpact)andofferslowratesofreturn.ThesituationisalsosimilarinthecaseofInternetportals,theonlydifferencebeingthat–giventheirabun-dance–itisusuallyverydifficulttotrackdowntheirrealowners.

Thelargestnon-tabloidnewspaper,Segodnya,isownedbyAkhmetov.Fur-thermore,thecompanySegodnyaMultimediacontrolsapartoftheregion-alpress,predominantly in theDonetskOblast.Pinchukowns twoof thefewmostsignificanteconomicmagazines(DeloandInvestGazeta).Othermajorplayersonthemediamarket,inadditiontothefourtycoons,includePetroPoroshenko,VitaliyHaydukandSerhiyTaruta.Poroshenkoownsthenewschannel5KanalandKPMedia,whichcontrols,forexample,thein-fluentialweeklyKorrespondentandtheportalofthesamename.HaydukandTarutaarebelievedtobeco-ownersofEvolutionMediaHolding,whichcontrols theKommentariiweekly and Internet portal and theWeeklyUAmagazine, and Media Invest Group, which includes the economic daily

57 RussianTVchannelsstillhavesomedegreeofsignificance.However,theirrolehasless-enedsignificantlyincomparisontothe1990s.Atpresent,theiraudiencefiguresareinsin-glefiguresintermsofpercentage.

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newspaperEkonomicheskieIzvestiaandtheweeklyExpertdealingwithbusinessissues.

Incontrasttotelevision,Ukraine’spressmarketandInternethaveatleastafewinfluentialtitleswhicharenotlinked(atleastnotinavisibleway)with big business. Examples of these are the opinion-forming weeklyZerkaloNedeliandtheinternetportalUkrayinskaPravda.

AswithothersectorsoftheUkrainianeconomy,insomecasesitisimpossi-bletoidentifybeyondalldoubttheownerofagiventitle.Akhmetov’sSCMcontrolsMediaGroupUkraineandSegodnyaMultimedia,whilePinchuk’sEastOneGroupownsStarLightMedia.Inturn,itisverydifficulttoprovetheformalownershipstructureofthemediaassetswhicharebelievedtobeconnectedtoKolomoyskyi.ItisalsonotcompletelyclearwhoownsU.A.Inter Media Group Limited, which includes Ukraine’s most popular TVchannel.Officially,itisownedbyValeriyKhoroshkovskyi,howeverthereisalong-standingcommonbeliefthatitsrealownerisDmytroFirtash.

Rinat Akhmetov

Ihor Kolo-moyskyi

Viktor Pinchuk

Valeriy Khoroshkovskyi

TVUkrainaFootballFootball+

1+12+2TET1+1Interna-tional

NovyiKanalISTVSTBM1andM2

InterK1andK2NTNMTVUkraine

Newspa-pers and maga-zines

Segodnya,Salon Dona i Basa,Donetskie Novosti,Priazovskiy Rabochiy

Glavred,Profil,Telekritika,Izvestia v Ukraine,UNIAN,Gazeta po-kievski

Fakty i Kommen-tarii,Delo,Invest Gazeta

Data:basedoninformationpublishedonthecompanies’websitesandinthepress

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III. The OlIGARchs AFTeR VIKTOR yANUKOVych’s VIcTORy

Bigbusinesswelcomedtheintroductionofthenewparliamentary-presiden-tial system as a consequence of the Orange Revolution. This resolved theirproblemwiththestrongpresidentialadministration,whichcouldhaveposedathreattotheoligarchs.However,thechaosandtheincessantpoliticalcrisisresulting fromtheamendmentof theconstitutionturnedout tobeharmfulandexpensivetobusiness.Furthermore,itdidnotguaranteeasufficientlevelofprotectionfortheirinterests.AsYanukovychwonthepresidentialelectionin2010andonegroupingtookcompletepower,thereturnofpoliticalstabilitywasguaranteed.Thegovernmentalsomanagedtostabilisethemacroeconom-icsituationinarelativelyshorttimespan.

InOctober2010,theConstitutionalCourtrepealedthepoliticalsystemreformof2004.ThisgavePresidentYanukovychthesamepowersashadbeenvestedinLeonidKuchma.Atthesametime,anunprecedentedprocessoftheexecu-tivebecomingdominatedbyrepresentativesofonepartyand theoligarchicgroups connected to it – theDonetsk clan and theRUE group –was takingplace. The significance of the other political groupings and political partieswaslimitedtoagreatextent.

1. The key groups of influence in the state administration

Serhiy Lyovochkinwas nominated head of the Presidential Administrationwhich,followingtheamendmentoftheconstitution,againbecamethepivotaldecision-makingbodyintheexecutivesystem,asithadbeenunderKuchma’srule.Tomaintainbalance, IrynaAkimova–whowas linkedtoAkhmetov–wasappointedashisfirstdeputy.Despitethis,Lyovochkinhasbeensuccessfulatdominatingtheflowofinformationwhichreachesthepresident58.TheNa-tionalSecurityandDefenceCouncil(NSDC),whichwasdirecteduntilFebru-ary2012byRaisaBogatyreva(whoisalsolinkedtoAkhmetov)–despitethefactthat it isvestedwithextensivepowersundertheconstitution–becametotallymarginalisedbythePresidentialAdministration.InFebruary2012,Bo-gatyreva lostherpostassecretaryoftheNSDCandwasreplacedbyAndriyKlyuyev,whohadbeenthefirstdeputyprimeministerandtheministerfor

58 Хара: ‘Левочкин и компания ограничивают Януковича в информации’,Зеркало Недели, 31 October 2011, http://news.zn.ua/POLITICS/hara_levochkin_i_kompaniya_ogranichiv-ayut_yanukovicha_v_informatsii-90610.html

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theeconomybefore that.Thispoliticianandentrepreneuroriginating fromDonetskisoneofthekeyfiguresinthePartyofRegions.HeandhisbrotherYuriyformaseparategroupofinterest,whichisorientedprimarilytowardsPresidentYanukovych.The fact thathehasbeenput inchargeof theNSDCmaymeanthatthisinstitutionwillbegivenmoresignificanceinthefuture,butnowitistooearlytodrawsuchconclusions.

Until the end of 2011,mostmembers of the governmentwere linked to theDonetskclan,whichwaspredominantinthePartyofRegions.Itwasonlyatthebeginningof2012thattheinfluenceof‘thefamily’grew(seebelow).PrimeMinisterMykolaAzarovisanindependentpoliticiananddoesnotrepresentanyoftheoligarchs.Hebelongstothe‘oldDonetsk’groupandtheoldnomen-klatura,datingbacktothe1990s.Heseemstobedevoidofpoliticalambitions(mainlybecauseofhisage:hewasborn in 1947)andremains loyal toPresi-dentYanukovych.However,muchseemstoindicatethathewillbedismissedandreplacedbysomeonemorepopularaftertheparliamentaryelection(Oc-tober2012).Akhmetov’sinterestsarerepresentedinthegovernmentbyBorysKolesnikov,thedeputyprimeministerinchargeofEuro2012andtheministerofinfrastructure,whosemaintaskwastoprepareUkrainefortheEuropeanfootballchampionship(andcontrolofthebudgetofEuro2012,theestimatedvalueofwhichwasUS$7.6billion59).Bogatyreva,whofollowingherremovalfromtheNSDCwasnominateddeputyprimeministerandhealthcareminis-ter,alsorepresentsAkhmetov’sinterests.

InitiallyRUEgroup’sinfluenceinthegovernmentwasmuchweakerthaninthePresidentialAdministration,butitgrewintwoyears.In2010,YuriyBoykowasnominatedenergyminister,andthisallowedhimtotakecontrolofthegassector,whichwasofprimarysignificanceforFirtash’sinterests.Fortwoyears,onemorepersonlinkedtoFirtashheldaseniorpositionoutsidethegov-ernment.ThiswasValeriyKhoroshkovskyi,whowastheheadoftheSecurityServiceofUkrainebetween2010and2011.InFebruary2012,hewasnominatedfirstdeputyprimeminister.

59 Николай Туманов, Сколько стоит Евро-2012,Комментарии,15April2011,http://smi.liga.net/articles/2011-04-15/763142-skolko-stoit-evro2012.htm;duringthefouryearsofprepa-rations, the state spent 41.7 billion hryvnias; ‘За четыре года подготовки к Евро-2012 государство потратило 42 млрд. грн.’,Делo, 13March 2012, http://delo.ua/ukraine/za-chetyre-goda-podgotovki-k-evro-2012-gosudarstvo-potratilo-42-m-174744/

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ItmaybestatedgenerallythattheRUEgroupgainedmuchmoreinfluencethancouldhavebeenexpectedonthebasisofitspositioninthePartyofRegions,whichismuchweakerthanthatoftheDonetskgroup.ThereasonwhyYanu-kovychagreedtooffersuchadisproportionallylargenumberofseniorstatepositionstoFirtash’sgroupwastheneedtodistancehimselffromtheDonetskgroup,andfirstofallfromAkhmetov.Firtashinfinancialtermsismuchweak-erthanAkhmetovandreliestoamuchgreaterextentonstatesupportinhisbusiness.Furthermore,theRUEgroupwasopposedtotheideaofagrandcoa-litionbeingformedbythePartyofRegionsandBYuT,anditfinallypersuadedYanukovych tobreakoff talks,whileAkhmetovwantedacompromisewithTymoshenko,whichwouldhaveledtoYanukovychbecomingapresidentwithverylimitedpower.

Theotherpoliticalgroupingswhichformthegovernmentcoalitionareoflittlepoliticalsignificance.SerhiyTihipko,theleaderofthepartyStrongUkraine,whohadreceivedthethirdhighestsupportinthepresidentialelectionof2010,wasnominateddeputyprimeministerinAzarov’scabinet,buthisinfluenceontheactionstakenbythegovernmentislimited60.TalksonStrongUkrainejoiningthePartyofRegionsbeganin2011.InMarch2012,StrongUkrainewasdissolved,anditsleader,Tihipko,wasnominateddeputypresidentofthePartyofRegions61.

The situation is similarwith the coalition partners of the Party of Regionsinparliament–theLytvynBloc(People’sParty)andtheCommunistPartyofUkraine.AsYanukovychandthePartyofRegionshavebeenbecomingmorepowerful,thesetwogroupingshavebeengraduallyturningintosatellitesofthepredominantcoalitionpartner.VolodymyrLytvyn,whoistheparliamen-taryspeaker,stillhasaratherextensiveabilitytotakeaction,buthisPeople’sPartydependsfinanciallyonthePartyofRegions62and,withthepresentlowlevelofsupport,hehaslittlechanceofenteringparliamentfollowingthenext

60 Tihipko,whocamethirdinthepresidentialelection,begantobeseenasaseriousfuturecompetitortoYanukovych.Whenhejoinedthegovernment,hewasputinchargeofpre-paringandconductingunpopularreforms(includingthetaxcodeandthepensionsystemreform),whichresultedinasuddendeclineinpublicsupportforhim.

61 Ольга Куришко, Сергей Сидоренко, ‘Партия сыграна’,Коммерсантъ Украина, 19March2012,http://www.kommersant.ua/doc/1895908?isSearch=True

62 Accordingtosomesources,themainsponsoroftheLytvynBlocisVasylKhmelnytsky,anMPofthePartyofRegionsandalesspowerfuloligarch,Мустафа Найєм, Сергій Лещенко, ‘Орбіти уряду Миколи Азарова’,Украинскaя Правда,13March2010,http://www.pravda.com.ua/articles/2010/03/13/4859050/

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election.TheCommunistshavesomemoreautonomy.Theyhaveseveralposi-tionsinthegovernmentandstateadministration63andwilltakepart intheelectionasanindependentparty.

Inadditiontosubjugatinghiscoalitionpartners,Yanukovychalsosucceededinmarginalisingtheoppositionalmostcompletely.Thisbecamepossiblebe-causeYuliaTymoshenkowasimprisonedinAugust2011,andtheotherpoli-ticiansrepresentingtheoppositionhadnoclearstrategyforaction.Anotherequally important reason was the fact that representatives of big businesshad reduced theirfinancial support forBatkivshchyna (thekeygrouping intheYuliaTymoshenkoBloc)andthepartieswhichhademergedfollowingthebreakupofOurUkraine.Partof theoligarchswhohadbeenelectedasMPsfromtheBYuTlists,followingYanukovych’svictory,eitherjoinedthePartyofRegions(forexample,TarielVasadze)orformallystillbelongedtotheopposi-tionbutsignificantlyreducedtheirfinancialsupport(forexampleKostyantinZhevago).

Thebalanceofpowerwhichemergedafewmonthsafterthepresidentialelec-tionprovedtobequitedurable,andthegovernmentreshufflescarriedoutasaconsequenceofthestateadministrationreformin late2010(includingthereductioninthenumberofdeputyprimeministersandministries)haveonlymadeitmoreentrenched64.

2. ‘The family’ – an attempt at a new quality

Thegrowingsignificanceof thepeoplewhohavepersonalconnectionswithViktorYanukovychandhisfamilyisanewphenomenoninUkrainianbusi-ness.SomeanalogytothiscanonlybefoundinKuchma’srelationswithhisson-in-law,ViktorPinchuk65.However,later,neitherYushchenkonorTymoshenkomanagedtobuildupaloyalbusinesssupportbaseoftheirown66.

63 Forexample,VasiliyTsushkowasinitiallynominatedministerfortheeconomy,andlaterbecametheheadoftheAnti-MonopolyCommitteeofUkraine.

64 ‘Ukraine’sPresidentbalancesoutgroupsofinfluence’,OSW,EastWeek,no.159,15December2010,http://www.osw.waw.pl/en/publikacje/eastweek/2010-12-15/ukraine-s-president-balances-out-groups-influence

65 ThedifferenceisthatPinchukwasalreadyoneofUkraine’smostpowerfulbusinessmenbeforehemarriedOlenaFranchuk(Kuchma’sdaughter)in2002.

66 Yushchenkoalsomadesuchanattempt,buttheinfluenceofhisbrother,Petro,wasverylimitedinbothbusinessandpoliticalterms.

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YanukovychhasbeenapoliticalrepresentativeoftheDonetskgroupsincethemid 1990s.Hewashowever toagreatextentdependenton theDonetskoli-garchs,firstofallAkhmetov.AlthoughYanukovychalreadyin2006managedtopartlyreducethisdependence(theRUEgroup,whichdidnotbelongtotheDonetskclan,becamethesecondmostinfluentialfactioninsidethePartyofRegions),co-operationwithintheDonetskgrouphasnotencounteredanyseri-ousproblemssincehisvictoryinthepresidentialelection.

WhenYanukovychbecamethepresidentofUkraineandtheconstitutionwasamendedofferinghimextensivecompetences,hemadeanattempttocreatehisownbusinessandtobaseitonthepeoplehetrustedmostofall:hissonsandlittle-knownpoliticianswhowereloyalexclusivelytothepresident.

Yanukovych managed to accumulate some assets already before his presi-dency67.Hisfortuneisincomparabletothoseofthemostpowerfuloligarchs,butnocompletelytrustworthyinformationconcerningthisissueisavailable.Reportedly,Yanukovychatthattimeheldstakesinfuelandpropertydevelop-mentfirms,predominantlybasedintheDonetskOblast,whichwerecontrolledbyAntonPryhodsky,anMPfromthePartyofRegions,andRinatAkhmetov.Yanukovych’s interestswere represented by his sons: Oleksandr,who is inchargeofbusiness,andViktor,whosince2006hasbeenanMPrepresentingthePartyofRegions68.

Thetopicof‘thefamily’anditsexpansionwasnotmentionedintheUkrain-ianmediaformanymonths.ItisstillraisedalmostexclusivelyinindependentInternetportalswhich support theopposition.Little reliable information isavailable, so it isdifficult toassess thescaleof thisphenomenon. In turn, itisrelativelyeasytotracktheincreasinginfluenceof‘thefamily’inthestateadministration. SerhiyArbuzov,whowas reputed tohavebeen theperson-al banker of the Yanukovych family,was appointed as the president of theNationalBankofUkraine in late2010. In turn,OleksandrKlimenko,who is

67 Сергей Гармаш, ‘Тайны семейного бизнеса Януковича’,Остров, 21March2007,http://www.ostro.org/articles/article-1030/

68 OleksandrwasthedeputygeneraldirectorofDonbassnefteprodukt,andViktorjuniorwasthedeputygeneraldirectorofBK-Engineering,apropertydevelopmentfirmwhichbuiltlarge shopping and residential buildings inDonetsk and co-operatedwithEmbrol-Engi-neering,whichwasownedbyAntonPryhodsky,anMPfromthePartyofRegions.Сергей Гармаш, ‘Тайны семейного бизнеса Януковича’,Остров,21March2007,http://www.os-tro.org/articles/article-1030/.

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believedtobeamanofOleksandrYanukovych,becametheheadoftheStateTaxServiceinNovember2011.

Inlate2011andearly2012,peoplelinkedto‘thefamily’wereputinchargeofthekeylawenforcementagencies.VitaliyZakharchenkohasbeentheminis-terofinternalaffairssinceNovember2011,andHenadiyReznikovbecametheheadoftheStateSpecialCommunicationsService69inDecember2011.TheyarebothbelievedtobeconnectedtoOleksandrYanukovych.IhorKalininwasap-pointedastheheadoftheSecurityServiceofUkraineandDmytroSalamatinastheministerofdefenceinFebruary2012.ThesetwonominationsarealsocommonlyviewedinUkraineasbeingareinforcementof‘thefamily’,althoughthebiographiesoftheseofficialsdonotindicatethattheyhavebeenlinkedtoYanukovychorhissonsforalongtime70.

Althoughtheaforementionedfunctionsareimportant,consideringthatovertwoyearshavepassedsinceYanukovychwaselectedpresident,itisstilldif-ficulttoclaimthat‘thefamily’hasgainedverystronginfluence.Controlofthelawenforcementagenciesmayturnouttobeveryimportantinacrisissitua-tion71,buttheseserviceshaveplayedamuchlesserroleinthecurrentpoliticsofUkrainethaninothercountriesinthisregion(especiallyinRussiaandBela-rus),althoughtheyhavebeenused(especiallysince2010)forharassingpoliti-calopponentsandforraiderpractices.

It is clearly more difficult to determine the real influence ‘the family’ hasgainedinbusiness.EconomicissuesaresupervisedbyOleksandrYanukovychandYuriyIvanyushchenko,anMPandamemberofthePartyofRegions.‘Thefamily’ is currently themostaggressivelyoperatinggroup inUkraine.BothIvanyushchenkoandOleksandrYanukovychhavebeenaccusedbypartofthe

69 TheStateServiceforSpecialCommunicationsandInformationProtectionofUkrainewasmadeseparatefromtheSecurityServiceofUkrainein2005.Itsmaintasksincludesecur-ingclassifiedinformation.Itisalsoinchargeofthesecurityofthegovernment’scommuni-cations.

70 KalininandSalamatinhaveconnectionswithRussia.TheywerebothbornoutsideUkraine:KalinininRussia,andSalamatininKazakhstan.KalininworkedfortheKGBfrom1984,andlaterfortheSBU.SalamatinsettledinUkraineaslateas1999.Heistheson-in-lawtoOlegSoskovets(deputyprimeministeroftheRussianFederationin1993–1996).However,therearenogrounds tostate that thepro-Russian faction in theUkrainiangovernmenthasbeenstrengtheneddue to theirnominations.Cf.Юлия Мостовая, ‘Эх ты, ксивушка моя богатырская!’,Зеркало недели, 10February2012,http://zn.ua/POLITICS/eh_ty,_ksi-vushka_moya_bogatyrskaya-97141.html

71 Althoughitisanopenquestionhowtheseagencieswillbehaveinthiskindofasituation.

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media and opposition politicians of using law enforcement agencies to takeoverbusinessesfromotherentrepreneurs72.Ivanyushchenkohasassetsinthecoal,machine-building,foodandagriculturesectorsandinretailtrade73.Re-cently,moreandmoreinformationonhisconflictwithYanukovych’soldersonhasbeenappearingintheUkrainianmedia.

Frame 7. The mysterious yura yenakievskiy

Yuriy Ivanyushchenko, who is commonly known in the media as YuraYenakievskiy, over the past two years has had the reputation of beingagreyeminenceintheUkrainianrulingclass.In2010,hegrewfrombeingananonymousMPtooneofthekeyfiguresintheUkrainianeconomy.In2011,KorrespondentweeklyplacedIvanyushchenkosecondafterPresidentYanukovychinitsannualrankingofthe100mostinfluentialUkrainians74.Ivanyushchenkohadneverbeenmentionedinthisrankingbefore.

Ivanyushchenko comes from Yenakieve, the hometown of Yanukovy-ch,which has given rise to speculation inmany publications that he isachildhoodfriendofthepresident75.Thisis,though,ratherunlikelysinceIvanyushchenko is nine years younger than Yanukovych. According tohisofficialbiography,hewasworkingbetween1981and1996fortheCokeChemicalPlant inYenakieve,and laterheranthecompaniesAlvi-InvestandUGK-2000.In2007hewaselectedtotheVerkhovnaRadafromthelistofthePartyofRegionsalthoughhedoesnotbelongtoanypoliticalparty76.

However,itissuspectedthatinfactIvanyushchenkowasinvolvedinmorespecialoperations.In2010,themediapublishedacopyofanoteconcerningIvanyushchenko,whichwasreportedlymadebyRussianmilitaryintelli-gence(GRU).Accordingtothenote,Ivanyushchenkoledasquadofkillers,

72 ‘Янукович и Иванющенко используют УБОП для рейдерства’ – Томенко, Газета.уа,22 November 2011, http://gazeta.ua/ru/articles/politics/_yanukovich-i-ivanyuschenko-ispolzuyut-ubop-dlya-rejderstva-tomenko/406043

73 ‘Рассекречена бизнес-империя Юры Енакиевского’,Комментарии Запорожье,24March2012,http://zp.comments.ua/article/2012/03/24/124108.html

74 ‘Top 100’,Корреспондент.net, accessed on 16March 2012, http://files.korrespondent.net/projects/top100

75 ‘2 место Юрий Иванющенко’, Корреспондент.net,accessedon16March2012,http://files.korrespondent.net/projects/top100/2011/1254829

76 ‘Іванющенко Юрій Володимирович’,Партия Регионов официальный сайт, accessed on16March2012,http://www.partyofregions.org.ua/ru/deputy_faction/deputies/show/586

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activeinthe1990sinDonetskOblast,whowereresponsibleforanumberofinfamousmurders(includingthemurderofAkhatBragin)77.Ivanyush-chenkosuedthejournalistwhohaddisclosedthisinformation.In2011,thecourtfoundthatIvanyushchenkohadnotbeenlinkedtothecriminalun-derworldinthepast78.

AlotofinformationonIvanyushchenko’scurrentactivitywaspublishedinthemediathroughoutthewholeof2011.However,inmostcasesthismaterialwasverydifficulttoverify.IvanyushchenkowasreportedlygivenasphereofinfluenceintheZaporizhiaandOdessaOblasts,wherehetookcontroloftheportsandillegalbusinesslinkedtothem,includingsmuggling79.Itisdif-ficulttodeterminethecredibilityofthisinformation.However,thehighlev-elofactivityoftheSecurityServiceofUkraineandotherstatecontrolagen-ciesinOdessain2011couldbeseenasindirectproofofthis.Ivanyushchenkohasbeenmentionedontheoccasionsofnumeroustakeoversofcompaniesin themachine-building and coal industries, but he himself has claimedthathisfamilyholdsonlya21%stakeinOdessa’sSeventh-KilometerMarket.Ivanyushchenko’staskwastoensurefundsfortheelectioncampaignsothatYanukovychwouldbecomelessdependentonfundingfromtheRUEgroup,AkhmetovandtheotheroligarchsfromDonetsk.

However,muchseemstoindicatethatattheendof2011Ivanyushchenkocameintoconflictwiththepresident(orhisson),thereportedpretextforwhichwashishavingbeenpushingthroughtakingactionsagainstAkhme-tov80.TheStateTaxService(directedbyOleksandrYanukovych’strustedman)embarkedonauditsoftransactionsconcludedbythebusinessstruc-tureswhichwerebelievedtobelinkedwithIvanyushchenko81.Itwasalso

77 Сергей Никонов, ‘Простые хищные вещи’, ОРД,16March2012,http://ordua.com/2010/03/06/prostyie-hischnyie-veschi/

78 Артем Скоропадский, ‘Суд навел справку’,Коммерсантъ Украина, 12 July 2011, http://www.kommersant.ua/doc/1677368

79 Соня Кошкина, ‘Именем Семьи’, LB.ua, 2 September 2010, http://lb.ua/news/2010/-09/02/63436_imenem_semi.html

80 ‘Источник: Янукович поссорился со своей „правой рукой”’, Росбалт, 1 January 2012,http://www.rosbalt.ru/ukraina/2012/01/17/934165.htmlAccordingtoanotherversion,theconflictwasbetweenIvanyushchenkoandLyovochkinovernominationstopositionsinthegovernmentasaconsequenceofthestaffreshufflesinlate2011andearly2012; ‘«Сливает» ли «семья» Юру Енакиевского?’, Хвиля,6March2012,http://hvylya.org/analytics/politics/20566-slivaet-li-semja-juru-enakievskogo.html

81 Сергій Щербина, ‘Чому Юрія Іванющенка перевіряє податкова’, Экономическая Правда,22February2012,http://www.epravda.com.ua/publications/2012/02/22/316622/

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reportedthat Ivanyushchenkohad leftUkraine82. Itseemshowever, thattheconflicthasbeenresolvedandIvanyushchenkohasbeengranted24thplaceontheelectorallistofthePartyofRegions.Thisguaranteeshimaseatinthenextparliament.

Alittlemoreknowledgeisavailableaboutthebusinessofthepresident’sel-derson.OleksandrYanukovychistheowneroftheAll-UkrainianDevelop-mentBank,andhassomesharesintheUkrainianBusinessBank,whichwasdirectedbyArbuzovbetween2003and2010.BothoftheseinstitutionsareoflowsignificancefortheUkrainianbankingsystem83.Furthermore,Oleksan-drYanukovychcontrolsseveralpropertydevelopmentfirms.Reportshavealsoappearedabouthisattempts to takeoverbusinesseson theelectronicmediamarket.HereportedlytookoverasmallTVchannelcalledTonis(al-thoughhehimselfhasdeniedthis)andmadeaproposaltobuyoutthenewsTVchannel,5Kanal.

Themostwidelypublicisedcasesinvolving‘thefamily’includedthegovern-ment’simpositionofquotasongrainexportsandtheactivityofKhlibInvest-Budfirm.Theofficialreasonprovidedforthenewregulationswastheneedtoprotectthemarketfromfoodpriceriseswhichcouldresultfromexcessiveexports.ItturnedoutthatadefinitemajorityoftheorderswenttoKhlibIn-vestBud,afirmwhichhadnotpreviouslybeenoperatingon theagricultur-almarket.Thecompany is 49%state-controlled, and the remaining stake isownedbyshareholdersfromCyprusandRussia,yetsomeUkrainianexpertshaveclaimedthatKhlibInvestBudisinfactcontrolledbyIvanyushchenko84.

TheKhlibInvestBudstoryisamanifestationofboththestrengthandlimita-tionsof‘thefamily’.KhlibInvestBudgainedaverystrongmarketpositionow-ingtostatecontractsandthewithholdingofordersfortheothergraintraders.However,itdidnotmanagetotaketotalcontrolofgraintrade,andthegovern-mentunderpressurefromotherfirmsoperatingonthismarket,whichweresupportedbyWesterncountries,theIMFandtheWorldBank,eventuallyhadtolifttheexportquotas.

82 ‘Иванющенко уехал из Украины?’,Украинскaя Правда,5March2012,http://www.pravda.com.ua/rus/news/2012/03/5/6960026/

83 AccordingtodatafromtheNationalBankofUkraine(asof1January2012),theAll-Ukraini-anDevelopmentBankwasranked88thandtheUkrainianBusinessBankwasranked55thintermsofassets.

84 ‘Квоты на сахар получили заводы регионалов и знакомого Иванющенко’, Украинская Правда,19July2011,http://www.pravda.com.ua/rus/news/2011/07/19/6400076/

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Ukraine’s largest privatisation in recent history remains a mysterious case.A92.8%stakeinUkrtelecom,thestate-ownedfixed-linetelephonenetworkop-erator,wassoldforUS$1.3billioninDecember2010.ThetenderwaswonbyEPIC,alittle-knownAustriancompany,whichhadnopreviousexperienceintelecom-munications.Inthiscase,too,certainUkrainianmediasuggestedthattherealbuyerwas‘thefamily’,althoughnoproofwaspresentedtosupportthis85.

Although it is difficult to assess ‘the family’s real influence in the economy,somefactsprovidegroundstosupposethatthisinfluenceisnotyetverygreatatthepresentstage.Itsactionsareratherfocusedonusingtheopportunitiesastheycropupandarenottheeffectsofawell-thoughtoutstrategy.Further-more, thegreaterpartof themostprofitable segmentsof theeconomyhavealreadybeendividedamongtheexistingoligarchs,andanyattempttoenterthesesegmentsmadebyrepresentativesof ‘thefamily’wouldcertainlypro-vokeaconflictwhichwouldbedifficulttoconceal.Itmaybestatedthatmostofthebusiness‘thefamily’isrunningisofminorsignificanceonthescaleofthestate.ItisratherunlikelythatOleksandrYanukovych’sbankcouldbecomeamajorplayerinthebankingsectorintheimmediatefuture.

Frame 8. The oligarchs and the banks in Ukraine

ThebankingsectorisoneofthefewbranchesoftheUkrainianeconomytohavearatherlargeshareofforeigninvestors(39%).Outofthe177banksoperatinginUkraine,56haveforeigncapital,and21ofthemare100%con-trolledbyforeigncapital86.Russianinvestorsareespeciallyactive–thetoptenincludesasmanyasthreebankswithRussiancapital.

Thebankingsectorisalsodistinguishedbyarelativelylowlevelofpresenceoftheoligarchs.Outofthetenlargestbanks,whichcontrolintotal54.2%oftheassetsinthebankingsector,onlytwo–PrivatandtheFirstUkrain-ianInternationalBank(FUIB)–areownedbyoligarchs(seeFrame9).Al-thoughmany of the other Ukrainian banks are controlled by oligarchs,thesearemedium-sizedorsmallinstitutionsandhavenodecisiveimpact

85 Бондарь: ‘«Укртелеком» купили под окружение Януковича’,Дело,12March2011;http://delo.ua/business/bondar-ukrtelekom-kupili-p-153780/. However, this does not necessar-ilymean ‘the family’.Accordingtomanysources, thepersonbehindtheprivatisationofUkrtelecom was Lyovochkin. Галина Каплюк, Альона Блохтур; ‘«Укртелеком» купив Льовочкін?’,Главком,12March2011,http://glavcom.ua/articles/3159.html

86 DatafromtheNationalBankofUkraineasof1July2011.

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onthesectorasawhole.Theprincipaltaskformostofthemistotakecareofthebusinessofagivenentrepreneur.

ThemostpowerfulexceptiontothisruleisPrivatBankownedbyIhorKo-lomoyskyiandHenadiyBoholyubov.ThisisUkraine’slargestbankandoneofthefewwhichmanagedtosurvivethecrisisrelativelypainlessly.Whilethe entire sectorhadproblems,PrivatBankgeneratedaprofitof almostUAH1billioninthefirstthreequartersof2011.

TherepresentativeofbigbusinesswhocouldplayagreatpartinthissectorisRinatAkhmetov.InApril2012,informationonthemergeroftwobanksfromtheSCMgroupwasmadepublic–DongorbankbecamepartofFUIB.ThismergergaveFUIBninthpositiononthelistofUkraine’slargestbanks.Thebank’sdevelopmentstrategyenvisagesthatitwillfinditselfinthetopfiveby2014.Furthermore,SCMownsasmallerbank,RenaissanceCapital.

Atpresent,itisunclearwhatthefutureofNadrabankwillbe.Thisusedtobeoneofthelargestbanks,butthecrisisledittosuchadifficultsituationthatitfacedthepossibilityofbeingnationalised.InApril2011,asaconse-quenceofanadditionalissueofshares,controlofthisbankwastakenoverbyDmytroFirtash’sCentragasHolding.

Thefurtherdevelopmentofthebankingsectorwilldependprimarilyonthe conditionof theglobal economy.Thebanking systemwasespeciallyseverelyaffectedbythecrisisin2009,andhasbeenveryweakeversince.Itwasonlyin2011thatthesituationbegantograduallyimprove.Despitethis,Ukrainianbankssustainedatotal lossofUAH5.6billioninthefirstthreequartersof2011.Theystillhavetodealwithagreatnumberofbadloans87andlowconfidencelevels.ThesituationisadditionallycomplicatedduetothebadconditionoftheWesternEuropeanbankswhichcontrolpartoftheUkrainianbanks.SomeforeigninvestorshavewithdrawnfromtheUkrainianmarket, eitherpartlyor completely88.Others, includingCom-merzbankandBNPParibas–whichownlargebanksinUkraine–arealso

87 AccordingtoestimatesbytheMcKinseyconsultingfirm,badloansmakeup35%oftheloanportfolio.Елена Губарь, ‘Украину признали самой слабой’,Коммерсантъ Украина,9No-vember2011,http://www.kommersant.ua/doc/1811750?isSearch=True

88 TheSwedishgroupSkandinaviskaEnskildaBanken,whichownsSEBbank,announcedinNovember2011thesaleofitsnetworkwhichoffersservicestoindividualclients.AsimilardecisionwastakenbySwedbankinSeptember2011.

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consideringwithdrawingfromtheUkrainianmarket;theirchiefproblemin this is, though, the lackof investorswhowouldwish topurchase theinstitutionstheycontrol.ItisratherunlikelythatapossiblesaleofbanksbyWesterninvestorswillleadtoa‘re-Ukrainisation’ofthissectorsinceitisdifficult to indicateanypotentialbuyersamong therepresentativesofUkrainian big business. For this reason, a further expansion of Russianbanks is themost likely scenario. In 2011, SberbankofRussiawas espe-ciallyactive;ithastripleditsassetsoverthepasttwoyearsandhasbeenrapidlydevelopingthenetworkofitsbanksinUkraine.

Frame 9. Ukraine’s largest banks (in terms of assets) as of 1 October 2011

Name

Assets (in mil-lions of UAh)

share in the banking system

Owner (key shareholders and the country of origin)

1 PrivatBank 141,363 13.7%IhorKolomoyskyiandHenadiyBoholyubov(PrivatGroup,Ukraine)

2 Oschadbank 75,349 7.3% state-owned

3 Ukreximbank 73,072 7.1% state-owned

4RaiffeisenBankAval

53,168 5.2%RaiffeisenBankInternationalAG(Austria)

5 UkrSibbank 42,235 4.1% BNPParibasGroup(France)

6 Ukrsocbank 39,619 3.8%BankAustria,UniCreditGroup(Italy)

7 WTBBank 36,661 3.6%asubsidiaryofVneshtorg-bank(Russia)

8 Prominvestbank 35,279 3.4% Vnesheconombank(Russia)

9 FUIB 29,278 2.8%RinatAkhmetov(SCM,Ukraine)

10 AlfaBank 26,157 2.5% AlfaGroup(Russia)

11 Nadra 24,566 2.4%DmytroFirtash(CentragasHoldingGmbH,Ukraine)

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Name

Assets (in mil-lions of UAh)

share in the banking system

Owner (key shareholders and the country of origin)

12 OTPBank 22,826 2,2% OTPBank(Hungary)

13FinancesandCredit

21,698 2,1% KostyantinZhevago(Ukraine)

14 BrokbiznesBank 19,398 1,9%OleksandriSerhiyBuriak(Ukraine)

15 Ukrgasbank 15,941 1,5% state-owned

16 Kreditprombank 13,241 1,3%mixedshareholdingstructure–Ukrainianandinternationalcapital89

17 BankForum 12,453 1,2% Commerzbank(Germany)

18 DeltaBank 18,856 1,8% MykolaLagun(Ukraine)

19 SberbankRossii 15,118 1,5% asubsidyofSberbankRossii

20 INGBankUkraina 10,843 1,1% ING Bank Н.В. (Holland)

Data:NationalBankofUkraine90

DZIKIEPRZYPISY8990

Thesituationissimilaronthemediamarket.EvenifTonisisactuallyownedbyYanukovych,andif5Kanalweretobesold,itwouldstillbealongwayfromthecreationofamediaempirethatwouldensureindependencefromtheoli-garchs.Thetakeoverof5Kanalwoulddealapainfulblowtotheopposition,sincethisisoneofthetwotelevisionstationswhichopenlydonotsupportthegovernment91.However,itsrangeandsignificanceismarginalincomparisontothemainchannels,whichareinthehandsofAkhmetov,KolomoyskyiandPinchuk.

89 Александр Дубинский, ‘Кредитпромбанк пошел по рукам’, Экономические известия,6October2011,http://finance.eizvestia.com/full/kreditprombank-poshel-po-rukam

90 Національний банк України,accessedon19March2012,http://www.bank.gov.ua/docca-talog/document?id=87230

91 Another opposition television channel is TVi,whose viewing figures are however evenlower.;NataliaA. Feduschak,YuriyOnyshkiv,Media expert: ‘Only twoTV stations stillgiveviewersfairnewscoverage’,Kyiv Post,5March2010,http://www.kyivpost.com/news/nation/detail/66674/

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BesidesPresidentYanukovych’scautiousness–hewantstobecomeindepend-entfromtheoligarchsbutatthesametimetoavoidcomingintoanopencon-flictwiththem–anotherfactorwhichisholdingbacktheexpansionof ‘thefamily’istheverylimitednumberofreservestaff.Therearefewpeoplewhowouldbeabletoholdseniorpositionsandwhoareatthesametimefullytrust-edbyYanukovych.Inturn,agreateropennesstowardsnewcirclesposestheriskofdisloyaltyinthefuture.ThenominationsoftheheadoftheSBUandofthedefenceministerhaveprovenhowpoorYanukovych’sstaffbaseis.NeitherIhorKalininnorDmytroSalamatinarelinkedtoanymajorgroupofinfluenceinUkraine.Theybothowetheirpresentpositionsexclusivelytothepresident.However,takingintoaccounttheirbiographiessofar,itisdifficulttoidentifythemasthepresident’strustedmen.

3. The expansion of business linked to the Party of Regions

TheirextensiveinfluenceinthestateadministrationhasmadeitpossiblefortheoligarchslinkedtothePartyofRegionstocontinuetheirexpansion.NeverbeforeinthehistoryofUkrainehaverepresentativesofoneregiondominat-edtheentirecountrytosuchanextent.Thisconcernsbothpoliticsandstateadministrationandbusiness.ThosewhobenefitfromthismostareaboveallthetwokeysponsorsofthePartyofRegions–RinatAkhmetovandDmytroFirtash.AlthoughAkhmetovgainedmore through the takeoversandpriva-tisationsofstate-controlledcompanies,Firtashachievedthegreatestsuccesswhen seenproportionally. The business of Firtash,which as a consequenceofactionstakenbyTymoshenkofounditselfonthevergeoftotalcollapsere-turnedtoflourishafterthePartyofRegionstookpower.

3.1. Dmytro Firtash

Firtash,withhelpfromEnergyMinisterYuriyBoyko,placedhismeninthemanagementstructuresofNaftogaz(YevhenBakulinbecameitsChiefExecu-tiveOfficer)andinthesubsidiariesofNaftogaz,includingUkrgazvydobuvan-nya,Ukraine’slargestgasproducer,andUkrtransgaz,acompanydealingwithgastransport.

Firtash managed to ensure that a number of decisions were passed whichwerebeneficialforhim.ThismadeitpossibletorebuildthepositionofRUEatafastrate.Atthebeginningof2011,thecourtrejectedUkrtransgaz’sclaimagainstUkrGazEnergo (a jointventureofNAKNaftogazandRosUkrEnergo)forthecollectionofthedebtatUAH861millionforgastransportservices in

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theprecedingyears92.ThefactthatthenewmanagementofUkrtransgazwasloyaltoFirtashprobablyhadanimpactonthetrial.ThepassivestancetakenbyNaftogaz during the arbitration in Stockholmwas evenmore important–thisconcernedthereturnof11billionm3ofgaswhichhadbeentakenawayfromRosUkrEnergoin2009. Ineffect, thearbitrationcourtpassedaverdictwhichwasfavourableforFirtash’scompany,andthisverdictwasconfirmedbyaUkrainiancourtinlate201093.Thisverdictmeanttheimpositionofaveryheavyburdenonthestate(thegaswasworthapproximatelyUS$3billion),andthedirectlossessustainedbyUkraineduetothedifferencesingaspricesbe-tween2009and2011reachedaroundonebillionUSdollars.

FirtashcouldnotregainhisroleasanagentingasimportsbecauseNaftogazandGazpromhadsignedcontractsfordirectgassupplies,validuntiltheendof2019.However,hesuccessfullyre-enteredtheUkrainianinternalmarket,includingthemostprofitablesupplies to industrialplants. InApril2011, thegovernmentcancelledNaftogaz’smonopolyovergasimports,andthusmadeitpossible forFirtashto importgasdirectly fromRussia.TheNationalElec-tricity Regulatory Commission of Ukraine granted to UkrGazEnergo a five-yearlicenceforthesaleofupto4.8billionm3ofgasannuallyonthedomesticmarket94.Forreasonswhichremainunclear,thegaswasinfactimportednotbyUkrGazEnergo,butbyOstchemholdingcontrolledbyFirtash,which im-portedaround5billionm3ofgasin2011.Partofthisgaswasusedbythechem-icalplantsownedbyFirtash,andpartof itwassold to industrial recipientsinUkraine.Firtashwasabletobuygasatlowerprices95thanthoseofferedbyGazpromtothestate-controlledNaftogaz.ThecompetitionfromOstchemwasoneofthereasonsforNaftogaz’sworseningfinancialproblems.ThishashadadirectnegativeimpactonUkraine’sfinancialcondition.

Firtash’sbusinessactivitywasnotlimitedtothegassector.In2010and2011,heboughtanumberofcompaniesfromthechemicalindustryspecialisingintheproductionofnitrogenfertilisers.Asaconsequenceofthetakeovers,Ostchem

92 ‘Суд отменил взыскание с «УкрГаз-Энерго» в пользу «Укртрансгаза» 860 млн. грн.’,Униан Экономика,13January2011,http://economics.unian.net/rus/detail/73694

93 Ukrainewastoreturn12.1billionm3ofgas(11billionm3ofgasreceivedand1.1billionm3ascompensation).

94 InSeptember2011,FirtashsucceededatobtainingacourtverdictunderwhichNaftogazwasexcludedasashareholderofUkrGazEnergo.

95 FirtashclaimsthatheimportsgasfromCentralAsia.However,thiswouldbeimpossiblewithoutconsentfromRussia,whichsince2006hassuccessfullyblockedthepossibilityofdirectgasimportsfromothercountriesthroughitsterritory.

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ownsfourofUkraine’ssix largestnitrogenfertilisermanufacturers, includ-ingStirolandtheSeverodonetskAzotAssociation,andhasthusbecomeanearmonopolyinUkraine96andhasgainedakeypositionontheglobalmarket97.

Theexpansioninthechemicalsectorwaseconomicallyfeasible,becausenatu-ralgasisthekeyrawmaterialusedfortheproductionoffertilisers.Therefore,therateofreturnoftheseplantsisinverselyproportionaltothepriceofgas.SinceFirtashhasbeenabletobuygasatlowerprices,hehasalsobeenabletoensurehigherprofits.

Yanukovych’srulehasmadeitpossibleforFirtashtomaintainhispositioninyetanotherbranch,thetitaniumindustry.Ostchemde facto controlsthestate-ownedplant,CrimeaTitan,although it is aminority shareholder98. Firtash,throughhismanagers,alsocontrolsthelargeststate-ownedcompaniesinthissector,includingTitanUkraine.OnevividexampleofhowFirtashisbackedbythestatewasthedecisionpassedbytheStatePropertyFundofUkraineatthebeginningof2012,whichgrantedconsentforafiveyearextensiontoCrimeaTitan’sleaseofUkraine’stwolargestplantsdealingwithtitaniumoreproduc-tionandbeneficiation,theVolnogorskyandIrshanskyminingandmetallurgi-calworks.ThemonthlyleaserentisaroundUS$200,000,whiletheestimatedprofitgeneratedbyonlyoneoftheworksrangesbetweenUS$150and200mil-lion99.Firtashhasalsoannouncedhisplanstocreateatitaniumholding,whichwouldincludethecompaniesfromthissector,wherethestatewouldonlyholdablocking stake.Talkswith thegovernment concerning this issuearenowunderway.

Firtashhasalsoacquiredassetsinothersectorsoftheeconomy;forexample,hetookoverNadra(oneofUkraine’slargestbanks)andtheNika-Teratermi-nalatMykolaivseaport,oneofthefunctionsofwhichischemicalproduction

96 TheplantscontrolledbyOstchemmanufacture100%ofUkraine’sproductionofammoniumnitrateandover50%ofammoniaandcarbamide.

97 In2000,Ukrainianexportsaccounted forapproximately 12%of theglobalmarketofni-trogen fertilisers. However, as a consequence of the financial crisis of 2009, Ukraine’ssharedecreasedsignificantlytoalevelofapproximately3%in2010;Наталия Билоусова, ‘Химическая перезагрузка’, Укррудпром, 27 April 2011, http://www.ukrrudprom.ua/di-gest/Himicheskaya_perezagruzka.html

98 Thestateowns50%+1shareinCrimeaTitan,andOstchemowns50%-1share.99 Валерий Мазур, ‘Сколько государство теряет на аренде титановых ГОКов’, Дело,3Feb-

ruary2012,http://delo.ua/opinions/skolko-gosudarstvo-terjaet-na-arende-titanovyh-gok-ov-173046/

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export.Thetakeoverofthisterminalwasfacilitatedbyactionstakenbystateadministrationagencies,whichembarkedonnumerousinspectionsandthusparalysedtheoperationoftheterminal100.

ItisnotentirelyclearwhereFirtashgotthemoneyfromforthetakeovers.TheSeverodonetskAzotAssociationalonecostUS$400million.Accordingtome-diareports,atleastpartofthefundswasofferedasaloanbyRussia’sGazprom-bank.ThisgivesrisetothequestionastothedegreeofFirtash’sindependence.GiventhefinancialsupportfromtheRussianbankandhispastandpresentuncleardealingswithGazpromlinkedtogasimportstoUkraine,asignificantpartofUkrainianexpertsbelievethatFirtashisthemainfigureinthepro-RussianfactionamongtheUkrainianelite.Furthermore, thedependenceoftherateofreturnofchemicalplantsonpriceofgashasmadeRUEGrouponeofthekeylobbyistsforanagreementonchangingthegaspricetobeconcludedassoonaspossiblebetweenUkraineandRussia.

3.2. Rinat Akhmetov

Yanukovych’srulehasturnedouttobeequallybeneficialforUkraine’srichestbusinessman.Since2010,Akhmetovhasfocusedonreinforcinghispositioninthetwokeyareasofhisactivity–powerengineeringandmetallurgy.

AkhmetovmanagedtopreventafurtherexpansionofRussiancapital(follow-ingthetakeoverofISD)inthemetallurgicalindustry.In2010,twolargeplants–theIlyichSteelandIronWorksinMariupol(Ukraine’ssecondlargestmetal-lurgicalplant)andZaporizhstal–weretakenoverbyCypriotcompanies,whichmostlikelyrepresentedRussianinvestors101.InJune2010,AkhmetovmanagedtocausetheinvalidationofthesaleoftheIlyichSteelandIronWorks–PrimeMinisterAzarovrecognisedthesaleofthisplant,whichhadbeenmadeayearbefore, asanattemptat an illegal takeover. Ineffect, theworkswere takenoverbyMetInvest,whichiscontrolledbySCM.InJuly2011,MetInvestboughtamajoritystakeofZaporizhstal’sowner.

100 Максим Гардус, Николаев; Александр Черновалов,‘GroupDFвошла в порт’,Коммерсантъ Украина,29September2011,http://kommersant.ua/doc/1783373

101 ‘Rosjanie przejmują ukraińską metalurgię?’, OSW, Tydzień na Wschodzie, no. 138, 9 June2010, http://www.osw.waw.pl/pl/publikacje/tydzien-na-wschodzie/2010-06-09/rosjanie-przejmuja-ukrainska-metalurgie

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Inlate2011/early2012,DTEK,whichisownedbySCM,significantlystrengtheneditspositiononthepowerengineeringmarket.DTEKboughtcontrollingstakesinthreepowerplantcomplexes(Zakhidenerho,DnieproenergoandKyivenerho)fromthestateaspartoftenders.Thistakeoverandtheassetshealreadyownedin the energy sector (Skhidenergo in theDonetskOblast) ensuredAkhmetovcontrolofapproximately30%oftheelectricityproducedinUkraine102.Further-more,Zakhidenerho,whichincludespowerplantsintegratedwiththesystemusedinWesternEurope,willallowAkhmetovtocontrolveryprofitableexportsofelectricitytoEUmemberstates.ThetendersforelectricityexporttoUkraine’sneighbours(includingBelarusandMoldova)heldbythestateareusuallywonbyfirmswhichbelongtoDTEK,whilestate-ownedcompaniesandtheotheroli-garchs(KostyantinZhevago)areonlygivenlimitedexportpossibilities103.

Furthermore,inNovember2011,DTEKwasgranteda49-yearleaseofRoven-kyantratsytandSverdlovantratsyt,companieswhichcontrolUkraine’seightlargestcoalmines,whichensuredhimashareofover50%intheproductionofenergycoal,whichisusedasfuelinpowerplants.ThusAkhmetovbecameindependent fromexternal suppliers –henowhas an integratedproductionchain:fromcoalminingandenrichmenttotheproductionanddistributionofelectricity.

Inadditiontoitsspectacularexpansioninindustry,SCMhasalsoembarkedonactivityinagriculture,asectorwhereithadnotpreviouslybeen.TheIlyichSteelandIronWorks,apartfromthemetallurgicalplants,ownedalso200,000hectaresofarablelandand100,000pigsandcattle.Usingtheseassetsasabase,SCMandSmartHoldingownedbyVadymNovinsky,Akhmetov’sbusinesspartner,createdHarvEastGroup.Thisgroup,shouldadequatefinancialinvestmentsbemade,maybecomeoneofthetopplayersontheagriculturalmarketinafewyears’time104.

3.3. The other oligarchs

Contrary to the situationwith the twoaforementionedoligarchs,much lessisknownaboutthewaysinwhichtheotherbusinessmenlinkedtotheParty

102 Approximately 50% of electricity inUkraine is produced by state-ownednuclear powerplants.Therearenoplanstoprivatisethem.

103 Юрій Віннічук, Роман Іванченко, ‘Ахметову знову віддали експорт електроенергії’,Экономи­ческая Правда,15December2011,http://www.epravda.com.ua/publications/2011/12/15/309807/

104 ‘Ukraine’slargestoligarchenterstheagriculturalmarket’,OSW,EastWeek,no.181,15June2011,http://www.osw.waw.pl/en/publikacje/eastweek/2011-06-15/ukraine-s-largest-oligarch-en-ters-agricultural-market

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ofRegionshavebeenamassingtheirassets.Thisisthecasebecausenomajortakeovers associatedwith Borys Kolesnikov orOleksandr Yaroslavsky havetaken place over the past two years. Themedia have regularly reported onlarge-scalescandalswithmembersof thegovernment involved,yetnohardevidencehasbeenpresented105.Themostwidelypublicisedcasewasthepur-chaseofanoilrigatapriceinflatedbyUS$150millionbytheMinistryofEn-ergy ledbyYuriyBoyko106. Ithas alsobeen speculated thatAndriyKlyuyevasthefirstdeputyprimeministerhasbackedtheactivityofLivela,thecom-panywhichwasgranted the right to importduty-free fuel toUkraine, thusgeneratingalossofUAH3billionintheUkrainianbudget107.Furthermore,Kly-uyevhasmostlikelyusedstatesupporttodevelophisownbusinesswithsolarpowerplants.Accordingtoinformationfromcertainmedia,EUfundsfortheimprovement of energy efficiencyhave been spent on connectingKlyuyev’spowerplantstothepowergrid108.

Manydoubts have also been raised about thewaymoneywas spent on thepreparationsforEuro2012,especiallygiventhefactthatworkwasnotusuallyprecededbytenders.Itisverylikelythatonlypartoftheinformationonscan-dalsofthiskindhasbeenleakedtothemedia.GiventhespecialcharacteristicoftheUkrainianbusiness,whereonlypartofbusinessisopenlydeclared,andgreatfortunesaredepositedinaccountsintaxhavens109,positionsinthegov-ernmenttranslateintorealpowerintheeconomy.

4. The other oligarchic groups

ThetwolargestoligarchsamongthosewhoarenotdependentonthePartyofRegionsarePinchukandKolomoyskyibutthetakeoveroftotalpoliticalpowerbythePartyofRegionshasasyetnotledtotheeconomicpositionsofthesetwo

105 VerymanypublicationsonthistopiccanbefoundontheUkrainianInternet.Hereisanexampleofanarticledescribingthebest-knowncases:А. Шалайский, В. Трегубов, ‘Топ-7 схем облегчения бюджета’, Зеркало недели,29December2011,http://zn.ua/POLITICS/top7_shem_oblegcheniya_byudzheta__reyting_effektivno_osvoennyh_sredstv_v_uhodyaschem_godu-94878.html

106 Ю. Николов, А. Шалайский, ‘Вышка для Бойко’,Зеркало недели,27May2011,http://zn.ua/POLITICS/vyshka_dlya_boyko-81790.html

107 ProblemsofrefineriesinUkraine,OSW,EastWeek,no.162,27May2011,http://www.osw.waw.pl/en/publikacje/eastweek/2011-01-19/problems-refineries-ukraine

108 Сергей Сидоренко, ‘Украина предстала в новом свете’,Коммерсантъ Украина,8February2012,http://www.kommersant.ua/doc/1868231?isSearch=True

109 Thetruescaleofthisphenomenonappearstobeimpossibletoassess.

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menbeingupset,.SomemeasuresaimedagainstPrivatGroupwerehowevertakenin2010110.ThisattackwassoevidentthatspeculationsappearedinthemediathatYanukovychwaspreparingtheroleofa‘UkrainianKhodorkovsky’forKolomoyskyi111.However,giventhehighlevelofcorruptionintheUkrain-ian judiciary,Privat stillhadenough fundsand influence toobtainverdictswhichwerebeneficial for it.The attempt todepriveKolomoyskyi of controlofUkrnafta,whichisformallyastate-controlledcompany,wasunsuccessful.Norealactionhasbeentakento takeUkraine’s largestrefinery inKremen-chukawayfromKolomoyskyidespitethefactthatRussiahasbeenendeavour-ing for this.Theonly successful stepwas thepreventionof thepurchaseofUkraineInternationalAirlines(MAU),whichwouldhavemadePrivatatotalmonopolyinairtransport.Allthisindicatesthatafterseveralmonthsofcon-frontation,KolomoyskyimanagedtoreachacompromisewithrepresentativesofthePartyofRegions.

ThegovernmenthasalsotakensomestepsaimedagainstViktorPinchuk.Oneofthereasonsbehindthecriminalproceedingslaunchedin2011againstKuch-mawasmostprobablyanattempttoputpressureonhisson-in-law.However,no information is availableonpossible concessionsmadebyPinchuk112, andthecourtdecidedtodiscontinuethecaseinDecember2011.However,thefactthatthemeasurestakenagainsttherepresentativesofbigbusinesswhodonotformthedirectfinancialbaseofthePartyofregionshavebeengivenupdoesnotmeanthatsuchstepswillnotbetakenagaininthefuture.

Frame 10. The president, the party and the oligarchs

Itisnoteasytodrawtheschemeofmutualconnectionsbetweenthegov-ernmentandbigbusinesswhichhasformedsince2010.Sincethepresentrulingclassisveryhermetic,informationontherealrelationsbetweenitsrepresentativesisstronglyrestricted.

ItappearsthatthetoppositioninthehierarchyisheldbyPresidentYanu-kovych,whohasadecisiveinfluenceonboththerulingPartyofRegions

110 Алексей Педосенко, ‘Донецкие пилят бизнес Коломойского?’, Главком, 15 September2010,http://glavcom.ua/articles/1704.html

111 Олег Полищук, ‘Коломойского отправляют в эмиграцию’,Finance.ua,20September2010,http://news.finance.ua/ru/~/2/2010/09/20/210228

112 ThefactthattheTVchannelsownedbyPinchuk(whoseinformationpolicyusedtoberela-tivelycriticalofthegovernment)becamemorepro-governmentalwhentheKuchmacasestartedmayserveasindirectproofforthis.

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andthekeybusinessmen.However,thisisabilateralrelation–noproofhasbeenseenasyet.Ashasbeenpreviouslydescribed,‘thefamily’isoper-atingintheareaswhichbigbusinessisnotinterestedin.

The Party of Regions is more a platform on which individual oligarchsstrikedealsthananindependentandpowerfulcentreofinfluence.SomeoligarchshaveeitherbelongedtothePartyofRegionsfromthebeginning(AkhmetovandKlyuyev)or supported it,while formally remainingout-sideanypoliticalparties(Firtash).Others,likeVasadze,joineditonlyafterYanukovychwonthepresidentialelection.However,itisrelationswiththepresidentwhichdecideonthesignificanceofagivenbusinessmaninthefirstplace.

Oligarchswhoareunalliedwiththerulingteamformaseparatecategory.Mostofthemhavereachedsomeformofcompromisewiththepresident(PetroPoroshenkoevenbecameamemberofthegovernment).KostyantinZhevagoisanexception,sincehestillbelongstotheopposition113.

113 ItisdifficulttoputpressureonZhevago,sincehisfirm,Ferrexpo,islistedontheLondonStockExchange.

Viktor Yanukovych

Party of Regions

KostyantynZhevago

HenadiyBoholyubov

IhorKolomoyskyi

ViktorPinchuk

Oligarchs who are members of the Party of regionsor support it financially

Oligarchs who are not linkedto the Party of Regions

AndriyKlyuyev

RinatAkhmetov

VadymNovinsky

BorysKolesnikov

OleksandrYaroslavsky

TarielVasadze

DmytroFirtash

ValeriyKhoroshkovskyi

PetroPoroshenko

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5. Other tendencies in the economy

SincethePartyofRegionstookpower,a noticeable increase in raider prac-tices, i.e.forcedtakeoversofotherpeople’sproperty,hasbeenobserved.Thisisdone,forexample,byforcingtheownerofafirmtosellitforapricewhichismuchlowerthanitsrealvalueorthroughforgingnotariseddocumentsorbuy-ing judges.Raiderpractices areusedprimarilyagainstUkrainianbusiness-men,butthisproblemisalsoaffectingmoreandmoreforeigninvestors.Itisdifficulttoassessthescaleofthisphenomenonduetothedispersalofthema-terialsconcerningthisissueandalsoduetothefactthatmostlikelyamajorityoftheillegaltakeovershaveneverbeenmadepublic.Thehighrateofdevelop-mentofthispracticeisprovenbythenumberofcomplaintsreceivedbytheIn-terdepartmentalCommissiononCombatingIllegalAcquisitionandTakeoverofCompanies114.While75complaintsconcerningraiderpracticesweresenttoitin2010,thisnumberreachedalmost1,000in2011115.

It isalsounclearwhether thewaveof raidsoriginates fromonesource (themostlikelyculpritwouldbe‘thefamily’)orifotheroligarchicgroupslinkedtothePartyofRegionsarealsoactinginthesamewave.Companiescouldalsoberaidedintheinterestoflocalgovernments,forexample.

Itseemsthatthisproblemdoesnotconcernthemostpowerfuloligarchswhoarenotalliedwiththepresentrulingclass,suchasKolomoyskyiorPinchuk,orthatitaffectsonlytoaverylimitedextent.However,duetotacitsupportfromthegovernmentandacorrupt judiciary,smallerbusinessesareunableto counteract these practices. The situation of foreign entrepreneurs, eventhoughtheycanexpecthelpfromtheirrespectivecountries,isbetteronlytoa limitedextent. In theopinionofWesterndiplomats, raiderpracticeswereusedwithregardtoatleastfiftyfirmsfromtheEU,includingPoland,attheendof2011116.

Thescaleofthisphenomenonis illustratedbythefactthatevenKryvorizh-stal,thelargestWesterninvestmentinUkraine,facedsimilarproblems.Kry-vorizhstal,whichwastakenawayfromAkhmetovandPinchukin2005and

114 AnadvisorybodytotheCouncilofMinisters.115 Андрій Парубій, ‘Лихі 90-ті повертаються’, Украинская Правда. Блоги, 28March 2012,

http://blogs.pravda.com.ua/authors/parubiy/4f72e73bef10f/116 AndrewRettman,‘EUcompaniesatriskof‘raiders’inUkraine’,Euobserver.com,16Decem-

ber2011,http://euobserver.com/24/114646

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soldtoArcelorMittal,begantohaveproblemssoonafterthePartyofRegionstookpower.Theseproblemswerelinkedtoaccusationsofafailuretoperformobligationsmadeduringtheprivatisation.ThemanagementofKryvorizhstalcomplainedthatthecompanydidnotreceivethedueVATrebateandneededtoundergoalargernumberofinspectionsthanusual.Itwasonlyapersonalre-questfromtheFrenchpresident,NicolasSarkozy,toYanukovych,thathelpedalittle,buteventhishasnotputanendtothecompany’sproblems117.

Frame 11. Ukraine’s ratings after two years of rule by the Party of Regions

Ukrainehasneverbeenratedhighintermsoftheeconomyandtheinvest-mentclimate.TheconflictbetweenthepresidentandtheprimeministerfollowingtheOrangeRevolutionandtheeconomiccrisisin2009onlyforti-fiedthistrend.Theconcentrationoftotalpowerinthehandsoftherepre-sentativesofonepoliticalcamp(thePartyofRegions)afterthepresidentialelectionin2010boostedtheperformanceoftheexecutive.OnesideeffectofthiswasthedeteriorationintheevaluationofdemocraticstandardsinUkraine–accordingtotheEconomistIntelligenceUnit’sDemocracyIndex,Ukrainefellfrom53rdpositionin2009to79thin2011118.

Themacroeconomicsituationhasimprovedasthecountryhasbeengrad-uallyovercomingthecrisis,butthishasnot ledtoabetterevaluationofUkraine’seconomy,andsomeindiceshaveevendeteriorated.Ukraineisatthebottomofthelistinalmostalleconomicrankings,anditoftenisratedworstintheregion.

Ukraine is in 163rdposition in the IndexofEconomicFreedom,which iscompiledbytheHeritageFoundationinco-operationwiththeWall Street Journal119.Thisisoneoftheworstresults,comparabletothatachievedbyNorthKorea.TheWorldBank’sDoingBusinessrankingplacesKyivin152ndposition120.Theconditions inwhich foreign investorsare forced tooper-atearenotevaluatedanybetter.Accordingtothesurveyconductedbythe

117 ‘«АрселорМиттал»: им не простили «Криворожсталь»’,LB.ua,15March2011,http://lb.ua/news/2011/03/15/88141_ArselorMittal_im_ne_prostili_.html

118 http://en.wikipedia.org/wiki/Democracy_Index119 Datafor2012.CountryRankings,accessedon19March2012,http://www.heritage.org/in-

dex/ranking120 Datafor2012.EconomyRankings,DoingBusiness,19March2012,http://www.doingbusi-

ness.org/rankings

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European Business Association121, the investment climate in the fourthquarterof2011wasworsethanatthetimeofthecrisisin2009.Themainproblemsmentionedincludednumerouscontrolsbyvariousstateagencies,whichhinderdoingbusiness122.

Thesurveysreflecting thecorruption levelsshowUkraine inasimilarlybadlight.InTransparencyInternational’scorruptionperceptionreportfor2011,Ukrainewasranked152nd(ithaddroppedfrom134th)123.AccordingtoestimatesbytheInternationalFinancialCorporation(IFC),10%ofcompa-nies’incomesareinslushfunds124.

IntheWorldEconomicForum’scompetitivenessranking,Ukraineislisted82ndoutofthe142countries.However,itowesthisrelativelyhighpositiontothegoodevaluationofsuchareasaseducationorlabourmarketefficien-cy.Inturn,itwasranked116thintermsofthedevelopmentofthefinancialsector,129thintermsofthegoodsandservicesmarketand116thintermsofadministrationefficiency125.AccordingtotheratingagencyS&P(BICRA)126,theUkrainianbankingsystemisamongtheweakestintheregion,andhasbeenclassifiedtothehighest-riskgroup9(outofapossible10)127.

The tendencies towards monopolisation and a concentration of the oli-garchs’activityinindividualsectors,whichhadalreadybeenobserved,haveintensifiedoverthepasttwoyears.AlthoughitwouldbeanoverstatementtoclaimthattheentireUkrainianeconomyhasbeendividedupamongbigbusi-ness,importantstepshavebeenmadetoachievethatstartingin2010.Akhme-tovhasstrengthenedhisdominantpositioninmetallurgy(ironandsteel)andelectricity production, and Firtash in the chemical industry. Kolomoyskyi’s

121 ThesurveysareconductedamongmembersoftheassociationofforeignbusinessmendoingbusinessinUkraine.

122 Юрий Панченко, ‘Больше не привлекает’,Коммерсантъ Украина,21October2011,http://www.kommersant.ua/doc/1842866

123 CorruptionPerceptionIndex2011,accessedon19March2012,http://cpi.transparency.org/cpi2011/results/

124 Юрий Панченко, ‘Рынок взяток показал рост’,Коммерсантъ Украина,2November2011,http://www.kommersant.ua/doc/1808368

125 Ирина Ковальчук, ‘Экономика Украины вернулась к докризисному уровню’,Сегодня,8September2011,http://www.segodnya.ua/news/14286314.html

126 BankingIndustryCountryRiskAssessment.127 Леся Выговская, ‘Украина попала в девятку’,Экономические известия,11November2011,

http://finance.eizvestia.com/full/ukraina-popala-v-devyatku

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positioninthepetrochemicalindustryandairtransporthasremainedintact.Theconcentrationofassetshasbeentakingplaceeitherthroughtheprivatisa-tionofstate-ownedcompaniesorthroughsaleofbusinessbyotheroligarchs.For example, Firtash bought the nitrogen fertiliser factory in Cherkasy forUS$800 million from Yaroslavsky128. Characteristically, the Anti-MonopolyCommitteeofUkrainedidnotmakeanyreservationstoanyoftheaforemen-tionedtakeovers.

Currently,Ukraineisscenetoagamefortwoprofitablebranchesoftheecono-my:agricultureandthegassector.Agriculture is the last highly attractive section of the Ukrainian economy where the influence of the most power-ful oligarchs is still relatively limited. ConsideringthequalityofUkrainiansoilandthecountry’sclimate,agriculturemaypotentiallybecomeoneofthekeybranchesoftheeconomy.TheVerkhovnaRadaislikelytopassanactonlandreformin2012andthusmakeitpossibletotradeinarable landforthefirsttimesinceUkraineregainedindependence.Atpresent,thebattleforthefinalformofthisactistakingplacebehindthescenes.Whenthemoratoriumonlandtradeexpires,whichmayhappenalreadyon1January2013,theown-ershipofland,whichisnowbeingusedinformally,willbecodified.GiventhefinancialpotentialofSCM,onemayexpectthatHarvEastwillbeplayinganincreasinglystrongrole.ThebusinesscircleslinkedtoYanukovychwillmostlikelymakeattemptstoenterthismarket,aswell.

Anotherpromisingareamaybethegas sector, whichiscurrentlystate-con-trolled.However,announcementsconcerningeffortstoreform and partial privatise itweremaderegularlyin2011.TheRUEGroupisthenaturalcan-didatetotakeoverthesharesofNaftogaz,shouldtheybeputonsale(around25%).Thisgroupcurrentlycontrolsthiscompanyanywaythroughitspeople.However,itisstillanopenquestionwhetherYanukovychwillagreetograntlongtermcontrolofsuchaprofitablesectortoonegroup129.

The gas negotiationswith Gazprom are the greatest impediment to the re-structuringofNaftogaz.Gazprom,wantstobegivencontrolovertheentire

128 Андрей Самофалов, ‘Дмитрий Фирташ высаживается в Черкассах’,Укррудпром,4March2011,http://www.ukrrudprom.ua/digest/Dmitriy_Firtash_visagivaetsya_v_Cherkassah.html

129 Theplans todivideandprivatiseNaftogaz,whichwereannouncedbyYuriyBoyko (un-derstoodasbeingintheinterestsoftheRUEGroup),havebeenhalted.ItispossiblethatNaftogazwillberestructuredin2012,buttoolittleiscurrentlyknowntodeterminewhichgroupthechangeswillbemadeinfavourof.

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Ukrainiangassectorinreturnforreducingthepriceofgas.Itisunclearwheth-erPrivatwillbeabletomaintaincontrolNaftogaz’ssubsidiariesoperatingintheoilsector(UkrnaftaandUkrtransnafta)shouldNaftogazbesplitup.ItisalsopossiblethatthepartofNaftogazdealingwithnaturalgaswillbeofferedtoRUEGroup,andthepartdealingwithoilwillremainunderKolomoyskyi’scontrol.

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IV. The OlIGARchs’ INFlUeNce ON FOReIGN POlIcy

Sinceregainingindependence,Ukraine’sforeignpolicyhasbeenbasedonma-noeuvringbetweentheWestandRussia.UnderKuchma’srule,thiswascalleda ‘multi-vectorpolicy’.TheOrangeRevolutionchangedvery little in this re-spect–Ukraine,ashadpreviouslybeenthecase,verballydeclareditsdesiretojoinEuropeanandEuro-Atlanticstructures,butwasinfactdoinglittletoachieve this.At the same time, itwasconsistentlyavoidingparticipation inanyintegrationinitiativesundertheaegisofRussia.Ukrainianforeignpolicyinthatperiodwasseriouslyrestrictedinitssuccessduetotheendlessconflictbetweenthepresidentandthegovernment.

Yanukovych,oncehetookpowerandtheconstitutionwaschanged,couldactmuchmoreefficientlythanhispredecessors.However,theinternationalsitu-ationhaschangedsinceKuchma’s timesandUkraine’s roomformanoeuvrehasbeenreducedsignificantly.TheUSA,whichhadbeenanimportant‘vector’inUkrainianpolicyinthe1990s,hassignificantlyreduceditspresenceintheregion.Inturn,Russiahasintensifieditseffortstopushthroughitsintegra-tionprojects(theCustomsUnionandtheEurasianEconomicCommunity)andisputtingmoreandmorepressureonthegovernmentinKyivtomakeUkrainejoin these projects. The process of establishing closer institutional contactswiththeEuropeanUnion,ontheotherhand(signingtheAssociationAgree-ment),hasbeenfrozenduetothefactthatYuliaTymoshenkowassentencedtoprisonin2011.

1. The political interests of the oligarchs

Contrarytowhatisthecasewithdomesticpolicy,itismoredifficulttotrackthe role the oligarchs have played in the development of foreign policy inUkraine.This ispartlydue to the low level of success ofUkraine’s foreignpolicyandispartlyaneffectofthelimitedinterestbigbusinessshowsinthisarea.Inparticular,securityissueshavebeengivenmarginalattentionbytheoligarchsbecause theyarenotdirectlyrelatedto theeconomy.Theofficialagendasconcerningexternalrelationsadoptedbythegroupingswhichthebusinessmensupportfinanciallyoraremembersofareof lowsignificanceandshouldnotbeusedasthebasisformakinganyconclusions130.Ashasbeenpreviouslymentioned, theoligarchstreatthepoliticalpartiesastools.The

130 AndrzejSzeptycki,‘GrupyoligarchiczneapolitykazagranicznaUkrainy’,Sprawy Między-narodowe,2008,no.2,page74.

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fact thatAkhmetovwas amember of theParty ofRegionswhen this par-ty’sagendaincludedestablishingcloserrelationswithRussiadidnotmeanthathewaspro-Russian.Similarly,PetroPoroshenko’smembershipinOurUkraine,whichwantedUkrainetojoinNATO,didnotpreventhimfromin-vestinginRussia.

2. The economic interests

Whileideologicalissuesplayaminorroleintheactivitiesofbigbusiness,thesituationisquitedifferent ineconomicrelations.TheinterestsofUkrainianbusinesscirclesinthisareaarediversified.For many oligarchs, especially those less powerful, the Ukrainian market is the most important, and they do not attach much significance to foreign relations, unless these relations result in increasing competitiveness on the internal market. In turn, for the richest businessmen, such as Akhmetov and Pinchuk, access to foreign markets is of key significance. Ukrainianexportsarestronglydiversified,and it isdifficult to indicate thepredominantdirection.Salesofgoodstothethreegroupsofcountries–theCIS,EUandothers–aredistributedalmostevenly,andinthecaseofmetallurgy,whichisthemostimportantsec-torandonealmostcompletelydominatedbytheoligarchs,themostsignificantcountriesarethosewhichbelongneithertotheEuropeanUnionnortotheCIS(seeFrame12).

Asaresult,theoligarchs’interestsinforeignpolicyarediversified.Asregardsthelesspowerfulbusinessmen,theprotectionoftheinternalmarketfromim-ports,especiallyfromtheWest,withwhichtheyareunabletocompetewith-outsupportfromthestate,isthetoppriority.Inturn,thepriorityforexport-ers isensuringas lowaspossiblecustomstariffsfortheirgoods. It isworthnotingthattheEU,Russiaandtheotherstatesareequallyimportantinthiscontext(albeittodifferentextentsfordifferentbusinessmen).

Overthepastfewyears,theexportershavebeenmoresuccessfulinpushingthroughtheirowninterests.ItwasthisgroupwhichlobbiedmoststronglyforUkraine’saccessiontotheWorldTradeOrganisation(WTO),whichtookplacein2008.Inthiscase,Ukrainequitequicklycarriedoutthenecessaryreforms,andthefactthatWTOmembershipresultedinincreasingcompetitionontheUkrainianmarketdidnotmattertothemostimportantplayers.

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Frame 12. economic integration – the east, the West or a third way?

Ukraine’sdifficultiesinfirmlydeterminingthedirectionofitseconomicin-tegrationcanbetrackedbyanalysingUkrainianexports.Whenallexportsareconsideredenmasse,itbecomesclearthatthereisnopredominantdi-rection–38%ofUkrainiangoodsaresoldtoCIScountries,26%totheEU,and36%toothercountries.Bywayofcomparison,80%ofPolishexportsgotoEUmemberstates131.ThistrendcanbeobservedwhenanalysingthefivelargestsectorsoftheUkrainianeconomy,whichaccountfor91%oftotalex-ports.CIScountriesclearlyprevailonlyinthecaseofthemachine-buildingindustry,whichgenerates17%oftotalexports(seethechartsbelow).Inturn,in the caseof three sectors –metallurgy, theagricultural and food sectorandthechemicalindustry–whichaccountformorethanhalfofUkraine’sexports,thelargestoutletsfortheirproductsarecountrieswithbelongtoneithertheEuropeanUnionnortheCIS(mainlyMiddleEasternandSouthAsiancountries).Theoligarchsholdstrongpositionsineachofthesesectorsandareinterestedinmaintainingandexpandingtheseoutlets.

An analysis of exports reveals one more important phenomenon: fromamongthesixcountrieswithwhichUkrainehasapositivetradebalanceexceedingUS$1billiononlyone(Italy)isamemberstateoftheEU132.TheDCFTAagreement,whichwillmaketheUkrainianmarketmoreopen,isunlikelytobringaboutasignificantincreaseinUkrainianexportstotheEU,butitwillcertainlybroadenUkraine’snegativetradebalance.

131 AccordingtodatafromthePolishCentralStatisticalOfficefor2010;http://www.stat.gov.pl/cps/rde/xbcr/gus/PUBL_ch_handel_zagr_01-12_2010.pdf

132 TheothercountriesareTurkey,India,Lebanon,EgyptandIran.

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Ukraine’s exports in 2011 (in Us$ billions)

OwncalculationsonthebasisofdatafromtheStateStatisticsCommittee

3. The attitude towards integration projects

Due to theaforementionedconflicts of interests, the oligarchs cannot be said to hold one common stance on integration processes in the region; this is true in the case of those initiated by Russia, and those regarding integration with the eU. Itappearsthatbigbusinessissatisfiedmostwiththesituationcurrentlyexisting inUkraine.Themutualpermeationofbusinessandpolitics,theabilitytobuycourtverdictsandtoadoptlawstailoredtosuittheneedsofcertaingroupscreateperfectconditionsfortheriseoffortunes.Inthiscontext,thereisnobigdifferencebetweenAkhmetov,whosebusinessisrelativelytransparent,andFirtash.The integration processes offered by the eU and Russia alike may bring about both benefits and threats to the special Ukrainian model of relations between the government and busi-ness, although they are quite different in nature.

EU-27 Other countriesCIS countries

Total exports Base metals Mineral raw materials

Agricultural and food sector Chemical production Machine-building industry

24.4

17.8

26.2

10.6

5.9

5.73.3

3.4

3.5

6.0

3.2

3.6

2.7

1.1

1.6 2.1

8.5

1.0

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3.1. Relations with the West

TherealbalanceofUkraine’sprofitsandlossesresultingfromtheimplementa-tionoftheAssociationAgreement(andinparticulartheDCFTA)isnowimpos-sibletoassessbecausethedocumenthasnotbeenpublished.Furthermore,theavailablematerialsconcerningthisissuearetoovague133.However,itishighlylikelythattheDCFTAintheshorttermwouldleadtoasignificantincreaseintheimportsofEUgoodstotheUkrainianmarket,thusbringingmoreintensivecompetitiontothiscountry.Ukrainianentrepreneursmaybeunabletocopewiththiscompetition.Inthelongerterm,theimplementationoftheAssocia-tionAgreementwillbebeneficialforUkraine,becausetheintroductionofEUstandardsandpracticeswillcontributetoagreaterinfluxofEUinvestmentsandthemodernisationofthecountry.

TheDCFTAwillunderminethepositionsofsomeoligarchs,suchastheownerofUkrAvto,TarielVasadze (whooncebelonged toBYuT,and isnowamem-berof thePartyofRegions),andValentynLandyk(alsoanMPrepresentingthePartyofRegions),whoownsNord,ahouseholdequipmentmanufacturer.Inturn,theDCFTAwillnotaffectstronglymostexporters,sincezeroormini-mumcustomsdutyisimposedontheirproducts(mainlysteelandmineralrawmaterials),andtheDCFTAwillnotleadtoasignificantincreaseintheirshareontheEUmarket.ItispossibletoindicatethesectorsinwhichUkrainianbusi-nesshasgreatpotentialforincreasingexportsandcouldbecompetitiveintheEU.Thismainlyconcernsfoodproductsandtheagriculturalandfoodindus-try.However,inthiscase,theDCFTAoffersnorealtradeliberalisation,andonlyslightlyincreasestheexportquotas.

133 The cyclicallypublished reports concerning this issue,dependingonwho theauthor is,areeitherusuallyfocusedonthepositives(iftheseareanalyticalcentresfromtheEUorUkrainianpro-Westernthinktanksor list thethreatsandpossible losses theUkrainianeconomywillsustain,highlightingatthesametimethebenefitsUkrainewillderivefromjoiningtheCustomsUnion(Russianthinktanks).OneexampleoftheformerapproachcanbefoundintheIFRIreportentitled‘UkraineattheCrossroads:BetweentheEUDCFTA&Customs Union’, http://www.google.pl/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CE0QFjAA&url=http%3A%2F%2Fwww.ifri.org%2Fdownloads%2Frnr11shumylotapiolaapril2012.pdf&ei=Ah7XT-DeGo76sgak_uXcDw&usg=AFQjCNFqshQIeXk7mC0d47Rg2gKiCHg5lw.Inturn,thebenefitsoftheCustomsUnionweredescribedinatextpreparedbytheEurasianDevelopmentBank, ‘Комплексная оценка макроэкономического эффекта различных форм глубокого экономического сотрудничества Украины со странами Таможенного союза и Единого экономического пространства в рамках ЕврАзЭС’,http://www.eabr.org/general//upload/reports/Ukraina_doklad_rus.pdf

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None of the oligarchs is interested in introducing free and fair compe-tition in Ukraine, since this would mean a major change in the nature of their business activity. Nevertheless, the introduction of some ele-ments of Western standards, especially the respect of ownership rights, is viewed by big business as being desirable.Althoughnospectacularfallofanyrepresentativeofbigbusinesshasbeenseenoverthepastdecadeorso,present trends– andprimarilyPresidentYanukovych’s strengtheningposi-tion–,arecausingtheprotectionofownershiprightstobecomeaveryup-to-dateissue.

While the question ofwhat benefits theAssociationAgreement couldbringtotheoligarchsisadebatableissue,itseemscertainthatno representative of big business is interested in a further deterioration of relations with the West. Someoligarchshavemade investments in theWest (forexample,AkhmetovhasmetallurgicalworksinItalyandtheUnitedKingdom).Further-more,someofthecompaniescontrolledbybigbusinessarelistedonWesternstockexchanges(forexample,Zhevago’scompaniesontheLondonStockEx-change,andagriculturalcompaniesontheWarsawStockExchange),andsomeareconsideringsuchplans(AkhmetovandPinchuk).Evenifbusinessmenarenot engaged economically in EUmember states, they often own real estatethere134.ForthisreasonadevelopmentofrelationswiththeWestwhichwouldsee a repeat of theBelarusian scenariowouldbedifficult for theUkrainianbusinesselitetoaccept.Possiblepoliticalsanctions,suchasvisarestrictionsfor thosebusinessmenwhoareat thesametime influentialmembersof thePartyofRegionsorthegovernmentwouldbeverypainfulforthem.Economicsanctionswouldbeevenmorepainful,althoughatpresentitisdifficulttoex-pectthattheWestcouldtakesuchastep.

ItneedstobeemphasisedthatthedevelopmentofrelationswiththeEUoverthepastyearorsoisproofofthelimitedinfluenceofbigbusinessonUkraine’sforeignpolicy.Hardlyanycoordinationofactionshasbeenseeninsuchavi-tal areaaseconomic integrationwith theEuropeanUnion.When itbecameclear that the signing of the Association Agreement and the DCFTAwouldbeblockedshouldTymoshenkobesentenced,representativesofbigbusiness

134 Itisdifficulttoassessthescaleofthisphenomenon,butitmostlikelyconcernsalmostallrepresentativesofbigbusiness.Attimes,themediareportonthepurchasesofthemoreexpensiveproperties–forexampleAkhmetov’sapartmentbuildinginLondonfor£136mil-lion.AlexHawkes,‘RinatAkhmetovpaysrecord£136.4mforapartmentatOneHydePark’,The Guardian, 19 April 2011, http://www.guardian.co.uk/uk/2011/apr/19/rinat-akhmetov-one-hyde-park

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madenoattempttoavoidthisscenario.Theoretically,theadoptionoftheAs-sociationAgreementalone,evenifitsprovisionswerenotimplemented,wouldstrengthenthepositionofUkrainianbusinessinitsdealingswithRussia,sincethiswouldposeanadditionalimpedimenttoUkraine’sjoiningtheintegrationprocessesinitiatedbyRussia.However,thefailuretotakeactionprovesthattheUkrainianbusinesseliteisnotawareofthis.

3.2. co-operation with Russia

RussiaisofferingUkrainearegionalintegrationproject,whichiscompetitiveto thatof theEU,namelymembershipof theCustomsUnionof theRussianFederation,BelarusandKazakhstan,andatfurtherstagesalsooftheEurasianUnion,whereacommonmarketbasedontheprinciplesofthefourfreedoms–themovementofgoods,services,capitalandlabour–wouldoperate135.Inad-ditiontoliftingcustomstariffs,Russiaofferslowerpricesforoilandgas(al-thoughnoprecisepromiseshavebeenmadeinthiscontext).

Russia is themost important country for Ukrainian business. The Russianmarket receives 29%ofUkraine’s exports136. In contrast to theEU, towhichUkrainesellspredominantlyrawmaterials(forexample,ironores)andlow-processedgoods(steel),Russiaisthemainrecipientofmoresophisticatedin-dustrialproductswhicharenotcompetitiveontheEUmarket.AlthoughthetradebalancewithRussiaisatarecord-lowforUkraine(-US$9.3billion),thisismainlytheeffectofhighoilandgasprices.ThismakesitpossibleforMoscowtoputpressureonUkrainebyimposingrestrictions(linkedtocustomsorofotherkinds137)onselectedproducts.Giventhefactthatoilandgasaccountforalmost70%ofUkrainian imports fromRussiaand thatKyivmustbuy themanyway,thepossibilitiesforUkrainetocounteractRussianpracticesareverylimited.

considering the degree of dependence and the number of ways Moscow could put pressure on Kyiv, representatives of Ukrainian big business are

135 AleksandraJarosiewicz,KamilKłysiński, IwonaWiśniewska, ‘CommonEconomicSpace:another step towards integration focused on Russia, OSW,EastWeek, 15 December 2010,http://www.osw.waw.pl/en/publikacje/eastweek/2010-12-15/common-economic-space-another-step-towards-integration-focused-russia

136 DatafromtheStateStatisticsCommitteeofUkrainefor2011.http://www.ukrstat.gov.ua/operativ/operativ2011/zd/ztt/ztt_u/ztt1211_u.htm

137 ThebanonimportsofcheeseimposedonsomeUkrainianmanufacturersinFebruary2012byGennadiyOnishchenko,theChiefSanitaryInspectorofRussiamayserveasanexampleofthis.

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not interested in a direct dispute with Russia. They are even less inter-ested in that because Russia is an important trade partner for most of the oligarchs, includingthoseforwhomothermarketsareoftoppriority.BothAkhmetov and Pinchuk sell steel pipes for pipeline construction to Russia.Therefore, closer co-operationbetweenRussia andUkraine, especially a re-ductionofcustomsbarriers,wouldbebeneficialfortheUkrainianoligarchs.Forthisreason,Ukrainehasbeenunsuccessfullymakingeffortstoconcludeafreetradezoneagreement–withnoexceptions–withRussia138.Despiteallthis,Kyiv is unlikely to agree to join the customs Union. The tariffs appli-cable in the area covered by the customs Union are higher than the ones Ukraine was granted upon its accession to the WTO. The renegotiation of these tariffs would be very difficult and would be contrary to the inter-ests of the exporter oligarchs.

AnotherequallygreattemptationforUkraineisthepromiseofloweringthepriceofenergyrawmaterials, especiallygas. In thesecondquarterof2012,UkrainepaidUS$426for1,000m3ofgas,whilethegaspriceforBelarus,whichbelongs to theCustomsUnion,wasonlyUS$165.Thepricesareessential forindustry,especially thechemical sector, thegreaterpartofwhich isownedbyDmytroFirtash.Duetothehighpricesofoilandgas.Ukrainianplantsarebecominglessandlesscompetitive.

Moscow has declared the possibility to reduce gas prices in exchange forUkraine’saccession to theCustomsUnionor forveryextensiveconcessions,whichwouldde factomeanhandingovercontroloftheentireinternalgasmar-ketinUkraine.ForKyivtoaccepttheseproposalswouldresultinaveryseri-ousrestrictionofUkraine’seconomicsovereigntyandwouldfacilitateRussianbusiness’sexpansioninUkraine.Russiacouldmanipulatethegasprices,thusbackingthecompaniesitcontrols.

TheUkrainianpoliticalandbusinesselitesaredividedonthis issue.Ontheonehand,thereisastronglobby(consistingpredominantlyofrepresentativesoftheRUEGroup)forwhomareductionofRussiangaspricesisapriority,nomatterwhatexpensethiswillentail.Ontheotherhand,mostUkrainianoli-garchsfearRussiancompetition.UkrainehasnotsatisfiedRussia’sdemandssofar,butitisevidentthatsomepoliticiansandbusinessmen(forexample,Yuriy

138 ThefreetradezoneagreementnowinforceintheCISareaincludeshundredsofcategoriesofgoodsonwhichhighcustomsdutyratesarestillimposed.

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BoykoandDmytroFirtash)seetheirowninterestsasmoreimportantthantheinterestsoftheirstateasawhole.

4. The primacy of individual interests

Whileitisdifficulttoprovethethesisthattheoligarchsareconductingawellthoughtoutandconsistentforeignpolicy,itispossibletoindicatespecificcaseswheretheindividualinterestsofcertainbusinessmenhadanimpact(veryoftenanegativeone)ontheactionstakenbythestateasawhole.Thisisduetothefactthatif the internal factor comes into conflict with state interests, the oli-garchs (if they are able to) prefer to take care of their own interests.

TheclearestexampleofthiswastheimprisonmentofTymoshenko,whichrep-resentativesoftheRUEGroupwereintensivelylobbyingfor.GivenTymoshen-ko’shostileattitudetowardsthemembersofthisgroup,thismovewasunder-standable.ThecrisisinUkraine’srelationswiththeWestwasasideeffect139.

Iftheirbusinessisatstake,the oligarchs are able to successfully hold back any process of negotiations which they see as unfavourable for them-selves.OneofthegreatestproblemsduringtheDCFTAnegotiationswasthelackofconsentfromUkrainiannegotiatorstoliftingthecustomsdutyonim-portsofusedcarsandhouseholdappliances.Most likelyTarielVasadzeandValentynLandykwerethepeoplewhoimpededthisprocessthemost.EventhesignificantaccelerationoftheDCFTAtalksin2011couldnotmaketheUkrain-iannegotiatorschangetheirtoughstanceforalongtime.Finally,theEUandUkraine reached a compromise regarding imports and adopted regulationswhichcanbeseenasbeingfavourableforVasadze140.

The negotiations concerning the European Common Aviation Area (ECAA)wereanotherexampleofsectoralintegrationwiththeEUbeingblockedforthebenefitoftheoligarchs’interests141.ThisisabilateralagreementbetweentheEUandathirdstateliberalisingpassengerflights.Acountrywhichaccesses

139 AlthoughitisanopenquestioninthiscaseastotowhatextenttheactionstakenbytheRUEGroupwereinspiredbyRussia,forwhomthepreventionofUkraine’seconomicintegrationwiththeEUwasatoppriorityissue.

140 Importsofusedcarswillbeduty-freeonlyatthepresentlevel(45,000carsannually).Whenthis level isexceeded,10%customsdutywillbeautomaticallyre-imposed.Furthermore,averylong(15year)transitionperiodwillapply.

141 EuropeanCommonAviationArea.InadditiontotheEUmemberstates,itextendsoverNor-way,IcelandandtheWesternBalkancountries.

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theECAAundertakes to implement the section of theacquis communautaireconcerningairtransportandallowsflightoperatorsfromtheEUtoparticipateininternalflightsinagivencountry.NegotiationswithUkraineregardingthisissuecommencedalreadyin2007andarestillfarfrombeingclosed,andtheannounceddate for theagreement tobe signedhasalreadybeenpostponedseveral times. At present, only one low-cost airline (Wizz Air) operates inUkraine,anditsofferisverylimited.JoiningtheECAAwouldcertainlycauseasignificantreductioninthepricesofticketsforpassengers,butthiswouldalsomeanthatUkrainiancarrierswouldhavetocompetewithEuropeanair-lines.ThegreatershareoftheUkrainianairtransportmarketbelongstotheairlinescontrolledbyPrivatGroup,whichisbeyondanydoubtthekeylobbyistforholdingbackthetalks.Theoretically,theagreementwouldoffertheoppor-tunity for theUkrainianairlines toexpandacrossEurope,butKolomoyskyiandtheothercarriersapparentlyprefer toprotect theirownmarket142.Theexistingsituationisalsobeneficialforthegovernment:airlinesmustobtainlicences fromstateofficials,while theECAAprovides thepossibility to signcontractsdirectlywithairports.

The activity of Vasyl Hrytsak, a businessman and anMP representing theParty of Regions, provides another similar example of successful lobbying.HeownsEDAPS,acompanywhichmanufacturesbiometricpassportsamongotherthings.HrytsakwasmakingeffortstocausetheVerkhovnaRadatopassthedocumentactinaformwhichwouldgrantexclusiverighttoEDAPS.ThiswasopposedbytheMinistryofJustice.TheadoptionofthisactisamongthekeyconditionsintheActionPlanforliftingthevisarequirementforUkrain-ianstravellingtotheEuropeanUnion.AsaconsequenceofHrytsak’sactions,theactwasadoptedwithadelay,andthusUkrainefailedtocompletethefirststageoftheActionPlan143.

ItdoesnotappearthattheseactionsresultfromanybroaderstrategyadoptedbyUkrainianbusinesscircles,althoughtheydohavearealimpactonthecoun-try’sforeignpolicy.It is difficult to classify the oligarchs as holding either pro-european or pro-Russian views. Any of their actions which could be interpreted as pro-Russian or pro-Western are rather by-products

142 AlsointhiscasethereisnoproofthatitwasKolomoyskyiwhowasresponsibleforholdingbackthenegotiations.

143 RafałSadowski,‘MoldovaaheadofUkraineinthequeueforEUvisaliberalisation’,OSW,EastWeek, 15 February 2012, http://www.osw.waw.pl/en/publikacje/eastweek/2012-02-15/moldova-ahead-ukraine-queue-eu-visa-liberalisation

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of the implementation of their own interests than a conscious policy. KolomoyskyihasbeenblockingtheECAAinordertorestrictthecompetitiontohisownbusinessandnotduetoanyideology.Itisequallydifficulttoprovethe idea that the takeoverof theKremenchukrefinery fromTatneft,whichwasde facto acorporateraideffectedbyKolomoyskyi,wasaresultofhisanti-Russianviews.

ThecasewithAkhmetovissimilar.TheIlyichSteelandIronWorksweretakenawayfromRussiansbecauseofhisdesiretomaintainthedominantpositioninUkrainianmetallurgy.Thereluctancetowardstheintegrationprojectsiniti-atedbyRussiaisbasedonthepresumptionthatUkrainewouldbetheweakerpartner in this relationship, and theUkrainian big businesswould becomedominatedbythewealthierRussianoligarchs.Ukraine’srejectionofthepos-sibilitytoexportRussianelectricityusingitspowergridsisanotherexampleofRussianprojectsbeingblocked.Inthiscase,themostlikelyreasonappearstobeAkhmetov’sinterests;heintendstoexporthiselectricitytoEUmemberstateshimself,andhewouldbecompetingagainstRussianelectricity,whichischeaperthanUkraine’s.

TheexampleofAndriyKlyuyev,whoseactiveandsuccessfulmanipulationoftheDCFTAnegotiationsmadesomeEUofficialsbelievethatheisapro-Westernpoliticianshowstowhatdegreeincorrectconclusionscanbedrawnbasedononespecificaction.Atthesametime,Klyuyev,whoisresponsiblefortheelec-tioncampaignofthePartyofRegions,wasintensivelylobbyingfortheadop-tionofanewelectoralcodeinaformwhichwouldfacilitatethemanipulationoftheelectionresultstoagreatextent144.

144 Tomakethepicturemorecomplicated,SerhiyLyovochkin,whoisbelievedtobeapro-Rus-sianpolitician,supportedtheelectoralcodewhichwasclosertotheEuropeanstandards.Сергей Рахманин, ‘Наблюдение за скрытым боем’, Зеркало Недели, 11 November 2011,http://zn.ua/POLITICS/nablyudenie_za_skrytym_boem-91382.html

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V. The ADVANTAGes AND The DIsADVANTAGes OF The OlIGARchIc sysTeM

ItisnoteasytounambiguouslyevaluatetheroletheoligarchshaveplayedinUkraine.Atfirstglance,theirimpactonUkraineappearstobenegative.How-ever,whenonecompares the systemwhichhas formed inUkraine to thoseexistingintheothercountriesfromtheCommonwealthofIndependentStatesarea,theanswertothisquestionisnolongersoobvious.The ‘oligarchicde-mocracy’,wherenoneof theclanshasbeenstrongenough tobecomedomi-nantovertheothersandinwhichthegovernmenthasbeenonlyoneof thefewcentresof influence (in someperiods,not themost importantone), canberecognisedasakindofpluralism,whichhasputUkraineinabetterlightthanRussiaorBelarus.EvenaftertwoyearsofYanukovych’srule,despitetheobviousdeteriorationofdemocraticstandards,UkraineisstillamongthemostdemocraticcountriesintheCISarea.

An evaluation of the impact the oligarchs have had on politics and the economy reveals some benefits for Ukraine. The greatest benefit is the protection of Ukraine’s economy from being dominated by Russian busi-ness. however, the negative consequences of the oligarchic systems, for both the economy and the political life of Ukraine, are more evident and ultimately definitely prevail over the positives.

Theevaluation is alsodifficultbecause theoligarchsdonot formauniformgroup.Theoligarchs’politicalinfluenceisalsodiversifiedandisbynomeansalwaysproportionatetothevalueoftheirfortunes.SomeoftherichestUkrain-iansdonotparticipateincurrentpoliticsandareabletoprotect(anddevelop)theirbusinesseswithoutbecomingpublicfiguresandattractingtheattentionofthemedia.Someoligarchs(forexample,PrivatGroup)areveryaggressiveandsuccessfulintheirbusiness,althoughtheirdirectinfluenceinthegovern-mentisverylimited.Inturn,othersderivetheirstrengthfromtheirinfluen-tialfriendsinthegovernment.ThebestexampleisFirtash.Hisassetswhencompared to the richestoligarchs (Akhmetov,PrivatGrouporPinchuk) arerelativelymodest,andhisstrengthismainlybasedonsupportandfavourabledecisionsfromthestate145.

145 ThisconcernsboththepresentgovernmentandtheadministrationofPresidentYushchenko.

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1. The negatives

• The dependence of the greater part of the political class on big busi-ness isa typical featureof theoligarchicsystem.Withthepresentrulesofpartyfinancing,nopoliticalgroupingisabletooperatewithoutbeingfinanciallybackedbytheoligarchs.Furthermore,theoligarchscontrolthemostpopularTVchannelsandthisadditionallyentrenchesthisdepend-ence.To claim thatpoliticians arepuppets in thehandsofbusinessmenwouldcertainlybeanexaggeration.TheUkrainianpoliticalsystemgivesreal power to the government. Both Kuchma and Tymoshenko showedgreat sovereignty, andYanukovych is alsomaking efforts to become in-dependentfromhisbusinesssupportbase.However,arealchangeinthesystemofconnectionsbetweenpoliticsandbusinesswouldrequireverydeepreforms.Meanwhile,therearenorealcandidatesamongthepresentrepresentativesofthepoliticalclass,includingthosefromtheopposition,whowouldbereadytocarryoutsuchreforms.Theindividualswhocouldgivesuchhope(forexampleAnatoliyHrytsenko)havebeendeprivedoffi-nancial supportandpresence in themedia,andhave thusbeensuccess-fullymarginalised.

• ActionstakenbyUkrainianstateofficialsinanattemptto ‘payback’thefinancialsupportduringtheelectionsoftenleadtothe Ukrainian state sustaining multi-billion dollar losses, which the oligarchs benefit from. Thispracticehasbeenusedbyalladministrations,butithasclearlyintensified under Yanukovych’s rule. This is particularly evident in thecaseof theRUEGroup.RosUkrEnergowonthearbitration inStockholm,andfurthermore,UkrtranshazdecidedtowriteoffRUE’ssignificantdebts.Manymore scandalswhichhave led to the statebudget incurring enor-mouslossescouldbegivenasexamples146.

• Theoligarchs,guidedbytheirowninterests,aremakingquitesuccessfulattemptstopreventforeigncapitalfromenteringthesectorsofeconomywhichareofkeysignificanceforthem.Specialprotectionisofferedtothemetallurgicalindustry.however, if necessary and if a good price is of-fered, the oligarchs do not mind selling their assets, and in such cases Russian capital is usually the only buyer. Theclearestexampleofthis

146 А. Шалайский, В. Трегубов, ‘Топ-7 схем облегчения бюджета’,Зеркало недели,29Decem-ber 2011, http://zn.ua/POLITICS/top_shem_oblegcheniya_byudzheta__reyting_effektiv-no_osvoennyh_sredstv_v_uhodyaschem_godu-94878.html

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wasthesaleofmetallurgicalassetsbyISDtoRussians,whoposethestrong-estcompetitiontoUkrainianbusinessinthisindustry.Suchtransactionsarealsopossibleinthefuture.UnlessFirtashmanagestoensuresuppliesofcheapgasforhisnewchemicalplants,hewillinalllikelihooddecidetosellthem;andRussiancapitalwillbetheonlyrealisticbuyer.

• Theoligarchisationoftheeconomyisamongthemaincausesforthevery unfavourable investment climate in Ukraine. Asaconsequenceofthepracticesdescribedintheprecedingchapter,thelevelofforeigndirectin-vestmentspercapitainUkraineisstilllow147,andtheinvestmentsarepre-dominantlylimitedtothefinancialsector,whichcontributestothemod-ernisationoftheeconomyandtheimplementationofnewtechnologiestoonlyasmallextent.Theoligarchsarenot theonlyones toblamefor theproblemswith foreign investments. Other serious impediments includethestillhighlevelofcorruptionandthelowefficiencyofthestateadmin-istration.However, it is the lobbying frombigbusiness that seems tobethemainreasonbehindthesephenomena.Ukrainehasalwaysbeenaverychallengingmarketforinvestors,butaftertwoyearsofYanukovych’srule,despitemacroeconomic stabilisation, the situation has deteriorated fur-ther.TheUkrainiangovernmenthasnottakenanymeasures,sotherearenogroundstoexpectthatthesituationwillimproveinthisarea.

• The monopolisation whichcanbeobservedinmanysectorsoftheecon-omyiscausing a restriction of competition andthishasnegativecon-sequences.Thestateallowscertainbusinessmentopredominateinsomeareas(forexample,Firtashinthenitrogenfertilisersector),and,inaddi-tiontothat,similarpracticesareusedlocally(atthelevelofdistrictsandcities),withtheparticipationofregionalbusinessmenandwiththeaidofrepresentativesofthestateadministration.

• Inmanycases,the primacy of private interests over the interests of the state has negative results. Theclearestexampleofthisistheprisonsentence imposedonYuliaTymoshenko,which theRUEGroupmanagedtopush through.As seen fromtheperspectiveofFirtash’s interests, the

147 According to UNCTAD, the level of foreign direct investments in Ukraine in 2005–2010reachedUS$45.5 billion. In the sameperiod,US$91.6billionwas invested inPoland, andUS$6.1billionwasinvestedinGeorgia,whosepopulationistentimessmallerthanUkraine’sandwhichwassceneofmilitaryconflictin2008.UNCTAD,WorldInvestmentReport2011,http://www.unctad-docs.org/files/UNCTAD-WIR2011-Full-en.pdf

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eliminationofTymoshenkofrompolitical lifehasdoubtlessbeenbenefi-cial,butthishashadanextremelyadverseimpactonUkraine’srelationswiththeWest.

• Thefactthattheoligarchsbuilttheirfortunesrelativelyrecently,justalit-tlemorethanadecadeago,meansthatamajorpartofthemsee their busi-ness as temporary and they are attempting to maximise their profits and minimise the expenses. In effect,most industrial plants have notbeenmodernised since Soviet times and are becoming increasingly out-dated.Eventhosebusinessmenwhoinvestsomemoney,suchasAkhme-tov, usually do it at theminimum level.Given the lowpolitical stabilityofUkraine,thisapproachisunlikelytochangeinthepredictablefuture.

• Eveniftheoligarchsseetheneedforcomprehensivereformstobeimple-mented inUkraine, theyaresuccessfully influencing thegovernmentsothatthereformsaremadeprimarilyinthoseareaswhicharenotlinkeddirectlytobigbusiness(forexample,thepensionsystemreform).Inturn,in those sectorswhere the oligarchshave a strong interest, the reformsannouncedbythepresentgovernmenthavebeenhelduptoavisiblede-gree.Theagriculturalreformandthegassectorreformaregoodexamplesofthis.Althoughbothreformsareinevitableforfurthereconomicdevel-opment,theconflictsofinterestsamongtheoligarchsareamongthekeyreasonsforthedelayintheirimplementation.

• The concentration of capital in the hands of a relatively small group of people is impeding the development of a middle class. Bigbusinesslobbiesforsolutionswhicharefavourabletoitself,sowhenitisnecessaryto increasestaterevenues, this isusuallydoneattheexpenseofthe lesspowerfulbusinessmen.Thisbecameespeciallyclear following theadop-tionof thenewfiscal code.Although thecodewasapositivemove in it-self,itimposedheavierfiscalleviesprimarilyonsmallandmedium-sizedbusinesses.Thesehave alwayshadproblemswith operation inUkraine,however,theirownersformedanimportantpartoftheelectorateofOurUkraineandlaterofBYuT.ThePartyofRegions,whosefinancialbaseisbigbusinessandwhosecoreelectoratearemanuallabourersandpublicserv-ants,hasnoscruplesaboutimposingheavierburdensonthemiddleclass.Thisisnotlimitedtofiscallevies.Corporateraidsandsmallerbusinessesbeingforcedtosharetheirprofits–arebothtrendswhichhaveintensifiedoverthepasttwoyearsandareimpedingthedevelopmentofamiddleclassequallystrongly.

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2. The positives

• Thepolicyofrestrictingtheinfluxofforeigninvestment–whichbigbusi-nesshasbeenlobbyingfor–apartfromtheobviousnegativeconsequences,alsohelpsprotect the country’s economic independence from the ex-pansion of Russian capital. AlthoughRussiancapital isstronglyrepre-sentedinsomesectors(forexamplethebankingsectorandtelecommuni-cation),Russiansstillhavelittletosayinthoseareaswhicharebelievedtobethemostimportantfortheoligarchs.TheUkrainianrefineries(Kre-menchuk,OdessaandLysychansk) serveasanexample; theyhavebeentaken over by Russian companies and still have problems inUkraine148.AlthoughTatneftwasbackedby theRussianstate, itwasunable topre-venttheKremenchukrefinerybeingtakenawayfromitbyKolomoyskyi.LUKoil,whichownstherefineryinOdessa,hasalsoencounteredproblemsduetoaggressivemovesfromPrivat149.

• Manyoligarchs,especiallythemostpowerfulones,havecomealongwayfrombeingregionalbusinessmen,oftensuspectedofhavinglinkswiththecriminal underworld, to being patrons of the arts and sport. This trendwassetbyViktorPinchuk,whoisthemainsponsorofUkrainianmodernart andpromoterofEuropean integration sinceheorganises theannualYESsummits.Pinchukisalsotheorganiserandsponsorofthe‘Ukrainianlunch’,whichtakesplaceduringtheWorldEconomicForuminDavos150.

• Where the state fails to fulfil its functions, the oligarchs often take its role. FootballstadiumswerebuiltpartlyfortheirownmoneybyAkhme-tovinDonetsk,byKolomoyskyiinDnipropetrovskandbyYaroslavskyinKharkiv.Suchmovesmeanthattheoligarchsareoftendefinitelymorepop-ularintheirrespectiveregionsthanthelocalpoliticians,andasignificantpartof theresidentssee themas the ‘city fathers’.EvenDmytroFirtash,whohadshunnedpublicityformanyyears, inautumn2011assumedthefunctionofthepresidentoftheFederationofEmployersofUkraine,which

148 ‘ProblemsofrefineriesinUkraine’,OSW,EastWeek,19January2011,http://www.osw.waw.pl/en/publikacje/eastweek/2011-01-19/problems-refineries-ukraine

149 ThemostglaringexamplewaswhenoilsuppliestotherefineryinOdessawerecutoffbyUkrnafta,whichiscontrolledbyPrivat.

150 In 2010, Pinchuk climbed to first place in the ranking of theworld’smain lobbyists forUkrainecompiledbytheKyiv-basedInstituteofWorldPolicy,‘Виктор Пинчук возглавил рейтинг ТОП-10 лоббистов Украины’,Дело, 21 September 2010, http://delo.ua/lifestyle/viktor-pinchuk-vozglavil-rejti-145067/

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wassupposedtohelpchangehisimageofabusinessmanwithsuspiciousconnections into a representative of Ukrainian entrepreneurs. Despitethesechanges,itisstilldifficulttoclaimthatUkrainianbigbusinesshasbecomesimilartobigbusinessintheWest.

• Theinfluentialoligarchicgroups,whoseinterestseachgovernmentmustrespect,alsoreducetheroomformanoeuvre inforeignpolitics.The op-position from the key oligarchic groups to a deeper integration with Russia has been among the main reasons why Ukraine has not decid-ed to become seriously engaged in any integration project initiated by Russia. Thisreluctance iscausedmainlybytheUkrainianoligarchs’fearof competition fromRussian investors.EachUkrainiangovernmentismorerestrictedintheiractionsthan,forexample,thepresidentofBela-rus,whoislessdependentonhissupportbase.However,itcannotberuledoutthattheopinionthatitisnecessarytoreducethegaspriceevenattheexpenseofmakingconsiderableconcessionstoRussiawillprevail inthecomingmonths.

• Ukraine,despitethecleardeteriorationofstandardsunderYanukovych’srule,isstilloneofthemostdemocraticcountriesintheCISarea.AlthoughUkrainiandemocracy is far fromperfect, it stillneeds tobeemphasisedthatsofarallthegovernmentshavechangedasaresultofelections.One of the reasons why this has been possible is the stance adopted by big business. The oligarchs do not form a homogeneous group and fierce-ly compete with each other, supporting various political groupings. Althoughtheoligarchs’fundingofoppositiongroupingswasseriouslyre-ducedin2010,itistooearlytoprejudgewhetherthisisadurabletrendinUkrainianpolitics.

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VI. POssIBle FUTURe DeVelOPMeNTs OF The OlIGARchIc sysTeM

• It seems unlikely that President yanukovych could decide to upset the balance between the two key oligarchic groups, the ‘Donetsk clan’ and the RUe Group, in the immediate future. Beyondanydoubt,Yanuko-vychwillbestrengthening‘thefamily’notonlypoliticallybutalsofinan-cially.Thereinforcementof ‘thefamily’spositioninbusinesswill leadtoaconflictwithoneoftheoligarchicgroupssoonerorlater.Themostvul-nerableseemstobetheRUEGroup.Itsstrengthisbasedonenormouspolit-icalinfluence,butthisgroupisrelativelyweakfinancially151.Firtashowesthebusinesssuccesseshehasachievedoverthepasttwoyearstoeffectiveassistancefromthestateadministration.Ifthisassistanceceases,hisfallcouldcomequickly.ThesituationwithSerhiyLyovochkinissimilar.Cur-rentlyheisamongthekeyplayersontheUkrainianpoliticalscene.Werehetobedismissed,however,hecouldeasilyfacethesamefortuneasVik-torMedvedchuk.Atthemoment,therearenotmanysignsthiswillhap-pen,but‘thefamily’maybecomeinterestedinderivingprofitsfromthegasmarket.However,atpresentitisdifficulttoconcludewhetherYanukovychwilldecidetoriskopenconflictwithanyoftheoligarchicgroups.

• SomeobserversoftheUkrainianpoliticalscene,in connection with ‘the family’ gaining strength see the threat of Ukraine undergoing ‘Puti-nisation’152. This threat, however, does not appear to be real.Itispos-siblethatauthoritariantendencieswillbestrengtheninginUkraine,and‘thefamily’willcertainlycontinuetogrowinpower,butitstillseemsquiteunlikelythatYanukovychwillbeabletomakeallthebigbusinessgroupssubordinate tohimselfwithina timeframeof a fewyears.Although thesituationexistinginUkraineoverthepasttwoyearsisattimesreminis-centofRussiaatthetimewhenPutintookpower,therearestillafewfun-damentaldifferencesbetween them.Firstof all,Yanukovychhasaverylimited support base. Putin used former KGB officers to strengthen hissupportbase,whileYanukovychisrelyingonhisfriendsfromYenakieveandtheacquaintancesofhisson,Oleksandr,mostofwhomhave limited

151 ItisinsomerespectssimilartotheKyivclan,whoveryquicklylosttheirpoliticalinfluencewhenthegovernmentchanged.

152 Тарас Кузьо, ‘Украине грозит путинизация СБУ, МВД и информационной политики’,UNIAN,25June2010,http://www.unian.net/rus/news/383668-ukraine-grozit-putinizatsi-ya-sbu-mvd-i-informatsionnoy-politiki.html

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competencestorulethecountry.Itisalsoopentodoubtwhetheranewre-gimecouldbebasedontheUkrainiancivilservice,whichistoocorruptandheavilydependentonbigbusiness.ItisequallyimportantthatYanukovychisunabletoofferanyideologytotheUkrainianpublic,andthepopularityhewonbypromisingstabilityandorderdramaticallydecreasedonlyafewmonthsintohisrule153.

• Tomakebigbusinesssubordinate,asolutionsimilartotheRussian‘Kho-dorkovskycase’wouldhavetobeappliedandthiswouldmeanrealrevo-lution inUkrainian conditions. Some attempts to subjugate big businessweremadeaftertheOrangeRevolution(there-privatisationofKryvorizh-stal),buttheywereunsuccessful.Furthermore,ifrepresentativesofallthegroupsfeltreallyendangeredbytheexcessivereinforcementofthepresi-dent’sposition,theywouldtakedecisivecountermeasures154.Forthisrea-son,thespeculationsabouttheweakeningpositionorevenimminentfallofsomeofthemostinfluentialoligarchs,whichfrequentlyappearintheUkrainianmedia,shouldbetreatedwithagreatdealofcaution,sincenotangibleproofforthisthesiscanbefoundatpresent155.

• Thedeterioratingtechnicalconditionofthelargeindustrialplants,whichareamongtheoligarchs’keyassets,isaveryseriousthreattobigbusi-nessinthemediumterm.TheseplantsarestillpredominantlybasedonSoviettechnologiesandareinneedofmodernisation.Ifthepresentpoli-cyoflimitinginvestmentsandextensivebusinessdevelopmentiscontin-ued,many of the plants (and probably even entire sectors) will not be able to come up against competition from developing countries in little more than ten years from now. Suchtendenciescanalreadybeobservedinmetallurgyandthechemicalsector,andtheywillmostlikelyadvance.

153 Itseemsthattheargumentspresentedabovearemorereasonablethanthefrequentlyap-pearingstatementsthatUkrainiansallegedlyhavean‘anarchisticnature’,whichreport-edlycouldmakeitmoredifficulttointroduceamoreauthoritarianregimeinUkraine.

154 Accordingtomediareports,representativesofbigbusinessconcernedaboutYanukovych’spolicyhavealreadymetforconsultations.Юлия Мостовая, ‘Perpetuum-peredelum’,Зеркало недели,20January2012,http://zn.ua/POLITICS/perpetuum-peredelum-95998.html

155 Inthiscontext,AkhmetovandFirtasharementionedmostfrequently.However,thefactsprovesomethingcompletelydifferent.ThestatementsmadebyAkhmetovandFirtashthattheywouldnotseekelectionasMPsintheelectionin2012,whichweretoacertainextentforcedbyYanukovych,maymeanthattheirpoliticalinfluencehasreduced,butthisisfarfromcertain.

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• While future reshuffles among the groups of influence arepossible (andwillcertainlytakeplace),there is still little chance that the model of re-lations between the ruling class and big business will change, at least in the medium term. EvenifYanukovychlosespowerin2015,therearenopoliticianswhowouldbeabletocarrythroughsuchradicalchangesamonghispotentialsuccessorsfromthepresentopposition.Furthermore,theex-perienceaftertheOrangeRevolutionhasshownthatthosepoliticianswhocometopowercarryingslogansofsystemchangeveryquicklybecomepartofthissystem.

• Thethreatthatthesecondwaveoftheeconomiccrisiscouldstrikeisafac-torwhichevenfurthercomplicatestheprocessofmakinganypredictions.Thereisnodoubtthat,shouldthecrisiscome,theeconomywillbeaffectedverystrongly,aswasthecasein2008–2009.Ukrainestillreliestooheavilyonexportsofmineralrawmaterialsandmetalgoodsandthedemandforthesedependsonverystrongmarketfluctuations.Italsohasanextremelyweakbankingsystem.If, however, the breakdown is deeper and lasts longer than the previous time, this may lead to radical changes in the economy, includingbankruptciesofanumberofindustrialplants.Itisim-possibletopredictwhatinfluencesuchchangescouldhaveontheUkrain-ianpoliticalscene.

słAWOMIR MATUsZAKWork on this text finished in June 2012

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sUPPleMeNT

The oligarchs’ fortunes in numbers

ThelistsofUkraine’srichestbusinessmen,whicharepublishedcyclicallybothinUkraineandabroad,illustratehowdifficultitistoassesstheirassets.Thepercentagedifferencesintheestimatedassetsoftherichestbusinessmencanbewellintodoublefigures,dependingontheranking.Forexample,thefortuneofUkraine’srichestman,RinatAkhmetov,wasUS$15.5billionin2011accord-ingtocalculationsmadebyFocusweekly.AccordingtotheweeklyKorrespond-ent,however,itwasworthUS$25.6billion.Theassessmentsoftheassetsofin-dividualoligarchsdifferevenmoreoveratimeframeofseveralyears.In2009,Forbes assessed that Akhmetov’s fortune was worth US$1.8 billion, whichplacedhim in 397thpositionamong theworld’s richest,while in2011his as-setswereevaluatedtobeworthUS$16billion156,whichputhimin39thposition.Ashasbeendescribedearlierinthistext,Akhmetovhasbecomesignificantlyricheroverthepastthreeyears,butthevalueofhisassetshascertainlynotincreasednine-fold.

Suchvastdifferencesresult fromthe fact that inmostcases it isdifficult toassessthevalueoftheassetsownedbyoligarchsinareliableway.It isusu-allyimpossibletobasethecalculationsonstockmarketpricessinceveryfewcompaniescontrolledbyUkrainianbigbusinessare listedonWesternstockexchanges,andmostofthembelongtotheagriculturalsector157.Thepricepaidforaplantduringprivatisationoftencannotbereliedupon,either,sinceithasbeenintentionallyreducedtoalowerlevel.Inturn,thecostsoftakeoversofindividualcompaniesarefrequentlyconfidential,andpressleaksaretheonlysourceofdata,andthesedonotalwaysnecessarilyreflectthetruesituation.Itshouldalsonotbeforgottenthatinmanycases(thisespeciallyconcernspoli-ticiansandstateofficials)theassetsarenotrevealed.

156 RinatAkhmetov,Forbes,accessedon19March2012,http://www.forbes.com/profile/rinat-akhmetov/

157 OneexceptionisKostyantinZhevago,whosecompany,Ferrexpo,hasbeenlistedonLondonStockExchangesince2007.Furthermore,afewcompaniesfromtheagriculturalsectorarelistedontheWarsawStockExchange.In2011,evenaspecialindex,WIG-Ukraine,whichcoversfiveUkrainiancompanies,wascreated.‘WIG-Ukraine–pierwszytakiindeksgiełdowywEuropie’,wp.pl,5May2011,http://media.wp.pl/kat,1022947,wid,13376465,wiadomosc.html?ticaid=1e13c

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Despite these limitations, the rankings of Ukraine’s richest people are use-ful. Itcanclearlybeseenhowquickly theoligarchsrecovered fromthecri-sisof2008–2009.TheoligarchicfortunesflourishedafterYanukovych’svic-tory.Theyalsoshowtowhatextentassetsareconcentratedinthehandsofthegroupoftherichestbusinessmen.Korrespondentweeklyassessedin2011thatthefortunesofUkraine’sonehundredrichestbusinessmenwereworthUS$83billion,ofwhichasmuchas70%(US$57.9billion)belongedtothetopten.

Acomparisonoftherankingsforprecedingyearsalsorevealsthatthetopposi-tionsremainunchanged.AccordingtoKorrespondent,since2006–whenthelistsofUkraine’srichestpeoplefirststartedtobepublished–thetopfivehasbeenconstantlyformedbythesamepeople:Akhmetov,theleadersofPrivatGroup,PinchukandZhevago158.Morereshuffleshavebeenseenlowerdowntherank-ing,butthesepositionshavealsobeenoccupiedforyearsbythesamebusiness-men,theriseofwhosefortunesdatesbacktoKuchma’srule.CasessuchasthatofOlehBakhmatyuk,whocreatedhisempireintheagriculturalsectoraftertheOrangeRevolution,arerathertheexceptionswhichprovetherule.

List of Ukraine’s richest people in 2011 (US$ millions)

Korrespondent Focus

1 RinatAkhmetov 25,600 1 RinatAkhmetov 15,590

2 HenadiyBoholyubov 6,600 2 IhorKolomoyskyi 5,323

3 IhorKolomoyskyi 6,200 3 HenadiyBoholyubov 4,975

4 ViktorPinchuk 5,900 4 ViktorPinchuk 2,970

5 KostyantinZhevago 3,200 5 VadymNovinsky 2,683

6 ViktorNusenkis 2,900 6 KostyantinZhevago 2,675

7 DmytroFirtash 2,250 7 AndriyVerevsky 2,200

8 OlehBakhmatyuk 2,200 8KostyantinHryhoryshyn

2,169

158 ‘Рейтинг самых богатых украинцев’, Корреспондент.net, accessed on 19 March 2012,http://files.korrespondent.net/projects/top50/2011#

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Korrespondent Focus

9 OleksiyMartynov 1,520 9 SerhiyTaruta 2,126

10 OleksiyVadatursky 1,500 10 VitaliyHayduk 2,073

11 YuriyKosyuk 1,300 11 YuriyKosyuk 2,070

12 OleksandrYaroslavsky 1,200 12 OlehMkrtczyan 1,877

13 PetroPoroshenko 980 13 DmytroFirtash 1,489

14 IvanHuta 918 14 OleksandrShnaider 1,407

15 SerhiyTaruta 730 15 EduardShyfryn 1,407

16 OlehMkrtchyan 730 16 OleksandrYaroslavsky 1,403

17 AndriyVerevsky 716 17 PetroPoroshenko 1,193

18 VyacheslavBohuslayev 704 18 VasylKhmelnytsky 1,173

19 ValeriyKhoroshkovskyi 599 19 OlehBakhmatyuk 1,093

20 LeonidChernovetskyi 556 20 LeonidBaisarov 1,060

21 AnatoliyYurevich 548 21 AndriyIvanov 1,015

22 SerhiyTihipko 535 22 LeonidYurushev 979

23 MykolaYankovsky 522 23 IvanHuta 939

24 YukhymZvyahilsky 504 24 OleksiyMartynov 930

25 VitaliyHayduk 481 25AndriyandSerhiyKlyuyev 

901

26 OlhaNechytailo 476 26 MykolaTolmachov 892

27 IhorDvoretsky 458 27OleksandrandHalinaGerega

891

28 BorysKolesnikov 448 28 OleksandrSavchuk 868

29 YevhenChernyak 447 29 VyacheslavBohuslayev 845

30 GeorgiySkudar 438 30 SerhiyTihipko 796

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list of Ukraine’s billionaires in 2012 according to Forbes159

Global rank Name Assets (Us$ billions)

39 RinatAkhmetov 16.0

255 ViktorPinchuk 4.2

377 IhorKolomoyskyi 3.0

418 HenadiyBoholyubov 2.8

719 KostyantinZhevago 1.8

960 YuriyKosyuk 1.3

1153 PetroPoroshenko 1.0

1153 AndriyVerevsky 1.0

DZIKIEPRZYPISY159

159 TheWorld’s Billionaires,Forbes, accessed on 19March 2012, http://www.forbes.com/bil-lionaires/list/#p_1_s_a0_All%20industries_Ukraine_All%20states_

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APPeNDIx

1. yanukovych’s ‘family’

Theinterestsandtheconnectionsofthepeoplewhoformthepresident’sin-nercirclehavebeendescribedinchapterIII,section2ofthistext.Theassetsownedby ‘thefamily’arestillrelativelymodestascomparedtothoseoftheoligarchsoutlinedbelow.Furthermore, inmost cases,media reports on thetakeoverofagivencompanyby‘thefamily’aredifficulttoverify.

2. Akhmetov’s group

ThisisdefinitelythestrongestinfinancialtermsandoneofthemostinfluentialoligarchgroupsinUkraine.ThepivotalfigureinthisgroupisRinatAkhmetov,Ukraine’srichestbusinessman.VadymNovinskyishisbusinesspartnerinthesteelindustry.Anotherofhisbusinesspartners,BorysKolesnikov,thedepu-typrimeministerinchargeofEuro2012,isreportedlyalsoamemberofthisgroup.AnumberofUkrainianpoliticians,includingRaisaBogatyreva(deputyprimeministerandhealthcareminister),IrynaAkimova(firstdeputyheadofthePresidentialAdministration)andRinatKuzmin(deputyattorneygeneral),arebelieved tohave linkswithAkhmetov.This annexeprovidesanoutlineofonlythosemembersofthisgroupwhohaveahighpositioninbusiness,i.e.Akhmetov,NovinskyandKolesnikov.

2.1. Rinat Akhmetov

Hewasbornin1966inDonetsk.HisfatherwasaminerwhohadimmigratedfromTatarstan.Noproveninformationisavailableonthebeginningsofhisac-tivity.Inthefirsthalfofthe1990s,hewasprobablylinkedtoAkhatBragin(nick-nameAlikGrek),aleaderofthecriminalunderworldintheDonetskOblast,whowasthepresidentofShakhtarDonetskFootballClub160.Themid1990ssawavio-lentstruggleforinfluenceinwhichanumberofrepresentativesofboththema-fiaandthepoliticalandbusinesselitewerekilled161.Akhmetov’ssignificanceintheregionstartedtogrowafter1995,whenBraginwasassassinated.

160 LinksbetweenAkhmetovandBraginweredocumentedintheoperationalevidenceoftheMinistryofInternalAffairs,http://www.youtube.com/watch?v=dA29BDRfCEA

161 Arkadiusz Sarna, ‘Ukraińska metalurgia: gospodarcze ogniwo oligarchicznego systemuwładzy’,AnalizyOSW,1May2002.

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In1995,AkhmetovbecameashareholderoftheDonetsk-basedDongorbanktoquicklybecomethebusinessleaderofDonbassbytakingovermoreandmorecompaniesandplants,alsointhemetallurgicalindustry.ViktorYanukovychbecamethegovernoroftheDonetskOblastin1997,andthencloseco-operationbetween the oligarch and the future president began. Yanukovychwas thepoliticalrepresentativeoftheDonetskclan,firstasthegovernor(1997–2002)andlaterastheprimeminister(2002– January2005),whileAkhmetovwasthemost importantbusinessman in the clan.Thiswas the timeof the sud-denexpansionofAkhmetov’sbusiness,first of all inmetallurgybut also incoalminingandelectricityproduction.AkhmetovbackedViktorYanukovychfinanciallyduringthepresidentialelectioncampaignin2004.FollowingtheOrangeRevolution,despitethelossofKryvorizhstal,AkhmetovreinforcedhispositionasUkraine’srichestbusinessman.

Despitehisenormousinfluenceonpoliticsatthedistrictandthennationallevel,theonlypositionAkhmetovheldbetween1996and2006wasthatofthepresidentofShakhtarDonetskFootballClub.HewonaseatintheVerkhovnaRadaasarep-resentativeofthePartyofRegions(no.7onthelist)intheparliamentaryelectionsin2006and2007,buthedidnottakeanactivepartinparliamentarywork.Atthattime,thepathsofAkhmetovandYanukovychbegantograduallysplit,butthiscouldnotbecalledaconflict.Yanukovych,inhisattemptstobecomeindepend-entfromAkhmetov,startedtorelytoagreaterextentontheRUEGroup.Hisat-temptstodistancehimselffromAkhmetovbecameevenmoreevidentwhenhewaselectedpresidentandstarted tobuildhisownbusinessbase (‘the family’).DespiterepeatedmediareportsontheescalatingconflictbetweenthepresidentandAkhmetov162,itisdifficulttopointtoanypreciseexampleswhichcouldprovethis.Onthecontrary,AkhmetovcanrecognisethetwoyearsofYanukovych’sruleasthebesttimeinhisbusinesscareer,onesignofwhichistheentrenchmentofhisdominantpositioninthesteelindustryandpowerengineering.

Assets

Akhmetov owns companies which operate in very different sectors of theeconomy.However,hispowerisbasedonthreepillars:themetallurgicalin-dustry,powerengineeringandthemedia.ThegreaterpartofAkhmetov’sas-setsareconcentratedinSystemCapitalManagement(SCM),Ukraine’slargest

162 ‘Во власти зреет конфликт между „семьей” и группой Ахметова’,Послезавтра, 17No-vember2011,http://poslezavtra.com.ua/vo-vlasti-zreet-konflikt-mezhdu-semej-i-gruppoj-axmetova/

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corporation,whichwasfoundedin2000.ItisestimatedthatSCM’sassetsareworthUS$22.8billion163.MostofthefirmswhichformtheSCMstructureareownedbySCMLtd andSCMHoldingsLtd,which are registered inCyprus;theirsoleshareholderbeingAkhmetov.

Metallurgy

TheplantsoperatinginthemetallurgicalindustryarepartofMetInvestHold-ing,whereSCMhasa71.25%stake,while23.75%belongtoVadymNovinsky’sSmartHolding.MetInvesthasanintegratedproductionchain,whichincludesironoreandcoalmines,oreenrichmentworks,metallurgicalplantsandcom-panieswhich specialise in production sales. The fact thatMetInvest has itsownoreminesensuresitaccesstocheaprawmaterials164.

MetInvest is Ukraine’s largest iron ore manufacturer. The Ingulets works,NorthernworksandCentralworksallextractandenrichore.TheKomsomol-skoye oremineproduces limestone, andKrasnodonugol isUkraine’s secondlargest coking coalmine.MetInvest also controls theUnitedCoalCompany,whichhascoalminesintheUSA.

MetInvestownsfactorieswhichmanufacture40%ofUkraine’ssteelproduc-tion:Azovstal,theIlyichSteelandIronWorksinMariupol,theYenakieveMet-allurgicalWorksandtheKhartsyzskPipePlant,whichmanufacturespipesforoilandgaspipelines.MetInvestalsohasmetallurgicalplants inothercoun-tries:PrometSteel(Bulgaria),FerreiraValsiderandMetInvestTrametal(Ita-ly)andSpartanUK(UnitedKingdom).Furthermore,theholdingownsplantswhichsupportsteelproduction:theAvdiivkaCokeandChemicalPlant,InkorChemicalsandtheKondratievskyRefractoryPlant.

Skif-Shippingand theDanubeShippingStevedoringCompanyare inchargeof transporting the holding’s products both inside Ukraine and for export.MetInvest-Ukraine,MetInvest-SMC,MetInvest-InternationalandMetInvest--Eurasiaselltheholding’sproductioninUkraineandabroad.

163 Value at end of 2010 according to data from SCM http://www.scm.com.ua/ru/business/overview/

164 Akhmetov also used this against his competitors from ISD, who – given the high oreprices offered byMetInvest –were forced to buy rawmaterials fromRussia andBrazil:‘Тарута и Ахметов не поделили сырье’,Trust.UA,23February2010,http://www.trust.ua/news/22783.html

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The power engineering sector

DTEK(DonbassFuel-EnergyCompany)ownsassetsinthepowerengineeringsector.Theseincludethreegroupsofplantsdealingwithcoalmininganden-richment,andelectricityproductionanddistribution.Theintegratedproduc-tionchainmakesDTEK independent fromexternal suppliers.Thecompanyemploysover100,000people,anditsincomein2011reachedalmostUS$5bil-lion165.Forcomparison,theUkrainianstatebudgetrevenuesinthesameyearwereatUS$43billion.

Coal is mined by: Pavlogradugol, Dobropolyeugol, Sverdlovantratsyt andRovenkyantratsyt(eachofthemownsseveralcoalmines)andtheKomsomo-letsDonbassacoalmine.Inmid2012,DTEKboughtthreecoalminesinRos-tovOblast (RussianFederation):DonskoyAnthracite, Sulinantratsit and theObukhovskayaMine,whicharelocatedclosetotheUkrainianborder,soastoensurecheaprawmaterialsupplies.

DTEKalsoownsDTEKNaftogaz166, anoil andgasproducer, andhas a 25%stakeinVancoPrikerchenska.CoalisenrichedbythePavlogradskaya,Kura-khovskaya,Dobropolskaya,Oktyabrskaya,MospinskoyeandObukhovskaya(thisoneisinRussia)coalenrichmentplants.DTEKTradingisalsoinchargeofcoaltrade,whichissoldtobothDTEKpowerplantsandtheotherplantsownedbySCM.

Electricity is produced by businesses consisting of several thermal powerplants:Skhidenerho,Kyivenergo,DnieproenergoandZakhidenerho.The lat-terincludes‘BurshtynIsland’consistingofpowerplantswhichareintegratedwith theEU’sENTSO-E,whichmakes itpossible to export electricity toEUmemberstates.TheplantscontrolledbyDTEKproduceover30%ofUkraine’selectricityconsumption.DTEKalsointendstodevelopelectricityproductionusing renewable energy sources. TheWind Power company is planning tobuildwindpowerplantsintheDonetskandZaporizhiaOblasts.

Electricitysales to individualand industrial recipients inUkraineandelec-tricity exports are handled by Servis-Invest, PES-Energougol, DTEK PowerTrade,Kyivenergo,DonetskoblenerhoandDnieprooblenerho.

165 О нас, ДТЭК, http://www.dtek.com/ru/about-us166 Nottobeconfusedwiththestate-ownedNAKNaftohaz.

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The media

TheelectronicmediaassetsareconcentratedinMediaGroupUkraine,whichowns a television channel with nationwide coverage ‘Ukraina’, a regionalchannel‘Donbass’andtwosportschannelsFootballandFootball+.Italsoin-cludestheInternetportaltochka.net.

Akhmetov also holds a strong position on the press market. His holding,Segodnya-multimedia,controlsoneofUkraine’slargestdailies,Segodnya(withacirculationof150,000)andtheInternetportalsegodnya.ua,aswellasseverallocalpresstitlesintheDonetskOblast.

Other assets of System Capital Management

SCMalsohasastrongpositioninothersectorsoftheeconomy:

• In the financial sector, it controls the banks FUIB (Ukraine’s 9th largestbank)andRenaissanceCredit(114thposition)andtheinsurancecompaniesASKAandASKA-Life.

• In telecommunications, SCM controls the Astelit company, which ownsa45%stakeinLife,themobilenetworkoperator,andVegaGroup,oneofthemajorfixed-linetelephonenetworkoperators.

• ESTA Group controls the real estate owned by SCM, including CUM inKyivand theDonbassPalaceHotel inDonetsk. IthasalsobeenreportedthatAkhmetovownsalargeamountofrealestateinUkraineandabroad.In2011,hereportedlyboughtaluxuryflatinLondonfor£136million167.

• TheGornyeMashinyHoldingdealswiththeproductionofminingequip-ment.TheholdingcontrolssixplantsinUkraineandoneinRussia.UnitedMineralsGroupLimitedhasthreebusinesseswhichspecialiseinclayex-traction.

• HarvEastHolding,whichiscontrolledbySCMandNovinsky’sSmartHold-ing(50%ofshareseach) is focusedontheagriculturalmarket.HarvEastowns over 200,000 hectares of arable land and 100,000 livestock. This

167 AlexHawkes,‘RinatAkhmetovpaysrecord£136.4mforapartmentatOneHydePark’,The Guard-ian,19.04.2011,http://www.guardian.co.uk/uk/2011/apr/19/rinat-akhmetov-one-hyde-park

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holdingwasestablishedinJune2011.Atpresent,itsdevelopmentstrategyisbeingdevisedand is tobepresented inmid2012.Thisholding standsagreatchanceofbecomingoneofthekeyplayersontheUkrainianagri-culturalmarket.

• Furthermore, SCM owns the Parallel filling station chain and a chainof nearly 100 supermarkets called ‘Brusnychka’, located across easternUkraine,achainofover200chemist’sshopsandseveralharboursatSev-astopolport.

2.2. Borys Kolesnikov

He was born in 1962 in Mariupol, Donetsk Oblast. He was believed to beAkhmetov’s right hand formany years. Now he has his own independentbusinessinterests,althoughmostlikelytheystillco-operateclosely.HehasbeenthedeputypresidentofShakhtarDonetskFootballClubsince1998.In1999–2001,hewasthedeputyheadofthecounciloftheDonetskOblast,andtheheadofthecouncilbetween2001and2006.HewaselectedtotheVerk-hovnaRadain2006and2007asaPartyofRegionscandidate(no.10onthelist).SinceMarch2010,hehasbeenthedeputyprimeministerresponsibleforEuro2012.InDecember2010,asaconsequenceoftheadministrativere-form,hewasalsoputinchargeoftheMinistryforInfrastructure.OwingtoKolesnikov’sactions,Ukrainemanagedtomakeupforitsdelaysintheprepa-rationsfortheEuropeanFootballChampionships.Thiswaspossiblemainlydue to skippingpublicprocurementprocedures formostof thework.Thisprovidedammunitionforhiscriticstoaccusehimofabusinghispowersonnumerous occasions, includingdiscrimination in favour ofAltkom, afirmwhichisbelievedtobelinkedtohim168.

Assets

• KontiGroup(co-ownedbyhiswife),whichcontrolsfourconfectioneryfac-tories: inDonetsk,Kostiantynivka,Horlivka (DonetskOblast) andKursk(Russia),whichmanufacturearound15%ofthesweetsproducedinUkraine.

168 Тетяна Ніколаєнко, Сергій Лещенко, ‘Хто заробляє на Євро-2012? Друга частина розслідування’, Украинская Правда, 19 January 2011, http://www.pravda.com.ua/arti-cles/2011/01/19/5805829/

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• Ukrinvest,acompanyoperatinginthefoodindustry.Itowns20,000hec-taresofland,grainsilosandpigfarms–withacapacitytobreed150,000pigs–andabattoirs.Thecompany’sproductsaresoldinachainof70storesnamed‘MyasnaVesna’(‘MeatSpring’).In2011,thiscompanyaccountedfor11%ofindustrialporkproductioninUkraine169.

• Altkom,agroupofcompanieswhichisprobablylinkedtoKolesnikov(hehimself denies this). In connectionwith the preparations for Euro 2012,Altkomwasgrantedanumberoflucrativecontracts,forexample,thecon-structionofarunwayinDonetsk(thecontractwasworthUAH1.8billion)andtheconstructionofLvivstadium(UAH1.4billion).

• KolesnikovhasadmittedthatheholdsstakesinsomeofAkhmetov’sfirms,addingthereservation,however,thatthesestakesarelow.Nodetailsareavailable,though.

2.3. Vadym Novinsky

Hewasbornin1963inStarayaRussa(Russia).In1985,hegraduatedfromtheLeningradAcademyofCivilAviationasanengineer.Heworkedinaviationbe-tween1985and1991.Hisemployersinthe1990’sincludedacompanycontrolledbyLUKoil.HehasbeenactiveinUkrainesince1999,whenheestablishedSmartGroup.Between2004and2007,hewasthechairmanofthesupervisoryboardofInguletsOreEnrichmentWorks.Since2006,hehasbeenthepresidentandthe chairmanof the supervisoryboardofSmartHolding.Due tohimbeingaRussiancitizen,hehasnotheldanypublicfunctionsinUkraineandhasnotactivelyparticipatedinUkrainianpoliticallife.

Assets

Most of Novinsky’s assets are located in Ukraine. He owns Smart Holding,whichincludesplantsoperatinginthemetallurgical,shipbuilding,construc-tionandagriculturalsectors.

• SmartHolding isSCM’sbusinesspartner inmetallurgyandagriculture.Novinskyholdsa25%stakeinMetInvestandhalfofthesharesinHarvEast.

169 Цифры и факты, Компания АПК-Инвест, http://www.apk-invest.com.ua/ru/about/num-ber-facts

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• Smartholdsa 54%stake in theBritishcompanyRoyalPetroleum,whichownsoilandgasfieldsinthePoltavaOblast.Thisholdingisalsoplanningtobuildtenplantsforfuelproductionusingbiomass(onefactory iscur-rentlyunderconstruction).

• In the shipbuilding industry, theholdingowns the shipyard inKhersonandtheBlackSeaShipyardinMykolaiv(thelargestoneinUkraine).

• Kryvorizhaglostroy,acompanywhichbuildsandrepairsindustrialprem-ises.TheplantscontrolledbyMetInvestareitskeyclients.

• The holding also includes Smart-Nerudprom, which controls the plantswhichmanufactureconstructionmaterialsinCrimeaandZaporizhia.

• Balaklava Green is a holiday resort located around Balaklava, Crimea.Smart is also taking part in the preparations for theOchakiv port con-structionproject.

• ItownstwentyAmstorehypermarkets.

• In the agricultural sector, in addition to HarvEast, Novinsky owns theVeresgroupofcompanies(whichdealwithfruitproductionandprocess-ing)andthearboriculturefirmVesna.

3. The RUe Group

This name originates from the name of the company RosUkrEnergo (RUE),whichwasactingasanagent inRussiangas imports in2004–2009.Atpre-sent, alongwith Akhmetov, this is themost influential oligarchic group inUkraine. It is commonly recognised that itsmembers are: the businessmanDmytroFirtash,energyministerYuriyBoyko,deputyprimeministerValeriyKhoroshkovskyiandtheheadofthePresidentialAdministration,SerhiyLyo-vochkin.Althoughthemediaoftenusethetermthe‘Firtashgroup’,itisdif-ficulttodeterminetherealhierarchywhichexistsamongitsmembers.SomebelievethatFirtashisthemainplayerinthisgroup,whileothersclaimthatheismerelyapuppetinthehandsofseniorstateofficials.AllthemembersoftheRUEGrouphaveearnedthereputationofbeingpro-Russianpoliticians.ThisisnotaboutideologybutratheraboutsomeuncleardealswithrepresentativesofRussiancapitaloropenlobbyingforRussianinterests.Itseemsthatsince2011,KhoroshkovskyiandLyovochkinhavebecomeorienteddirectlytowards

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PresidentYanukovychandhavebeendistancingthemselvessomewhatfromFirtash.

The assets owned by Firtash and Khoroshkovskyi are outlined below. Lyo-vochkinandBoykoofficiallydonotownanymajorfortunes.However,theyarebelievedtohavebusinessconnectionsprimarilywithFirtashandhispartnerinRosUkrEnergo,IvanFursin.Accordingtomediareports,Lyovochkin’ssisteristakingcareofinterestsinFursin’sbusinesses170.

3.1. Dmytro Firtash

Hewasborn in 1965 inwBogdanovka (TernopilOblast).Hegraduated fromtherailwaytechnicalsecondaryschoolinDonetskin1984.Intheearly1990s,heleftforMoscow,wherehestartedhisbusinessactivity(foodindustry).Lit-tleisknownabouthisactivityatthattime.LateronhewasengagedinbartertransactionswithTurkmenistan: he exchanged food for natural gas,whichhethensoldtoUkraine171.Intheearly2000s,hewasEuralTransGas’srepre-sentativeforCentralAsia.ThisfirmwasthekeyagentinthesaleofgasfromTurkmenistanandRussiatoUkraine172.In2004,thiscompanywasreplacedbyRosUkrEnergo.FirtashwaslittleknowninUkrainebefore2006.Hisnamewaspubliclymentionedforthefirsttimewhenthemediarevealedthesharehold-ersofRosUkrEnergo,whichhehasa45%stakein(50%ofthesharesbelongtoGazprom,andtheother5%toanotherUkrainianbusinessman,IvanFursin).

Firtashhasbeendistancinghimselffromdirectparticipationinpoliticallife.HemadeanattempttobecomeanMPin2002,buthewasseekingelectionasacandidateofapartyofmarginalsignificance(WomenfortheFuture),whichdidnotpasstheelectionthreshold.After2006,Firtashprovidedfinancialsup-porttoPresidentYushchenkoandwasamongthekeysponsorsof thePartyofRegions.Thiswasoneof the reasons forhisbitter conflictwith the thenprime minister, Yulia Tymoshenko, who in 2009 brought RosUkrEnergo’sstatus as an agent in Russian gas trade to an end.When Yanukovychwontheelection in2010,Firtashmanagedtocarryoutanumberof takeovers in

170 Наталья Приходько, ‘Лица новой власти. Консильери’, LB.ua,5March2010,http://lb.ua/news/2010/03/05/30151_litsa_novoy_vlasti_konsileri.html

171 Фирташ, Дмитрий Васильевич, Генштабъ, 25May 2012, http://genshtab.censor.net.ua/wiki/Фирташ,_Дмитрий_Васильевич

172 Владимир Бережной, ‘Кто владеет украинским газом’,Известия,26April2006,http://izvestia.ru/news/313258

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thechemicalindustryandthusgainedthedominantpositioninthissector.HewasabletopurchasetheseplantsmainlyduetoRussianloans173.Althoughhehasnotregainedhisroleasagastradeagent,hiscompany,Ostchem,hasim-portedgasdirectlyfromRussiaandCentralAsiafortheneedsofhischemicalplants(4.8billionm3in2011)174.

AlthoughFirtashiscurrentlyoneofthebest-knownoligarchsinUkraine,heisalsoamongthemostmysteriousfiguresinUkrainianbusiness.InadditiontostrongconnectionswithRussia,Firtashhashazylinkswiththeorganisedcriminalunderworld.HeadmittedinaconversationhehadwiththeUSam-bassadorin2008thathehadbeengivenconsenttostartbusinessactivity(thisprobablyconcernedEuralTransGas)bySemionMogilevich,amafiaboss,whoisontheFBI’slistoftoptenmostwantedfugitives175.

Assets

Firtash’sassetshavebeenconcentratedinGroupDFsince2007.Hehasassetsinthechemicalandtitaniumindustries,andinthegasandfinancialsectors.

• ThechemicalplantsbelongtoOstchemHolding,acompanyregisteredinAustria(90%ofitssharesareheldbyGroupDFand10%byIvanFursin).Ostchemcontrolsplantswhichmanufactureartificial fertilisers, includ-ing:theSievierodonetskAzotAssociation,theNitrogenFertiliserFactoryinCherkasy, theNitrogen Fertiliser Factory inRivne, Stirol corporationandtheCrimeanSodaPlant,andalsothenitrogenfertilisercompanyNi-trofertinEstoniaandJVTajikAzotinTajikistan.TheplantscontrolledbyOstchemmanufacture100%ofUkraine’sproductionofammoniumnitrateandover50%ofammoniaandcarbamide.

• OstchemHoldinghassharesintheCrimeaTitanplant(50%minus1share)andtherighttoafive-yearleaseoftheVolnogorskyandIrshanskyminingandmetallurgicalworks.

173 Олег Гавриш, Александр Черновалов; Наталья Гриб, ‘Всеобщее удобрение’, Коммерсант,7February2011,http://www.kommersant.ua/doc/1580931?isSearch=True

174 ‘Ostchemимпортировала из Средней Азии 4,8 млрд. кубометров газа’, УкрРудПром,21Feb-ruary 2012, http://ukrrudprom.ua/news/Ostchem_importirovala_48_mlrd_kubometrov_gaza_iz_Sredney_Azii.html

175 Roman Olearchyk, Neil Buckley, ‘Ukraine’s Firtash questioned over mafia ties’, Finan-cial Times, 2 December 2010, http://www.ft.com/intl/cms/s/0/f75446de-fe40-11df-abac-00144feab49a.html

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• In2003,FirtashestablishedEmfesz,acompanywhichusedtobeinvolvedingasdistributioninHungary(over20%ofthemarketshare)andPoland.However,asaconsequenceofaseriesoflawsuitsandanattemptedhostiletakeover,thiscompanyhaslostitspositionandisnownearlybankrupt176.

• Firtashhasadmittedthatheholdssharesinoblastandmunicipalgasdis-tribution firms (oblhazes andmistohazes),which control the networks ofgaspipelinesdistributinggastoendusers.Thisconcernsmajoritystakesinatleastseveralofthe52oblhazes operatinginUkraine(includingintheZakarpattia, Volhynia and Zhytomyr Oblasts)177. Furthermore, he holdsoptionswhichauthorisethepurchaseofsharesinsomeoftheremainingoblhazes. Heisalsoamongtheleadingcandidatesforthetakeoverofstate-ownedshares inthe48oblhazes andmistohazes whichareearmarkedforprivatisationin2012.

• In 2011, Centragas, a company registered inAustria (90%GroupDF, 10%Fursin)boughtNadraBank(Ukraine’s 11th largestbank),whichhadbeennationalisedduringtheeconomiccrisisin2009.

• In 2011, Firtash bought theNika-Tera port terminal inMykolaivOblast.Nowthathehasaportofhisown,itwillbeeasierforhimtoexporthischemicalproductiontoforeignmarkets.

3.2. Valeriy Khoroshkovskyi

Hewasbornin1969inKyiv.Hewaseducatedasalawyer.HegraduatedfromtheTarasShevchenkoNationalUniversityofKyiv.Hisemployersinthe1980’sincludedtheArsenal factoryandthezoo inKyiv.Between1994and1997,hemanagedtwosmallcompanies,VenedaLtdandMerksInternational.

Heembarkedonpoliticalactivity in 1996by joiningthePeople’sDemocraticParty of Ukraine led by Valeriy Pustovoitenko, who was later nominatedprimeminister.KhoroshkovskyiwaselectedtotheVerkhovnaRadain1998.He soughtelection for thenext tenure in2002as a candidateof anewpar-ty, Team ofWinter Generation,which however did notmanage to pass the

176 Алексей Топалов, Ольга Алексеева, ‘Фирташ вернул одно название’,Газетa.Ru.9Novem-ber2011,http://www.gazeta.ru/business/2011/11/09/3827794.shtml

177 Игорь Маскалевич, ‘Газопеределки’, Зеркало недели,4November2011,http://zn.ua/ECO-NOMICS/gazoperedelki-90970.html

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election threshold. In thesameyear,hewasnominatedfirstdeputyheadofthePresidentialAdministration.Inlate2002,hewasnominatedministerfortheeconomy inYanukovych’sgovernmentbuthe resignedat thebeginningof2004afteraconflictwiththethendeputyprimeminister,Azarov.Follow-ingtheOrangeRevolution,Khoroshkovskyimanagedtofindcommongroundwith the new government. In 2006, President Yushchenko nominated himfirstdeputysecretaryoftheNSDC,butKhoroshkovskyiresignedafterafewmonths.HebecametheheadoftheStateCustomsServicein2007.Whilehold-ingthisposition,hecameintoconflictwithPrimeMinisterTymoshenkooverthe11billionm3ofgaswhichhadbeenconfiscatedfromRosUkrEnergo.InJanu-ary2009,YushchenkonominatedKhoroshkovskyifirstdeputyheadoftheSe-curityServiceofUkraine(SBU).AfterYanukovychwonthepresidentialelec-tion,KhoroshkovskyibecametheheadoftheSBU.InFebruary2012,hewasappointedasfirstdeputyprimeministerinthecabinetledbyAzarov.

AlthoughKhoroshkovskyiisseenasamemberoftheRUEGroup,hestillap-pears tobea relatively independentplayer, andhis linkswithFirtashhaveweakenedrecently.HisconnectionswithRussiancapitalareunclear.Between2005 and 2006, Khoroshkovskyiwas the president of Russia’s EvrazGroup,oneoftheworld’slargeststeelmanufacturers178.Furthermore,Russia’sKanal1holdsa29%stakeinInter,thepivotalTVchannelinKhoroshkovskyi’smediacorporation.Khoroshkovskyidoesnot concealhispolitical ambitionsand ismentionedasoneofthekeycandidatesforthenextprimeminister.

Assets

• HiskeyassetistheU.A.InterMediaGroup,Ukraine’s largestmediacor-poration.Khoroshkovskyi isthepredominantshareholderandCEOof it.Hebought it in 2005.U.A. InterMediaGroup includes theTVchannels:Inter, K1, K2, NTN,Megasport andMTVUkraine, and the news agencyUkrainianNews.SomemediaoutletshavereportedthatFirtashistherealownerofInter,butnohardevidencehasbeenputforwardtoprovethis179.

• Between 2004 and 2006 Khoroshkovskyi, disposed ofmost of his inter-estsinothereconomicsectors.HesoldhismajoritystakeinUkrsocbank

178 Татьяна Ивженко, ‘Evraz Group возглавил украинец’, Независимая газета,29November2005,http://www.ng.ru/cis/2005-11-29/5_evraz.html

179 Мустафа Найєм, Сергій Лещенко, Олігархічні війни. Хорошковський як маска Фірташа?Украинскaя Правда,30.07.2008,http://www.pravda.com.ua/articles/2008/07/30/3505053/

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toViktorPinchuk.Healsosoldhis0.93%stakeinEvrazforUS$80millionin2006180.

4. The other oligarchs from the Party of Regions

4.1. The Klyuyev brothers: Andriy and serhiy

AndriyKlyuyevwasbornin1964inDonetsk.HegraduatedfromtheDonetskPolytechnicInstitutein1986,withaMaster’sdegreeinEngineeringinMining.HewasawardedaPhDin1989.Hewasworkingataminebetween1983and1986.Then,between1986and1991,hewasanacademicworkerattheDonetskPolytechnicInstitute.Between1991and1994,hewasdirectorgeneralofUkr-podshipnik,acompanyinDonetsk.

In1994,hebegantoworkforthelocaladministration,firstasdeputyheadoftheDonetskOblastcouncil,andthenasdeputymayorofDonetskanddeputygov-ernorofDonetskOblast,whenViktorYanukovychwasthegovernor.HewaselectedtotheVerkhovnaRadain2002asarepresentativeofthePartyofRe-gions.Between2003and2004,hewasadeputyprimeministerinYanukovy-ch’scabinet.HewonaseatintheVerkhovnaRadaintheparliamentaryelec-tionsin2002,2006and2007asarepresentativeofthePartyofRegions.Heheldthefunctionofdeputyprimeministerforenergybetween2006and2007,whenYanukovychwasprimeministerforthesecondtime.HewasappointeddeputyprimeministerandministerfortheeconomyinAzarov’scabinet.Followinghisdismissal from this function inFebruary2012, thepresidentnominatedhimsecretaryoftheNationalSecurityandDefenceCouncil.KlyuyevisamongthemostinfluentialpoliticiansinthePartyofRegionsandatrustedmanofPresi-dent Yanukovych. In 2011, the media published materials suggesting thatKlyuyevhadbeenhelpingthepresidenttohidehisassetsabroad181.

SerhiyKlyuyevwasbornin1969inDonetsk.Hewaseducatedasminingen-gineer.In1992,hegraduatedfromtheDonetskNationalTechnicalUniversity.Between1992and2002,hewasworkingatdifferentpositionsforUkrpodship-nik,includingasdeputypresidentandthechairmanoftheboardofdirectors.Between2002and2005,hewasdeputyheadof theDonetskOblast council.

180 Променял “Евраз” на политику,Ведомости,12.12.2006,http://www.vedomosti.ru/news-paper/article/2006/12/12/117490

181 Сергій Лещенко, ‘Офшорний дах для Януковича та Клюєва’,Украинскaя Правда,21Octo-ber2011,http://www.pravda.com.ua/articles/2011/10/21/6693989/

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HewaselectedtotheVerkhovnaRadain2006and2007asarepresentativeofthePartyofRegions.Atpresent,heisthedeputyheadoftheparty’sparliamen-taryfaction.

Assets

ThetwobrothersjointlycontrolUkrpodshipnikGroup,whichconsistsoftensofcompaniesandfirms,themostimportantofwhichoperateinthemachine-building industry and the renewable energy sector.Ukrpodshipnikhas thereputationofbeingoneofthemostpowerfulfinancialandindustrialgroupsinUkraine.Thestructureofthisgroupisnottransparent.TheestimatedvalueofitsassetsrangesfromUS$140million182toUS$1.21billion183.

• HoldingActivSolarbuildssolarpowerplantsandistheleadingsolaren-ergyproducerinUkraine.AlthoughtheUkrainianmediaregularlyclaimthatActivSolarisownedbyKlyuyev,thedirectorofthisholdinghasde-nied that its shareholders include investors from Ukraine184. Formally,ActivSolarbelongstoacompanyregisteredinLiechtenstein.Thepowersectorbasedonrenewableenergyisprofitablebecauseofthe‘greentariff’settingspecialrates(fivetimeshigherthanmarketprices)atwhichelec-tricityproducedbysuchpowerplantsisbought.

• TheSemiconductorPlantinZaporizhiamanufacturescomponentsforso-larpowerplants.Itis75%controlledbyActivSolar.

• Ukrpodshipnik also has assets in themachine-building andmetallurgi-cal industries,whichinclude:theArtyomovskmachineBuildingFactory‘VISTEC’ (non-ferrousmetallurgy), theArtyomovskNon-FerrousMetalsProcessingWorksandtheKonstantinovkaMetallurgicalWorks.

• TheKlyuyevbrothersalsoprobablyholdaminoritystakeinProminvest-bank (the 6th largest inUkraine),which is 93.84% controlled by Russia’sVnesheconombank.

182 ‘Сергей Клюев, Андрей Клюев’,Корреспондент, http://files.korrespondent.net/projects/top50/2011/1229140

183 ‘Андрей и Сергей Клюевы’,Комментарии,17February2011,http://gazeta.comments.ua/?spec=1297976487&sart=1297977858

184 Игорь Гошовский, Йоган Хартер: ‘Солнце - тоже бизнес’,Инвестгазета, 18 April 2011,http://www.investgazeta.net/kompanii-i-rynki/jogan-harter-solnce---tozhe-161133

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4.2. serhiy Tihipko

Hewas born in 1960 in Draganesti (Moldova). He graduated from theMet-allurgical Institute inDnipropetrovskin1982. Inthe1980s,hewastheheadoftheKomsomol’sagitationandpropagandadepartmentinDnipropetrovsk.Between1989and1991,hewasthefirstsecretaryoftheKomsomoloblastcom-mittee.Hebecameengagedinbusinessin1991.HewasappointedCEOofPri-vatbankin1992,butheleftPrivatGroupafewyearslatertofocusonhisownbusiness,predominantlyinthefinancialsector.

Between1994and1997,hewasamonetarypolicyadvisortoPresidentKuchma.In1997,TihipkowasnominateddeputyprimeministerinthecabinetledbyPavloLazarenko and thenbyValeriyPustovoitenko (until 1999). Some timelater,hewas theminister for theeconomy in thegovernment ledbyViktorYushchenko.HewastheheadoftheNationalBankofUkrainebetween2002and2004.TihipkowonaseatintheVerkhovnaRadain2000asaconsequenceofasupplementaryelection.Hewaselectedagainin2002andjoinedthepro-presidentialfactionForUnitedUkraine.Between2000and2005,hewasthepresidentoftheLabourParty,whosemainsponsorwasViktorPinchuk.Tihip-kowastheheadoftheViktorYanukovychcampaignteaminthepresidentialelectionof2004,butheresignedwhentheOrangeRevolutionbrokeoutandwithdrewfrompoliticsuntil2009.Tihipkoranforpresidentinthe2010elec-tion.HecamethirdandestablishedtheStrongUkraineparty.InMarch2010,hebecame thedeputyprimeminister in chargeof theeconomy inAzarov’scabinet,andlaterin2010,asaconsequenceoftheadministrativereform,hewasnominateddeputyprimeministerandministerforsocialpolicy.Hedis-solvedhispartyinMarch2012tojointhePartyofRegions,whereheholdsthepostofdeputypresident.

Assets

TihipkoisthefounderandthepredominantshareholderofthefinancialandindustrialgroupTAS,whosemainareasofoperationarethefinancialsector(bankingandinsurance)andthemachine-buildingindustry.

• TASInsuranceGroupandtheInsuranceCompanyTAS(lifeinsurance)op-erateintheinsurancesectorandareleadersonUkrainianmarket(5thand

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2ndpositionintermsofassets,respectively)185.Tihipkohasbeenmakingef-fortstofindabuyerforthesetwocompaniesforseveralyearsnow186.

• Currently,TASGroupcontrolsonlyasmallbank,TASKombank(67thposi-tioninUkraine),whileinthepastTihipko’sassetshadamuchstrongerpo-sitioninthebankingsector.However,in2007,hesoldhisTAS-Investbankand TAS-Commerzbank to the Swedish group Swedbank formore thanUS$700million.

• In the machine-building sector, TAS jointly with Privat Group controlsDniprovagonmash and Kryukiv Rail Car, whichmanufacture passengerandfreightrailcars,andthesteelcastingworksinKremenchuk.

• TASisalsoinvolvedinpropertydevelopmentprojects–theconstructionofresidentialandofficebuildings.Furthermore,thisgroupcontrolsachainofchemist’s shopsand the ‘Stolichny’ reinforcedconcrete factory. Italsomanages an agricultural company,which leases 30,000hectares of landwiththeSwedishinvestmentcompanyKinnevik.

4.3. Oleksandr yaroslavsky

He was born in 1959 inMariupol (Donetsk Oblast). He graduated from theKharkivpoliceacademyand fromtheKharkiv InstituteofFoodScience.HewasworkingforKharkiv’spolice in 1986–1987.Yaroslavskystartedhisbusi-nessactivityintheearly1990s.HiscareergainedmomentumafterhemarriedadaughterofOleksandrMaselsky,aformergovernorofKharkivanddeputyprimeministerofUkrainein1992.In2002,hewaselectedtotheVerkhovnaRadaasarepresentativeoftheGreenParty.Althoughheisnotcurrentlyactiveinpolitics,hehasclosecontactswithPresidentYanukovych,althoughhisrela-tionswithlocalrepresentativesofthePartyofRegionsarestrained187.Atpre-sent,heisthemostinfluentialbusinessmaninKharkiv,Ukraine’ssecondlarg-estcity.HeisthepresidentandtheownerofMetalistKharkivFootballClub.

185 ‘Рейтинг страховых компаний Украины за 3 месяца 2012 г.’,ForInsurer,http://forinsurer.com/ratings/nonlife/12/3/3/

186 Николай Максимчук, ‘Павел Царук рискнул по-крупному’, Коммерсант, 22 February2012,http://www.kommersant.ua/doc/1878478

187 ‘Кернес vs Ярославский: кто же действительно „Король Харькова”?’,ATH,24Februrary2012,http://atn.ua/newsread.php?id=74379

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The assets

AlthoughYaroslavskyisstillmentionedineachrankingofUkraine’stoptenortwentyrichestpeople,wherehisfortuneisusuallyassessedasbeingworthoveronebilliondollars,hesoldhiskeyassetsafewyearsago.Yaroslavsky’sstakeinUkrSibBank(17.6%)wassoldin2006totheFrenchgroupBNPPari-bas.In2011,hesoldthenitrogenfertiliserfactoryinCherkasytoFirtash,re-portedlyforUS$800million188.Hispresentbusinessactivityisfocusedonthepropertydevelopment sector, inwhichhehas twocompanies:DevelopmentConstructionHoldingandXXIVek.HealsoownstheUkrainianMiningCom-pany,whichproducesgravel.Yaroslavsky’sfirmswereentrustedwiththeim-plementationofprojectsaspartofpreparationsforEuro2012(includingtheconstructionoftheairportterminalinKharkiv)andalsotheconstructionofotherpropertiesinKharkiv,Kyiv,Odessaandothercities.

5. Privat Group – Ihor Kolomoyskyi and henadiy Boholyubov

PrivatisUkraine’ssecondlargestfinancialandindustrialgroup,afterAkhme-tov’s SCM.This group is controlled byKolomoyskyi andBoholyubov. In ad-ditiontothesetwooligarchs,whoplaythekeyroleinthisgroup,Privatalsohasafewminorityshareholders,suchasAlekseiMartynov.AccordingtodatapublishedbytheStateTaxService,PrivatGroupcontrolsoveronethousandfirms189,butitsstructureishighlynon-transparent.Itisimpossibletoproveinmanycases that theplants specifiedbelowareactuallyownedbyPrivat.Thegroup’skeyassetsareconcentratedinthefinancial,fuelandmetallurgicalsectors,andalsointhemediaandinairtransport.Theareasofresponsibilityaredividedwithinthegroupinaninformalmanner.Kolomoyskyiisinchargeoftheenergysector,andBoholyubovisinchargeofbankingandmetallurgy.Giventhelackoftransparencyintheownershipstructureinsidethegroup,theassetshavebeendescribedasassetsofPrivatGroup.

Ihor Kolomoyskyiwasbornin1963inDnipropetrovsk.Hestartedhisbusi-nessactivityin1990,tradingincomputersoftware(althoughaccordingtosome

188 Андрей Самофалов, ‘Дмитрий Фирташ высаживается в Черкассах’,Укррудпром,4March2011,http://www.ukrrudprom.ua/digest/Dmitriy_Firtash_visagivaetsya_v_Cherkassah.html

189 Андрій Вишинський, ‘Податкова офіційно визначила ФПГ’,Украинскaя Правда,30March2012,http://www.epravda.com.ua/publications/2012/03/30/320310/

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data,hewasengaged inbusinessactivityalready in 1985)190. In 1992,heandHenadiyBoholyubovestablishedPrivatBank,which soonbecameUkraine’slargestbank.Kolomoyskyihasnotparticipatedincurrentpolitics,but–de-pendingonhisownneeds–hehasbackedvariouspoliticalforces,mainlythosefromthe‘Orange’camp.Theoligarchhasbeenaccusedonmanyoccasionsofaggressivebehaviourinbusinessandofusingraiderpractices191.Criminalpro-ceedingsonchargesoforderingcontractkillingshavebeenlaunchedagainsthimtwice.KolomoyskyihasbeenthepresidentoftheUnitedJewishCommu-nityofUkrainesince2008andthepresidentoftheEuropeanCouncilofJewishCommunitiessince2010.

henadiy Boholyubovwasbornin1962inDniprodzerzhynsk.Hegraduatedfrom theDnipropetrovsk Institute of Civil Engineering. In 1990, he becameengagedinbusinessactivitywithKolomoyskyi.Unlikehisbusinesspartner,Boholyubovshunspublicityandhasconsistentlyavoidedanyinvolvementinpolitics.Boholyubov,likeKolomoyskyi,isofJewishbackground.Hehasbeenthe leaderof the Jewishcommunity inDnipropetrovsksince 1998.Owing tosupportfromthesetwobusinessmen,DnipropetrovskwillbehometoMenora,thelargestJewishcentreinEasternEurope192.

Assets

• PrivatbankisthelargestfinancialinstitutioninUkraine.Unlikemanyoth-erbanks,itsurvivedtheeconomiccrisisof2009withoutproblemsandhasgeneratedprofitseveryyearsince.In2011,itsprofitexceededUAH1.4billion,whiletheentireUkrainianbankingsectorgeneratedatotallossofUAH7.7billion193.ThisgroupalsocontrolsbanksoperatingoutsideUkraine:TaoPri-vatBank(Georgia),Moscomprivatbank(Russia)andPrivatBankinLatvia.

• As regards the oil production sector, Privat holds 42% of the shares inUkrnafta,Ukraine’s largestproducerof oil (2.5million tonnes) andgas

190 ‘Коломойский Игорь Валерьевич’,Ліга.Досье,20April2007,http://file.liga.net/person/589-igor-kolomoiskii.html

191 ‘Коломойский пользовался услугами рейдеров’, Минпром,27February2009,http://min-prom.ua/news/10541.html

192 ‘Коломойский строит самый большой еврейский центр в СНГ’, Корреспондент,5August2008, http://korrespondent.net/ukraine/events/544658-kolomojskij-stroit-samyj-bolshoj-evrejskij-centr-v-sng

193 Доходи та витрати банків України за 2011 рік, Національний банк України, http://www.bank.gov.ua/control/uk/publish/article?art_id=84911&cat_id=87530

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(2.5billionm3)194.Although thestate-ownedcompanyNaftogazholds themajoritystake,itisKolomoyskyiwhoreallycontrolsUkrnafta.Privatalsohas25%ofthesharesintheBritishcompanyJKXOilandGas,whichhasfieldsinthePoltavaOblast.PrivatalsocontrolsUkrtransnafta,theformal-lystate-ownedUkrainianoilpipelineoperator.

• PrivatcontrolsUkraine’slargestrefineryinKremenchukandtwosmallerand outdated refineries in western Ukraine: Naftokhimik PrykarpattiaandtheHalychynarefinery.Privatowns1,500fillingstationsinUkraine,whosemarketshareisapproximately25%195.

• MetallurgyisamongthekeyareasofPrivat’sbusinessactivity.IncontrasttotheotherUkrainianoligarchs,thekeyassetsofthisgrouparelocatedabroad.Boholyubov’sPalmaryEnterprisecontrolsConsolidatedMinerals(Australia),whichaccounts for 10%ofglobalmanganeseoreproduction,andalsoGhanaManganeseandNsutaGoldMining (Ghana)andFelmanProductionferroalloyworks(USA).ItalsocontrolstheNikopol,ZaporizhiaandStakhanovFerroalloyPlants.Furthermore,Privatholdsstakesinthefollowing ferroalloy plants: Feral (Romania), Stalmag (Poland), Zestafon(Georgia)andAlapayevskMetallurgyPlant(Russia)196.

• Privatownstheairlines:Aerosvit,Dnieproavia,DonbassaeroandprobablyWindrose,whichhandlearound60%ofthepassengerflightsinUkraine.

• Privat has stakes in local electricity production and distribution plants(oblenergo)inPoltava,Sumy,ChernihivandTernopil,andalso16%ofthesharesinAkhmetov’sDniproblenergo.

• PrivathasoneofUkraine’slargestmediaempires,whichincludestheTVchannels1+1,2+2andTETandanumberofpresstitlesandInternetportals,suchasGlavred,UNIANnewsagency,Izvestia in Ukraine,Telekritika,ProfilandGazeta po-kievski.

194 Виробництво, Укрнафта, http://www.ukrnafta.com/ua/business/production195 Сергей Куюн, ‘Кого накормит «Нафтогаз»?’, Зеркало недели, 22 July 2011, http://zn.ua/

ECONOMICS/kogo_nakormit_naftogaz-84943.html196 ‘Геннадий Боголюбов’,Комментарии,17February2011,http://gazeta.comments.ua/?spec

=1297976487&sart=1297978459

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• Asregardsthechemicalindustry,thegroupownstheDniproAZOTchemi-cal works. In 2009, Kolomoyskyi won the tender for the privatisationofOdessaPortPlant,oneofUkraine’s largestchemicalplants,whichhasanammoniatranshipmentterminal.However,thistransactionwasnotfi-nalisedbecauseTymoshenkoinvalidatedthesale.

• Privat-AgroHolding, established in 2005, is one of the largest companiesoperating on the Ukrainian agricultural market. The holding includes24firmswhichleaseintotal150,000hectaresofland.

6. Other oligarchs

6.1. Viktor Pinchuk

Hewasbornin1960inKyiv.In1983,hegraduatedfromtheDnipropetrovskIn-stituteofMetallurgy,wherehewasemployedasalabassistant.Later,healsoworkedasanengineerandacademicworkerfortheStateResearchandDevelop-mentInstituteofthePipeIndustryinDnipropetrovsk.Hebecameengagedinbusiness in1990,whenheestablishedInterpipeGroup.Intheearly1990s, In-terpipeparticipatedinimportsofnaturalgasfromRussiaandTurkmenistan,whichwereconductedbyItera.Pinchukowedtherapiddevelopmentofhisbusi-nesstoagreatextenttohisrelationship(whichbecameamarriagein2002)withOlenaFranchuk,thedaughteroftheformerpresident,LeonidKuchma.

HewaselectedtotheVerkhovnaRadain1998and2002,andwasamemberandthekeysponsoroftheLabourParty.SincehehadactivelysupportedKuchma’srule,hehadsometransitionalproblemsaftertheOrangeRevolution(forex-ample,theinvalidationoftheprivatisationofKryvorizhstal).Hewasnotelect-edMPin2007,andhasbeenabsentfrompoliticssincethen.Pinchukis thegreatestpatronofmodernartinUkraine.HeactivelysupportsUkraine’sEu-ropeanintegrationbyholdingtheannualsummitinYaltaandthe‘Ukrainianlunch’duringtheDavosforum.HiswifemanagestheANITAIDSFoundation.PinchukisofJewishbackground.HeisanhonourablememberoftheJewishcommunityinDnipropetrovsk.

Assets

Pinchuk’s business extends primarily to two areas: metallurgy (mainlypipeproduction) and themedia, both electronic andprinted.His assets are

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concentratedinEastOneGroup.AlongwithAkhmetov’sSCM,thisisoneofthemosttransparentgroupsinUkraine.

• InterpipeGroupistheworld’sfourthlargestpipemanufacturerforpipeswhichareusedmainlyforoilandgaspipelines,theworld’sthirdlargestmanufacturerofrailwaywheelsandamajormanufacturerofferroalloys197.ItalsoownstheNizhnedneprovskyTubeRollingPlant,theNovomoskovs-kyPipePlant(RussianFederation)andtheNicoTubefactory.Furthermore,theDniprostalworksarenowunderconstruction.ItcontrolstheNikipolFerroalloyPlant–the largestplantofthiskindinUkraine– jointlywithPrivatGroup.

• StarlightMediaGroupsownsTVchannelswithnationalcoverage,suchasNovyi,ISTV,STBandQTV,andthemusicchannelsM1andM2.PinchukalsoownsthenewspaperFakty i Kommentarii,thebusinessweekliesDeloandInvest GazetaandthequarterlyTOP 100.

• Inthefinancialsector,PinchukownsCredit-DneprBank(26thpositioninUkraine),Rossiainsurancecompany,andhassharesinOranta,oneofthelargestinsurancecompaniesontheUkrainianmarket.In2007,hissharesinUkrsocbankwereboughtforUS$2billionbyItaly’sUniCreditGroup.

• Furthermore,PinchukownsGeoAlliance,oneofthelargestprivatepro-ducersofoilandgasinUkraine.

6.2. Petro Poroshenko

Hewasbornin1965inBolhrad(OdessaOblast).In1989,hegraduatedfromthelawandinternationalrelationsdepartmentsoftheTarasShevchenkoUniver-sityofKyiv.HereceivedaPhDinmanagementin2002.

Heembarkedonhispoliticalcareerin1998,whenhewaselectedtotheVerk-hovna Rada. Although he sought election as an independent candidate, hejoinedtheSocialDemocraticPartyofUkraine(united),whichrepresentedtheinterestsoftheKyivclan.Hebecamethe leaderofSolidaritypartyin2000,andhejoinedOurUkrainein2002.AftertheOrangeRevolution,heheldthe

197 ‘Пинчук сокращает своих сотрудников из-за НЗФ?’, Украинскaя Правда, 6 September2005,http://www.pravda.com.ua/rus/news/2005/09/6/4391607/

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functionofsecretaryoftheNationalSecurityandDefenceCouncil,buthewasdismissedasearlyasSeptember2005onchargesofcorruption.

Between2007and2012,hehasbeenthepresidentoftheboardoftheNation-alBankofUkraine.HeservedastheministerofforeignaffairsfromOctober2009toMarch2010.HewasministerfortheeconomyinthegovernmentledbyMykolaAzarovuntilMarch2012.

PoroshenkowasamongtheclosestaidesofViktorYushchenko,withwhomhealsohasprivatebonds;YushchenkoisgodfathertoPoroshenko’stwodaugh-ters. Nevertheless, Poroshenko is able to find common groundwith all themajorplayersontheUkrainianpoliticalscene.AlthoughhefoundhimselfinabitterconflictwithYuliaTymoshenkoin2005,hemanagedtogainhersup-portin2009,whichwasnecessaryforhisnominationasministerofforeignaf-fairs.Poroshenko’srelationswiththePartyofRegionshavealsobeenamicablesince2010.AlthoughPoroshenkowasdismissedasministerofforeignaffairs,Yanukovychofferedhimthepositionofminister for theeconomy inMarch2012.Poroshenkoacceptedthisproposal,withouthoweverstatinghis inten-tiontojointhePartyofRegions.

Assets

PoroshenkoownsUkrprominvest,whichcontrolsanumberoffirmspredomi-nantlyintheautomobileandfoodindustries.

• BohdanCorporation isamong thekeymanufacturersof carsand trucksand the largestmanufacturer of buses inUkraine. It includes CherkasyAutobus,assemblyplantno.1(busesandtrolleybuses),no.2(motorcars),no.3(trucks)andBohdanMotors198.Furthermore,thecorporationcontrolsdealernetworks, repairworksandBohdan transport company,which isengagedinforwarding.

• Ukravtozapchastinaincludesaplantfortheproductionoftractorsandoth-eragriculturalvehiclesandalsoothercarparts.Thecompanyalsocontrolsachainoffortywholesaleandretailsalespoints199.

198 ‘Богдан Корпорация’, Ліга.Досье, 4 August 2010 http://file.liga.net/company/2060-bog-dan_korporaciya.html

199 Про компанію, Укравтозапчастина, http://uaz-upi.com/company

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• ISTA is the largestbatterymanufacturer in theCommonwealthof Inde-pendentStates200.ThecompanyhasfourfactoriesinDnipropetrovsk.

• Roshen Corporation is Ukraine’s number one confectionery producer.ThecorporationhasplantsinKyiv,Vinnytsia,MariupolandKremenchuk,andsweetsfactoriesintheLipetskOblast(Russia)andKlaipeda(Lithuania).

• LeninskaKuznyabuilds shipsofvariouskinds,withdisplacementofupto 5,000 tonnes, andmanufacturesmetal andmachinegoods201. In 2010,Poroshenko bought the Sevastopol shipyard, one of Ukraine’s largest.Oneofthisshipyard’scustomersistheRussianBlackSeaFleet.

• ThefoodcompanyRidnaMarka,whoseassetsincludetheRadomyshlBeerandBeveragePlant,andthefruitandvegetableprocessingplantKherson.

• Poroshenkoalsohasassetsinthemedia:5Kanal,whichisthelargesttel-evisionnewschannel,andKorrespondentweekly.

6.3. Kostyantin Zhevago

Hewas born in 1974 inw Iultin,Magadan Oblast (Russian Federation) andmovedtoUkraineasachild.In1996,hegraduatedfromtheKyivNationalEco-nomicUniversity.ThesameyearhebecametheCEOofthecompany,‘FinanceandCredit’,whichwithinafewyearsdevelopedintooneofUkraine’slargestfinancialandindustrialgroups.HewaselectedtotheVerkhovnaRadain1998asacandidate fromasingle-memberconstituency.Zhevagohasbelongedtovariouspoliticalgroupings,includingtheRegionsofUkraine,thepredecessorofthePartyofRegions.Hewontheparliamentaryseatintheelectionsof2006and2007asacandidateoftheYuliaTymoshenkoBloc.Zhevagoiscurrentlytheonlyrepresentativeofbigbusinesstohaveremainedinoppositiontothegovernment.Althoughpartofhisbusinesshasencounteredproblemsduetothis(forexample,theSecurityServiceofUkrainehasauditedhisbankseveraltimes)202,hispositionisstrong,becausehismainasset,theFerrexpocorpora-tion,islistedontheLondonStockExchange.

200 ‘Петр Порошенко’,Комментарии,17February2011,http://gazeta.comments.ua/?spec=1297976487&sart=1297977646

201 Ленинская Кузница, ПАО Завод,http://1201.ua.all.biz/202 ‘СБУ «накрыла» еще и банк Жеваго’,Зеркало недели,11July2011,http://news.zn.ua/ECO-

NOMICS/sbu_nakryla_esche_i_bank_zhevago-84220.html

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Assets

The Finance and Credit Group is formed by around sixty corporations andcompaniesoperatingpredominantlyinmetallurgyandthemachine-buildingindustry,andalsointhefinancialandothersectors.

• Zhevagocontrols51%ofFerrexpo,oneofUkraine’slargestironoreandsteelmanufacturers.FerrexpoisoneofthefewUkrainiancompanieswhicharetradedonaWesternstockmarket.In2007,thiscompanymadeitsdebutontheLondonStockExchange,where it is listedontheFTSE250 index.FerrexpohastheplantsVorsklaSteelAG(Switzerland),VorsklaSteel(Den-mark)andSkopskiLegury(Macedonia),theVorsklaSteelfactory,andthePoltavaandVostok-Rudaoreproductionandenrichmentplants.FerrexpointendstocontinueitsexpansionoutsideUkraineinthecomingyears203.

• TheFinanceandCreditBankisoneofthelargestbanksinUkraine;inearly2012itwasranked14thintermsofassets204.

• TheAvtoKrAZHoldingincludesfirmswhichmanufacturemeansoftrans-port,predominantlyhearygoodsvehiclesandrailwaycars,andalsoseaand river ships. The Kremenchuk Automobile Plant and the StakhanovRailway Car BuildingWorks,whichmanufactures railway cars, are thelargestplantscontrolledbyAvtoKrAZ.

• Zhevagoalsohassomeassetsinthepowerengineeringsector,forexample,LuhanskoblenerhoandacombinedheatandpowerplantinBilaTserkva.

6.4. Oleh Bakhmatyuk

Hewasbornin1974inIvano-Frankivsk.In1996,hegraduatedfromtheInsti-tuteofEconomicsandLawinChernivtsi.Littleisknownabouttheearlydaysofhisbusinesscareer.AftertheOrangeRevolution,hewasamongthespon-sorsoftheYuliaTymoshenkoBloc,buthedidnottakeanactivepartinpolitics.In2005–2006,hewasdeputyheadofNaftogaz.Heboughtcontrollingstakes

203 ‘FerrexpoconsidersexpandingoutofUkraine’,Financial Times,4August2011.http://www.ft.com/intl/cms/s/0/4305e7a2-bde2-11e0-ab9f-00144feabdc0.html

204 ‘Дані фінансової звітності банків України, Національний банк України’, http://www.bank.gov.ua/doccatalog/document?id=102699

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inseveraloblhazes between2006and2007,butlaterresoldthemtoFirtash205.Bakhmatyuk isoneof thevery fewUkrainianoligarchswhohavemadebigfortunesoverthepastfewyears.

Assets

Bakhmatyuk’sassetsaremainlyconcentratedintheagriculturalandfoodandthefinancialsectors.In2011,hemergedhistwocompanies,AvangardandUkr-landfarming,tobuildUkraine’slargestcorporationoperatinginthefoodandagriculturesector.

• AvangardHoldingspecialisesineggsandeggproducts.Itsassetsincludenineteenhenfarms,whichin2011producedatotalof25millionhens,andsixhenfeedproductionplants.Furthermore,AvangardcontrolsUkraine’slargesteggprocessingplant,ImperovoFoodsinIvano-Frankivsk.

• Ukralandfarming leases the largestareaofarable land inUkraine(over530,000hectares).Itbreedspigsandcattle,andproducessugar.

• Bakhmatyukownstwobanks:FinansovaInitsiatyvaandVAB(23rdand24thpositionsinUkraine).VABwastakenoverin2011,whichgaverisetoacon-flictwiththebank’spreviousowner206.

SŁAWOMIRMATUSZAK

205 Игорь Маскалевич, ‘Газопеределки’,Зеркало недели,4November2011,http://zn.ua/ECO-NOMICS/gazoperedelki-90970.html

206 Руслан Черный, ‘Конфликт вышел на свободу’,Коммерсант, 14 June2012,http://www.kommersant.ua/doc/1958043