November 10, 2010

Yanukovych and Oligarchs: a Short or Long-Term Relationship? - The Jamestown Foundation

Yanukovych and Oligarchs: a Short or Long-Term Relationship? - The Jamestown Foundation

Yanukovych and Oligarchs: a Short or Long-Term Relationship?

Ukraine’s October 31 local elections deepened Viktor Yanukovych’s and the Party of Regions grip on power. With parliamentary elections scheduled for September 2012 Yanukovych is on the way to a rapid monopolization of power that has profound consequences for Ukrainian democracy.
After his election a decade ago in Russia, it took Vladimir Putin his entire first term in office to accomplish what Yanukovych has undertaken in less than a year. Yanukovych has taken five steps to remove obstacles to the monopolization of power. The first to go were parliament, which has become a rubber stamp institution, followed by television whose oligarch owners rushed to prove their loyalty to the new regime. The third, on October 1, was Ukraine’s return to a presidential constitution and a month later the Party of Regions won a majority in local councils in a bitterly contested election.
These four steps were followed by a fifth, a coordinated attack on the main opposition force, the Fatherland (Batkivshchina) Party led by Yulia Tymoshenko. “October 31 will go down in history as the first day of an election without Yulia Tymoshenko,” observed Ukrayinska Pravda (November 1). Registration of clone, fake lists of Fatherland candidates removed Batkivshchina from two key strongholds, Lviv and Kyiv, while an “anti-corruption” campaign unveiled financial irregularities in the 2007-2010 Tymoshenko government that harmed her image.
One social group that still remains independent is the oligarchs, but for how long? Will Yanukovych follow Putin in taking a sixth step and eliminate the oligarchs?
In a constitutional, legal environment where anything can be changed and retracted, including by the constitutional court, all decisions are at the whim of the president. Konrad Adenauer Stiftung’s Ukraine Director, Nico Lange, wrote in Levyi Bereg (October 20) that legal instability will deter foreign investors as they would be unsure about the ability of Ukraine’s notoriously corrupt courts to defend their assets. Additional problems exist, such as the high levels of public distrust and frequent acts of betrayal by elites of their declared principles and allies.
Akhmetov, who accumulated his business empire when Yanukovych was Donetsk governor in 1997-2002, has been sidelined from the presidential administration and Nikolai Azarov’s government. Meanwhile, the influence of Firtash, the country’s only Western Ukrainian oligarch, has grown in both institutions.
Rumors point to Oil and Energy Minister, Yuriy Boyko, as a potential replacement for Prime Minister Azarov who was always seen as a transitional figure (Ukrayinska Pravda, October 15). Deputy Prime Minister, Sergei Tigipko, is also touted as well as the head of the Presidential Administration, Serhiy Levochkin, a “reserve candidate” who would play a similar role to Viktor Yushchenko in 2000-2001 as the “Prime Minister-reformer” rescuing the president’s international image (Serhiy Leshchenko in Ukrayinska Pravda, September 24, October 14). First Deputy Prime Minister, Andriy Kluyev, an Akhmetov loyalist, also has designs on the post.
Boyko and Firtash have long-standing ties to the energy sector together with Levochkin and Security Service Chairman, Valeriy Khoroshkovsky. Khoroshkovsky and Firtash played a strategic role in Yanukovych’s election through their control of Inter, Ukraine’s most popular television channel.
In addition to the marginalization of Akhmetov, other oligarchs who aligned with Viktor Yushchenko (Igor Kolomoysky) or Tymoshenko (Sergei Taruta, Vitaliy Haidiuk, and Konstantin Zhevago) have lost out. Kolomoysky, often depicted in terms of business practices as Ukraine’s most odious oligarch, is in de facto exile in Geneva as he is seen as the first likely casualty of a Putin-style attack on the oligarchs.
That is, if Akhmetov is not first. According to sources who spoke to EDM, in a meeting last month between the oligarchs and Yanukovych, the president demanded a 3 percent tribute of their annual turnovers. When Akhmetov protested Yanukovych raised the fate of imprisoned Russian oligarch Mikhail Khodorokovsky. Akhmetov responded with the threat that presidents can always face the same fate as (assassinated US President John) “Kennedy” (EDM June 28).
The Ukrainian media analyzed the divisions within the Yanukovych camp between the so-called pro-Russian “gas lobby” and pro-European “pragmatists.” The former group is allegedly seeking to marginalize the “Donetski,” two (Nestor Shufrych and Vladimir Sivkovych) who were removed from government posts and sent to the National Security and Defense Council (NRBO). The NRBO, still headed by Akhmetov loyalist, Raisa Bohatyriova, has become a “museum” where the “political enemies of Liovochkin” are sent to be preserved as “political mummies” (Ukrayinska Pravda, October 14). The NRBO’s marginalization under Yushchenko has become complete under Yanukovych. Speculation of this type is however exaggerated and simplistic.
Gazprom aligned with Tymoshenko to remove RosUkrEnergo (RUE) and confiscate its gas supplies, severely denting “pro-Russian” views within Ukraine’s “gas lobby.” Meanwhile, Kluyev has few “European” values judging by the 2004 presidential elections (when he ran Yanukovych’s dirty tricks shadow campaign) and 2010 local elections (where he headed the Party of Regions campaign to obtain victory at all costs).
“Pragmatic” oligarchs have readily sold their assets (Industrial Union of Donbas, Zaporizhstal) to unnamed Russian investors. Russian Prime Minister, Vladimir Putin, chairs Vneshekonombank that purchased Ukraine’s Prominvestbank last year.
Akhmetov sent a signal through his vote for parliament’s establishment of an investigation commission into the RUE gas intermediary. The decision by the Stockholm Arbitration Court in June against the Tymoshenko government’s confiscation of RUE gas ruled that Firtash/RUE should receive $3.7 billion plus $600 million in damages from Naftohaz Ukrainy, an amount that would infringe Ukraine’s July agreement with the International Monetary Fund (IMF). Insiders told EDM that re-payment of the compensation could lead to conflict between Yanukovych and Firtash.
Both groups (“gas lobby” and “pragmatists”) believe they can undermine democracy at home without harming Ukraine’s chances of signing a Deep Free Trade Agreement within an Association Agreement with the EU. On this point they are being na├»ve –as confirmed by the lengthy negotiations over Turkey joining the EU.
Ukrayinska Pravda analyst (September 24) Leshchenko positively portrayed the divisions within the Party of Regions suggesting “Maybe these will halt the final destruction of democracy in our state.” With Yanukovych having completed five stages in his political monopolization of Ukraine, the sixth –removal of oligarchs– could be his next target. The next two years will likely decide whether Ukraine becomes a Putin-style managed democracy without oligarchs or if the oligarchs fight back (EDM, September 22).
A first step for Western governments would be to interact with Akhmetov and Firtash to learn their strategies and plans for Ukraine, while they in turn very rarely give interviews to the media. Western policymakers are operating in the dark, as they do not know the views of the two main financiers who brought Yanukovych to power.

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