When faced with a constitutional crisis in 1993, Boris
Yeltsin called in the tanks and opened fire on the Russian parliament. Ukraine has had its share of violence in
their politics. Only there is a
difference between Boris Yeltsin’s Russia and Ukraine since it gained
independence. In Russia, the violence
was used by one branch of government against another. In Ukraine, the violence came from the
people, the Ukrainian civil society, against a government they thought as
corrupt. It happened not once but twice
– the Orange Revolution in 2004 and the Euromaidan of 2013-2014. In Vladimir Putin’s Russia, oligarchs are
allowed to do as they wish as long as they stay out of politics. In Ukraine, the oligarchs drive politics. It’s not a bug in the software – it’s a
feature. Whenever one asks why reforms
are occurring so slowly in Ukraine [and some are happening, albeit at a glacial
pace], just remember - the oligarchs are in charge.
The thing I find interesting about Ukrainian politics, at
least on the presidential level, is since Leonid Kuchma’s re-election in 1999,
no incumbent president has been elected to a second term. After his own re-election, Kuchma became more
authoritarian. Press freedoms lessened
during Kuchma’s second term. His presidency
was mired in several scandals. The most
serious of these scandals was the Cassette Scandal. Georgiy Gongadze was an investigative
journalist who founded Ukrayinska Pravda [Ukrainian Truth] in April 2000.
This website specialized in political news, with specific focus on
Kuchma, Ukraine’s oligarchy, and official state media. He had been investigating corruption in
Kuchma’s government when he disappeared September 16, 2000. Two months later his body was found
decapitated and partially burned. That same
month, opposition politician Oleksandr Moroz publicized secret tapes [“the
Cassette Scandal”] which he received from Kuchma’s bodyguard that included
conversations about between Gongadze Kuchma, his chief of staff, and the
Interior Minister. The recordings were
tantamount to Kuchma saying “won’t somebody rid me of this meddlesome priest”
[Henry II didn’t really say that about Thomas à
Becket, but when in doubt “print the legend”]. Due to the fallout from the Cassette Scandal,
Kuchma opted to not run for a third term.
He threw his support behind his prime minister, Viktor Yanukovich.
The 2004 presidential saw Yanukovich from the Party of
Nations face-off against opposition leader Viktor Yushchenko. Ukrainian law structured presidential
elections such that the winning candidate must secure 50% or more of the vote
to avoid a run-off. Failing that, there
is to be a run-off between the top two finishers. The winner of the run-off needs to win only a
simple plurality of the vote. The first
round of voting was held on October 31, 2004.
Yanukovich captured 39.9% while Yushchenko finished slightly behind at
39.26. The run-off took place on
November 21, 2004. Yanukovich was
declared the winner with 49.42% with Yushchenko capturing 46.69% of the ballots
cast. Exit polls, on the other hand,
showed Yushchenko winning by 11%. Election
observers saw massive voting fraud. When
reports came in of rigged voting, blatant voter intimidation and damaged
ballots, people were outraged. When they
realized election officials were in on the fraud, the people had had
enough. In freezing temperatures, over
one million citizens poured into the streets of Kyiv and took up residence
there. Over the next 17 days, through harsh cold and sleet, these demonstrators
formed a sea of orange, the color of Yushchenko’s campaign, by wearing orange
ribbons and carrying orange flags. Hence the term the "Orange
Revolution."
The
Yushchenko supporters continued their mass demonstrations
in Kiev, with numbers
nearing one million people. Demonstrators
from outside Kiev also came to the
capital to join in the protests. In
order to support the presence in Kiev of
demonstrators from
around the country, the campaigners took over public
buildings,
offered private homes, and set up open kitchens. Protestors also
occupied the Maidan and set-up tents to continue the spirit of
protest day and
night. The demonstrators gave flowers to the
soldiers that surrounded the
Maidan and played music for them.
The Maidan became a site for speeches and
musical entertainment
in conjunction with the political protest. And each
morning and
night, a multi-denominational religious service was held in the
square. On December 1, 2004 the parliament joined the side of the
campaigners, passing a vote of no-confidence in Prime Minister Yanukovych‘s
government. On December 3, the Supreme Court followed suit, announcing that the
election was fraudulent and Yanukovych’s “victory” could not be recognized.
Following this decision, parliament set up a new run-off election for December
26. On December 26, 2004, observers from
around the world monitored the elections in order to prevent fraud. When all
votes had been counted—this time without manipulation—Yushchenko won, 52% to
Yanukovych’s 44%.
Fast-forward nine years and history has repeated itself
[somewhat], though it was much more violent this time. Yanukovych, who succeeded Yushchenko after
his election as president in 2010, was pro-Russian. Vladimir Putin thought Yanukovych had won the
election in 2004 and wasn’t happy about the re-run of the 2004 run-off that
elected Viktor Yushchenko. The catalyst
for the Orange Revolution redux was when [in November 2013] Yanukovych abruptly
decided to end talks between Ukraine and the European Union on an association
agreement, something that both parties had been working toward since 2008. Such an agreement would have been a decisive
step away from Moscow and centuries-long orientation toward Russia. Additionally, Yanukovych struck a surprise
deal with Vladimir Putin in which Russia bought $15 billion in Ukrainian bonds
and slashed the price of natural gas by one-third. Protesters began to gather in and around
Kiev’s Maidan again. These protests were the largest seen in Ukraine since the
2004 Orange Revolution.
After the protests had begun to taper off on November 30,
2013 Yanukovych’s government called in the Berkut Special Police. The Berkut forcefully dispersed a few hundred
student-age protesters, beating some of them with truncheons. Ukrainian civil society refused to standby as
their children were beaten. 10,000
people occupied the Maidan later that day.
They were soon joined by another 10,000 who travelled from Lviv. By the following day [December 1], 800,000
people gathered at the Maidan. The focus
of the protest switched from the aborted EU-Ukraine agreement and more on
anti-corruption, especially Yanukovych and his oligarchic friends whom they
thought had robbed the country blind. The protest movement demanded that the
country look west toward Europe rather than become a Russian vassal state. The crowd demanded Yanukovych’s resignation.
As the days went on, the Maidan protests attracted more
people from all corners of Ukraine.
Unlike the Orange Revolution of 2004, there was no single leader
organizing the protests. Up to forty
grassroots groups came together having identified with each other and defining
a common goal – it was time for Ukraine to rid itself of corruption. The protesters tent city in the Maidan,
organized themselves into subunits, and established a perimeter with barricades
to keep the Berkut away. The protesters
also built themselves a large stage which remained active 24/7. Every day after work, people gathered at the
Maidan and heard speeches of community activists and well as politicians who
supported them. The largest crowds
gathered on Sundays.
The government tried to forcefully disperse the crowds,
but were unsuccessful. The government
paid hooligans [called ‘titushkas’] to attack protesters, kidnap activists, and
create general mayhem throughout Kyiv, all the while the police looked the
other way. Parliament, controlled by
Yanukovych’s corrupt Party of Regions, passed a series of anti-protest laws
that came with severe penalties. But the
protesters refused to go away. The more
the government pushed them, the more resolved they became. Three politicians became go-betweens on
behalf of the protesters – Arseniy Yatsenyuk, Vitali Klitscho, and Oleg
Tyahnybok. Despite having these
individuals as their go-betweens, the demands of the protesters remained
unchanged – the resignation of Yanukovych.
On January 14, 2014, a group of protesters marched from the Maidan
toward the Parliament. The protesters
were met by the Berkut Police on Hrushevskoho Street, where the Euromaidan
protest turned more violent. Protests
continued into February 2014, culminating on February 20th. Government snipers perched on rooftops shot
and killed 67 protesters. All of this
was filmed by amateurs and professional journalists, the footage of which was
widely distributed on the Internet. More
than 100 protesters died at the hands of the government and their paid thugs,
while thousands more were injured.
Yanukovych’s allies in Parliament had seen enough and
prompted Yanukovych to engage with the protesters. They soon drafted an agreement which
accelerated the date of the next Presidential election. The agreement was angrily rejected by the
Maidan protesters who were mourning whom they called the “Heavenly
Hundred”. They gave Yanukovych until the
next morning to resign. The ink was
barely dry on the agreement when Yanukovych fled the country. The Ukrainian Presidency was declared
vacant. Oleksandr Turchenov [now
Secretary of the National Security and Defense Council] was appointed acting
President pending new elections. Arseniy
Yatsenyuk was appointed acting Prime Minister.
Parliament voted to revert to the 2004 Constitution, which made Ukraine
a parliamentary republic in which the Prime Minister and Parliament had more
power than the President. Petro
Poroshenko won that election in 2014. It’s now five years later, and Poroshenko
faces the same prospect that his two immediate predecessors faced – a single
term as President of Ukraine. At the
time of this writing, Poroshenko is polling either second or third [depending
upon which poll you subscribe to] behind actor/comedian Volodymyr Zelensky and
narrowly ahead/behind of former two-time Prime Minister Yulia Tymoshenko in
various Ukrainian public opinion polls. At present Poroshenko has broken the
20% threshold in only one poll. If you
are the incumbent president and 80% of the electorate is polling against you, things
aren’t looking so good. When he was
elected in 2014, Poroshenko said:
“The key position that I am starting from is the
deoligarchization of the economy. We’re trying to build order in the country,
but [oligarchs] are the chaos.”
The Ukrainian oligarchic system is alive and well. Poroshenko’s rhetoric and subsequent inaction
against the oligarchy is, perhaps, a big reason why he is polling so poorly
this year.
Like the Russians, Ukraine has an oligarch problem. After the Soviet Union’s collapse, Ukraine
also had many state-owned enterprises that were privatized. In 2004, Leonid Kuchma, then the president of
Ukraine, signed a law that allowed the 10 most valuable enterprises in the
country’s extraction and metallurgy industry to be sold for far less than their
true value. In the 2000s, Ukraine’s oligarchs scooped up state assets during
that decade’s privatizations – ending up splitting the last remnants of the
Soviet industrial empire between them. These privatized assets in heavy
industry, the energy sector, communications, etc., ended up in the hands of a
well-connected few. Prior membership in
Komsomol, the Communist Party of the Soviet Union [CPSU], or membership in any part
of the Soviet security apparatus gave these people an excellent education on
the use of front groups [particularly shell companies]. Additionally, these oligarchs have held
prominent political roles in Ukraine, such as president [like the incumbent Petro
Poroschenko], prime minister, cabinet members, members of parliament, or
regional governors [like Igor Kolomoisky (Dnipropetrovsk) and Serhiy Taruta
(Donetsk)]. Those oligarchs who haven’t
held political office often bankroll myriad political parties. They have used their political power to
either build or expand their own business interests. The oligarchic system creates mistrust
between the governing class and the governed.
Since the oligarchs exercise tremendous influence in governance, they
resist reforms that would bring about honest, transparent governance.
Ukraine has been described as a “captured state”. A handful of rich men own most of the popular
and influential TV stations and have financed political parties so their
interests are represented in parliament and government. The oligarchy has a stranglehold on public
media [see below]. They own a significant chunk of what drives the Ukrainian
economy. They finance political parties,
and some of them serve in government capacities of one kind or another.
Here is a sample list of Ukrainian oligarchs [not all
inclusive because there are a lot of them], just to give you an idea of how
invested/entrenched these guys are in Ukrainian business and politics:
Rinat Akhmetov
– He’s the richest man in Ukraine. He
got his start buying up mining assets during the 1990s privatization era in
Ukraine. His holding company, System Capital Management, oversees his
stakes in a variety of mostly industrial businesses. Akhmetov and SCM are synonymous – Akhmetov
owns 100% of SCM. SCM
has several subsidiaries.
-
Metinvest owns steel and mining
companies. It’s organized vertically
like Standard Oil was in this country before that company was broken up in the
early 20th Century. It
manages everything from mining and processing raw materials to making and
selling finished products.
-
DTEK is a holding company that
specializes in coal production and electricity generation.
-
ESTA Holding deals in commercial and
residential real estate.
-
Vega Telecommunications Group
specializes in telephones and broadband Internet.
-
Media Group Ukraine owns six TV
stations – Ukrayina, NLO TV, Indigo TV, Eskulap TV, Football 1, Football
2.
-
He owns a Russian-language newspaper, Segodnya.
-
He owns Football Club Shakhtar Donetsk.
He was a member of the Verkhovna Rada as a deputy for the
Party of Regions [Yanukovych’s party, and of which he was a financier]. He is currently active in the Opposition Bloc
— Party of Peace and Development.
Victor Pinchuk
– Former Ukrainian president Leonid Kuchma is his father-in-law. He founded the Interpipe Group, which as its name implies is a global maker of
steel pipes. Other products include
railway wheels, axles for these wheels, and frame assemblies beneath each end
of railroad cars.
-
He founded the EastOne Group Ltd in
2007, an “international investment advisory group”.
-
StarLight Media owns the TV stations
STB [news], ICTV [commercial], Novy Kanal [reality shows, game shows], M1
[music, cinema, fashion – caters to young people], M2 [music for older people],
and OCE [reruns from STB, Novy Kanal, ICTV].
He served two terms as an elected Member of the Verkhovna
Rada as a deputy for Labour Ukraine from 1998 to 2006. He is currently retired
from politics, but that has not stopped him from speaking out on political
issues from time to time. In an op-ed
piece for the New York Times in 2006, he said the right things about a
participative democracy in Ukraine, a “professional and effective civil
service”, an “efficient, non- corrupt and independent judiciary”
with the need for the rule of law. But recently he wrote that Crimea is not
worth a conflict over with the Russians.
He was a supporter of Yanukovych in the 2010 presidential election, and
had a good rapport with Yanukovych and his group during Yanukovych’s presidency. That pretty much negates his desired support
for democracy, the rule of law and reducing ties between politicians and big
business. He does not support Ukrainian
membership in the European Union or NATO.
He prefers Ukraine to be “neutral”, to act as a “bridge” between East
and West.
Igor Kolomoisky
– Depending on who you ask, he is either the 2nd or 3rd
richest man in Ukraine [behind Akhmetov and Pinchuk]. He is the leading partner of the Privat Group. His name and Privat are synonymous. Privat Group has a large footprint in Ukraine as it controls thousands of
companies in all industries in the country.
It controls electricity distribution in Ivano-Frankivsk, Poltava, Sumy,
Chernihiv and Lviv Oblasts.
-
Owns a 42% interest in Ukrnafta, which is the
largest oil company in Ukraine. Ukrnafta
has a large network of filling stations across the country.
-
Holds significant interests in ore mining, ore
processing, and steel production.
-
1+1 Media Group, which controls
eight Ukrainian TV stations [1+1, 2+2, TET, PLUSPLUS, Bigudi, UNIAN TV and 1+1
International].
-
Owned PrivatBank, but that bank was
nationalized in 2016. By the time of the
nationalization, PrivatBank, the
largest bank in Ukraine in terms of depositors, had a hole in its ledger worth
of $5.5 billion, mostly left by insider loans, according to the
government.
-
Owns the Biola soft drinks company.
-
Owns FC Dnipro [soccer].
-
Owns BC Dnipro [basketball].
-
Kolomoisky is the largest shareholder of JKX
Oil & Gas, a subsidiary of which [Poltava Petroleum Company] is one
of the largest non-state producers of oil and gas in Ukraine.
He is reputed to be an ally of Ukrainian politician Yulia
Tymoshenko and her Bloc Yulia Tymoshenko. Kolomoisky is currently part of the
leadership of Ukrainian Association of Patriots [UKROP]. Kolomoisky currently spends most of his time
in Switzerland.
Gennady Bogolyubov
– Like Kolomoisky, Bogolyubov controlled 45% of PrivatBank before Ukraine took over the bank. He lives in London [but has a residence in
Geneva] while Kolomoisky lives in Switzerland, he’s pretty much tied to
Kolomoisky’s hip in business. He claims
citizenship in Ukraine, the UK, Israel and Cyprus. Victor Pinchuk sued both Kolomoisky and
Bogolyubov over the acquisition of an iron ore mining business.
Yuriy Kosiuk –
This man’s focus is agriculture. He is
the CEO of Mironivsky Hliboproduct [MHP].
MHP is Ukraine’s largest produce company. According to Forbes, he owns 65% of the
company. According to Bloomberg, MHP’s
mission is: “Produces and distributes meat products, sausage products, fruits,
and vegetables for the food industry. The company engages in the cultivation
and storage of grains, such as wheat, rye, and corn; the production of the
incubatory eggs; the cultivation of parental broiler livestock, cattle breeding
breeds, and pigs.” The Kyiv Post
reported in November 2018 that MHP received approximately $30 million in
subsidies from the Ukrainian government.
In that same report, MHP has been involved in a series of scandals. A
number of watchdog organizations have questioned concerning the company’s
environmental standards. Additionally, the company has received more than half
of the country’s European Union poultry and dairy quotas. In Ukraine, MHP has a
near monopoly of the poultry market. He currently serves in Petro Poroshenko’s
administration as an “adviser”.
Coincidence?
Andrey Verevsky
– Like Kosiuk, Verevsky focuses on agriculture.
He founded Kernel Holding in 1995. Kernel Holding is Ukraine's largest
sunflower oil producer. Their mission
[according to Bloomberg] is: “Operates as a diversified agricultural company in
the Black Sea region in Ukraine and Russia. The company operates through
Bottled Sunflower Oil, Sunflower Oil Sold in Bulk, Export Terminals, Farming,
Grain, and Silo Services segments. The Bottled Sunflower Oil segment is
involved in the production, refining, bottling, marketing, and distribution of
bottled sunflower oil.” He served as a
deputy to the Verkhovna Rada as a deputy for the Party of Regions. Prior to his affiliation with the Party of
Regions, he belonged to the Yulia Tymoshenko Bloc. The Higher Administrative
Court of Ukraine stripped Verevsky of his seat in parliament on 5 March 2013
because he simultaneously was parliamentary deputy and headed a commercial
entity.
Kostyantin Zhevago
– He is CEO of Ukrainian mining company Ferrexpo, of which he owns just over
50%. Ferrexpo
mines and processes iron ore in the Ukraine. The company produces concentrated
iron ore and iron pellets. Ferrexpo
exports much of its production to Europe. The company’s web page makes the
claim “We are currently the 3rd largest exporter of pellets globally.” The “so what?” test: iron ore pellets are the
preferred material in manufacturing steel.
Zhevago’s company controls most of Ukraine’s domestic iron ore supplies
together with Metinvest [Rinat Akhmetov’s holding company].
-
Poltava Ore Mining & Enrichment Works
–
-
Ferrotrans Ltd - engaged in the
delivery engineering for material and equipment in the mining industry. The
company provides transportation of shipments of raw iron ore, concentrate,
pellets and finished products.
-
Vorskla Steel AG
-
Zhevago had been the major shareholder of the Finance
and Credit Bank, which was declared insolvent in September 2015. According
to the Governor of the National Bank of Ukraine, the lion's share of the bank
assets was linked to lending to business entities owned by the shareholder [Zhevago].
“When the time came for the shareholder to settle its debts and dispose of its
assets – he failed to do it in due time.” Before the bank’s insolvency, it received
bailout money between 2008-2010 from the government of Yulia Tymoshenko.
-
When you peel a layer from the Finance and Credit onion, you find a
company named KrAZ. KrAZ is a
Ukrainian company that produces trucks and other special-purpose vehicles. They are currently under contract with the
Ukrainian government to provide trucks and armored personnel carriers to the
Ukrainian Army and the National Guard.
-
Rosava Tires - the largest tire
producer in Ukraine
-
Has diversified into pharmaceuticals. Through the Arterium Corporation, he
has interests in Kyivmedpreparat [manufactures antibacterial drugs].
-
Owns F&C Realty.
-
Owns FC Vorskla Poltava [soccer].
Zhevago has been a member of Verkhovna Rada since 1998
and is currently unaffiliated with any group.
In the past he was part of the Yulia Tymoshenko Bloc. Prior to his association with Yulia
Tymoshenko he belonged to the Party of Regions.
Petro Poroshenko
– Don’t forget this guy. Not only is he
the current president of Ukraine, he’s also an oligarch. Referred to as the ‘Chocolate King’, he owns
the Roshen Confectionery Corporation, the biggest confectionary maker in
Ukraine. He owns the TV station 5 Kanal, a major news station in
Ukraine. 5 Kanal was very critical of the Viktor Yanukovych during the 2004
Ukrainian presidential campaign. He
indirectly controls Kuznya na Rybalskomu
shipyard in Kiev [Kyiv].
Dmytro Firtash
– This guy is pro-Russian, and is wanted by the US authorities. He had ties to Paul Manafort. In light of Manafort’s convictions, I’d say
that his on-again, off-again extradition from Austria will be “on-again” if it
isn’t already. As much as I would like
to ignore him, his footprint in electronic media can’t be.
Group DF
Inter, NTN, K1, Enter-Film, Zoom, K2, Mega
He later became co-owner of RosUkrEnergo (a subsidiary of Gazprom) which at one point held the
monopoly in the imports of Russian natural gas.
Firtash later expanded his holdings into several industries through DF
Group. Among them is Ostchem, a
holding company in the fertilizer industry that groups production,
distribution, and shipment businesses in the sector. A weakened fertilizer
market has seen his group’s production decline over the past year. The oligarch
continues to hold substantial assets in the natural gas distribution sector,
generally grouped under a holding firm named Gaztek. His group also controls six companies in the titanium
industry, soda ash production facilities, the Nika Tera terminal, an energy
infrastructure company, and agribusiness firm Synkiv. He was part of Nadra Bank, which was declared insolvent
in February 2015. Is there a pattern in
bank insolvency here?
Not all is lost in Ukraine. Janusz Bugajski wrote an excellent piece for
CEPA last month [“Taking Stock of
Ukrainian Achievements Amidst Russia’s Aggression”]. The Ukrainian parliament approved amendments
to the constitution that demonstrated accession to NATO and the EU as the main
foreign policy objectives. Ratification
of the Association Agreement with the European Union is a big step to candidate
status, though much work on reform needs to be done. Ukraine’s political leadership is convinced
NATO membership is the only long-term guarantee for independence from
Russia. In March 2018 NATO added Ukraine
to those aspiring for membership, alongside Macedonia [whatever they’re calling
themselves today], Bosnia-Herzegovina, and Georgia. I’m skeptical about Ukraine and Georgia
joining NATO while the Russians occupy land in both countries. Perhaps that is
Moscow’s intent in continuing the frozen conflicts in those two countries.
Amongst the political achievements Bugajski list is a
genuine multi-party system and regular elections, though there is still
corruption and abuse of office that needs to be remedied. President Poroschenko has launched important
reforms in public administration, the judiciary and law enforcement. The armed forces have grown to 250,000 active
service personnel, the supply of modern equipment has improved, and the
government is committed to structural reform to meet NATO standards. The reforms that still need to be
accomplished include increased professionalization, boosting of combat
capabilities, instituting civilian control of the military, the development of
a reserve system, and ensuring transparency and accountability in defense
procurement [tracking the money to buy military equipment and ensuring that
money doesn’t end up in the pockets of the oligarchs].
Bruegel is a European think tank that operates in
Brussels. They credit Ukraine with
taking important steps in eliminating sources of corruption. These steps include the stoppage of natural
gas subsidies, a new electronic public procurement system, budget financing of
political parties, stronger supervision of banks, and revocation of banking
licenses for those banks engaged in fraudulent banking practices. But there is much work still to do. Bruegel states
there is still a much that still need to be done, to include:
-
An open and transparent privatization process;
-
Establishing a private land market;
-
More reform in the energy sector;
-
Elimination of tax exemptions and foreign
exchange restrictions;
-
Electoral law reform;
-
Reforming the role of private media [most of
which is owned by the oligarchy];
-
Enforcing rules on private financing of
political parties [a big-time oligarchic activity];
-
Reform of public administration;
-
Reform of law enforcement agencies;
-
Reform of the judiciary to make it a truly
independent branch of government.
Reforms will take time, but in comparison to the time it
has taken the United States to achieve somewhat “good governance”, Ukraine’s
reforms are happening at lightning speed.
What Ukraine is trying to do took us over 200 years to do, and our
“system” [for lack of a better word] is still a work-in-progress. Anti-trust laws didn’t come into effect in
this country until the second decade of the 1900s. Civil service in this country didn’t come
into being until 1871. Campaign
financing reform is still a work-in-progress in this country. The good news is that reform throughout
Ukraine has much grass roots support.
There’s an election coming soon. Will Petro Poroshenko break the presidential second
term trend, or will he be another one-term president? Will Yulia Tymoshenko finally win election,
or will she be e three-time loser? Or
will a comedian be elected? We’ll find
out soon.