Ukraine - The Road Taken

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 20^th 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 2^nd or 3^rd 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.