Ukraine: Trends of the Week Special Issue N. 4/15 The War of Oligarchs Starts in Ukraine

Political top trend:

The President Becomes a Party of the Conflict in the Oligarchs’ War in Ukraine

Selective war with the oligarchs in Ukraine during last week, except for an external enemy - Russia, defined the inside enemy. The external enemy to the integrity of Ukraine - aggression of Putin. His death / replacement will not change the attitude of Russia to Ukraine. Any of his successors will continue the demonstration of military aggression, on the battlefield of Ukraine, to EU countries, USA and especially NATO. The internal enemy - failures fights against oligarchs, who will continue to make enormous profits in Ukraine. All, without exception, the oligarchs will protect their illegally acquired assets. Example of Kolomoyskiy showed other oligarchs the inability of the President to oppose them and pursue an independent political game. Both enemies, external and internal, are working on the collapse of Ukraine and another reanimation of the federalization ideas.

Analysis:      In the present day (considering the existing balance of fractions) Parliament has distanced itself from the legislative function and focus on the fight against oligarchs. New MPs (young reformers), which originally allowed for renaissance of many political projects, or become the basis for new, dissolved in all fractions and not able to withstand the impact and dependence from the oligarchs. Pro-presidential parliamentary forces demonstrated inability to unite around the need to communicate to society by the single line and the President's initiative, which in the war conditions with Russia are necessary for fulfillment for all without exception, and with the strict rules of accountability and punishment. There is a need of commitments and areas of responsibility redistribution. In this scheme, the government would focus exclusively on the economy, not politics. Also vital is need to form a new power bloc, subordinate only to the President. The current Institute of President’s advisers is more like “access to the body” recalling Yanukovych’s times.

Forecast:      After a dubious victory over oligarch №1, Kolomoyskiy himself will focus on financing the creation of a new political project. Most likely - it will be an alternative to “People's Front” that after "success" of the head of government Yatsenyuk has very doubtful prospects. The new project of Kolomoyskiy will just use the "factor of war" with mandatory regional accent. The biggest advantage o fit will be involvement of real, not virtual, combatants and veterans. This advantage will become a serious obstacle for the majority of the parliamentary political parties and blocs, which will remain rhetoric fight against oligarchs. In turn, Poroshenko will continue his favorite activity - an active foreign policy in the European direction. In parallel, the President will initiate acceleration of the process of creating the Anti-Corruption Bureau, which will actually create resonance investigations of corruption of senior officials and their relations with the oligarchs. With high probability will be implemented attempts of creation (rather than traditional bureaucratic NSDC) new advisory body to the President, such as the Situation Centre, whose members will be required to accumulate / analyze / predict everything that happens in the country in a state of war, internal and external / future threats. There will take place active attempts to create a positive image of the President for Ukrainian society. New sociological ratings of trust to authorities will appear with manipulative data which is bought out by presidential surrounding.   

Conclusions:Confrontation of President-oligarch Poroshenko with oligarch Kolomoysky does not mean the beginning of Poroshenko’s war against other oligarchs. The blame for the loss of image and ratings of Poroshenko from the situation around Kolomoyskiy lies solely on the president, who initially appointed oligarch to high state service position. In fact, the President took the financial capacity and authority of Kolomoyskiy in Dnipropetrovsk region. Former journalists, MPs who took an active part in exposing anti-state activity of goal №1 - oligarch-official Kolomoyskiy did not become real MPs. They continue to seek publicity and focus their activities on the sensational (in their understanding) exposure, remaining hostage of own successful past performance. The current Parliament is unable to provide the social demand for legislative change / reform of the judicial and law enforcement systems. The fight of individual parliamentarians with oligarchs is indicative and customized nature and aimed at criticizing the President Poroshenko.

Economic top trend:

The Fight for Ukrainian Energy Became Tougher and Appears in Public Dimension

Participation of President Poroshenko as party in the conflict of interests around "Ukrtransnafta" and "Ukrnafta" launches a full-scale and uncompromising struggle between financial and industrial groups for Ukrainian energy sector, where the main players are the structures Igor Kolomoisky (group "Privat") and Igor Eremeyev (Group " Continium "), and the line of conflict between the president Poroshenko and prime minister Yatsenyuk. The fact that Poroshenko decided to take part in the conflict as one of the parties, rather than act as an arbitrator, gives reason to believe the desire to set Poroshenko’s own maximum monopoly in different sectors of the Ukrainian economy and politics. In terms of unfinished war with Russia and the failed economic policies of the government with the worsening social crisis, this position for Poroshenko is the shortest route to his political defeat and early termination of presidential powers. The only possible successful strategy of the President's actions in the current situation is forcing all oligarchic groups (not just Kolomoyskiy) to play by the laws and state interests that are transparent and one for all.    

Analysis:      The adoption by the Parliament and the subsequent signing of President Poroshenko Law "On Amendments to the Law of Ukraine "On Joint Stock Companies" can deprive the "Privat" group (led by Igor Kolomoysky) from control of the company" Ukrnafta" (main activity - production of hydrocarbons). On the other hand by half legal way was detached loyal to “Privat” management of the company "Ukrtransnafta" (main activity - oil transportation). By this time vertically integrated energy business of "Privat" was based on the following chain: "Ukrnafta" (production) - "Ukrtransnafta" (transportation) - Kremenchug refinery (processing) - a network of gas stations (sales). Currently two key positions are being eliminated from this chain. This will force the "Privat" group to look for a replacement or extension of the struggle for control over “Ukrnafta” and “Ukrtransnafta” companies in transparent conditions (most likely option) or sell Kremenchug refinery and the entire network of gas stations controlled by "Privat" and coming out of the assets in the energy sector of Ukraine.   

Forecast:      After the dismissal of Kolomoyskiy and transferring struggle for control over "Ukrnafta" and "Ukrtransnafta" in a public dimension, there will be a basic conflict between President Poroshenko’s teams (presented by Fuel and Energy Minister Vladimir Demchyshyn) and Prime Minister Yatsenyuk. Kolomoysky will also play for maintaining control over mentioned above energy companies and it is possible that could create situational alliance with a group of Yatsenyuk (main representatives - Chairman of the Parliamentary Committee on Fuel and Energy Complex O.Martynenko and head of "Naftogaz of Ukraine" A.Kobolyev). However, the strike from the Poroshenko’s side on assets of "Privat" will not be stopped on this. It is possible to see new financial audits of "Privatbank" and the revision of the supportive National Bank of Ukraine policy towards it. At the same time, the "Privat" group can block for a long time the activity of "Ukrnafta" and "Ukrtransnafta" through litigation abroad. This may be the last argument in the absence of willingness on the part of Poroshenko compromise with Kolomoysky. Such a scenario could cause a serious blow to the oil and gas sector of Ukraine. The Government previously had increased the tax burden on extracting oil and gas companies. In total, these factors can block the development of Ukrainian oil and gas production sectors in Ukraine.

Conclusions: The conflict between Poroshenko and Kolomoysky is the beginning of open oligarchs’ war in Ukraine. This comes on the background of incomplete conflict with Russia, which at any moment can go to a large-scale attack on Ukrainian territory, risking completely destroy the integrity of the current Ukrainian state. It is a fact that President Poroshenko failed to stop oligarchic war and force all the major industrial and financial groups to play by the same transparent (requirements of donors and investors) rules. Instead Poroshenko becomes one of the parties in present oligarchic war, drawing state resources on his side. A new war of oligarchs will end either with agreement of Understanding among business elites and the transition to the re-privatization by jointly defined and transparent rules or subsequent disintegration of the Ukrainian state with a growing set of risks for both Europe and the US.

 Roman Rukomeda

Bogdan Sumenko


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