Ihor Kolomoisky

Kolomoisky’s fall undermines Poroshenko as well

President Poroshenko dismissed Ihor Kolomoisky as governor of Dnipropetrovsk oblast on 25 March. It took the form of a public resignation before television cameras – polite, yet humbling for Kolomoisky. The president thanked him for his work, stressed the need to maintain peace, order and unity in the country and expressed his confidence “that you remain a patriot of Ukraine, a patriot of Dnipropetrovsk”.

Kolomoisky’s dismissal comes hard on the heels of the government reasserting control over the state-owned oil company Ukrnafta and its transit subsidiary Ukrtransnafta. For years Kolomoisky effectively controlled the company and made handsome profits from it through his monopoly over oil refining in Ukraine (at the last functioning refinery in Kremenchuk), his lease of oil storage facilities to the state and, crucially, his use of the 42% stake he holds in Ukrnafta to block board decisions that damaged his own interests. Thus he succeeded in preventing the government from collecting billions of dollars in dividends from the company’s earnings.

How to explain Kolomoisky simultaneously losing his governorship and his grip on a major state-owned business? Is this the opening shot of a definitive separation of big business from government as some pundits in Kyiv and abroad hope and predict it will be?

Two other dramatic events took place on the day Kolomoisky was dismissed. National television broadcast the arrest at a Cabinet meeting of Serhiy Bochkovsky, head of the State Emergency Service and his deputy Vasyl Stoyetsky, where they were handcuffed and led away. They were charged with rigging tenders for the purchase of oil products for the Service, the proceeds from which passed via a private company offshore to Jersey and into Bank of Cyprus accounts in their names. And the Cabinet also brought criminal charges against Oleksiy Kryvopishyn, head of South Western Railways for what Premier Yatseniuk called “plundering the country”. Kryvopishyn’s arrest came swiftly, on the morning after Maksym Blank, acting head of its state parent company Ukrzaliznytsia, had his automobile torched.

On the same day Interior Minister Anatoli Avakov announced investigations were underway into the conduct of Ihor Shvayka and Andriy Mokhnyk, members of the Svoboda party who served respectively as Ministers of Agriculture and Ecology in the previous government. Premier Yatseniuk also reported to the Cabinet that investigations had been completed into the conduct of the taxation authorities and several state economic agencies, whose leaders would soon be brought to justice.

The Poroshenko-Yatseniuk team are out to convince their Western creditors they are serious about driving out corruption from government and the economy and meeting the conditions of their IMF loan. Another important motive is to staunch the outflow from a state budget haemorrhaging from tax evasion and an array of corrupt schemes while a ruinous 40% of that budget is going to pay off a state debt equivalent to 95% of the country’s annual GDP.

However, Kolomoisky’s dismissal was triggered mainly by the government’s fear of incipient warlordism: that it could lose its monopoly over armed force to powerful figures like Kolomoisky who have sponsored volunteer battalions and private security agencies over the past year. Andriy Parubiy, Deputy Speaker of the Verkhovna Rada, recently pointed to the ongoing build-up of troops and armour in Crimea and on the eastern border as well as the mounting accusations coming Moscow and Donetsk that Kyiv is breaking the terms of the Minsk II Accords as signals that the separatists will soon reignite the war. http://www.pravda.com.ua/articles/2015/03/24/7062545/

Still without any appreciable military support from its western allies the government urgently needs to control the available armed forces, including the volunteer battalions. The recent initiative of several volunteer battalions to set up their own “co-ordinating centre” in Dnipropetrovsk heightens its fears. Kyiv is now insisting these battalions either merge with the regular armed forces or disband.

Now, Ihor Kolomoisky deployed his own armed men to gain entry into Ukrtransnafta offices in the night of 22-23 March, and again to seize control of Ukrnafta headquarters in Kyiv the next day. He boasted that he could put 2,000 armed men onto the streets of Kyiv if he needed to. Kolomoisky said these fighters were not members of the volunteer battalions he had organised and equipped in Dnipropetrovsk oblast. But that is irrelevant: Kolomoisky was calling into question the state’s monopoly on the use of armed force in the very heart of the capital. And with a new round of war in the offing Kyiv cannot afford to be challenged in such a way.

As he dismissed Kolomoisky Poroshenko insisted there will be no “pocket armies”. The heads of the State Security Service SBU and the Interior Ministry ordered all private security firms operating in the country to be disarmed. To which Kolomoisky has apparently acquiesced, including in Odessa oblast where armed security personnel sponsored by him have been working since May 2014 to maintain order. http://www.depo.ua/ukr/politics/kolomoyskiy-postavit-shah-poroshenku-v-harkovi-ta-odesi-23032015225400

In his entire year as governor of Dnipropetrovsk, Kolomoisky spent only a few days there He left the governing to his deputies while he worked in Geneva and Kyiv. In Geneva he took care of his businesses. In Kyiv he worked to extend his political influence over Odessa and Kharkiv, the second and third biggest cities of the country that lie on either side of the war zone.

Both cities have been targeted for bombings, economic sabotage and separatist agitation that Ukrainian security services attribute to Russia-sponsored groups. In the wake of the Odessa tragedy on 2 May last year Ihor Palytsia was appointed governor of Odessa oblast and ordered to head off a separatist rebellion there. Palysia,, a businessman active in the oil sector and a Deputy to the Verkhovna Rada, is a close associate of Kolomoisky.

Kolomoisky has long standing ties with Hennadiy Kernes, mayor of Kharkiv and once a member of the Yanukovych clan. Rumour has it that after Yanukovych was ousted Kolomoisky helped Kernes to keep his mayoralty on condition that Kernes kept the separatists out of Kharkiv. However, Kernes did not break his ties with Mykhailo Dobkin, former governor of Kharkiv oblast under Yanukovych. And Dobkin in turn maintains ties with Viktor Medvedchuk, the prime Ukrainian confidant of Vladimir Putin and Putin’s chosen interlocutor between the separatists and Kyiv. In short, Kolomoisky has until now held the line for Kyiv in three strategic cities and their surrounding oblasts.

Vitaliy Pyrovych writes in the website depo.ua, cited above:

Now Kolomoisky may wash his hands of Odessa and Kharkiv…Kernes can start to play his game again…..If Poroshenko has decided that he doesn’t need Kolomoisky for the struggle against separatism, then he better be sure that (interior ministry chief) Avakov and (SBU head) Nalyvaichenko are able to fill the vacuum that will appear after Kolomoisky’s departure. So in the first stage of his war with Poroshenko Kolomoisky will likely keep up a passive resistance, letting things unravel in Odessa and Kharkiv, but keeping hold of Dnipropetrovsk…”

Perhaps that is too cynical a view about Kolomoisky. But the problem lies not with Kolomoisky alone, but the entire ruling elite. This government has been renovated democratically twice, by presidential and parliamentary elections. Yet the elite relies on its own big beasts to hold the country together. Kolomoisky is only one of several who were appointed oblast governors and charged with retaining the central government’s control over the regions. This strategy became an essential part of the president’s vertical chain of command that runs parallel to all levels of elected government.

However, this kind of strategy works only if the president can maintain the co-operation and loyalty of the oligarchs. Like their predecessors Poroshenko and Yatseniuk have been keeping them onside with privileged access to markets and state revenues. That practice now comes up against the demands of the IMF to clean out corruption and put state finances in order.

It will be hard for Kyiv to find an oligarch to match Kolomoisky’s commitment and muscle. Rinat Akhmetov is unacceptable because he bet both ways on the war in the east and so cannot be trusted to stay on side. And Dmytro Firtash, head of the Employers’ Federation of Ukraine which unites the producers of 70% of the country’s GDP, is quietly building his own project to challenge Poroshenko’s chosen course. Still under house arrest in Vienna at the behest of the Americans, he is using his time in exile to cobble together an international coalition of German, Russian and Ukrainian capitaliststhe so-called Agency for Modernisation of Ukraine. He has the leadership of the Federation of Trade Unions working alongside him. Firtash now poses as “the party of peace”, aiming to broker a historic compromise over Ukraine’s sovereignty between the Germans and the Russians and so end the war and resume the transnational business as usual. http://www.fru.org.ua/ua/events/international-events/yes-ukraina-ta-rosiia-perspektyvy-stvorennia-iedynoho-rynku