War reigned among Ukrainian oligarchs, at least for now

War reigned among Ukrainian oligarchs, at least for now

War reigned among Ukrainian oligarchs, at least for now

For weeks, they repelled Russian assaults, entrenched in a vast steelworks under barrages of missiles and mortars. And when Ukrainian troops defending the Azovstal plant finally surrendered in May 2022, the plant was reduced to ruins and twisted metal.

The fighting in Azovstal, in the besieged city of Mariupol, was a defining moment in the first months of Russia’s full-scale invasion of Ukraine.

It is also a major setback for Ukraine’s richest man, the factory’s owner.

With the destruction of Azovstal, owner Rinat Akhmetov lost an industrial gem accounting for a fifth of Ukraine’s steel production – a multibillion-dollar loss that dealt a major blow to his long-held grip date on the Ukrainian economy.

Mr. Akhmetov’s case shows how the war, by ravaging Ukraine’s industry, has limited the power of the country’s so-called oligarchs, tycoons who have long ruled the economy and used their wealth to buy influence political, experts say.

During the first year of the war, the total wealth of the 20 richest Ukrainians declined by more than $20 billion. according to Forbes magazine. Mr. Akhmetov was hit the hardest, losing more than $9 billion. He is one of only two billionaires remaining in Ukraine, compared to 10 before the war, according to The New Voice of Ukraine newspaper.

Today, Ukrainian authorities are considering using their war powers to try to make a permanent break with the oligarchs. The goal is to reduce their influence over the economy and politics, and to prosecute those who engaged in corrupt practices, implementing policies that President Volodymyr Zelensky promised to pursue before the invasion .

“They are weak and this is a unique opportunity to get justice for how the country should be run,” Denys Maliuska, Ukraine’s justice minister, said in an interview.

Rinat Akhmetov in 2014. Credit…Thomas Trutschel

Ukrainian authorities say the efforts are aimed at rebuilding a more democratic and prosperous post-war country, and also show they are tackling corruption, a crucial step in winning support from Western allies.

The crackdown could eliminate influence buying, but it could also reduce Ukraine’s political pluralism and sideline some of Mr. Zelensky’s opponents. Before the war, one of the highest-profile investigations of a businessman involved Mr. Zelensky’s main political rival, former President Petro O. Poroshenko, who made his fortune in the candy trade. Mr. Poroshenko has avoided criticizing Mr. Zelensky since the start of the war, presenting himself instead as a loyalist ready to fight for his country.

Some critics also say the wartime concentration of power around the government could give rise to a new oligarchy, and analysts say oligarchs still retain important levers of influence.

“The oligarchs have all the resources they need to regain their influence,” Mr. Maliuska said. “The risk is always present.”

Like other Ukrainian tycoons, Mr. Akhmetov made his fortune in the 1990s, when newly independent Ukraine transitioned to a market economy where lucrative state assets were privatized cheaply. He took over Soviet-era coal and steel factories and built a business empire that also included major stakes in agriculture and transportation.

Dmytro Goriunov, an economist at the Kyiv-based Center for Economic Strategy, said oligarchs have been a major obstacle to Ukraine’s economic development, hindering competition through monopolies. Before the war, they controlled more than 80 percent of industries like oil refining and coal mining. according to a study I co-wrote.

Experts say Ukrainian oligarchs have used their profits to influence politics and the justice system, as well as to buy or launch television channels to shape public opinion.

Mr. Akhmetov once owned as many as 11 channels and supported Viktor Yanukovych, the pro-Russian former president whom Ukrainians ousted in 2014.

Unlike Russia – where oligarchs have largely failed to align with the Kremlin under duress or self-interest – the rivalries among Ukrainian tycoons and their support for a wide range of politicians have given Ukraine’s media and political landscape a greater variety.

Their large industrial and agricultural enterprises also boosted the economy, employing hundreds of thousands of people and attracting foreign investment.

But Daria Kaleniuk, executive director of Ukraine’s Anti-Corruption Action Center, said the oligarchs’ stakes in business, politics and media had created a “vicious circle” in which most levers of power were under their control, fueling corruption.

When Mr Zelensky was elected president in 2019 – with the support of a tycoon, Ihor Kolomoisky – he promised an all-out attack on the oligarchs. But his efforts, which included overhauling the justice system and cracking down on corrupt public officials, “did not significantly diminish the influence of the oligarchs at that time,” Mr. Maliuska said.

Then came the Russian invasion in February 2022.

As Moscow’s attacks focused on eastern and southern Ukraine, the country’s industrial heartland, many of the oligarchs’ factories were decimated.

In Mariupol, Mr. Akhmetov’s two giant steelworks, including Azovstal, were destroyed. The same was true for the country’s largest oil refinery, located in central Ukraine, which was owned by Mr. Kolomoisky. Today, heavy fighting around the eastern town of Avdiivka has forced Europe’s largest coking plant, another owned by Mr. Akhmetov, to close its doors.

“My businesses were most affected by the war,” Mr. Akhmetov said in his written responses to questions. Its wind and thermal power plants have been “exposed to constant Russian missile and drone attacks,” and its steel and coke plants have been “seriously damaged or temporarily occupied,” it said.

Mr. Akhmetov’s steel and mining group, Metinvest, lost nearly a third of its assets in the first year of the war, according to the Center for Economic Strategy. Mr. Kolomoisky’s oil assets have shrunk by two-thirds.

But it is perhaps the political influence of the oligarchs that has been hit hardest.

At the start of the war, as the country rallied around its president, the oligarchs had no choice but to put aside their political agendas and contribute to the war effort.

Then Mr. Zelensky signed a decree merging all cable news into a single program intended to counter Russian disinformation and boost morale – depriving oligarchs with media arms of a crucial tool of influence. The program has been denounced as a way for the government to stifle criticism.

And by the summer of 2022, many tycoons had given up ownership of their media businesses to comply with a law passed before the war to limit their power. The law states that anyone meeting three out of four criteria – participation in politics, significant media influence, possession of a business monopoly or wealth of at least $70 million – will be designated an oligarch and will not have the right to buy privatized public assets and finance political parties. .

Mr. Akhmetov handed over his television and print media licenses to the state in July 2022. “I am no longer an oligarch in the legal sense of the word now,” he said.

As the war continued, Ukrainian authorities widened their net in their pursuit of the oligarchs.

In September, police arrested Mr. Kolomoisky on suspicion of fraud and money laundering, and he has since been detained. Authorities are also trying to extradite from France Kostyantin Zhevago, a Ukrainian oligarch, for fraud, and another, Dmytro Firtash, for embezzlement. Mr. Akhmetov is not the subject of personal legal proceedings.

“For decades, it was unimaginable to have an oligarch in a pre-trial detention center,” said Mr. Maliuska, the justice minister. “Now it’s a reality.”

Mr. Maliuska acknowledged that “state power is greater” during war, facilitating efforts to break free from oligarchs’ control of the economy. But he added that Ukraine’s current crackdown was also aimed at securing anti-corruption credentials, key to securing much-needed Western aid.

The European Union, for example, agreed to open accession negotiations for Ukraine last month, but stressed the need to build “a credible track record of investigations, prosecutions and final court decisions in high-level corruption cases.

It is unclear how this will affect the powers of the oligarchs.

Mr. Goriunov, the economist, said Ukraine remained dependent on many of the oligarchs’ businesses. Mr. Akhmetov’s energy company, DTEK, accounts for two-thirds of the country’s thermal coal production.

Mr. Akhmetov, in his written comments, said he intended to play a role in the country’s post-war reconstruction. “As Ukraine’s largest investor, SCM will not stand aside,” he said, referring to its holding company.

Some in Ukraine also fear that the oligarchs will be replaced by a new oligarchic system born from the wartime concentration of power around the government.

Valeria Gontareva, who served as governor of Ukraine’s central bank from 2014 to 2017, expressed concern about the seizure of oligarchs’ assets during the war and how government officials could use them for personal gain.

In late 2022, Mr. Kolomoisky’s oil refinery and Mr. Zhevago’s AvtoKrAZ company, which makes heavy trucks, were nationalized in a bid, authorities say, to secure vital military supplies. But some actions, like seizure of Mr. Zhevago’s shares in mining plantswere controversial and criticized as unjustified.

“This is state capitalism,” Ms. Gontareva said. “Now the threat comes not from the old oligarchs, but from the new ones who profit from the war through the redistribution of assets and business segments.”

Ms. Kaleniuk of the Anti-Corruption Action Center agrees. “In the fight against dragons,” she said, “we must be careful not to become dragons ourselves. »