The path to joining the European Union leads Ukraine through ways to combat corruption and reduce the influence of the oligarch class. War is currently destroying their property, and the law is already restricting them. But experts warn about their future roles.
During a visit to Brussels on February 9, 2023, Ukrainian President Volodymyr Zelensky said that Kiev expects to start negotiations on Ukraine’s accession to the European Union later this year. The European Union maintains that Ukraine’s path to membership depends on reforms, including fighting corruption. In addition, the influence of the oligarchy on Ukrainian politics must be minimized. A study is currently underway in Ukraine on the so-called “anti-oligarchy law” passed in 2021, which aims to meet precisely this requirement, by the Venice Commission of the Council of Europe. It is expected to present its results in March 2023.
The “anti-oligarchy law” is showing clear effect
According to this law, people are considered to be an oligarch in Ukraine if they meet three of the following four criteria: if they have assets of about $80 million, exercise political influence, control the media, and if they have a monopoly in an economic sector.
Those who register in the register of oligarchs are not allowed to finance parties, they are not allowed to participate in large-scale privatizations and they have to file a private income declaration.
Until now, Ukrainian politics has been in a vicious cycle of political corruption: oligarchs have — often covertly — funded political parties in order to use allied politicians to influence laws or regulations that would strengthen their profits. For example, it was more profitable to ensure that government taxes on the extraction of raw materials or the use of infrastructure were kept low than to invest in the modernization of industrial firms.
Meanwhile, the anti-oligarchy law was having a real impact. Last summer, billionaire Rinat Akhmetov was the first to give up broadcast licenses to his media conglomerate. The leader of the European Solidarity Party, former Ukrainian President Petro Poroshenko, has also officially lost control of his television channels. Billionaire Vadim Novinsky resigned from his seat in parliament.
Ahmadov loses many of his assets
With the destruction of Ukrainian industry in the shadow of the Russian war against Ukraine, the wealth of the oligarchy is diminishing. In a study published at the end of 2022, the independent Center for Economic Strategy (CES) in Kyiv estimated oligarchs’ losses in industrial assets at $4.5 billion. Rinat Akhmedov suffered the most damage. With the capture of Mariupol by Russian forces, his holding company, Met Invest Holding, lost the important Azov Steel and another company.
The Center for Economic Strategy estimates the value of industrial facilities at more than $3.5 billion. In addition, Ahmadov’s $150 million coke plant in Avdiivka near Donetsk is idle due to damage from Russian attacks. The targeted Russian missile attacks also destroyed many of Akhmetov’s energy companies, especially thermal power plants.
Experts from Forbes-Ukraine magazine estimate Akhmetov’s war-related losses at more than $9 billion. However, with a fortune of four billion dollars, he still tops the list of the richest Ukrainians. According to Forbes, Vadim Novinsky, Ahmadov’s junior partner in the holding company, Met Invest Holding, suffered losses of $2 billion. His wealth before the war was estimated at $3 billion.
Kolomoisky without a Ukrainian passport and an oil refinery
The fortune of the influential until recently Ihor Kolomoisky oligarch has also declined sharply. Russian attacks last year destroyed his main facility, the Kremenchug oil refinery. The Center for Economic Strategy estimates the damage at more than $400 million. Kolomoisky, together with his partner Hennadiy Boholubov, controlled a significant part of the Ukrainian fuel market. They owned the largest network of gas stations in the country.
Through his political influence, Kolomoisky managed for many years to control the management of the state-owned company “Ukranafta”, in which he owned only a minority stake. Also, his control of the largest oil production company in the country, the largest refinery and the largest network of gas stations, guaranteed him high profits.
The refinery is now destroyed and the shares in “Ukranafta” and the “Ukratnafta” oil refinery were taken over by the state during the period of martial law declared because of the war. Meanwhile, the oligarch Kolomoisky, who also holds an Israeli and a Cypriot passport, has had his Ukrainian citizenship revoked, as only one citizenship is allowed in Ukraine. Under criminal proceedings, allegations of alleged fraud in Ukrnavta worth billions were brought against him.
Firtash loses a gas company and a chemical plant
Dmytro Firtash is another oligarch under investigation who has been living in Austria for years. He is also known for his great influence on Ukrainian politics. In the past year, he also lost a large part of his fortune. The Azot fertilizer plant was badly damaged by the fighting in the Russian-occupied city of Severodontsk. The Center for Economic Strategy estimates his loss at $69 million.
Last year, owing to Firtash’s 1.5 billion hryvnia (about $40 million) debt accumulated for using state gas networks, the Ukrainian government placed Firtash’s 20 regional gas facilities under the management of the state-owned energy company, Naftohaz Ukraine.
And in 2022, according to Forbes, Firtash will no longer be among the 20 richest people in Ukraine. A year earlier, his fortune was estimated at $400 million.
Expert: The influence of the oligarchy has not yet been eliminated
The oligarchy has lost the basic resources to influence politics
“Investments in politics are becoming less important,” says Dmytro Horyunov, an expert at the Center for Economic Strategy. He hopes that the “anti-oligarchy law” will force big business to give up their media and their role in politics. At the same time, Horyunov contends, not enough has been done to completely eradicate the influence of the oligarchy on Ukrainian politics. “As long as they have wealth, they will do anything to protect or increase it,” Horyunov said. Oligarchs traditionally defend their interests through the judicial system, according to the conclusions of the Center for Economic Strategy. Since 2014, Ukraine’s antimonopoly agency has fined Akhmetov’s companies more than $200 million and Kolomoisky and Firtash’s companies tens of millions of dollars for abusing monopoly rights. The Center for Economic Strategy said that those affected have challenged all these fines in court and have not yet paid them.
Political influence secures higher profits
Horyunov believes that one of Ahmadov’s most important lobbying efforts in the future will be the iron ore tax issue: “Ahmadov still has two large mining and processing plants that will bring in several billion dollars in net profits in 2021.” The arithmetic is simple, says Horyunov: The lower the tax, the more the wealthiest Ukrainians earn.
Against this background, the explosive political decision in Kiev is currently causing a stir. At the end of last January, the Ukrainian Parliament approved a first reading of a bill proposed by deputies from the ruling “Servant of the People” party. The draft law proposes a reduction in the iron ore tax for the duration of martial law – in line with Akhmetov’s interests.
As Danilo Hetmantsev, Chairman of the Parliamentary Committee on Fiscal and Tax Policy, admitted to Ukrainian journalists, the International Monetary Fund, one of Ukraine’s main donors, takes a very critical view of this bill.
Ihor Vishchenko of the “Chesno” movement also speaks (honestly) of Akhmetov’s “great temptation” to further influence state regulation of the economy in the country.
According to Chesno, Akhmetov used to give politicians regular access to programs on his TV channels, who then campaigned, for example, for railway tariffs that benefited oligarch Akhmedov.
Foreign investors are hope
Despite the fact that some oligarchs have officially abandoned their media, Ihor Vyshchenko doubts that big business will remain out of the polls after the end of the war. “I think the first thing we will see from the oligarchs is that they establish new TV channels and at the same time political parties associated with them,” said Vishchenko. He stressed that in order to prevent the flow of opaque funds for election campaigns, the political parties law must be applied.
Experts of the Center for Economic Strategy hope that in the context of joining the European Union, large investors from the European Union will come to Ukraine instead of the oligarchs. At the same time, they demand that international financial institutions link aid, on which Kiev has become so dependent, to the progress of the process of eliminating the oligarchy and to support companies that compete with the oligarchy.
Source: DW News