As in other former Soviet states, privatizations of state firms and the acquisition of large-scale industrial entities during the 1990s contributed to the rise of a group of influential oligarchs in Ukraine. These oligarchs have played a major role in Ukrainian politics, at times running for office or financing favored political factions. Most oligarchs are politically flexible, shifting allegiances and funding a diverse set of factions in order to protect their economic interests.
Changes Within the Oligarchs' Ranks
The change in government and the conflict in Donbas gave some of Ukraine's wealthiest men greater power and influence. Petro Poroshenko, a confectionary magnate and opposition politician, became president and ultimately the head of the Petro Poroshenko Bloc, now the largest party in Ukraine's parliament. Besides his confectionary firm, Roshen, Poroshenko owns Ukraine's television station TV Kanal 5 and has assets in the real estate, insurance and banking sectors.
Igor Kolomoisky, the Dnipropetrovsk-based co-founder of PrivatBank with assets in the airline, energy, media and finance sectors, now wields significant influence within Ukraine's government. Kolomoisky's levers include his position as the governor of the Dnipropetrovsk region, where he has been instrumental in preventing the spread of the separatist movement and fighting in nearby Donbas. Kolomoisky's influence extends beyond the region of Dnipropetrovsk as well. His ally Igor Palytsia is governor of the Odessa region, a key port region and a target of pro-Russia terrorist-style attacks, while other political allies are serving in Ukraine's parliament.
The emergence of new authorities in Kiev and the fighting in eastern Ukraine have also diminished the influence of some oligarchs. Before the fall of the Yanukovich government, Rinat Akhmetov was the wealthiest individual in Ukraine. He also backed several different political factions and leaders, including Yanukovich, and was a significant political player, influencing events in his home industrial region of Donetsk and in Kiev. After initially maintaining a largely neutral position, Akhmetov attempted to mediate between the government and separatists. His efforts became more difficult to sustain as unrest began threatening his steel and mining interests in the Donetsk region. The oligarch ultimately asked his employees in the southern city of Mariupol to begin conducting security patrols to aid Ukrainian authorities in maintaining stability in the city.
Akhmetov's assets in Ukrainian-held territories remained intact. However, once Akhmetov's efforts to mediate the crisis decreased, separatist leaders in the self-declared Donetsk People's Republic and Russian officials in Crimea began taking steps toward nationalizing his remaining assets. On Jan. 21, Crimea's parliament nationalized Akhmetov's DTEK Krimenergo power company, and the Donetsk People's Republic plans to officially nationalize Akhmetov's factories in its territory. In the meantime, some of Akhmetov's factories and mines have been closed or are operating below capacity because of the conflict, and his overall portfolio has suffered because of Ukraine's economic crisis.
The loss of access to some of his assets, as well as his initial attempt to balance between the new authorities in Kiev and the separatists and their Russian backers, has eroded Akhmetov's political influence. He is still Ukraine's wealthiest oligarch, and he plays a public role as a major employer and as an organizer of humanitarian convoys to the rebel-held east, but Akhmetov has lost much of his influence in Kiev's decision-making processes.
Adjusting to Ukraine's new realities has been a challenge for many of Ukraine's oligarchs. Victor Pinchuk, a steel pipes magnate and son-in-law of former President Leonid Kuchma, has supported the authorities in Kiev but declined to play an active role in the new government. Pinchuk has also been adversely affected by a long-running business dispute with Kolomoisky, accusing Kolomoisky and his partners of using their media assets to run a smear campaign against him and his father-in-law. Vadim Novinsky, a steel-sector oligarch with close ties to Russia and a former member of Ukraine's parliament for Yanukovich's Party of Regions, is now in parliament as a member of the Opposition Bloc, a small successor to Yanukovich's party with little influence over policy-making.
A Threat to Cohesion
The shifting power dynamics among Ukraine's oligarchs have in some ways aided Kiev, which relied on individuals such as Kolomoisky to use their wealth and networks to keep parts of the country stable. Still, the rising influence of certain oligarchs could pose a threat to the cohesion of the government and its efforts to get much-needed financial assistance from Western institutions. Ukraine is considering a broad array of reforms, some of which may not serve the interests of the oligarchs. In fact, they are designed to reduce the role of oligarch interests in Ukrainian politics. The pro-Western coalition led by Prime Minister Arseniy Yatsenyuk and Poroshenko came to power on the promise of wide-ranging reforms. Activist groups, which have grown in strength and influence since Yanukovich's ouster, will pressure the government to implement reforms and will challenge the newly empowered oligarchs' efforts to shape policy. Moreover, reforms are the prerequisite for financial assistance from the International Monetary Fund, which Ukraine needs in order to avoid bankruptcy.
There are already signs that oligarch interests are threatening the ruling coalition's coherence. Legislation that would make it easier for businesses' majority stakeholders to seek reforms sparked tension within the coalition when some lawmakers accused Yatsenyuk of initially opposing the proposal in order to prevent reforms at energy producer Ukrnafta. The energy producer is majority-owned by state-controlled Naftogaz, but its minority stakeholder is Kolomoisky's Privat Group. Similarly, some parliament members' efforts to dismiss Prosecutor-General Vitaly Yarema reportedly are attributed in part to a struggle for influence between Poroshenko — who appointed Yarema — and Kolomoisky.
For the oligarchs, reforms could threaten long-standing business arrangements and sources of profit. While some of the newly empowered oligarchs will continue selectively challenging the government's reform agenda, the threat of the IMF withholding funds because of a lack of reforms will motivate the oligarchs to consent to, and cooperate temporarily on, some reforms in the short run. A worsening of Ukraine's economic crisis would harm oligarch interests, because many oligarchs own stakes in partially government-controlled firms and benefit from government contracts. In the long run, the country's top oligarchs will work to undermine any significant reforms that run counter to their economic interests, presenting a challenge for the stability of Ukraine's diverse pro-Western ruling coalition.
