Ukrainian oligarchs: dinosaurs whose time is ticking away?

Ukrainian European integration calls for fighting corruption and reducing the influence of oligarchs on politics. The war is destroying industrial assets controlled by oligarchs. However, it is too early to say that their era is over.

Kyiv expects negotiations on Ukraine’s accession to the EU to begin this year, said President Volodymyr Zelenskyy during a visit to Brussels on Thursday, February 9. European partners have emphasized that the path to membership in the community depends on reforms, including anti-corruption reforms. One of Brussels’ requirements is to reduce the influence of oligarchs on Ukrainian politics.

Currently, the Council of Europe’s Venice Commission is reviewing an “anti-oligarchic” law adopted in 2021 aimed at fulfilling this requirement. The EU expects its implementation, taking into account the comments of the Council of Europe experts. The Venice Commission is expected to publish its opinion in March.

According to the law, oligarchs in Ukraine are officially considered to be individuals who meet three of four criteria: wealth equivalent to an amount of approximately USD 80 million or more, political influence, control over the media, and a monopoly in one of the sectors of the economy. Those who are included in the statutory register of oligarchs are prohibited from financing political parties, participating in large-scale privatization, and must submit a special declaration.

Among the first results of the law’s adoption was Rinat Akhmetov’s withdrew from broadcasting licenses for his media group, which was announced last summer. The leader of the European Solidarity party, businessman and politician Petro Poroshenko also lost official control over his own TV channels. And billionaire Vadym Novynskyi gave up his mandate as a member of the Verkhovna Rada.

In parallel with the systematic destruction of Ukraine’s industrial potential by the Russian invaders, the wealth of the richest Ukrainians is also falling. In a study published at the end of 2022, the Centre for Economic Strategy (CES) estimated the loss of oligarchs’ industrial assets at USD 4.5 billion. The biggest losses during the year of war were apparently incurred by Rinat Akhmetov.

As a result of the Russian occupation of Mariupol, he lost such key metallurgical assets as the Azovstal plant and the Ilyich Iron and Steel Works. CES estimates the value of these assets at over USD 3.5 billion. In addition, the Avdiivka Coke Plant, the largest enterprise in Europe in its field, has been mothballed after being damaged by Russian strikes (minus another USD 150 million).

Akhmetov’s energy generating companies, in particular thermal power plants, are also constantly being damaged by Russia’s targeted missile strikes. According to DTEK Energy, its facilities have been hit 27 times since the beginning of the war.

Another formerly influential oligarch, Ihor Kolomoisky, has also seen a sharp decline in his income. Last year, Russian bombing destroyed his key asset, the Kremenchuk oil refinery. The Centre for Economic Strategy estimates the loss of this enterprise at over USD 400 million.

Kolomoisky, together with his partner Gennadiy Bogolyubov, controlled a significant share of the Ukrainian fuel market, owning the country’s largest network of gas stations.

In addition to Akhmetov and Kolomoisky, another oligarch known for his traditionally high influence on politics, Dmytro Firtash, lost a significant portion of his resources during the war. As a result of the fighting, one of the largest fertilizer production companies, Azot in Sievierodonetsk, was severely damaged and is now in the Russian-occupied territory (minus USD 69 million, according to CES).

Is it too early to dismiss the oligarchs?

The oligarchs have largely lost their resources to influence Ukrainian politics, Dmytro Goriunov, an expert at the Centre for Economic Strategy, told DW. “Investments in politics will become less relevant,” Goriunov said. He hopes that the “anti-oligarchic” law adopted last year will force big business to abandon its media resources or to withdraw from political life.

However, the CES expert has no illusions: not enough has been done to completely eliminate the oligarchs’ influence on Ukrainian politics. “As long as they still have assets, they will do everything to protect or increase them,” Dmytro Goriunov is convinced.

Oligarchs traditionally use the judicial system to protect their interests, as confirmed by analysts of the Centre for Economic Strategy. In particular, since 2014, the Antimonopoly Committee has imposed fines of more than USD 200 million on Rinat Akhmetov’s companies, as well as several tens of millions on the companies of Ihor Kolomoisky and Dmytro Firtash for abuse of monopoly position. However, all these fines are systematically challenged in courts and none of them have been paid so far, CES states.

The issue of business profitability

Dmytro Goriunov points out that the issue of iron ore royalties is likely to remain among the most important areas for political lobbying by Rinat Akhmetov’s companies in the future. “Akhmetov still owns two large mining and processing plants, which, according to the 2021 financial statements, brought in several billion dollars in net profit,” the expert reminds.

In its report, the Centre for Economic Strategy states that the share of oligarchs in the Ukrainian economy has halved over the past ten years – not only because of the war, but also because oligarchic business is inefficient. CES analysts hope that in the process of Ukraine’s European integration, oligarchs will be replaced by large investors from the EU.

At the same time, experts call on international financial organizations, on whose assistance Ukraine is currently extremely dependent, to condition their assistance to Kyiv on progress in de-oligarchization, and to support companies that would create competition for the oligarchs.

The article was published on DW in Ukrainian.