Ukrainian oligarch threatens to blow the whistle on 'illegal' Ukrrudprom privatisation

By bne IntelliNews March 9, 2015

Graham Stack in Kyiv -


Ukrainian oligarch and regional governor Ihor Kolomoisky has raised the stakes in his dispute with rival businessman Viktor Pinchuk, by threatening to reveal allegedly criminal and possibly murderous actions in the privatisation of the country's metallurgical assets a decade ago.

At a session of the parliamentary special commission on privatisation on March 5, Kolomoisky said he would spill the beans over the sector's murky sell-off during 2003-2004, and called for its reprivatisation.

His words suggest that an ongoing legal battle in London between the two oligarchs could spill over to Kyiv's already turbulent politics - and even open the door to reprivatisation of these and other key industrial assets.

Kolomoisky - who is governor of Ukraine's industrial Dnipropetrovsk region and owner of a business empire spanning aviation, television, metallurgy, oil and Ukraine's largest bank Privat Bank - made a sensational appearance before the commission. His appearance was voluntary and came as a surprise even to members of the commission.

Despite having been a major beneficiary of controversial privatisations himself, Kolomoisky had little to fear from speaking out. The commission was chaired by one of his underlings, Boris Filatov, former Dnipropetrovsk deputy governor under Kolomoisky and now an MP for Ukraine's second largest party Narodny Front, which is widely regarded as being funded by Kolomoisky. 

Kolomoisky has used the commission as a platform to threaten all-out war against Pinchuk, the owner of pipemaking giant Interpipe and other major enterprises. The context is a court case brought by Pinchuk against Kolomoisky in London over the Krivoi Rog iron ore plant, which Kolomoisky controls, but Pinchuk claims should be his. The plant was one of a score of massive ore refiners and smelters privatised in 2003-2004 during the presidency of Pinchuk's father-in-law Leonid Kuchma.

Kolomoisky had already threatened to reveal details of the Ukrrudprom privatisation that would be damaging to Pinchuk if the latter proceeded with the London court case. Now he took his threat one step further – alleging publicly that Pinchuk had extorted $5mn worth of bribes from him each month starting in 2004, according to a transcript of the commission's proceedings as reported in the media.

“For the right to receive our dividends [from state-owned oil company Ukrnafta], we were forced to pay $5mn per month to Pinchuk,” Kolomoisky said, as reported in Ukrainskaya Pravda. “All [the evidence] has been provided to the English court, we can make it available here as well,” Kolomoisky told the commission. “The accounts are identified as those of Pinchuk and Kuchma.”

Pinchuk's response to the accusations was not made public, but he is believed to have vehemently rejected Kolomoisky's claims. Pinchuk has previously accused Kolomoisky of running a smear campaign against him using media under his control. He also said that reported recent legal moves against his father-in-law Kuchma, in connection with alleged crimes committed during the latter's presidency, were intended to put his business under pressure.

Kolomoisky went on to question the entire 2003-2004 privatisation of Ukrrudprom – the giant former state metals and mining holding that encompassed what are now the business empires of a number of oligarchs, including Pinchuk, Rinat Akhmetov and Vadim Novinsky.

“In my opinion it [the privatisation of Ukrrudprom] was illegal,” Kolomoisky said. He argued that the privatisation had been based on a corrupt Kuchma-era law that had restricted participation to investors already owning 25% in the assets to be privatised. 

“Ukraine is looking for money across the world, taking on difficult commitments to get credits from the International Monetary Fund (...) but nobody wants to do anything about stolen or, lets say, illegally privatised assets,” Kolomoisky argued before the commission.

Kolomoisky suggested the state now reprivatise these assets to help fund the budget. “If criminal groups according to a premeditated scheme privatise and strip state property, simply stealing or buying at a knock-down price a state company – I would return them [to state ownership] using nationalisation and expropriation,” he said, calling 2015 the “year of reprivatisation".

Kolomoisky also hinted darkly that the two recent suicides of former heads of the state property fund responsible for the privatisations may have in fact been murder – intended to remove potentially crucial witnesses. In August 2014, Valentina Samsonenko-Semenyuk, head of the state property fund from 2005-2008, shot herself in the head with a hunting rifle. On February 27 2015, Mikhailo Chechetov, former head of the state property fund from 2003-2005,  threw himself out of his 17th floor apartment after having been charged with abuse of power. 

“I believe that at the least these were 'forced suicides', because they knew all the secrets of privatisation,” Kolomoisky said. “In addition, Valentina Semenyuk intended to testify for me [against Pinchuk] in the London court,” he added.

Battle over Ukrnafta

Apart from the court battle with Pinchuk, some of Kolomoisky's ire may come from criticism of his alleged control over state-owned oil refiner, producer and retailer Ukrnafta, Ukraine's largest fuel company. Kolomoisky effectively controls the company despite the state owning over 50%, according to opponents, thanks to Ukrainian legislation fixing the quorum for shareholders meetings at 40%. This enables Kolomoisky-linked structures to block any management appointments and dividend payments contrary to his interests, critics argue.

The government on January 16 introduced a law to parliament changing the quorum in joint stock companies to 50%. This could allow the state to retake full control of Ukrnafta, but the law has since been blocked at committee stage, allegedly at the behest of Kolomoisky and the People's Front party, according to opponents.

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