Poroshenko cultivates ‘crony democracy’ in post-revolution Ukraine

Poroshenko cultivates ‘crony democracy’ in post-revolution Ukraine
President Petro Poroshenko addresses Ukraine's Verkhovna Rada parliament in Kyiv. / Photo by Presidential Press Office
By Sergei Kuznetsov in Kyiv July 6, 2016

“The fact that some lawmakers and parliamentary groups voted in favour does not provide them with any exemption from criminal investigations,” Ukrainian President Petro Poroshenko told journalists in exasperation on June 3, a day after the parliament had adopted constitutional amendments on judicial reform.

Poroshenko had reason to be irritated. Immediately after the motion had been adopted, some lawmakers and experts voiced suspicions that the president had been forced to make backroom deals with oligarchs and former allies of ousted ex-president Viktor Yanukovych in order to secure the result.

Indeed, the motion was backed by 335 lawmakers, above the minimum 300 votes needed, and the amendments were approved thanks to the pro-Russian Opposition Bloc, controlled by top-tier oligarchs Dmitry Firtash and Rinat Akhmetov, as well as former associates of Yanukovych from smaller parliamentary groups.

The Opposition Bloc faction, headed by Yuri Boyko, a controversial Yanukovych-era deputy prime minister, provided 38 votes in favour of the amendments. “Now it is clear why [Ukrainian prosecutor general Yuriy] Lutsenko is avoiding filing [to the parliament] an appeal to arrest Boyko,” Serhiy Leshchenko, a lawmaker from Poroshenko’s faction, noted in reaction to the motion.

Leshchenko stated that investigators from the Prosecutor General’s Office had prepared such an appeal about a year ago, suspecting Boyko of participating in a criminal organisation that ran fraudulent schemes involving the liquefied natural gas projects of notorious Ukrainian gas oligarch Serhiy Kurchenko. However, the controversial former head of the prosecutor’s office, Viktor Shokin, allegedly refused to sign the appeal and file it with parliament, Leshchenko claimed.

“Quid pro quo is the nature of Ukrainian politics: a favour for a favour,” Andrei Marusov, chairman of Transparency International in Ukraine, tells bne IntelliNews. “This is confirmed by the fate of former members of [Yanukovych’s] Party of Regions, against which there are criminal proceedings, and who are under reasonable suspicion over their involvement in corruption. But, for instance, Boyko has no worries.”

Marusov believes that the administration of Poroshenko secured an unofficial agreement with the Opposition Bloc over its support for the important judicial reforms. Similar deals were apparently agreed with two other parliamentary groups: Vidrodzhennia (Revival), which includes former associates of Yanukovych, and Volia Narodu (The People’s Will), which was created mainly by representatives of local elites and businessmen tied to the gas industry.

“What will these lawmakers obtain in exchange? The law enforcement agencies are apparently turning a blind eye to investigations against them,” Marusov accuses.

The Opposition Bloc is controlled by two very influential Ukrainian oligarchs – Akhmetov and Firtash – and any such agreements with Poroshenko and his team could only contribute to the improvement of their positions, which have been badly hit by the financial crisis, Russia’s annexation of Crimea and a separatist uprising in the eastern regions of the country. 

Firtash has two key figures in the Opposition Bloc: Boyko and Serhiy Lyovochkin, a businessman and former chief of staff under Yanukovych. Akhmetov relies on another senior figure in the party, businessman Borys Kolesnikov, who heads the party’s shadow government, as well as Vadim Novinskiy, a co-owner of Akhmetov’s mining and metallurgical holding Metinvest.

However, Leshchenko believes that the situation with Boyko’s ‘immunity’ is more complicated. “Boyko is a part of the Viennese package [agreed] by Firtash, Poroshenko and [Kyiv mayor Vitaliy] Klitschko,” the lawmaker said in parliament on June 13, pointing to one of the most controversial and secret aspects of Ukrainian politics in the past two years.

In April 2015, a court in Vienna refused to extradite Firtash to the US, where he was wanted for allegedly bribing Indian officials to gain mining licences. The Austrian court accepted the argument of Firtash and his lawyers that the US case was politically motivated, and aimed at removing the businessman from active participation in Ukrainian politics.

During the hearing, the businessman revealed that he had had a meeting with Poroshenko and Klitschko in Vienna, where he was under house arrest, on the eve of the 2014 presidential election. The result of the meeting was that Klitschko, who was riding high in the polls, would withdraw his candidacy and instead support Poroshenko’s bid to be president.

“We secured what we wanted: Poroshenko became president, Klitschko the Kyiv mayor,” Firtash said in court, refusing to provide any details and citing a confidentiality agreement between the parties. The billionaire added that his main goal had been to prevent Yulia Tymoshenko, a former Ukrainian prime minister and bitter rival, from winning the election.

To this day it is unclear what actually transpired during the meeting in Vienna, in which Firtash’s associate Lyovochkin also took part. However, both billionaires – Poroshenko and Firtash – apparently shared a rival in the form of Tymoshenko and this could be one of the reasons for their collaboration.

Poroshenko’s antipathy toward Tymoshenko goes way back. According to a classified cable sent by the US ambassador in Ukraine, John Herbst, to Washington in 2006, Poroshenko “is clearly sparing no effort to pay her back for publicly tarring him as corrupt during the September 2005 struggle that led to Tymoshenko’s ouster as prime minister and Poroshenko’s resignation as NSDC [National Security and Defence council] secretary”. 

According to the same document, published by WikiLeaks, Ukraine’s interior minister at the time told Herbst that he had been ordered by the prosecutor general, then a close ally of Poroshenko, to arrest Oleksandr Turchynov and Andriy Kozhemyakin, senior politicians in the Tymoshenko Bloc, for “illegally destroying the SBU security service files on the January [2006] gas deal with Russia and on organised crime figure Semion Mogilevich”, who is on the list of the FBI’s 10 most wanted.

Firtash and Boyko are not the only ones who have found a “common language” with Poroshenko and his administration. Akhmetov, the country’s richest businessman, has recently secured badly needed preferences for his power and coal mining conglomerate DTEK.

Two months ago, Ukraine’s utility sector regulator started to use a new methodology for calculating the tariffs for electricity supplied by Ukrainian coal-fired thermal power plants (TPPs). According to the methodology, the price of electricity sold by TPPs will cover in full the coal costs, calculated according to the API2 coal index (the CIF price of coal in Amsterdam-Rotterdam-Antwerp), plus the costs of coal delivery from Rotterdam to Ukrainian TPPs. This is extremely positive for DTEK, as the price has increased from UAH1,100-1,200 ($44-48) per tonne to UAH1,400-1,500.

Perhaps not coincidentally, the National Utilities Regulatory Commission (NERC) is headed by Poroshenko’s close associate Dmytro Vovk, the former manager of the president’s Roshen confectionery corporation. “In contrast to his public statements, Poroshenko knows the Ukrainian political system perfectly well, and his actions are oriented at unofficial, non-public agreements under a quid pro quo principle,” Marusov explains.

David Sakvarelidze, a former Ukrainian deputy prosecutor general, believes that the country’s politics are ruled by “clan interests”. “It’s not a secret that the parliament and politics in Ukraine were always a business, or a status that provides an opportunity to reach business success,” Sakvarelidze tells bne IntelliNews.

He adds that thanks to the Orange Revolution in 2004-05 and Euromaidan protests in 2013-14, people in Ukraine might have been able to change the authorities, but “were not able to change the bureaucracy – the names [of officials and politicians] are almost the same”.

“And that is the main tragedy of the country,” Sakvarelidze says.

How to pay for votes

The support of the controversial parliamentary groups Vidrodzhennia and Volia Narodu has also been crucially important to the authorities at other times this year. Thanks to the four dozen votes provided by these groups, the parliament was able to approve Volodymyr Groysman as the new prime minister in April and Yuriy Lutsenko as the new prosecutor general in May.

Volodymyr Fesenko, head of the Kyiv-based think tank Penta Political Centre, describes Vidrodzennia as “some sort of political federation” that includes local elites and former politicians from ousted president Yanukovych’s notorious Party of Regions.

According to the expert, the group’s members are “allies” of Ukrainian oligarch Ihor Kolomisky. However, Fesenko underlines that they are quite independent from Kolomoisky, pointing out that the group’s head, businessman Vitaliy Khomutynnik, is a business partner of the oligarch, but not his “puppet”.

In early May, Hennadiy Moskal, the governor of Transcarpathia region, accused Kyiv of “political bargaining” with Khomutynnik, as a result of which the authorities allegedly provided “control over [the region’s] customs” to the lawmaker.

“This was a kind of payment for supporting Groysman’s candidature for the post of prime minister, as well as further votes in favour of government-backed bills,” Fesenko suggests.

Moreover, according to Moskal, Khomutynnik allegedly secured an agreement with the authorities for Roman Nasirov, head of the State Fiscal Service and a close associate of the lawmaker, to keep his current post.

“Indeed, there are rumours Vidrodzhennia agreed that after the change of the Ukrainian government, Nasirov would not be dismissed,” Fesenko says.

Moskal announced his resignation from the post of governor at the same time as making his explosive claim about Kyiv's dealmaking. However, a week later, after a series of high-level meetings in the capital, including with Poroshenko, the governor changed his mind and withdrew his previous accusations against Khomutynnik, citing a flawed source of information. The lawmaker’s spokesperson refused to comment to bne IntelliNews.

“It is possible that agreements were reached [during recent parliamentary rounds] with some people over appointments, and with others over business issues,” Fesenko says. “These agreements apparently differ in each particular case.”

According to the expert, “strong business interests” are part and parcel of Ukrainian politics. “That is the nature of our young democracy – a significant proportion of political forces are connected to business,” Fesenko underlines, adding that he doesn’t expect this to change any time soon.

Trench warfare

The situation over the parliamentary group Volia Narodu, which has also contributed votes for recent high-profile appointments, looks more complicated.

Until recently, Leshchenko of the Poroshenko Bloc was convinced that some lawmakers from the group had strong ties to business schemes linked to the state-owned gas company Ukrgazvydobuvannia, and that the government’s support of these schemes would be some kind of reward for their votes.

In June, however, the country’s law enforcement agencies accused the group’s lawmaker Oleksandr Onyshchenko of creating a criminal organisation that was allegedly involved in the embezzlement of state-owned natural gas, produced with the participation of Ukrgazvydobuvannia.

The authorities suspect that the lawmaker siphoned off UAH1.6bn ($64mn) from the state-run gas producer, and that he failed to pay UAH1.3bn ($52mn) in royalties to the state budget. Onyshchenko denies any wrongdoing, but now faces 7-12 years in prison after parliament on July 5 sanctioned criminal proceedings against him.

Fesenko describes Onyshchenko as “a second-tier oligarch” and quite a remarkable figure in Ukrainian politics. “He was loyal to the president… However, Onyshchenko acted on the gas market using not very clear methods, quite rudely,” the expert tells bne IntelliNews.

On June 29, the National Anti-Corruption Bureau of Ukraine (NABU) announced that they had detained an 11th suspected associate of the lawmaker allegedly involved in the embezzlement of state-owned natural gas. “What is the main issue that Onyshchenko failed to consider? NABU needs to demonstrate some results [of its work]. Everybody is awaiting high-profile arrests from the institution,” Fesenko comments.

But for much of the old set-up of big business, it's business almost as usual. As an example, Marusov cites suspicions surrounding Akhmetov’s continued monopoly of the Ukrainian energy market. “There are strong statements being made, but there are no real actions aimed at breaking this monopoly,” he says.

Overall, current relations between Ukraine's authorities and the oligarchs are like “trench warfare”, Marusov says: “This looks like the First World War: they are shelling each other, but the frontline remains unaltered.”