Ukraine's government seizes Firtash's assets

By bne IntelliNews June 8, 2015

Graham Stack in Kyiv -


The conflict between Ukraine's most powerful oligarchs and the government has escalated after the interior ministry imposed an asset freeze on Ostchem, the country's largest chemicals, gas and energy holding, which is owned by Dmitro Firtash. 

Ukraine's interior ministry has filed 110 requests for the seizure of real estate owned by Ostchem, with 46 properties already confiscated, Ukraine's Interior Minister Arsen Avakov declared on June 7. 

Avakov also dropped a bombshell: he said police were investigating the circumstances under which Ukraine's state energy company Naftogaz lost a $10bn court case against Firtash-owned gas trader Rosukrenergo in 2010. Avakov said he has proof that Naftogaz officials, acting on political orders, deliberately lost the case to Firtash, in what he called “phenomenally criminal collusion".

Firtash responded furiously only hours later in an interview on his own TV channel Inter, Ukraine's most popular. Interviewed in his capacity as head of Ukraine's employers' association, he slammed Yatsenyuk's government for losing 600,000 jobs over the year, and for hiking the price of gas instead of arranging for cheap gas imports.

He accused the government of using its 'war against oligarchs' to cover up for losing the war against Russian-backed insurgents and for the economic collapse. “But what is a war against oligarchs? It is not two, three, four, five people, it is tens of thousands of people across the country.” he said. “Regrettably, we are now fighting against the government. Regrettably,” he said.

Firtash the kingmaker

The blows exchanged on June 7 were only the latest in a month-long conflict between Firtash and the People's Front (PF) party headed by prime minister Arseny Yatsenyuk, Avakov and security council head Oleksandr Turchinov.

On June 5, Firtash threatened to shut down two of his massive fertiliser plants in response to pressure from the government. Firtash controls 80% of Ukraine's fertiliser production, which is a crucial supplier to Ukraine's agriculture sector. İn return, Yatsenyuk threatened to nationalise the plants over their debts to the budget.

But the Firtash-PF conflict is not simply a reformist policy of 'deoligarchisation',  say analysts, but part of a complex story of mutual promises and secret agreements existing between diverse political factions and oligarchs.

Firtash “has now declared a personal war on the Yatsenyuk government", commented Serhiy Scherbin, editor of The Insider. “But he laid an interesting emphasis (...) [President Petro Poroshenko's] name and office was not once mentioned,” Scherbin added.

This may have been for good reason: On June 5, Poroshenko revealed to journalists the text of an agreement signed in Vienna in March 2014 between Poroshenko and boxer-turned-politician Vitaly Klichko, after both men met with Firtash, who at that time was under house arrest in Vienna.

Klichko was seen as one of the front runners for the post of president in elections slated for May 2014. But at the meeting, Klichko agreed to withdraw his candidacy, and instead to support Poroshenko, leading to Poroshenko's landslide victory on May 26. 

With Firtash apparently acting as kingmaker for Poroshenko, it is widely believed some quid pro quo was forthcoming – and as bne IntelliNews surmised, this appears to be legal protection for Firtash and his associates such as former energy minister Yury Boiko.

“The agreement between Poroshenko and Klichko (...) indirectly confirms the agreement [of Poroshenko] with Firtash and [former head of presidential administration Serhiy] Lyovochkin,” Scherbin said.

Both Firtash and Lyovochkin had previously described how they backed Poroshenko and Klichko to a Viennese court on April 30, during extradition hearings occasioned by a US bid to extradite Firtash on bribery charges.

But Yatsenyuk and his allies in the People's Front party had no such agreement with Firtash. After unexpectedly taking pole position in parliamentary polls in October 2014, they now feel their hands unbound regarding Firtash, according to Scherbin.

Second anti-oligarch front

Another secret agreement between oligarchs and government came to light on June 5, as part of the ongoing conflict with and between oligarchs. In April, parliament amended laws to deprive Kolomoisky, a minority shareholder in state owned oil company Ukrnafta, of his decade-long de facto control of the company. But on June 4, Yatsenyuk declared that it is was done in vain:

“It turns out that we will not be able to change the management of Ukrnafta,” Yatsenyuk told parliament. “İn 2009 the government, under then prime minister Yulia Tymoshenko, signed an agreement with the Ukrnafta minorities and the state. This agreement stipulates that the state is not allowed to the change the management of Ukrnafta. If the government initiates a change of management, then we will face a lawsuit for $5bn in London,” Yatsenyuk said.

Serhiy Leschenko, an MP in Bloc Petro Poroshenko, who is one of Kolomoisky's strongest critics, previously published a copy of the secret agreement, signed on January 25, 2010 between offshore vehicles linked to Kolomoisky holding as much as 45% in Ukrnafta, and state energy companies Ukrnafta and Naftogaz.

The date is significant – between the first and second rounds of Ukrainian presidential elections, in which then prime minister Tymoshenko narrowly lost in the second round to then opposition leader Viktor Yanukovych. In addition, London is stipulated as the place of jurisdiction, making it harder for the government to use political pressure against it.

Thus the agreement seems to have had the context of Tymoshenko receiving political, financial and media support from Kolomoisky in return, suggests Leshchenko. The agreement is structured so that the Ukrnafta supervisory council will not have a quorum without participation of the Kolomoisky-controlled minorities.

Poroshenko has experienced other setbacks in his campaign against Kolomoisky. Thus a local regional court on May 29 declared illegal the earlier firing of a Kolomoisky ally, Oleksandr Lazorko as head of state energy company Ukrtransnafta, according to Interfax.

Like Firtash, Kolomoisky also appears to be harnessing his massive media power to protest political moves against him, according to commentators. But in contrast to Firtash vs Yatsenyuk, Kolomoisky is not yet taking aim at his main persecutor, Poroshenko.

Instead Kolomoisky's 1+1 channel, Ukraine's second largest after Firtash' Inter, on June 7 ran what commentators see as a vicious hatchet job on Mikheil Saakashvili, former president of Georgia, whom Poroshenko has just named governor of  Odesa region -  replacing a Kolomoisky ally at the strategically import oil port.

Related Articles

Ukraine's largest PrivatBank faces down nationalisation fears

Graham Stack in Kyiv - Ukraine's largest lender PrivatBank has survived a stormy week of speculation over its future, but there are larger rocks ahead, with some market participants anticipating the ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more