Kolomoyskyi , a Modern Day Daedalus? In Greek mythology, Daedalus was a genius inventor who served in the court of King Minos on the island of Crete. Daedalus created the famous labyrinth at Knossos which contained the Minotaur, a half human and half bull creature. Later to escape from King Minos, Daedalus created feather and wax wings to allow him and his son Icarus to fly away from the island. As he suited the wings on his son he warned, “Don’t fly too close to the sun or the wax will melt. Don’t fly to low to the sea or the foam will soak the feathers.” Daedalus and Icarus flew away from Crete, but after awhile Icarus forgot his father’s words and began to fly too high. The sun melted the wax and Icarus crashed into the sea and drowned. For the last year, Igor Kolomoyskyi has been Ukraine’s Daedalus, creating clever inventions to help the war effort, squelching separatist sentiments as Governor of Dnipropetrovsk and winning political favor in Kyiv. On the night of March 19 though, Kolomoyskyi may have finally flown too close to the sun with his appearance at the offices of Ukrtransnafta, the state owned oil pipeline operator. Kolomoyskyi showed up with armed guards to try to prevent the replacement of the CEO Oleksandr Lazorko- a close Kolomoyskyi ally. Instead his efforts failed and he was caught on camera with a profanity intensive rant rivaling Joe Pesci’s performance in the gangster film “Casino”. The same day, Parliament voted with a solid 275 deputies in favor to require a majority quorum to hold meetings at the state owned Ukrnafta, the state oil company. Kolomoyskyi owns a minority – but up until now – controlling share of the company, as he was able to block attempts to remove his influence at the company by simple not showing up for the meetings. The vote came despite reports of Kolomoyskyi paying MP’s $20,000 just for making speeches against the bill. For a typical three minute allotment for parliamentary speeches, that comes to the equivalent of a $3.2 million per diem –not bad work if you can find it…To put the sum into perspective, had Senator Strom Thurmond received such a payout for his record 24 hour and 18 minute filibuster against the Civil Rights Act of 1957, he would have received the sum of $9.72 million for his efforts.
Kolomoyskyi’s success over the last year in becoming an indispensible part of Ukraine’s war effort and subsequently “Enemy #1” in Russia (where they want to try him for war crimes) led to concern from other oligarchs whose stars were waning. In addition, Kolomoyskyi calculated that by being “super patriot #1” for Ukraine, it would give him a permanent “get out of jail free card” with regard to his often unscrupulous business practices. And up until now, it did…However now Kolomoyski has united both the government and the oligarchs against him. Since late last summer, oligarchs including Viktor Pinchuk, Rinat Akhmetov and Igor Yeremeyev, have been sharpening their daggers and waiting for a signal from a Brutus to seize the moment and attack. Pinchuk is locked in a scandalous London court case against Kolomoyskyi in which both sides air allegations of bribery and murder. Akhmetov suffered the last year when many of his assets were seized by Russian backed forces in the occupied parts of the Donbass. He may be down but he has no desire to lose his coveted position as Ukraine’s richest man to Kolomoyskyi. Finally, Igor Yeremeyev immediately began countering Kolomoyskyi’s influence by forming the rival “People’s Will” faction in Parliament last spring (Kolomoyskyi simultaneously formed the “Economic Development” faction). Last week Yeremeyev drew first blood when his faction member Oleksandr Onishchenko (elected from Kyiv oblast) introduced a bill to nationalize Privatbank, Kolomoyskyi’s bank. Privatbank currently holds 26% of the deposits in Ukraine and 15% of the assets. While the bill isn’t likely to go anywhere, it does give an indication of the open level of hostility against Kolomoyskyi from the oligarchs.
The Ukrainian government has also been worried about Kolomoyskyi’s growing influence and as a result, hit hard this week in taking control of Ukrnafta and Ukrtransnafta – both of which were previously under Kolomoyskyi’s control. That is not to say however that the government no longer wants Kolomoyskyi around. In fact, they still need him as there is a genuine concern over the battalions that Kolomoyskyi finances being more loyal to him personally than to the country. Kolomoyskyi hinted at that on Thursday night in a meeting with Ukraine’s Energy Minister Volodymyr Demchyshyn, and said that “if needed” he could bring 2000 fighters to Kyiv “because enterprises are being taken away from him”. In addition, Kolomoyskyi has done an exceptional job of keeping Dnipropetrovsk solidly loyal despite separatist attempts in neighboring Kharkiv and Donetsk. If he was removed as Governor, it is not clear who would replace him and who would have the influence to prevent separatism. Kolomoyskyi, for his part, is not planning on leaving any time soon. In fact, this week he issued a call for the nationalization and subsequent re-privatization sales of many state enterprises that were “privatized” previously. This is clearly a reference to Krivorizhstahl, the steel factory which was privatized in 2004 under Kuchma and the winning bidders were his son-in-law Viktor Pinchuk and fellow oligarch Rinat Akhmetov. The steel mill sold for $800 million but the sale was canceled under Yushchenko and a new, transparent auction was held in early 2006 which yielded around $5 billion in revenues (six times more). Kolomoyskyi quipped that Ukraine should not be “begging” for money abroad when there are plenty of assets already in Ukraine (sold for a fraction of the cost in opaque “privatizations”) which now can be nationalized and then resold for substantially more money. This of course would halt all foreign direct investment, but it does play to populist sentiments in a society hindered by a Soviet, socialist legacy.
The most likely outcome in the short term is that Kolomoyskyi stays on as Governor. The government’s goal is not to financially starve Kolomoyskyi, but rather to contain his appetite and put him on a diet. Kolomoyskyi’s announcement that he reached an agreement with Poroshenko that there will be no “checks” (i.e. audits that point fingers about financial crimes) on Ukrtransnafta on Friday suggests while he may lose majority control of the company, he will still benefit financially. An upcoming shareholder meeting of Ukrnafta (which owns Ukrtransnafta) is anticipated to pay retroactive dividends for the period of 2011-2013 in the amount of $1.5 billion dollars. Kolomoyskiy’s Privatbank owns 42% of the shares of the Naftogaz which means he is still looking at a dividend pay day of $700 million dollars. However now that blood has been drawn and the myth of invulnerability has been dispelled, look for Kolomoyskyi allies to suffer the brunt of the results. A prime target for the Endangered Species List is Odesa Governor Igor Palytsya. Palytsya, a longtime Member of Parliament from Volyn, was named Odesa Governor last year with Kolomoyskyi making the announcement in Odesa rather than the President. Maintaining control of the Odesa port for Kolomoyskyi’s convenience as well as protection of Kolomoyskyi’s Odesa assets were the primary objectives in the selection of his ally Palytsya. However, Palytsya has underwhelmed as Governor and just this week downplayed the Russian threat from bordering Transnistria. “I speak to Transnistria leaders very often because they contact me with various routine issues. And I don’t think that today we are facing a threat from that part. I have no such information”. He went on to add that “rumors are spread on both sides” about possible aggression and then added again, “but maybe, I don’t have all the information”. Three days earlier SBU Spokesman Markian Lubkivskiy announced that they “crushed” two extensive criminal groups and detained five men who carried out terror attacks in Odesa.
Daedalus’ inventive mind was truly brilliant. However talent can be used for either good or evil. Yes indeed, Daedalus created the famous labyrinth to hide the Minotaur and keep the citizens of Knossos safe from his threat. However most forget about his role in the creation of the Minotaur in the first place. It was Daedalus who conspired with Queen Pasiphae against King Minos, to enable her to satisfy her lust for a white bull. Daedalus created a wooden bull frame to allow Queen Pasiphae to have intercourse with the white bull which resulted in her pregnancy and birth of the half human, half bull Minotaur. Thus, the labrynth was merely Daedalus way to fix a problem he helped create. Kolomoyskyi, like Daedalus, has done some good things with his talents, but in some cases the acts are merely compensation for past, dirty deeds.
From Economic Development to Renaissance: Last week saw the dissolution of Kolomoyskyi’s “Economic Development” faction and replacement with the “Renaissance” (Vidrozhennya) faction. In the process the faction added three members from Kharkiv close to Mayor Kernes (MP’s Dmitro Svyatash, Valeriy Pysarenko and Volodymyr Katsuiba). Kernes, the controversial Kharkiv Mayor, is another Kolomoyskyi ally who partly owes his continuation in that post to Kolomoyskyi -who intervened on his behalf with the President last March. This move is not related to the anti-Kolomoyskyi effort but rather preparation for the National Local Elections. “Renaissance” Party was originally formed by the late Kuchma Transportation Minister Giorgiy Kirpa. Kirpa committed suicide shortly after the Orange Revolution and prior to being charged with abuse of state resources in organizing transportation for pro-Yanukovych election efforts. The party briefly had a Parliamentary faction in 2006 and competed in that year’s parliamentary elections, but received just 0.96% of the vote nationwide. Now it appears that Kolomoyski allied candidates for mayors and local councils will have the option of running under the Renaissance banner later this year. The rebranding combined with financial resources may create some opportunities for Kolomoyskyi allies to perform well in the local elections.
The Renaissance faction consists of 22 MP’s (one more than Lyahsko’s Radical Party faction), all of which were elected from single mandate constituencies. Interestingly, the faction has six MP’s from Kharkiv, five from Odesa, four from Cherkasy and two from Donetsk. The heavy concentration of MP’s from the Russian targeted oblasts of Kharkiv and Odesa enhances the factions’ influence on national affairs, despite the small overall faction size. Renaissance’s arch rival faction in Parliament, “People’s Will” led by oligarch MP Igor Yeremeyev has 19 MP’s – the same size as Yuliya Tymoshenko’s Motherland faction (see Chart 1 below). All but one of the MP’s are from single mandate constituencies except for expelled Radical Party MP and battalion commander Serhiy Melnychuk. Last month Radical Party leader Oleg Lyashko accused Melnychuk of being a “tushka” (paid for person) in a theatrical speech in Parliament following the announcement that he would join the People’s Will faction. The People’s Will faction has three members each from Volyn (where Yeremeyev is from) and Zaporizhya, as well as pairs of MP’s from Sumy, Zhytomyr, and Kyiv oblast. Thus, People’s Will is concentrated more on MP’s from rural areas whereas Renaissance is more urban based.
In a poorly conceived effort to combat the possible migration of MP’s from the ruling coalition over to factions like Renaissance and People’s Will, Speaker Groisman announced plans to introduce a ban on MP’s evicted from one faction being able to join another. This childish attempt at limiting free speech and right of assembly smacks of the infamous “imperative mandate” law passed by unholy alliance of the Party of Regions and Motherland factions in 2006. This law allowed the faction leader to expel MP’s who didn’t vote the party line on every single vote. In addition to expulsion from the faction, the MP would then be forced to give up their mandates and be replaced by the next person on the party list (who presumably would be more compliant). To become a part of the European Union, Ukraine must act European and not dictatorial. Groisman, who has performed well in his government posts so far, should do the right thing by withdrawing the proposed draft law. After all, the threat to Ukraine is not from a mere 41 Ukrainian MP’s (out of 422) who don’t always vote in support of the parliamentary majority, but rather from a Russia neighbor who doesn’t tolerate dissent of any kind. Emulating the Kremlin’s dislike of dissent is not the path to Europe for Ukraine.
Flu and Suicide Season: as spring begins, many Kyivites remain affected by the remnants of the stubborn winter flu. However this year’s flu epidemic has been superseded by the surprising suicide epidemic of 2015. Since late January there has been a string of six suicides of involving high ranking Party of Regions officials over a 45 day period (see Chart 2 below).
The motivations for the suicides may be different but no one will truly ever know. In Mykhaylo Chechetov’s case, it seemed to be linked to his arrest for “fraud and abuse of office”. Others may or may not have had similar concerns or fears. The recent wave of of Party of Regions officials committing suicide though could suggest that someone higher up has asked them to “save the paperwork” to protect themselves. In the one suicide on Chart 2 that is not of a Party of Regions official, it involves former State Property Fund Head Valentyna Semenyuk. Semenyuk, a Socialist Party member, was in coalition with the Party of Regions in 2006. The cases may be unrelated but it is noteworthy that two former State Property Fund Heads have committed suicide within the last six months at a time with two of Ukraine’s biggest oligarchs (Kolomoyskiy and Pinchuk) are airing dirty laundry over business deals and privatizations in a London court. Hopefully the suicide epidemic is on the wane and the public will have answers in the near future. We will know soon…
Spring Package Gas Talks: With the temporary “winter gas package” set to expire at midnight on March 31, Ukraine and Russia have resumed gas negotiations. The winter gas package set fourth quarter 2014 prices at $378 per thousand cubic meters and $329 per thousand cubic meters for the first quarter of 2015. However since that agreement was reached under EU insistence and guidance, energy prices have plummeted. Russia is now seeking to maintain first quarter levels with a $325 offer while Energy Minister Volodymyr Demchyshyn argues for a $270 price. Unlike the negotiations last winter though, Ukraine has the odds in its favor this time due to the decline in energy prices and onset of warmer spring weather. In addition, the reversal of gas supplies means that Ukraine now receives 70% of its gas from Europe and less than a third from Russia (a stark contrast to almost 100% dependence a year ago). The fact that Ukraine doesn’t need Russian gas as much as before makes it much easier to reach an agreement before the deadline on March 31.
Dates to Watch:
March 22: Gagauzia Governor Election: expect Iryna Vlah, the candidate of the Kremlin backed Socialist Party of Moldova to win handily. Russia may no longer being pensions and salaries on time in Transnistria, but they still enjoy support in Moldova – particularly in Gagauzia.
March 31: “Winter Package” Gas Deal Expires.
June: IMF Talks with Bondholders Completed: the talks are already underway and bondholders will soon know the new conditions. The most likely results are lengthening of maturities and a possible cut in interest rates.
October 2015: National Local Elections for Mayor and City Council: Speaker Grosiman said last week that a bill on local elections will be registered by the end of April. It is believed that the local elections may contain some element of “open party lists” as a test run for the next Parliamentary elections. Under an open list system, the voters select both a party and several of their favorite party members for election. The closed list system used by Ukraine in 2006 gave the voters a chance only to choose a party with the order of persons on the list decided by party bosses.
February 2016: Arbitration Hearings on Ukraine’s Alleged Gas Debt to Gazprom.