Rinat Akhmetov – Forbes Magazine reports that Ukraine’s richest man lost over $5.8 billion dollars last year due to the war in the Donbass and change of power in Kyiv. Last week brought news that Akhmetov’s Metinvest steel company (with a 24% minority stake held by Opposition Bloc MP Vadim Novinsky) has defaulted on its debt obligations and now is in talks with creditors to lengthen payments maturities. In addition, Akhmetov’s DTEK is seeking to restructure $200 million in bonds to repair damaged plants and mines in the occupied parts of the Donbass. However, Akhmetov’s cash flow problems are only part of his problems, as he is clearly a top target for Poroshenko and other oligarchs looking to benefit from his bad fortunes. It would appear that as part of the deal to trim Kolomoyskyi’s appetite, there will be a move to examine and possibly cancel privatization deals that benefited Akhmetov from the Yanukovych era. Ukrtelecom (telecommunications) and Dniproenergo (electrical energy producer) are the prime targets since Akhmetov’s companies won the tenders for those businesses at prices that could suggest possible collusion. Donbassenergo (electrical energy), own by Akhmetov friend Igor Gumenyuk is another likely target. It was Kolomoyskyi who first raised the issue of these privatizations and the need to cancel them. In the meantime, Akhmetov is forced to juggle competing military and geopolitical interests as many of the businesses he owns are in occupied parts of the Donbass. Recently the Ukrainian government bought coal from the Donbass that was seized by the Russian backed forces – previously belonging to Akhmetov. Therein lies Akhmetov’s leverage though since his coal factories supply a critical resource for the Ukrainian state. Thus for Akhmetov to survive, he must placate both the Ukrainian government and the Russian backed forces, fend off Kolomoyskyi and other oligarchs that smell blood in the water, and manage to keep his factories working at capacity despite an ongoing war.
Dmitro Firtash – his arrest in Vienna last March sent a message that public relations efforts alone would not be enough to prevent the prosecution of oligarchs by the West. Firtash posted a record $175 million dollar bond and now is awaiting a decision from the Vienna court (no later than April 30) on whether or not to extradite him to the US where he would face trial for bribery. In the meantime, Parliament voted last week to make the gas market more transparent and market oriented to meet European requirements. In the process of doing so, it forces Firtash (and business partner and Opposition Bloc MP Sergiy Livochkin) to pay for gas transportation rather than continuing to have the state foot the bill. The assault on Firtash-Livochkin assets doesn’t stop there though, as MP Anton Heraschenko (People’s Front faction and ally of Interior Minister Arsen Avakov) have called on the Prosecutor General’s Office to investigate how the two purchased the popular Inter TV Channel in 2013 for $2.5 billion dollars. Heraschenko believes that the financing was arranged via Russia in an effort to give them de facto media control. In addition, last week the Cabinet of Ministers transferred a state stake of 51% of Zaporizhya Titanium and Magnesium Combine LLC to the United Mining and Chemical Company state enterprise. Firtash owns 49% of the company, which is the only producer in Europe of titanium sponge. United Mining and Chemical state enterprise comprises the Vilnohirsk mining and metallurgical plant (in Dnipropetrovsk oblast) and Irshansk mining and processing plant (in Zhytomyr oblast). In 2012 Firtash’s DF group (via its subsidiary Crimea Titan) signed a lease on both Vilnohirsk and Irshansk factories until September 2014. The Cabinet of Ministers did not prolong those leases. Now with the transfer of the controlling stake of Zaporizhya Titanium and Mining Combine LLC to a state enterprise, Firtash is further removed from control of the enterprise.
Akhmetov and Firtash are survivors and have overcome adversity in the past. In both cases, their targeting of these oligarchs by the Ukrainian government has both an economic angle, as well as a political one which focuses on their respective business partners: Vadim Novinsky and Sergiy Livochkin. Both Novinsky and Livochkin have immunity (at least until Parliament cancels it as planned later this year) from prosecution as Members of Parliament with the Opposition Bloc. However in the rapidly changing realities of today’s Ukraine, every oligarch has a weakness which makes him vulnerable. The great Greek warrior Achilles was protected by the gods after his mother dipped him by his ankle into the River Styx. This bath made him invulnerable to harm everywhere – except his ankle. Years later during the Trojan War, Achilles one weak spot was hit by an arrow fired from the bow of the Trojan Prince Paris. With his ankle pierced, the great Achilles was disabled and quickly killed. Now the Ukrainian government is aiming a barrage of arrows at the once invincible oligarchs in hopes of hitting their weak spots. If enough arrows are fired, some are bound to hit the targets…
· Poll of Polls: March saw the release of three major polls by Razumkov Center, the Kyiv International Institute of Sociology (KIIS) and Research and Branding (R&B). While Parliamentary elections are not scheduled until autumn 2019, Ukraine has a history of snap elections interrupting the five year deputies’ terms. In fact, two of the last three elections have been snap elections rather than regularly scheduled (2007 and 2014). With growing speculation on pre-term elections and credible talk of them coming as early as next year, the parties are starting to focus on their electoral futures. Graph 1 below shows the polling averages for the major parties and blocs compared to their performance based on CEC data last October during the Parliamentary Elections. As always in this blog, the poll numbers are averaged over the most recent 30 day period and weighted according to sample size. This process reduces the statistical error and provides a more accurate picture of public opinion rather than relying on a single poll.
Not surprisingly, every party/blocs rating is down across the board – except for Right Sector (which doubled its October 2014 performance to 3.6%). Given that the country is in recession and the threat of war with Russia has hardly subsided, the electorate is in a predictably foul mood. In addition, none of the parties are actively campaigning and as a result, their ratings will be typically lower than in an election period. The Poroshenko Bloc, Samopomich, and Opposition Bloc have all seen their ratings rescind by up to a third but are largely maintaining their electorate.
The big loser in the polling ratings is People’s Front. After surging to a narrow first place victory with 22.1% (edging Poroshenko Bloc by 0.3%), People’s Front now averages a paltry 3.7% nationwide. That is an extraordinary 88% decline in less than six months. There are two key factors in this ratings free-fall: 1) People’s Front was never a real political party, merely a last minute vehicle for a potpourri of powerful politicians. As a result, the party has not noticeably grown at the grassroots, and now appears destined for the growing ash heap of Ukrainian political parties. In contrast, Motherland (Byut) has essentially maintained its October 2014 rating losing a statistically irrelevant 0.3%. This is due to the depth of party organization and members. 2) The Prime Minister is in charge of the economy under the Ukrainian Constitution. While Ukraine’s government has taken the initial hard steps towards reform and a return to economic growth, the short term outlook remains bleak and the electorate is responding by blaming the leadership. For example, the Razumkov Center poll found that 67% of Ukrainians believe the situation in the country is developing in the wrong way. More than 57% of Ukrainians believe the economic situation will worsen rather than stabilize or improve. Finally, only 31% of voters trust Prime Minister Arseniy Yatsenyuk versus 63% who do not trust him. In contrast, President Poroshenko’s trust/distrust rating is 45-47% – almost equal. Poroshenko’s personal and party’s rating can be attributed to his handling of the war and the fact that the President has little to do with the economy under the Constitution. Yatsenyuk and People’s Front are bearing the brunt of the electoral fallout from economic recession.
Two other parties that show significant losses in their sociological ratings are the Radical Party and Svoboda. Both have seen their ratings cut in half with the Radical Party falling to 4.1% and Svoboda being halved to 2.4% – both below the five percent threshold to win seats in Parliament. Radical populism can be an effective electoral tool but rarely are such parties able to deliver on their promises – hence the decline in the Radical Party rating. As for Svoboda, they narrowly missed the five percent mark in October (receiving 4.7% nationwide), but now their inability to deliver for their constituents appears to benefit the more strident Right Sector. Right Sector was the only party to register a significant increase in their rating doubling from 1.8% on Election Day to 3.6% now.
· Communist Ban? Last week Parliament voted to ban fascist and communist symbols and propaganda. The Parliament also recognized the 1917-1991 Communist totalitarian regime in Ukraine as “criminal” that pursued a policy of “state terror”. Longtime Communist Party leader Petro Symonenko has been questioned about crimes against national security by the SBU and Parliament is further considering banning the Communist Party altogether. The move by Parliament is understandable given the war time situation in the country. Symonenko should be questioned and serve hard time in prison if the charges against him are proven in a court of law. However attempting to ban the Communist Party is a well intentioned but naïve move. First of all, the Communist Party is no longer has a single member in the Ukrainian Parliament and is not the threat that it once was. The Russian annexation of Crimea coupled with their occupation of half of the Donbass removed the traditional Communist electorate resulting in the party failing to poll anywhere near the five percent necessary for seats in Parliament. Subsequently the party boycotted the October 2014 Parliamentary Elections. Second, banning the party gives the Kremlin an albatross to hang around Ukraine’s neck. With “Old Europe” (France and Germany) increasingly wobbly in their support for Ukraine, the banning of a political party which exists in most European countries (albeit marginally) would give the Kremlin’s arguments against Ukraine some shreds of credibility. Russia could proudly point to the fact that the Communists aren’t banned in their country or in Europe – unlike the “anti-democratic” and “pro-fascist” Ukraine. It should be noted that even during the height of the Cold War, the US never banned the Communist Party. It did however, actively work to thwart its’ work, its ideology, its agents in the country, and imprison those who committed treason or posed threats to national security. Ukraine could learn from the American example in this regard. Given the party’s anemic poll ratings (see Graph 1 above), banning the Communist Party appears to be “much ado about nothing”.· Parliamentary International Friendship: The Ukrainian Parliament has dozens of friendship groups with other countries. More than being a legacy of the “friendship of nations” from Soviet times, these friendship groups generally facilitate closer relations and commerce as well as host exchange visits. Being a member of a country’s respective friendship group can also leads to perks such as invitations to embassy parties, high level receptions when visiting abroad, and access to key government officials. Currently there are 51 active friendship groups in the Ukrainian Parliament and another 53 that are dormant groups and currently without members. Last year for example, one of the largest friendship groups in Parliament was the Russian group. This year, that group is without members and dormant due to the war.
Interestingly China has the largest friendship group in Parliament with 181 members, followed by the US with 130 members. Staunch Ukrainian supporters Poland and Lithuania are also in the top ten, as well the big three of Western Europe: the United Kingdom, France and Germany. Outside of Europe, Israel counts 73 members and Japan has 60. More interesting than the raw numbers is which factions have the most members in specific countries’ friendship groups. Below is rundown by faction in Table 1:
Poroshenko Bloc – as the largest parliamentary faction with 146 members, the Poroshenko finds the largest number of faction members in the friendship groups of China (65), the US and Poland (50 each) and France and Germany (38 each). In addition, the Poroshenko bloc has half or more of the members of the friendship groups for: Hungary (18 of 36), Georgia (17 of 31), Finland (14 of 22), India (11 of 19), Kazakhstan (10 of 17), Vietnam (13 of 16), Iran (9 of 14), Croatia (7 of 13), Congo (6 of 10), Greece (7 of 10), Denmark (6 of 8) and Jordan (5 of 7).
People’s Front – the second largest parliamentary faction with 82 members has the most members in the friendship group with Japan (37) followed by Lithuania (34) and China (30). Israel is fourth with 26 members and the USA is fifth with 20. Countries where People’s Front has half or more of the members include Czech (17 of 32) and Portugal (7 of 10).
Opposition Bloc – the Opposition Bloc has a different geopolitical orientation as evidenced by the fact that all 40 faction members are also members of the friendship group with China. Germany is a distant second with 15 Opposition Bloc members followed by Switzerland with 14. France and Israel are tied for fifth within the Opposition Bloc with 9 members each. Countries’ friendship groups where the Opposition Bloc makes up half or more of the membership includes two traditional Russian allies: Kyrgyzstan (3 of 6 members) and all five members of the Serbia caucus.
Samopomich – with 31 faction members, the most popular friendship groups are the USA with 14 members and China with 13. Other favorites are Spain (11 of 24 members) the United Kingdom and Poland with 10 members each. Samopomich lacks having half or more of it’s’ members in any country’s friendship group.
Radical Party – the 21 member parliamentary faction tends to be different and their preferences for international friendship groups are not different. Italy and Qatar are the most popular with Radical Party members with 13 members each. Interestingly, the Radical party dominates the Qatar friendship group with 13 of 24 total members. Radical faction members also dominate the New Zealand group with 9 of 13 members. Canada with 9 members and the USA with 8 are the other main preferences of the Radical Party faction.
Motherland/Byut – Byut’s long parliamentary history makes their factions’ preferences more traditional with the 11 of 19 faction members as part of the friendship group with the USA. France and the United Kingdom are next with nine members each followed by Slovakia with six Byut Parliamentarians. Lithuania and Poland tie for fifth in Byut’s preferences with five members each. Byut does not have a majority on any country’s friendship groups.
Renaissance – the parliamentary faction close to Igor Kolomoyskyi has 22 members, of which half are members of the friendship group with Germany. France and Austria are the next favorites of Renaissance faction members with nine and six members each. The USA and Slovenia are tied for fourth place with five members each from the Renaissance faction. The Renaissance faction does not have a majority on any country’s friendship groups.
People’s Will – the 19 member faction is evenly split amongst Germany, China and Austria with six members in each friendship group. Austria’s liberal investment laws seem to be a draw for the People’s Will and their arch rival, the Renaissance faction. The USA and France are next in popularity with five members each from People’s Will. People’s Will does not have a majority on any country’s friendship groups.
Independents – the 42 parliamentary independents are diverse in their political orientation as well as their geopolitical preferences. China claims the most independent MP’s with 14 members, followed by Poland with 12 and Lithuania with 11. Israel and the USA are tied for fourth with 10 members each. Interestingly, controversial Kyiv MP Andriy Biletskiy, who has been accused of anti-Semitic comments, is a member of the Israel friendship group. MP’s make their own selections as to which friendship groups they join, because there is no mechanism on the host country’s side whether to accept or decline the membership.
· Ukrainian Local Elections Debate: with local elections planned for October 25 of this year and the need to hold elections in the occupied areas of the Donbass a national security priority, the politicians are already initiating the battle to determine which system will be used. Last week, Justice Minister Pavlo Petrenko advocated that the elections be held under an open list proportional electoral system. Petrenko asserted that “this is what is required by society and this will remove the most corrupt majority-based component. I think this will be a test drive before the law on parliamentary elections is amended.” An open list system allows the voters to select which party members they want elected rather than the current system where the party bosses select the members. While there is a general consensus that the current closed list system should be changed to an open list system for the next parliamentary election, the possible use of an open list system for the elections will truly be an interesting test case. The bigger issue will be if Parliament keeps a 50/50 system of electing members from districts or switches entirely to elections by party lists. Petrenko is clearly in favor of ditching the election of members from constituencies. This has been a popular cry among the leaders of the current government who blame the 50/50 system for their failure to win control of Parliament in 2002 and 2012. However in both cases, the opposition (now government) was simply outmaneuvered. What politicians like Petrenko fail to note, is that the world’s most stable and powerful democracy, the United States of America has always used a 100% single mandate district system and never made use of a party list system. The single mandate system ensures geographic representation (a key demand from the Donbass these days) and weakens the party bosses. A party list system reduces (or even removes) the independence of elected officials and makes them and the public beholden to political parties. In a country with a totalitarian history of one party rule and less than two percent of its citizens who are members of political parties, the Ukrainian people have sent a clear message about their dislike of a strong party system. Thus, while there is a need for electoral reform in Ukraine, the government needs to be careful not to throw the baby out with the bath water.· Moldovan Local Elections: With a decisive victory in the Gagauzia Gubernatorial elections last month, the Kremlin backed Socialist Party looks to expand its gains in the June 14 Local Elections. The Socialists are planning to field strong candidates for the mayoral elections in Moldova’s two largest cities: the capital of Chisinau (population 493,000) and Baltsi (population 144,000). Socialist MP Igor Dodan is expected to compete for Chisinau Mayor and Renato Useti, who was removed from the ballot due to financing from abroad (e.g. Russia) during the November 30 Parliamentary Election, will run for Mayor of Baltsi. Baltsi is 52% Moldovan and 43% Ukrainian and Russian. While Ukrainians and Russians are different in their respective countries, often times when Ukrainians are outnumbered by Russians abroad, they tend to act deferential to the Russians. Such is the frequently the case in Moldova (specifically Transnistria) and especially in the Russified northern part of Moldova. Renato Useti’s “Rodina” Party was surging to double digits in the polls prior to Election Day and only a last minute cancellation of candidate registration by the Central Election Commission prevented his party from scoring big in the Parliamentary Elections last November. After briefly fleeing to Moscow, Useti appears poised for a comeback, presumably with more cleverly concealed campaign financing for the June election.
In Chisinau, the mayoral election will be a rematch of the June 2011 contest when Dorin Chirtoaca narrowly edged Igor Dodon by a 50.6% – 49.4% margin. At the time, Dodon was the candidate of the Communist Party but now leads a revived Socialist Party with Moscow’s backing. While the demographics in Chisinau favor the pro-European forces (72% are Moldovan versus 14% Russians and 8% Ukrainians), the recent split in the pro-European forces (with the Liberals in conflict with the ruling Democrats and Liberal Democrats) could lead to a Socialist victory. Incumbent Mayor Dorin Chiroaca is the nephew of Liberal Party Chairman Mihai Ghimpu.
Expecting a close race, the Socialists are already challenging Moldova’s liberal overseas voting law in the courts. The law requires Moldovans abroad to register online prior to Election Day so that the Central Election Commission can determine where to allocate overseas voting stations. Since these voters are overwhelmingly pro-European in their historical voting patterns (and mostly based in Romania, Italy and Portugal), the Socialists want to cancel this mechanism to remove it as a factor in future elections. If successful, this could be a factor in the June mayoral elections.
Dates to Watch (for Ukraine unless otherwise noted):
April 21-24: Parliamentary Voting Session Scheduled
April 28: International Conference in Support of Reforms: The government is hoping that the conference will demonstrate its commitment to reforms and allow them to showcase their efforts to date. The goal is to reassure the international community as well as continue to attract foreign investment and financing.
May 5-8: Parliamentary Voting Session Scheduled
May 19-22: Parliamentary Voting Session Scheduled
Late May: IMF Talks with Bondholders Completed: The Ministry of Finance has finalized the list of debts to be restructured which includes 22 Eurobond issues and loan participation notes of state owned banks Oschadbank and Ukreximbank, Fininpro (Financing of Infrastructure Projects), and the State Rail Transport Administration (Ukraliznystia). The list also includes loan taken by state companies against state guarantees including the loans of the State Agency of Automobile Roads of Ukraine (Ukravtodor), a loan for Pivdenne Design Bureau and a loan by Ukrmedpostach. Finninpro’s Eurobonds include those for the 2012 UEFA European Championship. The controversial Eurobonds purchased by the Russian National Welfare Fund in 2013 and municipal bonds for Kyiv are also include in the list. Finance Minister Natalie Jaresko said, “We will not negotiate with individual creditors but all on equal terms. We would like Russian creditors to come to these negotiations”.
June 2-5: Parliamentary Voting Session Scheduled
June 14: Moldovan Local Elections
June 16-19: Parliamentary Voting Session Scheduled
July 1-3: Parliamentary Voting Session Scheduled
July 14-17: Parliamentary Voting Session Scheduled
October 25, 2015: National Local Elections for Mayor and City Council
February 2016: Stockholm Arbitration Hearings on Counter Claims between Naftogaz and Gazprom.