In Ukraine the oligarchs hedge their bets


President Yanukovych has done a deal in Moscow, and the protesters on the streets are holding their ground. But what about the oligarchs, who hold sway over so many areas of life in Ukraine? Their recent behaviour has been akin to equivocation, says Oleksander Andreyev.

Oleksander Andreyev
17 December 2013

Nine years have passed since the ‘Orange Revolution’, but Ukraine is once again in revolutionary mood. The government’s decision to suspend the anticipated signing of the EU Association Agreement (AA) triggered public protests on 21 November. During the early hours of 30 November and again on December 11th, the protests escalated in response to the ruthlessness of anti-riot police (Berkut) in attempting to disperse protesters and impose ‘order’. The strategy has misfired. The nature of the demonstrators’ demands has evolved from simply supporting the European direction to calling for the government’s resignation. In the meantime, the political pendulum has seemingly been swinging between ‘east’ and ‘west’, with no clear indication as yet where it will come to rest.

But whose side are they on?

Oligarchs are at the heart of the Ukrainian political system. They run political parties and exercise de jure or de facto control over key political posts. However, their stance during the developments of the past few weeks has been equivocal. On the one hand, there were some signs of revolt among the oligarchs of the ruling party, the Party of Regions (PoR). On the other, this failed to translate into concrete action in the early stages. The one notable exception was Petro Poroshenko, nicknamed Ukraine’s ‘Chocolate King’, whose confectionery company ‘Roshen’ fell victim to trade sanctions imposed by Russia earlier this year; he has been on the streets supporting the protesters.

Signs of revolt in the Party of Regions failed to translate into concrete action in the early stages.

The signs of revolt within the PoR that followed the November 30th brutality on Euromaidan manifested themselves in both subtle and overt ways. Perhaps more subtle has been the relatively unbiased media coverage of recent events through outlets controlled by old-school oligarchs, such as Viktor Pinchuk, Ihor Kolomoyskyi, and even Rinat Akhmetov. The list also includes Dmytro Firtash, whose TV channel, ‘Inter’, is the most popular in Ukraine. Each of these outlets featured coverage of the force used against peaceful protesters, implicitly showing government action in a bad light. This certainly would not have been possible without their owners’ consent and contrasts with the distorted coverage provided by Russia’s state-controlled TV channel.

Rinat Akhmetov is a long-standing power behind the throne in the PoR whose opinion is taken seriously by the President. He hinted at his pro-European preference long before the Vilnius Summit, tentatively confirming this stance in the statement advocating European values and non-violent conflict resolution issued by his company, System Capital Management, after the violent scenes on the Maidan. This was followed by an announcement that he had ceased financing the ‘Foundation for Effective Governance’, a think-tank that has worked closely with regional and central state authorities on issues of economic development. These statements can be perceived as (un)subtle signs of Akhmetov distancing himself from Yanukovych’s position.


Rinat Akhmetov, a powerful oligarch, has sent out signals of growing dissatisfaction with Yanukovych, but has refrained from direct challenges. Photo CC Marco Residori


More overt rumblings of discontent were reflected in both real and rumoured defections or resignations. First, it was announced that Serhiy Lyovochkin, Head of the Presidential Administration and closely associated with the Dmytro Firtash Group, had resigned, although the President quickly refused to accept his resignation. Later, several PoR members did resign, including Inna Bohoslovska, Volodymyr Melnychenko, Mykola Rudkovskyi and David Zhvania. A senior PoR member, Serhiy Tihipko, was also alleged to have considered resigning, along with a further 15-20 PoR members. These flickers of revolt raised the possibility that the PoR may turn into a ‘sinking ship.’

Were the oligarchs just being used as a theatrical device to play Russia off against Europe? 

There are many possible reasons why the oligarchs might be discontented. It is not entirely clear whether they knew in advance of Yanukovych’s decision not to sign the AA, or were caught by surprise. In either case, they may have perceived the President to be selling out to Russia for personal political and economic gain, without considering their interests. After all, Yanukovych’s narrative had earlier appeared clearly and firmly supportive of the European direction. It is, however, also possible that this was Yanukovych’s game all along, and the oligarchs were being used as a theatrical device to play Russia off against Europe.

But oligarchic reactions have been contradictory: discontent did not translate into support for the opposition-initiated ‘vote of no confidence’ in Prime Minister Mykola Azarov’s government on December 3rd. Two hundred twenty six votes would have been sufficient to remove him and initiate a new, consensual majority in Parliament. This scenario would have been likely to bring back the constitutional changes of 2004, empowering Parliament at the expense of the President, and narrowing Yanukovych’s chances of political survival as President until the 2015 presidential elections, let alone afterwards. In fact, only one of 205 PoR deputies voted to oust the government and the opposition managed to garner only 186 votes.  This is reminiscent of a similar attempt to oust Azarov’s government in April 2013, which also failed. It suggests that, in spite of public and perhaps not-so-public rumblings of discontent within the PoR, the screws inside the party were tightened before the crucial vote.

PoR in disunity

A closer analysis of the make-up of the PoR may shed light on the reasons underlying these tensions. The PoR is not the same party as it was in the early 2000s when it functioned as a regional, Donetsk-based ‘political machine’ with a monolithic internal structure. More recently, it has transformed itself into the party of power, effectively capturing the state. It has grown both in size and power, particularly since Yanukovych was elected as President in 2010, and has full control of the ‘administrative resources’ -  official positions or connections to government institutions, which can be used, legally or otherwise, to suppress the opposition. Even in the past year, it has gained members through defections and/or co-optation from other political forces. At the end of the 2012 parliamentary elections, the PoR won a total of 185 seats of the 450 available. By now, this figure has risen to 205, overwhelming the largest opposition party ‘Batkivshchina’ [Fatherland, the party of Yuliya Tymonshenko], which has only 90 seats

Groups with differing interests in the centralised structure of the party have led to a more fractionalised core and there are currently reported to be seven internal factions.

One of the key strategies deployed by the PoR has been the use of the abundant resources at its disposal to fund the aggressive co-optation of various interest groups into the centralised party structure. For example, ‘Strong Ukraine’, a political party formerly led by Serhiy Tihipko (who came third in the last presidential election), was co-opted into the centralised PoR structure in 2012. In 2011, Ihor Rybakov, originally elected on the Batkivshchina party list, formed a new party, ‘Reforms for the Future’, which reportedly resulted from a PoR strategy to lure members away from the opposition through huge financial enticements. Earlier, in 2010, ‘United Centre’, a party led by Viktor Baloha consisting of ex-‘Orange’ members, worked with the pro-Yanukovych government and even contemplated merging into the PoR structure. Similarly, a number of oligarchs who previously actively backed the ‘Orange’ project, such as Oleksandr Yaroslavskyi, Oleksandr Feldman, Andriy Verevskyi, Konstantin Zhevago, Poroshenko and Zhvania, had little choice but to work with the pro-Yanukovych government or face political and/or business ruin. Most vividly, Yulia Tymoshenko is a case in point.

Despite the PoR’s increasing dominance, the party is not as united as it was previously. Bringing groups with differing interests into the centralised structure of the party has led to a more fractionalised core and there are currently reported to be seven internal factions, each of which is lobbying for its own business and political interests.

Factions are formed on the basis of MPs’ common interests, which tend to reflect their allegiances to (in)formal patronage networks headed by oligarchs.  In the last few years, Akhmetov and Firtash have been the old-school oligarchs in the vanguard. Though formally outside politics, Akhmetov exerts de facto control over a number of ministerial departments, such as the Ministry of Economic Development and Trade, and the Infrastructure Ministry. He is also believed to command up to 40 PoR members. Similarly, Firtash can effectively pull strings at the top of political power through his close business partner, Lyovochkin.

The Family

What has also emerged since 2010, however, is the growing ascendancy of the so-called ‘Family’ group, built around Yanukovych himself and his sons. The ‘Family’ has unceremoniously taken control over key posts at the top of the formal political pyramid. Its orbit of direct influence includes the First Vice Prime Minister, Serhiy Arbuzov, as well as key ministries such as those dealing with internal affairs, security services, foreign affairs, tax and finance. Yanukovych’s eldest son, Oleksandr, and Serhiy Kurchenko represent the ‘Family’s’ business interests, which have eaten into the boundaries of other oligarchic groups, much to their irritation. The pair have seen their fortunes soar, particularly in the last two years, with Kurchenko coming from nowhere to become of the top ten richest oligarchs in Ukraine in 2013.

So what light do these factors shed on the political pendulum and the role of oligarchs during recent events in Ukraine? Early signs of the ruling elites’ discontent with government actions on the Europe question and its response to public protest have certainly exposed internal party differences. With pressure mounting from all directions, it appeared more fissiparous. Nevertheless, the PoR held a strong and united line in keeping Azarov’s government in place, probably because the seven factions are controlled by three main oligarchic groups: the ‘Family’, and the Akhmetov and Firtash groups. Faction leaders communicate party instructions to their respective groups, which ensures tight party discipline. Thus, when push came to shove, the PoR members fell into line. Earlier actual defections and resignations occurred only among those who were outside the three main (in)formal umbrellas of influence.

There are signs that the oligarchs are becoming bolder in distancing themselves from the Yanukovych regime.

Who has the upper hand?

So who holds the real power in the PoR: the oligarchs or the President? Perhaps Yanukovuch banged his fist on the table and discipline ensued. A more likely explanation is that deals were made, and the oligarchs were provided with security and guarantees. However, there have recently been signs that the oligarchs are becoming bolder in distancing themselves from the Yanukovych regime. Some analyses indicate that the ruling elite is now divided into ‘pro-peace’ and ‘pro-war’ groups. The latter is seemingly comprised of pro-Russian advocates pushing for a state of emergency to impose order both in the streets and within the party.

What will ‘the ‘Family’ do next? Such use of force by Yanukovych would be a sign of his weakness as a leader rather than strength. With oligarchs abandoning him altogether, the only way forward would be a scenario akin to Alexander Lukashenko’s leadership in Belarus. In these circumstances, oligarchs may increasingly come to think of Yanukovych as a liability. 


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