One man's oligarch.

Photographer: Adam Berry/Getty Images

Ukraine's Oligarchs Are at War (Again)

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Ending the destructive power that billionaires exercised over Ukrainian politics was an important goal of last year's "revolution of dignity" in Kiev, yet some of the more civic-minded of these businessmen wound up running the country anyhow. They now seem to have gone back to their old ways.

Even before the chocolate mogul Petro Poroshenko became president last year, Igor Kolomoisky (net worth $1.3 billion) was appointed governor of his native Dnipropetrovsk region. Now, the two so-called oligarchs are locked in an open battle that augurs ill for Ukraine's immediate future.

QuickTake Standoff in Ukraine

Kolomoisky was for many Ukrainians a hero of the post-revolutionary period. He took on the governorship as Russia was stirring up trouble throughout eastern Ukraine in the hope of producing a broad-based uprising against the pro-Western provisional government in Kiev. To keep Dnipropetrovsk in Ukraine, Kolomoisky became the most generous sponsor of Ukrainian nationalist volunteer battalions. Even the fleet of armored vehicles used by his Privatbank, the biggest retail bank in Ukraine, was partially repurposed for use in the war. 

Thanks to those efforts, separatism failed to catch on in Dnipropetrovsk. Another wealthy industrialist, Sergei Taruta, who was appointed governor of Donetsk, failed in part because he couldn't match Kolomoisky's passionate personal commitment. Much of the Donetsk region is now controlled by pro-Russian rebels.

Kolomoisky, however, wasn't being entirely selfless. He lobbied hard against competitors, such as Rinat Akhmetov (net worth $6.7 billion) and Viktor Pinchuk ($1.5 billion), and seemed to believe he should be able to expand his business empire in exchange for the help he rendered to the Ukrainian state. He also continued exerting power over several nominally state-controlled businesses at which he had installed his managers under the previous regime. 

One of these was Ukrtransnafta, Ukraine's state-owned oil pipeline operator, where Kolomoisky had a loyal figure, Oleksandr Lazorko, appointed as chief executive in 2009. That personnel change resulted in a redistribution of pipeline capacity in favor of an underused, Kolomoisky-owned refinery and enabled the plant to receive crude oil from Azerbaijan without incurring the substantial extra cost of carrying it by rail. The Russian oil giant Lukoil, which as a result had to shut down its refinery, complained bitterly about being squeezed out of the pipeline and was forced to look for alternative transport. 

Poroshenko remains an oligarch despite a (unfulfilled) promise to sell his confectionery company as president, but he has no personal interest in the oil business. Kolomoisky's independence and influence, however, pose a political threat. "He was too demonstrative in his puppeteering," Mustafa Nayyem, a legislator with Poroshenko's electoral bloc, told me of Kolomoisky. "The elite grew scared of him."

On Thursday, the government appointed a new chief executive for Ukrtransnafta, but Lazorko didn't want to leave. The bodyguards for the new appointee had to fight through a security cordon to get their boss into the office. Kolomoisky's reaction was swift. He occupied Ukrtransnafta's headquarters with a detail of camouflaged men, arriving with an entourage that included legislators.

Video footage of the raid looks as dramatic as anything seen in the 1990's, when the former Soviet Union's first billionaires were working on their first millions. Asked by a Radio Liberty journalist what a regional governor was doing at a state company's office so late, Kolomoisky replied (I'm editing out copious cursing): "I came to see you. I have no other chance to see your face, Radio Liberty. Why aren't you asking how Ukrtransnafta was seized and Russian subversives got in here? Or have you come to see Kolomoisky? We liberated the building from Russian subversives who had seized it, and you and your Liberty are sitting here watching like a dame watches for her unfaithful husband."

Apparently, Ukrainian energy minister Vladimir Demchishin, who visited Kolomoisky from Ukrtransnafta, got a more convincing explanation, because he decided against calling the police to oust Kolomoisky from the building. Sevgil Musaeva, editor of Ukraine's most popular news website, Pravda.com.ua, quoted a Ukrainian official as saying Kolomoisky told Demchishin that if needed he could bring 2,000 volunteer fighters to Kiev, "because enterprises are being taken away from him."

By "enterprises" Kolomoisky meant Ukrtransnafta and another state-controlled energy company, Ukrnafta, in which he owns a minority stake but controls the management. On Thursday, the parliament in Kiev passed a law allowing the government to reassert control over such companies.

It would now be natural for Poroshenko to fire Kolomoisky as governor. "The country received a challenge yesterday," Nayyem wrote in a blog post. Failure to respond, he said, would show Ukraine's creditors and allies that it is indeed "the failed state of which Vladimir Putin has been dreaming for many years."

Even if Poroshenko fires Kolomoisky, however, his wealth and influence on the volunteer battalions would still make him a powerful figure. When he labels someone a "Russian subversive," thousands of armed people listen, if only because he has been better able to equip and pay them than the government in Kiev. Kolomoisky is too shrewd a businessman to bring about a military coup, but he will hardly allow Poroshenko -- who was until recently his equal -- to push him around.

Despite its pro-Western yearnings, Ukraine remains an oligarch-run country plundered for years by a small group of ruthless men. So far, the Ukrainian people have been unable to bring them down, choosing instead to back different sides in their disputes. That means last year's revolution isn't really over, and the best hope is for it to continue by peaceful means.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor on this story:
Marc Champion at mchampion7@bloomberg.net