Upcoming Election

Economic News

22 Jul 2010
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Controversies swirling around the upcoming general election have again brought into focus the strong links between Ukraine's political parties and the business oligarchs who fund them.

The recent part-privatisation of Ukraine's largest thermal power plant, Dniproenergo, sold to Rinat Akhmetov, a member of parliament who belongs to Prime Minister Viktor Yanukovich's Party of the Regions and is Ukraine's acknowledged richest man, has drawn sharp criticism from Yanukovich's prime rival, former Prime Minister Yulia Tymoshenko, leader of the Yulia Tymoshenko Bloc and a rumoured candidate for the presidential election expected in 2010.

In response, Yanukovich's supporters have drawn attention to controversial deals made by the government during Tymoshenko's eight-month spell as prime minister in 2005, and her own alleged ties to big business. Tymoshenko had formerly been allies with President Viktor Yushchenko in the Orange Revolution, which swept him to power in 2005. Yushchenko had faced Yanukovich in the presidential election at the end of 2004, with the latter declared winner. However, after months of street protests claiming corruption and vote rigging, a recount revealed Yushchenko as the real winner and he was confirmed as president. The election was seen as a victory for pro-Europeans over pro-Russian factions in the government. However, others have interpreted the result merely as the triumph of one group of business interests over another.

Tymoshenko was appointed prime minister in January 2005 but was dismissed by Yushchenko in September, with allegations of her interference in a privatisation deal cited as the reason for her dismissal. There has been some behind the scenes rapprochement between the two and she is likely being considered by the president for the post again.

Akhmetov has been a major sponsor of Yanukovich, who was appointed prime minister after his party's victory in elections last year. The tycoon is seen as a potential future president for the Party of the Regions and is counted as part of the "Donetsk clan" of oligarchs, the steelmaking and machine building city in the east of the country from which he and Yanukovich originate.

A BBC profile of Yanukovich commented, "Some see him as the figurehead of Donetsk's political and business groups and associate him with local oligarch Rinat Akhmetov," adding, "Supporters say Donetsk secured unprecedented levels of investment during his governorship."

Rinat Akhmetov increased his stake in Dniproenergo in a debt-for-equity deal. In late August, representatives of the state's interest in the company agreed to a 52% increase in share capital, which increased Akhmetov's share of the company more than four times to 40%. His share is now estimated to be worth between $400m and $500m. Supporters of the deal say it was necessary, given the plant's debts, but opponents point to Akhmetov's close ties to Yanukovich.

In a recent comment piece in the local press, Tymoshenko attacked Yanukovich and Akhmetov over the process of privatisation of Dniproenergo. She slammed the actions of "Yanukovich and Partners" in allegedly fixing the sell-off to Akhmetov, saying the company was undervalued and the tycoon could now move to control the country's energy sector and increase electricity prices significantly.

"It is Akhmetov who decides what the price per kilowatt-hour of electric power for the population will be ...and he will not be engaged in charity when selling the electric power," she said.

Tymoshenko claimed the "doomed" Party of the Regions coalition was involved in a frantic sell-off of state assets before its impending election defeat, and said, "that's why they are trying to steal everything that is in bad shape".

Criticism over the Dniproenergo sell-off has been at the heart of Tymoshenko's wider broadside against what she claimed has been the government's enriching of its allies.

"It appears that it wasn't for nothing that Forbes wrote that during the periods under Yanukovych's management, business circles close to the government increased their turnover by $17bn."

However, Tymoshenko herself has come under attack for her alleged close ties to Privat Group, a group controlled by businessmen including Igor Kolomoisky. It is claimed that, while she was prime minister, Tymoschenko's government favoured Privat. It is also claimed that the group has provided financial support to both Yushchenko and Tymoshenko.

Meanwhile, Tymoshenko has been seen on the campaign trail riding in a helicopter with Kostyantin Zhevago, a billionaire with assets in ore mining, banking, truck manufacturing, hydrocarbons and real estate.

Yushchenko and Tymoshenko fell out last year, partly over the latter's actions over the ongoing privatisation of Nikopol Ferroalloy Plant. It is claimed Tymoshenko tried to put the brakes on the sale of the majority of shares to Interpipe, a long-term and bitter rival of Privat.

Furthermore, Interpipe is run by Viktor Pinchuk, the son-in-law of former President Leonid Kuchma. Kutchma backed Yanukovich as his successor, tying Interpipe to the latter's political fortunes in many people's eyes.

Tymoshenko's government also reversed the privatisation of Kryvorizhstal steel mill, which was sold to Akhmetov for $800m in 2004. The following year, the mill was sold to Mittal for $4.8bn.

Despite the heat and light, businesses remain confident in Ukraine's progress, and its bid to join the WTO is expected to be completed by the end of the year, further improving its standing. Yanukovich's cautious balance between the EU and Russia has been pragmatic, and critics of Tymoshenko point out that her government took a more populist stance than the liberal and reforming path urged by the EU and International Monetary Fund.

The message from the EU, outlined by European Commission President Jose Manuel Barroso, has been "have the election, then continue with reform" with whoever is elected. Whether these encouraging noises will soothe the accusations and counter-accusations after the election is a moot point.

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