Poroshenko sends shot across oligarchs’ bow by sacking Kolomoisky

President Petro Poroshenko accepted Kolomoisky’s resignation after a long conversation in the presidential office into the early hours on March 25.

The removal follows a dirty and public standoff between Kolomoisky and the authorities, which many interpret as the first attempt of Poroshenko’s administration reign in the nation’s oligarchs, who have long dominated politics and business in Ukraine at the expense of the public interest.

“Other oligarchs situationally supported the state, not realizing to the end that the state in his person is fighting with the oligarch system as a whole,” says Taras Berezovets, a political adviser and head of Berta consultancy.

Timothy Ash, an analyst with Standard Bank in London, called Kolomoisky’s sacking “an absolutely critical battle/development. The official administration line is that this is part of the process of cleaning up oligarchic interests from the state administration/politics, and reining in private armies which had been the mainstay of the defense effort in the east. These structures are increasingly being rolled into more formalized military units.”

Although a long-expected move, backed by Ukraine’s international lenders, the fight between the state and oligarchs also poses risks. The oligarchs are still powerful in their home regions and can cause trouble with their wealth and influence.

Moreover, taking away power from the oligarchs also strengthens the president, a billionaire businessman who is bringing more allies to senior positions in the country.

One such person is Valentyn Reznychenko, who replaced Kolomoisky as governor. He had previously worked Ukrainian Media Holding, where Poroshenko owned a minority share. The holding was set up and ran by Poroshenko’s chief of staff Boris Lozhkin.

Poroshenko said that one of the main reasons for choosing Reznychenko was the fact that he was not under the influence of powerful groups in either Dnipropetrovsk and Donetsk. He also described Reznychenko as a strong-willed and effective manager.

But not everyone sees him that way. Roman Pyatigorets, the chairman of Ukrainian Voters Committee in Zaporizhyzhya, said that Reznychenko neither made grave mistakes nor brought notable developments to Zaporizhya. “There is nothing to evaluate,” he added.

How safe is Dnipropetrovsk from attacks by Russian forces and their separatist allies?

There are many concerns over the security of Dnipropetrovsk Oblast after Kolomoisky’s dramatic departure. He is widely credited with saving the region from the scourge of separatism after he was appointed by Acting President Oleksandr Turchynov in March 2014. Kolomoisky financed soldiers and battalions to keep Russia’s war out of the industrial Dnipropetrovsk Oblast, the second most populous in the nation with 3.3 million people.

Anton Gerashchenko, a parliament member and adviser to Interior Minister Arsen Avakov, said on his Facebook page that Russia-backed separatists were simply bullied by Kolomoisky, who is aggressive and foul-mouthed.

Gerashchenko said Kolomoisky took some separatist leaders trained by Russia’s Main Intelligence Department “for a walk in the woods, where explanatory work was conducted to explain how exactly to love Ukraine. And the separatist threat just vanished.”

As the conflict between Kolomoisky and the central government grew more visible, Russian-backed separatists suggested that Kolomoisky set up his own Dnipropetrovsk People’s Republic, an abhorrent thought to most in Ukraine.

Borys Filatov, Kolomoisky’s former deputy governor, doesn’t take stock in predictions of chaos after Kolomoisky’s ouster.

Noting that Kolomoisky’s resignation “was done absolutely correctly” and that the transition to a new governor would be done in a “comfortable regime,” Filatov cautioned against creating panic over the move.“Let’s stop drinking Valeryanka (a sedative) and show the whole world that we can be civilized people, for whom our country is our highest ambition. Don’t give our enemies, either internal or external ones, any reasons to celebrate,” Filatov said in comments on his Facebook page.

Kolomoisky as a risk factor

But Kolomoisky was both a savior and a risk for the region. He had spent millions to set up, train and equip volunteer battalions in Dnipropetrovsk to improve the army’s ability to resist Russian aggression in the east.

The Dnipro, Azov and Donbas battalions, which together have some 3,700 active fighters, benefited from Kolomoisky’s patriotic generosity. The battalions, which are part of Ukraine’s Interior Ministry, have often been referred to as “Kolomoisky’s private army.”

But Interior Minister Arsen Avakov has insisted that the battalions are now well integrated into his ministry, and other have said that Kolomoisky’s influence is “very much exaggerated.”

What he does control is an estimated 400 security guards employed by a private company. Some of those showed up at the premises of two state-owned energy companies over the past week after Ukraine’s Parliament attempted to restore state control over the companies’ management by passing a special law on March 19. Kolomoisky, who de facto has controlled these companies for years, also made a brief appearance, in one case screaming expletives at a journalist who witnessed the conflict.

Kolomoisky said he was merely trying to protect the companies from a takeover by a criminal gang. “This is an attempt to take control over a state-owned asset,” he said in an interview to his own 1+1 TV channel on the weekend.

He said in his talks with Poroshenko and Prime Minister Arseniy Yatsenyuk “we agreed that the management should change…(but) this shouldn’t have happened this way.

Kolomoisky’s assets

Kolomoisky has for years benefited from managing state energy companies without buying them out. For example, he has fully controlled Ukrnafta oil extractor, but only owned a minority share in it. The state mammoth Naftogaz Ukraine owns 50 percent plus one share in the company, but has not received dividends from Kolomoisky from this business for years. The arrears have run over Hr 1.3 billion, former Energy Minister Yuriy Prodan said recently.

Ash, the Standard Bank in London analyst, said it is essential for the state to reimpose its control over Ukrnafta as part of the reform to end government subsidies of state-owned Naftogaz.

Novoye Vremya magazine in autumn 2014 ranked Kolomoisky the third richest person in Ukraine with an estimated net worth of $2.3 billion. Forbes, however, estimates that his fortune stands at $1.36 billion at the moment. He controls the nation’s largest privately-owned bank, Privat Bank, as well as industrial companies, oil and metals concerns, and consumer goods and services such as airlines and television.

He has confessed in Parliament earlier this month of being a beneficiary of Ukraine’s dirty privatization of blue chips in 1990s and 2000s, and paying bribes. But he has insisted that his deeds have outweighed his misdeeds.

He also has called on Ukraine to renationalize former state assets sold cheaply and non-transparently to the current crop of oligarchs in the 1990s and 2000s.

“Fair play isn’t possible in Ukrainian politics. It won’t happen anywhere, for that matter. Every oligarch took their own road. We are all different, one shouldn’t place us all on one pedestal,” he said to 1+1.