Why the Corruption Won’t End

by JEAN-ARNAULT DERENS and LAURENT GESLIN

The Donbass Palace Hotel, off Lenin Square in Donetsk, is the most luxurious in eastern Ukraine. Rooms in this flagship of Rinat Akhmetov’s empire cost around $500 a night, much more than the average monthly wage. Akhmetov, the richest man in Ukraine, was a close associate of former president Viktor Yanukovych but after the Kiev uprising pragmatically switched his support to the new regime. Besides the hotel and real estate, Akhmetov owns the city’s football team, Shakhtar Donetsk, mines, steelworks and factories. Among the clans of Ukraine’s oligarchy, the largest fortunes have been made in the industrial and mining valley of the Don. This region, made up of the Donetsk and Luhansk oblasts, was a major centre of mining and industry in the Soviet era.

Donbass still generates a quarter of Ukraine’s foreign currency earnings, even though only 95 mines are still officially active, compared to 230 two decades ago. Over the same period, seven million people have left the country. Soon after independence in 1991, local people faced economic meltdown and the first state mine closures, and began mining illegally. “Round here you only have to dig down a metre to find coal,” said a former miner from Torez, an industrial city near Donetsk named after a French Communist leader (1). In the makeshift tunnels, shored up with wooden props, accidents are common. Yet miners are willing to risk going underground for the prospect of just a few hundred dollars a month. After Yanukovych came to power in 2010, the network of these kopanki (illegal mines) was regulated and controlled.

“Coal from the kopanki was sold cheaply to the state mines, which sold it on at market price,” said Anatoly Akimochkin, vice-president of the Ukraine’s Independent Miners’ Union. As well as these profits, state mines also received government subsidies. “A large part of this money disappeared into the pockets of cronies of the regime,” said Akimochkin. According to expert estimates, 10% of Ukraine’s coal output in recent years has come from illegal mines. Behind this network is the former president’s elder son, Oleksandr Yanukovych, who went into competition with the owners of the privatised mines, led by Akhmetov.

Different deal of the cards

“A revolution? No, it’s just a different deal of the cards,” said sociologist Volodymyr Ishchenko, deputy director of the Centre for Society Research in Kiev. A few weeks after Yanukovych’s removal, his frustration was clear: “This government defends the same values as the previous one: economic liberalism and getting rich. Not all rebellions are revolutions. It’s unlikely that the Maidan movement will lead to profound changes that will justify calling it a revolution. The most serious candidate in the presidential election on 25 May is Petro Poroshenko, the ‘chocolate king’ [because of the fortune he made in that industry], one of the richest men in the country.” Even as demonstrators were being shot in the Maidan (Independence Square), the centre of popular anger since 22 November, a bizarre handover of power was being brokered behind closed doors with the powerful businessmen who have now taken control of Ukraine.

Over the past 20 years, Ukraine has experienced a form of development referred to as oligarchic pluralism. Many businessmen who amassed huge fortunes buying up mines and factories privatised cheaply after the fall of the Soviet Union have gone into politics. Oil and gas traders have become ministers or heads of major institutions. Former prime minister Yulia Tymoshenko, a leading figure in the 2004 Orange Revolution who was held up in the West as a martyr when she was imprisoned in 2011, made a fortune in the gas industry. A revolving door has developed between business and politics. Some powerful businessmen have played a more discreet role by financing the campaigns of politicians whom they expect to represent their interests. This system, which became the accepted way of doing things under President Leonid Kuchma (1994-2005), assumes constant reconfiguration shaped by the competing interests of the powerful, and their alliances and feuds.

Near the Donbass Palace, on top of an expensive building that houses the headquarters of Metinvest and DTek, two of Akhmetov’s companies, there used to be an illuminated sign advertising Mako, the Swiss-registered holding company through which Yanukovych junior exports Ukrainian coal. A few days after Yanukovych senior fell from power, the sign came down, an indication that the alliance between Akhmetov and the president’s men was over.

After 2010, Yanukovych, long viewed as the political representative of the Donetsk clan’s interests, decided to demonstrate his independence. He appointed men he trusted —members of the “family” — to key state posts. Among them was Serhiy Arbuzov, his personal banker, who was put in charge of the national bank in 2010. He was briefly made prime minister at the height of the crisis on 28 January, after the departure of Mykola Azarov. The president also relied on Vitaliy Zakharchenko, a close friend of his son Oleksandr, whom he put in charge of the tax authorities in December 2010, before promoting him to interior minister. He also favoured the influential Dmytro Firtash, who for a time enjoyed a monopoly on Russian gas imports, before diversifying into chemicals and banking. Zakharchenko has now fled to Russia and Firtash was arrested in Vienna on 13 March.

 

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