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Hedging their bets, Ukraine’s oligarchs sit above the fray

By: | at 12:22 PM | International Trade  

With 350,000 anti-government protesters packed into the capital Kiev on Sunday, the anchor on Ukraine’s top television channel, firmly aligned with President Viktor Yanukovich, appeared to go off script.

“History is being made today,” he said. “There is a feeling of having woken up in a different country.”

The opposition was enraged by Yanukovich’s decision last month to ditch a landmark accord to deepen relations with the European Union - under Russian pressure - and by the brutal police crackdown against protests that followed.

But the TV anchor’s apparent sympathy for their cause seemed out of place at Inter, the channel owned by Yanukovich’s chief of staff, Serhiy Lyovochkin, and wealthy industrialist Dmytro Firtash.

An energy and chemicals magnate, 48-year-old Firtash is one of Ukraine’s richest men and, as a major player in Ukraine’s gas imports from Russia, close to the government.

Coupled with reports that Lyovochkin had resigned as presidential consigliere, Inter’s uncensored coverage of the challenge to Yanukovich, mirrored in other media controlled by the oligarchs, had some suggesting the ground was shifting beneath the president.

With vast swathes of the economy in their hands, Ukraine’s oligarchs wield huge political power. Their fortunes, however, are wedded to those of whomever holds office.

The crisis unleashed by Yanukovich’s rejection of EU overtures in favour of closer ties with former master Moscow has cast fresh light on the intrigue and promiscuous politics of Ukraine’s post-Orange Revolution elite; like all good businessmen, oligarchs hedge their bets.

“By providing an information platform for the opposition, they are buying insurance for themselves for the future,” said Volodymyr Fesenko, an independent Ukrainian analyst.

“Right now, the strategy of the oligarchs is clear - they will not seek conflict with the president.” But they “can run with the opposition, too,” he added.

Tug-of-War

In terms of worth, Firtash is dwarfed by Ukraine’s richest man, steel and electricity mogul Rinat Akhmetov, 47. An ally of Yanukovich from the hard-scrabble, Russian-speaking city of Donetsk in the east, Akhmetov’s fortune was estimated by Forbes this year at just over $15 billion.

He owns Ukraine’s star soccer club Shakhtar Donetsk, including its space-age stadium opened for last year’s Euro 2012 championship. He is often pictured watching games from the VIP box with Yanukovich.

Akhmetov and the next two ranking oligarchs - pipe manufacturer and industrialist Viktor Pinchuk, 52, and billionaire businessman Igor Kolomoisky, 50 - together accounted for more than 12 percent of Ukraine’s national output last year.

They have much at stake in the East-West tug-of-war played out in Ukraine in the nine years since the Orange Revolution, when huge street protests overturned a fraudulent presidential election won by Yanukovich and policy tilted westwards.

In 2010, the rough-hewn former mechanic got his revenge when he beat fiery Orange Revolution leader Yulia Tymoshenko to the presidency. She was later jailed over a gas deal with Russia.

The trade and integration pact offered by the EU, and eventually spurned by Yanukovich, offered promises and pitfalls for the oligarchs.

Free trade with the EU would mean a flood of competitive goods from the bloc, and almost certain retaliatory price hikes for Russian gas, which would hit both Akhmetov and Firtash hard. Firtash has a deal with Russian energy giant Gazprom to import gas at favourable rates.

But new legal standards would bring greater protection from a predatory tax regime and from state interference of the kind that saw Russia lock up its former richest man, Mikhail Khodorkovsky, in 2005.

“I think the oligarchs were in the position of collectively wanting Europe, but for different reasons,” said Andrew Wilson, a senior fellow at the European Council on Foreign Relations.

“They wanted Europe as krysha, ‘protection’ - first of all from the Russians and, for some of them, protection from their own state.”

Akhmetov has metal investments in Europe, and spent $220 million on London’s premier address, One Hyde Park.

Pinchuk has made a name as one of the foremost art collectors in the world, rubbing shoulders with the likes of former U.S. president Bill Clinton and pop star Elton John.

He is also a big donor to former UK premier Tony Blair’s Faith Foundation and, with his wife, owns a London home worth $130 million. He gathers leaders every year at a palace in Yalta to discuss how Ukraine can deepen ties with Europe.

Firtash, meanwhile, donates to Britain’s top-tier Cambridge University. Opening up to the West would seem a natural course, a path to legitimacy.

“POLITICAL WARFARE”

On Nov. 21, however, Yanukovich bowed to Russian pressure and turned away from the EU trade and cooperation deal.

The street protests shook the president, but he dug in.

Thousands of demonstrators still occupy Kiev’s Independence Square, crucible of the 2004-5 uprising, and are picketing government buildings. But the opposition movement lacks direction and a leader like the jailed Tymoshenko.

Seeking an heir, some eyes have fallen on the mighty frame of Vitaly Klitschko, a heavyweight boxing world champion whose knockout-to-fight ratio is bettered only by Rocky Marciano.

The 2-metre-tall (6’7”) Klitschko formed the Udar, or Punch, party, and is one of a troika of opposition leaders trying to re-run the Orange Revolution.

Though Klitschko is not short of a dollar, reports have it that Firtash, hedging his bets, is in bed with Udar too, something the party denies.

A spokesman for Firtash declined immediate comment.

“He has links to Udar. Maybe he sees a political opportunity for them here,” said Wilson. “Oligarchs would hedge their bets in this kind of situation. The first to defect may have a problem, would certainly be threatened with the destruction of his business by Yanukovich.

“So it becomes this game where everybody is thinking about what everyone else is thinking.”

Akhmetov, Pinchuk, Kolomoisky and Firtash have been silent since the crisis erupted. Lyovochkin’s resignation as chief of staff was rejected.

In the wake of last weekend’s police crackdown, only Akhmetov’s System Capital Management (SKM) group issued a statement, saying it was “categorically” against violence.

“Today, maximum effort is needed to find a mutually acceptable solution, a win for all sides and every Ukrainian,” the statement said.

When asked where their bosses stood on the merits of signing trade pacts with either Russia or the EU, representatives for Akhmetov told Reuters they would not comment on politics, those for Firtash said his plans did not depend on the choice, while Pinchuk’s did not reply.

The stand-off emerging in Ukraine holds huge risks for the oligarchs. A further deterioration in relations with the West, and a government crackdown on the protesters occupying downtown Kiev, may bring sanctions targeting the overseas assets of those closest to Yanukovich, particularly Akhmetov.

“If Akhmetov doesn’t stop Yanukovich, he will share responsibility with him,” said Serhiy Leshchenko, a blogger and journalist at Ukrainska Pravda online newspaper.

For some, unrest may force them to pick a side.

“The most dangerous situation for them (the oligarchs) is when everything starts to fall apart, where there emerges the risk of a split in the country,” said Fesenko.

“Business can’t function normally in conditions of political warfare.” (Reuters)