Poroshenko warns oligarchs not to oppose security measures

Ukrainian President Petro Poroshenko told a May 6 meeting of the National Security and Defense Council that among his key priorities is removing monopolies and oligarchs from Ukraine’s energy market, which is transitioning to Western principles of free markets. He directly addressed Ukraine’s biggest oligarchs, warning them not to oppose his campaign, which is being done in the interests of national security. “I stood, am standing and will stand in defense of national interests,” he said, as reported by the presidential press service. “I understand the dissatisfaction of ‘victims,’ but I don’t advise resisting. One should give to the state what belongs to it,” he said.

He warned the oligarchs further, stating that “business must be done at the expense of one’s own private resources,” clarifying that rates charged for electricity, oil and natural gas should not cover the costs of debt servicing, “or any other expenses not related to prime costs.” 

Poroshenko mentioned that he recently signed a law reforming the gas market that was developed with the European Energy Community that will end the abuses of oligarchs in this sector. “I guarantee that no one will end up in the Forbes ratings by skimming off the top of state monopolies and the traditionally corrupt environment in the gas sector,” he said, referring directly to gas oligarch Dmytro Firtash. “The state won’t be a cash cow to anyone anymore. The wild capitalism in this sphere should end with the passage of this law and corresponding normative acts. I want this to be heard everywhere, in Kyiv and in Vienna.”

Based on these principles, he defended the decision of law enforcement authorities to arrest 500 million cubic meters of gas controlled by Ostchem, which is owned by Firtash. He stressed that he’s not singling out Firtash, having pursued a campaign to retake control of Ukraine’s biggest oil producer, Ukrnafta, which is currently controlled by another oligarch, Igor Kolomoisky. He also mentioned the need for creating a transparent mechanism for determining coal prices, in a reference to Rinat Akhmetov, who controls top electricity and coal producer DTEK.

Zenon Zawada: Poroshenko and his team have found a political lifeline in casting themselves as defenders of Ukrainian national interests against the nation’s oligarchs, a very convenient target given their wide lack of popularity. Indeed polls indicate that the president remains the most popular politician, despite his approval ratings being abysmal overall.

However scratching beneath the surface, we don’t see policies in this “deoligarchization” campaign that will limit the influence of the oligarchs in a meaningful way, or benefit the Ukrainian economy, for that matter. In the gas sector, the president seems to be toying with Firtash like a cat with a mouse, not taking the full step of removing him from the market altogether. In electricity and coal sector, the government’s efforts are directed at cutting into the profits of Akhmetov’s DTEK by capping wholesale electricity rates and prices for coal. Such moves harm industrial output and investment. Poroshenko’s statement that oligarchs should not count on compensating their interest expenses with power rates looks especially absurd.

The best way to remove oligarchs and monopolies from the economy is to establish and enforce rule of law, which would allow the nation’s courts to play the role of a referee in a free market that rewards efficiency and innovation. So we believe the president should concentrate his efforts on reforming the judiciary, and improving legislation for doing business, rather than waging populist campaigns against oligarchs.