Poroshenko takes on Ukraine’s oligarchs

Nearly a year after he was elected president of Ukraine, the challenges facing Petro Poroshenko remain daunting. A ceasefire agreement between Kiev and Russian-backed rebels in the east of the country has contained, but not stopped, Moscow’s aggression. The Ukrainian economy is in crisis, with GDP estimated to have fallen 15 per cent, year on year, in the first quarter of 2015. International efforts to shore up the nation’s finances still rely on Ukraine reaching a debt restructuring agreement with bondholders to bridge a $15bn gap.

Against that background, it is greatly to Mr Poroshenko’s credit that the government is pressing ahead with urgently-needed — but painful — economic reforms. It has implemented new public procurement and anti-corruption legislation. It is working hard to reform the energy sector, opening the gas market to investors. A vital test is how it proceeds with a clampdown on a small group of billionaire oligarchs whose activities dominate economic life. Whether it can tackle this issue successfully will be critical to the fate of the government — and of the country.

Since the Soviet Union fell in 1991, the domination of Ukraine’s economic system by oligarchs who acquired state assets in murky privatisations has been at the heart of the country’s problems. Powerful business clans have choked competition, stalled reforms and served as a wellspring of corruption. Breaking this system was a core demand of last year’s Maidan protests that toppled president Viktor Yanukovich — who had abused his position to become oligarch number one.

Mr Poroshenko first signalled his determination to weaken the oligarchs’ stranglehold in March when he sacked Igor Kolomoisky as a regional governor. The banking and energy magnate had resisted legislators’ efforts to strip him of management control of majority state-owned energy companies. The campaign has since spread. Parliament has demonopolised the gas sector, a stronghold of Dmytro Firtash, an energy tycoon. Prosecutors are challenging the purchase of Ukraine’s largest thermoelectric generator by Rinat Akhmetov, the country’s richest man.

Kiev is right to ensure those who benefited most from Ukraine’s post-communist transition must play by the rules in future and make a fair contribution to rebuilding the country. But Mr Poroshenko — particularly as an oligarch himself — needs to proceed carefully. Action by the authorities against the oligarchs must be fair and transparent. It should not descend into a carve- up of assets among another group of tycoons; and there must be no suggestion that those now in positions of power are personally benefiting. Above all, it must not trigger the business and political infighting that brought down the last pro-western government after the 2004 Orange revolution.

The president was right last week to warn that business people who tried to blackmail the state would face punishment. This followed allegations that a miners’ protest in Kiev was organised by one of Mr Akhmetov’s companies — which he denied. But workers should not be deprived of their legitimate right to strike or protest, and Ukraine’s parliament and leaders must avoid any appearance of curtailing freedoms.

Kiev’s current administration is arguably the most talented since Ukraine’s independence. It deserves the west’s moral and material support. What is important, however, is that its reforms enhance the government’s standing not only with the EU and US but with citizens across Ukraine. Mr Poroshenko must know that falling short will play directly into the hands of Vladimir Putin and the Kremlin.

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