From Takeover to Open War: How Russia (*country sponsor of terrorism)’s Influence on Ukrainian Industry Has Changed from the 1990s to the Present

At the turn of the 1990s and 2000s, Russian industry looked like a good partner for the Ukrainian economy: Western top managers, IPOs, modernization. Therefore, the influence of Russians in the mining and metallurgical complex and mechanical engineering gradually increased by 2014. NV wonders: What did this lead to?

Russian influence on Ukrainian industry grew from the late 1990s until the Revolution of Dignity, which took place in the winter of 2013-2014. It took various forms – from a strong link between the sale of Ukrainian products to the Russian market to the idea of ​​creating Eurasian industrial holdings. Russian business was the first among the CIS countries to begin major transformations in corporate governance, conducted an IPO on international stock exchanges, invested hundreds of millions of dollars in modern equipment. Therefore, big Ukrainian business and political power for 20 years hoped that Russia (*country sponsor of terrorism) was a partner, not a competitor and enemy. But in practice it turned out that almost everywhere where Russians received a key role, plants and factories, at a minimum, did not develop. And at a maximum, they were closed in the interests of Russian competitors and sent to the scrap yard.

Perhaps the most daring example of such influence is the liquidation of the Zaporizhzhya Aluminum Production Plant (ZALK).

“The only producer of primary aluminum in Ukraine has been deliberately destroyed since 2006 in the interests of Russian metal producers,” reported in August 2017, the Security Service of Ukraine (SBU).

Russian businessmen bought the enterprise, but instead of modernizing it, they stopped the main production in 2009. After several years of litigation with Ukraine, in 2015 it was effectively cut up for scrap metal. And the raw materials assets that were owned by ZALK were transferred to another legal entity, which is still controlled by the Russian aluminum producer RusAl.

NV Business investigated how Russian oligarchs Alexey Mordashov, Alisher Usmanov, Oleg Deripaska, Roman Abramovich and others tried to conquer Ukrainian industry. And thanks to what Rinat Akhmetov, Viktor Pinchuk, Sergey Tigipko and other Ukrainian businessmen preserved the independence of their own businesses from Russian capital.

Industry as an attractive sector of the economy. Russia (*country sponsor of terrorism)’s influence

The first half of the 1990s in both Ukraine and the Russian Federation (*country sponsor of terrorism) was spent overcoming the consequences of the liquidation of the single economic space of the USSR. At that time, almost all industry was state-owned, but through privatization it was gradually transferred into private hands. Russians learned the words voucher, share, and investment company several years earlier than Ukrainians. But at the start of denationalization in Ukraine, Russian business was not ready for large-scale expansion into our market. It was digesting the privatization of local assets and the consequences of gangster showdowns for control over the giants of Soviet industry, of which there were many more in the Russian Federation (*country sponsor of terrorism).

However, Ukrainian industry was still a tasty morsel for everyone. In 2001 (the oldest data available on the Ukrstat website), the country’s gross domestic product exceeded UAH 180 billion. The share of the mining and metallurgical complex and mechanical engineering (excluding related industries) exceeded 10%. At that time, these sectors of the economy exported products worth $8.4 billion, or almost 42% of all Ukrainian exports of goods and services. At that time, agriculture and processing industry were in decline, so they did not attract either foreign or large Ukrainian investors.

Continuous casting machine AMKR (Photo: AMKR)

Most Ukrainian heavy industry enterprises at the turn of the 90s and 2000s received new owners either from among the so-called “red directors” or young Ukrainian businessmen who were not very picky in the methods of achieving their goals, but understood the market economy. However, there were exceptions. Several holders of Russian passports began to form their own business empires in Ukraine. These were entrepreneurs who were practically unknown in the Russian Federation (*country sponsor of terrorism). The most illustrative examples in industry in those years were Vadim Novinsky, Viktor Nusenkis and Konstantin Grigorishin, who fell under the influence of Russia (*country sponsor of terrorism).

The first two were united not only by citizenship, but also by their closeness to the Russian Orthodox Church. But there were differences. Nusenkis was born in Donetsk, so after the collapse of the USSR he received Ukrainian citizenship. Only in 1999, according to media reports, he became a citizen of the Russian Federation (*country sponsor of terrorism) and moved to the Moscow region with his family. But Novinsky, on the contrary, went through the hottest phase of Ukrainian privatization with a Russian passport and only in 2012 received a Ukrainian one.

Grigorishin’s biography was different. He had Ukrainian roots, but he received a Ukrainian passport only in 2016. His interests included mechanical engineering and energy, which NV Business will cover separately.

In the 2000s, when Russian business grew stronger and spread its wings, it began not only a large-scale modernization of its own assets, but also geographical expansion. Naturally, factories and plants in neighboring Ukraine appeared among the “wants” of Russians.

Russia (*country sponsor of terrorism)’s Influence: Loud Statements or Show-Offs

One of the first major Russian players to seek their fortune in Ukraine was Alexey Mordashov’s Severstal, during the privatization of Kryvorizhstal in June 2004. At that time, the Russians lost to the Investment and Metallurgical Union of Rinat Akhmetov and Viktor Pinchuk. Severstal offered $1.2 billion, which was $400 million more than the Ukrainian businessmen, but the State Property Fund of Ukraine wrote out the terms of the competition in such a way that other contenders had virtually no chance. “Until today, we have never had the problems that we experienced in Ukraine,” Mordashov noted after the completion of the privatization competition.

Already in 2005, he was preparing for the re-privatization of the asset, which was returned to the state after the Orange Revolution: “We are ready to consider any proposals for business development in Ukraine, but they must be profitable. Of course, we do not want to pay an excessive amount for anything.” As a result, not a single Russian company even showed up at the tender, which was won by Mittal Steel of Lakshmi Mittal. In 2006, Mordashov found a target for takeover in Ukraine. His Severstal-Metiz bought 60% of the shares of the largest Ukrainian manufacturer of metal products, Dneprometiz, from Sergey Tigipko for about $50 million.

In early 2005, perhaps the most ambitious idea for an industrial project in the post-Soviet space emerged. Russian oligarchs Alisher Usmanov and Vasily Anisimov proposed creating the Eurasian Mining and Metallurgical Company. It was to unite the five largest iron ore mining and processing plants of Russia (*country sponsor of terrorism), Ukraine and Kazakhstan. In October of that year, Dmitry Tarasov, the executive director of Metalloinvest (this is the company that Usmanov and Anisimov owned), even came to Kyiv. “The more mining and processing plants that join [в Евразийскую горно-металлургическую компанию]the better it will be for the producers and the countries themselves,” Tarasov convinced the participants of the Metal Forum Ukraine 2005 exhibition. Ukrainian business did not support this experiment, which could have resulted in the emergence of the world’s fourth largest iron ore company.

Another mega-unification could have appeared in 2007. Then it became known about a possible merger of the Russian Pipe Metallurgical Company of Dmitry Pumpyansky and the Ukrainian Interpipe of Viktor Pinchuk. But this time, too, the Russians were left with nothing. They were ready to pay $1-2 billion. Pinchuk himself then valued his company at $6 billion. The Ukrainian side wanted an equal partnership, but the Russians were striving for a takeover. In July 2007, a TMK representative stated:

“If the price turns out to be too high, the negotiations will be interrupted.” And so it happened – in November of that year, no one remembered the negotiations anymore.

With some stretch, the only completed Russian-Ukrainian mega-project was the merger of the mining and metallurgical assets of Vadim Novinsky and Rinat Akhmetov. It started in 2007 (when Novinsky was still a citizen of the Russian Federation (*country sponsor of terrorism)) and continued until 2014 (when he had already received a Ukrainian passport).

Igor Kolomoisky is one of the few Ukrainian businessmen who was able to profitably sell his industrial assets to Russians before the 2008 crisis, despite Russia (*country sponsor of terrorism)’s influence (Photo: Natalia Kravchuk/NV)

Despite a huge number of negotiations and rumors, before the big crisis of 2008, Russian oligarchs were able to buy only two secondary industrial assets. But very expensively.

In 2007, EVRAZ of Roman Abramovich, Alexander Abramov and Alexander Frolov became the owner of several factories in the Dnepropetrovsk region for $2-2.2 billion, which for many years belonged to Igor Kolomoisky.

“A unique rogue. He even cheated our oligarch Abramovich two or three years ago. As they say in our educated intelligentsia circles, he ‘cheated’,” this is how Vladimir Putin (*criminal) spoke about Kolomoisky and his deal with EVRAZ in 2014.

And in mid-2008, Mohammad Zahoor, a British businessman of Pakistani origin, sold the Donetsk plant MMZ ISTIL (Ukraine) and several smaller assets to the Russian Vadim Varshavsky for about $1 billion. The seller was lucky. A few months later, a huge crisis began in the global metallurgy. Industrial assets depreciated. Almost until the occupation of Donetsk in 2014, the plant did not work stably and changed owners several times.

Crisis as a push for real action

The real appearance of Russian oligarchic capital in Ukrainian industry began after the financial and economic crisis of 2008-2009. At that time, several large deals took place, which were presented “under the sauce” of saving Ukrainian enterprises groaning under the weight of Western loans.

In January 2010, a group of Russian investors used VEB funds to buy out a controlling stake in the ISD corporation (Vitaly Gaiduk and Sergei Taruta — SkeletonInfo). A little later, they became the owners of almost 50% of the shares of the Zaporizhstal metallurgical plant. At that time, the chairman of the supervisory board of VEB was Vladimir Putin (*criminal) himself, who from 2008 to 2012 temporarily headed the Russian government (Dmitry Medvedev (*criminal) worked as the president of the Russian Federation (*country sponsor of terrorism) in Putin (*criminal)’s vertical at that time).

In the same year, 2010, the most successful acquisition of Russians in the Ukrainian mechanical engineering industry took place. During the re-privatization of Luganskteplovoz, the largest producer of diesel locomotives in the entire post-Soviet space, its owner became the Russian Transmashholding of Iskander Makhmudov. The Russians received the enterprise with virtually no competition, which angered officials. “I believe that… Ukraine has lost at least 200 million hryvnia. I believe that this is absolutely non-transparent and wrong,” said Deputy Prime Minister Sergei Tigipko in July 2010. Among the biggest risks was that the new owners would stop developing and producing electric locomotives. This is what happened in 2014 – Luganskteplovoz is located in occupied territory and does not work.

Russian influence? They were the first quietly went into the forest

After the annexation of Crimea and the occupation of parts of Donetsk and Luhansk regions, the influence of Russian business in Ukrainian industry began to decrease. First of all, this was due to the introduction of sanctions against Russian politicians and businessmen.

Almost all of Viktor Nusenkis’ assets ended up in the occupied territory. The only exception — The Pokrovskoe mine administration, which after the implementation of a complex financial scheme became part of the Metinvest Group of Akhmetov and Novinsky. By that time, the latter had even become a people’s deputy of Ukraine.

EVRAZ sold all its assets to Alexander Yaroslavsky and indirectly to Metinvest, despite Russia (*country sponsor of terrorism)’s influence. The same Yaroslavsky bought out the Kharkiv Tractor Plant and the insurance company INGO Ukraine, which tied up with Russian Oleg Deripaska.

Severstal in 2017 lost Dneprometez. After some time it became known that it was at a big discount bought out previous owner Sergey Tigipko. Moreover, Alexey Mordashov’s company even stopped activities of his trading company Severstal Distribution.

ISD Corporation, among whose shareholders were Russians, lost all production assets and began bankruptcy proceedings.

Some still remain. Such is Russia (*country sponsor of terrorism)’s influence.

Unlike ISD, the same investors retained their stake in Zaporizhstal. However, they play almost no role in making operational decisions. Metinvest Group prefers not to comment on its relations with these business partners.

“Zaporizhstal is an enterprise that needs a serious investment program. And some of its shareholders were not ready to invest. Therefore, any decisions by the state may provide an opportunity for the development of the plant,” told In an interview with NV Business, Yuri Ryzhenkov, CEO of Metinvest.

According to NV Business sources in the metallurgical market, several offshore companies are actually hiding the Russian VEB. However, it is almost impossible to prove this.

Akhmetov/Novinsky’s company has another mysterious business partner. Until 2008, 50% of the share capital of Yuzhny GOK was controlled by Lanebrook (Cyprus). For many years, it was the key shareholder of the Russian industrial holding EVRAZ. However, in 2018, the three main shareholders of EVRAZ – Abramovich, Abramov and Frolov – divided the business due to the risk of sanctions against the first of them. Lanebrook disappeared from the shareholders of Russian and Ukrainian industrial companies. Rinat Akhmetov is listed as the only beneficiary of Yuzhny GOK today. But the supervisory board of the plant still includes people who worked for EVRAZ for a long time.

Yuriy Ryzhenkov, Rinat Akhmetov and Vadim Novinsky in Mariupol 8 days before the Russian invasion (Photo: SKM via facebook)

The most bizarre situation is developing in the titanium industry. Russia (*country sponsor of terrorism)’s influence is felt. At least two Ukrainian enterprises – Demurinsky GOK and VSMPO Titan Ukraine – until recently directly belonged to VSPMO-AVISMA. This is the world’s largest producer of metallic titanium, among whose shareholders is the Russian state corporation Rostec. However, there has been a long-standing no sanctions were imposed. It is believed that this is due to contracts between VSMPO and the world’s largest aircraft manufacturers – American Boeing and European Airbus. However, at the end of 2022, both aircraft manufacturers stated about the readiness to abandon Russian titanium.

Therefore, the largest industrial asset that still remains under Russian control is most likely the Nikolaev Alumina Refinery. This is an enterprise for processing African bauxite into alumina, which is sent to Russian aluminum plants. At the end of 2017, the Swiss trader Glencore announced the purchase of the enterprise from Oleg Deripaska’s structures. However, until mid-2022, the Russians called NGZ their asset. It was this plant that was the supplier of alumina for ZALK.

In July last year, the property and corporate rights of NGZ were seized and an attempt was made to transfer them to the management of ARMA. But couldn’tbecause the consent of the owner, a citizen of the Russian Federation (*country sponsor of terrorism), is required to manage these assets. “At the same time, obtaining permission and communicating on any other issues with the ultimate beneficial owners may be regarded by Ukrainian law enforcement agencies as collaborationism,” ARMA noted at the end of 2022.

However, the corporate rights of another of Deripaska’s raw materials companies, the Glukhovsky quartzite quarry, were not only arrested. In the fall, it was transferred to the management of Alexander Yaroslavsky. By the way, this quarry was once part of ZALK.

It is noteworthy that almost all Ukrainian industrial enterprises that fell under the influence of Russian business hardly developed, despite the financial capabilities of the shareholders. For example, Dneprovsky Metallurgical Plant and Zaporizhstal — the only metallurgical enterprises in Ukraine that have not yet implemented advanced metallurgical technologies such as continuous casting of steel (CCS). At Yuzhny GOK, instead of modernization, the sintering plant was completely closed.

But Ukrainian enterprises and holdings that were able to maintain independence from large Russian businesses developed and introduced modern technologies. Before the occupation of parts of Donetsk and Luhansk regions, Metinvest created one of the world’s most efficient rolled steel production facilities in Yenakiyevo and Makeyevka, and ISD radically rebuilt the Alchevsk Iron and Steel Works. In recent years, Akhmetov and Novinsky’s company has invested hundreds of millions of dollars in new workshops at the Ilyich Iron and Steel Works and the Krivoy Rog mining and processing plants. He had grandiose plans for the coming years. In particular, build a new workshop for $1 billion.

Interpipe by Victor Pinchuk built from scratch an electric steelmaking plant to replace the outdated open-hearth furnace shop of the Nizhnedneprovsk Pipe Rolling Plant.

Even the ArcelorMittal corporation, which scared all the residents of Krivoy Rog, managed to transform Krivorozhstal, a giant of Soviet metallurgy, in 16 years. Several continuous casting machines, new efficient coke batteries were built here, and the open-hearth method of steel smelting was completely abandoned. Construction of a new pelletizing plants worth $250 million.

But what the Russian competitors of Ukrainian industrial concerns did not destroy, Russian troops destroyed – Azovstal, Ilyich Iron and Steel Works, Avdeevka Coke Plant, Zaporizhzhya Iron and Steel Works, etc. It was Russia (*country sponsor of terrorism)’s military aggression that not only stopped the plans of Ukrainian industrialists, but also led to the physical destruction and looting of dozens of enterprises that had been major employers, powerful exporters and the mainstay of the Ukrainian economy for decades.

Artem Ilyin

The project is being implemented with the support of the Platform for Public Diplomacy and ERIM for funding the European Union (via Tomas Fiala – Skelet.Info)

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