Rinat Akhmetov. The Main Oligarch of the Yanukovych Era. A Year Later

Part 1: Politics

“For me, the biggest sanction is if I can’t walk on Donetsk soil and can’t breathe this air,” is how Ukraine’s richest man, billionaire Rinat Akhmetov, addressed Euromaidan activists in December 2013.

Almost a year and a half has passed since then.

Akhmetov has not appeared in his residence, which was then picketed by activists of the Democratic Alliance, for almost a year now. According to Donetsk residents, it is still guarded by Oplot. Akhmetov’s press secretary Elena Dovzhenko denies this. “The residence is now guarded by the same guards who have been watching the territory for many years,” she told Ukrayinska Pravda.

President Viktor Yanukovych and the Party of Regions, into which Akhmetov invested millions of dollars over the past ten years, have sunk into oblivion. Akhmetov’s political influence now is not even the entire Opposition Bloc faction, which has forty members. There are about 15 deputies loyal to the richest man. The rest are part of the so-called Firtash-Levochkin RUE group.

In a little over a year, Akhmetov’s fortune has decreased almost twofold. According to the American magazine Forbes, the oligarch’s business is now worth $7.2 billion. For comparison, last year it was valued at $12.5 billion.

The enterprises of his business empire, located in the ATO zone, regularly come under fire, some of them were forced to cease operations for some time.

However, there are losses that are difficult to assess. In Akhmetov’s case, this is also the image of the country’s main oligarch, football fan, philanthropist and master of Donbass. For ten years, Akhmetov attracted the best PR consultants, did not spare money on reputation projects. This bore fruit. In 2013, over 34% of respondents named Akhmetov as the person who did the most to form a positive image of Donbass. The survey, however, was conducted by the sociological company R&B Group, which is called loyal to Akhmetov and the Party of Regions.

Last year’s events have radically changed the situation.

Akhmetov’s attempt to chase two birds with one stone, calling on the official authorities of Kyiv and the separatists to engage in dialogue, found no support either in Kyiv or in Donetsk. A year later, the question remains unanswered: could the events in Donbass have followed a different scenario if Akhmetov had made a choice in favor of Kyiv?

“Several top managers of SCM prepared a 20-page report for the shareholder back in March of last year about how the situation in Donbass could end if we do not focus on fighting separatism in Donetsk,” one of the SCM managers said on condition of anonymity. “But no one wanted to listen to anyone – all the advisers were sent away in a rude manner.”

The interlocutor is convinced that if Akhmetov had brought the workers of his enterprises to the streets of Donbass cities and interrupted the financial flows of Yanukovych’s “Family” to the region to finance the separatists with his money, events could have unfolded completely differently. “At the beginning of March there was still a chance to stop all the processes, a small one, but there was one,” he sadly states.

Instead, Akhmetov’s trusted top managers did everything possible to ensure that employees of his enterprises did not participate in actions in support of Euromaidan, and later, the unity of Ukraine.

Ukrainska Pravda has obtained an internal DTEK document titled “Theses for cascading among employees on the topic of the political situation in the country,” dated February 2014. It explains in detail why DTEK does not participate in political actions.

Akhmetov’s managers tried to keep the situation under control even when the events on Maidan escalated. On February 19, the day before the shooting of protesters on Instytutska, DTEK convened an Anti-Crisis Headquarters, where a plan of action for the company in the current situation was developed. In particular, the “Need to avoid the participation of DTEK employees in organized trips for political reasons” (document) was discussed.

Particular attention was paid to employees of enterprises located in the western regions of Ukraine.

Akhmetov chose the same tactics in the conflict in Donbass.

He tried to maintain his reputation as an intelligent master of Donbass to the very end, even when administrative buildings in Donbass cities had already been captured. In April, he proudly claimed that “the shot that would force him to leave his native land had not yet been born.” And in May of last year, he was forced to flee Donetsk. And since then, he has not returned to the city occupied by militants.

Has Akhmetov’s position changed during the military conflict in Donbass?

“The position was and remains unchanged today: conflicts should only be resolved at the negotiating table,” says Elena Dovzhenko. “There is no other way.”

“RiLe (that’s what Akhmetov’s employees call him behind his back, an abbreviation for Rinat Leonidovich – UP) didn’t want to listen, because then he would have to make a risky bet, comparable to Kolomoisky,” says a high-ranking SCM employee. “And he doesn’t like risky bets. And he really thought that he would fool everyone, as a “peacekeeper” and mediator in Donbas. But he didn’t appreciate that against the backdrop of the Moscow network, he was a small pawn.”
A year later, Akhmetov faces new challenges. Now he must make every effort to preserve his business empire. And here the oligarch is in no hurry to make concessions to the authorities, whom he called on last year to negotiate with the separatists.

In its special project, “Ukrainian Truth” answers questions about how Akhmetov’s business is doing a year after the events in Donbass began, what Akhmetov is ready to do to protect his business interests, and what his chances are in the confrontation with the official authorities.

Part 2: Business

DTEK

Once Rinat Akhmetov asked one of the major businessmen how much he thought the company DTEK was worth. The interlocutor, without thinking twice, answered that it was worth nothing. Akhmetov was surprised and asked him to explain why he thought so.

“Because your company can only be sold with the position of president,” he heard in response.

The oligarch can be convinced of the truth of this statement in the near future.

During Yanukovych’s presidency, Akhmetov’s holding company, created in Donetsk in the early 2000s, became a monopoly on the energy market.

Currently, the oligarch’s company controls 76% of the thermal generation market and 27% of the total; last year, it accounted for 99% of Ukrainian electricity exports.

The hothouse conditions of work under the previous government allowed Akhmetov’s company to privatize the most lucrative assets, obtain the best coal enterprises on long-term lease, and even change the antimonopoly legislation to suit itself at the expense of the loyal head of the regulator.
Until the fall of 2010, no owner in the country could control 25% of all generating capacity in the country. And after Viktor Yanukovych’s victory in the presidential elections, Akhmetov’s man, Serhiy Titenko, appointed to the post of head of the NKRE, raised this bar to 33%.

This, as well as the absence of real competitors in privatization tenders, allowed Akhmetov to cheaply gain control over three generating and three energy distribution companies in just over a year.

After the change of power in the country, Akhmetov managed to maintain a “warm bath” for his energy business for some time. Everything changed after the parliamentary elections and the formation of a new government, in which the position of Minister of Energy went to Vladimir Demchyshyn.

First, Akhmetov’s company was deprived of subsidy certificates that made electricity exports to Europe profitable. DTEK was also left without a contract for electricity imports to Ukraine and Crimea, which was eventually signed by state-owned Ukrinterenergo and Inter RAO UES.

Then the NKRE decided not to pay Akhmetov’s company for electricity consumed in the ATO zone and reduced the green tariff by 50%.

The last straw for Akhmetov’s company was the price of coal – the ministry refuses to revise it upwards. DTEK claims that the fair price for Ukrainian production is 1,500 hryvnia per ton. The ministry believes that it is 1,100 hryvnia.

After mutual accusations – DTEK of monopoly, and the minister of incompetence, Akhmetov moved on to the heavy artillery.

In the last 20 days of April, Kyiv was flooded with miners from coal enterprises. Their demands included the resignation of the minister, an increase in the price of coal, and payment of wage arrears. In comments to journalists, they repeatedly introduced themselves as employees of Akhmetov’s enterprises.

DTEK even tried to disown the picketers, saying that it was their personal initiative and that the company had nothing to do with all of this. But all the details of Akhmetov’s plan to save his business became known on Friday, April 24, in the blog of People’s Deputy Mustafa Nayem.

The crisis plan called “Fortress,” which was developed by the company’s top managers, envisaged strikes by Ukrainian miners and, as a consequence, the resignation of the Minister of Energy. Akhmetov also aimed at creating a “third force – a labor movement that could become both a protective resource for the company and an element of pressure on the government.”

The plan did not just arise out of nowhere. In his column on Ukrainska Pravda, the company’s business development director Vitaliy Butenko stated that the new government had repeatedly offered DTEK to sell its assets. In particular, Zakhidenergo and Dniproenergo, and, according to Butenko, if Akhmetov takes such a step, the company will not have any problems with government agencies in the future.

Akhmetov’s energy assets are indeed of interest to a wide range of players – from Igor Kolomoisky to Konstantin Grigorishin.

“Ukrainska Pravda” has already written in detail about the beginning of the struggle for influence on the energy market between Akhmetov and Grigorishin.

As for the Dnipropetrovsk governor, at the beginning of March, at a meeting of the special commission on privatization, he announced the need to review the privatization of generating and distributing companies, control over which Akhmetov received in 2010-2012. At present, the Dnipropetrovsk oligarch’s company “Business Invest” is trying to challenge the sale of shares of the generating company “Zapadenergo” by the state in court. It is no secret that Kolomoisky and Akhmetov fought in 2007-2008 for “Dniproenergo”.

Since mid-February of this year, Rinat Akhmetov has been negotiating with the president and the industry’s management. The parties have already held several meetings, but have not yet been able to reach an agreement. Several interlocutors told Ukrainska Pravda that Akhmetov offered the president “direct benefits from the world.” According to them, the discussion was about a share in the gas production company Naftogazdobycha (in the early 2000s, Poroshenko had a share in this business, later the license was controlled by Nikolai Rudkovsky and Nestor Shufrich – UP). The last meeting took place on Friday, April 24.

And on Tuesday, April 28, “Ukrainska Pravda” learned about the draft resolution of the National Security and Defense Council “On the regulation of the situation in the energy sector.”

Currently, it contains clauses that, if adopted, will seriously affect the oligarch’s energy business. In particular, the draft document contains clauses on an objective investigation by the Antimonopoly Committee into Akhmetov’s monopoly, a revision of concession agreements between coal companies and Kyivenergo, and a proposal to increase Energoatom’s output by 15 billion kWh per year. This will lead to a decrease in DTEK’s share in the overall energy balance.

The interlocutors of “Ukrainska Pravda” claim that Prime Minister Yatsenyuk has criticized this plan. The final decision has not yet been made.

The news for DTEK is not only disappointing on the political front. The holding’s financial situation has also deteriorated significantly over the past year. In March, the international rating agency Fitch downgraded the company’s rating to level C, which means default. The company ended last year with a net loss of UAH 19.6 billion. While in 2013 – with a net profit of UAH 2.98 billion.

Production indicators also decreased. DTEK reduced electricity production by 9.9% and coal mining by 10.4%.

Some of the assets of Akhmetov’s business empire are located in the occupied territory. According to several sources of Ukrainska Pravda, in order to maintain control over his enterprises in the ATO zone or to protect them from constant shelling, Akhmetov pays the “government” of the “DPR” and “LPR”, although this is denied by both DTEK CEO Maksym Timchenko and Akhmetov’s press secretary Elena Dovzhenko.

What is happening with the oligarch’s energy holding companies?

DTEK Zuyevskaya TPP (Zuhres city) is located on the territory captured by the “DPR”. Of the 4 power units, only one is operational. The enterprise has been repeatedly subjected to shelling. The station has numerous damages, the water main, gas pipeline, fuel oil storage facilities, administrative and amenity building and other objects on the territory of the enterprise were damaged. As a result of the shelling, 4 employees of the station were injured.

DTEK Mine Komsomolets Donbassa (Kirovskoye) in peacetime mined coal of the T grade (skinny – UP), which supplied 100% of the Kryvyi Rih Thermal Power Plant, as well as 25% of the Pridneprovska Thermal Power Plant. For a long time, the enterprise was in the epicenter of military actions. The mine stopped mining coal on July 28, 2014 after another shelling.

After the signing of the Minsk agreements in September last year, the miners began to restore it (pumping water out of the flooded horizons), the mine even started working, but on October 10 it was again shelled by artillery and its work was stopped again.

DTEK Donetskobenergo, DTEK PES-Energougol, DTEK High-voltage Networks – throughout the entire period of military operations, their networks, substations and transformers were subjected to regular shelling and damage.

During the most active periods, the number of settlements without power in the Donetsk region reached 150.

DTEK Rovenkianthracite and DTEK Sverdlovanthracite are state-owned enterprises that are under long-term lease from Akhmetov and include 11 mines and 6 enrichment plants. At various times, up to 4 mines and 2 central enrichment plants (CEP) have been shut down.

Currently, the mines are operating at a third or a quarter of their capacity. In peacetime, they mined up to 40 thousand tons of coal per day, currently – about 8 thousand tons. This is due to the fact that coal is difficult to transport from the ATO zone – the railway infrastructure is destroyed, bridges are damaged.

The largest railway junction in Debaltseve, through which anthracite from Rovenki and Sverdlovsk could be delivered to the Kryvyi Rih and Pridneprovsk thermal power plants, was completely destroyed. An alternative route through Rodakovo in the direction of the Dnipropetrovsk region was developed. However, since January, traffic on this route has been regularly blocked.

Losses of Akhmetov’s energy holding in the Crimean direction. In January 2015, the Crimean government decided to “nationalize” DTEK Krymenergo. At the moment, no court decisions have been received that would speak of any violations that could lead to such events.

Also, during the entire period of military actions in Donbass, 44 DTEK employees were killed. Of these, 26 people came under fire during work. Another 18 people from DTEK were wounded while serving in the ranks of the Armed Forces of Ukraine.

Metinvest

The mining and metallurgical complex brings in 40% of foreign exchange earnings and provides 25% of Ukraine’s GDP.

This thesis was often voiced by metallurgists and their lobbyists before the 2008 crisis when pushing through various initiatives. The same methods have been used by Akhmetov’s Metinvest in recent years, although not with the same confidence. The role of the basic money supplier is being taken over by the agricultural sector, and the ferrous metallurgy and iron ore industries are reducing their foreign exchange “contribution”.

And, apparently, in the near future neither Rinat Akhmetov with Metinvest nor other key players should hope for a “cure”.

According to estimates by the state enterprise Ukrpromvneshexpertiza, in 2015, revenues from export deliveries of mining and metallurgical products will decrease by 2.2 billion to 13.8 billion dollars.

What is happening with the industry in which Akhmetov is also a monopolist? Firstly, some of the mining and metallurgical enterprises are concentrated in the occupied territories. Secondly, world prices for iron ore raw materials in 2014 fell even more rapidly than oil prices.

This cannot but affect the financial performance of the enterprise. Thus, the revenue of Akhmetov’s holding in 2014 compared to the previous period decreased by 17.5%, or by 2.24 billion to 10.57 billion dollars.

“We are currently operating on the edge of profitability,” says Metinvest CEO Yuri Ryzhenkov.

According to the results of 2014, Metinvest reduced production. The decline affected almost all positions of the mining and metallurgical divisions, with the exception of cast iron and pipe products.

There are several reasons. The first is damage and shutdown of production facilities as a result of shelling.

Thus, the press service of “SKM” reported that the Yenakiyevo Metallurgical Plant was shelled several times during the ATO. The main production shops and communications were damaged. Also, the Avdiivka Coke Plant, which is on the line of fire, has been subjected to intensive shelling since the summer.

Earlier, the holding also reported the shutdown of two Ilyichai Iron and Steel Works shops and one Azovstal shop due to the lack of sufficient working capital.

The second reason is the disruption of the production chain.

The main raw material base and production facilities were located in the occupied and adjacent territories.

“Recently, Yenakiyevo Metallurgical Plant has been experiencing an acute shortage of raw materials due to logistical problems on the Donetsk railway. And the shelling of Avdiivka Coke and Chemical Plant limits access to such raw materials as coke, which are essential in the production process. So the key issue is in the supply of raw materials,” the SCM press service notes.

But there is also good news for the metal holding company: under the new government, as under the old one, VAT was consistently returned to Akhmetov’s enterprises.

What awaits Metinvest in the near future? Firstly, further problems with the supply of raw materials, even if the military conflict is “frozen”. Secondly, the increase in freight rates by Urkzaliznytsia. Thirdly, the expected reduction in prices for iron ore and steel. According to forecasts of international agencies, in 2015-2016, ore prices will fluctuate around 65-70 dollars per ton (last year the price was 80-90 dollars).

Fourthly, there are no prerequisites for growth in demand on the domestic market. However, this direction may now become the most attractive. The products of domestic metallurgists may be needed to restore the destroyed infrastructure of Donbass or investment projects.

However, unusual turns of events are not excluded in this story. In March of this year, the former governor of the Dnipropetrovsk region Igor Kolomoisky proposed to reconsider the privatization of the assets of the state association Ukrrudprom at a meeting of the special commission on privatization. At the dawn of the 2000s, the then head of the State Property Fund Mikhail Chechetov, armed with the blessing of Leonid Kuchma, carried out the privatization of the factories and mining and processing plants that were part of it. There were few winners – the president’s son-in-law Viktor Pinchuk, Russian oligarch Vadim Novinsky and Rinat Akhmetov. The assets became the basis for the formation of the country’s largest metallurgical holding Metinvest. It is unlikely that the enterprises will ultimately be reprivatized, but these plans could provoke another wave of compromising information from the oligarchs on each other.

Harv East

“I can say that for Rinat Leonidovich, the agricultural issue is probably priority No. 10.”

This is how three years ago a person close to the oligarch explained to “Ukrainska Pravda” the fact that Akhmetov’s card in the Rada voted for bills that were unfavorable for agricultural business.

With the purchase of MMK Ilyich in 2010, the new owners of the plant got five subsidiaries that were engaged in agriculture. It was on their basis that today’s Harv East Holding was created, which Akhmetov and Novinsky divided in a ratio of 75 to 25.

The main resources of the agro-industrial complex are concentrated in the Donetsk, Zaporizhia, Cherkasy regions and Crimea.

The last year for Harv East cannot be called the most successful. However, as for other assets of the Donetsk oligarch.

According to the current head of Harv East, Dmitry Skornyakov, a third of the holding’s land and products worth hundreds of millions of hryvnias are located in the uncontrolled territory of Ukraine.

At the same time, the agricultural holding failed to harvest only 5% of the area. This did not affect the overall result – the high yield allowed to increase the overall grain harvest by a quarter compared to last year.

Skornyakov assures that the situation is under control. “I cannot say that we have lost control over the assets. Our cluster managers are on site and, as before, they carry out operational management of the assets, of course, with natural limitations,” he said in an interview with Interfax-Ukraine.

In Crimea, Harv East has a division of the DP Ilyich-Agro Krym (Krasnogvardeisky district of Crimea) with a land bank of 20 thousand hectares. The holding cannot explain what is happening to it now.

“The company makes every effort to carry out operational activities. The company has obligations to shareholders and employees,” the press service said.

According to UP sources, last year the agroholding barely managed to collect and export the harvest. Now there is no control over the division. Negotiations were held with the so-called Crimean authorities, but it is not yet known how they ended.

Portinvest

After the annexation of Crimea, the stevedoring company Avlita and the Marine Industrial Complex (MIC) fell out of the fold of Akhmetov’s port holding.

Both enterprises are located in Sevastopol and their work is currently practically frozen.

The cargo flow of the Crimean ports went to the ports of Nikolaev, Odessa, Ilyichevsk and Yuzhny. According to the data of the Administration of the Sea Ports of Ukraine (AMPU), in 2014 the transshipment of cargo in the ports of Ukraine on the continental part increased by 4%.

For Portinvest, the Yuzhny port is target No. 1. During Yanukovych’s rule, each port was controlled by a specific oligarch. Odessa was controlled by the “Family”, and Mariupol and Yuzhny were “de facto” Akhmetov’s ports.

The potential of Yuzhny is more than 100 million tons of transshipment per year. The first government of Yatsenyuk raised the issue of its concession. Officials stated that this would be the first demonstration investment competition.

Former Minister of Infrastructure Maxim Burbak (Read more about him in the article by Maksym Burbak: How Chernivtsi residents sat on Donetsk’s “golden toilet”) did not hide that Akhmetov’s group had a better chance of winning the competition. But it did not come to the competition, and today the Ministry of Infrastructure is no longer in a hurry with the concession.

“I don’t think that the Yuzhny port is the place where we will practice concession. I’m not sure that we will bring this port to concession, especially this year,” said Vladimir Shulmeister, First Deputy Minister of Infrastructure, the day before.

According to him, today Yuzhny is the most profitable port in Ukraine, through which the largest amount of cargo passes.

Corum Group (mechanical engineering)

Akhmetov’s machine-building holding in the territory now controlled by militants included three plants: Donetskgormash, Donetsk energy plant and Gorlovka machine-building plant. All of them were captured by representatives of the “DPR” in August last year, and since then the company has not controlled the enterprises.

Ukrainian Retail (Brusnichka fresh markets)

There are 52 stores of the chain in the territories controlled by the “DPR” and “LPR”, of which 46 are operational. The SCM press service claims that all employees receive their salaries in full, in accordance with Ukrainian legislation.

Last week, several MPs registered a bill that envisages the nationalization of Akhmetov’s supermarket chain. The parliamentarians’ reasoning: it is through the logistics of these chains that the lion’s share of contraband from the “LNR”, “DNR”, and annexed Crimea goes to the territories controlled by Ukraine. In December last year, several Ukrainian MPs, including Volodymyr Parasyuk and Semen Semenchenko, claimed that Akhmetov “earns” on humanitarian aid to residents of cities in the ATO zone, actually delivering it to his own fresh markets.

Network of petrol stations “Parallel”

There are 73 gas stations of the network in the territories not controlled by the Ukrainian authorities. Of these, 31 are operational, all operating in the Donetsk region. The company has lost control over individual gas stations.

In the Luhansk region, in the territory not controlled by Ukraine, the company has lost control over all its gas stations. According to several sources of Ukrayinska Pravda in the self-proclaimed republics, militants or entrepreneurs close to them are currently selling contraband fuel from Russia (*country sponsor of terrorism) at the network’s gas stations.

Developer ESTA

Donetsk is home to the Donbass Palace and Park Inn hotels. Their employees, according to the press service, receive their salaries in full.

As for Crimea, on the peninsula the ESTA group owns shares and corporate rights of two companies registered on the territory of Crimea – JSC “DZHALITA” (Yalta) and LLC “DOL BEREG” (Alushta).

Media group “Ukraine”

The military conflict has affected Akhmetov’s work and media business. Currently, the Ukraine TV channel is not broadcasting in the territory controlled by the LPR and DPR, its equipment has been completely seized. The Donbass TV channel has moved to Kyiv and is broadcasting from the capital. Work in the territory of the DPR and LPR is carried out almost exclusively via satellite – the loss of audience amounted to more than 90%. The TV channel TV-Sfera, which operated in Khartsyzsk, has completely gone out of the control of the Media Group Ukraine holding.
What’s next?

Akhmetov’s business has been seriously damaged by the conflict in eastern Ukraine. The military actions have affected all of his assets.

The situation is further aggravated by Akhmetov’s current political position. The oligarch is clearly uncomfortable in the role of an outcast who has no influence on political processes in the country.

“Ukrainska Pravda” has already written that Akhmetov is one of the ideologists of the creation of the “Opposition Government”, headed by his old friend and business partner Boris Kolesnikov. Dissatisfaction with the government is growing, and the former regionalists are seriously set on revenge, the first act of which could be local elections, scheduled according to the Constitution for autumn 2015.

For some time, the oligarch’s rear was provided by Prime Minister Arseniy Yatsenyuk, who was in no hurry to change the rules of the game for many of Akhmetov’s businesses. But the heads of two key departments for his energy monopoly, which is now under the main blow – the Ministry of Energy and the NERC and KU (National Commission for Regulation of Electricity and Public Utilities – UP) – are the president’s people. So Akhmetov is forced to accept the changing rules of the game as a given.

However, to protect his business interests, Akhmetov is ready to do much more than he did a year ago in Donbas. Igor Kolomoisky defended his interests in state companies by speculating on the topic of volunteer battalions that he financed. Akhmetov did not go far and is playing the miner’s card.

On Friday, April 24, President Poroshenko announced that the oligarchs who are destabilizing the situation in the country by holding miners’ protests will get their hands slapped.

The story of a month ago with Igor Kolomoisky showed that in the dispute between the state and big capital, the authorities win.

Ukrainian Truth