Ukraine's Oligarch Problem Hurting Opportunities for Foreign Investment

Ukraine's Oligarch Problem Hurting Opportunities for Foreign Investment
(Ukrainian Presidential Press Office via AP)
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Ukrainian courts are currently considering whether the Nikopol Ferroalloy Plant broke the law when it disconnected the  a solar power plant operated by TIU Canada, one of the larger foreign investors in the country’s energy industry. A lawyer representing the Canadian company stated that the disconnection was illegal.

On the surface, the Ukrainian government’s willingness to call for de-oligarchization of Ukraine  seems like a step in the right direction for a country struggling to stamp out corruption. But targeting the Nikopol facility is likely more of a box check than a serious move towards reform. Notably absent from official statements was any mention of the Nikopol facility’s owner, the notoriously corrupt billionaire Igor Kolomoisky (sometimes spelled ‘Kolomoyski’).

The businessman’s power within the Ukrainian state has declined in recent years: he now spends  most of his time in Switzerland, with occasional stops in Cyprus and Israel. Kolomoisky was a strong backer in the election of Ukrainian president Volodymyr Zelensky, but the president has tried distanced himself from the billionaire despite their past ties, and the US government, which imposed sanctions on him in March. But he still maintains significant sway in Ukrainian politics through his wealth and media ownership -- as demonstrated by his ability to have the TIU Canada plant shut down.

This isn’t the first time that Kolomoisky has used extralegal methods to maintain his grip on power. In 2015, the Ukrainian parliament passed legislation aimed at removing his control over UkrNafta, a majority state-owned energy company in which he held a large stake. But just a year earlier, Kolomoisky had been granted a cushy regional governor position by the previous presidential administration. His response to the 2015 legislation was more mob boss than elected official: he sent heavily armed private security personnel to take over the company headquarters in the capital city of Kiev.

The 2015 and 2021 incidents serve as yet another reminder that Western companies and governments should be wary of investing in Ukraine. Kolomoisky is just one of the many well-connected and unscrupulous men who took advantage of the forced privatization of former Soviet industries during the 1990s to amass wealth and influence. And as is typical in Ukraine, they are in power one day and seemingly out of power the next. Between the war in eastern Ukraine and the corruption within the nation itself, conditions in the country’s energy sector are too toxic for Western companies to safely invest in.

Much of Ukraine’s manufacturing base and coal mining industry is concentrated in the east, and while Russian and Ukrainian interests alike continue to rely on the factories and plants in the disputed region, they mainly do business through grey market channels. Until the two countries find a sustainable solution for administering the region– a process not helped by Kolomoisky’s track record of financing extremist militias – foreign investments and aid will inevitably become entangled in local corruption.

It’s unfortunate that people like Kolomoisky are still allowed to call the shots in Ukraine. The billionaire may or may not be out of favor with President Zelensky, but he continues to wield considerable influence over Ukraine’s manufacturing, energy, and media industries – in other words, the country’s economy and public opinion. If the Ukrainian state was serious about serving its people, many of whom took to the streets in 2014 because they simply wanted an end to corruption and government incompetence, it would crack down on robber barons like Kolomoisky. Until this happens, Western companies like TIU Canada should be wary of doing business in Ukraine, and Western governments should be equally cautious about intervening in the country’s delicate and unpredictable internal situation.

Chris Nagavonski is a writer and translator specializing in defense policy and Eastern European affairs. His writing has been featured by The American Conservative, American Greatness, RealClearPolicy, and the Acton Institute.

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