By Valentin Katanosov
Translated by Claudio
About 15 years ago, “natural selection”-based oligarchic capitalism started being developed in Ukraine: oligarchs devoured small and medium businesses, as well as state-owned assets. As resources of primitive accumulation were going to be exhausted, oligarchs began to devour each other by means of administrative pressure, raider attacks, corrupt courts, trumped-up charges and, if necessary, murder. This process was quite similar to a fight of scorpions in a can.
After the 2014 coup, this “natural selection” fight sharply escalated. Such oligarchs as Dmitry Firtash fizzled out, whereas other oligarchs are still struggling to survive. For instance, Ukraine’s former oligarch n.1, Rinat Akhmetov, has been already eliminated from the world’s 100 richest people list: according to Bloomberg, he dropped from 88th to 121th place. Just last year, Akhmetov’s wealth decreased by 4.3 billion USD and dropped down to 9.6 billion USD.
Be that as it may, only two scorpions succeeded in coming through to the final battle: Petr Poroshenko and Igor’ Kolomoisky…
Even if evaluating Poroshenko’s position in the business world became a somewhat difficult task after his election, it’s still possible to say something about Kolomoisky’s.
Let’s see the latest news about him. On February 19, it was reported that Kolomoisky’s company shares, traded on the London Stock Exchange, had lost a quarter of their value just in a day. We are talking about oil-and-gas company JKX Oil & Gas (hereinafter – JKX), which is registered in the UK. Well, its blocking stake (27.47 %) belongs to an offshore structure called Eclairs Group Ltd. Eclairs. As Nagel Moore, Chairman of the Board of Directors, reported last spring in a letter to the shareholders, this company was registered “through an intricate network of offshore trusts” in the British Virgin Islands, its 59.1% share is owned by Kolomoisky, the remainder belongs to Ukrainian oligarch and Kolomoisky’s closest business partner Gennady Bogoljubov and his family.
As for the 19 February losses, the largest slump in JKX stock prices was recorded in the middle of the day: 34 % below its opening price, whereas there was a 25% rate to the end of the day. According to a Reuters survey, at the beginning of February JKX had a market capitalization of 90 mln USD. The company operates mainly in the Ukraine (85% of revenues).
JKX has also assets in Russia, Hungary and Slovakia. In Ukraine JKX holds “Poltava Petroleum Company” (PPC), which is licensed to develop Novo-Nicholas complex’s oil-and-gas fields in Poltava region, as well as to explore the potential of Zaplavskoe, Elizavetskoe and Chervonojarski-Vostochnoe oil fields.
Analysts attributed the JKX February 19 stock collapse to Russian investment group Proxima Capital, which, after two weeks of careful consideration, eventually gave up its initial intention to acquire JKX. The reasons of such a choice are quite understandable: JKX has been rapidly losing ground all last year. As of February 4, company’s securities had a 73% price loss in comparison with the same activities in the previous year. In absolute terms, we’re talking about a 250 million USD loss.
Kolomoisky invested millions of dollars in JKX a few years ago, hoping to turn them into billions in a short time. The company was expected to do business in dealing with shale fields. In 2013, JKX launched a major multistage fracturing project, which is still considered to be the largest in Europe. According to experts, this project was going to lead the country to an environmental disaster, with consequences spreading far outside Ukraine and affecting Russia as well as neighboring countries in Europe. But chaos started in Ukraine soon after the project had been launched and JKX’s plans were thwarted. An important role was also played by oil-price collapse, which made a great deal of shale projects unfeasible.
To Kolomoisky (an Israeli citizen) and his company is related another, even more interesting story. JKX, which is controlled by Kolomoisky and is based in UK, recently filed a 180 million USD lawsuit against Ukraine government for violation of the European laws concerning the Energy Charter and several bilateral investment protection agreements (both signed by Ukraine with the United Kingdom and the Netherlands ).
JKX applied to the International Court of Arbitration, seeking compensation for the oil-and-gas exploitation rental payments, which the Ukrainian division of JKX «has been illegally compelled” to pay out since 2011.
As it was stated in the lawsuit, official Kiev, though not being able to fulfill such obligations, guaranteed JKX “stable and fair” investment conditions. Bilateral agreements were intended to protect foreign investors from the growth of tax burden, as well as from any other change in the “rules of the game” in the oil-and-gas sector in Ukraine.
However, Kiev suddenly increased rental fee royalties from 28% to 55% for oil and gas deposits, reaching a depth limit of five kilometers. In addition to that, there were imposed some other toughening conditions concerning taxes and rental payments, that had not been fixed in the initial agreements. In mid-January 2015, the arbitration held in Stockholm Chamber of Commerce confirmed that the company’s rental fee should not exceed 28%. Official Kiev did not respond to this decision at all.
It’s funny that Kolomoisky, who has been holding the post of Dnipropetrovsk region governor since March 2004, is making such high demands of the same power he belongs to. He is accustomed to making money through the use of “administrative resources”, anyway. If the International Arbitration Court upholds the claim of JKX as well as of the Ukrainian ” beneficiaries” behind it (namely, Kolomoisky and Bogoljubov), Kolomoisky will make pretty sure through all of his “administrative resources ” that Ukrainian treasury fulfils the Court’s decision and pays the necessary “compensation” .
Igor Kolomoisky should be viewed as the perfect type of parasite that feeds on state treasury. Here it is a recent example. “Naftogaz Ukrainy” (dealing with oil extraction, transportation and refining) is the largest state-owned company in Ukraine. “Naftogaz” controls a number of subsidiaries, whose parent company has a full (100 %) share capital or controlling stakes. One of “Naftogaz”’s most famous “daughter” in ukrainian oil-and-gas market is the company “Ukrnafta”, whose 51% share capital is owned by “Naftogaz”, i.e., formally “Ukrnafta” belongs to the category of state-owned companies. But only formally. Because it is actually run by Kolomoisky’s trusted people. So, on February 10 Kolomoisky’s management team of the state-owned “Ukrnafta ” filed a lawsuit against the Cabinet of Ministers of Ukraine, the Ministry of Economy and the Energy Ministry. “Ukrnafta” is pressing for the disaffirmation of the 16 October 2014 Ukrainian Governments decree on the allotment of four “Naftogaz” representatives into the auction committee for the sale of crude oil, condensated and liquefied gas. “Ukrnafta” is also expecting the exclusion of these representatives.
Verkhovna Rada’s Deputy Serhiy Leshchenko disclosed the reasons of such a strange claim by a state-owned company to state-run public authorities:
“Before filing that claim, Kolomoisky has exhibited ‘Ukrnafta’ resources in fictitious (in essence) stock exchange market auctions for many months. These resources were bought by Kolomoisky’s companies on a non-competitive basis at the starting price (even with a 15 per cent allowance!). Kolomoisky’s savings and state-owned “Ukrnafta”’s losses amounted to 0.5-1 billion hryvnias at each auction”. According to Leshchenko, last week Kolomoisky was denied any allowance and was prevented from holding an auction, where oil was calculated at the rate of 15 hryvnias for one dollar (at a real exchange rate of more than 23 hryvnias). “That’s why now “Ukrnafta” is sabotaging a new auction, where oil is going to be sold at real market rate. It could seem to be an absurd approach, because “Ukrnafta” is depriving itself of additional profit. However, there is no absurdity at all: actually, state assets, no longer hiding, are working in the interests of “patriot” Kolomoisky”.
Last year, Kolomoisky suffered serious losses in different fields and became much poorer. Only in Crimea, he estimated his own losses at 2 billion USD. To these figures we must add the arrests of some other assets in Russia and loss of assets in south-eastern Ukraine. According to “Forbes”, in early 2015 his fortune was estimated at 1.3 billion USD (whereas two years earlier it reached 2.4 billion USD) . Although Kolomoisky became poorer, other Ukrainian oligarchs are losing their money even faster. In order to somehow compensate for his losses, Kolomoisky is showing some quite remarkable resourcefulness. He is cunning and ruthless. It is not even excluded that he will succeed in eating that other big parasite Poroshenko. What next?
Well, then there will be nothing to devour anymore. Economy and State will be destroyed completely in Ukraine. According to experts, Ukraine’s overall production will fall from 10 to 20 percent in the current year. And then Ukraine will be affected by a very different, world-caliber kind of parasites, who will expropriate anything Kolomoisky managed to steal. In other words, present-day Ukrainian expropriators will be expropriated in their turn. Ukraine and Ukrainian oligarchs are a visual aid for those who want to study “natural selection” processes in a world of predators.