Kiev government looks to loosen oligarchs' grip in Ukraine

Ukraine's President Petro Poroshenko has signalled a clampdown on the country's oligarchs, warning that ­businessmen who attempt to put pressure on the state will face punishment.

His declaration late on Friday followed accusations that a miners' protest in Kiev last week had been engineered by Ukraine's richest man, Rinat Akhmetov, in an attempt to keep control of assets that are now under scrutiny by prosecutors.

Mustafa Nayem, a journalist turned MP who is credited with having stirred the demonstrations that ousted Viktor Yanukovich as president 14 months ago, published what he said was a leaked internal document suggesting the miners' protest was organised by DTEK, Mr Akhmetov's energy holding.

DTEK denied the charge. But in a television interview, the president warned: "Those oligarchs who are preparing to put pressure on the authorities through pseudo-strikes will get their knuckles rapped."

His comments were a further sign that, weeks after billionaire Igor Kolomoisky was sacked as a regional governor, Kiev has launched a broader campaign to break the oligarchs' stranglehold over Ukraine's economy and political system.

The authorities are attempting to break monopolies, crack down on rent-seeking and reverse allegedly rigged privatisations of state enterprises.

Even as Ukraine struggles to damp the smouldering separatist conflict in the east, the government is attempting to free the country from an "oligarchic capture" that has long choked competition, stalled reforms and corrupted politics. That was a key demand of the protests against Mr Yanukovich last year.

The campaign began when lawmakers moved to strip Mr Kolomoisky of control he held over management and cash flow at Ukrnafta, a majority state-owned oil producer. After Ukrnafta posted armed men in front of its Kiev offices in an overt challenge to state authority, Mr Poroshenko fired Mr Kolomoisky as governor of Dnipropetrovsk, where he had built up a political power base since last year's revolution.

Within weeks, the focus shifted to Mr Akhmetov, a long-time backer of Mr Yanukovich, and still Ukraine's richest man, estimated by Forbes to be worth $6.7bn - though his assets, many in Donetsk, have been hit by the eastern conflict.

Under Mr Yanukovich's patronage, he consolidated control over much of Ukraine's steel, mining and thermoelectric generation assets, and the fixed-line telecoms monopoly Ukrtelecom.

But prosecutors announced this month they would challenge Mr Akhmetov's acquisition, completed in 2012, of a controlling stake in Dniproenergo, Ukraine's largest power generator.

Influential lawmakers said Mr Akhmetov was set to face a probe over ore assets acquired in earlier privatisations. Analysts have said the hundreds of millions of dollars that Mr Akhmetov paid was a fraction of their real worth.

Dmytro Firtash, a former partner of Russia's Gazprom in Ukraine's lucrative natural gas business, is also under pressure. The gas and chemicals tycoon has been confined to Vienna for a year, challenging a US extradition order on corruption charges, which he denies.

Lawmakers this month adopted reforms to curb alleged monopolistic behaviour, liberalising Ukraine's gas market in line with EU rules.

"For 10 years we couldn't get the vote through, but finally today we de-oligarchised and de-monopolised our country's gas market," said Arseniy Yatseniuk, Ukraine's prime minister.

Mr Firtash did not respond to requests from the Financial Times for comment.

Critics warn that the campaign is fraught with risks - especially since Mr Poroshenko is a billionaire businessman himself. While many analysts and investors support efforts to curb the oligarchs' power, some worry that reselling privatised assets to new owners, as happened in 2005, could undermine property rights and cut large industries off from vital funding.

They say attempts to reprivatise businesses must not degenerate into another carve-up of assets among another set of tycoons, as similar efforts did after the 2004 "Orange revolution", which eventually triggered business and political infighting that brought down a pro-western government.

"The key is not to repeat what happened" a decade ago, says Serhiy Leshchenko, another former journalist who is now a pro-presidential lawmaker. "This will not happen if civic society keeps close watch and control."

Mr Akhmetov's SCM group said all assets were acquired "lawfully and properly", adding: "Any move towards reprivatisation would lead to further uncertainty and intransparency in the already troubled Ukrainian economy."

Vadim Novinsky, a business partner of Mr Akhmetov, said recent actions by "authorities and businessmen close to it are for personal enrichment and pressure on political opponents under the guise of patriotic slogans".

But Anders Aslund of the Peterson Institute for International Economics, an expert on Ukraine, said it was "finally carrying out de-oligarchisation". He added: "The reforms are already far more substantial and comprehensive than in 2005."

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