Ukraine Vote Also a Referendum on Tycoons

Times Staff Writer

When groundbreaking began on the edge of a city park early this fall for a new world-class soccer stadium, the first step was to transplant trees that would be uprooted by the $200-million megaproject, the first of its kind in Eastern Europe.

“I’ve always liked trees,” remarked the stadium’s developer, billionaire businessman Rinat Akhmetov.

When Akhmetov says he likes trees, trees happen. Akhmetov ordered the planting of 100 new pines, firs, limes and birches near the stadium at Prospekt Mira, and city officials quickly announced they would plant 2,800 more, enough for a new forest.


A few years earlier, Akhmetov said Donetsk needed a luxury hotel. In May, his $25-million Donbass Palace opened, offering crystal chandeliers, an indoor pool with an artificial sky and $2,500-a-night suites in a grimy industrial town where coal miners make less than $200 a month.

This year, Akhmetov said he would like Prime Minister Viktor Yanukovich to be president. But in a sign of how quickly the political landscape of Ukraine is changing, it appears that the powerful east Ukrainian oligarch might not get his wish.

In many ways, Ukraine’s contested presidential race between Yanukovich and democratic opposition leader Viktor Yushchenko has been a battle between the tightly controlled bureaucracy politics of post-Soviet Russia and the liberal, free-market-oriented politics of Europe.

It has also been a contest between East and West for Europe’s eastern frontiers.

But in Ukraine itself, the rerun of the runoff -- set for late this month on orders from the Supreme Court -- is a bruising internal clan war, a referendum on the powerful oligarchic private business groups that have come to dominate post-independence Ukraine.

Three or four regionally oriented business clans control a third or more of the Ukrainian economy, in addition to holding controlling stakes in the broadcast media, presidential administration, regional governorships and much of parliament.

In the now-invalidated Nov. 21 election, all three strongly backed Yanukovich, who has protected their cozy -- critics say corrupt -- relationship with the government.

With Yanukovich’s victory overturned by the high court, the oligarchs see their state-sanctioned empires under sudden threat from the tens of thousands of Yushchenko supporters chanting in the streets.

“They understand that the situation is changing fast,” said Kost Bondarenko, a Kiev-based political analyst, “and they don’t want to be caught on the wrong side of the borderline.”

At stake is one of the fastest-growing economies in Europe. Until the current political crisis, the nation’s gross domestic product was forecast to expand 11% to 13% this year -- in part because Ukraine, at a time when metals prices are on the rise worldwide, is the seventh-largest producer of steel. Its stock market doubled over the last 12 months.

But with the country in political paralysis, its industrial centers threatening to declare autonomy and many citizens standing in line to draw their savings out of banks, there are fears that the gains of the last few years could be quickly lost.

President Leonid D. Kuchma on Friday warned of a crisis that could rival the financial collapse that crippled Russia and other former Soviet states in the late 1990s.

“I proceed only from statistics, facts and estimations that enable me to say these bitter words: The Ukrainian economy, having reached the top growth indicators ever, might very quickly find itself on the verge of a crisis,” Kuchma said.

“The further we drag out a political-legal solution [to the election], the more losses in the economy we have, and the closer we are to an irreversible process,” he said.

The oligarchs have another fear: that a Yushchenko victory could push them out of the inner circle of power and perhaps force a review of controversial privatization deals under which the clans acquired huge state-owned industrial facilities, sometimes for hundreds of millions of dollars below market value.

Yushchenko’s campaign has made its position clear.

“When you see a country that’s been turned into a limited joint stock company that’s controlled by a handful of people, this is something we can’t accept,” Oleksandr Zinchenko, a key Yushchenko lieutenant, said in an interview this year. “The system requires radical change.”

Akhmetov, a young coal and steel baron who is believed to be Ukraine’s richest man, is chief executive of System Capital Management and has assets estimated at $1.9 billion to $3 billion.

He heads the powerful Donetsk clan, which also includes the powerful Donbass Industrial Union and other smaller firms.

Kuchma’s son-in-law Viktor Pinchuk, Ukraine’s second-richest man and head of Interpipe Corp., controls a clan nearly as powerful as the Donetsk group. A third clan’s leading members include Viktor Medvedchuk, Kuchma’s powerful chief of staff. Medvedchuk is associated with the Kiev-based Slavutich group, which has huge assets in trade, agribusiness and energy.

The clans back political parties that have substantial representation in parliament, and they control all three major national television channels.

“Medvedchuk is the second-most-powerful person in the country,” said Bondarenko, the analyst. “He controls the most important information venues: the information flow to the people, via television, and the information flow to the president. Medvedchuk personally prepares and apportions the information which gets on the presidential desk.”

Akhmetov’s clan in Donetsk rose quickly to national power with his successful bid to get Yanukovich, a former hometown governor, named prime minister and later to run for president. Since then, the other clan leaders have begun to look at the Donetsk group with increasing jealousy and worry, analysts say.

“The Donetsk clan has grown into a highly powerful financial and political center, which already feels cramped within the boundaries of just one region and which now aspires to expand its political clout to other regions of Ukraine,” said Yevgeny Talyshev, editor of the opposition Ostrov newspaper in Donetsk.

Although the other clan leaders also backed Yanukovich because they preferred him to the anti-oligarch Yushchenko, they also worried that a Yanukovich victory would give the Donetsk clan the means to cripple its rivals in the business world, said Taras Kuzio, a Ukraine expert who teaches at George Washington University.

Unlike Russian President Vladimir V. Putin, who has done battle with several of Russia’s oligarchs who challenged him for political supremacy, Kuchma has maintained a comfortable, if arm’s-length, relationship with Ukraine’s tycoons. His lock on power has been so absolute that he was able to prevent any one of them from becoming too powerful.

“As long as Kuchma was president, you had a neutral umpire who was above the three competing clans,” Kuzio said. “But in the event of a Yanukovich victory, what you have is the coming to power of the Donetsk group. If Yanukovich wins, the biggest and the richest takes over.”

Akhmetov and his allies helped ensure that Yanukovich was declared the winner of the Nov. 21 election.

The tycoon’s closest friend, Boris Kolesnikov, is head of the regional parliament and the most powerful public official in an area where election observers say thousands of ballots were falsified.

Some voters here tell stories of arriving at the polls in midafternoon and being greeted by bolted doors and thugs. “We’re out of ballot papers,” one woman said she was told.

Two days after the election, a local electrical company manager said she was ordered to buy jackets for employees to send them on a mandatory trip to Kiev to demonstrate on behalf of Yanukovich.

“We had to make sure that the coats would be bought in different sizes, different colors and different styles so that the people who went there wouldn’t look like Chinese athletes, all wearing exactly the same thing,” said the manager, who identified herself only as Oksana.

Akhmetov’s personal stake in the outcome of the election is huge. In June, companies belonging to Akhmetov and Pinchuk won a bid for privatization of Ukraine’s largest steel plant, Kryvorizhstal, for $800 million, despite the fact that companies such as U.S. Steel had bid as high as $1.5 billion. Akhmetov and Pinchuk’s empires each gained an estimated $500 million from the transaction, according to estimates.

A Yushchenko win would almost certainly lead to a government attempt to reverse the transaction.

Once it became clear that Yanukovich’s declaration of victory might be tossed out by the Supreme Court, the oligarchs, along with many others, moved to hedge their bets.

Some appear to have made overtures to the Yushchenko camp.

At least four officials have abandoned Medvedchuk’s United Social Democratic Party, and Medvedchuk himself has turned over something of a new leaf: His television stations, like Pinchuk’s, are now broadcasting coverage of the pro-Yushchenko street rallies.

Analysts say the oligarchs most likely will avoid a war with one another and instead try to find some comfortable accommodation in Ukraine’s new political order, whatever it is.

“The political confrontation today over the results of the vote is not a struggle for money or power between the oligarchic clans. It is the struggle between two approaches to running the country: the authoritarian one and the democratic one,” said Oleksandr Ryabchenko, who headed parliament’s privatization commission from 1996 to 2002.

“It is the struggle between two different approaches to the way of life.”

Times staff writer Sergei L. Loiko and Alexei V. Kuznetsov of The Times’ Moscow Bureau contributed to this report.