Ukraine's latest challenge: unhappy oligarchs with private armies

As Ukraine struggles with near-financial meltdown and a shaky peace deal with pro-Russian rebels in the east, the last thing it needs is a showdown with a powerful oligarch with a private army. But that may be just what is brewing.

President Petro Poroshenko announced he has fired rough-and-tumble tycoon Igor Kolomoisky on Wednesday from the position as governor of the restive Dnipropetrovsk region of east Ukraine, setting up a potential clash between Kiev and one of its key oligarch allies. Mr. Kolomoisky was handed political power and the right to establish an army in the wake of last year's Maidan revolution, but last week triggered what some are calling a serious political crisis by using that force to seize the state oil company's headquarters in Kiev.

At stake now, experts say, is a harsh redivision of property and influence under way as Ukraine tries to meet International Monetary Fund demands for deep reforms to its oligarch-dominated economy.

A domestic affair

Unlike the war against rebels in the east, who enjoy considerable support from Moscow, this is an entirely home-grown problem. One of the key demands of the Maidan protesters who overthrew former President Viktor Yanukovych was to end the economic reign of predatory oligarchs. Instead, many oligarchs were empowered by the new government, given governorships of important regions and a relatively free hand to maintain order. 

Some experts have warned that enabling economic oligarchs to effectively transform themselves into warlords was storing up trouble for the future. Kolomoisky, a banking and media mogul, cracked down hard on rebel sympathizers in Dnipropetrovsk, and funded several private militias who've played an important role in the war. Rumors suggest that he controls as many as 10,000 armed men.      

President Poroshenko has ordered all such private battalions to be integrated with the official armed forces. But in a strong indication that may not have happened, he found it necessary to repeat himself in a meeting with military commanders Monday. "Territorial defense will be subordinated to the strict military vertical. Our governors will not have their own armed forces!" he said.        

Russian media, perhaps hoping to inflame the situation, are playing up unconfirmed reports that private militias are leaving the front lines in the Donbass region and heading for Kiev. They are also promoting reports that Mr. Poroshenko, himself a top tycoon, has ordered two Army battalions to Dnipropetrovsk to keep order. 

"It's getting quite serious. The chances of an internal war of oligarchs is growing," says Volodymyr Horbach, an expert with the independent Institute of Euro-Atlantic Integration in Kiev. "Kolomoisky has challenged Ukraine's leadership because he sees them taking the side of all the other oligarchs he competes with. It's pretty bad, but Kolomoisky doesn't have the resources to win in a battle with everyone else." 

Laws unfriendly to oligarchs

The trigger for the current crisis was a law passed by parliament last week to make it easier to change the management of state corporations. Kolomoisky owns a minority stake in state oil company UkrNafta, but he has controlled the company for years, cutting out competitors and channeling oil to his own concerns through the state pipeline company, UkrTransNafta, which he also controlled. When the government tried to fire the head of UkrTransNafta, the Dnipropetrovsk governor stormed its Kiev office with his armed militia. In an epic rant caught on video, he told journalists that he was protecting the building from "Russian saboteurs."  

But he may be overstepping, say observers.

"Kolomoisky is an extremely influential oligarch and politician. He has a very strong lobby in Kiev," and he owns a major Ukrainian broadcaster, says Vadim Karasyov, director of the independent Institute of Global Strategies in Kiev. "But he's going up against the state here. He's threatening political stability in Ukraine."

Most experts say Kolomoisky's actions in Kiev, and the rally his supporters at home are planning Wednesday, are a bargaining ploy and not a declaration of war. The conflict might even have positive consequences if it forces Kiev to move on long-stalled plans for "decentralization" of power to the country's diverse regions. 

"Kolomoisky isn't a separatist; this is a very different kind of challenge from what we face in Donbass," says Yury Yakimenko, an expert with the independent Razumkov Center in Kiev. "This is basically about division of influence and assets, but Kolomoisky should understand that he's a political figure and not just a businessman. It is to be hoped that the parties to this conflict will realize the stakes, and come to some agreement. This is about the survival of the state."