1The networks of business clans can be viewed as an informal governance system, managing interactions between business and politics in Ukraine. The resource-based theory (Wernerfelt 1984; Rumelt 1984) defines financial capital as the resources held by a firm. Like financial capital, the political capital of business people could be viewed as a highly valuable resource, necessary for influencing policy-making processes. According to Daft and Barney (Daft 1983; Barney 1991), firm resources include “all of the assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm, that enable the firm to conceive of and implement strategies that will improve its efficiency and effectiveness”. In order to perpetuate their business, business people inscribe their transactions with policy makers into social networks, frequently called “channels for influence”. This process is likely to be analyzed through “embeddedness theory” (Williamson 1975; Ouchi 1980) stipulating that through these kinds of transactions, business people play the role of informal brokers, constantly exchanging power by transforming financial capital into political capital and vice-versa (Andersson, Blankenburg Holm, Johanson 2005). This parallel and hidden governance is one of the main features of Ukrainian politics and economics.

2Ukrainian business groups (generally called in CIS “financial and industrial groups”) need to act beyond the traditional objectives of Western firms such as improving performance, competing for market shares, looking for profit etc. In fact, Ukrainian business people have to build a stable and long-term relationship with political power, in order to influence policy-making processes. Unlike “liberal capitalism”, this model has been defined as “clan capitalism” (Kosals 2006) or “network capitalism” (Boisot, Child 1996; Oleinik 2004).

3Embedded in social networks, business clans are organized into an informal structure that “distributes” power through rivalries, cooperation and negotiations. This structure could be viewed as: (1) a “commodity exchange”, which enables the exchange of strategic resources between clans (Pappi, Konig, 1995); (2) “channels for influence”, through which policy-making process is influenced; or, (3) an informal “discussion forum”, the goal of which is to find long-term solutions for crises and conflicts, and opposing business clans.

4The aim of this paper is to model the process of the transformation of financial capital into political capital through Ukrainian influence networks. This transformation is generally being made through such deviant practices as corruption, undue influence, peddling, and the funding of political parties. This last form is particularly important to understanding transitional societies. The funding of political parties is a relatively long-term activity (at least, it generally lasts for the same period in which a legislative body functions). This relationship may become formal if parties’ funders are elected MPs, mayors or appointed to high ranked administrative posts. The objective of business people involved in politics is to reduce the risks related to a highly volatile business environment that is influenced by a changeable political framework.

5One of the main features of the Ukrainian party system is a well-entrenched regionalism, expressed in two ways. First, there are many regional political parties or blocs (for example, “Lazarenko Bloc” in Dnipropetrovsk, “Our Odessa” in Odessa, and “Chernovetsky Bloc” and “Klichko Bloc” in Kiev). Secondly, some Ukrainian political parties that are not present in the Rada (SPU, Vitrienko Bloc, Viche) have made up deputies’ groups in legislative bodies on regional (Oblasna Rada) and municipal (Miska Rada) levels.

6Since the late 1990s, private business groups have considerably increased their influence on the Ukrainian economy and politics (Puglisi R. 2003). According to Aslund, these groups became shifting forces during the Orange Revolution in 2004. Big business groups succeeded in concentrating highly valuable assets by manipulating the results of privatization. They control most Ukrainian private-run assets, along with two other types of big owners: the state and foreign investors. The six largest business groups make up almost 18% of the Ukrainian GDP [1]. Furthermore, the wealth of the 50 richest Ukrainian business people is greater than the Ukrainian annual budget [2].

7Strategies of Ukrainian business groups could be analyzed through interaction with mainstream parties and by establishing a “channel for influence”, linking the “funder” (business person, called “oligarch”) with the “target” (policy maker). This “channel for influence” enables the transformation of financial capital into political capital, capable of influencing policy-making processes. It could be supposed that the models of embeddedness are “shaped” by the resources wielded by business people.

8To begin with, the size of assets and the turnover could somehow define the amount of the “contribution” the funder is capable of providing to the “target”. As a rule, big business groups fund mainstream parties (Party of Regions, NU-NS –Our Ukraine – Popular Auto- Defense Bloc, BYuT – Yulia Tymoshnko Bloc), which are generally present in the Rada. Some regional business groups of lesser size are associated with big groups in funding mainstream parties, but they are involved mainly in regional politics, interacting with regional legislative bodies. Other regional business groups have established “channels for influence” with regionalist parties or with parties that are not present in the Rada. The relationship of these small business groups could be viewed as a kind of “patronage” on behalf of mainstream parties.

9Secondly, besides the funding of electoral campaigns and of organizational party structures, the funder might exchange his own political capital, by influencing the electoral behavior of his workers and local authorities. Large companies such as SCM, ISD, “Interpipe”, “Privat” and “Finances and Credit” employ hundreds of thousands of workers in their giant plants, are frequently major employers in many towns and are also the main taxpayers to local budgets. It is clear that the cash flow in exchange for political influence on policy-making is not the only type of transaction for which the “channel for influence” has been set. The funder and his target are able to exchange political capital as well, making the relationship between them interactive. Subsequently, most business people, owners of major industrial and financial assets, are viewed as politicians, with influence at regional and even national levels.

10Finally, the modeling of the “channel for influence” depends on the nature of support the funder is seeking: “protection” of his business on the national level; obtaining of exportation quotas; hidden support in privatizations, subsidies for the branch encompassing his business; a recapitalization by the state of his bank; the harassment of his competitors; obtaining of a building plot… The nature of support provided by the funder also defines the structure of the “channel for influence” (bilateral channel, or multi-lateral network) and the “target” (law enforcement agencies, Rada, municipal council, minister, deputy-minister, member of Presidential Staff, Privatization Office).

11This article seeks to study the embeddedness of business clans in relationships centered on influence and power networks, operating both regionally and beyond, to the central power. These influence networks could be either formal (elective or nominative post with visible ties to an institutionalized political force through affiliation with an electoral bloc, political party or a deputy’s group in a legislative body) or informal (in which a businessman remains officially outside of the policy making process, but is established in a “channel for influence” which is active and operational, with a political force or a centre of power). An example of a formal influence network is the set of networks operated by R. Akhmetov, centered on the Party of Regions, founded by a group of Donetsk businessmen. All the members of this group are either dependent on Akhmetov or linked to him. An example of an informal network is “channels for influence” established by I. Kolomoysky with “orange” political forces (BYuT and “Our Ukraine”). His networks also include some deputy-ministers, regional governors and high-ranked civil servants. In the case of informal networks, businessmen could be represented by “their” men in legislative bodies and administrative structures. These representatives generally execute the will of their “chief” (Kolomoysky, Khmelnitsky). This kind of representation can also be found in formal networks. For example, Raisa Bogatyreva is representing the interests of R. Akhmetov in the SNBOU. In this case, the tie is institutionalized, because Bogatyreva is a member of the PR.

12Informal networks are generally more flexible than formal networks. The transactions are unitary and are being negotiated constantly. The cash flow is not permanent, but is linked to well-defined events (election campaigns, party conference, punctual funding of a regional party branch). The support, provided by the target is also negotiated on every occasion. The relationship that links I. Kolomoisky and Yu. Tymoshenko relies on this kind of non stop negotiation. Both are independent of each other, in any case more independent than V. Yanukovich and R. Akhmetov.

13We can suppose that the resources controlled by the funder (financial, political and social capital) define the relationship with the “target” and the behavioral code of the “channel for influence”. We have chosen several Ukrainian oblasts (Donetsk, Dnipropetrovsk, Odessa, Poltava, and Volyn) and the city of Kiev, for which the political mappings are quite different.

14We propose to study strategies of political embeddedness of Ukrainian businessmen by modeling their influence networks.

1 – Dnipropetrovsk Oblast

15Political elites of this oblast are well-known because of the very active role played in the interaction with and control of the central political power in Ukraine (so-called Kuchma clan) and in the USSR (so-called Brezhnev’s Dnipropetrovsk clan). From a historical point of view, the rise of both clans can be explained by the transformation of strategic industrial capital — the control of which was highly important in the context of a militarized Soviet political environment (military industrial complex) — into political capital (the control of the central power).

16Both clans represented in the power regional structures were principally composed of directors of giant industrial plants who were very active in the pursuit of power and strong because of a long-term solidarity among their members. These groups relied on a strategic resource that enabled them to impose their representative in the capital. After L. Kuchma was elected, his clan split into several competing and hostile groups seeking to control resources through the privatization process and the control of trade flows (oil, gas). [3]

17Two powerful clans rose from this rough and intense competition: the “Privat” group (Igor Kolomoisky, $5bn [4] and Gennady Bogolyubov, $4,7bn), which includes some mining and ferroalloys plants, the bank “PrivatBank” and many other assets in different branches; and “Interpipe” [5] (Viktor Pinchuk, US$6bn), which includes several giant steel and pipe plants, the bank “Kredit-Dnepr”, a media group, and air-company “Aerosvit”, based in Borispil Airport. The value of assets controlled by Pinchuk is estimated at US$10bn. According to the fiscal administration, the contribution of “Privat” to the budget of the oblast is 6.6%, while that of “Interpipe” is 5.8%. Two outside groups are present in the region: SCM of R. Akhmetov (10.7%) and ISD (Donetsk) (2.7%). Experts believe that the domination of Donetsk and the PR-linked business is even larger, evaluating their part to be 30% to 70% of the regional economy. [6]

18These two Dnipropetrovsk clans supported two competing political forces, both originating from this region. “Interpipe” established a close tie with the President L. Kuchma (V. Pinchuk married his daughter). “Privat” cooperated with the Lazarenko – Tymoshenko group, which controlled the government for a period of time in the 1990s. Both “Interpipe” and “Privat” established “channels for influence” enabling them to take hold of some strategic industrial assets. When Lazarenko and Tymoshenko were evicted by L. Kuchma from the government, “Privat” chose to support Yulia Tymoshenko who was considered more promising. [7]

19During the orange revolution, “Privat” supported the “orange” side, while “Interpipe” was with L. Kuchma and V. Yanukovich. In 2005, while Yu. Timochenko was the head of the government, “Privat” succeeded in strengthening its position by stopping the expansion of the Donetsk clan. When Tymoshenko left the government, I. Kolomoisky started sharing his support with BYuT [8] and “Our Ukraine”. The chief of the Presidential Staff, V. Baloga, originating from the Carpatian Bukovina, then established a close informal tie with “Privat”.

20This relationship enabled the implantation of “Privat” in western Ukraine, through support of a highly strategic project, in which the direction of the oil-pipe “Odessa-Brody” was reversed, supplying Azeri oil, shipped through Georgia and the Black Sea, Poland, and other East-European countries. At the same time, I. Kolomoisky wanted to provide oil to two refineries that he had purchased in western Ukraine and had practically shut down because of a lack of Russian oil. From a Ukrainian point of view, this project should reduce the dependence in hydro-carbons supplies from Russia. The commitment of “Privat” to this project reinforced its links with V. Yushchenko.

21When Yu. Tymoshenko was appointed Prime-Minister in 2007, she opposed V. Yushchenko and started criticizing “Privat’s” close ties with V. Baloga, who left his post of chief of Presidential staff in 2008 and founded his own party “United Center”. During this period, the center of power moved slowly from the President to the Prime Minister. Thus, I. Kolomoisky re-established his full relationship with Yu. Tymoshenko. Both seemed to need each other. “Privat” was seeking the support of the Prime-Minister in privatizations imposed by the IMF (Oblenergos, UkrTelecom, Odessa Chemical Sea-Port Plant in Yuzhny), while the BYuT needed funding for the 2010 presidential campaign on behalf of I. Kolomoisky.

22The 2004 defeat of his main protector isolated V. Pinchuk from the winning “orange” political parties and from the PR, which considered Kuchma a traitor. Moreover, R. Akhmetov was competing with “Interpipe” because both groups had been producing pipes, mainly for the Russian market. Subsequently, Pinchuk has relied on his ties with some influential members of the state administration, promoted by L. Kuchma in the 1990s. They have been replacing at a very slow pace and these high-ranking civil servants enabled “Interpipe” to tackle the attack launched by “Privat” on Nikopol Ferroalloys Plant, co-owned by both Dnipropetrovsk groups. This resource could be defined as a “retro-influence”, which was helpful for other Kuchma “protégés”, such as Kharkiv businessman A. Yaroslavsky. Pinchuk tried to make a timid come-back into politics by funding the relatively marginal party “Viche”, which failed to gain access to the Rada in the 2007 elections. “Retro-influence” could be defined as the influence held by a former President on policy-making, through an informal power network established when he was in office.

23Both Dnipropetrovsk clans chose strategic, mainly exporting branches: “Privat” – ferroalloys, “Interpipe” – large size pipes. However, both groups didn’t succeed in gathering under their control all Ukrainian assets of these branches. In producing pipes, “Interpipe” is competing with SCM, which owns Khartyzsk Pipes Plant. In producing ferroalloys, both groups are competing with each other over the control of Nikopol Ferroalloys Plant.

24From a strategic point of view, “Privat” tends to remain autonomous in the financing of its own industrial assets. I. Kolomoisky refused to sell “PrivatBank” in spite of insistent proposals from foreign investors; while V. Pinchuk seems to have left banking by selling his “UkrSotsBank” (the remaining “Kredit-Dnepr” is 32nd Ukrainian bank). “Interpipe” has become mainly an industrial group, while “Privat” is still a financial-industrial group. Banking is still one of the core activities of “Privat” because “PrivatBank” is the largest Ukrainian bank. It has been internationalizing its assets by opening branches in Russia, Georgia and Latvia. Moreover, “Privat” controls an important part of Ukrainian oil refinery plants and is very active in transportation, agriculture and the sea-ports sector. At the same time, “Privat” has been accumulating ferroalloys plants around the world in order to create an international conglomerate. Indeed, the Kolomoisky’s group controls 20% of the global ferroalloys’ pro-duction. In addition to its Ukrainian plants, it owns ferroalloy assets in Australia, Romania, Poland, Georgia, USA and Ghana. “Privat” sold its steel and coke assets to the Russian giant steelmaker company “Evraz” (listed in London) and became its minority shareholder (9.72%). Having internationalized more than 20% of its assets, “Privat” has diversified its risks and succeeded in minimizing the impact of the world financial crisis on its activities.

25The stability of “Privat” can be attributed to its permanent adaptation to a volatile political context and to its long-term ties with “orange” parties that have dominated Ukrainian politics for the last several years. In fact, beyond funding these political parties, this group is also viewed as being capable of barring the expansion of Russian business groups into Ukraine’s economy and internal politics.

26The model of embeddedness of “Privat” and “Interpipe” (since 2005) has relied on informal influence networks without visible ties to a definite political force. The leaders of these groups do not have formal posts in administration and do not belong to legislative bodies. In the case of “Privat”, this model is based on constant negotiation and on an exchange of capital. This flexibility is due to a certain political pluralism of the oblast, where dominant business groups and political parties do not exist.

2 – Donetsk Oblast

27Unlike Dnipropetrovsk oblast, Donetsk oblast is dominated mainly by one politcal force (Party of Regions) and by one business group (SCM). SCM is owned by R. Akhmetov (US$8bn) (90% of shares) and his wife (10%).

28Like “Privat”, SCM controls the all aspects of steel-making: mining, coke and metallurgy. The group also includes banks (“Dongorbank”, “1st International Ukrainian Bank”), sea-port activities, machinery building plants and electricity generating facilities (DTEK). Other activities include beer-making, wireless telephones, media, real estate, agriculture, transportation and involvement in the pharmaceutical industry. SCM is the largest Ukrainian business group, with diversified activities. Through informal networking and minority shareholdings, Akhmetov controls most middle-sized assets situated in the oblast. Even if his group is generally considered to be Donetsk based, SCM includes many assets in the Dnipropetrovsk, Luhansk and Zaporizhia oblasts, in Kiev, in Crimea, and, through minority shareholding, in some Western-Ukrainian oblasts.

29Most Donetsk businessmen are linked to Akhmetov through their businesses. Furthermore, some of them are dependent on him. All other clans can be divided into twomain groups: autonomous business clans or so-called “travelling companions” taking part in the political project “Party of Regions”, and independent business clans or “dissidents” supporting other parties (SPU, “orange” parties). The “travelling companions” includes the Energo group of Viktor Nusenkis ($820m), which has been in a “slowing down” phase; the governor V. Logvinenko, $95m; the former Attorney General G. Vasiliev and his brother A. Vasiliev, $515m; the brothers Andrey and Sergey Klyuyev ($685m) (Ukrpodshipnik); the brothers Valentin and Vladimir Landyk ($355m) (“Nord”); and the clan of Nikolay Yankovsky ($475m) (“Stirol”). With the exception of “Energo”, all other business groups are not direct competitors of SCM, dealing rather in bearings (Klyuyev brothers), fertilizers and polymers (“Stirol” of Yankovsky), refrigerators and refrigeration machinery (“Nord” of Landyk).

30The “dissident” category comprises the ISD group and Vladimir Boyko ($2.6bn) (Steel Plant of Mariupol named after Ilich – MMKI). ISD (Industrial Union of Donbass) is controlled by S. Taruta ($2.7bn), V. Gayduk ($2.7bn) and O. Mkrtchan ($695m). Since 2004, ISD has supported the “orange” forces, while V. Boyko is viewed as a main funder of the SPU and a former SPU MP.

31The opposition of ISD and V. Boyko to the Party of Regions stems from the strong competition of these two business groups with SCM. All three business groups are steel makers. Historically, SCM was founded as a result of the splitting of ISD among its founders, Taruta and Gayduk, from one side, and their banker (Dongorbank), Akhmetov. When in the yearly 2000s, the project “Party of Regions” was launched by V.Yanukovich and R. Akhmetov, ISD, having been associated with L. Kuchma, began to support the “orange” opposition because of SCM’s attempts to evict ISD. In a similar context, V. Boyko, who was facing non-stop attacks from MMKI on behalf of the Akhmetov clan, began funding the SPU. Traditionally, the seaport and industrial city of Mariupol has opposed Donetsk within the oblast.

32Unlike the hidden and invisible “channels for influence” of I. Kolomoysky, the involvement of R. Akhmetov in politics is direct and formal. The PR was founded in order to achieve a well- defined objective: Prime-Minister Viktor Yanukovich’s victory in the 2004 presidential election. The PR is the largest Ukrainian party, based on a stable regional electorate (South and East of the country). Nevertheless, the PR has been transforming into a nation-wide party, with increasing representation in regional legislative bodies in western Ukrainian oblasts (Zakarpattia, Chernivtsi, Zhytomyr, Ternopol, Vinnytsia).

33Since 2006, R. Akhmetov has been a PR MP. He is believed to control almost a half of the members of the PR group in the Rada (a half of 173 MPs, or 18% of the total number of the MPs). His influence in policy-making is so overwhelming that even his opponents are bound to appoint his representatives to high-ranking posts in the state administration. For example, R. Bogatyreva, who is close to R. Akhmetov, was appointed chief of SNBOU by V. Yushchenko. This is considered a kind of a parallel government in Ukraine. The nominal leader of the PR, V. Yanukovich, is in fact supported by only a very small circle of party members.

34The PR largely dominates the regional and municipal legislative bodies in Donetsk oblast: 75% of seats in the Regional Council; 87% - in the Donetsk Municipal Council; 55% - in the Mariupol Municipal Council; 93% - in the Makeyevka Municipal Council; 76% - in the Kramatorsk Municipal Council. There are alternative political forces only in Kramatorsk (BYuT – 8%) and in Mariupol (SPU – 28%). All the other forces are generally political allies of the PR, which succeeded in appointing its representatives to all the elective or nominative posts (governor, mayors, president of the Regional Council etc.). The PR has monopolized the entire policy-making process within the oblast and influences the national policy-making processes. This dominance is due to the peculiar features of SCM assets. SCM is one of the main Ukrainian exporters and taxpayers to the national budget. Donetsk oblast is the source of 40% of all Ukrainian exports.

35Moreover, most SCM plants or so called “town-structuring” enterprises are among the main employers of certain towns (for example, Donetsk, Makeyevka, Yenakiyevo, Kramatorsk). They usually have dozens of thousands of employees, who strengthen the embeddedness of the group in the oblast. SCM is the only big employer in such towns of the Donetsk oblast as Kurakhovo, Zugres and Kirovskoye, but also in other regions (Pavlograd, Ternovka and Pershotravensk of the Dnipropetrovsk Oblast, and Sshchastie of the Luhansk Oblast). [9] When SCM is the main taxpayer to the municipal budget, it heavily influences the behaviour of the local authorities, as is the case in Kramatorsk, where NKMZ plant of SCM is situated.

36There is a tie between the number of workers in a plant, the proportion of these workers within the whole labor force of the city, and the voting results in the municipal elections. This is particularly visible in the case of MMKI (Mariupol), controlled by V. Boyko, who funs the SPU. This giant plant has 54 000 workers, representing 20% of the whole labor force of the city of Mariupol. The SPU holds 28% of seats in the Mariupol municipal council. The results of voting are strongly influenced by SCM, the PR and their allies. The relationship between the chiefs of SCM, the directors of plants, the local high- ranking civil servants, and the population could be viewed as patronage. The PR promotes state social responsibility, a very popular issue among the people of the highly industrialized regions of the Eastern Ukraine.

37ISD does not have a large electoral base because the “orange” BYuT is only present in the Kramatorsk municipal council (8%), where two ISD plants are situated. Generally speaking, ISD now has more assets outside of Donetsk oblast (Alchevsk of the Luhansk Oblast and Dneprodzerzhinsk of the Dnipropetrovsk Oblast) than within it. Another explanation for this lack of an electoral base is the fact that the tie with the “orange” forces is quite complicated and hesitant. For example, in 2006, ISD funded a new ecologist party, Eko +25%, which failed to get into the Rada, but this party is present in the Alchevsk municipal council. After this failure, V. Gayduk seems to have become closer to the BYuT. V. Gayduk could be viewed as the main lobbyist for the group in Kiev. In 2000-2003, he was an Energy minister and a vice- minister in the time of L. Kuchma. En 2006, he was appointed by V. Yushchenko to the post of the head of the SNBOU. In 2007, he was appointed to head the group of counselors to the Ukrainian government by Yu. Tymoshenko. Probably because of the constant pressure of SCM, ISD purchased many assets abroad, in Hungary, Poland, Italy, Uzbekistan, Nigeria, Russia and the UAE. Even if ISD is still considered a Donetsk based group, it has externalized its assets within Ukraine and abroad.

38SCM represents a model regional political embeddedness. This model is based on direct control of a political party and on open involvement in policy-making. This involvement is effected through strong pressure, resulting from the monopolistic position of the PR in the oblast and its strong political influence in national politics. Akhmetov’s group is less internationalized than “Privat” or “ISD” (SCM has got some minor steel-making assets in the UK, Italy and Bulgaria, and some hotels in Turkey). SCM avoids purchasing assets in Russia because of potential conflict in Ukrainian-Russian relations. Therefore, the Donetsk group has kept expanding its base within Ukraine (purchase of Ukrainian steel-making assets of the group “Smart” of V. Novinsky).

3 – Odessa Oblast

39Unlike the first two oblasts analyzed, politics and business are much more fragmented in the Odessa region. Eight political forces are present in the regional council, sharing between 4% and 41% of seats. The Odessa municipal council is controlled by two parties: the PR (32%) and “Our Odessa” bloc (27%), headed by the mayor of Odessa E. Gurvits, one of the leaders of the “Our Ukraine”. The chair of the regional council is controlled by the PR, while the “Our Ukraine” controls the city of Odessa.

40Several business groups are active in the oblast: the group “Primoriye” of Leonid Klimov ($426), MP of the PR (Imeksbank, FC “Chernomorets”, construction); the family of Kruk, associated with BYuT (seaport acti vities in Odessa and “Yuzhny”); the group “Pankom”, associated with the “NU” (its owner is an ex-MP of the “NU” and the chief of the regio nal branch of the bloc “NU-NS”); the Grinevetsky brothers, associa ted with the “Litvin Bloc” (Sergey Grinevetsky is a MP of the “LB”; Valery Grinevetsky owns a wheat stevedoring company in the Odessa Seaport), who are close to the brother of V. Litvin, Petr Litvin, the chief of the Ukrainian Army in the Southern District, based in Odessa.

41In comparison with Donetsk and Dnipropetrovsk, there are no signifi-cant industrial assets in Odessa oblast, except for the “Odessa Seaport Chemical Plant” (“Yuzhny”), which is going to be privatized. Three seaports (Odessa, Ilichevsk and “Yuzhny”) are its main strategic resource. Thus, outsiders and local business groups are fighting for control of these seaports. More than a half of the Ukrainian sea freight traffic passes through these three seaports: Odessa (26.15%), “Yuzhny” (16.41%), and Ilichevsk (14.30%). The ports are owned by the state and are real motors for the private sector of the oblast, which is dominated by transit and shipping activities. Control of the seaport has become the central stake of local politics. Two types of conflicts took place in the oblast’s seaports: (1) conflicts opposing private operators and the seaport chief; and (2) conflicts opposing former and current seaport chiefs, with the active participation of the Transport Ministry. Since 2006, a succession of such conflicts has been unfolding in the port “Yuzhny”. The key-players in these conflicts have been the chief of the port, Yuri Kruk, whose father is a BYuT MP, and one of the largest Ukrainian private operators working in the port, “Transinvestservice”. This firm is owned partly by Alexey Fedorychev, a Russian businessman established in Monaco. Under a very strong pressure on behalf of the Kruk clan, supported by the Prime-Minister Yu. Tymoshenko, “Transinvesservice” relied on the PR, more precisely on the Klyuyev clan of “Ukrpodshipnik”, which controlled the state agency “Ukrmorport” that oversees seaport activities for the government. At the same time, this private operator established close ties with the Odessa mayor E. Gurvits, officially one of the leaders of “Our Ukraine”, but in fact representing an autonomous political force allied to the party of Yushchenko. Another key-player, “Privat”, which is associated with the “orange” parties and has been constructing a terminal in the “Yuzhny” port, has been indirectly implicated in this conflict.

42This scenario can be viewed as an example of typical business conflicts in this oblast, based on the control of transit resources. Lacking their own “heavy” industrial resources, local business groups are mobilizing outside regional political forces, which are in fact sub-groups and sub-clans connected to mainstream political parties (“Privat” and Kruks sub-clans in the BYuT; Gurvits’s sub-clan in “Our Ukraine”; Klyuyev’s sub-clan in the PR). Some local key players avoid connection with only one clan, exploiting the clans’ oppositions within political parties and between them.

43Another political element of Odessa business clan politics is to belong to different and sometimes antagonistic political parties at the same time. For example, the brothers Alexey and Boris Muzalov ($245m), who own a regional retailer “Tavria-V”, belong to two different parties. A. Muzalov is an “Our Odessa” (“Our Ukraine”) member of the Regional Council, while B. Muzalov is a SPU member of the same council and the chief of the regional branch of this party. Another example is that of the brothers Grinevetsky. S. Grinevetsky is a “Litvin Bloc” MP, while his brother Valery has been linked to the Party of Greens, associated with the Kruk clan (BYuT). This latter relationship might have been significant, when V. Grinevetsky was authorized to build a terminal in the “Yuzhny” port, controlled by the Kruk family.

44Another feature of regional clan politics is the constant and increasing involvement of the Ukrainian Ministry of Transport, which has traditionally monitored and managed the seaports. In fact, the seaports have always been quite autonomous despite the fact that they are owned by the state, to which they are officially accountable. Two former Transport Ministers, Nikolay Rudkovsky (SPU) (2006-2007) and Joseph Vinsky (former SPU MP, passed to BYuT) (2007 – 2009) became involved in these conflicts. J. Vinsky also acted through his two deputies, I. Urbansky and V. Rabotnev, who had their own private interests in the sea-transport business and in the seaports. For example, in 2007, Vinsky fired the chief of “Yuzhny” port Gennady Vassiliev, supported by the Klyuyev sub-clan of the PR, and appointed instead his protégé Yu. Kruk, who is associated with BYuT. Later, Vinsky and his two deputies Urbansky and Rabotnev supported the Kruk clan against the private operator of the “Yuzhny” port. In June 2009, Vinsky, Urbansky and Rabotnev were fired by Yu. Tymoshenko.

45The model of Odessa oblast is based on the direct involvement of the secondary business clans, linked to mainstream parties, in regional politics. Furthermore, the local clans tend to belong simultaneously to different parties, building “bridges” between the main political forces. The local business clans rely on the control of transit flows and not on the owning of industrial assets.

4 – Volyn Oblast

46Since 1991, the intellectual and business elites of western Ukrainian have been shaping Ukrainian ideology, thus providing cultural and symbolic capital to the Ukrainian ruling teams. Representatives of the Ukrainian West are viewed as wardens of national values and have been incorporated into the government and the presidential staff. One recent example is Viktor Baloga, originally from Bukovina, who was appointed by V. Yushchenko to the post of the head of Presidential staff. In 2007 – 2008, before he was fired, his influence on national policy-making was extremely strong.

47Volyn oblast is an example of a typical western Ukrainian region. The “orange” parties have been dominant in the Regional Council (BYuT – 50% of seats; “Our Ukraine” – 22%) and in the municipal council of Lutsk (BYuT – 51%; “Our Ukraine” – 22%). The most influential regional business clans are the “Continium” group of I. Yeremeyev ($700m) (Litvin Bloc); “Privat”, associated with V. Baloga (“Our Ukraine”, then “United Center”); the group “Ukrprominvest” of P. Poroshenko (“Our Ukraine”), the BYuT group, structured around the president of the Regional Council Anatoly Gritsyuk, including V. Gavrilishin ($98) of “Zakhidinkombank” and A. Svirida ($50m) of “Volynholding”.

48The peculiar feature of this oblast is that an outside actor, “Privat”, is among the leading key players in regional politics. “Privat” has helped another outsider, V. Baloga, to establish his own “channel for influence” in the form of a triangle: Dnipropetrovsk – Kiev – Lutsk. Elsewhere in western Ukrainian, Privat purchased two stra tegic refinery plants, “Nafotkhimik Prikarpatia” in the Ivano-Frankivsk Oblast and “Galichina” in the Lviv oblast. The current governor of the oblast is believed to have been appointed thanks to “Privat” and V. Baloga. It seems that the mayor of Lutsk B. Shiba and his deputies V. Dmitryuk and S. Kravchuk are also under “Privat” control.

49The “Continium” group (oil products retailer, milk industry) organized its influence networks by establishing ties with several political parties. In 2005 – 2006, the group chairman Igor Yeremeyev took an active part in politics, when he became a deputy of V. Litivin in the “Litvin Bloc”. Because of the failure of the bloc in the 2006 elections, Yeremeyev left politics, but kept close links with Litvin, elected president of the Rada in 2007. At the same time, Yeremeyev is considered to have close ties with Yulia Tymoshenko. The group is linked to “Our Ukraine” through one of the secondary business partners, Petr Dyminsky (Lviv), and Nikolay Katerinchuk (leader of the European Party and an “Our Ukraine” MP). Another business partner of Yeremeyev is Stepan Ivakhin, who was associated with the “Litvin Bloc” as well. The third business partner of the group is Sergey Slabenko (current chief of the group of deputies of “Our Ukraine” within the Regional Council, former “Our Ukraine” MP). Slabenko ($150m) is known to have a good relationship with the Presidential Secretariat and with the Zhevago brothers of the group “Finances and Credit”, associated with the BYuT.

50Ukrprominvest of P. Poroshenko owns an autobus plant (LUAZ, “Bogdan” Corporation) in Volyn oblast. Traditionally, Poroshenko has remained close to “Our Ukraine” and V. Yushchenko. The model of embeddedness of western Ukrainian (seen in Volyn oblast) is based mainly on (1) a privileged relationship with the central power through representatives of the West in Kiev (Poroshenko, Baloga etc.); (2) a strategic alliance with an outside clan (“Privat”), and its embeddedness in local politics through diversified political allegiance (“«Litvin Bloc”, “Our Ukraine” and BYuT). In spite of the traditional dominance of the “orange” parties in western Ukrainian, in 2006, the PR succeeded in entering into some regional and municipal bodies, while Donetsk business groups purchased some assets in this region. For example, the “AVK” group of V. Avramenko ($237m), associated with the PR, owns a confectionery plant in Mukachevo (Zakarpattia oblast), the municipal council of which contains an important group of PR deputies (18%).

5 – Poltava Oblast

51From a political point of view, the oblast could be considered a border territory between the central and southern Ukraine. There is no single political party dominating the Regional Council: BYuT – 32% of seats, the PR – 22%, “Our Ukraine” – 17%, the SPU – 17%, the KPU – 8% and “Litvin Bloc” – 4%. This political fragmentation led to the formation of an original ruling coalition, made up of BYuT, the PR and “Our Ukraine”. Regional power is shared among these parties: the PR holds the chair of the Regional Council, BYuT holds the post of mayor of Poltava-city, and “Our Ukraine” controls the post of regional governor.

52There are two big business groups based in the oblast: “Finances and Credit” of K. Zhevago ($3.6bn) and “Kernel” of A. Verevsky ($670m). Both groups have been associated with BYuT through the engagement of their owners, who have been elected BYuT MPs. K. Zhevago is believed to have been one of the major funders of BYuT.

53In the course of their political careers, both businessmen have moved from one party to another. A. Verevsky has been an MP since 2002. At first, he belonged to the parliamentary group “United Ukraine” (2002), then to the deputies’ group “European Choice” (2002). In 2003, he moved to the group “Ukraine’s Regions” (PR). Since 2005, he has been a BYuT MP. K. Zhevago started with the deputies’ group “Soldarity” (1998) and then moved to the group “European Choice” (2002). In 2003, he joined the group “Ukraine’s Regions” (PR). In 2005, he moved to the group “Reforms and Order”. In 2006, the party “Reforms and Order” joined BYuT.

54In the 1990s, A. Verevsky had ties to the SPU through his father, who was a representative in the Poltava oblast of A. Moroz. The SPU networks helped him connect with the regional “channels for influence”. Since the 1990s, Verevsky has been linked to the mayor of Poltava, Andreï Matkovsky (BYuT, elected in 2006), who previously headed the Fiscal Administration of Poltava. Matkovsky is al close to “«Privat” (close to “Our Ukraine” and BYuT) because, in 2001 – 2006, he was deputy chairman of the regional branch of “PrivatBank”.

55Verevsky created a vertical agro-industrial holding, specialized in producing and exporting sunflower oil and grain. His agro-industrial assets are situated mainly in the Poltava and Kharkiv oblasts. He also owns a grain terminal in Ilichevsk seaport. Verevsky belongs to the Rada committee for Agriculture and Land Relations and is considered among the most influential policy-makers in agriculture in the Ukrainian Parliament. In 2007 – 2008, when the government introduced exportation quotas for sunflower oil, he obtained major quotas, to the detriment of his competitors, and expanded his share in the national market.

56The strategic assets of the “Finances and Credit” group of K. Zhevago are based in the Poltava oblast: the mining facility “Poltavsky GOK” and the automobile plant “AvtoKraz”. However, he owns other assets outside of the oblast, in Zhitomir (Berdichev), Luhansk (Stakhanov), Khmelnytskyi (Kamenets-Podolsk), Kherson, Dnipropetrovsk (Zheltye Vody), Donetsk (Mariupol), Zakarpattia (Uzhgorod), Crimea (Simferopol, Kerch) and Kiev. Abroad, he controls a ferroalloys plant in Macedonia. This geographic diversification of assets is part of his political embeddedness strategy because he has been transforming “Finances and Credit” from a regional group into national corporation.

57The Poltava model relies on floating political affiliation and on an expansion of the original regional base. Both businessmen changed their political affiliation several times because of the strong presence of outside business groups (“Privat”, TAS of Tigipko, Alexander Savchuk) that pressured local businessmen, as well as of the traditional weakness of regional political elites.

6 – City of Kiev

58Traditionally, control of the Ukrainian capital is considered a strategic advantage in the fight for the central power. At the same time, the balance of power in the city depends strongly on changes within the central power. For the last ten years, the political chessboard of the city has changed considerably. This evolution can be divided into three major phases.

59In the late 1990s, a so called “Kiev clan” dominated local politics. It was structured around the FC “Dinamo-Kiev” and led by the brothers Igor and Grogory Surkis ($880m) and Viktor Medvedchuk ($365m). Other members of this business clan were B. Gubsky ($551m), V. Zinchenko, D. Dvorkis, V. Zgursky ($184m), I. Pluzhnikov, Yu. Lyakh, and Yu. Karpenko. Besides the FC Dinamo-Kiev, the clan holds assets in metallurgy, shipyards, sugar industry, electricity generating facilities, media, banking, oil and gas branch, and beverages. Under Kuchma, V. Medvedchuk had a successful political career. He was the chairman of the SDPU (o) (1998 – 2007), chairman of the Rada the chief of the Presidential Staff (2002-2005). The SDPU party was a political arm of the Kiev clan. However, in 2005, the clan split, while in 2006 the SDPU could not enter the Rada. The electoral bloc “Ne Tak” to which the party belonged obtained less than 1% of votes. Some members of the clan were incorporated into the “orange” parties. For example, B. Gubsky entered BYuT and was elected to the Rada. Other members, such as the Surkis brothers, left politics, while Medvedchuk tried to return to national politics either through the PR or by negotiating with BYuT.

60In 2005, another influential business group took the place of the evicted Kiev clan. This group was made up of people who supported the “Orange” revolution: the mayor of Kiev, Alexander Omelchenko, Yuri Yekhanurov, who was the Prime-Minister in 2005-2006, and Vladimir Polyachenko ($185m) of “Kievgorstroy”. However, after the dismissal of Yekhanurov and the electoral failure of Omelchenko in 2006, another business clan took power in the capital. It is led by the new mayor of Kiev Leonid Chernovetsky ($850m), associated with “Our Ukraine”.

61The balance of power within the Municipal Council is favorable to Chernovetsky: “Chernovetsky Bloc” (which in 2008 incorporated “Our Ukraine” deputies), numbering 36% of seats, is opposed to the BYuT group (27%). Other groups are “Klichko Bloc” (Klichko is a major challenger of Chernovetsky) (12%); “Litvin Bloc” (9%); Kiev Civil Actif – GAK (7%); the PR (6%); and “Katerinchuk Bloc” (2%). Chernovetsky is a member of the Chistian-Liberal Party, but he is associated with “Our Ukraine”. In 2004, he was a candidate in the presidential elections and supported Yushchenko in the second round. Since he was elected Kiev mayor, Chernovetsky has been slowly moving from business to politics. In 2008, he sold the bank “Praveks”, which was the core asset of his business group. He is running city hall with his son-in-law V.Suprunenko, while his son Stepan is in charge of the business group. Major posts in the city administration are held by those closest to Chernovetsky. The BYuT group in the Municipal Council is made up of representatives and partners of B. Gubsky, considered a major funder of the Tymoshenko party in Kiev municipal elections.

62“Klichko Bloc” has been funded mainly by Lev Partskhaladze (corporation “21st century”) and his business partner Andrey Mirgorodsky, who had been elected deputies of the Municipal Council.

63Through the deputy-mayor Mikhail Golitsa, “Litvin Bloc” is linked to V. Polyachenko of “Kievgorstroy”. Golitsa, who is in charge of the city administration of land issues, seems to have been lobbying on behalf of the business interests of Polyachenko’s construction company. After losing the support of the previous mayor, the “Our Ukraine” MP V. Polyachenko was quickly incorporated into influence networks in Kiev politics. GAK (Kiev Civil Actif) is quite an original electoral bloc because it was founded by two businessmen, Vassily Khmelnitsky ($870m) and Andrey Ivanov ($203m), who own a large Kiev-based holding “Kiev Invest Group” (bakery plants; gas, water and heating distribution; banking). Their original embeddedness model can be defined as nomadic, in the sense that these businessmen are constantly moving from one geographical area to another and from one political network to another. In this way, they adapt themselves to a changing business and political context. In the yearly 1990s, both started their business activities in Ukraine and then moved to Russia, where they secured and accumulated their starting capital. In the late 1990s, they came back and succeeded in privatizing the steelmaker “Zaporozhstal” (Zaporizhia Oblast). A few years later, they sold it and moved to Kiev, where their major assets are now situated. After the “orange” revolution, they entered BYuT. Thus, Khmelnitsky was elected a BYuT MP, while Ivanov became a BYuT deputy in the Kiev Municipal Council. However, since 2006, their business group has been under strong pressure from L. Chernovetsky.

64At the same time, R. Akhmetov purchased some electricity generating facilities in Kiev and became a competitor of “Kiev Invest Group”. Ivanov and Khmelnitsky were then under double pressure and the balance of power was not in their favor because their business depended on Chernovetsky (city administration is an important shareholder of their group) and on Akhmetov (his energy generating facilities are in an upstream, providing the electricity to their holding). In this new context in 2007, both businessmen left BYuT: Ivanov was incorporated into “Chernovetsky Bloc” (until the municipal elections of 2008), while Khmelnitsky was elected a PR MP. This maneuver simultaneously stooped the attack from Chernovetsky and Akhmetov. In 2008, Khmelnitsky and Ivanov founded an electoral bloc GAK, without any peculiar program, and funded its electoral campaign. Naturally, this bloc became one of the allies of Chernovetsky within the Municipal Council. However, this time it was Tymoshenko who started a new attack on “Kiev Investment Group”. Nevertheless, the balance of power within the Municipal Council allowed Khmelnitsky and Ivanov to resist.

65In a certain way, this business group embodies a Kiev model, founded on a central symbolic resource. This resource depends strongly on the balance of power between the mayor, the President and the Prime Minister, which is continually changing. This could explain the geographic and political nomadism of many Kiev-based businessmen, who are generally outsiders (D. Zhvania from Georgia; L. Chernovetsly from Kharkiv; A. Derkach from Dnipropetrovsk; A. Slobodyan from Ternopol, F. Shpig from Chernihiv, Vassili Gorbal from Lviv etc.) and are known to have been extremely flexible in order to become established in the capital’s politics.

Conclusion

66The analysis of interactions between the centers of power and business clans in Ukraine has revealed complex networks managing constant transactions between the private sector and the state. Using explanatory models of relationships between the regions and the centre, as well as within regions, this analysis draws several conclusions.

67First, the Ukrainian administrative system is strongly intertwined with the private sector. Most business groups succeeded in “privatizing” strategic administrative posts or bodies. They influence state policy-making through legislative bodies (Rada, regional and municipal councils). The line dividing private business and state affairs has become unclear and floating. Some researchers argue that the state has been privatized.

68Second, formal ties defining ownership and influence in Ukraine should be completed by informal ties. Some state-owned corporations are in fact being managed indirectly through either minority shareholdings or through managers “controlled” by business groups (UkrNafta by “Privat”; NaftoGaz by ISD; a considerable number of oblenergos by SCM). This confusion does not allow for the correct evaluation of the real size of business groups and of their real influence on policy-making. In addition, the evaluation of their influence in terms of the value of their assets and turnover is not precise. The real share of large business groups in Ukrainian GDP is considerably under-evaluated.

69Third, by mapping influence networks made up of political parties and national and regional business people, we see that this network is dominated by two regions, Dnipropetrovsk and Donetsk. In comparison with the Dnipropetrovsk clans and other minor regional groups, the influence of the Donetsk businessmen is better structured and constant. This could be explained not only by a very high concentration of industrial and mining assets in this oblast, but also by a peculiar organization of their “channel for influence”. In fact, the business group SCM and its associates have not been funding an outside political force in an opportunist way like “Privat”, ISD and most minor regional groups. The SCM founded its own political bloc in which its leaders are formally engaged. Unlike other parties, the “Party of regions” is more a “business project” than an “ordinary” political party. From a geopolitical point of view, since 1991, the center of influence on national policy-making has shifted from western Ukraine (from the regional political elites) to eastern Ukrainian east (towards the Donetsk business elites).