Ukraine officials arrested, dismissed; stage set for possible political unrest

Ukraine's President Petro Poroshenko, left, listens to Ihor Kolomoysky, governor of Dnipropetrovsk, in Kyiv, Ukraine, Wednesday, March 25, 2015. (AP / Mikhail Palinchak, Presidential Press Service)

KYIV, Ukraine -- Ukraine's president acted to quell a potential source of fresh political unrest Wednesday by dismissing the truculent billionaire governor of a region neighbouring areas where fighting is still taking place between government and separatist forces.

The confrontation between oil and banking tycoon Ihor Kolomoysky and the authorities has highlighted the struggle Ukraine will face in diluting the influence of super-rich businessmen in public life.

President Petro Poroshenko's office said in a statement that Kolomoysky had asked overnight to be released from his duties as governor of Dnipropetrovsk. The request came only after days of tension fueled by Kolomoysky's heavy-handed attempts to resist a government effort to wrest important energy companies from his control, however.

Kolomoysky made no immediate comment Wednesday.

Last week, parliament overwhelmingly adopted a law requiring only 50 per cent of shareholders of joint stock companies to attend company meetings before decisions could be taken. The threshold was previously 60 per cent.

That measure had the most immediate ramifications for Kolomoysky, whose Privat Group conglomerate holds a 43-per cent stake in oil and gas company Ukrnafta. Although the government-owned energy company Naftogaz controls just over 50 per cent of Ukrnafta, Privat Group has -- until now -- been able to obstruct any decisions going against Kolomoysky's interests.

Kolomoysky is a contentious figure in Ukraine. Garrulous, foul-mouthed and expansive, the rotund and bearded 52-year old has never been afraid to use heavy-handed tactics in his business activities, but has garnered substantial support for his unabashed commitment to defending Ukraine's territorial integrity.

Over the past year, he has tapped into his wealth, which Forbes magazine estimates stands at $1.3 billion, to finance volunteer battalions waging war against separatist militias in the east. Those battalions have since been subordinated to central government control, although it is believed Kolomoysky still retains considerable sway over them.

That and Kolomoysky's deep pockets have aroused anxieties that more violent showdowns could lie ahead.

Following the passage of what has been dubbed the "Ukrnafta law," Kolomoysky dispatched groups of armed men to swoop in on the offices of two energy companies in the capital, Kyiv.

Last Thursday, men in combat gear burst into the headquarters of Ukrtransnafta -- a wholly state-owned pipeline operator unrelated to Ukrnafta. That was apparently prompted by a government decision to fire Ukrtransnafta head Oleksandr Lazorko, a figure known for his loyalty to Kolomoysky. With much of his commercial interests invested in oil, Kolomoysky is eager to retain a role in running the nation's pipelines.

When Kolomoysky turned up in person at the Ukrtransnafta offices, he was cornered by journalists, one of whom asked the businessman to explain his presence. The question elicited a stream of profanity-laden invective and unsubstantiated claims that Ukrtransnafta was being seized by a "Russian diversionary group." Filmed footage of the entire exchange was uploaded to the Internet and drew much criticism for Kolomoysky's aggressive conduct.

Not content with that, guards suspected to have been hired by Kolomoysky on Sunday erected a metal cordon around the offices of Ukrnafta, precipitating yet another standoff.

That last effort sent ripples of alarm through Kyiv and prompted President Poroshenko to warn that private armies would not be tolerated. All armed formations, even those created and funded by Kolomoysky, Poroshenko said, would have to fall in step.

"No governor will be allowed to have his own pocket Ukrainian army," he said.

The government has sought to cast its actions in tightening its control over the energy sector as something of a clean-up operation.

Devin Ackles, an analyst with Kyiv-based think-tank CASE Ukraine, said the authorities are eager to show international creditors that they are deserving of financial support.

"This has something to do with the pending audit of (state oil and gas company) Naftogaz and the cleaning up that needs to take place in the state-owned energy sector this year," he said.

Others see the showdown in more pedestrian terms, as a clash among Ukraine's business elite. With a net worth that Forbes estimates stands at around $1.3 billion, Poroshenko is very much a member of that elite.

"It is not to be ruled out that the background to this conflict is the confrontation between financial, oligarchic clans and the division of goods. And this will open a Pandora's Box that will lead to new conflict," said Nataliya Slobodyan, an energy expert at the International Center for Policy Studies.

The spectacle of Ukraine's government being compelled to battle a powerful businessman is being watched with glee by Russia and concern by the United States.

The Kremlin has done little to disguise the contempt with which it regards the government that replaced Moscow-friendly former President Viktor Yanukovych, who was overthrown in a public revolt last February.

The United States, meanwhile, has staked significant credibility on Ukraine turning itself around and shedding itself of its burdensome legacy of murky business practices.

Following the events of last week, U.S. ambassador Geoffrey Pyatt met with Kolomoysky. While Pyatt declined in a television interview to reveal what the men discussed, his anxiety was clear.

"There is nobody I know in this country who wants to go back to the days of Yanukovych and the raider attacks, the use of violence to achieve economic objectives and the idea that there were certain groups or certain individuals who are above the law," Pyatt told Hromadske television.