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  • U.S. Vice-President Joseph Biden visited Kyiv
  • Poroshenko keeps fragile balance of power between key players
  • The de-oligarchisation campaign has brought questionable results so far
  • Poroshenko’s dynamic inner circle
  • Saakashvili enters national politics, fuels tensions within the ruling coalition
  • Developments in  trade and the economy

Biden warns Ukraine of “one last chance”: The visit of U.S. Vice President Biden to Kyiv took place amid a political crisis in the ruling coalition. Prime Minister Yatsenyuk and President Poroshenko pinned high hopes on his presence, expecting him to act as an arbiter who could reconcile both sides and restart the work of the paralyzed government coalition. Yatseniuk who is facing increasing criticism over the slow pace of reforms and corruption allegations against his close allies wanted to hear words of public support. President Poroshenko tried to persuade Biden that without the change of the Prime Minister, the country could not carry out effective reforms because their public acceptance is undermined by Yatseniuk’s low rating. Biden preferred to stay above the fray, defining just the general terms required for country to maintain Western support and questions related to cadre deployment policy were left for the coalition to sort out. He made it clear that the patience of the White House has limits and that the ruling coalition must deliver on its promises to eliminate corruption and cronyism and to present the results of real reforms within half a year. RBK Ukraine and Insider report the details.

The fragile balance of powers: The relative stabilization of the situation in Donbas allowed Poroshenko to focus on domestic political and economic issues. In the bid to consolidate his power he has launched several political offensives. The attempts to control the government and parliament have so far brought modest results and, despite enormous pressure, PM Yatseniuk managed to save his post but lost much of his electoral favour. In addition, he is now under constant threat of a no-confidence vote which could be initiated anytime. Poroshenko has significantly strengthened his grip on the power bloc by replacing Valentyn Nalyvaichenko as head of country’s Security Service with loyalist Vasyl Hrytsak. Despite public and Western pressure he has managed to keep Viktor Shokin as Prosecutor General. The only disappointment for Poroshenko is that Arsen Avakov still retains the post of the Interior Minister.

The de-oligarchisation campaign has brought questionable results so far: Part of the state assets returned to state control and oligarchs were more or less successfully coerced into paying their debts to the state. The controversial privatization of electricity generation companies initiated by Yanukovych was, however, legalized. The selective nature of the campaign has caused public outcries that the old guard of oligarchs was replaced with Poroshenko and Yatseniuk associates. The control over the key state enterprises which were previously under the grip of oligarchs, were redistributed between Poroshenko and Yatseniuk, but the improved legal environment, economic crisis and qualified management cooperating with Western creditors brought more transparency and efficiency and led to decreased political influence in decision making. Particular attention should be paid to Naftogaz which is pioneering a corporate governance reform (also see here). Leading oligarchic groups experienced pressure from the central authorities, but none of them has suffered a final blow. Poroshenko is well aware of the fragile balance of power, hence an absence of decisive moves on both sides so far continues. The oligarchs retain significant leverage in politics, the economy and control of the media. The most toxic relationship can be observed between Poroshenko and Kolomoisky, who keeps criticizing the President and refuses to abide by the new terms of coexistence. The common threat has consolidated oligarchic interests: at a minimum they will back Yatseniuk’s premiership to counterweigh Poroshenko’s efforts to monopolize power, but once he loses his post, early elections seems inevitable.

The battle for Poroshenko’s ears: A group of politicians (Stets, Lutsenko) were gradually replaced by a group of businessmen (Konstantin GrigorishinMakar PaseniukIhor Kononeko) (also see here). The most important role is now assigned to Ihor Kononenko, an old business partner and close personal friend of Poroshenko. The individual members of this diverse informal group try to advance their own interests and influence presidential decisionmaking. The competing interests and ambitions leads to regular conflicts, intrigues, and tactical alliances which are meant to neutralize the competition. The most antagonistic relationship is between the head of the Presidential Administration Boris Lozhkin and Konstantin Grigorishin, the Ukrainian born businessman with Russian passport who lobbies for the premiership of Mikhail Saakashvili and reportedly stands behind the campaign to discredit PM Yatseniuk. Grigorishin and Lozhkin have a complicated relationship with Kononeko. As a result of conflicts with Grigorishin and Kononenko, Lozhkin’s position in the upper echelons of power has weakened but he is still needed as a mediator between the oligarchs and Poroshenko. Within the year and half of his presidency Poroshenko has proven that he never abandons his loyal allies under the outside pressure, but also does not object if they constantly bite each other. Poroshenko prefers to take the position of a neutral observer who does not interfere in these quarrels and keeps his surroundings in uncertainty.

Saakashvili enters national politics, fuels tensions within the ruling coalition: Reaching the limits of his institutional powers as governor of Odessa Oblast, Mikhail Saakashvili has gradually entered national politics with an ambition to destroy the corrupt and dysfunctional system of governance – a task which can be accomplished only from Kyiv, not from Odessa province. Since he settled down in Ukraine, Poroshenko used him as a valuable instrument to tune up his allies and opponents. Numerous members of the presidential team nurtured the idea of Saakashvili´s premiership, pulling the bogeyman out of the closet to weaken Yatseniuk and making him more vulnerable to Poroshenko’s pressure. Ahead of Biden’s visit to Ukraine, Saakashvili has accused Yatsenyuk of enabling large scale corruption schemes, the main beneficiaries of which are oligarchs and his close allies. The tensions have further escalated during the meeting of the National Reform Council when Saakashvili provoked a heated argument with Interior Minister Avakov. Saakashvili initiated two anticorruption forums and launched a nationwide non-political movement (Ukrainian Movement for Cleansing) with a declared aim to unite political and social forces to fight corruption and push for real reforms. Many observers suggested that he has started political mobilization for snap elections which could secure his premiership (the current parliament is unlikely to back his bid for the post). Saakashvili has further increased his own political value and gained the bargaining instrument to extract concessions from his enemies and allies, including President Poroshenko. For now it seems that Saakashvili has Poroshenko’s blessing, his actions are at least tolerated as he avoids criticizing Poroshenko and his allies. The new movement may turn into a pro-presidential project which can absorb votes of the disappointed electorate (Poroshenko Bloc, The People´s Front, Samopomich) and votes of those who yield to the populism and radical rhetoric (Radicals, Batkivshchyna). With his aggressive criticism of the Yatseniuk government, Saakashvili has surpassed Tymoshenko and became the leader of the internal opposition. However, Saakashvili’s increasingly combative activity could become a challenge for Poroshenko. Poroshenko wants to control everything, but Saakashvili is by his nature uncontrollable. So far his performance has brought more questions than answers.

Russia further consolidates its grip over Donbas: President Putin appointed the permanent member of Russian Security Council Boris Gryzlov as Russia’s envoy to the Trilateral Contact Group for settling the conflict in Donbas. Gryzlov shaped Russian policy towards Ukraine during the first Maidan in 2004. His appointment signals that Russia is ready to pursue more resolute diplomacy to break the current deadlock within the work of the Trilateral Contact Group. A popular Cossack commander Pavel Dremov was killed in an explosion near Luhansk. Dremov was in odds with the official leadership of the LNR and opposed the Minsk agreements. After his death, the political and military power in the LNR is now fully concentrated in the hands of Ihor Plotnitsky. A similar process of power consolidation (see also here and here) is underway in the DNR.

Trade and economic developments: After a lengthy fight within the ruling coalition, the parliament and government have failed to reach a compromise on the new Tax Code and postponed the tax reform until 2016. Instead, the parliament passed  temporary amendments to the Tax Code and the state budget with a deficit of 3.7 percent of the GDP. The approval of the critical laws should pave the way for the disbursement of the delayed IMF tranche. The critical voting has revealed that the government coalition does not have a stable majority and increasingly depends on opposition forces and non-affiliated deputies who are ready to trade their votes to secure their own interests. Russia formally initiated legal proceedings against Ukraine after Kyiv defaulted on its $3 billion debt to Moscow. The dispute is unlikely to jeopardize a bailout from the IMF; after the fund changed its lending rules to allow lending to countries with sovereign arrears (earlier the IMF determined that Ukraine’s debt to Russia qualifies as a sovereign one). Russia suspended the free trade agreement with Ukraine and imposed an import embargo on Ukrainian agricultural products, raw materials, and foodstuff as of January 1 when the free trade agreement between the EU and Ukraine entered into force. In retaliation, the Ukrainian government imposed import duties on all Russian products and approved import restrictions on a range of Russian-made products.

Edited by Gabriela Mikušová, CEPI’s Associate Fellow.