Dmitry Firtash
The situation of most Ukrainian financial and industrial groups has noticeably worsened recently. Even though OstroV noted back in May and June that the fighting had had virtually no impact on industrial operations.
However, the war in Donbas isn't the only reason. The main reason is that by pursuing revolutionary changes in the country without simultaneous liberal economic reforms, the oligarchs risk losing their privatization "achievements" of the previous 23 years of independence.
Titan on feet of clay
Dmitry Firtash, owner of the Group DF holding company, has already experienced this, as his titanium business has been in tatters since the Euromaidan revolution. Problems initially arose with his assets on the peninsula: the Crimean Titan association and the Crimean Soda Plant.
Group DF managed to find favorable solutions on all issues with the Party of Regions leaders Vasily Dzharty (now deceased) and Anatoly Mogilev. However, relations with the new authorities that emerged in Simferopol after the Euromaidan clearly did not work out.
Therefore, on June 23, the holding's managing director, Boris Krasnyansky, announced his readiness to sell the Crimean enterprises and added that Group DF is not in the habit of selling assets – thereby emphasizing that this measure would be 100% forced.
Meanwhile, troubles have already begun to brew in Ukraine. There, Crimean Titan lost a significant portion of its raw material base after the Cabinet of Ministers of Ukraine decided this summer not to renew its lease agreement for the Irshansk Mining and Processing Plant and the Volnogorsk Mining and Metallurgical Plant.
And now, as of September 8, the State Property Fund of Ukraine (SPFU) transferred these enterprises to the management of the Ministry of Economic Development and Trade of Ukraine.
Until now, IGOK and VGMK have provided approximately 50% of Crimean Titan's needs for ilmenite, which is used in Armyansk to produce titanium dioxide, a semi-finished product for the paint and varnish industry.
However, D. Firtash himself doesn't believe he owes anything back. His company filed a lawsuit in the Kyiv District Administrative Court, which on September 4 prohibited the State Property Fund and other government agencies from transferring the leased enterprises to the state until the case is heard and a ruling is issued.
It is worth noting that in September 2009, Group DF structures challenged the relevant decision of the Cabinet of Ministers in the courts, when then-Prime Minister Yulia Tymoshenko tried to return Igorsky Iron and Steel Works and Vyborg Mining and Metallurgical Combine (IGOK) and Volgograd Mining and Metallurgical Combine (VGMK) from lease to state management.
In fact, they were preparing to deny State Property Fund representatives access to the enterprises' premises for inventory. Moreover, in 2005, the Prosecutor General's Office of Ukraine challenged the legality of the transfer of Igorsky Mining and Metallurgical Plant and Volgograd Mining and Metallurgical Plant to D. Firtash.
So he's no stranger to fighting over these assets. But the previous times, the issue was resolved out of court: after the presidential elections in February 2010, Viktor Yanukovych, who was completely loyal to Group DF, came to power.
Yulia Tymoshenko then lost her premiership, and no one took anything away from D. Firtash. On the contrary, he acquired more and more enterprises—the Zaporizhzhia Titanium and Magnesium Plant, for example.
But, as they said in ancient Greece, you can't step into the same river twice. Especially not three times.
Therefore, even if a power reset occurs again in Ukraine, it seems highly doubtful that people will come to power who will be sympathetic to Dmitry Vasilyevich's problems.
This is based on current trends and sentiments in Ukrainian society. Of course, there is also a legal approach. After all, no one doubts that the courts in Ukraine are the most honest and independent.
But these prospects are even more uncertain than the power shift in favor of Group DF's nominal owner and his real business partners, former head of the presidential administration Sergei Levochkin and former Deputy Prime Minister Yuriy Boyko.
Moreover, D. Firtash's own position is now much less stable, as he has been under house arrest in Vienna since March.
And the question of his extradition to the United States at the request of the Federal Bureau of Investigation still remains open – despite the abundance of high-ranking officials from the Austrian side involved in the appeal of the already issued decision of the Vienna Regional Court.
At first, the appeal hearing was scheduled for May, then for June, but now September is slowly drawing to a close, and nothing has happened.
There's a suspicion he'll remain there until the confrontation between Russian leader Vladimir Putin and the United States ends. And D. Firtash will also remain in Vienna.
This certainly limits his ability to influence events taking place in Ukraine.
During the summer fighting in Donbas, Group DF's enterprises suffered no significant damage. This particularly applies to the Severodonetsk Azot plant.
But this is more a matter of the specific nature of such facilities, where an accident would amount to a regional-scale environmental disaster. Therefore, both warring parties are trying to avoid such a scenario.
However, things didn't go so smoothly in Gorlovka—Group DF reported this summer on visits by DPR militants to the Stirol concern, and even on their mining of the plant.
So far, it seems everything has worked out. However, the city remains under the control of DPR armed forces, ATO forces are positioned on the outskirts, and it's still too early to say the troubles are over.
However, if you look closely, the main threat to Dmitry Vasilyevich's business in Ukraine does not come from pro-Russian separatists. As already noted, under Yulia Tymoshenko, the government tried to bring back Igorsky Iron and Steel Works and Voronezh Mining and Metallurgical Combine.
But in 2009, she had another idea: to take away from the regional gas companies the gas distribution networks located on their territory and transfer them to the balance sheet of the National Joint Stock Company Naftogaz of Ukraine.
This was a blow to the guts of the owners of Group DF, who, through a chain of offshore companies, control approximately 70% of Ukrainian regional gas companies.
As a pilot project, the transfer of gas distribution networks was carried out at Chernivtsigas, but Yulia Tymoshenko did not have time to extend the experience gained to all of Ukraine, having lost power after the 2010 presidential elections.
It is possible that this idea will be revived after the early parliamentary elections.
The fact is that VMMC and IGOK, transferred to the Ministry of Economy and Trade of Ukraine, ended up under the direct management of the state-owned United Mining and Chemical Company.
A person who previously worked closely with Privat structures has been appointed head of the company. Consequently, the media headlined the news: "Kolomoisky Receives Firtash's Mining and Processing Plants."
They may be right. After all, Igor Kolomoisky, co-owner of the Privat financial and industrial group, is indeed known for his aggressive policy toward his fellow oligarchs and is always focused on new acquisitions.
Therefore, it is unlikely that the current government, which is loyal to him, will limit itself to returning VGMK and IGOK to state control.
Moreover, in Crimea, the local Prime Minister, Sergei Aksyonov, has already pulled off a similar feat: gas distribution pipelines on the peninsula were transferred to a specially created enterprise, Krymgazseti, at the beginning of September of this year.
Thus, Krymgaz, controlled by D. Firtash, retained ownership of the office building itself, as well as the tables and chairs inside. But this is clearly not enough to supply gas.
The Zaporizhzhia Titanium and Magnesium Plant, which came under the control of the D. Firtash-Yu. Boyko group under V. Yanukovych in 2011-2012, is also at risk for Group DF.
As is well known, I. Kolomoisky is claiming "patronage" over the neighboring Zaporizhzhia region, so the possibility of PrivatBank's top managers registering at ZTMC with the assistance of local authorities doesn't seem so unlikely.
And violations in the land allocation for the Mezhdurechensk Mining and Processing Plant in the Zhytomyr region, which Group DF built from scratch, can probably also be found if desired.
This enterprise covers the remaining half of Crimean Titan's ilmenite needs. Without it, Crimean Titan will definitely have to be sold. This would mean the collapse of D. Firtash's titanium business.
Incidentally, it is possible that in 2009, Yulia Tymoshenko also acted against Group DF in the interests of Privat, given their partnership in Ukrainian politics.
And since I. Kolomoisky is now, as they say, "on top," a continued offensive against D. Firtash and his partners in Ukraine is highly likely. And this is happening not only in Ukraine.
Thus, on September 9, it became known that the Supreme Economic Court of Tajikistan rejected the cassation appeal from Ostark Ventures Ltd., a member of Group DF, against the decision of the Khatlon Regional Economic Court on the nationalization of TajikAzot CJSC.
This marks the end of the case regarding the return to the state of 75% of the shares of the enterprise, which was privatized by Group DF through the offshore company Ostark Ventures in 2002.
In this case, a whole combination of unfavorable circumstances has come together against the Ukrainian oligarch and his partners.
Firstly, the former Minister of Industry of Tajikistan, Said Saidov, under whom D. Firtash acquired TajikAzot, suddenly decided to play at political independence and created the opposition party "New Tajikistan".
The peculiarities of the Eastern policy are such that almost immediately after this he found himself in prison on charges of numerous thefts and abuses committed in his ministerial position.
His son, Khairulla Saidov, had a 5% stake in TajikAzot – a symbolic payment for transferring the enterprise to D. Firtash’s group.
Experts believe the presence of such a minority shareholder played a role in Tajik President Emomali Rakhmonov's decision to return TajikAzot to state ownership.
The plant's gas supply problem also cannot be discounted. Supplies of natural gas, a raw material for mineral fertilizer production, ceased from Uzbekistan to TajikAzot back in 2009.
And it has remained idle ever since. Without delving into the reasons for the supply interruption, it's worth noting that this state of affairs, in which a large industrial enterprise, one of the republic's main taxpayers, has been hopelessly idle for six years, could not continue without consequences for its owners.
Even if the local authorities were completely loyal to them. And that was precisely what they lacked because of S. and Kh. Saidov.
Of course, D. Firtash could continue to fight for his rights to TajikAzot in international courts. It's possible he will do just that. The problem is, such proceedings take a very, very long time.
For example, the International Commercial Arbitration Court in The Hague spent six years considering a claim by the Russian company Tatneft against the state of Ukraine in a case regarding the deprivation of this company's share in the share capital of PJSC Ukrtatneft, created on the basis of the Kremenchug Oil Refinery in Ukraine.
A lot can change over such a long period of time, including for Group DF.
The same applies to the previous Russian-Ukrainian gas "schemes" through which D. Firtash and his partners once became billionaires in dollar terms. Theoretically, these "schemes" could resume; never say never, as they say.
However, at this point, Russian leader Vladimir Putin, whom Western experts consider the curator of Gazprom's "shadow" schemes, has put a final and decisive end to this issue.
The decision concerns the liquidation of RosUkrEnergo AG, a Swiss-registered company that supplied gas to Ukraine from 2004 to 2009. The official announcement of this decision was made on July 25.
As a reminder, 50%-2 shares of RUE belong to the Austrian Centrogas AG, which is currently fully controlled by D. Firtash (previously, 10% of Centrogas was owned by Odessa businessman Ivan Fursin; according to some reports, D. Firtash bought out his share).
As is well known, six years ago, Naftogaz Ukrainy and Gazprom switched to a direct contract, and the intermediary was dropped from the scheme. However, RUE continued to exist because the parties had not resolved all the disputed issues regarding mutual settlements for gas.
The last debt was closed in December 2013, when RUE paid Gazprom $65 million of a previously provided loan.
And now the only intrigue is whether the current Ukrainian authorities will be able to take back from Group DF the gas reserves in the underground storage facilities of the state-owned PJSC Ukrtransgaz that the group is laying claim to.
The Cabinet of Ministers of Ukraine will be pushed to do this by the harsh winter and the lack of sufficient volumes from the NJSC Naftogaz of Ukraine.
In turn, for D. Firtash and his partners, this will mean a very painful blow to the nitrogen business, which includes, in addition to the Severodonetsk Azot and the Gorlovka Stirol, also the Cherkasy and Rivne Azots.
Vitaly Krymov, especially for "Isle"
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