A Ukrainian Magnate Tries to Mend Fences

From this perspective -- Mr. Yushchenko apart -- no man is more important to Ukraine's fate than Rinat Akhmetov, at age 38, Ukraine's richest man. With a net worth of over $ 3 billion dollars, Mr. Akhmetov is ranked by the Polish weekly Wprost as the ex-Communist world's second-richest tycoon. The son of a coalminer from Tatarstan, Mr Akhmetov also is a son of the Donbass, Ukraine's eastern mining and industrial region. He was the main financial backer of the region's favorite son, ex-Prime Minister and election-day loser Viktor Yanukovich.

This backing might suggest that the election of Mr. Yushchenko is a huge setback to Mr. Akhmetov's interests. Yet on the day I met him last month in the lobby of his stylishly-appointed five-star Donetsk Palace Hotel, Mr. Akhmetov projected high confidence. That Mr. Akhmetov is ready to go on the record is an encouraging sign that Mr. Yushchenko's victory is creating an environment of greater transparency and accountability.

Ukraine's Orange Revolution was launched as a result of massive voter fraud, but it gained momentum due to public anger at crony capitalism and high-level corruption. As the Carnegie Endowment's Anders Aslund put it, Ukraine's last election was a struggle between the country's billionaires, who have benefited from government favors, and the country's newest millionaires and middle classes, who have not. Many of Mr. Yushchenko's supporters are convinced that many of Ukraine's economic magnates acquired their wealth illegitimately -- if not criminally -- and want the new government to vigorously prosecute illegal financial transactions.

Mr. Akhmetov responds to critics by asserting that his fortune stems from risk-taking in the first years after the U.S.SR.'s collapse. In 1995, he created the Dongorbank and used the bank's modest assets to buy up Ukraine's unprofitable industrial enterprises at a time of high inflation and economic decline. "We bought the Yenakayevo metallurgical factory for $6 million," he notes. "It was in a horrible state with an external debt of $300 million. The factory produced one million tons of steel per year and should have died." Then came Mr. Akhmetov. "Now there is no debt. We've invested $450 million in the workplace. It produces 2.5 million tons of steel per year and will soon produce 4 million tons," he relates. Other enterprises were also bought on the cheap at distress prices.

President-to-be Yushchenko has declared that the questionable circumstances of the privatization of some enterprises in Mr. Akhmetov's orbit will be strictly and thoroughly reviewed, particularly the recent privatization of Kryvorizhstal (bought in partnership with Viktor Pinchuk, son-in-law of Ukraine's outgoing President Leonid Kuchma, with a bid $800 million lower than that of a consortium led by U.S. Steel).

But in our conversation, Mr. Akhmetov defends the provenance of his economic empire. Through his privately held System Capital Management, Mr. Akhmetov owns an array of steel, metallurgical, coal and entertainment enterprises that employ 300,000 workers. He also is owner of the Donetsk Shakhtar soccer team (which competes in Europe's elite UEFA Champions League); the city's luxury hotel; a regional mobile phone company; a national television station; and a major local bank. And he's building a new soccer stadium for $250 million: "A vote of confidence," he says, "in Ukraine's future."

As he seeks to normalize relations with the incoming Yushchenko team, Mr. Akmehtov is sending reassuring signals about his desire to stay out of politics, while making clear that he will oppose any efforts to create a rift between the more ethnically Ukrainian, and Ukrainian-speaking, western and central regions of Ukraine (which strongly support Mr.Yushchenko) and the Russian-speaking east, which supported Mr. Yanukovich. "I am categorically against efforts to divide the country," he asserts. "We are one state and we need to live in a united country... But I am for a balance of powers between the center and the regions," Mr. Akhmetov continues.

Mr. Akhmetov argues that Ukraine's leaders must now work cooperatively to reduce "serious" and "real" tensions between eastern and western Ukraine. As part of this effort, he recently invited the outspoken opposition leader Yuliya Tymoshenko to Donetsk to take part in a live televised encounter with local residents.

As for his properties, Mr. Akhmetov says he is confident he will prevail because President-to-be Yushchenko "is a person who respects the rule of law." The Yushchenko inner circle believes the Ukrainian state was shortchanged -- if not robbed -- of much-needed revenues. However, they worry that a protracted fight over such properties would result in investor uncertainty and scare off foreign investors. Instead of extended litigations, Ukraine's incoming leaders favor dealing with magnates like Mr. Akhmetov through the country's strong anti-monopoly mechanisms. They also appear interested in a publicly negotiated agreement through which magnates would compensate the state treasury, helping reduce a budget deficit that has grown since election-year social spending increases. Mr. Akhmetov and his business colleague Viktor Pinchuk have sent signals they are willing to consider compensating the treasury.

While there is anxiety, disappointment, and anger over Mr. Yushchenko's victory among some citizens and many officials in the Donbass, Mr. Akhmetov is signaling his backing for a pragmatic response. Such a stance opens the prospects for a constructive relationship between Ukraine's next President and the magnate who exerts huge influence in a region that opposed Mr. Yushchenko and where ongoing tensions could disrupt his ambitious reform agenda.

This, in turn, suggests the possibility of a soft landing for an emerging democracy that has been through a tumultuous fall and winter.

Mr. Karatnycky, counselor and senior scholar at the New York-based Freedom House, interviewed Mr. Akhmetov in Donestk on Dec. 28.