Zelenskiy’s secret deals

Zelenskiy’s secret deals
Ukraine's President Zelenskiy has only been in full control for a month, yet there has been a string of landmark events. What is going on in the background?
By Ben Aris in Berlin October 5, 2019

Something is going on behind the scenes in the Russia-EU-Ukraine conflict triangle and not only are we being told nothing about it, we are not even being told it is happening. Yet in the last two months there has been a string of landmark events that have been presented as faits accomplis after nearly five years of inactive stalemate.

It started with Ukrainian President Volodymyr Zelenskiy’s election in April that ushered in the promise of change that comes with a new guard and that promise was reinforced when his Servant of the People (SOTP) party also won a landslide victory in July to take an absolute majority in the Verkhovna Rada.

French President Emmanuel Macron called Zelenskiy on the evening of the presidential victory on his mobile phone during the post election party, which is unusual as fellow presidents usually restrict themselves to formal notes of congratulation through diplomatic channels and some public comments.

Both Macron and German Chancellor Angela Merkel have actively engaged with Zelenskiy from the get go as both are obviously keen to grab the opportunity to end the undeclared war in their back yard.

Clearly a window of opportunity has opened up following Zelenskiy’s election but the clock is ticking. Merkel is suffering from some sort of unidentified nervous disorder and has already said she will step down in two years time and leave politics. Macron has stepped up to the mark and been increasingly active in European politics, hosting Russian President Vladimir Putin for a summit in France and is ready to take over, but wants to make the most of Merkel’s powerful support while she is still in the game.

And with his double landslide electoral victories Zelenskiy has an unprecedented mandate from the people to push through radical reforms, but equally clear is it is only a matter of time before this support begins to fade as Ukraine remains a divided society. Almost on the first day of work, the new Rada was set a hectic legislative programme and has to draft or enact more than 500 laws before New Year’s Eve.

The major change and a concession to Moscow was a decision to re-admit Russia to the Parliamentary Assembly of the Council of Europe (PACE) in June, the second major sanction to be lifted since Russia annexed the Crimea in 2014. (The lifting of sanctions on Russian metals company Rusal in January was the first).

That prompted seven members of PACE, all with borders close to Russia, to walk out of the council in protest to “consult with government” and Ukraine has since said it will boycott the autumn sessions of PACE. However, Russia’s re-admission to PACE is presumably impossible without the complicity of France and Germany, which dominate European politics.

Next was the exchange of 70 POWs at the start of September, the first major exchange of prisoners in five years, that more or less came out of the blue. The exchange was a huge PR coup for Zelenskiy who had campaigned on ending the war and returning home the prisoners. Moreover, amongst them was Oleg Sentsov, a celebrated director who has been in a Russian jail for five years and who became a cause célèbre. Putin in effect handed his opposite number in Kyiv a big political gift.

Most recently Zelenskiy signed off on the “Steinmeier Formula” that is the first real step towards ending the fighting in eastern Ukraine since the Minsk II protocols were agreed in 2015.

To break the deadlock over Minsk II, former German foreign minister Frank-Walter Steinmeier suggested the introduction of special temporary local self-government rule in some areas of the Donetsk and Luhansk regions during local elections in Donbas that become permanent if the elections are confirmed as free and fair by the OSCE.

Steinmeier’s ideas were rejected out of hand when he proposed them as they are tantamount to granting the Donbas regions full autonomy, so accepting them now is a compromise. Moreover, Zelenskiy agreed to sign an actual document that makes no mention of the prior withdrawal of Russian troops in Donbas or return of control over the border to Ukraine, which is counter to Zelenskiy’s public commitments since the deal was signed.

Майдан зараз pic.twitter.com/JgBcSNdz3f

— Олександр Аргат (@olarhat) October 1, 2019 protests immediately appeared outside the president’s offices in Kyiv after the news broke as some fear Zelenskiy will concede too much to Russia. Zelenskiy made a video statement shortly after to contain the concerns.

“We all understand that Donbas is Ukraine, peace is supposed to dominate there, a full ceasefire should occur, as well as the withdrawal of foreign military formations,” Zelenskiy said. “We all understand that Ukrainian border agents should be posted along our side of the Ukrainian-Russian border, and an exchange of prisoners should occur so that all our citizens return home. Elections should occur not under the barrels of machine guns, but according to Ukrainian legislation with access for candidates from Ukrainian political forces, Ukrainian mass media and international observers, with internally displaced persons having the possibility to fulfil their voting rights.”

All this was achieved before Zelenskiy and Putin have met in person. Indeed, the Steinmeier deal was a pre-requisite for the first Normandy Four meeting (Ukraine, Russia, France and Germany) where Zelenskiy and Putin will meet face to face for the first time. That is where the negotiations to end the war were supposed to start.

As an aside, the US is almost entirely absent from all these discussions on Ukraine. US President Donald Trump’s short conversation with Zelenskiy has led to a political storm in the US and contributed to the decision to start the impeachment process following Trump’s transparent attempts to blackmail Zelenskiy into digging up some dirt on his political rival Joe Biden.

While commentators speculated that Ukraine’s relations with the EU will be hurt by Zelenskiy’s condescending remarks concerning the help he was receiving from Macron and Merkel, the truth is that both leaders are probably grateful for the fracas as it has completely engulfed the US press' attention and left them free to get on with the job of negotiating with Putin over Ukraine without Trump’s scatological interference.

In another sign that there is detailed dance music playing in the background, Putin went on national TV on October 3, two days after the Steinmeier deal was signed, to say: “It's wrong that Ukraine should be portrayed in such a negative light on Russian TV.”

If the producers of state television take this “recommendation” to heart that would be a major editorial about face. Putin is signalling that Russia is going to start walking back from its aggressive stance on Ukraine ahead of the Normandy Four meeting that could come as early as next week.

More significantly, Putin said a day earlier that Russia was willing to sign off on a new gas transit deal with Ukraine if Kyiv implements the European legislation on gas before the end of this year. The current deal signed in 2008 is due to expire at the end of this year. However, despite the progress on Donbas, for the moment the question of Russian gas transiting Ukraine to its European clients appears to remain an entirely separate issue. Ukraine’s national gas company Naftogaz is assuming as a base case scenario that it will be cut off on January 1 next year.

But it is hard to be sure what is actually happening as Zelenskiy has given zero interviews to the press since taking office in April, which even by Eastern European standards is extreme. Even on the occasion of his first 100 days in office Zelenskiy elected to be interviewed not by a professional journalist, but a fellow actor. Indeed, Zelenskiy’s press spokesperson Iulia Mendel has been seen physically manhandling journalists out of Zelenskiy's way when they attempted to doorstop him at public events.

Even Putin gives the occasional interview, such as the recent sit down with the Financial Times where he claimed “liberalism is dead.” (Pointedly in that interview too there were no questions about Ukraine, for which the FT caught a lot of flak, but said nothing about why such an obvious question was not posed. Usually in Eastern Europe journalists are asked to submit questions in advance for pre-approval, which is not something the FT would be comfortable with admitting to.)

It has become increasingly obvious that despite being a political neophyte with no established party to back him, a lot of planning and preparation was done before Zelenskiy and his party took over. The depth and breadth of the legislative agenda that was presented to the Rada in its first week on the job – down to details of a new tax and regulatory regime for shipping on the Dnieper that should quadruple cargo traffic – means someone was doing their homework.

Likewise, the rapidity and significance of the progress made in just one month on ending the conflict in Donbas are also strongly suggestive of a significant diplomatic effort going on in the background involving Kyiv, Moscow, Paris and Berlin, but very little information has been shared with the press other than the end results.

What about Kolomoisky?

But there is another secret deal that Zelenskiy has said almost nothing about: his relationship with oligarch Ihor Kolomoisky.

Well respected reformer Oleksandr Danylyuk quit his post as secretary of the National Security and Defence Council of Ukraine last week and admitted in an interview on October 3 that he had clashed with Zelenskiy over his relationship with Kolomoisky and his refusal to reassure Ukraine’s partners that he had no intention of returning Kolomoisky’s nationalised PrivatBank to the oligarch or paying the $2bn in compensation he was demanding.

This uncertainty has already cost the Ukraine a quick Extended Fund Facility (EFF) deal with the International Monetary Fund (IMF), which left Kyiv last week citing concerns over Kolomoisky as the reason. And the gulf appears to be deeper than was first apparent after Ukrainian Prime Minister Oleksiy Honcharuk said this week that a deal was unlikely before December.

Danylyuk claimed in his interview that if it were not for the IMF deal PrivatBank would already be in Kolomoisky’s hands.

“When I was meeting with investors and government officials of partner countries, everybody was asking about PrivatBank,” Danylyuk told lb.ua. “I responded that there are risks [of a Kolomoisky revanche], but I am present in [Zelenskiy’s] team so that these risks do not materialize.” And then he quit.

Danylyuk went on to reinforce investors' worries over the conflict of interests of the head of the President's Office Andriy Bohdan, who was previously Kolomoisky’s personal lawyer between 2014 and 2019 and played a central role in the billionaire's attempts to use the courts to undo PrivatBank’s nationalisation.

And Kolomoisky’s demands on the state are not limited to PrivatBank. As bne IntelliNews has reported, Ukraine’s infrastructure ministry suggested it was willing to pay Ukraine International Airlines (UIA) that is owned by Kolomoisky $216mn in compensation for the ban on Ukrainian airlines flying over Russian airspace.

“There are similar proposals in other sectors too – everywhere that Kolomoisky has businesses; in media, aviation, real estate, banking. Everyone is watching very carefully,” one well-connected businessman in Kyiv told bne IntelliNews.

The “Special K” problem, as many have come to call the worries over Kolomoisky’s role, presents a tough choice for Ukraine’s donors.

On the one hand Zelenskiy is rapidly pushing through every reform law they could have ever asked for. At the same time significant progress has already been made towards ending the military conflict in Donbas. On the other hand Zelenskiy could be revving up to exempt and enrich his friend Kolomoisky.

The west will have to decide if it is willing to pay this price and swallow its scruples for the sake of a wider transformation of Ukraine and an end of the de facto war being fought in their backyard.

So far no money has been paid to Kolomoisky, nor have any assets been returned. As bne IntelliNews argued in an op-ed “What’s to be done with those who are to blame,” Zelenskiy is faced with exactly the same set of problems that Putin faced when he took over in 2000. Then, like now, the new president took over a country that was emerging from a crisis, and then, like now, oligarchs had more or less captured the state. Putin chose to go on the offensive and capture the state back by taking full control via the security services and then co-opting a small group of stoligarchs, who have been awarded the biggest state commissioned work that has made them billionaires.

How much, if anything, will Zelenskiy take from Putin’s playbook? Nothing is clear yet. The political support of oligarchs in the Rada was significantly reduced by the sweeping victory SOPT won in the July elections so they are vulnerable. However, of all the oligarchs Kolomoisky retains the most deputies reportedly under his control and his media empire also gives him considerable political power.

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