FACES AND PLACES: Booty billionaires and 'Kuchma's Great Giveaway' (03/27/05)

FACES AND PLACES

by Myron B. Kuropas

Booty billionaires and 'Kuchma's Great Giveaway'

It took oil tycoon and philantrophist John D. Rockefeller more than 30 years of wheeling and dealing to become America's first billionaire. Ukraine's current billionaires did it in half the time. Dollars were worth more in Mr. Rockefeller's time, of course, but still ...

According to a recent special issue of Forbes magazine, Ukraine's current crop of billionaires achieved their wealth during what can be described as "Kuchma's Great Giveaway," euphemistically called "privatization."

While most Ukrainians welcomed the collapse of the Soviet Union as an opportunity to give life to a new state, a new identity, and a reborn Ukrainian language, other denizens of Ukraine viewed the new Ukrainian state as a chicken waiting to be plucked, booty there for the taking.

The richest man in Ukraine today is Rynat Akhmetov, 38. Worth an estimated $2.4 billion, a practicing Muslim whose father was a coal miner, Mr. Akhmetov enjoyed the backing of such powerful patrons as failed presidential candidate Viktor Yanukovych and oligarch Akhat Bragin, whose assets Mr. Akhmetov inherited after Mr. Bragin was murdered. Today, according to Forbes, Mr. Akhmetov's company, System Capital Management, controls Azosstal, Ukraine's third largest steel company, coal interests worth $400 million, and shares in a brewery, a newspaper and a mobile phone company.

An attempt by Mr. Akhmetov and Viktor Pinchuk, Mr. Kuchma's billionaire son-in-law, to take over Kryvorizhstal, Ukraine's leading steel company with a winning but outrageously low bid of $800 million was recently reversed by a Kyiv court which ruled that the Kryvorizhstal bid fell short by at least $500 million. Nice try but no cigar.

Mr. Pinchuk, 44, president of Interpipe, a producer of steel pipes and railway wheels, comes from a Jewish family in eastern Ukraine and claims to have earned a doctorate in technical science from Dnipropetrovsk Metallurgical Institute. Enjoying a net worth of $1.3 billion, he is married to Leonid Kuchma's daughter since 2002, holds many patents for pipe design, and claims to have used Interpipe cash to buy steel company assets during a time when politically connected oligarchs became millionaires almost overnight.

Having wined and dined George H.W. Bush in Ukraine during the past presidential campaign, Mr. Pinchuk has international ambitions, according to Forbes. Always a shady character, he has hired the American firm of Ernst and Young to burnish his image in order to legitimize his holdings. Recently it was reported that Mr. Pinchuk will be teaming up with Hollywood film-maker Steven Spielberg to produce a documentary on the Nazi massacre at Babyn Yar in 1941.

Some Ukrainian cynics in North America fear the film will downplay the number of Ukrainians massacred at that infamous site, and portray Ukrainian nationalists as anti-Semites who, in the words of Simon Wiesenthal himself, "were worse than the Germans."

Serhii Taruta, 50, is another Soviet-era apparatchik who benefited from "privatization" in Ukraine. Joining forces with Mr. Akmetov, Mr. Taruta used his position as director of Azovstal to create a coal, steel and energy conglomerate. Swapping assets with System Capital Assets, Mr. Taruta realized a cash windfall that enabled him to invest in a Hungarian metallurgical plant, an Uzbeki oil-and-gas processing plant, and a Russian engineering company. He has recently made bids for steel mills in the Czech Republic and Poland.

In an article titled "Man of Steel," authored by Heidi Brown and Nathan Vardi in the same issue of Forbes, the most interesting billionaire operating in Ukraine today seems to be Alex Shnaider, 36. He has a net worth of $1.4 billion, most of which, according to the article, "comes from trading Ukrainian steel and grabbing control of that country's largest steel mill, Zaporizhstal." His holding company, Midland Resources, "registered in the British tax haven of Guernsey," includes "a power grid in Armenia; two hotels, a bakery chain and a meat-packing company in Serbia; small interests in Turkey and Israel; a Russian steel mill in Volgograd; and an ornate office building and casino in Moscow's Arbat pedestrian mall."

Born in St. Petersburg, Mr. Shnaider and his family moved to Ukraine, then to Israel, finally reaching Toronto when Alex was 13. After helping his parents run a Jewish deli, he eventually completed a degree in economics at York University. "As the Soviet Union collapsed," write the authors, Mr. Shnaider "left to work for a steel-trading house in Zurich before setting up his own in Belgium ... Knowing nothing about how to move steel, Shnaider hung out at Ukrainian mills and made deals with desperate managers ..." It was a dangerous business; "at least seven steel executives were assassinated in Ukraine in the 1990s."

John D. Rockefeller was eventually forced by the federal government to divest himself of what some considered to be a cartel (at the height of his power he controlled some 90 percent of the U.S. oil industry) during America's "trust-busting" era. The Standard Oil Co. was eventually divided into three companies. Called a "robber baron," he was neither; he never robbed anyone and he was certainly not a baron. Rockefeller discovered oil and created wealth by producing it cheaper, permitting American families to have their oil lamps burning longer into the night. Leisure time was increased for the average American family.

Are Ukraine's current crop of billionaire "robber barons?" Let's see. Did they rob? Many people in Ukraine believe they did. Are they barons? If political connections to the ruling elite makes one a baron then the four billionaires above certainly qualify.

Will some of them eventually turn their talents to philantrophy, following in the footsteps of Americans John D. Rockefeller, Andrew Carnegie and Henry Ford? It would be nice.

What will happen to Ukraine's robber barons in the short term? No one knows. They are clever and not easily intimidated. The Yushchenko administration is investigating their past and present activities, and already we hear that certain deals are being made.

For some Ukrainians, this is the first big test for Ukraine's new president.

Myron Kuropas's e-mail address is: [email protected].

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