Blue-Collar Region Suspicious of Yushchenko Regime

DONETSK, Ukraine -- For Igor Prasolov, the chief executive of Ukraine's biggest industrial group, the first months of Viktor Yushchenko's presidency have been worrying times. Mr Prasolov is general director of System Capital Management, the holding company that manages the assets of Ukraine's richest tycoon, Rinat Akhmetov.

Based in the eastern industrial city of Donetsk, SCM is primarily a vertically integrated steel producer and also an important player in Ukraine's beer market, mobile telephony, banking and insurance. Another of its assets is Donetsk's football team, Shakhtar, of which Mr Akhmetov is president.


Ukrainian Communists Protest in Donetsk
From its formation in 2000 until last year, SCM grew in parallel with the rising career of the Donetsk region's former governor, Viktor Yanukovich, who was prime minister in 2002-2004 and would have become president if not for the Orange Revolution. Now Mr Akhmetov and his team are struggling to distance themselves from old allies and adapt to a new government and new conditions.

Mr Prasolov invited the Financial Times to SCM headquarters to deliver what boiled down to an appeal to Mr Yushchenko not to allow any revenge taking against his company and a promise that SCM would be a force for rapid economic development and a model of corporate good behaviour.

"We want to move at maximum speed to make Ukraine a country where people simply live happily, where Americans and Europeans will look at us and say, 'that's a country that became civilised in such a short period'. In that respect our goals and the goals of the government fully coincide," Mr Prasolov said.

Meanwhile he expressed confidence that SCM would win out in its battle with Mr Yushchenko's government to remain the largest shareholder of Kryvorizhstal, Ukraine's largest steel mill. SCM owns just under 50 per cent of the consortium that paid $800m for the mill last year, a deal Mr Yushchenko likens to theft and is determined to cancel the sale and re-auction the mill to foreign firms.

"From the point of view of a market economy and European integration, the institution of private property should be inviolable. Without that, there won't be any market economy," Mr Prasolov said. Mr Prasalov said he was sure accusations by local prosecutors against one of SCM's ore mines - accused of making false claims for VAT refunds - "will be proven to be a mistake."

Mr Prasolov was speaking before a ceremony where Donetsk business leaders and the local government signed a joint declaration of co-operation and mutual understanding. The ceremony, organised by SCM and Mr Yushchenko's administration, demonstrated their common interest in keeping Ukraine's industrial heartland running smoothly.

The Donetsk region accounts for one-tenth of Ukraine's population but about one-fifth of the economy, reflecting a concentration of heavy industries including coal, steel, chemicals and machine building.

The region is also the centre of popular opposition to Mr Yushchenko's pro-western administration, with Mr Yanukovich and his Regions party drawing overwhelming support. In a blue collar region where much of the population was brought in from Russia during Soviet times to work in the coal mines and factories, Mr Yushchenko's pro-western liberalism is regarded with deep suspicion.

"Let's declare war on Russia - and surrender immediately!" says one of the placards pinned up by the Ukraine Without Yushchenko campaign on Donetsk's central square. Campaigner Malkhaz Yeresyuba says the appeal to be taken over by Russia is "just a joke" but reflects the real sentiments of Donetsk region residents, who he said would prefer to be in a union.

The camp's main purpose, however, is to agitate for the release from prison of Boris Kolesnikov, a prominent local politician and one of Mr Akhmetov's business partners. Mr Kolesnikov was taken into custody in April and accused by prosecutors of directing a campaign of threats and violence, including two bombings and a spray of machine gun fire, that allegedly convinced the former owners of a Donetsk department store to sell out cheaply.

Mr Kolesnikov is vice-president of the Shakhtar football team, chairman of Donetsk's regional council and head of the local branch of Mr Yanukovich's Regions party. Mr Kolesnikov is not involved in SCM but his company Ukrinvest took part with SCM in the privatisation of Kryvorizhstal, taking a 6.5 per cent stake in the consortium that bought the mill. SCM controls just under 50 per cent of the consortium and the rest is controlled by Viktor Pinchuk, son-in-law of the former president, Leonid Kuchma.

Mr Akhmetov has defended the deal, in which his brother and other associates figured as buyers, but he has distanced himself from Mr Kolesnikov, saying he will accept the court's verdict.

Mr Prasolov said he was confident Mr Kolesnikov's arrest did not signal the start of an all-out attack on Mr Akhmetov and that there would be "no Kremlinesque tactics" used against his company.

In spite of some similarities, there are many things that make Mr Akhmetov's story different from Mr Khodorkovsky's and likely to take a different course. Ukraine's smaller economy gives relatively greater weight to tycoons such as Mr Akhmetov, who have the capital resources Mr Yushchenko badly needs to upgrade the economy.

The FT visited SCM's Donetsk brewery, a showcase of state of the art technology and high productivity in a country plagued by inefficient equipment and overstaffing.

Most importantly, Mr Akhmetov has a powerful local base in the Donetsk region. While Mr Yanukovich and the Regions party distance themselves from Mr Akhmetov and insist he gives them no support, they continue to speak up for him and his interests.

Artem Yatsenko, a student who said he belonged to the "5 per cent" in Donetsk who support Mr Yushchenko, said he was confident the new president would learn to get along with Mr Akhmetov. "He's such an influential person, not just for our region but for the whole country," Mr Yastenko said.

Source: Financial Times