The Ukraine War and the Oligarch Dmitry Firtash

Historically, Ukraine is a country of extremes. It’s either a bridge or a battlefield, says rich entrepreneur Dmitro Firtash (57) in an interview. Since February 24 and the attack by the Russian army, the war, which has actually been raging since 2014, has expanded. This has partially paralyzed the business of Firtash, who is considered one of the most powerful oligarchs in Ukraine.

The conglomerate DF Group trades in gas, manufactures mineral fertilizers, operates metallurgy factories and is active in agriculture. The company employs around 110,000 people. In the week before Easter, only 67,000 of them were available. “We don’t know the whereabouts of many employees,” says Firtasch.

Danger of explosion in the fertilizer factories

Immediately after the start of the war, the DF Group ceased operations in all four fertilizer factories. Management thought the risk of Russian bombs triggering an explosion was too great. Two factories are now back in operation. The Ukrainian agricultural companies also want to sow and reap as much as possible. For this they need fertilizer.

However, agricultural companies are currently using this only reluctantly. Actually, the farmers have harvested the winter wheat, and the silos are full of it. Only the agricultural goods can hardly be exported, which means that the farmers sometimes lack income. “Fertilisers are an expensive pleasure,” says Alex Lissitsa, head of the agricultural company IMC.

The traditional export route for wheat, corn or iron ore is via the Black Sea ports. But the ships are threatened by sea mines and the access routes are partially destroyed. The Ukrainian government is therefore looking for ways to transport at least some of the goods by rail to EU countries.

But there are also hurdles. A large part of the Ukrainian rail network has broad gauge. Agricultural goods therefore have to be reloaded from one train to another at the Polish border. The logistics are also otherwise patchy. Transport hubs are missing.

Firtash therefore wants to build two transport terminals on the Ukrainian-Polish border and in the Polish port city of Gdansk. “We talk to landowners,” he says. The negotiations are not easy, however, because there are other business people who want to invest in logistics.

US corruption allegations

Firtash cannot take care of such things on site. Since 2014 he has managed his company with video conferences from his office in Vienna. That year, the United States requested Firtash’s extradition. Since then he has not been allowed to leave Austria. Firtash is said to have conspired to bribe Indian politicians and thus get hold of titanium. This in turn should have been delivered to the aircraft manufacturer Boeing. The deal never materialized.

The risk of extradition has recently increased again. In March, the Vienna Regional Court refused to resume extradition proceedings. Firtash’s lawyers have lodged a complaint with the Higher Regional Court.

For Firtash, the indictment by the USA has political reasons. From his point of view, the procedure is related to the confused history of the Ukraine war. In 2013, the EU and Ukraine planned to conclude an association agreement. At the same time, Russia was pursuing a carrot-and-stick policy towards Ukraine: the powerful neighbor lured with loans and cheap gas, but also hampered imports.

Under no circumstances should Ukraine move closer to the West, but form a customs union with Russia. The then Ukrainian President Viktor Yanukovych, whose supporters included Firtash, finally balked at signing the agreement with the EU. This led to the Maidan uprising in 2014 and the fall of the president. Yanukovych fled to Russia.

neutrality and strong army

Since then, many Ukrainians have regarded Firtash as a “Russian friend” who thwarted the connection to the West. The entrepreneur played a role in domestic politics. Unlike the “typical” oligarch, Firtash was never the leader of a party, but in those years he served as president of the Ukrainian employers’ association and as co-chairman of a social and economic council composed of workers, employers and government officials.

Firtash says that at the time he campaigned for Ukraine, like Austria, to become officially neutral. To protect the country, he propagated a strong army based on the Israeli or Swiss model. “Russia has become stronger under Putin after the crisis of the 1990s,” says the businessman. “It was no longer possible for Ukraine to maneuver between the two blocks.” The powerful neighbor wanted to prevent Ukraine from drifting further west.

Politically, Ukraine is very different from its neighboring country: in recent years, the institutionalized transfer of power in free elections has mostly worked. Unlike in Russia, the oligarchs continue to play an independent role. President Volodymyr Zelensky repeatedly attacked the oligarchs Rinat Akhmetov and Petro Poroshenko in the fall, but they will not let politicians take the lead.

In Putin’s Russia, for example, it is unthinkable for oligarchs to run the media on their own. Some of Ukraine’s rich entrepreneurs, on the other hand, are still active in the media business. Firtash is a co-owner of the Inter Media Group, and the former president and oligarch Poroshenko owned the 5 Kanal TV channel until recently.

Ukraine’s oligarchs say owning TV channels is a kind of reinsurance. You can’t rely on the courts. In order to defend one’s own interests, one needs television stations – which, moreover, were good business until before the war. In the east of the continent, however, TV stations often also serve the purpose of bringing opponents into disrepute.

The oligarchs of Ukraine maintain complicated relationships among themselves. Sometimes they forge alliances, sometimes they are deadly enemies. It is known, for example, that Firtash and former prime minister and businesswoman Yulia Tymoshenko are bitter opponents.

Trading company based in Switzerland

Both got rich in the gas business. In 2002, Firtash received the exclusive right to sell gas from Turkmenistan to Ukraine. Two years later, he founded Rosukrenergo, based in Zug, with the Russian energy giant Gazprom. The purpose of the company was to distribute gas in Ukraine and the EU. The construction met with criticism, Russian and Ukrainian backers were suspected as profiteers. In any case, it was not clear why Gazprom needed another intermediary.

Firtash says he had no choice but to work with a Russian company. At that time there were only two ways to transport the energy source from Central Asia to Europe – via Russia or Iran. However, the USA had imposed sanctions on Iran, which meant that the country was no longer a transit route.

Also around 2002, Firtash began to invest in the production of nitrogen fertilizers. Industrially this is logical because gas is a raw material for this. Nevertheless, it is striking how much entrepreneurs from the former Soviet Union have a penchant for the organizational form of the conglomerate.

Entrepreneurs like to justify this with the lack of security in everyday business. You can’t always rely on suppliers, so it’s often best to take them on straight away. However, this often gives the company a strong position in the home market. Ukrainian agricultural entrepreneurs say DF Group is exploiting a monopoly position in the fertilizer business.

There is also a legal dispute in the country about this. Representatives of DF Group argue that the company has a 30 percent share in the Ukrainian fertilizer business and that the market is open to imports.

The banks withdrew

At the same time, these conglomerates often exhibit geographical cluster risks. Firtash says he always reinvested profits in Ukraine and did not diversify risks enough. “From a commercial point of view, you can say today: That was a mistake.”

At the moment, however, diversification would not help him much either. Not only does the war weigh on his business, but also the tense relationship with the banks. Although Firtash has not been convicted in the USA and there are no sanctions against him there, western financial houses do not work with him or with the DF Group. He stopped cooperation with Russian banks when the war began. “Financial arrangements are difficult,” he says.