EHRENFELD: Russia plows on

Oligarchs expand their reach

By Rachel Ehrenfeld | Tuesday, September 30, 2008

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OP-ED:

On Sept. 16, the majority of the parliament in Ukraine's Crimea peninsula urged Ukraine's national parliament to recognize independent South Ossetia and Abkhazia. A day earlier, Moscow efforts led to the collapse of Ukraine's coalition government. This latest crisis followed the Russian foreign office's condemnation of Ukraine's "unfriendly" policies toward Moscow, especially Ukrainian President Viktor Yushchenko's opposition to renew the Russian fleet lease of Ukrainian ports.

Meanwhile, the Kremlin's loyal oligarchs consolidate control over Ukraine's ports as part of their campaign to take hold of the region's scarce commodities. Going far beyond energy, the Russian strategy now expands to food resources, threatening to leave millions of people cold and starving.

Food shortages and spiraling prices are spurring riots and creating emergencies worldwide, the director-general of the U.N. Food and Agriculture Organization, Jacques Diouf, says. Over 852 million (above 13 percent) of the world population is malnourished. In April, global cereal reserves were already so low; they could feed the world for only eight-12 weeks.

The World Bank calls Ukraine "one of the few countries in the world," capable of significantly increasing net grain exports. Aptly, Kiev decided in April to increase its grain export quotas.

For 69 years, Ukraine was the U.S.S.R. "breadbasket." Until breaking free in 1991 from the Soviet boot, Ukraine supplied over 25 percent of all the U.S.S.R. agricultural produce. Now it's the world's eighth-largest wheat exporter, and ranks 10th overall for cereal exports.

Early this year, Ukraine asked the World Bank to facilitate Mr. Yushchenko's 2005 plan to double its food production, thus turning it to the "breadbasket of Europe." "Ukraine is in a position to make a significant contribution to the international effort to deal with the food crisis," the World Bank concluded in its "Competitive Agriculture or State Control: Ukraine's response to the global food crisis."

Unfortunately, Ukraine's unstable coalition government almost simultaneously thwarted Mr. Yushchenko's plans with new grain export restrictions that cost Ukraine food producers more than $2 billion last year. Levies that devalued its agro-business industry. This opened the door to the Russians.

In February 2008, according to Ukrainian media reports, Russia's FedComInvest assumed control of Sumykhimprom, Ukraine's largest fertilizer manufacturer, whose products are essential to growing healthy crops and increasing Ukraine agricultural yields. FedComInvest belongs to the leading Russian sulfur supplier, FedCom, which generates some $2 billion in annual sales. It was founded in 1996 by Alexei Fedoricsev, a minor-league millionaire, and listed as a major investor in the 2014 Sochi Winter Olympics.

The Sochi Winter Olympics are the treasured baby of Russian Prime Minister Vladimir Putin. Like the Chinese with the Beijing Olympics, Mr. Putin aims through the Sochi Olympics to validate the success of his very own "new Russia."

With Mr. Putin's "encouragement," Russia's oligarchs - the richest, $28 billion worth Rusal chieftain Oleg Deripaska (banned from entering the U.S.), to less known, and other shadowy figures like Mr. Fedoricsev, who barely squeaked onto the tail end of a recent Forbes Russia Golden 100 list, with roughly $450 million - invest heavily in the forthcoming Sochi Olympics.

Meanwhile, Mr. Fedorychev's Russian TransInvestService, another FedCom company, recently obtained a $50 million contract to build the largest Ukrainian container terminal for the Port of Yuzhny to facilitate food- and fertilizer-shipping to Europe and the Middle East. (The Saudis are becoming major clients.) Ukraine's Transportation and Communications Ministry describes FedComInvest's activities as "corporate raiding." Other Russian companies also made huge investments in major Ukrainian sea and river ports.

"The Kremlin has established a group of service oligarchs, people with shady past, who are ready to use any methods to reach their ends," states political science professor Valentin Yakushik at Kiev's Mogilaynsky Academy. Not long ago, Interpol investigated Mr. Fedorychev for alleged money laundering and links to notorious international arms/drugs and diamond dealers Leonid Efimovich Minin, now serving time in Italy, and illusive Victor Anatolyevic Bout, who was arrested in Thailand last March on an FBI warrant.

The French newspapers Le Monde, Le Parisien, and Aujourd'hui followed the investigation closely and reported that Mr. Fedorychev got away due to lack of evidence. But "Fedorychev's close associate was indicted," says Inna Weiss at the Central Group of European Political Monitoring. "The publicity led cautious members of Europe's money elite - notably, the late Prince Rainier of Monaco - to cut business ties with Fedorychev to the minimum."

The Kremlin's aggressive pursuit of the world scares commodities. That wealthy and aspiring oligarchs with checkered pasts are involved should raise alarms among potential business partners.

While the U.S. keeps busy with the election and the financial crisis, Mr. Putin gets his way.

Rachel Ehrenfeld is director of American Center for Democracy.

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