BAKU: Weekly profiles new governor of eastern Ukrainian region

Weekly profiles new governor of eastern Ukrainian region

Zerkalo Nedeli, Kiev
19 Feb 05

The new governor of Kharkiv Region, Arsen Avakov, is one of the
richest men in the region, a serious weekly has said. His ruthless
business and political methods made certain that he rose to top, the
article says. In good time he saw which way the wind was blowing and
jumped on the bandwagon of new Ukrainian President Viktor Yushchenko,
establishing firm links with his brother and nephew. However, he still
has to deal with a resolute opponent in the popular former governor
Yevhen Kushnaryov, a former ally, before he can really establish
himself. The following is the text of the article by Bohdan Sovchenko
entitled “Banker who broke the bank” published in the Ukrainian weekly
newspaper Zerkalo Nedeli on 19 February; subheadings are as published:

The appointment of 41-year-old Arsen Avakov to the post of head of the
Kharkiv Regional State Administration surprised many people not only
in the capital, but also in Slobozhanschyna [old Russian name for
Kharkiv Region and parts of Donetsk and Sumy regions]. First, far more
famous and experienced politicians were named as his rivals in the
struggle for the governorship – Anatoliy Matviyenko, Volodymyr Filenko
and Volodymyr Shumilkin. Second, Mr Avakov had, up till now, preferred
to be not so much part of the authorities, as to be with the
authorities. Thanks to his recognized talent as a lobbyist, his
business has flourished regardless of who exactly was on the summit of
the local Olympus.

Biographical elements

In the personal file of the qualified engineer who graduated from
Kharkiv Polytechnic there are several bright pages and just as many
blank spots. The instincts of an enterprising businessman were noticed
early in Avakov. With an enviable tirelessness he created and
implemented numerous and varied business schemes, thanks to which his
capital grew in front of one’s eyes. As early as the beginning of the
90s, this native of the Azeri capital was considered one of the
wealthiest and most influential citizens of the megalopolis.

Twelve years ago the successful entrepreneur found himself in the
field of view of law-enforcement agencies. The guardians of the law
started to take an interest in the head of the Investor firm in
connection with the investigation into the so-called (?Valshonok) case
(the director of the Potok firm, accused of large-scale embezzlement
of property).

Also in 1993, on Kharkiv’s First Cavalry Street, Avakov’s closest
business partner, the deputy president of Investor, Oleksandr
Konovalov, was killed by two point-blank shots. Fedir Razzakov (author
of the book “Gangsters of the times of capitalism”) claims that the
43-year-old, previously convicted Konovalov was suspected of giving
bribes to high-ranking staff of the prosecutor’s office. It was
thought that the illegal financial “assistance” was intended to
accelerate closure of the (?Valshonok) case. Ukrainian detectives were
unable to prove that, just as they were unable to clear up the hired
killing of Konovalov.

By the end of the 90s, the head of the Investor firm and the Bazis
bank had firmly secured a reputation as one of the bosses of “the
first capital” [Kharkiv was the capital of Ukraine for a time in the
previous century]. For some reason the name of the sweetest and most
charming person was regularly connected with scandals that, on the
other hand, died down just as quickly as they had flared
up. Ill-wishers allege that it is not without the intervention of the
local authorities.

In 1998 special lottery tickets, “We will build the metro together”
were issued through the Bazis bank. According to some reports, the
promotion brought its organizers about 10m hryvnyas. It was assumed
that a considerable part of that sum would be directed to covering
expenses connected with the construction of new branches of the local
metro system. It is not really known precisely how much money reached
the metro builders. But it is known that since then the financial
position of Bazis became substantially more solid. Even though in 1997
the bank went through not the best of times and, rumour has it, was
threatened with losing its licence and bankruptcy.

Incidentally, according to reports from the Informbyuro information
and analysis publication, “one of the co-owners of Bazis was a deputy
of Kharkiv city council, (?Askharbek Yeloyev), the founder of the
famous Kharkiv “Quick money” trust and another 47 firms that deceived
gullible people in Kharkiv to the tune of 2m dollars… [ellipsis as

After Yevhen Kushnaryov became governor of Kharkiv Region, Bazis
became a participant in a considerable number of projects conducted
under the aegis of the local authorities. With the protection of the
regional administration, Avakov’s bank became the permanent financial
partner of the flagship of Kharkiv machine-building, Turboatom, one of
the few local enterprises operating in a stable manner for the export

In January 2000 the city residential communal management transferred
the lease to Avakov’s commercial structures of the major Kharkiv
heating and electricity station No 3 [HES-3]. Under the agreement, the
lessees were to invest 10m hryvnyas required to replace the
turbine. Turboatom manufactured and delivered the new
turbine. However, Avakov’s HES-3 did not pay in cash… [ellipsis as
published] but in Kharkivteploenerho promissory notes. With their aid,
the debts of Turboatom for the heating used were allegedly covered.

At approximately the same time, Avakov (his opponents claim) chose a
gas well allegedly belonging to nobody in the village of
Ohultsy. After the reorganization of Ukrhazdobycha [Ukrainian gas
extraction] it, for some reason, found itself without a formal
owner. On the order of Mr Avakov’s commercial structures,
Kharkivhazbud-1 [Kharkiv gas construction] built a gas pipeline into
Ohultsy and built a gas condensation installation there. Following
that, the construction and assembly directorate waited a fairly long
time to be paid for the work it carried out.

Critics of the current governor have claimed that gas from the seized
well was profitably used by HES-3. With mediation from the
authorities, Avakov (as alleged by the Kharkiv press) obtained a lease
on another well that previously belonged to
Shebelikahazdobycha. Before that, according to media reports, the
association supplied HES-3 with gas at prices lowered by about one

The compliancy of the most varied Kharkiv leaders, officials and
businessmen and their readiness to meet half way the large-scale plans
of Avakov in the city were explained by the close ties of the Investor
chief with local governor Yevhen Kushnaryov and especially with his
first deputy, Volodymyr Shumilkin.

After the latter decided in 2002 to stand for mayor, he was supported
by Kharkiv’s Channel 7, which is controlled by Avakov. A journalist
from the channel particularly annoyed their colleague. He was the
well-known TV presenter Serhiy (?Potymkov), former parliamentary
deputy and Shumilkin’s main opponent at the mayoral
elections. Mykhaylo Brodskyy, a comrade-in-arms of (?Potymkov) in the
Yabluko party [party led by Brodskyy], asserted at one time that the
present Kharkiv Region governor even offered several hundred thousand
dollars of “compensation” for the voluntary withdrawal of Mr
(?Potymkov) from the election race. It is noteworthy that immediately
after the victory of Shumilkin at the elections, Avakov and the
general producer of Channel 7, Volodymyr Chapay, became members of the
new city executive committee.

During the 2002 parliamentary campaign the election clips of For a
United Ukraine [pro-presidential bloc] on Channel 7 rubbed shoulders
fairly comfortably with the publicity for [President] Viktor
Yushchenko’s bloc [Our Ukraine]. Local cognoscenti found a logical
explanation for such pluralism: the cautious Volodymyr Shumilkin and
forward-looking Arsen Avakov were seeking points of rapprochement with
Our Ukraine. At the same time, the former strengthened political
contacts with Yushchenko’s brother, Petro Yushchenko, while the latter
strengthened business links with Mr Yushchenko’s nephew, Yaroslav.

The conflict between the governor of Kharkiv Region and the mayor of
the region’s centre seriously spoilt relations between Avakov and
Kushnaryov. The boss of Investor had bet on Shumilkin and he had not
guessed wrongly. With the latter’s arrival to take up the mayor’s
seat, Avakov’s affairs became even rosier. That can be judged if only
by the successes of Bazis. In 2000 Avakov’s bank had only one isolated
regional branch. In 2003 there were 18 of them. In the same year Bazis
increased its authorized capital by almost one third, and its size was
brought up to 19.5m hryvnyas, and in 2004 it had reached 22.191m.

However, nearer the elections difficult times came for Avakov. By
supporting Shumilkin (who had gone into a prolonged clinch with
Kushnaryov), Mr Avakov had definitively burned his bridges with the
governor. There were rumours that it was the governor’s active
opposition to Avakov’s attempts to take control of another heating and
electricity station – HES-5 – that put an end to their relationship.

It is no secret in Kharkiv that it was hardly political convictions
that drew the head of Investor and Bazis into the opposition
camp. Avakov was always noted for his cunning and foresight: he was
hoping that support for Yushchenko would be able to bring him tangible
dividends. And, as it happened, his hopes were not in vain. Apart from
that, Mr Avakov needed allies in the war with the governor that had

As the AZN agency reported at one point, in December 2003 an
inspection was made of Bazis, during which staff of the National Bank
discovered serious breaches. The bank, which was allegedly suspected
of money laundering, escaped fines and got away with a written
warning. However, in February 2004 (according to AZN information)
Bazis was included by the National Bank on a list of violators of the
standards of financial monitoring of dubious financial operations.
Storm clouds gathered over the bank. According to some reports, Bazis
was saved from further unpleasantness by intervention from deputies of
the Our Ukraine faction. It is quite possible that they sincerely
considered what was happening to Avakov’s company to be political
repression. After all, at that time Mr Avakov was already an activist
in the regional headquarters of Our Ukraine.

During the 2004 campaign Avakov’s Channel 7 was the main mouthpiece
for Yushchenko’s team in Kharkiv. Apart from that, it faithfully
relayed the capital’s [independent] TV 5 Kanal, despite permanent
pressure from the regional authorities.

Avakov’s star time came after the second round [that is, after 21
November 2004]. At the suggestion of one of the main players in the
Orange Revolution, [Our Ukraine MP] Volodymyr Filenko, he essentially
became Viktor Yushchenko’s plenipotentiary in one of the biggest
regional centres. Formally the banker and numismatist was the second
person in the regional Committee of National Salvation (the first was
the head of the local election headquarters, Anatoliy Matviyenko). In
fact, there was no doubt that in reality he was the first. It was
precisely thanks to his organizational efforts that Kharkiv had its
own “Orange Square” [Kiev’s Independence Square was the heart of the
pro-Yushchenko Orange Revolution]. Incidentally, this was more than
presentable for a city that massively supported [Yushchenko’s
opponent, Viktor] Yanukovych. It was he who got the doubting Volodymyr
Shumilkin to back Yushchenko whole-heartedly. As a political manager
the non-affiliated Avakov turned out to be far more effective than
many veterans of election battles. The bank boss went for bust. And he
broke the bank.

Allies and rivals

It is simpler to say who did not lobby for Avakov as governor. Mayor
Volodymyr Shumilkin, whom (according to our information) Viktor
Yushchenko offered the governor’s job, thought briefly and turned it
down. He insistently recommended instead the candidacy of his
long-time partner, Avakov.

Another claimant, Anatoliy Matviyenko, it is said, gave up the
struggle after a direct meeting with the chief of Investor. And not
only did he give up, but also became an active lobbyist for Mr
Avakov. Sources in the Kharkiv organization of Our Ukraine allege that
[Prime Minister] Yuliya Tymoshenko put her weight behind the
nomination of Avakov. Neither did [current head of Ukrainian State
Secretariat] Oleksandr Zinchenko stand on the side. They say that he
discovered old friends in HES-3. But the main guarantors of Mr Avakov
in the eyes of the new president were his brother and nephew. It seems
that Messrs Petro and Yaroslav Yushchenko are connected with the new
governor by the closest personal and business contacts. And yet the
last word, so far as can be judged, rested with Shumilkin. He gained
access to Mr Yushchenko precisely when the latter was still undecided
whom to choose – Avakov or Filenko.

Some people call Avakov Shumilkin’s man. Others are convinced that it
is all absolutely the other way round. Nevertheless, the link between
the two eminent Kharkiv people is evident to the naked eye. Some
people are convinced that the two are in harmony. Others are sure that
they will certainly fall out in the predicted battle for power. And to
back it up, they quote the conflict between Shumilkin and Kushnaryov,
who also at one time were considered to be a reliable tandem. So far
the former has not become an independent figure and has not started to
share rights and powers with his former boss. Be that as it may,
Shumilkin was undoubtedly pursuing his own interests in pushing his
partner upwards. And for now the governor has a reliable ally in the
person of the mayor. At least until the common and still dangerous
enemy – Yevhen Kushnaryov – is definitively vanquished.

Immediately after his triumphant arrival in office on Freedom Square,
Avakov announced his intention to make Yaroslav Yushchenko deputy
governor. It was planned that the president’s 26-year-old nephew would
be in charge of attracting investments at the regional
administration. However, the relevant official instruction has not yet
been signed: it is being said that the head of state himself spoke
himself against such an appointment.

Avakov’s friends and partners include virtually all the eminent people
in the city, including such well-known personalities in the world of
politics and business as MPs Oleksandr Yaroslavskyy, Ernest Haliyev
and Vasyl Salyhin.

At the same time, Mr Avakov is living proof of the rule that there are
no eternal friends in politics and business, only eternal
interests. The history of his relationship with Kushnaryov is
indicative and not unique. At one time the current head of Kharkiv
Regional State Administration was virtually the closest friend of
Yuriy Haysinskyy. But after the latter left the post of first deputy
prosecutor-general, they were seen together far less frequently. On
the other hand, Avakov has constantly been seen in the company of
Yaroslav Yushchenko in recent times.

Relations between the Investor chief and the above-mentioned
(?Potymkov) developed in a strange way. At the 2002 parliamentary
elections the opposition politician and journalist was a dangerous
opponent for the pro-authorities Avakov and Shumilkin. At the 2004
elections Avakov and (?Potymkov) were now in the same team and both
joined the local National Salvation Committee. Furthermore, the former
MP became a writer and programme presenter on Avakov’s Channel 7.

Still more fantastic was the history of Avakov’s links with Henadiy
Kernes, a highly colourful Kharkiv personage, businessman and member
of the city council (and, at the same time, related by marriage to
Yuriy Haysinskyy). Mr Kernes (better known in the city by the nickname
Hepa) was in conflict with Avakov on several occasions. At one point,
Avakov’s Investor firm was incautious enough to take loans from
Kernes’s NPK bank and failed to pay them back on time. Mr Kernes has
the reputation of being an irascible man and, to put it mildly, [his
irascibility is] not too well hidden. Journalists well recall what he
said then and how he then spoke about the current governor.

Today the gentlemen in question are reliable partners. It was
precisely these two who, in the larger scheme of things, provided
support for Viktor Yushchenko in the city council. Bedecked in orange,
Kernes and Avakov stood peaceably side by side at revolutionary
rallies and nothing can now recall the former rows and old
offences. However, knowing Kernes’s character and his business
appetite, it can be assumed that in future they will clash again on
more than one occasion.

Avakov’s unexpected siding with the opposition surprised many Kharkiv
people not initiated into the secrets of politics. But the fact of his
appointment was even more surprising. Mr Avakov can safely be called a
Mister Big for local businessmen. But he is hardly that for residents
of the city, far less of the region. The business history of Investor
and Bazis was not always smooth and, what is more, was surrounded by
legends over many years. Bitter and terrifying stories connected with
Avakov’s commercial structures were almost always being told and then,
with the arrival of the new governor, residents of “the first capital”
reacted more with fright than with hope. Even the large (about 25,000
people) and influential Armenian diaspora perceived the arrival of
Avakov in the building on Freedom Square equivocally.

It is a surprising fact that it can be said that after Avakov’s
appointment, the popularity of former governor Kushnaryov only
rose. And this is a circumstance that the new viceroy will have to
take into account.


Immediately after his appointment, the new governor announced that he
had resigned his powers as president of Bazis and chairman of the
supervisory board of Investor. He solemnly declared, “I have come to
power not to improve my business or to lobby interests, but to realize
my important ideals… [ellipsis as published]”

Mr Avakov entrusted his entrepreneurial affairs to Henadiy Hayev, his
right hand, long-term partner and reliable confidant. Frankly
speaking, Mr Hayev gently guided Avakov’s business while his boss
engaged in lobbying and political activity. There is much to show the
closeness of Avakov and Hayev. For example, they are co-authors of the
book “Promissory note circulation: theory and practice”, published in
2000 by the local publishing house Folio. They are both on the
organizing committee of the science fiction festival “Star Bridge”
(sponsored by Avakov himself, a long-time fan of this genre).

At present Avakov’s empire, according to some reports, includes over
70 enterprises. His interests are most varied. As well as the
above-mentioned Bazis bank and HES-3 and the two gas wells, there is a
bread factory and a (?tea weighing) factory, a company that builds
elite housing and the cult restaurant Podvorye (at one time a
traditional place for “fixing [criminal] meetings”). It is said that
Avakov not long ago managed to take under his “guardianship” the
Kharkiv central department store.

According to available information, he controls half of Channel 7 (the
other 50 per cent is in the hands of Henadiy Kernes) and half of the
A/TVK holding (the remaining shares belong to his partners Oleksiy
(?Lipchanskyy) and Oleksandr Kovalenko and also to local oligarchs
Oleksandr Yaroslavskyy and Vasyl Salyhin). Apart from that, he is said
to own the Simon-Info publication, the weekly Pyatnytsya and several
FM stations. The popular newspapers Sobytiye, Vecherniy Kharkov and
Vremya are also said to be close to Avakov.

Avakov, so far as can be judged, has long been collaborating with
Russian entrepreneurs and, it seems, is eager to expand that
collaboration. As they say, Mr Avakov is not averse to placing his
capital in Russia. Others allege that he already has business in
Russia and it is only a matter of expanding it. At the same time, the
new governor is waiting for the arrival of Russian capital to
Slobozhanshchyna. At any rate, he tasked officials with “establishing
Kharkiv Region as a centre of border cooperation with Russia”. Some
people believe that, with the help of the new governor, Russian
oligarchs may “pay visits to” local enterprises, among whom they even
name [fugitive Russian businessman] Boris Berezovskiy for some reason.

Avakov is certainly vain. Speaking immediately after his appointment
with regional activists, he recalled the words of Napoleon: “50,000
soldiers and I make 100,000 soldiers”.

Avakov’s plans are also Napoleonic. By the end of the year he promises
to create 50,000 new jobs, removing one of the most acute local
problems. True, it is not yet clear how precisely he intends to do
this. Another vital task (that many people call unrealistic for the
governor and his team) is to boost local machine-building.

But the main headache for the head of Kharkiv Regional State
Administration in the near future is destined to be the struggle to
establish his own authority in the eyes of the public that to date
feels a poorly concealed mistrust of him. And apart from that – a
scrap with the local opposition. Considering today’s mood in the city
and the extraordinary activity of Yevhen Kushnaryov, this will not be
simple. The former governor is in a state of war with his former
partners Avakov and Shumilkin. Local political, business and media
teams have been drawn into this war. And the outcome of the battle is
not yet clear.