Ukraine: energy corruption scandal threatens to derail Zelensky’s government and undermine its war effort

The latest corruption scandal that has engulfed Ukraine could not have come at a worse time or in a more delicate sector of the economy for the increasingly embattled government of Volodymyr Zelensky.

Ukraine’s military is now clearly on the back foot in several key sectors of the frontline. Meanwhile, Russia’s campaign to devastate Ukraine’s energy sector is putting enormous pressure on the country’s infrastructure and bringing increasing hardship for ordinary Ukrainians as winter approaches.

The fact that the latest corruption scandal involves the energy sector is, therefore, particularly damaging to the government and public morale.

Ukraine’s independent anti-corruption agencies have just released the findings of Operation Midas, a 15-month investigation into Energoatom, which is the state-owned operator of all of Ukraine’s nuclear power plants. With a total capacity of almost 14,000 megawatts, Energoatom is the largest electricity producer in Ukraine.

Anti-corruption investigators allege a large kickback scheme of between 10% and 15% of the value of supplier contracts, amounting to about US$100 million (£76 million). Raids were carried out in 70 locations around the country on November 10. Seven people have been charged and five are in custody.

The mastermind of the corrupt scheme is alleged to be Timur Mindich a businessman and film producer, who hastily fled Ukraine a day before the raids. What makes this very dangerous for Zelensky is that Mindich is the co-owner, with the Ukrainian president, of Kvartal 95 Studio. Kvartal is the media platform on which Zelensky established his pre-presidential fame as a comedian.

The scandal, therefore, once again involves very close allies of the president. It risks tainting by association. But it also leaves him open to questions of whether he could have acted sooner about the allegations.

But the way in which this latest scandal unfolded also indicates that it is the manifestation of a much deeper conflict going on behind the scenes between elite groups vying for control of the last valuable state asset – the energy sector.

Smear campaigns

It’s the latest in a chain of events that goes back to the summer months, when Zelensky’s Servant of the People parliamentary faction tried to terminate the independence of Ukraine’s anti-corruption agencies. Mass protests by young Ukrainians forced the government to backtrack on the decision.

At this point, rumours about the existence of secretly taped conversations involving Mindich began to circulate in the Ukrainian media. However, no details of the content of the conversations were released at time, leaving any allegations of corruption to the realm of speculation.

As the government came under increasing pressure after massive Russian air strikes against the energy sector on October 10 which left Ukraine’s population without electricity for almost an entire day, mud-slinging began in earnest. Attention focused on Volodymyr Kudrytsky, the former head of Ukrenergo, the main operator of Ukraine’s electricity grid.

Kudrytsky, an outspoken figure in Ukraine’s pro-western and anti-corruption civil society, was detained on October 28 on suspicion of fraud relating to his alleged involvement in a 2018 plot to embezzle the equivalent of $1.6 million from state funds. The investigation against him was conducted by State Audit Service of Ukraine and State Bureau of Investigation, which are directly subordinate to Zelensky.

He has robustly defended his record against what he alleged were politically motivated attacks designed to shift the blame for the devastation of Ukraine’s energy grid by Russia’s air campaign away from the government.

While Kudrytsky has been released on bail, the case against him remains live.

Power struggle

Whatever their outcome in legal terms, the rumours circulating against Mindich and the attacks against Kudrytsky appear, for now at least, to be classic information campaigns aimed at assassinating reputations and damaging the people and agendas associated with them.

As they pit pro- and anti-Zelensky camps in Ukraine’s elites against each other, the latest corruption revelations reveal a power struggle over who controls the state’s most valuable assets and the levers of power in Ukraine. If Zelensky’s enemies cannot remove him from power, then his ability to rule can be severely constrained by targeting close allies like Mindich.

Another of Zelensky’s top advisers, justice minister (formerly energy minister) German Galushchenko has also been suspended as a result of Operation Midas.

This elite infighting, which is engulfing a sector that is critical to Ukraine’s ability to continue resisting Russia’s aggression, is astounding in its disregard of the existential crisis engulfing Ukraine. While its outcome, for now, is unclear, several important conclusions can already be drawn from it.

The return to a competitive political process with freedom of speech, media, and association, which was suspended as a result of the war, is vital. Fears of playing into the hands of Russian propaganda by revealing corruption in Ukraine simply enable the corrupt officials to further abuse their power and damage the country’s prospects of prevailing against Russia.

More direct involvement of the EU and the US is needed in fighting corruption in Ukraine. Corruption reduces funds allocated for the war. But it also fuels public pessimism in donor countries about the effectiveness of their continuing support.

Read more: Ukraine war: why Zelensky's corruption purge could be key to the outcome of the conflict

This corruption has been hugely damaging for recruitment to the armed forces. A recent survey found that 71% of Ukrainians believe the level of corruption has increased since Russia’s full-scale invasion in February 2022.

Monthly desertion rates from the army now stand roughly at the level of two-thirds of new recruits. That’s 21,000 deserters compared to 30,000 sign-ups. It’s not sustainable for Ukraine’s defence efforts – and is part of the reason for some of the recent setbacks at the frontline.

This is no longer about the country’s reputation and its prospects of European integration. Cleaning up Ukrainian politics – and being seen to do so – is now as essential for Ukraine’s survival as shoring up its air and ground defences against Russia.

Tolerating corruption is a luxury that Ukraine can no longer afford if it wants to survive as an independent country.

Stefan Wolff is a past recipient of grant funding from the Natural Environment Research Council of the UK, the United States Institute of Peace, the Economic and Social Research Council of the UK, the British Academy, the NATO Science for Peace Programme, the EU Framework Programmes 6 and 7 and Horizon 2020, as well as the EU's Jean Monnet Programme. He is a Trustee and Honorary Treasurer of the Political Studies Association of the UK and a Senior Research Fellow at the Foreign Policy Centre in London.

Tetyana Malyarenko receives funding from the Elliott School of International Affairs, George Washington University.