European Central: Ukraine’s Energy Sector Corruption Is A Bigger Issue Than It Seems
Kato Blackmore 🇺🇦
News cycles have largely sidelined the shifting front lines in Ukraine, but the war is as brutal as ever and Russia is still making slow progress. The key strategic city of Pokrovsk has been facing a prolonged battle for over a year and videos have hinted at a growing Russian hold on the city.
But the biggest news out of Ukraine has been the reveal of a $100 million energy sector kickback and bribery scandal that has rocked President Volodymyr Zelenskyy’s inner circle. His own government’s history with corruption scandals isn’t particularly new, but the scale and timing of this one has put Ukraine in a tough position.
Not only is Russia slowly grinding forward, not only is this not the first corruption scandal, but it comes at a time where the energy sector is more important than ever. The war in Ukraine has centered around drone strikes on the energy sector from both sides, and with a harsh winter approaching, the fate of Ukraine is more uncertain than ever.
Corruption In Ukraine Has Proven Resilient.
Corruption has plagued the Ukrainian government for many years, especially since the start of Russia’s invasion. In 2015, the nation was called the “most corrupt nation in Europe”, and for good reason.
Bribery was ubiquitous, especially in healthcare, and since the 2014 ousting of its pro-Russian government, the nation has made some strides in combating its spread. From the open-source government procurement programs to national whistleblower reporting platforms, corruption is so commonly reported in Ukraine in part because it is actively being fought.
The results, however, have not been all positive. In 2022, there was a prominent embezzlement scheme that involved food procurement intended for humanitarian aid and military use, and through 2023, there were a series of corruption scandals involving everyone from governors to the Deputy Defense Minister and deputy head of the President’s office. Many involved military procurement, which has hindered the war effort for a side that has been on the back foot for the majority of the war.
Ukraine was shocked earlier this year by Zelenskyy’s move to weaken anti-corruption agencies by tightening government oversight of them, citing concerns about Russian influence over the two agencies and wanting to speed up investigations. It was only after intense protests, some of the most prominent since 2014, that Zelenskyy restored the independence of the anti-graft agencies.
To an extent, that independence has led to the uncovering of this most recent $100 million scandal that has rocked his inner circle. In it, a Ukrainian anti-corruption agency has alleged that the nationally-owned atomic energy company Energoatom demanded its suppliers pay bribes between 10% and 15% of their contracts to maintain service.
Alleged suspects include a former business partner of Zelenskyy, a former Minister of Energy, a recently appointed Minister of Justice, and a current National Security and Defense Council member.
Now, since the scandal erupted, Zelenskyy has vowed an energy sector overhaul, have forced resignations and sanctions against the involved individuals, and announced both an audit and reshuffle of the state’s control of energy companies.
But the corruption scandal comes at an incredibly inopportune time for Zelenskyy and Ukraine, and the consequences could be extensive.
A Potentially Fatal Lack Of Energy… And Support.
Ukraine is currently in the process of urging EU partners to agree on a $162 billion reparation loan taken from seized Russian assets. The move is a risky investment for Europe, and holdouts like Belgium and Hungary are either scared of retaliation from Russia, which has expanded its drone strikes to central Europe, or have warm relations with Russia.
The EU is already weighing an Ukrainian bid to join the bloc, which is supposedly still alive, and one of the main conditions of accession is a successful campaign against entrenched corruption. But more important in the short term is the one of the oldest trials humanity has faced: a harsh fight for survival in winter.
There are two core elements to this issue. The first is financial, as Ukraine is set to experience a funding crisis in early 2026. This is why that $162 billion loan is so important. For an economy already feeling the weight of three long years of war and losing a decent chunk of its territory, every dollar counts and energy is not cheap.
Energy is the second core element, and ties directly into the most recent corruption scandal. An interesting arena of the war has been the war over energy. Besides literally powering the weapons of war one needs to win, it also is a vital part of civilian life and the economy, both of which must remain relatively stable in order to wage war.
Throughout the last three years, and especially in the last two, Ukraine and Russia have focused their attacks on each other’s energy sectors.
Russia’s reliance on its energy economy is well known, and striking it hits a major financial artery for the Russian war machine. On the Ukrainian side, the financial element is still there, but it is also both a retaliatory effort and one made to increase civilian exhaustion with the war, and perhaps lead to a compromise in Russia’s favor.
Ukraine has successfully weathered Russia’s energy strikes for the past few years without major blackouts in large part thanks to stable nuclear power generation, enhanced protection of energy facilities, quick repairs, and the deployment of more decentralized power sources, including mostly gas-fired generation and renewables. But this year may be different.
Russian air strikes are increasing in number as Ukraine struggles to keep its air defenses capable enough to mitigate the damage. Additionally, October strikes have disabled upwards of 60% of domestic production capacity.
With an audit and a reshuffle in the cards for Ukraine’s energy sector after the corruption scandal, and with strikes continuing to pose an issue, Ukraine now faces a new dilemma that poses an existential threat.
The Road Ahead Is A Cold One
National control of Ukraine’s energy is something that expanded after the invasion in 2022, but also something that may have exacerbated corruption issues in the sector, according to an October report by the Ukraine Facility Platform.
But there is good news and bad news for Ukraine. The good news is that this $100 million energy scandal does show that the anti-corruption efforts are working, and that the anti-graft agencies do have some teeth. Depending on how well Zelenskyy can spin this, it could provide an extra boost to his argument for the reparations loan and continued support from the EU.
The bad news is that this is likely not the end of his corruption woes, nor of his fight to ensure the stability of his energy sector. Many of his European allies could see this scandal as yet another reason not to invest in an ally that has a long history of misappropriating funds, to put it lightly.
Zelenskyy’s moves to assuage those fears, between his support for cooperation with the investigations and his reorganization of the energy sector, seem to be more of a genuine attempt at reform than an attempt to save face. After all, Zelenskyy won his 2019 election in part because he promised to root out corruption.
But he can’t control everyone in his government, and the realities of war place an extreme amount of strain on what is and is not acceptable. The pull to break the rules, either for the nation’s benefit or for one’s own, is undeniable, and sometimes even the most competent administrators want a little extra off the top. Enjoying the benefits of having those administrators at the cost of indulging their vices and losing public support is a difficult task.
Economic relief only comes at the cost of genuine anti-corruption efforts, and Europe is not in the business of making risky investments. Zelenskyy will need to keep the anti-corruption momentum going without losing too much competency in his administration to weather the coming winter.
