Nikolaus von Twickel
Summary
The economic decoupling of the “people’s republics” from Ukraine proper deepened over the past weeks. However, leading separatists openly acknowledged that there are serious obstacles to achieving integration with the Russian economy quickly. The OSCE observer mission to Ukraine suffered its first casualty on April 23, when one of its vehicles blew up, killing a paramedic. The explosion was likely caused by a mine, while both sides were quick to blame each other for the incident. And Donetsk separatist leader Zakharchenko rejected a federation with Ukraine and demanded full independence.
- More economic separation likely to create more economic woes
The severing of economic links between the areas controlled by separatists and the government in Ukraine’s Donetsk and Luhansk regions continued unabatedly. On April 25, Ukrainian state power distributor Ukrenergo said that it had halted power supplies to the separatist areas of Luhansk region because of unpaid bills that amount to 2.6 billion hryvnias (90 million euros). Russia announced hours later that it would step in and provide the affected areas with electricity.
However, there was no immediate confirmation that Russia has sent any supplies. The “People’s Republic’s” de-facto Energy Ministry and Emergency Situations Ministry said earlier on the same day that power had been restored by redirecting domestic supplies. Emergency “Minister” Sergei Ivanushkin said that Luhansk will no longer buy electricity from Ukraine and seek “other suppliers”, without naming any. Luhansk separatist leader Igor Plotnitsky said that by “cutting the last navel-string”, Ukraine was showing that it did not view the people of eastern Ukraine as its own.
The Luhansk separatist-held areas already suffer from water shortages because much of its drinking water depends on government-controlled infrastructure. A row with Kiev over payments was solved at the Minsk Contact Group talks in January (see Newsletter Nr. 15), but supplies remain erratic, partly because of ongoing repair works. Ukrenergo CEO Vsevolod Kovalchuk also warned on April 25 that electricity supplies to separatist-held areas in Donetsk might be suspended.
Much of the industrial production in both Donetsk and Luhansk ground to a halt after March 1, when the “people’s republics” took control of all major factories that had continued to function under Ukrainian ownership. The separatists claimed that the so-called outside administration was a response to the ongoing blockade in the region’s government-controlled areas, carried out by Ukrainian activists, in order to thwart trade with “terrorists”. Kiev initially criticized that blockade as harmful, but failed to stop it. In mid-March President Petro Poroshenko announced that the government was imposing its own blockade, meaning that the remaining links were cut from both sides.
The economic effects are believed to be serious because of high levels of interdependence – Ukraine relies on coal and metals from the separatist-controlled areas, who in turn need raw materials, electricity and water from government-controlled areas.
Divorcing both areas economically is likely to be expensive. Ukrainian energy giant DTEK said on April 13 that it will buy up to one million tons of anthracite coal from South Africa. Many Ukrainian power plants depend on this type of coal, which is found mainly in the separatist-controlled areas of Luhansk region and Ukraine bought more than 7 million tons anthracite coal here last year (see our annual report, p 9-10). Importing coal from as far as South Africa will likely cost significantly more.
And while Ukraine continues to receive financial aid from international donors (on April 4 the IMF paid another 1 billion dollar credit tranche), the “people’s republics” depend entirely on Russia, which is itself in a prolonged recession.
On April 14, the head of the Russian federal agency overseeing the country’s substantial reserve funds, Dmitry Gogin, said that money from the reserves would be used to help plants in (separatist-controlled) eastern Ukraine, presumably by supplying raw materials. Four days later, Kremlin-linked economist Andrei Margolin argued in an interview with US news agency Bloomberg that integrating east Ukraine’s economy with Russia will reduce Moscow’s cost for subsidizing the region.
In Russia there is little, if any, debate about the cost of further subsidizing Donbass.
In an interview published on April 24, the pro-Kremlin newspaper Izvestia asked Donetsk separatist leader Alexander Zakharchenko how the affected plants will be run, but did not mention the cost issue. Zakharchenko hinted that the process is difficult when he said that now was a “transitional period” and that the supply of raw materials and re-starting production would be decided for each factory individually.
However, other leading separatists openly admit that there are serious obstacles to establish proper trade ties with Russia, which is necessary for kickstarting the economy. In a TV show aired on April 2, Luhansk “agriculture minister” Ruslan Sorokovenko said that as long as the “people’s republic” is not recognized, it cannot export goods anywhere, including to Russia, because it lacks official certification. Sorokovenko also said that local production is “not competitive, neither in price nor in quantity” and that the business climate was negative, not just because of the ongoing war but because potential investors are scared of sanctions and the absence of proper local laws.
Commenting on Sorokovenko’s remarks about the business climate, Ukrainian journalist Serhiy Garmash added that the effective seizure of plants by imposing “external administration” makes any outside investment even less likely, because it puts ownership rights under doubt.
In another sign that the separatists are bracing themselves for tough economic times, the Donetsk “People’s Republic” on March 30 issued a decree regulating salary payments in natural goods.
- Deadly explosion hits OSCE observer mission
On April 23, the OSCE Special Monitoring Mission (SMM) to Ukraine suffered the first casualty in its three-year existence when a patrol vehicle blew up on a separatist-controlled road in the Luhansk region, presumably after hitting a mine.
The explosion killed an American paramedic who was accompanying the patrol in the event of a medical emergency. The two OSCE observers in the car, a Czech and a German, only suffered minor injuries, according to the Mission’s spot report.
The exact causes and the details of the incident remain largely unclear, but the parties to the conflict reacted with trademark accusations, each blaming the other side.
The Luhansk separatist “Ministry of State Security” known by its Russian acronym MGB, said on the same day that Ukrainian agents had blown up the OSCE car – adding that this part of Ukraine’s “war of terror” against the “republics”.
The next day, Alexander Alexandrov, a separatists “prosecutor” in Luhansk, even named a Ukrainian major, whom he claimed led a three-member special forces team that carried out the attack. Alexandrov also claimed to know that the team must have been trained by instructors from Germany and Poland.
The separatists routinely blame Ukrainian agents for all sorts of incidents inside the areas under their control. In March, the Luhansk “people’s republic” paraded two captured Ukrainian servicemen on videos in which they confessed to having assassinated local separatist commander Oleg Anashchenko. Kiev denounced the videos and alleged that the soldiers had been tortured (see Newsletter Nr 19).
Ukraine, unsurprisingly, blamed the separatists and Russia. The harshest accusations came from Security Council secretary Oleksandr Turchynov, who claimed that the attack was meant to stop the Mission from observing massive movements of Russian weapons.
All these accusations do not take into account the most likely explanation, that this was an unintentional mine accident. The village of Pryshyb, where the explosion happened, is on the south bank of the Severski Donets river, which marks the “Contact Line” between the sides in this area. And while the OSCE said that no mine hazard signs were visible along the road, which had been used by the Mission before, areas along the Contact Line, especially crossing points, are well known to be contaminated with mines. According to the United Nations, more than a third of civilian deaths in the region are caused by mines and unexploded ordnance.
- Zakharchenko rejects federation with Ukraine
Meanwhile, the leader of the Donetsk separatists, Alexander Zakharchenko, made it clear that his “people’s republic” wants to be recognized by Ukraine, thus adding yet another condition unacceptable to Kiev in the ongoing negotiations about the Minsk agreement.
In the April 24 Izvestia interview, Zakharchenko said that it was too late to talk about a federation between Ukraine and his “republic”. After the bloodshed, for which he put the sole blame on Kiev, “the people of Donbass will never give up the freedom and independence they fought for,” he said.
Zakharchenko added that maybe there could be talks between his “republic” as an independent state and Ukraine about a confederation. But for this to happen, there needs to be not just a change of power in Kiev, but Ukraine’s “greedy and vicious” elite needs to be replaced. “The only place for (them) is either in court or in exile,” he said.
The separatist leader accused the current Ukrainian government to harbour plans of a large-scale population exchange. With its constant military attacks Kiev wants to demoralise the population so that it is prepared to flee its homeland, he claimed.
The aim is “to free (our) land in order to let it be occupied by Ukrainians from central and western regions,” he said, adding that this process was already ongoing in the government-controlled parts of the Donetsk region. (There is no evidence to support Zakharchenko’s claim).
Kiev has vehemently rejected any talk of a federation from the onset of the conflict and the Minsk agreement does not contain this term nor does it mention any “people’s republic”, just “certain areas” of the Luhansk and Donetsk regions.
Zakharchenko’s demands are likely to add to the already gargantuan task of achieving any progress in the ongoing talks, be they in Minsk or in the Normandy Format.
