Mikhail Zahariya, Leonid Chumak
Economy of ORDLO's companies
The economy of the occupied territories of Donetsk and Luhansk regions has already lived in the period of 2014–15 through capital outflow and industrial assets outflow. Currently, transformation of its remnants is on the way, in accordance with new conditions and rules, and the process is accompanied by the re-division of property and the fight for keeping it. By the intensity of such a struggle for assets, by the level of influence of lobbyists engaged in such metamorphoses in Ukraine and Russia, one may judge not only about the current value of business facilities and cash flow size, but also about what industrial complex structure will be preserved. Besides, the vector of further development of the region will depend a lot on who comes to own the key economic facilities in those territories.
The situation in mines
Coal was, is and will remain to be the basic resource in Donetsk and Luhansk regions. In 2013 the mines in those regions provided for 76% of coal extraction in Ukraine.
In 2014 Ukraine lost control of the main mining raions of both regions. According to the Ministry of Energy and Coal of Ukraine data, in the occupied parts of Donetsk region there are 55, and of Luhansk region – 42 of them.
In particular, all the mines producing anthracite, which is the most valuable grade among energy-group coals, are in the occupied territories, though five of 12 thermal power stations of Ukraine work on it (let alone the occupied part of Donetsk region). Anthracite champions went over to the LPR – these are unions 'Rovenkyantratsyt' and 'Sverdloantratsyt', which until 2017 were subordinated to Rinat Akhmetov's DTEK energy holding, the same as non-privatized union 'Antratsyt', with its central office in the same-name town. Companies with smaller extraction scale and mainly negative profitability went over to the DPR – here coal unions 'Snezhnoantratsyt', 'Torezantratsyt' and 'Shakhterskantratrsyt' are meant.
Also, some of the best sources of coke-coal – union 'Krasnodonugol' in Luhansk region (until 2017 controlled by Rinat Akhmetov's 'Metinvest' metallurgy holding) and the Zasiadko Mine in Donetsk also appeared to be across the frontline.
Until 2017 coal from the DPR and the LPR was sold to the Ukraine-controlled territory mainly directly, though about 10% of supplies were made by transit via Russia. In the first variant all the logistic chain of coal supply was completely provided for by the Ukrainian side, giving it some influence on coal mining in the DPR and the LPR. In any case, at that time the STPC and 'Metinvest' continued to appoint all the management staff of their coal companies in the occupied territories. In the second case, a lot depended on the representatives of the 'republics' and their supervisors from Russia (which include Oleksandr Yanukovych and Oleksandr Klymenko), who took unprivatized mines in the territories of the republics' under their control.
In February-March 2017 the DPR and the LPR (with Kremlin's consent or, rather, Kremlin's order) started introducing their administrations at all the businesses belonging to Ukrainian companies, including mining ones. Their owners, primarily Rinat Akhmetov, lost control over them.
h STPC and 'Metinvest' holdings came to be owned by CJSC 'Vneshtorgservis' registered in South Ossetia. Its CEO is former first vice-government of Irkutsk region of the RF Vladimir Pashkov. The 'authorities of the LPR' with their resolution 75/17 passed back on February 27, 2017 handed 'Krasnodonugol', 'Rovenkyantratsyt' and 'Sverdlovantratsyt' over to 'Vneshtorgservis' for external management (the 'republic's' businessmen and officials call this entity in short VTS). In the DPR the South-Ossetia entity got such large producers of coal as 'Komsomolets Donbasa' (STPC) and the Zasiadko mines. Though low-grade fight started with the latter: the 'head of the DPR' Oleksandr Zakharchenko is trying to take over administration of this mine, hinting that miners are dissatisfied with the management methods applied by the VTS.
New supervisors have already established anthracite supply channels to Russia. Along one of them coal is taken by motor transport to Rostov region of the RF, where at railway stations it is registered with one of plenty small trading firms and accumulated by the size necessary for railroad train loading. Then it is taken to ports and via large trading companies, including the ones registered in offshore areas, is sold abroad – to Turkey, Greece.
It is noticeable that Russian freight ports connected to the Azov and Black Sea have considerably increased coal handling. In the first half-year of 2017 the port in Rostov-on-Don has increased coal loading by 47% and has made it 1.4 mln. t; the port of Azov – by 109%, up to 0.5 mln t; port of Taganrog – by 33%, up to 0.4 mln t.
Besides that, a part of anthracite from ORDLO is supplied as 'Russian coal' to Ukraine by railway. In any case, according to the customs documents of both sides, this coal was extracted in Russia. And in this case, the same as with the data of ports, the tendency can be best traced using statistical data. According to the information provided by the Ministry of Energy and Coal of Ukraine, import of coal from Russia has quadrupled. While over the whole 2016 0.72 mln t of coal were taken across the Russian customs office, for the first half-year 2017 the figure already amounted to 1.43 mln t.
In the new schemes of legalization of coal extracted in the occupied territories, the very mines get a very small share – only 15–18% of the final sales. While until 2017 coal at those mines was bought for $50–55 per ton, now the VTS pays just $25 per ton, and then re-sells it in Russia already at $70–80 per ton. And there still is a considerable lag for further export – for example, Ukraine buys that anthracite at $130–140 per ton. But in any case, the largest extracting companies get the amounts sufficient just to support production and to pay low salaries.
As far as prospects are concerned, in any forms of sales of the coal output from the DPR and the LPR, there is no slightest trace of any investment made into the industry. In such conditions extraction at local mines is maintained due to upgrading done before 2014. The main scope of works in the direction was done at the coal-mining facilities of the STPC. For example, at unions 'Rovenkyatratsyt' and 'Sverdlovantratrsyt' the total annual volume of investment prior to the war exceeded 1 billion UAH. But even there, with the current working conditions, which is almost to the max, only with current repairs and with no development of new deposits, coal extraction has already started to shrink, first of all for technology reasons, and the trend will become even more intensive. Stagnation has an even more serious effect on non-privatized mines with worn out equipment. In this sense the situation with 'Donbas' mine administration in Donetsk is rather exemplary: almost all the staff there had to go on unpaid leaves. In its turn, the 'authorities of the DPR' have officially declared preparation of 22 mines for closure.
Metallurgy problems
Along with mines, the authorities of the 'republics' have handed over to the VTS all local metallurgy companies. The South-Ossetia company has got from the 'authorities of the DPR' for operational management Yenakiyevo and Makiyivka metallurgy plants, which de jure belong to 'Metinvest' of Rinat Akhmetov, as well as Donetsk metallurgy plant of Viktor Nusenkis. So far the fate of the Donetsk Power Metallurgy Plant owned by the Russian group 'Mechel' is not clear. Back in June 2016 it was taken by the rebels, the 'authorities of the DPR' gave a new name to it – Yuzovskiy Metallurgy Plant. In the LPR the internal administration of 'Vneshtorgservis' was appointed at Alchevsk Metallurgy Complex owned by the ISD corporation.
Metallurgical companies 'nationalized' by the DPR and the LPR have now got two problems. The first one is technological. Local metallurgical complexes have overcapacity in coke-coal production. It used to be in great demand in Mariupol and in Dnipropetrovsk regions. In exchange for coke-coal the metallurgical complexes got iron ore from Dnipropetrovsk region. And now this exchange has stopped, which has made the major part of coke-coal batteries in Alchevsk and Makiyivka close to a standstill.
Оne may forecast production stagnation in the short run at local metallurgy companies, with some low level, which will depend on the conditions of raw materials and energy resources supply from Russia
The other problem is output sales. The main sales for the Donbas metallurgical companies were for export. Production facilities in the occupied territories had been providing up to 20% of the overall volume of currency proceeds brought by the Ukrainian metallurgy. And foreign sales markets for Donbas plants' output are the same as for Russian metallurgical complexes: the countries of Asia and Middle East. Moreover, up till 2014 metal from Donbas due to dumping sometimes took some share of the Russian market. To be brief, local metallurgy is a direct competitor for the Russian metallurgy. And for the Russian metallurgists putting out of operation of at least one blast furnace in Donbas would actually be a great step towards performance of their national programs of import replacement and own production support.
At the same time the illegal situation of industrial companies in the occupied territories opens up new opportunities for specializations in the use of different schemes of their output sales.
The same as in case with mines, the price of Donbas metallurgical complexes now does not include an investment component since nobody makes any capital investment into those companies any longer. In addition, energy resources are provided to the plants via illegal schemes – this concerns both electricity and gas. And one more bonus for the organizers of the current sales system is minimum costs of remuneration paid to metallurgists. In the conditions of increasing unemployment and low load of companies the salaries of workers are minimum ones. Sometimes they are paid in kind – with foodstuffs or some consumer goods.
That all causes a very low current prime cost of the 'republican' metal. And the margin that becomes possible in such conditions enables to come into agreement with Russian mining ore mining giants in the issue of iron ore raw materials supply. Obviously, due to the threat of application of international sanctions for such trade Russian companies make such transactions using 'grey' transit schemes via South Ossetia. The fact of supply of 0.5 mln t of iron ore concentrate to Yenakiyevo metallurgy plant is already known: according to unofficial information it has been supplied from Lebedyn ore-dressing and processing enterprise in Belgorod region of the RF, owned by 'Metalloinvest' group of Alisher Usmanov. Supplies of raw materials for Donetsk metallurgical plant are also expected to arrive from the same place. Also, there is some data that starting with the 2nd quarter 2017 iron ore of the Russian company 'Severstal' has been supplied to Yenakiyevo and Alchevsk metallurgy plants.
One may already speak of interim results of the work of the metallurgical complex in the occupied territories after 'nationalization'. As compared with 2013, in the first half-year of 2017 the scope of production in the industry reduced almost four times. As the 'ministry of industry and trade of the DPR' informed, in January-June 2017 the share of the metallurgical complex in the overall commodity turnover was about 15%. Prior to the war the overall commodity turnover in that part of Donetsk region was almost twice higher than the current one, and the share of metallurgy in it made up almost 36%. Similar picture can be seen in Alchevsk metallurgy complex, the workload of which does not exceed 20% of the pre-war figures.
One may conclude that metallurgical companies 'nationalized' by the DPR and the LPR and withdrawn from the Ukrainian mining sector have got only occasional contacts with the mining sector of Russia and have lost the main part of their technological advantages. Due to the marginal status of the DPR and the LPR, there is no possibility to establish civilized output sales. Therefore it is sold via illegal schemes which do not enable providing for the load of at least one third of production capacities. Due to the developed model of industrial relations one may forecast production stagnation in the short run at local metallurgy companies, with some low level, which will depend on the conditions of raw materials and energy resources supply from Russia.
Energy industry prospects
The only autonomous support of the DPR's and the LPR's energy industry is thermal generation represented by Zuyevka and Starobisheve thermal power stations in the occupied part of Donetsk region. Production capacities of those thermal power stations are rather enough to provide both 'republics' with electricity, in particular, with due account of the industrial decrease there.
In pre-war periods the two above thermal power stations consumed up to 5 mln t of coal annually. Currently, the total need of local power generation for coal has reduced by 60%. Thus, Starobisheve thermal power station works at 50% of its capacity. And at Zuyevka thermal power station the load is even lower – it hardly exceeds 30%.
For complete load of the thermal power stations it is necessary to ensure electricity cross-flow either to the Ukraine-controlled territory, or to the LPR. By the way, the LPR has a substantial deficit of electricity, which has recently been covered by supplies from Russia. But there are no technological possibilities to transport electricity from the DPR to the neighbouring 'republic, and supplies to the Ukraine-controlled territory are blocked.
As far as gas supply for the DPR and the LPR are concerned, starting with the end of 2014 gas has been provided by Russia, trying to present those supplies as import into Ukraine. The lion's share of gas is consumed by domestic households, since the chemical complex 'Styrol' in Horlivka, owned by Dmytro Firtash, has stopped operating. Now and in future gas supply in the non-government controlled territories is and will be connected almost exclusively to social functions and has lost any business component. That is most probably why the representatives of Serhiy Kurchenko in 2015, without any resistance, handed over control over the local gas-distributing companies to the authorities of the DPR and the LPR.
The main complexity faced in the nearest future by the energy industry of the region is connected to deterioration and destruction of transport infrastructure. Already now some inhabited settlements located close to the frontline are deprived of electricity and gas supply since the occupationists do not restore power transmission lines and gas pipelines destroyed as the result of combat actions. At the same time local residents left unemployed give wires and pipes for scrap iron. Further on, due to termination of mines and metallurgy companies which used to support the operation of the energy infrastructure in the adjacent settlements, other inhabited settlements will be faced with a similar situation. Thus, that will result in the spiral of decrease in the industry which is now the leader in commodity turnover. According to the DPR-provided data,0 32% of the volume of industrial output sales is the share of production, transmission and distribution of electricity.
Engineering decline
As far as engineering companies are concerned, there is still some activity in some of them related to war machinery repairs. But even that is almost artisan production related to repairs of non-complicated failures of armoured vehicles, like at Donetsk repairing and mechanical plant (DRMZ), which is owned de jure by Rinat Akhmetov's 'Korum Grupp' company . By the way, that company has officially stated that provision with DRMZ as well as Horlivka engineering plant and other plants of coal engineering it owns have been relocated to its industrial platforms in Dnipropetrovsk and Kharkiv regions. And Valentyn Landyk's group 'Nord' has announced about relocation of refrigerator production from Donetsk to China (though now in Donetsk manpower is already cheaper than in PRC).
A scarce comparatively lucky exception is Yasynovata engineering plant owned by the Trubchanin family. This company produces tunneling coal miners and sells them to Russia, though already in smaller numbers than before. And equipment from other engineering plants in the occupied part of Donetsk region, in particular the ones connected with 'defense sector' has been dismantled and moved to Russia. The same was the final point for Donetsk 'Tochmash' and Makiyivka 'Topaz'.
Meantime the authorities of the DPR have announced the start of assembly of small buses in Donetsk, entitled, definitely 'Donbas'. In fact, it is assembly of bus sets made of Chinese and Indian details supplied via Russia. That is some non-complicated operations with air wrench groups with minimum added values are done in a small unit. Thus, bus production is an exclusively populist project for covering serious failures in engineering.
The list of losses of engineering plants in the occupied part of Luhansk region is impressive: 'The Hundredth Plant', military industry, has been taken to Russia; the central design and engineering bureau 'Donets', growing of crystals for microelectronics, has been taken to Russia; Luhansk mine-rescue plant 'Horyzont' has been cut for scrap metal; 'Luhtsentrokuz' has stopped its production due to low voltage in the contact grid, which does not enable to launch electricity stoves; 'Luhanskteplovoz' – production has almost been stopped; Luhansk pipe fitting plant 'Marshal' has been taken to Russia, a parking lot for artillery has been arranged in the territory of the plant; Luhansk mill roll plant has been partially destroyed, the saved equipment is being prepared for being taken to Russia; Bryankovsk mining equipment repair plant has been cut for scrap metal; plant 'Yunost', producing relays for defence and airspace industry, has been taken to Russia; Luhansk casting and mechanical plant has been cut for scrap metal; Luhansk aircraft repairing plant has been taken to Russia; at Stakhanovsk carriage repairing plant production is frozen.
In fact, one should say that the engineering cluster formed in Donbas in the second half of the XXth century has been fully destroyed over the three years of existence of the DPR and the LPR. And that is not just that equipment has been taken away, stolen or destroyed. Complex infrastructure and environment without which engineering cannot exist, let alone develop, has disappeared. There has almost completely been lost engineering and technical staff both at companies, and at profile science and research centres. Together with engineers there have left or changed their activity qualified turners, millers, metalworkers, there has disappeared documentation, production contacts have been lost and technological chains have been destroyed.
If we take into account the prospects of stagnation of the structure-forming industries in the region – mining and metallurgy – destroyed engineering in the occupied territories has no prospects for restoration. Even in case of possible industrial renaissance of the region it is easier and economically more expedient to bring in modern and high-quality foreign equipment for mines and metallurgy complexes than to try and restore the engineering capacities lost on site.
Labour resources
According to the 'ministry of labour and social policy of the DPR' data, the average salary in the DPR this April has increased as compared with April 2016 by 16.3% and has made up 9,592 Russian roubles, which, at the then-exchange rate of the NBU was equivalent to 4,566 UAH. In the unoccupied part of Donetsk region, according to the data of the State Statistics Service of Ukraine (SSSU), the average salary in April 2017 made up 7,332 UAH. This is 1.61 higher than in the DPR.
The situation in the LPR is even worse than in its Donetsk neighbour. And that reflects the old tradition rooted back into the Soviet period when Donetsk region exceeded Luhansk region by the level of salaries and other social indicators. According to the data of the 'economy department of Luhansk administration', the average salary in the city as of June 2017 made up 8,594 Russian roubles, or 3,883 UAH at the exchange rate of the NBU. In the unoccupied part of Luhansk region, according to the SSSU-provided data, the average salary in June 2017 made up 5,943 UAH, which is 1.53 higher than in the occupied Luhansk.
An even more striking contrast can be traced with miners, their salaries compared with pre-war ones. Let us give the average salaries at coal unions of the LPR for March 2017 in Russian roubles: 'Krasnodonugol' – 9,667, 'Rovenkyantratsyt' – 6,894, 'Sverdlovantratsyt' – 7,200. In 2013 in those mining unions salaries in hryvnas were 1.5 higher than current salaries in roubles. And roubles re-calculated in hryvnas, it appears that over the years of occupation miner's salary has been reduced three times, while the prices have grown several times.
After the 'nationalization' of companies owned by the Ukrainian companies the issue of unemployment has come to the surface in the DPR and the LPR. According to the data of local mass media, its level reaches 20%. But in fact the situation is much worse, since coal mines have started being closed.
According to the data of the Anti-Crisis Headquarters (ACH) of the DTEK, 34 thousand people have been dismissed at the captured mining companies, and only 300 of them have managed to find jobs in the Ukraine-controlled territory. Denys Didenko, the ACH head, does not know what the situation is with jobs with the others. 'Later we traced that there started appearing announcements with a call to enter the 'people's militia of the LPR'. They were placed in administrative buildings of mines, that is they started attracting employees to their activity. 'Definitely, we did not do it like that', – Didenko said. It is also known that many miners from Krasnodon and Rovenky, on staying a couple of months without any money, started leaving in large groups for Vorkuta and Kuzbass, where the recruiters promise them remuneration amounting to 40–50 thousand roubles a month.
Mines in Donbas stop their activity. For already half a year the companies of the 'Donbas' mine administration have not been in operation, and these are the mines of Donetsk and the adjacent towns and settlements. Nevertheless, according to Yuriy Popovkin, that union director, there still remains some fuel in the scope equal to monthly extraction in the mine storage facilities. Out of 4.1 thousand miners of 'Donbas' some 500 people have been left doing some on-duty jobs, while the others have been sent on unpaid leaves.
The break of economic ties has affected metallurgists. In Yenakiyevo, due to termination of the metallurgical plant's operation in August, several thousand workers have become unemployed –for two months so far, but there are no prospects for restoration of the company's operation. The situation is only a bit better with Alchevsk metallurgy complex. The company even is on top of the official list of the largest tax-payers in Luhansk region for January-July 2017, made up by the regional administration of the State Fiscal Service of Ukraine. Though official management of ISD announced back in March that the complex would stop its operation, now it keeps on working on a 'standstill', ensuring employment of up to one fourth of its staff.
It seems that availability thousands of unemployed people should make social situation in the occupied territories more complicated. Normally, such problems in the labour market lead to mass rallies. But the occupationists prevent any unauthorized people's rallies using different means, including a threat of physical violence.
The budget domain
The growth of people's dissatisfaction in the occupied territories is also curbed by the availability of a considerable number of pensioners, 'civil servants' and 'budget staff', that is the employees getting their salary from the treasury of the 'republics'. Almost in each family there is at least one person whose income fully depends on the budget. And in case of loss of their jobs at the company those budget payments – be it pension or salary – become the only means of living for the whole family. Therefore, it is pensioners, 'civil servants' and 'budget staff' (teachers, etc.) now are the safeguards of social quiet in the 'republics'.
It should be noted that local 'law-enforcement bodies' now contain not only the former staff of the Ukrainian militia taking the occupationists' side, but also their 'clients', that is the representatives of the criminal world. Such hybrid 'law-enforcement officials' know all the profitable places within the territory under their supervision perfectly well and take care of them.
It is also noticeable that in the DPR and the LPR the so-called 'ministries of emergencies' now have all the necessary staff. There is even an informal queue for firemen and rescue brigade staff, though before the war there had always been vacancies of firemen and rescue men, though their work was less complicated back then. Such a peculiarity is related to the fact that members of rescue brigades now get a rather decent salary as for this territory – some 15 thousand roubles. And the second reason for the popularity of this profession is that the members of rescue brigades will definitely not get into military actions, though they get their outfit and foodstuffs as rebels do.
A serious lack of doctors has been traced in the 'republics' over the recent years. More and more doctors are leaving the territory. And these are skilled doctors, not nurses. The latter, the same as teachers, do their best to keep their job, though they get on average just 6 thousand roubles.
Аt least 50% of the budget are spent on payment of pensions and on social payments. 35% more are spent on the remuneration of labour of 'budget employees' and 'civil servants'. The other 15% go for other current expenses
The situation with doctors is different. Doctor's labour remuneration in the 'republics' is not higher than that of medical nurses. Thus, the salary of the head of a department in an ordinary hospital in Donetsk is some 10 thousand roubles, and in Luhansk it is even smaller – 8.5–9 thousand roubles. And the possibility to get remuneration from patients has almost disappeared, though this used to be the main income for doctors. This is related not just to poverty of residents, but to the anti-bribery campaigns in medicine as well. The measures taken are literally punitive. In any case, Donetsk and Luhansk mass media actively conveys messages saying that pliant doctors 'are put into a vault' (that is taken to specially dug ditches out of which they cannot get independently), and are then sent to dig ditches or to perform other 'community works'. It should be noted that news of this type is sincerely supported and approved by other 'budget employees', whose service does not allow them to get any remuneration in envelopes. Therefore, it is no wonder that doctors continue to flee even with higher dynamics. And this has finally put an end to the plans of the leaders of the 'republic' to create a 'display window' out of the local free-of-charge medicine, following Cuba's example.
As far as pensioners are concerned, the authorities of the 'republics' pay pensions to them, amounting to 4 thousand roubles a months on average. Besides that, though Ukraine conducted verification of pensioners, almost half a million senior residents of ORDLO had a possibility to also get Ukrainian pensions. They used to inform their Ukrainian colleagues-pensioners about the achievements of the administration of the 'republics'. After April 2017, when access to Ukrainian pensions appeared to be closed, the mood of pensioners across the frontline got worse. Since their pension payments, if recalculated in hryvna, were about 20% smaller than in the Ukraine-controlled territories of Donetsk and Luhansk regions.
The amount of the 'republican' pensions is the same both in the LPR and in the DPR. This indirectly prompts that the resources for such payments come from one source, that is from Russia. The former 'minister of state security of the DPR' and the head of the armed group 'Vostok' Aleksandr Khodakovskyy in the interview for Reuters claimed absolutely outright that all the budget sector and pensions in the DPR are funded only out of the Russian money. And the scope of such funding, in his words, exceeds all the tax payments and duties of the 'republic'.
Analysis of statements made by the heads of financial departments of the 'republics' over the last two years enables to draw a conclusion that at least 50% of the budget are spent on payment of pensions and on social payments. 35% more are spent on the remuneration of labour of 'budget employees' and 'civil servants'. The other 15% go for other current expenses. But such correlation is true only if it is taken into account that military expenses of the DPR and the LPR pass by their 'budgets' since Russia funds its occupation troops directly.
Small business
Before the Russian invasion the basic function of small business in the territory of Luhansk and Donetsk regions, from the point of view of the then high officials, was to settle the problem of employment. Thousands of people in the markets and in trade centres, in garages and small workshops, in cafes and restaurants were independently providing for their income. Problems for such businessmen, for the sake of bribery, were created by middle-range officials. But these were still more or less tolerable, ordinary bribes, and as of the beginning of 2014 almost 200 thousand small private companies and sole proprietors were registered in Donetsk region and about 140 thousand – in Luhansk region.
After the occupation the situation with small business changed. Already in 2015 it became clear that the administration of the 'republics' considered small businessmen to be the main source of income for the 'budgets' of all levels. This can be accounted for by the fact that the DPR and the LPR had almost no access to the money turnover of large enterprises owned by the Ukrainian companies. Therefore, the authorities of the 'republics' started intensive collection of money from markets traders and those taking areas in trade centres on lease. And quite often those bribes are called 'voluntary donations'. In 2016 the 'minister of finance of the DPR' Yekaterina Matiushenko accidentally said that such 'voluntary donations' constitute almost all currency proceeds of the treasury.
But the seriously increased duties are not the only problem for small entrepreneurs in the occupied part of Donbas. They also complain of rapid reduction of consumer demand in the field of consumer goods. Consumer basket of the largest share of ORDLO residents now consists almost completely of foodstuffs. Besides, in the 'republics' the price of almost all the foodstuffs is 1.5-2 times (and sometimes even more) higher than the prices of similar foodstuffs in the Ukraine-controlled territory.
The sellers of brand commodities have mostly left their niche. In the largest trade centres of Donetsk – 'Donetsk City' and 'Continent' where at the weekend it was difficult to find one's way, now one third of the boutiques is closed, and the number of buyers has reduced considerably. But close to numerous second-hand shops in the morning one can see queues 15 minutes before the opening.
The range of domestic appliances shops has reduced considerably, consumer crediting programs have been closed. The situation is better with household detergents and stationary sellers – that is the sellers of cheap daily commodities.
The trends show that in ORDLO consumer capacity continues to reduce, and the quality of people's life keeps deteriorating. The main reason for this is absence of conditions for normal existence of economically active people. Now for the majority of residents of the 'republics' the only goal is to survive somehow, getting aid from new authorities.
A less successful minority are mainly the people who are in this or that way close to the ruling top. Local masters of life, at any convenient opportunity, 'squeeze off' (take by force) business and property from entrepreneurs. Motor saloons, recreation bases, network supermarkets and wholesale warehouses owned by Ukrainians and Europeans, were dismantled up to every single nail and taken over by the representatives of new authorities back in 2014-2015. In particular, 'Metro Cash&Carry' supermarkets were dismantled. At the same time, the ATB trade network came to be owned by the 'republican' owners and is now trading under the label 'The First Republican Supermarket'. New owners of the network are the 'head of the DPR' Oleksandr Zakharchenko and his wife Kateryna Zakarchenko.
The DPR and LNR «nationalization» of enterprises owned by Ukrainian companies that started on February 27, 2017, was by no means a spontaneous response to the alleged «blockade of trade with occupants» organized by certain public-political structures in Ukraine. On the contrary, this step was carefully prepared.
Kremlin had well in advance prepared detailed scheme of work of the enterprises after «nationalization». There is an evidence of it: the coal and steel industrial enterprises expropriated from Ukrainian companies were transferred immediately to the operational management of JSC «Vneshtorgservice» registered in South Ossetia. Its CEO is the former first vice-governor of the Irkutsk region of RF Volodymyr Pashkov. Obviously, he only could have agreed to it by direct order from the Kremlin.
At that time, Vneshtorgservis CJSC had neither website, nor office, nor staff (ironically, it still hasn't got a website). But Pashkov was not an accidental figure. On the contrary, he had already been playing a very important midperson role, providing a channel of financing for the fake «republics». On February 25, 2017, before the start of «nationalization», the Security Service of Ukraine (SBU) reported that its agents revealed the mechanism of the LNR financing by the Russian government. According to the SBU, the «pocket" charity Fund for Support of International Humanitarian Projects «(President - Vladimir Igorevich Pashkov, citizen of Russia) had been chosen as one of the mechanisms providing the terrorists' funding while concealing Russian financing of the pseudo-republic in order to avoid additional economic sanctions against Russia.» The SBU investigators discovered that through the Russian «Center for International Accounting» non-profit organization accounts the Fund was providing wherewithal directly to the so-called «State Bank of LNR».
The «Fund for the Support of International Humanitarian Projects» founder is the South Ossetian «International Settlement Bank» registered in Joseph Stalin street, Tskhinvali. Since 2015, this institution has been cooperating with LNR authorities as a correspondent bank. In January 2017, «the head of the State Bank of LNR,» Dmytro Chaikin announced his intention to establish a processing center and said that the «negotiations are on with our correspondent bank - the International Accounting Bank of South Ossetia». What's more, the Moscow «Fund for Support of International Humanitarian Projects» and the «International Settlement Bank» of Tschinvali cooperate with the authorities of the DPR as well.
Another element of this scheme is no less important. Businesses in ORDLO start taking loans from (through, actually) the South Ossetian banks. Such activities set a «delayed-action mine». Borrowing money this way makes businesses dependent on sinister schemes, whose ultimate beneficiaries are very likely to be the RF special services. Thereefore, while the DPR and LNR exist, they are on Kremlin's hook. If the Ukrainian control is back over these territories simply signing off the debts will probably not be enough. Collectors of all sorts will appear. Besides, one cannot rule out blackmailing and other ways to keep dependent businesses.
The scheme is well-plotted and thought-out. It had been built since 2015, and became usable by late 2016 or early 2017. But the Kremlin was reluctant to apply it with no grave reasons as it would obviously caue aggravation of the situation in Donbas and could result in new international sanctions. Therefore, the «blockade of trade with the occupants» organized by some Ukrainian public and political groups turned out to be very helpful for the Kremlin. It gave the Russian authorities the reason to push the DPR and LNR for «nationalization» of Ukrainian companies declarations.
Whether this blockade was part of the Kremlin scheme, is still questionable. But in any case, the organizers of the blockade deliberately or unknowingly (or some of them deliberately, and the rest - unknowingly) helped the Kremlin to launch its scheme and evade new international sanctions.
However, the scheme is only part of the problem created by the «nationalization». Another, and perhaps the bigger one, is the ORDLO's future prospects.
One of the most likely scenarios is Ukraine regaining control over the ORDLO under certain conditions. Of course, the question of why the Kremlin refused to do so three or two and a half years ago, upon signing the first or second set of Minsk agreements, persists. For the Western-imposed sanctions would immediately cease in this case. It looks as though Russia has in vain been under sanctions for three years. And it is still odd, why the Kremlin would want to take control of the enterprises in ORDLO in February-March 2017, taken returning them to legitimate owners was unavoidable. Can it be real that the Kremlin just desired to manage the ORDLO mines and metallurgical plants for a while?
It is probable though, that the Kremlin needed control over the Ukrainian companies' enterprises in the ORDLO to destroy ones – not right now, but just before giving the ORDLO back to Ukraine.
There are three pieces of evidence supporting this version. First is the fact that during 2014-16 numerous production facilities in the DPR and LNR were closed, their equipment scrapped or disassembled and transported to Russia. Secondly, the enterprises «nationalized» in 2017 have sharply reduced or completely stopped production afterwards. Their employees are issued food kits of suspicious quality in salaries stead. The kits are sufficient just to prevent death of starvation for those lucky ones to avoid food poisoning. These are not isolated cases but a widespread thing. Thirdly, according to the Russian occupiers' orders, the mines in occupied towns and villages are flooded one by one despite potential environmental disasters and the risk of buildings and infrastructure demolition due to landslides.
Arguably, Donbas is being prepared to get back to Ukraine entirely destroyed. Wrecking is the ultimate reason of three years long occupation of Donbas, and the «nationalization» started the final stage of this process.
It's hard to claim now that this option is to be fulfilled at its utmost, but the fact is that it is already being realized. It is necessary to speak about it at the international level, to explain it to the Ukrainian society and inform those staying on the occupied territories in any possible way. Meanwhile, the blockade organizers should recognize at least part of moral responsibility for destruction of Donbas.
Obviously, lawsuits against Russia (and an evidence base) should be prepared in international courts for the ruined Donbas economy. Meanwhile, other ways of punishment are also worth thinking about. Introduction of all trade operations with Russia (export and import) taxation could be among them, with some exceptions, such as import of nuclear fuel and absorbing elements from Russia (until it is completely replaced) and export of services of the Ukrainian gas transportation system (until existing contract with Gazprom expires). At the same time, it should be legally fixed that the money from this tax is meant solely to overcome the consequences of the Russian occupation of Ukrainian territories.
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