KYIV – Ukraine’s precarious dilemma on conducting trade with businesses in occupied Donbas made it to the International Court of Justice at The Hague where Kyiv is accusing Russia of financing terrorism and discrimination in the Crimea.
The Russian side, while addressing Ukraine’s accusations on March 7, asserted that Kyiv authorities negotiate with the Kremlin-backed proxies via the “Minsk peace process” and even do business with enterprises located in the occupied Donbas, “thus providing a large share of the budget to the unrecognized entities,” BBC’s Russian service reported.
It’s the same point that a group of Ukrainian lawmakers, mostly from the Samopomich Party (Self-Reliance), and dozens of war veterans whom they’re helping, have made.
“Trade with the occupiers is amoral, it finances terrorism and promotes corruption,” Samopomich lawmaker Semen Semenchenko told The Ukrainian Weekly over the phone at a rail blockade in Donetsk Oblast.
The founder and former commander of the Donbas Battalion said that among the goals of cutting off all trade except humanitarian aid, including vital links between industrial plants on both sides of the frontline, is to force the Ukrainian government to recognize the area it doesn’t control as occupied, name Russia as the aggressor and call the armed conflict a war.
“Otherwise, the trade props up the budget of the occupiers and enables trade in counterfeit goods like medicine, vodka, cigarettes, and the smuggling of weapons and drugs,” Mr. Semenchenko said of the blockade that started on January 25.
Ukraine’s leaders, including President Petro Poroshenko, Prime Minister Volodymyr Groysman and National Bank of Ukraine Governor Valeria Gontareva have condemned the blockade that has stopped three of four rail links to the occupied territory and closed off main highways.
Citing figures that Ukraine’s coffers could lose up to $3.5 billion yearly and 75,000 jobs in the occupied east, Mr. Groysman called the blockade “sabotage against our nation.”
Seven of the nation’s 15 thermoelectric power stations can burn only anthracite coal, which is mined exclusively in the east, the Financial Times reported. Exporting this coal is problematic because of its high sulfur content. The nation’s steel mills also rely on coking coal mined in the area, while iron ore is needed from the government-controlled areas at plants in the east.
Ukraine’s forecasted economic growth could slow to just 1.4 percent this year if the blockade persists until year-end, Ms. Gontareva said last week.
But the blockade remains popular with an embattled public that has grown weary of three years of undeclared war by Moscow and its proxies that has killed over 10,000 people and displaced 1.6 million Donbas residents. Despite promises by Internal Affairs Minister Arsen Avakov to forcibly break up the blockade, Kyiv hasn’t risked confronting its own war veterans.
“I see no momentum to an early settlement of this dispute,” said Timothy Ash, emerging markets senior sovereign strategist of London-based Bluebay Asset Management. “It has popular support and plays well to the interests of opposition politicians… I think many people see trade… as sustaining the conflict. Ending the trade will, they think, concentrate minds – perhaps focus on the need for a fuller settlement, while also pass the costs of sustaining the conflict in DPR and LPR back into Russia.”
Moscow’s proxies in late February reciprocated by threatening to take over some 45 enterprises in the occupied east, some of which belong to Ukraine’s richest billionaire, Rinat Akhmetov. Meanwhile, the Kremlin said the measure was “understandable” and justified.
The internationally unrecognized Kremlin proxies have taken control of Mr. Akhmetov’s Ukrtelecom, the nation’s largest fixed landline telecommunications company. Some 200,000 people in the occupied east were left without telephone and Internet coverage, the company said in a statement.
They also took over the Donetsk native’s Donbas Arena, which acted as a logistical and distribution center for the billionaire’s humanitarian assistance in areas not controlled by the government.
“Humanitarian aid is currently suspended, we do not currently control the stadium,” said Jock Mendoza-Wilson, director of international and investor relations at System Capital Management – Mr. Akhmetov’s holding company that manages his assets.
Regarding the blockade and recent separatist threats to conduct “external administration” over enterprises, Mr. Mendoza-Wilson said, “we want to carry on running our businesses which employ Ukrainians on both sides of the contact line; to focus on what is good for Ukraine.”
Adding that SCM paid nearly $4 billion in taxes to the state budget since war broke out, the company official said that the “blockade weakens energy security.”
“We believe that private property is sovereign, and the demands of re-registration of our companies and payment of taxes to self-proclaimed DNR and LNR are unacceptable,” an SCM company statement said.
Since anthracite cannot be replaced inside Ukraine and it’s “politically unacceptable” to buy from Russia, he said, it could take 80 days to source the coal abroad and it must be paid for in hard currency, which “will damage the country’s balance of payments and perhaps weaken the local currency.”
Current anthracite coal stocks are enough for 30 to 35 days, the country’s national power company, Ukrenergo, said on March 7.
Already, Mr. Akhmetov’s Yenakieve Steel mill and Krasnodon Coal Company have halted operations. A steel mill in Alchevsk, not owned by the oligarch, stopped operations due to a shortage of iron ore. The Donetsk steel plant, owned by Russian citizen Viktor Nusenkis, also shut down.
And the nation’s biggest steel mill, ArcelorMittal Kryvyi Rih, said in a statement on March 9 that “coal deliveries from areas outside government control… threatens steel production… partly by endangering the stable supply of electricity,” Bloomberg reported.
Still, some lawmakers are adamant that trade should be halted.
“Putin wants us to finance the war he started,” independent lawmaker Volodymyr Parasiuk, told The New York Times. Russian President Vladimir Putin “wants the republics [the Donetsk and Luhansk ‘people’s republics’] to finance themselves, by selling coal,” he added.
He and Samopomich lawmakers Yehor Soboliev, Pavlo Kostenko and Mr. Semenchenko have drafted a bill to have the non-government controlled area recognized as “occupied” and to name Russia as the aggressor in the conflict.
To placate the blockaders, the Cabinet of Ministers on March 6 issued a decree that outlines new trade procedures that require companies “willing to move goods to be registered in Ukraine-controlled territory and have a production cycle that depends on supplies to and from the separatist-controlled region,” according to Dragon Capital, a Kyiv-based investment bank.
Currently, over 600 companies have permission from the State Fiscal Service and Security Service of Ukraine to conduct business in the east, according to an investigation by TSN, a television channel owned by billionaire Ihor Kolomoisky. Timber and construction materials are mostly sent to the occupied east, while coal and steel comes from there.
And Igor Plotnitsky, the Kremlin-installed proxy in occupied Luhansk, said “external administration” is being enforced to ensure the enterprises operate, reported Novosti Donbassa based in Sloviansk. “It’s better for neighbors to trade, not fight,” he was quoted as saying.