How Ukraine finances separatists

Author: Dmytro Snegiryov, Head of Prava Sprava public initiative.

The trade blockade with separatists is necessary in order to cease trade relations with territories that are beyond Ukraine’s control. Unfortunately trading is the business of law enforcement agencies and it involves large sums of money. The trade blockade should be carried out at the government level but not by volunteers and veterans of the war in the Donbas.

The fact that the so-called masses took the initiative demonstrates the existence of certain sentiments in society. The leadership of the country should support and develop this initiative, however, Ukrainian authorities not only fail to provide support, but make unclear statements as well. One year ago, the rhetoric of the Ukrainian leadership was quite different. For example, the former Prosecutor General of Ukraine, Vitaly Yarema, urged against funding terrorism through the halting of coal imports.

What has changed and why did officials’ outlook change so much? The total debt of consumers in the temporarily occupied territories of Donetsk and Luhansk regions amounts to approximately 24 billion hryvnias ($890 million USD), as reported by the Acting Director of Ukrenergo, Vsevolod Kovalchuk, at a press conference. An increase in the debt ratio since the beginning of the year amounts to approximately UAH 1 billion ($40 million USD). Consumers of the separatist-held areas of the Luhansk regions hold 80-90% of this debt.

The so-called authorities of the occupied territories owe Ukraine money for electricity, yet the Ukrainian leadership tells us about the energy crisis. Where is the crisis if they owe us UAH 24 billion for electricity? It turns out that Ukraine provides the separatist-held territories with electricity free of charge. Every month, the so-called Luhansk People’s Republic receives Ukrainian electricity worth almost UAH 300 million ($11 million USD).

However, Ukraine has not received payments from the occupied territory for over two years. During this time, the debt accrued by consumers in the occupied territories to the Luhansk Energy Association has reached more than UAH 2 billion ($70 million USD) (almost UAH 5 billion ($180 million USD) in total).

The official reason behind this system is that the Cabinet of Ministers, under Resolution #263, required the Luhansk Energy Union to supply electricity to the temporarily occupied territories even though it has not been receiving payment.

It should be noted that the official structures created by the self-proclaimed occupation authorities do collect the full amount due for electricity from the residents of these territories. InfoResist news website reported that Luhansk Energy Association LLC pays taxes to the LPR’s budget. They say that the acronym LPR was added to the company’s name and thus it was nationalized by the authorities of the separatist-held territories.

The representatives of the LPR Government stated that its members – Vladimir Mashkov and Mahmud Sada, will serve as members of the company’s Board of Directors. It was also reported that the Acting Deputy Director of the Luhansk Energy Association, Andriy Reva, is obliged to provide the LPR representatives with any required information and help them ensure control of the company.

The self-proclaimed Republics owe money not only for electricity.

The Luhansk alone owes UAH 260 million ($9.61 million USD) for water, while only UAH 20 million ($740 000 USD) were transferred to the accounts of Popasna Vodocanal which supplies water to the separatist-held territories. The total amount of debt owed by Popasna Vodocanal to the Luhansk Energy Assosiation (LEA) for consumed electricity is UAH 129 million. The six million that Vodocanal transferred to LEA for consumed electricity has covered the debt for only the month of September.

While Ukraine supplies water to the separatist republics for free, the self-proclaimed authorities collect money from the population and enterprises for consumed water. In addition, they spend this money funding illegally armed groups that carry out attacks against the Armed Forces of Ukraine and not on repayment of debts to Ukrainian enterprises for services rendered.

The fact that Alchevsk Metallurgical Plant owes UAH 742.34 million for electricity alone is also telling. This plant is located in the uncontrolled areas of the Luhansk and Donetsk regions and belongs to a Russian company – Vnesheconombank. Dmitry Medvedev is the Head of the Supervisory Board of this Russian state corporation.

In January 2010, it was announced that a group of specialized and financial investors, led by the owner of Garbofer General Trading and the former co-owner of Evraz Holding (the Russian Federation), Alexander Katunin, purchased a controlling block of shares of the Industrial Union of Donbas Corporation amounting to 50% plus two shares. The founders of the Ukrainian corporation, Serhiy Taruta and Oleh Mkrtchian, reduced their shares to 49.99%. Vitaliy Haiduk has since left the Industrial Union of Donbas as a shareholder.

In early 2011, the representatives of the Russian State Corporation, Vnesheconombank, were given leadership positions at the Industrial Union of Donbas as well as within the executive bodies of Alchevsk Metallurgical Plant.

Is it acceptable?

It is noteworthy that more than 30% of the power generation facilities in Ukraine belong to Russian banks. Why didn’t the Government bring key energy facilities out of this dependency during wartime and Russian aggression? They practically have us by the throat. Rinat Akhmetov manipulates and threatens mines and enterprises with bankruptcy, though all of this is done artificially.

Now, let’s talk about the statement by the Prime Minister of Ukraine, Volodymyr Groysman, on the possibility of energy collapse.  On the 12th of January 2017, the Minister of Energy and Coal Mining of Ukraine, Ihor Nasalyk, stated that nearly 1.9 million tons of coal is currently in storage. According to him, the unified power system is working in normal operation mode. “The situation is completely controlled and there are no problems,” Nasalyk stated at that time.

These statements were made before the start of the blockade. Once the blockade started, officials began to make directly opposite statements, alleging that there are no coal reserves and that the situation is critical. For instance, they are providing the actual figures – 800 tons of coal. The question is what has changedThe blockade of the separatist areas of the Donetsk and Luhansk regions primarily affected the corruption schemes of coal supplies from the occupied territories to Ukraine. That is what has changed.

The statements that say we are pushing Ukrainians who reside in the occupied territories away by cutting off the financial flow that is in reality bringing profit for the separatists and their leaders are not correct. On the contrary, we are bringing the moment of liberation for these territories closer. The blockade will deprive the separatist leaders of their financial sources. The sale of coal to Ukraine was the main source of cash flow for them.

According to SBU (Security Service of Ukraine), 47% of revenues in the separatist-held territories were spent on funding illegally armed groups. In the last year alone, the extraction of A and T-grade coal in the occupied territories has increased by 49% and amounts to 913,100 tons.

DTEK Rovenkianthracite has increased the extraction of coal by 59%, up to 348,600 tons of anthracite, DTEK Sverdlovanthracite – by 36.7%, up to 260,000 tons and the Komsomolets Donbasu coal mine has increased the extraction of T-grade coal by 49%, up to 304,500 tons.

It is interesting that the cost of coal extraction in the occupied territories varies between 500 ($18.47 USD) and 600 ($22.17 USD) hryvnias per ton, while Ukraine purchases the same coal at a price of UAH 1730 ($63.92 USD). Separatists made a decision at the legislative level on the collection of taxes in the amount of 320-350 Rubles ($5.52 – $6.04 USD) from each ton of coal production.

I personally support the blockade. I’m convinced that trade relations with an occupant country and occupied territories aren’t possible from an economic or moral point of view in the context of war.

Discussions about the need to purchase anthracite from the occupied territories for three more years is an evidence of the incompetence of the Ukrainian Government or its direct interest in these corruption schemes. For the next 6-7 months, Ukraine can painlessly reduce the consumption of coal from the separatist-held territories by at least 6.5 million tons out of 9 million which it currently purchases. However, political will is required for this.

The views expressed in this article are the author's own and do not necessarily reflect those of UAWire. The article has been published with the permission of the author.

  Ukraine, Donbas, Blockade, coal