28 April 2017

Friday, 08:21

CURRENCY

THE COAL WAR

Who is the benefactor of the blocked railway communication line with rioting groups in the Donbass?

Author:

15.03.2017

The “coal war” in Ukraine continues for a week now. The reasons lead to different sides of the conflict while the outcome is unpredictable. It is quite obvious that the ongoing events reveal a paradox of the long-standing conflict in the southeast of the country.

Since the end of January, activists of the Ukrainian nationalist groups and former fighters of the Ukrainian volunteer battalions have united to blockade the railway lines between the Donbas and the rest of the country. In fact, Donetsk and Lugansk produce most of the coal, which then is shipped to power plants and steel mills nationwide. This production cycle has been in effect for decades and it is not easy to break it, if at all possible.

But the current situation, as it turned out, makes you think about all directions. A member of parliament from the opposition party Self Reliance, Viktoria Voitsitskaya, believes that Kyiv “cannot depend economically on the aggressor”. “We are proud that the blockade hits the wallets of occupants,” said the veteran and MP Semion Semenchenko from the same party, which calls for the official recognition of Ukraine’s eastern regions occupied by Russia, and the stopping of “corrupt business” with the enemy. According to unofficial sources, the initiators of the blockade are former Prime Minister Arseniy Yatsenyuk, Minister of Interior Arsen Avakov, and head of the People's Front faction of the parliament Alexander Turchinov. The leader of Batkivshchyna (Fatherland), Yulia Timoshenko supported the participants of the blockade noting with satisfaction the “offensive against the clan-oligarchic system”. Former MP and leader of Svoboda (Freedom), Oleg Tyagnibok, also said that “the government of Poroshenko is selling the blood of his people.”

Poroshenko criticized the blockade alleging as his reason that the southeast of the country is a home for Ukrainian citizens. Prime Minister Vladimir Groisman called the activists saboteurs, as the result of blockade might become very deplorable for the Ukrainian economy, which is going through hard times. The government imposed “a state of emergency” in energy sector, since the seven of fifteen Ukrainian thermal power plants can only work on anthracite coal extracted in the east of the country. The Ukrainian metallurgical industry with 12% share in GDP and providing 20% of foreign exchange earnings threatens to collapse completely. The steel production has already fallen by 19%. But the worst thing is the stopped blast furnaces cannot be restored, as they have been constructed for a continuous production process. This will obviously bring the related enterprises to a halt and increase the unemployment. Specifically, Mr. Groisman believes that a complete stop of supplies will result in the loss of $3.5 billion and 75,000 jobs. Currently, the blockade costs Ukraine up to $148 million per month. The head of the Central Bank of Ukraine Valery Gontarev is confident that if the blockade continues until the end of the year, the dollar rate will increase and the predicted economic growth of 2.8% will be halved.

On the other hand, the question is how the blockade will affect the separatist DNR-LNR, which are facing the same problem associated with discontinuity of the production cycle. The metallurgical enterprises in Donetsk such as the oldest metallurgical enterprises of Yenakiyevo Steel Plant with its branch in Makeyevka, Khartsyzsk Tube Works, Donetsk Metallurgical Plant, Yasinovka Coking Plant and many others need iron ore. Since March 1, “DNR-LNR” announced the “nationalization” of Ukrainian enterprises, most of which belong to the oligarch Rinat Akhmetov (DTEK and Metinvest) controlling more than 40 facilities: several large metallurgical plants and more than 20 mines. “We stop all communications with Ukraine since we are at war with it,” said the head of “DNR” separatists Alexander Zakharchenko. But in this case all these enterprises fall under Ukrainian and international sanctions. To solve this problem, it is necessary to find commodity markets and sources of ore outside Ukraine. Only then will the plants work and these republics will become self-sustaining. In this case, “DNP-LNR” have simply taken advantage of the situation and risked unaware of the outcome of own actions.

And here is the most interesting moment of the Ukrainian conflict. The residents of Donbass, through the local media and social networks, are trying to understand what is really behind the “nationalization”. In fact, during the whole conflict, Rinat Akhmetov has been trying to have it both ways working with both the Ukrainian side and the rebels of the “DNR-LNR”. Both sides received taxes from him and were pleased with the jobs.

Two options are possible. Thus, the first option is that Akhmetov's enterprises suffering from the “nationalization” do not actually change the owner but Akhmetov has a chance to save huge sums, as he stops paying taxes to Kyiv. Also, it may become possible to start machinery plants, which have been idle before. However, this option is unlikely since Akhmetov has already lost much more than he could earn. On March 6, he was “thrown out” from the list of the 500 richest people in the world according to Bloomberg. According to analysts, in two weeks Akhmetov lost almost $1 billion.

According to the second option, the separatists of Donbass decided to take a course toward curtailing economic relations with Ukraine. This version is confirmed indirectly by the fact that Russia has recently recognized passports issued to residents of unrecognized republics, and since March 1, the ruble is the only official currency in the eastern regions of Ukraine.

It turns out that the enterprises are indeed taken from Akhmetov and even the appropriating structure and individual – formally Ukrainian, which will export products to the foreign market, are known. This is allegedly Vneshtorgservis supported by one of the youngest oligarchs of Ukraine, Sergei Kurchenko. “DNR” keeps him on the wanted list but, apparently, there are no better candidates for setting up a new sales scheme. The only logical choice for the market can be Russia. According to the Chairman of the State Duma Committee for the CIS, Leonid Kalashnikov, it is possible to re-canalize Ukrainian enterprises on the territory of “DNR” and “LNR” to the Russian market. “The products need to be sold anyway, as people will not be just sitting in the mines doing nothing. Certain contractors will contribute to marketing. The recognition of documents (“DNP-LNR”) will also contribute to this, as it's not just about passports but also cargo documents,” said Kalashnikov.

But in that case another part of this coal puzzle does not converge - why then activists of Ukrainian ultra-right and veterans of ATU actually play along to their opponents - the separatists of “DNR-LNR”? Why should they stoke Akhmetov, when his taxes went including financing ATU? Why do they interrupt the industrial chain, in which Donetsk coal provides for the country the work of many enterprises, which also belong to other oligarchs, financing ATU? The motive “not to have any business with the enemies” does not at all seem convincing, because the same initiators of the blockade, for example, do not at all demand to abandon exports to Russia and investments from it. The Ukrainian mass media also cite data according to which in 2016 Russia accounted for the largest percentage of the total volume of Ukrainian exports, and Russia was the largest investor in Ukraine (38% of foreign investments). The second most important investor in Ukraine is Cyprus (10%), and it is likely that Russian money is behind these figures.

Again, there are two possible versions of the blockade. According to the first version, the coal war was unleashed by the order of Akhmetov, who would receive all the above-mentioned benefits, if any. According to the second version, the coal war is one of the episodes of the so-called war of the oligarchs in Ukraine. This topic is always full of details (not always verifiable though), names, intricate multi-level links. In short, the blockade is initiated by a group that is unhappy with Poroshenko's growing strength and now actually plays openly against him. After all, now Poroshenko really found himself in such a difficult situation that one wonders whether the blockade is directed against the separatist “DNP-LNR” or the president? If Poroshenko, fearing a sharp deterioration of the national economy, still decides to resume railway communication between the regions of the country, his opponents will accuse him of maintaining trade relations with separatists, and this will be a serious blow to the image of government authorities. In addition, activists can resist, which can lead to clashes and unpredictable consequences including extraordinary parliamentary and presidential elections.

So, unfortunately, we can expect the most noteworthy events in Ukraine in the future. But no matter which version (or a combination of versions) prevails, the losing side of the “coal” war is the Ukrainian population “on the other side of the barricade”, which is likely to suffer from the absence of heat, electricity and jobs .



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