From loud statements to jobs and salaries: Will "nationalized" DNR enterprises work?

Author : Mykyta Sinitsyn

Source :

It seems, the 2017 will be the turning point that will finally decide the fate of the temporarily uncontrolled part of Donbas - will it, like Transnistria or Abkhazia, be unrecognized by the state for the coming years or will it return to Ukraine. And it's not the armed forces, but the laws of economy will determine this issue
17:36, 19 April 2017

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112 Agency

The Donbas blockade beginning in late 2016 as a public initiative of ATO veterans eventually turned into a state policy and led to an end of the export of products from the territories of the self-proclaimed republics.

In response to the blockade, the uncontrolled territories of LNR and the DNR "leadership" announced the "nationalization" of Ukrainian companies operating in temporarily uncontrolled territories, but exporting products to Ukraine and paying taxes there. For example,  43 objects from the uncontrolled part of DNR were included in this list.

However, by the time of nationalization, most industrial enterprises already had a long break in work because of the blockade of DNR that had begun. And whether the leaders of self-proclaimed "republics" will be able to restart the work - in fact, it will be the main exam for them, as well as for the quasi-state entities themselves. Examination of their vitality.

Material and marketing hunger

The initial euphoria from nationalization in the DNR quickly passed away. Despite the promises to start production at new "state" enterprises, for a month and a half it was possible to do it only at the Donetsk brewery "Sarmat", which had a break in its work for more than 2 years.

This event became very indicative for the economy, and it's not even about the dubious value of the enterprise's products, but that restart of it only confirmed the rule.

During the whole period of the ATO, the food industry in the self-proclaimed DNR felt itself very confident, as it did not depend much on Ukraine in terms of purchasing raw materials and marketing finished products. Therefore, it was relatively easy to resume production of the brewery and make its operation fairly stable.

The heavy industry, which today mostly stopped its work, is another matter. And the reason for this are the problems caused first by the blockade of uncontrolled territories, and then by the nationalization of enterprises.

After the termination of transport communication with Ukraine, the metallurgical enterprises were left without raw materials; more precisely iron ore, and even more importantly - without the markets for finished products. All this, even without nationalization, made the work of enterprises impossible.

The legal status of an unrecognized state does not allow DNR or LNR to independently purchase necessary raw materials or sell finished products, which makes any production activity impossible.

Russia's help: ore in exchange for metal?

However, the leadership of the unrecognized LNR and DNR from the very first day declared that it relies on the assistance of the Russian Federation in the matter of supplying raw materials necessary for the metallurgical industry enterprises.

In general, speaking technically, given the free border of self-proclaimed "republics" with the Russian Federation, this issue is very easy to solve - iron ore concentrate for metallurgists can be easily delivered by trains. As for coke, its extraction and production capacities, there is quite enough of it in the territory of the self-proclaimed "republics".

Related: Ukraine’s Ministry of Energy and Coal Mining proposes to ban steam coal import from Russia

On April 7, the head of the DNR, Alexander Zakharchenko, said that a basic agreement on supplies had already been reached, and by the end of the month production at the main metallurgical enterprise of the self-proclaimed republic, Yenakiyevo Metallurgical Plant (Rinat Akhmetov's asset) would be resumed. On April 10, the Russian media reported on the decision of the Russian Railways to introduce a 25% discount on the transportation of iron ore to the "border" of the self-proclaimed republics. On April 12, appeared information on the beginning of deliveries of iron ore from the enterprises of the Russian metallurgical company Severstal.

Finally, on April 14, the head of the Federal Agency for State Reserves of the Russian Federation, Dmitry Gogin, stated that "deliveries of raw materials for the enterprises of the southeastern districts of Donetsk and Luhansk areas are temporarily provided as humanitarian support of the territory at the expense of available federal reserves of material assets ", thereby confirming the supply of raw materials and assistance of the Russian Federation, although it was presented as humanitarian assistance, apparently with the aim of covering up Russian companies from imminent sanctions due to  trade with the unrecognized "republics".

However, the supply of raw materials for metallurgical enterprises in the territory of the self-proclaimed republics does not solve the second problem - the sale of finished products, which is impossible to do from the territory of the unrecognized and legally non-existent republic. And here there is only one option - to sell it to those who agree to manage with "legalization" of the goods, but instead require low commodity prices.

The most likely, Ukrainian companies would be in the role of such a buyer that agree to close his eyes to the origin of the goods and proved to be sufficiently ingenious to organize the legalization of the goods. Also, this may help Russian companies.

In general, the supply of iron ore to the self-proclaimed DNR companies for the profit of Russian metallurgical enterprises is not very profitable action at all. The world price for iron ore in recent years has fallen, so selling the cheaper raw material is not very tricky, but the main concern is not even in that.

Russian and Ukrainian metallurgists traditionally compete with each other on international markets, and the stop of enterprises on uncontrolled territory gives Russian metallurgical companies a chance to take their niches on the market. At the same time, the revival of the work of the metallurgical enterprises in DNR with a subsequent attempt to sell their products independently will reject this possibility, and these missed opportunities will not be compensated by the 25% discount on the transportation of iron ore.

Without hope for restart?

Metallurgists can still say they are "lucky." Even if the metal produced is sold at a lower price than its real value, it will still allow to start its production and to receive wages. But in the self-proclaimed DNR there are some enterprises, the hopes for launching of which become smaller. And first of all, these are front-line enterprises.

We are talking about Horlivka. On April 12, at last, the intrigue was resolved: will the concern "Stirol", undoubtedly, the largest enterprise of the city, be nationalized and will it receive an "external management"? On this day, Acting Minister of Industry and Trade of the self-proclaimed "DNR" Alexei Granovsky presented at the meeting of employees the new director - Artiom Serdyukov.

On the enterprise that has been operating for more than 2 years, however, wages have been paid, albeit recently with delays, so that by March 2017, wages were paid in part only in January.

Related: Ukraine to place responsibility for human rights observance in Donbas, Crimea on Russia

At the meeting, the officials of DNR and the new director traditionally assured all employees of preserving jobs and continuing payment of the existing salary in rubles at the rate of 1 to 2. It was also announced that the main production could be launched, although on the condition of peace or at least the safe for the enterprise distance from the front line, as well as the first launch of production of safer things from polystyrene, plastic dishes, household paint.

But we know that such assurances from the leadership of the self-proclaimed DNR sound regularly.

Also, it is regularly promised to start production at another major city enterprise - the Horlivka Kirov machine-building plant. Stopped in 2014, deprived of a part of the equipment taken out by the owner - the Corum Group to Druzhkivka and Kharkiv, and occupied by illegal armed formations, it is increasingly turning into a ghost enterprise.

In the autumn of 2015, mining stopped at the mines of Artemvuhillia Horlivka state enterprise, and the mines now work only for pumping out water.

At the same time, Horlivka Coke Chemical Plant, which restored production in 2015, and the producer of medicines "Stirolbiopharm", owned by Hero of Ukraine Mykola Yankovsky, are still working in the city.

Show before the cameras

However, there is still another option, which was implemented with "success" in the territory of the self-proclaimed DNR during the April 6 so-called "military gathering" – a show-off.

That is, in front of the cameras of local and Russian media, production at some plant will be solemnly launched, and then the enterprise will be stopped again after a few days /weeks of work.

Therefore, it is necessary to regard the "nationalization" of Ukrainian enterprises in uncontrolled territories not only in economic reasons. After all, the self-proclaimed authorities needed not just idle factories and mines, but a lever of pressure on Kyiv. Now Zakharchenko and Plotnitsky will have to rack their brains about how to turn loud statements into jobs and salaries.

Related: Separatists thwart verification of hostages lists, — Gerashchenko

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