Saturday

21st Sep 2019

Investigation

The great looting of Donbass

  • Donbass is Ukraine’s center of heavy industry and coal mining, which includes Soviet-era metal and fertiliser factories and power stations (Photo: Irina Gorbasyova)

Over 50 percent of large-scale enterprises in the rebel-controlled areas of eastern Ukraine have been closed, destroyed, or seized by the Russian-backed separatists, reveals an analysis of almost 80 representative companies in the region.

Donbass is Ukraine’s center of heavy industry and coal mining, which includes Soviet-era metal and fertiliser factories and power stations.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Since March 2014, the rebels and supporters of the self-proclaimed Donetsk People’s Republic (DPR) and Luhansk People’s Republic (LPR) have stolen state-owned mines, raided military-owned companies, and seized or looted foreign and Ukrainian-owned businesses, such as retailers Auchan and Metro, staking a claim to all businesses on the occupied territory.

Around 23 percent (18 of these companies) have been taken by the rebels and their supporters, 28 percent (22 companies) have closed down. A further four (five percent) are damaged and destroyed, while seven (nine percent) have moved their operations to west Ukraine.

This leaves 35 percent (27 major companies) functioning, under rebel patronage and, in most cases, paying taxes to Ukraine.

Last year the rebels in the DPR and LPR aimed to nationalise all industry and power generation, and bring it into the lap of the Republic, sever all links with Ukraine and create a self-sufficient state.

But while small businesses are destroyed, stolen or forced to register in the new republics, the rebels have left the giant oligarch-owned factories in the region alone.

These include some of Ukraine’s largest companies, such as metal manufacturer Metinvest and mining and energy group DTEK, both owned by Ukraine’s richest man Rinat Akhmetov, and the Donetsk Steelworks (DMZ) and the Industrial Union of Donbass (IUD), both owned by Russian investors.

The rebels face a challenge to build a functional economy, as the war has created an artificial border that splits roads, railways, power infrastructure, water pipes, and business networks.

“It creates a wall where there should be no wall,” says Dmitry Churin, research associate at Kyiv-based Eavex Capital. “They are still our people, it’s still our economy. When we look at the bigger picture, the idea just to ‘cut here’ doesn’t work.”

The rebels have left alone the two thermal power stations on the occupied territory, one of which is owned by Akhmetov, and a second by Donbassenergo, a company close to ousted president Victor Yanukovich and 25 percent owned by the Ukrainian state.

Kievv also continues to allow the passage of gas and water to the region.

Rebel seizure: mines and shops

Most significant among the companies taken over by the rebels is the Ukrainian State Mining Company’s network of 55 coal mines in the occupied zone.

The state lost control of these mines in July 2014 - some are destroyed, others are flooded or closed, but some are functioning.

While it is tough for the rebels to run factories without materials, supplies or expertise, they have instead moved into one sector to try and cash in - the high street.

The rebels have taken over 152 branches of Ukraine’s leading supermarket retailer ATB, renaming it The First Republican Supermarket in Donetsk and People’s store in Luhansk, causing losses of €273 million to the parent company.

French retailer Auchan has also been taken over by a rebel-registered company, as has Ukrainian DIY superstore Epicenter.

Meanwhile, American lingerie brand Victoria’s Secret continues to operate under owners which are “unauthorised,” according to the US firm.

Nearly all foreign companies have fled from the occupied zone - and most of their assets have been destroyed, looted or occupied.

All the banks - Russian, French, Austrian, Italian and Ukrainian - closed in August 2014. The rebels have raided many of the banking premises and blown up ATMs, looking for cash.

The only bank open is the rebel-run Republican Central Bank, which has opened mainly in the former premises of Ukrainian banks PrivatBank and Oschadbank. They now have their own-branded ATMs and recently launched a bank card.

Russians not immune

Although Russia is a sponsor of the breakaway republics, its investors have not been immune to intervention.

While its banks are closed, mobile communications company Kyivstar, jointly owned by a Norwegian-Russian concern, was raided earlier this year. The rebels used the equipment to create their own communications network, branded Fenix.

German cash-and-carry giant Metro has closed three stores, while its fourth, near Donetsk airport, was destroyed in the war. Its products emerge in other stores around the region, due to looting.

In July 2014, American agricultural giant Cargill’s $40 million sunflower seed crushing plant in Donetsk was abandoned, then occupied by a group of armed men.

A month later, at the height of the conflict, shells blasted holes in the factory. Since then, a Cargill spokesperson said: “We have had no way of knowing the state of the plant for more than a year.”

To operate in the DPR and LPR, small and medium-sized businesses need to pay taxes. The republics are creating the semblance of a legal system of governance.

Taxes

“Taxes are more important than nationalisation,” adds one Donetsk business analyst. “It is much simpler and easier for authorities [not to seize a company], but to approach the director or owner and make him pay 20 percent of his profits to the DPR state.”

Only companies from Ukraine and Russia are operational on the territory, according to our sample.

The information is taken from company data, interviews with companies and employees, and media reports.

This article is part of the project “The Donbass Paradox” financed by Journalism Funds for EUobserver. An extended report can be found here

Investigation

Exposed: How Morocco lobbies EU for its Western Sahara claim

The European parliament's lead negotiator on the Morocco trade deal, French liberal MEP Patricia Lalonde, is also on the EuroMedA Foundation board along with former Moroccan state ministers and a top ranking official in Morocco's ministry of agriculture.

Exclusive

Despite pledge, Katainen met lobbyists without taking notes

Finland's EU commissioner, Jyrki Katainen told EUobserver in February his cabinet members "always" takes notes when he meets lobbyists. They did not on at least seven occasions, when talking about artificial intelligence.

Investigation

The ECB: EU's 'bad bank' (for its employees)

An internal report finds 'lack of staff' and high 'burnout' levels at the European Central Bank in Frankfurt - the bank trusted with keeping the eurozone stable and secure.

News in Brief

  1. Ireland: right Brexit deal is 'not yet close'
  2. UK secrecy on Brexit holds back wider EU talks
  3. Feminist mass protest in Spain after 19 murders this summer
  4. Global climate strike starts ahead of UN summit
  5. UK Brexit minister to meet Barnier on Friday
  6. Russia-Ukraine gas deal talks show 'progress'
  7. Nobel economist: Ireland 'not good EU citizen' on taxes
  8. Germany takes carbon border tax on board

Investigation

EU Commission paying too much for iPhones and IT

EUobserver has obtained internal documents and emails from within the European Commission that outline questionable contracts with outside suppliers who appear to be overcharging for goods and services.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  2. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  3. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  4. Nordic Council of MinistersNo evidence that social media are harmful to young people
  5. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  6. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  7. Nordic Council of MinistersEducation gets refugees into work
  8. Counter BalanceSign the petition to help reform the EU’s Bank
  9. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  10. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  11. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  12. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat

Latest News

  1. Europe goes to New York This WEEK
  2. Nine EU 'commissioners' asked to clarify declarations
  3. Dismiss Italy's Salvini at your peril
  4. Malta PM accused of 'blackmail' over slain reporter
  5. Diplomats back Romania's Kovesi for EU top prosecutor
  6. Brexit raises questions for EU defence integration
  7. Low-carbon cities can unlock €21tn by 2050, report finds
  8. France, Italy want 'automatic' distribution of migrants

Stakeholders' Highlights

  1. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  2. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  3. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  4. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  5. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  6. Nordic Council of MinistersNordic commitment to driving global gender equality
  7. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  8. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  9. Nordic Council of MinistersNordic talks on parental leave at the UN
  10. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  11. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  12. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID

Join EUobserver

Support quality EU news

Join us