Nikolaus von Twickel


While much international media attention has focused on the Malorossiya announcement from “DNR” leader Zakharchenko, relatively little has been reported about the continuing economic decline in the Ukrainian regions outside government control.

  1. The “Malorossiya” affair

Having largely vanished from international headlines, the conflict in eastern Ukraine made a comeback last month when Donetsk separatist leader Alexander Zakharchenko suddenly declared that the “people’s republics” should unite with Ukraine and form a new state called “Malorossiya”.

In a surprise statement made during a conference In Donetsk on July 18, Zakharchenko announced that because Ukraine as a state had been destroyed by the Maidan revolution (which he said led to a “Neonazi regime”) it should be replaced by Malorossiya with Donetsk as its capital (Malorossiya, literally “little Russia”, had been the name for Ukraine in Tsarist Russia). He stressed that this was the separatists’ last offer to the “criminal regime” in Kiev in order to make peace.

Zakharchenko made little effort to explain the legitimacy of such a step, merely claiming that representatives from a majority of Ukraine’s regions were present and supported the idea.

However, it quickly emerged that this was a huge exaggeration, as leaders of the neighbouring Luhansk “people’s republic”, in theory Zakharchenko’s closest allies, said that they were not at the conference and had not been consulted. Naturally, the move was quickly condemned by Ukraine and its western allies. President Petro Poroshenko suggested that Malorossiya would fail just as the “Novorossiya” project did in 2014. The German government said that Zakharchenko’s declaration was “”unacceptable.

Many western and Ukrainian commentators stressed that Zakharchenko is a Kremlin puppet and thus could not have made the decision without Moscow’s consent. However, Russian President Vladimir Putin’s spokesman Dmitry Peskov said on the same day that this was a personal initiative by Zakharchenko.

One little noted fact that supports this view is that even Denis Pushilin, the “Donetsk People’s Republic’s” chief negotiator and second most prominent figure, wasn’t at the conference and later only gave a lukewarm endorsement to Zakharchenko’s initiative, arguing that it needed more discussion and possibly a referendum.

The view that the “Malorossiya” initiative was thought within a small circle surrounding the Donetsk separatist leader was confirmed the same day by Zakhar Prilepin, the Russian writer who acts as an advisor and deputy battalion commander to Zakharchenko. In an interview with “Komsomolskaya Pravda”, Prilepin acknowledged that the Malorossiya declaration had been devised as “a surprise for Moscow” – because “time is ripe” and Donetsk was ready to rule all of Ukraine.

Thus, it was perhaps of little surprise that Zakharchenko had to more or less renounce his project. On July 26 – two days after the leaders of Germany and France condemned it as undermining Ukraine’s territorial integrity during a “Normandy Format” phone call with Presidents Poroshenko and Putin, he suddenly said that it was just a proposal and more time was needed for discussion. And on August 9 he declared that there will be no “Malorossiya” because the name caused too much opposition.

Interestingly, Zakharchenko’s initial grand declaration did not make it onto his official YouTube channel, nor is it featured in the video section of his official website (which does have a transcript, though).

Whoever was behind the idea, the whole episode shows that while Zakharchenko may ultimately be a pawn, he is willing and able to perform independently until he is called off by his masters. As for punishment, it is probably well understood in Moscow that the damage done by the Malorossiya initiative is borne mainly by its political proponent, ie Zakharchenko himself.


  1. The economy

By all means, almost six months after all Ukrainian-run enterprises were seized by the “people’s republics” and a mutual trade blockade took hold on March 1, there were no signs of an economic recovery as promised by the separatists.

Instead, their leaders tried to demonstrate that they are boosting industrial output. In trademark fashion, on August 11 “DNR” boss Alexander Zakharchenko chauffeured a newly produced bus with officials and journalists through Donetsk.

The bus was supposed to mark the start of an assembly line in the “Donetskgormash” factory. According to Zakharchenko, 100 “Donbass” busses will be assembled there until the end of the year. However, the vehicles are actually produced Russia’s Pavlovo Bus Factory (PAZ), while Donetsk only fits them with chairs and some interior parts. Zakharchenko’s “Industry Minister” Alexei Granovsky claimed that the busses’ assembly will eventually be moved to Donetsk completely, but did not say when this will happen.

The economies of both “people’s republics” were badly affected by the trade blockade with Ukraine, first initiated by nationalists from Kiev at the beginning of the year, and the subsequent nationalisation by the separatists of Ukrainian-run enterprises in the areas they control. Production stopped after trade with raw materials and coal ended and the Ukrainian-led management had to leave.

Luhansk separatist leader Igor Plotnitsky admitted in May that industry and coal mines in his “people’s republic” were operating at just half of their potential, and that in some cases output was at less than 40 per cent of prewar levels. But Plotnitsky was adamant that the “LNR” could sustain itself – if only it found markets to sell its products – first and foremost coal. “We are in talks with Belarus, Turkey and China”, he said in an interview with the Moscow-based Izvestia newspaper, curiously omitting Russia. But he added that there are problems with certifications – echoing comments by the Luhansk “agriculture minister”, who said in April that even Russia refuses to import goods because it does not recognize the “republic” as independent (see Newsletter 21).

Meanwhile, the “Donetsk People’s Republic” did not reopen any large factories believed to be idling. The much-touted opening of the Yuzovsky Metallurgy Plant, supposed to happen in June, was postponed to September because of “missing spare parts”, according to its director Alexander Zubov.

The plant, which had a Russian, not a Ukrainian owner, was seized by the separatists already in June 2016, but its reopening was postponed several times because it could not get raw materials.

And most of the more than 5,300 workers of the Yenakiieve Metallurgy Plant continue to be on forced vacation, according to Ukraine’s military intelligence.

According to some experts, the troubles for the separatists and Russia, which is widely believed to bankroll them, maybe far more serious.

Musa Magomedov, the director of the Avdiivka coking plant, which is located on government-controlled territory just north of Donetsk, argued that it will be very hard to reopen those plants. “If a factory stands still for one month, a year or two, .. it will be practically impossible to restart it”, he said in an interview with the Novosti Donbassa news site, published August 17.

Magomedov added that as long as the separatists are in power, there was no hope to return to the previous status quo, where Ukrainian-run plants functioned in the “people’s republics”. He argued that because of the “propaganda” (from Russian and local TV), most workers there would reject their former employers: “I do not believe that these factories can return under Ukrainian control … before there is a proper reintegration (of the territories),” he said.

He also explained that the Avdiivka plant was making substantial losses because it had to buy expensive coal from overseas instead of cheap coal from the neighbouring separatist areas.

Practically all of Ukraine’s mines that produce anthracite coal lie in the “people’s republics”. Many Ukrainian plants, including Avdiivka, rely on this type of coal, while Russian plants generally do not require it.

Nevertheless, coal from the “people’s republics” did get exported to Russia this year: According to official statistics, in May Russia imported 58,652 tonnes worth 3.14 million dollars, the Interfax Ukraine news agency reported in July. The figure between January and May 2017 was 236,568 tonnes worth 13 million dollars, meaning that on average Russia imported some 47,200 tonnes coal for 2.6 million dollars per month.

Even more interesting is the figure that in the same five-month period of this year, 236,296 tonnes of anthracite coal were exported from Russia to Ukraine – some 47,200 per month. Most likely, this coal traveled through Russia in order to bypass the trade ban with Ukraine.

However, these figures are another indicator that the income base of the “people’s republics” must be severely depleted. In the first ten months of 2016, according to Ukrainian Energy Ministry figures, Ukrainian firms bought 7.2 million tons of coal from separatist territories (see our annual report, p. 10). That amounts to 720,000 tonnes per month, almost 15 times more than this year.