Written by Nikolaus von Twickel


Leaders of the Donetsk “People’s Republic” for the first time appeared at the St Petersburg Economic Forum – Russia’s biggest investment show – claiming that they were looking for foreign investors. Days earlier, participants at the Minsk talks discussed lifting the two-year old trade ban between government and non-government-controlled areas – only to link this with conditions likely to be unacceptable to both sides.

Pushilin at St Petersburg Economic Forum

“DNR” leader Denis Pushilin, Prime Minister Alexander Ananchenko and other leading Donetsk separatists attended this year’s St Petersburg Economic Forum, which was held from 6-8 June. In comments carried by separatist-controlled media, Pushilin said that he hoped to find “foreign partners” who are ready to cooperate with “DNR” companies. “Our Republic has huge economic potential and is an attractive sales market,” he was quoted as saying on 6 June by the DAN news site.

It was the first time that separatist leaders appear at the Forum, an annual showcase event for foreign investors in Russia. However, their participation was not announced in advance and Pushilin admitted that the “DNR” was not officially present when he said that he hoped to convince the organizers to achieve “full representation” next year.

Despite being crucial for their creation, Russia does not recognize the “People’s Republics” and has not set up official direct trade and business ties with Donetsk and Luhansk. Even though the rhetoric from separatist leaders suggests otherwise, Russian businesses have been careful not to enter the “People’s Republics”, most probably because this could trigger sanctions from the West, but also because the local coal and metals industry represents an unwanted competitor to similar industries inside Russia.

Since Ukraine imposed a trade ban in spring 2017 the “republics” have been hit by steep economic decline caused by the loss of their previous markets. While it is unclear if they can achieve much, the fact that separatist leaders appeared at the Forum signals that Moscow is ready to allow more economic cooperation in order to aid Donbass.

It also suggests that the Kremlin has sufficient trust in the secretive group that took over management of the economy in Donetsk after the assassination of Pushilin’s predecessor Alexander Zakharchenko in August 2018. Prime Minister Ananchenko and his deputy Pashkov are both former executives at Vneshtorgservis, the obscure holding company that took control of key factories after the 2017 seizures. It is thought that Ananchenko’s government was given free reign over the economy after Zakharchenko’s death, while Pushilin largely acts as a ceremonial leader.

During the Forum, separatist media stuck to their rule of not showing Ananchenko on TV and photos. The secretive and powerful “Prime Minister” was last seen on a photo with Pushilin in April, when both visited an investor conference in Russian-controlled Crimea. However, an Austrian reporter spotted Pushilin chatting with Konstantin Malofeev, a Russian businessman said to have been a key financial backer of the separatists in the past.

Vneshtorgservis also controls coal mines and plants in the neighbouring Luhansk region, but local separatist leader Leonid Pasechnik did not show up in St Petersburg.

Lifting the trade blockade raised in Minsk

In another sign that Moscow is eager to improve the economic situation in Donetsk and Luhansk, lifting the two-year old trade blockade was discussed at the first round of the Minsk Contact Group talks since Ukrainian President Volodymyr Zelenskiy took office on 20 May.

After initial reports that the issue was raised by Ukraine, Martin Sajdik, the Austrian diplomat who chairs the fourthnightly talks in the Belarusian capital, clarified that it was brought up by separatist representatives on 5 June, with the Russian delegation “on the whole” supporting it.

While separatist leaders did not immediately comment, Moscow argued – via Alexei Chesnakov, the political analyst and former Kremlin official who acts as an unofficial spokesperson to President Vladimir Putin’s aide for Donbass Vladislav Surkov – that it was Ukraine’s responsibility to lift the blockade. In an interview with the Tass news agency, published 6 June, Chesnakov argued that the trade ban was imposed by Kiev. “How do they want to lift the blockade? That is a difficult and complex question,” he was quoted as saying.

Former Ukrainian President Leonid Kuchma, whom Zelenskiy on 3 June reinstated as the talks’ chief negotiator, stressed in a statement on June 6 that the blockade can only be lifted if the separatists return seized industrial assets to their Ukrainian owners and let the Ukrainian hryvnya replace the Russian rouble as the main currency. Meeting these conditions would clearly be very unattractive for the separatists who heavily campaigned in the past two years for integrating the local economy with Russia. And even if they gave up control of seized industry, it is hard to imagine the plants’ management returning to the “People’s Republics” after they were withdrawn by their Ukrainian owners in 2017.

“DNR” leader Pushilin in turn demanded on June 8 that lifting the blockade should be tied to Ukraine granting special status to Donbass via constitutional amendment. This central demand of the Minsk agreement has proven impossible to implement for Ukraine – in August 2015 at least three people were killed and more than 100 injured in protests against such an amendment outside the parliament in Kiev.

The blockade bans most goods trade across the so-called contact line, which divides the “People’s Republics” from the rest of Ukraine. The ban has hit the separatist-controlled areas much harder than Ukraine as a whole. While the country is thought to have lost 0.9 percentage points of GDP growth in 2017, the metals and mining industry in Donetsk and Luhansk continues to suffer from a lack of raw materials and sales markets. According to figures from the separatist Industry and Trade “Ministry”, metals production in Donetsk was halved in 2017 (see our Annual Report 2018, p7).

The blockade was begun in January 2017 by Ukrainian veterans and activists, initially against the government’s will. However, then President Petro Poroshenko endorsed it in March after the separatists seized local Ukrainian-owned industry (see our Annual Report 2017, p 7-8).

No security improvements after first Zelenskiy-era Minsk talks

The Minsk meeting on 5 June also brought no improvement in the security situation. An attempt to implement the 2016 disengagement agreement in Stanytsia Luhanska failed when shots were fired on 8-9 June. As in the past, “LNR” Foreign Minister Vladislav Deinego claimed that Ukraine was to blame, while the Ukrainian military blamed the separatists.

On 7 June Ukraine and the separatists traded accusations of not controlling their armed forces after two Ukrainian servicemen were killed and eight were injured near Novoluhanske in the Donetsk region. Zelenskiy said in a statement that this was the result of an artillery attack that showed that Russia was losing control of separatist forces. “DNR” leader Pushilin retorted that the Ukrainian government was not in control of its military.

Slow processing for Russian passports in Donetsk

Meanwhile, “DNR” leader Denis Pushilin stated that the procedures for obtaining Russian passports were too slow. In an interview with the Russian RIA news agency, Pushilin said on 8 June that some 6.500 applications had been collected in his “People’s Republic” during the first month. Assuming that the “DNR” has some 2 million inhabitants, it would take more than 25 years to hand out passports to all of them at this speed. Pushilin promised to step up the pace both by digitalizing the process and by hiring new staff for the migration services.

Russian President Vladimir Putin decreed in April that inhabitants of both “People’s Republics” are eligible for fast-track Russian citizenship. However, one condition for applying for a Russian passport is the possession of a passport issued by the “DNR” or “LNR”. It is thought that just 15 per cent of the local population has obtained such passports, leading to long queues for applying for them (see Newsletter 56).

The bureaucratic hassle of making a successful passport application was described as “Seven Circles of Hell” by Andrei Babitsky, a Russian journalist based in Donetsk.

Long prison sentences for 16 Ukrainians in Luhansk

The Luhansk separatists said on 5 June that a military court had given long prison sentences to 16 “Ukrainian agents” accused of organizing and carrying out the assassination of their military commander Oleg Anashchenko in February 2017. The 13 men and three women were given sentences between 11 and 20.5 years for Ananshchenko’s assassination, according to the official LITs news site.

Two of them, Serhiy Ivanchuk and Ivan Deyev have been shown making confessions in videos released by the “LNR” State Security “Ministry” in March 2017, which Ukraine said were clearly made under duress (see Newsletter 19). The “LNR” accuses Ivanchuk of planting the car bomb which killed Anashchenko. Ivanchuk’s wife Vyktoria has said that she has not received any information about her husband since he was captured in February 2017.

An “LNR” military court had found the 16 guilty in June 2018 – almost one year ago. As in other such cases in both “People’s Republics”, the only available information is from separatist-controlled media which report solely from the perspective of prosecutors and did not even say if the accused have access to lawyers.