"Russian Winter" in Donbass or Putin’s secret plan

Donbass continues to lose irreversibly its industrial potential, accumulated for over more than 100 years by several generations. And it’s along with humanitarian - one of the main components of its tragedy.

Luhanskteplovoz as a mirror of "Russian winter" 

The fact, that the militants of the "DPR-LPR" cut for scrap equipment of the factories that stopped their work because of war, has been known for a long time. The first reports appeared in the summer of 2014.

One of the first was, for example, Snezhnyanskhimmash as it was the closest to the Russian border. Scrap metal was mainly exported to Russia.

Representatives of large Ukrainian supplier companies claimed in the comments to OstroV that they didn’t work with the scrap from the ATO area as it was impossible to deliver it because of the tight control of the SSU at checkpoints.

It is clear that, in fact, the export of scrap is not a problem at the present level of corruption among Ukrainian security forces and their command - it is not a problem to transport  alcohol and cigarettes, for example.

Another thing is that the export price of scrap has fallen by 2 times over the past year. Taking into account the additional costs on corruption extortion, so it’s just not worth it.

That is why the main focus for the scrap from the dismantling of plant equipment in Donetsk and Luhansk regions is neighboring Russia.

So, cutting equipment for scrap in one of the shops of the Luhanskteplovoz association became known at the beginning of December. It was founded back in 1896 and was the largest manufacturer of diesel locomotives in the USSR.

Luhanskteplovoz was a unique entity in independent Ukraine. Therefore, in the mid-2000s there was a real war between various financial and industrial groups.

Finance and Credit FIG belonging to Konstantin Zhevago and Igor Kolomoisky’s Privat wanted it but in the end the trophy went to the Transmashholding Russian group owned by Iskander Makhmudov.

At first Russians bought Luhanskteplovoz in 2007, then in 2009 the company lost the enterprise by the decision of the Economic Court of Luhansk. Then, in 2010 Transmashholding bought Luhansk association again for $ 51.8 million at the then exchange rate.

The company continued to work even during the military campaign of 2014 and, according to it, could end the terrible year with a positive financial result.

Moreover, it was planned to increase production up to 300 locomotive sections in 2015 compared to 282 at the end of 2014. The main customer, as before, was Russian Railways JSC. That just didn’t happen, despite the attempt to re-register the company in Severodonetsk as a Ukrainian one.

Finally, Luhanskteplovoz stopped work in the spring of 2015 due to non-delivery of components from the United States and the European Union.

By the way, the first reports of cutting equipment in the plant appeared almost a year ago, in December 2014. At that time, the administration, represented by the HR director Alexander Cherevatyi, denied the information.

Now, according to the Ministry of Internal Affairs of the LPR, dismantling actually occurred. However, it is about one of the auxiliary tool shops, previously sold to Thermo PLC in the course of restructuring.

Nevertheless, the fact is that the presence of Russian owners did not save the largest in the Luhansk region engineering association from gradual degradation in terms of creating the "LPR" on the territory controlled by pro-Russian separatists.

The same applies to the "DPR". One of the core enterprises of Donetsk, Donetskstal switched to a one-day working week as of from December 21^st....

Accordingly, the salary of workers was reduced. But maybe they were lucky - all the rest will be left without means of existence.

The staff was reduced from the former 5881 people to 3604 people as a result of the announced reorganization.

For the sake of objectivity in this case, we must remember that the crisis in the steel industry is now observed throughout the world. Even in the US the average load steelmaking capacity does not exceed 60%, according to the World Steel Association. Ukrainian metallurgists need to slow down due to the lack of demand.

For example, Azovstal and Mariupol Illich Iron & Steel Works announced about switching to 4-day working week".

However, there is a substantial difference between the four-day and one-day working week. And it is not in favour of the current authorities in Donetsk, who promised naive citizens a bright future in the "People's Republic".

It should be recalled that the owner of the Donetskstal is a native of Donbass, now permanently residing in Moscow, Russian citizen Viktor Nusenkis.

He, by the way, made a considerable contribution to the incitement of separatist spirit in Donbass region in 2013-2014. So, it is not possible to explain the decline of the industrial giants in the "DPR-LPE" by pro-Ukrainian position of their owners.

On the contrary, they have every reason to count on the support and loyalty of the current authorities in Donetsk and Luhansk. But their enterprises were the first to stop working for some reason.

The situation is not promising in the coal industry, basis of the economy of Donbass. According to statistics of the Ministry of Coal and Energy of the "DPR", mines, located in the "DPR," produced 798 thousand tones of coal in November.

Three mines showed the biggest volumes: Donbass mine group - 136 thousand tons, Torezantratsit - 107 thousand tones, Makeyevugol - 106 thousand tons.

Production plan was exceeded by 38.4%, cheerfully reports "DPR" agency. Another thing is that with such volumes of production on an annual basis the Makeevugol will make 1.3 million tons and in general, the "DPR" - 9.6 million tons (for 11 months 8.16 million tons  were produced).

For comparison, in 2013 the pre-crisis production at Makeevugol was 2.25 million tons, in Donetsk region. - 31.8 million tones. On this background, the failed results of the "republic" are "impressive".

Moreover, the active fighting in Donbass has not been conducted for more than a year and during that time you could do everything if you have desire, ability and massive aid from the "brotherly" Russia.

However, in reality "Russian Spring" in Donbass turned into "Russian winter" for its economy. Unfortunately, not only in relation to the current date in the calendar.

By the way, if "damned Ukrops" didn’t buy coal in the "DPR" - "LPR", the situation there would be even worse - though it seems that it couldn’t have been worse, at the first glance.

For example, the purchase of coal on the uncontrolled territories, according to the head of Minster of Energy and Coal of Ukraine Volodymyr Demchishin, amounted to 500 thousand tones only in April 2015.

And this is, just think of it, 2/3 - 3/4 of the monthly volume of production in the "DPR". We can only guess what "republicans" would do with the coal, if not for Ukraine – you can’t spread coal instead of butter on the bread.

Putin: a strategy of destruction

Russian President Vladimir Putin’s actions in Donbass seem very rational in this regard. They look meaningless only at the first glance.

Until now experts had no clear answer to the question: "Why did Putin go to Donbass?", "Why did Putin refuse from the Crimean scenario in Donbass?".

Did he continue to divert attention of Russians from internal problems due to external victories? Did he increase his rating? If so, why not going immediately to Syria, where the civil war has been going on for 3 years?

Was he scared of the reaction of the West and a military conflict with NATO? No, he wasn’t. Economic sanctions of the West after "Krymnash" were inevitable and the Kremlin knew about that.

They also knew that there would be no military confrontation with NATO because of Donbass. The history of the Russian-Georgian conflict in 2008 confirms this.

Then, perhaps, Putin did not want to load the weakening Russian economy further due to fall in oil price with subsidized appendage, in addition to Crimea?

Again not right. Donbass wasn’t subjected to destruction at that time, in the spring of 2014, and was a highly industrialized region.

Which gave more than 20% of Ukraine's GDP. But ... there is one "but" ... "a highly industrialized region" is, in this case, the key phrase.

Coal, steel and heavy industry equipment are the main activities of Ukrainian Donbass. Russian companies enter the global market with the same range of products.

Let’s just recall how Donbass Fuel and Energy Company owned by R. Ahmetov supplied coal for power plant in Novocherkassy, Rostov region before the war.

Thus, 450 thousand tons of Ukrainian coal were exported there for approximately $ 20 million in the pre-war 2013. This fact caused a rather nervous reaction of the Russian authorities.

In their opinion, the supply from Ukraine contributed to the decline of coal mining in the Russian Donbass.

"The coal companies in Ukraine have been actively involved in a campaign to seize the markets of the European part of Russia, including Rostov region. With the support of the state, Ukrainian companies are exporting coal at prices lower than in the Russian market, creating conditions of unfair competition with the coal enterprises of Rostov region", - this statement of an employee of the Ministry of Industry and Energy of Rostov region was quoted by many Ukrainian and Russian media in September 2013.

The measures were taken to protect the Russian fuel producers from unfair competition at the initiative of the Governor of Rostov region at the federal level, then added the official, who asked to remain anonymous.

We can say now more than two years later that these "measures" the Russians took are quite successful: most of the Ukrainian Donbass mines are shut down, destroyed and flooded.

No supply of coal has been possible to the Russian Federation in general and Rostov region, in particular, for a long time - since July 2014, to be precise.

Moreover, the collapse of the coal industry in Donetsk and Luhansk region led to the fact that the Ukrainian energy sector had to buy part of the needed coal from Russian coal mines.

Thereby, we help the Russian Federation to maintain and increase production - and hence save their own coal sector.

The situation is similar in the steel industry. The decline in production in the Ukrainian metallurgical plants in summer 2014 initially led to a surge in the price for stock steel and lease in the Black Sea ports.

The mechanism is clear: if supply decreases when the demand is stable, then the price, that buyers are willing to pay for the goods, will increase.

But this situation did not last long, just 1.5-2 months. Then Russian steel producers increased volume of their production and filled a niche in the market, owned by Ukrainian competitors.

The head of analytical department of the Ukrpromzovnishexpertyza SE Pavel Perkonos noted earlier in his comments to media that Russians began to win not due to a lower price but guarantee of the stable supply.

Obviously, none of the Ukrainian metallurgical enterprises under fire in the ATO area could promise that the products would be delivered to the customers exactly on the agreed date.

Therefore, as the CEO of Metinvest Ukrainian mining and metallurgical holding Yuriy Rizhenkov said, it was possible to survive only by working with the long-term loyal customers.

The rest went to Russians. According to the Russian metal traders, reducing imports of rebars from Ukraine to Russia also allowed to raise prices on the market in the European regions of Russia.

The winners were once again Russian companies: Severstal, Novolipetsk Steel, Oskol electric steel plant.

Just as Donetskstal ceased iron melting, Tulachermet, Russia's largest producer of iron, immediately increased the load domain capacity of the iron.

Moreover, we need to add that Russian Railways JSC will buy 675 locomotives from the Ural Locomotives company in 2016-2020.

It is a joint venture of the Russian Sinara holding and German Siemens concern on the basis of Lyudinovsk diesel locomotive plant.

In addition, the Bryansk machine-building plant, a part of Transmashholding, plans to increase the supply of locomotives for RR from 100 in 2014 to 150 in 2017.

There is no doubt that stop of the work of Luhanskteplovoz is more than profitable for these companies. And complete cutting of its equipment for scrap will only strengthen the position of the Russians in the field of railway machinery.

It is, in fact, happening now. To destroy rival and take his/her place in the sun are an old strategy and was well-developed in the market economy model.

This strategy works quite well, as well as in Donbass. So, do not rush to applaud to the triumphant Ukrainian government on disrupting the plans of the Kremlin.

Putin has reached all the goals: Ukraine is really losing industrial capacity, and irrevocably. It is becoming an underdeveloped agrarian and primary producing country, as Russian propaganda claims.

Distortion is that it happens because of alleged political and economic orientation of the current authorities of Ukraine at the EU.

Though, you actually need to say "thank you" for this to "brotherly" Russia. At least, none of the industrial enterprises in Ukraine has closed because of the EU.

But many have done it because of the Russian Federation. So, Kryukov Wagon Works, Dneprovagonmash association (Dneprodzerzhynsk) and Azovmash (Mariupol) stopped in 2013-2014 due to blocking deliveries of freight cars in Russia.

This happened after the Register of certification for Federal Railway State Enterprise suspended the certificates for delivery of cars of these enterprises to the Russian market.

Lisichansk refinery was stopped by Rosneft, preferring to sell own fuel of Russian production at its gas stations in Ukraine's.

 

Donetsk Electrometallurgical Plant worked successfully when was owned by the Istil Ukraine Company.

However, after its owner, a Pakistani businessman Mohammad Zahoor, sold it to DEMZ group Elektrostal Russia owned by Dmitry Warsaw, the plant stopped work.

And it didn’t resume work on a regular basis, belonging either to the Russian Alfa-Bank or Russian Mechel group. A similar story happened with the Moldovan electrometallurgical plant, located in Tiraspol.

It stopped its work after Russian Metalloinvest group run by Alisher Usmanov became its owner. Now Donbass is often compared with Transnistria, so that the analogy between MEMP and DEMP is also clear.

If you look at the situation from this angle, all events occurring in Donbass cease immediately to be complicated and confusing.

Putin emphasized in several recent interviews to Russian and Western media that he did not intend to recreate the Soviet Union and to involve Ukraine.

"And no one believes us that we don’t have such plans," - complained the leader of the Russian Federation. And, perhaps, in this case, he said it sincerily.

After all, if you want to attach the territory - whether formally or with economic ties, you won’t turn it into scorched land. Otherwise, the very meaning of aggressive war is lost, to strengthen the power of the winner by the vanquished.

In this case we are talking about the destruction of the economic rival by force. It's like in the classical scheme with two roadside eateries that have different owners.

One takes income from another and it is impossible to agree on the joint business (that happened in 2010-2012). Then it is possible to ensure that the competitor goes bankrupt.

Offer lower prices, spend some money on renovation, a new cool chef - improve service quality with the same prices.

But it's a long road, long and costly. Especially if the neighbor isn’t passive but accepts the challenge and begins to do the same in his/her eatery.

But there is a fast and reliable way, although associated with the crime. For example, to burn the neighboring eatery. Putin chose this option against Ukraine.

The tragedy is that many of the fire victims (people of Ukrainian Donbass) still continue to regard him as their benefactor and see him as a protector against evil Kiev "banderas".

Vitaliy Krymov, especially for OstroV