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25 April, 2019  ▪  Denys Kazanskyi

Chronically ruined

Why economic decline of the liberated parts of the Donbas is dangerous

Reconstruction and reintegration of the occupied parts of the Donbas is a frequently discussed issue in Ukraine. Debates on this rage in TV talk shows, at conferences and roundtables. Ministers and experts compete in assessing how much the restoration of ORDiLO (the occupied regions of Donetsk and Luhansk oblasts) will cost Ukraine. It is difficult to count the losses caused by the occupation and the fighting just yet. But it is obvious that the bill could amount to dozens of billions of dollars. The proposed sources of these funds include foreign sponsors and donors. 

In fact, there is no accurate understanding of the current economic and social state of ORDiLO. Assessing the damage and drafting a roadmap for dealing with the consequences of war and crisis will only be possible after the territory beyond Kyiv’s control returns, if it ever does. It is equally impossible to forecast any preliminary timeframe of restoration as reintegration of that territory depends on countless different factors and circumstances. So drawing the roadmaps of ORDiLO restoration looks like counting the chickens before they hatch. If Transnistria, Abkhazia and other geopolitical bastards Russia has bred across the world are indicative, the return of Ukraine’s occupied territory can take decades. 

Paradoxically, nobody is rushing to restore the territory under Kyiv’s control while the debate on the occupied parts continue. These are the towns and regions Ukraine fought back from the illegal military units in the summer of 2014. The key objects of infrastructure, such as bridges, are the only ones restored there in the four and a half years since then. The economy of these regions remains the key problem, though, as it remains paralyzed in its proximity to the frontline.  

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Obviously, the priority task will be restoring the normal work of local enterprises rather than rebuilding the destroyed buildings, roads and bridges. According to the OSCE, at least 36 mines have been destroyed and flooded in the territory beyond Kyiv’s control. It is currently unclear what state its other industrial objects are in, which ones have been looted and which ones can still be relaunched. In a number of cases where the militants didn’t do intentional damage, fixed assets have worn down, grown outdated and fallen apart without due maintenance. Workshops and production facilities collapsed at several plants in ORDiLO this winter alone, killing two people in Horlivka and Debaltseve.

Even if it takes a while before Ukraine can deal with the economy of the territory beyond Kyiv’s control, the liberated towns can be taken care of already. But the government is not rushing to do that either. As a result, they find themselves in a situation that is not much better than that in “Luhansk and Donetsk People’s Republics”. Clearly, this plays into the hands of the separatists. Their entire propaganda machine, as well as that of Russia, works to show that, however bad things are in Luhansk and Donetsk, it’s even worse in Ukraine. Unfortunately, reality in Ukraine’s frontline regions helps the militants create the necessary image. 

Unless quick and comprehensive action is taken on the government level, the situation will hardly improve. The economy in a number of towns near the frontline, especially Kostiantynivka and Lysychansk, is in a deep low and will hardly manage to get better on its own. The ruinous activities of the local elite destroyed the industrial potential of the region even more than the war did. Whatever the reasons for this destruction are, it will have to be fixed. The effectiveness of this work will largely define the sentiments among the ORDiLO population. If people there see that the Ukrainian government does care about the troubled regions and is trying to restore it, far more people will want to live in Ukraine. Today, the situation in the frontline Lysychansk, Rubizhne, Kostiantynivka and Toretsk points to the lack of any program of dealing with the ruin in that eastern region. 

Economic problems in the towns liberated from the militants have resulted in ruined infrastructure which is especially bad in Luhansk Oblast. Severodonetsk and Rubizhne experienced heating breakdowns this winter. The local water supply operator can soon be switched off the electric grid because of its debts. Power supply was seriously cut down for the mining enterprises of LysychanskVuhillia and PervomaiskVuhillia, both coal conglomerates, as a result of their debts.  This de facto created a vicious circles of poverty. As the companies stop, people don’t have enough money to pay for the utilities, the water operator does not receive enough revenues from consumers and accumulates debt to electricity suppliers. 

The coal mines owe UAH 77.3mn for electricity over the two months of 2019, including UAH 52mn from PervomaiskVuhillia and UAH 23.5mn from LysychanskVuhillia. These are loss-making enterprises but they cannot be closed down: virtually nothing works in Lysychansk, except for the coal mines, so people have no other jobs. The shutdown of these mines will trigger a social catastrophe because large industrial objects had stopped or had been destroyed before the war, so there is no alternative to the mines. The Proletariy glass factory was the last one to stop in 2013, and it was declared bankrupt in October 2017. It had been leased, not privatized, however. So all that’s left from it under the management of entities led by MP Serhiy Dunayev will now go back to public property. 

Lysychansk is in a dire situation and the state is the only actor that can help it. Obviously, no private investors will invest into a depressed frontline town with gloomy chances, so state investment is its only hope. While the author of this article is not a fan of state ownership, this case would have to be an exception given how difficult the situation is. The restoration can start with the glass factory. Clearly, it’s current state is terrible. The company requires serious investment. But there is no other way for it. Given the dire economic situation in the region, developing even a small business in Luhansk would be extremely challenging. Therefore, the investment should go into production. 

Some say that bringing Lysychansk, Rubizhne or Kostiantynivka back to order is primarily for the local population and authorities to take care of. Ukraine is decentralizing, so taxpayers from other regions are not obliged to solve problems in Luhansk Oblast. This approach is reasonable to a certain extent but hardly helpful. This territory will not be able to restore its economic potential and get out of the crisis without serious financial investment from elsewhere. Left alone, it will turn into a permanent social wound, eventually turning into a source of problems and various destructive sentiments for many years ahead, as it had been before 2014.   

Anti-Ukrainian stereotypes are still very entrenched in the Donbas. This sentiment sticks largely because people are upset with the Ukrainian state and see the economic decline as a result of its emergence in 1991. These people are hardly aware, or don’t want to be aware of the fact that Russia experiences identical problems. 

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Real actions are the only way to change this situation. As soon as the Donbas regions under Kyiv’s control will have at least some important success stories, establishment or revival of large enterprises with hundreds of new jobs, the prestige of the Ukrainian state and the central government will improve immediately both among the residents of the territory under Kyiv’s control, and in ORDiLO. Today, people there barely see any contrast between the damaged roads and grey worn down facades in the occupied territory and in the towns under Kyiv’s control. If the contrast is more visible, the popularity of anti-Ukrainian agitators and separatists will plummet, ruling out a repeat of the 2014 scenario. 

It also makes sense to return to the civil-military administration in the frontline towns. They were established in the summer 2014 in some places, but abolished later under agreements with the regional political elite and replaced with local elections. Lysychansk and Severodonetsk showcase what this has led to. The mayor of Lysychansk is in a permanent conflict with the local deputies. In Severodonetsk, the local council has sacked the mayor, so the town is now officially run by the council secretary and by the local businessman Ihor Butkov unofficially. Endless political squabbles makes the dire economic situation worse. So bringing back civil-military administrations is necessary, especially given the frontline status of these towns. All it takes to implement this plan is political will and the desire of those in power to help the region in trouble. 

 

 

Translated by Anna Korbut 

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