How an oligarch-controlled economic model destroys an individual city
Dmytro Firtash is among the oligarchs who benefitted from the 2010 shift in the government. Over the past few years, his business empire has expanded by a few dozen new assets. In the past few months alone, his GazTek company bought the blocking stakes at the Mykolayiv, Ivano-Frankivsk, Sevastopo, Dnipropetrovsk, Volyn, Zaporizhzhia, Luhansk and Vinnytsia gas companies. Add all these gas companies to the biggest Ukrainian chemical plants, including Azot in Cherkasy, Stirol in Horlivka, RivneAzot in Rivne and Azot in Severodonetsk, which have recently been acquired by Dmytro Firtash, and we have one huge gas and chemical monopoly.
According to The Ukrainian Week’s sources, the high rate of expansion in the given industries are first and foremost connected to Mr. Firtash’s intent to use up the 12bn cu m of gas which Naftogaz of Ukraine NJSC had to transfer to Firtash’s RosUkrEnergo under the ruling of the Stockholm Court of Arbitration. This has kept the oligarch busy for the past two years. Rumour has it that the multimillionaire is not planning to further support the purchased plants, but intends to sell them off at a profit. The processes observed at Firtash’s plants today appear to confirm this.
One of his biggest prizes was Azot, a chemical fertilizer plant in Severodonetsk. According to The Ukrainian Week’s sources, the conditions there became prison-like after Firtash got his hands on it: the employees are treated no better than cannon fodder. Information about the tough working environment at his plants surfaced earlier in other media: Firtash’s executives have been cutting production lines and letting people go on a massive scale and out of the public eye at all the plants bought by the oligarch, especially in the Luhansk Oblast. Those who remain face new, tougher working conditions.
The Ukrainian Week’svisit to Severodonetsk confirmed just how quickly the arrival of a new owner can change the life of a plant that supports the entire city built around it.
BEHIND BARBED WIRE
Our first hours in Severodonetsk show how introverted and closed the city is. Anyone who is somehow related to Azot refuses to say anything at all about the plant as soon as they see the recorder. “We don’t need trouble. We have families to feed,” they say. However, some can no longer keep silent.
“Today, Azot is a jail behind barbed wire,” Oleksiy, a worker at one of the workshops, explains. “We are paid peanuts compared to many less profitable plants in Donbas. An average salary here is UAH 3,000 (USD 375 – Ed.). People are forced to work here because there is no alternative. The city has literally no other plants and no new jobs have been created over the past two years. Many people do not want to be slaves and flee the plant. The overall atmosphere is of fear and intimidation. Everybody feels like small cogs in a huge wheel that can be thrown out anytime, no matter what.”
When Firtash bought the plant in February-March 2011, all executives who were linked to the ROVT Group and Oleksiy Kunchenko – the former owners of Azot – and ran key operations at the plant were dismissed and replaced with their former first deputies. As a result, the new owners ended up with a loyal administration. “The management is now at the level of the red directors of the 1970s,” says a middle-level manager off the record. “When I talk to these people, I have the impression that I’m at a Communist Party session: they all chant “we can do it”, “we will do it” and “we will reach our goal”. At the same time, they do not care a thing about the common workers.”
There are currently 7,800 employees at the plant, compared to 15,000 during the Soviet era and nearly 11,000 in 2010.
“There are constant redundancies at Azot, though the administration prefers to keep this quiet,” says a local unemployment centre employee, off the record. “They pretend that this is a random rather than centralized process. In other words, no-one is let go because of “redundancy”. Instead, they create conditions whereby employees have no choice but to quit voluntarily or find other convenient excuses to fire employees. Say, you leave the canteen which is 15 minutes away from the workshop and return 5 minutes late from lunch. You are immediately asked why you are late, and they start threatening to fire you unless you quit voluntarily. Local people do not know the laws well enough to resist, so they quit. The administration never fires people ‘upon the mutual agreement of the parties’.” If it did, it would have to pay severance benefits to the laid-off employee.
The previous administration mostly tried to let go employees that were over the retirement age and unskilled workers. Now, people of working age and with high qualifications are being let go. According to the Severodonetsk unemployment service, one or two employees are got rid of every day at Azot.
The plant’s administration has another effective scheme for the large-scale and efficient reduction of staff. Virtually all vacancies the plant submits to the unemployment centre are for invalids. In reality, the vacancy offers physically handicapped people a minimum salary for cleaning a four-storey workshop. Clearly, nobody will ever get the job, which is exactly what the administration wants. “The Fund for Invalids now requires all companies to meet their quotas for the employment of invalids,” explains the unemployment centre employee. “Companies failing to meet it pay huge fines. Needless to say, Azot does not hire anyone. Yet, it goes so far as to sue the Fund for Invalids under the pretext that the unemployment centre does not fill the vacancies it submits.”
“In addition to cutting staff, the administration is closing down what used to be the plant’s key production lines,” says Oleksiy Svetikov, a public activist in Severodonetsk. “They’ve already shut down the production of household chemicals, white glue and adipic acid. Azot’s R&D lab was recently closed down. Out technologies are obsolete, so the new owner’s intent to cut unnecessary expenditures is justified. There is just only question – is all of this being done for income alone?”
RUINING THE CITY
“Severodonetsk sleeps under one blanket,” the unemployment centre employee says. “Everyone knows everyone else and virtually all of the people here are somehow linked to Azot. There is a population of 122,000 and at least half depend on the plant. The city was built by Azot employees around the plant. Now, Severodonetsk breathes in chemical fumes every day. Therefore, the plant should at least support proper health care in the city, if not be a major player in the formation of the city, not just buy it off with 10 trolleybuses which was Azot’s only contribution to city life over the past two years.”
The process known as the divesting of non-specialized assets, whereby Azot is palming off all social responsibilities to the city that was specifically built around it and cannot survive without its contribution, began in 2005 when the ROVT Group scandalously privatized the plant. Under ROVT, however, the plant’s rejection of its social responsibilities was quite gradual. As soon as it came under the control of Firtash’s structures in 2010-2011, the administration stopped even pretending that it was interested in anything other than a quick profit. The position of the current owners is simple and clear: we pay our taxes. The rest is none of our business. Meanwhile, the lion’s share of the taxes paid by Azot now goes to Kyiv, where the corporation’s headquarters are located, not Severodonetsk.
“Azot used to be the key part of all processes in town,” explains the unemployment centre employee. “It was the plant that funded education, health care, utility providers, kindergartens, the construction of new housing and so on. When Firtash’s people came to the plant, it withdrew from all social projects that did not bring profit in cash (having said that, the process had already started under the previous administration headed by Oleksiy Kunchenko). The only facility it still supports is a clinic, but it only services the staff and does not provide any real treatment. Azot simply does not have the right not to contribute to the life of the city.”
This practice may result in a disaster for the typical industrial city that loses its essence without the plant it was built around. The experience of many cities and towns in Donbas, Dnipropetrovsk and other industrial areas in Ukraine, shows that rapid re-organization, restructuring or switching to different industries in similar plants results in socio-economic collapse. People lose all means to survive. There is hardly anywhere else to work, other than at the plant – small businesses are too few in the city to provide jobs for the greater part of the population. As a result, people move out en masse, leaving desolate districts or entire towns behind.
Rumour has it in Severodonetsk, at the plant and even at the Ministry of Industry in Kyiv, that Dmytro Firtash has instructed administrations at all the plants under his control to minimize expenditures by any possible means and to focus on production lines that are the most profitable at this point. This is very reminiscent of the strategy to earn quick and easy money without making any strategic investment, then sell on the assets before their value plummets. Nobody seems to care about the future of the city and the citizens who have fallen hostage to the oligarch’s business model.
During the 3rd Lviv Security Forum The Ukrainian Week met with Kari Liuhto, professor and director of the Pan-European Institute at Turku School of Economics at the University of Turku (Finland) to discuss Russian economic war against Europe, toxic investments and nature of Russian oligarchs