The separatist regimes of the LPR and DPR survive thanks to cash infusions from both Russia and Ukraine, large-scale smuggling, and flows of humanitarian aid.
Cashing out "according to the scheme"
After the outbreak of hostilities, Ukrainian banks left Donetsk and Luhansk virtually empty-handed—they were unable to remove their equipment, nor were most of their cash, which had been partially destroyed and partially looted. PrivatBank was the first to leave, back in July 2014, and Oschadbank was the last, in November.
Thanks to this hasty exodus, the "new authorities" seized virtually all the ATMs of all banks (which the brave "militia" hadn't managed to plunder) and office equipment. It was on this basis that, in the fall of 2014, a "central republican bank" in the DPR and a "state bank" in the LPR were established. However, the resulting problems with personnel and technical difficulties (the ATMs had to be essentially re-connected into a single network) significantly slowed the operations of these "banks."
As of this fall, the aforementioned structures offer extremely limited services: they have managed to "voluntarily and forcibly" transfer salaries of some enterprises and some social benefits to card accounts, compel them to make tax payments, and organize the collection of utility bills from the population. Meanwhile, there are 260 bank branches operating in the entire DPR, and 110 in the LPR.
Of course, the population demands a much wider range of services, and so numerous legal and semi-legal financial institutions have flourished, providing money transfers from/to Ukraine and Russia and cashing bank cards. Typically, these institutions are former stores staffed by one or two "specialists" with mandatory security. All they need is a computer, a telephone, and a table with a chair. Using online banking, an intermediary transfers funds from a Ukrainian bank card to the desired account, and the client receives cash. The standard fee is 5%. This means that for a withdrawal of 1 hryvnias, a person receives 950 hryvnias. Cards from Russian banks are serviced in the same way, but the fee for cash withdrawals is higher—up to 10% of the amount.
How the oligarchs adapted
It's clear that all oligarchs who retain assets in the occupied territories are forced to negotiate their operations with the occupiers in one way or another. The details of these behind-the-scenes agreements can only be speculated upon by analyzing open sources.
Rinat Akhmetov held and continues to hold the largest number of assets in Donbas. Major assets remaining in the occupied territory include the Zuyevskaya Thermal Power Plant (in the city of Zuhres), the Komsomolets Donbassa Mine (Kirovskoye), Donetskobenergo, PES-Energougol, Vysokohovernye Seti, Komsomolskoye Ore Mining Administration, Rovenkianthracite, and Sverdlovanthracite (the latter two are state-owned holdings under long-term lease from Akhmetov and include 11 mines and six processing plants).
Akhmetov and Vadim Novinsky's joint business, the agricultural holding HarvEast, also partially ended up in the occupied territories. According to its director, Dmitry Skornyakov, a third of the holding's land and hundreds of millions of hryvnias worth of produce remain in territory outside of Ukrainian control.
Several of Akhmetov's enterprises suffered significant damage from the war in Donbas, particularly during the fighting in the summer of 2014. The fate of the large Komsomolets Donbassa mine is typical in this regard. Before the war, it produced grade T coal, which met 100% of the needs of the Kryvyi Rih Thermal Power Plant and 25% of the needs of the Pridneprovska Thermal Power Plant. With the outbreak of the war, the enterprise found itself practically on the front lines and, after another shelling, ceased coal production on July 28, 2014. In early October 2014, miners began restoring the mine (pumping water from flooded horizons), and it even resumed operation, but on October 10th, it was shelled again and again stopped. Today, work at the mine continues, but intermittently, and production remains far from pre-war levels.
Akhmetov's machine-building holding company in the "republican" territory included three plants: Donetskgormash, Donetsk Power Plant, and the Gorlovka Machine-Building Plant. All were seized by DPR forces in August 2014. Today, they repair military equipment belonging to illegal armed groups.
All 52 stores of the Brusnichka chain and some of the Parallel gas stations were also seized (partially in the Donetsk region and completely in the Luhansk region).
DTEK's electrical grid infrastructure suffered significant damage, with hundreds of transformers and dozens of substations destroyed.
Despite the seizure of some assets and the loss of others, many SCM companies continue to operate in the occupied territories of Donetsk and Luhansk Oblast. Moreover, they enjoy attractive terms: workers receive their official salaries in hryvnias, deposited into their bank accounts opened in Mariupol and Kramatorsk. What Zakharchenko receives in return is unknown, but rumors periodically surface of large sums flowing "out of nowhere" into the "republic's" budget. And when agreements falter, Akhmetov's companies, far beyond the line of contact, are "suddenly" attacked with mortars by "Ukrainian sabotage and reconnaissance groups" (as happened, for example, in February 2015).
Incidentally, workers at the Alchevsk Metallurgical Plant, which is now located in the LPR, are paid even more comfortably. They withdraw money from Prominvestbank cards at home and don't have to travel outside the ORDLO. However, the wages themselves are approximately 70% of the pre-war level and are paid irregularly. Ukrainian public holidays are considered non-working days at the plant, something the "LPR authorities" are forced to overlook: the plant is owned by the ISD corporation, whose controlling stake is held by a pool of Russian investors. So for Plotnitsky and other separatist leaders in Luhansk, the task is crystal clear: do not interfere with the stable operation of the plant and generally interfere as little as possible in the life of the city with their regime-based and ideological nonsense. Such is the hybrid state system.
Returning to Akhmetov, accusations against him of shady cooperation with the "DPR authorities" have long been commonplace in Ukraine. SCM, no less traditionally, defends itself with the claim that it "pays taxes to the Ukrainian budget and provides jobs and wages to residents of the conflict zone." This, incidentally, is a compelling argument. According to the Department for Monitoring Revenue and Accounting and Reporting Systems of the State Fiscal Service, in the first seven months of this year, enterprises in the uncontrolled territory paid UAH 4,1 billion in taxes.
The "Vienna prisoner" Dmitry Firtash undoubtedly maintains a special relationship with the separatist leaders through his confidants. He still owns chemical plants in Severodonetsk and Horlivka. Their operations have been suspended, and some employees are receiving compensation for their forced downtime.
Until the winter of 2015, the owner of the Donetskstal holding (Donetsk Metallurgical Plant, coke and chemical plants in Makeyevka and Yasinovataya, as well as the Pokrovskaya mine, located in the territory controlled by Ukraine), a Russian millionaire, actively collaborated with the “DPR authorities” Victor NusenkisIn the fall of 2014, having lost its raw materials from Kryvyi Rih, DMZ established supplies from Russia, imported by rail not through the border with Rostov Oblast, but through Kharkiv, and exported products through the ports of Mariupol and Berdyansk. However, after the SBU opened criminal proceedings against Donetskstal in January 2015 for financing terrorist organizations, Nusenkis's operations in the Donbas were suspended.
The Specter of "Nationalization"
Since the spring of this year, the "republican authorities" have launched a new offensive against oligarch-owned businesses. Specifically, the list of enterprises slated for "nationalization" was announced by Zakharchenko himself. It included some rather interesting items, such as the Yanukovych family-controlled Donbas Settlement and Financial Center, which holds controlling stakes in Donbassuglepererabotka LLC, the Kalininskaya and Uzlovskaya coal processing plants, the Donbass enrichment plant, and the Vostokuglemash plant. The Starobeshevskaya Thermal Power Plant, a key energy source for the DPR, and owned by Donbassenergo, was also mentioned. Former Party of Regions MP Ihor Gumenyuk formally controls the latter through Energoinvest Holding, but Oleksandr Yanukovych is believed to be the real owner.
It's no secret that "nationalization," or even simply the pressure created by such a stated threat, means that in the near future these enterprises will fall into the hands of Russian companies or the leaders of the DPR. This happened, for example, with the Amstor chain of stores in the DPR, when minority shareholders Vladimir and Alexander Vagorovsky sold them to a certain Multitorg LLC, registered in Moscow. Or the recent sale of a stake in the refrigeration equipment plant PAO Nord to the Russian company Diorit-Tekhnis LLC. Akhmetov himself recently sold 99,98% of the shares of the Kolosnikovskaya Central Processing Plant CJSC to Viktor Chmilev, a native of Makeyevka, who is associated in the DPR with Vladislav Surkov.
Coal schemes
Since the fall of 2014, attempts have been ongoing to build the economies of individual districts of the LPR and DPR based on coal production and export. The preconditions were good: most Ukrainian thermal power plants could only use anthracite from Luhansk and Donetsk, and there was virtually no immediate substitute. Very soon, "economic entities" from the ORDLO began informal negotiations regarding coal purchases by Ukrainian enterprises. Last year, according to the portal LIGA.net, 8,5 million tons of coal were shipped from the ORDLO to Ukraine. According to the same data, up to 6 million tons of anthracite were illegally shipped to Russia that same year through various schemes, from where it was exported by sea to Europe and Africa.
Coal is exported to Ukraine both by rail (mainly from the DPR) and by road (from the LPR to Debaltseve, and from there to illegal warehouses in Bakhmut).
Estimating the size of the compensation payments going to the occupied territories as a result of the coal trade is virtually impossible. Its size can be indirectly estimated by the fact that in the "republics" themselves, illegal coal can be purchased for as little as 480 hryvnias per ton, while Akhmetov's mines sell thermal coal for as much as 1500 hryvnias per ton.
An intriguing scheme was uncovered by Donetsk News in April 2015. Coal from mines "nationalized" by militants is sent for processing to the Kondratyevskaya, Stakhanovskaya, and Torezskaya coal enrichment plants. Under Ukrainian law, these plants are considered idle—naturally, no one pays any taxes, and workers toil for pennies. Afterwards, through corrupt schemes involving Ukrainian security forces, the coal is transported from the ORDLO and processed at enrichment plants in Ukrainian-controlled territories (Selidovskaya and Dzerzhinskaya), where it is then sold in Ukraine at market prices.
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