The myth­i­cal steel col­lapse

How pro-Rus­sian oli­garchs started an eco­nomic war against Ukraine in re­venge for the ORDiLO block­ade and how it will end

The Ukrainian Week - - ECONOMICS - Olek­sandr Kra­mar

In Fe­bru­ary, the press was a-buzz with sto­ries about a “nearly 8-hour long joint lunch” be­tween Pres­i­dent Poroshenko, ex-PM Arseniy Yat­se­niuk, Rad­i­cal Party leader Oleh Li­ashko, and steel mag­nate Ri­nat Akhme­tov that sup­pos­edly took place in Akhme­tov’s Kyiv of­fice on Fe­bru­ary 11. The par­tic­i­pants nei­ther de­nied nor con­firmed the re­ports. Still, af­ter this marathon, the os­ten­si­ble guests of the Donetsk oli­garch and mem­bers of their par­ties—the Petro Poroshenko Bloc, the Peo­ple’s Front and the Rad­i­cal Party—be­gan to sound like spokes­men for Akhme­tov’s own DTEK and MetIn­vest, or mem­bers of his Op­po­si­tion Bloc in the Rada. The press re­peated com­ments from them to the ef­fect that break­ing eco­nomic links with the oc­cu­pied coun­ties of Donetsk and Luhansk Oblasts, known as ORDiLO, would have cat­a­strophic con­se­quences, that there were no al­ter­na­tives for now, and that it was nec­es­sary to pre­serve ties at least in the steel and power gen­er­a­tion sec­tors—the two sec­tors, of course, that mat­ter the most to the coun­try’s wealth­i­est man.

As it turned out, these dire warn­ings were not sup­ported by the facts and were sim­ply a des­per­ate at­tempt by the oli­garch to pre­serve the old mech­a­nism of Ukraine pay­ing for so­cioe­co­nomic sup­port in the ter­ri­to­ries oc­cu­pied by Rus­sia, in ex­change for the loy­alty of his peo­ple in the Rada to those in power. Akhme­tov and other nom­i­nal Ukraini­ans who own as­sets in ORDiLO were ob­vi­ously not op­er­at­ing out of al­tru­is­tic mo­tives, but to jus­tify them­selves be­fore Rus­sia and its lo­cal prox­ies. The re­lated Govern­ment res­o­lu­tion that came into force on March 14, “On the pro­ce­dure for mov­ing goods in or out of coun­ties where the Anti-Ter­ror­ist Op­er­a­tion is tak­ing place” was writ­ten in the same spirit. How­ever, when it be­came clear that the ter­ror­ists weren’t about to stop their “na­tion­al­iza­tion” project, any prob­a­ble deals with Akhme­tov were trans­formed into the al­ready an­nounced com­plete, if tem­po­rary, block­ade of ORDiLO whose pri­mary pur­pose was to get them to re­turn the en­ter­prises that be­longed to him.

By the end of Fe­bru­ary, the stan­dard bul­ly­ing threats that the power would be cut off were re­placed by threats that Ukraine’s cok­ing in­dus­try, and there­fore its en­tire steel in­dus­try—which would then be left with­out fuel—were a new and much more pow­er­ful ar­gu­ment against break­ing eco­nomic links with ORDiLO. Azovstal Gen­eral Man­ager En­ver Tski­tishvili an­nounced that as a re­sult of the block­ade of rail move­ment and the dis­rup­tion of coke from the Avdiyivka cok­ing plant, their com­pany was work­ing to only 55% ca­pac­ity, although ex­ist­ing or­ders re­quired it to be run­ning at 80-85%. In neigh­bor­ing Mar­i­upol Steel Plant (MSP), the sit­u­a­tion was sup­pos­edly still worse: plants were run­ning at below 50%. At the In­dus­trial Union of Don­bas (IUD), of­fi­cials re­sorted to bla­tant lies about the loss of the Alchevsk Steel Plant, which is lo­cated in the oc­cu­pied ter­ri­to­ries and black­mail: they threat­ened to com­pletely shut down the Dnipro Steel Plant, which is not in the oc­cu­pied ter­ri­to­ries.

In fact, a closer look at the sit­u­a­tion shows that Ukraine’s steel in­dus­try could de­velop and even ex­pand out­put if it com­pletely re­fused

UKRAINE HAS BEEN A STA­BLE IM­PORTER OF COKE AND COK­ING COAL FOR A LONG TIME. THE REA­SON IS THAT DO­MES­TIC PRO­DUC­TION OF QUAL­ITY COKE AND COK­ING COAL IS NOT ENOUGH TO COVER DE­MAND AND A POOR VALUE FOR THE QUAL­ITY

any links with ORDiLO. What’s more, as The Ukrainian Week al­ready wrote (see Feed­ing the en­emy at ukraini­an­week.com), this kind of move could stim­u­late growth in those en­ter­prises lo­cated on non-oc­cu­pied Ukrainian ter­ri­tory. How­ever, this means the govern­ment has to stop pas­sively tol­er­at­ing open black­mail and a de facto eco­nomic war against Ukraine on the part of pro-Rus­sia steel oli­garchs, and take de­ci­sive steps to force them to re­ori­ent their pro­duc­tion chains or else sell off as­sets lo­cated on non-oc­cu­pied Ukrainian ter­ri­tory. If they can.

First of all, it’s worth not­ing that if the steel plans lo­cated in ORDiLO stop op­er­a­tions, this is hardly a rea­son to re­duce out­put or ex­ports in the rest of Ukraine. In 2016, the MetIn­vest Group, in­clud­ing op­er­a­tions in oc­cu­pied Ye­nakieve and Makiyivka, pro­duced only 8.82 mil­lion tonnes of pig iron and 8.39mn t of steel. Yet the com­bined ca­pac­i­ties of just two steel plants out­side the oc­cu­pied ter­ri­to­ries, Mar­i­upol’s Azovstal and MSP, are ca­pa­ble of pro­duc­ing 10mn t of pig iron and 9.9mn t of steel an­nu­ally. In 2013 alone, the two plants pro­duced more than all the MetIn­vest Group put to­gether in 2016: 8.91mn t of pig iron and 9.5mn t of steel. All that’s needed is de­mand—and the de­sire to sup­ply it. If this

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