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
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