Graham Stack in Lugansk -

Pro-Russian separatist groups holding power in Lugansk and Donetsk declared independence for these two easternmost Ukrainian regions on May 12, a move they claim was endorsed by the unofficial referenda held the previous day. There is still no clarity on what the separatists plan next, with options ranging from home rule in Ukraine to annexation by Russia. One new option that has emerged is the creation of the state of "Novorossiya".

In the park in the centre of Lugansk, a town of over 400,000 in the east of Ukraine, a couple of thousand gathered under a light spring shower to witness the self-declared birth of one of the most improbable nations – the "People's Republic of Lugansk", only half an hour after the birth of its twin, the "People's Republic of Donetsk". The birth came to the strains of Soviet war songs and a Russian-patriotic rendition by a folklore ensemble.

Then the self-proclaimed "people's governor" – an obscure and reclusive former paratrooper called Valery Bolotov, sporting body armour and flanked closely by three gun-touting guards – called out to the crowd: "Free, proud people of Lugansk. You have chosen the path that leads us to the creation of a new and independent state. We are united! We are free! We are the People's Republic of Lugansk!" 

"Our young republic is only taking its first steps and those steps should be directed towards helping our brothers across the other regions," Bolotov continued. "We will never forget the dead in Odessa, the dead veterans in Sloviansk, the dead children in Mariupol," Bolotov added, referring to the alleged victims of pro-Ukrainian forces in the weeks since the crisis began in eastern Ukraine.

"Freedom!" he cried with clenched fist, as he left the stage, with the shout taken up by the crowd.

During the ceremony, although Russian flags were few among the crowd, a giant Russian flag waved on a video display, underlining the inspiration for the Lugansk separatists' actions.

"We have been waiting this for so long," sobbed Ludmilla Kravchenko, a 57-year-old pensioner.

"Of course we are happy. This town is entirely dependent on Russia – the largest employer here is a Russian state-owned company," said Sergei Levchenko, a 34-year-old mechanic, referring to the locomotive producer Luganskteplovoz, with a local workforce of over 6,000.

Is Novorossiya the Kremlin plan?

What the next move is for the Lugansk and Donetsk "people's republics" and who is making it are questions vexing many people locally, in Kyiv and in the world's capitals.

In March, Russian controversially annexed Ukraine's Crimean peninsula, home to Russia's Black Sea Fleet, following a referendum that directly asked locals whether they wanted to join Russia. But the May 11 separatist-held referenda only proposed establishing something between home rule and full independence, with no mention of joining Russia. Those supporting the move did not seem to expect immediate annexation by their giant eastern neighbour, but rather increased economic support and integration.

A clue as to the next move might be the charismatic appearance at Lugansk's May 12 "independence ceremony," immediately following Bolotov, of Ukraine's top pro-Russian politician, 44-year-old MP Oleg Tsarev. "Tsarev is the real star here," mechanic Levchenko told bne. Tsarev was slapped on the EU sanctions list on May 12 for his unwavering support for Russia's actions in Ukraine.

Tsarev has been eloquently articulating the Kremlin's line in Ukraine since the start of the tug-of-war a year ago over whether Ukraine should sign a free trade and association deal with the EU, or join the rival Russian-led Customs Union. He created and heads the "Movement for the South and East," which is the primary political organisation backing secession for the Russian-speaking parts of Ukraine, and flags of this organisation dominated the crowd in Lugansk May 12.

Tsarev, leading the crowd in a chant of "Russia, Russia," nevertheless did not call for the region to join Russia. Instead he called for "negotiations" with the newly proclaimed People's Republic of Donetsk towards setting up a new combined East Ukrainian state. "Let's call this state Novorossiya!" Tsarev called, and the crowd responded with shouts of "All the way to the Dnipro."

Novorossiya traditionally refers to the entire Russian-speaking Black Sea coast freed from Turkish rule under Catherine the Great. Russian President Vladimir Putin made headlines with the term when he used it during a TV Q&A session on April 18 to refer to the Russian-speaking regions of Ukraine. "Novorossiya – Kharkov, Lugansk, Donetsk, Odessa – were not part of Ukraine in Tsarist times. They were only transferred to Ukraine in the 1920s, God only knows why." Some interpreted Putin as insinuating that a partition of Ukraine could be on the cards.

For some locally, the establishment of Novorossiya is the only logical explanation for the Kremlin's gambit in the Donbass basin, which is comprised of three eastern Ukraine regions. "Why would Russia want to incorporate the Donbass alone?" asks a prominent Lugansk businessman, who spoke under condition of anonymity due to the climate of fear in the region. "Donbass is a depressive region of 7.5m which relies on state subsidies to keep its coal mines open. The only reason for Ukraine to pay those subsidies has been to preserve the coal industry as an alternative supplier of energy to Russian gas. If Donbass joined Russia, the mines would close. Russia's move on Donbass thus only makes strategic sense if it were to seek territory all the way to Pridnestrove, and close off Ukraine's access to the Black Sea."

The Kremlin's response to the May 12 "declarations of independence" made no mention of Novorossiya, but was cautiously positive on the outcome, recognising the referenda as legitimate and calling on the "practical realisation of the results to take place in a civilised manner" via negotiations and without violence.

What this "practical realisation" will comprise in the coming days is an open question. Representatives of the self-proclaimed People's Republic of Donetsk said they would ask Russia to consider absorbing the region. Representatives of both the Lugansk and Donetsk people's republics have stated they might hold follow-up referenda on whether the regions should join Russia, if there was agreement from Russia.

Opinion polls held in April showed only roughly 30% of the population in Donetsk and Lugansk support the regions' being absorbed by Russia, and there has been no overt sign on the part of the Kremlin of a desire to absorb the regions. But while Russia still has major military forces amassed on the borders of the Lugansk and Donetsk regions, according to western governments, all bets are off. Russian claims it has initiated a drawdown of the forces.

Meanwhile, in Kyiv preparations for the crucial nationwide presidential elections on May 25 are gathering pace. The elections are vital to fill the power vacuum and solve legitimacy problems resulting from the ousting of former president Viktor Yanukovych in February. But a side effect of the Lugansk and Donetsk referenda is that the electoral infrastructure is completely in the hands of the separatists of the self-proclaimed independent states. "There will be no Ukrainian presidential elections in Donetsk or Lugansk," election commission spokesman Vassily Nikitin told bne.