Ukraine tightens screw on Donbass rebels

By bne IntelliNews November 6, 2014

bne -


Kyiv is to freeze all payments of social benefits and pensions to the residents of Ukraine's eastern Donbass region held by Russian-backed rebels, but will continue supplies of gas and electricity. This signals a toughening stance by Ukraine's government towards the rebel-held territories, after the rebels staged elections on November 2 outside of Ukrainian law and in apparent contravention of peace accords signed in Minsk on September 5. 

"While the territories of Donetsk and Luhansk are controlled by all sorts of self-proclaimed structures, the central budget will not make any payments to those territories. The government will not finance terrorists and pretenders to power," Yatsenyuk said at a government meeting. 

According to the government, the funds to be frozen total as much as UAH 37bn (around $350m) through to the end of the year.Yatsenyuk said that the government would accumulate the funds, which would then be paid out to recipients on the territories returning under control of Kyiv.

Ukraine's cash strapped national gas company Naftogaz is also currently supplying gas to the Donbass region without receiving any payment, prompting calls for the government to turn off the gas.  Naftogaz has put total losses by the end of the year resulting from unpaid gas supplies to the Donbas at UAH 6-7bn ($500mn).

But Yatsenyuk said on November 5 that gas and power supplies to Donbass would continue. "We have our citizens there and the government will not allow them to freeze, creating a humanitarian catastrophe. These are our territories, these are our people and we'll deal with terrorists separately," he said, in an address to the cabinet.

Energy minister Yury Prodan said that Naftogaz would be compensated for its losses from the budget out of the funds saved by not paying out pensions and benefits. Previously Kyiv officials have also expressed hopes that funds paid for Donbass coal could be used to pay Naftogaz for gas.

Ukraine has paid as much as $140mn to mining companies controlled by Russian-backed rebels in the eastern Donbass region since an insurgency began in the region, according to an investigation by journalist Mustafa Naiem, recently elected to parliament.

The payments were made for thermal coal needed to fire some of Ukraine's largest power generators. Recently, Ukraine has started to import the special kind of thermal coal needed from South Africa. But on November 5, energy minister Yury Prodan said Kyiv would continue to make the purchases from state-owned companies in the Donbass region, since it was cheaper to do so than to import the coal. Prodan said that the funds should bypass the militants.

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