You're reading: What’s happened to separatist-seized steel mills?
Russia's War Against Ukraine EXCLUSIVE

What’s happened to separatist-seized steel mills?

A limestone quarry stands one kilometer from the contact line in Novotroitske, Donetsk oblast
Photo by Kostyantyn Chernichkin

NOVOTROITSKE, Ukraine – After Russian-backed separatists took control of dozens of mines and factories, many were left wondering: What will they do with it?

The answer is still unclear.

Donetsk separatist leader Alexander Zakharchenko immediately announced coal deliveries to Russia after the March takeover of mines and factories.

But what went little noticed was another announcement from the Russian-backed Donetsk separatists: That they would begin to use their newly “nationalized” properties to forge steel, bringing back the occupied Donbas’s steelmaking capacity.

While this may seem like pure propaganda, the separatists in theory have all they need to reignite their territory’s steelmaking industry. All they need is iron ore, a commodity readily available across the Dnipro in Krivyi Rih or – as is more likely – via import from Russian producers – a move that would violate international sanctions against the Kremlin-backed breakaway republics.

Seizure

Sergiy Onyshchenko, director of the Novotroitske Mining Authority, a limestone mine jointly held by billionaire oligarch Rinat Akhmetov’s United Minerals Group conglomerate and a firm linked to another billionaire oligarch, Igor Kolomoisky, was forced out of his Dokuchaevsk office at separatist gunpoint in March.

A limestone quarry stands one kilometer from the contact line in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
Novotroitske Mine Authority Director Sergiy Onyshchenko gestures at a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
Trucks load limestone a quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
A truck drives across a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
Workers mill about a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
A truck loads material at a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
A crane digs into a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
Trucks drive across the bottom of a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
A worker stands in front of a truck at a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)
A truck loads raw material at a limestone quarry in Novotroitske, Donetsk oblast. (Kostyantyn Chernichkin)

The director moved to the Novotroitske half of the complex, a separate but physically connected business that straddles the contact line in this town of 7,100 people located 713 kilometers southeast of Kyiv.

Onyshchenko was also managing a quarry and processing plant at Dokuchaevsk, across from Novotroitske, until the separatists “nationalized” it amid the blockade.

“There were a lot of problems in operating a business in an issue like that,” he said. “De jure you are in Ukrainian territory but de facto you had all these strange people with rifles walking around.”

For Onyshchenko, the experience followed a brief imprisonment in 2014.

“It was more of a statement,” he said,, has been working at the complex since 2013. “And also an attempt to extract some cash from us.”

Onyshchenko added that various separatist officials had been coming to his office on a daily basis in Dokuchaevsk in 2014, claiming to be the head of tank or infantry regiments and demanding “tax payments.”

In late October 2014, the director, who speaks fluent English and has an MBA from Carnegie Mellon, was arrested.

“They accused us of ridiculous things,” he said.

Other plant directors from around Donbas spent months in separatist jail. Onyshchenko only spent one day there.

“Barely enough to enjoy it,” he joked.

Iron curtain

After the March seizures, the separatists gained 40 separate factories and mines, which employ a total of 20,000, System Capital Management officials said.

The businesses had been legally registered in Ukraine. Officials from companies controlled by Akhmetov say that the firms had been paying taxes into the Ukrainian budget, and that they paid their workers on Russian-backed separatist controlled territory via hryvnia to Ukrainian bank accounts.

Included in the seizures were three large steel mills – the Yenakieve factory, Donetskstal, and the Alchevsk metallurgical factory, half of which belongs to Serhiy Taruta’s Industrial Union of the Donbas and the other half of which belongs to a conglomerate of Russian investors.

After the seizures, the separatists began to issue statements about putting the properties to work.

Crucially, the statements contained promises that Russia would supply the plants with their missing ingredient for steel making: iron ore.

Zakharchenko promised local media that the first delivery of iron in Russia would come in April, while another official from the Russian-backed separatists promised on Facebook that the Yenakieve plant would start work on April 27.

Russian news outlet RBK reported in April that the Russian state reserve – used to provide the country with resources in the event of a shortage – was shifting iron ore to the seized Donbas steel plants. Metal Expert, an industrial trade journal based in Kyiv, reported at the same time that Russia intended to supply the enterprises with 60,000 tons of iron ore concentrate and 100,000 tons of pellets each month, allowing for the production of 1.4 million tons of steel each year.

That would be half of last year’s production.

Any Russian entity found to be exporting iron to the separatists would immediately expose themselves to sanctions violations, potentially preventing them from selling anything to Europe or the United States.

For now, Onyshchenko said that while the Dokuchaevsk flux plant and quarry could be used in theory to supply limestone to the separatist-controlled steel plants, he wasn’t aware of any activity at the site since it was taken over.

Subsidizing a separatist steel industry might be a propaganda win for the Russian-backed militants, and work as a job program, but there’s little economic sense.

“Dokuchaevsk can only sell to those producers if someone subsidizes them heavily, and that’s a lot of money,” Onyshchenko said. “Nobody wants to do that.”