You're reading: Separatist Transnistria finds it needs Moldova after all

Kremlin-backed separatists in Donbas and Russian-annexed Crimea have something to learn from Transnistria, the breakaway republic of Moldova.

The region’s primary business entity – Moldova Steel Works – exports through Moldova to get around trade bans against the unrecognized Transnistria.

Even the name of the steel plant highlights its connection to Moldova, the former Soviet republic of nearly four million people.

Once again, Russia is the instigator of trouble in the neighborhood.

As the key backer of Transnistria’s independent status since 1992, Russia expanded its empire of unrecognized territories in March when it annexed Crimea. Similar attempts – with less success so far – are under way in Luhansk and Donetsk oblasts.

The city of Ribnita where Moldova Steel Works is based is home to 10 percent of Transnistria’s 513,000 people, a third of whom are ethnic Russian.

It is also the quasi-state’s third largest taxpayer. The plant’s largest clients are in the European Union, which buys 36.9 percent of its production, and Russia, with 14 percent, according to Alexandru Fala, an economic analyst for Chisinau-based Expert-Group think tank. Despite Transnistria’s claims of independence, the steel plant has to use Moldova’s trade schemes with the EU to get export revenues.

Transnistria’s $1 billion economy depends on demand from the European Union and Moldova.

“All the exports of Moldova Steel Works are conducted through the Moldovan Customs Service, otherwise they simply can’t export anything,” explains Fala. Transnistria’s entire economy depends essentially on demand from the EU and Moldova, he adds.

Despite paying customs duties to the Moldovan budget, the plant still pays taxes to the budget of Transnistria – more than $10 million was paid in 2012. It can produce up to 1 million tons of rolled steel a year – six times less than its Ukrainian rival Arcelor Mittal Kryvyi Rih.

However, the company, owned by Russian billionaire Alisher Usmanov, does not operate at full capacity. In 2011, only 307,000 tons of rolled steel made it out of the plant’s walls. Moreover, last year the steel plant was idle until August. But plant spokeswoman Polina Golubeva told the Kyiv Post that the plant is now working “on a normal basis – as much as it’s possible.”

Much information about business in Transnistria is hidden, Fala says, adding: “All we have is the official information from Transnistria’s Ministry of Economy.” According to the ministry, Transnistria’s metallurgy production reached $74.9 million in the first four months of the current year.

Three major factors have helped the unrecognized state’s economy survive. With only $1 billion in gross domestic product in 2013, Transnistria needs Russia’s direct financial support and Moldova’s kind treatment, which it has gotten. Smuggling also supplies money to Transnistria, according to Fala’s assumptions.

“Moldova is trying to reintegrate Transnistria, offering a number of favorable advantages – lower taxes, for instance,” tells Fala of Expert-Grup.

Moldova, along with Georgia, are expected to sign a landmark political and free-trade deal with the EU on June 27, which may become an added incentive for Transnistria to re-think its policy and its status. Otherwise, it will be very difficult for them to perform economically, admits Fala.

Donetsk, Luhansk and Crimea have something to think about too.

The international community considers them part of Ukraine, thus global markets will accept their production only if it has stamps from Ukrainian Customs Service. And nobody can guarantee that the current Ukrainian government will apply the same soft policy measures towards the quasi-state entities as Moldova does towards Transnistria.

It is not surprising that Ukraine’s richest billionaire, Rinat Akhmetov, owner of System Capital Management conglomerate, on May 19 called on the workers of his plants in Donbas to go on a strike and he made another strong statement condemning separatism on May 21. He also said that he will pay taxes only to the Ukrainian budget, not the self-proclaimed people’s republics in Donetsk and Luhansk. Akhmetov clearly foresees huge problems for his assets in banking, energy, media, metallurgy and telecommunication sectors if the two regions secede from Ukraine.

Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected].