MARIUPOL, Ukraine — On the night of Jan. 25, activists arrived at the Luhansk-Lisichansk railway, intent on blocking trade with enterprises in areas controlled by Russian-backed separatists.
The activists began blocking trains moving cargo from Russian-occupied Luhansk and Donetsk, with organizer and Samopomich Party member of parliament Semen Semenchenko equating trade with the separatists to “terrorist financing.”
The blockade — which stopped Donbas coal from going to Mariupol — forced the city’s massive steel mills to reorganize, relying on overburdened railway lines to import more expensive coal from the U.S. and, increasingly, Russia.
Russia itself has benefitted from the blockade, apart from higher sales to Ukrainian steel mills. Donetsk separatist leader Aleksandr Zakharchenko announced in March that his newly seized mines would sell the coal to Russian factories.
The central bank said in April that the blockade would cost the Ukrainian economy one percent of growth.
Blockade
Azovstal is one of the country’s biggest steel mills, paired with the Ilyich factory, also in Mariupol, the Azov Sea port city of 500,000 people some 635 kilometers southeast of Kyiv.
Enver Tskitishvili, a gregarious ex-member of parliament, is director of Azovstal.
“At the start of February, our production fell by an order of 30 percent,” Tskitishvili said at his office. “We were working on the level of 40 percent of what was possible.”
Tskitishvili accused the activists of “wanting to inflict damage on Ukraine.”
“Why do I say “want?” Tskitishvili asked rhetorically. “Because they thought that the cargo transports would freeze, and then get stuck. The people who planned this either worked in the government or know how the government works.”
Since the blockade, Azovstal has raised its coal purchases from Russia, from 15 percent of its total to 33 percent. “Buying coal from Russia, whose economy do we develop? Russia’s,” Tskitishvili said.
The other two thirds of Azovstal’s coal now comes from mines in the United States under billionaire oligarch Rinat Akhmetov’s control.
That hasn’t been cheap.
Ukraine went from importing steelmaking coal at $71 per ton in the first three months of 2016 to $206 per ton in the first three months of this year, according to U. S. Energy Department data.
That’s a leap from purchasing coal at an internationally standard price to having the third-most expensive imports in the world.
Concorde Capital Analyst Andriy Perederey said “most of this coal went from Metinvest-owned U.S.-based mine United Coal for the holding’s internal use.”
This “reflects the internal price of Metinvest,” he added.
Profit for some
In the government-controlled town of Novotroitske, 72 kilometers north of Mariupol and one kilometer from the contact line, business is booming.
Half owned by Akmetov’s United Mineral Group, and half owned by an offshore linked to billionaires Igor Kolomoisky and Gennady Bogolyubov, the Novotroitske limestone mine has a de facto monopoly on Ukrainian limestone — used for steelmaking — because of the war.
“The war knocked all of our competitors off the market,” said Sergiy Onyshchenko, chair of the Novotroitske Mining Authority.
“If you look at Novotroitske as a separate asset, we’re benefitting, but it’s a sad benefit.”
Novotroitske is only half of one limestone-extracting complex central to the Donbas’s ability to forge steel. The other half — a quarry and processing factory in the neighboring town of Dokuchaevsk — was taken at gunpoint by Russia-backed separatists in March.
Dokuchaevsk was able to produce 5 million tons of limestone per year. Plus another mine at Komsomolskoe and more in Crimea, that was a total capacity of around 13.5 million tons, Onyshchenko said.
Now, with those gone, Novotroitske is the last quarry standing at 40 million licensed reserves.
Onyshchenko has doubled staff to 1,200, mining 4 million tons annually for sale mostly to the Mariupol steel plants.
“It was a buyer’s market a few years ago, now it’s a seller’s market,” he said. “We’re trying to benefit from that.”
Railroad troubles
To bring limestone down from Novotroitske to Mariupol, train cars go down a railway kilometers away from the contact line.
Since Russian-backed separatists cut off the normal route to Mariupol — via Donetsk — the city has relied on an alternate link to the rest of Ukraine via Volnovakha and Kamysh Zorya.
That line is capable of running 15 of the 28 cargo trains needed daily to maintain the Mariupol factories.
“This situation, where you have to add investment, is really expensive. Everything is only getting worse and worse,” said Vasily Klat, director of Mariupol’s transport department. “It’s Ukrzaliznytsia, they don’t listen to the city.”
Tskitishvili said that the bottleneck cuts his production capacity by 25 percent.
The general director added that further shipments of coal from the United States via ports on the Black Sea and from Russia via a long railway route further stress the system.
“The main thing to solve this would be to end the war,” Tkitishvili said.
