DPR and LPR are building up their own economies

Photo: Reuters

The self-proclaimed Luhansk and Donetsk people’s republics are organizing their own economies. At the moment, active processes are observed in the segment of consumer markets. Initially, pharmacies, stores and gas stations were attacked and ransacked. Now, the self-proclaimed authorities are trying to establish control over them and force them to pay taxes to the local bodies of power.

Fill ‘er up

The gas stations of Shell, OKKO and the local chain Eastern Resources operating in the ATO zone were slammed by a wave of bad luck, says President of the Union of Operators of Oil Products Market of Ukraine Leonid Kosyanchuk. Activists of the DPR and LPR gained partial control over them. Analyst at UPECO Oleksandr Syrenko says the representatives of the Donetsk and Luhansk republics held talks with the owners of gas stations on renewing operation, but the latter refused as it is extremely risky.

“In response the activists placed their own people at gas stations and now sell Russian gas,” explains Syrenko. Owner of the gas station chain Eastern Resources Volodymyr Shostak denied information that his stations were controlled by LPR. “According to my data, the insurgents took over two OKKO gas stations in Luhansk. Now, they are getting closer to our stations,” he explained. “When I purchased gas I was handed a receipt with the OKKO label on it, but the cashier told me that the fuel was of “Lukoil quality”. A liter of A-95 gas costs UAH 18.5, A-92 and diesel fuel – UAH 17.5,” tells a resident of Luhansk Ivan, who requested that his surname not be mentioned.

The fuel to these gas stations is supplied by Russia’s Novoshakhtinskiy Oil Refinery, says Syrenko. The seizure of gas stations by activists of the self-proclaimed republics is a forced measure, since many Ukrainian oil traders stopped the supply of fuel to the regions since May. As Capital wrote earlier, Parallel shut down 52 gas stations and only 10 of 35 OKKO gas stations are still operating. Overall, 737 gas stations or 73.6% suspended their operation in the Donbas since the start of the year, according to the State Statistics Service. Many of them have been destroyed. “Based on preliminary data, the losses of our company after the combat actions are estimated in the dozens of millions of hryvnia. At the moment, we know that eight Parallel gas stations were fully destroyed and another nine of them severely suffered from shootings and the acts of plunderers,” says General Director of Parallel Olena Khiliyenko. She adds, however, that at the moment there is no full information as some gas stations are simply inaccessible. Volodymyr Shostak also reported damages to the nine gas stations as a result of combat and plundering.

Russian smokes for Ukrainian folks

Tobacco products with Russian excise labels are actively sold on the territory of the unrecognized republics. Experts, however, find it difficult to estimate the volumes. “We cannot perform monitoring there. TNS was unable to include the Luhansk and Donetsk oblasts in the last series of research, which is why we only have unconfirmed information about the mass consumption of smuggled products from Russia,” tells PR Manager of Imperial Tobacco Ukraine Natalia Mykolayenko. She says the price of tobacco products is 15-20% higher than the maximum retail price. Today, the average price of a pack of non-filter cigarettes is UAH 5-6 and UAH 11-12 for filtered cigarettes. Meanwhile, Ukrainian producers still control a large share of the market.

“We cannot supply our products to the regions that are not controlled by the Ukrainian authorities, as it is highly risky. At the same time, we are aware of cases of the purchase of our products on Ukrainian territory for further sale in the ATO regions,” says Corporate Issues Manager of British American Tobacco Ukraine Iryna Kurinna.

Medications are scarce

“It is barely working,” says Director of the Agency of Medical Marketing Yuriy Chertkov describing the operation of retail drug stores on the territories of the self-proclaimed Donetsk and Luhansk republics. Drug stores purchase medications from Ukrainian distributors on two conditions – either they are based on prepayment or upon delivery of medications to the drug stores. “However, there are still not too many medications available,” notes Chertkov. According to his data, around 85% of pharmacies were shut down. In the remaining drug stores, the medications are 10% more expensive than in the rest of the country, the expert says.

There are no supplies from Russia, including smuggling. The only exception is the humanitarian aid from Russia, for instance insulin. There is a message of the so-called Healthcare Minister of the DPR Andriy Prutskiy on the website dnr.today, who speaks about the difficulties with supplies of insulin to the drug stores located on the territory of the republic.

Retail stores are being taken over

The unrecognized Luhansk People’s Republic “nationalized” around 40 stores of the largest food chain ATB located in the oblast. Overall, the chain closed 156 stores; 70 stores continue to operate, including 22 located in the ATO zone, according to the official statement of the company. “According to preliminary estimates of ATB-Market LLC, the company’s losses exceeded UAH 1 bn over the period of combat actions on the territories of the Luhansk and Donetsk oblasts,” reads the statement.

Representatives of the DPR, who threatened to shut down the Brusnichka and Amstor chains are keeping up with their Luhansk colleagues. “We are waiting in the ministry until the end of the week for them to show up and re-register; otherwise we have enough power and possibility to influence the launch of a thorough inspection of the operation of these supermarkets with the help of special services,” announced acting minister of agro-industrial policy of the self-proclaimed republic Oleksiy Krasylnykov. Metro closed its store in Donbas in May, after which it was ransacked. Varus closed in July.

At that, all the food products available in the unrecognized DPR and LPR are manufactured in Ukraine. Director of the Ukrainian Association of Retail Chain Suppliers Oleksiy Doroshenko admits that the goods are supplied to the stores from neighboring counties and oblasts. “They are delivered either by the vehicles of retail chains or private drivers, who write Bread or Food Products on their windshield,” tells sales director of a dairy product company on condition of anonymity.

Some products – dairy, meat, bread, confectionery, alcohol and other – are manufactured on the territory of the oblasts. Chairman of the Board of the Union of Dairy Companies of Ukraine Vadym Chaharovskiy explains that the products of the local companies Herkules and MTK (TM Stanitsa) are supplied to the Donbas region. “Over six months, the production volumes of Herkules increased 38% compared with the same period last year,” he said. However, the stores are still not fully supplied with products.

The marketing director of a large food retail chain, who requested anonymity, said at the moment the stores are supplied with 5-80% of the required product range. “Everything depends on whether or not the supplier manages to agree with those standing on the roadblocks,” he says. The prices of food products are 30-50% higher. The situation with supplies will continue to deteriorate, believes Managing Partner at Retainet Consulting Company Oleksandr Lanetskiy. “Chain stores will be forced to close as they could face mass plundering,” he explains. He believes that smugglers will get involved in food supplies.