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Money needs calculation
25 May 2015
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Banks are not willing to participate in the recovery of Donbass infrastructure declared in Minsk, without security guarantees. One also should not rely on the recovery of production in the territories included in the ATO zone.

Despite all the efforts of diplomats, the prospects for peace in the east of Ukraine look rather remote. Nevertheless, questions are constantly raised of how areas affected by the war will be recovered and how much it will cost. Such researches were carried out by various organizations in 2014; this topic was reflected as a result of the Minsk talks that took place on February 11-12 this year. In particular, a declaration of the leaders of Ukraine, Russia, Germany and France of the support of a set of measures to implement Minsk agreements was approved on February 12 in Minsk. In particular, a need to restore the functioning of the financial system in the Donbass is noted there. "Germany and France will provide technical assistance for the recovery of segment of the banking system in areas affected by the conflict, through possible establishment of an international mechanism to facilitate social payments," it is said in the declaration made public by the press service of the President of Ukraine.

Let us recall that as early as the last year (fr om September 29 to October 3) at the request of the Ukrainian government, a joint mission of the United Nations, the World Bank and the European Union worked in Ukraine and proposed a step-by-step approach to the provision of assistance for the recovery of the affected areas. Back then, it was said that first of all there is a need to focus attention on the renewal of basic social services and the recovery of infrastructure. Apparently, the banking services fall into this category.

Provision of services in the front line

Banks currently do not conduct business in the territories that are not controlled by the Ukrainian authorities. The relevant ban was spelled out in the resolution of the National Bank of Ukraine No. 466 dated August 06, 14 and it is premature to talk about the real possibility of the renewal of banks' activities in the territories of the ATO zone. Domestic bankers stress that this is not possible without the cessation of hostilities and provision of security guarantees. According to Serhiy Chernenko, FUIB's Chairman of the Board, the main conditions for the renewal of banks' operation in the ATO zone are peace and absolute security guarantee for bank's employees, customers and valuables. One must also take into account the risks associated with the possibility of terrorist acts in crowded places, for example at bank branches. "A large number of men armed with firearms casts doubt on safety of valuables during their delivery or storage," said Serhiy Chernenko. "Safety of work in these territories must be ensured in the long term, since banks will have to make significant investments in the recovery of the destroyed infrastructure: blown up safe-deposits, ruined ATMs, stolen equipment and cash-in-transit vehicles. It is important to understand the legal status of these territories, since the possibility of work in the legislative field is of critical importance to the banks."

In the meantime, domestic banks are trying to strengthen their units in the regions adjacent to the ATO zone. It is worth noting that the infrastructure of the financial sector was severely damaged as a result of the conflict. According to the State Commission for Securities and Stock Market (SCSSM), the State register of securities issues includes 1,309 joint-stock companies (JSC), located in the territories of the Donetsk and Luhansk regions, wh ere hostilities currently take place. At the same time, SCSSM noted that 3.67% of them (about 50 JSCs) are financial institutions, and the remaining 96.33% are other enterprises. At the same time, according to the Independent Association of Ukrainian Banks, as at April 1, 2014 there were 1,612 banking units in the Donetsk region, and 700 banking units in the Luhansk region. In fact, in terms of this indicator the Donetsk region was ranked second after Kyiv (1,908 banking units, whereas 717 units were in the Kyiv region), and the Luhansk region was ranked tenth.

No end can be seen

One need to realize that the problems of Ukraine in the long term are not limited to the recovery of the financial infrastructure of the Donbass. According to some experts, the recovery of the region will require more than $15 billion and this number is constantly growing. In the summer of 2014, the Prime Minister Arseniy Yatseniuk estimated the amount required to recover the infrastructure of eastern regions at $8 billion. Earlier, when the scale of destruction was not so sheer, it was talked about approximately $900 million. Constant increase in the amount of the damage caused by the aggression of separatists supported by the Russian Federation forced Mr. Yatseniuk to talk even about the fact that Kyiv will demand reparations of Russia. It is symptomatic that at the end of 2014, the experts and the official authorities started to refrain from estimating the damage the hostilities caused to Ukraine. In one of his comments at the end of December 2014, the Prime Minister admitted: "No one knows how much funds we need. This must be honestly admitted. And there will be no exact figure until we regain control over the territories and send there experts and professionals who will assess the real collapse of infrastructure."

Stop light

There are enough examples of how the conflict is reflected on the enterprises of the Donetsk and Luhansk regions. In particular, on January 21, Avdiivka Coke and Chemical Plant (AKHZ) that belongs to the "Metinvest" Group reported that it operates on not more than 25% of power and, moreover, does not supply the produced coke to Mariupol Ilyich Iron and Steel Works and Azovstal Iron and Steel Works that belong to the holding. Then, the press service of the "Metinvest" Group reported that the power decrease in the AKHZ was caused by the fact that the plant operates only on two of the four high-voltage bushings. It is impossible to dispatch products to other enterprises of the group, since railroad tracks were destroyed. It is worth noting that over the last year the plant has been under fire, which led to the incapacitation of electric power equipment. It was reported that a total of more than a hundred shells fell into the territory of the plant.

Later, on February 6, the "Metinvest" Group announced a decision to stop the Yenakievo Iron and Steel Works (EMZ). The reasons for this were the incessant hostilities in the Donbass, as well as virtually absent rail links in the ATO zone.

As for the Industrial Union of Donbass (ISD) corporation, it also winds down the activity in the territories that are not controlled by the Ukrainian authorities. In particular, this refers to a shutdown of the Alchevsk Iron and Steel Works, which took place at the end of the last year. Corporation management decided that it would be wiser to resume production at a Polish enterprise Huta Czestochowa owned by it. Naturally, it was stated that this decision is temporary, but so far there is no improvement of the situation in the Donetsk and Luhansk regions.

Source - Business Weekly from February 23, 2015


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