(Adds Metinvest statement, DTEK comment)
By Pavel Polityuk and Alexei Kalmykov
KIEV, March 15 Ukrainian authorities on
Wednesday halted all cargo traffic with rebel-held territory in
the east of the country, formalising an existing rail blockade
by Ukrainian activists that has fuelled the worst political
crisis in nearly a year.
In a standoff that is hurting the economies of both sides,
separatists have seized control of strategic Ukraine-registered
industries in their territory in response to the rail blockade,
which has cut off coal and steel shipments since late January.
Tensions have escalated in recent days, leading to clashes
between law enforcement agencies and the activists, who have
been joined by some members of parliament.
The blockade posed a dilemma for President Petro Poroshenko.
Breaking it up by force could provoke a major domestic backlash,
but allowing it to proceed unilaterally risked undermining the
Poroshenko's Security and Defence Council introduced the
state-led cargo ban to counter what he described as the
political and social threat posed by the unofficial blockade.
The decision "is dictated by the necessity to prevent the
destabilizing of the situation in the country, which is being
undermined by political operators," he told the council. "Our
wish is to prevent social strife."
The suspension will remain until rebels hand back control of
Ukrainian businesses and comply with a 2015 peace agreement,
according to the Security Council.
The asset seizures by separatists have mostly affected
businesses in the financial and industrial group owned by
Ukraine's richest man, Rinat Akhmetov.
On Wednesday, Akhmetov's Metinvest and DTEK Energy said
their main businesses in rebel-held territory had been taken
under separatist control .
The two companies, which are the main employers on both
sides of the eastern front line, said they had halted production
at the affected operations.
"The main result will be a dramatic decline in income and a
rise in unemployment," said Maksim Timchenko, DTEK's chief
The crisis has put pressure on Prime Minister Volodymyr
Groysman's government just as it is about to lose its year-long
immunity from facing any vote of no confidence. It was appointed
last April by a fragile coalition that includes Poroshenko's
party, after the previous government fell.
Russia, which backs the separatists in the east, called on
Ukraine on Wednesday to end the blockade. The situation risked
turning into a "humanitarian catastrophe", the Russian foreign
Rebel leader Alexander Zakharchenko said Ukraine's decision
had nothing to do with the separatists, saying it was instead
"evidence of an internal power struggle in Kiev."
The suspension will further squeeze the Ukrainian economy,
already facing potential rolling blackouts and monthly economic
losses of up to 4 billion hryvnias ($150 million) from the
existing blockade, according to the government.
The central bank says expected economic growth could nearly
halve this year to 1.5 percent if rail traffic does not resume
Poroshenko expects the government on Thursday to come up
with fresh forecasts for the impact of the broader ban on the
economy, energy security and currency stability.
The trade squeeze has highlighted the complicated economic
relationship between the two sides and represents a new phase in
a standoff that has killed more than 10,000 people.
Germany, which has taken a leading role in trying to end the
conflict, said it was seriously concerned about "increasing
partitionist tendencies" in eastern Ukraine.
Foreign Ministry spokesman Martin Schaefer told a government
news conference: "The danger of a military escalation is far
He said Berlin was urging Ukraine and Russia to live up to
agreements made as part of the 2015 Minsk peace process, citing
troubling actions by both sides, including the rebel asset
seizures and the government's decision to cut off trade.
(Additional reporting by Andrea Shalal in Berlin; Writing by
Alessandra Prentice; Editing by Larry King)