RZD stimulating cargo to occupied Donbas, drawing METINV warning

Russian state railway operator RZD (RURAIL) has granted a 25% discount on the transport of iron ore and coal to the occupied territory of Donbas, the Interfax news agency reported on April 11. The discounts will be applied to the transport of iron ore commodities from the Russian towns of Cherepovets and Kostomuksha, the locations of the key assets of Severstal (SVST LI), to railway stations located close to the occupied Donetsk and Luhansk regions (collectively known as Donbas). Discounts will also apply to the transportation of coal from Kemerovo region of Russia to another location near occupied Donbas. These discounts will be valid until end-2017. The Interfax mentioned that information had circulated in the Russian media that Severstal and Metalloinvest (METINR) were advised by the Russian government to supply iron ore to occupied Ukraine, while the companies and Kremlin officials denied such info.

The same day, Ukraine’s largest steelmaker Metinvest (METINV) issued a statement warning residents and non-residents of Ukraine against “the illegal use of its property” remaining on the occupied territory of Donbas. “Cooperation with the unrecognized states and their related/controlled entities or enterprises constitutes a breach of international economic sanctions,” Metinvest stated. Recall, the holding reported on March 15 it lost control over all its enterprises located in occupied Donbas.

Andriy Perederey: No public Russian company will dare to establish business relations with the occupied territories of Donbas, whose “governments” have not been recognized even by Russia, which is in fact propping them up. Neither will any Russian firm supply raw materials to the seized enterprises of Metinvest (or DTEK) lest they face Western sanctions. But the risk of such activity being pursued in the shadows still looms, as can be concluded from the Metinvest press release, which was directed at Russian business.

The most likely motive of RZD’s decision on discounts was to help Alchevsk Steel (located in occupied Luhansk region) to recover its operations. The Alchevsk plant is part of the IUD holding, whose main shareholder is the Russian state-controlled financial entity Vneshekonombank. Alchevsk Steel and its shareholders did not announce any loss of control of their assets in occupied Donbas, but the plant’s operations were fully stopped on Feb. 13 due to lack of iron ore supplies from mainland Ukraine. While it’s not clear whether Alchevsk Steel has registered with the occupied government in order to resume operations, it’s more likely to operate there than any of the seized plants of Metinvest or DTEK.