Dirty Fuel

Despite collapsing markets, trains still move banned coal into Russia and onward to international buyers
A Ukrainian national flag is seen in September as activists block a train carrying coal, purportedly from Russia, in Sosnivka in western Ukraine.

Sometime this week, a line of rusting rail cars will pull into a coal mine in eastern Ukraine for a fresh load of the black fuel that has helped sustain the region’s Kremlin-backed rebellion for nearly six years.

It is a rare kind of coal, a shiny metallic rock called anthracite that burns relatively cleanly and fetches high prices even in tough economic times. It is also contraband that can’t be legally sold abroad. And so, once loaded, the train cars head east toward Russia, where the coal effectively disappears.

In a pattern that has played out hundreds of times, the coal is hauled away by a network of Russian companies that, according to Treasury Department documents, often simply resell it to foreign buyers who have no idea that they are getting outlawed coal from a war zone. But lately, with energy prices crashing amid a global pandemic, even this coal is attracting few customers. And that is potentially disastrous news for Ukraine’s rebellious eastern provinces — and for the Russians who support them.

Separatist-

controlled

area

BELARUS

POL.

RUSSIA

Kyiv

UKRAINE

Luhansk

Donetsk—

MOL.

ROMANIA

Crimea

RUSSIA

200 MILES

Annexed by

Russia in 2014

Black

Sea

BULGARIA

TURKEY

BELARUS

RUSSIA

POL.

Separatist-

controlled

area

Kyiv

UKRAINE

Luhansk

Donetsk—

MOL.

ROMANIA

200 MILES

Crimea

Annexed by

Russia in 2014

Black

Sea

BULGARIA

GEORGIA

TURKEY

BELARUS

RUSSIA

POLAND

Separatist-

controlled

area

Kyiv

Lviv

UKRAINE

Luhansk

Donetsk—

MOLDOVA

ROMANIA

200 MILES

Crimea

Annexed by

Russia in 2014

Black

Sea

BULGARIA

GEORGIA

TURKEY

BELARUS

RUSSIA

POLAND

Kyiv

Separatist-

controlled

area

Lviv

UKRAINE

Luhansk

Donetsk—

MOLDOVA

ROMANIA

Caspian

Sea

Crimea

200 MILES

Annexed by

Russia in 2014

Black

Sea

BULGARIA

GEORGIA

TURKEY

While the illicit trade continues, far less coal has been moving across the Ukraine-Russia border in recent months, according to documents and independent analysts, and the market price per ton of anthracite is plummeting. In eastern Ukraine, the shift has translated into skipped paydays for miners, declining revenue for the separatist leadership and growing instability for a region that has been a perpetual flash point for U.S. relations with Moscow.

“This is an export channel that by definition is smuggling stolen products from one country to another,” said Brian Milakovsky, a Ukraine-based analyst who specializes in the economics of the eastern provinces. “Now, money that should land in the pockets of people in the republics isn’t going there, and it’s causing social tension. And covid-19 only exacerbates it.”

The collapse threatens a source of revenue that has helped offset the vast sums — estimated at between $1 billion to $3 billion a year — spent by Moscow to sustain the self-declared Donetsk and Luhansk people’s republics. The two provinces have been under the control of pro-Russian separatists who have waged a low-grade conflict with the Kyiv government.

Railroad

network

Main anthracite

coal mining sites

Major railroad

crossing

with Russia

UKRAINE

RUS.

Luhansk

Donetsk

Gukovo

Uspenskaya

RUSSIA

UKR.

Rostov-on-Don

Taganrog

Sea of Azov

Mariupol

20 MILES

Railroad

network

Main anthracite

coal mining sites

Major railroad

crossing

with Russia

UKRAINE

RUSSIA

Luhansk

Donetsk

Gukovo

Uspenskaya

RUSSIA

UKR.

Rostov-on-Don

Taganrog

Sea of Azov

Mariupol

20 MILES

Railroad network

Main anthracite coal mining sites

Major railroad crossing

with Russia

UKRAINE

RUSSIA

Luhansk

Horlivka

Donetsk

Gukovo

Torez

Uspenskaya

RUSSIA

UKRAINE

Rostov-on-Don

Taganrog

Sea of Azov

Mariupol

20 MILES

Railroad network

Main anthracite coal mining sites

Major railroad crossing

with Russia

UKRAINE

RUSSIA

Luhansk

Horlivka

Pokrovsk

Donetsk

Gukovo

Torez

Uspenskaya

RUSSIA

UKRAINE

Rostov-on-Don

Taganrog

Mariupol

Sea of Azov

20 MILES

Collectively known as the Donbas region, both are home to highly productive, privately owned coal mines and steel factories, which were seized by the rebellion’s leaders in 2017. Since then, an endless line of rail cars has moved millions of tons of Ukrainian anthracite and steel into Russia, part of what U.S. and Ukrainian officials describe as an elaborate shell game that turns illegal contraband into hard currency.

Until recently, a single businessman sat atop the enterprise. Ukrainian billionaire Sergey Kurchenko and his small network of companies controlled the bulk of the coal coming into Russia from eastern Ukraine, customs records show. The same network sells ordinary Russian coal to buyers around the world and, along with it, anthracite that originated in the mines of eastern Ukraine, according to U.S. and European officials and investigators.

Russian media reported that Kurchenko recently lost his monopoly on imported Ukrainian coal, a claim borne out by official trade documents. But companies associated with Kurchenko’s network continued to move tons of Ukrainian anthracite into Russia at least as recently early April, according to customs records obtained by C4ADS, a Washington nonprofit group that specializes in data-driven analysis of illicit trade in conflict zones.

Billionaire Sergey Kurchenko in Kharkiv, Ukraine, in 2013. (Stanislav Belousov/Reuters)

Kurchenko, 34, is a longtime family friend of Viktor Yanukovych, the former Ukrainian president who was driven from office during that country’s 2014 popular uprising and now lives in exile in Russia. Kurchenko, who also now lives in Russia, has been accused by Ukrainian authorities of tax evasion and multiple other criminal offenses related to his energy companies, and he is the subject of U.S. economic sanctions.

Attempts to reach Kurchenko through two of his Russian companies were not successful. In 2014, he issued a statement through one of his companies denying wrongdoing, saying, “I am an honest businessman.” Since then he has declined interviews and rarely speaks publicly.

“He has been holed up in Moscow throughout the course of all of this, because in Ukraine he’s a wanted man,” said C4ADS senior analyst Jack Margolin. “But as we see in trade data, that certainly hasn’t stopped him from doing business.”

‘It’s really laundering’

Before 2014, Ukraine’s Donbas region accounted for 10 percent of the country’s gross domestic product, mostly because of coal and steel. The anthracite mined there is notoriously hard to reach, located mainly in narrow seams more than a half-mile beneath the surface. But the coal’s unusual value has provided a livelihood for tens of thousands of miners and a dependable base for Ukraine’s economy.

Two private companies owned nearly all the region’s mines, which continued to operate even as conflict broke out in the region. Then, in 2017, after the Kyiv government imposed an economic blockade on the rebellious provinces, separatist leaders seized control of the mines and steelworks and claimed the coal for themselves — only to be frozen out by international energy traders reluctant to purchase anthracite that is legally regarded as stolen property.

Since then, the region has become utterly dependent on Russia, which has spent billions of dollars propping up budgets “just to keep the elementary things going,” said Anders Aslund, a Swedish economist and expert on Eastern European economies.

“It’s an economic hellhole,” Aslund said. “It’s really awful. The big enterprises are standing still.”

Eventually, Moscow was obliged to supply the separatists with markets as well as subsidies. European buyers might shun stolen coal from the Donbas, but most are willing to trade with Russia, a global giant in the export of all varieties of fossil fuels. So, with the help of rail cars and corporate sleight of hand, Donbas coal simply becomes Russian coal, U.S. officials and analysts say.

“They call it exports,” Milakovsky said, “but it’s really laundering.”

Moscow’s trade with its Donbas clients is kept relatively quiet, but it is not exactly hidden. Imports of coal and steel from the provinces are documented in Russian customs data and court records. Ukrainian activists opposed to the region’s pro-Kremlin leaders use Twitter and other social media to display images and videos of coal-laden trains heading toward the Russia border.

In April, a train with empty cars heads west from Russia’s Uspenskaya border crossing to pick up more coal and steel in eastern Ukraine. (Josef Pinochet/Twitter)

Most of the trains enter Russia at a small border crossing called Uspenskaya. Satellite photos on Google Earth routinely show long lines of coal cars in Uspenskaya’s train yards, where they await further passage along a railway that continues south toward Rostov-on-Don, the port city that serves as one of southern Russia’s main transportation hubs.

From 2016 until late last year, at least 3.5 million tons of Donbas coal crossed the Russian border, according to a C4ADS analysis of Russian customs data. During the same period, trains moved more than 360,000 tons of steel and metal products, according to the report, an advance copy of which was provided to The Washington Post. Ukrainian coal-industry officials say the amount exported to Russia is much higher, with at least 6 million tons of anthracite crossing the border by early 2019.

In customs records, nearly a third of the coal shipments were linked to companies controlled by Kurchenko. In late 2018, Russian media reported that one of Kurchenko’s companies, Gaz-Alyans, had been given exclusive control over all coal exports from Ukraine.

Repeated efforts to reach Kurchenko through his companies in Russia and South Ossetia were not successful.

There are few publicly available records for what happens to the coal once it enters Russia. DTEK, the Ukrainian energy company whose mines are now controlled by the separatists, asserts in company documents that about half of it is being relabeled as Russian coal and transported by rail — or on ships traversing the Black Sea and Mediterranean — to markets in Asia and Europe. Because the chemical makeup of coal differs from region to region, DTEK officials have been able prove forensically that some Russian-labeled coal is actually from DTEK-owned mines in the Donbas, company officials say.

Striking miners warm themselves by a barrel fire as they block the road to a coal mine in February 2018 in the small Ukrainian town of Novogrodivka, in the Donetsk region. (Aleksey Filippov/AFP/Getty Images)

DTEK documents obtained by The Post listed 20 countries as recipients of Donbas coal, with Turkey, Romania, Belgium and Poland receiving the biggest share. Some customs records explicitly list European companies as the ultimate destination for Ukrainian coal transiting through Russia.

The Ukrainian company, which has furloughed 30,000 of its non-Donbas workers amid falling coal prices, has lodged formal protests with several European governments in an attempt to halt the import of contraband coal.

Exactly how much Donbas coal is consumed outside Russia is difficult to independently assess. Russia uses some of it, customs records show. But Moscow has no need for foreign coal, being one of the world’s biggest producers and exporters of the fuel. And without extensive forensic testing, it would be difficult to prove whether any given coal shipment originated in Russia or Ukraine or is a mix of the two, analysts say.

“It is a reasonable assumption that some of that [Russian] coal originated from eastern Ukraine,” Margolin said.

Falling revenue and growing unrest

Ukrainian protesters and military veterans take part in a February 2017 blockade at the Kryvyi Torets railway station in the Donetsk region, targeting ongoing trade of coal and other materials with Russian-backed insurgents. (Aleksey Fillippov/AFP/Getty Images)

Lately, however, demand has plummeted for coal, regardless of where it comes from. A steep decline in prices began last year and accelerated with the spread of the coronavirus.

In November, the Russian business news site RBC reported that a dispute had erupted between Donbas leaders and Kurchenko’s companies because of the shrinking volume of coal being purchased from the region’s mines. Instead of the promised 400,000 tons per month, Russian trains were hauling away about a quarter of that amount, RBC reported. As a result, Kurchenko’s companies had lost their exclusive access to the region’s coal, while amassing debts to the breakaway republics in the hundreds of millions of dollars, the news site said.

Falling revenue has quickly translated into unrest in a mining region that experts say was already afflicted by chronically low wages and deteriorating conditions, with local mines seeing few repairs or equipment upgrades since 2017.

Donbas miners and family members have taken to Facebook and other social media to complain of wage cuts and long delays in the payment of salaries, according to a report by the Digital Forensic Research Lab, a unit of the Washington think tank Atlantic Council. The report displayed a photograph of a pay stub posted by one anonymous miner showing monthly earnings of less than $80, just over half the legal minimum wage in Ukraine.

“Claims like these are widespread across Donbas miner groups,” the report said.

A strike in early May that shut down a mine in Zorinsk, a coal town in Luhansk, was led by workers who said they had not been paid in months, according to accounts of the work stoppage posted by miners on the social media platform Telegram. The workers ended the walkout on the sixth day after being promised back wages, which, as of late May, still had not arrived, mine workers said.

In the past week, the province’s leaders imposed a blockade around a coal mine in Antratsyt — a town about 40 miles southeast of Zorinsk named for its abundance of anthracite — after more than 100 miners locked themselves underground in a new outbreak of labor unrest, according to postings on the Russian social media site VK. Rescue workers were being refused permission to bring food and water to the striking miners, according to the reports.

It is unclear how the unrest will affect the region’s conflict. Analysts say it is unlikely the Kremlin will do more to prop up the Donbas region’s industries at a time when Russia’s economy is being squeezed by a global pandemic and tumbling oil prices after a brief but punishing price war with Saudi Arabia. Among Russia’s powerful coal barons, opposition to discount imported coal from the Donbas was already building before energy markets crashed.

“It was always clear that the Russians didn’t want to let Donbas become a cheap competitor within the Russian Federation,” said Nikolaus von Twickel, a former official with the Organization for Security and Cooperation in Europe, the agency that deploys international monitors to conflict zones, including in eastern Ukraine.

Yet, if the region’s workers cannot find employment in the mines or steel mills, some may see separatist militias as the best alternative to earn a living, he said.

“People say the best business is the military,” von Twickel said.

Mykola Tsukur, deputy commander of Ukraine's volunteer Tornado battalion, stands atop a train carrying coal from the rebel-held parts of the Luhansk region into the government-controlled area in Orikhiv, Ukraine, in 2015. (Evgeniy Maloletka/AP)
clarification

An earlier version of this article referred to the fighting in Eastern Ukraine as a “civil war,” a term that some experts and many Ukrainians reject as an inaccurate portrayal of the conflict.

Natasha Abbakumova and Robyn Dixon in Moscow contributed this report. Photo editing by Nick Kirkpatrick. Video editing by Joyce Lee. Maps by Laris Karklis. Map source data: USAID for separatist-controlled area, coal sites via C4ADS, and OpenStreetMap and Maps4News.

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