Biggest Ukraine investor alarmed over coal blockade

Dmitry ZAKS

The biggest foreign investor in Ukraine expressed alarm Thursday over a weeks-long blockade of railway lines for transporting coal between the separatist east and the rest of the ex-Soviet state.

The halt was started in January by Ukrainian war veterans and volunteers who sought to prevent Russian-backed insurgents from receiving cash from trade with Kiev.

Global steel giant ArcelorMittal (LSE: 0NSF.L - news) expressed concern over the stoppage and said its operations near the war zone had been affected by the "challenging situation".

A statement from the Luxembourg-based company said it had developed a "crisis plan of operation" due to the "emergency state" of the energy sector.

But its stock still fell by nearly two percent in late afternoon European trading.

ArcelorMittal bills itself as the world's largest integrated steel and mining company. Its operations in the war-scarred state make up just a fraction of its global production.

But the company's message sent a clear signal to the pro-Western government of Ukrainian President Petro Poroshenko that something needed to be done.

Ukraine is hesitant to move against the strikers for fear of a backlash from nationalists who make up an important portion of the Ukrainian parliament.

Poroshenko also needs to spend political capital on the passage of International Monetary Fund austerity measures required for Ukraine to receive urgent loans.

- 'Possible risks' -

ArcelorMittal has a plant in the mining city of Kryviy Rih that needs coal to produce steel. The city is in the eastern Dnipropetrovsk region that is outside the war zone.

Its website says the Kryviy Rih plant is the biggest exporter in Ukraine.

The firm said it had already run out of certain types of coal that are "crucial raw materials" and said it was gearing up for "possible electricity blackouts" in the region.

It said production was at normal levels but could be affected at any time.

"The company is concerned about the possible risks regarding future supplies," it said.

The activists blocking the railway accuse corrupt Ukrainian authorities of allowing the flow of goods to fund the rebels.

They say the rebels have smuggled contraband alcohol and tobacco into the rest of Ukraine along with the shipments of a specific type of coal found only in the east.

The insurgents' leader in the separatist province of Donetsk on March 3 said he would retaliate by trading only with Russia.

Rebels began exporting the coal to Russia on Monday and started taking over dozens of Ukrainian businesses in the separatist east earlier this month.

Ukrainian Central Bank chief Valeria Gontareva has warned that a year-long blockade could shrink Ukraine's growth outlook for this year from 2.2 percent to 0.7 percent.

Prime Minister Volodymyr Groysman said it could cost Ukraine some 75,000 jobs.

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