In Ukraine, separatists issue ultimatum to end rail blockade

KIEV (Reuters) - Pro-Russian separatists in eastern Ukraine said on Monday they would take control of Ukraine-run businesses in rebel-held areas if the Ukrainian government does not end a rail blockade that has halted coal supplies.

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For the past month, a group of Ukrainian lawmakers and veterans have blocked some rail traffic in eastern regions - a move opposed by the government as it prevents coal produced in separatist territory from reaching Ukrainian power plants and the steel industry, whose exports are a keystone of the economy.

In a joint statement, leaders of the so-called Donetsk and Luhansk People’s Republics (DNR and LNR) said the blockade had caused many businesses to suffer in rebel-held areas and that it went against the spirit of the 2015 Minsk peace agreement.

“We are forced to announce that if by midnight on Wednesday the blockade is not taken down, we will introduce a system of external management on all companies registered in Ukraine’s jurisdiction that operate in the DNR and LNR,” leaders Alexander Zakharchenko and Igor Plotnitsky said.

They also said they would stop selling coal to Ukraine and send future coal supplies to Russia or elsewhere.

Ukraine’s largest steel producer, Metinvest, is one of the biggest employers in eastern regions on both sides of the front line. The blockade has already forced it to halt production temporarily at one of its mills and several coal mines.

Metinvest said it would be “unacceptable” for separatist officials to take control of its businesses in rebel-held areas, saying this would force it to halt the affected operations.

“In those specific businesses alone, almost 20,000 people would face redundancy. This would inevitably be followed by the dismissal of people at related businesses ... and contractors, which would lead to social upheaval,” Metinvest said in emailed comments.

Heorhiy Tuka, Ukraine’s deputy minister for issues relating to rebel territories, dismissed the separatists’ threat to seize the companies.

“It’s an attempt to scare us,” he said in a statement published by website InfoResist, saying the separatists did not have the ability to manage the large industrial companies.

In government-controlled areas, the economic impact of the blockade is already being felt.

The government has warned that low coal stocks in power plants could lead to rolling blackouts, while the central bank has said it could take emergency measures if the supply squeeze hits steelmakers’ export revenue.

Ukraine stands to lose up to $2 billion in foreign currency revenue if the blockade continues, according to President Petro Poroshenko.

Reporting by Pavel Polityuk and Natalia Zinets; Writing by Alessanra Prentice; Editing by Robin Pomeroy