Luhansk falls quiet as its citizens flee the city. The train station is the town’s last populated place as residents queue for any ride out of town – and not by coincidence it is also one of the rebels’ favourite artillery locations.

With cars and taxis banned completely from Luhansk streets as rebels clamp down in anticipation of a Ukrainian offensive, the people of Luhansk alight at the station from local buses, or come on foot burdened down with baggage, despite the sweltering heat. There are no official figures on how many inhabitants have already left, but estimates range from half to two-thirds of the city. Luhansk has become a ghost town: the only shops working now in the city are some grocery stores, and they are set to close after selling down stock. The rest of the once bustling town is closed up. Government agencies are down to skeleton staff.

But before escaping the city, people have one last trial to endure: the Russian-backed rebels are firing mortars, howitzers and rockets directly from the environs of the railway station. Passengers sweat out hour-long queues to the accompaniment of heavy guns blasting away at the Ukrainian positions – and dreading the impact of Ukrainian response fire. Periodically air raid sirens howl, indicating a Ukrainian jet has been spotted: some passengers quit the queue for more sheltered corners of the station’s halls; others stick it out, set on getting the ticket away from here as fast as possible.

The station, a massive modernist structure from the 1970s on two levels that stands at the northern entrance to the city, is likely to be make a defensive redoubt for rebels as government troops press forward from the village of Metallist, five kilometres to the north. But currently it has another significant strategic asset: the very townsfolk flocking to get out of the city, creating a human shield protecting the rebels’ artillery.

Rebel artillery pounds Ukrainian positions from the station’s environs, but response fire from the Ukrainian side could create another human tragedy if it struck the station – and a propaganda coup for the rebels. Ukrainian forces are showing commendable restraint, but the pockmarks of mortar shell craters on the approach roads to the station suggest their patience may be wearing thin.

Outside the station, rebels patrol, eyeing for rumoured Ukrainian spies providing information on artillery positions. Rebels also seize at gunpoint any private vehicles arriving in violation of the prohibition on using cars. Now and again the heavily armed rebels burst into the station hall. “Our weapon is our strength,” one calls out in accented Russian that suggests he may hail from the North Caucasus.

Talk of the town

In the hour-long queues for tickets, the talk is of the shellings that have terrified the city over the last ten days. According to official statistics from the local interior ministry, over 60 townsfolk have died since Ukrainian forces took up positions around the city ten days ago after advances. Observers from the Organisation for Security and Cooperation in Europe (OSCE) confirmed 28 dead alone on July 18-19.

Everyone it seems knows someone who lives on a street that has been hit or whose acquaintance or relative has been injured. The Ukrainian government has claimed the shelling is the work of the rebels themselves, or “terrorists” as they are referred to in official discourse. But this claim has little purchase in the population, who hold the Ukrainian forces responsible.

“The Ukrainian plan for Luhansk is to more or less flatten it, this is already clear from the way that the infrastructure is being bombed,” says Nikolai, an amiable, middle-aged, bespectacled lecturer at the local police academy, who studied law in Russia in Soviet times and passively supports the rebels, as do many in the city. “They are obviously not intending any reconstruction later – instead the region will be completely cleansed to make way for shale gas drilling by transnational companies.”

Nikolai’s views, surprising though they may seem, are mainstream in Ukraine’s easternmost region of 2.5m, perched on the Russian border, where there is intense suspicious of the West as a whole, and of Kyiv and West Ukraine in particular. In the run-up to the Euromaidan demonstrations that started in November in Kyiv, which were in favour of Ukraine’s European integration, in Luhansk 67% of people favoured Ukraine joining the Russian-led Customs Union, according to opinion polls at the time.

But for all that, Nikolai is waiting for his train to Dnipropetrovsk, where his wife already is. “There’s not going to be much left of the town when they’ve finished with it,” he sighs.

With Nikolai is Dmitry Bilous, a young detective from the criminal police. “Two of my colleagues have died fighting for the militias,” he said, adding that he was going to stay in town. “I’m not afraid of them. But my parents are traveling to relatives in Moscow.”

27-year-old accountant Svetlana, who declined to give her last name, said: “All our ties here are to Russia. They warned us of the Banderovtsy [West Ukrainian extremists], and now they have come. But where is Russia now? Putin has betrayed us.” Svetlana, her husband and their cat were looking for a ticket out of town in any direction – and overjoyed to unexpectedly get two places on the night train to Kharkiv. Ukrainian Railways announced they would be laying on extra trains to Kyiv to get people out of Luhansk. The announcement was welcomed but also gave rise to suspicions. “Anyone who stays here will be taken for a separatist and cleansed,” said Svetlana.

A later encounter at a kiosk with a young Armenian merchant, who requested not to be named for personal safety reasons, and speaking in a hushed voice, brings some counterbalance. “Donbass is made up of two groups of people,” he explains. “The poor, which is the majority, and the better-off and rich. It is the poor people here who support the Luhansk People’s Republic [LNR, the rebels’ self-proclaimed breakaway republic]. But they are very badly informed. They believe it is LNR that pays their pensions. They believe we are going to join Russia. They say that the militias are needed to protect us against the Ukrainian forces, but forget that if it wasn’t for the militias, the Ukrainians wouldn’t be here.”

He said he kept his foreign-made cars locked away, fearing they would be stolen by the rebels, and that two friends had had to buy themselves free after militia men had press-ganged them for trench-digging duty. “A lot of people here are now against the militias,” he said.

Egor Bakh, a taxi driver and former helicopter crewman in the Soviet air force, is setting off with wife and parents-in-law to central Ukraine, from where he comes. He said he had toyed with the idea of joining the rebels, the core of whom he said were “former paratroopers”. “I took one oath and that was to the Soviet Union. I don’t have anything personal against the Ukrainian army, but just look what they are doing here.”

Others in the station said they are travelling to Crimea as planned for “enforced holidays,” and joke that the Donbass uprising has been a shot in the arm for Crimea’s tourist industry, struggling in the wake of Russia’s annexation of the Black Sea peninsula.

In contrast to the others desperate to get out of Luhansk, Lena Stavychenko, a nurse, was waiting for her husband and children to return from Kyiv, to where they had fled. “Money has the habit of running out, and that is what has happened,” she said. She said they would sit out the next days in the cellar of their house.

Ceremonial units paraded in Kyiv to mark Ukraine’s Independence Day on August 24. However, in the town of Schastye – translating as “happiness” – in the Luhansk region, troops fighting Russian-backed rebels expressed discontent at their commanders in the capital, and threatened to march on Kyiv once the fight in the east is over.

Ukraine celebrated the anniversary of its declaration of independence from the Soviet Union in 1991 by holding an impressive military parade in Kyiv. The celebration came as war is waged in the east in a bid to secure the country’s territorial integrity against Russian-backed rebels. Volunteer forces at the heart of the fighting found no place for themselves in the parade in Kyiv.

“We wanted to march in the [Independence Day] parade so that people in Kyiv would have the chance to honour our fallen comrades. But when we arrived, police cordoned us off and prevented us from joining the ceremony,” said Serhiy Melnichuk. He is the founder and commander of Ukraine’s “Aidar” volunteer battalion, which is at the forefront of the battle against Russian-backed rebels in the Luhansk region.

Aidar was formed in June, after rebels had seized control of the Luhansk and Donetsk regions, taking its name from a river that flows through the north of Luhansk. Those committed to fight for Ukrainian control of the region joined the irregular battalion, bringing their own kit and supplies. The government now supplies weaponry and fuel, and the unit is formally subordinate to the interior ministry, but major funds are drawn from public donations.

Aidar celebrated its first victory in its first month of operation in June, when it drove Russian-backed rebels out of Schastye, which sits around 30km to the north of Luhansk. “Happiness” is now its base for Aidar’s ongoing campaign to free the city of Luhansk itself.

The battalion lost six men in the week leading up to Independence Day, but that wasn’t enough to book them a spot in the capital. The parade, broadcast on national TV, instead featured immaculate ceremonial units marching with aplomb to salute President Petro Poroshenko, and a drive-by of state-of-the-art Ukrainian weaponry. The parade also featured prayers for those who had died for political change and national independence this year.

Trojan Horse

Melnichuk expresses particular bitterness that Kyiv had not moved to prevent the recent Russian convoy, comprising over 270 trucks of ostensibly humanitarian aid, from entering besieged Luhansk on August 22. “We now know that the convoy was carrying mortars, machine guns and ammunition and has completely replenished the terrorists’ supplies. Now we are expecting them to launch a counter attack,” he claims.

The International Red Cross had inspected the humanitarian convoy at the Russian-Ukrainian border and found it did not contain any weaponry, according to bne sources. However, Ukraine’s border guards did not clear the Russian column of trucks, causing security services to label its entry into the country a “direct Russian intrusion” into Ukraine. However, apparently under international pressure, Kyiv chose not to risk direct confrontation with Russia.

“This Trojan Horse [the convoy] means now that it will be extremely difficult to close down the terrorists before the weather deteriorates at the start of autumn,” Melnichuk tells bne. “And this is very bad for us, since autumn and winter will make it far more difficult for us to fight. It is vital that we liberate Luhansk before the weather deteriorates, i.e. as soon as possible, and the purpose of the convoy was to stop this. This is the message we tried to convey in Kyiv.”

Russia has said more convoys should be expected in the coming days and weeks. Despite the international controversy, and strong Ukrainian aversion, they may have a precedent in international law, says a bne diplomatic source. Similar such humanitarian convoys have recently entered rebel-held territory Syria, without the assent of Damascus.

Aidar fighters in Schastye, questioned by bne, said they would in future open fire on any convoy if they had the chance. “Politicians in Kyiv might give orders to let it pass, but if we come across it, that is the end of it,” said a fighter from Kharkiv, who declined to be named.

Unhappy in Schastye

Allowing the humanitarian convoy to pass is only one of the failings of Kyiv’s political and military leadership, according to irregular and regular Ukrainian forces in and around Schastye. A fighter with the nom-de-guerre Zola, commanding Aidar in Schastye in Melnichuk’s absence, criticised lack of support for Aidar’s operations on the ground from the regular army units.

“We are storm troopers, i.e. we move up into new territory to take up new positions, and in fact often find ourselves fighting against Russian special forces units. We get good support now from army artillery, this is working well. But what happens is that then the army units that reinforce us to dig in and hold the positions in fact surrender [them], often at the cost of lives, because the generals order them to retreat or they come under a little pressure from the terrorists.”

Professional career soldiers heading to the front through Schastye also criticised the Ukrainian army leadership. “We know that the generals who will be attending the parade [on Independence Day] are corrupt. The general staff is riddled with Russian spies thanks to Yanukovych,” said a sapper from Lviv. A career soldier who served in United Nations peacekeeping operations in Africa, he declined to give his name. Ukraine’s security service, the SBU, has also acknowledged Russian intelligence penetration of Ukraine’s general staff.

“We know this [the presence of traitors in the general staff] because often when we follow a route according to the orders we receive from above, we end up coming under artillery attack from the terrorists,” he continues. “Now we never follow the routes according to orders, and we get through fine, but we see that the route we are supposed to have travelled has been worked over by shells and rockets.

“When this is all over we will march on Kyiv and sort things out there,” he adds.

Some conscripted soldiers serving in Donbass also criticise the army leadership for failure to give leave after serving three months in the field. “We feel we have been abandoned, three months out here under constant shell fire,” said a conscript from central Ukrainian Chernigov serving in the army’s 13th battalion, currently holding the town of Stannitsa Luhanska to the east of Schastye.

“The reason is they are afraid that if we do go back home on leave we will never return,” he said. Many conscripts are de facto volunteers, since the universal mobilisation ordered in May was not enforced, meaning only those who readily agreed to serve were called up. But with those ready to serve already in the field, the army may be unable to replace them without enforcing conscription, which it is reluctant to do for political reasons.

Discontent in Donetsk

Volunteer battalions engaged in heavy fighting in Donetsk region also express fears of betrayal by the country’s political leadership, to whom they may represent a future political threat. The “Donbass” paramilitary battalion under the leadership of Semen Semenchenko appeared to have courageously seized the rebel-held town of Ilovaisk in the Donetsk region on August 18. Ten Donbass fighters have been reported as subsequently killed defending their positions in the town, as army units and other volunteer battalions failed to move up in support.

“What has long been rumoured as [being] in planning is now happening before our eyes:  the volunteer battalions are being put through the meat grinder,” photographer Maks Levin, based with the Donbass battalion, wrote in his Facebook feed on August 22. Ukraine’s “Anti-Terrorist Operation” headquarters for its part said that it ordered other volunteer battalions to move up in support of Donbass, but they failed to do so.

Twelve members of another paramilitary group active in Donetsk, Right Sector, were reported killed on August 13 when their minibus was raked by fire from rebels. Three days later, the leader of the ultra-nationalist Right Sector, Dmitro Yarosh, threatened publicly to pull his men out of fighting in Donbass and to march on Kyiv if criminal cases opened against members of his movement relating to their alleged extremist political activity were not closed. Yarosh later withdrew the threat saying that the criminal investigations had been closed and other demands met.

The forces of the self-proclaimed Donetsk People’s Republic – comprising irregular Russian-backed rebels and regular Russian troops – are free to advance from the border town of Novoazovsk to Ukraine’s second largest port of Mariuopol, warn fighters of Ukraine’s irregular Dnipro battalion, which is based in the seaside village of Bezimmine 15 kilometres from Novozovsk.

Fighters of the irregular pro-Kyiv Dnipro battalion told bne that they were on their own against the Russian-backed separatists and what is now accepted also Russian regular forces, which have taken control of the strategically important border town of Novoazovsk, on the Azov sea. Bezimmine, meaning literally “nameless,” is a sleepy seaside village popular among holidaymakers, 15km west of Novaszovsk and around 30km east of Mariuopol. But now it is on the front line of a conflict that is escalating every day.

“We have called for backup from the army in the form of artillery and aviation, but nothing has come,” complained one of around 15 fighters commanding high ground on the eastern outskirts of Bezimmine, looking towards Novoazovsk. Apart from volunteer fighters and National Guard forces reportedly dug in near Bezimmine for around six weeks, no other Ukrainian forces were to be seen on the road between Mariupol and Bezimmine on August 28.

“We were beaten out of Novoazovsk starting Monday [August 25], because of the artillery fire coming from behind the Russian border,” said the fighter with the Dnipro battalion, who declined to be named but said he hailed from Donetsk. “Now we are simply waiting here.”

The group of irregulars had two jeeps, one of which had a heavy machine gun mounted on the back. “All we have here are our automatic guns. Do you think we can stop Russian tanks with them?”

The fighters from the Dnipro battalion questioned by bne said they had not seen Russian soldiers with their own eyes when fighting in Novoazovsk, since they had pulled out due to the artillery fire. But they had accurate reports of a column of over 50 armoured vehicles that had entered Novoazovsk from the Russian side, including tanks, armoured personnel carriers and artillery. “They have dug in now their heavy guns around the town,” said the fighter.

One hour later, a salvo of land-land rockets apparently from the direction of Novoazovsk struck positions behind Bezimmine, apparently where Ukraine’s National Guard were dug in. “Donetsk People’s Republic are coming now,” said the pro-Kyiv irregulars, racing through Bezimmine with an improvised anti-tank weapon fixed to the roof of a jeep. The National Guard had pulled out from their positions to defend Mariuopol itself, the irregulars said before themselves racing out of Bezimmine.

Third front?

Ukraine’s Security Council in a statement on August 28 confirmed that Ukraine had lost control of Novoazovsk and other nearby settlements, saying they were now fully under the control of Russian regular forces.

Main roads from Novoazovsk lead east along the Azov coast to Mariuopol and north to the city of Donetsk, currently besieged by Ukrainian forces. Multiple reports spoke of settlements along the Donetsk road coming under control of the Russian-backed forces. “This is the opening of a third front and the risk of encircling Ukrainian forces around Donetsk,” says analyst Dmitro Tymchuk, director of the Centre of Military Political Research.

The easy advance of the rebels and Russian forces towards Donetsk from the South may demoralise Ukrainian forces, who have believed themselves to be close to victory in recent weeks. Russian media claimed August 28 that the Donetsk People’s Republic forces had recaptured from Ukrainian forces the strategically and symbolically important hill of Savur-Mohila south of Donetsk, scene of an epic Second World War battle. Ukrainian media reported August 28 that an entire regular army battalion of 400 mobilised reservists from West Ukraine, fighting in the east, mutinied and set off home with their equipment, saying that two months without leave under constant artillery fire was enough, and they wanted to be replaced. They were stopped in the Central Ukrainian town of Kirovograd and agreed to surrender their armoured vehicles.

Potentially adding to demoralization, Ukrainian investigative journalists reported August 27 that the deputy head of Ukraine’s so-called “anti-terrorist operation” in East Ukraine, Major General Vyacheslav Nazarkin, is the brother of, and possibly in cahoots with, a high-ranking Russian army officer.

The fact that the road to Mariuopol is now open is equally worrying for Ukraine. Mariupol was already briefly itself under control of the Russian-backed Donetsk People’s Republic until Ukrainian forces entered the town on June 13. A pro-Kyiv demonstration of several hundred was held in the port city August 28, but the city, like most of the surrounding area, is divided roughly equally between those who support the Russian-backed rebels and those supporting Kyiv. The overriding desire on both sides however is for peace and negotiations between the two sides.

Mariuopol is Ukraine’s second largest port city after Odesa, and plays a vital role in an economy dependent on metallurgy, chemicals and arable exports. It is also in itself home to two massive steelworks, Azovstal and MMK. According to military analysts, the Ukrainian stretch of Azov coast may also have strategic significance for the Kremlin in comprising a land bridge from Russia to the Crimean peninsula, annexed by Russian in March, but currently only accessible for Russia by sea or air.

People are starting to leave the seaside holiday villages along the Azov coast fearing the advance of Donetsk People’s Republic, but many have nowhere to go – a large number are forced holidaymakers who have found cheap accommodation by the seaside after fleeing their homes for the seaside in Luhansk or Donetsk. “We have no idea where we can go now,” says Dmitry Kolesnichuk, 46, a building worker from Luhansk, renting accommodation in Bezimmine with this wife and children.

As Russian-backed rebels encircle government forces in east Ukraine, Russian President Vladimir Putin has called on Kyiv to start talks with the rebels over “statehood” for a territory in “south and east Ukraine” that he refers to as “Novorossiya.”

Ukrainian forces fighting in East Ukraine have suffered their worst setback since the start of the war in April, with thousands of their soldiers now encircled by Russian-backed forces near the major city of Donetsk. The encirclement – by reportedly both regular Russian forces as well as Russian-backed rebels – occurred after Russian-backed forces seized the border town of Novoazovsk on the Azov Sea on August 27, and rapidly moved north to attack from the rear the Ukrainian government forces besieging the major city of Donetsk and satellite towns, in particular the town of Ilovaisk.

Rebel artillery has since blasted at the trapped government fighters, hundreds of whom are reported to have been killed or injured, with many taken prisoner. Talks have taken place between the various sides for a ceasefire to allow Ukrainian forces to escape the encirclement, though reports say that despite being given the promise of safe passage, one Ukraine volunteer battalion claimed to have been shot at by Russian troops, massacring hundreds. “This has been the blackest day for Ukraine since the start of the war,” says Konstantin Mashovets, a defence analyst.

In the town of Volnovakha near Starobesh – the scene of some of the fiercest fighting – pro-Ukrainian forces counted their losses. “My cousin was killed beside me today by sniper fire,” says a fighter from a brigade of traffic police from West Ukrainian Kamenets-Podolsk, fighting on the front line. “He leaves behind two children, the youngest of which is starting school tomorrow… How can I explain to them what has happened?”

Serhiy Dubtsev, a local taxi driver, tells bne: “Yesterday I drove a refrigerator truck to Starobesh to pick up the corpse of a local truck driver who had been hit by shell fire – no one knows from what side. It is like a horror movie there – everywhere smashed trucks, burning houses, corpses, and constantly the crash of shells.”

The commander of the encircled “Donbass” volunteer battalion, who calls himself Semen Semenchenko, lashed out at Ukraine’s defence ministry and army officials from his hospital bed after being wounded. “A tragedy has taken place – and I have every reason to believe that the encirclement of the voluntary battalions is the result of treachery,” he wrote on Facebook.

Defence analyst Mashovets however blames the volunteer battalions for lack of discipline. “The battle was fought in a semi-anarchic manner, two units simply quit their positions without any explanation, and then tried to pretend they were heroes,” he says. “The volunteer units fight according to their own plan.”

Kremlin pressure

Russian President Vladimir Putin appealed to the Russian-backed separatists on August 29 to allow Ukrainian forces to escape the encirclement. “It is clear that the [rebel] militias have achieved serious success in thwarting Kyiv’s military operation… A large number of Ukrainian servicemen… have been encircled. I call on the militia to open a humanitarian corridor… to avoid senseless casualties.”

Putin also appealed to Kyiv to “sit down at the negotiating table with the representatives of Donbass, and to resolve all the accumulated problems exclusively by peaceful means.”

Exploiting the Ukrainian disarray, Putin stepped up the pressure on Kyiv on August 31, saying that any such talks with the Russian-backed rebels should negotiate “statehood” for “the south and east of Ukraine.” Speaking in a set-piece interview on Russia’s First Channel, Putin said Kyiv should “proceed swiftly to substantive talks, not on technical questions but on questions of the political organisation of society and statehood in south and east Ukraine.”

The term “statehood” – with its implications of independence – sent shockwaves through Ukraine. Putin’s press secretary, Dmitry Peskov, later explained that Putin did not mean outright independence for the territory, but some form of autonomy within Ukraine. Peskov said that Putin was “absolutely not” talking about independent statehood. “[Putin was referring to] the inclusive talks to determine mutual relations with the eastern regions – ie. talks within Ukraine relating to the intra-Ukraine structure, in order that the interests of the eastern regions, the interests of Novorossiya [south and east Ukraine], are taken into account – how, to what extent, using what mechanism etc. That is what the president was referring to,” Peskov said.

But Peskov’s use of the term “Novorossiya” – a broad term potentially including the whole of the east and south of Ukraine – further muddied the waters. Putin first used the term in a question and answer session on Russian TV in April, saying that it included “Kharkov, Luhansk, Donetsk, Kherson, Nikolayev and Odessa ” – territory far larger than that currently controlled by the rebels, constituting roughly half of the entire Ukraine.

The rebels of the self-proclaimed “Donetsk People’s Republic” and “Luhansk People’s Republic” however also employ the term to refer to themselves jointly. Putin used the term in his August 29 appeal to the “Militia of Novorossiya” to allow encircled Ukrainian forces to escape, implying it could also denote only the Donbass regions of Donetsk and Luhansk.

In any case, the Kremlin has now made clear the linkage between the ongoing war in Ukraine and the future status of the country’s east: The war will not stop until Kyiv recognizes the rebel structures as negotiating partners, and enters talks on autonomy for East Ukraine.

As top-level talks on Ukraine that began in Minsk continue on September 1, involving Russia, Ukraine and EU officials and member countries, Peskov repeated Kremlin calls for Kyiv to start direct talks with the rebels. “There can be no agreements [of Russia] with [Ukrainian President Petro] Poroshenko about a solution to the conflict because it is not a conflict between Russia and Ukraine, it is an internal Ukrainian conflict,” Peskov said.

As Ukrainian President Petro Poroshenko promises dismissals among top security officials following battlefield defeats, investigators identified two top-ranking sets of brothers that they fear may be sabotaging Ukraine’s “anti-terrorist operation” against pro-Russian separatists.

Poroshenko promised far-reaching personnel changes on September 1 at the very top of Ukraine’s so-called “anti-terrorist operation,” following military setbacks that have seen hundreds of pro-government fighters encircled, many of whom have been killed, wounded or captured.

As bne has reported, Ukrainian volunteer battalions and army draftees regularly allege that the Russian-backed rebels they are fighting have precise information about their movements – pointing to moles in the general staff. Head of the Donbass volunteer battalion, who goes by the name of Semen Semenchenko, blogged on August 29 after his men were entrapped near the Donetsk region town of Ilovaisk that, “the encirclement of the voluntary battalions is the result of treachery.”

Ukrainian investigative NGOs hromadske.tv and Nashi Groshi, in fresh investigations into allegations of treachery in the general staff, have identified two sets of high-ranking brothers holding top commands in Ukraine’s military and security structures – both with strong ties to the previous regime of ousted president Viktor Yanukovych, as well as to Russia. The investigators suspect them, if not of actually passing on information, of impeding the war effort against the Russian-backed rebels – and likely candidates for the exit in any reshuffle at the top.

Startlingly, according to hromadske.tv, deputy head of Ukraine’ s “anti-terrorist operation,” Major General Vyacheslav Nazarkin – commander of the general staff’s special operations department – is the brother of a high-ranking Russian officer, the deputy head of Omsk garrison. Homradske.tv quoted staff officers as saying that Nazarkin is “constantly on the phone” to his brother, relating to him events on the field of battle. Hromadske.tv also reported that special forces units believe Nazarkin passed on information about their operations to the enemy in an episode where 12 men died as a result.

According to homradske.tv, Nazarkin is a longstanding close associate of the chief of the general staff, Viktor Muzhenko, overall head of Ukraine’s “anti-terrorist operation.” Nazarkin has been Muzhenko’s deputy in a number of posts, ever since Muzhenko headed an army base in Zhitomir region of central Ukraine and Nazarkin worked as his deputy.

Nazarkin, promoted to his current position in December after the start of the Euromaidan protests that led to the ousting of Yanukovych, was deeply hostile to the pro-European movement, according to the publications he liked on Russian social network Odnoklassniki. Contacted by homradske.tv by telephone, Nazarkin refused to answer questions about his brother, swore and hung up.

Brothers-in-arms

According to the investigative outfit Nashi Groshi, another band of brothers in high positions could also be sabotaging Ukraine’s war effort. These are the three Litvin brothers, the most famous and oldest of which, Volodymyr Litvin, is head of Ukraine’s parliamentary committee on national security.

During the corrupt era of former president Leonid Kuchma from 1994-2005, Litvin headed the presidential administration, including at the time that opposition journalist Georgy Gongadze was kidnapped and murdered for his opposition to Kuchma. Litvin subsequently served as speaker of parliament until 2012. Since Kuchma exited politics in 2004, Litvin has been an ally of Yanukovych’s Party of Regions, but switched his allegiance to the new pro-European regime when Yanukovych was ousted in February, and thus retained his position as the influential head of the national security committee.

Critics of his activity in the post have since pointed out that, for instance, Litvin in April opposed the recall from foreign assignments of 18 military helicopters leased abroad on operations, but urgently needed at home for use against rebels. Litvin did not respond to attempts to contact him via his parliamentary office.

Both of Litvin’s younger brothers hold top military and security posts, in part dating from when their big brother headed the presidential administration. Both men now hold crucial influence over Ukraine’s security sector.

Mykola Litvin has been head of Ukraine’s state border guards since 2001, when Volodymyr Litvin was chief of staff to then president Kuchma. Mykola’s performance in recent months has attracted considerable criticism. When Russia annexed the Crimean peninsula in March, opponents said his lethargic reaction allowed Russian forces without insignia to seize border patrol boats and bases. “Litvin should be fired immediately for not lifting a finger to save his forces,” MP Gennady Moskal, former governor of Crimea, blogged at the time. Litvin blamed his subordinate, the head of the Crimean division of the border guards who defected to Russia, for the debacle.

Border lapses

Ukraine’s failure to control its border with Russia  – despite consistent claims from the border guards that they were in control – has been its Achilles’ heel in the fight against the Russian-backed insurgency across the Donbass region of eastern Ukraine, as bne has reported. There have been frequent accusations that Ukrainian border guards collaborate with their Russian counterparts in smuggling schemes. According to Nashi Groshi, a number of Litvin’s immediate subordinates have been indicted on corruption charges in recent months.

Petro Litvin, the youngest of the Litvin brothers, is commander of Ukraine’s 8th infantry division, currently deployed on the front line against Russian-backed rebels. Gennady Korban, deputy head of Dnipropetrovsk region and prominent in organising volunteer battalions to fight the rebels, accused Litvin on August 24 of having quit his command and fled the theatre of operations, after fighting intensified. “This was treachery and if we had been in a state of war he [Petro Litvin] would have been brought before a military tribunal,” Korban said in an interview at obzrevatel.com.

Litvin’s division in a statement on August 27 called Korban’s words “a lie”. The statement said that the division had completed its tasks, when it came under attack from land-land rockets fired from Russian territory, which killed five servicemen. “The decision was then taken to move the division’s command to a safer location,” reads the statement.

Confusion reigned on September 3 over hopes for a ceasefire in Ukraine, as President Petro Poroshenko announced on Twitter in the morning that he had reached a ceasefire agreement following a phone call with Russian President Vladimir Putin, though Russian officials later denied the initial wording by Poroshenko and subsquent statements by the Ukrainian president were amended.

The Ukrainian language tweet said that “as a result of a telephone call with the president of Russia, agreement has been reached on a permanent ceasefire in Donbass. Glory to Ukraine!” This tweet from Poroshenko came strangely only minutes after he had tweeted his family’s acceptance of the so-called “ice bucket challenge”, where celebrities have a bucket of cold water poured over them themselves in support of charity.

The strangeness continued when the initial Ukrainian language website announcement of the ceasefire – but not the tweet – was later significantly amended, raising questions as to what, if anything, had been agreed upon.

Poroshenko’s initial website post said that he and President Putin had talked on the phone and the “conversation resulted in an agreement on a permanent ceasefire”. But half an hour later the text of the announcement was amended, replacing “permanent ceasefire” with simply “a ceasefire regime”.The header of both first and second website posts referred to a “complete ceasefire”.

Things became even less clear when Putin’s press secretary, Dmitry Peskov, criticised the wording(s) of Poroshenko’s announcement(s), saying that no agreement as such had been reached between Putin and Poroshenko, “because Russia is not a party to the Ukrainian conflict”, as reported by RIA Novosti. Peskov’s words seemed consistent with the Kremlin’s oft-stated position that it is not a party to the conflict in East Ukraine, and that Kyiv can only negotiate a ceasefire with the rebels themselves, which Kyiv is reluctant to do.

The sticking point appears to be that Ukraine, while agreeing to a ceasefire after a serious military defeat at the end of August, is simultaneously trying to establish linkage between Russia and the pro-Russian rebels fighting in the Donbass region of eastern Ukraine: Ukrainian media quoted a government source as saying that the ceasefire deal as originally stated “implies Russian responsibility for the rebels”. The Kremlin had earlier conceded that talks between Putin and Poroshenko were progressing. Prior to Poroshenko’s announcement, the Kremlin press service reported that “the two heads of state have exchanged thoughts about the first steps needed to be taken for a swift end to the bloodshed”, and noted that the two presidents’ ideas overlap “to a significant degree”.

Putin, who is currently on a visit to Mongolia, then later outlined to news agency Itar Tass by phone Russia’s seven point plan towards regulating the conflict in Donbass and said that Poroshenko and he agree on “most” issues. Putin also told journalists that he hoped implementation of the plan could start on September 5 when talks between Russia, Ukraine and EU leaders resume in Minsk, Belarus.

As outlined to Itar Tass, the seven points of Putin’s plan are: first, for the rebels in Luhansk and Donetsk to cease attacking Ukrainian positions; second, for all Ukrainian forces to withdraw artillery and rocket systems out of range of  the civilian population; third, complete and objective international control and monitoring of a ceasefire; fourth, ending the use of aviation against civilians; fifth, opening of humanitarian relief corridors; sixth, exchange of all prisoners without any prior conditions; and seventh, dispatching brigades of repair workers to start reconstruction work on destroyed infrastructure.

However, even if Poroshenko agrees to Putin’s plan, the Russian-backed Donbass rebels themselves may not, in particular the second point regarding withdrawal of Ukrainian forces out of range of the civilian population. Self-styled deputy prime minister of the  self-proclaimed “Donetsk People’s Republic” (DNR), Vassily Purgin, told RIA Novosti that, “this decision [the ceasefire] was taken without us”, and the ceasefire is “invalid while [Ukraine] armed forces remain on the territory of the [Donetsk People’s] republic. Our condition for a ceasefire remains the withdrawal of Ukrainian forces from the territory of the DNR.”

Says Otilia Dhand of Teneo Intelligence, “Regardless of whether such a deal was agreed, the lack of clear chains of command on both sides and the likely popular backlash in Kyiv mean that any kind of agreement could easily fail even before it is supposed to come into effect. The contradictory announcements around the ceasefire might also undermine Poroshenko’s standing vis-à-vis Putin, with potential negative implications for his popularity at home.”

Peace returns?

Rebels in Donetsk questioned by bne had not heard anything about a ceasefire agreement and had mixed feelings. “We are nonetheless going to drive the Ukrainian forces out and back all the way to Kyiv,” a member of the Vostok battalion, who declined to provide a name, told bne. He nevertheless called the mooted ceasefire agreement a “small victory” for the rebels, and said that his men would observe it if it happened.

The rebels practicing assembling and disassembling machine guns at a base on Donetsk’s Kuibishev Street 44 had also heard nothing of a ceasefire. “Putin can’t decide this for us anyway,” said a senior officer, who refused to give his name.

In fact, ceasefire or no ceasefire, in the city of Donetsk since the start of the week, thing have got a lot quieter, say locals, with far less shelling  in recent weeks as Ukrainian forces moved in and around the city. Bearing witness to the intensity and inaccuracy of the shelling over the previous weeks, buildings on both sides of the rebels’ base on Kuibishev had been shelled – one of them a senior school – but not the base itself.

Ukrainian forces found themselves encircled in August 24-30 during an advance on Donetsk via the town of Ilovaisk, apparently by regular Russian forces encroaching into Ukraine across the border. Since then, the Ukrainian forces have been pulling back from Donetsk, and the shelling of the city has died down, with streets visibly fuller on September 3 than during August, although there have also been reports of rocket fire hitting Donetsk airport.

The same process is observable in Luhansk region, with eyewitnesses questioned by bne describing whole columns of tanks and artillery moving northward from the city. As a result, shelling in the town has largely stopped. On the other hand, rebels, with Russian backing, have been seeking to push home their new advantage and are turning artillery fire against the town of Schastye, some 10 kilometres north of Luhansk, and home to a large concentration of Ukrainian forces. Some reports speak of Russian air strikes against Ukrainian positions around the town, but this could not be independently confirmed.

In the Ukrainian-held town of Volnavakha, halfway between Donetsk and the coastal city of Mariupol, there was relief at the news of the ceasefire. Volnovakha, close to the front line, was only on September 2 readying for an attack by the advancing Russian-backed rebels, with the town’s one supermarket suddenly closing, Ukrainian sappers apparently mining bridges leading into town across the Donetsk-Mariuopol highway, and Ukrainian artillery and tanks appearing in the surrounding countryside. “Thank God,” said a local police officer, hearing of the ceasefire reports. “It is only a half hour’s drive from Starobeshovo [scene of some of the fiercest fighting] to here. But does anyone really control the hotheads who race around in jeeps?” he queried, referring to irregular forces on both sides.

“We’re compeletly in favour [of a ceasefire],” said a member of special police unit Berkut manning an armoured personnel carrier flying the Ukrainian flag in Volnakhava. Asked whether the ceasefire might imply defeat for Ukraine in the war he replied “only time will tell.”

Graham Stack in Berlin for Business New Europe (www.bne.eu)
November 28, 2014

Over the last year, the European Court of Human Rights (ECHR) has found against the Ukrainian state in cases dating back to the murky 1990s and awarded tens of millions of euros in damages to controversial businessmen, raising questions whether it is a suitable adjudicator for such disputes.

On January 23, the EHCR found in favour of Irish aviation firm East/West Alliance Ltd against Ukraine, in a case concerning the violation of the Irish company’s right to “peaceful possession of goods.” Ordering the Ukraine government to pay €5mn in damages to East/West, the court ruled that the Irish firm “has been deprived by the State of its fourteen aircraft in an unlawful and arbitrary manner,” which along with financial loss may also have prompted “feelings of helplessness and frustration” on the part of management, the court ruled.

East/West, according to the case materials, was at the time of its confiscation by the Ukrainian state in 2001 part of Kyiv-based Titan Concern, which was controlled by former Ukrainian MP Anatoly Liovin, and centred around air freight operator ATI.

Anti-arms trafficking groups see Liovin’s ATI in a very different light than does the EHCR, and question whether the damages awarded by a human rights court to Liovin are morally appropriate. Because at the time of the confiscation, ATI was a leading operator of charter flights from Uganda to rebel-held territories in the Democratic Republic of Congo (DRC), according to a report “The Arms Fliers”, co-authored by anti-arms trafficking NGOs IPIS and TransArms in 2011.

The DRC was wracked by a civil war 1998-2002 that was fuelled by Uganda and other neighbours, who sent in arms, fighters and supplies by air, and brought out precious minerals. The war cost an estimated 3m lives. Thus ATI was close to the scene of horrendous human rights abuses. “We believe that no matter what you transported, aiding and supporting or exploiting a military invasion bears a certain level of responsibility,” TransArms’ Sergio Finardi, one of the authors of the “Arms Flyers” report, tells bne.

Liovin denied any involvement in illegal arms cargoes or the transport of looted goods, in an interview with bne at the time when he applied to have the ECHR hear his case. “We carried mostly humanitarian cargoes and food,” he said.

But in 2002, Liovin was the subject of an investigation by Ukraine’s parliamentary anti-organised crime committee, headed by renowned mafia-buster Hrihory Omelchenko. The investigation, seen by bne IntelliNews in the archives of the Verkhovna Rada, detailed payments made to East/West Alliance 1999-2001 from a slush fund close to then president Leonid Kuchma, for arms cargoes transported by Liovin for state arms trader Ukrspetseksport.

Tax problems

The tax case brought by Ukraine in 2001 against East/West Alliance and ATI quickly led to the closure of ATI, Liovin told bne. “We had operations ranging from Azerbaijan to Mexico,” he said, “and all this was lost because of the government.”

The case brought by Ukraine’s tax service in 2001 focused on the relationship between the offshore company East/West– on paper the owner of ATI’s planes, but lacking any office or staff – and ATI, which leased its fleet from the Irish company. Tax inspectors claimed this lease agreement was a fiction that allowed ATI to evade taxes by transferring profits to the Irish company. The tax authorities confiscated planes belonging to East/West based in Ukraine and operated by ATI, along with ownership documents for the planes found on the premises of ATI.

Liovin fought his corner, getting elected to parliament in 2002. He became deputy head of the parliamentary transport committee, through which he headed a parliamentary investigation into a supposed ‘crisis in the aviation industry’ that authorised him to seal the confiscated aircraft, according to the case materials, thus delaying their sale. During this time he also won a series of Ukrainian court decisions backing his case that the planes should be returned. Ukraine failed to implement those decisions, allowing him to appeal to the ECHR.

But even after the closure of ATI, during the period of the application to the ECHR Liovin’s planes continued to arouse controversy. In 2009, a report from the UN expert group on the DRC detailed that Liovin supplied three transport aircraft to the DRC army in 2008, with expired service lives, faulty paperwork and without notifying the UN as required. Liovin laid the blame elsewhere. “This is the fault of Antonov design bureau [the plane’s manufacturer] for utterly failing to provide adequate after-sales service,” he said.

Yet in 2013, a former director of Kherson airport, controlled by Liovin, was sentenced to jail for receiving an undeclared militarised An-26 transport plane flown in from Uzbekistan for repairs, and owned by a Liovin company registered in the United Arab Emirates.

Liovin claimed damages of over $166mn against Ukraine, making the €5mn award seem a token payment. But one dissenting opinion – regarding only the damages – queried the award. “There are elements in the file which suggest that the amount of €5mn may be much higher than the total price paid by the applicant company for the aircraft in 1999 and 2000,” ECHR Judge Paul Lemmens wrote.

“We won the case with a unanimous decision – and it couldn’t have been any other way. The damages awarded as they stand are purely symbolic,” Liovin tells bne in an email.

Ukraine’s Ministry of Justice tells bne that: “We will do everything we can to transfer this money in the allotted time.”

Virtual economy

The damages given to East/West Alliance are dwarfed by the ECHR’s award of €27mn in September 2013 to the Ukrainian company Agrokompleks – the biggest ever award by the court to a Ukrainian plaintiff, and one of the biggest in its history.

“The whole proceedings [of the Ukrainian state] with this company were openly unjust – there were facts shocking in their unconcealed absence of respect to the courts on the part of the highest officials in the state,” Ganna Yudkivska, Ukraine’s judge on the ECHR, commented to the press in 2013.

“For instance,” Yudivska explained, “the case materials include a moment when then president of Ukraine appealed to the head of the Supreme Arbitration Court and indicated how the case should be decided – and the chairman of the court gave a written response that this had been performed.”

The €27mn award in 2013 refers to a contract drawn up originally between two Soviet enterprises signed two weeks before Ukraine even became independent, on December 18, 1991, with subsequent additional contracts.

On the plaintiff side was Agrokompleks, “a private company based in Ukraine which dealt, at the time of the events, with Russian companies involved in barter trade operations, such as exchanging Ukrainian raw foodstuffs for Russian crude oil and further sale of finished oil products,” according to a statement by the ECHR in 2011.

On the other was the Ukrainian state-owned Lynos, which operated the Lissichansk oil refinery, the largest in the country at the time. It ran up debts in the first half of the 1990s towards Agrokompleks and other suppliers for crude oil it processed. The situation was exacerbated by direct orders from top officials to the refinery to channel fuel to farmers as a social measure, despite the fuel being pledged as payment for crude supplies from Agrokompleks. It was these direct orders that strengthened the Agrokompleks case against Ukraine.

In the context of the time, the dispute was less shocking: the post-Soviet aftermath was shaped by what US economist Clifford Gaddy called the “virtual economy,” based on “an illusion about almost every important parameter.”

Cash-free barter relations and payment arrears were the norm, and traders often supplied inputs to insolvent state-owned companies, growing the debts as a tool to take over the plants. Agrokompleks was such an intermediary in import-export barter chains.

The history of the Lynos’ debt to Agrokompleks is thus also a history of struggle for control over Ukraine’s strategically crucial refinery, accounting for 35% of Ukraine’s fuel supply at the time. While the €27mn paid out to Agrokompleks in 2013 may have been record compensation for a Ukrainian case, it was only a fraction of the total €180mn in debt claimed by Agrokompleks, but this debt again was a fraction of the value of the refinery over which Agrokompleks sought control.

Agrokompleks founded the committee of Lynos creditors in 1997. But successive Ukrainian governments accused Agrokompleks of inflating the size of the Lynos debt by as much as ten-fold, and fought off the privatisation bid. In 2001, the government finally sold Lynos to the Russian oil company TNK, which was capable of supplying crude to the refinery on a stable basis. Agrokompleks then filed its claim with the ECHR.

Pyrrhic victory

Agrokompleks’ claim against Ukraine is also challenged by arguments that the debt was not Agrokompleks’ to claim: the company simply lucked out, as the last link in a chain of barter transactions supplying crude oil to the refinery, and receiving payment in kind, such as fuel and food products.

A Russian oil trading firm from the early 1990s, Gefes International, claims that it supplied crude oil to Agrokompleks for the Lynos refinery. “That was our oil which was to be processed to fuel and returned to us, and Agrokompleks was nothing but a go-between,” head of Gefes International, Evgenny Fedosov, tells bne.

The driving force behind Agrokompleks was prominent Ukrainian businessman Oleksandr Galkin. After losing out on privatising the Lissichansk refinery, Galkin focused on growing his packaging business, Ukrplastic, based on a privatised chemicals plant. Galkin developed a flourishing business, gaining a good reputation for enlightened entrepreneurialism and technological modernisation, including funding from the European Bank for Reconstruction and Development.

In 2005, Gefes International brought a lawsuit against Agrokompleks over the oil supplied to Lynos, and won damages of around $20mn, but the decision was later overturned, and finally thrown out in a series of decisions in 2013-14. “The money Galkin claimed from Ukraine, was money he owed to us, because that oil was ours,” Fedosov told bne, calling Galkin “a fraudster” who had once tried to have him arrested in Kyiv. In an earlier interview, Fedosov claimed Galkin had bought Ukrplastic “with other people’s money.”

Fedosov is currently head of Smolenergy, an oil refining company linked to a “pump and dump” stock market scam in the US in 2007, which led to prosecutions in Germany.

In the 1990s, Fedosov’s Gefes International was linked to Ingush businessman Mikhail Gutseriev, who ran Russian state-owned oil producer Slavneft. Fedosov said he financed the oil deal with a loan from Sayan Bank, a regional Russian linked to the controversial Israeli traders Mikhail and Lev Chorny, which was closed for money laundering in 1996.

Other traders supplied crude oil to Lynos in the first half of the 1990s, although it is not known if they worked with Agrokompleks. In 1993, the Vienna-based company Nordex GmbH – reported by the CIA at the time to be an organised crime syndicate – secured a massive Russian-Ukrainian barter deal to supply Lynos with crude oil, temporarily even taking office space in a Ukrainian government building.

Mysterious death

Galkin, while celebrating the ECHR courtroom victory in 2011, did not live to see the final decision on damages in October 2013.

bne can reveal that on May 10, 2013 he was crushed under a 38-tonne truck whilst strolling with his common-law wife and co-owner of Agrokompleks, in the picturesque village of Roquebrune-Cap-Martin on France’s Cote d’Azure. He died after two hours of futile attempts to extract him from under the wheels. His death was subsequently hushed up in Ukraine, where he is still featured on the Ukrplastic website as president.

According to eyewitness accounts cited in press reports from France, which referred to Galkin only as a “Russian tourist,” the truck that hit him was registered in the former Soviet state of Lithuania and it was manoeuvring dangerously, paying no heed to honking cars. Police on the scene told the press they would charge the driver with manslaughter.

Was Galkin struck down by the Russian mob, motivated by the ECHR damages and debts from the 1990s? “A criminal investigation is underway under the offices of a judge… Secrecy of investigation forbids me to say more,” the state prosecutor for Nice, Eric Bedos, tells bne.

Agrokompleks and Ukrplastic itself have said nothing about Galkin’s death. “We do not comment on these topics,” an Ukrplastic spokesperson tells bne, referring to the circumstances of Galkin’s death and the Agrokompleks court cases. “Oleksandr Galkin is featured there as the company’s founder.” Galkin’s widow, and new Ukrplastic CEO, Irina Mirochnik, also declined to comment.

Fedosov too has since adopted a civil tone. While acknowledging that investigators had enquired about his relations with Galkin, he says: “I don’t have a bad word to say about Sasha [Oleksandr] Galkin… But he had a lot of enemies, because he had a lot of debts.”

Poor judge

Inevitably, such cases have raised questions about the ECHR’s adjudication of post-Soviet business-state relations, which cannot always be readily translated into Western categories.

International courts such as the ECHR are “exposed to the risk of fraud and money laundering,” and should do “at least a cursory review of entities and beneficiaries with high money laundering risk, before awarding damages,” believes money-laundering expert Saskia Rietbroek, of AML Services International.

“Awards paid out to companies with unknown beneficiaries, in countries with shocking levels of corruption such as Ukraine, are vulnerable to money laundering because they may be reinvested in criminal enterprises,” Rietbroek warns.