February 16, 2017 / 4:20 PM / 7 months ago

Ukraine faces energy crisis after blockade cuts off coal supply

KIEV (Reuters) - Ukrainian authorities vowed on Thursday to restore coal supply from the separatist-held Donbass and warned that a blockade by activists could deprive millions of heating and electricity, harm the steel industry and cost the country some $2 billion.

Ukrainian President Petro Poroshenko said the blocking of a railway link in the east by opposition lawmakers and army veterans who fought against separatist factions was a “destabilising factor”.

The European Union and the United States called for action to prevent “a major energy crisis”.

“Those responsible for the blockade must cease their actions and the authorities must address this problem as a matter of priority,” an EU spokesman said.

“We are concerned by the current disruption to the coal supply from the non-government-controlled areas of Donetsk and Luhansk and its potential impact on Ukraine’s energy system, the Ukrainian economy, and the Ukrainian people”, the U.S. Embassy to Ukraine said in a statement.

It called for a short-term solution to the crisis along with a “much-needed reforms in the energy sector”.

Ukraine’s power stations and steel mills buy coal produced by Ukrainian companies in separatist-held territory.

Activists behind the blockade call for a halt in this trade. They argue it enriches the oligarchs and fuels the conflict that broke out three years ago, after a pro-European uprising in Kiev ousted a Moscow-backed president. About 10,000 have been killed since.

“The blockade will continue! All threats by the corrupt authorities indicate that we are on the right path, and give us the strength and inspiration to block all remaining ways of financing terrorism and occupiers,” the blockade organisers said in a Facebook post on Thursday.

The government is gearing up for the possible energy crisis, and Prime Minister Vladimir Groisman said on Wednesday he did not rule out planned rolling blackouts during peak hours.

Poroshenko called a meeting of the National Security and Defence Council on Thursday.

“We will find the best way to lift the blockade,” he said.

“If the blockade is not lifted, the Ukrainian steel industry could lose up to 300,000 jobs. And the state will lose up to $2 billion (£1.60 billion) in foreign exchange earnings.”

Hampering a key Ukrainian industry’s export revenues will destabilise the currency market and create additional inflationary pressure, Poroshenko told the Security Council meeting.

Ukraine just emerged from two years of recession following the 2014 annexation of Crimea and the outbreak of fighting against pro-Russian separatists in the east, but still depends on financial backing from the IMF and Western donors.

Additional reporting by Gabriela Baczynska in Brussels; Writing by Alexei Kalmykov; Editing by Alison Williams

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