5 Min Read
* Moscow "pays pensions, public sector wages"
* Ex-official says rebels rely on Moscow's cash
* Moscow denies giving material aid to rebels
By Anton Zverev
MOSCOW, Oct 5 (Reuters) - A former senior official from breakaway eastern Ukraine said Russia directly finances pensions and public sector salaries in the two pro-Russian regions there.
The assertion by former separatist minister Alexander Khodakovsky contradicts Moscow, which says it does not bankroll the separatist administration and, as a consequence, cannot influence the rebels to make peace with Kiev.
Khodakovsky was State Security Minister and then Security Council Secretary in the self-proclaimed Donetsk People's Republic before he was fired this year following a dispute with the separatist leader.
Asked in an interview with Reuters if Russia was funding pensions and state wages in the Donbass, made up of Donetsk and neighbouring Luhansk, Khodakovsky said: "Yes. These are the main areas. The budget sector and pensions, which need to be covered as a priority."
"Without outside help, it's impossible to sustain the territory even if you have the most effective tax-raising system. The level of help from Russia exceeds the amounts that we collect within the territory," he said in a Moscow hotel.
A spokeswoman for the Russian finance ministry reiterated on Tuesday that the federal budget made no payments for pensions or public sector wages in the Donbass.
Russian President Vladimir Putin is under international pressure to persuade the rebels to implement their commitments under a peace deal for eastern Ukraine, where more than 9,500 people have been killed since spring 2014.
Moscow, which blames the pro-Western administration in Ukraine's capital, Kiev, for the lack of progress in the deal, says it is just a broker in the process and cannot force compliance from the separatists, who took up arms after Russia annexed Crimea from Ukraine.
Kiev has stopped paying pensions and public sector wages to people registered as living in separatist-controlled areas and much of the heavy industry on which the Donbass depends for revenue has stopped operating.
Russian official data contains no information about public money being transferred to eastern Ukraine. About a fifth of budget spending is designated secret.
A spokesman for the finance ministry in the Donetsk separatist administration said sources of financing could not be disclosed for security reasons. The finance ministry in the Luhansk People's Republic, could not be reached for comment.
Khodakovsky is one of the most outspoken of the separatist leaders who declared the mainly Russian-speaking regions independent of Kiev after mass protests overthrew Ukraine's pro-Russian former president.
In July 2014, he told Reuters in an interview that the separatists had a Buk anti-aircraft missile of the type which, according to a report released last week by a team of international investigators, shot down Malaysian Airlines flight MH17, killing all 298 people on board.
He did not confirm the rebels had used the missile and said that if they had, it would only have been because Ukraine had provoked them. He remained loyal to the rebels and subsequently held senior roles in the separatist administration.
Khodakovsky acknowledged disagreements with the rebel leadership but gave no indication he had lost interest in the separatist cause.
He said the cost to Moscow would only rise because of the dwindling capacity of the two regions to support themselves and that the only solution was for them to split completely from Ukraine and join Russia.
Between them the Donetsk and Luhansk regions had a combined population before the separatist uprising of 6.55 million, according to Ukrainian state statistics, or roughly the same as the population of Russia's second city St Petersburg and the surrounding region.
Data published by the Donetsk separatists shows that since March 2015 the total cost of pensions and welfare benefits in the region has been about $750 million. That figure does not include public sector wages, or any spending in Luhansk.
That kind of expenditure is small when set against Russia's projected budget spending for this year of about $250 billion, but money is so tight that Moscow is planning to increase borrowing and has introduced unpopular measures like a pension freeze for people who work beyond retirement age.
Ukraine and Western governments say Russia has also provided military help to the separatists, including sending troops and hardware into eastern Ukraine to fight Kiev's forces.
The Kremlin denies sending in regular forces, although Putin acknowledged last year that Russia did have people in Ukraine "who were carrying out certain tasks, including in the military sphere". ($1 = 62.5132 roubles) (Additional reporting by Pavel Polityuk in KIEV and Darya Korsunskaya in MOSCOW; Editing by Christian Lowe and Philippa Fletcher)