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Russia is marking the one-year anniversary of the annexation of Crimea. Perhaps a more important milestone, however, came much earlier, when the peninsula’s authorities promised to end the process of nationalizing Crimean enterprises by March 1, 2015. Although it began with state-owned assets, the nationalization project in Crimea quickly consumed Ukrainian and Russian private property. One year on, every significant Crimean enterprise is in the hands of local authorities, and there is little hope for privatization.
Even before the March 2014 referendum on joining Russia, Crimea’s self-appointed authorities had announced their plans to nationalize all of Ukraine’s state-owned property on the peninsula. Initially, the list of assets was compiled on the basis of their economic attractiveness and the size of their workforce. In other words, the local authorities were using nationalization to demonstrate that Crimea would not become a headache for Russia but rather a net contributor to the country’s economic development.
Early targets included Ukraine’s Chernomornaftogaz, the oil and gas company that was taken over by the Crimean state-run enterprise bearing the same name. Chernomornaftogaz was the first company that Crimean authorities mentioned in the context of nationalization. On March 12, 2014, just four days before the referendum on joining Russia, then First Deputy Prime Minister of Crimea Ruslan Temirgaliyev announced the decision to replace the company’s owners.
A legendary soviet-era summer camp Artek and the Massandra, Novy Svet, and Magarch vineyards figured prominently among the other assets that Crimea authorities thought they could use to prove the peninsula’s value to Russia. In effect, the region’s leader, Sergey Aksenov treated them as an expensive dowry. Aksenov also treated the Crimean vacation homes of Ukrainian government officials as logical targets for nationalization, giving the best ones to the Russian Presidential Administration.
The other half of the nationalization project involved subsidized state-run enterprises. The new Crimean authorities nationalized these enterprises in order to be able to fulfill social obligations and pay salaries to the companies’ personnel.
Crimean Railroads, which for the most part lost its ability to operate by December 2014 after Ukraine suspended rail transportation to the peninsula, is a good example of this type of nationalization. First, the company started laying off its workers. Then in November, many of the remaining personnel started working part time. Some employees have started working on temporary assignments for Russian state-owned railroad company Russian Railway (RZhD) in neighboring Krasnodar oblast.
Crimean public colleges found themselves in a similar situation. The largest ones were incorporated into the Crimean Federal University (CFU). CFU’s main campus was forced to lay off its employees, forcing professors at other campuses to shoulder an increased teaching load.
The employees of nationalized state-run enterprises resent these changes, but the local authorities portray them as an inevitability driven by political exigencies, the economic crisis, Western sanctions, and other factors.
On the whole, the nationalization of Ukrainian state property was expected. The new Crimean leaders’ decision to nationalize portions of the private sphere, however, raises more far-reaching questions. In July 2014, the Crimean parliament adopted a regional law on takeovers of strategic facilities in Crimea, thus effectively legalizing forced expropriation.
It was first thought that only businesses that supply people with electricity and water would be named “strategically important facilities,” and the law would merely prevent owners from playing political games.
But in reality, this legislation was used for achieving a broader range of goals, including political ones. Last September the Crimean authorities took control of the Yalta Film Studio by making a symbolic payment of 1.3 million hryvnias (approximately 100,000 dollars) to its owners (who happened to be Russian citizens) for 30 hectares of land in the center of Yalta.
On September 10, Crimea’s new leaders with the help of regional militias nationalized Krymavtotrans, a passenger transportation company, with sixty-two bus terminals and the company headquarters. As was case with the Yalta Film Studio, the company was owned by Russian citizens, which is probably why the owners received limited compensation for their forfeited property.
Ukrainian oligarchs were not afforded the same courtesy. In November, the Crimean parliament supported a government proposal to nationalize Krymkhleb, a bread company belonging to Ukrainian businessman and former MP Aleksandr Leschinsky that controlled a third of Crimea’s bread market. The authorities used numerous financial irregularities to justify the takeover, including allegations—denied by the owner—that the company had indirectly financed the Ukrainian government military operation in the Donbas. This was the first large-scale attempt by regional officials to legitimate the expropriation of private property belonging to Ukrainian citizens or entities. It also marked the first instance of relying on a written appeal by company employees to the head of Crimea as the justification to nationalize a business.
Perhaps most interestingly, the Crimean government has used nationalization to target political enemies. The clearest example is the targeting of Igor Kolomoisky’s PrivatBank. The bank was accused of blocking the accounts of its Crimean clients and financing the war in the Donbas. Kolomoisky’s conflicts with local authorities were also cited. On September 3, the bank’s assets were nationalized and later auctioned off to return the PrivatBank account holders their funds. The bank’s branches were then taken over by RNKB, the region’s main bank.
The same fate has befallen the Ayvazovskoye park and palace complex, which belonged to Sergey Taruta, another high-profile Ukrainian oligarch and the former governor of the Donetsk region. The Crimean branch of Ukrtelecom, Ukraine’s largest landline telephone service provider, which used to belong to the company run by Akhmetov, came under the control of Crimean authorities this February. (A letter from employees was used to justify the seizure).
Despite being subsumed by the state, the bulk of the region’s nationalized assets have actually ended up in the hands of Crimean leader Sergey Aksenov. According to the August 8, 2014 law on the administration and disposition of state-owned property in the Republic of Crimea, the head of the republic determines which regional executive body will administer state-owned property and personally controls its work; he may also reorganize or liquidate this structure if necessary.
Just a small portion of Crimean assets was given to the federal government. These include the Presidential Administration received State Dacha No. 4 (which is perhaps better as the Yusupov Palace and the headquarters of the Soviet delegation at the 1945 Yalta Conference), the Massandra vineyard, and several resorts and summer camps.
A reversal of ownership changes for seized properties in Crimea appears unlikely in the near future. Having taken property away from the Ukrainian state and unreliable Ukrainian oligarchs, the new Crimean authorities aren’t rushing to hand it over to someone else. Crimean Communication Minister Dmitry Polonsky recently stated that the privatization of strategically important local enterprises is out of the question. While legislation does allow for privatization in the future, it will likely only concern the assets that are of significant interest to Russian investors. At this time, however, no such property exists.
Despite all these seizures, Crimean leaders keep talking about the peninsula’s economic prospects and its favorable business climate. Russian investors are supposed to flood the region with new production facilities, create an Eastern European version of Silicon Valley, and make every single Crimean resident happy.
But it’s hard to picture why private sector players will be willing to invest in the region. After all, at any moment, employees might demand that the business be nationalized, and the authorities can, at the drop of a hat, add it to the list of “strategic” and “culturally important” sites and seize it for little or no compensation.
This publication originally appeared in Russian.
Andrey Sambros is a political analyst and an independent journalist from Simferopol
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