Weekly Bulletin:
Potemkin villages in the occupied territories
April 17-21, 2023
  • Nikolai Petrov

    Independent scholar
Nikolai Petrov observes that the four Ukrainian regions partially occupied by Russia have emerged as a political priority for the Kremlin. The government has unveiled big plans to develop them, but development, Petrov claims, is incompatible with occupation.
In the past few weeks, amid a lack of military successes in Ukraine, the official news has focused less on the war and more on the rebuilding of the occupied territories, as if the war had already ended.

Last week, Putin made an “Easter” trip to the Donbas and repeatedly mentioned it at a meeting with members of the government on April 19.

During the meeting, Deputy Prime Minister Marat Khusnullin announced that the drafting of a program for the socio-economic development of Russia’s new regions had been completed. In reality, as will be discussed below, the program can hardly be called ready.

On the same day, in the first reading the Duma passed a package of laws creating a free economic zone on the territory of the four occupied Ukrainian regions. The participation of Russian regions in the rebuilding of the annexed territories has been a constant theme at Putin’s meetings with governors.

The public part of Putin’s meeting with the government largely focused on what is being done and will be done for the occupied regions. Putin and Khusnullin spoke on the issue, as did Minister of Agriculture Dmitri Patrushev and Deputy Prime Minister Tatyana Golikova.

Since October 2022, the Ministry of Construction has been responsible for the socio-economic development of Crimea and Sevastopol and the territories annexed in 2022. Having visited the region last week (agents.media journalists concluded that in fact Putin had gone before Easter), Putin appeared to be rather unhappy with the results. This can be seen in his opening remarks at the meeting with the government, where he expressed dissatisfaction with the fact that the government had delayed the preparation of the development program.

In his remarks, Khusnullin was uncharacteristically very laconic about the program, which he said includes more than 300 measures and has been coordinated with all 21 federal executive agencies. Judging by his tone, Putin likely expressed his displeasure in private.

What’s in the program

In December last year, Putin instructed the government to prepare by the end of the first quarter 2023 a special program for the socio-economic development of the new regions so that by 2030 they would reach the national average for living standards, infrastructure and development. So far, with the exception of the construction of a water pipeline from Rostov Region to the Donbas, the successes have been mainly symbolic – like, say, moving the regions onto Moscow time (from April 14).

According to Khusnullin, the program is very ambitious and targets the development of industry and banking in the new regions, as well as the construction of various infrastructure. Its goals for 2023 include supplying heat to Mariupol and building about 600-700 km of roads in the new territories. Khusnullin has claimed that about 8,000 pieces of infrastructure were already built and/or repaired there last year.

The government announced that the drafting of the program had been “completed,” though it does not yet exist in ready form – despite the fact that it was planned to be approved before March 31. Moreover, there are no clearly defined goals – apart from general statements that by 2030 the quality of life should be raised to the national average.

The reason is that there is not and cannot be a clear strategy due to the incompatibility of development, on the one hand, and maintaining control over the occupied territories, on the other. In addition, the government is increasingly cash-strapped: note that at the meeting, when Putin recommended improving the situation at a certain border checkpoint, he emphasized that it would not cost the government serious money.

Importantly, the Ministry of Construction – responsible for the development of the new regions – is not the most influential agency even inside Mishustin’s civilian government, while in dealings with the military, which is in the occupied regions and makes many decisions there, the ministry is quite weak.

Free economic zone

To support the new regions, a free economic zone was announced back in October last year. At the end of March, the government sent the relevant package of bills to the Duma, and on April 19 the bills on a free economic zone (FEZ) in the Donetsk and Lugansk people’s republics and Zaporozhye and Kherson regions were passed in the first reading.

Accordingly, the FEZ should launch on January 1, 2024, and last at least through 2050. FEZ businesses would pay no profit or property tax, while land located on the territory of the FEZ would be exempted from the land tax for three years from the date of registration of the relevant property. In addition, a simplified procedure for urban development and land use is to be put in place.

Note that there are currently 50 similar, special (free) economic zones in Russia, including 31 industrial and manufacturing zones; however, the Accounts Chamber concluded in 2020 that only five of them were actually effective.

At the end of 2022, Rosstat reported growth in fixed investment by enterprises of 4.6% in real terms, about half the rate versus a year earlier. Yet the share of this investment that came from the budget was overwhelming – for example, it was 82.6% in Sevastopol, which registered a 50% increase in investment year-over-year.

The regions and the republics

It should be noted that external administration is being practiced in relation to the annexed regions. They are not independent actors. Even before the incorporation of the DNR and LNR in June 2022, Moscow had sent appointees there – to head the DNR government and to serve as the deputy head of the LNR government.

In mid-March of this year, having been in those offices for less than a year, the appointees were sent by Putin to be the interim governors of Chukotka and Orenburg region, respectively, and new officials were appointed to take their places in the DNR and LNR. This rotational model seems likely to be used moving forward too.

However, there is a big difference between the two “people’s” republics, the governments of which have existed more or less since 2014 (at the meeting, Putin referred to the LNR as Lugansk Region, despite the fact that the LNR, like the DNR, has been around for nine years and is rather well established in terms of administration), and the two occupied chunks of Zaporozhye and Kherson, the capitals of which (Zaporizhzhia and Kherson) are controlled by Kyiv. (Melitopol has been named the capital of the occupied Zaporozhye Region, and Genichesk that of Kherson Region.)

In the “people’s” republics, the system of government that has been built over nine years is now beginning to be dismantled, while an administrative system copied from Russia is being established. Meanwhile, in the two annexed regions, the system of power is being formed on the basis of the military-civilian administrations.

The result of what has turned into a protracted war is annexed chunks of four Ukrainian regions. Currently, these regions have become a political priority for the Kremlin. However, they are of no economic importance for Russia. To rebuild their economies, the war must end and resources must be poured in, though neither condition is likely to emerge in the foreseeable future. Thus, the traditional option of a Potemkin village has been chosen, with Khusnullin diligently building it and Putin criticizing it suddenly for not being real.
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