Ukraine to halt budget subsidies to eastern territories controlled by pro-Russian separatists

KIEV, Ukraine – Ukraine will freeze budget subsidies for the eastern territories controlled by pro-Russian separatists, the prime minister announced Wednesday — a move that could worsen the already grievous economic conditions there.

Aging industrial operations in Ukraine’s economically depressed but coal-rich east have for many years relied heavily on state subsidies.

Prime Minister Arseniy Yatsenyuk told a government meeting that $2.6 billion in state support will be held back from rebel-held areas in the Donetsk and Luhansk regions. He did not say what time period that subsidy figure represented.

Yatsenyuk said the payment of pensions and government benefits to residents in conflict-stricken parts of the east will resume after separatist forces have surrendered there. The government has not been paying pensions in those areas for several months, but has said back payments will be paid to recipients when the rebels move out.

Ukraine’s government has blamed Russia for fomenting the last six months of fighting between government forces and separatist fighters in the east. Moscow denies that it supplies rebel fighters with either manpower or military equipment.

Yatsenyuk said suspending subsidies to the rebel-occupied areas would cut off a vital source of funding for rebel forces.

“The money we pay into those territories today does not get to the people but is stolen by Russian bandits, and this would be nothing but directly supporting Russian terrorism,” he said.

The regions are among the most economically depressed in Ukraine and living standards have slipped further since hostilities erupted.

Yatsenyuk said gas and electricity from government-held regions would continue to be supplied to rebel zones.

“Those are our citizens and the government will not allow these people to freeze, as this would lead to a humanitarian catastrophe,” he said.

A cease-fire was agreed upon in early September but fighting has still continued. More than 4,000 people have been killed in the region since the conflict began in April, according to UN estimates.

Deputy Defence Minister Petro Mekhed was quoted as saying Wednesday that military intelligence had noted a recent increase in the number of Russian troops in the Donetsk and Luhansk regions.

Fearing an imminent escalation in hostilities, Ukrainian President Petro Poroshenko said additional troops are being deployed to the east to defend cities still under government control against any possible incursions.

Ukraine and Western governments have heaped criticism on Sunday’s rebel-organized election, saying it violated the September truce. On Tuesday, the separatist leader in the Donetsk region, Alexander Zakharchenko, 38, was sworn in as head of a self-declared secessionist territory.

German Chancellor Angela Merkel indicated Wednesday that more rebel leaders in eastern Ukraine could be added to lists of those targeted by European Union sanctions.

Speaking to reporters in Paris, U.S. Secretary of State John Kerry said he urged Ukraine President Petro Poroshenko this week to “continue to take the high road” with the Minsk agreement, “and not to fall into the possibility invited by measures taken by Russia to engage in a tit-for-tat process.”

He said Poroshenko agreed, and “could not have been more clear about his determination to maintain that high moral ground.”

The main rebel stronghold of Donetsk saw regular shelling throughout Wednesday. Fighting in the city has been focused around the airport, which remains in the hands of government troops.

Two teenagers were killed when a school was hit by shelling in a village outside the main rebel stronghold of Donetsk.

The charitable foundation of billionaire Rinat Akhmetov, which paid to refurbish the school last year, said in a statement that the shell struck while children were playing in the schoolyard. Four children were injured in the incident, the foundation said.

Writing on his Twitter account, Ukraine’s Foreign Minister Pavlo Klimkin urged international observers monitoring the cease-fire to carry out an immediate investigation into the incident.