Ukraine split to spell economic trouble for Crimea

Beyond Sunday's referendum on whether Crimea should join Russia, one big question looms: how viable will the disputed peninsula be if it decides to split from Ukraine? A week before the vote, a senior Russian lawmaker said Moscow was ready to provide more than $1 billion to the strategic Black Sea region, which is now under de facto Russian control. Ukraine's Finance Minister Oleksandr Shlapak meanwhile vowed that Kiev will continue to "cover all budgetary expenditures in Crimea... Crimea will be financed as normal." All this money talk is indicative of the peninsula's reliance on outside help to survive. A rugged peninsula of two million people in Ukraine's south, slightly smaller than Belgium, Crimea gets 85 percent of its water supplies and 82 percent of its electricity from the mainland, said Mihaylo Gonchar, an energy expert with Kiev's Nomos Centre. State-owned company Chornomornaftogaz extracts 1.6 billion cubic metres of natural gas from the Black Sea every year, but this just about covers Crimea's needs, he told AFP. This will pose a major problem if Russia does take over the strategic region, the analyst warned. "Russia will not be able to provide short-term compensation for Ukrainian resources to the Crimean peninsula because infrastructure connections do not exist between Russia and Crimea," he said. A bridge project that has long been in the planning stages will not be ready for years. "There will be bad consequences for Crimeans in any case" if the peninsula is annexed by Russia, Gonchar warned. - Where are the tourists? - Located on the Black Sea, a prime holiday destination under the Soviet Union, Crimea's economy still relies heavily on tourism, with resorts such as Yalta and Evpatoria attracting crowds in the summer. But with Russian soldiers and warships now in place of sun-seeking tourists and cruise ships, the resorts are already looking at a loss-heavy season. "A lot of people have decided not to go to Crimea on vacation because it's dangerous, it's not a safe place," said Sevgil Musaeva, a well-known Ukrainian economic journalist.   "So a lot of people will go to Turkey or Sochi," the Russian Olympic resort that is currently hosting the Paralympic Games even as the threat of war looms across the vast sea. "Last year there were more than two million tourists in Crimea, what will it be this year? I can't imagine," Musaeva said. Companies, which may lose clients if not their entire business if Crimea switches allegiance from Ukraine to Russia, were not yet panicked in her opinion. "They're just shocked by this whole situation, they can't believe it. Yesterday, it was Ukrainian territory, now there are a lot of soldiers near offices, a lot of Russian flags on city halls, on schools." Oleksiy Skoryk, head of the Development Fund for Crimea, was much more pessimistic, warning that the peninsula's already difficult economic situation would only worsen as the crisis escalates. - A lost territory - Aside from tourism, agriculture is a major driver of the local economy but "(it) is very dependent on the water supply and all water supply is closely connected to the mainland, so there's a lot of fear that it might be cut if the situation worsens," Skoryk said. "It's ridiculous to say that there will be any investment in Crimea if unrest continues. Crimea is a lost territory for economic development." On Wednesday, Crimea's self-appointed leaders warned they would start taking over Ukrainian state-owned companies, although they reassured private firms they would be left untouched. Companies like Chornomornaftogaz and local segments of national firms like the Ukrzaliznytsya railway company "will be transferred into Crimean ownership very soon", regional deputy premier Rustam Temirgaliyev was quoted as saying by Interfax news agency. Ukraine pours about 2.8 billion hryvnia (220 million euros, $300 million) into the Black Sea peninsula every year, according to Valeriy Chaly, deputy director of the Razumkov Centre, a Kiev think-tank, and a former vice-foreign minister of Ukraine. A senior Russian lawmaker, Pavel Dorokhin of the Russian Duma's committee on industry, said Moscow was ready to provide $1.1 billion "to support the development of the industrial and economic infrastructure of Crimea". But "that's not enough to maintain a new order and to reaffirm all the social guarantees for Crimea's citizens," including pensions and salaries, Chaly told AFP. As much as Crimea stands to suffer if it cuts all ties with Ukraine in favour of Russia, the mainland will see little difference, at least in the short-term. "The part of Crimea's local economy in the gross domestic product of Ukraine is no more than three percent so it's not such a huge a loss for now. But the long-term consequences are more sensitive," Gonchar said.