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Assessment of Ukraine’s Economic Losses from Temporary Occupation of Crimean Peninsula

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Economic losses from the temporary occupation of the Crimean Peninsula by the Russian Federation totalled $135 billion, or about 75% of Ukraine’s GDP in 2013. Such conclusions were made in a study by the Centre for Economic Strategy, commissioned by the Mission of the President of Ukraine in the Autonomous Republic of Crimea with the support of the International Renaissance Foundation.

The assessment of losses is necessary in order to seek compensation for these losses in international courts, obliging the Russian Federation to pay the appropriate sums or freeze the assets of entities involved in the occupation, in Ukraine or even abroad. Lawsuits have been filed by Ukraine as a state, public and private companies, and individuals with the European Court of Human Rights (ECHR, Strasbourg), the International Criminal Court and the International Court of Arbitration (both in The Hague), the International Tribunal for the Law of the Sea (Hamburg), and the courts of the Netherlands, France, and Switzerland.

“This is the first comprehensive assessment of Ukraine’s losses from Russia’s temporary occupation of the Crimean Peninsula, although the Verkhovna Rada recommended, following the parliamentary hearings, that the Cabinet of Ministers should develop methods for determining losses back in 2016,” said Dmytro Goriunov, a senior economist at the Centre for Economic Strategy. The initial estimate, which was made by the Ministry of Justice in 2014 and did not take into account all factors, totalled $106 billion.

In particular, $135 billion is a direct loss of assets, covering the value of land on the Crimean Peninsula ($3 billion) and proven mineral deposits ($52.3 billion) in the form of, inter alia, natural gas, and crude oil; loss of residential real estate by the population ($42.7 billion); losses of private companies ($18.4 billion) and banks ($2.7 billion); and losses of the state ($14 billion) and local communities ($1.7 billion).

The Centre for Economic Strategy’s assessment does not include the macroeconomic consequences of the temporary occupation of the Crimean Peninsula as they cannot be separated from the influence of the general set of aggressive actions of the Russian Federation towards Ukraine. Therefore, this is only a minimal proven estimate of Ukraine’s economic losses.

Fossil minerals are of the greatest value in Crimea. In particular, significant deposits of hydrocarbons have been explored on the sea shelf near Crimea, more promising than deposits on land (not on the peninsula, but in Ukraine as a whole), which have already begun to deplete. Limestone deposits are also of considerable value (both for metallurgy and construction).

Ukraine lost about 4.5% of its total area, accounting for 27,000 sq km or 2.7 million hectares, due to the occupation of Crimea. However, not all of this area can be estimated in monetary terms. In particular, 20% of the area is covered by mountains, another 8% with water reservoirs. According to the Centre’s research methodology, the price of agricultural land in Crimea can be estimated at $4,000 per hectare, and the total value of 755,000 hectares of the sown area is about $3 billion.

Ukrainians could lose almost 935,000 apartments, equal to 49 million square metres. Before the temporary occupation of the peninsula, the average cost of one square metre of housing was the equivalent of $873. Thus, the total market value of Crimean housing at that time reached almost $43 billion. Since then, housing prices have risen. Over the first year after the occupation, housing prices rose by 50% in dollar terms, and by another 12% over the next five years.

Private owners of assets in Crimea, numbering 20,000 enterprises, lost assets worth $18.488 billion. Among the lost industries are electricity generation and distribution, gas distribution, and the processing industry, as well as construction, part of the recreational complex, and other services. In addition to direct losses, the indirect losses related to the destruction or distortion of value chains, and transport corridors suffered.

As of the beginning of 2014, the assets of state-owned companies registered directly in Crimea before the start of temporary occupation amounted to $2.7 billion. Among the largest were the energy companies Chornomornaftogaz and the Feodosiya Petroleum Supply Company, as well as transport infrastructure facilities (sea trade and fishing ports). The region is also characterised by large state health resorts and agricultural/food enterprises (for example, Masandra, Novyi Svit, Maharach state wineries, as well as Simferopol and Sevastopol wineries).

Centre for Economic Strategy

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