Zeus Ceramica: 2014/2022

2014: between two fires

Reporter: Victor, please tell us about your business—what it was like before the full-scale invasion, what you were doing, where it was located, what your priorities were, as well as your thoughts and plans for development.

Victor Levit, the owner:

In 2003, for a few reasons, we decided to set up Zeus Ceramica, a joint venture with Emil Ceramica, an Italian manufacturer of ceramic tiles. The first driver was the nearness and accessibility of raw materials. The second driver was the quite developed eastern Ukrainian market, as well as the one in southern Russia. The third driver was people’s knowledge. Sloviansk [in the Donetsk region] is a city of ceramicists with a fairly large number of people who have been producing ceramics for a long time. There were four large factories in the Union of Soviet Socialist Republics that produced ceramics. When they shut down operations, more than 500 small pottery factories took their place. That is, people knew what it was, and held the feeling of ceramics and clay in their own hands.

The enterprise began in 2005 and in the same year we produced our first products. The total investment amounted to about $40 million. We received the majority of the funds from the International Finance Corporation (IFC). The company successfully completed loan repayment in 2013. By 2014, the business had good financial outcomes, was developing, and had found market success. At that time Donetsk, and Ukraine in general, were developing quite well. It was akin to Germany’s development, in which several cities are in competition—for instance Donetsk, Dnipro, and Kharkiv. That is to say that the Donetsk region was developing rapidly, alongside the Dnipropetrovsk, Kharkiv, and Odesa regions. Everything was fine with the markets, but then came 2014. In 2014 we thought, perhaps for the first time, that we had made a mistake with our location. This was because Sloviansk became the center of the separatist movement in 2014. I have my own thoughts concerning how and why this happened, which I can share later if you find them interesting. So, our enterprise was caught between two fires: the National Guard of Ukraine, located on the Mount Karachun hill, and the separatists’ roadblock, which was at the crossing. The factory was situated between these two firing points. Therefore, most of the shells fired between those two sides hit the plant. It was in 2014 that we incurred our first losses in the amount of €3 million. Of these losses, €1.5 million were for equipment and buildings, and another €1.5 million accounted for a burned-down warehouse, which was also partially robbed by looters.

R: Looters from which side?

V: From the city. They, the separatists, were the same way. There were a lot of Sloviansk residents involved.

R: You call them separatists, but Strielkov-Hirkin [a colonel from the Russian FSB] was in Sloviansk.

V: I think there is a deeper problem here, actually. Since we have arrived at this topic, I will give you my opinion on the matter. The separatist movement in Sloviansk was formed in advance, a long time ago. It was financed through “Ukrainian Choice” organization, and it seemed not like a separatist movement, but like a “movement against shale gas extraction”.

Members of the organization met and gathered for rallies. There was a paid «core» of the organization. The day before Hirkin’s invasion, we saw that the former deputy of the Verkhovna Rada of Ukraine, the head of this movement, had organized a group of people to come to and capture the police station on Saturday morning. That is, at first it was an organized movement, the existence of which was not notable. Then Hirkin came to them, initiated by the FSB and the intelligence service, with weapons. There were also caches of weapons.

R: The caches were in Sviatohirsk Lavra?

V: I don’t know. Let’s not blame them, because no one has proven it in the past eight years. But those were the rumors. That is, initially the separatist movement was financed by the intelligence services and our local figures. And then Hirkin came with his squad. The group was also divided into two parts. There were people who really came as volunteers [who were locals], and there was, obviously, a cadre of Special Forces, which then left.

I lived in Kyiv at that time, visited Sloviansk from Monday to Friday, and flew back to Kyiv on Fridays. This time I left on Saturday. On Wednesday and Thursday—two days in a row—nine unmarked helicopters came from the north in flocks. I called the Border Guard, but they wouldn’t tell me anything. The helicopters would fly into the region from 8 pm to 9 pm and then return north. I saw it with my own eyes.

R: What were they transporting there?

V: Probably people; probably those units we spoke of earlier:people and weapons. In those two days, 18 unmarked helicopters came and went.

R: And what happened next? Your factory, as I understand, was partially destroyed.

V: Yes, partially destroyed. And in July, when they left, we started rebuilding it. We came in with a group of people and cleared it out. We once again invested money from our own funds as well as those of our Italian partners. By the end of 2014, the plant was up and running. In October, we had a big concert in the square, and Radio ROKS came.

R: Did you sponsor it?

V: Yes, my friends and I sponsored it. And you could see how people were slowly beginning to “thaw out”. Up until then, the situation had been very sad. From July to October people were afraid to talk, afraid to express their position, afraid of everything. Everybody was still internally at war. And then step by step Sloviansk was being revived. By 2022, in terms of capital construction, repairs, and occurrence of new enterprises for those 8 years (and these 30 years of independence), the maximum was achieved. So much had not been done before that.

R: How was that achieved?

V: I think there are several important factors. From an economic perspective, why did decentralization come about? It was because of utility rate reform. The state stopped subsidizing everyone and everything; it was also the exchange rate of the dollar. Those two reforms were carried out successfully enough, leaving the state with money. When money appeared, thank God, they decentralized and local authorities got money.

And once the local authorities were finally able to do something, the second question was who should use the money. In any case, they got money for those infrastructural projects that nobody had worked on for 30 years and they finally started doing them. In my opinion, until 2014, there was a silent collusion between the people and the government: The government was giving people cheap rates and a cheap dollar, and so the people did not act.

When the government no longer had sources to take money from, and when problems with associated membership in the European Union appeared, then the “bad” [market] utility rates we talked about appeared. However, there was money for infrastructure: roads were being built and sidewalks were being repaired. In Sloviansk, the sidewalks had not been repaired for about 50 years, that’s for sure. And when they repaired the sidewalks and began repairing communication channels, it was a big step forward. That is, thanks to the reforms.

Full-scale invasion 2022

R: What was going on in your business before the invasion in 2022?

V: Since the renewal, in 2015, we’ve had some serious problems. We were exporting 40% of our goods at that point, of which 60% went to Russia and 40% to the United States, Canada, and Europe. So, I will say, my internal impression is that all of our Western partners understood that we could not fulfill contracts on time, so everyone just waited and said, “We understand.”

Russian clients, on the other hand, simply stopped paying and said, “You broke our contracts”. Yet we managed to get over that. Some paid, and some did not pay at all. But we left that market almost completely.

R: You stopped working with Russia, right?

V: We were selling a few small things. Out of our overall business, it was 3 to 4 percent. If there were some buyers, they just came to buy a truck. We redirected our exports primarily to Europe and, again, to Canada and the United States. Step by step, over the course of 3 years from 2015 to 2019, we rebuilt our market. Beginning in 2019 things were going well, but then came COVID-19. We thought, “What could be worse than COVID-19?” Now we already know how lucky we were to live during COVID-19, compared to during the war (laughs).

R: As I understand it, COVID-19 has affected you because your clients are partly business centers.

V: Well, those are under construction. During COVID-19 nobody was building.

R: On the eve of the war, how did you feel in terms of business? What were your plans and intentions?

V: Again, we were probably deeply shortsighted. Despite COVID-19, we were pretty successful in 2020 and 2021, so we decided to invest additional funds—€3 million—to upgrade and expand production. We invested this money. Fall to spring 2022 was to be the time of reconstruction. We planned to start our new production in March. We bought equipment and partially installed it. Then we had to partially remove it and take it to warehouses in central Ukraine during the summer. So, we invested again at the wrong time and in the wrong place. I was sure there was a problem, that there would be a problem with war, but of course many of the people with whom I talked (even those who understood there would be a war) did not think it would be like this—a full-scale invasion of the whole country, with Russia turning from a close country into a lifelong enemy.

R: Tell us, please, what happened after February 24, when the war started all over Ukraine.

V: Well, if you look at it now, we were in a pretty good situation, since the plant was not working at that time due to our reconstruction efforts. Some people were on vacation, some were working on reconstruction. The equipment was being brought in and installed. So, we did not start up the plant, we considered how long the war would last, and for the first 3-4 months we kept the whole team. But then, little by little, we had to fire people or not pay salaries.

As of today, out of 280 people only 40 are working. We moved a tile warehouse to Kyiv, but they [those tiles] are selling slowly. Four missiles have already hit the plant, I think the C-300 type. Two missiles flew into the yard of the plant in August or September. Two more in mid-October, maybe a little later. Now we have one mosaic shop destroyed, with no possibility of restoration. However, it’s an auxiliary production site so I do not consider it critical. In the main workshop, all the windows have been blown out and the walls are destroyed, but the equipment is still okay. Some of the equipment is damaged but can be restored. The majority of the equipment is okay. However, two more missiles flew in on the other side of the building, disrupting our connections to water and electricity. It is hard for me to say what is working there now and what is not.

 R: There is just no power supply?

V: Well, our power supply was out, and we can’t check right now. We recovered a piece of cable, but it’s hard to tell what’s happening further underground. Those two missiles hit near the plant and just the incoming supply was disrupted. We have 2 plants in Sloviansk, and both plants have already been hit by missiles, totaling 6 missiles overall. The factories are next to each other, across the street.

Now we have also launched a ceramic mass factory, which produces a semifinished product for ceramics, called ceramic bodies. This is because some ceramicists who had dispersed and moved their workshops to other cities asked us to make ceramic bodies for them because all other production had stopped. So now we’re running production in a broken shop. Two rockets crashed there, disrupted the electricity and water supply, and blasted the walls. Nevertheless, we relaunched it and it is operational now. But we relocated a small part of the operations to Kyiv to produce stairs, mosaics, countertops, etc.

R: By your rough estimation, how much of your production did you lose because of the shelling?

V: The financial loss that I saw as of yesterday was 28 million hryvnias (UAH) of direct losses. This is something that cannot be restored. I estimate that today the plant’s resumption will cost somewhere in the ballpark of €2-3 million. And the war is not over yet.

R: 28 million UAH lost plus €2-3 million to rebuild it.

V: Well, 28 million UAH lost, but if you account for depreciation the pure financial loss is 21-22 million UAH.

R: Well, that is half a million dollars more, roughly speaking.

V: More. Well, financially, yes.

R: Plus another half a million in lost profits. In nine months.

V: Yes, plus the loans we have to pay back.

R: Are those still the ones from 2015?

V: No, those are the ones we have taken out now for reconstruction.

R: For this development that you have planned, right?

V: Yes, that’s the most significant part.

R: At this point you were both in Kyiv and in Sloviansk? You were no longer coming to Sloviansk, but staying in Kyiv?

V: No, I come to Sloviansk from time to time for short visits, generally related to volunteering more than business.

R: Whom do you help?

V: The army.

R: If I may, could you please say a couple of words about that? It’s always very interesting to hear.

V: We have several subdivisions that we help. My daughter lives in London. She collects some money, and our family provides some money also. As of today, we have spent £150-200,000 on various purchases for the army—mostly drones, thermal imaging cameras, and body armor. Nowadays, we are working on bringing sleeping bags and karri mats [ground mats] to our Sloviansk Local Territorial Defense.

R: Yes, winter is close.

V: Yes, we must keep them warm.

R: That’s true. Tell me, please, this is the second time that your business has been destroyed because of the war. But now, at least, it’s clear who did it.

V: It was clear even then.

R: So, who do you blame? Here’s a straightforward question: In 2014, who was to blame for your business being destroyed? I mean directly responsible. Not accidentally, that something happened there, but direct responsibilities— who do you place it on, for what is going on now?

V: I’m certainly not a judge or court of law. I would say that everyone is to blame. Even Ukraine is partly to blame for allowing this to happen. The Donetsk People’s Republic (DPR) is an organization that has existed in Donetsk since 2004. It had an office on the main street. For some reason, Ukraine did nothing about it. That is to say, there are a lot of guilty sides. As you remember, in 2004, during the first Maidan, there was a division in the participation of Russian political technologists and the FSB: here live the reds and here the blacks, here are ours and here are theirs. At that point we probably should have started to examine it more carefully and fight it off.

Soon after this, the east of Ukraine suddenly began to say that they “feed everyone”. As a result, this led to the events of 2014. It was all there on the ground, and the FSB took advantage of it very skillfully. That is, in the aftermath of the 2014 “coup d’état” [national revolution] as they call it, everything was initiated and organized by Russia. The invasion, the whole war—it is all clearly Russia.

They took advantage of that. They took advantage of the fact that they planted the seeds for a long, long, long time, and, in the end, they started picking the sprouts in 2014. I remember back in 2014…I have a house in Crimea. And I went there in February, right after the Maidan, because I realized that something was starting to happen there. Again, I saw how a bunch of these Cossacks came from Kuban, as well as Serbs, whom I met at checkpoints wearing these Serbian hats. The public there was ready for this, the local population was also ready for this—for the invasion and the capturing of territories.

The authorities were not ready because the people were very pro-Russian. Well, how could it be that with President Viktor Yushchenko living in the neighboring dacha, (I have a house next to the President’s dacha and I have sometimes seen him there), there was not even a single Ukrainian radio station in Crimea?

Well, how could it be that before 2014 there was not a single Ukrainian radio station in Crimea? There was one radio station that provided the southern coast of Crimea with Russian news. How could that be? Well now, of course, we can throw up our hands. In reality, though, we need to understand that we are all to blame for the way it turned out. It is clear that everything was orchestrated by Russia, that they took advantage of the situation and continue to do so. In general, everything related to them is bad, and I cannot justify it by any means.

R: Well, you mean it’s your own fault for missing the signs that Russia was preparing the ground for the invasion? If we had reacted in time, maybe it would have stopped the invasion or it would have been less painful. But that’s about 2014. What about 2022?

V: Well, look, for Putin and the very small number of people all involved in this conflict, in this war, this is a joyride. Unfortunately, they were preparing for it all along. I remember… I studied in St. Petersburg, I have many friends from there. When they [the Russians] came to Crimea, they told me,

“Well, wasn’t it bad for us in the Soviet Union?”

I told them,

“Yes, it was bad, I don’t want to go back.”

They said,

“Well, we all want to go back to the Soviet Union”.

In other words, they were all prepared long ago to believe that the Soviet Union should be restored. This propaganda was at work for a very long time, for 30 years. And now this is the result. What are they fighting for? Are they liberating anyone?

R: I don’t think they know what they are fighting for.

V: They do know. But you need to understand whom we are talking about. Are we talking about the cynical leadership that fights for its goals, for its money, for its stupid ambitions? Or are we talking about the people who are dying, who are in the army from national minorities, who are gathered from everywhere? This is a different mentality – they are there for the salary. There is a part of the middle class and the elderly that clearly believes in this, that is nostalgic for the Soviet Union. Of course, we also have such people [in Ukraine].

R: But once again, I want to return to the question. Theoretically, if we imagine that one day someone will compensate you for the losses you have suffered now in 2022, who should it be, in your opinion?

V: Russia.

R: Russia, as a state?

V: Well, that’s also such an interesting question. I don’t know how it works from a legal point of view. I think that investors in this country should be compensated by the state—I mean by Ukraine. Where Ukraine will get the funds for this…this issue is already related to reparations, international funds, etc. In all scenarios, considering both 2014 and today, in any case, the state must provide investors with a “normal life.” If you invest money, you will invest in a country where everything is good, everything is calm. For this purpose, we have a government that should try to maintain calm. That is, in general, the main role of the authorities—to make life calm, peaceful, etc. If such conflicts are allowed to happen, the state is responsible. It is clear that in this case the state is not to blame for this situation, but then the state is looking for payment from the perpetrators of such events.

R: So, your concept is the following: the state should receive reparations or create some sort of international fund, essentially, to help businesses.

V: In any case, it follows that the state must compensate. The next question is the way in which it should compensate. Here is the way in which it should do so… I would probably stick to the opinion that it should be some international organizations that distribute these funds. Even if they are too bureaucratic, at least there is more confidence that they will reach the right people.

R: Do you believe that this is possible?

R: Tell me, please. This is the second time you are experiencing a partial destruction of your facility. The first time, you and your partners invested your own funds to restore it all and start the business again. Now the business is partially destroyed and partially works in the part of the line that you took to the suburbs of Kyiv, and in the part of the line that is in Sloviansk, which deals with ceramic bodies.

V: No, not quite. The ceramic bodies plant is a separate business that had two areas of production: the production of stairs and tabletops and the production of ceramics. We moved the production of steps and tabletops, but the production of ceramics remained [in Sloviansk]. There is also another business, the ZEUS Ceramica plant, which produces only tiles.

R: So, the tiles are now on hold?

V: The tiles are on hold, yes.

R: The ceramics are operating in Sloviansk.

V: Well, they are for a week. Then we will stop them because we need to repair everything.

Thinking about the future

R: You launched work for a week, but what will happen next is not very clear. My question is about your future path: Do you somehow plan to restore it? When do you plan to do so?

V: Of course. I console myself with the thought that we will relaunch in the spring or summer.

R: Do you tie this somehow to the victory of Ukraine and the pulling back of the frontline?

V: In this case, I tie it to Bakhmut. If they pull back from Bakhmut, if Russian troops are at least pushed back to the borders as they existed before February 24, then we can do something.

R: At that point you will see the logic of investing money, right?

V: Well, firstly, it is not only money but also bringing people there to work. Now we are trying to do something with the windows, glass, and walls, but these are just cosmetic repairs.

R: Well, that’s to survive the winter, but the restoration of the lines…

V: Well, if Russian troops are moved away from Bakhmut, then there will be enough distance, at least to have time…

R: The S-300 will not reach you?

V: No, the S-300 will be able to reach us. Well, recently there was a shelling of Kramatorsk, for example, and they didn’t even have time to activate the alarm. Multiple launch rocket systems (MLRS) arrived, and the alarm was activated only after that. This is very sad. If there is an alarm, at least people can hide. But if there is no alarm…

R: One more question. Do you have bomb shelters on the territory of the plant?

V: On the plant territory, no. But there are good concrete walls behind which you can hide. We have a bomb shelter on the grounds of our cultural center. But we are now using it for the residents of nearby buildings.

R: You allow them to use it?

V: We allow them to use it. They sleep there.

R: Another question: Your partners, the Italians, how did they react, and how did your clients react to this whole story?

V: Our partners are pained. It is not only a question of finances. The first thing they said was, “You have to evacuate people”. This is what we were doing in the first month of the war. We are still working for Ukrainian clients, but now that market is not so big. We are selling something to them now, but we have stopped working in foreign markets. Although there are requests, it is logistically too expensive. And, frankly speaking, I would not occupy our roads with export trucks now. Let more artillery come here instead.

R: I understand, you want to give way to the supply of weapons.

V: Yes.

R: Did you somehow record all this destruction yourself to help get compensation in the future?

V: We took photos and videos. A month ago, there was no one who was ready to come and record our losses. Now such an opportunity has appeared. Maybe we will get experts to fix it.

R: Do you mean state experts or private ones?

V: Perhaps the Ukrainian Chamber of Commerce and Industry. What I know now is that no one is recording anything. The prosecutor’s office does nothing. There is a lot of work to be done, and if you look at what is happening in Sviatohirsk or in Lyman, they are utterly destroyed.

R: Objectively, specialists have a lot of work to do now.

V: There is something to do, but I think there is no one to do it.

R: There is no one, there are just not that many people anymore. And one last small question to end on a positive note. Do you think Ukraine will win?

V: I am sure of it.

R: And when they open the borders to leave Ukraine, will you stay in Ukraine to work or will you leave?

V: I could leave [now], there are many ways to leave—some legal, some illegal. But I don’t want to leave. I want to live, create, and work here. This is my homeland.

R: Will your partners help you to restore your business for the third time?

V: I am sure they will.

R: Great, thank you very much! Maybe you would like to say something to us in the end, some message to the international community that might be watching this interview. What would you like to say to people outside of Ukraine?

V: I have a great wish. I want everyone to think about the time when all will be restored, and I think it will be soon. I wish that the international community would invest in some kind of insurance mechanism. This is a very important issue for Ukraine, as well as for any investors in Ukraine. This insurance should cover all risks, including war or some act of terrorism. This will encourage investment in Ukraine. Because there will also be a very difficult period when we will be rebuilding, and everyone should be able to think that they are protected, at least by the insurance. Maybe it will be the first such kind of insurance in the world, but it will be an incentive to invest in Ukraine.

R: So the idea is that any investor investing in Ukraine would have the opportunity to insure against all risks.

V: There are such insurance organizations in Germany, one being Euler Hermes. There is such an organization in Italy, Simest. Ukraine needs to make such an insurance organization into an international partner. I do not really trust any state bodies, so it may be easier to make some insurance companies agents of this program. But anyway, this insurance must be present.

R: Well, I take it this is to remove the barrier even for your partners to come in here again.

V: Yes. Anyway, we will restore everything, we will do everything. We have not already invested this much to just give up everything and leave. But new investors should come under the guarantees of insurance funds.

And secondly, I have another big wish. Now there is a really threatening situation with investments related to their geography. It is very clear that everyone wants to invest near the market. The market is Kyiv, the Kyiv region, the Kharkiv region, Dnipro, the area around Odesa, Lviv, and the Zakarpattia region. We have a very, very great danger on the borders of the country. It is very important for the state to think about what to do in Donetsk, Luhansk, Sumy, and Chernihiv regions…Each of these locations borders Russia. And it is important to think about how to help investors. There are more risks, there is a smaller market, and fewer people will be there now. And if this is our country, we must think about these regions.

R: So the message is that you need to have some kind of separate story to attract investors to these regions.

V: To attract investors and to organize life.

Copywriting: Yulia Volodchenko

Translation: Olha Lykova / Charlotte Farrar