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Ukraine's east slipping from government's grasp

Pro-Moscow separatists seized government offices in more Ukrainian towns on Wednesday, in a further sign that authorities in Kiev are losing control of the country's eastern industrial heartland bordering Russia.

Gunmen who turned up at dawn took control of official buildings in Horlivka, a town of almost 300,000 people, said a Reuters photographer. They refused to be photographed.

The heavily armed men wore the same military uniforms without insignia as other unidentified "green men" who have joined pro-Russian protesters with clubs and chains in seizing control of towns across Ukraine's Donbass coal and steel belt.

Alexander KHUDOTEPLY | AFP | Getty Images

Some 30 pro-Russian separatists also seized a city council building in Alchevsk, further east in Luhansk region, Interfax-Ukraine news agency said. They took down the Ukrainian flag and flew a city banner before allowing workers to leave.

Attempts to contain the insurgency by the government in Kiev have proved largely unsuccessful, with security forces repeatedly outmaneuvered by the separatists. The West and the new Ukrainian government accuse Russia of being behind the unrest, a charge Moscow denies.

Nineteen Republican U.S. senators introduced legislation on Wednesday proposing broader and tougher measures to punish Russia over the Ukraine crisis, including sanctions on major banks and energy companies, as well as $100 million in military aid for Kiev.

The package would also require President Barack Obama to increase substantially U.S. and NATO support for the armed forces of Poland, Estonia, Lithuania and Latvia and accelerate implementation of missile defense in Europe.

Read MoreRussia 'Wants To Start World War III': Ukrainian PM Yatsenyuk

Daniel Baer, the U.S. ambassador to the OSCE, a European security watchdog which has monitors in the region, told reporters in Vienna: "I think it's very clear that what is happening would not be happening without Russian involvement."

A police official in Donetsk, the provincial capital where separatists have declared a "People's Republic of Donetsk", said separatists were also in control of the Horlivka police station, having seized the regional police headquarters earlier in April.

The murder of a town councilor from Horlivka who opposed the separatists was cited by Kiev last week among reasons for launching new efforts to regain control of the region.

Wednesday's takeovers followed the fall of the main government buildings on Tuesday further east in Luhansk, capital of Ukraine's easternmost province, driving home just how far control over the densely populated region has slipped from the central government in Kiev.

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"They've taken them. The government administration and police," the police official said of Horlivka.

Secession referendum

The town sits just north of Donetsk, unofficial capital of the whole Donbass area, where mainly Russian-speaking separatists have called a referendum on secession for May 11.

Many hope to follow Crimea's break from Ukraine in March and subsequent annexation by Russia, following the overthrow of Ukraine's Moscow-backed president Viktor Yanukovich in late February in a tug-of-war between the West and Russia over the strategic direction of the former Soviet republic.

The Donbass region is home to giant steel smelters and heavy plants that produce up to a third of Ukraine's industrial output. An armed uprising began there in early April, with Kiev almost powerless to respond for fear of provoking an invasion by tens of thousands of Russian troops massed on the border.

Many Russian-speaking business "oligarchs" from the Donbass backed Yanukovich and exercise great influence over the region.

On Wednesday, the most powerful of these, Ukraine's richest man Rinat Akhmetov issued a formal statement saying he remained committed to his investments in the Donbass and to keeping the region as part of Ukraine.

Oleksander Turchynov, Ukraine's acting president until after an election on May 25, reiterated on Wednesday that police were incapable of reasserting control in the region.

"Our main task is to prevent the terrorist threat from spreading to other regions of Ukraine," he told a meeting of regional governors in Kiev.

"The Russian leadership is doing everything to prevent the election. But the election will take place on May 25," he said.

The OSCE special envoy to Ukraine, Tim Guldimann, told Reuters he was cautiously optimistic about the possibility of holding an election which Kiev says Russia is trying to wreck:

"What's positive is that no political parties have so far called for a boycott of the election," Guldimann said. "Governors and mayors in the east have also indicated that elections will be carried out."

There were further signs on Monday that Russia is paying an economic price for its involvement in Ukraine. The International Monetary Fund said international sanctions imposed on Moscow over the crisis in Ukraine were hurting the economy.

The IMF cut its 2014 growth forecast for Russia to 0.2 percent from 1.3 percent and forecast capital outflows of $100 billion this year.

The IMF mission chief to Russia, Antonio Spilimbergo, also told reporters that Russia was "experiencing recession" and that a resolution of the Ukraine crisis would significantly reduce Russia's own economic uncertainties.

"If you understand by recession two quarters of negative economic growth then Russia is experiencing recession now," Spilimbergo said.

Ukraine is also suffering from the turmoil, with economic output falling 1.1 percent year-on-year in the first three months of 2014, according to government figures released on Wednesday. Gazprom said Ukraine's unpaid bill for gas supplied by the Russian energy giant was now $3.5 billion.

However, the European Union said it was ready to provide economic aid to Ukraine along with the IMF.

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