* "Oligarch" governor under pressure to staunch eastern separatism
* Protesters in Donetsk seized regional HQ, hoisted Russian flag
* Taruta says urgent Western aid vital to defuse "Crimean scenario"
* Business itself lacks means to invest and raise living standards
* Opposes autonomy referendum, sees priority to stem corruption
By Alastair Macdonald
DONETSK, Ukraine, March 19 (Reuters) - The man given the job of preventing Ukraine's industrial heartland following Crimea into the arms of Russia sounds a little hoarse and confesses to lacking sleep but reckons things are not as bad as last week.
But steel baron Serhiy Taruta, since March 2 governor of his native Donetsk region, warned Western powers on Wednesday that without urgent financial aid the Russian-speaking population of the wider Donbass coal mining area could vent frustrations with Ukraine's corrupt and failing economy by heeding Kremlin-funded militants who have called for Moscow to step in and take charge.
"Western countries must react very quickly," he told Reuters in an interview at the regional government building, now guarded by a phalanx of riot police after pro-Moscow activists twice took it over early this month and hoisted the Russian flag.
"Urgent economic and humanitarian aid is essential for us in the Donbass," said Taruta, one of several business billionaires, or "oligarchs", appointed by the new leaders in Kiev to run restive eastern regions.
"People are living very badly and are looking for a way out. To preserve the integrity of our state we need real help."
Critical of missteps in the capital in the first days after the overthrow of Moscow-backed president Viktor Yanukovich, he said Moscow had exploited that to persuade ethnic Russians in Crimea they were in danger from Ukrainian nationalists in the new government. But Taruta laid principle blame for violent unrest in his city at the door of paid agents of the Kremlin.
"This is certainly not a scenario created by Ukrainians," he said, referring to the storming of his own building and clashes last week in which a Ukrainian nationalist was stabbed to death.
"The main authors are outside Ukraine," he said, referring to young militants "trained in Russia", just 50 km (30 miles) away. "For one day, they are getting as much as our miners and steelworkers get in a month ... Now we're working to solve these problems and to restore stability and order to Donetsk region."
Changes in policing were part of that, he said, while his longer-term plan was to bring his business experience to bear in creating a climate to attract investment to the area to improve living standards that are substantially below those in Russia.
Taruta made headlines this week when, with his construction magnate brother, he had anti-tank trenches dug next to a border crossing with Russia. But the governor stressed that he hoped the frontier remained open for trade and was ready to help mediate with a country where he has strong ties in business.
Despite Moscow's denials of an interest in regions beyond the Crimea, the government in Kiev has accused Moscow of provoking unrest in order to justify an invasion in the east.
But Taruta conceded there was a risk that some of the 4.5 million people of his region, a tenth of Ukraine's population, could be tempted by the "Crimean scenario" if they were not given a prospect of rapid improvement in living standards.
"The standard of living has declined sharply," he said. "People are looking for alternatives. Politicians unfortunately failed to engage with the people and people are disoriented.
"Without real, rapid financial aid, especially to the eastern regions, then the situation may get much more serious."
Also pressing are his efforts to deflect demands for a Crimea-style referendum on regional autonomy. Regional officials this week opened discussions with groups demanding a plebiscite but Taruta made clear he was against such a vote or any constitutional move to create a federal structure in Ukraine.
Demonstrators have called for Moscow to annex the Donbass. Near the governor's office, a picket under a statue of Lenin flies the Russian flag and protesters echo the line in Russian state media that those who ousted Yanukovich - himself once governor of Donetsk - include "fascists" bent on banning Russian as an official language and making them second-class citizens.
Many are also sceptical of promises of reform from oligarchs who gained huge wealth by acquiring ex-Soviet state assets in the chaotic and sometimes violent 1990s.
Taruta blamed corruption under previous governments for the lack of investment undermining the economy and insisted he and his new team were ready to remove problems for small business.
"So far, officials have only created obstacles and ensured those obstacles could only be overcome with great effort and large payments," he said. "We need to do the opposite. We need to create a clean, transparent authority that the people trust."
Promising rapid reform he said: "My task is to create an investment climate that ensures people are lining up to invest in Donetsk region ... Money loves peace and quiet."
To do so will be a huge task. As Taruta himself pointed out, many have promised the same in the past and failed to deliver.
BUSINESS LACKS CASH
Some Ukrainians saw the appointments of business leaders as governors as a sign they would be putting their own funds into raising wages and assuaging discontent, but Taruta was quick to scotch that idea. Raising salaries would come only after profits grew, he said. Ukrainian business was itself in poor shape.
"Western help is essential. Without it, it will be very difficult for us to stabilise the situation," he stressed.
In seeking to appease separatist calls for a federal state, Taruta said he was working with the government in Kiev to ensure a greater degree of decentralised power for regional authorities without changing the country's constitutional structure.
He said he believed Kiev was ready to decentralise but conceded he faced strong opposition in the capital.
Some fear devolving power could fragment a state divided between an east that looks to Russia and a Ukrainian-speaking west which was outraged after Yanukovich turned down an association pact with the European Union.
Stressing the need for national dialogue and consensus, Taruta need not look far for a reminder of the price of failure. Outside his office, overlooking the tower blocks, pitheads and slag-heaps of Donetsk, sits a display of gifts. Many are from mines and factories marking anniversaries or output records set.
One is a gold cup, presented to one of his predecessors: "Yanukovich, V.F.," it reads. "Governor of the Year 2002." (Editing by Sonya Hepinstall)