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Coal sector in Ukraine in turmoil

World Coal,


At the end of May, the Ukrainian cabinet ordered the State Property Fund to prepare 38 state-owned coal mines to be auctioned off.

The order came 4 days after Petro Poroshenko was elected as the new president of Ukraine, following the 2014 Ukrainian revolution.

Amid increasing hostilities with pro-Russian activists in the country’s eastern region, Poroshenko has promised to forge closer links with the EU.

The move to sell the country’s coal mines is one of the cost-saving measures required by the International Monetary Fund in return for loans. Most of the mines are losing money and are kept in operation through direct subsidies, another policy that IMF frowns upon even though it keeps miners at work when employment is already high.

The IMF has often been criticised – along with the WTO and World Bank – as putting the global economy on a path of greater inequality and environmental destruction. The fund has been accused of offering help only with stringent strings attached, which often results in developing country’s being shackled to debt repayment and being forced to sell of state-owned properties and cut funding on education and healthcare.

As the Guardian’s Mark Weisbrot notes: “the IMF has a long track record – dating back decades – of imposing unnecessary and often harmful conditions on borrowing countries.”

Subsidies and privatisation

The former President Viktor Yanukovych, a native of the Donbass area, ensured that his constituents receive subsidies. Nearly US$ 1.8 billion in financial aid was provided to pay salaries. However, according to First Deputy Energy Minister, Yuriy Zyukov, government austerity measures include cuts in subsidies to coal mines of almost US$ 230 million and auctioning off 30% of functioning mines. Many mines are already closed down with only 120 functioning and 70 temporarily or permanently shut down.

The privatisation of Ukrainian coal mines has been a dominant theme of recent years. 50% are owned by billionaire Rinat Akhmetov, the oligarch. Akhmetov profited from earlier privatisation of the most productive mines.

The state-owned coal mining sector has struggled in recent years, and in 2013 increased overall losses to US$ 410 million.

Energy Strategies analyst, Yuriy Korolchuk, claims that the “Government just wants to get rid of these mines in order to avoid paying out grants”. In return for cheap prices there may be requirements for investing capital in the mines and modernising the extraction process.

Ukraine produced 86 million tons of coal in 2013 making it Europe's 4th largest producer. It used 61 million tons and exported 6 million leaving a surplus of 19 million. To make things worse unemployed miners often develop their own illegal mines adding to production. The surplus coal is often of poor quality with little market demand.

Illegal coal mines

An investigation by the Organised Crime and Corruption Reporting Project (OCCRP) has found that companies linked to former government officials and to businesses owned by the son of former President Viktor Yanukovych routinely legalised and sold black-market coal – stealing jobs from legitimate miners and endangering workers toiling in unregulated and illegal pits.

Industry  experts estimate that there are tens of thousands of these workers in some 2500 illegal pits (known locally as kopanki) around Ukraine, mostly in the protest-wracked Donbas region around Donetsk.  Before the pro-EU protesrs led to Yanukovych’s overthrow, the numbers of pits and of workers were rising. Members of the OCCRP suggested these rising figures were met with the quiet approval of authorities, many of whom are still tied to Yanukovych.

Coal gasification funds redirected

Amid the political turmoil, a plan to gasify Ukraine’s coal reserves had until recently been on the table. Using the latest underground coal gasification (UCG) technology, the country would look to unlock those reserves of coal that were too difficult to extract through traditional mining methods.

A deal was struck with Chinese authorities to provide funding for the project. For China’s part, the country has embarked on an aggressive wave of resource expansionism, targeting resource sectors in Africa and in particular, Australia.

With China set to invest US$ 3.66 billion in the UCG venture, the country loaned the money to Ukraine. However, the money has since been redirected. Zyukov announced that the plans had been cancelled due to lack of modern technology: “I think, we don’t have the proper technology today that could be used and allow to invest the money effectively.”

The loan will be instead be used to fund other projects, according to Zyukov.

 

Reference:

 

Weisbrot, M., “The IMF is hurting poor countries”, The Guardian

Read the article online at: https://www.worldcoal.com/coal/04062014/ukraine_coal_mines_will_be_sold_937/


 

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