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Illegal mines threaten the coal mining industry in Ukraine

World Coal,

Ukraine has a rich mining history. In 1935, Ukraine’s most famous miner, Alexey Stakhanov, famously mined 102 tonnes of coal in six hours, a feat that sparked the industrial boom in the country known as the Stakhonovite movement that brought 40 years of mining and manufacturing jobs to the region.

Since independence from the Soviet Union, however, Ukraine’s mining industry – and particularly its coal industry – has fallen on harder times. All in all, the industry is in an estimated US$ 200 million of debt, and the 12 large-scale mining operations that dotted the Donbass region (the largest coal mining region in the country) now number only four. Those that have closed have been replaced by hundred of small, illegal coal mines.

Ukraine’s illegal mines made headlines back in 2007, when the New York Times published an article on the ability of illegal mines to attract workers from Ukraine’s unemployed.

Workers use basic tools – often nothing more advanced than hand-held picks and shovels – in illegal mines usually hidden away in Ukrainian forests.

Despite difficult and dangerous mining conditions, workers are attracted by higher salaries compared to those offered by legal mining operations, as well as the occasional perk: workers can often take home a bag of coal to heat their houses during cold winter months. The mines not only attract unemployed workers; they can also attract workers from legal mines, thereby diminishing the labour pool for these mining operations.

Two decades of illegal mining

According to TotalMining, illegal coal mines began operating in the Donbass and Luhansk regions “20 years ago” – around the time that Ukraine separated from the Soviet Union and in turn witnessed its coal industry lose out on communist subsidies.

The coal from these illegal mines is used to power Ukrainian power plants and steel mills in the Donetsk Coal Basin of southeast Ukraine. It is estimated that some 6.5 million t more coal – roughly 10% of the country’s total coal output – is for sale than is officially mined. With no taxes to pay, these illegal coal mines can provide cheap coal to power plants and steel mills while continuing to make large profits.

The work of these illegal mines undercuts legal, state owned mining companies, such as the Donbass Fuel and Energy Co. (DTEK), which has an output of 36.8 million tpa.

Mihailo Volynets, the head of Ukraine’s mining union, told the BBC that if the situation with illegal mines “continues for another two years, then dozens of state mines will have to close down.”

Ukrainian coal industry must develop

The New York Times article cited the need for improvement and development of the industry: in 2007, the coal industry was seen as “unprofitable and inefficient,” according to Andrew Matheny.

In a report on the mineral industry of Ukraine published in 2011 by the US Department of the Interior and the US Geological Survey, the need for redevelopment of Ukraine’s coal and mining industries was stressed heavily.

“According to the ‘Doing Business’ rankings assembled by the International Bank for Reconstruction and Development, and the World Bank,” the report said, “Ukraine was ranks 152d out of 183 countries based on the efficiency of the country’s business regulations.”

The coal and mining industry in the country is not aided, the report said, by a lack of transparency of ownership. The report stated that, “According to news reports, Ukrainian companies or their owners often established holding companies outside of Ukraine in order to purchase mineral production facilities and control their activities through indirect ownership.”

This structure of the industry allows for potential loopholes to be exploited, meaning that even some legal mines operate with numerous violations of Ukrainian law.

The US report concluded that “It remains to be seen whether Ukraine will be able to increase its production of coal [in order to] increase the security of its resources for electricity production, given that past efforts to increase the production of mineral fuels have suffered from a lack of funding or faced other problems that have impeded development.”

The privatisation of Ukrainian coal mines offers the chance for much needed redevelopment, yet it must be handled with care. An estimated 95% of Ukraine’s domestic energy resources rely on coal, while an average of 446,000 people are employed by the legal mining industry and 300,000 of these are employed by the coal industry alone. With such high figures, the stake for the mining industry in Ukraine couldn’t be higher.

Edited from various sources by Sam Dodson

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