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September 14, 2009

Roman Kupchinsky

Coal mining, and especially coking coal, has been a very problematic industry in Ukraine - it is highly inefficient due to outdated machinery and the depth of its mines. According to the International Energy Agency (IEA), "The average mine depth is more than 700 meters; in approximately 20 percent of mines it is 1,000-1,400 meters." It is dangerous for miners and has depended for years on large state subsidies. Despite the dangerous working conditions (Ukraine has the world's second largest fatality rate in coal mining accidents after China) and outmoded production methods, coal is the only domestically available alternative fuel Ukraine has to keep its demand for Russian gas from mushrooming out of control.

[...]

"Ukraine has 37.6 billion short tons in proven coal reserves, 17.9 billion short tons of which is anthracite and bituminous coal, and 19.7 billion short tons of which is lignite and sub-bituminous, accounting for about 15 percent of the former Soviet Union's total reserves. Production and consumption of coal in Ukraine have been relatively flat since 1996, after a precipitous fall off in production after gaining independence. In 2004, the country produced 69.3 million short tons of hard and brown coal, while consuming roughly 77.5 million short tons, making Ukraine a net coal importer, despite its sizeable resources" (http://www.eia.doe.gov/).

The Ukrainian coal mining industry has also been a controversial political issue for the country's leadership. Located in the heavily industrialized and populous Eastern region of the Donbas, where the Party of Regions has its main support base, Western-oriented politicians, try as they may, have been unable to establish any significant following in this critical region. In September, the Ukrainian Prime Minister Yulia Tymoshenko decided to strengthen her hand in the coal industry by seeking to begin in 2010 a large scale effort aimed at the modernization and reconstruction of the country's coal mines.

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For the past decade, successive Ukrainian governments have provided massive subsidies to the coking-coal industry. This policy has been, in fact, a subsidy to the metallurgical industry by providing it with low-cost coke. These subsidies, in turn, led to accusations of Ukrainian manufacturers dumping steel onto world markets. On her website, U.S. Senator Debbie Stabenow stated that, "from 1997 through 2000, carbon steel slab imports [into the United States] from key producers have risen dramatically: Brazil up 25 percent; Mexico 13 percent; Russia 106 percent, and Ukraine 542 percent."

However, the troubles in Ukraine's coal industry far surpass those of its other energy sectors:

1. Restructuring the coal industry would mean the loss of hundreds of thousands of jobs in a politically sensitive region.

2. Retraining programs for coal miners are not in place; the prospects for miners performing other jobs are bleak.

3. Entire municipalities in the Donbas Basin rely on the coal industry to pay for medical care, schools, public transportation, and other vital infrastructure.

How the Ukrainian government intends to handle this problem is difficult to forecast. Any coal reforms are sure to provoke angry reactions from vested interests in the Donbas Basin and from members of parliament involved in the metallurgical and energy-generation sectors of the economy. The Donbas has shown itself willing to raise the specter of territorial separatism in order to maintain existing coal subsidy policies and schemes. The country's eastern regions had also threatened to secede as a possible response to the Orange Revolution demonstrations in Kyiv. The reality of the threat of separatism remains questionable, but few have any doubts that the owners and managers of the coking coal-coke-metallurgical industries in Ukraine will lobby to prevent the implementation of far-reaching reforms and will continue to use coal as a political weapon.

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