Africa or America: Where would Ukraine purchase the coal?

Author : 112.UA 112.UA

Source : 112 Ukraine

Ukraine is trying to find some alternative to coal supplies from the occupied Donbas
18:59, 10 February 2017

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Ukraine's thermal generation expenditures exceed to 24.5 million tons of coal per year. This is the forecast of the Ministry of Energy. Of this amount, 9 million tons are anthracite, exported from temporarily uncontrolled territory, all the rest is gas.

In 2016, Ukraine has purchased 15.6 million tons of foreign coal and anthracite in the amount of $ 1 billion 467 million. Domestic production grew up 2.8% year over year, to 40.8 million tons of raw coal (including energetic up to 32, 5 million tons). However, state mines have drastically reduced their production - by 14%, to 5.8 million tons. The rates of production in Western Ukraine reduce dramatically - by 20-24%, while production in Donbas increases - Donetsk region showed 9% growth, and Luhansk - 16%.

Related: No coal trade with Donbas uncontrolled territories, - Tuka

Prime Minister Groisman says he sees no alternative to coal supplies from the occupied Donbas territories and would welcome another ideas of possible deliveries. At the same time, the blockade participants call to stop trade with the militants, including a buying coal. Minister of Social Policy Andriy Reva said that suppliers from the occupied territories pay taxes to the budget, working for Ukraine.

The Cabinet warned that if the blockade continues and the deliveries stop, mass blackouts will start in a month. Slovyanskaya TPP has already switched to emergency mode because of the blockade. Minister for the temporarily occupied territories and internally displaced persons Vadym Chernysh notes that in different periods uncontrolled territories provided from 10 to 19% of the country's electricity generation, but now these companies send 364 wagons a day, transporting 24.7 thousand tons of thermal coal.

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In connection with the critical situation, the authorities are thinking about buying a scarce coal abroad. In particular, they have conducted negotiations about the supply of 1 million tons of anthracite coal from the United States. However, the Ministry of Energy explains that the first delivery might come only in some 50-60 days. This gap needs to be compensated, and compensation is only possible by reducing the production of electricity. Minister Igor Nasalyk said that if Ukraine enters the foreign markets with the aim to purchase 8 million tons of coal, the world price may be increased by 30-40%. The state mines sell their coal for 1370 UAH (about $ 50.) per ton, while foreign coal might be 100-120 dollars per ton.

Related: Coal stocks grow in Ukraine, - Energy Minister

Coal on the world markets has grown significantly in price in the second half of 2016, reaching a peak in November and exceeded 100 dollars per ton. Now the price fluctuates at a mark of 80 dollars plus shipping costs.

Only a few countries around the world have reserves of hard coal, including Russia, Ukraine, China, South Africa, Vietnam, United States, North Korea, and South Korea. Previously, Ukraine saved the situation by buying the coal from South Africa, it also negotiated with Kazakhstan, but it did not send its anthracite. African coal caused scandal because of its quality and price. At the beginning of 2016, Nasalyk said that Ukraine would not buy the "incomprehensible coal" from South Africa, but according to the State Statistics Service data, the country still continued to buy African coal in 2016.

Related: Coal mine blackout in Donesk, 203 miners trapped underground

The closest producer of anthracite is Russia; Ukraine buys most of scarce coal here (it paid 906 million dollars in 2016). The weighted average price for the year was 85 dollars per ton. It is 61.78% of imported coal. Such equity index has been held for several years, but the volume has changed. In 2013, we have paid Russia 1.3 billion dollars, which accounted for 65% of all deliveries.

America is the second largest supplier. In the last year, we have bought American coal for 212 million (14.46% of all deliveries). In addition, Canadian coal cost us 94 million (6.43%). The remaining 17.33% (UAH 254,308,000.) imports accounted for Kazakhstan, Poland, South Africa, and Australia. The price of 1 ton of coal from South Africa in the past year amounted to an average of $ 60, which is $ 25 cheaper than Russian coal, and is about the same as the prices in the domestic market. American coal is more expensive - about $ 112 per ton, a Canadian - $ 106, the Australian - $ 109. It is twice as expensive as Donbas coal. Polish coal is a bit cheaper - $ 99 per ton.

At the same time, we buy anthracite in Russia and Africa. Another question is what kind of coal we purchase from the Russian Federation. There is an assumption that Ukraine "imports" the coal, which is smuggled from Donbas.

Related: Nasalyk: Ukraine has enough coal and gas to go through heating season

Buying something abroad, is always an additional opportunity for Ukraine’s officials to earn some money. For example, recently the media wrote that the state company "Centrenergo" started buying coal from Russia via Panama and allegedly purchased approximately 87 thousand tons from a little-known Panamanian company Datoro Corp. This scheme brought more profit to officials, and they had very “patriotic” reasons to say that that Ukraine did not buy the fuel from Russia.

Related: Swiss company buys coal from pro-Russia militants in Donetsk region

Now "Centrenergo" says that South Africa might become one of the sources of supply. In the nearest future, company’s delegation is going to visit Ukraine to discuss the long-term contracts for the supply of anthracite. However, taking into consideration previous experience, there might be some difficulties with African coal. In 2014, Ukraine’s General Prosecution began an investigation in connection with the procurement from South Africa. The ministry said that the price for the coal was too high, and it was not suitable for combustion in thermal power plants. Subsequently, the supplier from South Africa refused to sign a new agreement in connection with the inspections. In 2015, purchases were resumed (more than 300 thousand tons). In 2016, Ukraine has obtained anthracite for more than $ 18 million.

Related: Donbas conflict: Butivka coal mine shelled from mortars

One way to resolve the problem of the anthracite deficit is reconstructing TPPs for gas coal. But this transfer takes time. Two years ago, this issue was risen, but the decision was not made. In the summer of 2016, the Ministry of Energy claimed that it was possible to develop a system that allows you to maneuver in the generation, gradually withdrawing anthracite from it and increasing the share of coal gas. In case of continuation of the blockade in the ATO zone, authorities would be forced to find a supplier of anthracite coal or use gas coal. Otherwise the situation of December 2014 with planned blackouts might repeat.

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