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Cabinet consolidates state mines: What will be consequences of coal industry reform?

Author : Olena Holubeva

19:47, 6 November 2017
Cabinet consolidates state mines: What will be consequences of coal industry reform?

Author : Olena Holubeva

The Ministry of Energy and Coal Industry prepared a draft government decree on the transfer of all state coal mines to the National Coal Company (NСС) state enterprise. Last week, as it became known to 112.ua, the document was sent for approval to the executive authorities. On November 8, it is planned to submit it for approval by the Cabinet.

19:47, 6 November 2017

Read original article at 112.ua

112 Agency

Creating the state coal giant, the Ministry declares the best intentions: it is stated that the optimization of the structure will help improving the situation in the state coal industry, which is now in a deplorable state and, moreover, has remained practically without state support. At the same time, the miners' union is sure that after the creation of the NCC, the current "shadow leaders" will not go away anywhere in the coal industry, but, having taken control of the company, they will be able to earn even more.

What is NCC?

Last week, several high-ranking officials - Deputy Prime Minister of Ukraine Volodymyr Kistion and Minister of Energy and Coal Industry Igor Nasalyk - reported on the establishment of the state enterprise National Coal Company (NCC), which all state coal mines will be transferred to. Deputy Energy and Coal Industry Minister Anatoly Korzun at the Open Energy Week 2017 international energy forum said that the merger of state mines within the framework of the National Coal Company will help to balance the work of industry enterprises financially, Energoreforma reported. Korzun also said that the creation of the company will help to increase the industry to the level it deserves. "All the talks around the fact that after the creation of this company many enterprises will be closed and thousands of miners will list the job, this is an absolute populism, no enterprise will be left behind," the deputy minister said.

The source of 112.ua in the Ministry of Energy said that the draft decision of the Cabinet on the establishment of National Coal Company last week was sent for approval by the executive authorities (Ministry of Finance, Ministry of Economic Development and Trade, Ministry of Justice). The document is scheduled to be submitted to the Cabinet next Wednesday (November 8). "It is planned to create state-owned coal mining enterprises on the basis of property of the Open Joint Stock Company - National Coal Company. After the transfer to it, the mines will cease to exist in their current status of legal entities. If everything goes as planned, the NCC should begin work as early as 2018", said a source in the Ministry.

Unofficially in the Ministry they say that the concept of creating a single state company, which all state mines that exist today in the form of separate legal entities and associations could be transferred to, arose in 2016. The idea of creating the NCC was approved at the board of the Ministry in October last year. "Igor Nasalyk, as soon as he became minister, invited specialists in April 2016 and asked the council what to do with the state mines." Back in 2005, all these state mines were preparing for privatization - their corporatization was planned. "In 2006, a political decision was made and the process started and so it turned out that until now the mines have remained in state property and, in fact, have already proved to be of no use to anyone, "the 112.ua source in the Ministry of Energy said.

The Regulation on the NCC establishment, a single company that will manage the state mines, was also contained in the Strategy for the development of the coal mining industry, which the Cabinet of Ministers approved at the end of May 2017. By the way, because of this document, a serious misunderstanding arose between the Ministry and the Independent Trade Union of Miners of Ukraine, which is very wary of the idea of creating NCC.

"Two weeks ago, Minister Igor Nasalyk asked me to agree on the concept of reforming the coal industry as a project (the concept of reforming and developing the coal industry in Ukraine until 2020, which the government issued by No. 733 of May 24). I refused and asked: "Tell me, who will lead the National Coal Company, the creation of which is envisaged by the concept ?," said 112.ua the head of the Confederation of Free Trade Unions of Ukraine, the Independent Trade Union of Miners of Ukraine Mykhailo Volynets.

He said that in a conversation with the minister (Igor Nasalyk) he mentioned the surname of Maxym Fedotov, one of the candidates who in the past allegedly working in the structure of Olexander Yanukovych (the son of ex-president Viktor Yanukovych). "I said to him (the minister) the name of Fedotov, he realized that I was aware, he did not want to lie and ended the conversation," Volynets said. The head of the trade union of miners specified that, according to him, for the post of NCC, in addition to Fedotov, pretends Yevhen Pshenychko.

Volynets said that from the union they wanted to achieve a formal agreement on the creation of a joint NCC, to be able to say that we asked for the establishment of this company. "It will be necessary to cover up those corruption moments that are literally mounted in this company," he said.

What it is necessary for?

33 mines will be transferred to the NCC, as well as Novovolynska mine No. 10, which construction cannot be completed for 27 years. According to the reference book "Energy of Ukraine", now state mines provide 9% of all coal supplies to the Ukrainian market (another 27% of the need is imported, the rest is produced in mines that are privately owned).

A number of state mines have good industrial coal reserves, but there are also mines that have already exhausted their resources, and, according to the source of 112.ua in the Ministry of Energy, they should be closed. Our interlocutor specified that after the creation of the NCC 5-7 mines can be eliminated. "There are enterprises employing 800-1000 people, and they produce 50 tons of coal per day, and the further development of these mines is inadequate because of insufficient reserves. Today, about 50,000 employees work on state mines, told the 112.ua interlocutor in the Ministry, stressing that no person from the liquidated structures will remain without job, but will be employed in other structures and enterprises of the NCC.

It should be noted that, regardless of the available coal reserves, all state mines are now in a deplorable condition. "The productivity of state mines is very low, among them there are those on which coal is mined by hammers, as in the 30s-40s of the last century. There has long been no reserve of equipment - everything has already been plundered and resold three times, " told to  112.ua Mykhailo Volynets.

In connection with the low efficiency of technologies that are used in state-owned mines, the cost of coal production on them is much higher than in private mines. "The cost of producing a ton of coal on state mines is on average 2,750 UAH, and the market price of coal is 2200 UAH / t, that is, the loss is usually 500 UAH per tonne," added Mykhailo Volynets.

In this situation, most state mines do not have enough income from the sale of products, not only to ensure their work, but also to pay salaries. Current debt at the enterprises is already UAH 132 million (with taxes - UAH 206 million). As you know, delays in payments from time to time become the causes of strikes of miners.

Previously, this problem was solved by overlapping losses of state mines through subsidies from the budget. In 2013, were allocated about 13 billion UAH subsidies to state-owned coal enterprises. In 2014 it was planned to give 12 billion UAH, but in reality about 9 billion were allocated. In 2015-2016, budget funds for state support were not stipulated. The refusal to subsidize the state mines was noted in the coalition agreement - the volume of funds should gradually decline until 2018, while they should simultaneously reform the industry and bring it to a normal level of work.

In connection with the outrage and protests that have grown among miners, on March 31, 2016, Verkhovna Rada, according to the budget article "Restructuring of coal enterprises" (a total amount of UAH 350 million) redirected 250 million UAH for subsidies to state masters. In the draft state budget for 2017 under the program of support of state coal-mining enterprises it is provided only 870 million UAH, which, as they say in the Ministry of Energy, is catastrophically small amount. "The lack of the necessary amount of funds for state support of mines is another argument in favor of creating the NCC," the 112.ua source in the Ministry said.

Another problem is the large debt of state and private mines to the state officials. The total debt of state mines exceeds UAH 20 billion. "The plan of measures to create NCC provides developing drafts of relevant legislative acts and implementing other effective measures that will either write off or restructure existing debts to the budget, social funds, etc. It is not excluded that a legislative decision will be made to write off part of the debts," said source of 112.ua in the Ministry of Energy.

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At the same time, according to him, if the NCC will not be created, in the short term about half of the state mines will simply cease to exist - they will be taken away by creditors after the moratorium on bankruptcy is completed. "We have a little more than a year for all of this, because until January 1, 2019, a moratorium on bankruptcy operates, so we need to optimize state mines for a year and at least reach the normal level. Now all state enterprises are unprofitable, except for one - the Nadia mine , but the coal reserves on it remained only for 1-2 years, "a source in the ministry said.

Main problem is thievery

Mykhailo Volynets said that the situation with the state mines could have been different if theft had not been flourishing on them, as it is now. "One of the schemes used on them is the understatement of the coal content in the mountain mass and the overstatement of the ash and water content. In addition, money is being earned when they buy old equipment at a new price, which is also overvalued," the head of the miners' union told 112.ua.

Another scheme of theft in mines, according to Volynets, is an overestimation of the ash level when coal is supplied to mining and processing plants. "For example, at the ash content of 22% it is overestimated two times (and half of the volume of coal is mixed with ash), which makes it possible to steal half the volume of high-quality coal that is sold to other buyers at a price of at least UAH 5,000 per tonne. Let’s count: if, for example, 50 tons of coal are produced per day in one of the Lysychanskvugillia mines, then only one coalmine is stealing at the rate of 125 thousand UAH per day, and a month – it’s almost 4 million UAH. Directors work on corruption schemes, and "shadow leaders" take money, "he says.

It is noteworthy that the Ministry does not deny that such problems exist on state mines, and they are connected with the difficulty of controlling a large number of different enterprises. "The creation of the company will be a blow to inefficient mine managers and corruption schemes, which probably exist due to a certain dependence of local leaders from some people in the field who, for various reasons, surround these enterprises," the 112.ua interlocutor in the Ministry of Energy said.

According to Energoreform book, Deputy Energy and Coal Minister Anatoly Korzun, speaking at the forum, said that it is possible to extract from 15 to 20 million tons of coal per year in state mines. At the same time, in fact, only 5.789 million tons of coal were mined during the whole last year.

Volynets, however, argues that the authorities are not completely sincere, but it is because the real state coal industry is ruled by "shadow leaders", close to the authorities.

"At a meeting with Prime Minister Volodymyr Groysman publicly in the Cabinet of Ministers I said the names of the" shadow leaders "and spoke about them, I went to a government committee that was led by First Deputy Prime Minister Stepan Kubiv, said what is happening in the coal industry. I raised the issue before the Speaker of the Verkhovna Rada, Andriy Parubiy. As a result, the "shadow leaders" remain and continue to rob the industry," said Mykhailo Volynets to 112.ua.

"Shadow leaders" will remain after reform?

In the current situation, the creation of NCC will not lead to fundamental changes in the state coal industry, Volynets believes. The head of the trade union of miners claims that the purpose of creating the company is the centralization of cash flows and optimization. "A company will be created headed by a director who will manage all financial and coal flows centrally, at least 10 thousand people will be dismissed, at least 22 mines will be closed, and infrastructure enterprises will be liquidated. The minister said that only 11 mines will be left as effective ones, "Volynets said.

The head of the trade union of miners is sure that after all, the newly created NCC will also be under the control of the same "shadow leaders" who are working in the industry now.

The 112.ua interlocutor in the Ministry admitted that he also has fears that the oligarchs will try to take control of the newly created NCC, pushing their man to the post of head of the company. "The question with the appointment of the head of the NCC is the most incomprehensible moment. The company is not yet made, and the queue of those wishing to be its leader has already lined up. And honestly, most of these people do not even have a clue what the idea is, what tasks the company should solve. But they are already ready to lead it, and there are fears that unclean people will try to take the company under control, "the 112.ua interlocutor in the Ministry of Energy said.

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