Shut down coal mines: How Ze-team is going to reform Ukraine's coal industry?

Author : Olena Holubeva

Source : 112 Ukraine

Ukraine’s authorities are changing their approach to the coal industry, as the result more than half of all state mines could be eliminated very soon. However, it seems that the commercial interests of domestic oligarchs would be satisfied as well, who ultimately would gain big benefits
18:15, 27 January 2020

Open source

Ukraine intends to refuse from the thermal power plants till 2050 by increasing the part of the green generation, which will be accompanied by a "gradual reduction of coal generation" through social acceptability. The further developments in this regard are possible, if only the concept of "green" energy transition is approved, a project presented by the team from the Ministry of Energy and Environment, headed by Oleksiy Orzhel, yesterday. That’s why they did not rule out the possibility of reduction of state coal mines, because those mines were unprofitable, as the minister said. Orzhel gave a piece of advice to the children, who are part of families of miners, to look for more interesting and promising directions towards the new professions. According to the minister, there will be no more work left…

Mines are in debts

The reduction of state mines is supported by the project of a conception of coal industry reforming, which recently was represented at the Committee of the Verkhovna Rada on energy and public utilities ( has got a copy of this document). “Out of 33 state mines only 14 are planned to be left. Thus, only half of them will be at service, as Mykhaylo Volynets, the member of the committee, the MP and the chairman of the Independent Union of Miners of Ukraine, said.

However, it is not indicated in the project the exact number of mines, which are planned to be closed. In the section "ways and methods to tackle the problem" is stated the need to identify unpromising and promising enterprises. Thus, the unpromising ones should be eliminated, according to the results of the feasibility study of the inappropriateness of their further functioning. The promising ones should be privatized, or strategic investors should be attracted for them "on the basis of public-private partnerships under concession, long-term lease, and joint activity”. "The state is not able to support unprofitable enterprises of the coal industry due to the difficult situation in the national economy," - the projects reads.

Independent Union of Miners of Ukraine

It should be noted that the state mines of today are at a very dreadful condition. The majority of state-owned coal companies are bankrupted, which continues to exist only because of the government support and a temporary moratorium on property seizure and bankruptcy. Almost all of the assets of these companies are under arrest or in alien.  The accounts payable indicator at the end of the third quarter of 2019 amounted to $ 7.2 million, which is in several times higher than the carrying amount of assets. At the same time, the largest share in the structure of accounts payable is debt for electricity (as of December 1, 2019 was $ 4.3 million).

It is impossible to develop production and to upgrade fixed assets, due to the lack of sources of capital investment. The production of coal in 14 mine faces is carried out with breakers, due to the lack of mining equipment. As a result, the high cost and non-competitive coal production of state-owned coal mines far exceed the market prices, and also it requires continued state support, as the ministry complained. Coal production in the state sector has been declining year by year: in the last 15 years, it has fallen from 24 million tons to 4.1 million tons per year. According to Volynets, the reduction was about 2 million tons last year.

Independent Union of Miners of Ukraine

Besides, Ukraine is steadily increasing its import of coal, and by its individual types, Ukraine has already become a net importer. The import of coal products has increased from 15.6 million tons to 21.4 million tons over the last three years, due to the deficit of domestic energy and coking coal, as the project states. Salary arrears at state-owned mines are rather "chronic" ones. In 2019, the share of the state budget in financing the payroll fund was 60%. However, it only temporarily reduces the degree of tension in the coal regions but does not systematically solve the problem of mines. The amount of state budget expenditures increased from $ 78 million in 2016 to $ 188 million in 2019 in order to support the state coal industry. However, these funds are mainly used to pay off salary arrears and to pay for electricity consumed.


Very interesting scheme

Further, it would be possible to start discussions on whether “should we or should we not" put an end to the state mines, many of which are located in Donetsk and Luhansk regions. Furthermore, for some small towns and settlements, they play the town-forming role. It should be noted that the optimization attempt had already been made in 2017, but it has not been finished yet. No one dared to do so.

It was provided by and then approved by the Concept of Reforming and Developing the Coal Industry for the period up to 2020. "The foreseen optimization of the structure of state-owned coal mining enterprises by the creation of the National Coal Company was not realized and then it was deemed inappropriate," as  the new concept of coal industry reform states.

However, without even agreeing with both sides at the discussion whether "to cut or not to cut the Gordian knot”, it is obvious that the authorities have to act in accordance with the civilized approaches like in European countries. But in our case, there might be a trick. And as always, it seems that it will not do without satisfying the interests of oligarchs.

Recently, on January 14, order on creation of the State Enterprise Ukrvuhillya was issued by the Minister of Energy and Environment. The new structure was created exclusively for coal trading and is an analog of the state-owned enterprise Derzhvuhlepostach, which is subordinate to the Ministry, as Olexiy Orzhel said to the correspondent of at a recent briefing. It was created in 2016 for sale of produced coal at Ukrainian state mines. The focus on creating a replacement is needed in order to cover the debts, leaving them in the old firm, as Mikhail Volynets believes. "Obviously, the minister is creating a structure similar to the Derzhvuhlepostach in order to leave on this organization debt that has appeared because the state mines have not paid for the supplied coal, as well as in order to suspend the debts about $ 40.9 million of the Centerenergo to the Derzhvuhlepostach. Now, this structure is controlled by oligarch Kolomoyskiy, "Volynets told the reporters.

Earlier, journalists found the office of Ihor Kolomoyskiy's firm, which deals with the supply of coal from Russia for the state-owned enterprise Centrenergo. Despite that even officials of the country are aware of the fact of under whose control the Centrenergo really is, but officially the connection between the enterprise and the oligarch has not yet been proven. It was reported that Ihor Kolomoyskiy personally called the current acting CEO of Centrenergo Volodymyr Potapenko "understandable" for himself personally. In addition, Nikopolskiy and Zaporizhskiy ferroalloy plants, controlled by a businessman, receive electricity at a significant discount with a change of management of the Centrenergo.

And, what is so terrible about this? Most of the state mines will be closed anyway…So why should we bother at all? But the problem is the inextricable link between the payments for coal delivered and without exaggerating for the hellish work of Ukrainian miners. As a result of the focus on the creation of a new state-owned company, the Derzhvuhlepostach will not be able to pay off the Lvivvuhol, whose six mines were disconnected from electricity supply in December, which leads to flooding. According to the chairman of the Union of Miners, salary arrears in this organization exceeded already for $ 12.3 million. Miners and families of miners from the South Donbas mine, which has not been producing coal since December 6, will not get paid, as the organization is also unable to pay off their electricity debt: wage arrears reached $ 1.7 million there.

Thus it stays unclear who will pay to the mines and miners in this case.




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