Experts: the Coal Industry Reform Concept Suggested by the Ministry of Energy Needs Improvements

16 June 2016

The concept of the state target economic program of reforming the coal industry by 2020 developed by the Ministry of Energy and Coal Industry needs to be improved.

Such was the conclusion of the participants in debates “Coal mines in Ukraine: invest or close?” organized by DiXi Group think tank with the support of the International Renaissance Foundation. Journalist Denys Kazanskyi was the moderator of the discussion.

 “A short-term 2- or 3-year program needs to be created so that miners do not live in misery and the industry ensures Ukraine’s energy security. It should be a top priority program that suggests specific measures and specifies responsibility and resources for the implementation thereof. After that, we can talk about what to do with the mines further on”, said Anatolii Korzun, Director of the Coal Industry Department of the Ministry of Energy and Coal Industry.

In response to the question from the special guest Valerii Sniehiriov about whether any new instruments of control over the reform financing will be developed, Mr. Korzun emphasized on the essential openness of his department to proposals on the industry reform. “I am ready to meet with everyone who can make this process more rational”, he said.

The importance of the coal industry for the Ukrainian economy was underlined by Ihor Volchyn, Deputy Scientific Director of the Institute of Coal Energy Technologies of the National Academy of Sciences of Ukraine.

“Ukraine remains a coal-mining country. Coal-fired thermal power plants play a balancing role in the energy system, and we cannot allow reduction in production for the energy and metallurgy.

Financial problems need to be identified by the Ministries to establish strict control taking into account the precedent of the 1990s and more efficient coal mines management in the private sector”, he said. 

 Mykola Cherniavskyi, Head of the Laboratory of Energy-related Environmental Problems of the Institute of Coal Energy Technologies of the National Academy of Sciences of Ukraine, shared an assumption that Ukraine would have to increase the coal share in its energy balance and find a compromise between the Government and the private owners.

“If we reduce gas consumption we’ll have to increase the coal energy share. There will be no other alternative in the next 10, 20, 30 years until we find a way to manage nuclear power blocks...

The future of the coal industry depends on settling the form of ownership problem and the efficiency of these forms of ownership. The cost allowed by DTEK’s mines is 50–70% cheaper than at state-owned mines. In 2013, subventions to state-owned mines amounted a bit more than UAH 13 billion, while DTEK had a profit that year... I believe the war between the Ministry and the private sector should be ended”, said Mr. Cherniavskyi.

 The expert in the coal industry Maksym Nemchynov also emphasized on the problem of efficient production management by the state that can be resolved by means of privatizing all state-owned mines.

“By signing the Paris Climate Change Agreement, Ukraine undertook to give up its coal mining capacities in 20 to 25 years, but it is impossible in the nearest future. At the same time, there should be no state-owned mines because the state is not a good manager. It simply cannot ensure efficient use of resources”, he said.

Anton Yashchenko, Director of Kakha Bendukidze Free Market Centre, suggested his own arguments to support privatization of state-owned mines and pointed out to weaknesses of the Concept proposed by the Ministry of Energy and Coal Industry in terms of selecting undertakings suitable for sale.

“Statistics of the last 5–7 years shows that the state support increased sevenfold. The peak was in 2013 when it reached USD 2 billion (according to the then current rate). But in no way did this influence production — the increase in production was achieved at the expense of the private sector.

All mines must be put up for privatization, and those that won’t be privatized must be closed. Since this process will take about three years, the state will have enough time to settle its social issues, and the private sector to increase its own production to be able to meet the demand.

The Concept proposed by the Ministry of Energy and Coal Industry provides for classifying mines into certain groups — who’s going to do that and how? There’s a risk of relying on subjective factors, and corruption risks. All state-owned mines must be put up for privatization, and those that won’t find its investor must be closed”, said Mr. Yashchenko.

 

In the end, Oleksii Zvolynskyi, Director of the Labor Market Monitoring Center, said that around UAH 500 million will need to be spent by 2020 to implement the human resources restructuring program developed by his Center. Creation of new jobs will cost another UAH 500 million. At the same time, the coal industry lacks clear rules that prevents efficient operation thereof. These rules must be established by the law on the coal market.

Let us remind you that the debates took place within the framework of the Ukrainian Think Tank Development Initiative implemented by the International Renaissance Foundation (IRF) in partnership with the Think Tank Fund (TTF) and funded by the Embassy of Sweden in Ukraine (SIDA).

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