The Council Cabinet of Ukraine approved the list of coal mines that can be given on concession. The list is in the decree No.71 of January 11, 2012 placed on the government’s official website. It comprises 88 mines and mine offices making over 95 percent of the state coal producers. The Ministry of Energy and Coal Mining and central and local authorities are charged to continue work on detecting state fuel-energy complex objects that can be given on concession. The list has three parts. The first one includes 81 objects where modern technologies should be implemented. In the second part there are five objects that are unpromising and should be closed down. Two uncompleted constructions and suspended enterprises that can be finished make the third part.
First Deputy Minister of Energy and Coal Mining of Ukraine Ihor Popovych has previously informed about the plans of the government to gamble on investors. According to Popovych, in 2012 the ministry is going to attract the investments of 3.726 billion hryvnias to develop the coal industry. He thinks that private investments and technical re-equipment of mines will make it possible to increase the coal production up to 26.7 million of tons.
It looks like the state is really going to get rid of the headache it has had for many years which are the mines funded by the central budget. However, will the coal industry be saved from the backlog of problems this way? Are any other options of saving the coal industry possible in this situation? This is what The Day asked the experts about.
Head of the Independent Miners’ Trade Union Mykhailo Volynets told The Day that there are not many successful concessions. He said that at the end of the 1990s and at the beginning of the 21st century there were a lot of examples when mines were lent or given on concession. However, the attempts to revive the coal production mainly resulted in a failure.
Now, according to Volynets, the situation in the sector is very bad: nobody invests in it since everyone thinks that they will manage to get the state property for free. There is a list of objects for concession but there is nothing about concessionaires selection criteria and the condition of the further development of the mines given on concession. Volynets thinks that this way it will be another handout of prizes but not honest search of investors. In his opinion, this approach will hitch in the regions since it is unclear whether the new owners will take care of the social sphere and keep all the working places. According to him, nobody from the government discussed this issue with trade unions since everyone is busy with the gas problem. However, he said, the importance of this problem should not be underestimated. There are a lot of people in the coal regions and they will not find new jobs if dismissed. Volynets conceded that if miners’ opinion is not heard they might go on a strike in spring.
According to Dmytro Itkin, deputy director of the Donetsk branch of the state enterprise “Regional Electric Networks” the departure from the idea of direct privatization of the mines to the concession is more profitable for the concessioners than for the state because they will receive government subsidies as de jure the mines will remain in state ownership. Thus, the budget will provide a share of funds for their maintenance each year. “This idea is focused more on lobbying interests of certain companies and oligarchs who want to get the mines in their private property,” he said. During this time the new owners will upgrade the mines together with the state. Itkin predicts that when it’ll be the time for competition they will purchase those mines cheap.
Volodymyr Saprykin, independent energy industry expert is less critical in evaluating the idea suggested by the Cabinet of Ministers. “Many countries have reformed coal sector through restructuring. One of the restructuring tools has been mines privatization. However, in Ukraine due to a number of circumstances most of state owned mines are unprofitable (with some exceptions). Thus, privatization as such is in principle unrealistic,” he said. The main reason why the mines can’t be sold at a competition even for a dollar is that they have multimillion-dollar debts, which the new owner will have to pay off. “That is why we can say that today the concession is a compromise option for attracting investors and extending the mines exploitation time,” said Saprykin. The main question now is on what conditions will these mines be transferred and how the state and the miners will benefit from it.
The experts interviewed by The Day believe that the coal industry can be developed in some other ways. If the state will write off debts to its mines, the privatization will be quite possible. Already today Chinese investors look at Ukrainian coal industry with interest, understanding what coal reserves it has. Recently, the China state bank China Development Bank has provided JSC Lysychanskvuhillia (it consists of four mines) a long-term loan of 85 million dollars for reconstruction and modernization of the mines. And as a result of a trip of Ukraine’s President Viktor Yanukovych to China in September 2010 an agreement was reached. According to this agreement China declared its willingness to invest 1.03 billion dollars of credit funds in the technical re-equipment of mines. Thus, there are financial resources available.
