Government begins coal market repartition

On December 15, Vice Premier Yuliya Tymoshenko held another meeting of the government committee in charge of the fuel and energy sector reformat. High on the agenda was the question of “revolutionary” transformations in the coal industry.

Shortly before this, the vice premier, an experienced connoisseur of shadow energy schemes, told Moscow’s Nezavisimaya gazeta: “If a government once musters enough courage to overcome the resistance of shadow dealers and set up normal rules in the economy, the shadow elements will sooner or later join the legal economy and begin doing an equally successful job.”

It is only perhaps up to an expert to make such a bold forecast. Is Ms. Tymoshenko one? Some answer this question in the affirmative. As journalist Oleh Yeltsov wrote in the Freelance Bureau online publication (September 28, 2000), “all her activities as chairperson of the United Energy Systems of Ukraine show that Ukraine’s fuel-and-energy complex ended up in total collapse and mind-boggling muddle through the fault of Ms. Tymoshenko, while her current steps in the office of energy vice premier display Ms. Tymoshenko’s desire to disrupt the schemes by which energy traders like her used to make millions literally out of the air (to be more exact, out of natural gas).”

According to Mykola Obykhod, Deputy Prosecutor General, the unlawful activities of the United Energy Systems of Ukraine resulted in more than $1.1 billion being transferred from this country. As he put it, there is documented evidence that about $100 million of these funds were transferred to the personal accounts of Pavlo Lazarenko. The Prosecutor General’s Office claims these illegal operations were conducted in 1996-1997, when UESU was headed by Yuliya Tymoshenko. According to information of the Swiss law enforcement bodies, during his premiership Mr. Lazarenko received $72 million from Somolli Enterprises. This is also the opinion of the influential newspaper, The Financial Times, which claims that Mr. Lazarenko’s schemes also involved Yuliya Tymoshenko’s structures.

Meanwhile, addressing the coal crisis settlement coordination council a week ago, Ms. Tymoshenko made a number statements which implied that from now on the “mining generals” will not be able to dodge reforms. Reforms also threaten coke chemists, metallurgists, and coal traders chained together in the whole mining and metallurgical complex.

What really strikes one is the pace at which the so-called historic transformations are being drawn up. According to the vice premier, a tentative deadline of December 23 has been set to adopt the concept of the reformation and strategic development of the coal industry. Since the race has already begun, there will in an all probability be no preliminary broad discussion of the planned actions. The coal revolution under Tymoshenko’s colors can be briefly described as follows. All 196 Ukrainian mines are in for new owners. At the moment, each of the mines is going to receive the “certificate of an enterprise,” and since all of them have been divided into four groups (cost-effective, cost-effective in the future, money losing, and such losers that they are subject to inevitable closure), each has a destiny of its own in store. The mines of the two first categories will be corporatized and assisted with an additional emission equal to the investment attracted, or they will be auctioned off against investment commitments. The losing units will be handed over on a noncommercial basis, i.e., completely free of charge, “against business plans.”

Moreover, mines will often be leased out and conceded. The new concept of mine management aims to encourage the “motivation” of managers: a part of the declared profits should be used to stimulate management. Will the mine executives and coal businessmen find among themselves those willing to assume responsibility for the effective and safe work of what are now money losing and fully-subsidized mines, especially those extracting energy-producing coal? To answer this question, the cabinet is going to soon consider as many as three draft resolutions aimed at radically changing the existing system of sales and price formation. In addition, the experience of the ill-fated coke auction seems to have been taken into account in the measures aiming to auction off all the coal and thus prevent the underpriced sales of products and ward off the ensuing demands for government money to maintain the enterprise. But experts point out that in fact the same “partners” will play the role of buyers, so the price of coal, especially for power station needs, will remain largely unchanged.

Ms. Tymoshenko is going to implement one more supposedly transparent form of relationship between the mines and the related structures. To this end, “the purchase of equipment and materials by the mines” will be accompanied by “restraining factors.” In other words, the authorized bank (in all probability, Prominvestbank) will not pay money to the seller unless it is proved with documents that the equipment was acquired on a competitive basis.

All these steps have triggered mixed reactions. Industry experts point out that, even with the current relatively low prices for power-station coal, it is not so easy to find a solvent purchaser. As a result, the “auctionization” (you figure it out; we tried and failed — Ed.) of coal sales can bring prices further down. However, this will also be influenced by the perpetually expanding supply to the Ukrainian market of the comparatively low-cost Russian strip mined coal. How cost effective will the privatized mines be under these conditions? And who will dare to take them over with due account of these factors? But should Ms. Tymoshenko manage to fulfill her plans at least to some extent, the higher prices for power station coal will finally undermine first the Ukrainian energy sector, which will become noncompetitive due to the emergent onslaught of cheap Russian electrical power and then the closely related coal industry.

Chairman of the Donbas Independent Mining Trade Union, Mykola Volynko, commenting on the planned changes in the coal sector, told The Day, “The privatization now being actively pushed through by Ms. Tymoshenko means repartitioning the market in the way she knows only too well. And irrespective of who, Ms. Tymoshenko or somebody else, holds the office of energy vice premier, this person shape the destiny of all the mines and their workforce, i.e., deciding all staff and property redistribution matters. The concurrent purpose of this is to relieve the state of the responsibility for our industry. We categorically oppose haste in all these matters, many of which have not yet been thoroughly and soundly thought out. And how are we going to counter the well- known plans under which Europe is opting for Polish coal and stifling the Ukrainian coal industry? And why do we always speak about mines and coal and forget about the people who extract the latter? Are they protected adequately? Today, too, there are attempts to kick out of enterprises the people who have sacrificed their health to them... This is what we are afraid of. And nobody tries to use the experience of Britain which, while restructuring its coal industry, gave the people their full unemployment pay, not just a survival benefit. Even today, when their mines are in private hands, the state does not leave miners to their own devices and subsidizes the coal through price formation, without evading responsibility for the destiny of miners.”