Illegal coal mines will have competitors

The domestic coal industry is experiencing a difficult period in its development. A majority of coal enterprises remain state property and continue to stay afloat only thanks to millions of hryvnias from the state budget. But this can’t last for long. The field needs reforms as much as never before. What reforms should the coal industry expect in the near future? The Minister of Coal Industry Yurii YASHCHENKO spoke about this in his exclusive interview to The Day.

According to your prognosis, when will the coal industry return to its pre-crisis state?

“Today we still observe a slight lag behind the output of coal production, as compared with the amounts of 2009: in the first quarter we had 724,100 tons (7.3 percent), and now we have 441,500 tons (1.5 percent). We managed to improve the production figures by means of balancing the current activities of enterprises and attracting investments. All these measures will help the coal industry to catch up with the production rate of 2009 by the end of the year. We plan to come back to the pre-crisis level beginning with the second quarter of 2011. To make these predictions true, it is necessary to add 3,600,000 tons of coal every year (300,000 tons every month). We understand that this is not an easy task, especially after a record drop in the coal production by 4.6 million tons in 2009. But the ministry plans to successfully accomplish this ambitious task.”

How much funding did the field manage to attract this year? How many investments do you expect in 2011?

“Owing to the state-private partnership in 2010 we attracted 520 million hryvnias.

“You can add 700 million hryvnias of credit resources from banks to this sum. By the end of the year we hope to successfully conclude negotiations with Prominvestbank on allotting 160 million hryvnias. That is banks start addressing the needs of state coalmines. We managed to resume bank crediting in July-August, when financial institutions made sure the fall stopped. Balancing the current production and financial activity of coal enterprises was another important condition for resuming crediting. In the first quarter of 2010 the financial imbalance of coal enterprises constituted 740 million hryvnias, and already in the second quarter it decreased to 182 million hryvnias. Regarding investments for 2011, experience shows: each million tons of coal production growth requires investments in the amount of one billion hryvnias. According to the ministry’s estimates, it is necessary to attract no less than six billion hryvnias every year. There are preliminary agreements on attracting 6-7 billion hryvnias in 2011. In particular, the Chinese Development Bank is ready to invest one billion dollars every year in the development of the coal industry in Ukraine. Within the framework of this cooperation, seven projects on developing domestic mines are being elaborated. At this, 800 million dollars will be allotted for the reconstruction of three mines already by the end of this year.

“In addition, we are holding negotiations with the Russian VTB Bank about opening a line of credit of one billion hryvnias for the technical re-equipment of Ukrainian mines. I hope that the first portion of the funds will come already in October or early December.”

Do you plan to realize projects on methane gas production for these loans?

“Recently a memorandum was signed between the Cabinet of Ministers of Ukraine and the Russian-British TNK-BP on the readiness of this company to invest 100 million dollars in methane gas production at one of mines. Now the ministry is working on other proposals from foreign companies regarding state-private partnership.”

Do you mean the British-Dutch Shell and American Chevron?

“We have been negotiating with other companies as well. At present, several foreign companies have a keen interest in gas methane production in Ukraine. For the development of this sector, it is necessary to invest about 500 million dollars every year. But this is a risky endeavor: it is unknown whether we will find anything after drilling gas boreholes. Therefore potential investors are carefully weighing all the pros and cons before staring actual methane gas production.”

What is the total of the loan portfolio for the sector? Which percentage of the given loans was prolonged?

“The overall debt of state enterprises in the coal industry in all the years of independence constitutes over 11 billion hryvnias (social and pension contributions, utility payments, purchase of material resources, etc.). Now there is a law on renewing debtor’s paying capacity and a moratorium which bans charging this debt from the sector’s enterprises through courts.

“However, the ministry plans to gradually solve the situation with the accumulated debts: by 2010 we want to fully return debts to the Pension Fund in the amount of 2.8 billion hryvnias (two billion were already transferred). Mines with thermal power plants transfer payments for consumed electricity through mutual settlement of accounts.

“The loan portfolio of coal enterprises constitutes 2.5 billion hryvnias. The terms of loans repayment passed for the sum of 668 million hryvnias.”

Are there any problems with the supply of thermal coal to domestic thermal power plants?

“The stockpiles of thermal power plants now have about 3.5 million tons of thermal coal. There is some delay with its supply (230,000 tons), but it is not critical.”

Will you decrease the price for thermal coal, since participants of the market call the state price “non-market” and “subsidized”?

“Today a ton of thermal coal produced by state mines costs 680 hryvnias without VAT. We don’t plan to change it.”

What is the situation with the production of coking coal? Do you think the problem of its constant deficit in Ukraine can be solved?

“The share of state mines which produce coking coal is negligible. To prevent the deficit, it is necessary to intensify the coking coal output. Ukrainian business is not eager to invest in this direction. Therefore, the ministry is looking for other options. China’s proposal to invest money in coking coal extraction is being considered — they want to export it to their country.”

How much thermal and coking coal will be produced in 2011?

“Based on the results of 2010, we plan to produce about 39 million tons of coal, including 10-11 tons of coking coal. Next year state mines should produce about 40 million tons of coal, with coking coal constituting almost a third of the output.”

How much funding does the Ministry of Coal Industry equire to support the field in 2011?

“We asked to allot 10-11 billion hryvnias for the field. It is necessary to spend 6.5 billion hryvnias from this sum to balance the price of the products. The rest should be spent on capital construction and re-equipment of the mine fund, for shutting down and restructuring mines.”

So in 2011 mines will be shut down?

“In Ukraine 120 mines will be officially closed. One should realize that these mines reached the end of their production capacity. The state does not benefit from them. In 2011, about 30 mines of this kind will be closed. For this, it is necessary to allot 2.3 billion hryvnias from the budget.”

When will the privatization of mines start? How will this process be influenced by the new bill on privatization of coal enterprises, which, according to The Day’s information, is actually ready?

“Indeed, at present a new version of the law on privatization of coal industry enterprises has been elaborated. It should solve three main issues in the process of privatization: what should be done with the mines’ debts; how we can guarantee the participation of privatized mines in the energy balance of the country; and how to ensure that all obligations concerning employees are fulfilled by future investors. I hope this law will be adopted by the end of 2010. Already next year we will start offering state mines for privatization.

“Besides, the ministry currently started reforming the organizational structure of mine management because the available model is outdated. Today mines do not bear responsibility for their efficient work as an economic subject, because they do not act as a legal entity. All this leads to mismanagement. That is why it is necessary to reorganize mines into legal entities. With all their infrastructure and concentrating mills, mines will later unite into production unions or state concerns, which will become a kind of branch or representation of the ministry in the regions. A part of the ministry’s authorities will be delegated to these branches (realization of technical policy, coordination of production activity, and controlling purchase prices).”